Philip Morris Earnings Call NUGGETS: Cautiously Optimistic with EU, Philippines Market Dynamics
Cautiously Optimistic with EU
David Adelman – Morgan Stanley: Two things I wanted to ask you. First, in the EU, do you think that you can maintain on a local currency basis the overall profitability of the business for the foreseeable future if volume declines persist that the above trend rates, maybe not the rate in the second quarter but at higher than historical rates of decline?
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Hermann Waldemer – CFO: Well, I’d say for this year – I mean, for the second half we expect a similar decline but at the same time we continue to be cautiously optimistic to achieve low single digit OCI growth excluding currency nevertheless. In the EU region in years before where we had similar decline rates, we had similar results. Yes, we see continued market declines there, but they are also talking for this year, also several positives in there. In Italy there was still a potential increase looming in September that has been called off, postponed to next year, but announcement happens until September of 2013 but it’s not going to happen this year. In Spain the VAT increased 3% on all growth is being compensated for cigarette by (indiscernible) decrease that’s good news too of course. In France some sort of price increase is going to come in the remainder of the year, and despite this economic trouble in the entire region the Marlboro share is actually up. So overall yes I think we can do that, we can still achieve low single digit OCI growth also in the EU.
David Adelman – Morgan Stanley: Second question Hermann, can you just update us all on the status of the potential excise tax increase in the Philippines and the potential for fairly substantial duty increase potentially in the GCC countries?
Hermann Waldemer – CFO: Philippines first, the situation there is that the House of Representatives has passed a bill with pretty substantial disruptive excise increases for 2013. There after even in that bill the positive is that it takes a multiyear approach, but there is for now the House of Representatives, the legislative processes by far are not being closed. After the summer recess first the Senate is expected to weigh in on the question, then should there be disagreement between Senate and House of Representatives, then it goes into the so called bicameral committee. So, what I am telling you here is, there is more discussions to come in the third and in the fourth quarter. Then on GCC, while there is a discussion going on, that discussion we’ve had for many years also in the past, it’s still an open question, and we don’t have an update to that one, it could be seen for the remainder of the year.
Philippines Market Dynamics
Bonnie Herzog – Wells Fargo Securities: Just a follow-up the Philippines. Thanks for the update on the tax situation, which is helpful, but could you provide just a little more color on the current market dynamics just in terms of the market declining there, what’s going on and how you expect this to evolve as the year unfolds and into next year?
Hermann Waldemer – CFO: First of all, let me start with the economy, we see that the economic outlook in the Philippines, which is actually brilliant. I mean the GDP, the last number I saw, I believe there was some quarter one number, up 6.4%, with an inflation figures in May little less than 3%, remittances of Filipinos working abroad up substantially in one month, that’s about an amount of $1.7 billion coming to the country. Therefore, I mean, in terms of consumer environment, that’s actually pretty good. That translates now in a total market. Therefore, the full year we would expect slight growth. So, I would say the full year market at 100 billion cigarettes. Last year was 97.5 billion roughly. The slight increase therefore in the total market despite the price increase as you know that was there. In terms of share, yes, there we lost a bit of share and we lost that share essentially to some local companies there which – let me put it this way, sells at surprisingly low prices.
Bonnie Herzog – Wells Fargo Securities: Then just a second question on your Be Marlboro campaign. Could you give us just further details on the rollout and then maybe a little more color on there are some key markets where this campaign has been having a positive impact on Marlboro?
Hermann Waldemer – CFO: First of all, of course, where it’s started is in the German market where it has been doing tremendously well, continues to do tremendously well. I mean, it is – as you know, it is the continuation at the end of the day and the translation into modern values of what also the Marlboro campaign, the (indiscernible) campaign stood for. So, it’s receiving excellent feedback, continues to receive excellent consumer feedback in the German market. In adaptations you will find it in more and more markets around the world. It’s not always going to be exactly the same what you see in Germany but it’s the same idea, the same philosophy behind and we will roll it out from there it has started in some Latin American markets and it will go further. It is the new world wide campaign.