PMI_2014AR_CompleteAnnualReport

2014 Annual Report

Billion Cigarettes Shipped, down by 2.8%?

856.0

Billion

Net Revenues,* up by 2.0%??

$29.8

Billion Adjusted OCI,

flat ??

$12.6

Adjusted

Diluted EPS, up by 7.8%???

$5.02

2014: A Successful Investment Year

1We aimed to address specific challenges in

key markets, such as Italy, Japan and the

Philippines, while also investing in a number

of strategic initiatives, including the pilot

launches of our Reduced-Risk Product (1)

iQOS and the roll-out of the new Marlboro

2.0 Architecture (both featured later in this

Annual Report) as well as the optimization

of our global manufacturing footprint. In

addition, we faced an operating environment

of continued macro-economic weakness and

an unprecedented currency headwind.

Within this context, we delivered a

solid currency-neutral performance in 2014,

achieving adjusted diluted earnings per

share (EPS) growth of 7.8%. This result

exceeded the 6.5% to 7.5% currency-neutral

guidance that we provided last November,

due mainly to better-than-expected per-

formances in the European Union (EU)

and Eastern Europe, Middle East & Africa

(EEMA) Regions. In addition, we made

very substantial progress in addressing our

market-specific challenges and successfully

executed our strategic initiatives.

2014 Results

Cigarette volume of 856.0 billion units

in 2014 was down by 2.8%, excluding

acquisitions, versus the prior year. The

decline primarily reflects the impact of lower

cigarette industry volume in all Regions

and unfavorable inventory movements,

particularly in Asia, partially offset by market

share growth in the EU, EEMA and Latin

America & Canada (LA&C) Regions.

Reported net revenues, excluding

excise taxes, of $29.8 billion declined by

4.6% versus 2013. Excluding currency

and acquisitions, net revenues grew by

2.0%. Adverse volume/mix, due mainly to

total industry volume declines, eroded a

significant portion of our favorable pricing

variance, which at $1.9 billion was in line

with our historical average.

Adjusted Operating Companies Income

(OCI) of $12.6 billion declined by 10.5%

versus 2013. Excluding currency and

acquisitions, adjusted OCI was flat.

We exceeded our productivity target of $300 million last year. Both manufacturing and procurement-related productivity savings helped to partially offset the impact of higher leaf and clove prices on our manufacturing costs. In 2015, we anticipate that our productivity and cost-savings programs, combined with savings associated with the manufacturing footprint restructuring implemented last year, should result in a total company cost-base increase, excluding RRPs and currency, of approximately 1%. Adjusted diluted EPS of $5.02 declined by 7.0% versus 2013, with currency repre-senting a considerable headwind of $0.80 per share. Excluding currency, adjusted diluted EPS increased by 7.8%. Free cash flow of $6.6 billion declined by 26.3% versus 2013. Excluding currency, free cash flow was down by 7.9%, notably due to an increase in working capital require-ments (largely due to the timing of excise payments) and higher cash payments related to restructuring costs. Our market share performance in 2014 was strong despite significant price competition in several countries, notably Australia and the Philippines. We registered a growing or stable share in 19 of our top-30 OCI markets. Importantly, we stabilized our share in Japan, which augurs well for 2015. Total PMI share, excluding China and the U.S., grew by 0.3 percentage points to 28.6%, with the highest-ever share progression in the EU Region, up by 1.0 percentage point, as well as increases in the LA&C and EEMA Regions, up by 0.4 and 0.3 percentage points, respectively. Overall, we continued to effectively manage the delicate balance between share and OCI growth within the context of a difficult operating environment. The strong market share results were driven by our robust brand portfolio, led by Marlboro . In 2014, the brand gained 0.3 share points in both the EU and EEMA Regions, while it held share in the Asia and LA&C Regions. This impressive overall performance was driven by the highly successful initial roll-out of the 2.0 Architecture, a continued stream of product innovation and the further expansion of the Be Marlboro global marketing campaign.“Although we anticipated that 2014 would be a particularly difficult and complex year for PMI, our performance in

several critical areas of the business was extremely positive.”Louis C. Camilleri Chairman of the Board

André Calantzopoulos Chief Executive Officer Dear Shareholder,

(1)Reduced-Risk Products (RRPs) is the term the

company uses to refer to products with the poten-

tial to reduce individual risk and population harm in

comparison to smoking combustible cigarettes.

Our stable of other key international brands also contributed to market share strength in 2014. Of particular note was the continued strong performance of above-premium Parliament, whose volume grew

by 5.6% versus 2013. Chesterfield also performed exceptionally well, with volume growth of 22.6% over the same period. This growth was driven by the EU Region, where Chesterfield now ranks as the third-largest cigarette industry brand by volume, behind Marlboro and L&M.

In U.S. dollar terms, our total share-holder return (TSR) for 2014 of -2.1% trailed that of our Tobacco Peers (15.2%), the S&P 500 (13.7%) and our Compensation Survey Group (4.5%). In U.S. dollar terms, our TSR since the spin-off in 2008 through December 31, 2014, of 116.1% …… 此处隐藏：37985字，全部文档内容请下载后查看。喜欢就下载吧 ……