Nick Rolli - VP of IR and Financial Communications Jacek Olczak - CFO

Judy E. Hong - Goldman Sachs Group, Inc. David Adelman - Morgan Stanley Bonnie Herzog - Wells Fargo Securities Chris Growe - Stifel Nicolaus Jon Leinster - UBS Michael Lavery - CLSA Owen Bennett - Nomura Asset Management

Good day and welcome to the Philip Morris International First Quarter 2014 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 2014 first quarter results. You may access the release on our website at www.pmi.com. During our call today, we'll be talking about results for the first quarter 2014, and comparing them to the same period in 2013, unless otherwise stated. References to PMI volumes are to PMI shipments, industry volume and market shares are PMI estimates based on the latest data available from a number of internal and external sources. Net revenues exclude excise taxes, operating companies' income, or OCI, is defined as operating income excluding general corporate expenses and the amortization of intangibles, plus equity income or loss in unconsolidated subsidiaries net. OCI growth rates are on an adjusted basis, which excludes asset impairment, exit and other costs. Data tables showing adjustments to net revenues and OCI, for currency, 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 are at the end of today's webcast slides, which are posted on our website. Today's remarks contain forward-looking statements and projections of future results. I direct your attention to the forward-looking and cautionary statements disclosure in today’s presentation and press release for a review of the various factors that could cause actual results to differ materially from projections or forward-looking statements. It's now my pleasure to introduce Jacek Olczak, our Chief Financial Officer. Jacek?

