Good morning, and thank you for joining us. I am André Calantzopoulos, Chairman of the Board, and I would like to welcome you to Philip Morris International's 2026 virtual annual meeting of shareholders, which I now call to order. On the call with me today are our board of directors, Jacek Olczak, Group CEO, PMI, Darlene Quashie Henry, Corporate Secretary, and our Audit Partner at PricewaterhouseCoopers, Mary Clark. 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. A glossary of terms, including the definition for smoke-free products, as well as adjustments, other calculations, and reconciliations to the most directly comparable US GAAP measures for non-GAAP financial measures cited in this presentation are available under Earnings on our investor relations website. Today's remarks contain forward-looking statements.
I direct your attention to the forward-looking 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 statement, and annual report, including financial statements for the fiscal year ended December 31, 2025. The holders of record of common stock at the close of business on March 13, 2026 are entitled to vote at this meeting. I'm informed that approximately 81% 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. Piscitello 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 13th, 2026. 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 4 business items set forth in the notice of meeting that will be put before the meeting at this time, and I hereby declare the polls for voting at our 2026 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 webpage 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 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. At this stage of the meeting, questions or 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 Dessislava Temperley, who has decided not to stand for re-election to the board. I would like to thank her for her contributions since joining the board in 2021, included as a valued member of the audit and risk committee. The first order of business is the election of 10 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 or 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 and one. There are 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 2026 annual meeting of shareholders. Are there any questions?
Again, if you would like to ask a question, please press star and one. I am showing no questions.
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 31, 2026. Are there any questions?
If you do have a question, please press star and one. I am showing no questions.
Thank you. The fourth and final item is a shareholder proposal. I will now hand it over to the proponent of the shareholder resolution to present the proposal.
Good morning, Mr. Chairman and board members. My name is Conrad MacKerron, representing As You Sow. A plastic pollution crisis threatens the world's oceans, wildlife, and public health. Cigarette butts are the most littered item globally. An estimated 4.5 trillion butts are discarded annually, resulting in about 300,000 tons of plastic microfibers released into the environment. When cigarette filters are littered onto streets and beaches, they do not biodegrade and can remain in the environment indefinitely as microplastics, leaching harmful pollutants into soil and water. Just 1 discarded filter may contain 15,000 plastic microfibers, plus heavy metals and nicotine, which are toxic to marine wildlife. Annual cleanup costs are significant. For example, they are $2.5 billion just for China alone. Cleanup costs have historically been borne by governments and taxpayers rather than the industry placing these problematic products on the market.
Our proposal asks the company to report on the reputational and financial risks of not taking responsibility for filter cleanup costs and the benefits to the company of promoting extended producer responsibility or EPR laws for its littered filters. The European Union already imposes EPR on tobacco producers to cover the cost of collecting cigarette filters. Similar laws are being considered in other jurisdictions. While global EPR tobacco laws would address the pollution problem, independent action from cigarette producers, including financing for cigarette butt cleanup efforts, could forestall the need for jurisdiction by jurisdiction regulation. It would also allow Philip Morris and other cigarette companies to undertake the most efficient means of addressing this important pollution problem. We ask for your support of proposal number 4. Thank you.
Thank you for your proposal. The board believes this proposal is unnecessary, duplicative, and not in the best interest of shareholders, and unanimously recommends a vote against the proposal. Shareholders can read the company's detailed response in our 2026 proxy statement. The company also provides extensive disclosures on this approach to managing product and life impacts, including cigarette butt littering in its annual value report, which is available on the company's website. Are there any further questions?
Again, if you would like to ask a question, please press star and one. We are showing no questions.
Thank you. That concludes the matters to be voted on as outlined in the notice of Annual Meeting of Shareholders. In accordance with our bylaws, I hereby declare the polls for voting at our 2026 Annual Meeting of Shareholders closed. We have received a 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. The shareholder proposal has been defeated. 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 proxies. Final voting results will be reported in a Form 8-K that we will file with the SEC in the next few days. This 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. 2025 was another remarkable year for PMI, marking the start of the second decade of our smoke-free journey. We delivered our fifth consecutive year of volume growth, and our total annual net revenues reached over $40 billion for the first time, with more than 40% generated by our smoke-free business. Our adjusted operating margin returned to above 40% as our transformation continues to enhance profitability. Our adjusted diluted earnings per share increased by over 14% on a currency neutral basis and by 15% in dollar terms to reach $7.54, the strongest growth since 2011, excluding the pandemic recovery year of 2021. This performance was driven by the continued momentum of our smoke-free business, strong pricing, and effective cost management.
Importantly, this growth translated into excellent cash generation with operating cash flow of $12.2 billion. As we reported two weeks ago, we delivered a strong start to 2026 with outstanding growth from our international smoke-free business and very robust pricing, driving impressive progress. This is despite a particularly strong prior year comparison for both the U.S. and combustibles. Organic top line and OI growth exceeded our expectations, driving 5% adjusted diluted EPS growth on a currency neutral basis or 16% in dollar terms to reach $1.96. Overall, while the global economic outlook is uncertain, our strong financial performance in the first quarter underscores our momentum and gives us confidence in delivering another year of best-in-class growth.
