Philip Morris International Inc. Reports 2019 Fourth-Quarter & Full-Year Results

2019 Full-Year Reported Diluted EPS of $4.61 vs. $5.08 in 2018, Reflecting Currency-Neutral Like-For-Like Adjusted Diluted EPS Growth of 9.9%; Provides 2020 Earnings Per Share Forecast

NEW YORK–(BUSINESS WIRE)–Regulatory News:

Philip Morris International Inc. (NYSE: PM) today announces its 2019 fourth-quarter and full-year results. Comparisons presented in this press release on a “like-for-like” basis reflect pro forma 2018 results, which have been adjusted for the deconsolidation of PMI’s Canadian subsidiary, Rothmans, Benson & Hedges, Inc. (RBH), effective March 22, 2019 (the date of deconsolidation). In addition, reflecting the deconsolidation, PMI’s total market share has been restated for previous periods.

2019 FULL-YEAR & FOURTH-QUARTER HIGHLIGHTS

2019 Full-Year

• Reported diluted EPS of $4.61, down by 9.3%; down by 6.7%, excluding currency
• Adjusted diluted EPS of $5.19, up by 1.8%; up by 9.9% on a like-for-like basis, excluding unfavorable currency of $0.13 per share
• Cigarette and heated tobacco unit shipment volume down by 2.0%, reflecting cigarette shipment volume down by 4.5% and heated tobacco unit shipment volume up by 44.2% (to 59.7 billion units); down by 1.4% on a like-for-like basis
• Market share of heated tobacco units in IQOS markets, excluding the U.S., up by 1.4 points to 5.0%
• Net revenues up by 0.6%; up by 6.4% on a like-for-like basis, excluding currency
• Operating income down by 7.4%; down by 4.9%, excluding currency
• Adjusted operating income up by 11.2% on a like-for-like basis, excluding currency
• Adjusted operating income margin up by 1.7 points to 39.2% on a like-for-like basis, excluding currency
• Regular quarterly dividend increase of 2.6% to an annualized rate of $4.68 per common share
• Total IQOS users at year-end estimated at 13.6 million, of which 9.7 million have stopped smoking and switched to IQOS
• IQOS introduced for sale in the U.S. following its marketing order authorization by the U.S. Food and Drug Administration
• New IQOS 3 DUO device introduced in IQOS markets globally, excluding the U.S.

2019 Fourth-Quarter

• Reported diluted EPS of $1.04, down by 15.4%; also down by 15.4%, excluding currency
• Adjusted diluted EPS of $1.22, down by 2.4%; up by 4.3% on a like-for-like basis, excluding currency
• Cigarette and heated tobacco unit shipment volume down by 5.0%, reflecting cigarette shipment volume down by 8.0% and heated tobacco unit shipment volume up by 40.7% (to 17.1 billion units); down by 4.4% on a like-for-like basis
• Market share of heated tobacco units in IQOS markets, excluding the U.S., up by 1.7 points to 5.5%
• Asset impairment and exit costs of approximately $0.20 per share, principally related to a plant closure in Germany as part of global manufacturing infrastructure optimization
• Net revenues up by 2.9%; up by 6.3% on a like-for-like basis, excluding currency
• Operating income down by 7.3%; down by 8.3%, excluding currency
• Adjusted operating income up by 11.9% on a like-for-like basis, excluding currency
• Adjusted operating income margin up by 1.8 points to 36.7% on a like-for-like basis, excluding currency

“2019 marked a year of strong underlying business performance for PMI, driven by broad-based growth for IQOS and solid pricing for our combustible tobacco portfolio, with like-for-like adjusted diluted EPS up by 9.9%, excluding currency,” said André Calantzopoulos, Chief Executive Officer.

“We continue to make significant progress in the transformation of our business, with smoke-free products now accounting for 8% of shipment volume and nearly one-fifth of net revenues, while further demonstrating our ability to maintain combustible tobacco leadership internationally, as evidenced by Marlboro’s full-year cigarette share of 10% — an all-time high.”

“Although we anticipate a few temporary headwinds, notably in Indonesia, we enter 2020 with favorable momentum, and expect to deliver like-for-like currency-neutral net revenue and adjusted diluted EPS growth this year consistent with our 2019 to 2021 compound annual growth targets of at least 5% and 8%, as well as further margin expansion.”

2020 FULL-YEAR FORECAST

Reported diluted earnings per share forecast to be at least $5.50, at prevailing exchange rates, representing a projected increase of at least 19% versus reported diluted earnings per share of $4.61 in 2019.

