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Table of contents
Introductory word ................................................................................................................................................................................................................
Company Profile ..................................................................................................................................................................................................................
About us .................................................................................................................................................................................................................................
Consolidated Highlights .......................................................................................................................................................................................................
Overview of selected events in 2022 .................................................................................................................................................................................
Development of products with reduced risk ..................................................................................................................................................................
Our Products .........................................................................................................................................................................................................................
IQOS ILUMA  I  TEREA ........................................................................................................................................................................................................
IQOS 3 DUO    I    HEETS .....................................................................................................................................................................................................
lil SOLID    I    Fiit ....................................................................................................................................................................................................................
IQOS VEEV    I    VEEV .........................................................................................................................................................................................................
Cigarettes ...............................................................................................................................................................................................................................
Report of the Board of Directors .....................................................................................................................................................................................
Report of the Supervisory Board ......................................................................................................................................................................................
Consolidated Financial Statements .................................................................................................................................................................................
Consolidated Statement of Financial Position ...................................................................................................................................................................
Consolidated Statement of Comprehensive Income ........................................................................................................................................................
Consolidated Statement of Changes in Equity ..................................................................................................................................................................
Consolidated Cash Flow Statement ....................................................................................................................................................................................
Notes to the Consolidated Financial Statements ........................................................................................................................................................
1. GENERAL INFORMATION .................................................................................................................................................................................................
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ..............................................................................................................................................
3. FINANCIAL RISK MANAGEMENT ....................................................................................................................................................................................
4. SEGMENT REPORTING ...................................................................................................................................................................................................
5. PROPERTY, PLANT AND EQUIPMENT ...........................................................................................................................................................................
6. IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT ............................................................................................................................................
7. LEASES ..............................................................................................................................................................................................................................
8. INVENTORIES ....................................................................................................................................................................................................................
9. TRADE AND OTHER FINANCIAL RECEIVABLES AND OTHER NON-FINANCIAL ASSETS .....................................................................................
10. CASH AND CASH EQUIVALENTS ................................................................................................................................................................................
11. EQUITY ..............................................................................................................................................................................................................................
12. TRADE AND OTHER FINANCIAL LIABILITIES AND OTHER NON-FINANCIAL LIABILITIES ...................................................................................
13. OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES WITH RELATED PARTIES ................................................................................
2
14. OTHER TAX LIABILITIES .................................................................................................................................................................................................
15. DEFERRED INCOME TAX ...............................................................................................................................................................................................
16. EXPENSES BY NATURE – ADDITIONAL INFORMATION ...........................................................................................................................................
17. EMPLOYEE BENEFITS EXPENSE ...................................................................................................................................................................................
18. AUDITOR'S FEES .............................................................................................................................................................................................................
19. PROVISIONS ...................................................................................................................................................................................................................
20. OTHER OPERATING INCOME .......................................................................................................................................................................................
21. OTHER OPERATING EXPENSE ......................................................................................................................................................................................
22. NET PROFITS AND LOSSES FROM FINANCIAL INSTRUMENTS .............................................................................................................................
23. INCOME TAX EXPENSE .................................................................................................................................................................................................
24. EARNINGS PER SHARE ..................................................................................................................................................................................................
25. PROFIT DISTRIBUTION ..................................................................................................................................................................................................
26. CONTINGENT LIABILITIES ............................................................................................................................................................................................
27. RELATED PARTY TRANSACTIONS ..............................................................................................................................................................................
29. SUBSEQUENT EVENTS ................................................................................................................................................................................................
Separate Financial Statements .........................................................................................................................................................................................
Separate Statement of Financial Position ..........................................................................................................................................................................
Separate Statement of Comprehensive Income ...............................................................................................................................................................
Separate Statement of Changes in Equity .........................................................................................................................................................................
Separate Statement of Cash Flow ......................................................................................................................................................................................
Notes to the Separate Financial Statements .................................................................................................................................................................
1. GENERAL INFORMATION .................................................................................................................................................................................................
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ..............................................................................................................................................
3. FINANCIAL RISK MANAGEMENT ....................................................................................................................................................................................
4. PROPERTY, PLANT AND EQUIPMENT ...........................................................................................................................................................................
5. IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT ............................................................................................................................................
6. LEASES ..............................................................................................................................................................................................................................
7. INVENTORIES ....................................................................................................................................................................................................................
8. TRADE AND OTHER FINANCIAL RECEIVABLES AND OTHER NON-FINANCIAL ASSETS .....................................................................................
9. CASH AND CASH EQUIVALENTS .................................................................................................................................................................................
