Philip Morris : Annual Financial Report 2023 (unofficial

0A1 nnual Financial Report

Company profile 2023

1

Statutory Declaration of Persons Responsible for the Philip Morris ČR a.s. Annual Financial Report

We confirm that to the best of our knowledge, the financial statements and consolidated financial statements, drawn up in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and financial results of the issuer, Philip Morris ČR a.s., and the units included in the consolidation as a whole, and the consolidated annual report according to the law regulating accounting, contains a true overview of the development and results of the issuer and the position of the issuer and the units included in the consolidation as a whole, together with a description of the main risks and uncertainties it faces.

In Kutná Hora on March 26, 2024

Andrea Gontkovičová	Eugenia Panato
Chairperson of the Board of Directors	Member of the Board of Directors
Philip Morris ČR a.s.	Philip Morris ČR a.s.

Introductory Word

Dear Shareholders,

There are companies in the world that maintain traditions and that do what they know and are able to do. I am convinced that the current times full of dynamic, often unexpected, and fundamental changes are not conducive for such companies. On the contrary, those companies that not only protect and improve the "family jewels", but also open new possibilities, constructing their own future on innovations and the newest technologies and in which the top experts from various fields of work are in the limelight. However, the goal is actually quite simple - to bring better and more progressive solutions to various areas of our life and to show trends.

This year, it will be ten years that the PMI company came to be at the forefront of the nicotine revolution that started in Italy and Japan. I am proud of the fact that Philip Morris ČR a.s. also plays an essential role in it. Not only do the Czech Republic and Slovakia belong among those groundbreaking countries, in which adult smokers who would otherwise continue smoking conventional cigarettes can choose one of our provably less harmful nicotine products. We are also one of the few global markets where practically the entire portfolio of PMI products is available - the IQOS heated tobacco devices or the licensed lil SOLID, as well as the VEEV ONE and VEEV NOW electronic cigarettes. At the same time, we often are one of the first markets that the newest innovations from the PMI workshops are introduced to - for instance, most recently it was the LEVIA tobacco-free sticks meant for IQOS devices. And more new smoke-free alternative portfolio products are already being prepared.

This, truly, is not a matter of course. We owe this not only to our customers, who value innovation, or to our partners, who stand by our sides, but primarily to the entire team of people that has a hand in developing the company, and who considers our customers - that is, adult users - to be the focus of its attention. From the perspective of company management, this is a huge transformation, and I am incredibly grateful for its commitment, support, and determination to push through. We have shifted from the traditional transaction model, typical for more than a century of our operations, to the relationship model. We had to come to understand our customers and offer them such products and services that they remain our customers.

In the past years, we have undergone significant organizational changes, and we established a new business model featuring a network of premium brick-and-mortar IQOS stores and innovative digital business channels with new business partners and an assistance hotline. And we continue in these efforts.

This, of course, primarily requires curiosity, courage, a new awareness, and cutting-edge knowledge, and it also presents challenges that we have yet not experienced ourselves. We are learning as we go along, we are searching for solutions, we are pinpointing mistakes, and we pay attention to each opinion that our customers and partners have, whenever and wherever. I am delighted to report that the number of individuals who have successfully quit smoking in the Czech Republic and Slovakia, thanks to the adoption of our smoke-free products, is 580 thousand. The growing popularity and general awareness of the nature, benefits, and risks of alternative nicotine products motivate us to continually introduce innovative products and stay one step ahead.

Our goal remains creating a cigarette smoke-free world. I am convinced that we have made significant progress during the year that this annual report pertains to, and that this one-way street is the right direction.

Thank you, our shareholders, for your trust and support.

Andrea Gontkovičová

Chairperson of the Board of Directors

Philip Morris ČR a.s.

Table of Contents

01 Company Profile ..............................................................................................................................................7

02 Our Products ................................................................................................................................................... 13

03 Business Results 2023 ................................................................................................................................... 18

04 Risk Factors Related to Our Business and Industry ...................................................................................... 21

05 Sustainability and Social Responsibility ........................................................................................................ 28

06 Forward-Looking and Cautionary Statements .............................................................................................. 41

07 Report of the Supervisory Board .................................................................................................................... 43

08 Consolidated Financial Statements ............................................................................................................... 46

09 Separate Financial Statements ...................................................................................................................... 87

10 Report on Relations between Controlling Entity and Controlled Entity,and between Controlled Entity and Entities Controlled by the same Controlling Entity ................................................................................. 125

11 Independent auditor's report to the shareholders of company Philip Morris ČR a.s. .................................. 129

12 Other Information for Shareholders ............................................................................................................... 139

13 Report on corporate governance of Philip Morris ČR a.s. and Summary Explanatory Report of the

Board of Directors of Philip Morris ČR a.s. ...................................................................................................... 143

14 Members of Board of Directors, Supervisory Board and Audit Committee of Philip Morris ČR a.s. .......... 150

This document created in HTML format is a translation from the original which was prepared in the Czech language. It represents non-official version of the Annual Financial Report. The company has taken all steps to ensure that this version conforms to the original. The official version of the Annual Financial Report prepared in single electronic reporting format ("ESEF"), which is the XHTML format, can be accessed at:https://www.pmi.com/resources/docs/default-source/czech-market/investors-relation/annual-meeting-2024/pmcr-vyrocni-zprava-2023.zip In case of any content discrepancies the official version of the Annual Financial Report always takes precedence over this document.

