Nicholas Rolli - Vice President of Investor Relations and Financial Communications Jacek Olczak - Chief Financial Officer

Chris Ferrara - Bank of America Vivien Azer - Citi Investment Research David Adelman - Morgan Stanley Judy Hong - Goldman Sachs Bonnie Herzog - Wells Fargo Jon Leinster - UBS Chris Growe - Stifel Michael Lavery - CLSA Thilo Wrede - Jefferies Erik Bloomquist - Berenberg Bank Rogerio Fujimori - Credit Suisse

Good day and welcome to the Philip Morris International first quarter 2013 earnings conference call. Today's call is scheduled to last about one hour, including remarks by Philip Morris International management and the question-and-answer session. (Operator Instructions). Media representatives on the call will also be invited to ask questions at the conclusion of questions from the investment community. 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 2013 first quarter 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 first quarter of 2013 and comparing them to the same periods in 2012, unless otherwise stated. References to volumes or 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 at the back of this presentation which is also 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 Jacek Olczak, our Chief Financial Officer.

Thank you Nick, and welcome ladies and gentlemen. We had a relatively sound start to the year when one considers the difficult comparison with a very strong first quarter last year. Our business fundamentals continue to be solid and we have good momentum in key markets and segments. In February, we provided a reported diluted EPS guidance for 2013 of $5.68 to $5.78. We see no reason to change our guidance today due to business factors. However, we have witnessed increased currency volatility and in particular a weakening of the Euro and the Yen due to the economic crisis in Europe and changes in economic policy in Japan. Accordingly, at prevailing exchange rates, we now forecast a full-year unfavorable currency impact of approximately $0.19 per share rather than the $0.06 cents included in our previous guidance. Our revised reported diluted EPS guidance for 2013 is therefore $5.55 to $5.65, compared to $5.17 in 2012. This reflects a growth rate excluding currency, of approximately 10% to 12%, compared to our adjusted diluted EPS of $5.22 in 2012. This is matching the growth rate that we announced in February. This is fully in line with our mid to long-term currency neutral annual growth target highlighting the continued strength of our underlying business model and the robustness of our growth algorithm. Let me now take you through our first-quarter results and provide you with our outlook for some of our key markets. Organic volume in the first quarter was down by 2.1%, excluding the Philippines. This reflects three main factors. First, we had a difficult comparison with a very strong first quarter last year when organic volume grew by 5.3% year-on-year. This was helped by the leap-year. Second, there was a reversal of trade inventory build-ups that took place in several markets during the fourth quarter of 2012 ahead of expected tax and price increases, notably impacted Turkey. Third, cigarette markets in the EU region continue to be influenced by the economic crisis and high unemployment levels. I would nevertheless like to highlight the fact that, excluding the Philippines, we achieved organic volume growth this quarter in the Asia and EEMA regions, and continue to expect organic volume growth on a global basis for the full-year of 2013. The decline in our volume and the overall difficult comparisons with the prior year impacted our financial results in the first quarter of this year. Net revenues and adjusted OCI were up by 3.2% and 2.9%, respectively, excluding currency and acquisitions. Despite this, our adjusted diluted EPS performance excluding currency was solid with growth of 8.8%. Pricing continues to be the key driver of our income performance. Our pricing variance in the first quarter reached $531 million, significantly higher than that achieved during the same quarter last year Since October, we have notably increased prices in Argentina, Australia, Brazil, France, Mexico, the Netherlands, the Philippines, Poland, Russia, Saudi Arabia, Serbia, Spain, Turkey, Ukraine, and the U.K. In addition, last week we announced new prices in Germany. The favorable pricing environment is backed by the strength of our brand portfolio and supported by an excise tax environment, which with the exception of the Philippines, has been rational and characterized by structural improvements. Our market share growth momentum continued in the first quarter with gains in three of our four regions and the Asia region essentially stable, excluding the Philippines. Marlboro volume, excluding the Philippines, was down by 2.2% in the first quarter, driven by cigarette industry volume declines in the EU. Nevertheless, Marlboro market share increased or was essentially stable in all four regions, excluding the Philippines. Marlboro achieved notable share gains of 0.7 and 0.8 points respectively in the EU and the Latin America and Canada regions during the quarter. Our above-premium Parliament continues to show great momentum with a volume increase in the quarter of 5.4%, this despite the trade inventory reversal in Turkey. Parliament continued to gain share in its key markets of Kazakhstan, Russia, Turkey, and Ukraine, while making further inroads in the Middle East. L&M volume increased by 4.3% in the first quarter of this year, driven by its positive momentum in the EEMA Region and a resilient share performance in the EU Region. Three markets stand out, namely Egypt, Russia, and Saudi Arabia, and I would be also pleased by L&M’s renewed growth in Russia. Let me now review what is happening in key geographies. Let's start with the EU. The situation in the EU has attracted considerable attention given the region’s high level of profitability and the depth and duration of the economic crisis. Consumer products companies have been suffering as average