Nick Rolli - Vice President, Investor Relations and Financial Communications Louis Camilleri - Chairman and Chief Executive Officer Jacek Olczak - Chief Financial Officer

David Adelman - Morgan Stanley Judy Hong - Goldman Sachs Bonnie Herzog - Wells Fargo Vivien Azer – Citi Erik Bloomquist - Berenberg Bank Jon Leinster – UBS Chris Growe - Stifel Nicolaus Chris Ferrara - Bank of America Merrill Lynch Michael Lavery – CLSA Thilo Wrede - Jefferies Rogerio Fujimori - Credit Suisse David Hayes – Nomura Ann Gurkin - Davenport

Good day, and welcome to the Philip Morris International Fourth Quarter 2012 Year End Earnings Conference Call. Today’s call is scheduled to last about 1 hour, including remarks by Philip Morris International management and the question-and-answer session. (Operator Instructions) I will now turn the call over to Mr. Nick Rolli, Vice President of Investor Relations and Financial Communications. Please go ahead, sir.

Welcome, thank you for joining us. Earlier today, we issued a press release containing detailed information on our 2012 fourth quarter and full year results. You may access the release on our website at www.pmi.com. During our call today, we will be talking about results for the fourth quarter and full year 2012 and comparing them to the same period in 2011, unless otherwise stated. References to volumes are to PMI shipments. Industry volume and market shares are the latest data available from a number of internal and external sources. Organic volume refers to volume excluding acquisitions. Net revenues exclude excise taxes. Operating Companies Income or OCI is defined as operating income before general corporate expenses and the amortization of intangibles. You will find data tables showing adjustments to net revenues and OCI for currency, acquisitions, asset impairment, exit, and other costs, free cash flow calculations and adjustments to earnings per share or EPS, as well as reconciliations to U.S. GAAP measures which are posted on our website. Today’s remarks contain forward-looking statements and projections of future results. I direct your attention to the Forward-Looking and Cautionary Statements disclosure in today’s presentation and press release for a review of the various factors that could cause actual results to differ materially from projections or forward-looking statements. It’s now my pleasure to introduce Louis Camilleri, our Chairman and Chief Executive Officer and Jacek Olczak, our Chief Financial Officer who will join Louis for the question-and-answer period. Louis?

