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

Bonnie Herzog - Wells Fargo David Adelman - Morgan Stanley Judy Hong - Goldman Sachs Jon Leinster - UBS Michael Lavery – CLSA Chris Growe - Stifel Vivien Azer - Citi Thilo Wrede - Jefferies Erik Bloomquist - Berenberg Rogerio Fujimori - Credit Suisse Ann Gurkin - Davenport David Hayes - Nomura Thomas Russo - Gardner Russo & Gardner Chris Burritt - Bloomberg News

Good day, and welcome to the Philip Morris International Second 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, and thank you for joining us. Earlier today, we issued a press release containing detailed information on our 2013 second quarter results. You may access the release on our website at www.pmi.com. During our call, we will be talking about results for the second quarter of 2013 and comparing them to the same period 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. Jacek?

Thank you, Nick, and welcome ladies and gentlemen. As previously foreseen, we had the challenging second quarter. Our adjusted diluted EPS was up slightly, excluding currency. Cigarette volume declined by 3.9% due principally to lower industry volume in the EU region, Russia, Turkey, and the Philippines as well as inventory movement in Japan and Russia. Pricing remained strong, and we have solid share gains, particularly in the EU region. However, this was not sufficient to offset that impact of unfavorable volume mix, additional investment, notably in Indonesia, the Philippines, and Russia and higher clove and tobacco cost in Indonesia. Our business fundamentals remain solid and we are confident in our ability to achieve the ex-currency guidance that we established in February and the (inaudible) funds in May. However the evolution of tax paid triggered at industry volume will remain a key valuable and our main challenge for the remainder of the year notably due to the growth of illicit trade. We anticipate better results during the second half of the year and in particular a strong fourth quarter. This is based on the expectation that our volume declined to moderate other small-scale (ph) have adjusted higher prices implemented earlier this year. Our strong commodity share performance in the EU region will continue, margins will improve thanks to recent price increases and we will have favorably due to the respect of the timing of investment in infrastructure and marketing. Since April we have weakness, a sharp decline in the value of some currencies relating to commodities and emerging markets, as the Australian Dollar, Indonesia Rupiah, Mexican Peso, Russian Ruble and Turkish Lira. Accordingly at prevailing exchange rate our guidance now includes a full year unfavorable currency in part of proximity $0.31 per share as of $0.19 in our previous guidance. I will revise the reported diluted EPS guidance for 2013 is that for $5.43 to $5.53 compared to $5.17 in 2012. The change already reflects into currency impact. Excluding currency this continues to represent a growth rate of approximately 10% to 12% compared to other adjusted diluted EPS of $5.22 in 2012. This is inline with our mid to long term currency neutral annual adjusted diluted EPS growth targets. Let me now discuss our second quarter results in more detail. Our cigarette volume was down by 2.6% excluding the Philippines; this reflects 3 million (inaudible). First cigarette industry volume in the EU region continued to decline, second industry volume in Russia was impacted by the livestock driven price increases that were implemented at the beginning of this year as well as weakening economy. Third, our second quarter volume reflected a difficult comparison due to the inventory replenishment in Japan in Q2 of 2012 as well as the lower market share. However, there were some favorable development. First the decline in our volume in the EU region of 5.9% was significantly less than the 7.1% decline that occurred in the first quarter. Second, we again achieved volume growth in the Asia region excluding the Philippines and finally the volume growth continues to be strong in the Middle-East and North Africa. Pricing continued to be the key driver of our income performance, the sales growth set the impact upon favorable volume mix on that revenues excluding currency. However adjusted OCI declined by 3.4% excluding currency. This was due to unfavorable volume mix, higher product cost notably in Indonesia where higher clove and tobacco cost have to-date only been partially passed on. Investment in business infrastructure and marketing in Russia since the second half of last year and additional spending in the Philippines in the second quarter of this year to seek to achieve more sustainable price gaps. Our ability to take pricing remain solid including in the EU region. During the second quarter we achieved a favorable pricing variance of 479 million bringing our June year-to-date total variance to over 1 billion. In May we increased retail prices in Germany by EUR0.20 per pack across our portfolio. In June we announced a favorable (ph) price increase in Russia for (inaudible) across most of our key brands. We have also increased prices recently in Belgium, Canada, Egypt, France, Greece, Indonesia, Spain, Switzerland and Ukraine. This price increases will help us achieve another strong pricing variance during the second half of the year. Let me now review a number of our key geographies starting with the EU region. We have seen some signals that politicians recognized the further spending cut to try to reign in budget deficit and not going to help Europe telling to coordinate. However, few conclusive measures have been taking so far to stem the continued rising unemployment which reach a seasonally adjusted rate of 12.2% that you made this year this is compared to 11.3% a year ago. In the second quarter regional cigarette industry volume was down by 8% and the regional fine cut industry volume declined by 0.8%. During the quarter, we witnessed continued adult consumer down-trading to lower priced products, including illicit cigarettes. Due to the continued deterioration in the economic situation and the resulting growth in illicit product, we are now forecasting a decline of cigarette industry volume in the EU region of 7% to 8% for the full year 2013 compared to our previous forecast of around 6.5%. While industry volume declined slightly faster than previously foreseen, we were able to achieve a better than expected market share. Consequently, our cigarette volume declined by 5.9% and our fine cut volume grew by 12.3% during the second quarter. On a regional basis, our cigarette market share increased by 0.7 points in the second quarter to 39.3%. The gain was driven in particular by Marlboro, which grew by 0.5 points to 19.4% with L&M, Chesterfield, and the Philip Morris brand also performing well. In the fine cut category, we gained 1.2 share points to reach the original share of 14.9% as we continue to successfully extend our cigarette portfolio into this category. Let me focus on the three of the key markets in the EU region, mainly Germany, Italy, and Spain. Cigarette industry volume in Germany declined by 7% in the second quarter and fine cut industry volume decreased by 0.7% following slight increases in March. However, it should be highlighted that the underlying decline in cigarette industry volume was 2.8%, after the elimination of estimated trade inventory fluctuation. Our cigarette share grew by 1.2 points in the quarter to 37.6% driven mainly by the strong performance of Marlboro, which achieved its fifth consecutive quarterly year-on-year share increase. The economic downturn in Italy continues with unemployment increasing from 11.9% in February to 12.2% in May. Italy on cigarette industry volume declined by 7.2% in the second quarter and a fine cut industry volume was down by 10.5% impacted by the reduction in the price cuts between fine cut products and cigarettes that followed the large fine cut tax increases mid last year. The underlying fundamentals of our business in Italy remained strong. Our cigarette market share grew by a further 0.4 points in the quarter to 53.3%, thanks to the continued momentum of Marlboro and the success