Annual Financial Report PMČR 2024 unofficial

ANNUAL FINANCIAL REPORT

2024

Statutory Declaration of Persons Responsible for the Philip Morris ČR a.s.

Annual Financial Report

We confirm that to the best of our knowledge, the financial statements and consolidated financial statements, drawn up in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and financial results of the issuer, Philip Morris ČR a.s., and the units included in the consolidation as a whole, and the consolidated annual report according to the law regulating accounting, contains a true overview of the development and results of the issuer and the position of the issuer and the units included in the consolidation as a whole, together with a description of the main risks and uncertainties it faces. We further confirm that the consolidated sustainability statement is prepared in accordance with the sustainability reporting standards adopted by the European Commission and the requirements set out under Article 8(4) of the EU Taxonomy Regulation.

In Kutná Hora on April 28, 2025

Fabio Costa Eugenia Panato

Chairman of the Board of Directors Member of the Board of Directors

Philip Morris ČR a.s. Philip Morris ČR a.s.

Introductory Word

Dear Shareholders,

Change is the only constant in life, and this principle is particularly relevant for Philip Morris. Last year, we marked a significant milestone: the 10th anniversary of the introduction of our first IQOS device to the world, a system that has changed for the better the lives of countless legal age smokers.

For me personally, the past year also brought an important change, as in June I had the opportunity to join as Managing Director for Philip Morris ČR a.s. In the last months, I have firsthand witnessed the Czech and Slovak team's exceptional expertise, dedication, diligence, and passion to lead change. These qualities have significantly contributed to the rapid progress of our transformation and of the transformation of our business.

Both markets are indeed among the most successful interpreters of our vision of a smoke-free future. In fact, while globally total net revenues from smoke-free products amount to approximately 39%, this share is significantly higher right here in the heart of Europe.

This shows that it is possible for our business to achieve the vision we set for ourselves, while delivering excellent results, as we managed to achieve in the past year. Our consolidated revenues, excluding excise tax and VAT, increased year-on-year by 5% to CZK 21.6 billion, operating profit rose year-on-year by 3.4%, and we achieved a net profit of CZK 3.3 billion. Our team's dedication and expertise have led to a fundamental transformation of the tobacco

industry landscape both in the Czech Republic as well as in Slovakia, which I am convinced will positively impact our business and the legal age smokers in the long term.

We are happy to contribute further to the transformation with the introduction and national launch of our US FDA's authorized ZYN nicotine pouches, integral to our smoke-free portfolio, and, as you could see in our press release announcements, we will be manufacturing them in Kutná Hora in the coming year. This facility will continue to be a key component of PMI's manufacturing as we advance towards a smoke-free future. The success of this product category, locally and internationally, will position our Czech production plant as a critical hub, as it is today for our traditional combustible cigarette manufacturing.

At the same time, I am honored to be the first to introduce another innovation. This publication now not only, as was customary, presents the financial results, but also summarizes the progress we are making in the areas of corporate governance, reducing the impact of our business on the environment, and in matters of employment and society as such, in accordance with the CSRD Directive. This step underscores our commitment to transparency and accountability towards our shareholders and the public.

I would like to thank all my colleagues for their hard work and dedication, and you, our shareholders, for your trust. Together we will continue on our path to success and growth.

Fabio Costa

Chairman of the Board of Directors Philip Morris ČR a.s.

Table of Contents

1. Company Profile and Important Events in 2024 ......................................................................................................... 5

2. Business Results 2024 .................................................................................................................................................. 12

3. Risk Factors Related to Our Business and Industry................................................................................................... 15

4. Forward-Looking and Cautionary Statements............................................................................................................ 21

5. Sustainability Statement................................................................................................................................................ 22

6. Consolidated Financial Statements ............................................................................................................................. 106

7. Separate Financial Statements..................................................................................................................................... 148

8. Report on Relations........................................................................................................................................................ 186

9. Independent auditor's report to the shareholders of company Philip Morris ČR a.s............................................. 189

1. Report of the Supervisory Board................................................................................................................................... 203

2. Report on Corporate Governance.................................................................................................................................. 205

This document created in PDF format is a translation from the original which was prepared in the Czech language. It represents non-official version of the Annual Financial Report. The company has taken all steps to ensure that this version conforms to the original. The official version of the Annual Financial Report prepared in single electronic reporting format ("ESEF"), which is the XHTML format, can be accessed at: https://www.pmi.com/resources/docs/default-source/czech-market/investors-relation/annual-financial-report-2024/pmcr-vyrocni-

zprava-2024.zip In case of any content discrepancies the official version of the Annual Financial Report always takes precedence over this document.

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Company Profile and Important Events in 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 adults who would otherwise continue to smoke or use other nicotine products with innovative smoke-free alternatives that reduce or have the potential to reduce risk compared to traditional cigarette consumption.

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 and LEVIA consumables, KT&G-licensed lil SOLID with Fiit consumables, as well as HEETS consumables for original IQOS devices. At the same time, we distribute electronic cigarettes VEEV ONE, VEEV NOW ULTRA, nicotine pouches ZYN 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 or RGD.

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, efficient and environmentally friendly PMI operations in the world, preparing to step into a smoke-free future.

In the Czech Republic and Slovakia, PMI employs more than 1,300 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 their potential. 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. At the same time, we have been contributing significantly to charitable projects across a wide range of organizations and specializations, including programs aimed at improving living conditions in communities.

Our portfolio

Our smoke-free product portfolio marked a significant milestone in 2024. IQOS globally celebrated 10 years since its launch in Japan and Italy in 2014. From its inception as a science-based concept, IQOS has established itself as a global category leader, surpassing the best traditional brands.

In the Czech Republic and Slovakia, last year we have focused primarily on the strategic development and further expansion of our flagship

IQOS ILUMA and its accessories among existing adult customers and adult smokers who would otherwise continue to smoke cigarettes. Our VEEV ONE and VEEV NOW e-cigarettes brands strengthened their market position in the Czech Republic during the year, while in Slovakia VEEV ONE became the market leader within the first month of its launch in February 2024. A major new innovation of last year was then the introduction of ZYN nicotine pouches to both markets. Our portfolio of classic cigarettes has experienced several innovations, coupled with a strategic consolidation of our offerings.

Heated tobacco devices

IQOS ILUMA

IQOS ILUMA is a key product in our portfolio of smoke-free alternatives. Like the previous generation of IQOS devices, it doesn't burn tobacco and thus create no smoke. Thanks to the Smartcore Induction System induction heating technology, the device emits an aerosol that contains 95% less harmful chemicals compared to cigarettes1. The core of this technology is an innovative metal heating element coated with stainless steel, which is inserted in the center of the filling for optimal heating of the tobacco. The result is easier coating, a large amount of aerosol and a taste that does not change during use. Unlike previous generations of devices, IQOS ILUMA does not have a heating blade, so there is no risk of it breaking and the device does not require any cleaning.

IQOS ILUMA is offered in three variants - PRIME, MID and ONE. Each device has a different design so that adult users can choose the one that best suits their needs and preferences. All IQOS ILUMA devices are compatible with TEREA tobacco consumables, which are offered in classic and light tobacco flavours, as well as with LEVIA tobacco-free nicotine consumables, which bring users the pleasure of fresh menthol and fruit flavours.

At the end of last year, we launched the latest IQOS ILUMA i PRIME device. This premium new product is packed with features and has several advantages over its predecessor, such as a touchscreen display that allows you to check the status of the device and customize the experience, a new pause mode that allows a user to stop using the device for up to eight minutes and then resume, or a battery optimization feature in eco mode that can extend the total battery life by up to one year. Another major innovation was the launch of TEREA KONA consumables in Czechia and DELIA consumables in Slovakia, both the most intensive tobacco flavour products, which aims to encourage adult smokers to switch to less harmful alternatives. The distribution of LEVIA consumables together with introduction of its new variant LEVIA GLACIAL BEAT has been expanded.

As part of the company's commitment to sustainability, IQOS ILUMA Refreshed was also launched. This product supports our unique circular programs.

lil SOLID

In addition to distributing its own line of IQOS products, PMI cooperates with the South Korean company KT&G and offers a tobacco heating device called lil SOLID EZ in selected markets, including the Czech Republic. lil SOLID EZ uses heating tip technology and heats the tobacco from the inside. As a result, it delivers a smoke-free, ash-less tobacco experience and produces less odor than cigarettes. The technology used by lil SOLID EZ device is the result of thorough scientific research, thanks to which the adult user can indulge in a smoke-free tobacco experience with significantly lower levels of harmful chemicals to cigarettes2. lil SOLID EZ represents the next step in building a smoke-free future and is designed primarily for adult smokers and nicotine users looking for a simple and affordable device.

Vaping

VEEV ONE is a premium closed-system electronic cigarette. It delivers an affordable and intuitive device that provides the ultimate vaping experience. Smart technology ensures consistent flavor with every puff and long-lasting enjoyment with up to one thousand puffs per refill which are available in a wide range of flavours. In both the Czech Republic and Slovakia, VEEV ONE is the market leader in the category of closed filling systems.

At the other end of the market, VEEV NOW is a premium, pocket-sized disposable electronic cigarette, distinguished by its button-less design and automatic swipe start, rendering it continuously ready for use. This device requires no maintenance - no cleaning, charging, or e-liquid refilling. Due to the launch of the new product line VEEV NOW ULTRA in 2025, which can be considered as an upgrade of the

1 Important information: This does not necessarily equal a 95% reduction in risk. IQOS ILUMA is not risk-free "95% less" represents the average reduction in levels of the 9 chemicals recommended for reduction in cigarette smoke by the World Health Organization, which do not include nicotine. See Important Information on https://www.iqos.com. This does not necessarily equal a 95% reduction in risk. IQOS ILUMA is not risk-free.

