Form 8-K Philip Morris Internatio For: Jul 18

July 18, 2019 9:03 AM


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 8-K



CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 18, 2019



Philip Morris International Inc.
(Exact name of registrant as specified in its charter)


 
 
 
 
 
Virginia
 
1-33708
 
13-3435103
(State or other jurisdiction
of incorporation)
 
(Commission File Number)
 
(I.R.S. Employer
Identification No.)


 
 
 
120 Park Avenue, New York, New York
 
10017-5592
(Address of principal executive offices)
 
(Zip Code)
Registrant's telephone number, including area code: (917) 663-2000
(Former name or former address, if changed since last report.)








Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:


o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)


o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)


o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))


o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))




Securities registered pursuant to Section 12(b) of the Act:


Title of each class                    
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, no par value
 
PM
 
New York Stock Exchange
1.875% Notes due 2019
 
PM19D
 
New York Stock Exchange
2.000% Notes due 2020
 
PM20B
 
New York Stock Exchange
Floating Notes due 2020
 
PM20C
 
New York Stock Exchange
1.750% Notes due 2020
 
PM20A
 
New York Stock Exchange
4.500% Notes due 2020
 
PM20
 
New York Stock Exchange
1.875% Notes due 2021
 
PM21B
 
New York Stock Exchange
1.875% Notes due 2021
 
PM21C
 
New York Stock Exchange
4.125% Notes due 2021
 
PM21
 
New York Stock Exchange
2.900% Notes due 2021
 
PM21A
 
New York Stock Exchange
2.625% Notes due 2022
 
PM22A
 
New York Stock Exchange
2.375% Notes due 2022
 
PM22B
 
New York Stock Exchange
2.500% Notes due 2022
 
PM22
 
New York Stock Exchange
2.500% Notes due 2022
 
PM22C
 
New York Stock Exchange
2.625% Notes due 2023
 
PM23
 
New York Stock Exchange
2.125% Notes due 2023
 
PM23B
 
New York Stock Exchange
3.600% Notes due 2023
 
PM23A
 
New York Stock Exchange






Title of each class                    
 
Trading Symbol(s)
 
Name of each exchange on which registered
2.875% Notes due 2024
 
PM24
 
New York Stock Exchange
2.875% Notes due 2024
 
PM24C
 
New York Stock Exchange
0.625% Notes due 2024
 
PM24B
 
New York Stock Exchange
3.250% Notes due 2024
 
PM24A
 
New York Stock Exchange
2.750% Notes due 2025
 
PM25
 
New York Stock Exchange
3.375% Notes due 2025
 
PM25A
 
New York Stock Exchange
2.750% Notes due 2026
 
PM26A
 
New York Stock Exchange
2.875% Notes due 2026
 
PM26
 
New York Stock Exchange
3.125% Notes due 2027
 
PM27
 
New York Stock Exchange
3.125% Notes due 2028
 
PM28
 
New York Stock Exchange
2.875% Notes due 2029
 
PM29
 
New York Stock Exchange
3.375% Notes due 2029
 
PM29A
 
New York Stock Exchange
3.125% Notes due 2033
 
PM33
 
New York Stock Exchange
2.000% Notes due 2036
 
PM36
 
New York Stock Exchange
1.875% Notes due 2037
 
PM37A
 
New York Stock Exchange
6.375% Notes due 2038
 
PM38
 
New York Stock Exchange
4.375% Notes due 2041
 
PM41
 
New York Stock Exchange
4.500% Notes due 2042
 
PM42
 
New York Stock Exchange
3.875% Notes due 2042
 
PM42A
 
New York Stock Exchange
4.125% Notes due 2043
 
PM43
 
New York Stock Exchange
4.875% Notes due 2043
 
PM43A
 
New York Stock Exchange
4.250% Notes due 2044
 
PM44
 
New York Stock Exchange


Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
                                                
         Emerging growth company
o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
  

o







Item 2.02.
Results of Operations and Financial Condition.


On July 18, 2019, Philip Morris International Inc. (the “Company”) issued a press release announcing its financial results for the quarter ended June 30, 2019. The earnings release is attached as Exhibit 99.1 to this Current Report on Form 8-K and incorporated by reference to this Item 2.02.

In accordance with General Instruction B.2 of Form 8-K, the information in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information in Item 2.02 of this Current Report on Form 8-K shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as may be expressly set forth by specific reference in such filing or document.

Item 7.01.
Regulation FD Disclosure.

On July 18, 2019, the Company held a live audio webcast to discuss its financial results for the quarter ended June 30, 2019. In connection with the webcast, the Company is furnishing to the Securities and Exchange Commission the following documents attached as exhibits to this Current Report on Form 8-K and incorporated by reference to this Item 7.01: the conference call script attached as Exhibit 99.2 hereto and the webcast slides attached as Exhibit 99.3 hereto.

In accordance with General Instruction B.2 of Form 8-K, the information in Item 7.01 of this Current Report on Form 8-K, including Exhibits 99.2 and 99.3, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information in Item 7.01 of this Current Report on Form 8-K shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as may be expressly set forth by specific reference in such filing or document.




Item 9.01.
Financial Statements and Exhibits.
 
 
(d)
Exhibits
 
 
99.1
 
 
99.2
 
 
99.3









SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 
 
 
PHILIP MORRIS INTERNATIONAL INC.
 
 
By:
 
/s/ JERRY WHITSON
Name:
 
Jerry Whitson
Title:
 
Deputy General Counsel
and Corporate Secretary
DATE: July 18, 2019






Exhibit 99.1

PRESS RELEASE
 
pmilogoera01a01a01a18.jpg
 
 
 
 
 
Investor Relations:
 
Media:
 
 
New York: +1 (917) 663 2233
 
Lausanne: +41 (0)58 242 4500
 
 
Lausanne: +41 (0)58 242 4666
 
Email: Iro.Antoniadou@pmi.com
 
 
Email: InvestorRelations@pmi.com
 
 
 
 
PHILIP MORRIS INTERNATIONAL INC. REPORTS 2019 SECOND-QUARTER REPORTED DILUTED EPS OF $1.49 VS. $ 1.41 IN 2018, REFLECTING CURRENCY-NEUTRAL LIKE-FOR-LIKE ADJUSTED DILUTED EPS GROWTH OF 15.0%;
INCREASES 2019 FULL-YEAR REPORTED DILUTED EPS FORECAST TO AT LEAST $4.94 (FROM AT LEAST $4.87) VS. $5.08 IN 2018; REFLECTING CURRENCY-NEUTRAL LIKE-FOR-LIKE ADJUSTED DILUTED EPS GROWTH OF AT LEAST 9%

NEW YORK, July 18, 2019 – Philip Morris International Inc. (NYSE: PM) today announced its 2019 second-quarter results and increases its 2019 full-year reported diluted earnings per share forecast. Comparisons presented in this press release on a "like-for-like" basis reflect pro forma 2018 results, which have been adjusted for the deconsolidation of PMI's Canadian subsidiary, Rothmans, Benson & Hedges, Inc. (RBH), effective March 22, 2019 (the date of deconsolidation). In addition, reflecting the deconsolidation, PMI's total market share has been restated for previous periods.
2019 SECOND-QUARTER & YEAR-TO-DATE HIGHLIGHTS
2019 Second-Quarter
Reported diluted EPS of $1.49, up by 5.7%; up by 10.6%, excluding currency
Adjusted diluted EPS of $1.46, up by 3.5%; up by 15.0% on a like-for-like basis, excluding currency
Cigarette and heated tobacco unit shipment volume down by 1.4% (down by 0.7% on a like-for-like basis), reflecting cigarette shipment volume down by 3.6% and heated tobacco unit shipment volume up by 37.0%
Net revenues down by 0.3%; up by 9.0% on a like-for-like basis, excluding currency
Operating income up by 3.0%; up by 8.4%, excluding currency
Adjusted operating income up by 15.7% on a like-for-like basis, excluding currency
Adjusted operating income margin, excluding currency, increased by 2.4 points to 41.4% on a like-for-like basis
PMI declared a regular quarterly dividend of $1.14, representing an annualized rate of $4.56 per common share
The U.S. Food and Drug Administration announced that the marketing of IQOS, PMI's electrically heated tobacco system, is appropriate for the protection of public health and authorized it for sale in the United States