Thank you, Nick and good afternoon ladies and gentlemen. As expected, we finished 2012 on a very strong note with fourth quarter organic cigarette volume growth of 2.9%; net revenues and adjusted Operating Companies Income or OCI both excluding currency and acquisitions increasing by 6.4% and 12.3% respectively; and adjusted diluted earnings per share growing by 16.4% excluding currency. Our strong volume performance was partially flattered by some favorable inventory movements, which we estimate added some 60 basis points to our 2.9% growth rate. Cigarette volume for the full year reached 927 billion units, an increase of 1.3% on an organic basis. The solid performance reflects the breadth of our geographic coverage, our excellent balance between emerging and developed markets, and our superior brand portfolio. The key volume drivers were the EEMA and Asia regions, where we realized organic volume growth of 4.6% and 4.2% respectively, which more than offset a 13.5 billion unit or 6.4% volume erosion in the European Union region, reflecting a decline in cigarette industry volume due to continued economic woes particularly in Southern European markets. In 2012, we achieved strong market share performances across all four regions with gains of close to 1 share point in the Asia, EEMA, and Latin America and Canada regions, and an essentially unchanged share in the European Union region despite significant competitive trade loading in Germany at the end of the years. As a result our global market share excluding China and the U.S. increased by 0.5 percentage points to a record 28.8% in 2012. Our global volume and share performance should be solid in 2013 and we anticipate organic volume growth of up to 1% excluding the Philippines. Continued strong pricing across all four regions was the key driver of our revenue and OCI growth. Generating a favorable variance of $1.8 billion in 2012.We incurred a slightly unfavorable volume mix variance, with positive volumes, stable brand mix and an unfavorable geographic mix. Indeed absent the Japan hurdle, our volume mix variance would have been positive which we view as a significant achievement. In addition we increased our investments in the business notably in Germany, Indonesia and Russia focusing in particular on our key brands in market field forces and infrastructures.In 2012 net revenues grew by 5.6% excluding currency and acquisitions, on the same basis adjusted operating companies income increased by over $1.1 billion or 8.1%. These growth rates were at the high end of our mid to long term currency neutral annual growth targets of 4% to 6% and 6% to 8% respectively.Our strong business results and our substantial share repurchase programs, enable us to increase our adjusted diluted earnings per share to a level of $5.22 in 2012 representing a growth rate of 11.7% excluding an unfavorable currency impact of $0.23 per share. We entered 2013 with strong business fundamentals and excellence trends and we’re optimistic on the prospects of our business. With the recent exception of the Japanese Yen exchange rates have generally stabilized compared to 2012 and we’re forecasting a currency headwind of approximately $0.06 per share in 2013 at prevailing rates. We must recognize however that currency rates remain volatile. Our reported diluted earnings per share guidance of prevailing exchange rates is in a range of $5.68 to $5.78 versus $5.17 in 2012.This corresponds to a growth rate excluding currency of 10% to 12% compared to our adjusted diluted earnings per share of $5.22 in 2012. Thus we again expect to meet our mid-to-long term currency neutral annual EPS growth target in 2013. This would be the six consecutive years of achieving this target. This guidance factors in the expected impact of the disruptively large excise tax increase that took place at the beginning of this year in the Philippines. The new law increase the excise tax on premium price Marlboro and low price Fortune from 12 to 25 pesos and from 2.72 to 12 pesos per pack respectively.In a response we have increased the recommended retail price per pack of Marlboro from 32 to 51 pesos and that of Fortune from 15 to 25.5 pesos. It will take several months before we can accurately gauge the actual impact of such pricing on total industry volume and on potential consumer down trading.The volume impact however is expected to be considerable in a range of 20% to 25%. We nevertheless anticipate that the impact on our earnings will be marginal given our pricing actions. I would like to say a few words about one of the key regulatory challenges that we’re facing, the European Union’s proposed new tobacco products directives or TPD.Let me emphasize at this stage, it is a proposal, the content of which still has to be approved by both the European Council of Ministers and the European Parliament. During this review process, it maybe amended and the final outcome remains uncertain. Once the consensus is reached by both the Council and the Parliament, the TPD has to be transposed into local laws by each member state. The European Commission has indicated that it expects that it will take through 2014 to reach an agreement and the full implementation will only incur in 2015 or even 2016.The proposed TPD does not mandate plain packaging as was feared, but it does contain a number of proposals that we believe have no credible scientific basis and would be counterproductive. These relate both to products and their packaging. It calls notably for a ban on menthol and slimmer cigarettes and the introduction of 75% graphic health warnings. Menthol and slimmer cigarettes accounted for approximately 10% of European Union cigarette industry volume in 2012 though in markets such as Poland accounted for about one-third of consumption. We believe that such measures would inevitably lead to both an increase in illicit trade and a reduction in government revenues with no benefit to public