Transformation Is the Talk Of

2019: A Year in Review

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LEADING THE WAY TO SAY HELLO TO OUR RAISING THE BAR A LEVEL FUTURE NEW SYNC HUB ON FAIR TRADE PRACTICES

PMI becomes first multinational More than an intelligent It starts with signing the company to achieve global supply chain, it’s our new Anti-Illicit Trade Declaration. EQUAL-SALARY certification. ecosystem. Get the full story Find out how our practices Our future looks even brighter; behind our pioneering center are setting a new read the full story and learn why. of excellence. standard worldwide.

Transformation Is the Talk of PMI READ 15+ INSPIRING STORIES OF OUR COMPANY-WIDE EVOLUTION > Your Region in the News Say Hello to the New PMI Sync Hub Make sure you check out the regional P28 stories on pages 4 & 5 of this report

From Indonesia to Lithuania, our Transformation is unstoppable. Have something to share? We’d love to hear from you. It's not Contents We’re Making just about results, but the learnings along the way. Share your transformation journey with us at Regional Roundup: Our Future a [email protected]. How PMI Is Transforming Around the Globe ...... 4 Build

Reality, Every Day Leading the Way to a Level Future ...... 8 How to Make the Most Inclusion & Diversity Unlock, Drive and Protect Enterprise Value ...... 11 It’s an exciting time to be a part of PMI of This Report Finance Building Experience: We are boldly transforming our drive our Transformation forward?” You may be reading this report The evolution of our company is indicators of our Transformation, New Ideas to Accelerate Our Future ...... 12 mission and business operations to we offer up illustrative examples to online at your desk or on your going strong, reaching into every and we can all celebrate them. Leadership bit of our operations, approach deliver on modern-day expectations inspire your efforts. mobile device on the go. Wherever We encourage you to use of our organization. and however you take it in, you’ll and attitude. Engage This first-ever Transformation Report these stories: see that the PMI Transformation is We’ve put our consumers at the is a company-wide look at the most We share this report with you a wide-ranging and ongoing effort– • in your efforts as an A Call for an Open Global Dialogue ...... 20 center of a bold, long-term strategic groundbreaking and impactful stories not only as a recognition of with roots in every corner of our ambassador for PMI External Engagement vision of a smoke-free future. Our of our evolving organization. the many milestones we’ve company, in every discipline and at commitment to them is the driving achieved in 2019, but also as a • as inspiration in your The World Is Unsmoking ...... 22 In this inaugural issue, you’ll read all levels. force behind our Transformation. guide to help you visualize how everyday work External Engagement features on topics ranging from you can more fully contribute We’re building an organization that is However you choose, thank We cannot accomplish change of this our operations and the way we do to our journey into our better Deliver ready to take on new challenges. you for being part of this magnitude without the full support business to the products and places future. These examples are key exciting Transformation. of our people. So, now as you ask where our business is meeting our These initial stories of transformation IQOS Makes Its U.S. Introduction ...... 26 yourself daily: “How can I better changing customer demands. are just the beginning of our journey. Product Launches A company-wide look to celebrate the fresh, vibrant and engaging The World Is Unsmoking Say Hello to the New PMI Sync Hub ...... 28 organization that we are. P22 Digital Transformation A company-wide look at the Ready for what’s next. Sparks Awards Spotlight We hope you enjoy reading this initial Our Glowing Achievements in CC ...... 30 most groundbreaking and Transformation Report as much as Awards we enjoy bringing it to you. impactful stories of our evolving Listen. Learn. Launch...... 32 Product Portfolio organization. Signing the Anti-Illicit Trade Declaration ...... 34 The Editorial Team Illicit Trade Protection

Quantifying a 13.6MM  60BN Double digits  5 years Transformative 13.6 million IQOS users 60 billion HTUs shipped Double-digit market share growth PMI honored on CDP's Climate Year in RRPs across many countries "A List" for fifth year running A snapshot of the year’s Net zero highlights and accomplishments*  10MM carbon  52  1K+ Close to 10 million have stopped PMI’s first net zero carbon factory IQOS now sold in 52 1000s of PMI employees * This information as of December 31, 2019. smoking and switched to IQOS footprint (Klaipėda, Lithuania) markets worldwide take part in World Cleanup Day 2 TRANSFORMATION WELCOME 2 TRANSFORMATION