2019 Six Months Year-to-Date
Reported diluted EPS of $2.36, down by 2.1%; up by 3.3%, excluding currency
Adjusted diluted EPS of $2.55, up by 5.8%; up by 15.0% on a like-for-like basis, excluding currency
Cigarette and heated tobacco unit shipment volume down by 0.2% (up by 0.1% on a like-for-like basis), reflecting cigarette shipment volume down by 1.9% and heated tobacco unit shipment volume up by 29.2%
Net revenues down by 1.2%; up by 6.2% on a like-for-like basis, excluding currency
Operating income down by 5.1%; up by 0.5%, excluding currency
Adjusted operating income up by 12.7% on a like-for-like basis, excluding currency





Adjusted operating income margin, excluding currency, increased by 2.2 points to 39.4% on a like-for-like basis
"Building on our encouraging start to the year, we delivered another strong quarter that continues to demonstrate the soundness of our strategies and the quality of our execution," said André Calantzopoulos, Chief Executive Officer.
"Of particular note is our combined cigarette and heated tobacco unit shipment volume, which -- for the first six months of the year -- was up by 0.1% on a like-for-like basis. This positive performance was led by robust in-market heated tobacco unit year-to-date sales growth of 34.0%, making HEETS/HeatSticks, combined, a top-ten international tobacco brand, despite only being present in approximately one quarter of our markets. In the markets where they are sold, our heated tobacco brands held a sizable combined share of 5.0% year-to-date, driving a total international share of 2.1%, up by 0.6 points."
"Our strong year-to-date results are the reason behind today's announcement to increase our full-year guidance and raise our currency-neutral, like-for-like 2019 full-year adjusted diluted EPS growth rate by one percentage point to at least 9% in a further demonstration of our overall confidence in PMI's short and long-term growth prospects. This projection includes additional investment behind our RRP portfolio to support geographic expansion and portfolio development that should help us enter 2020 in an even stronger position."
2019 FULL-YEAR FORECAST
 
Full-Year
2019 EPS Forecast
2019 Forecast
 
2018
Adjusted Growth
 
 
 
 
 
 
 
 
Reported Diluted EPS
$4.94
(a) 
$5.08
 
 


2018 Tax items
 

 
0.02

 
 
 
2019 Tax items
 
(0.04
)
 

 
 
 
2019 Asset impairment and exit costs
 
0.03

 

 
 
 
2019 Canadian tobacco litigation-related expense
 
0.09

 

 
 
 
2019 Loss on deconsolidation of RBH
 
0.12

 

 
 
 
Adjusted Diluted EPS
 
$5.14
 
$5.10
 
 


Net earnings attributable to RBH
 
 
 
(0.26
)
(b) 
 
 
Adjusted Diluted EPS
 
$5.14
 
$4.84
(c) 
 


Currency
 
(0.14
)
 
 
 
 
 
Adjusted Diluted EPS, excl. currency
 
$5.28
 
$4.84
(c) 
9
%
 
 
 
 
 
 
 
 
(a) Reflects the exclusion of previously anticipated net EPS of approximately $0.28 attributable to RBH from March 22, 2019 through December 31, 2019. The impact relating to the eight-day stub period was not material.

(b) Net reported diluted EPS attributable to RBH from March 22, 2018 through December 31, 2018.
(c) Pro forma.
PMI revises its full-year 2019 reported diluted EPS forecast to be at least $4.94 at prevailing exchange rates, compared to the previously communicated forecast of at least $4.87, versus $5.08 in 2018.
This revised full-year guidance reflects:
The net impact of the loss on deconsolidation of PMI's Canadian subsidiary Rothmans, Benson & Hedges Inc. (RBH) under U.S. GAAP of approximately $0.12 per share, recorded in the first quarter of 2019, which is a non-cash item, as well as the Canadian tobacco litigation-related expense of approximately $0.09 per share;

- -2 -



The exclusion, announced on March 22, 2019, of RBH’s previously anticipated net earnings from PMI’s consolidated financial statements, from March 22, 2019 (the date of deconsolidation) to December 31, 2019, of approximately $0.28 per share;
Asset impairment and exit costs of approximately $0.03 per share resulting from plant closures as part of global manufacturing infrastructure optimization, reflecting: $0.01 per share related to Pakistan recorded in the first quarter of 2019; and $0.02 per share related to Colombia ($0.01 per share recorded in the second quarter of 2019 and $0.01 per share anticipated in the third quarter of 2019);
A favorable tax item of $0.04 per share related to a reduction in estimated U.S. federal income tax on dividend repatriation for the years 2015-2018;
An unfavorable currency impact, at prevailing exchange rates, of approximately $0.14;
A full-year effective tax rate of approximately 23%, excluding discrete tax items and Loss on Deconsolidation of RBH; and
A projected increase of at least 9%, excluding currency, versus pro forma adjusted diluted earnings per share of $4.84 in 2018, as detailed in the attached Schedule 3 and as shown in the 2019 EPS Forecast table above.
2019 Full-Year Forecast Overview & Assumptions
This forecast assumes:
A total cigarette and heated tobacco unit shipment volume decline for PMI of approximately 1.0%, on a like-for-like basis, compared to the previously disclosed range of approximately 1.5% to 2.0%;
An estimated total international industry volume decline, excluding China and the U.S., at the lower end of the previously disclosed range of approximately 2.5% to 3.0%; and
Currency-neutral net revenue growth of at least 6% on a like-for-like basis, compared to the previously disclosed assumption of at least 5%, which includes an adverse impact of approximately 0.7 points related to the move to highly inflationary accounting in Argentina resulting in the treatment of the U.S. dollar as the functional currency of the company’s Argentinian affiliates.
This forecast further assumes:
Net incremental investment behind RRPs of approximately $400 million for the full year 2019, compared to the previously disclosed estimate of approximately $300 million. Approximately half of the total net incremental investment of $400 million is expected in the third quarter;
An increase in full-year currency-neutral, like-for-like adjusted operating income margin of at least 100 basis points compared to 2018;
Operating cash flow of approximately $9.5 billion, subject to year-end working capital requirements;
Capital expenditures of approximately $1.1 billion; and
No share repurchases.
This forecast excludes the impact of any future acquisitions, unanticipated asset impairment and exit cost charges, future changes in currency exchange rates, further developments related to the Tax Cuts and Jobs Act, further developments pertaining to the judgment in the two Québec Class Action lawsuits and the Companies’ Creditors Arrangement Act (CCAA) protection granted to RBH and any unusual events. This forecast also excludes the contemplated proposal, previously communicated by PMI's local affiliate, to end cigarette production in Berlin,

- -3 -



Germany, by January 2020. Factors described in the Forward-Looking and Cautionary Statements section of this release represent continuing risks to these projections.
FDA Authorization for Sale of IQOS in the United States
On April 30, 2019, the U.S. Food and Drug Administration (FDA) announced that the marketing of IQOS, PMI's electrically heated tobacco system, is appropriate for the protection of public health and authorized it for sale in the United States. The FDA’s decision follows its comprehensive assessment of PMI’s premarket tobacco product applications (PMTAs) submitted to the Agency in 2017.
PMI will bring IQOS to the U.S. through an exclusive license with Altria Group, Inc., whose subsidiary, Philip Morris USA, will market the product and comply with the provisions set forth in the FDA's marketing order, and has the expertise and infrastructure to ensure a successful launch, beginning with the initial lead market of Atlanta, Georgia.
For additional information about the FDA's marketing order, see the FDA News Release of April 30, 2019, set out at the end of this release.
Conference Call
A conference call, hosted by Martin King, Chief Financial Officer, will be webcast at 9:00 a.m., Eastern Time, on July 18, 2019. Access is at www.pmi.com/2019Q2earnings. The audio webcast may also be accessed on iOS or Android devices by downloading PMI’s free Investor Relations Mobile Application at www.pmi.com/irapp.

