Good morning and thank you for joining us. I'm André Calantzopoulos, Executive Chairman of the Board, and I would like to welcome you to Philip Morris International's 2024 Virtual Annual Meeting of Shareholders, which I now call to order. On the call with me today are our Board of Directors, our Chief Executive Officer Jacek Olczak, our Corporate Secretary Darlene Quashie Henry, and our Audit Partner at PricewaterhouseCoopers Mary Clark. It is our intention to proceed in accordance with the agenda and the rules of the meeting as outlined on the Virtual Shareholder Meeting web page. The glossary of terms, including the definition of smoke-free products as well as adjustments, other calculations, and reconciliations to the most directly comparable U.S. GAAP measures for non-GAAP financial measures cited in this presentation, are available under Reports and Filings on our Investor Relations website. Today's remarks contain forward-looking statements.
I direct your attention to the forward-looking and cautionary statements disclosure in today's presentation. The Secretary will now present certain formal documents. Darlene, please.
Thank you, Mr. Chairman. I present to the meeting, together with the affidavit of mailing, a copy of the notice of meeting, form of proxy, proxy statement, and annual report, including financial statements for the fiscal year ended December 31st, 2023. The holders of record of common stock at the close of business on March 15th, 2024, are entitled to vote at this meeting. I am informed that approximately 80% of Philip Morris International's common stock is represented here today, and therefore a quorum is present for the transaction of business.
Thank you, Darlene. Please file the documents with the records of the meeting. I appoint as Inspector of Election Linda A. Piscadlo from American Election Services, LLC. The inspector is instructed to execute the oath and to take custody of all proxies and of the certified list of holders of common stock as of the close of business on March 15th, 2024. The inspector will certify the vote on each of the matters to be presented at this meeting. Individual proxies and ballots are kept confidential, with exceptions outlined in the proxy statement. There are three business items set forth in the notice of meeting that will be put before the meeting at this time, and I hereby declare the pause for voting at our 2024 Annual Meeting of Shareholders open.
Any shareholder who has not voted or wishes to change their vote may do so by clicking on the voting button on the Virtual Annual Meeting web page and following the instructions there. Shareholders who have sent in proxies or voted by telephone or internet and do not want to change their vote do not need to take any further action. Shareholders of record who have joined the meeting may ask questions by calling the number posted on the Virtual Annual Meeting web page. If you would like to ask a question or make a comment, you will be required to provide your 16-digit control number to the operator. Only shareholders of record with a valid control number will be allowed to make a comment. At this stage of the meeting, questions and comments should relate only to each item of business as it is presented.
A general question and comment session will follow the business portion of the meeting. Before I place the director names in nomination, I would like to say a few words about Mr. Jun Makihara, who has decided not to stand for reelection of the board. I would like to thank him for his many contributions to Philip Morris International over the past 10 years. As a board member and as a former chair of the Finance Committee, Jun has been an exemplary director whom the board and management of PMI will miss dearly. The first order of business is the election of 12 directors. The individuals on this slide, featured in alphabetical order, have been nominated for election as directors, each to hold office until the next annual meeting of shareholders, until his or her successor shall have been duly chosen.
In accordance with the company's bylaws, no other nominations may be made at this time. Are there any questions?
To ask a question, please press star then one at this time. I'm showing no questions at this time.
Thank you. We will now move to the second item on the agenda that the company's shareholders approve on an advisory basis, the compensation of the named executive officers, as disclosed in the company's proxy statement for the 2024 Annual Meeting of Shareholders. Are there any questions?
Once again, to ask a question, please press star then one at this time. I'm showing no questions at this time.
Thank you. The third item on the agenda is the ratification of the selection of PricewaterhouseCoopers as independent auditors of the company for the fiscal year ending December 31st, 2024. Are there any questions?
To ask a question, please press star then one at this time. I'm showing no questions at this time.
