Philip Morris Executives Address Morgan Stanley Dean Witter Global Consumer Conference

Business Wire, Nov 8, 2000

We are also tailoring our coffee business to meet demand in the away-from-home segment through aggressive branded initiatives. In Europe, this segment accounts for 22 percent of coffee sales and is growing around 2 percent annually. We are the leader here, with a 10 percent and growing share.

Our fast-adapt program -- which capitalizes on our global brand portfolio -- has produced a number of transatlantic winners. One is Lunchables, which has been introduced in several European markets. Volume growth has more than doubled over the past two years. In addition, we've successfully adapted North America's Handi-Snacks brand in seven European markets, including in the UK under the Dairylea Dunkers brand name.

International food has enjoyed cumulative savings over the last three years of nearly a half-billion dollars, or 3.4 percent of costs.

And that has helped our financial performance. Margins last year were a record 12.3 percent -- a level exceeding the performances of Nestle, Danone and Unilever. I want to point out that our year-to-date margins are up again -- to 13.2 percent, an impressive 1.4-point gain over the same period last year.

Year-to-date through September, volume is up a solid 3.3 percent. And operating income increased 6.4 percent. But if you exclude the adverse currency impact of $46 million, income would have been up a very strong 12.6 percent.

At Miller Brewing Company, we are taking long-term strategic actions to build the business. We are focusing on our core brands and on selling premium products for premium prices. And we are building stronger relationships with distributors and customers, developing a more dynamic organization, and strengthening our marketing efforts.

For example, Miller is working to create world-class advertising that reaches its target audience, and the company is supporting that advertising with comprehensive marketing programs. We are also maximizing our manufacturing capacity through our contract brewing agreements, which have proved quite profitable.

And finally, two industry trends should benefit Miller. The first is favorable demographics. An increase in the number of 21 to 27 year olds will contribute to a significant volume growth rate -- estimated at 1.7 percent annually over the next five years.

The second is better economic fundamentals, due to consolidation. On the manufacturing side, this trend has removed excess capacity, so that all major brewers are now operating at over 90 percent of capacity.

Volume for our flagship Miller Lite brand has been up slightly, but Miller's total domestic shipments this year have been down 2 percent, which is disappointing. This reflects higher pricing and Miller's continuing efforts to reduce distributor inventories. However, operating income was up 8 percent, due to higher pricing and contract brewing.

We believe that the new management team at Miller has put in place the right strategies to capitalize on improving industry trends by revitalizing and strengthening its advertising, sales execution and distributor relationships.