Good morning, ladies and gentlemen, and welcome to Philip Morris International's 2020 Annual Meeting of Shareholders. The meeting is now called to order. I am Louis Camilleri, Chairman of the Board. I would like to extend my warmest welcome to shareholders and employees who have joined us for our first virtual only meeting. I very much hope and pray that everyone listening today and their families are safe and well during this unprecedented time.
It's my privilege to welcome our Board of Directors to today's webcast. Also on the webcast are Andre Kalantzopoulos, our Chief Executive Officer and Jerry Whitson, our Deputy General Counsel and Corporate Secretary. In addition, Chad Mueller of PricewaterhouseCoopers, our auditors, is also on the webcast. It is our intention to proceed in accordance with the agenda and the rules for the meeting as outlined on the Virtual Shareholder Meeting webpage. Our remarks today contain forward looking statements, and accordingly, I direct your attention to the forward looking and cautionary statements section of today's presentation.
A glossary of terms, including the definition for reduced risk products, or RRPs, as well as adjustments, other calculations and reconciliations to the most directly comparable U. S. GAAP measures are at the end of today's webcast slides, which are posted on our website. Please note that we now also include an additional forward looking and cautionary statement related to the COVID-nineteen pandemic. The Secretary will now present certain formal documents.
Jerry?
Thank you, Mr. Chairman. I present to the meeting together with affidavits 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 31, 2019. The holders of record of common stock at the close of business on March 13, 2020 are entitled to vote at this meeting. I am informed that more than 87% of Philip Morris International Inc.
Common stock is represented here today, and therefore, a quorum is present for the transaction of business.
Thank you, Jerry. Would you kindly file the documents with the records of the meeting. I appoint as Inspector of Election, Linda 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 13, 2020. A list of shareholders as of the record date is available for inspection by shareholders using the registered shareholder list link found on the webcast page.
The inspector will certify the vote on each of the matters to be presented to the meeting. Individual proxies and ballots are kept confidential, with exceptions outlined in the proxy statement. The 3 business items set forth in the notice of meeting will be put before the meeting at this time, And I hereby declare the polls for voting at our 2020 Annual Meeting of Shareholders open. Any shareholder who has not voted or wishes to change their vote they do so by clicking on the voting button on the Virtual Annual Meeting webpage and following the instructions that are laid out there. Shareholders who have sent in proxies or voted by telephone or via the Internet and do not want to change their vote, do not need to take any further action.
Shareholders of record who have accessed the Annual Meeting may ask questions by calling the number posted on the Virtual Annual Meeting webpage. 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 or ask a question. At this stage of the meeting, questions and comments should relate only to each item of the business as it is presented. A general question and comment section will follow the business portion of the meeting.
Before I place the of Directors who have decided not to stand for reelection and will retire from the Board. Mr. Massimo Ferragamo, a Director since 2016 and Mr. Stephen Wolf, who has been on the Board since we became a public company. They have both been exemplary directors, providing invaluable service and years of dedicated commitment to our company.
We thank them for the many contributions they have made to Philip Morris International. The first order of business is the election of 10 directors. The individuals on this slide have been nominated for election as Director, each to hold office until the next Annual Meeting of Shareholders and 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 or comments on this matter?
There does not appear to be any questions. So thank you. We will now move to the 2nd 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 2020 Annual Meeting of Shareholders. Are there any comments or questions on this matter?
I have no comments at this time, sir.
Thank you. We'll move on to the 3rd and final item, which is the ratification of the selection of Pricewaterhouse Coopers as independent auditors of the company for the fiscal year ending December 31, 2020. Are there any comments or questions on this matter?
There are no comments at this time.