For internal communication only – not for external publication Hungary Deliver Regional Roundup: We are challenged in our market, with no possibility of consumer communications except very limited interaction at point of sale. Yet our IQOS launch in April 2019 was a success, acquiring more How PMI Is Transforming than 40,000 users to date. Our approach? Lay a strong foundation by building a simple, clear consumer (adult smokers) understanding of the heat-not-burn category through strong engagement with the Around the Globe medical and scientific community. Our focus was to leverage public health community events to bring to life the benefits of heat-not- burn in the context of overall lifestyle change programs. Spotlight on Eastern Poland Engage Build European Region With a continuous and consistent focus on engagement Spain in our market, plus the will of a passionate leadership 2019 was a transformative year for our region, with team, we have created one of the fastest-growing We are building the organization with new capabilities and talents, tremendous results for IQOS. We achieved the highest IQOS user bases in the region. Driven by a strong from the office to the field. By setting our sights on strategic growth rates in LAUs, volume and share of market, MGM program, which ranks as the highest in the region, priorities such as CRM, customer engagement and retail, we are as well as the highest consumer and employee Net we were able to nearly double our user base by mid- aligning with the company vision–and already producing results. Promoter Scores (NPS/eNPS). year and triple it by year’s end. It is proof that a highly Highlights include rebuilding a sales organization with dedicated teams to support lead generation and growth of IQOS retailers, Thanks to the dedicated teams and their forward- engaged organization can translate into highly engaged IQOS users. all while producing in a fast-forward model and continuously looking approach, we have built the right structure to testing ideas. The results are clear: From a slow start, we've elevate levels of engagement, all while delivering against achieved a solid, scaling growth model in just two years. our mission. Deliver A few highlights: Lithuania How to Get Involved: Deliver Changing the way we engaged markets unleashed While we are the smallest PMI market, we boast the Japan their creativity and modified their ways of working. highest IQOS share! Thanks to excellent consumer By focusing on the consumer and his/her satisfaction, understanding, a focus on user acquisition and retention Japan continues to be a hive of Transformation activity, with 2019 Get Ready to we have achieved the highest conversion rate and NPS through engagement programs for both IQOS users and yielding two exciting highlights. across PMI. legal-aged smokers, we are proud to have become one Drive Change of the biggest success stories of IQOS performance, IQOS 3 Duo launched with a unique subscription service and a Initiatives such as consumer journey mapping and capturing an 18% share of market nationally and over revamped loyalty program, IQOSPHERE. The monthly service Visit the Transformation Hub to get the member-get-member (MGM), loyalty, trade-in and 30% in our capital city of Vilnius. Our dedicated team represents a transformation in both our approach and business latest toolkit for tips and ideas. lending programs—as well as the use of a light expansion continues to work to drive such results while efficiently model. Now, we can create a relationship for a period of 12 months model, digitalization around the consumer journey with managing our resources. (and hopefully beyond). To do so, we evolved our thinking to programs such as social media care solutions and well- develop a new program design and deployment. At the heart of the oiled lead generation—are now standard practice at PMI. effort was the relaunch of the IQOSPHERE platform, our loyalty Each of these practices originated within the Eastern program, which we evolved into a consumer offering and website European markets. to include more services and benefits for better engagement. The aim was to create a more emotional bond between IQOS Submit a Story Going forward, we will continue to engage with users and the brand, as well as increase NPS, all while growing The entire PMI community wants to regulators, governments and society to obtain their the number of members. To achieve this, we streamlined the web hear from you. support in advancing the mission of switching smokers experience, focusing rewards into a simple, easy-to-understand to better products! system; plus, we added membership tiers to encourage leveling What do you want them to hear? up. This evolution into a lifestyle-focused program, including Submit your story for the next rewards focused on self-improvement and well-being, helped edition by sending us a note at Deliver lead to growth: We can now claim 613,000 monthly active Indonesia [email protected], users—in addition to 10 percent growth in conversion of users who and we will be in touch for more Unsmoking the “Ring of Fire” is no easy task, but have logged in to IQOSPHERE. And we still have room to grow— transformational details. in Indonesia, we don’t shy away from a challenge. targeting inactive and non-device registered users as we generate What’s the secret? An invitation-only program to awareness of the relaunch. generate broad stakeholder awareness, category understanding, product acceptance and public support This year our category activation team also created a breakthrough for better alternatives to cigarettes. In just a year, the partnership—the first ever smoke-free stadium in Japan. Working club has grown to around 7,000 members, consisting of with the Chiba Lotte Marines, a local professional baseball team politicians, business partners, CEOs of large companies, and the Chiba city government, which owns the stadium, we REGIONAL ROUNDUP REGIONAL scientists and employees who have discovered and developed an initiative to refresh rules and designated areas This is just a taste of the success converted to heated tobacco. It represents a massive throughout the stadium, converting all CC smoking areas to ones transformation within the country, creating useful specifically designated for heat-not-burn only. This revolutionary achieved by the markets. Our insights and driving remarkable results. Indonesia's partnership sets a new standard in what we can achieve with the thanks to all regions for their example serves as a roadmap for other regions to follow. right vision and determination. great work in 2019! 4 TRANSFORMATION 4 TRANSFORMATION

For internal communication only – not for external publication Build

We’re building a consumer-centric, agile organization powered by science and technology.