unemployment levels reached double digits and continue to grow. The key driver of our 10.1% decline in cigarette volume in the EU Region during the first quarter was the decrease in industry volume of 10.5%, with a notably steep decline in southern European markets. This decline was exacerbated by unfavorable trade inventory movements and fewer selling days. Let me also remind you that the first quarter was the strongest for cigarette industry volume in the region last year. While overall tobacco consumption levels remain fairly stable, there continues to be down-trading to cheaper fine cut proposition and to illicit trade. Fine cut industry volume increased by 2.1% in the first quarter, while the latest EU-wide study indicates that the level of illicit trade has climbed to 11.1% from 10.4% a year earlier. Taking the distortions of the first quarter into consideration and based on our analysis of current expectations for the remaining three quarters, we continue to forecast that cigarette industry volume for the full-year 2013 in the EU Region should decline broadly in line with that of last year. We are encouraged by our market share gains in the EU Region. Our share was up by 0.7 points to 38.1%, though I should mention that this was partially flattered by the impact of competitive trade inventory movement. We gained share in our five most important EU cigarette markets, namely Italy, Poland, France, Germany and Spain. We also gained share in some of the smaller markets, such as Finland, the Netherlands, and Hungary, while market share declined notably in Greece, the Baltics, Denmark, and Portugal. Our four key brands continued to perform well highlighting our strong business fundamentals. However, our volume was hampered by the prevailing very weak economic conditions. Marlboro’s regional share increased in the first quarter by 0.7 points to 18.7% as the brand performed well in its five largest markets. L&M’s share was stable at 6.6%. Chesterfield’s share was up by 0.2 points to 3.7%, driven by markets such as Austria, Portugal, and Spain, as well as geographic expansion. Finally, the Philip Morris brand gained 0.3 points to reach 1.9%, thanks to its continued growth momentum in France and the success of Philip Morris Selection in Italy. While the overall growth of the fine cut category slowed down in the first quarter, we again outperformed the competition with an in-market sales volume increase of 7.6%. We are continuing to successfully roll out fine cut variants of our leading cigarette brands, Marlboro, L&M, and Chesterfield, into new markets. As a result, we increased our category share by 0.7 points to 14.1% and captured 48% of the additional industry volume. Let me now focus on two of the most important markets in the EU Region, namely Italy and Germany. The economic downturn in Italy has been severe with a decrease in real GDP of 2% last year and an increase in unemployment from 10.1% in February 2012 to 11.6% a year later. This has resulted in a decline in consumer purchasing power, which, we believe, was the main driver of the 9.5% decrease in cigarette industry volume in the first quarter of this year. The second important factor has been an increase in illicit trade, the incidence of which doubled year-on-year. The fine cut category, meanwhile, no longer grew following the reduction in the excise tax and price differential with cigarettes that took place in the middle of last year. We believe that the rate of decline of cigarette industry volume in Italy should moderate during the remainder of the year. However, this is contingent upon the elimination of the previously planned July VAT increase. The underlying fundamentals of our business in Italy remain strong. Our cigarette market share grew by 0.6 points in the quarter to 53.2%, as the continued momentum of Marlboro and the success of Philip Morris Selection in the international low-price segment more than offset the decline of Merit and Diana. We are also continuing to gain share in the fine cut category, with an increase of 3.3 points in the first quarter to 30.5%, thanks notably to the successful recent launch of Marlboro fine cut. German market was distorted in the first quarter by the leap year effect, trade inventory movements, and an increase in border sales. While cigarette industry volume was 6.6% lower in the quarter, we estimate that the underlying decline was a more moderate 2.8%. During this period, fine cut industry volume increased by 1.2%. The German economy continues to be resilient with low unemployment, and this has translated into more robust overall tobacco market trends including a recovery in the premium cigarette segment. Our business is in a good shape with our cigarette market share slightly higher at 36.1%. Marlboro grew by 1.5 points in the quarter to 22.3% and achieved its highest cigarette share since the fourth quarter of 2009. This confirms the positive response to our new Marlboro initiatives. While L&M’s cigarette share declined by 0.7 points to 10.5%, this reflected timing as the brand’s share is sequentially stable. Importantly, we have consolidated our leading position among Young Adult Smokers, with a 20% share for L&M and a 17% share for Marlboro. Last week, we announced to the trade an increase in our cigarette retail prices of essentially €0.20 per 19 cigarettes across our total portfolio. This should come into effect at retail in May. I will now turn to Asia, where we are continuing to strengthen our business. Our organic volume grew by 2.8%, excluding the Philippines during the first quarter. Indonesia was a key contributor. Our cigarette volume increased by 4.9% in Indonesia during the first quarter of 2013. We again achieved a strong share performance with a gain of 1.4 points to 36.3%. As anticipated, the rate of growth has moderated as certain brands are being impacted by the crossing of key price thresholds in line with our strategy of regular price increases. Our share gains were driven by the continued strong performance of premium Sampoerna A, which was up by 0.8 points, and by