- -4 -



CONSOLIDATED SHIPMENT VOLUME & MARKET SHARE
PMI Shipment Volume by Region
 
Second-Quarter
 
Six Months Year-to-Date
(million units)
 
2019

2018

Change

 
2019

2018

Change

Cigarettes
 
 
 
 
 
 
 
 
European Union
 
46,367

47,984

(3.4
)%
 
85,855

87,655

(2.1
)%
Eastern Europe
 
27,080

28,454

(4.8
)%
 
47,400

50,493

(6.1
)%
Middle East & Africa
 
31,659

34,177

(7.4
)%
 
64,963

63,425

2.4
 %
South & Southeast Asia
 
46,376

44,788

3.5
 %
 
87,868

85,006

3.4
 %
East Asia & Australia
 
13,845

15,114

(8.4
)%
 
25,958

29,205

(11.1
)%
Latin America & Canada
 
18,472

20,204

(8.6
)%
 
36,052

39,217

(8.1
)%
Total PMI
 
183,799

190,721

(3.6
)%
 
348,096

355,001

(1.9
)%
 
 
 
 
 
 
 
 
 
Heated Tobacco Units
 
 
 
 
 
 
 
 
European Union
 
3,043

1,195

+100%

 
5,336

2,123

+100%

Eastern Europe
 
2,807

951

+100%

 
4,355

1,515

+100%

Middle East & Africa
 
719

971

(26.0
)%
 
1,473

1,680

(12.3
)%
South & Southeast Asia
 


 %
 


 %
East Asia & Australia
 
8,428

7,838

7.5
 %
 
15,277

15,180

0.6
 %
Latin America & Canada
 
59

32

84.4
 %
 
113

55

+100%

Total PMI
 
15,056

10,987

37.0
 %
 
26,554

20,553

29.2
 %
 
 
 
 
 
 
 
 
 
Cigarettes and Heated Tobacco Units
 
 
 
 
 
 
 
 
European Union
 
49,410

49,179

0.5
 %
 
91,191

89,778

1.6
 %
Eastern Europe
 
29,887

29,405

1.6
 %
 
51,755

52,008

(0.5
)%
Middle East & Africa
 
32,378

35,148

(7.9
)%
 
66,436

65,105

2.0
 %
South & Southeast Asia
 
46,376

44,788

3.5
 %
 
87,868

85,006

3.4
 %
East Asia & Australia
 
22,273

22,952

(3.0
)%
 
41,235

44,385

(7.1
)%
Latin America & Canada
 
18,531

20,236

(8.4
)%
 
36,165

39,272

(7.9
)%
Total PMI
 
198,855

201,708

(1.4
)%
 
374,650

375,554

(0.2
)%
Second-Quarter
PMI's total shipment volume decreased by 1.4%, or by 0.7% on a like-for-like basis, principally due to:
Middle East & Africa, reflecting lower cigarette shipment volume, notably Saudi Arabia and Turkey, partly offset by Egypt;
East Asia & Australia, reflecting lower cigarette shipment volume in Japan and lower cigarette and heated tobacco unit shipment volume in Korea, partly offset by higher heated tobacco unit shipment volume in Japan; and
Latin America & Canada, reflecting lower cigarette shipment volume, principally in Argentina, Canada (reflecting the impact of the deconsolidation of RBH), and Venezuela, partly offset by Mexico. On a like-for-like basis, PMI's total shipment volume in the Region decreased by 1.4%;
partly offset by
the EU, reflecting higher heated tobacco unit shipment volume across the Region, partly offset by lower cigarette shipment volume, notably France, Germany and Italy, partially offset by Poland;
Eastern Europe, reflecting higher heated tobacco unit shipment volume across the Region, notably Russia and Ukraine, partly offset by lower cigarette shipment volume, mainly Russia and Ukraine; and

- -5 -



South & Southeast Asia, reflecting higher cigarette shipment volume, principally in Pakistan and Thailand.
Impact of Inventory Movements
On a like-for-like basis, excluding the net unfavorable impact of estimated distributor inventory movements of approximately 0.2 billion units, PMI’s total in-market sales declined by 0.6%, due to a 2.6% decline of cigarette in-market sales, partially offset by a 33.3% increase in heated tobacco unit in-market sales.
Six Months Year-to-Date
PMI's total shipment volume decreased by 0.2%, or increased by 0.1% on a like-for-like basis, due to:
Eastern Europe, reflecting lower cigarette shipment volume, principally in Russia and Ukraine, partly offset by higher heated tobacco unit shipment volume across the Region, notably Kazakhstan, Russia and Ukraine;
East Asia & Australia, reflecting lower cigarette shipment volume in Japan, lower cigarette and heated tobacco unit shipment volume in Korea, partly offset by higher heated tobacco unit shipment volume in Japan; and
Latin America & Canada, reflecting lower cigarette shipment volume, principally in Argentina, Canada (primarily reflecting the impact of the deconsolidation of RBH), and Venezuela, partly offset by Mexico. On a like-for-like basis, PMI's total shipment volume in the Region decreased by 4.4%;
partly offset by
the EU, reflecting higher heated tobacco unit shipment volume across the Region, and higher cigarette shipment volume in Poland and Spain, partly offset by lower cigarette shipment volume in France and Italy;
Middle East & Africa, primarily reflecting higher cigarette shipment volume, notably Egypt, Saudi Arabia and Turkey, partly offset by lower cigarette shipment volume in PMI Duty Free and Tunisia; and
South & Southeast Asia, reflecting higher cigarette shipment volume, principally in Pakistan, the Philippines and Thailand, partly offset by Indonesia.
Impact of Inventory Movements
On a like-for-like basis, excluding the net unfavorable impact of estimated distributor inventory movements of approximately 1.3 billion units, PMI’s total in-market sales growth was 0.5%, driven by a 34.0% increase in heated tobacco unit in-market sales, partly offset by a 1.4% decline of cigarette in-market sales.

- -6 -



PMI Shipment Volume by Brand

PMI Shipment Volume by Brand
 
Second-Quarter
 
Six Months Year-to-Date
(million units)
 
2019

2018

Change

 
2019

2018

Change

Cigarettes
 
 
 
 
 
 
 
 
Marlboro
 
68,060

68,893

(1.2
)%
 
128,024

126,866

0.9
 %
L&M
 
23,522

23,196

1.4
 %
 
45,337

42,422

6.9
 %
Chesterfield
 
14,202

14,926

(4.8
)%
 
28,501

28,801

(1.0
)%
Philip Morris
 
12,950

12,523

3.4
 %
 
23,673

23,182

2.1
 %
Parliament
 
9,847

10,993

(10.4
)%
 
18,677

19,453

(4.0
)%
Sampoerna A
 
9,355

10,174

(8.0
)%
 
17,256

18,798

(8.2
)%
Dji Sam Soe
 
7,839

6,877

14.0
 %
 
14,490

13,573

6.8
 %
Bond Street
 
7,741

8,390

(7.7
)%
 
13,412

15,365

(12.7
)%
Lark
 
5,349

5,969

(10.4
)%
 
10,619

11,546

(8.0
)%
Fortune
 
3,441

4,155

(17.2
)%
 
6,487

7,739

(16.2
)%
Others
 
21,493

24,625

(12.7
)%
 
41,620

47,256

(11.9
)%
Total Cigarettes
 
183,799

190,721

(3.6
)%
 
348,096

355,001

(1.9
)%
Heated Tobacco Units
 
15,056

10,987

37.0
 %
 
26,554

20,553

29.2
 %
Total PMI
 
198,855

201,708

(1.4
)%
 
374,650

375,554

(0.2
)%
Note: Sampoerna A includes Sampoerna; Philip Morris includes Philip Morris/Dubliss; and Lark includes Lark Harmony.

