Pricing Considerations – Economic Conditions Employment rates Housing starts Consumer confidence PM USA continuously monitors key indicators to understand the conditions of adult smokers.
Pricing Considerations – Price Gap Marlboro Net Price $6.50 $5.86 Price Gap = ~35% $4.38 $4.27 Lowest Effective Price $3.04 $0.00 2009 2010 2011 2012 2013 Note: Marlboro excludes Marlboro 72mm Lowest = Actual Lowest Effective Pack Price (without PM USA Premium) Source: IRI/Capstone Pricing Database; IRI Sales Advantage Sample - ending 12/29/13
Pricing Considerations – Competitive Dynamics Leading Premium Premium Cigarettes Segment Domestic Cigarette Brands 75% 75% 63.8% 61.2% 2009 2013 2009 2013 Source: IRI/MSAi Cigarettes 2013 – Total US Blended Share
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Middleton’s Retail Share Average Annual Decline = ~0.6pp 31.7% 29.4% 2009 2013 In a competitive environment, Middleton has focused on income growth, while managing share performance. Note: The IRI InfoScan 2013 service was implemented to read market share in 2011 and beyond. Share in 2009-2010 reflects estimates based on share changes derived from 2009-2010 IRI InfoScan 2011 service. Source: IRI InfoScan 2011 and 2013
Smokeable Products Income Growth Adjusted OCI* $ in Billions $7.5 +4.2% $6.4 CAGR $5.2 $0.0 2008 2013 *For reconciliation of non-GAAP to GAAP measures visit altria.com Source: Altria company reports
Smokeless Products Companies’ Strategy Increase income by growing volume at or ahead of the category growth rate, while maintaining modest share momentum on Copenhagen and Skoal combined
Smokeless Products Segment Performance Smokeless Products Copenhagen & Skoal Shipment Volume Combined Retail Share +5.1% ~+0.9pp/yr CAGR average 788 50.7% 47.3% 646 2009 2013 2009 2013 Note: Reported domestic shipment volume for USSTC and PM USA cans and Note: The IRI InfoScan 2013 service was implemented to read market share in 2011 and beyond. Share in 2009-2010 reflects estimates based on share changes derived from 2009-2010 IRI InfoScan 2011 service. packs in millions Source: Altria company reports Source: IRI InfoScan 2011 and 2013
Copenhagen and Skoal Retail Share 60% 50.7% 47.3% 21.4% 40% 24.8% 20% 29.3% 22.5% 0% 2009 2013 Copenhagen Skoal Note: The IRI InfoScan 2013 service was implemented to read market share in 2011 and beyond. Share in 2009-2010 reflects estimates based on share changes derived from 2009-2010 IRI InfoScan 2011 service. Source: IRI InfoScan 2011 and 2013
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Copenhagen ’s Share of Natural Segment 100% 75% This space is blank because brand images which appeared 50% in the original presentation 25% have been removed. 0% Natural Segment Source: IRI Group InfoScan Smokeless Tobacco Database (FY 2012 – Retail Share) Source: IRI InfoScan Retail Share FY 2013
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Copenhagen Wintergreen Retail Share 10% This space is blank because 5% brand images which appeared in the original presentation have been removed. 0% 2009 2011 2013 Note: The IRI InfoScan 2013 service was implemented to read market share in 2011 and beyond. Share in 2009-2010 reflects estimates based on share changes derived from 2009-2010 IRI InfoScan 2011 service. Source: IRI InfoScan 2011 and 2013
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Skoal Classic and X-TRA This space is blank because brand images which appeared in the original presentation have been removed.
Skoal Share Performance and Price Gap Skoal Retail Share 2013 Price Per Can 55% price gap 30% $6 24.8% 21.4% 20% $4 10% $2 0% $0 2009 2013 Classic Leading Discount Note: The IRI InfoScan 2013 service was implemented to read market share in 2011 and beyond. Share in 2009-2010 reflects estimates based on share changes derived from 2009-2010 IRI InfoScan 2011 service. * Source: IRI InfoScan 2011 and 2013
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“80 Days of Saturdays” Website Direct Mail This space is blank because brand images which appeared in the original presentation have been removed.
