East Asia & Australia.
Japan 🇯🇵, South Korea 🇰🇷, China 🇨🇳, Malaysia 🇲🇾, Singapore, and Australia 🇦🇺 make up PMI’s EA&A market. EA&A accounts for 16% of PMI’s revenue and operating income.
EA&A revenue and operating income are each up 20% and 13%, respectively, from 2016 through 2022. Smoke-free revenue now accounts for 58% of all revenue in this market. And heated tobacco accounts for 48% of volumes there. Total volumes are flat from 2016 through 2022.
Prevalence in EA&A is high:
Japan: ~20% (25 million smokers).
South Korea: ~20% (10 million).
China: ~25% (350 million — though this market is controlled almost exclusively by a state-owned company).
Singapore: ~16% (.86 million).
Australia: ~11% (2.75 million).
Despite strong e-cigarette adoption in EA&A, which has helped volumes hold steady over the years, PMI’s IQOS products have faced stiff competition from other e-cig companies, putting pressure on prices.
And regarding PMI’s business in Australia:
If we take a step back from the United States and look to Australia, we can get a better sense for how well smoking rates hold up in the face of extreme pricing and cost relative to income. The average Australian smoker burns through 13 cigarettes per day compared to 14 per day in the U.S. A pack of 20 cigarettes in Australia costs $35 (more than four times the average price in the U.S.). It’s almost three times as expensive in terms of cost relative to income to be a smoker in Australia than it is in New York (smoking costs almost 12% of the median Australian household income compared to over 4.5% in New York). And yet, over 11% of Australians still smoke, which is higher than in California where cigarettes are a little over 25% the price and where smoking is over three times more affordable. While Australia has succeeded in using annual price hikes as high as 12.5% to drive its smoking rate down from 25% in 1991 to under 12% today, the effect of price increases on prevalence reduction has stalled over the last few years. Australians are quitting at much lower rates these days despite continued hikes on already all-time-high cigarette prices.
South & Southeast Asia.
India 🇮🇳, Indonesia 🇮🇩, the Philippines 🇵🇭, Bangladesh 🇧🇩, Thailand 🇹🇭, and Pakistan 🇵🇰 are among some of the countries that make up PMI’s S&SEA market. S&SEA accounts for 14% of PMI’s revenue and 12% of its operating income.
From 2016 through 2022, while S&SEA volumes have dropped 22%, revenue has been flat and operating income is down just 1%. PMI’s smoke-free products have almost no presence in this market. That means that the pricing power of combustibles alone has kept PMI’s revenue and profits afloat there.
Prevalence in S&SEA is higher than it is in EA&A:
India: ~27% (378 million smokers).
Indonesia: ~38% (103 million).
Philippines: ~24% (27 million).
Bangladesh: ~39% (65 million).
Thailand: ~22% (15 million).
Pakistan: ~20% (46 million).
Because PMI sells its products in local currencies, it gets burned when it converts those weaker currencies into the stronger U.S. dollar. That’s why operating income decreased from 2021 to 2022. In 2019, PMI jacked up prices in S&SEA while volumes held steady, generating significant operating income. The 2020 pandemic drove a steep drop in volumes which have been flat since then.
S&SEA is very different from its EA&A counterpart. While EA&A boasts the highest proportion of smoke-free revenues and volumes out of all of PMI’s markets, S&SEA has stuck almost exclusively to combustibles.
PMI’s IQOS products have had almost no traction in S&SEA because countries like India and Thailand have banned e-cigarettes altogether. If countries like Indonesia and the Philippines adopt more permissive, allow-and-regulate approaches to e-cigarettes, India, Thailand, and others in the region might reverse their e-cig bans and follow suit. In the meantime, combustibles will likely continue to reign supreme in this market for the foreseeable future.
Asia (+ Australia) as a whole.
In aggregate, PMI’s business in Asia accounts for 30% of revenue and 28% of its operating income.
Revenue and operating income across Asia are up 10% and 7%, respectively, from 2016 through 2022. Smoke-free revenue now accounts for 32% of all revenue in Asia. And heated tobacco accounts for 18% of volumes on the continent. Volumes have dropped 15% from 2016 through 2022 but have stayed virtually flat from 2020 to 2022.
While steady volumes and pricing power have made Asia a lucrative market for PMI, weak currencies on the continent and e-cig competition in EA&A have been a drag on operating income. PMI’s Asia business would no doubt benefit from a weaker dollar and regulation that would keep e-cigarette competition at bay in Japan and South Korea.
Thanks for reading.
Other pieces in this series on PMI:
The New and Improved Philip Morris International
Philip Morris International: Europe
Philip Morris International: Middle East & Africa
Philip Morris International: Americas
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Great to see the combined Asia numbers
Also, thanks for explaining the wild swing in 2019-2020 in S&SEA