health. Rest assured that we will do everything in our power to ensure that reason prevails and that the obvious unintended consequences of the current draft do not materialize.As mentioned earlier, we expect to achieve organic cigarette volume growth, excluding the Philippines in 2013. Strong volume growth in the EEMA regions and the other Asian markets is forecast to more than offset continued volume declines in the European Union region, where no significant overall improvement is foreseen until the current high levels of unemployment are meaningfully reduced. Our key premium brands Marlboro and Parliament are performing strongly, as volume and share are expanding across a wide range of geographies. Our overall brand portfolio is in excellent shape with a strong complementary presence in profitable mid and low priced segments.The global excise tax environment remains reasonable with the obvious exception of the Philippines and the pricing environment continues to be favorable. Pricing will again be the key growth driver of our earnings. Some 75% of our anticipated pricing variance in 2013 upon which our guidance is predicated has already been implemented or announced. The Asia, EEMA, and Latin America and Canada regions are forecast to generate strong OCI growth again this year, while we expect to be able to maintain our current high level of profitability in the European Union region, excluding currency.Our brands are performing very well with 8 of our top 10 brands increasing volume in 2012, excluding the Japan hurdle. Arguably, our greatest achievement in 2012 was the continued growth of Marlboro with its architecture firmly in place complemented by the new campaign and the continued rollout of an array of consumer relevant line extensions across the Flavor, Gold, and Fresh lines, Marlboro continued to expand its share on a global basis to reach 9.3%, excluding China and the U.S.For the first time, since the 2008 spin Marlboro grew share in all four regions underscoring its enhanced brand equity, continued relevance, and renewed vitality. Above premium price, Parliament achieved double-digit volume growth last year to reach a total of 43.4 billion units. This excellent result was driven by its superb performance in Turkey, in Russia, and across Eastern Europe as well as in Middle East. Parliament has a refined luxury image and has benefited from packaging upgrade and the launch of the industry’s first ever re recessed filter capsule product in Korea. We’re also very pleased with the renewed strength of L&M in 2012. Volume grew by 4% to 93.7 billion units.This growth was driven by increased availability in Egypt. The long awaited turn around in Russia, a strong performance across the bakkens, shared gains in Thailand and a higher volume in Turkey. In the European Union region, L&M continued to grow share in this five most important markets, namely Slovakia, Poland, Belgium, Germany and (inaudible). However this was offset by a shared decline in markets in the Southern part of the Europe largely compensated by share gains on Chesterfields. On a regional basis, L&M share was stable at 6.6% last year.Our leading position and our strong share growth momentum in Indonesia give us a unique position in the global tobacco industry. Based on an expanded Nielsen coverage, we have updated our market data on Indonesia. In 2012 we estimate that the total cigarette industry volume increased by 8.2% to 303 billion units driven by favorable demographics and a strong economy. We expect continued strong industry volume growth in a range of 5% to 6% going forward.Our volume search by 17.5% last year and we expanded our market share from 32.8% to 35.6% a gain of 2.8 share points. Our strong premium skewed portfolio led by some Sampoerna A and our superior national distribution was reinforced by favorable retail price points.I would also like to highlight our strong performance in two email markets, our volume in Russia increased by 3.8% last year while total industry volume declined an estimated 1.3% over the same period driven by higher prices. In 2012, we gained 0.5 percentage share points, thanks to the strength of our broadly based portfolio and investments in marketing and sales. The key drivers of our market share growth were above premium parliaments, mid-priced L&M and low price Bond Street and Next. Importantly, we improved our position in the growing slimmer diameter segment.Last autumn the Russian parliament approved excised tax increases for 2013 in-line with it's previously published plans. Subsequently we registered new retail prices with increases of 6 to 7 rubles per pack across our portfolio. In Turkey, total cigarette industry volume grew by 8.8% last year to 99 billion units driven by a reduction in a listed trade, trade loading in the fourth quarter of 2012 ahead of a full seen excise tax and price increase. A weak fourth quarter 2011 growth in the adult population and the strong economic environment. Our volume increased by 12.7% last year and we expanded our market share by a further 0.9 points to 45.7%.At the same time we improved our mix behind the growth of premium parliaments and mid-priced (inaudible). In January we increased our retail prices by 1 Turkish Lira per pack and responded to the excise tax increase that was announced by the government. The new excise tax regime now includes a specific element for the very first time. In contrast the business environment in the Southern part of Europe remains very challenging as illustrated by Italy where unemployment reached 11.1% in November 2012, 1.7 above the prior year level.In 2012, Italy’s cigarette industry volumes declined by 7.9% as adult smokers impacted by a reduction in purchasing power switched to lower taxed fine cut products and to illicit trade, which grew by some 40% and 80% respectively. However, during the year, the government reduced the tax differential between fine cut and