2 Important information: Lil Solid EZ is not risk-free. Reductions in levels of the 9 chemicals recommended for reduction in cigarette smoke by the World Health Organization, which do not include nicotine. See Important Information on https://www.iqos.com.

existing line, Philip Morris ČR a.s. has discontinued the sale of the existing product line of disposable electronic cigarettes VEEV NOW this year.

Nicotine Pouches

ZYN nicotine pouches, a key part of the smoke-free products portfolio, were launched in July in Slovakia and in August in the Czech Republic. As other products in our smoke-free portfolio, ZYN is intended for adults who would otherwise continue to smoke cigarettes or use other nicotine products. ZYN nicotine pouches do not contain tobacco, but only pharmaceutical grade nicotine (derived from tobacco) combined with food-grade ingredients additives and flavourings. They come in different formats depending on pouch size, nicotine strength and flavour. When used, ZYN releases 99% less harmful chemicals compared to cigarettes3.

The nicotine pouches are available in different variant according to a nicotine level and flavours and they represent another break-through alternative that has significant potential to reduce the number of smokers in society. This is evidenced, among other things, by the recent authorization of ZYN nicotine pouches making ZYN the first and only authorized nicotine pouch in the United States by the U.S. Food and Drug Administration (FDA), recognizing the role of ZYN which can play in the protection of the public health by helping people switch from cigarettes and other traditional tobacco products.

Cigarettes

In 2024, we resumed activities to support our cigarette portfolio. We have launched several new variants of the Marlboro Crafted cigarette brand, particularly in segments that are popular with adult smokers. These were the Marlboro Crafted Compact Blue variants in a compact format, the Marlboro Crafted S-line variant in a super slim format and last but not least the two Marlboro Crafted 30 variants. The latter variant in particular addresses the demands of adult smokers for an international brand offering at the best possible price. Thanks to the Marlboro brand, we've also brought our adult smokers several limited editions. These included a variant with one extra cigarette in the Marlboro Crafted variants, followed by the urban limited edition Marlboro Touch and last but not least the limited edition Marlboro Adventure, which reminded us of the Marlboro brand values.

Within our other flagship brand, L&M, we launched a limited edition to celebrate the 70th anniversary of the brand. The L&M brand has also introduced a new option for adult smokers with two new packs of 25 cigarettes at an even better price.

In contrast, production of Start filter-less cigarettes, which have been sold in the Czech Republic and Slovakia since the 1960s, was discontinued at the end of December 2024 due to declining demand.

Innovation and development of less harmful alternatives

Since smoking prevalence remains largely unchanged in the long term, there is a need to offer new effective solutions that can help deliver more ambitious public health goals. Philip Morris International (PMI) therefore directs its efforts towards developing less harmful alternatives to cigarettes.

As a company, we have publicly declared that our goal is to help support all current adult smokers who would otherwise continue to smoke, to switch to smoke-free products. We announced our updated ambition for more than two-thirds of the company's total net revenues to come from smoke-free products by 2030.

Tobacco Harm Reduction

It has been scientifically substantiated that the primary cause of smoking related diseases is not nicotine, but the inhalation of harmful and potentially harmful constituents (HPHC)4created as a result of the combustion process. The harm reduction concept is, thus, based on the elimination of the process.

For any smoke-free alternative to be successful in reducing harm compared with continued smoking, it must fulfil two criteria: it must be scientifically substantiated as significantly less harmful than cigarettes; and it should be satisfying for current adult smokers so that they completely switch.

This is the goal that the PMI Group is actively working to achieve, and it underlines the motivation behind initiating its independent journey towards a smoke-free future. Smoking prevention, as well as a quality addiction system, must continue to play a primary role in the protection of public health. However, we are convinced that science-based, innovative smoke-free products can also make a significant contribution to permanently reducing the harm and risks associated with smoking cigarettes. The overall goal, therefore, is to develop smoke-free alternatives that present significantly less risk of harm than continued smoking, that are acceptable to current adult smokers who would otherwise continue to smoke cigarettes, and which are generally not attractive to youth, non-smokers, or former smokers.

3Important information: This does not necessarily equal a 99% reduction in risk. ZYN is not risk-free."99% less" represents the average reduction in levels of 9 harmful chemicals the World Health Organization recommends reducing in cigarette smoke, which do not include nicotine. Assessment of the smoke from a standard reference cigarette and substances released from a ZYN pouch. See Important Information on ZYN.com

4Harmful and Potentially Harmful Constituents

Extensive Scientific Research

Since 2008 Philip Morris International Inc. has invested over USD 14 billion5into the development, the scientific research and the capacity building of smoke-free products portfolio based on heating of tobacco or liquid. To this end, the company employs nearly 1,500 world-class engineers and experts that drive forward our research, including laboratory and clinical trials.

Robust and transparent scientific research is the cornerstone of the development and assessment of our smoke-free products. Our extensive Research and assessment program draws from the universally recognized methods used by the pharmaceutical industry and follows the instructions of the US Food and Drug Administration (FDA) for Modified Risk Tobacco Products (MRTP).

Our clinical trials show both the potential of our smoke-free products to reduce exposure to harmful and potentially harmful constituents as well as to reduce risk of smoking related diseases. The assessment program includes post-market consumer perception and behaviour studies conducted to verify whether consumers correctly understood the product communication and determine how they will use our products in real life.

Combustion, Heating and Nicotine

Nicotine containing products are addictive and not risk-free. However, a long-term expert consensus has determined that nicotine is not the main cause of smoking related diseases. The majority of harmful effects of smoking are caused by chemical constituents formed as part of the tobacco combustion process.

The combustion process generates cigarette smoke that incorporates flavours from the tobacco blend, along with nicotine naturally present in tobacco leaves. When combusted, the temperature of the tip of a cigarette can reach up to 800 degrees Celsius. Such high temperatures lead to the creation of more than 6 thousand different chemical constituents6,7many of which are harmful or potentially harmful. These harmful and potentially harmful constituents are classified according to comprehensive lists created by international organizations and public institutions in the area of public health. These include the U.S. Food and Drug Administration, Health Canada or World Health Organization. Around 100 of these chemicals are considered to be a cause or a probable cause of smoking related diseases such as lung cancer, cardiovascular diseases, or chronic obstructive pulmonary disease.

Through years of research and development, we have therefore developed a new class of innovative products that do not rely on the principle of burning, and therefore do not produce smoke. Instead, we have found several ways to produce a flavorful nicotine-containing vapor that a consumer can inhale, but that has significantly lower levels of harmful chemicals than cigarettes8. We conduct a very precise temperature monitoring in our heated tobacco products. This is to ensure that the tobacco temperature does not reach a level of burning. By preventing combustion, we reduce or eliminate the formation of harmful or potentially harmful constituents. Heating the tobacco is still necessary for it to release aroma and nicotine. The elimination of the combustion process and a subsequent significant reduction of harmful or potentially harmful constituents is the cornerstone of the development of smoke-free products. Our goal is not only to reduce or eliminate harmful or potentially harmful constituents, but to also offer a taste ritual and nicotine level comparable to cigarettes. This is to enable adult smokers who would otherwise continue to smoke to completely switch from cigarettes to smoke-free products.

Our electronically heated product IQOS is the most advanced of PMI's reduced risk products, where tobacco contained in a stick and inserted into the device is heated to around 300 - 320 degrees, and no combustion process takes place in the heated tobacco product. IQOS is therefore a better choice than cigarettes for those adult smokers that would otherwise continue to smoke cigarettes. Switching completely to IQOS represents less risk to health of adult smokers than continuing to smoke. IQOS emits an aerosol that contains 95% less harmful chemicals compared s to cigarettes9.

Another segment within the array of smoke-free alternatives includes tobacco-free products containing liquid nicotine extracted from tobacco leaves. These products are recognized as e-cigarettes and are available under the VEEV brand. A nicotine-containing e-liquid is heated to generate an aerosol.

Thanks to breakthrough technology, they are a better alternative for adult smokers than continued smoking. It is crucial to emphasize that products containing tobacco and/or nicotine are not risk-free. They contain nicotine, which is addictive. Minors, pregnant women, nursing mothers, and people with existing conditions such as heart disease, high blood pressure, diabetes, or epilepsy should not use nicotine-containing products. In particular, it is important that products containing tobacco or nicotine are not available to minors.

5 As of December 31,2024, source: https://www.pmi.com

6 How Tobacco Smoke Causes Disease: The Biology and Behavioural Basis for Smoking-Attributable Disease: A Report of the Surgeon General. https://www.pmiscience.com/cs/ our-products/combustion#be439e85-2f88-696a-9e88-ff000043f5e9.

7 The Chemical Components of Tobacco and Tobacco Smoke, Second Edition. https://www.pmiscience.com/cs/our-products/combustion#d07d9f85-2f88-696a-9e88- FF000043F5E9.

8Smoke-free products are better alternative to smoking, the best way to avoid the harms of smoking is to quit, or never to start. Some people, including pregnant women, nursing mothers, and people with existing conditions such as heart disease, high blood pressure, or diabetes should not use nicotine-containing products. Minors should not have access to or use tobacco- or nicotine-containing products.

9Average reduction of wide range of harmful chemical constituents (apart from nicotine) in comparison with a smoke from a reference cigarette (3R4F). This does not necessarily mean a 95% risk reduction.

