четверг, 28 июня 2007 г.

NEW MARLBORO FILTER PLUS

Launched successfully in Korea in late 2006 and scheduled for introduction in additional markets in 2007, Marlboro Filter Plus is a real innovation in terms of cigarette and filter construction, as well as packaging. True to the brand's heritage, Marlboro Filter Plus delivers outstanding taste in a one-milligram product. Philip Morris International invested US $ 15.5 million in the launch of the new variety of its renowned brand Marlboro, Marlboro Filter Plus, in Russia, Ukraine and Kazakhstan, Andre Calantzopoulos, President and Chief Executive Officer, said at a press conference. The new Marlboro belongs to the 'mild' segment which the company ranks as a growing and promising segment. Filter Plus will be manufactured at the PM Izhora plant near St-Petersburg where new machinery has been installed, and supplied to the Russian, Ukrainian and Kazakh markets. Launched successfully in Korea in late 2006, Marlboro Filter Plus is an innovation in terms of cigarette and filter construction, as well as packaging. The filter consists of four sections, one containing tobacco, and a new slide pack has been chosen for the product's packaging. The brand is going to be offered in two varieties, one with tar and nicotine yield of 3 mg and 0.2 mg per stick respectively, and the other (Marlboro Filter Plus One) with 1 mg tar and 0.1 mg nicotine delivery. The new Marlboro version belongs to the premium price segment and is advised to be retailed at around 1 Euro per pack. (VT)

Remarks by Louis C. Camilleri Chairman and Chief Executive Officer Altria Group, Inc.

New York November 16, 2006 Thank you and good afternoon everyone. I am particularly pleased to be here today to review with you our restructuring strategy and provide you with a perspective on our growth prospects going forward. My remarks contain certain forward looking statements and, accordingly, I direct your attention to the Forward Looking and Cautionary Statements section of today's news release and our regular SEC filings. Introduction Two years ago, at this very conference, we announced that we would pursue a strategy to both enhance growth and shareholder value by restructuring the company, once the tobacco litigation environment evolved as we believed it would. We were emphatic then, and have been ever since, at least until three weeks ago, that the timing was uncertain and that the chronology of events could not be predicted with certainty. We also made it clear that we would not act precipitously, despite any pressures to do so. Rather, we would act when we felt that it was the appropriate time, not because of an overly cautious conservative stance, but to ensure that all the elements for ultimate success were in place in the best interest of our long-term shareholders. Some have been critical that our 2004 announcement came too early. I believe such criticism ignores some very important considerations. As I have often stated, I believed then, and still do, that both the Altria organization and the investment community had to have a full understanding and appreciation for our strategy and actions going forward, with such actions being fully coherent with the ultimate goal. I can well imagine the reception that I would have received, had we not resumed our historical practice of share repurchases without providing direction on the path we were pursuing. Furthermore, how could we possibly prepare ourselves, internally and organizationally, for such an important series of events without transparent clarity on our restructuring objectives? While timing was always going to be unpredictable, and indeed events unfolded at a slower pace than most would have hoped, we did everything we could to prepare ourselves for a potential restructuring. Clearly, the most time consuming element has been to assure organizational readiness and have the necessary plans in place to equip Kraft to become a fully independent entity, no longer reliant on services provided by Altria. Today we are indeed ready. Litigation Environment The key and fundamental premise of our announcement back in November 2004 was our confidence, indeed our conviction, in the merits of our legal positions and our optimism with regard to the continued favorable evolution of the tobacco litigation environment. The litigation environment has, indeed, continued to evolve favorably since I first spoke here about the possible restructuring of Altria. We firmly believe that it will continue to do so in the years ahead. Our optimism does not rest on wishful thinking, but on concrete evidence and facts, backed by an appreciation that, although tobacco litigation is not without challenges and frustration, it is not comparable to so-called "mass tort" litigation. To put tobacco litigation in the appropriate context, it is useful to review some key statistics regarding mass torts in this country. A simple comparison of the number of claims against companies involved in asbestos and certain pharmaceutical litigation demonstrates the stark contrast: Since its inception, there have been over 700,000 asbestos claims, nearly 400,000 breast implant claims, and over 100,000 diet drug claims. Merck is reported to be involved in over 20,000 Vioxx claims. In the 50-year history of its litigation, just over 1,800 cases have been filed against Philip Morris USA (PM USA), excluding the 3,200 Broin flight attendant cases. As you know, the vast majority of those cases were dismissed before trial, and each is vigorously defended on the merits as opposed to being compromised or settled. Since the inception of this litigation in 1954, PM USA has paid four judgments totaling approximately $69.5 million, and approximately $34.5 million in interest, for a total of just over $104 million. The company's policy of vigorously defending claims on the merits has been the foundation from which PM USA has successfully managed its litigation, and is one from which it will not deviate. There are currently 190 individual product liability cases pending against PM USA, contrasted with one point in the past decade when there were 450 such individual cases pending against PM USA, which fell to 228 at the end of 2005. This year, only 22 new individual tobacco product liability cases have been served on the company versus a 10-year high of 460 in one year. Four of those cases have already been dismissed this year, along with 56 other individual cases. In the only individual case PM USA tried to verdict in 2006, a Missouri jury returned a defense verdict in February. You may also recall that in the not too distant past, there were 60 class action cases pending against PM USA, in contrast to 33 today, 21 of which are so-called "Lights" class actions, which I will discuss later. The vast majority of these cases are inactive. Since January 1999, verdicts have been returned in 45 cases in which PM USA was a defendant. Defense verdicts were returned in 28 cases. Of the remaining 17 cases, four judgments were paid, one case was overturned on appeal and another is being retried. Appeals are pending in 11 plaintiff's verdicts. We remain optimistic that we will prevail in these appellate reviews. Indeed, favorable appellate decisions were received this year in the Schwarz individual case, the Engle, Marrone, Phillips, Brown and Lowe class action cases, and the Glover health care cost recovery case. In the Williams case, the Supreme Court of the United States held oral argument on October 31. We are optimistic that the Court will bring even greater clarity to its seminal State Farm decision. A ruling is expected during the first quarter of 2007. In the Engle case, the Florida Supreme Court has yet to decide on our motion for rehearing. There is no way to predict when that decision will be issued. Depending upon the court's treatment of our rehearing petition, the case will either return to the District Court of Appeals for further review of previously undecided issues, or one or more of the parties is likely to seek review in the United States Supreme Court. In the latter scenario, the prospects of a 2007 return of our $1.3 billion appeal bond increase. Since the Florida Supreme Court's decision, there have only been 11 cases served on PM USA in Florida, 10 of which have already been dismissed or stayed pending the conclusion of the appellate process in Engle. In the United States Government case, the trial court's judgment in this federal civil RICO case produced no monetary damages award in favor of the government. With the Court of Appeals order staying Judge Kessler's recent decision in the government case, we are now prepared to begin an orderly, and hopefully prompt, appellate process. We believe our appeal will demonstrate why Judge Kessler's decision is wrong on the facts, and wrong on a number of legal issues. Let me briefly review the progress on "Lights" cases. In December 2005, the Illinois Supreme Court reversed the Price judgment because Illinois law precludes liability under its consumer fraud statute based on conduct regulated by a government agency. Thirty-five states have similar statutory exemptions to consumer fraud claims when the conduct at issue is otherwise authorized or regulated by state or federal agencies. Since the Price decision, trial courts have dismissed "Lights" cases in Maine, Michigan and Ohio. Appellate courts in California, Washington and Oregon refused to disturb trial court decisions denying class certification to "Lights" cases in those states. So, of the original 36 "Lights" cases, there remain four that can be deemed active. In the only three state "Lights" class actions, appellate proceedings are ongoing in Aspinall; Curtis has been stayed pending appellate proceedings in another non-PM USA "Lights" case; and there is no trial scheduled in the third, Craft. As you know, the Schwab order has been temporarily stayed by the Second Circuit Court of Appeals. We hope that in the next few weeks, oral argument will be heard before that court on our motion for a stay and an immediate appeal of Judge Weinstein's order. We look forward to demonstrating to the court why this appeal should be heard expeditiously, and why the class certification decision is wrong. Courts across the country in other cigarette cases have consistently concluded that cigarette fraud claims cannot be certified as class actions, because determining liability requires an examination of individual issues that cannot fairly be decided in the aggregate. The court's decision in Schwab ignores the requirement that in a fraud case, determining liability requires proof, among other things, that there was a misrepresentation, plaintiffs heard the misrepresentation, believed it, and relied on it to their detriment. In addition, each plaintiff's claim is subject to the defense that it is barred by the applicable statute of limitations. It is difficult to understand how these issues can fairly be decided on a class-wide basis. Judge Weinstein himself acknowledged as much, observing during hearings that every smoker is somewhat different, especially over a more than twenty-year period. Moreover, liability in such a case requires proof of damages and, without going into great detail, it should be noted that the plaintiffs in Schwab advanced a theory of damages that Judge Weinstein described as "troubling," and in his opinion