10. EQUITY .............................................................................................................................................................................................................................
11. TRADE AND OTHER FINANCIAL LIABILITIES AND OTHER NON-FINANCIAL LIABILITIES ....................................................................................
12. OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES WITH RELATED PARTIES ................................................................................
3
13. OTHER TAX LIABILITIES .................................................................................................................................................................................................
14. DEFERRED INCOME TAX ...............................................................................................................................................................................................
15. EXPENSES BY NATURE – ADDITIONAL INFORMATION ...........................................................................................................................................
16. EMPLOYEE BENEFITS EXPENSE ...................................................................................................................................................................................
17. AUDITOR'S FEES .............................................................................................................................................................................................................
18. PROVISIONS ....................................................................................................................................................................................................................
19. REVENUES .......................................................................................................................................................................................................................
20. OTHER OPERATING INCOME .......................................................................................................................................................................................
21. OTHER OPERATING EXPENSE ......................................................................................................................................................................................
22. NET PROFITS AND LOSSES FROM FINANCIAL INSTRUMENTS .............................................................................................................................
23. INCOME TAX EXPENSE ................................................................................................................................................................................................
24. EARNINGS PER SHARE ..................................................................................................................................................................................................
25. PROFIT DISTRIBUTION ..................................................................................................................................................................................................
26. CONTINGENT LIABILITIES ............................................................................................................................................................................................
27. RELATED PARTY TRANSACTIONS ..............................................................................................................................................................................
28. SUBSEQUENT EVENTS .................................................................................................................................................................................................
same Controlling Entity ......................................................................................................................................................................................................
Independent auditor’s report to the shareholders of company Philip Morris ČR a.s. ...........................................................................................
Other Information for Shareholders ................................................................................................................................................................................
ČR a.s. ....................................................................................................................................................................................................................................
Members of Board of Directors, Supervisory Board and Audit Committee of Philip Morris ČR a.s. .................................................................
This document created in HTML 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“),
case of any content discrepancies the official version of the Annual Financial Report always takes precedence over this document.
4
INTRODUCTORY WORD
Dear Shareholders,
This Annual Report is a look back at our work in 2022, a watershed year in many ways. In the end, unfortunately, for very different reasons than we
expected on the threshold of the new year. However much we envisioned a reboot in economic performance and public social events after two years of
the COVID-19 pandemic, this optimism only lasted until the end of February, when we all watched the Russian invasion of Ukraine with concern. Like
everyone else, I wondered what impact the war would have on our business and lives. However, this incident also showed the character of the people
living in the Czech Republic, Slovakia and other neighbouring countries. There was a great wave of solidarity, and I am incredibly proud that our company
and its employees actively supported those Ukrainians seeking shelter and, as in previous "COVID" years, helped wherever it was needed, regardless of
their own comfort.
At the same time, it is symbolic that in 2022, Phillip Morris commemorated its 30th anniversary in the Czech Republic. Although licensed production
in Kutná Hora dates back to 1987, its real entry came with the privatization of the state-owned company Tabák, a.s. in 1992. After thirty years of successful
operation, we can proudly say it is one of the most successful transformation projects of the post-revolution period. The total value of the transaction
of USD 420 million became the second-highest foreign investment in Czechoslovakia. At the same time, it was the most significant investment by an
American company in Central Europe. Philip Morris quickly established itself as one of the most vital foreign concerns operating on the Czech market and
brought a strong know-how and corporate management culture to the emerging economy, as well as stable employment according to the standards
of advanced economies and trade openness on the Prague Stock Exchange, including stable returns paid to shareholders without exception since 1997.
In addition, the company has been a net taxpayer throughout its history, with current annual corporate income tax payments of around CZK 1 billion.
The past thirty years illustrate our culture and social responsibility very well. We successfully continue to offer equal opportunities to all our employees
without distinction. I am overwhelmed that here in the Czech Republic, we have retained both the EQUAL SALARY Certificate and the Top Employer
certification. At the same time, we were granted the “Top Responsible Business Award”, which honours companies that emphasize responsibility and
sustainability. The Kutná Hora plant has been carbon neutral since 2021 while we continue to invest significant resources in the modernization of the plant
and, in particular, reducing its energy consumption. In 2022, the Kutná Hora plant was recertified as carbon neutral. It became just the second production
facility in the Czech Republic that has met the requirements of the Alliance for Water Stewardship audit - i.e., responsible water management. This path
has proven to be the right one just in 2022. Thanks to these steps, we were able to face a record-high increase in energy costs, among the highest in the
Czech Republic compared to other countries. I do not doubt that our approach will help us cope with the crisis that has been affecting the European
5
economy since last year, also thanks to the unconditional efficiency and quality of production at the Kutná Hora plant, which, among other things,
managed to take over production for the closed and later destroyed plant in Kharkiv in Ukraine.
