2024 Mid-year Financial Report of Philip Morris ČR a.s.

MID-YEAR FINANCIAL REPORT 2024

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Statutory Declaration of Persons Responsible for the Philip Morris ČR a.s. Mid-Year Financial Report

We confirm that to the best of our knowledge, the condensed set of interim consolidated financial statements prepared in accordance with the applicable accounting standards, gives a true and fair view of the assets, liabilities, financial position, and financial results of the issuer, Philip Morris ČR a.s., and its consolidated group and the description pursuant to Section 119 (2) (b) of Act No. 256/2004 Coll., on business activities on the capital market, as amended, contains a faithful summary of the information required under this provision.

In Kutná Hora on September 30, 2024

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Table of Contents

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Company Profile and Important Events in the First Half of 2024

About us

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

Since 2017, we have been offering our adult consumers a wide portfolio of innovative smoke-free products, which we are constantly expanding. In the Czech Republic and Slovakia, we distribute the heated-tobacco solutions, IQOS ILUMA with TEREA, LEVIA and DELIA1 consumables, KT&G-licensedlil SOLID with Fiit consumables, as well as HEETS consumables for original IQOS devices. At the same time, we distribute electronic cigarettes VEEV ONE and VEEV NOW and provide a variety of related accessories and services to adult nicotine users. We are also providing adult smokers with popular international and local brands such Marlboro, L&M, Chesterfield, Petra Klasik, Sparta, RGD or Start by Chesterfield.

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

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

In the Czech Republic and Slovakia, PMI employs more than 1,100 employees, who make a significant contribution to the company's development and transformation. For this reason, we continuously strive to further improve our inclusive and high-standard work environment. We aim to offer the best possible conditions, so that every employee can fully meet her or his potential. Being awarded the EQUAL SALARY certification in both countries validates our high performance in this area.

Being part of a global leading tobacco company, we keep focus on sustainability in any part of our business. We are mindful of and committed to our responsibility towards communities and environments in which we operate. We work hard to address sustainability issues that are material to us. Our sustainability initiatives in carbon footprint, water stewardship or equal career and development opportunities are regularly audited by external entities. At the same time, we have been contributing significantly to charitable projects across a wide range of organizations and specializations, including social programs aimed at improving living conditions in local communities.

• DELIA tobacco consumables for IQOS ILUMA smoke-free devices are newly available in Slovakia.

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Consolidated Highlights

Key Financial Results (in CZK million)

Shipments per Segment (in billion units equivalent)2

Note: Values presented in the report might not foot to totals due to rounding.

Profit from Operations

CZK 2,167 mil. (+ 18.7%)

Net Income

CZK 1,850 mil. (+11.9%)

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

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Overview of Selected Events in the First Half of 2024

January

• The corporate income tax rate was increased in the Czech Republic from 19% to 21% effective as of January 1, 2024.
• As part of streamlining our classic cigarette portfolio, L&M Red 100's were transformed into the highly successful Marlboro Crafted Red 100's.
• The premium electronic cigarette VEEV One was introduced on the Slovak market, in a wide range of ten flavours.

February

• In the category of heated tobacco, another novelty was included for sale in the Czech Republic and Slovakia - IQOS ILUMA Refreshed device. This option is part of our product sustainability programs. These are previously discarded devices that customers returned to one of the collection points within the sales network and which after refurbishing meet the quality criteria of a new device. The ones with a "Refreshed" sticker are then on sale at a discounted price.
• Already at the end of the previous year, we were one of the first countries in the world to launch LEVIA tobacco-free sticks for IQOS ILUMA devices in the Czech Republic. In February, we started their expansion within the retail network.

March

• Riding on the momentum of Marlboro Crafted's market share growth, we introduced two new variants in March: Marlboro Crafted Compact Blue slims & Marlboro Crafted S-Line superslims. Subsequent commercial support resulted in incremental share for the total brand family.

April

• Celebrating L&M brand's 70th anniversary since its foundation, we launched a limited edition as a homage to the heritage and brand values of openness and internationality the brand represents across the globe.
• Shareholders of Philip Morris ČR a.s. at the ordinary general meeting on April 30, 2024, accepted the report of the Board
  of Directors on the company's business activities, approved the regular separate and consolidated financial statements of the company for 2023 and the payment of a gross dividend for 2023 in the amount of CZK 1,220 per share.

