Good morning, and welcome everyone to Philip Morris International's 2023 Investor Day here at the Operations Center in Lausanne, Switzerland. We are very pleased to have you join us today, either in person or via the webcast. I am James Bushnell, Vice President of Investor Relations and Financial Communications. This event is being video webcast live, and we will post the slides to our website and IR app at the start of each presentation. Let me first cover some required disclaimers. These materials are not intended for consumers. The purpose of these materials is not advertising, promotion, or marketing of PMI products to consumers, and they should not be regarded as an offer to sell or solicitation of an offer to buy any PMI products. Our products are sold only in compliance with the laws of the particular jurisdiction in which they are sold.
Today's remarks contain forward-looking statements and projections of future results. I direct your attention to the forward-looking and cautionary statements disclosure in today's presentation and press release for a review of the various factors that could cause actual results to differ materially from our forward-looking projections or statements. We issued a news release this morning that outlined some of the main news announced with today's event. You have a copy on your seat, and it is also available on our website and IR app. A glossary of terms, including the definition for 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 on our investor relations website. Growth rates presented on an organic basis reflects currency-neutral, adjusted results, excluding acquisitions and disposals.
As such, figures and comparisons presented on an organic basis exclude Swedish Match up until November 11, 2023. Let's take a quick look at the agenda for today. We will hear from Chief Executive Officer Jacek Olczak, Chief Financial Officer Emmanuel Babeau, and our three category presidents for combustibles, smoke-free oral products, and smoke-free inhalable products. We will also have presentations from Badrul Chowdhury, our Chief Life Sciences Officer, and Matt Holman, our Chief Science and Regulatory Officer, U.S. We expect the Q&A session to start at around 3:45 P.M., Central European Time, and last for around one hour, taking questions from those investors and analysts here in Lausanne. We will be taking short breaks during the day when the webcast will pause.
After the webcast ends at around 5:00 P.M. CET, those attendees here in Lausanne will have the opportunity to participate in select breakout sessions and spend time with our management team at dinner. Now, let's get started. We will shortly welcome Jacek to the stage. But first, let us share with you an introduction to PMI's unique transformation.
You're a cigarette company that doesn't want to be selling cigarettes anymore. How does that work?
Because we have a vision of a smoke-free future. In 2016, we shared an announcement that made headlines around the globe.
We want to phase out cigarettes.
Since that day, we've been accelerating towards a time where we no longer sell cigarettes.
One day is coming very soon, when I will have to remind people that Philip Morris used to sell cigarettes.
Thanks to decades of research and development, we are able to offer our world-leading heated tobacco product to those adults who don't stop smoking. Today, an estimated 27.2 million adults are using IQOS. Our portfolio of smoke-free alternatives is now available in 80 markets, with IQOS being the world's number one smoke-free brand. With the 2022 acquisition of Swedish Match, we now have ZYN, the number one nicotine pouch brand globally. Our transformation is backed by science, which demonstrates that smoke-free products are a much better alternative to continued smoking. That's why we're championing a smoke-free future for everyone, including the 1 billion adult smokers around the world.
They deserve, frankly speaking, a better alternative.
This is what transformation looks like. Today, you'll hear about the significant progress we're making on our smoke-free journey and the exciting opportunity for growth that we have ahead of us, including our outlook for the next three years and our vision for 2030. Welcome to PMI's 2023 Investor Day.
Good morning. Just in case you don't know me, I'm Jacek Olczak, Chief Executive Officer. Welcome to the 2023 Investors Day. I understand that some of many of you had the opportunity to see our R&D, our Cube center in Neuchâtel yesterday, and to get a bit of an insights of what we have on the science, but also what we have on the product development. This is our internal kitchen, but, you know, if you want to run a very successful and a good restaurant, you have to start with a good kitchen, and I believe this is what PMI has in its domain. We have a very exciting day in front of us, where you will have an opportunity to listen to the leaders of our organizations from a category perspective.
We also have regional presidents, somewhere here, sitting in the room. You will have an opportunity also to touch base with them during the breaks or during the evening. So feel free. I mean, we are very happy with what we achieved today, and we're even more happy to share it with all of you, what we have done and what is in front of us. So we have come a long, very long way, since we started the transformation. Some of the recognizing faces were in that room, and I believe it was 2014 Investors Day, when we have presented the charts that Philip Morris will be launching heat-not-burn product, that we were talking about how we see this category evolving over a period of time.
We talk about the P1, which is heat-not-burn, P2, P3, P4, which is e-cigarette. I have to admit, for record, that at that time we didn't have a P5, which is oral category, but the things are evolving and evolving in the right direction. So we are almost 10 years from where we started, and it was quite a journey, but very successful journey. We are switching adult smokers to better alternatives, such as IQOS and ZYN now, and they're transforming, I believe, our company to be not only great business, but also sustainable business. And despite the great achievements which you have, you know, accomplished over the last nine, 10 years, the fact is that there still are 700 million smokers globally, excluding China, which constitutes or presents the significant, significant potential for PMI.
We have closed last year, very successfully, the acquisition of Swedish Match, which is not only the great company with a great brand, great product, strictly, squarely, fitting into our smoke-free strategy, but also is accretive to our growth. I think we are about to put the additional big step into the U.S. market, which was always our dream, that if we want to make this company a, a global, truly global leader in that, category, in the nicotine category, you cannot ignore the most profitable and the most sizable, nicotine market, which is the U.S. We will be also talking today about this untapped potential, which still is in front of the ZYN, but also very much in front of the IQOS when we come to the U.S.
Before we go to the core of the presentation, as I said, I am, and the whole management, extremely, happy with what we have achieved over the last 9 years. I took the privilege of comparing IQOS and putting in the context of many other known companies, and we use this to measure how much time we needed with IQOS, or with the smoke-free products you like, to cross the bar of the first $10 billion of revenue, and how do we compare it to other, to other well-known companies. I think we really are very proud and very happy, and even more happy that if you look at the green dots, which we mark clear, how many years we needed to start returning the positive, results of this transformation.
So it's not just the revenue, but we also watch very carefully the full economics and the bottom line of this revenue. So I think you will enjoy this slide. Feel free to reproduce it in your reports. It's for free. Okay, let's go to the core of my presentation. I will cover a few very important, very important topics. One, obviously, is leading the smoke-free transformations. I will spend a few moments about the regulations and how we see regulations, how they can be accelerator or deaccelerator of our growth. Obviously, I will cover a little bit in a more details, and even in more detail, as Emmanuel will cover 2024/2026 growth algorithm.
But I also have to admit that as we always focus on delivering the current results, looking at the midterm, I think it's our job also to start seeing how we see this company in the much longer horizon, i.e., what's in it for us, 2030 or beyond. So I think the numbers speak for itself. We have invested so far more than $10 billion behind the product development, science and the commercializations in IQOS. This generated us, if I add now Swedish Match to our results, about the $12 billion of the net revenues. Yes, we are above the 35% of the total revenues, coming from smoke-free products.
We are available in 80 markets so far, and it is very important because, you know, remember that we have, I remember we have put this aspirational target of reaching across 60% of our net revenues from smoke-free products by 2025, but the reality is that the PMI is nothing else than the sum of the parts. So what we're really watching, in how many markets we're making the progress, and market by market, we need to cross the bar and go higher. So at the end of the Q2 2023, we have 23 markets when we cross the bar over 50%. And obviously, this includes the countries like Japan, which was on the forefront of the smoke-free journey. We also allocated-...
Massively our resources from behind the cigarettes, added new resources, and net, net real 3/4, 75% of our total commercial resources are being spent behind the smoke-free products on the different platforms. Essentially, 95%+ of all the R&D resources, we scientific resources are being spent behind the smoke-free product. So we essentially shutting down the resource pipe coming to the cigarettes and investing behind, which I think is the best for the company, for the stakeholder, shareholders, and also very importantly, for the smokers, our consumers. So we are, I believe, the undisputed leader of the industry, growing shifts toward the smoke-free products. You may recall the conversations and opinions shared by some other industry members at the very beginning of a transformation. How many people were highly skeptical, if not negative, to what Philip Morris started to do?
I believe all of us have noticed, and I'm very satisfied that this progress is being made. How many more other tobacco companies are jumping into the same road and are trying to move forward? It's very important also from the regulatory and other perspective. We have the highest investments in our R&D and the commercial infrastructure, and, despite the fact that we want to phase out the cigarettes, we want to retain one of the many great abilities which the company has demonstrated and put in place in the past. One of them is a tremendous potential in brand building. This company has created such iconic brands like Marlboro and many others.
You may remember me, I guess, at the CAGNY conference, I said, "If we build Marlboro, we can build second Marlboro." I think we're on a good path to achieve this one. Brand equity for us, in addition to the product innovation, is very important component of our play. Hence, we very much always focus on the premium part of the portfolio. We believe the brand, if you like, is the very good basis in order to occupy that premium positioning in any category in which we want to compete. We have made the tremendous effort over the last 10 years of organizational transformations. We will not talk much about our people today, but about the 40% of a middle-class management is coming from outside Philip Morris today.