P8 P10 P11 Leading the Way to A Commitment Unlock, Drive and a Level Future to Invest in What Protect Enterprise Setting World-Class Matters Most Value Standards for Equal Pay Changing Our Thoughts The Finance Team and Actions for a More Brings a Fresh, Insights- Innovative Future Driven Approach

P12 P16 Building Experience: Think Like a New Ideas to Consumer Accelerate Our Future Creating a Consumer- Empowering the Centric Organization from

Organization with Diverse the Inside Out Backgrounds and New Voices

“Transforming our equitable pay and hiring practices is foundational to the future that we want to build at PMI.”

Melissa Whiting, Head of Inclusion & Diversity

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For internal communication only – not for external publication 8 TRANSFORMATION BUILD INCLUSION & DIVERSITY Build • • Here are afew highlights: greater inclusionanddiversity. wide approach to creating even beliefs into actionwithacompany- designation. We’re puttingour our laurels whenitcomes to the However, we’re not resting on and diversity. sets thestandard for inclusion world-class organization that along ourjourney of creating a endorsement isameaningfulstep certification. This momentous to achieve global EQUAL-SALARY the firstmultinational company Philip Morris International became enormously proud that in2019, committed. Andsowe are the better work to whichwe're and vendors. One that supports environment for allourtalent level field—an equalandinclusive future requires startingfrom a Building anorganization of the Setting World-Class Standards for Equal Pay

bilingual communications conference to improve gender- Hosting theFair Share event, a Week of Women world andcelebrate themwitha female employees around the show our appreciation for our International Women’s Day to Using theopportunityof Inclusion &Diversity to aLevel Future Leading theWay starting from alevel field. Building anorganization of thefuture requires Melissa Whiting,Head of Inclusion &Diversity team winandtheircalls for equal the U.S. women’s national soccer Most prominently, we newsjacked achievement inthenewscycle. PMI’s global EQUAL-SALARY throughout theyear to insert around key developments mounted anewsjackingcampaign In thespiritof disruption, we Our outreach didn’t stop there. diverse andinclusive workforce. business benefitsof a genuinely SALARY certification andthe awareness of PMI's EQUAL- throughout theyear to elevate who usedtheirexternal platforms Melissa Whiting,to nameafew– Bendotti, Marian Salzman and senior leadership–including Charles had thefocus andcommitment of In additionto theseactivities,we •

external audiences conversations withinternal and for engagingin diverse gender andnewstrategies insights onthemesof equality, thought leaders whopresented together to hearfrom female bringing thecompany’s men Subverting expectations by today’s competitive marketplace. can thrive andhelpPMI win in of environment in whicheveryone how we canbestcreate thekind around workplace equalityand men andwomen inconversation certification. Their goalisto engage follow-up to ourEQUAL-SALARY new “Connect Us” network asa Throughout 2020, look for the PMI. Andwe’re justgettingstarted. to thefuture we intend to build at and hiringpractices isfoundational Transforming ourequitable pay inclusive culture. taking steps to build amore diversity, andacompany committed to equalityand progressive employer of choice helping to positionPMI asa business/specialist HRpress, stakeholders, aswell asthe achievement to engagewith positioned to usethisimportant As aresult, markets were better the topic. and live interviews targeted to through paidads,mediapodcasts and sharingourperspective pay, joiningintheglobal dialogue

