Altria Group, Inc. Selected Presentation Slides

EX-99.2 3 dex992.htm ALTRIA GROUP, INC. SELECTED PRESENTATION SLIDES Altria Group, Inc. Selected Presentation Slides

2009 CAGNY Presentation

Exhibit 99.2

Safe Harbor Statement

Statements in this presentation that are not reported financial results or other

historical information are “forward-looking statements”

within the meaning of

the Private Securities Litigation Reform Act of 1995. Such forward-looking

statements are based on current plans, estimates and expectations, and are

not guarantees of future performance. They are based on management’s

expectations that involve a number of business risks and uncertainties, any

of which could cause actual results to differ materially from those expressed

in or implied by the forward-looking statements. The Company undertakes no

obligation to publicly update or revise any forward-looking statement. The

risks and uncertainties relating to the forward-looking statements in this

presentation include those described under the caption “Cautionary Factors

that May Affect Future Results”

in the Company’s Annual Report and its

Quarterly Reports on Form 10-Q

Reconciliations of non-GAAP measures included in this presentation to the

most comparable GAAP measures are available on the Company’s website

at www.altria.com

Mike Szymanczyk

Chairman and

Chief Executive Officer

Altria Group

Agenda

Total tobacco platform strategies

External tobacco environment

Altria and its operating companies business results

Altria’s Mission, Strategies and Values

Invest in Leadership

We will invest in

excellent people,

leading brands and

external stakeholders

important to our

business success.

Align with Society

We will actively

participate in resolving

societal concerns that

are relevant to our

business.

Satisfy Adult

Consumers

We will convert our

deep understanding of

adult tobacco

consumer needs into

better, more creative

and more satisfying

products.

Create Substantial

Value for

Shareholders

We will execute our

business plans to

create sustainable

growth and

generate

substantial returns

for shareholders.

Integrity,

Trust and

Respect

Passion

Succeed

Executing

with

Quality

Driving

Creativity

into

Everything

We Do

Sharing

with

Others

Our

Mission

own

and

develop

financially

disciplined

businesses

that

are

leaders in responsibly providing adult tobacco consumers with superior

branded products.

Adult Tobacco Consumers

Source: ASPS, ending Q4 2008, US Census Bureau Adult Population Estimates; MICR Internal Estimates

Estimated Number of Adult

Tobacco Consumers

(Millions)

Estimated Annual Consumer

Tobacco Expenditures

(Billions)

$80.0

$79.0

$72

$82

2007

2008

60.4

60.0

2007

2008

Tobacco Segments’

Volume Performance

Source: ALCS MICR Industry Estimates 12/08; TTB all other tobacco segments

~7%

~4%

(~4%)

-5%

10%

Cigarettes

MST

Machine-Made Large

Cigars

Total Tobacco Volume

5 year CAGR (~1%)

1,100

2003

2004

2005

2006

2007

2008

Snuff

Chewing Tobacco

Large Cigars

Small Cigars

RYO

Cigarettes

Source: ALCS MICR Industry Estimates 8/08 for Cigarettes; TTB all other tobacco segments; Cigarettes, Small

Cigars & RYO based on 0.0325 oz./stick; 2008 data estimated with TTB data through 10/08

Millions

pounds

Manufacturer Tobacco Profit Pool

Source:

Company

Reports;

ALCS

MICR

Internal

Estimates

(Billions)

$10.1

$10.4

$11.0

$11.4

$13

2005

2006

2007

2008

Cigarettes

MST

Cigars*

Other

Three Largest Tobacco Categories

$70 billion sales

~$9 billion profit

$4 billion sales

$1.2 billion profit

$3.4 billion sales

$550 million profit

Three categories represent ~95% of the

total

tobacco

manufacturers’

profit

pool

*Machine-made large cigars

Source: TTB Company Reports as of Oct. 2008; IRI/Capstone – Total Retail Panel – Cigarettes;

IRI Syndicated – MST & Cigars; ALCS MICR Internal Estimates

Note: Profit refers to Manufacturers’ Profit

2008 Share of Tobacco Categories

57.4%

72%

100%

Profit

56%

50.7%

100%

Retail Share

Profit

29.1%

33%

100%

Retail Share

Profit

Source: IRI/Capstone – Total Retail Panel; IRI Cigar, USSTC RAD/SVT 12/27/08; MICR