Thank you. That concludes the matters to be voted on as outlined in the notice of the annual meeting of shareholders. In accordance with our bylaws, I hereby declare the pause for voting at the 2024 Annual Meeting of Shareholders closed. We have received the preliminary report from the inspector of election. Will the secretary please read the report?
Mr. Chairman, the inspector of election has completed the preliminary count of the vote, which I have now received. The preliminary voting results are as follows. Each of the nominees for director has been elected. The named executive officer compensation has been approved on an advisory basis. The selection of PricewaterhouseCoopers as independent auditors has been ratified. Mr. Chairman, that concludes the report.
Thank you, Darlene. Please file with the records of the meeting the oath of the inspector of election, the final report of the inspector of election, and the proxy. Final voting results will be included in a Form 8-K that we will file with the SEC in the following days. That concludes the formal business, and I now declare the business portion of the meeting adjourned. Before we move to the questions and comment session, I will hand over the presentation to Jacek to provide an update on our business performance.
Thank you, André. Before I start, I would like to take a moment to express my sincere appreciation to André on behalf of our board and organization. As you know, while continuing to serve on the board as non-executive chairman, he has retired as an officer of PMI.
André's leadership and vision have been instrumental in shaping and driving PMI's smoke-free transformation, and his business knowledge and acumen is second to none. On a personal note, it is a real pleasure working with him, and I look forward to the benefit of his continued guidance as chairman. Let me start the business discussions with a few words on the industry landscape. There is a clear demand for smoke-free products among the 1 billion-plus smokers worldwide. Adult consumers are seeking better alternatives to smoking, as demonstrated across virtually all markets where smoke-free products are available. The industry is undergoing a structural shift with a decade of double-digit smoke-free category growth, and this momentum continues. Since 2008, we have invested over $12.5 billion to serve this demand, and I am pleased to report that our smoke-free momentum is accelerating.
Turning to our financial results, PMI delivered another strong operating performance in 2023. We achieved our third consecutive year of positive volumes and very strong currency-neutral top and bottom line growth. This reflects the continued excellent performance of IQOS, the impressive growth of ZYN, and the resilience of our combustible business. We are also well on track to deliver a strong 2024, following a very good start to the year. First-quarter results exceeded our expectations, delivering double-digit growth in organic net revenue and operating income with continued excellent performance from IQOS and ZYN, as well as a robust combustible pricing. Our transformation is advancing rapidly, with smoke-free net revenues reaching nearly 40% of a total PMI in the Q4 of 2023. This includes 25 markets over 50% and compares with essentially zero smoke-free revenues in 2015.
Combined with the increasing bottom line smoke-free contribution, this highlights our excellent trajectory as we continue to expand our portfolio and geographic reach. As of December 31st, 2023, our smoke-free products are available in 84 markets worldwide, with around 33 million estimated legal age users. Indeed, in the last quarter of last year, IQOS net revenues surpassed those of Marlboro for the first time, highlighting the strength of IQOS as a leading global brand. It is also testament to our organization's ability to build a strong and sustainable brand equity supported by strong commercial and innovative capabilities. This performance, further enhanced by ZYN, represents further progress towards our 2030 ambition for smoke-free products to contribute more than two-thirds of our net revenues. Turning to IQOS' progress in key geographies.
In the Europe region, heated tobacco unit shares surpassed the 10% overall share milestone for the first time in the first quarter of this year, reflecting robust user and adjusted IMS volume growth. In Japan, the adjusted share for our heated tobacco units brands increased by an impressive 3.1 points year-over-year to 29.3%. Notably, in January, the heat-not-burn category surpassed combustible cigarettes in Tokyo. Such impressive growth in a market with already high category penetration is a clear testament to the sustainable growth potential of IQOS around the world. Outside of Japan and Europe, we continue to see very promising IQOS growth across the globe, including in low and middle-income markets. This is evident from growing shares in many diverse geographies. Now, let's move to ZYN, where considerable progress since the 2022 acquisition of Swedish Match has continued.