May

• To celebrate 10 years since the first world introduction of IQOS in 2014, we launched the limited edition IQOS ILUMA Neon Purple in both of our markets. The award-winning design embodies our passion for progress, innovation, and the vibrant energy of neon purple hues.

June

• Fabio Costa, who previously served as Vice President for Strategy at Philip Morris International (PMI), has been appointed to the position of Managing Director of Philip Morris ČR a.s., effective June 1, 2024, replacing Andrea Gontkovičová.
  From August 1, 2024, Fabio Costa has been also appointed as the Chairman of the Board of Directors of Philip Morris ČR a.s.
• Underlining our product sustainability efforts, we have placed mini portable ashtrays into Marlboro Red & Gold KS package, which serves as an anti-littering tool for those situations when adult smokers cannot dispose their used cigarette sticks to a regular waste.
• In Czech market we introduced the most intense tobacco flavour TEREA KONA for our IQOS ILUMA device.
• In Slovak market a new line of DELIA tobacco sticks was introduced, paying tribute to tobacco classics, in four different flavours.
• VEEV One electronic cigarette reaps success. It is not only the market leader within the closed system with a share of 37.7% (as per Nielsen), but also ranked first in the respected Consumer Choice 2024 competition as the novelty of the year in the electronic cigarette category. In June, the new fresh fruit flavour Grape was also introduced, which very soon became one of the most popular flavours in the category. There are a total of thirteen flavours available on the market, which can help to the transition of adult smokers to smoke-free alternatives.

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Business Results in the First Half of 2024

Consolidated Financial Results

Despite the impact of the ban on characterizing flavored heated tobacco products in the Czech Republic, our company demonstrated resilience, achieving double digit bottom-line growth.

On the macroeconomic environment, the stabilization observed in the latter part of 2023 continues solidifying, creating a more favorable landscape for pricing strategies. This, combined with the expansion of our smoke-free product portfolio3 enables us to continue meeting the evolving needs of adult consumers. Our alternatives, particularly in the heat-not-burn4 category, and the strong performance of VEEV in the vaping market are driving significant traction in both Czech and Slovak Republics.

This has led to an increase of our reported consolidated revenues, net of excise tax and VAT by 7.1 % or CZK 0.7 billion to CZK 10.4 billion (vs. the first half of 2023). Excluding currency, our consolidated revenues, net of excise tax and VAT, increased by 4.7% or CZK 0.5 billion. This was primarily driven by favorable net pricing on combustible and smoke-free portfolios (CZK 0.8 billion) and higher sales of smoke-free portfolio (CZK 0.1 billion) partially offset by lower combustible portfolio sales volumes (CZK 0.4 billion) reflecting total market contraction and share of market development.

Profit from operations of CZK 2.2 billion increased by 18.7% (vs. the first half of 2023) supported by favorable revenue development, on the back of pricing and smoke-free portfolio positive volume contribution. This includes a currency tailwind of 6.6pp, excluding the impact of currency profit from operations increased by 12.1%. Net income of CZK 1.9 billion increased by 11.9% (vs. the first half of 2023), reflecting the items noted above.

Business in the Czech Republic

Domestic revenues, net of excise tax and VAT, increased by 2.4% (vs. the first half of 2023) to CZK 6.0 billion, driven by favorable net pricing on combustible and smoke-free portfolios (CZK 0.2 billion) and positive pricing on IQOS devices (CZK 0.2 billion) partially offset by lower volumes essentially combustible (CZK 0.3 billion).

The total combined market of cigarettes and heat-not-burn units decreased by an estimated 7.1% (vs the first half of 2023) to 7.2 billion units mainly driven by cigarette market contraction primarily due to cross border sales deterioration coupled with underlying lower consumption as well the annualization of the ban on heated tobacco products with characterizing flavours introduced in October 2023.

The estimated combined market share of Philip Morris ČR a.s. increased by 0.1 share points (vs. the first half of 2023) to 39.7% due to the growth on heat-not-burn consumables reflecting the consumer driven market dynamics to look for smoke-free alternatives. This growth of 0.6 share points was partially offset by the elasticity driven decrease of 0.5 share points in cigarettes due to the portfolio underrepresentation in the growing more affordable segment.