Second-Quarter
PMI's cigarette shipment volume of the following brands decreased:
Marlboro, mainly due to Italy and Japan, partly reflecting the impact of out-switching to heated tobacco units, as well as France and Saudi Arabia, partly offset by Indonesia, Mexico, the Philippines and Turkey;
Chesterfield, mainly due to Argentina, Russia, Saudi Arabia, Turkey and Venezuela, partly offset by Brazil, Mexico and Morocco;
Parliament, mainly due to Russia and Turkey;
Sampoerna A in Indonesia, mainly reflecting the impact of retail price increases resulting in widened price gaps with competitors' products and the impact of estimated trade inventory movements following the absence of an excise tax increase in January 2019;
Bond Street, mainly due to Russia and Ukraine;
Lark, mainly due to Turkey;
Fortune in the Philippines, mainly reflecting up-trading to Marlboro resulting from a narrowed price gap; and
"Others," notably due to: the impact of the deconsolidation of RBH in Canada; mid-price Sampoerna U in Indonesia, partly reflecting the impact of above-inflation retail price increases; and low-price brands, notably in Russia, partly offset by low-price brands in Pakistan.
The increase in PMI's heated tobacco unit shipment volume was mainly driven by the EU, notably Italy, Eastern Europe, notably Russia and Ukraine, as well as Japan, partly offset by Korea and PMI Duty Free.
PMI's cigarette shipment volume of the following brands increased:
L&M, mainly driven by Egypt and Thailand, partly offset by Russia, Saudi Arabia and Turkey;
Philip Morris, mainly driven by Indonesia and Russia, partly offset by Argentina; and
Dji Sam Soe in Indonesia, driven by the strong performance of the DSS Magnum Mild 16 variant and the introduction of 20s and 50s variants.

- -7 -



International Share of Market
PMI's total international market share (excluding China and the United States), defined as PMI's cigarette and heated tobacco unit sales volume as a percentage of total industry cigarette and heated tobacco unit sales volume, increased by 0.1 point to 28.3%, reflecting:
Total international cigarette market share of 26.2%, down by 0.4 points; and
Total international heated tobacco unit market share of 2.1%, up by 0.5 points.
PMI's total international cigarette market share, defined as PMI's cigarette sales volume as a percentage of total industry cigarette sales volume, was 26.9%, down by 0.3 points.
Six Months Year-to-Date
PMI's cigarette shipment volume of the following brands decreased:
Chesterfield, mainly due to Argentina, Italy, Russia and Venezuela, partly offset by Brazil, Mexico, Morocco and Poland;
Parliament, mainly due to Korea and Russia, partly offset by Turkey;
Sampoerna A in Indonesia, reflecting the same factors as in the quarter;
Bond Street, mainly due to Russia and Ukraine;
Lark, mainly due to Japan and Turkey;
Fortune in the Philippines, mainly reflecting up-trading to Marlboro resulting from a narrowed price gap; and
"Others," notably due to: the impact of the deconsolidation of RBH in Canada; mid-price Sampoerna U in Indonesia, partly reflecting the impact of above-inflation retail price increases; and low-price brands, notably in Mexico and Russia, partly offset by mid and low-price brands in Pakistan.
The increase in PMI's heated tobacco unit shipment volume was mainly driven by: the EU, notably Italy, Eastern Europe, notably Russia and Ukraine, and Japan; partly offset by Korea and PMI Duty Free.
PMI's cigarette shipment volume of the following brands increased:
Marlboro, mainly driven by Indonesia, Mexico, the Philippines, Saudi Arabia and Turkey, partially offset by Italy and Japan, partly reflecting the impact of out-switching to heated tobacco units, as well as France and PMI Duty Free;
L&M, mainly driven by Egypt, Saudi Arabia and Thailand, partly offset by Russia and Turkey;
Philip Morris, mainly driven by Indonesia and Russia, partly offset by Argentina; and
Dji Sam Soe in Indonesia, driven by the same factors as for the quarter.
International Share of Market
PMI's total international market share (excluding China and the United States), defined as PMI's cigarette and heated tobacco unit sales volume as a percentage of total industry cigarette and heated tobacco unit sales volume, increased by 0.5 points to 28.2%, reflecting:
Total international cigarette market share of 26.1%, down by 0.1 point; and
Total international heated tobacco unit market share of 2.1%, up by 0.6 points.
PMI's total international cigarette market share, defined as PMI's cigarette sales volume as a percentage of total industry cigarette sales volume, was 26.8%, up by 0.1 point.

- -8 -



CONSOLIDATED FINANCIAL SUMMARY

Second-Quarter
Financial Summary -
Quarters Ended June 30,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2019
2018
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(1)
(in millions)
 
 
 
Net Revenues
 
$ 7,699

$ 7,726

 
(0.3
)%
5.4
 %
 
(27
)
(447
)
459

209

(248
)
Cost of Sales
 
(2,665)

(2,744)

 
2.9
 %
(2.0
)%
 
79

134


(84
)
29

Marketing, Administration and Research Costs
 
(1,831)

(1,868)

 
2.0
 %
(5.9
)%
 
37

148



(111
)
Amortization of Intangibles
 
(16)

(21)

 
23.8
 %
23.8
 %
 
5




5

Operating Income
 
$ 3,187

$ 3,093

 
3.0
 %
8.4
 %
 
94

(165
)
459

125

(325
)
Asset Impairment & Exit Costs (2)
 
(23
)

 
 %
 %
 
(23
)



(23
)
Adjusted Operating Income
 
$ 3,210

$ 3,093

 
3.8
 %
9.1
 %
 
117

(165
)
459

125

(302
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
41.7
%
40.0
%
 
1.7pp

1.4pp

 
 
 
 
 
 
(1) Cost/Other variance includes the impact of the RBH deconsolidation.
(2) Included in Marketing, Administration and Research Costs above.
Net revenues, excluding unfavorable currency, increased by 5.4%, mainly reflecting: a favorable pricing variance, driven notably by Germany, Indonesia, Japan, the Philippines and Turkey, partly offset by Argentina; as well as a favorable volume/mix, mainly driven by favorable volume/mix of heated tobacco units, notably in the EU and Eastern Europe, partly offset by unfavorable volume/mix of cigarettes, mainly in the EU and East Asia & Australia. The currency-neutral growth in net revenues of 5.4% came despite the unfavorable impact of $248 million, shown in "Cost/Other," predominantly resulting from the deconsolidation of RBH. On a like-for-like basis, net revenues, excluding unfavorable currency, increased by 9.0%, as detailed in the attached Schedule 9.
Operating income, excluding unfavorable currency, increased by 8.4%. Excluding asset impairment and exit charges related to a plant closure in Colombia as part of global manufacturing infrastructure optimization, adjusted operating income, excluding unfavorable currency, increased by 9.1%, primarily reflecting: a favorable pricing variance; favorable volume/mix, notably in the EU; partly offset by higher manufacturing costs, higher marketing, administration and research costs and the net unfavorable impact resulting from the deconsolidation of RBH shown in "Cost/Other." On a like-for-like basis, adjusted operating income, excluding unfavorable currency, increased by 15.7%, as detailed in the attached Schedule 9.
Adjusted operating income margin, excluding currency, increased by 1.4 points to 41.4%, reflecting the factors mentioned above, as detailed in the attached Schedule 8, or by 2.4 points to 41.4% on a like-for-like basis, as detailed in the attached Schedule 9.

