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Philip Morris International Inc.

International Tobacco

Philip Morris International Inc. (PMI) achieved solid gains in most key markets, partially offset by weakness in France, Germany and Italy, which were adversely affected by significant declines in industry volume. Cigarette shipment volume increased 3.5% to 761.4 billion units, as gains in key markets and additional volume from acquisitions were partially offset by a decline in Western Europe. Operating companies income rose 4.5% to $6.6 billion, aided by $540 million in favorable currency and other factors, which more than offset a $250 million pre-tax charge for the agreement signed by PMI with the European Community on July 9 and other items.

PMI increased share in its top income markets of Austria, Belgium, Egypt, France, Greece, Japan, Mexico, the Netherlands, Poland, Russia, Saudi Arabia, Spain, Turkey and Ukraine. Marlboro international volume decreased 1.3%, as solid gains in Central Europe, Eastern Europe and Asia, including Japan, were more than offset by lower volume in Western Europe, mainly France and Germany. Excluding those two markets, Marlboro international volume was up 2.6%. L&M volume increased 6.7%, with particularly strong gains in Russia, Thailand, Turkey and Ukraine. Parliament, PMI’s highly profitable super-premium brand, achieved volume growth of 7.4%, while volume increased 2.5% for Chesterfield and Lark.

In Western Europe, PMI continued to experience adverse industry dynamics in France, Germany and Italy, which caused PMI’s cigarette volume to decrease 8.7% in the region during 2004, partially offset by increases in other tobacco products. PMI’s market share in Western Europe was 38.6%, slightly lower than 2003. Share increased for Marlboro in Belgium, Portugal, Spain and the United Kingdom.

In Central Europe, cigarette volume increased a very strong 15.2%, due mainly to Poland and Romania and the favorable impact of acquired volume in Greece and Serbia, partially offset by declines in Lithuania and Hungary. However, share improved to a record 32.6% in Hungary. In worldwide duty-free, volume increased 7.2%, reflecting improving trends in the travel industry.

In Eastern Europe, the Middle East and Africa, cigarette volume grew 9.6%, reflecting widespread gains in most markets, including Kazakhstan, Russia, Saudi Arabia, Turkey and Ukraine. In Russia, volume was up 3.5%, and share was up 1.4 share points to a record 26.4%, driven by Marlboro, Parliament, L&M, Next and Chesterfield. In Turkey, volume rose 20.3%, and PMI’s share increased 4.7 points to a record 37%, driven by L&M and the renewed growth of Marlboro and Parliament. In Ukraine, volume increased 26.7%, and market share advanced 1.8 points to a record 31%, driven by Marlboro, Chesterfield, L&M, Bond Street, Next and the national launch of Optima.

In Asia, cigarette volume increased 7.6%, due mainly to robust gains in Korea, Malaysia, the Philippines and Thailand. In Korea, volume was up 23.1%, and market share rose 0.8 points to 7.4%, driven by new products including Marlboro Ultra Lights, Lark One, Elan Super Slim Lights, and L&M. In Japan, volume was up slightly in a market that declined 2.5%, and share rose 0.4 share points to a record 24.4%, driven by Marlboro and new products Virginia Slims Rosé and Lark Pacific Green. PMI expects to benefit from additional volume and income after April 2005, when Japan Tobacco Inc.’s license to manufacture and sell Marlboro brand cigarettes in Japan expires, returning full control of the brand to PMI.

In Latin America, cigarette volume was down 2.0%, due primarily to lower shipments in Argentina, partially offset by Mexico, where PMI achieved a record share of 60.2%, up 0.8 points, driven mainly by Marlboro, which benefited from new line extensions Marlboro Mild Flavor and Marlboro Medium. In 2004, PMI agreed to acquire, subject to a public tender, a controlling interest in Coltabaco, the largest tobacco company in Colombia, with an approximately 48% market share.

PMI advocates minimum taxes and equalizing the tax burden on all tobacco products, and is encouraged by minimum reference price laws passed during 2004 in France and Italy. In addition, PMI supports meaningful and effective tobacco regulation in every country where it does business. It is taking voluntary actions to ensure that its products are marketed responsibly and to communicate with consumers regarding important tobacco issues. More information on PMI’s responsibility initiatives is available at www.philipmorrisinternational.com.

PMI will continue to pursue business development initiatives, including participation in all growing and profitable tobacco segments, acquisitions and new market entries. It has a strong brand portfolio, proven strategies and global scale and infrastructure, and is well positioned for continued growth in volume and operating companies income over the long term.