Key Scientific Findings

We have conducted, as part of our scientific assessment program, a range of clinical trials related to Platform 1 (IQOS). The most significant study to date is the six months Exposure Response Study (ERS) complemented by six months extension study that compared exposure response of adult individual following a switch from cigarettes to IQOS. The results of the first six months of clinical testing proved that participants - adult users of the IQOS product - are exposed to significantly less chemicals than adult cigarette smokers and all eight major Clinical Risk Endpoints (CREs) associated with smoking-related diseases improved favorably and in the same direction as those of smokers who quit.

These clinical endpoints concern, amongst others, lipid metabolism, acute effect on cardiovascular system, inflammation, endothelial dysfunction, oxidative stress, and respiratory tract damage. The majority, specifically five out of eight of these endpoints, showed a statistically significant difference between IQOS adult users and those who continued to smoke cigarettes. Furthermore, the results after twelve months confirmed that the alterations in all eight monitored biomarkers of potential risk, observed during the transition to heated tobacco, are entirely comparable to the data achieved when quitting smoking. You can find more information about IQOS and PMI's scientific research at https://www.pmi.com and https://www.pmiscience.com.

Decision of the U.S. Food and Drug Administration (FDA) to Grant Modified Risk Tobacco Product Status

On July 7, 2020, the U.S. Food and Drug Administration (FDA) authorized the Modified Risk Tobacco Product (MRTP) status with the "reduced exposure order" for IQOS and three HeatSticks10variants. The granting of the MRTP status is a result of an assessment of a wide range of detailed scientific evidence submitted to the FDA by PMI in December 201611. The decision concerns exclusively PMI's business activities in the United States. So far, it is only the second tobacco product and the first in the category of heated tobacco products, eligible to use this status. The FDA justified the MRTP authorization for IQOS as being suitable for the support of public health goals and

is expected to benefit the health of population as a whole. Furthermore, it was confirmed that data submitted by the company shows that marketing these particular products with the authorized information could help addicted adult smokers' transition away from combusted cigarettes and reduce their exposure to harmful chemicals, but only if they completely switch. The FDA decision finds that PMI has demonstrated that the IQOS system heats and does not burn tobacco, thereby significantly reducing the production of harmful and potentially harmful constituents compared to cigarette smoke. FDA further confirms that PMI's scientific studies have shown that a complete switch from conventional cigarettes to the IQOS product significantly reduces human exposure to harmful and potentially harmful constituents. Thus, according to the FDA, the completeness of the scientific evidence presented indicates that it is very likely that later studies will establish measurable and substantial reductions in morbidity and mortality among individual tobacco users.

On January 17, 2025, the FDA authorized the marketing of ZYN nicotine pouches, namely 20 variants currently sold in US markets. The FDA completed a comprehensive, multi-year review of all available data and was satisfied that authorizing ZYN was appropriate to promote public health and amongst other things would enable marketing of an acceptable, better option for adult smokers to switch to.

10Marlboro HeatSticks, Marlboro Smooth Menthol HeatSticks and Marlboro Fresh Menthol HeatSticks.

11 https://www.fda.gov/tobacco-products/advertising-and-promotion/modified-risk-orders

Overview of selected events in 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 nicotine 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. as of June 1, 2025, 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.

• 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 tobacco 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. 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 Czech market and twelve flavours available on the Slovak market, which can help to the transition of adult smokers to smoke-free alternatives.

  July

• Philip Morris Slovakia s.r.o. launched nationwide sales of ZYN nicotine pouches in its own channels, taking over distribution from Swedish Match AB in partnership with Mirage Distribution s.r.o. ZYN started to be offered in seven variants - in two formats (classic and mini) and five different flavours.

  August

• Philip Morris ČR a.s. started selling ZYN nicotine pouches in the "pilot" sale in Pilsen. We introduced two formats (classic and mini), ten variants and six different flavours. At the end of of the year, the Company expanded the distribution of ZYN nicotine pouches throughout the Czech Republic.

  September

• Philip Morris ČR a.s. has disclosed its financial and economic performance for the first half of the year. Consolidated revenues, net of excise tax and VAT, reached CZK 10.4 billion, indicating a 7.1% increase compared to the first half of 2023. Consolidated net income for the first half of the year totaled CZK 1.9 billion, with an increase of 11.9% over the same period last year.

• NEVAJGLUJ a.s., the company with 24% ownership of Philip Morris ČR a.s., launched a nation-wide public raising-awareness campaign to inform legal age smokers and users about the correct way to dispose of cigarette butts and used smoke-free consumables. The successful campaign started in June and culminated at the end of September.

  October

• We launched the updated IQOS Club loyalty program for our customers. We have modified its functionality and improved its mechanics and rewards. Collecting points has become a thing of the past, the gateway to the world of benefits is unlocked by IQOS keys, which can be used to earn regular rewards. The new IQOS Club also offers customers interesting facts about the world of IQOS and other activities.

  November

• Philip Morris ČR a.s. has launched IQOS ILUMA i PRIME, the latest addition to its portfolio of smoke-free products, on the Czech market. The device brings a range of new, customizable features. A new touch screen on the device's heater allows a user to quickly and easily view information relevant to its use. To personalize the experience, the IQOS ILUMA i PRIME features a new pause mode.

• Our products succeeded in the Czech competition for the most trusted brands (Nejdůvěryhodnější značky), which celebrated its tenth anniversary in 2024. On the basis of an extensive NIQ survey involving more than 4,000 respondents, brands that stand out in the eyes of customers for their reliability and quality were selected in 95 categories. The IQOS brand won the heated tobacco products and e-cigarette category, while the tobacco products category was dominated by the Marlboro cigarette brand.

  December

• The IQOS brand celebrated its 10thanniversary on the market. PMI introduced in Together X initiative event in Tokio a collaboration with world-famous DJ Steve Aoki, who, among other things, participated in the design of a limited edition winter jacket. Its filling was made of used consumables for heat-not-burn devices. Moreover, design, production and collection of used consumables was carried out in the Czech Republic within the unique consumables take-back program. On this anniversary, we also introduced a limited edition TEREA pack designed with the help of artificial intelligence based on the stories of our customers.

• Philip Morris ČR a.s. was once again awarded the prestigious TOP Responsible Large Company 2024 award for its sustainability efforts. It is now among the TOP 30 large companies in the Czech Republic that can use this designation. The award is given to companies that are evaluated by an expert jury of Business for Society in the areas of strategy and management, responsible human resource management, supply chain and environment.

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Business Results 2024

Consolidated financial results

Key Financial Results (in CZK million)

The past year presented challenges to our business, and while our profitability remained strong, we saw a leveling in our bottom-line growth, largely due to external headwinds from the annualization of the impact of the ban on characterizing flavored heated tobacco products in the Czech Republic.

Our core business remains highly resilient, and we remain fully committed to adding value for shareholders and continuing to meet the evolving needs of adult consumers. To do so, we leverage our pricing engine as well as our smoke-free multi category product portfolio, which continues to perform strongly.

Our reported consolidated revenues, net of excise tax and VAT, have increased by 5.0% or CZK 1.0 billion to CZK 21.6 billion (vs. prior year). Excluding currency effects, our consolidated revenues, net of excise tax and VAT, increased by 3.0% or CZK 0.6 billion. This was primarily driven by favorable net pricing on combustible and smoke-free portfolios (CZK 1.3 billion) and higher sales of the smoke-free portfolio (CZK 0.1 billion), partially offset by lower sales volumes in the combustible portfolio (CZK 0.6 billion), reflecting mainly total market contraction, and also by lower manufacturing production volumes (CZK 0.2 billion).

Profit from operations of CZK 4.0 billion increased by 3.4% (vs. prior year), supported by favorable revenue development, while we undertook targeted investments that reinforce our capabilities for sustained growth. Embedded is also a currency tailwind of 3.9pp; excluding the impact of currency, profit from operations decreased by 0.5%. Net income for the period remained stable at CZK 3.3 billion, reflecting the items noted above.

12 Shipments in the Czech Republic include combustible portfolio such as cigarettes and volume tobacco for make-your-own 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 disposables, and nicotine pouches ZYN (recalculated to cigarette equivalents). Shipments in Slovakia include combustible portfolio meaning 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 disposables, and nicotine pouches ZYN (recalculated to cigarette equivalents).

Business in the Czech Republic

Domestic revenues, net of excise tax and VAT, increased by 4.4% (vs. prior year) to CZK 12.6 billion, driven by favorable net pricing on combustible and smoke-free portfolios (CZK 1.0 billion), partially offset by lower volumes, especially in the combustible segment (CZK 0.5 billion).

The total combined market of cigarettes and heat-not-burn units decreased by an estimated 6.0% (vs. prior year) to 14.6 billion units, mainly driven by cigarette market contraction. This contraction was primarily due to cross-border sales deterioration, coupled with underlying lower consumption, as well as the annualization of the ban on heated tobacco products with characterizing flavors introduced in October 2023.

The estimated combined market share of Philip Morris ČR a.s. remained stable at 39.6% (vs. prior year). In the Heat-not-Burn segment, our consumables portfolio continued to resonate with consumers, even in the context of the ban on characterizing flavors, outperforming the competition and leading to an increase of 0.3 share points. This growth was offset by an elasticity-driven decrease of 0.3 share points in cigarettes due to the portfolio's 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 0.2 billion units (vs. prior year) to 3.8 billion units, reflecting mainly the decline in the total market. The shipments of smoke-free products remained essentially flat at 2.3 billion units in the same period, with organic growth and competitive edge being offset by the disclosed regulatory market headwinds.