- -9 -



Six Months Year-to-Date
Financial Summary -
Six Months Ended June 30,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2019
2018
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(1)
(in millions)
 
 
 
Net Revenues
 
$ 14,450

$ 14,622

 
(1.2
)%
4.4
 %
 
(172
)
(816
)
687

194

(237
)
Cost of Sales
 
(5,130
)
(5,359
)
 
4.3
 %
(0.3
)%
 
229

244


(74
)
59

Marketing, Administration and Research Costs (2)
 
(4,048
)
(3,701
)
 
(9.4
)%
(16.5
)%
 
(347
)
262



(609
)
Amortization of Intangibles
 
(35
)
(43
)
 
18.6
 %
16.3
 %
 
8

1



7

Operating Income
 
$ 5,237

$ 5,519

 
(5.1
)%
0.5
 %
 
(282
)
(309
)
687

120

(780
)
Asset Impairment & Exit Costs (3)
 
(43
)

 
 %
 %
 
(43
)



(43
)
Canadian Tobacco Litigation-Related Expense (3)
 
(194
)

 
 %
 %
 
(194
)



(194
)
Loss on Deconsolidation of RBH (3)
 
(239
)

 
 %
 %
 
(239
)



(239
)
Adjusted Operating Income
 
$ 5,713

$ 5,519

 
3.5
 %
9.1
 %
 
194

(309
)
687

120

(304
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
39.5
%
37.7
%
 
1.8pp

1.7pp

 
 
 
 
 
 
(1) Cost/Other variance includes the impact of the RBH deconsolidation.
(2) Unfavorable Cost/Other variance includes the 2019 Canadian tobacco litigation-related expense, the loss on deconsolidation of RBH, asset impairment and exit costs, and the impact of the RBH deconsolidation.
(3) Included in Marketing, Administration and Research Costs above.
Net revenues, excluding unfavorable currency, increased by 4.4%, mainly reflecting: a favorable pricing variance, notably in Canada, Germany, Indonesia, Japan, the Philippines and Turkey, partly offset by Argentina and Saudi Arabia; and favorable volume/mix, mainly driven by favorable volume/mix of heated tobacco units in the EU and Eastern Europe, partly offset by unfavorable volume/mix of cigarettes, mainly in the EU, Eastern Europe and East Asia & Australia, as well as unfavorable volume/mix of heated tobacco units in East Asia & Australia. The currency-neutral growth in net revenues of 4.4% came despite the unfavorable impact of $237 million, shown in "Cost/Other," predominantly resulting from the deconsolidation of RBH. On a like-for-like basis, net revenues, excluding unfavorable currency, increased by 6.2%, as detailed in the attached Schedule 9.
Operating income, excluding unfavorable currency, increased by 0.5%. Excluding the loss on deconsolidation of RBH, the Canadian tobacco litigation-related expense, and asset impairment and exit charges related to plant closures in Colombia and Pakistan as part of global manufacturing infrastructure optimization, adjusted operating income, excluding unfavorable currency, increased by 9.1%, primarily reflecting: a favorable pricing variance; favorable volume/mix, mainly in the EU, partly offset by East Asia & Australia; and lower manufacturing costs; partly offset by higher marketing, administration and research costs, the net unfavorable impact resulting from the deconsolidation of RBH, shown in "Cost/Other," as well as increased investment behind reduced-risk products mainly in the EU and Eastern Europe. On a like-for-like basis, adjusted operating income, excluding unfavorable currency, increased by 12.7%, as detailed in the attached Schedule 9.
Adjusted operating income margin, excluding currency, increased by 1.7 points to 39.4%, reflecting the factors mentioned above, as detailed in the attached Schedule 8, or by 2.2 points to 39.4% on a like-for-like basis, as detailed in the attached Schedule 9.

- -10 -



EUROPEAN UNION REGION

Second-Quarter
Financial Summary -
Quarters Ended June 30,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2019
2018
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 2,577

$ 2,503

 
3.0
%
11.6
%
 
74

(216
)
84

206


 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 1,195

$ 1,177

 
1.5
%
11.8
%
 
18

(121
)
84

168

(113
)
Asset Impairment & Exit Costs
 


 
%
%
 





Adjusted Operating Income
 
$ 1,195

$ 1,177

 
1.5
%
11.8
%
 
18

(121
)
84

168

(113
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
46.4
%
47.0
%
 
(0.6)pp

0.1pp

 
 
 
 
 
 
Net revenues, excluding unfavorable currency, increased by 11.6%, reflecting a favorable pricing variance, driven principally by France and Germany, and favorable volume/mix, driven by favorable heated tobacco unit volume, notably in the Czech Republic, Germany, Italy and Poland, partly offset by unfavorable cigarette volume, notably in France and Italy, and unfavorable cigarette volume/mix in Germany.
Operating income, excluding unfavorable currency, increased by 11.8%, mainly reflecting: a favorable pricing variance; favorable volume/mix, notably in the Czech Republic, Italy and Poland, driven by heated tobacco unit volume, partly offset by lower cigarette volume, notably in France and Italy, and unfavorable volume/mix in Germany; partially offset by higher manufacturing costs and higher marketing, administration and research costs primarily related to reduced-risk products.
Adjusted operating income margin, excluding currency, increased by 0.1 point to 47.1%, reflecting the factors mentioned above, as detailed on Schedule 8.
Six Months Year-to-Date
Financial Summary -
Six Months Ended June 30,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2019
2018
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 4,736

$ 4,491

 
5.5
%
13.4
%
 
245

(359
)
152

452


 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 2,091

$ 1,917

 
9.1
%
19.2
%
 
174

(195
)
152

365

(148
)
Asset Impairment & Exit Costs
 


 
%
%
 





Adjusted Operating Income
 
$ 2,091

$ 1,917

 
9.1
%
19.2
%
 
174

(195
)
152

365

(148
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
44.2
%
42.7
%
 
1.5pp

2.2pp

 
 
 
 
 
 

- -11 -



Net revenues, excluding unfavorable currency, increased by 13.4%, reflecting a favorable pricing variance, driven principally by Germany, and favorable volume/mix, primarily reflecting favorable heated tobacco unit volume/mix, notably in the Czech Republic, Germany, Italy and Poland, partly offset by lower cigarette volume, notably in France and Italy, and lower cigarette volume/mix in Germany.
Operating income, excluding unfavorable currency, increased by 19.2%, mainly reflecting: a favorable pricing variance; favorable volume/mix, notably in the Czech Republic, Italy and Poland, driven by heated tobacco unit volume, partially offset by lower cigarette volume/mix, notably in France, Germany and Italy; partially offset by higher manufacturing costs and higher marketing, administration and research costs primarily related to reduced-risk products.
Adjusted operating income margin, excluding currency, increased by 2.2 points to 44.9%, reflecting the factors mentioned above, as detailed on Schedule 8.
Total Market, PMI Shipment & Market Share Commentaries

European Union Key Data
 
Second-Quarter
 
Six Months Year-to-Date
 
 
 
 
Change

 
 
 
Change

 
 