of the Philip Morris Selection in the international low-priced segment. We also gained share in the fine cut category with an increase of 7.9 points in the second quarter to 37.9% following the successful introduction of Marlboro fine cut. We were encouraged by the decision of the Italian government to postpone to October, the 1 point increase in VAT that was due to be implemented in July. We believe that such a measure would reduce consumer spending and hope that it will be further postponed or cancelled. At the end of last month, the Spanish government modified the excise tax on tobacco products in order to enhance the predictability and stability of excise tax revenues, which had been undermined by adult cigarette smokers down trading to lower tax alternatives. The specific excise tax on cigarettes was increased while the ad-valorem rate was reduced. At the same time, the royalty of excise tax burden on fine cut was increased. The resulting reduction in the price gap between cigarette and fine cut should help address the recent market in (inaudible) whereby cigarette industry volume declined by 12% in the first half of the year, while fine cut industry volume increased by 26.4%. Our cigarette market share was up by 2.3 points in the quarter to 31.9% as Marlboro, Chesterfield, and L&M all grew. Let me now turn to the EEMA market starting with Russia. In Russia, we estimate that cigarette industry volume declined by about 6.4% during the second quarter as adult smokers reacted to tax-driven price increases of RUB6 to RUB7 equivalent to 9% for above premium to 22% for super low-priced brands and to a weaker economy. Our volume declined by 11.4% during the same period as our distributor reversed its first quarter inventory buildup. Through the end of May, our quarterly market share remained resilient and was just 0.2 points lower at 25.9% despite the late price increases by several competitors following the January tax increase. Parliament, L&M and Bond Street continued to gain share which is more than offset by the declining of Chesterfield. We expect higher profitability for the full year 2013 than last year due to our pricing strategy that we’re forecasting the cigarette industry volume will decline 6% to 7% on a full year basis. In Turkey there was a resurgence of illicit trade during the second quarter when it reached over 20% of total consumption due to the governments focus on other priorities. As a result cigarette industry volume decline by an estimated 11%. It is difficult to forecast the full year performance due to the uncertainty surrounding future trend in illicit trade. However, unless the government acts quickly to stabilize the issue cigarette industry volume could be down by 8th March at 7% to 9%. The premium on mid-price segment continue to perform well. Our mix in growth driven by the strong momentum of Parliament and Muratti. However the low price segment which includes Lark and L&M prices 6.5 Lira per pack was impacted by the expansion of the super low 6 Lira per pack segment. This led to a slight erosion of our overall markets during the second quarter to May on 0.5 points to 44.8%. We have addressed this issue through the relaunch of Chesterfield at 6 Lira per pack. In Asia we’re continuing to strengthen our business despite the disruptive tax increase in the Philippines. Our cigarette volume grew by 1.5% excluding the Philippines with Indonesia the key contributor. In Japan cigarette industry volume decreased by 2% during the second quarter and we continue to forecast the similar decline for the full year. However, due mainly to the inventory replenishment that have occurred in Q2 of 2012 our volume was 10.2% lower than this year. During the second quarter we witnessed continued intense competitive activities and the successful launch by Japan Tobacco of its first Mevius cut (inaudible). Our market short decline by 0.9 points to 26.9% driven by lower shares for Lark, the Philip Morris Brand and primarily the momentum Menthol (ph) variance of Marlboro. We expect our market choice to remain under pressure in the second half of the year so we believe that we will make progress overtime thanks to the continued resilience of Marlboro and a strong pipeline of innovative new products. Indonesian industry volume grew by 3.5% in the second quarter while we outperform the industry through the volume expansion of 6%, for the full year we now expect an industry growth rate of approximately 4% which were below the exception of the growth rate of the last two years is consistent with the historical average for the market. Our market share grew by 0.9 points to total 6.1% driven by Sampoerna A, U Mild and the Marlboro partly offset by the decline of (inaudible) which moved above the favorable 1000 rupiah per cigarette a steep price point. Premium Sampoerna A is a clear leader and growing but increasingly price competitive (inaudible) and machine made process (ph) segment. U-Mild is the leading unique price brand in the segment while Marlboro continued to strengthen it's position in the white cigarette segment where it develops a segment share of 7% to 6% during the second quarter. The final market that I will talk is the Philippines, the decline in the tax based industry volume moderated significantly during the second quarter where volume down by 7% despite the continued high prevalence of local non-tax paid cigarette that are not included in the data. We increased our investments behind Fortune and lower price brands to seek to achieve more sustainable price cuts. However despite the very large tax increase our local competitors Mighty and Marvel brand have remained at last year’s attractive price point at 1 peso per cig. This gives the competitor a clear price advantage in the market where fixed sales (ph) account for about 70% of the volume. We want the limited improvements in tax enforcement wide spread availability of non-tax based domestic cigarettes remain a critical issue. This is driving a greater level of down trading and originally foreseen and that has impacted our volume, our mix, and our market share, which declined to 82.9% in the quarter. We are continuing to work with the Bureau of Internal Revenue to achieve a level playing field. Our volume increased from 13.5 billion units in the first quarter to 19.1 billion units in the second quarter. For the full year 2013, we forecasted our volume will be down around 20% to 25%, but that the decline in consumption should be significantly less. In conclusion, we remain confident that we will deliver solid financial results in 2013, industry volumes remains a key challenge. However, we expect to continue to achieve solid market share as well as higher prices. There is no change to our guidance attributable to business results. Our revised 2013 reported diluted EPS guidance reflecting prevailing exchange rate is $5.43 to $5.53. Our guidance continues to represent the full year growth rate of approximately 10% to 12%, excluding currency compared to our 2012 adjusted diluted EPS of $5.22. We anticipate strong free cash flow growth excluding currency in 2013 and remained steadfast in our commitment to reward our shareholders through attractive dividends and substantial share repurchase programs. Our dividend yield last Friday was 3.8% and our target dividend payout ratio remained 65%. During the second quarter, we spent $1.5 billion in share repurchases and have now repurchased close to 25% of the shares outstanding at the time of the spin. Thank you. And I will be now happy to answer your questions.

Thank you. We will now conduct the question-and-answer portion of the conference. (Operator Instructions) Our first question comes from the line of Bonnie Herzog with Wells Fargo. Bonnie Herzog - Wells Fargo: Hi, Olczak.

Good morning, Bonnie. Bonnie Herzog - Wells Fargo: Good morning. I guess my first question is in terms of the quarter where did it fall relative to your expectations and shipping since your volume in overall business has to improve quite substantially to hit even the low end of your 10% to 12% currency neutral EPS growth, what gives you the confidence that you can hit these targets and then what are the key drivers of this?