mid-price U Mild, which was up by 1.2 points. Marlboro meanwhile expanded its share of the white non-kretek segment by 4 points to 75%. Industry volume was up only slightly during the quarter, after a 13.9% surge in the same period last year. For the full year, we are forecasting a growth rate of around 5% to 6%, in line with the current 12-month moving average. The resilience of the Indonesian economy continued improvements in consumer purchasing power and the growth of the adult population underpin the continued industry volume expansion. In Japan, cigarette industry volume decreased by 3.2% during the first quarter and we forecast an underlying decline of around 2% for the full year in line with recent trends in adult smoking incidence. Our shipment volume increased by 6.9%, reflecting favorable distributor inventory movements. Intense competitive product and marketing activities, notably around Japan Tobacco's morphing of Mild Seven into Mevius, impacted the Lark and Philip Morris brands. As a result, PMI reached a first quarter market share of 27.5%, 0.2 points below that of the last quarter of 2012. Marlboro meanwhile maintained its share. We believe that the recent launch of Lark Ice Mint 5mg and 1mg, a natural mint 100mm product, and the planned launch in May of Marlboro W-Burst 5, a double capsule menthol innovation, should enable us to resume a more positive share trend. In the Philippines, the disproportionate tax increase that took place in January has, as expected, caused significant market disruption. In January, we increased our recommended retail prices of key brands by 60% to 70%. However, the price of individual cigarettes, set by the trade, which account for about 70% of total retail sales, increased by a larger amount in numerous outlets. In the first quarter, our volume declined by 42.5% reflecting the consumer reaction to the higher prices, the prior-year trade inventory build-up and the impact of the new prices on the trade’s working capital requirements. Cigarette industry shipments are estimated, based on Bureau of Internal Revenue data, to have been down by 39%. However, Nielsen consumer off-take and our market research data indicate that cigarette consumption was down significantly less. The difference reflects the aforementioned trade inventory movements and in particular a surge in illicit trade. In March, we saw a sequential improvement in volume and provided the government is successful in its efforts to improve excise tax administration, we still believe that industry volume should decline by about 20% to 25% for the full-year 2013. We expect some share erosion due to aggressive competitor pricing at the bottom end of the market. Let me now turn to the EEMA Region, where we achieved a 1.4% volume growth in the first quarter of the year. This strong result was driven by share gains in Eastern Europe, the Middle East and North, Africa and favorable distributor inventory movements in Russia, partly offset by the anticipated reversal of the December trade inventory build-up in Turkey. In Russia, cigarette industry volume declined by about 5.5%. This was due to recent tax-driven price increases of RUB 6 to RUB 7 a pack, which corresponded to between 9% for Parliament to 22% increase for Optima. In line with previous years, we expect this decline to moderate once adult consumers adjust to the higher prices. We estimate that the total market will be down by around 3% on a full-year basis. Our volume increase of 1.8% in the first quarter reflected the timing of shipments to our distributor. Our market share during the first two months of the year was stable at 26.2% with gains from above-premium Parliament, mid-price L&M and low-price Bond Street and Next offset by declines from mid-price Chesterfield and super-low price Optima. Turkey is an example of a market where a strong underlying performance was distorted by specific dynamics in the first quarter of this year. There were significant increases in trade inventory levels in the fourth quarter of 2012 that were reversed following tax-driven price increases at the beginning of 2013. As a result, while cigarette industry volume declined by 11.6% year-on-year, the underlying market showed a slightly positive trend thanks to lower levels of illicit trade. On a full-year basis, we forecast that underlying industry volume should be relatively stable. Our volume was down by 17.4% in the quarter as we were disproportionately impacted by the trade inventory movements. Our market share in the first two months of the year was up slightly to 44.7% as premium Parliament and mid-price Muratti continued their growth momentum, while Lark and L&M lost ground to competitive brands that were priced lower at the bottom end of the market. In conclusion, we expect to deliver strong results again in a very challenging year. We remain confident that, despite another difficult year ahead in the EU Region, we should be able to generate organic cigarette volume growth on a global basis, excluding the Philippines. We expect this year to again achieve the financial targets of our mid to long-term currency neutral annual growth algorithm. Our new reported diluted 2013 earnings per share guidance, includes the latest currency rate and is $5.55 to $5.65. This reflects a full-year growth rate of approximately 10% to 12%, excluding currency, compared to our 2012 adjusted diluted EPS of $5.22. I should point out that we foresee our growth will be skewed towards the second half of the year We anticipate strong free cash flow growth, excluding currency, in 2013. We remain committed to rewarding our shareholders through attractive dividends and substantial share repurchase programs. We will continue to judiciously invest to reinforce the long-term prospects of our business. In the first quarter, we spent another $1.5 billion in share repurchases. Since March 2008, we have returned a total of over $50 billion to our shareholders and repurchased 24% of the shares outstanding at the time of the spin. Thank you. And, I will now be happy to answer your questions.