So if you compare it to many other companies which are going through the massive, through the transformation, this is the massive organization change which we, which we undergo, but it serves us very well. Many of my colleagues from my senior management teams are from outside Philip Morris, and they brought an expertise from many other industry, which always helps in opening and, widening the, the horizons. Obviously, we have, leading scientific capabilities and science for us, and, rigor of a scientific validations and standard is very important, which serve us also well. You know that today, with our IQOS, but also with the Swedish Match, we are one of the few holders of, MRTP authorizations in the U.S.
If you consider today as the highest bar in order to demonstrate that your products have been properly validated, I mean, it speaks for itself. And obviously, as on a cigarette business, we do recognize, and we take it extremely seriously, that these products, they contain nicotine. They're not for everyone, and whether by laws or not by laws, just acting like a, you know, normal human, also a parent, these products are not for underage people. So we're leading this smoke-free transformations with the two today, iconic, almost iconic brands. One is IQOS, with a $10 billion annualized revenues. I mentioned that the dream was that we build Marlboro, and we can build Marlboro number two. You may be surprised, but about the $10 billion of revenues of IQOS puts IQOS on the same podium place as Marlboro.
So by the financial performance perspective, from the revenue, IQOS is Marlboro. Okay, on the equity side, Stefano will cover this more in detail, but we're getting where we want it to be. ZYN, which delivers more today, today, more than $1 billion of annual sales, I think also is in a path to occupy the oral category, and does occupy the oral category, this place of being a global leader. Now, IQOS and ZYN obviously are the leaders in their categories. I mean, like, here in this chart, you have segment shares, and if I take a total of the Philip Morris portfolio and divide it by the total of the market of a smoke-free product, we have about a 50% market share.
On a cigarette, underlying share is 23, so we are well above double the average cigarette share. In a heat-not-burn, despite the fact that we're 9 years in the making, in commercialization and being challenged in a number of places with more or less aggressive, you know, promotions, entrants, product innovations, et cetera, we still hold a very strong three-quarters of the share. There are a number of markets which actually we're sitting at 80, 90% of a segment share. Nicotine pouches in the U.S., 66%. On the total international basis, 36%. And e-vapor, which I'll cover later, our share of the segment is about 1%. ... The smoke-free products trend and this rapid transformation is obviously what's driving our financial performance. We expect to exceed our 3-year target announced in 2021.
Based on the guidance which we issued today for the full year of 2023, I think we should close this period with the tail around the shipment volume of a positive 1.5%, revenues which should be somewhere around the 7.5%, and the diluted EPS, adjusted diluted EPS, 11.5%. So very comfortably above the targets, which we have set, you know, 3 years ago, despite the fact that, as you know very well, the world during those periods was turned out to be different than we had in the initial assumptions. So, you know, weather forecasts are not very accurate, but the forecast with regards to the geopolitical, economic stability, even worse than the weather reports, but we still delivered the results.
Let me now move to the regulations, okay, and how we see the role of the regulations and how they can play in the smoke-free journey. This slide just illustrates something which intuitively many people know, but it's, you know, good always to remind. In a green chart, you have a decline rate of a cigarette market if there is an absence of a smoke-free product, in this case, IQOS, right? We just use the IQOS market for this presentation. In the light blue, you see how the total cigarette market is declining with the presence of IQOS. And you can clearly see that access, giving adult smokers access to alternatives to cigarettes, drastically, drastically accelerates the declines of the market.
This is despite the fact that most of the market, the ideal set of regulations, fully recognizing, fully recognizing the product potential with regards to the, you know, risk reduction and, and the harm reduction, tobacco harm reduction, is still not there yet. But this is what we see is the IQOS data set. Even despite the fact that there were some fluctuations, as you remember, around the COVID time, with the recovery in 2021, every market, when the consumer smokers have an access to smoke-free product, starts going into rapid acceleration of a, of a decline. Now, there are four components that we will look at PMI, which somehow should be reflected in the regulations. First of all, is the availability. It's difficult to sell the new product if the product is not available and is not allowed. It's very simple.
I mean, people will not buy the product which doesn't exist. If product is available, it's difficult to expect that people will ask about this product if they are not aware about the existence of the product, not aware about the benefits, et cetera, et cetera, about this product. So this is all chapter around availability and awareness, which somehow the regulations have to, have to start recognizing. There is obviously the big component of acceptability, okay? We have a conversations from time to time. There is a role of flavors, also the risk associated with flavors, but it all, I believe, can be managed through the very proper regulations and obviously with the right enforcement of this regulation. And at the end of the day, these are consumers which are paying with their own hard-earned money for this product.
So affordability somehow has to come to play. As you know very well, products like IQOS enjoys the tax differential, which on the one hand, also recognize the fact of all of the investments which we have done in the science, technology, et cetera. These products are not cheap in a development, but also very importantly, part of the tax differential is being passed on to consumer. So incentivize consumer through economic means to accelerate the switching to this product. So if we cover the regulations, both from the product market in use and affordability, i.e., the tax, et cetera, we're essentially creating the climate which may accelerate even further the progress of the smoke-free product. On the next two slides, I just give an example of the progress which was achieved with the regulations over the last three years, since 2021.
So you have a number of markets which either have started recognizing Tobacco Harm Reduction, as the fundamental sort of the direction based on which the federal regulations are being developed. And that's very important because, you know, when we talk with the governments and why the product should have a differentiated regulation, okay? Well, because if you don't believe in a Tobacco Harm Reduction, you will end up with the wrong legislative solutions. Why this product should enjoy the lower taxation, if not burn e-cigarettes or pouches? Well, if you don't believe that this product presents the potential for the lower risk than cigarettes, well, then why, why I should receive the tax discount? But the more and more, or, or lower tax rates.
More and more governments are now applying that sort of logic that, for example, when it comes to fiscal, a tax has to be proportionate to the risk. Otherwise, not only we're sending the wrong signal to smokers, but also not incentivizing them and reaping the benefits or enjoying the benefits of them converting… So you have a printout that will be posted. You can in detail read, you know, which markets and what progress we have made over the last three years. Are we happy with this progress? Absolutely, we are happy with the progress. Is this matching our aspirations? No. I mean, to be very frank, we could have done much better in many countries if we didn't have to go and waste our time, frankly speaking, on convincing regulators on, A, allowing the product or being able to talk about the product.
But I think by the fact, the progress, how many markets already are adopting, or countries are adopting these, regulations, again, it's based on the tax, on the tobacco harm reduction, are filling. I think the wave is there, okay? It's just a matter of time when this thing's gonna be essentially covering the, you know, the whole globe. Now, having the regulations is the one thing, is a very important thing, and you and myself are reading this very often, and sometimes we observe it during the market visit. This product has to be marketed in an utmost responsible manner. So the fact that the people below the legal age should have access to the product and frankly speaking, giving information about this product, comes without any- I mean, this shouldn't be a topic for a discussion.
But we should also remember, okay, that there is a way of how we can protect the youth and how we can offer this product to adult smokers. And we have demonstrated this with IQOS, and we measure very diligently the impact of IQOS on the market. And in none of the 80, 70 markets, excuse me, where IQOS is present, we have triggered any, any worrisome levels of the youth usage or underage usage. So there is component of a product de-design, there is a pro, component of a responsible flavor marketing, there is a pro, component of, reinforcing the discipline at the trade level. So if in this augmented product is delivered, you can perfectly deliver the product to the intended audience, i.e., adult smokers, and isolate or protect, youth.
I wish the same will happen in especially when it comes, for example, to the electronic cigarettes category or some others. Now, another component which we're being confronted with is this, the total massive misinformation about the nicotine, which obviously sends the wrong signal to smokers. Now, people don't like to hear this when I say, or when we say that smokers love smoking. Whether we like it or not, they love smoking. Yes, they are aware about the risk associated with smoking, but the fact they are reaching back to the cigarettes is because they love smoking. So if we tell them that the taking an effort of changing the ritual, maybe changing the taste, maybe paying a different price for the product, is not worth the effort because the products are equal or worse than the cigarettes, guess what the smoker is gonna do?
He's gonna buy back the pack of cigarettes. So, you know, it requires some sort of a mature approach into this problem and a dissemination, the false information about the nicotine. And yes, nicotine is addictive, but the nicotine is not the prime cause of the harm caused by the smoking. It's smoking which causes the threat. By the way, it's the same nicotine, and Badrul will talk about this in his presentation. It's the same nicotine which you have in a nicotine replacement therapies, because nicotine replacement therapies have not replaced nicotine. So this is nicotine in a replacement therapies, and a nicotine in a smoke-free product is the same nicotine. And these products, the NRTs, are being allowed for the long-term use.