Thank you. So that concludes the matters to be voted on as outlined in the notice of the annual meeting. In accordance with our bylaws, I hereby declare the polls for voting at our 2020 Annual Meeting of Shareholders closed. We have received a preliminary report from the Inspector of Election. Jerry, will you 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 executive 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 very much, Jerry. I would now ask you to file with the records of the meeting, the oath of the Inspector of Election, the final report of the Inspector of Election and the proxies. Final voting results will be included in a Form 8 ks that we will file with the SEC in the next few days. That concludes the formal business, and I now declare the business portion of the meeting adjourned. Before we move to the question and comment session, I would like to ask Andre to review Philip Morris International's developments relative to the COVID-nineteen pandemic and to provide some highlights on our recent business performance.
Andre?
Thank you, Louis. PMI's response to the COVID-nineteen crisis includes practical, financial and personal contributions. Our main focus is on the health and well-being of our employees, their families and the communities in which we operate. We have implemented stringent policies and measures to minimize risks for those who continue to work in our facilities and offices and to provide guidance and support for all our people. We recently announced a new set of guiding principles to reassure employees of the company's commitment to job security throughout the global pandemic period.
The strength and spirit shown in these challenging times by the people that make up our organization is a real inspiration to me and the PMI management team, and I would like to again thank them for their outstanding endeavors. We also joined the global and local efforts to combat the pandemic. Across 62 markets, we have donated over $30,000,000 supporting hospitals, crisis centers, trade partners and at risk populations. Supplementing this is the work of our people across the globe, supporting their communities with resources, skills, compassion and time. We're using our expertise to source difficult to find equipment, including ventilators in Greece, Slovakia, Hungary and the Czech Republic.
Our affiliate in Brazil has lent its research equipment to a university laboratory. We're donating personal protective equipment to hospitals in Italy and providing protective counter screens to tobacconists in Spain. We've produced thousands of liters of hand sanitizer in our facilities in Switzerland, Poland, the Netherlands, Indonesia and Brazil. We're also providing protective gear to those who need it most. In Portugal, employees used 3 d printers to create face shields for health workers.
Our people have undertaken countless volunteer activities. In Mexico, volunteers delivered food baskets and critical information to families or migrant workers. Employees in Europe provided hundreds of computer tablets to its retirement homes, helping residents stay connected with their families. In Israel, colleagues are supporting the elderly with food, medicine and phone calls. In the Philippines, they're delivering food to those who have lost their incomes.
It is with pride that I share this work with you today. In the next few slides, I will recap some of the highlights from our full year 2019 Q1 2020 results communications, including the impact of COVID-nineteen on our business. More detail is available on our Investor Relations website at pmi.com. We started the current year with a very strong Q1 with minimal disruption to business performance and continued structural growth momentum. We have activated contingency plans where required to ensure sufficient inventories and consumer access to our products.
Moreover, our continued ability to generate cash allied to a healthy balance sheet and liquidity position will allow us to continue investing in our business, retire maturing debt and pay dividends. There are certain likely impacts on our near term operating environment from pandemic linked restrictions, with the main expected effects being on duty free sales, HEICO's user acquisition and Indonesia pricing enforcement. We are confident the strong momentum on HEICO user acquisition shown in recent quarters will start to resume as restrictions ease. In the meantime, our digital and commercial capabilities allow us to serve our existing adult consumers, maximize the conversion of adult smokers and tailor our investments as required. There is also considerable uncertainty around the magnitude of the current situation's economic consequences and the speed and shape of the recovery, including the impacts on disposable incomes and unemployment.
However, as in previous times of economic and social turbulence, we expect to show resilient performance through these challenges. I turn now to our recent business results. An excellent performance in 2019 was followed by further impressive progress in the Q1 of 2020 with strong like for like currency growth, partly benefiting from distributor and trade inventory movements related to the COVID-nineteen pandemic. We expect this latter effect to reverse in the Q2. Heated tobacco unit shipment volume grew by over 40% in both full year 2019 and in the Q1 of 2020, reflecting continued broad based share gains.