Thank you. We will now conduct the question-and-answer portion of the conference. (Operator Instructions). Your first question comes from the line of Chris Ferrara of Bank of America. Chris Ferrara - Bank of America: Thank you. So, it sounds like you are broadly reiterating industry volume projections for the year in most places like the EU and like Indonesia. Despite what was a pretty poor volume quarter, so I guess the question is, was Q1 volume worse than you had expected or was it pretty much in line with what you thought it was going to be?

Well, taking into consideration, you remember in February we said that we had about 75% of the pricing already implemented or announced for the year, which was pretty high compared to other first quarters in the years before. I think it was rather expected that usually after the price increases, there is this initial sort of dip in the market, and then the markets are coming to some sort of recovery. So, this was not unexpected, but you also remember, I mean, in the first quarter for PMI in total, but also specifically for EU, first quarter of 2012 was a pretty strong quarter. We've been almost growing at the 6% PMI, and EU had just a decline of 1.5% in the first quarter of 2012. So, no, I don't think we had any surprise in the performance in the first quarter. Chris Ferrara - Bank of America: Thanks. I guess what I am trying to get to is whether -- how you feel about the 10 to 12 on a constant currency, and whether Q1 represents just a little bit more of an obstacle relative to getting to that number, but you just still had the flexibility to get there, or whether there really is no change and you still feel like you are in the same place within that guidance range of 10 to 12 that you were before?

No. I mean, we are very confident about the guidance. As you noticed, we are revising the guidance -- the February guidance only for the currency. So, I think the business fundamentals are very strong. The brand’s portfolio performance, essentially all of our main markets are pretty solid. We had some distortions in the quarter, which I have been mentioning in my remarks. The only thing, which I would like to add is that, I mean, we clearly are looking in the second half of the year to be somehow stronger than the first half of the year. For a number of reasons, we have in our annualization of some increased spending behind mainly marketing and sales from the last year, which is going to have an impact on us , especially in the first half of the year. There are still some inventory distortions which will continue through the second quarter of this year, but all in all, I mean we feel pretty confident about the guidance. I mean, all the risks, which we knew are there, I mean EU volumes, EU pressure on the volume, also Philippines, the initial impact are included or baked in our guidance. And as I said, I mean, we are pretty confident on a 10% to 12% growth for this year. Chris Ferrara - Bank of America: Great. Thank you very much.

Thank you.

Your next question comes from the line of Vivien Azer of Citi. Vivien Azer - Citi Investment Research: I am curious as we think about Italy, I recognize your guidance reflects no VAT increase. Can you speak to the probability of no VAT increase occurring and conversely if you do see an increase, how would that impact potentially your guidance for EU volumes?

Well, I will maybe start with the second part of your question. I think we are still at this stage despite the 10% decline of the reported volumes in EU for the first quarter. We still think, broadly the rate of decline for the full year will be in a range of that which we had last year, so 6.3%, if I remember correct. The underlying volume decline in the EU Region for the first quarter, we estimate will come in the range of 8% if I eliminate some distortions which were in the quarter. Italy is essentially the only market or the main market, which we will have on the watch list in EU as we still don’t have a clarity what's going to happen with the announced VAT increase. If we follow the politicians' announcement, no one regardless of the party they belong to, would like to have the VAT increase. However, in order for that wish to materialize, they have to form the government, and they have to change some legislation. So, we will have to watch how the situation unfolds in Italy. But I think with the exception of the VAT increase in Italy, I think that EU still can be broadly with the rate of decline that’s comparable to last year. Vivien Azer - Citi Investment Research: Fair enough. As a follow-up to that, can you comment, perhaps, on your outlook for operating income growth in the EU? I think you have said in the past, you could hold your EBIT flat but considering the significant trade down that you are seeing in the market, I wonder whether that needs to be adjusted downward at all?

Well, it is very much dependent, again, on the total volume development in the EU. If news from Italy is positive, I think we can maintain all the profitability. If Italy talks will happen, then it depends on the pricing [attractions] (ph), that might have some impact on the profitability in the EU. But assuming my forecast, our estimate for the total EU volumes to be broadly in line of the rate of decline of the last year would hold, I think we can maintain the profitability.

Your next question comes from the line of David Adelman of Morgan Stanley. David Adelman - Morgan Stanley: On the EU, with weaker volumes, not just for you but obviously for the competitors, are you seeing any change or an increase in competitive intensity, companies going more for share than they might have a year ago or is it fairly stable?

No. whatsoever. I mean, we had that pricing in quite a number of markets at the very beginning of January or towards the end of the last year. So, on the pricing side, I haven’t observed anything. No, I don’t think there is any risk of that nature. David Adelman - Morgan Stanley: Okay, and then in the Philippines, you mentioned to get to 20% to 25% declines in volume for the year. You need the government to crackdown on the non-duty paid dynamic. But that’s been a historical factor in the market. Is there any evidence that with prices up and the illicit volumes growing that the government is taking that any more seriously than it has in the past?

I think there was that problem, historically. You are absolutely right. Historically, we had some problems with some non-duty paid domestic product. However, that thing essentially exploded since new tax kicked in and we increased the prices. As I said, if we look at the consumption trends, I mean our estimate of the consumption trend in the Philippines at the moment as we speak, so this is still relatively early after the new prices hit the market. I would argue that the consumption decline is in the lower range of 20% to 25% decline which we foresee for the market for the full-year. The smoking incidents stays relatively flat at 50%, actually flat at 50%. As we do observe some decline in the daily consumption, you know the daily consumption market is very much driven by stick purchases, about 70% of the volume goes on the stick purchase, and we see the daily consumption drop from 13 to 12 sticks per day. So, you add these numbers together, you are actually in the lower range of 20% to 25% decline. We see our shipments volume and the industry volumes as estimated by the Bureau of Internal Revenues and we have a huge gap to reconcile. David Adelman - Morgan Stanley: Okay.

