01—Abstract
Summary
Summary of the 10-K filed February 21, 2014. Cited figures are marked; the original filing is the authoritative source.
Philip Morris International Inc. (PM) presents its 2013 annual report, detailing a global business focused on manufacturing and selling cigarettes and other tobacco products in markets outside the United States.
The company boasts a strong portfolio of international and local brands, led by Marlboro, which accounts for a significant portion of its shipment volume. PM operates across four key geographic segments: the European Union, Eastern Europe, Middle East & Africa, Asia, and Latin America & Canada, with Asia and the EU being the largest contributors to operating companies income. Strategic initiatives during 2013 included restructuring its Egyptian business for enhanced profitability, entering into a strategic framework with Altria for the commercialization of e-cigarettes and reduced-risk tobacco products, and acquiring significant stakes in distributors and joint ventures in Russia and Algeria to strengthen market presence.
The company also achieved full ownership of its Mexican tobacco business. A key strategic priority highlighted is the development of Reduced-Risk Products (RRPs), with a significant investment in a new manufacturing facility in Italy to produce these next-generation products. Despite a slight decrease in total cigarette shipments, PM maintains a substantial share of the international market, underscoring its established global footprint.
02—Key points
Key Highlights
- Philip Morris International (PM) operates exclusively outside the U.S., selling in over 180 markets with leading market share positions in many.
- The company's brand portfolio is led by Marlboro, contributing approximately 33% of total 2013 shipment volume, supported by other premium and mid-price brands.
- PMI's business is structured into four geographic segments: EU, EEMA, Asia, and Latin America & Canada, with Asia and the EU being the largest contributors to operating income.
- Key strategic transactions in 2013 included a business restructuring in Egypt, a commercialization agreement with Altria for e-cigarettes and reduced-risk products (RRPs), and strategic investments in its Russian distributor and Algerian joint venture.
- A significant focus is placed on developing Reduced-Risk Products (RRPs), with plans to invest €500 million in a new Italian manufacturing facility for RRPs, targeting commercialization by 2016.
- Total cigarette shipments decreased by 5.1% in 2013, and PM's estimated international market share was 15.7%, down slightly from previous years.
- The company faces substantial risks including increasing cigarette taxes, stringent governmental regulations, intense competition, litigation, currency fluctuations, and the challenges of developing and commercializing RRPs.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Philip Morris International Inc. kept $0.11.
- Revenue$80.03B100.0%
- Cost of revenue−$59.22B74.0%
- Gross profit$20.81B26.0%
- Operating costs−$7.29B9.1%
- Operating income$13.52B16.9%
- Interest, other & tax−$4.94B6.2%
- Net income$8.58B10.7%
Where FY2013 revenue went
$80.03B- Other operating costs: $55.66B, 70% of revenue
- Cost of revenue: $10.41B, 13% of revenue
- Net income: $8.58B, 11% of revenue
- R&D: $449.0M, 0.6% of revenue
- Interest, other & tax: $4.94B, 6.2% of revenue
Kept 11% as net incomeR&D $449.0M · 0.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 21, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $80.03B$77.39B | +3.4% |
| Cost of Revenue | $10.41B$10.37B | +0.4% |
| Gross Profit | $20.81B$21.00B | −0.9% |
| R&D Expenses | $449.00M$415.00M | +8.2% |
| Operating Income | $13.52B$13.86B | −2.5% |
| Interest Expense | $1.10B$1.01B | +9.6% |
| Net Income | $8.58B$8.80B | −2.5% |
| EPS (Basic) | $5.26$5.17 | +1.7% |
| EPS (Diluted) | $5.26$5.17 | +1.7% |
| Shares Outstanding (Basic) | 1.62B1.69B | −4.1% |
| Shares Outstanding (Diluted) | 1.62B1.69B | −4.1% |
05—Questions
Frequently Asked Questions
What is Philip Morris International's (PM) core business and geographic focus?
Philip Morris International Inc. (PM) is a holding company engaged in the manufacture and sale of cigarettes and other tobacco products exclusively in markets outside the United States. Its operations are organized into four geographic segments: European Union (EU), Eastern Europe, Middle East & Africa (EEMA), Asia, and Latin America & Canada.
What were the significant business developments for PMI in 2013?
In 2013, PMI undertook several strategic initiatives, including restructuring its Egyptian operations, forming a strategic framework with Altria for e-cigarette and reduced-risk product commercialization, acquiring a stake in its Russian distributor (Megapolis Distribution BV), and increasing its economic interest in an Algerian joint venture (STAEM). The company also achieved 100% ownership of its Mexican tobacco business.
What is Philip Morris International's strategy regarding Reduced-Risk Products (RRPs)?
PMI is making a significant strategic push into Reduced-Risk Products (RRPs), aiming to develop, assess, and commercialize products with the potential to reduce the risk of smoking-related diseases compared to traditional cigarettes. The company announced a substantial investment of up to €500 million to build its first EU manufacturing facility for RRPs in Italy, with production capacity expected by 2016. This indicates a long-term commitment to diversifying its product portfolio beyond traditional cigarettes.
What are the major risks facing Philip Morris International as outlined in the filing?
PMI faces significant risks including: increased cigarette taxes and duties globally, stringent government regulations driven by initiatives like the WHO's Framework Convention on Tobacco Control (FCTC), intense competition, ongoing tobacco-related litigation with potentially large damage claims, currency exchange rate volatility impacting reported earnings, and the uncertainty surrounding the successful development and regulatory approval of Reduced-Risk Products (RRPs).
06—Continue