Can we, you know, with the conversations with regulators, have to come to this point that we'll have to address nicotine from addictiveness or dependency perspective, but also realize one thing, that we should, we should stop this confusion about the nicotine in a smoker's mind. The net result of where we stay with the regulation is that out of the $2.8 trillion cigarette market, excluding China, about 18% is completely not accessible. These are the markets, and you have a list of a few example of these markets: Turkey, India, Vietnam, also Hong Kong, Australia, Singapore. You can't really draw the conclusions that there are markets which are less developed or more developed when they come with the wrong regulation, this may go across.
So it's not the level of income or education which make people making the wrong decision. These are the markets where the smoke-free products are not allowed. But guess what? These are the markets when the cigarettes are allowed. So it will take us a time, once we untangle almost religious type of views about the subject and go back to the science and what makes sense, what should happen. Obviously, this would create, you know, opportunities for other smoke-free products. We'll see how much time it's gonna take us to open this market. Once the market is open, there is a role of regulations, how much we can say about the product, right? So this was my case. Product is being legal.
I can go to the market with the product, but I cannot say anything, and most importantly, I cannot tell consumers that this product is better than cigarettes, which defies the logic, because why people should switch into this product? We, we put a measure here, I think it was six years since the launch, what market share we can achieve if the regulations are favorable or regulations are less favorable? Our product is allowed, but I cannot talk about, we cannot talk about this product. That's the difference of a 5 share point. So yes, you can, if you put the product in the market, somehow consumers will figure it out that this product exists, will try, will adopt. That's the 2% after six years. And in other markets, which we can disseminate more openly, the communications, the information about this product, you have a 7%.
We also have a best-in-class market that after six years, we can drive it to 15%. I will talk in a few moments about the U.S. potential, and actually from that perspective, U.S. is much more skewed to the, to left of the part of the slide than to the right part of the slide. Okay, growth phase 2024-2026. So this transformation from a financial business model perspective, essentially, we're moving the combustible into the smoke-free. You know very well, especially those of you who have invested, for which we're always very grateful, and those who covered us for the long time. The business model on the combustible was you had the negative volumes offset by the positive price, plus, minus your mix. COGS on the product, which for the last 20, 30, 40 years, is essentially the same.
So you can drive the massive productivities at your COGS level, results in a pretty attractive returns at the bottom. When we go to the new business, the new business, smoke-free business, is much more driven at this stage by volume growth than we pay deliberately less focus on the price, knowing that the price, especially when we log into the tax regime, are more specific than ad valorem, we always can come and start using this levers, levers. But it's very important that we focus on the volume growth, gain the share, convert the smokers. Obviously, the COGS now is far from being optimized because we need more time to roll out all these innovations, which you have seen in a cube, and those which we have not shown you in the cube, which are even more exciting.
Once we roll it out, this business, this part of the business will go exactly from the same dynamics that we used to have on a cigarette. But we need to understand one thing. On a cigarette business, we have an uninterrupted 40+ years of optimizing the same construction of cigarettes when it comes from the cost. And here we're talking about the new investments, new factories, new machineries, new designs, et cetera. So we need a period of time to stabilize, but I think Emmanuel will cover a little bit more of this thing. So we're going from the volume offset, volume declines, offset by the price, by the massive volume growth with some smaller price component at this stage of our development.
Okay, before we go to the algorithm, et cetera, Werner will give you more details, but just a quicker zoom on the combustible business. We have said from the very beginning that the fact of our transformation, the fact that we want to go smoke-free, does it mean that we will give a free lunch to competition? We'll try to retain our share in a combustible business. And this is exactly what we're delivering, while at the same time maintaining the Marlboro to, to leadership. This is very important to us. Again, you will see this in Werner's presentation, because it gives us much less restricted access to trade, but also to consumers.
The fact that those smokers who have not switched to this product, every day buying at least 20+% of the market, are our products, give us ability to every day try to nudge them to convert into these products. Without this whole thing, if we would run this business on a standalone basis, this would have to be done differently. We wouldn't have an access to the trade, and definitely we wouldn't know where the smokers are. When we come to the smoke-free product, okay, obviously, our focus is on a heat-not-burn, now also on oral. I know that some of you are questioning what Philip Morris is doing about e-cigarettes.
From the very beginning, we're saying that we see e-cigarette as an important component from the product portfolio perspective, squarely fitting in the Tobacco Harm Reduction perspective. But the other parameters, very much of the dynamics which we observed yesterday, today in the marketplace, which let us a little bit to allocate the resources behind something which is, you know, much more profitable and sustainable from the very beginning, like the heat-not-burn or pouches, and I keep on working on the e-cigarettes, but just keeping an eye rather than doing something which we don't think the market is organized in a way today which would warrant the sustainable success rather than just the short-term success. This is how we see markets for the next years period. The total nicotine market, somewhere between 0% to -2%, which is everything together.
With the combustibles going between a -2% decline to -4% declines, and the smoke-free products in total growing at about a 10%-15% rate. Within the smoke-free product, we believe the fastest will be nicotine pouches, also to some extent because of the much smaller, presence or size today, followed very strongly by the heat-not-burn , which is a sizable market and we believe will continue growing at a 15%-20%, and followed by the e-vapor, still with attractive, albeit, a much lower growth rate. We're looking when we allocate the resources and when we want to... You know, which are the battles we need to win short, mid-term, and which of the battles are maybe for the longer term? We're also looking of what the underlying conditions in the market.
As you know, I mentioned, you know, these products require quite the investment in the development, quite the investments behind the science, et cetera, so it's very important that we're also looking from economic perspective returns. If a cigarette will take a product contribution per thousand, assign the index of 1, the value of 1, then the IQOS on international basis today, so we're talking LMIC markets, developed markets, Emmanuel will talk about the margin differential. This gives you the product contribution factor of a 1.5x versus the cigarette. So is about the nicotine pouches. Now we go to the U.S. and this is comes the whole attractiveness, one of the component also of our future, traditional future growth, is the IQOS U.S. we think will be at the level of a 3-4x compared to international cigarettes.
I'm not comparing this to the U.S. cigarettes, because in our case, in particular, it's irrelevant. We're not selling cigarettes in the U.S. We don't have any intentions to sell cigarettes in the U.S. Therefore, the cannibalizations will be, like I would said, negligible, but from cigarettes, it's absolutely zero, frankly speaking. And U.S. then is a 6 times the factor of the profitability measure, but the product contributions on international. If I was to put e-cigarettes today, they would land somewhere about the 1 to 1.3x between the international and IQOS international. But here is one factor. This is a measure per thousand of cigarettes. Now, we in our acquisition of a consumer, so before we go to the volume, the massive spending is behind the cost of acquisition of the consumer.
And if you now get to this, lack of a loyalty, very heavy price discounting, no product differentiation, and so on, and so on around the e-cigarettes, the factor per consumer is becoming, at this stage, much less attractive. So, you know, here the math, which we show in the calculations we show in per thousand, if I would convert it into per user, acquired user, actually, this would reflect exactly what we are having in terms of our priorities for the next few years. Now, let me talk about the... So yes, we had a significant growth to date, et cetera, but the opportunity, and this is good part of the story, is even bigger than what we have achieved today. So IQOS is currently present in the market, representing an estimated 1.3 trillion units.
This is about the 47% of the total industry volume, as always, excluding China. There is a further 1 trillion units of 35, which reflects the markets where IQOS is allowed, but not yet available commercially. These are the markets which we have not opened, we haven't started the commercialization yet. Some of these markets are, for example, like Indonesia, when we have all full-fledged infrastructures, you know very well, but due to the product characteristics, et cetera, we're working on developing a product, not in the white space, which is a classical tobacco flavor space, but the same thing with the 95+ % of the market enjoys, which is a kretek.
That kretek, if we deliver this in a heat-not-burn platform in the satisfactory level, so you know, remember, acceptability, which I mentioned, is very important for the consumer switching to the product, will open this market. We do sell, technically, IQOS in Jakarta, but we sell it on the- on a sort of a test market. This test market, by the way, is almost approaching 100,000 consumers, but we still call it the test market on a wide version of a- if I, I call it like this, wide version of IQOS. And one of the biggest market, which is not in our schedule, in our, portfolio of markets yet, but we're just about to open, is U.S. Yes, these are the markets which from the regulatory perspective, we can go in for a variety of reasons.
Either lack of infrastructure and readiness, like the U.S., or the product, like Indonesia, we will be now also focusing during this 3-year period of tapping into this market. The remaining, the remaining 80% of the market I covered earlier, is that the markets where we're working on the regulations, but today the products are banned entirely. Now, if I just stay for a second now in the markets where we are present, right? So this $1.3 trillion market, and we have about the 10% of the share. And we try to segment the markets in, we use the terminology from our industry, vintage. But the markets when we less than 4 years, markets 4-7, and above 8 years. As maybe we're demonstrating the obvious, but the longer obviously we in the market, the share continues to grow.