Our vision of sustainability is not just about the production itself but permeates all our activities, including the product portfolio. We are building our future
on smoke-free products that are a better choice than cigarette smoking and innovations that reduce the health impacts of smoking.
To make our smoke-free vision a reality, we took several necessary steps in 2022. The most important of these was the launch of the revolutionary new
heated tobacco device IQOS ILUMA that offers adult smokers lower-risk alternatives instead of continuing to smoke. Thanks to the pioneering technology
using the Smartcore Induction System of tobacco heating, it delivers the expected enjoyment to users while eliminating some of the weaknesses of
previous IQOS generations that our adult users were not satisfied with. In short, the IQOS ILUMA device range comes with all the advanced features and,
above all, the latest breakthrough IQOS technology. PMI’s efforts to continue on the path to a smoke-free future were also underlined by the acquisition of
Swedish Match, a Swedish smokeless tobacco manufacturer, which will significantly contribute to the further expansion of our smoke-free product
portfolio. Swedish Match also focused on developing its portfolio of inhaled medicine and health and lifestyle products and devices in 2022.
For Philip Morris ČR a.s., 2022 was also very successful in several aspects. The production volume in Kutná Hora reached a historical record, making it
one of the top 5 conventional factories that PMI operates. It is one of the safest, most sustainable production facilities in the Czech Republic. This is
proven by the prestigious environmental certifications mentioned above and the recertification for health and safety, as we managed the past year without
a safety or quality accident. It is not for nothing that Philip Morris ČR a.s. is among the top three PMI branches in terms of employee satisfaction.
Thanks to the all-new IQOS ILUMA, we have also reached respectable numbers in smoke-free alternatives. Since its launch in 2017, the IQOS device has
been used by 860 thousand adult users in the Czech Republic and Slovakia, and 590 thousand of them have stopped smoking conventional cigarettes
and switched to better alternatives. This reason commits us to continue our efforts to build PMI's future on smoke-free products and seize this unique
opportunity for further growth and to solve public health problems. You, our shareholders, are an integral part of this story, and I am deeply grateful for
your trust and continued support; thank you very much.
Andrea Gontkovičová
Chairperson of the Board of Directors
Philip Morris ČR a.s.
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7
COMPANY PROFILE
About us
We are Philip Morris ČR a.s., an affiliate of Philip Morris International Inc. (PMI). We spearhead the transformation of the nicotine industry by providing adult
smokers who would otherwise continue to smoke or use nicotine with innovative smoke-free alternatives that reduce or have the potential to reduce risk
compared to smoking tobacco. Philip Morris ČR a.s. is listed on the Prague Stock Exchange (Burza cenných papírů Praha) and has a 99% interest in Philip
Morris Slovakia s.r.o., registered in the Slovak Republic.
Since 2017, we have been offering our adult customers a wide portfolio of innovative smoke-free products, which we have significantly expanded in the
past year. In the Czech Republic and Slovakia, we distribute the heated-tobacco solution, IQOS and lil SOLID devices with HEETS, TEREA and Fiit
consumables, electronic cigarette IQOS VEEV and provide a variety of related accessories and services to adult nicotine users. We are also the largest
manufacturer and distributor of smoking tobacco products.
Last year, Phillip Morris commemorated its 30th anniversary by entering Czechoslovakia through the privatization of the state-owned company Tabák, a.s.
in 1992. This year, we are celebrating the thirtieth anniversary in Slovakia. However, our history goes deep into the past. "Tabačka", the production plant in
Kutná Hora, boasts a tradition of more than two hundred years of tobacco and tobacco products production. Today, the plant is one of the most modern
and efficient operations, which is as environmentally friendly as possible.
In the Czech Republic and Slovakia, Philip Morris 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 top-notch work environment. We aim to offer the best possible
conditions, so that every employee can fully meet their potential.
Being awarded the Top Employer Award and the EQUAL-SALARY certification as the first company in both countries is proof that Philip Morris provides
such an environment.
At the same time, we are very aware of our commitment to our surroundings and to society as a whole. This is why we have been contributing significantly
to charitable projects across a wide range of organizations and specializations, including social programs aimed at improving living conditions in local
communities.