Well, to start with the quarter, second quarter, I mean nothing frankly speaking came in the second quarter as a surprise to us. I mean, we knew that we will have an inventory adjustment in Japan, and maybe at this stage, I can give you a little bit more details over the margin instead of that adjustment, if our shipment was down in Japan by about 10% if you take the market decline down, it’s about 8%. So, on shipments, you are talking well around the 1 billion of the adjustments or around the 1 billion of adjustments. You know that Japan is a pretty profitable market to us as the volumes are expensive. And in Asia, we also knew that we are going to scale up the investment behind the defending the price points in Philippines for just these two countries to market, put the drag on the results, but as expected I mean we knew it. As a surprise, I think came a bit weak start in June in Japan and I think the sudden resurgence of the illicit trade in Turkey. I mean, it is where the things were at the beginning of the quarter, where we have been heading in our market. When it comes to second half of the year, as you have seen, we had a very strong pricing in the first half of the year, $1 billion, I mean, it clearly gives us and the pricing is – pricing environment supported by the tax environment, I mean, (it wasn’t) pretty comfortable about delivering a strong pricing in the second half of the year. Second thing is there is just the timing of the annualization of our investment from last year to this year. If you look at our total cost variance, which you will have on the cost of goods sold and the total cost of the company, essentially the negative variance, which we have for the first half of the year that is for the year. So, in second half of the year, we should be essentially closing flat versus 2012. So, as I said, we have a strong pricing. The tax environment is reasonable. The cost comps is going to be definitely easier for the second half of the year, and needless to say, that the business performance measured by the performance of our brands in essentially most of the geographies, I mean we’re doing pretty well. So this gives us the confidence that we can deliver the results for the full year. Bonnie Herzog - Wells Fargo: Okay that was really helpful I appreciate that and you mentioned pricing has been strong and you expect that to continue in the second half. I’m trying to understand you know how your volume could be impacted for the second half and the full year. You suggested last quarter that your volume growth ex-Philippines would be positive this year. I would like to, if you think that’s still possible given again how weak the volume has been last quarter and this quarter and then certainly especially given some Marlboro volumes.

Sequentially we see the improvement in the volumes in most of the geography, so when we were revising the guidance, the outlook for the full year it's much more critical than I said some of this improvement are not as growth as maybe initially that we expected but there are improvements so clearly the volumes of our quarter three and quarter four I mean it's going to work a little bit better but clearly the total market volumes I mean for us is a key challenge for the year. I think major what will help you if you look at how we see ourselves, how we’re going to do the quarters, Q3 and Q4 and you know that it is our practice not to give there a specific guidance for the quarter. I was expecting the EPS level for the quarter free to be somewhat comparable to what we had in the quarter one and then we will have all alignment of the revenue and the cost qualms are fully materializing at the backend of the year.

Your next question comes from the line of David Adelman with Morgan Stanley. David Adelman - Morgan Stanley: Just to be clear on that last point, you think you’re going to have an absolute level of earnings per share in the third quarter that’s comparable to what you earned in the first quarter of this year?

Well I said you know that our practice and this is what I said to Bonnie, our practice is not to be very specific in guidance on the cost that we break. I was just trying to give the outsight community a little bit of color on what will be the pricing of the growth. On ex-currency basis more EPS in Q3 growth rate should be comparable maybe slightly above where they have been in Q1 so clearly you see that… David Adelman - Morgan Stanley: Comparable growth rate not a comparable level of earnings, just to be clear.

Yes that’s correct. David Adelman - Morgan Stanley: Okay. Jacek can you help us understand sort of the magnitude of the change in the enforcement of the non-duty paid volumes in the Philippines, in other words if it's started and the level of enforcement was at zero and a 100 is sort of standard and optimal where are we as we’re going through month-by-month.

Well the 100 the last year, I have to I think start from the last year. I think the last year the under declaration from that particular competitor we estimate was in the range of 80% of the entire volume. We brought it down while the government somehow brought it down to say about 20%-25% under declaration but just the magnitude of the tax burden which is at the new rate is that you still can sell the product profitability even at 75% of the volume and under declare 25%. So the issue is now and that is for is presumably that particular competitor still sitting on a 1 peso price point which you know if you pay the full cost economically it's completely not doable. So the question is now will the government continue or will there be not willingness on the government side to make sure that 100% of the volumes are being declared is my case and some other competitors in the market. So that’s the magnitude, so yes there is an improvement we’re about to reach this tipping point in Philippines but we have not reached the tipping point and there is sort of a relaxation if you like on a tax collection, tax administration from the government and we might be going back to square one. David Adelman - Morgan Stanley: As it does improve the hope and expectation would be you would in effect buy down Fortune at a lower rate correct? And improve the profitability in the market?

Yes and this is what I refer to with our increased spend in Q1, it's going to continue next year behind Fortune is buying down the price at resale so this is sales allowances (ph) and other forms of supporting the brand to bring closer to the ideal price of say 1.50, 1.60 and the same time we have reintroduced two brands at the 1 peso (inaudible) which clearly put the pressure on our financials you can imagine. What we are doing is this, our strategy was two-pronged strategy bring down the price, don’t lose the volumes, and in the meantime, work with the government, so they bring up the bottom of the market, but making sure the government pays taxes. Now, we have been delivering pretty well on our part, but I have to admit it is financially expensive strategy, but we also have to make sure that the government delivers on the second part of the strategy. There are still capital working things, otherwise, we were kind of integrated. David Adelman - Morgan Stanley: Okay. And then last quarter Jacek on cash flow, you reiterated again, you expect a strong increase in free cash flow for the year, it was down in the first quarter versus the year ago first quarter, you mentioned on the last conference call that had to do with the phasing of the repatriation of profits to the United States and the related tax issue paid, but it’s down again even on a currency neutral basis in the second quarter, what, why?

There is nothing structural is that the timing of our income, foreign income tax payments in our attribute, and we just headed in the second quarter. I think as of quarter three, quarter four you will see that these things will level out. So, what we initially said is still valid that we expect the free cash flow to grow faster than earnings for this year. David Adelman - Morgan Stanley: Okay. And actually Jacek, one last thing do you feel the growth of illicit trade that you mentioned in the number of markets, do you think is that getting to a point where it’s perhaps inhibiting or will inhibit your future capacity to take pricing?