Smokeless Products Adjusted OCI* $ in Millions +12.9% $1,200 CAGR $1,026 $632 $600 $0 2009 2013 *For reconciliation of non-GAAP to GAAP measures visit altria.com Source: Altria company reports
Altria’s Tobacco Businesses
Agenda Maximizing income from our core tobacco businesses Approach to innovation Diverse business model and strong balance sheet Regulatory capabilities Delivering shareholder returns
Deep expertise and Altria service companies’ scale Acquire complementary products, technologies and capabilities Third-party agreements
U.S. E-Vapor Consumer Expenditures $ in Billions +80% $1.5 CAGR ~$1.0 $0.5 $0.3 $0.0 2011 2012 2013 Source: ALCS MICR estimates
E-Vapor Awareness and Trial Awareness Trial* ~90% 63% 39% 28% November 2013 November May November 2012 2013 2013 Source: ALCS/MICR e-Cigarette Awareness & Usage Study among Adult Smokers 21-54 * Among Adult smokers aware of e-cigarettes
E-Vapor Category Growth Product innovation Regulation Taxation Many adult smokers and vapers are still looking for a product that meets their requirements and desires.
Nu Mark’s Goal and Approach Launched MarkTen e-cigarettes in Indiana and Arizona Announced the agreement to acquire the e-vapor business of Green Smoke Signed agreements with Philip Morris International (PMI) Nu Mark’s goal is to achieve leadership in the U.S. e-vapor category.
MarkTen Expansion This space is blank because brand images which appeared in the original presentation have been removed. Nu Mark plans to expand MarkTen e-cigarettes nationally beginning in Q2 2014.
Creating a Path to E-Vapor Leadership Product superiority and innovation Premium brand building Distribution and customer partnerships Supply chain capability Regulatory and government affairs capability
MarkTen E-Cigarettes Indiana – August 2013 First MarkTen test market Arizona – December 2013 Improved flavor systems for Classic and Menthol USB charger added to single unit pack
MarkTen Distribution in Arizona ~1,900 stores This space is blank because brand images which appeared in the original presentation have been removed. Note: As of January 28, 2014 Source: STARS Cigarette & e-Cigarette report ending 11/23/13; coverage represents YTD volume
MarkTen Test Market Retail Cartridge Share % 60 48% This space is blank because brand images which appeared Arizona in the original presentation have been removed. 0 Week 0 for MarkTen AZ - 12-15-13 Source: IRI InfoScan TDN Projected Retail Database ending 02/02/2014, (4-week moving average)
Green Smoke Agreement to acquire the e-vapor business of Green Smoke, Inc. for ~$110 million Manufacturing and marketing high-quality, premium products since 2009 E xpands Nu Mark’s product portfolio, including a larger product format and a new brand Expect the transaction to be completed by the second quarter of 2014 Note: Third party trademarks are the property of their respective owners and are included for informational purposes only.
Altria Strategic Agreements with PMI Exclusive license to PMI to commercialize e-vapor products internationally Cooperation on regulatory engagement Contract manufacturing arrangements
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Agreements on PMI Next Generation Products Exclusive U.S. license to Altria to sell two of PMI’s heated tobacco products Cooperation on regulatory engagement related to heated tobacco products Our agreements with PMI support Altria’s broader strategy to create a robust portfolio of innovative products for adult tobacco consumers.
Agenda Maximizing income from our core tobacco businesses Approach to innovation Diverse business model and strong balance sheet Regulatory capabilities Delivering shareholder returns
Diverse Business Model Delivers Financial Objectives 27% Economic Interest Note: Third party trademarks are the property of their respective owners and are included for informational purposes only.
Smokeable Products Segment Performance Net Revenue per 1000* Adjusted OCI Margins* Adjusted OCI * - $ in Billions +5.2% +4.2% +8.4pp CAGR CAGR $6.4 42.2% $116.60 $5.2 $90.46 33.8% 2008 2013 2008 2013 2008 2013 Note: Net of FET *For reconciliation of non-GAAP to GAAP measures visit altria.com Source: Altria company reports
Smokeless Products Segment Performance Smokeless Products Copenhagen & Skoal Shipment Volume Combined Retail Share Adjusted OCI* - $ in Millions +12.9% +5.1% ~+0.9 pp/yr CAGR CAGR average 788 $1,026 50.7% 47.3% 646 $632 2009 2013 2009 2013 2009 2013 Note: Reported domestic shipment volume for USSTC and PM USA. Cans and packs in millions. *For reconciliation of non-GAAP to GAAP measures visit altria.com Source: Altria company reports
Cost Management Altria delivered ~$2 billion in productivity savings PM USA has efficiently managed costs
Cost Management Smokeable Products Controllable Costs/1000* FETRA Expense - $ in Millions +0.6% ~$400 CAGR $28.69 $27.81 ~$300 $0 2008 2013 2013 2014 2015 * For reconciliations of non-GAAP to GAAP measures visit www.altria.com Note: FETRA refers to the Fair and Equitable Tobacco Reform Act of 2004 Source: ALCS Finance
Altria’s Alcohol Interests This space is blank because brand images which appeared in the original presentation have been removed. Note: Third party trademarks are the property of their respective owners and are included for informational purposes only. Note: Third party trademarks are the property of their respective owners and are included for informational purposes only.