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TRANSFORMATION 9 TRANSFORMATION BUILD DIVERSITY & INCLUSION A Commitment to Invest Finance in What Matters Most Build Changing Our Thoughts and Actions for Unlock, Drive a More Innovative Future and Protect The innovative nature of our vision for a smoke-free future The innovative nature of our is undeniable. Enterprise Value Finding the resources to create vision for a smoke-free future the roadmap, products and portfolio to achieve it takes some is undeniable. The Finance Team Brings a Fresh, innovation, too. It requires taking on the right Initiatives like these can easily Insights-Driven Approach methodology and mindset to create be characterized as cost-cutting • Over 400 employees the proper foundation for our future measures, designed to squeeze the from OC and 21 endeavors, bringing to life one of most from our assets. However, the The Finance team is your business global taxonomy, more informative and markets involved the company’s strategic priorities: reality is, in fact, the opposite. This partner–helping you better plan, model more accountable. Achieving Cost and Cash Leadership. was about prioritizing our resources • >$300m savings scenarios, operationalizing strategic Of course, the team’s Transformation will to support our culture of excellence. identified across 11 cost business plans and taking an active role in This stance allows us to re-think not happen overnight. These changes that categories (>$50m managing a consumer-centric P&L. where, how and why we allocate our E4G and CCM use a proven have started in 2019 are going to continue realized in 2019 and resources, with a purpose-driven methodology, based on But that’s just the beginning. for the next few years, as the ideas are >$150m in OB’20) approach to budgeting, putting transparency, ownership and put into action, across teams, across This shift in thinking is driven by an every dollar where it can create the discipline. It helps us identify • 70% of employees countries and across practices, to build an ambitious vision for the Finance team most good for our employees and unproductive money, and repurpose witnessing smarter organization that will be ready to continue that’s in line with that of our greater our customers. that money to where it can add the resource allocation to help drive success. most value, in order to drive the The Energy for Growth (E4G) business forward. initiative, now Cost Category Management (CCM), with the It’s about creating value, by being This new Finance operating model is an objective to create sustainability smarter, more strategic, and more and then hardwire it in the DNA of conscious, in prioritizing how and A new, creative key milestone of the company, is doing just that. It is where we invest our money. the initiative was Value Add Days, excellent example of the way in which a new way of looking at resources a global, digital, cross-functional Our ultimate goal is to enable the workshop to work in a think-tank- our company can grow and adopt new within our organization, all seen reinvestment of resources in critical through the lens of our specific, like atmosphere to bring out new strategic priorities and establish thinking and actionable ideas. strategic pillars designed to a mindset and behavioral change ways of working. drive outcomes. This pioneering approach became throughout the entire organization. a landmark for our company, We will have succeeded when we confirming that it is possible to organization. This new Finance operating continuously reduce our cost base unite key stakeholders across model is an excellent example of the and everyone starts treating the the organization efficiently in a way in which our company can grow and organization’s money as their own, virtual setup. adopt new ways of working to build an thinking about how we can be as organization ready to engage and deliver. smart as possible with our money. It’s the right methodology and mindset working together in real In short, it means detailing over 400 In 2019, the Energy for Growth time to power sustainable growth processes that drive our day-to-day work, program successfully expanded streams that will drive our people, identifying over 100 roles to realize our beyond the pilot, reaching into many shareholders and business forward. objectives and defining nearly two dozen markets across all regions, as well as This is how we will create value for capabilities that create our operating new Cost Categories, representing the long term, and achieve our vision model for the future. 80% of our total spend. At the of a smoke-free future. end of 2019 E4G generated This review of process means streamlining impressive achievements: Martin King, our tools and making budgeting Chief Financial simulations smarter as part of a single Officer 10 TRANSFORMATION BUILD FINANCE 10 TRANSFORMATION

For internal communication only – not for external publication “To lead a tobacco company in my geography is in itself a Building disruptive career choice. To be driving the change of our business, society and Experience: creating a smoke-free Nordics region from inside is thrilling. I Build can really make a difference for the smokers that change, and New Ideas to “Why did I join PMI? Because for their loved ones.” this is an exciting project that allows me not to just work Anette Rosengren Anette Rosengren Accelerate Our on creating ‘a’ new product, Managing Director, Nordics Managing Director, Nordics but to work on creating new categories that can bring long-lasting consumer Future benefits to society.” primed to deliver a smoke-free future. In Bin Li, total, their viewpoints weave together a Chief Product Officer stirring tapestry of the direction we’re headed. Videos of these interviews will be available on the Transformation Hub beginning in Leadership February. We encourage you to watch them, as they bring to life the positive vision of “Joining PMI is more than a the team and give greater context to our preferred career choice. It Transformation efforts. is a personal choice as well, Empowering the Organization with because losing my father due With five new Managing Directors, to excessive smoking makes Diverse Backgrounds and New Voices representing four regions, along with Senior it a mission for me to be part Management roles ranging from products to of this revolutionary change experiences, new voices are bringing a fresh The future is bright at PMI, and one Recently, we conducted one- that drives towards a smoke- perspective to the organization. of the reasons is that new hires on-one interviews with the free future.” across the organization, at every Senior Management Team to Here, we share a few excerpts from those level, are catalyzing efforts to drive offer a platform through which conversations to demonstrate the type of Naeem Khan change. This injection of outside to share their views and ideas on thinking at work today: Managing Director, Malaysia thinking and ideas is contributing Transformation and the future of to a positive change in culture and the company. increased collaboration. One key finding: The Transformation This effort reaches throughout the mindset is deeply ingrained within Michael Kunst, Naeem Khan company, placing new expertise these new leadership hires. They are Senior Vice President Managing Director, and profiles deep within our eager to champion innovation and Commercial Transformation Malaysia organization to help us promote change, and are relishing all build, engage and deliver. the challenge of creating a company

The Transformation mindset is a common thread amongst the new hires.

“I’ve chosen to participate in the Transformation journey at PMI … for one simple reason, I think it is the highest calling in the business world at this point in time. Because we’re changing the lives of a billion people.” Why did you join PMI? Michael Kunst, Senior Vice President Commercial Transformation Submit your "why" story to [email protected]. 12 TRANSFORMATION BUILD LEADERSHIP 12 TRANSFORMATION