Not really, I mean as you could see, I mean we had a very strong pricing first half of the year. We expect the strong pricing second half of the year. So, it’s not there. So, I think what is more behind the illicit trade is not just the pricing, which we are taking, but the whole macro situation, okay. I mean, the pricing without an erosion of the consumer purchasing power is the one impact, and the pricing value have erosion of the consumer purchasing power is the other impact. And I think deal is exactly that sort of situation that the pricing is pretty moderate as is the tax environment, so that’s good on that type. But if you have continuous growth of unemployment, various austerity measures, etcetera, I mean it has (put the event) on the consumer spending. Lastly, frankly speaking, also like this, you have a reduction of the increases of many utilities in Russia are well above inflation, well above the rate of the increases last year, because utilities in Russia went up by about 10% in the first half of the year, last year, it was only 5%. Pricing, yes, it is pretty high pricing, but we had to pass on the price and not just be improve our margins. So, therefore, we see a little bit of the softness on the market, but it is not the pricing, it is much more the macro – the unemployment and other governmental measures to improve their state deficit. David Adelman - Morgan Stanley: Okay, thank you.

Thank you.

Your next question comes from the line of Judy Hong with Goldman Sachs. Judy Hong - Goldman Sachs: Thanks. Hi, Jacek.

Hi, Judy. Good morning. Judy Hong - Goldman Sachs: Just a couple of questions from my end. First, just I am looking at your Asia margins and clearly you had a pretty significant decline in Q2, and I know that there are sort of big buckets of the drivers of the margin decline you had the negative geographic mix with Japan being down 10%. You have the Indonesia margin pressure from higher cost, and then you got the Philippines step up in the investments, but I wanted to just see if you can actually quantify sort of thinking about these big buckets, can you quantify the drivers of the margin decline in Asia?

Well, I think you pointed them all, I mean is Japan, which is more one-off in the quarter. And I expect that the margin instead of an adjustment in inventories you are talking in the range of 1 billion, billion times the margins which we heard in the Japan, that’s clearly (put the event) on the performance of the region and the spending in Philippines, okay. So, it’s working on putting the pressure on the cost. Now, Indonesia is still – about this time, Indonesia is in the situations when we fully passed on the tax plus also we had a lap on the clove prices and the leaf prices, so that pressure is being released from Indonesia. Japan as I said was the one-off. Okay, Philippines going to continue. All in all actually I think Asia is going to have, we will expect Asia to have a nice growth of the margin, strong growth of the margin actually in the second half of the year and all the regions of PMI and we expect for the full year that the operating margin for entire PMI will be up versus last year. So we expect the margin growth on the total PMI and as I said the second half of the year you should see the improvement in our regions. Judy Hong - Goldman Sachs: So when you think about Japan and then outside of Japan in Asia so is Japan margins down also because you’re spending more given the competitive pressure and outside of Japan is the Philippines really the only region where you’re seeing just at the country level the margins being down year-over-year.

No I think it's more for the shipment discussion which I said in Japan, there was, we continue spending in Japan launching our product so there is top order but this is more due to the so one off the inventories and Philippines which is a support of the Fortune and our lower price breaks to counter price points. So these are two items reach essentially drag the margins in the second quarter of Asia region. Judy Hong - Goldman Sachs: Okay and just on Japan so it sounds like you’re not expecting much of a market share improvement in the back half of the year even though you have a bit of a spending in that market. Can you just talk about sort of what you’re seeing competitively, it sounds like really the intense competitive situation continued in the second quarter? Do you think that just from a new product perspective you don’t have enough to really deal with some of the competitive pressure? I’m just curious why you think the market share doesn’t necessarily get better in the back half.

Well I mean JT continues with the promotional spending than the new product offering, I think especially the regarding of our share for June I most attribute this also to the successful I’ve to admit that initially free product volumes, actual product volumes from our Mevius. As you know Marlboro, Philip Morris and Marlboro was the leading of best (ph) part of the menthol segment in Japan was been very successful so we get a lot of share in the past mild also, Mild Seven at that time was one of the big brands which was not participating so you know the whole competition is a little bit of contained about the (inaudible) of the market which is the menthol and we have our nice share there. We actually over represent in that segment. I think if we’re going to continue we will be under pressure with share but we also still have the capital of initial activity in our sleeves for the second half of the year. Last we have very good performance from the brand which we launched in the first couple of years so there won't be a pressure on the share but you lose share, you can gain share. So let remain optimistic. Judy Hong - Goldman Sachs: Okay and lastly just in Russia I think you called out some of the competitors were lagging in terms of the pricing in that armlet. I mean JTI took pricing recently. So is your view sort of from a pricing perspective at least the competitive situation has become a little bit more rational in that, it's really just more about the volume situation and are consumer starting to react to the pricing increase in a more modest way now that you have sort of had the six months of pricing in place with the tax increase in place?

Well the consumer if you look at the smoking incidents and rarely maybe is rarely reacted (ph) but we don’t see much of the movement if at all but as I said maybe it's too early to read the end part of this price increase. Remember that Russia was taking the price since year-over-year and at the year twice the year the prices used to go up in Russia. This year is different because the size of the package increase was larger so obviously the price increase is much more is larger as well. I think if I look at my portfolio that I came with just 0.2 losses knowing that my brand lost the price gap of a 6 rubles to 7 rubles because this was the price increase on the beginning of the year versus competitors and then I feel very strong about the portfolio and actually I start seeing a good pay off of the investment which we had in Russia this year and continuing this year because as I demonstrated as trend of the portfolio the quote (ph) is temporary but they defend to show this part despite the advantages of pricing. Now you have the logging (ph) in some other markets as well so I don’t think is something which a systematic, it happens to somebody that the focus on something else. For us it has been a very clear, Russia is getting into maturity. I mean the volumes are very exciting but we’re much more excited about the grow in the top-line and grow in the bottom-line and I think for us the focus on Russia is generate the value of the market rather than contemplate too much a bit of the volume on market share losses. Judy Hong - Goldman Sachs: Okay, thank you.

Thank you. Our next question comes from the line of Jon Leinster with UBS. Jon Leinster - UBS: Gentlemen, yes, just apologies, but going back to sort of Bonnie’s question with regards to the good guidance, I think clearly no change to the EPS guidance except currency, but volumes here is basically quite substantially worse than probably initially thought? I mean, can I just push you, is there any sort of number you would give full year ex the Philippines is and presumably the swing factor in the second half is mentioned that pricing and costs, so that mean the second quarter increase in costs in the Philippines and Indonesia sort of are dropping out again? I mean, was the price moves on ‘14 in the Philippines is temporary item or is that going to be a permanent reduction?