Currency neutral like for like net revenue grew by 6.4% in 2019 and 10% in the Q1 2020, reflecting this progress in RRPs and strong combustible tobacco pricing. In conjunction with substantial increases in our adjusted currency neutral like for like operating income margin, this drove strong growth in adjusted diluted EPS on the same basis. Let me now summarize the 3 main areas of expected income impact from temporary COVID-nineteen related changes to our operating environment in addition to the effect of currency movements. The first and likely longest in duration is on duty free sales due to severely curtailed global travel. Due to its premium SKU, we assume that only a portion of lower duty free volume will be recovered by our brand portfolio in local markets, usually at lower margins.
The second impact is on the rate of IQOS user acquisition. Lockdown measures and other restrictions hamper our ability to engage adult smokers. Based on recent trends, we expect our rate of user acquisition to be on average around 50% lower than previously anticipated for as long as widespread restrictions continue. Variations by country also make the mix difficult to project. To be clear, we believe this is delayed rather than lost growth and we expect the strong underlying momentum witnessed in recent quarters to pick up as restrictions ease.
Importantly, we do not expect customer retention or conversion rates to be significantly affected. The last main area of impact is in Indonesia. As explained in previous investor communications, 2020 was already a year of catch up on excise tax and pricing. A positive structural element of the new excise tax was a larger percentage increase at the mid to low segment of the market, with a new minimum retail selling price due to come into effect on April 1. However, due to COVID-nineteen restrictions, enforcement of the new minimum price is now delayed until June.
The prolonging of unfavorable price gaps is an added headwind for the risk of down trading, the timing of price increases and for our own market share. While the effects of pandemic related measures on our operating environment such as travel restrictions are tangible, there is a greater uncertainty as to the impact on consumer purchasing behavior during the crisis. In developed markets, like the European Union region or Japan, which tend to have strong social support programs, we have so far observed only a limited impact. In certain developing markets, the high prevalence of daily wage workers, low resources for social support and thus greater fragility of income create more vulnerability. We observed some initial signs of down trading and reduced daily consumption in some countries.
The most significant for us are Indonesia and the Philippines. We have to assume these trends will temporarily continue while pandemic driven restrictions last. Our own manufacturing and distributions operations continue to function well despite current challenges. This is made possible by the incredible efforts of our supply chain and market teams, we have implemented a number of contingency measures with regard to production and customer supply. On average, inventories of our products remain healthy with over 2 months of heated tobacco units, over 3 months of IQOS devices and over 1.5 months for cigarettes, including distributors.
All our heated tobacco unit factories are currently operating with sufficient capacity. Around 20% of our cigarette production capacity is currently affected by temporary shutdowns. In the Philippines, where we have observed some increased demand for our products in recent weeks, driven by competitor out of stocks, our factory is currently subject to quarantine related restrictions. If the restrictions continue until the end of May, we could reach out of stocks on some SKUs, mainly in local brands. Aside from this, we do not currently see any major operating income market as being at risk.
Elsewhere, in light of a factory lockdown, we are currently experiencing an out of stock situation in Argentina. Our financial position remains robust with a number of key metrics shown on this slide. We continue to have ample liquidity sources through the ongoing cash generation of our business, cash on hand and access to commercial paper. At the end of April, we further increased our mid term financial flexibility with a 3 tranche bond offering for a total of $2,250,000,000 with record low coupons for both the 3rd the 3 10 year offering. Our revolving credit facility remains undrawn.
Our balance sheet also remains strong. Importantly, we expect the strong cash flows will exceed cash requirements, including the funding of dividends to which we remain fully committed. The transformation of our business continues at pace. Reduced Risk Product net revenues reached $5,600,000,000 in 2019 and $1,600,000,000 in the Q1 of 2020, the latter representing almost 22% of total net revenues. Turning now to RRP performance.