For internal communication only – not for external publication Continues 14 TRANSFORMATION BUILD LEADERSHIP Build Italy Managing Director, Marco Hannappel Chief Technology Officer Michael Voegele, health andother elements.” social impactwhenitcomes to public at theendof theday, that willhave a people around thosepeople. But also, Not justpeople’s lives, butthelives of Products that truly changepeople’s lives. introduces newproducts to themarket. takes thebusinessupsidedown, that that revolutionizes theindustry, that a uniquechallenge, beingpartof ateam because of the Transformation. I think it’s participate intheTransformation “I’ve chosento joinPMI andto Our Future New Ideas toAccelerate Building Experience: Marco Hannappel,ManagingDirector, Italy benchmark for allmultinational companies." great opportunitiesfor mobility: aworldwide promoting avery international environment and to invest anddevelop talents andskills,while culture isbasedondiversity, inclusion, willingness be partof anamazing Transformation. Our PMI our people and culture, andtheopportunity to "I joinedPMI for three mainreasons: ourvision, (continued)

Israel Manager, General Roi Amit, Roi Amit,General Manager, Israel reduced-risk alternative, that excites me.” Only ifthey cannot, they should choosethe and ifthey dothey should quit,isfascinating. our consumers not to useourCC products at all, away from theissue.The fact that we are telling PMI haschosenthedifficult path andisnot shying “What fascinates meisoursmoke-free vision. Officer Chief Life Sciences John O’Mullane, Chief Consumer Officer Stefano Volpetti, freedom to gointhat direction.” force resources, money, people and disrupts the category andto putfull- to establishanewdirection that courage, thevisionof theleadership fact that thiscompany hashadthe “The appealof PMI isdriven by the Chief Life Sciences Officer John O’Mullane, really very ambitious.'" my firstresponse was, 'well, that's then potentially into healthcare? And first of all,reduced-risk products and be moving outof cigarettes andinto, “How canitbethat they’re goingto Chief Consumer Officer Stefano Volpetti, Lucie Claire Vincent Managing Director, Andean [email protected]. Submit your "why" story to Why didyou join PMI? For internal communication only – not for external publication Managing Director, Andean Lucie Claire Vincent greater good.” Transformation for the future. This isameaningful our visionof asmoke-free team that works towards and Iwant to bepartof the all theleaders across PMI, people. Iaminspired by products that are better for industry andto offer to reinvent thetobacco resilience andcommitment company determination, respect andadmire our “I joinedPMI becauseI Leadership 16 TRANSFORMATION BUILD CONSUMER-CENTRICITY Below andbelow right: Customers at anIQOS store inGreece Think Like aConsumer 15 markets. and captured omni-channellearnings across across allRRPmarkets, having engagedwith We have rolled outtheconsumer journey and sustainingconsumer centricity change. regions andOCare involved inimplementing colleagues across market supportfunctions, consumer centricity, and more than1,000 market staff onthewhy, what andhow of Center. We have trained over 1,500frontline both themarket level andintheOperations We’ve madegreat progress inrealizing thisat and service development. use of rapid feedback loops informing product measurement of consumer satisfaction andthe This isfollowed upby specificactions– discipline canunderstandandexecute against. framework that every department and begins withcreating aconsumer journey Creating theconsumer-centric organization united blueprint: deliver onwhat customers want. the company to alignourworkflows around a about amethodical,winningstrategy that allows just abouteverything inourorganization. It’s all Consumer centricity ischangingtheway we do consumers andtheirexperiences. product approach to focus ourefforts around heart, evolving ourpractices, designthinkingand In 2019, ourorganization took thisadvice to There's anadage:"The customer isalways right." Organization from theInside Out Creating aConsumer-Centric our organization. just abouteverything in changing theway wedo Consumer centricity is the company. consumer-centric organization isstrong across commitment to andperceived value of the Because of thepositive outcomes, the pain points andimprove consumer experience. structured projects to address larger consumer practices, both at thefrontline aswell asthrough resulted innumerous changesto ourbusiness Turning thisconsumer feedback into actionhas and consumer interaction. can improve ourproducts, services, touchpoints callbacks, hearingfrom consumers abouthow we feedback andwe have conducted over 75,000 allowed usto capture over 1.6 millionpieces of This comprehensive ‘consumer engine’ has creating success stories. It’s nosurprisethat thisstructure isquickly volume by year end. system across 25markets, covering 98%of RRP By theendof 2019, we establishedtheNPS For internal communication only – not for external publication

Consumer-Centricity Build Engage

We’re engaging key stakeholders and society in conversations about smoke-free alternatives.

P20 P22 A Call for an Open The World Is Global Dialogue Unsmoking Introducing a New We’re Bringing Awareness Message to the World of New Alternatives to Over 60 Countries

#Unsmokeyourworld is changing the world. Friends, family and colleagues are coming together. Inspiring and helping each other.