Thank you, Nick, and welcome ladies and gentlemen. Our business results in the first quarter are in line with the 2014 annual guidance that we shared with you in February. The quarter was impacted by a number of distortions that marked a much better performance at the net revenue and OCI level. Our business fundamentals remain solid and we are making progress in addressing the issues that we highlighted in February. Today we are increasing our reported diluted earnings per share guidance for 2014 at prevailing exchange rate to a range of $5.09 to $5.19, versus $5.26 in 2013. Our revised guidance includes $0.61 of unfavorable currency at prevailing exchange rate, compared to the $0.71 previously disclosed and a $0.03 restructuring charge related to the closure of our manufacturing facility in Australia. We have taken $0.01 of this charge this quarter to cover the cost of employee separation and expect to subsequently incur an estimated $0.02 of additional anticipated restructuring charges. Our 2014 guidance represents a growth rate excluding currency and this restructuring charge of approximately 6% to 8% compared to our adjusted diluted earnings per share of $5.40 in 2013. During the first quarter, cigarette volume declined by 4.4% driven primarily by total industry volume contraction and unfavorable inventory movement. We estimate that absent this inventory distortions, our underlying volume was down by around 2%. Net revenues and adjusted OCI, both excluding currency, declined by 1.6% and 3.1%, respectively. The lower revenues and OCI were attributable to Japan and the Philippines, both of which were also impacted by timing distortions. Net revenues and OCI, excluding these unfavorable distortions, as well as the impact of the change to PMI’s new business structure in Egypt, were essentially stable. Adjusted diluted earnings per share increased by 4.7%, excluding currency. Pricing was the key driver of our solid performance and a key reason why profits were impacted by a difficult year-on-year comparison. Our pricing variance reached $406 million in the first quarter of 2014, compared to $531 million during the same period last year when we benefited from favorable pricing related to inventory movements in a number of markets, and in particular in the Philippines following the very large January 2013 excise tax increase. Since December of last year, we have taken price increases in a wide range of markets, including Argentina, Australia, Brazil, Canada, Egypt, France, Indonesia, Japan, Mexico, Poland, Russia, Turkey and the U.K. We recently announced to the trade in Germany that we will take a 20 Euro cent per pack price increase in June, essentially across our entire cigarette portfolio. Let me now turn to an update on key regions and markets. In the EU Region, we witnessed a 5.6% decline in cigarette industry volume, in line with the decrease that occurred during the second half of last year. This confirms a moderation in the unfavorable trend, despite persistently high unemployment levels. We attribute this moderation to an apparent overall stabilization in illicit trade during 2013, a significant slow-down in the growth of e-vapor products in many markets and reduced down-trading to fine cut products. However, we should remember that the comparisons with 2013 are easier in the first half of this year. Consequently, we still forecast that cigarette industry volume may decline within a range of 6% to 7% for the full year 2014, though we expect it to be closer to 6% than 7%. We continue to outperform the industry in the EU Region. Our regional market share increased by 0.9 points in the first quarter to 38.9%. We achieved share growth in five out of the six largest markets in the region and expect our momentum to continue throughout the year. Our strong share performance is driven by the strength of our key international brands. Marlboro gained 0.4 points to reach a 19.1% regional share despite continued weak consumer purchasing power. L&M grew by 0.3 share points to 6.9% and Chesterfield performed particularly well, gaining 0.6 points in the quarter to reach a regional share of 4.9%. In the first quarter, cigarette industry volume in Italy remained very resilient with a decline of just 0.5%. This is attributable to a significant decline in the sales of e-vapor products, a stabilization of illicit trade and lower fine cut volumes. The key issue in Italy is the ineffective excise tax structure. The country has the lowest specific-to-total excise tax ratio in the EU at 7.5%. This has encouraged competitors to introduce or re-position brands to the super-low €4 per pack price segment and has resulted in an increase in the price gap to premium brands to €1 per pack, which is a much wider gap than in markets such as France and Germany. Consequently, the super-low segment grew from 0.5% in the first quarter of last year to 11.9% this year, driven predominantly by down-trading from the low and mid-price segments, as well as in-switching from e-vapor products. We successfully entered the super-low segment this year by repositioning Chesterfield, which has already grown by 1.5 points to reach a level of 5.1% in the first quarter, while Marlboro’s share remained resilient at 25.6%. In 2013, the State incurred a decrease in excise tax revenues for the first time in over a decade and the decline accelerated in the first quarter. We therefore hope that the government will soon address the issue of excise tax reform. Let me now move to the Asia Region. As foreseen, the Japanese government increased the consumption tax from 5% to 8% on April 1. The resulting pass-on at retail was about JPY14 per pack. We received approval to increase our average retail prices only in line with the tax increase. As previously mentioned, we expect a slight acceleration in the rate of decline in cigarette industry volume from last year’s level of 2% to between 3% and 3.5%, due to the impact of the consumption tax-driven price increases on the overall economy. During the first quarter of this year, however, cigarette industry volume increased by 9.6% in Japan, driven by trade and consumer purchases ahead of the April tax-driven price increases. Our volume during this period was 9.1% lower, principally due to the adverse timing of PMI shipments and a lower market share. Our reported market share declined by two points to 25.5% during the first quarter. However, this partly reflected the greater degree of trade inventory build-up by competition, which distorted market shares. Our estimated share of 25.9% on an adjusted basis was in line with our 2013 fourth quarter share. During the quarter, we rolled-out the “Be Marlboro” marketing campaign that has been an integral part of the brand’s success in European and other markets. The initial feedback has been very positive. We believe that this campaign, along with Marlboro’s resilience and our future new product initiatives, should enable us to stabilize our share and eventually generate sequential gains. Let me now move to the Philippines, where tax-paid cigarette industry volume increased by 25.9% during the first quarter. This was mainly due to a lower build-up of inventories by the trade at the end of 2013 compared to the same period in 2012, due to a more moderate excise tax increase in January 2014. There are strong indications that Mighty Corporation continues to declare about half of its production volume for tax purposes. The company is coming under increasing scrutiny from the Bureau of Internal Revenue. We hope that the introduction of tax stamps in June will further reinforce these efforts. While the price of the Mighty brand has gone up at retail from PHP1 to PHP1.50 per stick, Marvels still retails at PHP1.25 per stick and currently wholesales at a price that does not cover the full taxes due. We have responded with Jackpot at the same stick price as Marvels and Champion matching Mighty, while maintaining the price of Fortune slightly below PHP2 per stick. We