• Excluding an unfavorable currency impact, at prevailing exchange rates, of approximately $0.04 per share, this forecast represents a projected increase of at least 8% versus pro forma adjusted diluted earnings per share of $5.13 in 2019, as detailed in the above table.

2020 Full-Year Forecast Assumptions

This forecast assumes:

• An estimated total international industry volume decline, excluding China and the U.S., of approximately 3% to 4%, partly reflecting the impact of an above-inflation excise tax increase in Indonesia (following no increase in 2019) and further out-switching to the cigarillo category in Japan, which together account for approximately 100 basis points of the decline;
• A total cigarette and heated tobacco unit shipment volume decline for PMI of approximately 2.5% to 3.5% on a like-for-like basis, partly reflecting the same factors as noted above for the total international industry volume decline;
• A full-year heated tobacco unit shipment volume that keeps PMI well on-track to reach its 2021 target of 90 to 100 billion units;
• Currency-neutral net revenue growth, on a like-for-like basis, of approximately 5%;
• An increase in full-year currency-neutral, like-for-like adjusted operating income margin of at least 150 basis points versus 2019, partly reflecting cost efficiencies that fully offset incremental net RRP investment;
• Operating cash flow of approximately $10.5 billion, subject to year-end working capital requirements and currency movements;
• Capital expenditures of approximately $1.0 billion;
• An effective tax rate of approximately 23.0%; and
• No share repurchases.

This forecast excludes the impact of any future acquisitions, unanticipated asset impairment and exit cost charges, future changes in currency exchange rates, further developments related to the U.S. Tax Cuts and Jobs Act, further developments pertaining to the judgment in the two Québec Class Action lawsuits and the Companies’ Creditors Arrangement Act (CCAA) protection granted to RBH, and any unusual events.

Factors described in the Forward-Looking and Cautionary Statements section of this release represent continuing risks to these projections.

Global Collaboration Agreement with KT&G

On January 29, 2020, PMI announced a global collaboration agreement with the leading tobacco and nicotine company in South Korea, KT&G, to commercialize KT&G’s smoke-free products outside of the country. This collaboration serves to accelerate the achievement of PMI’s vision of a smoke-free future, by offering adult smokers a broader choice of smoke-free alternatives to cigarettes.

The agreement, which will run for an initial period of three years, allows PMI to distribute current KT&G smoke-free products, and their evolutions, on an exclusive basis, and does not restrict PMI from distributing its own or third-party products. KT&G’s smoke-free product portfolio includes heat-not-burn tobacco products (e.g., Lil Mini and Lil Plus), hybrid technologies that combine heat-not-burn tobacco and e-vapor technologies (e.g., Lil Hybrid), and e-vapor products (e.g., Lil Vapor).

Products sold under the agreement will be subject to careful assessment to ensure they meet the regulatory requirements in the markets where they are launched, as well as PMI’s high standards of quality and scientific substantiation of their harm reduction potential. PMI and KT&G will seek any necessary regulatory approvals that may be required on a market-by-market basis.

PMI will be responsible for the commercialization of smoke-free products supplied under the agreement. The agreement does not pertain to the South Korean market or combustible products. There are no current plans to commercialize KT&G products in the U.S.

Conference Call

A conference call, hosted by André Calantzopoulos, Chief Executive Officer, and Martin King, Chief Financial Officer, will be webcast at 9:00 a.m., Eastern Time, on February 6, 2020. Access is at www.pmi.com/2019Q4earnings. The audio webcast may also be accessed on iOS or Android devices by downloading PMI’s free Investor Relations Mobile Application at www.pmi.com/irapp.

CONSOLIDATED SHIPMENT VOLUME & MARKET SHARE

Full-Year

Estimated international industry cigarette and heated tobacco unit volume, excluding China and the U.S., of 2.7 trillion, decreased by 2.0%, due to the EU, EE, S&SA, EA&A and LA&C, as described in the Regional sections below.