We see the volumes in the market, so they are clearly coming from the illicit sources. David Adelman - Morgan Stanley: Okay. And then just lastly, Jacek on cash flow, you reiterated the objective of having a growth year-on-year, currency-neutral and free cash flow, but it's down quite substantially in the first quarter. I think that's the second consecutive first quarter with a substantial decline in cash flow. Can you just speak to what happened in the discrete first-quarter cash flow? Why is it down and then you know what is going to be different in the remainder of the year? Thanks.

I think the developments on the finished goods, receivables and the tax payables, excise tax payables connected with corresponding volumes, build up inventories, they actually improved. We had one-off items you like, which was the timing of the payment of the withholding stocks on the profit which were to the U.S., which happen to take place in the first quarter of this year. If I take that that item out actually my free cash flow would be up, so we're still confident that the free cash flow for the full year can grow actually at the higher rate than our revenues. David Adelman - Morgan Stanley: So debt repayment cash outflow was later in the year last year last year and it was in the first quarter this year?

Happens to be. It will take place in the first quarter of this year. David Adelman - Morgan Stanley: Okay. Thank you.

Your next question comes from the line of Judy Hong of Goldman Sachs. Judy Hong - Goldman Sachs: A couple of questions in Asia, so first just in terms of your margin performance there, clearly you had the impact of the Philippines volume there, but you had pretty strong volume in Japan as a result of the inventory movement, but the margins were still down. So, can you just help us understand the margin performance in Asia in Q1?

I think it is mostly driven by Indonesia, the cost pressure the closed prices the raw material which we are using very manufacturing significantly increased over the last period, so we had the pressure of that and pricing in Indonesia has a tendency to be build over the year rather than just at the beginning of the year, so usually we had a slower start. I mean, you have a cost pressure coming from Indonesia and at the beginning we cannot offset it fully by the price and I think this should disappear during the year and actually Asia should be able to improve the margins for the full-year. Judy Hong - Goldman Sachs: Okay. Then in Japan, I think you called out share was down a little bit, called out the increased promotional activities from your competitor. So, can you just elaborate sort of the nature of those promotional activities? How much do you think that that's in part driven by the currency movement that's giving and JT more of the cost advantage in that market and do you think that that will continue to put a little bit more competitive pressure in your business and how you are sort of responding to that?

Difficult for me to comment how JT's allocating their resources, but clearly the marketing promotional spend both, in terms of the new product introductions and the promotional support of existing products in the market from JT in first quarter was massive. And to that extent, yes, we lost some share on the Lark and Philip Morris. However on a positive note, I haven't seen the Marlboro losing adult in a share. So, frankly speaking, I would read it as a positive on Marlboro that despite is a very high spend from a JT remain the market share of Marlboro, but I have to admit that Lark and put into lark and Philip Morris yet they contributed to summarize in the overall share. We have launched two Lark brands towards the end of the quarter, so we don't see them in the quarter to innovative custom product behind the Lark and we also announced launch of the new Marlboro, highly innovative the first two capsule product, which will hit the market somewhere May-June. Our ambition is still to grow the share in Japan, but as I said, we are confronted with the most expense from the JT. Judy Hong - Goldman Sachs: Okay. And then just lastly, in Australia just following the implementation of plain packaging, what kind of consumption performance or trends are you seeing? And then what is happening in terms of your actual volume?

Okay, in Australia, we are roughly four months since the introduction of plain packaging. At this early stage, the Australian market has not yet shown any significant changes in consumer purchasing behavior. The volumes in the quarter were stable and this compared actually, with the 4% decline which tool place in the first quarter of last year. This stable volume, I believe, reflect the impact of disruptions in connection with the transition to the plain packaging last December, and there were some evidence with deflation, et cetera when manufacturers had to replace the old parts with the new parts. Frankly speaking, based on the first quarter data, it would appear that consumer down trading might have accelerated slightly but this trend, however, has been a part of the Australian market for several years where the consumers are showing a bit more sensitivity to the rate of tax and the price increases. As you remember, in February this year, there was a price increase, I think, of around 4% in the market. So if take all of these things together, in short, I think at this moment, the impact of plain packaging itself is not yet evident in the market.

Your next question comes from the line of Bonnie Herzog of Wells Fargo. Bonnie Herzog - Wells Fargo: I just wanted to ask a little bit about price (inaudible). Maybe if you could give us some color on whether or not down trading pressures are increasing for your non-OECP markets. What's going on broadly with some of your price cuts and then your outlook for this as the year progresses?