Business in Slovakia

Philip Morris Slovakia s.r.o. revenues, net of excise tax and VAT, increased by 7.2% (vs. prior year) to EUR 249 million, driven by favorable net pricing on combustible and smoke-free portfolios (EUR 20.3 million), coupled with higher sales of the smoke-free portfolio (EUR 8.9 million), partially offset by lower volumes of combustible products (EUR 10.3 million) and negative pricing and volume of IQOS devices (EUR 2.1 million).

The total combined market of cigarettes and heat-not-burn units decreased by an estimated 2.7% (vs. prior year) to 6.9 billion units, driven by cigarette market contraction due to an underlying decline in consumption.

The estimated combined market share of Philip Morris Slovakia s.r.o. decreased by 0.8 share points (vs. prior year) to 52.6%, although the rate of decline moderated compared to previous years. The decrease was driven by the cigarette portfolio share contraction by 1.9 share points due to its underrepresentation in the growing, more affordable segment, exacerbated by relevant market pricing. This was partially offset by growth of 1.1 share points in heat-not-burn consumables, reflecting consumer-driven market dynamics seeking smoke-free alternatives.

Domestic combustible portfolio shipments of Philip Morris Slovakia s.r.o. decreased by 0.2 billion units (vs. prior year) to 2.5 billion units, reflecting the decline in the total market and lower market share. The shipments of smoke-free products increased by 0.1 billion units (vs. prior year) to 1.2 billion units in the same period, driven by organic category growth.

Manufacturing services

Revenues from manufacturing services slightly decreased by 3.5% (vs. prior year) to CZK 2.7 billion due to lower volumes. While Kutná Hora factory production volumes remain at a high level, totaling 37.7 billion units, there was a slight decrease of 2.9%, driven essentially by demand adjustments.

At the same time, we report that following the disclosed announcement on investment in new novelty product lines, installation and implementation are starting and expected to be up and running in 2026.

‌03

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 Annual 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 nicotine product taxes, higher absolute prices and larger gaps between retail price categories, and product regulation that diminishes the ability to differentiate nicotine products according to the level of their risk.

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 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.

  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 insufficient law enforcement to protect legal market from 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 202313and, according to the empty pack survey, the share of counterfeit products continued 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 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 law enforcement 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, 2024 and introduced the following changes:

• A four-year calendar of tobacco excise tax increases for years 2024 to 2027. As of February 1, 2024, the specific component of the cigarette excise tax rate increased by 10% and the minimum tax rate increased by 20%. The excise tax rate on tobacco for smoking increased by 10%. In 2025-2027, these tax rates will increase by 5% each year. The ad valorem component of the cigarette excise tax remains unchanged (at 30%). The excise tax rate on heated tobacco products increased by 15% in 2024 and will increase by 15% annually in 2025-2027. These excise tax increases are accompanied by sell-by-date anti-forestalling regulation applicable to cigarettes with a three-month period and heated tobacco products with a six-month period.

  13Source: KPMG report - Illicit Cigarette Consumption in Europe - 2023 Results (pmi.com)

• The introduction of an excise tax on e-liquids for e-cigarettes with a tax rate of CZK 2.5 per ml in 2024 with further increases up to CZK 10 per ml in 2027 and on nicotine pouches with a tax rate of CZK 400 per kg with further increases up to CZK 1700 per kg in 2027.

  The table shows tax rates in 2023-2027:
  	2023	2024	2025	2026	2027
  Cigarettes
  - specific component (CZK per 1000 sticks	1,970	2,170	2,280	2,390	2,510
  - ad valorem component (%)	30%	30%	30%	30%	30%
  - minimum excise tax (CZK per 1000 sticks	3,520	4,220	4,440	4,660	4,890
  Tobacco for smoking (CZK per kg)	3,000	3,300	3,470	3,650	3,830
  Heated tobacco products (CZK per kg of tobacco)	3,000	3,450	3,970	4,570	5,260
  E-liquids for e-cigarettes (CZK per ml)	n/a	2.5	5.0	7.5	10.0
  Nicotine Pouches (CZK per kg)	n/a	400	800	1,200	1,700

  In Slovakia, Act no. 530/2023 Coll. amending certain laws in connection with the consolidation of public budgets amended also Act no. 106/2004 Coll. on tobacco excise taxes. As of February 1, 2024, the specific tax rate on cigarettes increased by 8%, the ad valorem component increased by 2 percentage points, the minimum excise tax on cigarettes increased by 12%, the excise tax rate on fine-cut tobacco increased by 37% and the excise tax rate on heated tobacco products increased by 13%.

  Later in 2024, Act no. 106/2004 Coll. on tobacco excise taxes was further amended by

• Act no. 233/2024 Coll. amending the Act on tobacco excise tax

• Act no. 354/2024 Coll. amending the Act on value added tax and some other acts

• Act no. 278/2024 Coll. amending certain acts in connection with the consolidation of public budgets.

  These amendments came into force throughout the second half of 2024 and introduced the following changes:

• A four-year calendar of tobacco excise tax increases for years 2025 to 2028.

• The introduction of excise taxes as of February 1, 2025, to all heated products without tobacco or only partially with tobacco, chewing tobacco, sniffing tobacco, electronic cigarettes and nicotine pouches.

• A further increase of excise taxes on electronic cigarettes, nicotine pouches, chewing tobacco and sniffing tobacco in 2027.

• Excise tax increases on cigarettes, tobacco for smoking, cigars, cigarillos and heated tobacco products in 2026 and 2028. The ad valorem component of the cigarette excise tax remains unchanged (at 25%).

  The table shows tax rates for 2024 - 2028:
  	2023	2024	2025	2026	2027	2028
  Cigarettes
  - specific component (€ per 1000 sticks)	84.6	91.3	91.3	102.5	102.5	113.5
  - ad valorem component (%)	23%	25%	25%	25%	25%	25%
  - minimum excise tax (€ per 1000 sticks	132.1	148.0	148.0	166.2	166.2	182.0
  Tobacco for smoking (€ per kg)	101.3	139.0	139.0	177.0	177.0	209.5
  Heated tobacco products containing only tobacco (€ per kg of tobacco)	187.8	211.3	211.3	238.1	238.1	264.8
  Heated tobacco products without tobacco (€ per kg of filling)	n/a	n/a	211.3	238.1	238.1	264.8
  E-liquids for e-cigarettes (€ per ml)	n/a	n/a	0.2	0.2	0.3	0.3
  Nicotine pouches (€ per kg)	n/a	n/a	100.0	100.0	200.0	200.0

  Tobacco and nicotine products regulation

  There is a risk that regulation of tobacco and nicotine products will not be differentiated according to the health risks which would hinder our ability to inform adult users about the relative risks of individual products.

  In the EU, tobacco and nicotine products are regulated by the Tobacco Products Directive (2014/40/EU), which entered into force on May 19, 2014, and became applicable in the EU Member States as of May 20, 2016.

  The legislation lays down rules on - among others - the manufacturing, presentation and sale of tobacco and related products, including certain rules for the commercialization of e-cigarettes and novel tobacco products, such as:

• the prohibition on placing on the market of tobacco products containing flavorings in any of their components, such as filters, papers, packages, capsules, or any technical features allowing modification of the smell or taste of the tobacco products concerned or their smoke intensity, covering cigarettes, roll-your-own tobacco, and heated tobacco products (the so-called "flavor ban")

• a pre-launch notification requirement

• enlarged, combined health warnings covering 65% of the main surfaces of cigarette packs and roll-your-own tobacco, as well as dedicated health warnings for other types of tobacco and related products

• enhanced reporting obligations

• the extension of the "flavour ban" to heated tobacco products, which became effective on November 23, 2022.

• tracking and tracing requirements for cigarettes and roll-your-own tobacco aiming to increase efficiency of illicit trade prevention, extended to other tobacco products such as heated tobacco products as of May 20, 2024.

  In the Czech Republic, the Directive is transposed by Act no. 110/1997 Coll. on foodstuffs and tobacco products and other related laws together with:

• Decree no. 261/2016 Coll. on tobacco products

• Decree no. 37/2017 Coll. on electronic cigarettes and herbal products for smoking

In Slovakia, the Directive is transposed by Act no. 89/2016 Coll. on the manufacture, labelling and sale of tobacco products and related products and on the amendment and supplement to selected laws. On February 13, 2024, the Slovak Parliament approved the amendment to Act no. 89/2016 Coll. on the manufacture, labelling and sale of tobacco products and related products, which transposed new provisions, including the extension of the "flavour ban" to heated tobacco products. The amendment entered into force on January 1, 2025.

Not all neighboring countries have yet transposed the new rules into their national legislation. There is therefore a risk that domestic adult users will be encouraged to buy flavored heated tobacco products in other countries.

Single-use plastics regulation

The objectives of the EU Directive 2019/904 ("Single-Use Plastics Directive" or "the Directive") are to prevent and reduce the impact of certain plastic products on the environment, in particular the aquatic environment, and on human health, as well as to promote the transition to a circular economy, with innovative and sustainable business models, products, and materials, thus also contributing to the efficient functioning of the internal market14.