Internal Estimates

Altria’s Estimated Share of Total Tobacco

Profit Pool

Retail Share

Altria

48%

Altria

53%

Source: IRI/Capstone – Total Retail Panel; IRI Cigar, USSTC RAD/SVT 12/27/08; Company

reports; ALCS MICR Internal Estimates

Altria’s Tobacco Category Profitability

Altria’s Category Margins

Profitability per Adult

Tobacco Consumer

Source: Company Reports; ALCS-MICR & S&BD Estimates; 2008 annual estimates

$350

Marlboro

Premium MST

100%

Cigars

Cigarettes

MST

Leading Brands -

Common Characteristics

Sizeable retail share

Strong demographic profiles among adult tobacco consumers

High brand loyalty sustaining premium pricing

Marlboro vs. Competition

Source: IRI/Capstone –Database ending 12/27/08 (FY 2008)

41.1%

41.6%

Marlboro is larger than the next

17 competitive brands combined

Black & Mild’s 2008 Share Performance

Source: IRI Cigar Database for Food, Drug, Mass Merchandise and Convenience trade classes

Taste

Aroma

Quality

Black & Mild Adult Consumer Perceptions

*Machine-made large cigars

Source: GFK Cigar Category Awareness and Usage Study, February 2009

Black &

Mild

among

leading

brands

Copenhagen & Skoal Adult Consumer Research

Overall

Quality

Skoal

Copenhagen

Kodiak

Grizzly

Red Seal

Longhorn

Timber Wolf

Husky

Skoal

Copenhagen

Kodiak

Grizzly

Red Seal

Longhorn

Timber Wolf

Husky

Source: MST Attitudes and Usage Study (11/2008) – Among 1000 Adult MST users ages 21-54

A Brand’s Value Equation

Promotion

Packaging

Price

Product

Positioning

Brand Building Infrastructure

Sales and distribution system

Adult consumer engagement system

Sales and Distribution System

Distributed through wholesalers and retailers

Field Sales Force calls on 240,000 retailers at least once a

month

Altria’s Cost Management Strategies

Leverage key services across operating companies

Reduce cigarette related infrastructure ahead of cigarette

volume declines

Historic Altria Operating Companies

Focus on brand management and manufacturing

Altria Client

Services

Altria Sales &

Distribution Services

Altria Consumer

Engagement Services

Certain subsidiaries are held by intermediate holding companies.

Altria’s Tobacco Operating Companies

Altria Client Services

Central provider of general and administrative support functions

Planning to lower costs and improve effectiveness

Altria Sales and Distribution Services

Planning to combine PM USA and U.S. Smokeless’

sales

organizations

Plan for one organization to represent all tobacco products

Improved retail execution

Leveraged Shared Services Benefits

Greater organizational and cost efficiencies

Supports additional revenue streams

Altria’s Projected Headcount

Source: ALCS Internal Estimates

Note: UST Inc includes U.S. Smokeless and Ste. Michelle Wine Estates

13,000

2008YE

2009E

Altria

UST

Leveraged Services Model

Allows the company to sustain sales and marketing

infrastructure,

and

retain

talented

employees,

despite

cigarette

volume declines

Our tobacco businesses should become more competitive

Altria’s Cost Management Strategies

Leverage key services across operating companies

Reduce cigarette related infrastructure ahead of volume

declines

Altria’s Cost Management Program

(Millions)

Planned Future Savings 2009 -2011

Source: Altria Q4 & FY 2008 Earnings Release

$372

$188

$300

$640

$1,500

2007-

2008

Savings

Corporate

General &

Administrative

UST Integration

Manufacturing

Optimization

2007 -

2011

External Tobacco Environment

Tobacco Excise Taxes

Litigation Environment

Excessive Increases in Tobacco Excise Taxes

Encourage illegal activity such as smuggling or contraband

trade

Cost jobs, and harm legitimate retailers and small businesses

Unfairly burden adult tobacco consumers while failing to

address systemic governmental financing problems

Federal Excise Tax

Signed bill to increase FET on tobacco products April 1, 2009

Legislation harmonized tax rates on cigarettes, little cigars and

roll-your-own

Little cigars and roll-your-own tobacco products previously had

a significant federal tax advantage over cigarettes

Forty-six States Facing Budget Deficits

Source: http://www.cbpp.org/9-8-08sfp.htm [Includes states with shortfalls in fiscal 2009 or projected shortfalls for fiscal 2010]