We continue to scale our global smoke-free presence, reaching 106 markets by year-end, exceeding our targets of 100 smoke-free markets by 2025. Our business continues to become increasingly smoke-free, generating close to $7 billion in annual net revenues, with performance led by continued broad-based momentum of IQOS, in addition to increasing contribution from VEEV and Vuse. Smoke-free products represented 41.5% of total PMI net revenues in 2025, with 27 markets exceeding the 50% net revenue milestone and a growing number of markets surpassing 75%. We continue to lead the broader industry's transformation, with a prime example being Japan, where the heat-not-burn category crossed 50% share of total industry offtake volumes in December 2025, driven by IQOS.
This growing scale not only underpins strong top-line growth but also supports increasing profitability through operating leverage, productivity improvements, and favorable category mix. We are increasingly deploying a multi-category strategy with our leading premium brands, IQOS, VEEV, and Vuse. Of the 106 markets when our smoke-free products are present as of December 25, 52 markets have multiple smoke-free offerings, including 26 markets with all three PMI categories on offer. IQOS remained the core driver with very good broad-based performance across markets and regions, including Europe and Japan. VEEV and Vuse strengthen our multi-category strategy with excellent momentum and significant global opportunity. We continue to outpace the smoke-free market. Measured in the categories where we are present across these 106 markets, we delivered over 12% estimated in-market sales volume growth for the year compared to over 9% for the industry.
We estimate our volume share of smoke-free products on this basis is around 60%, with our 2025 share of category growth at over 70%. As we expanded our portfolio and geographic reach, the number of legal age consumer of our smoke-free products reached an estimated 43.5 million as of December 31, an increase of around 10 million users in 2 years, with growth across categories and markets. Now, a few words on our combustible cigarette business, which operates outside the United States. We delivered a strong performance in 2025 through strong prices, pricing, portfolio resilience, and effective execution, with Marlboro reaching a historic high share. Our objective remains to maintain broadly stable category share over time with a clear focus on maximizing value through top and bottom line growth while actively supporting the continued growth of smoke-free products.
Overall, our sustainable growth profile remains best-in-class among large cap consumer goods companies, as demonstrated by our performance in 2025 and reinforced by our outlook for the 2026, 2028 period. For this 3-year period, we target compound annual growth of 6%-8% in organic net revenues, 8%-10% in organic operating income, and 9%-11% in adjusted diluted earnings per share at constant currency. I would also like to highlight the release of our Value Report 2025 in April of this year. This report provides a comprehensive financial and non-financial overview of our strategy, governance, and priorities for sustainable long-term value creation.
Following the completion of our 2025 roadmap, we introduce our value plan for 2030 and beyond and the focused business-driven framework across six priorities, consumers, our workforce, workers in our value chain, climate, circularity, and nature. As outlined in the report, our approach to sustainable value is fully integrated with our business strategy, supporting the growth of our smoke-free transformation and reinforcing long-term resilience, competitiveness, and value creation. Having made strong progress in developing our human capital to drive our transformation, we are now focused on ensuring that our employees are fully prepared to adapt with agility to the opportunities and challenges presented by artificial intelligence, leveraging this opportunity to drive innovation and future-proof our workforce. Turning now to shareholders' returns. We remain a highly cash-generative business, underpinned by the strength of our brands and reinforced by effective management of cost and cash.
This gives us the financial capacity to invest strongly behind our smoke-free business, optimize our balance sheet, and maintain superior shareholder returns. We remain committed to a progressive dividend policy, as demonstrated by the 8.9% increase announced in September of last year, the larger since 2013, and marking the 18 consecutive annual dividend rise since the spin in 2008. This reflects our commitment not only to delivering superior business results, but also to creating superior and sustainable value for our shareholders. In summary, our smoke-free transformations continues to advance at pace, reflected in the delivery of superior growth. While the operating environment remains complex, marked by macroeconomic and geopolitical uncertainty, notably from the Middle East conflict, we believe we are well-positioned to navigate the external headwinds.
We remain confident in our position as the global smoke-free champion with the ability to drive strong growth and prioritize resources to invest significantly in our leading brands, IQOS, Vuse, and VEEV. Importantly, we remain firmly committed to our progressive dividend policy and to returning value to our shareholders as transformations deliver sustainable long-term growth. Finally, our strong business performance would not be possible without our engaged and skillful workforce of nearly 85,000 colleagues worldwide, who once again rose to the occasion with the exceptional dedication. We thank them for their continued commitment, expertise, and hard work in delivering these results. Thank you, André, and over to you.
Thank you very much, Jacek. This meeting 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 on 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 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 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 for one year on our website at www.pmi.com. We have allowed up to one hour for questions. Are there any questions or comments?
If you would like to ask a question or make a comment, please press star and then one. Again, that is star and then one if you would like to ask a question or pose a comment. I am showing no questions at this time.
Okay. Thank you. That concludes our questions and comments period. Thank you all very much for joining Philip Morris International's 2026 Virtual Annual Meeting of Shareholders.
That concludes this morning's presentation. You may now disconnect your lines. We thank you for attending.