Well, I said on the total cost in answering one of the questions before is that on the total costs for the company, the variance, which you have ex-currency on the first half of the year, then it’s essentially for the full year. And then I will have much better cost comparisons in the second half of the year. Pricing, 1 billion, I would say, will qualify there is a strong pricing and we don’t see any sort of headwinds at this stage to our pricing. I think we are going to continue with a strong pricing going forward. You will have heard we have announced prices recently also in the Germany, France, number of other locations, so this obviously is going to help the year. And volume, volume and total market volumes is not our performance is our market share is pretty strong and we grow in terms of our market share in a number of places. I think the single biggest challenge which we have this year is the total market size, and this I have to admit them, where if you know the number of the factors which plays that is one which makes a little bit forecasting more difficult that might be in other years, but this is the year when we have significant challenges on the total market. Jon Leinster - UBS: But it is (inaudible) that will be the response the company has been to ramp pricing probably more than they expected in the second half to offset that volume, the market volume declines?

Yes. We always were focused on growing the revenue and the bottom line. So, as I think we don’t have any major switch in our – change in our strategy. Jon Leinster - UBS: Just totally separate subject, the famous e-cigarettes is the strategy of the great remained as it was in July 2011 with a sort of very much focused on heat not burn products rather than e-cigarettes or is that something which is flexible depending on the way the market develops?

No, we are pretty flexible, because we said we are working on three platforms, I mean, two platforms which are very strong heat versus burn and the third platform, which is potentially one could say that for e-cigarette. So, we are making progress on all three, and we are also watching what are the developments in the market? So, I think our three platforms assessing what we see today in a market that should be able to address all opportunities which may exist in that market. Jon Leinster - UBS: But I mean given the way in which the markets develop would you be emphasizing more the e-cigarette now rather than heat not burn or is that not really changed, because originally I think the first – couple of the first two platforms that you fully bring to market, were heat not burn?

I think e-cigarettes as they are today, I don’t think the situation has changed much as to our assessment as some time ago. I mean, you need to have a product, which is palatable to the consumer. A product has to be liked by the consumer. I don’t think e-cigarettes that they are delivering on that front. Heat versus burn clearly addresses both the element of the reduction and delivers on the taste expectations of consumers. So, I think heat versus burn in our opinion is closer to this ideal sort of a product which you should have in the market. E-cigarette, as I said the prices earlier (inaudible) of the category development of the more focus than investment is needed in order to bring the palatability again of this product into some level of acceptance by consumers. I mean, we see the e-cigarette in some markets is essentially in some markets not in all EU but there is a (inaudible) so it confirms that there was some needs of the consumers but we also have to remember that the early days of cigarettes in the environment when there was talks. So what I see in some countries is much more phenomenon of the pricing rather than a phenomenon of the hard reduction or price. I mean people are compromising because they get a discomfort so the cigarette going into 40%, 50% or 70% rate. It's nothing substantial I don’t think we could call it a substantial at this stage but it's the early days of the category. So we continue working on our free (ph) platforms and we’re making a progress as per plan and I think when we will be ready we will go to market.

Your next question comes from the line of Michael Lavery with CLSA. Michael Lavery – CLSA: Just looking at your business in Indonesia, the volume growth in the first half was about 2% if it's 4% for the year I will say that’s a pretty sharp acceleration that you would expect and I know that it can’t get easier but you’ve also got some potential consumer headwinds with higher fuel prices and those can pass through to other products and then some big competitive launches. So what do you see driving an acceleration in category growth there?

Well we expect 4% but no one can say that you know I think a quarter ago would have been more closer to the 6% of the growth so we lower a little of expectations for the market, 4% is the historical average growth of that market if I take out the last very exceptional the last two years which were very exceptional. I think the fewer subsidies I mean the part of that thing was mitigated by the government by returning some subsidies in other forms to the lower income people. I think the opening of the year was a bit slower, 1% I think what the growth rate of the market in the first quarter was presumably more impacted by some spikes in the food crisis in Indonesia. So I think it's pretty doable and it's actually somehow reflects the pricing of the seasonality that like pacing of the development in the market. I think 4% for the market should be doable for the total market. Our volumes in our market share is pretty strong not as strong growth as the last year because we’re leaving some attractive price points behind us but still for the first half year and the second quarter first quarter we had a nice share advancement. So I think we can expect some share growth, moderate share growth going forward in the year. Michael Lavery – CLSA: And then at the category level is it the easier comps that are the big driver for the acceleration in the second half or is there anything else to that?

No I think the market is slowly going through it's historical growth rate, it's just the pricing of the quarter, it's okay. Michael Lavery – CLSA: And the just package opinion for what you expect that’s factored into your guidance, would you need to regain share there to be on track for what you expect reflected in our guidance or do you have it where you just need to hold or I realize that pacing in this past quarter had an impact. Is your expectation that that’s going to swing back or you not necessarily need that to happen?

We put into our guidance, we included in our guidance for understanding that share in Japan is going to be under pressure. I won't give you the number but it's the exact share we targeting for the year but we do recognize that there was a pressure on the share on the market share in Japan. As I said we still have a few initiatives to be launched in the market, let’s see how the whole thing unfolds I mean in the Q3, we presumably will have either better position to say and what is the realistic expectation for the full year. Michael Lavery – CLSA: And I realize it's just early in the quarter you know just a little over couple of weeks but in Japan say specifically or any major markets have you seen trends so far that look like an acceleration or specifically in Japan has there been from a consumer retail share trends that look more promising that suggest you will see the shipments share regain some count?

No, no, but as I said earlier, I mean, the biggest challenge which we have this year is there is the total market, and you know total market needs a little bit of time to estimate properly, I mean, not on the weekly basis. So, we are pretty confident on our chart. As I said, we are pretty confident about the pricing, but we will have to see how this unfolds in the remaining two quarters of the year relative to the total market sizes. So, this is what it is, but nothing at the beginning of this month, which would focus from a perspective that our guidance or outlook for the second half of the year would change versus let me (jump enough). Michael Lavery - CLSA: Okay, great. Thank you very much.

Thank you.

Your next question comes from the line of Chris Growe with Stifel. Chris Growe - Stifel: Hi, good morning.

Good morning. Chris Growe - Stifel: Hi. Just had two questions for you. I want to ask a little bit more about your events just understand through the quarter, this is a better volume performance than I expected actually. It seems like you had sequentially better given you had a pretty soft April. So, the expectation we have increased your estimate for the decline for the division for the year. Do you expect conditions to worsen in the second half of the year or remain about the same? I guess what I saw in the quarter was an improvement throughout the quarter?