Okay, so in the markets about shorter than 4 years, we get about the 2% share, but the markets which are 8+, we are 18, actually, even more, as you know, Japan numbers, et cetera. So, it's fair to assume that with the passage of time, okay, the longer we stay in a market, the share grows in existing market. If I just freeze the 8 years or 15%, then all markets will come to the 15%. There's a $75 billion out there for IQOS, which just is a matter of time, and we'll get it. That's an opportunity.
I take a different view, and you remember in some of the presentations in the past years, this comparison, that our strategy of rolling out or launching the product in a market, we start in a key city, then we go to the smaller cities, and ultimately, eventually, we cover the entire geography. So it's always some lagging share of the national versus key cities. So IQOS share today weighted to values in a weight into basis. In a key city is about the 15%, national of 9%. If 9 one day is going to become 15, which I will demonstrate in a second, there is also a record how this has happened, is a $70 billion in front of IQOS.
Remember this slide, which I was referring before, you have a light blue, national shares, dark blue, or navy blue, whatever. Yeah, dark blue, the city, the city shares. And you could see the perfect correlations with the city shares always goes ahead, and a few years later, national shares is at the level of the previous city share, if not actually surpassing this whole thing, while the city shares continue to grow. So this is, this, this is almost in a, in a continuity. So again, if the national will, over a period of time, equal what we today have achieved in a given market at the city level, that's 70 billion units in front of IQOS.
Now, clearly, so the trends are there, so therefore is also our confidence when we'll talk shortly about our outlook for the next three years, but also is very importantly, do we have the right products? Okay. You know, you've heard me when I was excited about the IQOS. Actually, I think out of the 1 billion smokers, I must have been smoker number two who converted to IQOS. I believe smoker number one was our chairman, executive chairman, and then we went outside. So I was very excited about IQOS. I was a heavy smoker before. I have to admit, I started smoking before I joined Philip Morris, because some people think there is this magic that if you join Philip Morris, you have to smoke. No, I did start smoking before I joined Philip Morris, for records, okay?
It's not Philip Morris who converted me. But Philip Morris gave me IQOS. So for 11 or so years, from one of the first prototypes, I haven't touched the cigarette as of this. So my excitement about the IQOS is not only that I am senior executive in this company, I am also a smoker, and IQOS helped solving my problem. When I saw ILUMA, this, this is... I don't know what else can excite smokers than a thing like ILUMA. And when I know what we have for ILUMA going forward, then you have to start temper your excitement because you're running out of the scale. This is fabulous. This is cool. This is the best thing that humans could develop for the smokers to go and address their problems.
And my excitement, even my Chief Marketing Officer, is a little bit more toned down, and he is a marketer and Italian, and I am Polish, but my emotions around the, around the ILUMA are going through the roof. And we can see this in the marketplace. You could see what difference ILUMA, ILUMA makes. Now, ILUMA is not just about the device, right? The device is the user interface, if you like, if you like, between a product and the experience. The real experience is coming from a consumable. So we have a lineup of, in addition to fabulous product portfolio, which we have today.
Over plan period, we will be launching the products like TEREA Crafted, which is about what we call the curated collection of tobacco flavors, and the flavors are coming not from the synthetic added flavors, but from the mixes with the botanicals. Okay, so I believe there is also another reason for the consumers to continue to stay with IQOS and switch to IQOS. We're also talking the more IQOS grows, obviously, we enter in this parts of the markets when affordability for some smokers might be an issue. Therefore, we're developing products like TEREA or SENTIA, which we have in Japan. Okay. Also, to allow us to start playing the portfolio there.
This is all obviously under the umbrella of IQOS, but I think we need to start introducing this portfolio game going forward, otherwise we also will not have enough of the pricing flexibility. We also, as you know, launching on a test level, on a test markets, two markets, and we're working on the further improvements. I think in the next soon, actually, in the next period, you will hear more about the Bond, Bonds and the BLENDS, which is a consumable, which is external heating. Stefano will cover about this whole thing, but it's very important that as much as the flavors for some part of the smoking populations are important, but the vast majority of smokers are looking for the true, uninterrupted tobacco flavor. Okay, so we need to go and expand the portfolio there.
We also, as you know, have collaborations, cooperations with the KT&G, when we have this two licensed product, lil and Fiit, as the consumable, and they also very nicely fit into our total portfolio architecture. We're also working on the products, and I'm pleased to announce that we'll be launching this year a product which has a IQOS construction, heat sticks of IQOS, ILUMA construction, has no tobacco, but it delivers the flavor. So we're also trying to address some of the consumers which maybe they're coming to that point, that the tobacco might be, they don't like the taste of a tobacco. They just want to have a rich flavor discovery. So this will be zero tobacco, nicotine-containing product with the flavors, served by the same device. So IQOS device or ILUMA device is becoming the multipurpose device.
I can use my tobacco flavors. I can use my tobacco and botanicals. They might be different temperature profiles, so the device has to be, to some extent, intelligent in a sense that whatever consumers puts out of the lineup of Iluma consumables, the device will provide the best experience. The same will be the case here with LEVIA. So let me now go to the markets where we are not yet, but we are allowed to go there. I mentioned briefly about Indonesia, but let's focus on what I think is the real, very exciting story, which is U.S. So we all know it is largest total nicotine market by value. And in addition to this, is even more attractive than the international market.
So we have a size of an opportunity, an accretion opportunity in front of us. There are around 47 million adult nicotine users, and about out of this 47 is about 30 million adult smokers. Nicotine industry volume of nearly 300 billion units, and as I mentioned before, we're not selling cigarettes in the U.S., and there is no, we have no plans, intention, or whatever, of selling cigarettes in the U.S., so we can enter this market without the cannibalization. You could see on the slide here, composition of this market, 62% cigarettes. Nicotine pouches, where there was a lot of excitement, quite rightly, about the ZYN, but the nicotine pouches barely scratched the barrel there with 2%, e-vapor, 16%. There's no heat-not-burn today in the market.
So we think, based on all experience we have collected, or we have lived through in the 70 markets, and the product improvements and everything, I think that by the way, we think that by 25 years, let's put it that way. Five years, as we have the ILUMA in the market, IQOS ILUMA in the market, we should be able to achieve 10% of the total market. We will be filing for ILUMA, Stacey Kennedy will talk about this later in his presentation. We'll be filing for ILUMA, PMTA October, so next month. Somewhere we believe for which we expect that somewhere at the end of this period, ILUMA will be available.
Now, if that scenario plays out, our launch next year when it comes to the IQOS Blade product will be very targeted and a focus on the literally few locations in order to prepare the resources, etc., for the best-in-class innovations which we have, because they also impact of the innovations when it comes on the commercialization engine. So we believe if we properly read the American consumers, if we consider the size of the market, because yes, the market is very sizable from a nicotine cigarettes perspective, but this market is a very large market. This is essentially Europe with X number of countries. U.S. has to be also treated from the same perspective. So we're very, very mindful how we put the resources behind which horse, frankly speaking, or which IQOS. So this is IQOS ILUMA, this is our focus.
While in the meantime, we will be enjoying the further growth of ZYN, so we can have a, well, sorry for repetitions, a better use of resources. Now, when I said this 10%, five years, and I said based on experience, there's example of the markets of how many years we needed in order to cross 10% share line. Now, U.S. will not be Lithuania, although if this would happen, massive upside, but this may not happen. Lithuania took us two years, but somewhere between a Greece, Portugal, Italy, I think that's reasonable to assume that within five years or so, we should be able to cross that 10% market share. Now, as I said, we're having IQOS Blade, which we're regaining from the U.S. market as of May next year.
We will start doing our city, very focused, few cities, launches and a test, which will not drag a lot of resources, so we can have the right resources to support continuous growth of ZYN. Then once we get an authorization of IQOS ILUMA, then we start going and rolling out ultimately to the national level. So I mentioned that nicotine pouches category within the total space in the U.S. is about 2%. So, you know, as I call it, barely scratch the barrel of its potential. ZYN already today is the $2 billion retail value brand. And this is within a five years, depends now how we count it, but within a five, five years of the national launch.
Remember when we've been announcing the acquisition of ZYN, sort of Swedish Match, and we spent quite a, you know, space on our release on the explaining what the strategic fit is. It's not only from a product perspective, but also from Swedish Match right approach to the responsible practices. So it's not only you have the company which we acquired, which, yes, it was pursuing smoke-free, but was taking this very, in a very, in a very responsible manner. So therefore, the whole integration of the Swedish Match from a product perspective, but from the marketing perspective, sales practices perspective, is a perfect fit.