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For internal communication only – not for external publication IQOS Makes Its Product Launches A Landmark Ruling Is Just U.S. Introduction the Beginning Deliver 2019 is a year of firsts across the approximately 40 million our entire organization, but no American men and women headline was more momentous who smoke. Some will quit. than IQOS being authorized for Most won’t, and for them IQOS sale in the U.S. by the FDA. offers a smoke-free alternative to continued smoking.” This declaration is a signal to our company, our industry and the The U.S. now joins 51 other world that there’s a new future in countries where IQOS can smoke-free products and IQOS be legally sold. In just a few will be leading the way. years, close to 10 million adults around the world have The path to get to this point abandoned cigarettes and is the perfect illustration of switched completely to IQOS. our Transformation, with the With the FDA decision, this authorization coming after a opportunity is now available to comprehensive and rigorous two- American adult smokers. year assessment of the science detailed in our premarket tobacco At the store, IQOS retail experts product application. are available to offer education,

With a vision for the smoke-free future, we are able to take another tangible, highly visible step toward our goal.

The FDA authorization marked personal trials and general a tangible, highly visible step in information about the IQOS our progress toward a smoke- product and services to adults free future. Moreover, IQOS has who smoke or who already use the distinction of being the first smoke-free alternatives. electronically heated tobacco This represents a shift in product to qualify for sale in the thinking: a new approach U.S. under the 2009 law that to product development empowers the FDA to regulate and delivery for consumers, tobacco products. Our continued transforming our business investment in IQOS, a heat-not- model to put their needs at burn product, demonstrates our the center of the journey and commitment to a future beyond continuing to innovate to suit combustible cigarettes (CC). the consumer’s needs. The FDA's authorization served The launch of the IQOS store is as the stimulus for our opening just the start. As we continue to the first-ever IQOS retail store build our portfolio of smoke- in the U.S. The flagship shop free products, we will draw has opened in the urban hub of “The FDA’s decision to authorize IQOS in the U.S. on science to develop new Atlanta, Georgia, marking yet and lower-risk solutions for another milestone in our growth. is an important step forward for the approximately adult smokers seeking better André Calantzopoulos said it alternatives to cigarettes. We 40 million American men and women who smoke.” best: “The FDA’s decision to will deliver innovations that authorize IQOS in the U.S. is change the world for the better. an important step forward for André Calantzopoulos, CEO 26 TRANSFORMATION DELIVER PRODUCT LAUNCHES 26 TRANSFORMATION

For internal communication only – not for external publication Digital Transformation Deliver

Say Hello to the New PMI Sync Hub Empowering Our Supply Chain to Deliver Faster

PMI’s shift from selling cigarettes intelligence, across all product to new smoke-free products has categories of PMI. One team, changed the way the organization united by the same data-driven works. This means the functions language. The same functional within our organization need to tools and a single standardized modernize and evolve as well. database, working for everyone, no matter the market or region, Our Sync Hub is the new beating across the globe. heart of our digital transformation– using the supply chain as an New products bring new The Sync Hub is enabling intelligence tool–constantly challenges–in the way we source improving, injecting innovation into and buy raw materials, in the way the company, and creating new we engineer and manufacture, and new opportunities across ways of working. in our supply chain planning. Thus, reshaping our supply chain to be the organization Its role is to orchestrate true lean, digital and demand driven end-to-end planning activities toward advancing complexities of (demand, supply, capacity, growing categories/portfolios helps fulfillment) and deploy the latest us be ready for our new future. digital tools, based on artificial

This comprehensive insights to help our people. organization’s supply chain transformation will kick-start With greater intelligence, may seem overwhelming, just DIGITAL TRANSFORMATION DELIVER TRANSFORMATION 29 chain reactions throughout the human-led decision-making remember this simple fact: organization, driving greater improves exponentially. Forecasting and measurement efficiencies, highlighting new time has been reduced from The Sync Hub, based in opportunities and, in turn, four weeks to one week. Renens, Switzerland, is now driving our business like we in action, ready for today’s This increase in speed is going never have seen before. It’s challenges, as well as those in to power better thinking, helping to streamline our the future. allowing operations to play a business model and the way customer service role–for every in which our markets work. It’s And it had better be. As the market, for every management taking the manual labor and organization continues to team and for you. guesswork out of strategic grow, and as new products planning and forecasting, and are introduced, potentially The Sync Hub is enabling giving time back to managers doubling the number of SKUs new opportunities across to focus on what they do best: in market today, these planning the organization, with the running their markets. tools will be vital to our potential to create new ideas continued success. and innovations on every Implementing greater use Massimo Andolina, Senior Vice level and in every corner of of digital tools means While imagining all the President Operations, PMI and our company. members of the Sync Hub team. generating more data and inputs and outputs of the

For internal communication only – not for external publication The participants Sparks Awards had a lot to Spotlight Our Glowing celebrate, as it’s been an incredible Deliver Achievements in CC year for PMI’s Global CC brands.