Yes, that means you had total industry was if I remember 10% down in the Q1, is 8% down, so you have a blended 9.2, 9.3 for the first half of the year. So, yes, even with our revised outlook for the full year, we do assume that there will be some improvements going forward. It’s a little bit of accounts, but yes, sequentially we see that the volumes. We had exceptional low quarter first quarter. Okay, so that this is already in the book, so you can’t change it as well. But, yes, there was some sequential improvements in the quarter, but obviously if you look at our shipments, it’s much better than the market, because EU has delivered fabulous market share performance first quarter and the second quarter and is very much on the back of Marlboro. So, you remember, at least in the past I said, the EU is definitely much more total market than a mix problem for us, but that is part of the positive news about the EU performance this year. Chris Growe - Stifel: Okay. And just one follow-up question for you, which is on the investments that you have made of last year in Russia or in Indonesia, those kind of markets or even behind the Marlboro brand overall, we will be lapping a lot of those in the second half of the year. Do you expect that those investments then are going to remain at the same level or did they start to come down on a year-over-year basis? Is that a benefit in the second half or it’s just lots of a drag as to what’s said?

No, this is what I am saying, the second half of this year is going to be more comparable to the second half of last year that (variance) is going to be flat. So, yes, on the full 12-month basis this year, you will see that we have increased year-on-year. However, the pricing of the thing was that we started to accelerate it, increase the investment in the second half, third, fourth quarter in some places of last year, and that if I am lapping this now in the second half of this year. Chris Growe - Stifel: Okay. And as you quantified the degree of investments you have made over the last year, let’s say, of what your increase was overall say in sort of marketing distribution in those kind of areas?

Chris, I could, and I know the number, but I am afraid, so many people is now on the call, then I cannot reveal it. Chris Growe - Stifel: Understood, I thought I’d try. Thank you.

Thank you.

Your next question comes from the line of Vivien Azer with Citi. Vivien Azer - Citi: Hi, good morning.

Good morning. Vivien Azer - Citi: My first question have to do with Indonesia, your guidance for 4% volume growth has come down pretty sharply in just a little over a month. So, what gives you comfort that, that 4% is the right number to the extent that you see continued food inflations in that market?

Well, I mean that we got the reading now of the second quarter. So, yes, I mean the second quarter came nicely and the volumes grew by, total industry volumes grew by 3.5. So, once you have the two quarters, it’s a little bit easier to forecast the full year. So, this is due to – I think there was some impact in the first quarter of the food inflation. There is some flooding in some regions, territories in Indonesia, I think all that together, I mean, they might put the market on a bit of slower opening of this year. So, the quarter sequentially now should be better, but I think will to be more realistic we should rather put an estimate of the total market into the range of 4% rather than stayed with the previous one. And we, frankly speaking, 4% is a very solid, nice growth rate for this market and we’re okay with this. Vivien Azer - Citi: Sure. In the EU you previously stated that you would hope to hold your local currency EBIT flat with your prior volume assumption. So can you give an update on that outlook for local currency EBIT growth in the EU?

Well EU again I mean they improve sequentially the total industry improved in the Q2. I would say might be initial that we thought the improvement is going to be more than just 8% decline and I think once you have 10% and 8% in the pocket already in actuals then you have to again you’re in tense situations that you better can predict what forecast for the full year is going to be. There is not much improvement on the contraband, I mean we don’t have a the full reading for the EU where the illicit trade span however run it off through the market and beneath the market so many markets indicate that the contraband the illicit trade continues to grow it's not easy. So France I think is one of the recent examples in the illicit trade despite that continues to grow. So all in all I think to be more realistic will size it to revise the outlook for the industry. Maybe it's come back (ph) I don’t know. Our biggest challenge would be, the biggest challenge we have this year is the total size of the industry, not our business performance is, not our ability to the deliver strong pricing is not our ability to manage the cost, the investment et cetera is essentially the total industry volumes. Vivien Azer - Citi: Far enough and my last question has to be with e-cigarette as well. Do you have an estimate on what impact the e-cigarettes could have had for the total EU or maybe specifically for some of the markets where it's integrating (ph) you just called plans where you have seen a sequential acceleration and the market declines on the substantially easier comp and as I understand that is one of the bigger e-cigarette markets in the region.

I wouldn’t give a number I mean we’re looking at this carefully because as you know one of our platform is cigarette so it's not that we’re not closely looking at this category, it's difficult to estimate. You have this sometimes this information, some travel to Italy, to Rome and have seen his friends and the cigarette you go 100 kilometers outside the Rome but no one has heard about e-cigarette. So we have to look at this unlike the total sort of the information is a little bit of a conscious. I don’t eco-consciousness (ph). I don’t think today is the size of the market of these cigarette is in the range higher than a 1% and presumably that might be on the high side. I don’t have a number I mean it's a pure speculation you would have to I think we need more time to really assess that, I don’t think it's comparable to what you have for example in the U.S. But yes we understand, they are resulted (ph) in London once you go to other towns outside London not necessary is the case. I mean I had seen in Greece and there is just another alternative to smoking that significant at lower price than this stuff came and the market disappeared, whatever the market at the beginning. So this is barely stages of the category in Europe. As I said we’re very closing watching this thing and looking where is the right moment, when this market can create opportunity for us but I wouldn’t volunteer today to turn a solid number with regards to the impact of the e-cigarettes, the size of e-cigarettes in Europe.

Your next question comes from the line of Thilo Wrede with Jefferies. Thilo Wrede - Jefferies: Is this the most challenging environment that you’ve operated in since the spin-off or is it too much of pessimistic interpretation of your results?

It is solid, the whole year is challenging. There is different challenge from here, I mean than the retrospect we presumably. We’re much more focused, we keep eye on the ball, quarter two is quarter two, we reported quarter two. I’m glad it's over, we focus on a quarter three, quarter four 2014-15, so at the retrospect we will just treat it as a quarter. We’re not managing the business of the quarterly basis but for us it's much more how we’re confident about the full year, what is front of us for the 2014-15 et cetera, 16-17 I mean we have a lot of exciting things in front of us so I wouldn’t, I understand the interest around the quarter, but wouldn’t be overexcited about the quarter. Thilo Wrede - Jefferies: So, you wouldn’t say that the overall pricing environment is any worse than what you have seen in the last five or six years?

It’s challenging environment. I mean that this year, the challenge is the total market sizes, I mean there are some other areas you had other challenges, I mean the business was not performing well, if you go back to the spring time, I mean, we today are much more confident, much, much more confident in our ability to grow market share, to grow Marlboro, to be innovative as such, well I mean, I wouldn’t think, I don’t think we were that stronger, had such strong feelings about the best part of our business in the 2008 or 2009. Okay, so listen business is business I mean you always have some challenges, no point. Thilo Wrede - Jefferies: Fair enough. We don’t want you to get forward right. I have a question out for you, Jacek, is can you give us an update on the impact of claim packaging in Australia?