State Excise Tax Activity

Source: Altria Government Affairs

Proposed

Passed

Defeated

Altria’s State Legislative Priority

Conversion of MST excise taxes from ad valorem to weight-

based

Consistent with cigarette excise taxes and Federal MST tax

methodology

Thirty-five States Using Ad Valorem Taxation

Methodology

Source: ALCS Government Affairs

Ad Valorem MST Taxation

Creates an unfair competitive advantage for discount MST

manufacturers

Potentially less tax revenue to the state in comparison to the

weight-based approach

Under our approach, MST cans of equal weight pay equal

taxes

Altria’s Preparation for Taxation Environment

Offering adult tobacco consumers a diverse tobacco product

portfolio

Optimizing marketing spending

Appropriately aligning cost structures

Litigation Environment

Litigation environment remained manageable in 2008

Sharp downward trend in individual cases

–

Excludes

the

Engle

progeny

cases

No case tried to verdict against any U.S. cigarette

manufacturer in 2008

Judgments on Appeal: 2003 v. 2008

$84.4 Billion

$370 Million

Source:

ALCS/PM

USA

Litigation

Records

(totals

exclude

interest)

99.6 %

Reduction

$100

2003

2008

“Lights”

Litigation

U.S. Supreme Court decided in Good

that federal law does not

preempt certain state law consumer protection claims

Good

decision

did

not

address

the

merits

the

litigation

State and federal courts have increasingly denied class

certification

Have won ten cases on the ground that class certification was

improper

State Certified “Lights”

Class Action Cases

Source: PM USA Litigation Records

Craft

Aspinall

Curtis

Engle Progeny

Florida Supreme Court decertified the Engle

class but allowed

former class members to file individual lawsuits

Between 8,000 and 9,000 smokers have filed claims

Believe individual suits are manageable

Vast majority are stayed or inactive

Expect a number to go to trial this year

Source: PM USA Litigation Records

Litigation Environment

Environment remains stable

PM USA plans to continue vigorously defending claims

Dave Beran

Executive Vice President

and

Chief Financial Officer

Altria Group

Agenda

2008 business results

2009 strategies

Balance sheet

Commitment to return cash to shareholders

* Adjusted; for reconciliation of non-GAAP to GAAP numbers visit www.altria.com

Altria’s 2008 Business Results

Net revenues up 3.7% to $19.4 billion

Adjusted OCI increased 4.6% to $5.3 billion*

Corporate expense

and SG&A reductions totaled $239 million

Adjusted diluted EPS from continuing operations increased 10%

PM USA’s 2008 Business Results

Source: Altria Q4 & FY 2008 Earnings Release

Net Revenues

($ in Billions)

+1.5%

Operating

Margins*

+0.6pp

OCI*

($ in Billions)

+2.5%

$4.9

$5.0

$0.0

$10.0

2007

2008

32.7%

33.3%

50%

2007

2008

$18.5

$18.8

$13.0

$23.0

2007

2008

* Adjusted; for reconciliation of non-GAAP to GAAP numbers visit www.altria.com

PM USA’s 2008 Volume

Declined 3.2% to 169.4 billion units

Estimated to be down ~4% when adjusted for changes in trade

inventories and calendar differences

Source:

Altria

2008

Earnings

Release

PM USA’s Retail Share Performance

+0.1pp

50.6%

50.7%

48%

53%

2007

2008

Source: IRI/Capstone Total Retail Panel

Marlboro’s Retail Share Performance

+0.6pp

41.0%

41.6%

38%

43%

2007

2008

Source: IRI/Capstone Total Retail Panel

Non-Menthol

Menthol

+0.3pp

Marlboro’s Retail Share Performance

4.9%

5.2%

2007

2008

36.1%

36.4%

33%

37%

2007

2008

Source:

IRI/Capstone

Total

Retail

Panel

Marlboro’s Price Gap

Lowest Effective

Marlboro

4Q 08

75%

~40%

Note: Marlboro excludes Marlboro 72mm

$3.31

$4.39

$3.12

$2.29

$2.00

$4.50

1/5/02

10/4/03

7/2/05

3/31/07

12/27/08

Source: IRI/Capstone Inventory and Price Gap in C-Stores

PM USA’s 2009 Strategies

Balance overall income and Marlboro’s retail share growth

Maximize long-term profitability from portfolio brands

Continue reducing costs ahead of volume declines

* Adjusted; For reconciliation of non-GAAP to GAAP numbers visit www.altria.com

Source: Q4 & FY 2008 UST Company reports

U.S. Smokeless’

2008 Business Results

MST Volume

(Cans in Millions)

Operating Income*

($ in Millions)

-1.5%

Net Revenues

($ in Billions)

-3.1%

$1.50

$1.55

$0.5

$2.3

2007

2008

$861

$848

$700

$1,000

2007

2008

659

620

720

2007

2008

U.S. Smokeless’

Volume Performance

Premium

(Millions)

Discount

(Millions)

-1.1%

+6.1%

104

110

130

2007

2008

555

549

480

580

2007

2008

Source: Q4 & FY 2008 UST Company reports

U.S. Smokeless’

2008 Share Performance

Source: USSTC RAD/SVT ending 12/27/08

U.S. Smokeless’

2009 Strategies

Enhance value equation on Copenhagen and Skoal

Complete the integration into the Altria family of companies

Realize integration cost savings as quickly as possible

John Middleton’s 2008 Business Results

OCI

($ in Millions)

Volume

(in Billions)

+6.2%

Net Revenues

($ in Millions)

$387

$500

2008

1.2

1.3

0.5

2.0

2007

2008

$182

$500

2008

Source: Altria Q4 & FY 2008 Earnings Release

* Adjusted;

for

reconciliation

non-GAAP

GAAP

numbers

visit

www.altria.com

Black & Mild’s 2008 Retail Share Performance

+2.8pp

25.5%

28.3%

20%

32%

2007

2008

Source: IRI Cigar Database for Food, Drug Mass Merchandise and Convenience trade classes

Black & Mild’s 2008 Results

Distribution*

Source: STARS OTP Distributor Level Database ending 12/27/08; FLR Data through 12/12/08

Visibility

4/4/2008

12/12/2008

100

1Q08

4Q08

*Distribution numbers are for Black & Mild - Original

John Middleton’s 2009 Strategies

Establishing new retail merchandising platform

Building brand equity

Accelerating new product introductions

* Adjusted; For reconciliation of non-GAAP to GAAP numbers visit www.altria.com

Source: Q4 & FY 2008 UST Company reports

Ste. Michelle Estates’

2008 Business Results

Operating

Income

($ in Millions)

+19.1%

Unit Volume

(Cases in Millions)

+14.9%

Net Revenues

($ in Millions)

+19.0%

$421

$354

$330

$430

2007

2008

5.3

6.1

4.5

6.5

2007

2008

$61

$73

$40

$80

2007

2008

Ste. Michelle Wine Estates’

2009 Strategies

Increase unit volume and margins

Expand distribution both domestically and internationally with a

focus on top selling products

Altria’s Economic Interest in SABMiller plc

SABMiller economic interest of 28.5%

Altria’s Economic Interest in SABMiller plc

Source: Bloomberg [Market values are shown on a pre-tax basis]

(Billions)

$3.4

$7.1

$0.0

$8.0

2002

Jan-09

SABMiller Investment Benefits Altria

Contributing $2.8 billion in equity earnings to Altria since 2002

Paying $1.1 billion in dividends to Altria since 2002

Continuing to be a strong component of our balance sheet

Source: Altria company filings

Philip Morris Capital Corporation

2008 Operating Companies Income of $71 million

Results include a $100 million non-cash allowance for losses

Source: Altria Q4 & FY 2008 Earnings Release

Philip Morris Capital Corporation’s Portfolio

~74% of portfolio is rated investment grade by Moody’s

Investor Services and Standard & Poor’s

Net Finance Receivables

totaled $5.8 billion at year-end 2008,

down from $6.2 billion at year-end 2007

No longer making new investments

Source: Altria company filings

Altria’s Balance Sheet and Capital Structure

Completed financing of the UST acquisition

Issued $11.0 billion in long-term notes

Weighted average coupon of 9.3%

Maturities range from 18 months to 30 years

Represents Pro-Forma debt to EBITDA ratio of 2.0 to 1

Source: Altria company

reports, reconciliation between GAAP and non-GAAP financial measures.