Our vision is to achieve a smoke-free future. This is why we bring you provably better alternatives to conventional cigarettes in the form of smoke-free products based on the most innovative scientific discoveries and research findings.

01

Company Profile

About us

We are Philip Morris ČR a.s., an affiliate of Philip Morris International Inc. (PMI) We spearhead the transformation of the nicotine industry by providing adults who would otherwise continue to smoke or use other nicotine products with innovative smoke-free alternatives that reduce or have the potential to reduce risk compared to traditional cigarette consumption.

Since 2017, we have been offering our adult consumers a wide portfolio of innovative smoke-free products, which we are constantly expanding. In the Czech Republic and Slovakia, we distribute the heated-tobacco solutions, IQOS ILUMA with TEREA and LEVIA consumables, KT&G-licensed lil SOLID with Fiit consumables, as well as HEETS consumables for original IQOS devices. At the same time, we distribute electronic cigarettes VEEV ONE and VEEV NOW1 and provide a variety of related accessories and services to adult nicotine users. We are also providing adult smokers with popular international and local brands such Marlboro, L&M, Chesterfield, Petra Klasik, Sparta, RGD or Start by Chesterfield.

Philip Morris ČR a.s. is listed on the Prague Stock Exchange (Burza cenných papírů Praha) and holds a 99% interest in Philip Morris Slovakia s.r.o., registered in the Slovak Republic.

1 Introduced in February 2023 under the name VEEBA.

Philip Morris ČR a.s. runs the production plant in Kutná Hora, which has a tradition of more than two hundred years of tobacco processing. Today, the plant is one of the most modern and efficient operations, which is as environmentally friendly as possible.

In the Czech Republic and Slovakia, PMI employs more than 1,300 employees, who make a significant contribution to the company's development and transformation. For this reason, we continuously strive to further improve our inclusive and high-standard work environment. We aim to offer the best possible conditions, so that every employee can fully meet their potential. Being awarded the EQUAL SALARY certification in both countries validates our high performance in this area.

Being part of a global leading tobacco company, we keep focus on sustainability in any part of our business. We are mindful of and committed to our responsibility towards communities and environments in which we operate. We work hard to address sustainability issues that are material to us. At the same time, we have been contributing significantly to charitable projects across a wide range of organizations and specializations, including programs aimed at improving living conditions in communities.

Consolidated highlights

Key Financial Results (in CZK million)

Period ended December 31	2023	2022	Change in %
Revenues, net of excise tax and VAT	20,570	20,948	(1.8)
Profit from operations	3,870	4,243	(8.8)
Profit before income tax	4,198	4,596	(8.7)
Net income for the year	3,344	3,636	(8.0)
Earnings per share (CZK)	1,218	1,324
Shipments per Segment (in billion units equivalent)2
Period ended December 31	2023	2022	Change in %
Czech Republic	6.3	7.1	(11.1)
Slovakia	3.8	4.1	(7.3)
Total	10.1	11.2	(9.7)
Note: Values presented in the report might not foot to totals due to rounding.

2 Shipments in the Czech Republic include cigarettes and high-volume tobacco for hand-made cigarettes (0.60 g is the equivalent of one cigarette), and smoke-free products such as HEETS, TEREA tobacco consumables, LEVIA tobacco-free nicotine consumables and Fiit refills from KT&G as well as VEEV e-cigarettes consumables (recalculated to cigarette equivalents). Shipments in Slovakia include cigarettes and smoke-free products such as heated HEETS, TEREA tobacco consumables, and Fiit refills from KT&G as well as VEEV e-cigarettes consumables and VEEBA disposables (recalculated to cigarette equivalents).

Overview of selected events in 2023

January

• - As part of streamlining our cigarette offer, the portfolio was adjusted for several variants of our brands Chesterfield Crown and Chesterfield Tuned Bright. At the turn of the year, we stopped selling several variants of the L&M brand (L&M FIRST CUT BLUE KS/100s and L&M FIRST CUT RED KS/100s) and the RGD 100s brand (BLUE and RED)

• - For the ninth year in a row, the Philip Morris Slovakia s.r.o. was awarded the prestigious international certificate Top Employer Slovakia 2023. The parent company, PMI, subsequently earned this award on a global scale. The certification is granted by the Top Employers Institute, which audits companies, evaluates the quality of their HR processes, and assesses companies in terms of being the best employer. Only those companies that meet the strict requirements in human resources management and that are independently audited can receive the certification.