So this is what is very important also for us, as we know there are quite rightly some sensitivities about the underage usage, so we need to make sure that we always work on the right foot. We're investing, and we already have increased the investments behind the ZYN in the US this year. Also, on the back, you see the results of what is the growth trajectory of ZYN. And we're also now preparing the CapEx investment as soon ZYN, if we continue, and I think everything indicates that it will continue, we'll need to prepare the capacity for the ZYN for the US. So this will be in the Emmanuel's part. We address it when we talk about the cash flow and what consequences it has for the... I shouldn't scare you.
We will manage this, but we'll cover the capacity expansion. ZYN, the growth today at the double digit net revenue, and obviously is the very positive, profitable and accretive to our results. I do the same math, roughly speaking, as I did on the key cities and the national. In case of the U.S., is the West region, where Swedish Match has launched the product first, and then where is the national share. And you see the pretty same dynamics, and we observe with IQOS, that the one lead territory is being followed for the rest territory over a period of time. I guess, also correlates very much with the time and the speed of the rollout, but it suggests the potential or indicates the further potential for the brand.
We just equalize the shares to what is today in the western regions, now that the western regions continue to grow. Okay, so this covers the smoke-free portfolio. Some years ago, we also have opened a chapter or indicated that we want to open the chapter of what we call internally, to some extent externally, Beyond Nicotine. And I think that... Okay, let's put it this way: we still believe that this business provides the very sizable but long-term potential, and apply especially in the territory of pharmaceutical, medical, and consumer wellness segments. We have excellent technology platform, which today might be used for other products, which I believe, we strongly believe, can have a play in a broader consumer wellness space, both in oral and inhalation, also supported by our acquisition of Fertin and Vectura.
So I think from an inhalation space, when it comes to the consumer type of a product, wellness, medical, Rx, Philip Morris, in a totality, has a very strong asset. Now, this is now back up with the oral delivery methods. When we take the capability of Swedish Match and Fertin in different formats of oral, which today you see very much on the nicotine products, the same platforms can be used for other products. So we have made it very clear from the beginning, we're not trying to go with the heavy R&D to invent or develop the new molecule. We're just trying to look at the molecules of active pharmaceutical ingredients, if you want, if you want, depends on the product, and changing the methods of administration in order to demonstrate that there is the, standard of care of benefit versus the existing standard of care.
So the areas now we have, I have to admit, that when we have started talking about the Beyond Nicotine, we didn't know we had a dream, but we didn't know where the dream can come through in terms of gaining an access to U.S. and being able to acquire Swedish Match. So this is the massive change which happened since the time when we start talking Beyond Nicotine. So as long as this is, we still believe in a long-term potential of this whole thing, but now we have to reprioritize what we want to do in the next few years in order not to put the too many things on the plate. So what we're trying to do here is to narrow our focus, and I will cover them in a second.
Narrow our focus behind the few corridors of product development innovation, manage the resources, so we have enough to focus, and the time is not just about the money. But the management time to focus on IQOS and ZYN, okay, and prepare these products in these categories for the period, which is beyond that. We have declared or we have stated our aspirations were to achieve $1 billion net revenues by 2025. We will scrap that objective because we have to replace them with our priority. So this is where we are. Now, there is one factor which I have to do. When we have created or developed that strategy, we had presumably were too optimistic about how the external environment will accept Philip Morris International, or Big Tobacco, as many still favor to call us, playing in the space, which is outside nicotine.
So we had a couple of the very bad surprises, also to the extent that I would call them immoral, but let's leave it aside. When we couldn't do what we wanted to do, just because the Philip Morris and the Big Tobacco was the fact of determining whether some of our assets can spread their wings. So we're also looking at the different type of configurations which will allow us to maximize the potential of this capability of these assets, which we have. So our areas of focus are on the pharmaceutical, is the inhalable aspirin, is the cannabinoid for the chronic pain. So this is the investment which we have made some time ago in Syqe Medical on the for the pain treatment, fully RX product with THC, and solution for acute migraine, bring on the medical focuses, on the medical cannabis.
So we have made it very clear, if we enter the cannabis space, we're not going into entertainment part of the business. We're going strictly either pharma or the medical. And on the consumer space, which now Philip Morris is bringing all the brand building capability, consumer, et cetera, capability, we will be focusing on energy and focus. Manuel will talk also, I guess, about the resources we put behind it, and we already have talked about it in Q2 with our earnings call. So coming back to the targets, I mean, we have demonstrated over the last three-plus years that we can turn the company to the positive volumes. I think we're gonna stay on track with this one. We're targeting a net revenue growth of 6%-8%.
Obviously, everything is ex-currency on organic basis, 8-10, and adjusted FY 9-11 EPS. You have seen it already in the release this morning. We also target between 180 and 200 billion shipments volume on the heat sticks and about 800 million-1 billion IQOS and pouches, very much skewed towards the U.S., but also Lars will talk about the plans on the international roll. Just again, based on what we have a confidence in delivering this target, and I know that actually, you in your report always explain that the past performance is not the guarantee of the future performance, but it's good to see whether the company had a track record of announcing, I believe, always ambitious target and then delivering.
You remember, these were our growth algorithm from even before smoke-free times at the very early days of, of the spin, was 6 to 4, 4 to 6 on the revenues, 6 to 8 on the Y, and at 8 to 10, or above even actually 10, with the buyback on EPS. Then we change into the growth algorithm, about 5 above 8. Last algorithm was about 5 above 9 on the EPS, and the new algorithm is 6 to 8 on the revenue, and 9 to 11 on EPS. At the current rates, tax rates and no buyback, and Emmanuel will talk, will share with you what is our latest, or current thinking about the buyback. Okay, that does just represented that what we said, we essentially will actually do. 2030, I'm coming to the end of my presentation.
Emmanuel will also talk... I forgot about one thing. We also have said that by 2025, we will cross the 50% of the revenue coming from smoke-free products. I think, well, not I think, I think if you look to the numbers, I know we will very likely miss the 25%, but my view on this one is we will not miss 50%. The question is, will we miss 25%? And presumably, we need another year or so to go into the thing. Partially also because some markets, when we have put into our forecast at the time when we're giving this target, I have to admit, we didn't manage to open. Partially is also zero growth, which we have over the last 2 years from large geographies like Russia and Ukraine, and there are a couple other factors.
But my view on this one is if we set in this company an objective, the objective is delivered. Okay? We will not go and compromise on our objective. We may need another few quarters in order to cross the line. So when we go, when we... Knowing what we have in our portfolio, where smokers are going, in which directions, maybe not the fastest speed, but which directions, regulations, et cetera, are going, I believe that by 2030, we can start crossing the two-thirds, two-thirds of our revenues with a smoke-free. But what is more important, and I mentioned this before, this is not PMI as such, doesn't exist. It's all consolidations of all the markets in which we're selling our, commercializing our product.
We will have 60% of the market, which are above the 50% by that time, but very importantly, 40% of the markets, which will be crossing the 75%. And as I mentioned, there are markets already that you remember from earlier slides when we're already closing the 50%. So I think, you know, when we declared that by 25, Philip Morris will become, you know, smoke-free by the measure that we crossed the 50%, you know, people would argue, "Is the 50% enough?" But I think we're really not that far from driving the company to be almost entirely smoke-free. Then we will have that impact on the many things which we're doing here, but I think this is a very exciting, exciting vision. And I think with this exciting vision, I finished. Thank you very much.
Hello. Just double checking you can hear me well? Very good. So thank you, Jacek, and welcome, everyone. I'll be sharing more details about our combustible business results, the underlying drivers, and our objectives and outlook. Our combustible business continues to deliver very solid results. Our leading global brands, leading in equity and leading in key consumer segments, with Marlboro in the driving position, help PMI sustain its value creation in the category. I will show you shortly that the main lever of value creation is our outstanding pricing engine. Our judicious and data-driven approach to pricing has resulted actually in a very resilient share. Why is all this important, and what is the context of our combustible strategy? As Jacek mentioned earlier, maintaining our leadership in the category is a key enabler in accelerating legal age smokers switching to better alternatives.
Looking at the details of our strong performance, and starting with net revenues, our combustible business is delivering impressive results, with growth accelerating, in particular, after the pandemic. We are exceeding our 2022 results and have achieved a strong net revenue growth of 5.2% in the first half of 2023. This is obviously driven by strong pricing and some share gains, partially offset by total industry decline, albeit a smaller decline than the historical average. As just mentioned, pricing continues to be our main growth driver, and in the current inflationary environment, organic pricing growth has reached a record high of 8.4% in the first half of 2023, with notable contributions from markets like Egypt, Germany, Indonesia, and the Philippines. Obviously, consumer prices would also be impacted by excise tax pass on and some trade margin adjustments.
The robustness of our pricing engine is underscored by two standout elements. Firstly, over the last five years, an overwhelming majority of our markets yielded a positive pricing contribution. Secondly, our pricing base is highly diversified, with only three markets accounting for over 10% of total pricing each. Let me now move on to the total cigarette industry. Overall, the total industry is declining at a moderate rate of 2.2%, mainly driven by secular trends, regulations, and obviously, some pricing elasticity. When looking at the industry dynamics in IQOS markets, we observe, and you have seen it in Jacek's presentation, unsurprisingly, a much more pronounced decline of approximately 5%, which we believe primarily reflects the continuous growth of the smoke-free category. In Japan, one of our most progressed markets, the total cigarette industry volume declined at even a faster pace.