were able to reach a share of the super-low price segment of over 50% in the first quarter. Our overall market share of 83.7% was higher than both our 2013 full-year and fourth quarter shares, but lower than our share in the first quarter of 2013. Importantly, the total share of the super-low price segment has been declining recently. Going forward, the price increases that have occurred at the bottom of the market and our marketing efforts behind Marlboro and Fortune should enable us to further improve our market share and product mix trends. In Indonesia, during the first quarter of the year, cigarette industry volume declined by 1% and there was an acceleration of certain segment trends. The industry volume decline was driven by a sharp contraction of the low-price segment, which was down by 12.7%. This was attributable to the impact of Decree 131, the legislation that eliminated the preferential excise tax for so-called “sister companies” of large manufacturers, which resulted in significantly higher prices for a wide range of brands at the low end of the market. In addition, the reduction in fuel subsidies last year and food inflation significantly impacted low-income adult smokers. In the quarter, this particularly benefited the mid-price segment, where we have a strong position with U Mild, which gained 1.1 points to reach a share of 5.2%. Although inflation has increased and the overall economic situation has somewhat softened, GDP growth remains over 5%. This, together with the positive demographic trends and the overall stable political environment, leads us to forecast total market growth of up to 1% in Indonesia for the full-year. During the first quarter, our market share in Indonesia declined by 1.6 share points to 34.6%, reflecting unfavorable price points and the impact of segment trends. There was an acceleration in the decline in the hand-rolled, or “SKT” segment, which incurred a volume erosion of 16.1% in the quarter. The decline was particularly evident at the premium price end of the segment and this unfavorably impacted the volume and overall share of our Dji Sam Soe brand. While we have lost segment share in SKT due to an unfavorable price point for Dji Sam Soe and a widening in the brand’s price gap with competitive brands, PMI is performing well in the other taste segments. We will be investing more heavily this year to further boost the equity of brands, such as machine-made Sampoerna A, Dji Sam Soe Magnum. We therefore expect an improved market share performance during the second half of the year. I will now turn to Russia, where profit growth remains strong despite the impact of large tax-driven price increases. Cigarette industry volume declined by an estimated 6.7% in the first quarter to 66.9 billion units though announced price increases of RUB6 to RUB9 per pack only started to impact adult smokers as of February 2014. For the full-year, we are forecasting an industry volume decline of between 9% and 11%, mainly reflecting the impact of higher prices and a foreseen increase in illicit trade, this despite the growing efforts of the authorities to stamp out counterfeit production and stop the import of contraband and illicit whites. Our brand performance in the first quarter was strong. Our market share of 26.7% through the end of February was up by 0.5 points versus a year earlier and up by 0.4 points compared to the fourth quarter of 2013. Our segment share was higher in the premium and low-price segments, notably behind the success of Parliament and Bond Street. Our profits in the quarter grew at a double-digit rate, excluding currency and this is before the contribution of our 20% shareholding in Megapolis, an investment that is bringing about gradual improvements in our market penetration as well as providing an attractive financial return. We remain optimistic about the prospects for our business this year and beyond in Russia. Looking at our top 30 OCI markets worldwide, our share in the first quarter of 2014 declined by 0.2 points to 36.5%, driven notably by a lower share in Indonesia and Japan, but largely offset by our strong performance in the EU Region. Marlboro has been a key driver of our good share performance. During the first quarter, Marlboro progressed to reach an international share of 9.2%. It gained share in three out of our four regions, with a particularly strong performance in the EU region. Its share decline in the Latin America and Canada region reflects consumer down-trading and distorted shipment patterns in Mexico, while the brand performed well in other markets in the region. We continue to be focused on costs and productivity to further drive the expansion of our profits. We have an annual cost savings and productivity target of $300 million this year. We have implemented a number of initiatives across our supply chain to achieve this objective. We are also continuing to optimize our global footprint and announced the closure at the end of this year of our manufacturing facility in Melbourne, Australia. Production will be consolidated in our factory in South Korea. We have entered into consultations with employee representatives in the Netherlands on a proposal to discontinue cigarette production at our Bergen op Zoom facility. The proposal is subject to consultation with the Dutch Works Council and approval by the Philip Morris Holland Supervisory Board. Consultation with the European Works Council is also required. Subject to the final outcome of the consultations and fulfillment of certain other conditions, we would anticipate to implement the contemplated decision by October 2014. We remain committed to generously rewarding our shareholders through a combination of dividends and share repurchases. Our target dividend pay-out ratio remains an attractive 65% and our dividend yield last Friday was 4.5%. During the first quarter, we spent $1.25 billion to repurchase 15.4 million shares at an average price of $81.12 and are targeting to spend $4 billion during the full-year. In conclusion, our guidance reflects a full-year growth rate of approximately 6% to 8% in an adjusted diluted earnings per share excluding currency and the restructuring charge. Our overall business is in good shape though the unfavorable volume mix remains a key challenge due to cigarette industry volume trends. Our performance in the EU region is improving with our leading brands all gaining market share. Furthermore, trends in the first quarter confirm the slight moderation in cigarette industry volume decline. We're starting to see signs of stabilization in our underlying share performance in Japan and the Philippines. The accelerated decline of the hand-rolled segment and unfavorable price point in Indonesia have impacted our overall market share, but we're performing well in the machine-made segment. We are growing share and profit in Russia and our business across the EEMA region is performing well. Our pricing remains the key driver of our performance. This is being complemented by cost savings and productivity programs. Finally, we're ramping up our organization ahead of our exciting city tests later this year and our first national commercial launch in 2015 of reduced-risk products. This is the term we use to refer to products that have the potential to reduce individual risk and population harm. We will complete our eight clinical trials this year and are continuing our perception and behavioral studies. We're preparing the packaging and the labeling of the products and as previously stated, the increased investments this year will be around $100 million. Finally, we're moving forward with the constructions of a 30 billion unit HeatStick tobacco stick factory in Bologna, Italy, which will be completed by 2016. 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 teleconference. (Operator Instructions) Our first question comes from the line of Judy Hong of Goldman Sachs. Judy E. Hong - Goldman Sachs Group, Inc.: Thanks, good morning.