ZYN's premium positioning and superior brand equity were again demonstrated in the first quarter in the U.S., with 70% growth in 12-month rolling shipments, with notable growth in both category volume share and retail value share. This reflects a broad step-up in nationwide stock velocities and gradual distribution expansion as the category gains strong traction with adult nicotine users. As outlined previously, we remain focused on marketing ZYN responsibly to prevent unintended use. We support the FDA's efforts to ensure only consumers over 21 years of age have access to nicotine products. Swedish Match follows a robust U.S. marketing code that prohibits using social media influencers and age-gates digital platforms to 21-plus. Swedish Match also partners with We Card to help ensure retail sales only to legal age adults. Continuous innovation is a key driver of growth, and our pipeline continues to deliver.
IQOS ILUMA sets the new technology benchmark and serves as the core platform for multi-year growth and innovation. ILUMA is now available in 64 markets, representing nearly 100% of IQOS volumes outside Russia. We also recently launched the latest IQOS device evolution, ILUMA i, in Japan. Innovation on consumables is also critical as we broaden our offerings across markets. This includes LEVIA, heated tobacco units which contain nicotine but no tobacco leaves, and DELIA, our new mainstream priced brand for heated tobacco units. In the US, following the closing of the Altria transactions on April 30th, we will, as planned, be conducting consumer activations in select pilot cities with the IQOS ILUMA system in the coming months. The main purpose of this consumer activation is to fine-tune our approach in anticipation of the at-scale launch of IQOS ILUMA following authorization from the FDA.
The international expansion of nicotine pouches remains a key focus, notably for ZYN as the world's leading brand in the category. In e-vapor, our focus strategy for VEEV is showing very good early results. Positive consumer feedback is translating into promising repeat purchase and conversion rates, and we are on a path to profitability in the second half of this year. Now, a few words on our combustible business, which operates outside the U.S. We continue to hold the leading international portfolio by market share and by brand strength. This gives us a formidable platform to accelerate the growth of our smoke-free business via our commercial infrastructure, industry expertise, and ability to communicate with adult smokers where permitted. Despite cannibalization from our smoke-free product, we continue to target maintaining our share of the category and a positive contribution to profit growth.
Moving to sustainability, I would like to highlight the release of our 2023 Integrated Report in March of this year. This report highlights progress on our continued expansion of smoke-free alternatives across categories and geographies, as well as social and environmental programs deployed with and in parallel to these products in support of sustainable value creation. This includes responsible marketing and sales practices, youth access prevention programs, and efforts to reduce post-consumer waste. Furthermore, it highlights our progress on improving the quality of life of people in our supply chain, decarbonizing our operations and value chain, and preserving nature. We are also very pleased with the continued recognition of our sustainability performance and robust reporting. To highlight just a few from 2023: PMI was included in the Dow Jones Sustainability World Index for the first time and for the fourth year in the Dow Jones Sustainability Index of America.
In addition, PMI was the only U.S. company to obtain a AAA rating from the Carbon Disclosure Project. More than 20,000 companies worldwide participated in this rating, and only 10 obtained this prestigious recognition. Moving now to shareholder returns. We are highly cash-generative, which allows us to maintain a strong balance sheet while investing in innovation and the growth of our business. Last September, we increased our annual dividend for the 16 consecutive years since the spin in 2008, representing a total increase of approximately 183% and a compound annual growth rate of 7.2%. This is in line with our unwavering commitment to a progressive dividend policy. To conclude today's business presentation: continued excellent IQOS and ZYN performance further enhances our position as the global smoke-free champion, with leadership positions in the largest category of heat-not-burn and the fastest-growing category of oral nicotine.