Other markets experience a significantly lower industry decline rate, certainly due to the absence of smoke-free alternatives, and in a large part as well, due to a rising population. Moving forward, with the growth of the smoke-free category and expansion to other markets, we expect higher combustible industry decline rates. Within the combustible segment, the industry continues to experience polarization. The premium segment is showing resilience. The medium segment is continuing to decrease at an average rate of 70 basis points per annum, driven by legal age smokers down trading to value brands. This trend is very consistent across many markets. With the low and super low segment now constituting more than 50% of the world's consumption, a legitimate question is: To what extent the growth of this segment impacts our future mix?
In our top ten pricing markets, if we look at the unit revenue rates in local currency over the past four years, indexed to those of the premium segment in 2018, we see that today's unit rates of the low and super low segment represent slightly higher levels than those of the premium segment of four years ago. Concretely, the rates for the low and super low almost doubled, while at the same time, those of premium increased by a factor of 1.6. This evolution demonstrates that the category economics remain intact and attractive, even in a down-trading environment. Turning now to our competitiveness within the cigarette category. Over the last three years, our share of category has steadily grown compared to the same period of the year before, reaching a level of 24.9% in the first half of 2023.
We view a resilient share as an essential component of our smoke-free journey. Leadership in combustible translates into access to a large number of adult smokers, which again, is critical to our ability to support them in their conversion to smoke-free products. Our global share of category performance is driven by markets that are currently combustible only. In the top ten of these markets, our share increased by 170 basis points to reach 37.3% in the first half of 2023, with notable category share growth in Algeria, Egypt or Turkey. Despite cannibalization to IQOS, our combustible share performance in our top ten smoke-free products market is holding well, with flat or growing share in markets such as Kazakhstan, Poland or the UK, offset by some declines in markets such as France, Germany or Italy. Moving now on to our global brand portfolio.
Our cigarettes are sold in approximately 175 markets, and in many of those markets, they hold the number 1 or number 2 position. It goes without saying that we follow responsible marketing practices when commercializing our products. Our global brand portfolio is led by Marlboro, the world's best-selling international cigarette brand, which in 2022 accounted for approximately 40% of our volume. Marlboro is complemented in the premium price category by Parliament. As of 2022, the number 2 global premium brand. Our other leading international cigarette brands are L&M, Chesterfield and Philip Morris, covering the mid and the low price segments. These five international brands together contributed to more than three-quarters of our cigarette shipment volume, continuing the strategy of portfolio concentration on a few power brands. Our global brand portfolio is unparalleled, and Marlboro's brand equity sets it apart.
It stands at two and a half times the brand power of the closest competitor brand, and Marlboro's equity is resilient, growing in a large set of markets, including Egypt, Germany, the Philippines, and Spain, and this, despite us shifting resources behind smoke-free product growth. Our portfolio of global brands is not solely reliant on Marlboro. It includes also L&M, our second strongest global brand. Last year, L&M's brand power has grown in 10 out of 13 markets in which we measure brand equity. In the context of further marketing restrictions, we do believe that the strong brand equity of Marlboro is by far the most valuable competitive asset. Let me now cover to what we aim to achieve in combustibles. Our main objective is to sustain the value creation in the category to fuel the growth of our smoke-free products.
You have seen that our pricing power is intact, and I just showed you that our portfolio is concentrated around strong equity brands. Let me now share how we are successfully spreading out brands across relevant price points and various consumer segments. I will cover how the category will support PMI's margin expansion just in a minute when we speak about the category outlook. Let me start by looking at how our global cigarette brands have been performing across important consumer segments. In purple, you can see the size of a segment in proportion to the total industry in the top 20 combustible markets. In dark blue, the share of our global brands in that particular segment, and in the same color, you can see the variance versus prior year.
Let me remind you that our global share is at 25%, and that on these charts, I only talk about our global brands. Needless to say, that including local brands, our respective shares are higher, and we are over-indexed in all but low and super low segment. Now, talking about low and super low, on the left side of the screen, it represented 48.8% of the total consumption, and grew by 1.5 percentage points compared to the prior year. The share of our global brands in low and super low stood at 17.1% and outperformed the segment by far, with a growth of 240 basis points. This is driven by significant gains in Germany, Japan, and the Philippines, just to name a few.
Moving now to the right, full flavor represented 57.8%, growing 60 basis points compared to the year before. Our global brand share of the full flavor segment was 23.2%, increasing by 20 basis points, driven by markets such as Algeria, Indonesia, Japan or Turkey. The two other growing consumer preferences are slims and capsules, though of a smaller size. To the left, the slim segment stood at 16.4% in 2022, growing by 0.2, and Philip Morris global brand share of this segment increased by 4.3 percentage points, reaching 32.8%. This was driven by Turkey and Hong Kong, with gains from Marlboro and Parliament. The capsule segment to the right represented about 7%, growing 0.5 point.
We increased our share of these segments by 2.6 percentage points versus prior year, with successful extensions of Marlboro in Algeria, South Korea, and Mexico, and the Philip Morris brand in Japan. All our global brands are now successfully covering growth segments and consistently outgrowing them. Let me now show how we can stretch our power brand, Marlboro, across those segments, and at the same time, cover all relevant price points to keep Marlboro accessible beyond its premium adult smoker base. Marlboro certainly has the most diverse offerings across key consumer segments and price points.
To the left, in the standard format, the core Red and Gold 20s variants are complemented with what we call banded propositions, either through big packs or the Marlboro Crafted offering, extending the Marlboro palette from premium all the way to the low and super low, to retain down trading Marlboro adult smokers in the franchise. In the slim segment, Marlboro Touch and Crafted Compact, both with a smaller diameter, cover a range of price points and are the leading variants. Moving to the right, consumers, as you know, can change the taste of their preferred Marlboro cigarette by crushing a capsule in the filter. In this segment, our core capsule and menthol propositions are complemented by Marlboro Crafted. Again, the very same logic of stretching the brand across relevant price points. Through this breadth of consumer offerings, Marlboro holds the number one position in all of these segments.
This strategy has proven its viability, with Marlboro first half 2023 share in the top 20 combustible markets at 12.8%, actually recovering to pre-COVID levels. With L&M, Chesterfield, and Parliament, we have three out of our five global brands with significant share growth. Now, let's turn to the question of how this is helping us to fuel the growth of our smoke-free products portfolio. As Jacek has already mentioned, through our cigarettes brands, we have access to around 130 million legal-age adult smokers, purchasing approximately 85 million packs on a daily basis, which translates into 85 million potential touch points every single day. I will explain the consumer journey right after. Equally important for fast scale-up and access to consumers is the extensive commercial and distribution infrastructure that PMI has. It provides the most effective platform from which to launch our smoke-free products.
Today, our products are sold in over 15 million stores, with adult smokers visiting these stores and buying our products. Around 5 million of these stores are covered by our own or partner sales forces. Our interactions with trade are not only limited to physical shop visits, we also conduct more than 70 million digital interactions with our trade partners in any one year. All these touch points help us to communicate, either directly or indirectly, with adult smokers who would otherwise continue to smoke, on the benefits of converting to smoke-free products. As just mentioned, one of the most effective engagement and communication tools we have at our disposal is the B2C digital tool, Just Scan. As its name indicates, smokers would scan a QR code placed on their pack of cigarettes, and after age verification, enabled by a facial recognition technology, they can access IQOS bridging digital content.
This would make it a two-step age verification. Obviously, the first step being youth access prevention measures at the point of sale when purchasing the pack of cigarettes. The content highlights the benefits of switching to smoke-free products, allowing for education, allowing for information, or offering straight lending or purchase to registered and at age-verified smokers. This technology is currently available in 41 markets, with the potential to expand to 60 markets. This would then translate into accessing 96 million adult smokers for conversion. Turning now to our combustibles business outlook over the next 3 years, we expect the cigarette industry to decline at a faster pace, obviously, as the penetration of smoke-free products increases. We assume an industry decline, as you have seen on Jacek's slide, at a pace of 2%-4%.
In such an environment, we will continue to take judicious pricing action and target a stable category share over time, despite cannibalization to smoke-free products. Combining all these elements, along with geographical and product mix, would translate into net revenues growing up to 3% per annum. Over this period, we expect the contribution margin of our combustible business to improve, in particular, as input costs, inflationary pressures, are anticipated to ease, and we pursue prudent cost management. This will translate into an expanding PMI profit base as well as OI margin expansion. So this will constitute the financial framework for the plan period. Let's now have a look at where we believe the adult smoker base will evolve over time, and this is actually important for both combustible as well as for our smoke-free categories.
