KRAFT FOODS Six-Month Update. September 5, 2007

Transcription

1 KRAFT FOODS Six-Month Update September 5, 2007

2 Forward-Looking Statements This presentation contains forward-looking statements regarding our four strategies to get Kraft growing, specifically that redesigning our organizational structure will be completed by early 2008, that exploiting our sales capabilities will be completed ed by mid-2008, that it will drive down costs and that targeted markets are e ahead of revenue growth expectations; our expected use of cash; our 2007 priority investments, specifically that we're driving organic growth in every region and changing EU growth trajectory from declining to growing; that market share is turning ng positive for Macaroni and Cheese; that Pizza will have stronger growth in H2 and that higher margin new products like Ultimate will w grow pizza margins over time; that Biscuits investments will raise organic net revenue growth from 4% in H1 and improve biscuit it share trends exiting 2007; that LiveActive cottage cheese is driving 4%+ category growth; that Kraft snacking cheese will surpass $500 million by 2010; that the total Cheese revenue growth rate will double in H2 from 3% in H1; our confidence that we can improve profit margins in 2008; that the Maxwell House relaunch will drive improved coffee trends in Q4 and will gain market share; our expectation to double Tassimo revenues to over $300 million in the next 3 years; our intent to change the EU's growth trajectory for Coffee and Chocolate; that we will maintain momentum in Developing Markets; our organic net revenue growth equation; e our organic net revenue growth expectations by geography; and our 2007 guidance, specifically, organic net revenue growth, reported EPS and EPS excluding one-time items. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those predicted in any such forward-looking statements. Such factors, include, but are not limited to, unexpected safety or manufacturing issues, FDA or other regulatory actions or delays, increased competition, pricing, difficulty in obtaining materials from suppliers, higher input costs, inventory levels, our ability y to protect our proprietary rights, our ability to realize the expected cost savings from our planned restructuring program, our ability to remain focused on the business and our strategic initiatives, unanticipated expenses such as litigation, legal settlement and other expenses, increased costs of sales, our indebtedness and our ability to pay our indebtedness, the shift in product mix to lower margin offerings, our ability to differentiate our products from private label products and risks from operating internationally. ally. We caution that the foregoing list of important factors is not exclusive. For additional information on these and other factors s that could affect our forward-looking statements, see our filings with the SEC, including our most recent Annual Report on Form 10-K K and subsequent reports on Form 10-Q Q and Form 8-K. 8 Any forward-looking statements in this presentation are made as of the date hereof. We disclaim and do not undertake any obligation to update or revise any forward-looking statement in this presentation. 2

3 Progress Report Strategic plan update 2007 priority investments Financial review 3

4 Four Strategies to Get Kraft Growing 1. Rewire organization for growth 2. Reframe categories 3. Exploit sales capabilities 4. Drive down costs without compromising quality 4

5 1. Rewire Organization for Growth Built a new management team ~50% of senior leaders new to Kraft or position Changed incentive systems Annual bonuses tied to business segment performance Long-term incentive plan aligned with key drivers of value creation 5

6 Organizing for Growth Implementing new organizational structure Built around three elements 1. Self-contained business units with full P&L responsibility 2. Scale-driven shared services 3. Streamlined corporate staff Rollout completed by early

7 2. Reframe Categories In-depth assessment of each category, by country Evaluated growth potential, relative market share and profitability Prioritized where to invest Established a framework to leverage consumer trends Defined how we will invest Quick Meals Health & Wellness Premium Snacking 7

8 2. Reframe Categories In-depth assessment of each category, by country Evaluated growth potential, relative market share and profitability Prioritized where to invest Established a framework to leverage consumer trends Defined how we will invest H & W Now making bulk of initial investments Quick Meals Snacking Premium 8

9 3. Exploit Sales Capabilities Wall-to to-wall Increase frequency of store visits Reduce out-of of-stocks New items on shelves quicker Increase display activity Initial results Currently rolled out to ~30% ACV 0.3% incremental revenue growth in roll-out out markets Generating biscuit growth 0.5% incremental growth target Retooling training 35% ACV in Q3 Mid-2008 completion 9

10 3. Exploit Sales Capabilities Traditional Trade Expansion Kraft historically focused on modern trade Most developing market consumers shop traditional trade Investing in select markets Russia Ukraine Mexico Brazil 10

11 4. Drive Down Costs Without Compromising Quality Doubled number of products consumers consider Superior in past 18 months Taking significant actions to reduce costs $1 billion Restructuring* savings on track 2007 savings coming in faster; costs lower Further overhead opportunities * Our restructuring program includes asset impairment, implementation, and exit costs. 11

12 4. Drive Down Costs Without Compromising Quality Cannot save our way to growth; must also Differentiate products Improve advertising Higher share of voice in core categories 12

13 Progress Report Strategic plan update 2007 priority investments Financial review 13

14 2007 Priority Investments Incremental $300-$400 $400 million to support more robust pipeline of new ideas Expect to spend at high end of range ~85% of spending on quality, marketing and new products ¾ of spending in the back half of the year 14

15 2007 Priority Investments Prioritizing investments on biggest opportunities Accelerate revenue growth Improve market share performance Set the stage for enhanced profit margins in 2008 Driving organic* growth in every geography Step-up growth in North America Change EU growth trajectory declining to growing Maintain momentum in Developing Markets * Organic net revenue is defined as net revenue excluding the impacts of acquisitions, divestitures and currency 15

16 Step-Up Growth in North America Majority of spending focused on five core categories Macaroni and Cheese Pizza Biscuits Cheese Coffee Timing of investments predicated on speed of development, quality of ideas 16