We are progressing rapidly toward our ambition to become a substantially smoke-free business. The exciting growth combination of IQOS and ZYN presents a strong platform for growth over the coming years. We are leading on sustainability as we seek to maximize our positive impact on society by addressing our most significant issues. Importantly, we remain steadfast in our commitment to generously reward our shareholders over the long term. In summary, the future is bright, and we believe our smoke-free transformation will continue to deliver sustainable growth for our investors. Before I turn it back over to André, I would like to express my deepest thanks to all my colleagues at PMI, who spared no effort to drive another year of excellent business results. Thank you, André, over to you.
Thank you very much, Jacek. The meeting is now open for questions and comments.
For full transparency, during this session, which has been publicly webcast, our shareholders will be able to ask questions live on a first-come, first-served basis. As I mentioned earlier, in order to ask a question, you will be required to provide your 16-digit control number to the operator. Only shareholders of record with a valid control number will be allowed to ask questions. In order to provide an opportunity for everyone who wishes to speak, each shareholder will be limited to two minutes. Shareholders may speak a second time only after all others who wish to speak have had their turn. When speaking, shareholders must direct questions and comments to the chairman and confine their remarks to matters that relate directly to the business of the meeting.
The meeting is not to be used as a forum to discuss personal grievances, business disputes, or to present general political, social, or economic views that are not directly related to the business of the meeting. A full replay of the meeting will be available on our website at www.pmi.com. We have allowed up to one hour of questions. Are there any questions or comments? Thank you.
If you would like to ask a question, please press star, then one at this time. If you plan to ask a question, please mute or close your web browser. Once again, ladies and gentlemen, press star, then one if you have a question, and we will pause for just a moment while we assemble our roster. And today's first question comes from Cathy Rowan. Please go ahead.
Thank you. Thank you. Hello, Mr. Calantzopoulos, Mr. Olczak, and members of the board and fellow shareholders. This is Cathy Rowan representing Trinity Health, and last November, five PMI investors filed a shareholder proposal seeking greater transparency about the company's direct and indirect lobbying expenditures and activities. There's clear investor demand for more corporate oversight and disclosure of lobbying practices. Since 2010, investors have filed nearly 600 shareholder resolutions with companies, asking for more information on how they oversee lobbying activities and how much they spend. Since 2020, average support for over 100 lobbying resolutions was about 32%, a range of support that typically prompts action from companies.
We're pleased that our engagement with PMI on this issue led the company to develop a new external engagement policy to be applied globally and also in the U.S. at the federal and state level, with transparency as to how public policy engagements will be conducted and the structures governing them. We withdrew the proposal and appreciate the company's responsiveness, and we will continue to engage PMI on how the policy is being implemented, and we'll seek continued improvements in lobbying expenditure transparency. Thanks for the opportunity to make this statement.
Thank you, Mrs. Rowan. And I have to say, on the PMI side, the interaction with Trinity is a very good example of how dialogue and not ideological-only positions can lead to mutually beneficial solutions that may help society broadly in the long run. Thank you again for your intervention.
Thank you. Our next question comes from Michael Piccarillo. Please go ahead.
Hello? Hello? Hello? Can you hear me? Yes, absolutely. Hey, how are you? My name is Michael Piccarillo. I represent the United Brotherhood of Carpenters. My question is: the company has in place a Director Resignation Bylaw that provides the board post-election discretion to determine whether to accept or reject the resignation of an incumbent director who fails to be reelected. Does the bylaw undermine the voter rights of shareholders by allowing the board to have the final say on the unelected director status? Thank you.
Sorry. There is a process for electing directors. I couldn't follow very well your question because it was breaking.
You want to repeat it?
Yeah. I mean, the bylaws clearly state, and I can speak under Darlene's control here. Probably you go ahead.
The bylaws state that if a director receives less than 50% of the vote, they can voluntarily resign. We have not had a director in that position.
Does this answer your question?
It does. Thank you.
Very well.
Thank you. Our next question comes from Kofi Bullock. Please go ahead.