We estimate that there were 14,600,000 total IQOS users as of March 31, representing the addition of more than 4,000,000 Adant users since the same time last year. We further estimate that 73% of this total or 10,600,000 IQOS users have stopped smoking and switched to IQOS with the balance in various stages of conversion. As in 2019, this reflects widespread user growth across all key IQOS geographies, including Japan, Russia and the European Union. The overall share performance of IQOS heated tobacco units continues to see excellent progress. Indeed, in international markets where IQOS has been commercialized, IQOS heated tobacco units were again the 3rd largest tobacco brand in the Q1 with a 6 0.6% share increasing from 5.5% in the Q4 2019.
This was achieved despite not having full national distribution in a number of markets. Turning now to progress in key geographies. First quarter share for HEETS reached 3.9% of total industry volume in the European Union region and 6.5% in Russia. In both cases, this reflects strong user growth on both a sequential and year over year basis. In Japan, reported share increased significantly.
On an adjusted total tobacco yield, including Segurrillos and excluding estimated trade inventory movements, the share for our heated tobacco unit brands increased by 1.1 points versus the prior year quarter and by 0.6 points sequentially to 17.7%. In summary, the continued strong underlying momentum in our business, especially the impressive growth of reduced risk products is again evident in our 2019 Q1 2020 results. The world has clearly now changed with considerable uncertainty as to the development and duration of the pandemic and its economic and social consequences, including those which impact our operating environment and our consumers. Our business has historically proven remarkably resilient, and we believe we can deliver a solid performance under the current challenging circumstances. Importantly, we remain confident in our structural mid term growth prospects and when these headwinds will have passed, expect to resume growth consistent with our 2019 to 2021 compound annual ex currency growth targets.
Crucially, our organization, liquidity and balance sheet are strong. We'll continue to protect and support our employees, serve our consumers and reward our shareholders, which clearly includes our strong commitment to our dividend. We are convinced that we'll emerge stronger from this crisis. Finally, I encourage all our shareholders and other stakeholders to read the statement of purpose adopted by PMI's Board of Directors and published in a proxy statement. Clarity of purpose is essential for internal alignment of any company.
BMI's statement of purpose reaffirms our commitment to deliver a smoke free future for the benefit of people who smoke and all other stakeholders. Thank you. I will now hand back to Louis.
Thank you very much, Andre. The webcast is now open for questions and comments. For full transparency, during this session, which is being 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 is kindly asked to be limited to 2 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 me and confine their remarks to matters that relate directly to the business of the meeting. We reserve the right to reject redundant questions or questions that we deem inappropriate. 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 for approximately 1 year from the date of meeting. We've allowed up to 1 hour for questions. Are there any questions or comments?
Today's first question comes from Justin Flores. Please go ahead.
Yes, good morning. My name is Justin Flores, Vice President of the Farm Labor Organizing Committee and a proxy for David Austin. My question today is about tobacco procurement. Our union represents tobacco farm workers in the U. S.
And years back after identifying human rights abuses in the company supply chain, so it more has rolled out the agricultural labor practices that all suppliers would have to comply with that is modeled on international human rights standard. And for tobacco workers in the United States, it was viewed as an impressive commitment guaranteeing the right to collectively bargain in a country where farm workers have been denied that right from the time of slavery through today. However, to date, this program has yet to be implemented. Shortly after the ALP announcement, PMI announced it would no longer source tobacco directly, but would use Universal Leaf and Alliance 1, who would be required to use the same agricultural labor practice program. However, neither company has made any real advances in implementing this broad program, specifically around freedom of association and collective bargaining.
Throughout the U. S, both companies keep their supplier list secret, both from the public and from the farm workers in the supply chain, meaning that no one actually knows, no farm workers actually know about the rights that the ALP is supposed to provide. And so given what appears to be from the viewpoint of farm workers, this failure of the ALP implementation from both companies. Has PMI consider reverting back to direct purchasing or identifying other procurement options such as or others in an effort to implement the ALP and to provide more resources to growers to comply with the ALP?