We can see here how significant the emergence of smoke-free products is on the structure of the combustible market. I start by comparing the age distribution of adult smokers in the top combustible markets to that in the top smoke-free markets. The change is evident and significant. In smoke-free products markets, smokers are skewed much more towards 45 years and older, with close to two-thirds in that age bracket, while logically, smokers in the legal age to 34 years old bracket have almost halved compared to those in combustible-only markets. Shifts regarding key price and taste segments are similarly evident. Here, I'm looking at the evolution of the price and tobacco flavor segments in the top 10 smoke-free product markets over time. What is clear is that smokers who have not yet switched to smoke-free products remain more value-conscious and have a preference for tobacco flavor, which remains dominant.
These trends are also a consequence, obviously, of the geographies where IQOS is prominent, where adult smokers are usually less traditional and have a higher socioeconomic status when compared to the more conservative smoker base outside these geographies. Now, how do we think this will play out over the longer term? Extrapolating these trends beyond 2030, first, we would expect the adult smoker base to become to a large proportion, and by a large proportion, I mean more than 80%, 45 years and older. Second, we would envisage an accelerated move towards much more value-conscious offerings, with 70% of the market sitting in the low and super low segment. And last, we can foresee a renewed preference for tobacco flavors at more than 90% of the industry. As said, these trends are not only important for sustaining value creation in the combustibles category.
You will recall that our global brands are outgrowing the key consumer segments. The trends will also be addressed in the smoke-free sections, as these preferences would reflect the adult smokers that we intend to switch. Stefano and Lars will showcase in their parts the superiority of our heat-not-burn and oral smoke-free offerings, and the excellent pipeline of IQOS and ZYN products to accelerate conversion of these cohorts of smokers. Let me now sum up my key takeaways from my presentation. The combustible category remains a critical foundation for smoke-free products growth. We have observed moderate industry decline, though rates have been significantly and again, unsurprisingly, higher in smoke-free products markets. We expect this trend to continue. We have a robust pricing engine that allows for sustained value creation. With smart pricing, we have been able to achieve resilient share performance.
Additionally, with prudent cost management, we will drive for PMI margin expansion. Our unparalleled portfolio of global brands, led by Marlboro, is critical to our success. Global brands have a proven track record of addressing emerging consumer preferences across price points. Access to our adult smoker base and to our trade partners, as I said, remains essential to communicate the benefits of switching and to deploy smoke-free products. Thank you very much for your attention. I will now hand over to Lars, who will cover oral smoke-free category. Thank you.
Good morning, everybody. The sound is okay, right? Mm-hmm. Good morning to everybody also on the webcast. Mm-hmm. Just one technical detail, if possible, if I can get up the notes on the right screen there, that's much better. Just to make sure I don't forget any important message that we have planned for you. Mm. Thank you very much to all of you for letting me have this opportunity to share some perspectives on the oral smoke-free business of PMI. For those of you who don't know me from my earlier life, so to say, I was the President and CEO of Swedish Match from 2008 up until the time of the PMI acquisition.
From January first of this year, I have the truly exciting role at PMI as being the category head for all the smoke-free products. As you can see, I've already adopted the company uniform with a navy blue suit and a white shirt. Mm-hmm. Looking at the smoke-free category. For many years, the oral smoke-free category used to be considered a niche category, with pockets of consumption in typically lower or middle-income countries, often in rural areas, or with snus up in Scandinavia as an isolated phenomenon with limited export potential. But in recent years, this has dramatically changed, not the least because of snus remarkable progress in the U.S. market. Its broad conversion amongst legal age nicotine users with different forms of tobacco history background.
Now, Swedish Match, and what is now PMI, have paved the way in terms of development of the oral smoke-free category and now with nicotine pouches. We invented the portion packed snus back in 1973. That dramatically changed the way Swedes consume tobacco. We introduced ZYN in the U.S. market in 2014, which happens to be the same year as PMI also introduced IQOS in Japan. In 2019, we were the first company ever to be granted modified risk orders by the U.S. FDA for 8 variants of General Snus, with the FDA recognizing the significantly lower risk with General Snus compared to other commonly used tobacco products. And specifically for cigarettes, also recognizing the public health benefit of being able to inform consumers of that relative risk. A nicotine pouches offers unique benefits.
It's an excellent product, offers excellent nicotine enjoyment, it offers convenience. It can be used anywhere, anytime, without bothering others. And compared to some of the more traditional variants of oral, smoke-free tobacco, it benefits from, hygienic appearance with its white pouches, and compared to some of the categories, advantages, such as being, spit free. And importantly, it sits at the far end of the risk continuum. So simply put, there are a lot of good reasons that explain why nicotine pouches is a fast-growing category and clearly will play, play in the future, an even more important role in the reduced-risk product landscape. So let's start, looking a bit more at the U.S. and the phenomenal, traction for ZYN that we've seen there since we introduced the product in, 2014 in a test market.
So the graph to the left here depicts shipment volumes on a twelve-month rolling basis. And as you can see, for the twelve-month period ending June 30, 2023, PMI had shipped close to 300 million cans, up by more than 40% to the corresponding twelve-month period one year earlier. And if we look at the second quarter in isolation, ZYN in the U.S. alone represented more than 50% of PMI's oral smoke-free business, both as measured in revenue terms or operating income terms. But with that said, and as Jacek pointed out, the category in the U.S. is still in its infancy. These depicted average penetration and consumption bars helps to bring things into perspective. So let me explain what these bars show here. So here, what we have done is that we have taken company estimates.
We estimate the total consumption of nicotine pouches, and we look at that per legal age nicotine user in various countries. So we get a metric that illustrates both how broadly it's been adopted and how much each consumer uses. So if we look at the U.S. here, that number is 11 cans per legal age nicotine user or LANU. And that's a national number, and as I said, we introduced ZYN first in a test market in 2014. We actually started it, marketing it more for real, so to say, in 2016, and then we started in the Western sales region. And it's not until 2019 that we started rolling out ZYN on a nationwide basis in the expansion markets in the U.S.
So the number there is higher, that I will show on a few slides later, in the Western region compared to the national average. ZYN offers excellent functional and sensorial benefits, but equally instrumental to the success of, for ZYN in the U.S., is the emotional connection that consumers show with the brand. As Jacek already pointed out, if we look at recent periods, and we look at IRI data, and we analyze that, ZYN has surpassed the milestone of being a $2 billion retail value brand. One has to look very hard in the consumer goods industry to find similar precedents, and especially considering the highly profitable nature of the ZYN franchise. Some of the most telling examples of how adult consumers love ZYN in the U.S. are coming from our adult consumer feedback channels, such as the call center.
The praise and appreciation that we have gathered through such channels over the year for ZYN are extremely inspirational, I can tell you. And have actually left us, several of us, teary-eyed from the factory floor to the boardroom. So a term like, "Changed my life," is a term that we have heard, many, many times. And the quantitative, but telling testimony to the strength of the ZYN brand is its premium franchise, along with its resilient market shares. If we look at IRI data for the first half of 2023, and we compare the average net selling price at retail for ZYN compared to its closest competitor, number two being On! ZYN retailed at an average of 70% price premium compared to On!. And that is, of course, the ultimate reflection of the strength of the brand, namely its performance in the marketplace.
So on this slide, we have depicted to the left, the market share development. And as we can see, on these graphs, ZYN's market share has been either resilient or even growing in recent periods. And ZYN continues to represent more than two-thirds of the nicotine pouch category in the U.S. on a volume basis, and more than three-quarters on a net sales basis at retail. And the steady growth of velocities at the retail level not only demonstrates how the value of the ZYN brand has, illustrates the traction with consumers, it also shows how the value of the brand grows for our partners at the retail universe. So what these velocities show here is the growing trajectory of average cans sold, per week in stores having ZYN in its assortment.
Let me also take this opportunity to share some more facts on the consumers of ZYN, based on company research. The average age of the ZYN consumer is 39 years old, which resonates perfectly with our. We look amongst consumers who've been using the product for a longer period. That number is higher, and on this slide, as exemplified by the average consumption of those that have registered as members. And if we start with the flavors, mint-type flavors dominate the portfolio, so more than 60%. But we're also very pleased to see the progression for our unflavored variants, which now represent about one-fifth of our portfolio. The product comes in 2 strengths, in 3 and 6 milligrams.
At the inception, there was a strong overskew to consumer. We've seen to an increasing extent how consumer sources how ZYN sources its consumers from consumers who report a primary form of tobacco use different than oral products. So if you look at cigarettes and vapers. Those two collectively now are bigger than the pool that we source from those from. If you look at the average income levels and educational levels, both those metrics. A testimony to not only the premium franchise of ZYN, but also the modern profile of the category, because although ZYN scores the highest here, the whole category is showing similar metrics. And just to share a few additional facts, that points to the attractiveness. Among legal age nicotine users. And in this attractive category, ZYN enjoys a very clear first mover.