Good morning Judy. Judy E. Hong - Goldman Sachs Group, Inc.: Jacek, just Japan. I'm trying to reconcile the 9% decline in your shipments in the second quarter and the inventory movement that we saw, the market share losses. Can you just bridge sort of that 9% decline for Japan in the quarter? And then as you think about then the upcoming quarter, do we then see some of that benefit? So you actually would see a positive shipment in Japan as you flow through the inventory movement the other way?

Well, we have two things for Japan. One is, as we said, our in-market sales actually for the quarter was about 300 million units higher than the first quarter of last year. This was still a little bit lower participation in the trade purchases ahead of the price increases than our principal competitors and our share panel will be the lower on the reported basis and on a restated or adjusted basis, we think it was flat versus Q4 last year. Our shipment and this is how we recognize the revenue on the market, essentially the purchases by our distributors to Japan, so this is one step lower than the in-market sales and the shipments to the distributor were lower by about 1.3 billion units and this is where the distortions, which we have for Japan. When it comes to the next quarters, I mean although we see the market to go down for the full year in the range of 3% to 3.5%, the question is how much trade we'll need to be stock or unwind the higher purchases which have happened at the end of the last quarter. So, I don't think we should have that magnitude of the inventory adjustment and also obviously there is a function of how our shares is going to develop going forward. I mean so far we see the first two quarters sequentially when our share comes flat. I mean if that obviously would remain for the remaining part of the year, we would have a much less of the distortions on the shipment. Judy E. Hong - Goldman Sachs Group, Inc.: Okay. And just on that note, so the underlying market share performance, Jacek, you sound like you're seeing a little bit of stabilization there and maybe cautiously optimistic that things will improve as the year progresses. Can you just give us some color just in terms of what's driving that confidence at this point?

We're encouraged -- as I said, on an adjusted basis, the share came flat versus Q4. So, this is the first sequential quarters which we have over the last good few quarters when we have not lost share. And Marlboro came relatively strong. L&M and Lark continues to be under pressure. There is a program in place to address the Lark performance. And I think also the Be Marlboro campaign, which we started to roll out in Japan in Q1 of this year will get the very positive response at the consumer level. So, we start the number of parameters or brand attributes which the campaign has helped us to address in the other regions, mainly the European region. We start seeing the same sort of an impact in Japan. Preparedly, when the campaign is rolled out, but this is even more encouraging. So, let's stay cautiously optimistic for the year, but this is still the long way for us to fully stabilize or to return to growth in the Japanese market. Judy E. Hong - Goldman Sachs Group, Inc.: Okay. And then secondly, just on Indonesia, just a market share movement there. You called out unfavorable price points. Can you just talk about what drove that unfavorable price point? And then how you're addressing that issue? And how would you characterize your performance in Indonesia in the context of some of the other markets like Japan or the Philippines where obviously you have had some market share challenges? Is this a little bit more one-off situation, or what do you think about the market share performance in Indonesia and how you think about that going forward?

I think there are two factors which, first of all impacted the total industry, impacting the industry performance. One is some sort of a pressure coming still from the last year, the median removal partially of the fuel subsidies, some pressure on inflation, so it has an impact on the total market, especially on the lower price points. I mean this is what the consumers presumably are most impacted by that pressure from their disposable income. Second thing is the market had an underlying trend of the consumer switching from hand-rolled cigarettes to machine-made cigarettes. Obviously, we present in those segments, but our main brand, Dji Sam Soe, is the hand-made kretek cigarette. That brand sit at premium price point of the segment, actually, it is one of the most expensive brands in the market. The brands we started to sell after the price increases last year as of about mid of last year, the brand price per pack was about IDR12,000 for the pack of 12. So, we crossed at the retail level the stick price of IDR1,000. Other main competitors behind us in terms of the price gap. So, I think it's going to take some time until they will cross the market will cross that price point with another brand. I would expect some moderations in the share pressure in Indonesia in the second half of the year and we just have to be patient. We also are addressing the consumer taste preferences going for the machine -- from the hand-made cigarettes to machine-made by line extending Dji Sam Soe. So, we have two very well -- one very well performing variant and we are coming with the second variant, Dji Sam Soe Magnum, which is a filter kretek machine-made -- machine-made kretek cigarette. So, I think the share, -- I mean overall, I think we can get to the decent share performance, but we have to wait a little bit. Judy E. Hong - Goldman Sachs Group, Inc.: Okay, great. Thank you.

Thank you.