In order to achieve its objectives, the Directive introduces various measures for various types of goods. In the area of our business, the Directive concerns tobacco products with filters and filters marketed for use in combination with tobacco products. Specifically, under the Directive, Member States were required to introduce marking requirements on product packaging and implement Extended Producer Responsibility Schemes ("EPR"), which requires producers to contribute to costs associated with the cleaning and collection of littered tobacco post consumption waste in public, as well as to cost for awareness-raising measures designed to inform consumers to correctly dispose of cigarette butts and thereby reduce litter. Measures were implemented gradually in several stages with EPR fully in place in the EU Member States by January 5, 2023. In the Czech Republic the effective date for EPR for producers of tobacco products with filters was January 1, 2023, while in Slovakia it was December 1, 2024.

To ensure the collective fulfilment of the obligations of manufacturers of tobacco products with filters and filters placed on the market for use in combination with tobacco products in the territory of the Czech Republic, Philip Morris ČR a.s., in accordance with the requirements of Act No. 243/2022 Coll.15, became one of the founders of joint-stock company NEVAJGLUJ a.s. (hereinafter referred to as "NEVAJGLUJ") with a stake of 24%. NEVAJGLUJ was registered in the Commercial Register in March 2023, in July 2023 it submitted an application for authorization to operate a collective system (EPR system), and the authorization was granted by the Ministry of Environment of the Czech

14Article 1 of the Directive 2019/904 of June 5,2019 on the reduction of the impact of certain plastic products on the environment.

15Act No. 243/2022 Coll. on the reduction of the impact of certain plastic products on the environment.

Republic on October 10, 2023. Philip Morris ČR a.s. is being represented in statutory bodies of the NEVAJGLUJ, namely holds a position of the Chairman of the Board of Directors, and also one member of the Supervisory Board. More information on EPR system NEVAJGLUJ in the Czech Republic is available at https://www.nevajgluj.cz.

In Slovakia, Philip Morris Slovakia s.r.o. became one of the founders of joint-stock company SPAK-EKO a.s. with a stake of 25%. SPAK-EKO

a.s. was registered in the Commercial register in September 2023. Philip Morris Slovakia s.r.o. is being represented in statutory bodies of SPAK-EKO a.s., namely holds a position of the Chairperson of the Board of Directors, and one member of the Supervisory Board. In order to ensure the collective fulfilment of the obligations of manufacturers of tobacco products with filters and filters placed on the market for use in combination with tobacco products in the territory of the Slovak Republic, SPAK-EKO a.s. was in negotiations with the Ministry of Environment throughout the year. As a result, a voluntary agreement on fulfilling these obligations is expected to be signed between SPAK-EKO a.s. and the Ministry of Environment in the first quarter of 2025.

The part of the 2024 annual costs of the EPR system operation borne by Philip Morris ČR a.s, amounts to CZK 39 million. The part borne by Philip Morris Slovakia s.r.o. amounts to EUR 333 thousand.

Risks related to other external factors

We also face risk factors arising from adverse developments in the economic situation and external environment which could affect our financials, disrupt our supply chain, manufacturing capabilities, and distribution channels or undermine our data protection efforts. Some risks can be anticipated, and appropriate business-continuation plans can be adopted in advance but some risks, for example the global events such as covid-19 pandemic or war in Ukraine, cannot.

Expected economic and financial situation

The overall macroeconomic situation, GDP development, inflation, fluctuating energy prices are impacting our cost base as well as influencing our revenues.

In 2024 the economic conditions continued on a good track from the second half of 2023 and showed signs of recovery. Household consumption began to re-emerge as a key driver of economic activity, supported by real wage growth as inflation receded. However, the overall pace of growth was restrained due to cautious consumer behavior, as well as uncertainties related to potential energy price shocks and geopolitical developments. In Slovakia we saw mixed development of macroeconomic indicators, ranging from softly growing GDP (2% year-on-year), re-emerging inflation in second half of the year (December 2024: 2.9%), eroding consumer sentiment which has only yet to materialize in retail sales. The mixed economic performance was forcing the government to approve the consolidation package aimed to stabilize budget deficit. This legislative change will impact the consumer spending patterns in coming month, fully exacerbating in 2025.

According to the data from the Czech Statistical Office, the gross domestic product in 2024 increased by 1.1pp versus prior year16. Inflation decreased by additional 8.3pp year-on-year and ended-up at 2.4% average annual rate for 202417, improving, and closing on the long-term CNB goal of 2%. Compared to last year, real wages of households increased by 4.6% due to inflation subsiding18. After positive macroeconomic development in the second half of 2023, 2024 continued strongly and consumer confidence slowly recovered to the level before the start of the war in Ukraine, however still below pre-COVID. Retail sales value increased and stabilized, consumer spending increased consistently during 2024 and most notably in Q4.

Natural gas and electricity are the main source of energy in our production plant in Kutná Hora. The decrease on utilities costs around CZK 120 million in 2024 compared to last year is driven mainly by positive price development and partially resulted from reduced consumption.

We expect 2025 outlook to remain optimistic to neutral in the Czech Republic, while exhibiting a more cautious stance in Slovakia. According to the latest projections of CNB, it is expected that inflation will further decline towards the long-term goal of 2%, GDP to recover and grow 2.3%, and energy prices are expected to stabilize. All of this should improve unemployment, economic activity of both businesses and consumers leading to improving consumer sentiment and consumer spending. In Slovakia the pressure on households is expected to increase due to cash crunch induced by consolidation package introduced in 2024 with a potential of additional consolidation needed in 2025/2026.

Our business will remain exposed to consumer down-trading to cheaper cigarettes and other nicotine-delivery alternatives, as well as to an increase in cross-border transactions. We also remain committed to continuing to implement our planned productivity initiatives to manage our cost base and maximize the return on our investments.

16 Source: Key macroeconomic indicators | CZSO

17 Source: Inflation - Types, Definition, Tables | CZSO

18 Source: Key macroeconomic indicators | CZSO

Adverse events

Natural disasters, pandemics, armed conflict, threats of war, or other adverse political and/or economic developments could disrupt our supply chain, materials availability, manufacturing and/or distribution capabilities. The impact of these risks also depends on factors beyond our knowledge or control, including their duration and severity or their recurrence.

Despite our business continuity plans and other safeguards in place, our business, operations and financial results will depend on numerous continuously evolving factors that we may not be able to accurately predict.

Cyber-security threats

We, as well as our business partners, use information systems to help manage business processes, collect, and interpret data and communicate internally and externally with employees, suppliers, consumers, customers and others. Some of these information systems are managed by third-party service providers. We are continuously evolving our approach to business continuity planning and backups to provide appropriate business resilience, particularly considering the increasing cyber threat landscape. Nevertheless, failure of these systems to function as intended, or penetration of these systems and systems owned and operated by our business partners by parties intent on extracting or corrupting information or otherwise disrupting business processes, could place us at a competitive disadvantage, result in a loss of revenue, assets, including our intellectual property, personal or other sensitive data, result in litigation and regulatory action, cause damage to our reputation and that of our brands and result in significant remediation and other costs.

Failure to protect personal data, respect the rights of data subjects, and adhere to strict data governance and cybersecurity protocols could subject us to substantial fines and other legal challenges under regulations such as the EU General Data Protection Regulation. As we are increasingly relying on digital platforms in our business, and as privacy laws in the jurisdictions in which we do business are introduced or become more stringent, the magnitude of these risks is likely to increase.

‌04

Forward-Looking and Cautionary Statements

This report and related communications contain, and Philip Morris ČR a.s. may from time to time make, written or oral forward-looking statements, including statements contained in filings with the Czech National Bank or other authorities, in reports to shareholders and in press releases and investor webcasts. You can identify these forward-looking statements by use of words such as "strategy," "expects," "continues," "plans," "anticipates," "believes," "will," "estimates," "intends," "projects," "goals," "targets" and other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts.

Philip Morris ČR a.s. cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties, and inaccurate assumptions. Should any known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements and whether to invest in or remain invested in Philip Morris ČR a.s. securities.

This 2024 Annual Financial Report of Philip Morris ČR a.s. is based on the consolidated financial statements of Philip Morris ČR a.s. and Philip Morris Slovakia s.r.o., prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

In Kutná Hora on April 28, 2025

Fabio Costa Eugenia Panato

Chairman of the Board of Directors Member of the Board of Directors

Philip Morris ČR a.s. Philip Morris ČR a.s.

‌05

Sustainability Statement

General basis for preparation of the sustainability statement

This 2024 Sustainability statement (the "Statement") has been prepared in accordance with the applicable legislation transposing EU Corporate Sustainability Reporting Directive (CSRD) 22/2464 into Czech legislation, in particular in accordance with Act No. 563/1991 Coll. on Accounting as amended (the "Act on Accounting"), and in accordance with requirements of European Sustainability Reporting Standards (ESRS) and in accordance with Article 8 (4) of EU Taxonomy Regulation.

The Statement does not represent a consolidated view of the PMCR's parent company Philip Morris Holland Holdings B.V., or the PMCR's ultimate controlling party Philip Morris International, Inc. or other affiliates/subsidiaries of Philip Morris International, Inc.

In this Statement, the terms as "we", "our" and/or "us" refer to the Company and the term "PMI"19refers to Philip Morris International, Inc. and its subsidiaries.

In this Statement, the term "materiality," "material," and similar terms are defined in the EU Directive 2022/2464 on corporate sustainability reporting (CSRD), in the referenced sustainability standards, and are not meant to correspond to the concept of materiality under the U.S. securities laws and/or disclosures required by the U.S. Securities and Exchange Commission.

Disclosures in relation to specific circumstances

• Short term (0-5 year): Those risks and opportunities that may materialize within the next five years.
• Medium term (5-10 years): Those risks and opportunities that may materialize by the 2030 time horizon used for scenario analysis in our CCRO assessment. This time period aligns with PMI's external commitment of carbon emission reductions for scope 1+2+3 emissions as approved by the Science Based Targets initiative. It is also a reference date for most international policies and regulations (e.g., EU 2030 climate target plan).