Domestic combustible portfolio shipments (cigarettes and fine-cut tobacco, combined) of Philip Morris ČR a.s. decreased by 0.1 billion units (vs. the first half of 2023) to 1.9 billion units, reflecting the decline in total market and lower market share. The shipments of smoke-free products5 remained essentially flat at 1.1 billion units in the same period, with the organic growth being offset by the annualization of the ban on heated tobacco products with characterizing flavours introduced in October 2023.

• Smoke-freeportfolio includes heated tobacco products, which is the term we use to describe consumables for heated tobacco devices, which include HEETS, TEREA, LEVIA, DELIA and
  licensed KT&G Fiit brands, as well as electronic cigarettes VEEV ONE and VEEV NOW (VEEBA). 4 Combustible portfolio includes cigarettes and volume tobacco for make-your-own cigarettes.

• Smoke-freeproducts include heated tobacco units as the term we use to refer to heated tobacco consumables, which include HEETS, TEREA, and the KT&G' licensed brand Fiit, non- tobacco consumables LEVIA, as well as electronic cigarettes such as VEEV ONE and VEEV NOW (VEEBA).

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Market share in the Czech Republic

Business in Slovakia

Philip Morris Slovakia s.r.o. revenues, net of excise tax and VAT, increased by 17.1% (vs. the first half of 2023) to EUR 124 million, driven by higher sales of smoke-free portfolio (EUR 7.9 million) and favorable net pricing on combustible and smoke-free portfolios (EUR 17.6 million) offset by lower combustible product sales (EUR 5.7 million) and negative pricing of IQOS devices (EUR 1.7 million).

The total combined market of cigarettes and heat-not-burn units decreased by an estimated 1.6% (vs. the first half of 2023) to 3.4 billion units driven by cigarette market contraction due to underlying decline in consumption.

The estimated combined market share of Philip Morris Slovakia s.r.o. decreased by 0.9 share points (vs. the first half of 2023) to 52.8% due to cigarettes portfolio underrepresentation in the growing more affordable segment exacerbated by relevant market pricing. This decrease of 2.7 share points was partially offset by growth of 1.8 share points on heat-not-burn consumables reflecting the consumer driven market dynamics to look for smoke-free alternatives.

Domestic combustible portfolio shipments of Philip Morris Slovakia s.r.o. decreased by 0.1 billion units (vs. the first half of 2023) to 1.2 billion units, reflecting the decline in total market and lower market share. The shipments of smoke-free products6 increased by 0.1 billion units (vs. the first half of 2023) to 0.6 billion units in the same period driven by organic category growth.

Market share in Slovakia

Manufacturing Services

Revenues from manufacturing services increased by 1.6% (vs. the first half of 2023) to CZK 1.3 billion by maintaining the production volume at high level.

• Smoke-freeproducts include heated tobacco units as the term we use to refer to heated tobacco consumables, which include HEETS, TEREA, DELIA and the KT&G' licensed brand Fiit, as well as electronic cigarettes such as VEEV ONE and VEEV NOW (VEEBA).

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Risk Factors Related to Our Business and Industry

The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements contained in this 2024 Mid-year Financial Report of Philip Morris ČR a.s.

Any of the following risks could materially adversely affect our business, our operating results, our financial condition, and the actual outcome of matters as to which forward-looking statements are made in this report.

We are aware of the risks impacting our business and taking appropriate actions to mitigate them.

Overall Business Risks

Our ability to grow profitability may be limited by our inability to successfully introduce new products, improve our margins through higher pricing and improvements in our brand mix, promote brand equity or develop strategic business relationships.

This can be influenced by several factors described below.

Competitive Environment

We face intense competition, and our failure to compete effectively could have a material adverse effect on our profitability and results of operations. We compete primarily based on product quality, brand recognition, brand loyalty, taste, innovation, packaging, service, marketing, advertising and retail price. We are subject to highly competitive conditions in all aspects of our business. The competitive environment and our competitive position can be significantly influenced by weak economic conditions, erosion of consumer confidence, competitors' introduction of lower-price products or innovative products, higher tobacco product taxes, higher absolute prices and larger gaps between retail price categories, and product regulation that diminishes the ability to differentiate tobacco products.