June

- The management of the company and the Trade Union

representing the company's employees concluded

negotiations on a new collective labour agreement for the

next three years until 30 June 2026. The new agreement

provides employees with conditions within the scope of the

previous agreement. With the benefits offered,

Philip Morris ČR a.s. continues to rank among the most

attractive employers in the region and in the whole of the

Czech Republic.

-

Philip Morris International announced a planned investment exceeding one billion Czech crowns to the plant in Kutná Hora, which has long been one of the company's key production locations. In addition to the existing production of classic products, it will build a new infrastructure to produce consumables for smoke-free devices, including new laboratories.

February

- Marlboro Crafted, a new product line of the Marlboro brand was introduced to the Czech market in a super low-price segment. The product offers the quality of the Marlboro brand at a more affordable price, which made it an instant success among price sensitive adult smokers.

-

We launched a new category of vaping products under the VEEBA3 brand, premium disposable e-cigarettes without the need to clean charge and refill e-liquid. A total of 7 flavours were launched.

March

- Joint-stock company NEVAJGLUJ a.s. was registered in the

Commercial Register and in July it applied to the Ministry of the Environment of the Czech Republic for authorization to operate a collective system (EPR system).

Philip Morris ČR a.s., in accordance with the requirements of Act No. 243/2022 Coll4., became one of the founders of NEVAJGLUJ a.s. with a stake of 24%.

April

- The Annual General Meeting of Philip Morris ČR a.s. was held on 28 April 2023, in Kutná Hora. Based on the company's financial results, the general meeting, among other things, approved a dividend for the past year in the amount of CZK 1,310 per share, which is the third highest in the company's history.

• 3 From August 2023, the product is available under the name VEEV NOW

  July

  - The first limited edition of the IQOS ILUMA device, IQOS ILUMA WE Limited Edition, was presented to customers.

  August

  - As of August, all vaping products have been transitioned to the VEEV brand, which is now independent of the IQOS brand in terms of both products and communication. The objective is to establish a robust brand presence in the vaping segment. In pursuit of this objective, the VEEBA disposable e-cigarette has been rebranded as VEEV NOW. Additionally, a significant development involved the introduction of the sophisticated VEEV ONE vaping device- an e-cigarette with refillable pods.

  September

  - Philip Morris ČR a.s. has disclosed its financial and economic performance for the first half of the year. Consolidated revenues (excluding excise duty and VAT) reached

  CZK 9.7 billion, indicating a 1% decrease compared to the first half of 2022. The half-year consolidated net profit amounted to CZK 1.7 billion, reflecting a 10.3% year-on-year decline in the sales of heated tobacco products and smoking products in the Czech Republic and Slovakia.

• 4 Act. No 243/2002 Coll. on the reduction of the impact of certain plastic products on the environment

October

-

On 23 October, flavour ban prohibiting the sale of heated tobacco sticks with a characteristic flavour took effect in the Czech Republic. As a result, the sale of multiple variants of TEREA, HEETS, and Fiit sticks has been discontinued.

- Philip Morris Slovakia s.r.o. has entered into a memorandum of cooperation with one of Bratislava's premier four-star hotels in the city centre, Radisson Blu Carlton. This collaboration marks a significant milestone as Radisson Blu Carlton becomes the first hotel where guests have the option to select an IQOS FRIENDLY room, permitting the use of smoke-free devices.

November

- The Czech Republic achieved a global milestone by being the first country to introduce the innovative nicotine tobacco-free sticks LEVIA tailored for IQOS ILUMA heated tobacco devices. This novelty was launched with two variants featuring fresh flavours.

-

Philip Morris ČR a.s. has earned recognition by being among the twenty-five companies awarded the title of Top Responsible Large Company. This acknowledgment comes from the independent Top Responsible Company ranking, organized for the twentieth time by the "Business for Society" alliance.

- In November, Philip Morris Slovakia s.r.o. signed a memorandum of cooperation with Piešťany, the renowned Slovak spa town. Emulating the smoke-free initiatives in Karlovy Vary and Špindlerův Mlýn, Piešťany has become the first smoke-free city in Slovakia. The primary goal of this initiative is to encourage both residents and visitors to adopt a better lifestyle.

December

- The nationwide initiative for the collection and subsequent recycling of used refills from IQOS smoke-free products has successfully concluded its inaugural year of operation.

In 2023, adult consumers collectively contributed 26.5 tons of material in both countries, with 15.4 tons in the Czech Republic and 11.1 tonnes in Slovakia. EcoButt, a company in Slovakia, manages the processing of this material, transforming it into an additive for asphalt mixtures. In the Czech Republic, alongside planned collaboration with a Slovak recycler, ongoing research is being conducted in partnership with selected universities and scientific institutions to explore alternative methods for processing used refills.

Every person is unique. This is why we have developed a product portfolio for our customers with a varied offer of smoke-free alternatives that appeals to the range of styles, tastes, habits, or various price preferences of all adult smokers who would otherwise continue to smoke.