Well, thank you for your question, Justin. We would challenge your perspective related to the implementation of the Agricultural Labor Practices Program. You're right to say that we're very proud of that program, which is instituted worldwide. We believe it has been implemented. And I would say that our suppliers, the 2 that you mentioned, have been very forthcoming and diligent in the pursuit of all the protocols and procedures that are included in the ALP, particularly with regard to freedom of association.
Whenever there are any grievances, there is complete follow-up. And I can assure you that Philip Morris itself also follows up with its 2 suppliers. So are we perfect? Probably not. But I think to say that we have not implemented the ALP is a bit of a stretch.
So we're very proud of our program and we will continue to pursue it with our 2 suppliers in the U. S. And we don't really intend to change our procurement practices. So thank you for coming and thank you for your question.
Our next question today comes from Gerald Matthews. Please go ahead.
Good morning, Mr. Chairman. This is Gerald Matthews. I'm with the United Brother of Carpenters. The Carpenter Union Pension Funds with a combined asset $70,000,000,000 have a collective ownership position of 216,500 shares of the company's common stock.
The company certainly has an ambitious and challenging strategy to transform itself as it moves to a smoke free alternatives. The Board has noted this task includes the challenge of working with a variety of important stakeholders to achieve stated strategic goals. Could you briefly describe the process utilized to evolve the Board directly in the formulation and execution of the company's strategic plan? Thank you, Mr. Chairman.
Well, thank you very much for your question. I think Andre referred to the key purpose of the company that the Board, the letter that they have included in the proxy statement. I think it's very, very articulate as to our priorities and shows the key involvement of the Board in the long term strategy and its determination as its management to continue to pursue a smoke free future. I would really encourage you to read the purpose letter and how it describes the quest for a better alternative for adult smokers and all the measures that are in place. I think the Board itself and through its committees is intimately involved in the long term strategy of the company.
And I should salute their invaluable guidance and help in ensuring that our strategy is pursued with excellence. So thank you for your question.
Our next question today comes from Alan Engle. Please go ahead.
Yes. Hello. Good morning, sir. My name is Alan Engel. I'm just a private investor.
I've been investing in Philip Morris for about 25 years. So I really want to thank you for the great job you've done. I have 2 very quick questions. I was at a meeting a couple of years ago and you described the dividend with a really terrific word. You described it sacrosanct.
I'd like to know if you would still use that word. And my second question is, if we're ever going to get in the marijuana business, I really feel that now is the time because all the state governments need the revenue, the federal government needs the revenue. And I'd like to know if you've changed your opinion on that.
Well, thank you for being such a loyal shareholder. The credit goes to everyone at Philip Morris and all their work and commitment to pursue our growth across the world. As Andre mentioned in his remarks, we are very committed to the dividend. And yes, it remains sacrosanct. With regard to marijuana, that is not something we are willing to pursue.
So thank you very much again for being such a loyal shield.
Our next question today comes from Mary Vance. Please go ahead.
Good morning. My name is Kelsey Vance, Mary Vance, and I'm a public health advocate. Since the 2017 launch of the PMI funded Foundation for a Smoke Free World, it continues to be just the latest in a long line of empty promises and flashy PR initiatives designed to distract from the truth. Philip Morris International relies on the marketing and selling of tobacco, a deadly product that claims millions of lives every year. Your company is trying to normalize the harms of tobacco use, even as thousands of people are dying worldwide of a respiratory illness, COVID-nineteen.
A key figure for the foundation and PMI's priorities has been a major foundation grantee, the Center For Research Excellence in New Zealand. That foundation grantee raised concerns over a common sense public health measure in New Zealand to stop smoking in cars, going so far as to state that secondhand smoke impacts are exaggerated. At the same time, PMI New Zealand attempted to gain access to a major Auckland poverty group in a bid to get its new tobacco products marketed to poor people. Lobbying key figures in the Ministry of Health and approaching South Auckland's County's Nanticu District Health Board in an attempt to give away its IQOS smokeless tobacco device. Your corporation continues to target low income and racial and ethnic minority groups with no concern that the World Health Organization has come out saying tobacco use accounts for a significant share of the health disparities between the rich and poor.
