Value chain

We strive to become a company that has a net positive impact on society.

This ambition starts with researching, developing, and commercializing less harmful alternatives to cigarettes for those adults who otherwise would continue to smoke, ultimately allowing us to phase out cigarettes and become an entirely smoke-free business.

We realize that business transformation is a very company-specific journey, which ESG reporting standards do not adequately capture. To make our progress both measurable and verifiable, we developed our Business Transformation Metrics, a bespoke set of financial and nonfinancial key performance indicators (KPIs). These metrics showcase how we are allocating resources away from our legacy business as we advance toward a future in which we no longer make or sell cigarettes.

As a next step, we are expanding our offerings to include products that fill critical unmet needs within the wellness and healthcare space. To achieve our purpose, a radical transformation of our business is required.

2 sourcing

1 >350,000 farmers 2015

3 >220,000 farmers

4 operations

5 423m R&D

6 642m adjusted

7 commercialization

8 7 markets

9 15.1% shipment

10 consumers

11 0.2m users

12 32.1% net revenues

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SOURCING

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Transitioning from a mainly agricultural supply chain to an increasingly diversified one, including electronics sourcing

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OPERATIONS

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Reallocating R&D expenditure toward smoke-free product innovation and scientific capabilities, while reorienting manufacturing toward smoke-free products

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COMMERCIALIZATION

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Moving from B2B to a consumer-centric model to commercialize smoke-free products

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CONSUMERS & REVENUES

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Shifting revenue source from majority cigarettes to majority smoke-free products while addressing post-consumer waste

Notes: In the fourth quarter of 2022, we acquired Swedish Match, a market leader in oral nicotine delivery with a significant presence in the United States market. The Swedish Match acquisition is a key milestone in PMI’s transformation to becoming a smoke-free company. PMI consolidated statements of earnings for the year ended December 31, 2022, include the results of operations of Swedish Match from November 11, 2022 (acquisition date) to December 31, 2022, as presented in the Form 10-K for the fourth quarter and year ended December 31, 2022.

Following the Swedish Match acquisition and a review of PMI and Swedish Match’s combined product portfolio, PMI reclassified certain of its own products previously reported under its combustible tobacco product category to the newly created smoke-free product category to better reflect the characteristics of these products. Where applicable, prior years’ amounts KPIs have been recalculated to reflect the reclassification on a comparative basis, reclassified to conform with the updated presentation for 2022—impacted metrics are marked with (†).

For definitions of the KPIs please refer to PMI’s ESG KPI Protocol 2022.

1 Direct spend focuses on materials used in the manufacture of our products; it includes tobacco leaf, direct materials, and electronic devices and accessories. Data excludes Swedish Match, and Vectura Fertin Pharma.

2 Data reflects the number of factories operated and owned by PMI at the end of the respective year, including Swedish Match and Vectura Fertin Pharma. 2022 factories include eight facilities producing heated tobacco units, two producing other smoke-free consumables and 14 Swedish Match owned facilities, primarily engaged in the production of smoke-free products.

3 Including Swedish Match.

4 These indicators are calculated based on millions of units. Smoke-free products shipment volume includes volume of smoke-free products that can be converted into cigarette equivalent units, such as heat-not-burn, e-vapor, and oral smokeless. Total shipment volume includes the listed smoke-free products as well as combustible tobacco products; cigarettes and other tobacco products expressed in cigarette equivalent units. Data does not include Swedish Match and wellness and healthcare products.

5 Figures pertain to total IQOS users.

6 Figure includes Swedish Match net revenues from November 11, 2022 (acquisition date) to December 31, 2022.

Our value chain transformation