The awards are the perfect way to celebrate the many successes achieved Awards in markets around the globe. Nine Sparks Awards were given out, one to the top-performing market for each of the five key CC strategic categories, with the remainder supporting pillars in categories such as collaboration The Inaugural and creativity. At the conclusion of the event, Ukraine was recognized for best Celebration Creates Buzz overall performance. Around the Globe

The stage was set. Anticipation was building. Nearly 400 colleagues from around the world were glued to their screens. Why the excitement? The winners of the first-ever Sparks Awards were about to be announced during the final CC Connect webinar of the year. The Sparks Awards were created to celebrate the achievements of the markets in PMI’s combustible cigarette (CC) Indonesia with their trophy business. Maintaining our leadership in CC as we Mexico, finalists for The Pioneers Award transition to our smoke-free future is one of our six and Out of The Box Award corporate strategies. The CC Connect webinar is held every six weeks, uniting the markets focused on the CC business. Through this forum, the Global CC marketing teams Thanks to the increased excitement, share the latest brand toolboxes, and markets participation in the webinar had never share case studies and learnings that are applicable been higher. As the virtual ceremony globally. In this way, no market has to “reinvent the moved along, colleagues were feverishly wheel,” and best practices are easily shared.

typing words of congratulations and COMMERCIAL DELIVER TRANSFORMATION 31 encouragement to one another. Even though participants were separated by Thanks to the many miles, the spirit of collaboration and team spirit was evident in the increased excitement, chat room. As a whole, the participants had a lot to celebrate, as it’s been an incredible year participation in the for PMI’s global CC brands, with four out of six now among the top-10 cigarette webinar had never brands sold worldwide. Plus, Marlboro’s global market share of the cigarette been higher. segment has risen to 10%, an all-time high, and L&M’s global market share has increased to 3.5%. 30 TRANSFORMATION DELIVER AWARDS 30 TRANSFORMATION

For internal communication only – not for external publication Listen. Learn. Launch. Deliver

How IQOS 3 Duo Delivers a Consumer-Centric Product Portfolio Approach to Product Development

Much has been written on the continue to smoke to switch,” said our recent launch of IQOS 3 Duo and its Chief Operating Officer, Jacek Olczak. new features. “These ongoing product updates, innovations and developments are But look behind the story, and you’ll find vital in our achievement of a smoke- an ideal example of our Transformation free future.” in process, as this new launch represents an approach of listening to consumer IQOS 3 Duo was made available in Japan desires and fine-tuning product features during the fourth quarter of 2019 and to address their concerns, all while was subsequently rolled out by year's evolving our technology. end in most of the markets where IQOS is currently available. However, IQOS 3 Duo is not just an upgrade in technology, it’s an evolution At the close of 2019, close to 10 million in our product development. With adults worldwide had switched to IQOS the release of IQOS 3 Duo, we display and abandoned cigarettes.

IQOS 3 Duo is not just an upgrade in technology, it’s an evolution in our product development.

an innovative spirit, of continual "These ongoing product updates, improvement. IQOS 3 Duo is designed with new product features innovations and developments are vital in to make switching from cigarettes even more seamless. our achievement of a smoke-free future." The continued development of technology exemplified by IQOS 3 Jacek Olczak, Chief Operating Officer Duo–driven by consumer insights and supported by scientific substantiation– represents the organization’s latest step in our journey to achieve a smoke- free future and to strengthen our position as a leader in the smoke-free products category. “The launch of IQOS 3 Duo affirms our commitment to constantly and continuously invest in the development and commercialization of scientifically- substantiated products that can help the millions of adults who would otherwise 32 TRANSFORMATION DELIVER PRODUCT PORTFOLIO 32 TRANSFORMATION

For internal communication only – not for external publication Signing the Anti-Illicit Trade Declaration Deliver A Problem Without Borders Meets a Illicit Trade Protection Coalition Pushing for Change

Despite considerable efforts on the part of global organizations, governments and activists from the private sector, illicit trade remains prevalent and continues to pose a significant threat to the global economy. Illicit trade is a complex issue that damages many sectors, negatively impacts societies and respects neither borders nor laws. No one government or single industry can address this problem on its own; everyone has a role to play. That’s why earlier this year Alvise Giustiniani, PMI’s Vice President, Illicit Trade Prevention, was on hand at the Zermatt Summit to sign the Anti-Illicit Trade Declaration, as another positive step forward in the continued global push to combat the issue. The continued focus on illicit trade is in the spotlight more than ever following an independent KPMG “Stella Report,” commissioned by PMI. The report revealed that in 2018, the black market for cigarettes in the of illicit goods. PMI invests in strict controls for European Union (EU) cost governments a total its supply chain and supports regulations such of 10 billion euros in lost tax revenues and was as the FCTC Protocol to Eliminate Illicit Trade No one government equivalent in size to total legal cigarette sales in Tobacco Products and the recently enacted in the U.K., Austria and Denmark combined. tracking and tracing provisions under the EU or single industry can Overall illicit cigarette consumption levels Tobacco Products Directive. Furthermore, PMI remained stable compared with last year; continues to work with the private and public however, the report found a more than 30% sectors alike to advance global anti-illicit trade address this problem increase in counterfeit consumption—the efforts, including through PMI IMPACT, a global largest amount recorded to date. initiative supporting third-party initiatives on its own; everyone “Beyond damaging government revenues, against illegal trade and related crimes. harming legitimate businesses—including our As an organization, we’re committed to has a role to play. own—and fueling crime in local communities, encouraging open dialogue about the most the availability of cheap, unregulated cigarettes effective ways to combat illicit trade in tobacco on the black market undermines efforts to products, by involving manufacturers, suppliers reduce smoking prevalence and prevent youth of key components, technology providers, from smoking,” said Giustiniani. “For PMI to customs authorities and other law have impact in our drive to unsmoke the world, enforcement agencies. we must sustain our combined efforts to eliminate illicit cigarette trade, while ensuring The Anti-Illicit Trade Declaration is an appeal responsible access to better alternatives for to the international community to address all the men and women who would otherwise forms of illicit trade and outlines the steps that continue to smoke.” need to be taken to stop the practice, which, as governments and private sector signatories While the issue may not make daily headlines, agree, needs to be treated as a serious crime. much work is being done to combat the flow