  19 PMI as used in this Statement does not cover PMI's wellness and healthcare business, Aspeya, unless explicitly stated otherwise.

• Long term (>10 years): Those risks and opportunities that may materialize until the 2040 time horizon used for scenario analysis in our CCRO assessment. This time period aligns with PMI's external commitment of net zero emissions as approved by the Science Based Targets initiative. It is also an intermediate step toward internationally agreed policy commitments to 2050 (e.g., EU climate law). Under this time-horizon, physical risks are more likely to occur because climate extremes are expected to intensify as climate change worsens. Metrics Including Upstream and/or Downstream Value Chain Data: PMI has instituted a robust system to estimate and monitor value chain data. Our identified metrics encompass critical areas such as carbon footprint and water usage, which are pivotal in assessing our environmental impact. The preparation basis for these metrics involves utilizing industry average data and supplier surveys to estimate upstream and downstream impacts as accurately as possible. We acknowledge a current level of accuracy at ±10%, with ongoing efforts to enhance this through data analytics and monitoring. In our pursuit of excellence, we are planning actions to improve accuracy, including the implementation of real-time monitoring systems and fostering closer collaborations with our suppliers to obtain more precise data. Sources of Estimation and Outcome Uncertainty: In our reporting, we haven't identified areas with a high degree of uncertainty. Some metrics are subject to estimates where exact data is not available and it is clearly stated in the methodology description of the respective metrics. The estimates have been made based on informed assumptions and judgements, utilizing the best-available environmental data to craft a report that reflects our true standing and aspirations. Changes in Preparation and Presentation: The Statement is the Company's first sustainability statement. As such, we do not identify any changes in the preparation or presentation from prior periods. Material Prior Period Errors: The Statement is the Company's first sustainability statement. As such, we do not identify any material prior period errors. Disclosures Stemming from Other Legislation or Reporting Standards: The Statement does not incorporate information from recognized standards and legislation beyond that which is required by ESRS. Certain entity-specific information is included in relation to responsible marketing practices, illicit trade prevention, and product health impacts in line with the outcomes of our double materiality assessment that extend beyond ESRS requirements and are flagged accordingly. Incorporation by Reference: The Statement is explicitly structured around the requirements and nomenclature of the European Sustainability Reporting Standards (ESRS).

  Disclosure Requirements Index

  The list of ESRS disclosure requirements below is intended to serve as a navigation tool throughout the Company's Sustainability statement, providing information by sections with pages where the related information is located.

  • Mandatory disclosure requirement

  • Material

  • Derived from other legislation or industry specific matters

    Standard	ESRS 2 - General disclosures	Section	Page
    	General basis for preparation of the sustainability statement	General	22
    	Disclosures in relation to specific circumstances	General	22
    	Role of the Company's administrative, management, and Supervisory bodies	General	26
    	Sustainability matters addressed by the Company's administrative, management and supervisory bodies	General	27
    	Integration of sustainability-related performance in incentive schemes	General	28
    	Statement on due diligence	General	29
    	Risk management and internal controls over sustainability reporting	General	29
    	Strategy, business model and value chain	General	30
    	Interests and views of stakeholders	General	33
    	Material impacts, risks and opportunities and their interaction with strategy and business model	General	36
    	Description of the process to identify and assess material impacts, risks and opportunities	General	34
    	Disclosure requirements in ESRS covered by the Company's sustainability statement	General	40
    	Policies adopted to manage material sustainability matters	General	40
    	Actions and resources in relation to material sustainability matters	General	46
    	Metrics in relation to material sustainability matters	General	46
    	Tracking effectiveness of policies and actions through targets	General	47
    Standard	E1 - Climate change	Section	Page
    	Integration of sustainability-related performance in incentive schemes	Environmental	48
    	Transition plan for climate change mitigation	Environmental	48
    	Material impacts, risks and opportunities and their interaction with strategy and business model	Environmental	50
    	Description of the processes to identify and assess material climate-related impacts, risks and opportunities	Environmental	50
    	Policies related to climate change	Environmental	53
    	Actions and resources in relation to climate change	Environmental	53
    	Targets related to climate change mitigation and adaptation	Environmental	54
    	Energy consumption and mix	Environmental	56
    	Gross Scopes 1, 2, 3 and total GHG emissions	Environmental	58
    	GHG removals and GHG mitigation projects financed through carbon credits	Environmental	62
    	Internal carbon pricing	Environmental	62
    Standard	E4 - Biodiversity and ecosystems	Section	Page
    	Transition plan and consideration of biodiversity and ecosystems in strategy and business model	Environmental	64
    	Description of the processes to identify and assess material biodiversity and ecosystems-related impacts, risks an opportunities	d Environmental	64
    	Policies related to biodiversity and ecosystems	Environmental	65
    	Actions and resources related to biodiversity and ecosystems	Environmental	66
    	Targets related to biodiversity and ecosystems	Environmental	67
    Standard	E5 - Resource use and circular economy	Section	Page
    ●●IRO-1	and opportunities		69
    	Policies related to resource use and circular economy	Environmental	69
    	Actions and resources related to resource use and circular economy	Environmental	70
    	Targets related to resource use and circular economy	Environmental	71
    	Resource outflows	Environmental	72
    Standard	EU Taxonomy	Section	Page
    	EU Taxonomy	Environmental	74
    Standard	S1 - Own workforce	Section	Page
    	Interests and views of stakeholders	Social	81
    	Material impacts, risks and opportunities and their interaction with strategy and business model	Social	81
    	Policies related to own workforce	Social	81
    	Processes for engaging with own workforce	Social	82
    	Actions related to on own workforce	Social	83
    	Targets related to own workforce	Social	85

    • BP-1

    • BP-2

    • GOV-1

    • GOV-2

    • GOV-3

    • GOV-4

    • GOV-5

    • SBM-1

    • SBM-2

    • SBM-3

    • IRO-1

    • IRO-2

    • MDR-P

    • MDR-A

    • MDR-M

    • MDR-T

    • GOV-3

    • E1-1

    • SBM-3

    • IRO-1

    • E1-2

    • E1-3

    • E1-4

    • E1-5

    • E1-6

    • E1-7

    • E1-8

    • E4-1

    • IRO-1

    • E4-2

    • E4-3

    • E4-4

    • E5-1

    • E5-2

    • E5-3

    • E5-5

    • SBM-2

    • SBM-3

    • S1-1

    • S1-2

    • S1-4

    • S1-5

    Description of the processes to identify and assess material resource use and circular economy-related impacts, risks

    Environmental

    	Employee characteristics	Social	86
    	Collective bargaining coverage and social dialogue	Social	88
    	Diversity metrics	Social	88
    	Remuneration metrics	Social	89
    Standard	S2 - Workers in the value chain	Section	Page
    	Material impacts, risks and opportunities and their interaction with strategy and business model	Social	90
    	Policies related to value chain workers	Social	91
    	Processes for engaging with value chain workers about impacts	Social	91
    	Processes to remediate negative impacts and channels for value chain workers to raise concerns	Social	92
    	Actions related to value chain workers	Social	93
    	Targets related to value chain workers	Social	95
    Standard	S4 - Consumers and end-users	Section	Page
    	Material impacts, risks and opportunities related and their interaction with strategy and business model	Social	97
    	Policies related to consumers	Social	97
    	Processes for engaging with consumers	Social	98
    	Processes to remediate negative impacts on consumers	Social	99
    	Actions on material impacts related to consumers	Social	100
    	Targets related to consumers	Social	103
    Standard	G1 - Business conduct - Illicit trade prevention	Section	Page
    ●● GOV-1	Role of the administrative, management and supervisory bodies	Governance	104
    ●● G1-1	Business conduct policies and corporate culture	Governance	105

    • S1-6

    • S1-8

    • S1-9

    • S1-16

    • SBM-3

    • S2-1

    • S2-2

    • S2-3

    • S2-4

    • S2-5

    • SBM-3

    • S4-1

    • S4-2

    • S4-3

    • S4-4

    • S4-5

    The Statement references several PMI documents. These documents are available to access online, and below you will find a list of hyperlinks that will allow for easy access.

• PMI Code of Conduct

• PMI Human Rights Commitment

• PMI Environmental, Health, and Safety (EHS) Manufacturing Sustainability Commitment

• Environmental Commitment

• Agricultural Labor Practices (ALP) Code

• Good Agricultural Practices (GAP)

• Zero Deforestation Manifesto

• Responsible Sourcing Principles

• PMI's Task Force on Climate-related Financial Disclosures (TCFD)

• Low-Carbon Transition Plan (LCTP)

• Human Rights Report 2023

• PMI's 2025 Roadmap

More information on global PMI sustainability activities are available in PMI Integrated Report 2024.

Role of the Company's administrative, management and supervisory bodies

The Company's governance structure is designed to ensure we act with integrity and hold ourselves and our business to the highest ethical standards. Integrating sustainability into our Company relies on a formal structure with clear accountabilities at different levels of the organization.

Composition of the Company's Administrative, Management, and Supervisory Bodies

PMCR is a joint stock company that has selected a so called dualistic internal structure system. The company bodies compose of the Board of Directors as the governing body, the Supervisory Board as a controlling (supervisory) body and the Audit Committee as a body overseeing financial reporting and related internal controls. PMSK is a limited liability company. As to PMSK it has only the Executive Body as a governing body.