Altria’s Balance Sheet Management

Maintain current investment grade credit rating

–

Access to long-term debt

–

Access to short-term debt

Preserve and protect cash flow to support

–

Business operations

–

Dividends

–

Capital expenditures

–

Debt service

Altria’s Financial Liquidity

Historically, in mid-April large cash outflows for tobacco

settlement payments, taxes and dividends

Supplement liquidity needs with commercial paper

Backstopped with a $3.5 billion revolving credit facility

Altria’s Dividends

Committed to returning a large amount of cash to shareholders

in the form of dividends

Maintain a targeted dividend payout ratio ~75% of net earnings

Note: Payments of future dividends are at the discretion of Altria’s Board of Directors

Note: Annualized Dividend Rate

Source: Altria company filings

Historical Increase

Altria’s Dividends

2008 Increase

+10.3%

$1.16

$1.28

0.0

2.0

Mar-08

Dec-08

9.6%

7.5%

8.7%

10.3%

2005

2006

2007

2008

Altria’s Share Repurchase Program

Repurchased $1.2 billion in 2008

Not planning to repurchase shares in 2009

Plan to evaluate share repurchase plan again in first quarter of

2010

Source: Altria company filings

Altria’s 2009 Guidance

2009 Guidance reflects the following assumptions:

Increased tobacco excise taxes

Increased investment spending on smokeless brands

Delivering savings in-line with our cost management programs

Increased pension expenses

No share repurchases

2009 adjusted EPS is expected to increase to $1.70 to $1.75

3% to 6% growth rate*

Source: Altria company filings

* Adjusted; for reconciliation of non-GAAP to GAAP numbers visit www.altria.com

Compelling Investment

2009 EPS growth

3% to 6%

Dividend yield

~7.5%

Source: Altria company filings

Altria’s Competitive Advantages

Four strong brands: Marlboro, Copenhagen, Skoal and Black &

Mild

Superior brand-building infrastructure

Financially disciplined with aggressive cost management

strategies

Strong balance sheet with continuing commitment to return

cash to shareholders

For full reconciliation, visit www.altria.com/investors

Regulation G Disclosure

Illustrative EPS for Year Ended December 31, 2007

Altria reported diluted EPS

$1.48

Tax Items

(0.09)

PMCC recoveries from

airline industry exposures

(0.06)

Interest on tax reserve

transfers to Kraft

0.02

Asset impairment, exit and

0.15

implementations costs

Altria adjusted diluted EPS from

continuing operations

$1.50

Source: Altria Finance, reconciliation between GAAP and non-GAAP financial measures.

Illustrative EPS for Year Ended December 31, 2008

Altria reported diluted EPS

$1.48

Tax Items

(0.03)

Gain on sale of building

(0.12)

Loss on extinguishment of debt

0.12

SABMiller intangible asset

impairments

0.03

Financing fees

0.02

Asset impairment, exit, integration

and implementation costs

0.15

Altria adjusted diluted EPS from

continuing operations

$1.65

Source: Altria Finance, reconciliation between GAAP and non-GAAP financial measures.

Illustrative Altria Operating Companies Income for

Year Ended December 31, 2007

(dollars in millions)

Altria reported operating companies

income (OCI)

$4,898

Asset impairment and exit costs

344

Implementation costs

Recoveries from airline exposure

(214)

Altria adjusted OCI

$5,055

Source: Altria Finance, reconciliation between GAAP and non-GAAP financial measures.

Illustrative Altria Operating Companies Income for

Year Ended December 31, 2008

(dollars in millions)

Altria reported operating companies

income (OCI)

$5,101

Asset impairment and exit costs

Integration costs

Implementation costs

Altria adjusted OCI

$5,287

Source: Altria Finance, reconciliation between GAAP and non-GAAP financial measures.

Illustrative PM USA Operating Companies Income

for Year Ended December 31, 2007

(dollars in millions)

PM USA reported operating companies

income (OCI)

$4,511

Asset impairment and exit costs

344

Implementation costs

Provision for Scott case

PM USA Adjusted OCI

$4,908

Source: Altria Finance, reconciliation between GAAP and non-GAAP financial measures.