as "grossly exaggerated." Judge Weinstein attempted to overcome these issues, which require individual proof, by relying on aggregated proof, statistical extrapolations, and a theory of allocation of damages - called fluid recovery - previously rejected by the Second Circuit. To sum up, I believe that the alignment of the company's business practices with society's expectations, improvements in the environment in which these cases are litigated and the strength of our defenses have brought clarity, predictability and stability to the litigation we confront. While litigation is unlikely to ever disappear in this litigious society, I firmly believe that we will continue to be as successful in the future as we have in the past. Our belief that the litigation environment has improved markedly is widely shared, as evidenced by a comparison of the weekly spread between U. S. treasuries, investment grade corporate debt and Altria's bonds. Clearly, the risk premium attached to our debt has declined significantly over the past three-and-a-half years as the litigation environment evolved. Restructuring As you all know, we announced that the Board will finalize its decision, including the precise timing, on the spin-off of Kraft on January 31, 2007. This announcement is testament to our conviction and comfort with the litigation environment today, and going forward. I do not intend to elaborate further than I did on the conference call that followed the release of the announcement, but it is perhaps worth repeating some of the key points that I attempted to convey. Other than our comfort level regarding the overall litigation environment, which I just explained, I said that the January 31, 2007 date: - Provides the Board with the necessary time to complete the formal decision making process, and - Coincides with the timetable for the public announcement of Irene Rosenfeld's profitable growth strategy for Kraft, and thus address the potential overhang created by the tax-free distribution of close to 1.5 billion Kraft shares to Altria shareholders. I also added that "precise timing" meant the declaration of dividend record and distribution dates. Not surprisingly, I was pressed on the possible timing of any further restructuring plans, so I would like to take this opportunity to re-emphasize that we will act in chronological order and that for now our focus is entirely on ensuring the success of the Kraft spin. Finally, I stated that it would be naive to believe that some would not view this action as providing potential plaintiffs with some litigation leverage and that, accordingly, there may be attempts to enjoin the transaction. Any such injunction would have to be based on a finding that Altria is insolvent, would be insolvent ex-Kraft or intends to delay, hinder, or defraud creditors. We do not believe such a finding can be credibly and fairly made, and whilst there are no guarantees, we believe that any such attempts would ultimately fail, because the evidence weighs so heavily in our favor. On the first point, in view of the strength of our financial resources, it very frankly would defy logic to conclude that Altria is insolvent. On the second point, Altria is fortunate to have an all-star Board of Directors, which has always acted prudently, patiently and fairly in consideration of the interests of all the company's constituents. Financial Strength Altria's financial wherewithal is formidable. At the market close yesterday, our market capitalization, including Kraft, was approximately $172 billion and was about $121 billion ex-Kraft, which would still rank us in the top 20 S&P 500 companies. Altria's balance sheet ex-Kraft is stellar; many of you would characterize it as lazy. Consider that, despite the $4.8 billion debt-financed acquisition of Sampoerna in 2005, Altria is projected to have net debt of $2.3 billion at year-end 2006, and for the first time in the company's history, we project that cash will exceed debt in 2007 by close to $2.0 billion. Our financial strength has been recognized by the major credit rating agencies. All three now rate Altria triple-B plus with stable or positive outlooks, with Moody's upgrading Altria's rating from Baa2 to Baa1; S&P revising its outlook from stable to positive; and Fitch reaffirming its ratings, which were upgraded in May. The agencies have recognized the significant improvement in the litigation environment and Altria's financial strength, supported by large and predictable cash flows. These rating actions were made with full knowledge of the impending spin-off of Kraft. Shareholders' equity ex-Kraft is projected at approximately $12.6 billion at the end of this year, a significant improvement versus just three years ago. This includes an estimated $1.0 billion reduction for the combination of new pension accounting that will be effective by year-end 2006 and tax reserve accounting that will be adopted on January 1, 2007. These numbers ignore the current market valuation of our 28.7% stake in SABMiller. Indeed, if one were to mark-to-market this investment, shareholders' equity would be an estimated $16.0 billion for Altria, ex-Kraft. Altria is also one of the most profitable companies in the world, and our ability to generate strong cash flow ex-Kraft will remain undiminished, with cash flow reaching a cumulative level of some $51 billion over the next five years. This cash flow, in turn, enables us to reward shareholders with a handsome dividend. Our current pro-forma dividend yield ex-Kraft is 4.8%, which compares favorably to our global tobacco peers. A rarely reviewed, but nevertheless important, metric is Altria's overhang and run rate relative to employee