Your next question comes from the line of David Adelman of Morgan Stanley. David Adelman - Morgan Stanley: Hi, Jacek.

Hi David. David Adelman - Morgan Stanley: First a broader question, Jacek. So this quarter local currency, OCI was down 3, EPS was up 5. How do you envision the balance of the year unfolding? Clearly the results need to be better than this to hit the full year target.

The OCI, on an ex-currency basis for the full year should be -- should obviously have a positive growth David Adelman - Morgan Stanley: Right.

Otherwise it will be difficult to get to the 6% to 8% on the EPS level, ex-currency obviously. David Adelman - Morgan Stanley: Okay. And…

You need to note into this thing that this distortion which we had on a shipment basis this year, I'm sorry in the first quarter, I mean at April 3rd, the pressure on the overall OCI growth. But as I said in my remarks, if I would exclude the distortions which we have had in the first quarter, my revenues and OCI would be flattish -- at least flattish for the quarter on ex-currency basis. David Adelman - Morgan Stanley: Okay. And then second, Jacek, what are you seeing in the market in Russia now that the price increases are starting to come through at retail?

It's very still early because the prices have started to appear at the retail level around second half of February. I think as in the past we were at the beginning of the price changes in Philip Morris, the competition I can see that the following. There is one competitor, which is slow, but they usually were slow. So I think we need still a few weeks to see the full impact on the market. The market was less than 7%, 6.7% diluted down for the quarter. We still hold the forecast for the full year for the full market to be in a decline rate of 9% to 11%. One thing which we have to watch that the current situation with the ruble having some pressure, GDP growth forecast for Russia is coming a little bit lower than the previous forecast. I mean the whole situation around that region is a little bit -- not extremely helpful, so we just have to see how this going to unfold during the year. But as our forecast for the market is at the 9% to 11% decline, we don't see actually that we should revise anything else in our estimate for the year -- for this year at this stage. David Adelman - Morgan Stanley: Okay. Thank you.

Thank you.

Our next question comes from the line of Bonnie Herzog of Wells Fargo. Bonnie Herzog - Wells Fargo: Good morning.

Good morning, Bonnie. Bonnie Herzog - Wells Fargo: I just have -- my first question a quick follow-on on Japan. Given the expected price increases in the market, how much do you think this will increase the total profit pool? And then do you envision capturing I guess more than your fair share over the next few years?

Well, I can talk about this year, as you know, we have ended up and what I see generally the industry has ended up with price increase which essentially just passed on the VAT increase, so I don't see much of the profit pool enhancement in the market. If you deduct the estimated market decline for the year actually coming slightly negative rather than a positive that's for this year; and I think talking about the outer year would be a clear speculation because we also need to see what is the decision of the government with regards to the planned second step of the sales price increase from 8% to 10%. Bonnie Herzog - Wells Fargo: Okay. That's fair. And then, my second question is on Marlboro. The volume performance was relatively weak during the quarter. So I guess in light of this, could you talk a little bit about Marlboro 2.0, the next generation brand, and how this might reaccelerate growth for total Marlboro? And then, possibly which markets Marlboro has the most opportunity or upside this year?

Well, we post -- essentially post the test market in a few locations for the Marlboro 2.0 architecture. All tests, all three locations reported very encouraging results. I mean the perception of the Marlboro Red really start changing. This is what the brand needed. We think this is the right thing to do to reinvigorate Marlboro Red and somehow replicated I think a tremendous success which we have achieved with the Marlboro Gold a few years ago when we revamped Marlboro gold. So I think it's overall the move in the right directions. We will be rolling results sequentially in the number of markets. To actually give you a one single out one or group of markets where Marlboro have the best of the potential, if I am looking at the last couple of years Marlboro performance, frankly speaking, Marlboro has the potential in every geography. And I think the Marlboro performance in the Europe against all of this negative macroeconomic trend is just confirming that the brand can serve the very stormy waters irregardless of the situation. The brand is and I think is going to be then in a better shape than it used to be in the past. So I will not volunteer to single one market when a Marlboro would benefit. Obviously, we can talk about the Russia, but Marlboro Russia is more than just the Marlboro architecture, it's the product propositions and a couple of other factors. Bonnie Herzog - Wells Fargo: Okay. That's helpful. And then, my final question is on your dividend. Given your negative EPS growth this year due primarily, of course, to the currency headwind, could you share with us how you're thinking about your dividend? And then, how comfortable or willing you are to let your payout ratio be above your target 65%?

Well, we're currently above the current ratio -- sorry, the current payout ratio. Listen, the divined, as you know, is the decision of our Board, so I think we need to be patient and wait until the September Board and see what decision the Board will make. What I can say at this stage is that I think we have in every single year since we become independent; we've been rewarding shareholders irregardless of some headwinds which we had on our reported result. And I can't say anything more at this stage, but I think we had a track record of generously rewarding shareholders. Bonnie Herzog - Wells Fargo: Thank you.