No, frankly speaking, I don’t see that much of a pressure on the down trading. It will have to take the EU out of the equation although as you have noticed, (inaudible) continues quarter-on-quarter growth in the EU, even in Germany, recently. We see that the there the actually the premium segment is slightly growing. It is a phenomenon which we have not seen for a long time. Outside EU, there are different forms of up trading. You see the premium segment growing in a number of markets. Indonesia, Turkey, Vietnam, big or small market. Russia, more up trading is happening from the low price segment to the new price segment. I think the premium segment in Russia is flat as we more or less have seen it over the year. So, no, I don’t think it is that that much of the risks to us and worries which will come from the down trading. As you have seen in the Marlboro and Parliament, I should mention, they are growing across all geographies. Bonnie Herzog - Wells Fargo: Okay, that’s good. Then in terms of Japan, could you touch on what you think the likelihood for price increase, ahead of the consumption tax increase and April 2014 is (inaudible), what sort of necessary steps and timing of getting this to happen in the country?

Japan, still is a market where there is sort of price control in to light. This would require the consent of Ministry of Finance and as you know, we are not the market leader on this market. So not necessarily we are calling the shot there. So there also we have to see whatever the tax announcement of the tax, the sale price increases at the beginning of the next year will happen because we also hear some news that maybe government want to change the policy. Nothing concrete but we will have to see that unfolds. Bonnie Herzog - Wells Fargo: Okay, and then just my final question would be on NGP and just maybe an update on some of the progress again compared with your clinical trials and then recently the ATU has talked about their less harmful cigarettes and then their strategy to transfer their technology to their existing cigarettes. So I guess not necessarily new lines but I would like it if you could talk about your approach with your NGP and then how you plan on rolling that out and how you will address that either with your brand franchise or new lines and further pros and cons of these strategies?

Well, we are progressing as per planned. With the clinical, the regulator engagement, and also with being ready to finally start building our manufacturing capability. As you remember we have a three platforms of NGPs which we are working on potentially simultaneously. I believe all of them altogether should address all consumers' needs which are in the market. Our fundamentals of common denominator, behind the [platforms] is we are not going for the selective reduction of a small constituent, we just want to bring the level the old constituents down, so we focus on the reduction of changing the process from the combustions for heating etcetera, so that is our approach and we feel pretty confident about it. Bonnie Herzog - Wells Fargo: Okay. Thank you.

Your next question comes from the line of Jon Leinster of UBS. Jon Leinster - UBS: Just quickly Eastern Europe, Middle East, Africa and Latin America, Canada region both seem to have surprisingly strong price mix, particularly given the sort of geography of where the volume growth is being in South Africa. Can you explain why that is?

Potentially the of North Africa, so Egypt, other locations as well. We are also benefiting from some disruptions, which we had on our supply chain, especially at the beginning of the last year. As you remember, there were some disturbances connected with springs affects us, but once we brought the stability to our supply chain, our brands are in a full distribution, I mean they clearly reaping benefits of this. I think in Latin America, price increase which we taken in Brazil. I think there was pricing in the Mexico at the beginning of the year, pricing in Argentina. I think in the first quarter, I think all together this contributes to the stronger pricing contribution coming from this and also the volumes as I mentioned North Africa especially. Jon Leinster - UBS: Just with regards if you ignore the Philippines and look at the sort of various trade inventory movements that have occurred in the first quarter, because obviously there's positives in Japan, Russia and negatives in Turkey and Ukraine. I mean, excluding the Philippines is that being a net benefit to sales line or negative?

No. I think, it's positive from Japan and positive in Russia and there's essentially two places where we had positive. I think still the negatives would offset this so that had a drag on quarter rather than a benefit, if you like, in a quarter. Jon Leinster - UBS: Your pricing, in the quarter was very strong. I mean, at that rate do you think you would be able to exceed this to 1.8 billion from last year in cost variance?

For obvious reasons, I cannot comment about the future pricing, but yes I mean as the quarter indicates indicate that the pricing is strong and is obviously supported also by the pretty pragmatic if I [say] so tax regimes. I mean, again excluding the Philippines, which we discuss separately. So, you know it's a good pricing environment and that would have a stronger pricing volume. Jon Leinster - UBS: Okay. Thanks so much.

Your next question comes from the line of Chris Growe of Stifel. Chris Growe - Stifel: Hi. Good morning. I just had a couple of country related questions for you, Jacek. The first one is in relation to the Philippines. I just was curious about two factors. One would be that you are seeing some low price competition, and I guess I was curious is Fortune not going to lower prices or get more promotional work to read that. Then related to that, Marlboro did relatively well, so I am just curious as to price gaps and it was very early there, but the price gaps are at all allowing for some better performance of premium brands.