Consumer Preferences

We may be unable to anticipate changes in adult consumer preferences or to respond to consumer behaviours, limiting our ability

to further scale up our smoke-free products (SFP) and encourage current adult smokers who would otherwise continue to smoke to switch to smoke-free products. Our tobacco business is subject to changes in consumer preferences, which may be influenced by local economic conditions.

To be successful, we must:

• promote brand equity successfully;
• anticipate and respond to new consumer trends;
• ensure that our products meet our quality standards;
• develop new products or acquire distribution rights to these in order to broaden brand portfolios;
• improve productivity;
• educate and convince adult smokers to convert to our smoke-free nicotine products;
• ensure effective adult consumer engagement, including communication about product characteristics and usage of smoke-free nicotine products;
• provide excellent customer care;
• ensure adequate production capacity to meet demand for our products; and
• be able to protect or enhance margins through price increases.

In periods of economic uncertainty, adult consumers may tend to purchase lower-priced brands, and the volume of our premium-price and mid-price brands and our profitability could be materially adversely impacted as a result.

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Business Model

Our profitability, and consequently, the amount of our dividend pay-out reflects our dual role of being a full risk entrepreneur of combustible portfolio products and a limited risk distributor for smoke-free products.

Our remuneration for commercialization of smoke-free products is based on a set margin on revenues from sales. As a limited risk distributor, we do not own intellectual property rights for smoke-free products and therefore do not absorb all the costs or bear the risks associated with such ownership. As our return is proportionate to our risk for commercializing smoke-free products, the impact of the sales volume variances of such products on our profitability is limited. Consequently, if the current consumer preference trend towards smoke- free products continues and volume declines of combustible portfolio products accelerate, we do not expect that over time the additional profit generated from increased sales of smoke-free products will offset the decreasing profits generated from the sales of combustible portfolio products.

Consumption of combustible tobacco products continues to decline. This decline is due to multiple factors, including increased taxes and tax-driven pricing, governmental actions, the diminishing social acceptance of smoking, and the continuing prevalence of illicit products.

Illicit Trade

We lose revenues as a result of counterfeiting, contraband and cross-border purchases. Large quantities of counterfeit cigarettes are sold in the international market. We believe that Marlboro is the most heavily counterfeited international cigarette brand, although we cannot quantify the revenues we lose as a result of this activity. In addition, our revenues are reduced by contraband and legal cross-border purchases.

The volume of the illicit cigarette market in the Czech Republic has been growing in recent years, reaching one of the highest levels in 2023 and, according to the empty pack survey7, the share of counterfeit products continues to grow in 2024.

Talent Attraction and Retention

Our ability to implement our strategy of attracting and retaining the best talent may be impaired by the decreasing social acceptance

of cigarette smoking. To be successful, we must continue transforming our culture and ways of working, align our talent and organizational design with our increasingly complex business needs, and innovate and transform to a consumer-centric business.

Risks Related to Strong Regulations within our Industry

The tobacco and nicotine industry is heavily regulated and subject to significant governmental measures to reduce and/or prevent smoking and the use of tobacco and other nicotine products. Their abrupt changes can have a significant impact on consumer preferences and their late communication can disrupt the production and availability of our products in the market. There is also a risk that regulation of tobacco and nicotine products will not be differentiated according to the risk profile of individual products and will not adequately protect those under 18 years of age. This chapter describes risks we face in relation to current or anticipated developments in each regulatory area.

Excise Tax

Tobacco products are subject to excise taxes with tax rates expressed in currency units per physical quantity which requires their periodic adjustments for inflation. There are risks that the excise tax rates in neighbouring countries will be raised less than in the domestic country which could encourage domestic consumers to buy tobacco and nicotine products in other countries and discourage consumers in other countries from buying tobacco and nicotine products in the domestic country, as well as that the excise tax increases will lead to price increases higher than inflation, which might reduce demand for our products.

In the Czech Republic, Act no. 349/2023 Coll. amending certain laws in connection with the consolidation of public budgets. amended also Act no. 353/2003 Coll. on excise taxes. This amendment came into force on January 1, 2023 and introduced the following changes:

• Source: KPMG report - Illicit Cigarette Consumption in Europe - 2023 Results (pmi.com)

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