stock grants. Since 2000, both measures have declined considerably, particularly after the adoption of restricted stock in lieu of options in 2002. As of September 30, 2006, the overhang was just 2.1%, while the annual run rate had declined to just 0.2%. Kraft Foods (Kraft) The restructuring strategy we are pursuing rests on a very compelling and indisputable rationale to enhance growth and create long-term value. An independent Kraft will enjoy enhanced flexibility and be armed with a host of new arrows in its quiver to drive long-term growth and value creation: - It will have overnight access to an acquisition currency that is not available to it today; - Be in a position to engage in alliances that potential partners would pursue eagerly, given the absence of a controlling shareholder; - Enhance its ability to pursue divestitures in a tax efficient manner; and - Have access to greater debt capacity, to name but a few of the benefits of independence. The absence of a controlling shareholder will also be accompanied by numerous other benefits. Simply put, Kraft will have the flexibility to review all policies and procedures and adapt them, if deemed necessary, to further drive its focus and culture, without regard to historical practice or Altria preferences. As the principal shareholder, Altria quite naturally imposes an additional level of review on Kraft management. While I, obviously, believe that this adds value, I remain unconvinced that all at Kraft have the same perception. I have often said that ultimate success in the consumer products industry relies on two critical ingredients, people and brands. In my opinion, Kraft will have a greater ability to attract, retain and motivate talented individuals by the sheer virtue of its full-fledged independence. Indeed, were it not for the imminent spin-off of Kraft, I do not believe that we would have been successful in attracting a leader of the caliber and immense talent of Irene Rosenfeld to take Kraft to the next level. I have no intention of pre-empting Irene's announcement of her long-term plan to achieve strong and predictable revenue and income growth at Kraft, which she will present in February at the Consumer Analyst Group of New York conference. However, I can tell you that Irene has already taken important steps toward revitalizing the organization, and has put in place structural and leadership changes designed to render Kraft more agile and creative and enable it to emphasize consumer-focused innovation that leverages its scale and the breadth of its portfolio. I am confident that the changes Irene has already made, and the plan she will announce early next year, will deliver better results going forward. Philip Morris USA (PM USA) Let me now address the growth opportunities of our tobacco businesses, beginning with Philip Morris USA. As we have stated for some time now, PM USA's overarching financial objective is to balance moderate share growth behind the strength of Marlboro and its three other focus brands with sustainable and predictable earnings growth. Results to date indicate that PM USA remains on track to meet its objectives of moderate share growth, driven by its focus brands, and operating companies income growth in the mid-single digits for the full year. Accordingly, 2006 results are squarely in line with PM USA's realistic long-term objective. This year, legislation or ballot initiatives to increase cigarette excise taxes were considered in 27 states and enacted in six. We are particularly gratified that last week, voters in California rejected Proposition 86, which would have significantly increased state excise taxes. PM USA will continue to oppose excessive cigarette excise tax increases and work with elected officials and law enforcement to minimize the unintended consequences of any tax increases. To enhance its growth profile, PM USA has embarked on an adjacency strategy with a particular focus on penetrating the growing and profitable smokeless category in a meaningful manner. Its first move in the smokeless category is the ongoing test market of Taboka in Indianapolis. We have learned much from this test and, while I cannot share our findings with you for obvious competitive reasons, I can state with confidence that our learnings will be translated into further action during the course of 2007. While it is too early to provide specific guidance for 2007, PM USA will continue to build on its terrific stable of strong brands, which includes Marlboro, Parliament, Virginia Slims and Basic, with an exciting pipeline of new products that will be launched in both the smoking and smokeless categories, and we are confident that PM USA will ultimately accelerate its growth in revenues and income in the years to come. Philip Morris International (PMI) Philip Morris International's performance in the last few years has raised legitimate questions regarding its growth going forward. Over the last five years, volume has grown at a compound annual growth rate of 3.5% and operating companies income at 7.9%. This earnings performance has admittedly been flattered by the impact of acquisitions and favorable currency movements. Excluding both, operating companies income grew at a compound annual rate of 5.4%. That PMI was able to record such aggregate income growth in the face of unprecedented tax increases, significant consumption declines and surges in the lowest price segments in France, Italy, Germany and Spain is testament to the resilience and broad geographic diversity of PMI's business. Indeed, it is my sentiment that in Western Europe the worst is behind us and that the confluence of events that hurt our recent past performance is