Hello. My name is Kofi Bullock, and I'm an organizer at Corporate Accountability. Philip Morris International has said it would stop marketing cigarettes once IQOS heated products are introduced to market, yet evidence shows that PMI continues to aggressively market Marlboro in Global South countries like Colombia, where IQOS was introduced in 2017. This case contradicts PMI's stated commitment to encouraging traditional cigarette smokers to use IQOS products and raises concerns about the sincerity of its transition towards supposedly less harmful products and adherence to marketing standards, especially regarding the exposure of minors to cigarette marketing.
PMI has made numerous public statements over the years expressing a commitment to move away from the cigarette business and towards a "smoke-free future." Notably, in January of 2018, PMI announced a New Year's resolution to give up cigarettes. This is juxtaposed starkly against a February 2024 media report of the corporation building a new cigarette factory in Tanzania. Such actions raise critical questions regarding PMI's public commitments versus its business strategies and practices, particularly in Global South countries. As far back as 1972, PMI executives said they would stop production if they found out cigarettes were harmful. Yet here we are, more than 50 years later. PMI's dependence on Marlboro is only growing, and PMI continues to face reiterative accusations of marketing cigarettes to minors and engaging in practices counter to this smoke-free vision.
These outstanding discrepancies lead to my question today: how does PMI reconcile its publicly stated aspirations for a smoke-free future with its continuous investments in cigarette production facilities and activities like the new cigarette factory in Tanzania?
Jacek, maybe you want to answer this question, but before that, I will tell you that, at least factually, there is no building of a factory in Tanzania. But you asked the same question, Mayor Mark, if I'm not mistaken, last year. Now, Jacek will give you the answer to your question.
Yes, I will answer the questions, but with the reservations that the number of the statements which you make in the preamble to your questions are simply not correct; they are not true. [And the nation's] factory in Tanzania, which is not correct.
But let's go back to the very first statements which you said, that you implied that Philip Morris has said that we will start selling the IQOS, so any of our smoke-free products will stop selling cigarettes. We've been very clear from the very beginning that we will offer these markets to all adult smokers wherever it is legally possible because we have to be mindful that still there are quite a few markets which allow sales of combustible cigarettes, but this allows the sales of the better alternatives, which obviously puts a very big question mark with regards to the tobacco harm reduction application of a tobacco harm reduction strategy. So we have made it very clear that we will reallocate quite a massive resources from combustible cigarettes; this is with regards to R&D and very much importantly from the marketing.
For any interested party and current CEO to follow our disclosures in annual report, when essentially 99% of our R&D resources are devoted or invested in smoke-free products, and more than three-quarters around three-quarters of our marketing or commercial resources are invested behind the smoke-free products. Clearly, one can see this proportionate massive investment of our resources if I just reflected on the proportion of revenues generated from the smoke-free products. We have also, and I have also personally made a number of statements that we are willing to discuss comprehensive solutions to the problem of combustible smoking in any country at any time. Okay? Surprisingly, I am not receiving many responses.
So if we want to unsmoke the world and help more than 1 billion smokers in the world, it is not just the Philip Morris International, but it's also the orchestrated effort by the regulators, policymakers, and many other stakeholders, including organizations like yours. I hope I comprehensively answered your question. Thank you.
Thank you. Our next question today comes from Marlene Sauer. Please go ahead.
Hi. My name is Marlene Sauer, and I'm an organizer at Corporate Accountability. Philip Morris International has made multiple public statements about its intention to stop selling cigarettes, focusing instead on its products like IQOS HEETS. However, PMI's 10-K forms reveal the critical significance of its leading cigarette brand, Marlboro, to the corporation's portfolio, and the same has been revealed in previous years' 10-K forms.
Marlboro is not only the top-selling international cigarette brand, but its dominance within Philip Morris International's total cigarette shipment volume has been consistently growing and is up from 33% in 2012 to 39% in 2023. This trend is mirrored in Marlboro's share of the international cigarette market, which has seen a gradual increase from 9.3% in 2012 to 9.8% in 2023. These numbers suggest a deepening reliance on Marlboro cigarettes, underscoring the brand's importance to PMI's business strategy and raising questions about your corporation's commitment to actually transitioning away from cigarette sales. So my question is: how does PMI's growing reliance on Marlboro sales align with its stated mission of leading the transformation in the tobacco industry away from traditional cigarettes?