Thank you.

Our next question comes from the line of Chris Growe of Stifel. Chris Growe - Stifel Nicolaus: Hi. Good morning, Jacek.

Morning, Chris. Chris Growe - Stifel Nicolaus: Hi. I just had two questions for you. I wanted to ask a little bit more detail on the EU. I just noticed -- and I don't recall seeing this of late -- but that the Marlboro brand was down in the quarter but you had growth in L&M, Chesterfield, the Philip Morris brand, more mid-tier type brands. Was there any change in, sort of the mix, if you will, the product mix in that market, anything that worried you about any kind of trading down in some markets?

No. I think that L&M continues to perform well in all markets. Actually L&M total share and Marlboro share was pretty strong -- came strong in the many markets. You have -- and I think Marlboro actually for the quarter went up by the four times of a point if I'm not mistaken, okay in the segment, in the EU segment. Chesterfield had a bit of acceleration. I think Italy has contributed to that. We had some situation in Italy when the former euro price segment has doubled up was the end of the last year. I mean I have said it in my remarks the tax system in Italy is pretty inefficient. Actually I would characterize it as one of the most inefficient systems within the European Union region. We have entered the segment by repositioning Chesterfield. The brand picked up very nicely, so I think it also contributed to the overall performance of Chesterfield. And I think in other larger market volume-wise when the Chesterfield picked up very nicely, I think recently was Poland, but I don't think it's much of the mix. All brands across the price -- irregardless of the price segment positioning are delivering a very strong share growth. Chris Growe - Stifel Nicolaus: Okay. Thank you. And I just had a follow-up question for you on the Philippines as well. I guess just to be clear; there was another tax increase at the start of the year. So it seemed like across at least some of your volume, you are absorbing that today? Have you taken pricing may be on Marlboro, but not on Fortune or Jackpot, or one of the lower-priced brands?

No. We have fact that we need to restore the competitiveness and put our grip on all key price points in the market, and this entailed that we have to absorb the tax. And then if Marlboro continues selling at the equivalent of the PHP1 per stick. Fortune, we're now trading I think at the retail at the slightly below the PHP2. And we have much the key brands of Mighty, our key competitor there with the Marlboro and it's always the Jackpot and Champion. And I think this is very much behind our market share performance, but the part of our strategy and we have made it very clear, I believe, as of November or so last year that we need to regain our competitiveness in the market. And one of the key elements of restoring the sort of a level playing field I think also in this market. Chris Growe - Stifel Nicolaus: I had a related question then which is, you're chasing some of this really low-end volume, very unprofitable, or maybe not at all profitable volume. Is there a view that you could then trade that consumer up in the future, or that you'll benefit if you hold onto that share as prices go higher? Is that the viewpoint, or is it better to manage for profitability given your already high share?

That's exactly the plan. Chris Growe - Stifel: Okay. Got you. Thanks so much for your time.

Our next question comes from the line of Jon Leinster of UBS. Jon Leinster - UBS: Hi. Good morning, Jacek.

Good morning. Jon Leinster - UBS: A couple of questions. First of all, on the underlying volume growth down 2%, which inventory distortions are you including? Because it seemed to me the Philippines is probably the largest swing, is that not included in that sort of underlying 2% down?

No. I think the major would come from Japan. And you will have some movement across the number of the markets. I think there was Russia slightly contributing in the things. Yeah, this would be the main one. Jon Leinster - UBS: So it doesn't include the impact of the Philippines, which was a sort of positive sort of move?

No. Jon Leinster - UBS: No. Okay. And the big question on pricing, you mentioned obviously the inventory movements added a lot to pricing in the first quarter of 2013 and that's not going to recur. So could we assume therefore that pricing for 2014 in general, the overall mix, the variance, is likely to prove to be less than 2013?

Well, I think we had very a high pricing variance last year to some extent it’s driven also by the one-off in Bolivia and the Philippines, right? So, that thing will not repeat, if you like, this year. But if I compare apples-to-apples, frankly speaking the pricing variance this year we don’t see why this shouldn’t be in line with our historical average sort of annual pricing variance. Jon Leinster - UBS: Right. Okay. And usually you make some comment about how much of the pricing you've already got through in terms of the market. Is that something you are prepared to comment on at the moment?

Well, we have now made some advancement versus what we have announced in February. So we’re approaching much higher number, and frankly speaking there wasn’t – we have more advancement in terms of announced and realized pricing than we had in February. Jon Leinster - UBS: And very quickly, lastly; is there any signs that the Italian government is actually moving on the tax system?