2019

2018

% / pp

 
2019

2018

% / pp

Total Market (billion units)
 
124.3

126.2

(1.5
)%
 
231.5

234.0

(1.1
)%
 
 
 
 
 
 
 
 
 
PMI Shipment Volume (million units)
 
 
 
 
 
 
 
 
Cigarettes
 
46,367

47,984

(3.4
)%
 
85,855

87,655

(2.1
)%
Heated Tobacco Units
 
3,043

1,195

+100.0%

 
5,336

2,123

+100.0%

Total EU
 
49,410

49,179

0.5
 %
 
91,191

89,778

1.6
 %
 
 
 
 
 
 
 
 
 
PMI Market Share
 
 
 
 
 
 
 
 
Marlboro
 
18.1
%
18.5
%
(0.4
)
 
18.1
%
18.4
%
(0.3
)
L&M
 
6.9
%
7.0
%
(0.1
)
 
6.8
%
6.9
%
(0.1
)
Chesterfield
 
5.8
%
5.9
%
(0.1
)
 
5.9
%
5.9
%

Philip Morris
 
2.7
%
2.9
%
(0.2
)
 
2.8
%
3.0
%
(0.2
)
HEETS
 
2.4
%
1.0
%
1.4

 
2.3
%
0.9
%
1.4

Others
 
3.0
%
3.1
%
(0.1
)
 
3.0
%
3.2
%
(0.2
)
Total EU
 
38.9
%
38.4
%
0.5

 
38.9
%
38.3
%
0.6

Second-Quarter
The estimated total market in the EU decreased by 1.5% to 124.3 billion units, mainly due to:
France, down by 6.6%, mainly due to the impact of significant excise-tax driven price increases, as well as an increase in the prevalence of illicit trade;
Germany, down by 3.4%, primarily reflecting the impact of price increases in the first quarter of 2019; and
Italy, down by 3.1%, primarily reflecting the impact of price increases in the first quarter of 2019;
partly offset by
Poland, up by 8.0%, primarily reflecting a lower prevalence of illicit trade.
PMI's total shipment volume increased by 0.5% to 49.4 billion units, notably driven by:

- -12 -



higher heated tobacco unit shipment volume across the Region, notably Italy, driven by higher market share; and
higher cigarette shipment volume, notably in Poland, driven by the higher total market;
partly offset by:
lower cigarette shipment volume, mainly in France and Germany due to the lower total market, and Italy, due to the lower total market and lower cigarette market share.
Six Months Year-to-Date
The estimated total market in the EU decreased by 1.1% to 231.5 billion units, notably due to:
France, down by 7.3%, primarily reflecting the impact of price increases in 2018 and the first quarter of 2019;
Germany, down by 3.7%, primarily reflecting the impact of price increases in 2018 and the first quarter of 2019; and
Italy, down by 3.0%, primarily reflecting the impact of price increases in 2018 and the first quarter of 2019;
partly offset by
Poland, up by 8.0%, reflecting the same factors as in the quarter; and
Spain, up by 0.9%, partly reflecting a lower prevalence of illicit trade.
PMI's total shipment volume increased by 1.6% to 91.2 billion units, notably driven by:
higher heated tobacco unit shipment volume across the Region, notably Italy, driven by higher market share; and
higher cigarette shipment volume, notably in Poland, mainly driven by the higher total market;
partly offset by
lower cigarette shipment volume, mainly in France due to the lower total market, and Italy, due to the lower total market and lower cigarette market share.

- -13 -



EASTERN EUROPE REGION
Second-Quarter
Financial Summary -
Quarters Ended June 30,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2019
2018
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 822

$ 760

 
8.2
 %
16.8
%
 
62

(66
)
36

92


 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 256

$ 261

 
(1.9
)%
4.2
%
 
(5
)
(16
)
36

27

(52
)
Asset Impairment & Exit Costs
 


 
 %
%
 





Adjusted Operating Income
 
$ 256

$ 261

 
(1.9
)%
4.2
%
 
(5
)
(16
)
36

27

(52
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
31.1
%
34.3
%
 
(3.2)pp

(3.7)pp

 
 
 
 
 
 
Net revenues, excluding unfavorable currency, increased by 16.8%, reflecting a favorable pricing variance, driven notably by Russia and Ukraine, and favorable volume/mix, predominantly driven by heated tobacco unit volume in Russia, partly offset by lower cigarette volume/mix in Russia.
Operating income, excluding unfavorable currency, increased by 4.2%, reflecting: a favorable pricing variance; favorable volume/mix, predominantly driven by heated tobacco unit volume in Russia, partly offset by lower cigarette volume/mix in Russia; partly offset by higher marketing, administration and research costs, notably reflecting increased investments behind reduced-risk products, primarily in Russia in support of geographic expansion.
Adjusted operating income margin, excluding currency, decreased by 3.7 points to 30.6%, reflecting the factors mentioned above, as detailed on Schedule 8.
Six Months Year-to-Date
Financial Summary -
Six Months Ended June 30,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2019
2018
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 1,401

$ 1,327

 
5.6
 %
15.4
%
 
74

(130
)
53

151


 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 385

$ 412

 
(6.6
)%
1.9
%
 
(27
)
(35
)
53

41

(86
)
Asset Impairment & Exit Costs
 


 
 %
%
 





Adjusted Operating Income
 
$ 385

$ 412

 
(6.6
)%
1.9
%
 
(27
)
(35
)
53

41

(86
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
27.5
%
31.0
%
 
(3.5)pp

(3.6)pp

 
 
 
 
 
 
Net revenues, excluding unfavorable currency, increased by 15.4%, reflecting a favorable pricing variance, driven notably by Ukraine, and favorable volume/mix, predominantly driven by heated tobacco unit volume in Russia, partly offset by lower cigarette volume/mix in Russia.
Operating income, excluding unfavorable currency, increased by 1.9%, reflecting: a favorable pricing variance; favorable volume/mix, predominantly driven by heated tobacco unit volume in Russia, partly offset by lower cigarette volume/mix in Russia; partly offset by higher manufacturing costs and higher marketing, administration and research

- -14 -



costs, notably reflecting increased investments behind reduced-risk products, primarily in Russia in support of geographic expansion.
Adjusted operating income margin, excluding currency, decreased by 3.6 points to 27.4%, reflecting the factors mentioned above, as detailed on Schedule 8.
Total Market, PMI Shipment & Market Share Commentaries    

PMI Shipment Volume
 
Second-Quarter
 
Six Months Year-to-Date
(million units)
 
2019

2018

Change

 
2019

2018

Change

Cigarettes
 
27,080

28,454

(4.8
)%
 
47,400

50,493

(6.1
)%
Heated Tobacco Units
 
2,807

951

+100.0%

 
4,355

1,515

+100.0%

Total Eastern Europe
 
29,887

29,405

1.6
 %
 
51,755

52,008

(0.5
)%
Second-Quarter
The estimated total market in Eastern Europe decreased, notably due to:
Russia, down by 3.8%, primarily reflecting the impact of price increases, as well as an increase in the prevalence of illicit trade; and
Ukraine, down by 14.5%, primarily reflecting the impact of excise tax-driven price increases, as well as an increase in the prevalence of illicit trade.
PMI's total shipment volume increased by 1.6% to 29.9 billion units, driven by:
Kazakhstan, up by 11.7%, reflecting a higher total market and a higher market share of heated tobacco units; and
Russia, up by 1.1%, reflecting a higher market share of heated tobacco units, partially offset by the lower total market;
partly offset by
Ukraine, down by 4.3%, reflecting a lower total market, partly offset by higher market share of cigarettes and heated tobacco units.
Six Months Year-to-Date
The estimated total market in Eastern Europe decreased, notably due to:
Russia, down by 4.9%, reflecting the same factors as in the quarter, as well as the unfavorable impact in the first quarter of 2019 of estimated trade inventory movements in certain key accounts; and
Ukraine, down by 12.8%, reflecting the same factors as in the quarter.
PMI's total shipment volume decreased by 0.5% to 51.8 billion units, primarily in:
Russia, down by 1.5%. Excluding the net unfavorable impact of estimated distributor inventory movements of 0.5 billion units, primarily of heated tobacco units, PMI's in-market sales growth was 0.3%, reflecting a higher market share of heated tobacco units, partially offset by the lower total market;
partly offset by
Kazakhstan, up by 11.9%, reflecting a higher total market and a higher market share of heated tobacco units.