PMI’s total shipment volume decreased by 2.0%, or by 1.4% on a like-for-like basis, due to:

• Middle East & Africa, primarily reflecting lower cigarette shipment volume, notably in Turkey, partly offset by Egypt and Saudi Arabia, and lower heated tobacco unit shipment volume in PMI Duty Free;
• South & Southeast Asia, reflecting lower cigarette shipment volume, primarily in Indonesia, Pakistan and the Philippines, partly offset by Thailand;
• East Asia & Australia, primarily reflecting lower cigarette shipment volume in Japan and lower cigarette and heated tobacco unit shipment volume in Korea, partly offset by higher heated tobacco unit shipment volume in Japan; and
• Latin America & Canada, reflecting lower cigarette shipment volume, principally in Argentina, Canada (primarily due to the impact of the deconsolidation of RBH) and Venezuela. On a like-for-like basis, PMI’s total shipment volume in the Region decreased by 5.2%;

partly offset by

• the EU, reflecting higher heated tobacco unit shipment volume across the Region, notably in Italy, partly offset by lower cigarette shipment volume, primarily in France, Germany and Italy; and
• Eastern Europe, reflecting higher heated tobacco unit shipment volume across the Region, notably in Kazakhstan, Russia and Ukraine, partly offset by lower cigarette shipment volume, primarily in Russia and Ukraine.

Impact of Inventory Movements

On a like-for-like basis, excluding the net favorable impact of estimated distributor inventory movements of approximately 1.1 billion units, PMI’s total in-market sales declined by 1.5%, due to a 3.7% decline of cigarettes, partly offset by a 35.3% increase in heated tobacco units.

The net favorable impact of estimated distributor inventory movements of approximately 1.1 billion units reflected a 2.7 billion favorable impact from heated tobacco units (driven primarily by Japan, mainly reflecting a favorable comparison with 2018 in which IQOS consumable inventories were reduced, partly offset by PMI Duty Free), partially offset by a 1.6 billion unfavorable impact from cigarettes (due primarily to Japan, North Africa and Thailand, partly offset by the EU Region and Saudi Arabia).

Fourth-Quarter

PMI’s total shipment volume decreased by 5.0%, or by 4.4% on a like-for-like basis, principally due to:

• the EU, reflecting lower cigarette shipment volume, primarily in France, Germany and Italy, partly offset by higher heated tobacco unit shipment volume across the Region, notably in Italy;
• Middle East & Africa, reflecting lower cigarette shipment volume, notably in Turkey, partly offset by Saudi Arabia;
• South & Southeast Asia, reflecting lower cigarette shipment volume, primarily in Indonesia, Pakistan and the Philippines, partly offset by Thailand;
• East Asia & Australia, reflecting lower cigarette shipment volume, notably in Japan, as well as lower heated tobacco unit shipment volume in Korea, partly offset by higher heated tobacco unit shipment volume in Japan; and
• Latin America & Canada, reflecting lower cigarette shipment volume, primarily in Argentina and Canada (mainly due to the impact of the deconsolidation of RBH). On a like-for-like basis, PMI’s total shipment volume in the Region decreased by 5.2%;

partly offset by

• Eastern Europe, reflecting higher heated tobacco unit shipment volume across the Region, notably in Kazakhstan, Russia and Ukraine, partly offset by lower cigarette shipment volume, mainly in Russia and Ukraine.

Impact of Inventory Movements

On a like-for-like basis, excluding the net unfavorable impact of estimated distributor inventory movements of approximately 2.5 billion units, PMI’s total in-market sales declined by 3.1%, due to a 6.0% decline of cigarettes, partly offset by a 44.7% increase in heated tobacco units.

The net unfavorable impact of estimated distributor inventory movements of approximately 2.5 billion units reflected a 2.3 billion impact from cigarettes, due mainly to the EU Region, Japan and North Africa.

PMI Shipment Volume by Brand

Full-Year

PMI’s cigarette shipment volume of the following brands decreased:

• Marlboro, mainly due to Italy and Japan, partly reflecting the impact of out-switching to heated tobacco units, as well as France, partially offset by the Philippines, Saudi Arabia and Turkey;
• Chesterfield, mainly due to Argentina, Italy, Russia and Venezuela, partly offset by Brazil;
• Philip Morris, notably due to Argentina, partly offset by Indonesia and Russia;
• Parliament, mainly due to Japan, Korea and Russia;
• Sampoerna A in Indonesia, mainly reflecting the impact of retail price increases resulting in widened price gaps with competitors’ products;
• Bond Street, mainly due to Russia and Ukraine;
• Lark, mainly due to Japan and Turkey;
• Fortune in the Philippines, mainly reflecting up-trading to Marlboro resulting from narrowed price gaps with the below premium price segment; and
• “Others,” notably due to: the impact of the deconsolidation of RBH in Canada; mid-price Sampoerna U in Indonesia, partly reflecting the impact of above-inflation retail price increases; and low-price brands, notably Morven in Pakistan and Next/Dubliss in Russia, partly offset by Jackpot in the Philippines.

