Altria at Barclays Conference Notes

William Gifford

Thoughts on FDA proposal to decrease nicotine

“At the same time the FDA raised the concept of the nicotine product standards. Of course product standard are not new, they’ve been on the regulatory tables since the FDA took jurisdiction over cigarettes, we’re prepared for it, we’re ready to engage in it, but a couple of things should be kept in mind. First, all the FDA did was to raise the concept of nicotine product standards. The FDA didn’t come forward with a proposal, let alone the rule. And second, in order to convert concept into a rule, the FDA is going to have to undergo the regulatory process which is very long process it will take years, any final rule have to be based on science and evidence and be subject to judicial review. So this is proving to be a very long and uncertain process.”

Consumer trends

“We certainly saw to your point, we saw that recovery of our consumer in 2015 and that’s where we saw industry volume almost flat through the year. As we progressed we feel like there is economic factors that we launched are still a tailwind for our consumer just not to the extent from a competitive standpoint that they were in 2015, so the factors are still pointing in the right direction.

We get a lot of questions about the low end. A lot of people ask well we see if you buy the cheapest cigarette in the store that share is growing and that is correct but we really break the industry into two segments premium and discount. And then – so when you look at that discount category in total, it’s flat to slightly down thus far through the first part of the year, within that discount category, the cheapest thing in the store what we call deep discount is growing but is offset by branded discount like L&M, Pall Mall, Maverick those types of brands.”

Philip Morris at CAGE Conference Notes

Jacek Olczak – CFO

There were some periods in Europe where price elasticity went up

“There were periods I have to admit that few years ago, especially in Southern Europe, Italy, where the elasticity really went up higher as you know the pricing then would be a little bit more open headed, they think a bit more to increase the prices there to bring cool down like a little EBITDA market. The reason was that number of the countries again very much into Southern Europe have been making — have been implementing on the austerity measures which at the end of the day were doing nothing but just eroding the consumer purchasing power but quite importantly, also consumer sentiment that we had developed the strength over the last two years and hence the volumes in Southern Europe, you take Spain, you take Italy, you take some other places that really to improve the territory to the extent that you have actually the volume guidance of the industry and obviously for us.”

Heat not burn technology

“I think, the history of e-cigarettes presence in Americas over the last 3, 4 or 5 years demonstrating that, I mean there is a need for the consumer to go to the alternative, the combustible product and is very much sort of a self-driven. I mean science is very important that really direct the consumers to the product which are proven by scientific evidence etcetera but they do carry much less risk than a conventional product. I think there will be consumers who will like to have still some experience with the product which contains tobacco and it’s the platform one and two which are tobacco based. But based on the concept of the heat not burn and therefore it reduce exposure and therefore hopefully reduce risk. And there will be consumers who will just want for a change. I mean would just like to go and use the nicotine in a liquid form and the [indiscernible] is different, etcetera. So I think we have reasons why we have all this in investing behind all these four platforms because there will be a consumer need and actually need to have the portfolio approach rather than focus on one category as existing.”

This is not just a marketing gimmick

“They know that we serious about the thing, this is not just the marketing type of gimmick, in the absence of a better word but we are serious about proving that there is a way of producing a product which has a potential to significantly reduce the harm to the individual and to the public as such.”

People aren’t switching back from iQOS

“the people of course smoking — who are using combustible product, they switch to iQOS and I have not heard about a single person who would go back to combustible cigarettes. The same thing which we observed in the market, I mean adults who have adopted iQOS, so you go into the exclusive use of the product for about two weeks or so and they have no desire and they are not reverting to the previous product which is a very critical component of the success of a product vis-à-vis obtaining the staples of, you know review the risk papers. “

Altria Investor Day Notes

Investment in developing people drives our results

“We’ve long believed our emphasis on and investment in developing people sets us apart and drives our business results. We were delighted recently when Forbes named ” among its top 100 list of America’s Best Employers. Our focus on people development supports a strong and deep management bench and effective succession planning.”

Three strategies: core, innovative products and financial performance

“We continue to pursue three strategies to deliver against our long term financial objectives, first to maximize our core tobacco businesses for the long term, second to grow new income streams through innovative tobacco products, and third to manage our diverse income streams and strong balance sheet to deliver consistent financial performance.”

We’ve embraced lower risk tobacco products

“For many years, we’ve embraced the vision of developing lower risk tobacco products that appeal to adult tobacco consumers. That’s one reason we supported FDA regulation of tobacco, and today real progress is being made.”

Developing the science needed to succeed in regulatory arena

“We’re also developing the science needed to succeed in the regulatory arena such as the recent data we presented to FDA on second hand vapor. And we are fully engaged in the modified risk tobacco product application process, in order to take advantage of the opportunities it offers for our businesses and adult tobacco consumers”

If there’s one thing Altria knows how to do it’s excel in a difficult environment

“Our final introductory word, given recent changes in industry structure. Market place change is of course constant. The recent transaction involving our competitors marks another one. It’s important to remember that we’d faced change before, lots of it, and we believe our leadership position today is stronger than ever. Consider for example, the signing of the Master Settlement Agreement, a 2004 consolidation of two competitors, a massive increase in the federal excise tax on cigarettes and cigars, and institution of FDA regulation of tobacco products. During this period of change over 15 years, PM USA grew Marlboro, retail share almost seven points. Altria evolved to offer a total U.S tobacco platform, while delivering TSR of more than 1,000% more than five times the S&P 500s return. As I hope, we’ll make clear today, we manage our businesses for the long-term which has allowed us to grow through change and deliver consistent performance. We do sell because of our company’s extraordinary brands, superior execution, and talented people.”

Immerse consumers in the equity of our brands

“We also immersed tobacco consumers 21 and older in the equity of our brands through experiences like Marlboro Black Lounge, Bar Nights, music festivals and once in a lifetime trips to the Marlboro Ranch in Montana. In total, our consumer engagement system delivered a remarkable 250 million interactions with adult tobacco consumers in 2014 up 20% from the previous year. As you will hear later, these interactions further our tobacco Company’s strong brand equities.”

Our goal is alignment and support of our partners by promoting mutual business success

“To consistently achieve our success we follow a proven strategy. Our goal is to gain alignment and support from our trade partners by promoting and demonstrating mutual business success. It begins with our world class distribution system which efficiently delivers products from our Company’s manufacturing facilities to our direct buying customers.’

Provide category and market analytics to our customers

“Our ability to provide category and market analytics to our customers also give our tobacco companies a competitive advantage. Our customers tell us that actionable insights are more important than ever. For example, retailers may understand the volume and share for the brands they sell, but not how their store performs against the local market. Our proprietary reporting system provides relevant store-level data for the tobacco categories. We can show customers how many stores are gaining or losing market share at an aggregate and store level. Then our sales team consults with retailers on how to capitalize on those insights to build their business.”

Bring in interns to experience AGDC

“we bring in over 100 interns annually to experience AGDC prior to their final year of school. Last year, 85% of these interns accepted the full-time offers we extended. And often these efforts result in leaders who rise rapidly through our organization. “