- -15 -



MIDDLE EAST & AFRICA REGION
Second-Quarter
Financial Summary -
Quarters Ended June 30,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2019
2018
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 1,004

$ 1,022

 
(1.8
)%
7.0
%
 
(18
)
(90
)
115

(48
)
5

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 441

$ 403

 
9.4
 %
20.8
%
 
38

(46
)
115

(47
)
16

Asset Impairment & Exit Costs
 


 
 %
%
 





Adjusted Operating Income
 
$ 441

$ 403

 
9.4
 %
20.8
%
 
38

(46
)
115

(47
)
16

 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
43.9
%
39.4
%
 
4.5pp

5.1pp

 
 
 
 
 
 
Net revenues, excluding unfavorable currency, increased by 7.0%, primarily reflecting a favorable pricing variance, driven predominantly by Turkey, partly offset by unfavorable volume/mix, notably due to unfavorable heated tobacco unit volume in PMI Duty Free, and unfavorable cigarette volume in the GCC, primarily Saudi Arabia, and Turkey, partly offset by Egypt.
Operating income, excluding unfavorable currency, increased by 20.8%, mainly reflecting a favorable pricing variance and lower manufacturing costs, partly offset by unfavorable volume/mix, notably due to unfavorable cigarette and heated tobacco unit volume in PMI Duty Free, and unfavorable cigarette volume in the GCC, primarily Saudi Arabia, and Turkey.
Adjusted operating income margin, excluding currency, increased by 5.1 points to 44.5%, reflecting the factors mentioned above, as detailed on Schedule 8.

- -16 -



Six Months Year-to-Date
Financial Summary -
Six Months Ended June 30,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2019
2018
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 1,931

$ 1,983

 
(2.6
)%
5.3
%
 
(52
)
(158
)
65

25

16

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 785

$ 777

 
1.0
 %
10.3
%
 
8

(72
)
65

(12
)
27

Asset Impairment & Exit Costs
 


 
 %
%
 





Adjusted Operating Income
 
$ 785

$ 777

 
1.0
 %
10.3
%
 
8

(72
)
65

(12
)
27

 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
40.7
%
39.2
%
 
1.5pp

1.8pp

 
 
 
 
 
 
Net revenues, excluding unfavorable currency, increased by 5.3%, mainly reflecting: a favorable pricing variance, driven by Egypt, PMI Duty Free and Turkey, partly offset by Saudi Arabia; favorable volume/mix, driven by favorable cigarette volume/mix, notably in Saudi Arabia and Turkey, partly offset by unfavorable cigarette and heated tobacco unit volume in PMI Duty Free; and a favorable cost/other variance mainly driven by the timing of other revenues.
Operating income, excluding unfavorable currency, increased by 10.3%, mainly reflecting: a favorable pricing variance, lower manufacturing costs and a favorable cost/other variance, as noted above; partly offset by unfavorable volume/mix, notably due to unfavorable cigarette and heated tobacco unit volume in PMI Duty Free, partly offset by favorable cigarette volume/mix in Saudi Arabia and favorable cigarette volume in Turkey.
Adjusted operating income margin, excluding currency, increased by 1.8 points to 41.0%, reflecting the factors mentioned above, as detailed on Schedule 8.
Total Market, PMI Shipment & Market Share Commentaries    

PMI Shipment Volume
 
Second-Quarter
 
Six Months Year-to-Date
(million units)
 
2019

2018

Change

 
2019

2018

Change

Cigarettes
 
31,659

34,177

(7.4
)%
 
64,963

63,425

2.4
 %
Heated Tobacco Units
 
719

971

(26.0
)%
 
1,473

1,680

(12.3
)%
Total Middle East & Africa
 
32,378

35,148

(7.9
)%
 
66,436

65,105

2.0
 %
Second-Quarter
The estimated total market in the Middle East & Africa increased, notably driven by:
Saudi Arabia, up by 6.7%, primarily reflecting a favorable comparison with the second quarter of 2018, which was down by 23.8% mainly due to the impact of retail price increases in 2017 and the first quarter of 2018 following the introduction of the new excise tax in June 2017 and VAT in January 2018, respectively; and
Turkey, up by 9.2%, mainly reflecting a lower prevalence of illicit trade;

partly offset by
Egypt, down by 4.7%, mainly due to the impact of price increases in 2018.
PMI's total shipment volume decreased by 7.9% to 32.4 billion units, notably in:

- -17 -



PMI Duty Free, down by 8.5%. Excluding the net unfavorable impact of estimated distributor inventory movements of 0.2 billion units, principally cigarettes, PMI's in-market sales decline was 5.9%;
Saudi Arabia, down by 50.2%. Net unfavorable estimated distributor inventory movements totaled 0.9 billion cigarettes, mainly attributable to the pay-back of adjustments in the first quarter of 2019 resulting from the delayed importation deadline before the implementation of plain packaging scheduled for January 1, 2020. Excluding the impact of these inventory movements, PMI's in-market sales grew by 3.5%, reflecting a favorable comparison with the second quarter of 2018, which was down by 40.1%, mainly due to the impact of the factors described for the total market above; and
Turkey, down by 7.6%, reflecting lower market share, mainly driven by the timing of retail price increases in April 2019 compared to competition, partly offset by a higher total market;
partly offset by
Egypt, up by 11.5%, primarily reflecting higher market share, driven by L&M, partly offset by a lower total market.
Six Months Year-to-Date
The estimated total market in the Middle East & Africa increased, notably driven by:
Algeria, up by 4.9%, or down by 4.1% excluding the net favorable impact of estimated trade inventory movements associated with expectations regarding excise tax announcements in 2019 compared to 2018;
Saudi Arabia, up by 7.5%, primarily reflecting a favorable comparison with the first six months of 2018, which was down by 33.2% mainly due to the impact of retail price increases in 2017 and the first quarter of 2018 following the introduction of the new excise tax in June 2017 and VAT in January 2018, respectively; and
Turkey, up by 11.5%, mainly reflecting the same factor as in the quarter;
partly offset by
Egypt, down by 2.2%, mainly reflecting the same factor as in the quarter.
PMI's total shipment volume increased by 2.0% to 66.4 billion units, notably in:
Egypt, up by 10.5%, primarily reflecting higher market share, driven by L&M, partly offset by a lower total market;
Saudi Arabia, up by 69.0%. Net favorable estimated distributor inventory movements totaled 1.7 billion cigarettes, mainly attributable to the timing of shipments compared to 2018. Excluding the impact of these inventory movements, PMI's in-market sales grew by 6.1%, reflecting a favorable comparison with the first six months of 2018, which were down by 48.3%, mainly due to the impact of the factors described for the quarter above; and
Turkey, up by 5.6%, driven by a higher total market, partly offset by a lower market share reflecting the same factor as in the quarter;
partly offset by
PMI Duty Free, down by 10.4%. Excluding the net unfavorable impact of estimated distributor inventory movements of 0.6 billion units, PMI's in-market sales decline was 4.3%.