The Foundation For A Smoke Free World and its grantees continue to operate with a veil of secrecy as to the extent of corporate priorities its activities advance. For 3 years, Philip Morris International has offered no level of transparency to distinguish its priorities from the operations of the foundation. Will your corporation release its correspondence with and notes of discussions regarding the establishment of the foundation and commit to doing so on an ongoing basis? Thank you.
Well, thank you for your question and for attending our annual meeting. The genesis of a lot of what you said is debatable, but the principal question relates to the Smoke Free World Foundation. So let's just talk about that for a second. The foundation is an independent body run by an independent board and management. There are very strict procedures and protocols in place as to the communications between Philip Morris and the foundation.
So the foundation is totally independent. The genesis of that foundation was that because people that follow your views on tobacco, one of their principal complaints has been that they lacked money for adequate research. So Philip Morris decided to fund this foundation so that they in turn could fund independent research. So if you have questions related to the foundation, I would encourage you to ask them directly because I do want to stress the fact that they are totally independent. So thank you for coming.
Our next question today comes from Ulysses DiRothio. Please go ahead.
Thank you. I'm a Filipino physician living in the Philippines in Manila. And for over 30 years, I've met many smokers who began smoking in their teens, whose lives have now been forever transformed by their addiction. Some have died prematurely from tobacco cost diseases such as heart disease and cancer. Others now live with lifelong disability.
In the Philippines, at least 107,000 people are killed by cigarettes each year. In Southeast Asia, there are 500,000 tobacco deaths annually. Today, Philip Morris talks about transformation and unsmoke and is now rolling out heated tobacco products in many countries such as the Philippines, promoting them as significantly less harmful alternatives to cigarettes. After many decades, Philip Morris has finally conceded that cigarettes are harmful and that people should stop smoking. However, it is misleading and hypocritical to claim corporate transformation if your company now admitting cigarettes are harmful, continues to make those same harmful cigarettes, continues earning most of its profits from them and continues opposing stringent tobacco control measures aimed at reducing cigarette use.
So for example, while claiming to promote a smoke free future, Philip Morris sued a small town in the Philippines when that city council passed smoke free ordinances aimed at protecting young people from cigarettes. If the transformation claimed by Philip Morris were genuine, you would be voluntarily and meaningfully taking responsibility for selling and continuing to sell these harmful products. So I ask, when and how will Philip Morris implement a global product recall for cigarettes, retract its opposition to strict tobacco control measures and compensate its customers who got sick and died prematurely or suffer daily from tobacco cost disability? Thank you.
Well, thank you for your question and for attending the annual meeting. You mentioned a number of things in your question. First of all, I would say that it's quite naive to think that if Philip Morris suddenly does not provide cigarettes to the various markets that people would stop smoking. Our priority and we've been saying this for a long time is that if you don't smoke, you shouldn't start. If you smoke, you should quit.
And if you do not wish to quit, you should move to safer alternatives. To say that we are not committed to our safer alternatives is really something that fattens me. As Andre mentioned, there are now close to 15,000,000 users of IQOS, close to 11,000,000 of which have completely switched away from cigarettes. And you saw the market shares in his presentation. But more importantly, in 2019, just to show our determination and commitment behind smoke free products.
These are now commercialized in 50 3 markets as of the last quarter. They represent 22% of our revenues, more than 70% of our commercial expense, 98% of our R and D expenditures. So we are very, very committed to a smoke free future. And comments such as yours or criticisms will not deter us from our ambition for a smoke free future. So thank you very much.
I should add that what you mentioned regarding the ordinance in the Philippines happened a few years ago. It was a claim by the Tobacco Institute of which we are members, but we were not the only ones. And the reason we opposed it was that essentially the ordinance would essentially ban smoking pretty well everywhere within that city. So we felt that that was rather extreme. And specifically would ban the less harmful alternatives, which clearly was a big problem.