Well, if you look from the total market perspective and the market share, the market was slightly down that it is the mature market. So, I don’t think there is what can really give you more of the impact was the impact of the claim package. There is some acceleration of the down trading. This is attributable to claim pack. We will have to see, but there is some down trading, but also market is pretty expensive market in terms of the level of the prices. Prices went up. We have seen the down trading before the claim pack. Can claim pack meet long-term accelerator trading? Yes, there is a risk. We always put you open about it, and I wouldn’t conclude that sort of a statement just based on one quarter, I mean, its ability. In Australia, it’s developing nicely strong. Thilo Wrede - Jefferies: Right. And any changes to the illicit trade in Australia that you can see?

No, no, no. Thilo Wrede - Jefferies: Okay. Alright, that’s all I had for you. Thank you.

Thank you.

Your next question comes from the line of Erik Bloomquist with Berenberg. Erik Bloomquist - Berenberg: Hi, good morning Jacek.

Good morning Erik. Erik Bloomquist - Berenberg: I would like to circle back to Russia and just firstly the reason for the decrease in the outlook for Russian volume it sounded like from your previous comments, that’s really due to a change in the macro environment and the effect that’s having on consumer disposable income. I was hoping you could help clarify that? And then secondly, I was wondering if there is a sense that the Russian government with this greater decline in volumes now will be taking that into account as they look at tax rates going forward at the end of the year?

Well, I think when it comes to the market as what we see as we have a slowdown in the economy. So, Russia has still the quarters. We are talking in the quarters of GDP growth, but the growth dynamic is different than it used to be in the past. So, there is a slowdown in the economy. There is a clearly less governmental spending, which presumably also goes back into the overall stage of side of the economy. There was clearly a low range dynamic. I mean, the ranges are growing up in Russia, but not at the rates but last year or year before. And for the first half of the year, I think the utilities prices, prices for utilities water, gas, fuel, etcetera went up I think in the range of about 10%. I think Russia is in the inflation of about 7%, 7% to 8%, so clearly above inflation and above the range of the growth, which we observed last year, because first half last year, utilities were up by about 5%. So, there is something around the consumer purchasing the power of disposable income, which we are confronted with. Now, Russia is, good thing about Russia is we have a good cost structure. We have a visibility of the taxation for the next three years. Next year, there is still in front of us quite a sizable cost increase, which we would like to pass – to pass on to consumers. I mean, it’s slightly above this year, because the impact of this year of the pure tax was about RUB5 if I am not mistaken, and we have in front of us about RUB8 of the tax increase, just tax increase for the market. So, I don’t think the government will change this one. In the outer years of the long-term tax plan, the government may take the different view from the indexation, but anyway in the plan, there is a moderation because 2015 to ‘16 that is what we understand the taxes should go at the lower rate and this year and the next year. One thing which we have to watch for last year because this other experience from other places and I called the government also will helpfully look at the illicit trade okay because this is what the such a situation may open the door to illicit trade but I hope the Russian government and the Russian administration will defend strongly their market share. Erik Bloomquist - Berenberg: Okay. Thank you and then my last question was with respect to the evolution of the TPDs as you see it at this stage given the various entities have kind had a first go at it and then related to that is what looks to be the risk plain packaging in Ireland given the UK’s decision to abandon that policy. Thanks.

Well logically Ireland should follow the same thing thinking as (inaudible) less rate for the evident and down then (inaudible) make sure that the legislation you propose is come from the evidence scientific perspective. The process in Ireland has not started we have just heard that they have an intention to look into plain packaging, other than I can say. On the TPD, I will paint the whole debate about the Tobacco Product Directive will have the parliamentary sessions of the Parliament around mid of September now depends how the outcome of or how the directive is going to be for at the end of the parliament versus what the council have decided and they will go to the reconciliation process, I think they will know the final shape of the directive before year end maybe early next year, around the year around and have heard about the two years for transposition into Member State Law will have to see what transition period the Member States will give in the domestic market and the domestic jurisdiction, so specifically to same analogy, say you have the number of committees in the parliament, the opinions are highly divided, it's not that there is a unanimous support for the ban of (inaudible) or menthol et cetera but I don’t know it's difficult to speculate at which the directives from now where it's going to be finished.

Your next question comes from the line of Rogerio Fujimori with Credit Suisse. Rogerio Fujimori - Credit Suisse: I just have one quick question in the context of the proposed EU TPD changes, also if you could talk a little bit of Poland the 20% is meant for nearly 30% is (inaudible). Would you expect to switch to other cigarettes if and when the ban is in place or more likely that you will see a surge in nearly substantial volumes from Eastern Europe. Thank you.

I think for that is too important to address the illicit trade. I mean I think some consumers you know can go and find a similar product in the early cig market already today and this was one of the arguments which we’re bringing to the EU office at the Member State that first of all there is no scientific ways to ban any of this product, it's a pure discrimination in the market without any scientific base. It is difficult to argue that the (inaudible) are more harmful or less harmful that the regular cigarette. Yes it's an illicit trade, some consumers it's a speculation but some consumers will go back to regular cigarette and in some countries in Europe consumers also know how to menthol cigarette themselves so I don’t know in which direction it's going to go, (inaudible) designed the policy if this space like it is it's will not be proven will deliver on the stated objective but yes it's well created this portion in the market. So let’s see how that will unfold.

Your next question comes from the line of Ann Gurkin with Davenport. Ann Gurkin - Davenport: We’re two quarters into the year is there any change in the contribution from pricing variance for the full year versus expectations when we started the year?

No the pricing variance the billion I just indicate that we’re looking for the various pricing variance for the full year so no. Ann Gurkin – Davenport: Okay great and then in the release you comment on lower industry volume and I understand that’s reflecting excise tax increase as trade inventory movement, illicit trade et cetera but is there any fundamental change and consumption patterns in any markets that is contributing to that lower volume for total industry?

No, it’s presumably that we are very excited that the biggest challenge this year we have on the total industry volume. I think the price increase which is taking place that is not something significantly higher than in the previous years, the average is etcetera. I think what we confronted is that in some geographies, we confronted with the slowdowns of economy, the difficult market etcetera. So, whatever you have an erosion in the disposable income, that has an impact. The illicit trade obviously started playing more important low, this is a challenge, which we have illicit trade in the form of a typical contraband crossing the borders, but also in some places like Philippines are the very low law enforcement, which resulted as you know some people don’t pay their taxes which they should pay, and then other phenomenon which we are confronted with. But in terms of consumption part of smoking incident, if you look at the mature market, yes, there was a natural rate of decline, but nothing which you would today attribute that, this is the year when people that the incidents go down faster of the daily consumption rates decline, in fact that actually in many countries, they get out (inaudible) etcetera. The smoking incident in many countries stays flat and the daily consumption stays flat of the total tobacco products. Ann Gurkin – Davenport: That is great. That helps. Thank you very much.