8
Consolidated highlights
Consolidated highlights
(in CZK million)
Period ended December 31
2022
2021
Change in %
Revenues, net of excise tax and VAT
20 948
18 867
11.0
Profit from operations
4 243
4 367
(2.8)
Profit before income tax
4 596
4 383
4.9
Net income for the year
3 636
3 517
3.4
Earnings per share (CZK)
1 324
1 281
3.4
Shipments per Segment
(in billion units equivalent)1
Period ended December 31
2022
2021
Change in %
Czech Republic
7.1
7.4
(4.4)
Slovakia
4.1
4.1
0.6
Total
11.2
11.5
(2.7)
Note: Values presented in the report might not foot to totals due to rounding.
9
1 Shipments in Czech Republic include cigarettes and other tobacco products such as cigarillos, tobacco for make-your-own cigarettes (0.73 g is equivalent to 1 cigarette) and volume tobacco
for make-your-own cigarettes (0.60 g is equivalent to 1 cigarette), as well as heated tobacco units. Shipments in Slovakia include cigarettes and heated tobacco units. Heated tobacco units is
the term we use to refer to heated tobacco consumables, which include HEETS, TEREA, as well as the KT&G’ licensed brands, Fiit.
Overview of selected events in 2022
January
For the eighth year in a row, the Philip Morris ČR a.s. company was awarded the prestigious international certificate Top Employer Czech
Republic. The certification is granted by the Top Employers Institute, which audits companies, evaluates the quality of their HR processes, and
assesses firms in terms of being the best employer. Only those companies that meet the strict requirements in human resources management
and that are independently audited can receive the certification.
Philip Morris ČR a.s. opened specialized “Káva s sebou” (Coffee-To-Go) shop in Bořislavka shopping center, the first in Prague. This unique
concept combines a cutting-edge design of the IQOS store, premium coffee, and the option of purchasing our smokeless alternatives, including
a wide assortment. It is also one of the first places in the Czech Republic to discover our IQOS device Take Back program – the concept which
is an integral part of our sustainable approach. At 2022 year-end, there were sixteen shops “Káva s sebou” in operation.
February
For safety reasons, PMI announced the temporary suspension of its operations at its factory in Kharkiv. The Czech plant in Kutná Hora
subsequently took over part of the production capacity of the Kharkiv factory. Philip Morris has been also actively helping the employees of
the Ukrainian plant and their families, as well as supporting the integration of Ukrainian refugees in the Czech Republic (more information you
can find in the Board of Directors' Report).
New tobacco stick flavors for lil SOLID were put on the market – Fiit Roxo and Fiit Regular Deep. Both flavors are among the most popular in
the Czech Republic and Slovakia.
In February 2022, four new flavors of VEEV refills with lower nicotine levels were introduced in the Czech Republic.
March
Philip Morris ČR a.s. reported the results for the year 2021. Revenues, the net of excise tax and VAT, grew by 7.6% to CZK 11.2 billion in the
Czech Republic and the revenues of Philip Morris Slovakia s.r.o. and the net of excise tax and VAT increased by 7.1% (vs. the previous year) to
EUR 208.4 million.
April
The Philip Morris ČR a.s. Manufacturing Plant in Kutná Hora takes yet another step towards more sustainable production. By obtaining two
prestigious certificates, Philip Morris ČR a.s. confirms its interest in responsible water management and reducing CO2 production. The Kutná
Hora plant is just the second production facility in the Czech Republic that has met the requirements of the Alliance for Water Standards (AWS)
audit. Some of the areas that were evaluated include a proper system of water management, a sustainable hydrological score, good water
quality, protection of important fields related to water, etc. Another success in the field of sustainability for the Philip Morris ČR a.s. plant in Kutná
Hora was gaining the so-called carbon neutrality certification. The primary purpose of this audit was to prove that the plant continues to reduce
its energy consumption (as well as the production of CO2), improve its technologies, and manage sustainable operations projects that are more
friendly to the environment.
The new IQOS 3 DUO Limited Edition was introduced to adult customers in April 2022. We had a very positive response among our adult
users in the Czech Republic and Slovakia.
May
The General Meeting performed outside the meeting (per rollam) between 13 April and 23 May 2022 announced a gross profit share of
CZK 1,310 associated with each share of the company.
10
Philip Morris ČR a.s. received the prestigious EQUAL-SALARY certification for equal pay conditions. This award is given as independent
confirmation of equal pay for men and women working in the same position by the Swiss EQUAL-SALARY Foundation in cooperation with
Geneva University and PwC professional services network.
The portfolio of IQOS VEEV refill pods was expanded by two more flavorsVEEV Velvet Valley and VEEV Island Cascade.