Well, as we said, unfortunate thing about the Philippines Stock Exchange is the magnitude of the change in a short period of time, the magnitude of an increase. However, immigration of the reductions to [TOs] on a full specific system they do support it, the narrow the price gaps narrow. So, clearly Marlboro going forward should benefit from closer of the gaps in a relative terms. When it comes to the lower price competition, I think we have to remember about one thing. Philippines is a big pricing market, okay? So, dollars can cut the prices on their own in the outlet. There are about 1 million outlets in Philippines out of which we have about a quarter, roughly about a quarter, so what our self have to go and manage the right the right price per stick, which is important in that market and price per pack and bring the price down to the recommended level. That’s clearly something which we are doing in the first quarter. I think its going to continue very heavily in the second quarter. That obviously requires some extra spending. But, I think, once we bring the prices to the recommended level, we should be in a good situation. I also should mention that the sequential evolution in the volumes, if anything, when we started the year, I think the first week of the year, our shipments were down by about 50%, very quickly will move to the 40%, then the 30% decline. Actually, if I look at, essentially the last few days, we almost had a 20% something decline. So we know that the total market goes in the right direction which I have to manage the price and address or help the government or hope that the government will improve the tax collection from all market participants. Chris Growe - Stifel: Okay, that’s very helpful. The other question I have for you is in relation to Russia. Marlboro had a bit of a softer performance. I was curious if that was somehow related to inventory movements a year ago. I know that inventory overall was a benefit to Russia. Then, just to understand the investments you made in that market. I know Marlboro has been a really key focus for you. any comments on that or any relation to the weaker performance this quarter?

Okay, investment in Russia is behind Marlboro but also behind the Parliament, L&M and a number of other brands. We, in general, still think the much stronger, much robust infrastructure, sales, marketing infrastructure, as much as the Marlboro in which we are investing. Obviously, Marlboro is our focus, as you know, it’s the only brand which internally we have a much higher expectation for the performance. There is a significant price increase. So I will have to wait a little bit how the prices, or how the situation tabulate in the market. I would argue that Marlboro, essentially, for the last few quarters in Russia is flat. We obviously shoot higher. But for the time being, it is flat. Marlboro, over the past two years, took RUB 5 higher price increases than the rest of the market, because in the meantime we are trying to reposition the Marlboro really to the premium segment. So if I take all the large price increases in Russia and Marlboro adding on the top of this RUB 5, and I had a brand stable for the last few quarters, I think it is actually a good thing about the rest. However, we still have to wait until the Marlboro markets is going to grow.

Your next question comes from the line of Michael Lavery of CLSA. Michael Lavery - CLSA: I want to ask a question on Indonesia first. Just to understand how you think about the competitive threat, if any, from the Gudang Garam Mild that just launched a couple of weeks ago. Obviously, it is just new in the market but they are doing TV commercials, they have got a little bit of a price discount to A Mild. Is that something that you might stand to defend against or do you see that, Mild has been obviously a lot of share gains. Dow do you think about that as an addition to the competitive equation?

Well, as you remember, last year, we grew the share hold by almost by three point. With this quarter, we open with almost 1.5 point share advancement. Obviously our share continues to grow. A have to admit that the last year, our share growth was somehow supported by the more attractive price points for a number of our key brand. Some of this, as we take in continuously the pricing and increasing the pricing in Indonesia, some of this attractive price point, we are going to lose. But we are still looking into the share growth in Indonesian. We are launching our product. We are expanding our product as well. So I don’t its any sort of track that you will be able to see at this stage coming from, frankly speaking, in a competitive right now. Michael Lavery - CLSA: Okay, that’s helpful. Then, I know you have touched on this a little bit but can you give us some from color on the pacing. You said the second half would be stronger but the 2Q and 3Q are your easiest comparisons and so can you just highlight some more of the reasons that 2Q wouldn’t also be a strong or what will help 4Q that the second half would be stronger just what some of the drivers are that shape how the year plays out?

Okay, I think the reason why I said that we think second half of this year to be stronger than the first half, there are a few reasons. One is, we have a new annualization. We have annualization of the increased spending we started already in the first half of 2012. This was mainly Russia, but also some Asian market. It's also in the timing of our launches which we had the in first half of the last year versus the first half of this year. Secondly, as I mentioned that we have to increase our spending in Philippines towards the end of the first quarter and I think is going to continued through the second quarter towards the situation which we have with compliance with the recommended prices at the retail level and also to address some competitive pressures there. Also, if you remember we already in February that the three-quarters of 75% of our pricing was already been pretty heavily year. So, yes I mean some of these volumes will have to recover and that recovery in some places may continue through the Q2. Then obviously is also the shipment patterns which were having some market with some distortions may continue, will continue actually for the Q2. So, as I said we expect the second half to be stronger than the first half of this year. Michael Lavery - CLSA: That's helpful. Then just my last question, you've talked before about opportunity that it could be the regain even sort of your fair share of illicit trade or just the stem that growth even, but it seems to be still more of a threat than an opportunity. What could make that tide turn? I know you've put money into Poland things, but how far off is that from having any impact? When should we see that actually start to become something that is heading the other way instead of gaining share?

This is a process. Okay? It's going to take time. I mentioned Turkey in my remarks is one of the markets where despite the prices increases etcetera, tax increase and the price increases, government doing a lot of right things on illicit trade, and we see that through volume coming to the industry. I mean despite the tax and the price increase in Turkey we still think that the volumes for the full year helped by the recovery of illicit trade is going to be flat, so we can see that. I think also that recently I think this week in EU is going to be another serious wakeup call to the number of the states in EU, because letting the contraband growing from a 10-plus percent last year to 11-plus percent this year in the middle of this crisis, I mean it doesn't necessarily tells the good thing about the number of the law enforcement authorities in the many of the EU countries, but this is going to take time. I admit it. We are working with Interpol, we are working on tightening the supply chain. There is cooperation among the industry members, the legitimate industry members, but more has to be done. Michael Lavery - CLSA: Okay. That's helpful. Thank you.