PMCR's Board of Directors comprises 6 employees who are executive members. PMSK's Executive Body comprises 4 employees who are also executive members. In total the Company has 10 executive members.

PMCR's Supervisory Board comprises 6 members and the Audit Committee comprises 3 members. Since two members of the PMCR's Audit Committee are also members of the Supervisory Board, the Audit Committee and the Supervisory Board have a total of 7 members. Members of the Supervisory Board and the Audit Committee are non-executive members, from which 3 members are independent, and 4 members are employees. The percentage of independent members calculated from all non-executive members is 42.9%. PMSK does not have any non-executive members.

The board gender split is resulting to 35.3% females and 64.7% males from total 17 members of the PMCR's Board of Directors, the Supervisory Board and the Audit Committee and the PMSK's Executive Body, representing 6 females to 11 males diversity ratio (i.e. 54.5%).

We have ensured representation from PMCR's employees in the Supervisory Board. Two members of the PMCR's Supervisory Board are elected and recalled by PMCR employees (in accordance with the Czech Business Corporations Act and the PMCR Articles of Association). The Election Rules governing the elections and recalls of those members of the Supervisory Board elected by employees are prepared by the Board of Directors after consultation with the trade union.

The Company board members have extensive experience relevant to the sectors and geographic locations where the Company operates, providing its affiliates with invaluable insights and expertise. Biographies of PMCR's board members are included in this Annual financial report for 2024 in the section Report on Corporate Governance on page 211

Roles and Responsibilities of the Company's Administrative, Management, and Supervisory Bodies

The dedicated sustainability coordinator in PMCR and PMSK helps ensure that global sustainability priorities are cascaded, and programs are coordinated for Czech and Slovak markets. Under central guidance of PMI, market coordinators of PMI affiliates meet monthly to ensure a concerted effort and that progress is achieved and tracked in a consistent manner.

The basic organizational document of PMCR and PMSK is their Articles of Association, which define the internal structure of each entity, specify their bodies in more detail, and represent a set of rules that govern the functioning and organization of both entities. The Company

voluntarily complies with and meets the main criteria, principles and recommendations of the Corporate Governance Code based on the OECD Principles, which was adopted in 2004 by the Czech Securities Commission (the "Code"). The Code is available for view at the registered office of PMCR or in a manner allowing for remote access at the following website: https://www.philipmorris.cz

The Company is committed to ensuring that our administrative, management, and supervisory bodies possess the necessary skills and expertise to oversee sustainability matters effectively. We have put in place mechanisms to ensure that these bodies can either directly possess or leverage sustainability-related expertise. The Company organizes internal trainings and workshops for members of the Board of Directors, heads of functions responsible for actions and implementation of sustainability programs and enables them and supports/ encourages them to participate in professional/specialized external trainings to increase their expertise. Moreover, the Company ensures that these skills and expertise directly relate to its sustainability-related impacts, risks, and opportunities considered material, providing us with the necessary tools and knowledge to navigate the complex landscape of sustainability effectively.

Sustainability matters addressed by the Company's administrative, management and supervisory bodies

Anchoring our sustainability priorities with executive responsibilities and accountabilities helps embed our strategy into our daily operations. The primary responsibility of PMCR's Board of Directors and PMSK's Executive Body is to support the long-term success of PMCR and PMSK within PMI. The main strategic direction and relevant corporate policies are set on the PMI level. The Company strategic objectives are set on local level in alignment with PMI direction.

The members of PMCR's Board of Directors are ultimately responsible for decision making, overseeing the Company's activities and implementation of agreed projects and initiatives, for driving progress and delivering on our sustainability targets within their respective areas of responsibility, via frequent discussions about new projects, initiatives, budgets and priorities. Related policies and guidelines are established to support the achievement of strategic objectives and targets and setting a framework for a day-to-day operation including sustainability matters.

PMCR's Supervisory Board supervises the performance of the Board of Director's duties and company's activities incl. sustainability matters. PMCR's Audit Committee oversees financial reporting and related internal controls.

The Board of Directors meets at least twice a year to discuss financial and other matters including sustainability topics. Representatives of the Board of Directors inform the Supervisory Board and the Audit Committee about financial and business results including sustainability matters on regular basis, at least twice a year. All board members are adequately informed about the activities, programs running during the relevant year and the results achieved including certifications obtained in correlation with PMI sustainability aspirations.

Internal Controls Manager responsible for the Czech and Slovak markets and the statutory auditor present to the Audit Committee an overview of the internal controls' environment, the auditing approach and the outcomes of the reviews performed during the year. The Audit Committee informs the Supervisory Board of its activities and conclusions and gives its recommendations regarding matters that are the subject to the discussions at the meetings of the Audit Committee.

The Supervisory Board and the Audit Committee meet at least twice a year. The Supervisory Board and the Audit Committee inform the Board of Directors about serious findings that should be addressed, if any.

In 2024 the Board of Directors was informed specifically on the status and readiness of CSRD reporting preparation, as well as about the outcome of the sustainability materiality assessment on the local level with detailed impacts, risks and opportunities identified as well as on the results and effectiveness of policies, actions and targets adopted to address them. The topic of impact, risk and opportunities has become an integral part of the regular updates (next to financial and business update) while the responsible heads of functions will inform the PMCR's Board of Directors and PMSK's Executive Body about the results of the annual reassessment performed each year. The statement above also applies to the Supervisory Board and the Audit Committee which have been updated by the Board of Directors upon the first impact, risk and opportunities assessment and will be updated regularly on the identified changes each year.

While a formal sustainability materiality assessment following the CSRD requirements to identify material impacts, risks and opportunities was completed for the first time in 2024, the Company has been performing the activities addressing the material sustainability topics already for several years, with key focus on PMI's priorities, i.e., phasing out cigarettes, maximizing the benefits of smoke-free products, reducing post-consumer waste, fostering an empowered and inclusive workplace, improving the quality of life of people in its supply chain, tackling climate change, and preserving nature.

Integration of sustainability-related performance in incentive schemes

Since 2022, PMI's Sustainability Index ("the Index") represents 30 % of PMI's long-term performance-based equity award. The year 2024 marked the completion of the performance cycle for the Sustainability Index 2022-24 linked to the 2022-24 performance share units (PSUs) cycle and will impact the remuneration of PMI's executives for the first time in 2025. Sustainability is also factored in PMI's annual incentive compensation (IC) awards, which apply to management employees worldwide. All members of the Company's bodies (as defined above) who are PMI employees are covered by the IC award program, including its sustainability-related component.

1. Description of the Key Characteristics of the Incentive Schemes: In 2021, PMI developed a Sustainability Index to measure objectively and communicate rigorously progress toward its aspirations, using a set of clearly defined and verifiable metrics. PMI's Sustainability Index ("the Index") comprises KPIs that are aligned with 2025 Roadmap, which outlines PMI's key goals that aim to address the priority sustainability topics identified by PMI's 2021 sustainability materiality assessment. In 2022, to better align with shareholder and other stakeholder expectations, PMI linked its Sustainability Index to 30% of its performance share unit (PSU) award for the 2022-2024 performance cycle. Using predefined target ranges approved by PMI's Board of Directors, PMI assesses and assigns a score to each KPI of the Index annually. Thereafter, using a weight assigned to each KPI (informed by the results of the sustainability materiality assessment), PMI calculates the total Sustainability Index score. Each index is based on a three-year cycles. The number of KPIs in the Index, and relative weightings, are not identical for each PSU cycle, but consistent with the results of PMI's sustainability materiality assessment completed in 2021. Over the past two years, a number of PMI's shareholders and other stakeholders singled out the incorporation of the Sustainability Index into PSU performance metrics as a positive development. Accordingly, PMI has continued the practice of linking its sustainability performance to long-term equity compensation by leveraging an updated version of the Sustainability Index for subsequent three-year PSU cycles. Further, in 2023 PMI introduced the Index linked to the 2023-2025 PSU cycle and, in 2024, PMI introduced the Index linked to the 2024-2026 PSU cycle.PMI's Sustainability KPI Protocol, updated annually and made available on PMI.com. summarizes each Index KPI's standard, including definitions, assumptions, scope, methodology, and basis for preparation.

   In addition, the strategic initiative "Shaping Tobacco Harm Reduction and Championing Sustainability to create a positive social and environmental impact" is one out of five of PMI's strategic initiatives assessed as part of the metrics under PMI's annual Incentive Compensation award program.

2. Performance Assessment Against Specific Sustainability-Related Targets and/or Impacts: The number of KPIs in the Index, and relative weightings, are not identical for each PSU cycle. The structure of each version of the Index is publicly available on PMI.com.
3. Integration of Sustainability-Related Performance Metrics in Remuneration Policies: Sustainability-related metrics that do not appear in PMI Sustainability Index or form part of PMI's Incentive Compensation award program are not used for benchmarking or to determine variable compensation, Individual employees may have additional sustainability-related objectives that form part of their annual performance review which are not reflected in the Index or part of enterprise goals.
4. Proportion of Variable Remuneration Dependent on Sustainability-Related Targets and/or Impacts: Currently, 30% of performance share units (PSUs) is directly linked to the achievement of PMI Sustainability Index-related targets. PSUs represent between 40%-60% of total target equity award for PMI's executives. Strategic initiatives represent 15% of PMI's total Incentive Compensation award rating. One of the five strategic initiatives under PMI's 2024 Incentive Compensation award ("Shaping Tobacco Harm Reduction and Championing Sustainability to create a positive social and environmental impact") is sustainability related, thus its proportionate weight of 3% is considered to be linked with sustainability matters.