Illustrative PM USA Operating Companies Income

for Year Ended December 31, 2008

(dollars in millions)

PM USA reported operating companies

income (OCI)

$4,866

Asset impairment and exit costs

Implementation costs

PM USA adjusted OCI

$5,032

Source: Altria Finance, reconciliation between GAAP and non-GAAP financial measures.

Illustrative PM USA Operating Margin Year Ended

December 31, 2007

(dollars in millions)

Adjusted operating companies income

$4,908

Net revenues excluding excise taxes

and contract volume manufactured

for Philip Morris International

$15,021

Operating companies income margin

32.7%

Source: Altria Finance, reconciliation between GAAP and non-GAAP financial measures.

Illustrative PM USA Operating Margin Year Ended

December 31, 2008

(dollars in millions)

Adjusted operating companies income

$5,032

Net revenues excluding excise taxes

and contract volume manufactured

for Philip Morris International

$15,117

Operating

companies

income

margin

33.3%

Source: Altria Finance, reconciliation between GAAP and non-GAAP financial measures.

Illustrative U.S. Smokeless Operating Profit for

Year Ended December 31, 2007

(dollars in millions)

U.S. Smokeless reported operating profit

$716

Antitrust litigation & restructuring charge

145

U.S. Smokeless adjusted operating profit

$861

Source: Altria Finance, reconciliation between GAAP and non-GAAP financial measures.

Illustrative U.S. Smokeless Operating Profit for

Year Ended December 31, 2008

(dollars in millions)

U.S. Smokeless Reported Operating Profit

$838

Antitrust litigation & restructuring charge

U.S. Smokeless Adjusted Operating Profit

$848

Source: Altria Finance, reconciliation between GAAP and non-GAAP financial measures.

Illustrative Ste. Michelle Wine Estates Operating

Profit for Year Ended December 31, 2008

(dollars in millions)

Ste. Michelle Wine Estates

Reported Operating Profit

$72

Restructuring charges

Ste. Michelle Wine Estates

Adjusted Operating Profit

$73

Source: Altria Finance, reconciliation between GAAP and non-GAAP financial measures.

Illustrative John Middleton Operating Companies

Income for Year Ended December 31, 2008

(dollars in millions)

John Middleton reported operating companies

income (OCI)

$164

Integration costs

John Middleton adjusted OCI

$182

Source: Altria Finance, reconciliation between GAAP and non-GAAP financial measures.

Illustrative Pro-Forma Altria Total Debt

Year Ended December 31, 2008

(dollars in millions)

UST Debt

$1,140

Current portion of Long-term debt

135

Long-term debt

11,101

Financial services debt

500

Total debt

$12,876

Source: Altria Finance, reconciliation between GAAP and non-GAAP financial measures.

Illustrative Pro-Forma UST EBITDA

Year Ended December 31, 2008

(dollars in millions)

UST –

Operating income

$890

UST –

Depreciation & Amortization

Pro-Forma Adjustment –

Pension

UST Pro-Forma

EBITDA

$955

Source: Altria Finance, reconciliation between GAAP and non-GAAP financial measures.

Illustrative Pro-Forma Altria EBITDA

Year Ended December 31, 2008

(dollars in millions)

Altria consolidated net earnings

$4,930

Earnings from discontinued operations, net of

income taxes and minority interest

(1,840)

Equity earnings and minority interest, net

(471)

Dividends from less than 50% owned affiliates

249

Provision for income taxes

1,699

Depreciation & Amortization

215

Gain on sale of building

(404)

Loss on early extinguishment of debt

393

Asset impairment and exit costs

449

Interest and other debt expense (income), net

167

Consolidated Earnings before interest, taxes,

depreciation and amortization (EBITDA) for Altria

$5,387

UST Pro-Forma

EBITDA

955

Consolidated EBITDA –

Altria and UST

$6,342

Source: Altria Finance, reconciliation between GAAP and non-GAAP financial measures.

Illustrative Pro-Forma Altria Total Debt to EBITDA

Ratio Year Ended December 31, 2008

(dollars in millions)

Total debt

$12,876

EBITDA

$6,342

Debt to EBITDA ratio

2.03

Source: Altria Finance, reconciliation between GAAP and non-GAAP financial measures.