unlikely to be repeated with such magnitude. Furthermore, it is my belief that PMI has emerged in a stronger position, having achieved considerable success in advocating fair tax structures in those markets. In France, the government's minimum reference price regulations have been in place since mid-2004. The resulting narrowing of price gaps has enhanced government revenues, while allowing PMI to drive volume, share and income growth. In Italy, the government implemented minimum reference price regulations in early 2005, which has stabilized the market and reduced price gaps. We now enjoy solid growth momentum in this important market. The elimination of the excise tax benefit enjoyed by tobacco portions in Germany was clearly a good step. However, the pending value added tax increase's impact on market dynamics remains a concern for next year. Importantly, several actions we have taken in the recent past have significantly reinforced our competitive position. L&M is performing strongly, we lead the growing cigarillo segment and we have just launched a novel fine cut product. In Spain, the minimum excise tax was increased last Friday. We are clearly very pleased by this action, which should improve our income prospects going forward. It is too early to pronounce the end of debilitating price wars that have affected several markets in recent years, but my own view is that while the competitive environment will continue to be fierce, the sole focus on market share and volume gains may attenuate as: - The benefits of synergies derived from industry consolidation disappear; - Cost reductions become more difficult to obtain; and - Governments enact fairer tax structures. Such a development would clearly mitigate the adverse mix, both product and geographic, that has negatively impacted PMI's recent income growth rate. PMI's share of the international cigarette market was 15.0% in 2005. Its share of the OECD markets was 33.8%, while its share of the non-OECD markets including China was just 9.7%, and 18.9% excluding it. PMI continues to grow its market share across all geographic regions and particularly in emerging markets, which have hitherto been viewed as a structural weakness for PMI. This growth has been driven by PMI's strong brand portfolio, led by Marlboro, which has robustly withstood a barrage of price discounting and continues to display very strong and consistently high metrics in terms of consumer feedback and demographic profile, across virtually all markets. Indeed, excluding inventory movements, Marlboro's in-market sales volume is estimated to be up more than half a percentage point for the full year 2006. PMI continues to nurture Marlboro's brand equity and expand its offerings to meet and/or anticipate consumer taste and strength preferences. Two notable examples are Marlboro Wides and Marlboro Filter Plus. Marlboro Wides has been launched in France, Spain, Portugal, Mexico and Sweden. The brand is performing well and in line with our expectations, and we are adapting our learnings as we roll the brand out to other markets. Consumers clearly find the premium packaging to be attractive. Trial rates are high. The novel cigarette dimension provides for a very smooth smoke, but it requires a different draw than that applied to more conventional cigarettes, and thus it will take time to unleash the real potential of this product, and for consumers to appreciate its very different smoking experience. Marlboro Filter Plus will be launched imminently in South Korea. It is a real innovation in terms of packaging, cigarette and filter construction, and delivers amazing taste for a one-milligram machine-tested tar product. While I am obviously partial, I can tell you that it is the best-tasting one-milligram product I have ever smoked. It is very much a true Marlboro that combines the brand's unique characteristics and heritage, yet it is vibrantly contemporary and novel. We have high expectations for this exciting line extension in Korea and other markets. PMI's acquisition history has been stellar in terms of providing market entry, scale, strong brands and attractive economic returns. While organic growth is, and has always been, PMI's clear focus, acquisitions will continue to be pursued vigorously. PMI's acquisition of Sampoerna in Indonesia was its largest ever. This financially attractive acquisition provided a significant presence in one of the largest markets in the world, with good growth potential. The business performance has been terrific on both the top and bottom line. PMI's shipments grew strongly in the third quarter of 2006 and market share rose to an impressive 28.2%, with particularly strong performance in Jakarta, where PMI's share is now 50%. Indonesia has now become one of PMI's top five volume and income markets and we project operating companies income of close to $600 million this year. PMI's presence in numerous markets is still minimal and its long-term growth prospects and opportunities in the cigarette market continue to be exciting. Recall that last year I pointed out that less than 5% of PMI's income is derived from markets that represent more than 60% of the international cigarette market. I can think of no better way to highlight the earnings growth opportunity that awaits PMI in the years ahead. Conclusion We are very close to implementing the corporate strategy that I outlined to you two years ago. I remain convinced that our forthcoming corporate restructuring will unleash tremendous value for shareholders, and amply reward them for their patience, loyalty and perseverance through some admittedly tough times. Thank you.

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