For internal communication only – not for external publication 36 TRANSFORMATION DELIVERING AGAINST OUR STRATEGY from whichwe cangrow. equal future today builds afoundation resource; paving theway for amore We value ourpeople asourgreatest for Equal Pay. Future: P8 Leading theWay toaLevel Diverse Backgrounds and New Voices. Empowering theOrganization with Ideas toAccelerate Our Future. Our Strategy Stories Deliver Against How 2019Success across ourcompany. outside perspective anddrivingchange Hear from thevoices whoare bringing P12 projects illustrate how we’re aligned inplansandactions From strategic enablers tostrategic priorities,ourrecent Building Experience: New Build Setting World-Class Standards leadership cost andcash Achieving Strategic Priorities A consumer-centric organization agility and service Deliver launch Innovative Future. Thoughts andActions for aMore What Matters Most: ChangingOur Organization from theInside Out. Creating aConsumer-Centric more efficient, determined strategy. on prioritiesandobjectives in service of a allowing allof ourglobal teams to align Focusing ourthinkingontheconsumer is P16 allocation; thisishow we make ithappen. be smartandagile with itsresource A world-class organization needsto P10 Think Like aConsumer. ACommitment toInvest in centric mindset consumer- Embed a Strategic Enablers organization of working and culture, ways Transform Brings aFresh, Insights-Driven Approach. Enterprise Value. The Finance Team bottom linefor thebetter. processes andapproach are changingour vision andproduct portfolio; newideasin Innovative thinkinggoesway beyond our P11 Unlock, Drive andProtect enterprise supply chainand engagement, Digitalize customer customer-first thinking. improve asourcompany rallies behind Our flagshiptechnology continues to P32 continue to evolve. markets meanstheconversation willonly Expansion into oneof themostvisible A LandmarkRuling Is JusttheBeginning. P26 IQOSMakes Its U.S.Introduction. Approach toProduct Development. 3 Duo Delivers aConsumer-Centric to theWorld. Dialogue. Introducing aNew Message P20 vision. through pragmatism, facts, science and It’s timefor anewconversation, reframed Engage Deliver Listen,Learn, Launch. How ACall for anOpen Global free products to scale Grow current smoke- Strategic Priorities free products support for smoke- Build global societal A sustainable, competitive product portfolio With society, partnersandstakeholders IQOS portfolio product andecosystem Develop long-term

Strategic Priorities Alternatives toOver 60Countries. We’re Bringing Awareness of New to help. greater global policies,and we standready Never before hasitbeennecessary for Meets aCoalition Pushing for Change. Declaration. AProblem WithoutBorders P34 the entire organization. improving ourcommitment of service to Getting smarter abouttheway we work and Deliver Faster. Hub. Empowering ourSupply Chainto P28 Say Hello totheNew PMI Sync including more stories andmore voices. the globe, we helppropel itsgrowth by As anewmovement beginsto span P22 Signing theAnti-Illicit Trade The World isUnsmoking. to accelerate asmoke-free future leadership duringTransformation Maintain cigarette category and stakeholders time withconsumers Communicate inreal Strategic Enablers continues to beoursecret to success. asset, theseteams illustrate why innovation Proof that ourpeople are ourgreatest Around theGlobe. Inaugural Celebration Creates Buzz Glowing Achievements inCC. The P30 Sparks Awards Spotlight our For internal communication only – not for external publication partnerships through M&Aand Accelerate delivery Strategic Enablers engine Build aninnovation You could be our next cover story!

Transformation How to Get Involved in Action Look out for the next edition of the SND YR Transformation Report, in which we will continue to celebrate and learn from STORY PMI’s global Transformation in action. The Story Behind the Story

Transformation is a team effort, and so How are you or your team contributing was producing this report. A big thank- to our Transformation? We want to hear you to all those who contributed their your story! Send us a note at time, talents and ideas help produce [email protected] this first edition. and you could be featured in next quarter’s report.

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