17 Macaroni and Cheese Quick Meals Snacking Premium Reformulated Blue Box, Deluxe, and Velveeta New EZ Mac Cups enter snack arena New, premium Bistro Deluxe targets 50+, smaller family households Double-digit marketing increase 17

18 Macaroni and Cheese Quick Meals Snacking Premium 7% H1 revenue growth after 3 years of no growth Market share trend turning positive in Q3 18

19 Pizza Quick Meals Premium New DiGiorno Ultimate accounts for 1/3 of all new product sales in category Higher quality toppings on mainstream pizza 30% marketing increase in 2007 with emphasis in H2 40 additional pizza DSD routes 19

20 Pizza Quick Meals Premium 7% H1 growth versus 4% over last three years Stronger growth in H2 Higher margin new products like Ultimate will grow pizza margins over time 20

21 Biscuits H & W Snacking Extended patented Snack-N- Seal innovation to base Oreo Reformulated for the best tasting Ritz ever New Oreo Cakesters enter $1bn snack cakes category Highly incremental Shipments 50% ahead of plan Launching Nabisco Garden Harvest fruit, vegetable chips 21

22 Biscuits H & W Snacking 2007 marketing spending up double-digits digits for all core biscuit brands Stronger H2 push behind new products Biscuit investments will Raise organic net revenue* growth from 4% in H1 Improve biscuit share trends exiting 2007 * Organic net revenue is defined as net revenue excluding the impacts of acquisitions, divestitures and currency 22

23 H & W Cheese Premium Snacking Launching LiveActive cheeses First entry into $500 million pre/probiotic probiotic food category Category growing >50% LiveActive cottage cheese 76% incremental to cottage cheese category year-to to-date Sourcing half its consumption from yogurt Driving 4%+ category growth year-to to-date Now launching LiveActive snacking cheese 23

24 H & W Cheese Premium Snacking Launching Singles Select to compete with $1bn deli-cheese segment Marketing up 50% in H2 vs PY Expanding pilot for Snacking Cheese Centers to 2,000 stores Kraft snacking cheese to surpass $500 million by

25 H & W Cheese Premium Snacking Total Cheese revenue growth rate to double in H2 from 3% in H1 Profit margins impacted by dairy costs and investments in 2007 Confident we can improve profit margins in

26 Coffee Premium Reformulating Maxwell House with 100% Arabica beans Purchase intent +54% among non-mh buyers Purchase intent +15% among current buyers Introducing consumer- preferred, plastic 3lb container Q4 marketing spend double prior year 26

27 Coffee Premium Maxwell House relaunch will drive improved coffee trends in Q4 Revenue growth after years of declines Gain market share We will sustain momentum as we support program into

28 Coffee Premium Revamped Tassimo platform Focused on heavy users and profit per machine sold Lowered absolute spending while delivering higher t-disk t consumption per machine ~70% revenue growth in H1 on a global basis 28

29 Coffee Premium Tassimo partnering with Starbucks Starbucks branded t-discs t available in December New global alliance with Bosch Next generation Tassimo brewers to leverage new Bosch technology We expect to double Tassimo revenues to over $300 million in next 3 years 29

30 Step-Up Growth in North America 30

31 Kraft International 2007 investments reflect a back to basics approach Incremental investments behind two, billion dollar brands 31

32 Change EU s Growth Trajectory EU Coffee is a $2.5 billion business Business now growing after three years of no growth Double-digit marketing increase behind core brands Tassimo taking Jacobs, Carte Noire, Kenco up value chain Tassimo growing 65% year-to to-date 32

33 Change EU s Growth Trajectory EU Chocolate is a $2 billion business Business growing mid-single single-digits after being flat for three years Rebuilding core Milka equity Significant increase in marketing Extension into premium 33

34 Maintain Momentum in Developing Markets Investing in core brands Tang with nutritional benefits driving brand in EEMA Quality upgrade driving Lacta growth in Latin America New wafer products growing Oreo in Asia-Pacific Building distribution in key markets to capture growth outside modern trade channel 34

35 Progress Report Strategic plan update 2007 priority investments Financial review 35

36 Organic Net Revenue* Growth Equation 4%-plus in the long term, driven by: Accelerated volume growth on core businesses Improving product mix Share gains from new products, marketing Pricing to recover input cost inflation * Organic net revenue is defined as net revenue excluding the impacts of acquisitions, divestitures and currency 36

37 Growth Expectations Vary by Geography Organic Net Revenue* Growth CAGR LT Target North America 3.4% 3-5% European Union (0.5) 1-3 Developing Markets Total Kraft 3.1% 4%-plus *Organic net revenue is defined as net revenue excluding the impacts of acquisitions, divestitures, currency and currency mix changes. Reported revenues for were 3.4% for NA, 2.9% for EU, 9.9% for DM, and 4.1% for total Kraft. The differences are primarily due to the year-over-year impacts from currency as the impacts of acquisitions and divestitures were insignificant. 37

38 Delivering Reliable Growth 2007 Guidance Organic net revenue* growth expectation raised to 4%-plus Investing at high end of $300 - $400 million range Reported EPS raised to $ $1.62 from $ $1.60 EPS excluding one-time items** raised to $ $1.82 from $ $1.80 Organic net revenue is defined as net revenue excluding the impacts of acquisitions, divestitures and currency **EPS excluding one-time items less Restructuring Program costs of $0.23 per fully diluted share, plus $0.03 per fully diluted share for the first quarter 2007 recognition of one-time interest income related tax reserve transfers from Altria Group, Inc. equals Reported EPS 38

39 KRAFT FOODS Six-Month Update 39