So thank you for your intervention.
Our next question comes from Michael Legrande. Please go ahead.
Thank you. Good morning. My name is Mikhail LeJean, Associate Campaign Director of Corporate Accountability. Good morning. Marlboro.
Good morning. Marlboro, I'm sure that when I say Marlboro, many people around the world, people on this call will first imagine the cigarette. Likely what follows next is the red Chevron on a pack of cigarettes, and what may fall after that is the rugged image of the Marlboro Man with a cigarette hanging out of his mouth. By 2015, 4 of the people that took on the Marlboro man role had died from tobacco related diseases, a haunting irony for a since retired imagery commonly used by Philip Morris International to market its most prominent brands. The Marlboro Man has become synonymous with smoking cigarettes, and Marlboro is the most important brand to Philip Morris International.
In PMI's own reporting, Marlboro, the world's best selling international cigarette, accounted for approximately 37% of PMI's total 2019 cigarette shipment volume. Marlboro by itself accounted for 10% of the international cigarette market. What's concerning is why Marlboro and to a lesser extent parliament is now being marketed as part of the heated tobacco products you offer commonly associated with your line of heat packaging. PMI has touted many times how it is committed to this transformation away from cigarettes. Your Chief Operating Officer, Jacek Olczyk, is quoted as saying, When I see negativism around PMI and our new mission, I always give the benefit of the doubt.
Maybe they're still judging us on the past. I joined PMI 26 years ago.
Well, I think many
of us doubt a future shedding cigarettes when PMI just can't seem to let go of its best selling cigarette brand Marlboro. And to now draw the cigarette laden association of Marlboro to renew IQOS products, it leaves an important question. Is PMI ready to give up Marlboro for good? Or is IQOS another product in the Marlboro portfolio?
Thank you for your question. I'm not sure where you're actually going with that question. First of all, IQOS is the principal brand and there are only a few markets where we've used Marlborough, but HEETS is the key brand. But the logic that you're trying to express here baffles me because essentially what we are doing is switching adult smokers to less harmful alternatives. A lot of our criticism and you mentioned that Jacek, what he was quoted as saying, a lot of the criticisms from your institution and others who follow your dogma and ideology is really attacking our company or our competitors as opposed to focusing on the more than 1,100,000,000 adult smokers of cigarettes.
So the focus should be on how quickly can we switch all those smokers to less harmful alternatives. And that is what we are pursuing with diligence, determination and commitment. So please don't try to confuse matters because frankly the position you're taking is rather baffling. Thank you.
Our next question comes from Harry Wicker. Please go ahead.
This is Lee Wicker with the North Carolina Growers Association. Good morning. Good morning. As you know from my comments in prior years, NCGA is a grower cooperative that provides H-2A guest workers to tobacco farmers in North Carolina that supply PMI tobacco. While we acknowledge that the labor situation in the U.
S. Isn't perfect, I think it's important for all your shareholders to know that our members have invested significantly to improve working conditions and that U. S. Leaf growers are the most compliant in the world. I believe U.
S. Tobacco farmers have the most progressive labor policies in agriculture. PMI's outcode has promoted these advancements and the company should be proud. At the same time, our farmers face real threats and serious economic challenges with labor costs continuing to rise and leaf volume declining, U. S.
Tobacco growers are scared that their livelihood is withering away. We appreciate PMI's commitment to continue purchasing U. S. Leaf. On COVID, our efforts to prevent the spread of COVID-nineteen in the labor force is our highest priority.
We're doing everything we can to protect the workers and keep them safe and any assistance from PMI would be greatly appreciated. We've worked hard to develop a good working relationship with PMI and look forward to continuing our work together for the benefit of U. S. Growers, the farm workers and all our communities. Thank you.