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SABMiller Delivers Strong Income Growth Equity Earnings - $ in Millions Market Value - $ in Billions +16.2% CAGR $991 $19.4 $467 $7.3 2008 2013 December 2008 January 2014 Source: Altria company reports Source: Bloomberg
Ste. Michelle Wine Estates 90+ Ratings 221 193 187 159 “Winery of the Year” 2010 2011 2012 2013 for the 19 th time Note: Third party trademarks are the property of their respective owners and are included for informational purposes only. Source: Altria company reports
Ste. Michelle Wine Estates Adjusted OCI* - $ in Millions +12.8% $118 CAGR $73 2009 2013 * For reconciliations of non-GAAP to GAAP measures visit www.altria.com Source: Altria company reports
Progress Unwinding PMCC Business Net Finance Receivable - $ in Billions $9.4 $5.7 $2.0 2002 2008 2013 Note: Net Finance Receivables reflects PMCC’s investments in finance leases excluding the allowance for losses. Source: Altria company reports
PMCC Income Contribution Year-end Portfolio - # of Assets Adjusted OCI* - $ in Millions Lease Income, Other (Primarily net of expenses Gains from Asset Sales) $289 61 55 $238 49 $183 38 $157 $141 29 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 *For reconciliations of non-GAAP to GAAP measures visit www.altria.com Source: Altria company reports; ALCS Finance
Altria’s Strong Balance Sheet Provides stability and liquidity Supports Altria’s investment grade credit rating Enhances ability to return cash to shareholders
2012-2013 Capital Markets Activities Tendered for high-coupon debt Replaced with lower cost debt Improved debt maturity profile Lowered future interest expense
Reduced Weighted Average Coupon Rate (3.2)pp 9.1% 5.9% December 2009 December 2013 Source: ALCS Finance
Altria’s Strong Dividend Annualized Dividend Current Dividend Yield +8.8% 5.4% CAGR $1.92 $1.16 2.7% 2.1% Altria 10-yr UST S&P 500 2007 2013 Note: As of February 14, 2014 Note: Annualized rate: 6-year CAGR assumes the post-PMI spin-off dividend of $0.29 per common share was the end of 2007 dividend rate. Source: Altria company reports Source: Bloomberg
Share Repurchase Programs ~$4.2 billion in shares repurchased since PMI spin-off ~$540 million in shares repurchased through end of 2013 Current $1 billion repurchase program Expect to complete program by end of Q3 2014 Timing of share repurchases depends upon marketplace conditions and other factors
Diverse Business Model 27% Economic Interest Note: Third party trademarks are the property of their respective owners and are included for informational purposes only.
Altria’s Consistent EPS Growth Adjusted Diluted EPS* - YOY % Change 9.3% 8.6% 7.9% 7.8% 7.7% 6.1% 2008 2009 2010 2011 2012 2013 * For reconciliation of non-GAAP to GAAP measures visit altria.com Source: Altria company reports
2014 Guidance Altria reaffirms it expects its 2014 full-year adjusted diluted EPS* to increase by 6% to 9% to a range of $2.52 to $2.59 from its 2013 adjusted diluted EPS base of $2.38 per share. * For reconciliation of non-GAAP to GAAP measures visit altria.com Source: Altria company reports
2014 Guidance Core tobacco businesses are positioned to deliver strong income growth Benefit from lower interest expense, a lower effective tax rate and a reduction in shares from the current share repurchase program Plan to continue making investments to build Nu Mark’s e -vapor business Expect continued variability in adjusted operating companies income at PMCC
Agenda Maximizing income from our core tobacco businesses Approach to innovation Diverse business model and strong balance sheet Regulatory capabilities Delivering shareholder returns
Experience Note: Third party trademarks are the property of their respective owners and are included for informational purposes only.
Strong Regulatory Capabilities Building a constructive and enduring relationship with FDA Compliance Engagement and advocacy
Altria’s Engagement with FDA Docket submissions Meetings with FDA TPSAC Presentations Public workshops Published scientific papers Presentations at scientific conferences
Altria’s Compliance Efforts Registering manufacturing facilities Listing of our companies’ tobacco products Submitting ingredient information Inspections of our registered facilities Hosting FDA at our facilities Conducting internal regulatory training
Regulatory Update – Substantial Equivalence FDA has said substantial equivalence is a priority Applications pending for in-market products and products not yet introduced
Regulatory Update – Menthol Comments submitted to FDA - November 2013 Menthol cigarettes do not affect population harm differently than non- menthol cigarettes FDA is reviewing nearly 200,000 stakeholder comments “The science - and evidence-based information continues to demonstrate that regulatory actions or restrictions, including those on sales, distribution, promotion or advertising, are neither necessary nor justified.”
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