June
A new-generation electronic cigarette for vaping, IQOS VEEV, with a broad portfolio of VEEV pod refills was launched on the Slovak
market.
Philip Morris ČR a.s. has been repeatedly awarded by the Ministry of Finance and the General Financial Directorate for ranking among the
twenty largest corporate income taxpayers. In 2021, Philip Morris ČR a.s. paid more than CZK 1 billion.
Together with other tobacco companies operating in the Czech and Slovak markets, we launched the pilot anti-littering campaign
"Cigaretovník". It aims to inform and motivate adult smokers to manage post-consumer waste.
July-August
The new interactive laboratory, "A smoke-free world" by the virtual scientist Professor Dohořel, was installed during the Karlovy Vary
International Film Festival (KVIFF), the Slovak Pohoda Festival and the traditional fair “Země živitelka”. These state-of-the-art technologies of the
21st century bring adult users closer to the science and research behind modern smoke-free nicotine alternatives that help improve the quality
of life by eliminating cigarette smoke. In next months, there were also other opportunities to meet the Professor, for example, at the fair “Flora
Olomouc” or Czech Design Week in Prague.
September
Philip Morris ČR a.s. reported half-year consolidated sales of CZK 9.8 billion with year-on-year growth in net profit to CZK 1.8 billion.
Domestic sales of heated tobacco products increased by 0.2 billion to a total of 1.6 billion units in the Czech Republic and Slovakia.
The IQOS adult user base increased to approximately 830 thousand in the Czech Republic and Slovakia by mid-2022, about 530 thousand in
the Czech Republic and 300 thousand adult users in Slovakia. According to PMI, 570 thousand IQOS users had stopped smoking and
switched to IQOS completely.
November
First in the Czech Republic and a week later in Slovakia, the revolutionary new IQOS ILUMA heated tobacco device was launched for all adult
smokers who would otherwise continue to smoke. The all-new IQOS ILUMA is the brand’s first tobacco-heating system to introduce induction-
heating technology, which requires no blade and no cleaning. The new TEREA tobacco sticks are designed to be used only with IQOS ILUMA.
A long-prepared digital twin project was launched at the Philip Morris ČR a.s. Manufacturing Plant in Kutná Hora as part of the entire
warehouse management operations. The digital twin was implemented in the warehouse of finished products and the direct material
warehouse. The implementation will contribute to the overall efficiency of production and logistics.
December
By the end of 2022, the Kutná Hora plant produced the largest number of cigarettes ever, 32.5 billion units. This number placed us among
the world's five largest conventional plants of PMI. Moreover, this has been achieved while effectively reducing the environmental burden
without safety, health or quality accidents.
11
12
DEVELOPMENT OF PRODUCTS WITH
REDUCED RISK
The World Health Organization (WHO) estimates that there will be more than 1 billion smokers2 worldwide by 2025, which roughly corresponds to present
day figures. Since smoking prevalence remains largely unchanged in a 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 had publicly declared that our goal is to convince all current adult smokers that would otherwise continue to smoke, to switch to
smoke-free products. Our objective is to get at least 40 million adult smokers worldwide to do so by 2025.
Harm Reduction of Smoking
The harm reduction is an internationally highly regarded concept in addiction treatment, premised on the minimization of smoking related risk and harm. 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)3 created 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 has to 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 why PMI is developing a range of smoke-free products. 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.
Extensive Scientific Research
Since 2008 Philip Morris International Inc. invested over USD 10.5 billion into 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 more than 930 world-class engineers and experts that
drive forward our research, including laboratory and clinical trials.
A robust and transparent science 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 behavior studies conducted to verify
whether consumers correctly understood the product communication and determine how will they use our products in a real life.
13
2Bilano V, Gilmour S, Moffiet T, d’Espaignet ET, Stevens GA, Commar A, Tuyl F, Hudson I, Shibuya K. (2015) ) Global trends and projections for tobacco use, 1990–2025: an analysis of
smoking indicators from the WHO Comprehensive Information Systems for Tobacco Control Lancet 385:966-76
3 Harmful and Potentially Harmful Constituents
Difference Between Combustion and Heating
The tobacco combustion process creates large quantities of chemical constituents. Lighting a cigarette triggers a tobacco combustion process, creating
smoke, containing thousands of chemical constituents. 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 constituents4,5 many of which are harmful or potentially harmful.
These harmful and potentially harmful constituents are derived from 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 are
considered to be the probable causes of smoking related diseases such as lung cancer, cardiovascular diseases or chronic obstructive pulmonary
disease.