- -18 -



SOUTH & SOUTHEAST ASIA REGION

Second-Quarter
Financial Summary -
Quarters Ended June 30,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2019
2018
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 1,248

$ 1,156

 
8.0
%
10.7
%
 
92

(32
)
114

10


 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 492

$ 440

 
11.8
%
15.0
%
 
52

(14
)
114

9

(57
)
Asset Impairment & Exit Costs
 


 
%
%
 





Adjusted Operating Income
 
$ 492

$ 440

 
11.8
%
15.0
%
 
52

(14
)
114

9

(57
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
39.4
%
38.1
%
 
1.3pp

1.4pp

 
 
 
 
 
 
Net revenues, excluding unfavorable currency, increased by 10.7%, predominantly reflecting a favorable pricing variance driven by Indonesia and the Philippines.
Operating income, excluding unfavorable currency, increased by 15.0%, predominantly reflecting a favorable pricing variance, partly offset by higher manufacturing costs, mainly due to Indonesia, and higher marketing, administration and research costs, notably due to the Philippines, partly offset by Indonesia.
Adjusted operating income margin, excluding currency, increased by 1.4 points to 39.5%, reflecting the factors mentioned above, as detailed on Schedule 8.
Six Months Year-to-Date
Financial Summary -
Six Months Ended June 30,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2019
2018
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 2,361

$ 2,237

 
5.5
%
9.7
%
 
124

(93
)
190

27


 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 932

$ 869

 
7.2
%
12.3
%
 
63

(44
)
190

23

(106
)
Asset Impairment & Exit Costs (1)
 
(20
)

 
%
%
 
(20
)



(20
)
Adjusted Operating Income
 
$ 952

$ 869

 
9.6
%
14.6
%
 
83

(44
)
190

23

(86
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
40.3
%
38.8
%
 
1.5pp

1.8pp

 
 
 
 
 
 
(1) Included in marketing, administration and research costs at the consolidated operating income level.
Net revenues, excluding unfavorable currency, increased by 9.7%, reflecting: a favorable pricing variance, driven principally by Indonesia and the Philippines, as well as a favorable volume/mix, largely driven by favorable cigarette volume and mix in the Philippines, partly offset by lower cigarette volume and mix in Indonesia.
Operating income, excluding unfavorable currency, increased by 12.3%. Excluding asset impairment and exit costs related to a plant closure in Pakistan in the first quarter of 2019 as part of global manufacturing infrastructure optimization, adjusted operating income, excluding unfavorable currency, increased by 14.6%, mainly reflecting: a favorable pricing variance; favorable volume/mix, mainly driven by favorable cigarette volume and mix in the Philippines, partly offset by lower cigarette volume and mix in Indonesia; partly offset by higher manufacturing costs,

- -19 -



mainly due to Indonesia and the Philippines, and higher marketing, administration and research costs, partly due to the Philippines.
Adjusted operating income margin, excluding currency, increased by 1.8 points to 40.6%, reflecting the factors mentioned above, as detailed on Schedule 8.
Total Market, PMI Shipment & Market Share Commentaries

PMI Shipment Volume
 
Second-Quarter
 
Six Months Year-to-Date
(million units)
 
2019

2018

Change

 
2019

2018

Change

Cigarettes
 
46,376

44,788

3.5
%
 
87,868

85,006

3.4
%
Heated Tobacco Units
 


%
 


%
Total South & Southeast Asia
 
46,376

44,788

3.5
%
 
87,868

85,006

3.4
%
Second-Quarter
The estimated total market in South & Southeast Asia increased, notably driven by:
Indonesia, up by 4.8%, mainly driven by the absence of an excise tax increase in January 2019;
Pakistan, up by 21.7%, mainly driven by the timing of estimated trade inventory movements related to anticipated excise tax-driven price increases in 2019 compared to the prior year. Excluding the impact of these inventory movements, the total market is estimated to have declined by 7.3%; and
Thailand, up by 10.0%, primarily reflecting on-going recovery from the September 2017 excise tax reform;
partly offset by
the Philippines, down by 1.5%, mainly due to the impact of price increases in the below premium segment in the fourth quarter of 2018; and
Vietnam, down by 2.9% reflecting the impact of the excise tax increase in January 2019.
PMI's total shipment volume increased by 3.5% to 46.4 billion units, notably driven by:
Pakistan, up by 33.6%, mainly reflecting a higher total market and higher market share resulting from the timing of estimated trade inventory movements described above; and
Thailand, up by 19.8%, mainly reflecting a higher market share driven by the continued strong performance of L&M 7.1 and the favorable impact of distribution expansion in 2018, as well as a higher total market.
Six Months Year-to-Date
The estimated total market in South & Southeast Asia increased, notably driven by:
Indonesia, up by 2.1%, reflecting the same factor as in the quarter;
Pakistan, up by 10.5%, reflecting the same factor as in the quarter. Excluding the impact of trade inventory movements, the total market is estimated to have declined by 4.0%;
the Philippines, up by 3.2%, mainly reflecting the impact of net favorable estimated trade inventory movements in the first quarter of 2019 associated with expectations regarding excise tax-driven price increases, partly offset by the impact of price increases in the below premium segment in the fourth quarter of 2018; and
Thailand, up by 17.8%, reflecting the same factor as in the quarter;
partly offset by

- -20 -



Vietnam, down by 5.3% reflecting the same factor as in the quarter.
PMI's total shipment volume increased by 3.4% to 87.9 billion units, notably driven by:
Pakistan, up by 22.3%, mainly reflecting a higher market share resulting from the timing of estimated trade inventory movements described above, as well as a higher total market;
the Philippines, up by 3.7%, mainly reflecting the higher total market; and
Thailand, up by 26.6%, reflecting the same factors as in the quarter;
partly offset by
Indonesia, down by 1.8%, mainly reflecting a lower market share primarily due to the widened retail price gap of A Mild to competitive brands following its price increase in October 2018, partly offset by the higher total market.
EAST ASIA & AUSTRALIA REGION
Second-Quarter
Financial Summary -
Quarters Ended June 30,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2019
2018
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 1,521

$ 1,478

 
2.9
%
4.6
%
 
43

(25
)
121

(53
)

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 642

$ 498

 
28.9
%
23.7
%
 
144

26

121

(32
)
29

Asset Impairment & Exit Costs
 


 
%
%
 





Adjusted Operating Income
 
$ 642

$ 498

 
28.9
%
23.7
%
 
144

26

121

(32
)
29

 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
42.2
%
33.7
%
 
8.5pp

6.1pp

 
 
 
 
 
 
During the quarter, net revenues, excluding currency, increased by 4.6%, reflecting a favorable pricing variance, driven predominantly by Japan, partly offset by unfavorable volume/mix, mainly due to unfavorable cigarette volume in Australia and Japan and unfavorable cigarette and heated tobacco unit volume in Korea.
Operating income, excluding favorable currency, increased by 23.7%, mainly reflecting a favorable pricing variance and lower manufacturing costs, mainly in Korea, as well as lower marketing, administration and research costs, partly offset by unfavorable volume/mix, mainly due to unfavorable cigarette volume in Australia and Japan and unfavorable cigarette and heated tobacco unit volume in Korea, partially offset by heated tobacco unit volume in Japan.
Adjusted operating income margin, excluding currency, increased by 6.1 points to 39.8%, reflecting the factors mentioned above, as detailed on Schedule 8.

- -21 -



Six Months Year-to-Date
Financial Summary -
Six Months Ended June 30,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2019
2018
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 2,842

$ 3,069

 
(7.4
)%
(6.6
)%
 
(227
)
(25
)
207

(409
)

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 1,069

$ 1,013