Philip Morris International (NYSE:PM) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.
Industry Volume Projections
Christopher Ferrara – Bank of America Merrill Lynch: So it sounds like you are broadly reiterating industry volume projections for the year in most places like the EU and like Indonesia. Despite what was a pretty poor volume quarter, so I guess the question is was Q1 volume worse than you had expected or was it pretty much in line with what you thought it was going to be?
Jacek Olczak – Chief Financial Officer: Well taking into consideration. You remember in February we said that we had about 75% of the pricing already implemented or announced for the year which was pretty high compared to other first quarters in the years before. I think it was rather expected that usually after the price increases there is this initial sort of dip in the market and then the markets are coming to some sort of recovery. So this was not unexpected. But you also remember that in the first quarter of PMI in total, but also specifically for the EU first quarter of 2012 was pretty strong quarter we’ve been almost growing at a 6% PMI and the EU has just a decline of 1.5% in the first quarter of 2012. I don’t think we had any surprise in the performance on the first quarter.
Christopher Ferrara – Bank of America Merrill Lynch: So I guess what I am trying to get to is weather how do you feel about the 10 to 12 in a constant currency and whether you just, whether Q1 represents just a little bit more of an obstacle relative to getting to that number but you just still had the flexibility to get there, or whether there really is no change and you still feel like you are in the same place within that guidance range of 10 to 12 you were before.
Jacek Olczak – Chief Financial Officer: No, I mean we are very confident about the guidance, you notice we are revising the guidance, the February guidance only for a currency. So I think the business fundamentals are very strong. The brand’s portfolio performance essentially all of our main markets is pretty solid. We’ve had some distortions in a quarter, which I had been always mentioning in my remarks. The only thing which I would like to add is that, I mean, we clearly are looking in the second half of the year to be somehow stronger than the first half of the year. For a number of reasons we have annualization of some increased spending behind mainly marketing and sales from last year, we are just going to have an impact on us especially in the first half of the year. There are still some inventory distortions which will continue for the second quarter of this year, but all in all we feel pretty confident about the guidance. I mean all the risks which we knew are there, I mean, EU volumes, EU pressure on the volumes also Philippines, the initial impact. I included a baked in, in our guidance and as I said, we are pretty confident on a 10% to 12% growth for this year.
VAT Increase Prospects
Vivien Azer – Citi: I’m curious; as we think about Italy, I recognize your guidance reflects no VAT increase. Can you speak to the probability of no VAT increase occurring and conversely if you do see an increase, how would that impact potentially your guidance for EU volumes?
Jacek Olczak – Chief Financial Officer: I maybe start with the second part of your question. I think we still at this stage despite the 10% decline of the reported volumes in that EU for the first quarter, we still think that broadly the rate of declines for the full year will be in a range of that which we had last year, so 6.3% if I remember correctly. The underlying volume decline in the EU Region for the first quarter we estimate will come in the range of 8%, while eliminate some dispersions which (delayed) in the quarter. Italy is essentially the only market or the main market which we have on the watch list in EU as we still don’t have a clear clarity what’s going to happen with the announced VAT increase. I mean if you follow the politician’s announcement, no one regardless of the party they belong to would like to have the VAT increased. However, in order to that wish to materialize, I mean they have to form the government and they have to change some legislation, so we’ll have to watch how the situation unfolds in Italy, but I think with the exception of the VAT increase in Italy, I think EU still can be broadly with the rate of decline that comparable to last year.
Vivien Azer – Citi: As a follow-up to that, can you comment perhaps on you outlook for operating income growth in the EU. I think you’ve said in the past you could hold your EBIT flat, but considering the significant trade down that you are seeing the market, I wonder whether that needs to be adjusted downward at all?
Jacek Olczak – Chief Financial Officer: It’s very much dependent again on the total volume, but development in EU. If news from Italy are positive, I think we can maintain the all the profitability. If Italy talks will happen and then depends on the pricing attraction, that’s might have – they might have – this might have some impact on the profitability in the EU. But assuming my forecast of our estimates for the total EU volumes to be broadly in line of the rate of decline over last year would hold, I think we can maintain the profitability.