Thank you.

Your next question comes from the line of David Hayes with Nomura. David Hayes - Nomura: Good morning, good afternoon gentlemen. Just in terms of looking up on a comment you made earlier about the price lags by some competitors you mentioned Russia and then some other markets, you had seen that I guess two questions on that. One is, is that something you feel in terms of that price lagging, is it bit of a growing trend? And then secondly is there any markets apart from the Philippines, which you code out, where you have actually reversed pricing – haven’t taken pricing during the year? Thank you.

The price lagging it happens every year in different places, okay. I think it’s sometimes is amount, sometimes is a capital market, and the Russia was a little bit on the longer side, so that’s clearly is something which put the pressure, but finally prices were implemented. I mean, it’s more of the tactics rather than I think the sort of a strategy. And second question no, it’s just Philippines when we had the very specific situations when we had to react with the pricing. David Hayes - Nomura: Okay, thanks. So, just looking on e-cigarettes and kind of have some of these comments earlier, I mean my understanding or my understanding at least is that your plan is to come into e-cigarettes through next generation products commercially 2016 through ‘17? Is that still the right understanding or are you saying that if the market develops further you are positioning yourselves to coming with other products ahead of that chronological approach that you talked about in the past?

To be precise, look I have said in the 2016-17, it was focused on the two platforms, the first two platforms, and this is where we were going to start constructing the factory this year etcetera, but we are working essentially at the same time on the three platforms in the different stages of development, but even the platform, third platform, which is close to – can be treated as e-cigarette is also on our agenda. David Hayes - Nomura: Okay. So, you could come to market with something commercially in that area earlier than 2016 potentially?

When we will go to the market, we will announce when we will go to market. David Hayes - Nomura: Okay. And then my final question is to clarify, I guess, just in terms of the guidance and some of the trends that people highlighted, I guess, you talked about the fact that these markets, Indonesia, Russia, EU, Turkey, obviously the volumes have lowered since the beginning of the year in terms of outlook, but then you just made the point that pricing wise, you have not changed your outlook since the beginning of the year in terms of the pricing you expected to take through the year. So, I am just still trying to equate why the guidance is so unchanged, what the moving part offsets that volume declines that you have seen in a number of key markets that you have mentioned today?

Well, listen, I mean it’s the guidance, because we were taking into consideration all elements which we knew at that time. I mean, there are pricing at the beginning of the year if I am not mistaken. We have about 75% of the pricing realized. So, we know what we are going to have in the pricing. There were some prices also change more recently, so I am a little bit earlier for different reasons and their timing of the target increases plus change et cetera. So in the whole guidance the blend is whole number of facts. David Hayes - Nomura: But I guess there is also maybe a little bit less expenditure plan for the beginning of the year or more cost savings potentially is that any area where the 300 million could actually be higher to help delivery.

The cost savings in terms of productivity to plan of the $300 million, I mean we’re delivering on schedule so we had it already in our guidance and no there was a comp we knew that we will have a comp in the second half of the year much better than the first half of the year and the fact we’re (inaudible).

Your next question comes from the line of Thomas Russo with Gardner Russo & Gardner. Thomas Russo - Gardner Russo & Gardner: The two quick questions, one involves the pension liabilities in light of the rise of the long term interest rate, you’re fully higher, the fund status might lead some restatement upwards or down to the liability and I’m curious if that’s, second in Spain what steps can you take, it sounded like the cigarette volume declined 12% and the (inaudible) were up 26 I think you said that’s quite staggering your depiction, any under a way to reverse those trends?

Well one thing price is we show (inaudible) all our pension funds are well funded I mean well above the statutory limits so if I have read your questions properly we don’t expect any prices on the front when it comes to Spain, yes I mean actually with the government going into finally reorganize that there was a too much of the (inaudible) taxation overall and there is manufacture of cigarette is very helpful. So now in few quarters we should see very hopefully some improvement. I think we have seen it in Italy when the government taxes all your fine cut products, a little bit more you could see all within out that you have some reverse of the trend which is obviously helpful for our cigarette manufactured cigarette category. Thomas Russo - Gardner Russo & Gardner: In Italy the number has seem to indicate that, what is the level of market share for all your own in Spain at this time?

I think it's in the range of 12% if I’m not mistaken.

Ladies and gentlemen we have time for one additional question. Your final question comes from the line of Chris Burritt with Bloomberg News. Chris Burritt - Bloomberg News: I wanted to ask are you surprised by the volatility and the movement in the currencies and are there new steps or additional steps that you’re taking because of this.

Well I think I’m surprised as everyone is surprised because the whole market there is development and as you know we gave announcement (inaudible) Central Bank and are reacting to the same. I mean you see our announcement, the outlook for the currency is revised by mainly because of the Russian Ruble, Mexican Peso trillion dollar et cetera and actually on the Japanese Yen and on the Euro we’re at it work pretty well hedged at the beginning of the year, there were some opportunities during the year because the currency was a little bit volatility and we use this opportunity so we feel much more confident about the yen, now the euro in progress but the rest of the currency is yes there is a volatility in the market. Chris Burritt - Bloomberg News: May I ask you one last question on electronic cigarettes, can you give a little color on I guess how they fall short to the taste and the feel of the consumer and would you go as far as saying that the popularity that the demand for e-cigarettes may actually falter over time? They may not become as big as some project?

Well in Europe and myself visualize, testing the product, the product is not a product which is very close to the conventional cigarette and I think the consumers are looking for something which is at least similar. So the product has it's own deficiencies but it's a new category so everyone is working on how to improve it. I mean year from now the situation might be different but I don’t think that the product is performing well on the taste fact, okay, it's pretty tasteless in (inaudible) as well as question of a good manufacturing practices. You know the product is not regulated, so I don’t think the consumer have a (inaudible) for what they buy and it's really something which they would like to use and as I said earlier I think today is marginal for moment of the price than it is and when the price comes to play you know consumers are really sometimes to compromise a lot. Will it last long is I don’t know, it's remained to be seen.

Thank you and now I would like to turn the floor back over to management for any closing remarks.

Well thank you very much. That concludes our call. I apologize for going over a little bit but we did want to make sure that we took all the calls over the queue. If you do have any follow-up questions you can contact the Investor Relations team. We’re here in Switzerland, the numbers are posted on the materials. Again thank you all for joining us. Have a great day.

Thank you. This concludes today’s conference call. You may now disconnect.