I think Jacek answered your question already to your colleague.
Having said that, you should not be confusing volume and sales of cigarettes, and Marlboro volume is declining also because a large proportion of the IQOS users come from Marlboro and market share, because having a higher share in a declining cigarette market is something we stated publicly. We want to maintain our share. For the rest, the proportion of our investment in commercial activities, Marlboro is just a fraction compared to what we invest in the smoke-free products. And I think our strategy that has been very widely announced to the shareholders is to maintain our share in the cigarette business and work with governments to work on comprehensive programs to phase out cigarettes because alone, we cannot do it.
Thank you. And our next question comes from Nomi Martin-Brouillette. Please go ahead.
Hello. My name is Nomi Martin-Brouillette, and I'm an organizer at Corporate Accountability.
It is well known to everyone at this meeting that the consumption of or exposure to tobacco products is extremely dangerous. However, PMI continues to have huge and concerning discrepancies between its public statements versus its real-life actions in regard to ethical concerns and regulatory compliance. It appears that PMI is merely conducting a PR campaign where the corporation states one thing publicly, but its actions do not mirror its words nor what you are reporting back year after year in these meetings. PMI executives may say one thing for the sake of the corporation's image, but either PMI workers in country do not actually follow the directives of the CEO or other PMI executives, or your corporation is outright lying.
One such example of this is in Global South countries like Colombia, where our organization has countless pictures of PMI marketing its products right next to displays for candy and children's toys at the eye level of children, not adults. Either PMI is lying about not marketing to children, or its employees in countries like Colombia are not following the instructions of PMI's global executives. This is compounded by instances such as fines in countries like Brazil for targeting youth and the corporation's involvement in controversies, and in some jurisdictions, lawsuits over driving the climate crisis to overwhelming the ocean with plastic pollution. There appears to be a point of disconnection between the corporation's leadership and its operational workforce, highlighting issues of internal coordination or alignment with the corporation's stated objectives.
If PMI's leadership is perceived publicly as being indifferent or unconcerned about these discrepancies or ethical lapses, it could signify a lack of accountability within upper management. It could also potentially lead to lawsuits and a decline in revenue long term. So my questions are: one, when will PMI actually stop marketing to children in Global South countries like Colombia, where there is ample and concerning evidence that it continues to do so? Two, is PMI facing a lack of accountability at higher management levels, which could exacerbate the corporation's credibility challenges?
Jacek would like to follow up on the same thing.
Yeah. So again, a little bit I don't know what's the right words to express here, but I always assume that the transparency of Philip Morris and my colleagues at management on a regular basis with investors and the shareholders would be very clear and very detailed in describing our practices and our strategies, etc. But clearly, I can see from the questions I am receiving from your organizations that some shareholders are not really very familiar with the facts about our company, but we'll try to do better next time when we'll have the next opportunity. In your opening statement, and this is regretfully, I have to say, it is only one factual information: smoking is very dangerous, and smoking is very harmful to health. And this company, my company, is doing utmost effort to resolve this problem.
Now, everything else which is rising in your question as misinterpretations, misfacts, etc., let me just comment on one thing which is very close to my heart as the father, parent, and as the CEO of this company, is the youth smoking. It's difficult to stop doing something if you don't do this. This company stands very strongly on the principles and the marketing code and very much on the access of a nicotine product to the young people or underage people. Everyone in this company is undergoing a very strict training and monitoring that our practices, unlike you mentioned, are aligned with the words of the CEO. Again, I hope I comprehensively answered your question. Thank you.
Thank you. There are no further questions at this time. Well, this concludes our questions and comments period.
Thank you all very much for joining our 2024 virtual annual meeting of shareholders. Thank you. You may now disconnect your lines.