   Following the above described definition, in 2024, 2% of the Company boards' variable remuneration is dependent on sustainability related targets.

   PSUs related variable remuneration is not yet included in 2024 KPI calculation as the shares vested in 2024 (included in total variable remuneration for the year) were granted in 2021, while PMI Sustainability Index was linked with the PSU remuneration scheme only as of 2022.

   With reference to the published PMCR's 2024 Remuneration report, on top of the PMCR's board members, also the PMSK's executives were included into the calculation to be aligned with metrics reported under GOV-1.

5. Approval and Update of Incentive Schemes: The Compensation and Leadership Development Committee of PMI's Board of Directors decided to enhance PMI practices, explicitly strengthening the link between long-term executive compensation and sustainability performance. The KPI performance ranges have been provided by the relevant business functions and validated by PMI's Sustainability Committee. The performance ranges linked to the PSU cycle are additionally approved by PMI's Board of Directors.

Integration of climate-related performance in PMI's incentive schemes

Climate-related targets represent 2 out of 19 targets for the 2022-2024 cycle, 2 out of 16 targets for the 2023-2025 cycle, and 2 out of 15 targets for the 2024-2026 cycle.

• Net carbon emissions in scope 1+2 (in thousands of metric tons)

• CO2e scope 3 absolute reduction versus 2019 baseline (in-line with science-based target)

  2023-2025 PSU cycle

• Net carbon emissions in scope 1+2 (in thousands of metric tons)

• CO2e scope 3 Forest, Land and Agriculture (FLAG) absolute reduction versus 2019 baseline (in line with science-based target)

  2024-2026 PSU cycle

• Net carbon emissions in scope 1+2 (in thousands of metric tons)

• CO2e scope 3 FLAG absolute reduction versus 2019 baseline (in line with science-based target)

  The integration of climate-related performance into PMI's incentive schemes is fully associated with performance share unit (PSU) program, which will be first time applicable in 2025 (variable remuneration received in 2025 based on 2022-2024 performance cycle).

  Statement on due diligence

  Protecting and promoting the rights of our stakeholders is paramount to PMI. As expressed in PMI's Human Rights Commitment, we work on respecting human rights within our organization and across our value chain, identifying and addressing our adverse impacts while maximizing opportunities to drive positive change for people whom our activities may affect.

  In fact, the Company - as part of PMI - is committed to business practices that respect internationally recognized human rights. We uphold the principles as enshrined in the United Nations Guiding Principles on Business and Human Rights and we endorse the OECD Guidelines for Multinational Enterprises, as well as the OECD Due Diligence Guidance for Responsible Business Practices.

  We also strive to constantly improving our business activities to achieve the highest standards of environmental sustainability, as expressed in PMI's Environmental Commitment.

  The table below provides an overview of PMI's approach and practices with regard to due diligence, by mapping the sections of the Statement where the main aspects and steps of the due diligence process are reflected.

  CORE ELEMENTS OF DUE DILIGENCE PARAGRAPHS IN THE SUSTAINABILITY STATEMENT

  ESRS 2 GOV-2: Information provided to and sustainability matters addressed by PMCR's

  1. Embedding due diligence in governance, strategy and business model

  2. Engaging with affected stakeholders in all key steps of the due diligence

  3. Identifying and assessing adverse impacts

  4. Taking actions to address those adverse impacts

  5. Tracking the effectiveness of these efforts and communicating

  administrative, management, and supervisory bodies.ESRS 2 GOV-3: Integration of sustainability-related performance in incentive schemes.ESRS 2 SBM-3: Material impacts, risks, and opportunities and their interaction with strategy and business model.

  ESRS 2 GOV-2: Involvement in governance processes.ESRS 2 SBM-2: Addressing the interests and views of stakeholders.ESRS 2 IRO-1: Specific requirements pertaining to stakeholder engagement.ESRS 2 MDR-P: Reflecting various stages and purposes of stakeholder engagement throughout the due diligence process.Topical ESRS: Detailed guidelines on stakeholder engagement throughout the due diligence process.

  ESRS 2 IRO-1: Including application requirements related to specific sustainability matters in the relevant ESRS.ESRS 2 SBM-3: Addressing the identification and assessment of negative impacts.

  ESRS 2 MDR-A: Guidelines on actions to be taken to address negative impacts.Topical ESRS: Reflecting the range of actions, including transition plans, through which impacts are addressed.

  ESRS 2 MDR-M: Guidelines on monitoring the effectiveness of actions taken.ESRS 2 MDR-T: Setting and tracking metrics and targets.Topical ESRS: Detailed guidelines on metrics and targets to track the effectiveness of efforts.

  Risk management and internal controls over sustainability reporting

  Over the past decade of voluntary reporting on sustainability, PMI has designed a thorough process for developing its sustainability disclosures. Building on this experience, in 2024, PMI has instituted a robust risk management and internal control system to mitigate potential risks that could impact the accuracy and reliability of the Statement.

  1. Scope, Main Features, and Components: The scope of PMI's risk management and internal control processes encompasses all facets of the Statement. The main features include PMI's control environment, risk assessment, control activities, information and communication, and monitoring activities. Underlying PMI's control environment is the articulation and wide dissemination of the sustainability reporting purpose and commitment to integrity, the design of clear objectives, the development and commitment of cross-functional resources, the

     set-up of structures, reporting lines, and accountability for internal controls and PMI's independent Board of Directors' oversight, and increased automation of the data collection process leveraging IT tools.

     The main features of this system are orchestrated by PMI's Central Sustainability team through a collaborative effort involving PMI's risk management and assurance functions (PMI Risk & Assurance and PMI Internal Controls) and PMI's and PMCR's Legal teams, other support functions, and subject matter experts (SMEs). These teams work synergistically to ensure a seamless and reliable reporting process.

  2. Risk Assessment Approach: While developing the reporting process for the Company's Sustainability Statement, PMI's Central Sustainability team worked with the groups noted above to identify potential risks and refine the processes and controls for reporting.
  3. Main Risks Identified and Mitigation Strategies: The principle risks inherent to the disclosure process identified include that the Statement could be misleading, unstructured, selective, unsubstantiated, and nontransparent. It could also be inconsistent and incoherent in relation to messaging from different sources from PMI or the Company. To mitigate these risks, PMI's internal control framework over sustainability reporting includes:

• Entity-level controls over the sustainability materiality assessment process and the overarching sustainability reporting process. Such controls encompass, amongst other considerations, accountability requirements across the organization, scoping, traceability, oversight, and approvals.

• Activity-level controls over the individual sustainability disclosures; definition of disclosure requirements and ownership within PMI's organization, review and authorization of data generation, retention, calculation and reporting, and general IT controls underlying such, leveraging the existing internal controls framework in place over financial reporting.

• In parallel, PMI's Risk & Assurance team developed a set of auditability principles to provide the organization with an understanding of the major focus points in terms of governance, process design, implementation and the control environment of non-financial data points. PMI's Central Sustainability team developed a comprehensive process description document to share the timeline, expectations, and controls in place with internal functions involved in contributing to and signing off on the Statement and to guide external assurance providers.

1. Integration of Findings into Internal Functions: The outcomes of PMI's risk assessment and internal controls activities over sustainability reporting are integrated into the sustainability reporting process, aiming to continuously raise the quality of reporting. In advising on the design and implementation of PMI's internal controls framework over sustainability reporting, PMI's Internal Controls team informs cross-functional business stakeholders of its observations. PMI's Risk & Assurance team conducts regular reviews of sustainability reporting disclosures and shares the results of such reviews with cross-functional business stakeholders including PMI Company Management. The observations of PMI's risk management and assurance functions are integrated into business processes via immediate action plan development and implementation, which is orchestrated by PMI's Central Sustainability team. The progress and status is reported regularly to management to enable timely and effective risk management and decision making. In the Company, the sustainability reporting related topics were integrated into the existing regular process of affiliates' risk assessment and internal controls were updated accordingly to cover identified sustainability reporting related risks with clear control owner assignment from local SMEs to each designed control.
2. Periodic Reporting to Administrative and Management Bodies: To maintain transparency and accountability, PMI ensures the periodic reporting of our CSRD compliance approach and relevant observations to PMI's Sustainability Committee which is composed of members of PMI Company Management as well as leadership teams of PMI's Operations, People & Culture, Legal, and External Affairs teams. In the Company, the quarterly Risk Governance Committee meetings are established between Controls functions and local management teams, covering topics of internal controls over financial reporting, data privacy, information security and ethics & compliance, which are now extended to cover also sustainability reporting controls. The Company bodies are informed within the framework described in General section of this Statement (GOV-2 part).

Strategy, business model and value chain

Strategy Overview

PMI (including PMCR and PMSK) are building a future on smoke-free products that, while not risk-free, are a far better choice than continued cigarette smoking. Our vision is that these products will one day replace cigarettes. To achieve this vision, PMI is radically transforming its business. Sustainability stands at the core of PMI's transformation, which seeks to address and mitigate its biggest negative externality: the health impact of cigarette smoking.

Product transformation: Innovating for better products

PMI's product lines are the most visible aspect of its transformation. Over the past decade and a half, PMI has harnessed scientific and technological advances to develop alternatives to cigarettes that are scientifically substantiated to be a better choice for adult smokers than continued smoking. To achieve a smoke-free future, PMI works relentlessly to make cigarettes obsolete by replacing them with these less harmful alternatives as quickly as possible. PMI is increasing access for adult smokers by improving and expanding its portfolio of