cigarettes. Consequently, the growth of the fine cut category slowed to less than 2% in the fourth quarter when cigarette volume declined by a more moderate 4%.Despite this challenging environment, our brands performed strongly in Italy. Marlboro grew its cigarette market share by 0.6 points to 23.1%. The growth accelerated in the fourth quarter when its share increased 1.3 points to 23.5%. We successfully launched Philip Morris Selection in the growing international low-priced segment at the beginning of 2012. It achieved a 0.5% share for the full year and 0.8% in the fourth quarter. Finally, Chesterfield in addition to holding its own in the cigarette category obtained a 23.5% share of the fine cut category.While revenue growth remains the key to success in our business, we continue to be very focused on cost controls and productivity gains. Our adjusted Operating Companies Income margin increased in 2012 from 44.1% to 45.2%, excluding currency. This improvement reflects not only higher pricing, but also limited cost increases, our success in surpassing our $300 million one year productivity target and our continued efforts to optimize our manufacturing footprint. This year, we are targeting a further $300 million in productivity savings to help offset expected moderate increases in lease and direct materials as well as higher clove costs. While our business continued to generate growing amounts of cash from higher earnings, our free cash flow of $8.4 billion in 2012 was down $1.1 billion or 11.6%, excluding currency. This decline was attributable to higher working capital requirements of $1.7 billion as well as a $220 million increase in capital expenditures.The working capital increase was primarily driven by Indonesia, where our business growth led to higher tobacco leaf and finished goods inventories and where we took advantage of a larger, but admittedly significantly more expensive clove crop to build stocks for future business growth. In addition, we needed to replenish our global tobacco leaf stocks following our unexpectedly large cigarette sales in Japan in 2011. The increase in capital expenditures is attributable in particular to production capacity increases in the Asia and EEMA regions.We anticipate a strong increase in our currency neutral free cash flow in 2013 though we do plan further increases in capital expenditures related notably to additional capacity in Indonesia and to the establishment of next generation products manufacturing capacity. In addition, as has been the case historically, forestalling related inventory requirements can fluctuate significantly and are difficult to forecast accurately. However in 2013, we project that our cash flow growth will exceed that of our earnings growth.As you can see on this chart since the 2008 spend, we have transformed the higher proportion of our growing net revenues into free cash flow than any of our consumer products in tobacco industry peers. In September last year, we increased our dividend by a further 10.4% bringing the cumulative increase since 2008 to 84.8%. We initiated a new three-year $18 billion share repurchase program in August of 2012. Last year, in total, we spent $6.5 billion to repurchase 74.9 million shares.We remain committed to a balanced program of returning cash to our shareholders through dividends and share repurchases and we target share repurchases of 6 billion in 2013. In conclusion, we expect to deliver strong results again in 2013? A diluted earnings per share guidance is $5.68 to $5.78, this corresponds to a 10% to 12% growth rate excluding currency, compared to our 2012 adjusted diluted earnings per share of $5.22. This is fully in-line with our mid-to-long term currency neutral, annual EPS growth targets which we have achieved or surpassed every year of our existence as an independent public company.The excise tax and regulatory environment we believe are manageable. The pricing environment remains favorable and we have already achieved 75% of the pricing that is baked into our 2013 guidance. We forecast organic volume growth this year excluding the Philippines. We have strong growth momentum, Marlboro gained share in all four regions, parliament achieved double digit volume growth and our business in the Asia and the EMO regions is in great shape. The EU region remains fragile but we certainly do not anticipate a deterioration thus is the overall consumption trends we observed in 2012.We forecast strong free cash flow growth excluding currency this year and we remain committed to generously rewarding our shareholders through attracted dividends and substantial share repurchase programs.Since March 2008, we have returned the total of nearly $50 billion to our shareholders and repurchased 23.2% of the shares outstanding at the time of the spend. Thank you for your attention. Jacek and I will now be happy to answer your questions.

David Adelman - Morgan Stanley:

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Judy Hong - Goldman Sachs:

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Bonnie Herzog - Wells Fargo:

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Vivien Azer – Citi:

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Erik Bloomquist - Berenberg Bank:

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Jon Leinster – UBS:

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Chris Growe - Stifel Nicolaus:

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Chris Ferrara - Bank of America Merrill Lynch:

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Michael Lavery – CLSA:

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Thilo Wrede - Jefferies:

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Rogerio Fujimori - Credit Suisse:

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David Hayes – Nomura:

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Ann Gurkin - Davenport:

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