Well, I think the decline in the governmental tax revenues in the last year and a continuing for Q1 is something that I believe makes the government looking more closely, I mean, what have led to the situation. As I said, the system is inefficient. It’s very heavily – most heavily in the European Union scaled towards ad valorem component and many other markets also during the crisis. If you look at Spain to some extent, not fully, but France – I mean, that is typical of high ad valorem markets, they have recognized the weakness of the structure and the system and they have moved ahead. I believe, Italian government will -- is closely looking and they will reach the same conclusion that the more specific component is actually better system also from the revenue, the governmental revenues perspective. Jon Leinster - UBS: But is there actually a proposal out there for any movement, or is that yet to come?

I think there are some discussions. Jon Leinster - UBS: Right. Okay. Thank you very much.

Your next question comes from the line of Michael Lavery of CLSA. Michael Lavery - CLSA: Good morning.

Good morning. Michael Lavery - CLSA: Back to Indonesia, I just wanted to try to see if I could clarify a little bit or understand it better. My understanding is that Djarum Super and Gudang Garam International have also hit those same price points. I think it was late in the quarter so obviously it wouldn't have had much impact in these numbers, but just in terms of the outlook for the rest of the year, is the issue that there is a segment shift away from their brands and Dji Sam Soe because of the higher price point, or is it that those two are gaining from you and that you should be able to get some of that back, or how does that work?

Well, I think their price point has –is one of the key elements to play there. As I said, I mean, Dji Sam Soe now, I mean most of the packs sold in the market at 13,000 rupiah per pack of 12. So, I mean, clearly we are well above the 1 rupiah price point and retailers try to even round up that price to 1,500 if not more. While the Djarum and the GG, I think, if I not mistaking, the key brand competing with Dji Sam Soe now still have sums volumes below 12,000 and I would think about the half of the volumes – maybe slightly more than half of the volumes at the 12,000 per pack. So they are just now hitting the sum around price point. I think, the issue is the market when you have a pretty frequent sort of a pricing increase. So I think it’s just a matter of a time when the pressure on the Dji Sam Soe should ease going forward. This is from a price point perspective. Michael Lavery - CLSA: So, just to make sure that I understand that, you are saying some of the competitive pricing is scattered like within the country so that some markets probably in bigger cities have the higher price points but for the competitive brands but it's not everywhere?

Well, I think it is due to the size and the structure of the trade of the country, you don't have the price increases which will hit the retail and consumers in one given point in a time. You have this – you announced the prices, you introduced the prices to the trade and you might at have in a given point, in any given point a coexistence of the prices – two or three different price points per pack and… Michael Lavery - CLSA: Got you, okay.

And as part of the rolling price increases, I mean, you rather work for the average price in the market at the retail level in order to upset the competitors. Now, I thing to add maybe that, you now, historically the Djarum brand and the GG brand, they were also trading or retailing below Dji Sam Soe, right. So there is maybe some element of the price cut, but I believe it is more the element of the one price point of the 12 per pack – 12,000 rupiah per pack, 1,000 per stick. Michael Lavery - CLSA: Well, and so in terms – I guess, it's almost two months now since they have announced those prices and to your point it may have flown through very widely. But have you seen any improvement in your trends on Dji Sam Soe into April so far?

Well, we have been announcing the prices as well, so this is like sort of the moving curve situation, if you like. Right? Michael Lavery - CLSA: Right. Okay.

The market in a given one moment – in a given moment will cross the ones price point. We had a same situation with Dji Sam Soe when the Dji Sam Soe was crossing the 500 rupiah per stick. So it’s not that we have not upselled with Dji Sam Soe that the brand was nicely growing. We are the first ones to cross the round price point, at that time as I said, 500 rupiah per stick. I mean, we get there little bit of the share pressure and then we will recover. So I mean, let’s see how this is going to play this time. Michael Lavery - CLSA: And can you give any sense of what you expect for the second half, or any part of the rest of the year just in terms of what your share position might look like given that it is obviously it came down but it was also down versus 4Q. Do you expect it to stabilize or do you think it might get worse before it picks up again?

Well, I think that we should expect some less of the share pressure moderation or flattening of the share actually towards the second half, or in the second half of this year. Here Philip Morris in Indonesia had a little bit of pressure on the share if you look at the Q3, Q4 last year. Okay. So we planned it grow at a much faster rate until about the mid of the last year than – okay, Dji Sam Soe again crossed this 12,000 price point, we started observing the pressure. I think we need to just let this period somehow lock. Michael Lavery - CLSA: Okay, thanks. That's helpful. Then in Japan you mentioned you have some programs in place, or starting, to become in place on Lark. Can you give a little color on what those are?