Your next question comes from the line of Thilo Wrede of Jefferies. Thilo Wrede - Jefferies: Good morning. I think you alluded to it already, but in markets like Italy and the EU you have a down trading market yet the premium brands that you have there are gaining market share. Can you give us a little bit more background how the dynamics there work?

Well, first of all there is a number of the brand support activities, which were deploying behind Marlboro, okay? The whole commercial organization, commercial approach which we have already announced at the time on Investors Day last year here, and we start yielding results. Second, in most of the countries the tax regimes are actually more and more supporting or not allowing for the too much of the down trading. I mean the price gaps despite the fact that they are price increases tends to narrow, so you know they have the minimum taxes, very high minimum taxes, or just the specific structure. I think this all together has clearly brand like Marlboro, but I think Marlboro quarter-after-quarter in terms of a EEMA's equity etcetera is getting into better and better shape. Thilo Wrede - Jefferies: Okay. Then in Japan for the last three quarters, your market share has been drifting down again after the post tsunami gains. What's your outlook? At what point you can actually maintain your year-over-year market shares in Japan?

Well, I still think that we can make a share advancement in Japan. I mean, the quarterly 27.5%. I mean, that's not what we would expect, so I think the. There are still three quarters to go. We have a pipeline of our products and the programs there in place, but as I said earlier, answering one of the previous questions, there is a massive support from JT behind the Mevius in terms of the product promotion. The other manufacturers are already pretty active with launching their product. It's a competitive environment. I look at this also positively that despite that there is a massive spending and activity coming from a competition or competitor, Marlboro actually is extremely resilient. I mean, that said, that's very important for us. We will have to address the situations with Lark, Philip Morris going forward.

Your next question comes from the line of Erik Bloomquist of Berenberg Bank. Erik Bloomquist - Berenberg Bank: Just a brief question on the United Kingdom and the outlook for plain packaging in there. I thought the comment on the Australia were helpful. But what do you see in terms of the risk of the U.K. government moving forward on plain packaging and how do you see such a move does occur affecting the approaches if other governments within the EU that have expressed interest, such as the Irish most recently?

Well, not much strategies on the U.K. actually because the government still have not revealed what is the conclusion of the public consultation in pack assessment, et cetera. So we are waiting for the decision of the government in which directions they really want to go. At the same time as you know there is still a tobacco product directive which is in the making, There are still pretty important steps to go over the tobacco product directive. We will then have a much better visibility, really how many markets are key and if you like I am willing to introduce the plain packaging in many markets over there. As you know the plain packaging in European Union also at the member states level has the number of legal challenges for its implementation. So we will have to see. And as I said, so far it's early, but so far especially on the smoking, on consumption of cigarette in Australia, you don't really see, as expected, frankly speaking, any impact coming from the plain packaging, despite what was promised at the beginning. So as evidenced, I have got the feeling its not being built in Australia. I mean there is still no evidence.

Your next question comes from the line of Rogerio Fujimori of Credit Suisse. Rogerio Fujimori - Credit Suisse: Jacek, could you talk a bit about your other two big markets in the EU, France and Spain? Particularly in France, you reported market volumes down 8.6%, but in the last call you flag a decline of 3.4% in January. So is it fair to say that cigarette volumes are getting worse? Then in Spain I think you reported cigarette market volume down 15%. So, I was just wondering about the shape of the quarter and the underlying decline in this market?

I think that France is still, towards the end of the last year we had a price increase in France. So market is still in the recovery. Although I have to admit that macros in the France are not the most encouraging, right. The employment, the GDP, et cetera are not necessarily going in the right direction. Spain also had the beginning of the year price increase, but early in January. I think there was a $0.15 price increase in Spain. So we will have to wait presumably a few months to see how the situation develops there. But as I said this is all both France and Spain as we see today are all in my forecast or estimate of the total market decline for the EU to be broadly in a range of last year. Italy, I will repeat it as well, I mean it’s the only country. The main country which I have on the watch list with regards to the VAT development. Rogerio Fujimori - Credit Suisse: Okay, and then secondly, you mentioned that we should expect some trade inventory distortions in the second quarter. Could you just elaborate on that to help us with our models please? Thank you.

I think it would be mainly in Asia and mainly still in Japan. I think the last quarter when we rebuild our inventories to the safety level what we require to what we regard as a safety level for the Japanese markets to place in the Q2, if you remember properly of last year. So clearly I will be missing this one this year.

At this time, there are no further questions. I will now turn the call to Nick Rolli for any closing remarks.

Thank you very much. That concludes our call today. If you have any follow-up questions, the investor relations team here in Switzerland. The phone numbers are available on the press release. Again, thank you very much for joining us today.

Thank you for participating in the Philip Morris International first quarter 2013 earnings conference call. You may now disconnect.