The increase in PMI’s heated tobacco unit shipment volume was mainly driven by: the EU (notably Italy and Poland), Eastern Europe (notably Kazakhstan, Russia and Ukraine) and Japan, partly offset by Korea and PMI Duty Free.

PMI’s cigarette shipment volume of the following brands increased:

• L&M, mainly driven by Egypt and Thailand, partly offset by Russia and Turkey; and
• Dji Sam Soe in Indonesia, driven by the strong performance of the DSS Magnum Mild 16 variant and the introduction of 20s and 50s variants.

International Share of Market

PMI’s total international market share (excluding China and the U.S.), defined as PMI’s cigarette and heated tobacco unit sales volume as a percentage of total industry cigarette and heated tobacco unit sales volume, increased by 0.1 point to 28.4%, reflecting:

• Total international heated tobacco unit market share of 2.2%, up by 0.6 points; and
• Total international cigarette market share of 26.2%, down by 0.5 points.

PMI’s total international cigarette market share, defined as PMI’s cigarette sales volume as a percentage of total industry cigarette sales volume, was down by 0.3 points to 26.9%, mainly reflecting: out-switching to heated tobacco units, notably in the EU and Japan; and lower cigarette market share, notably in Argentina, Indonesia, Korea and Turkey.

In 2019, PMI owned six of the world’s top 15 international cigarette brands, with international cigarette market shares as follows: Marlboro, 10.0%; L&M, 3.5%; Chesterfield, 2.2%; Philip Morris, 1.9%; Parliament, 1.5%; and Bond Street, 1.1%.

Fourth-Quarter

PMI’s cigarette shipment volume of the following brands decreased:

• Marlboro, mainly due to Italy and Japan, partly reflecting the impact of out-switching to heated tobacco units, as well as France, the GCC and Turkey, partially offset by PMI Duty Free;
• Chesterfield, mainly due to Argentina, Italy and Turkey, partly offset by Brazil;
• Philip Morris, mainly due to Argentina and Russia, partly offset by Indonesia;
• Parliament, mainly due to Russia and Turkey;
• Sampoerna A in Indonesia, mainly reflecting the same factor as in the full year;
• Bond Street, mainly due to Russia;
• Lark, mainly due to Japan and Turkey;
• Fortune in the Philippines, mainly reflecting the same factor as in the full year; and
• “Others,” notably due to: the impact of the deconsolidation of RBH in Canada; mid-price Sampoerna U in Indonesia, partly reflecting the same factor as in the full year; and low-price Morven in Pakistan.

The increase in PMI’s heated tobacco unit shipment volume was mainly driven by the EU (notably Italy and Poland), Eastern Europe (notably Kazakhstan, Russia and Ukraine) and Japan, partly offset by Korea.

PMI’s cigarette shipment volume of the following brands increased:

• L&M, mainly driven by Egypt and Thailand, partly offset by Germany and Turkey; and
• Dji Sam Soe in Indonesia, driven by the same factors as in the full year.

International Share of Market

PMI’s total international market share (excluding China and the U.S.) decreased by 0.2 points to 28.4%, reflecting:

• Total international cigarette market share of 25.9%, down by 1.1 point; and
• Total international heated tobacco unit market share of 2.4%, up by 0.8 points.

PMI’s total international cigarette market share was down by 0.9 points to 26.7%, mainly reflecting: out-switching to heated tobacco units, notably in the EU Region and Russia; and lower cigarette market share, notably in Argentina, Indonesia, Korea and Turkey.

CONSOLIDATED FINANCIAL SUMMARY

Full-Year

Net revenues, excluding unfavorable currency, increased by 3.8%, mainly reflecting: a favorable pricing variance, notably in Germany, Indonesia, Japan, the Philippines and Turkey; and favorable volume/mix, mainly driven by heated tobacco unit and IQOS device volume in the EU and Russia, and heated tobacco unit volume in Japan, partly offset by unfavorable volume/mix of cigarettes, notably in Australia, the EU, Indonesia, Japan and Russia, unfavorable heated tobacco unit volume in PMI Duty Free, and unfavorable IQOS device volume in Japan and Korea. The currency-neutral growth in net revenues of 3.8% came despite the unfavorable impact of $763 million, shown in “Cost/Other,” predominantly resulting from the deconsolidation of RBH.

Contacts

Investor Relations:

New York: +1 (917) 663 2233

Lausanne: +41 (0)58 242 4666

InvestorRelations@pmi.com

Media:

Lausanne: +41 (0)58 242 4500

Iro.Antoniadou@pmi.com

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