I think we will have to stay a little bit of patient until everything is revealed in the market. So when we’re talking about the future programs, I can't actually tell you much more in detail than what in the market that they announced. But obviously there is the things which drives, so the element which drives the market, i.e. innovation, modernization of the product perception, et cetera, I mean, it’s something which is in the books. Michael Lavery - CLSA: Okay. Thanks. And then just lastly, I know you mentioned the next-generation products. Is there any other details you can give us on those?

Not at this stage. I think that the last week of June the Investors Day which we will have here for the investors community is the great opportunity for us to disclose more details, how and when and we’re going to go into the first market. But we are very excited about it. Michael Lavery - CLSA: All right. That sounds great. Thank you.

Thanks.

Our next question comes from line of Owen Bennett of Nomura.

Good morning, guys.

Good morning.

A couple of questions if I may. Firstly, I was just wondering if you could give some more details on what could be perceived as weaker pricing in EU. I mean, what is driving this? Is it the mix in Italy and is this likely to continue into the rest of the year? Secondly, could you please give some more color on the business building initiatives in Brazil? And what these entail exactly and also how your share development is looking in Brazil? Thanks.

Okay. I think the kind of pricing in Euro – I mean, it’s actually Italy, right, because Italy is lacking some prices, as I have said this earlier. Owen Bennett - Nomura: Yes.

That Italy has this significantly inefficient tax system. I mean I was somehow compounded by the fact that it increased the VAT. They have not -- there was no offset on follow on rate. So that puts the pressure on the pricing in the region. As I said, I mean, let's remain hopeful that the government sees what is the driver of the entire -- their revenue is also collection performance and how this going to be addressed. Meanwhile, we concentrated on holding a strong market share. Our share essentially came flat. Marlboro came flat. This is despite the fact that we see some down trading between the medium and the low segment for this full euro price segment. Chesterfield now is the significant player or key player actually in the full euro price segment, so I think we have some grip in the market. But that's essentially what is behind the pricing in euro, which I think I said that we have recently announced the price increase in Germany over €0.20 per pack, so I think this should also change the bigger picture going forward. And when it comes to Brazil, I don't know if you asked the question, I think the market in Brazil for the quarter I remember was about 2.6% down, I think the market was about $17.3 billion. And our market share nicely grew to about 15.7% or I think improved by the 1.4 points -- it was 1.4 points for the quarter I think was our share. Owen Bennett - Nomura: Okay. And just on the business building initiatives, I'm just wondering what that is exactly? Is that significant, or…

As we know we've very much strong focus at in the south of Brazil. And we had a plan of enlarging our presence there. And we are going from the south slowly to the north of Brazil. And this is also attracting volumes up. So step-by-step, I think we're making a very good progress in Brazil as we did however for the last couple of years. Owen Bennett - Nomura: Okay. Great. Thanks very much.

Thank you.

Our next question comes from the line of Michael Felberbaum of the Associated Press. Michael Felberbaum - Associated Press: Hello, Jacek. I had a question on -- you had mentioned in the commentary for France, the growth of E-Vapor products and their impacts on combustible volumes. And I have wondered if you could provide any color on any overall trends you're seeing as far as the impact on volumes and the growth of E-Vapor products?

Yes. I mean the color -- in terms of the color as always at the beginning of last year we observed 2013, we observed that sort of phenomena in Italy and not even a quarter later -- sorry four quarters later the product is actually, or the attractiveness of this product is fading out and there is no volume, no impact on the market. Based on my knowledge of that category I don't see why France shouldn't play the same way. I mean we know what are the negatives, if you like, of e-cigarettes cigarettes in terms of a satisfaction, meeting the consumers' expectations, etcetera. So we now see this in France. As I said, I saw that last year in Italy. I saw it sometime ago in Germany. I saw it sometime ago in Greece. I can start mentioning the market. And essentially the trend is very much being repeated across the country. So it goes for the rapid sort of a growth. It's a lot of -- it confirms that there was an interest. And I think for a good reason the consumer is looking to this alternative, but the product as it is today in the market is not delivering on the consumer expectations. Michael Felberbaum - Associated Press: Thank you.

Thank you.

We've reached the allotted time for questions-and-answers. I will now return the call to Nick Rolli for any additional or closing remarks.

Okay. Well, thank you very much for joining us. That concludes our call today. If you do have any follow-up questions, the Investor Relations team is available. We are currently in Switzerland and we'll be happy to take your follow-up questions. Thank you again, and have a nice day.

Thank you. That does conclude the Philip Morris International first quarter 2014 earnings conference call. You may now disconnect.