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Why Philip Morris’s 1Q16 Market Share Declined in Asia

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Asia region’s 1Q16 revenue

Net revenue for Philip Morris’s (PM) Asia region decreased 8.7% to ~$2 billion in 1Q16. This compares to $2.2 billion in 1Q15. The decrease was primarily due to an unfavorable currency impact of ~$0.2 billion. Excluding the negative impact of currencies, net revenue decreased by 1.7% in 1Q16.

The decrease was primarily due to unfavorable volume mix of $46 million, principally in Australia and Indonesia. This reflected a lower total cigarette market and continuing down-trading. This was partially offset by Korea reflecting a favorable comparison with 1Q15, and the Philippines, driven by Marlboro.

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Operating income

The Asia region’s adjusted and reported operating income decreased 16.7% to $0.8 billion in 1Q16. This compares to $0.9 billion in 1Q15. The decrease in reported operating income was primarily due to an unfavorable volume mix of $88 million and higher costs. This was mainly in Indonesia and Japan and related to the commercialization of iQOS.

Shipment volume decline

Philip Morris’s Asia shipment volume decreased 7% to 65.2 billion units. This was mainly due to Indonesia’s soft economy and the impact of price increases. PM’s total Asia market share declined by 1.3 points to 34.1%, primarily due to share loss in machine-made kretek cigarettes. Total market share of Hand-Rolled Kretek decreased 0.9% due to competitors’ plus-4 cigarette offers and discounted product offerings.

For British American Tobacco (BTI), volume and market share improved in Indonesia, driven by Dunhill. Imperial Tobacco’s (ITYBY) West brand underpinned the positive cigarette share in Japan. Vector Group (VGR) and Reynolds American (RAI) don’t have a presence in the United States.

Philip Morris continues to invest in its pipeline of innovation in the machine-made kretek segment and HeatSticks. The estimated national market share of Marlboro HeatSticks in the quarter was 0.8%. PM also nationalized the roll-out of Parliament Crystal Blast in March.

PM makes up 1.6% of the iShares Global 100 ETF (IOO).[1. updated April 20, 2016]

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