Thank you very much. We attach a lot of importance to our relationship. It is based on common grounds and common objectives And we will continue to work with you diligently
to
help the farmers and their workers through all our practices and protocols. So I thank you very much for your very kind words and I can assure you our continued commitment to work closely with you and your institution. Thank you so much.
Our next question today comes from Carroll Boukadov. Please go ahead.
Yes. Hello. My question is related to the information which was provided. Underlying that sustainability at hello?
Sorry, you got cut off. Could you start again? Could you start again? You got cut off.
Yes, I will. Thank you. My question is related to the information which was provided to investors underlying the sustainability at PMI requires to roll out responsible sourcing principles and to strengthen supplier due diligence framework. And this question is also related to the situation in the United States of America. In 2019 last year, on a tobacco farm that supplies PMI through the leaf broker Universal Leaf, 18 workers who were facing wage theft, threats and unfunded territory living conditions joined Farm Labor Organizing Committee.
And they reached out to the PMI supplier, owner of OGM, with a request to meet and discuss resolving legal violations and to negotiate collective bargaining agreement in order to improve working conditions. The farm owner threatened union organizers and worked with his supervisor to blacklist all the union members. So they have no job in this year. All of them are currently losing money due to this retaliation. Universal does not require the grower of Universal Leaks take any action.
The Universal Leaks decided that the agricultural The Universal Leave decided that the agricultural labor policy does not require the grower to take any action to resolve these many violations of the agricultural labor policies. Question for the Chairman. Will PMI stop blacklisting and retaliation for workers exercising their rights for freedom of association? Or is PMI satisfied with the universal leaf response to this?
Well, thank you for your question. I'm actually quite familiar with the case you mentioned. It was investigated by the Department of Labor, as you probably know. And the farmer, when the investigation was over, was not found to have done anything wrong. The issue related more to the labor contractor who was penalized for various activities.
The farmer has changed the labor contractor and with the new labor contractor has taken on some new workers, although kept some who had specific skills. Our sense is that the Agricultural Labor Practices Program worked in this case. Universal followed up on everything. And as I said, this was checked by the U. S.
Department of Labor. To say that Universal or ourselves are against this freedom of association is just plain wrong. And as I said earlier in one of the questions, we do follow-up all grievances and there have been cases in the past where farmers who have flaunted our policies have been cut off by our 2 suppliers. So thank you for your question.
And our next question comes from Zane Bouluchan. Please go ahead. Hello, Zane Boulanchan. Your line is open. Please proceed.
Good morning, Mr. Chairman. My name is Zhan Boonchan.
Good morning.
I have a question regarding the sustainability at PMI. So PMI claims it is committed to improve labor practices in tobacco growing. In the USA, the company is engaged with the Farm Labor Practices Group, which failed to provide any material benefits to the farm workers in the last 8 years of its existence. The only tobacco worker boys in the group, which is Flock, has decided to leave the group and stick towards individual companies to end human rights abuses in their respective supply chain. So will Filipporis sign an agreement and commit to collaborate with Flock to implement the company's Agricultural Labor Practices Code in the United States And who would like to view this in the supply chain?
Thank you very much.
Thank you for your question. I'm aware that Flock has left the group you mentioned. It's a shame. That doesn't mean we do not continue to work with Flock. I think there is a close relationship.
We do follow-up all grievances. We do follow-up freedom of association. But as I've said in previous meetings, freedom of association does not mean compelled association. The Farm Laborer Practices Group is clearly doing its utmost given the constraints that exist that you're well aware of. But irrespective of that, I think Philip Morris with its Agricultural Labor Practices program, which has been recognized globally and in the U.
S. By all sorts of institutions and the administration continues to pursue the implementation through its suppliers. And I think our record speaks for itself. And we've actually been the pioneer and it was recognized in one of the earlier questions. So
thank you. I'm showing no further questions at this time.
Well, thank you. That concludes our question and comment period. Thank you all very much for joining us on this very first annual meeting that was held virtually. Please stay safe and healthy and thank you very much again. All the very best.