The adult American nicotine user preference, and especially again, those that have a tobacco history different from that of oral tobacco. With that said, we do believe that there is room for moist variants in the U.S. market as well. On that note, as Matt Holman will show in his presentation, we have developed a specific moist product for the U.S. market, for which we have filed the PMTA back in 2021. Now, while ZYN is a premium brand, as you can see on the graph to the right there, it retails on average at about a 40% discount compared to the average price for cigarettes, implying that there is a strong, also economic incentive, in addition to all the other benefits for cigarette smokers to switch to ZYN.
And on that note, from a public health point of view, it's naturally very important that economic and... These states where there is a excise tax implemented in aggregation should also be noted that the aggregated market share for ZYN in those states is higher than the national market share for ZYN. For fully penetrative markets, and that is for also on a global basis. So looking at the left, and Badrul will, in his presentation, cover this in more detail, the Swedish. The significant tobacco harm reduction potential. In Sweden and Norway, there are significantly more... But we start to see that the Swedish experience in is now an export. If we look across the rest of the Nordic countries, the incidence of oral use in the adult population is growing quickly, along with accelerated declines in cigarette smoking.
Fueled by innovation, the category has evolved from loose type of snus to pouch snus back in 2019. The nicotine-consuming population and resulted in a higher conversion among adult females, and also a broader expansion of adoption in across the socioeconomic classes. We look at the category in the Nordics. The category continues to grow in volume terms, but the growth is entirely driven now by nicotine pouches. And if we look at PMI's market share within the oral smoke-free category in the Nordics, we have close to 60% in the more traditional snus market, and a bit below 15% in the nicotine pouch market. And while the portfolio of iconic snus brands and the leading position there represent a very valuable asset, our strategic focus is very clear.
That is to improve our market position within the faster-growing nicotine pouch market, and thereby resulting in better participation of industry category growth. Now, the growth of the nicotine pouch market in the Nordics has been very fast, and as Jacek mentioned, there is a legitimate concern of youth access when it comes to nicotine pouches, particularly in the Nordics and some countries in Europe. But for PMI, with our diligent approach to responsible marketing, and in this environment, our focus is to drive transition in the older age cohorts, where we know that there is a big, both tobacco harm reduction and commercial potential to increase the switch from particularly legal age smokers. This reflects on our strategies, but it also reflects on the results.
So if you look within nicotine pouches and you look at our market share, it is actually significantly better amongst middle-aged consumers. Using data from one Swedish online retailer as an example, if we look at PMI's market share within nicotine pouches, amongst those that are about 25 years old, compared to those that are legal age to 25, the market share is more than twice as high in the former group. Now, turning to international market, and by that we mean markets outside the Nordics and the US. There, the nicotine pouch market is still relatively small, but we believe that it represents a very meaningful growth opportunity, medium to long term. Currently, the product is available in some 30 countries. And again, these bars that is showing Norway, so we have added snus also to these bars.
These numbers for Sweden and Norway. The US, as I said, 11 cans per adult nicotine user. Across the world, for example, India, Pakistan, with traditions of oral tobacco use. And in these type of countries, as living standards go up, purchasing power, consumer awareness, and hopefully, and we work for it, appropriate regulation is put in place, we see no reason why there couldn't be more Swedens or Norways out there in the long term. And on that note, we are currently conducting a city pilot in Pakistan with good results, and this is one example of a market where we will scale up our efforts.
Just to frame a little bit the global potential, if we take the US, where we are already now, 5 metrics would apply across PMI's top 20 markets outside the US. Then that would correspond to $50 billion 2022. And as you heard from Jacek, regulatory is an integral part for our in our strategic agenda. As we consider proportionate and responsible regulations, a prerequisite for sustainable category long term. And given the novelty of the nicotine pouch category, there are actually very few countries. But for the vast majority of the countries out there, the starting point ranges from completely unregulated markets to several countries with outright bans. Of science and fact with, with an active external affairs engagement agenda.
In terms of the mid to long-term attractive potential for nicotine pouches in international markets, with a combination of Swedish Match and PMI, we have an excellent position to capitalize on these growth prospects. With the heritage from Swedish Match in terms of In inhalable smoke-free products, that combination represents a very powerful equation. A telling example is this pilot that we did in a duty-free outlet of the Dubai Airport, where both ZYN and IQOS were available for sale at the duty-free outlet. But they were previously, they were previously sold in separate sections of the duty-free area. So what we did then is that we, for the first time, put IQOS and ZYN together in the same consumer setting.
If we look at the sales for ZYN, as Emmanuel mentioned already in conjunction with the Q2 release, we have already started to take steps to capitalize on these international growth opportunities with our ambition to establish ZYN as a truly global brand, with a premium positioning and with the highest possible quality range. With a coherent, upgraded brand and product architecture, we will launch or relaunch ZYN in several markets already this year, as you can see to the left on this slide. Beyond 2023, in the planning period, we have already identified several very attractive markets where we are in an active preparation or planning phase and in engagement with the local organizations out there in the markets.
So collectively, together with the 2023 markets for launch or relaunch, we are planning for about 40 countries for global expansion for ZYN. It should be mentioned, however, that several of these countries to the right, part of the planning process involves an active external affairs agenda and securing permission to sell. And while we hope to be successful in most, there will probably be some examples where we'll be unsuccessful, which means that we should expect this, so to say, country list, to be dynamic over the plan period. And while several of these launches or relaunches initially will be of test market character in order to fast learn and adopt and iterate, we will have the readiness to scale up quickly as we see, traction in the marketplace.
So let me highlight some of the priorities for the coming three years. Internationally, as I said, we see significant growth prospects mid- to long-term, and here we will leverage the commercial footprint of PMI, including the IQOS infrastructure, to drive investments in a disciplined way with the readiness to scale up. And overall, for our smoke-free portfolio, the vast majority of those volumes we expect to generate in the U.S. market. Engagements and secure permission to sell in the vast majority of those markets in plan that I had on the previous slide.
We're getting close to lunch, I know, and we haven't had any breaks, but before letting you go and enjoy what I'm sure is going to be a fabulous lunch, let's circle back to the US opportunity and take a longer perspective in terms of 2030. And let me share some perspectives on how one could view that opportunity. As I already mentioned, we started rolling out ZYN in the Western sales region in 2016, and we went velocity. And again, that's the average number of cans sold per store per week that carries ZYN in its assortment for the western region and the, what we call then, the expansion markets, respectively. And on the x-axis, you have the time in market. So a couple of key takes from this graph to the left here.
First of all, as you can see, up to this point, the velocities in the western region have continued to grow. The other obvious key take from this slide is that the velocity growth in the expansion markets has been very similar to that of the western region after the same time in market. Top right, you see the striking trajectory of the number of cans of nicotine pouches sold in relation to cigarettes. Now, this slide here depicts the total category developments. Jacek showed a similar number on where we are for ZYN in the western region, in his presentation, but this is for the total category.
So if we look at IRI data, you can see that for the first half of 2023, the number of cans of nicotine pouches sold in the western region corresponded to 18% of the number of cigarettes packs sold in the West. And if we look at the bottom right here, we have illustrated this metric of average number of estimated cans consumed per legal age nicotine user per year by the expansion markets, the other sales regions compared to the West. And first of all, what you can see is that among the expansion markets, the penetration/consumption is fairly similar. And then you can see how the western region have been come quite a bit further, with the 18 number here representing an interesting lead indicator.
Again, there is a 2.5-year lag between the western region and the expansion market in terms of time on, in market. So how big could the category become in the U.S. in a longer perspective, like 2030? Well, obviously, there are several factors that come into play in terms of, category development. There is no exact science to this, depicted graph here, but what we try to illustrate is a potential scenario for category development up to 2030. Again, we look at these velocity trends here. So the solid lines in this graph represent the history and the terms of velocity growth for the West and the expansion markets, respectively.
The dotted lines here represent a potential scenario of continued velocity growth, with the prudent assumption that even though historically, the velocity growth trajectory has been linear or even accelerating, it could be reasonable to assume that the growth trajectory will level off at some point. So if it would look like this, along with a modest expansion of the number of stores where nicotine pouches are sold, of 5% per annum, then the result would be that the category would be about three times bigger in 2030 compared to what it is today, or exceeding 1.5 billion cans, or corresponding to 25 billion pouches—Mm-hmm ... Which can be, for example, compared to the number of HTUs in Japan in 2022, which was 33 billion.
So put differently, the category, in terms of volumes, would be approaching the size of IQOS in Japan, but in the U.S., with U.S. market economics. Another perspective that one could take is that of penetration amongst the legal age nicotine-consuming population in the U.S. and their consumer journeys. Because ultimately, naturally, the size of the category will be determined by how many that use nicotine pouches and their average consumption. Now in the U.S., there are close to 50 million legal age nicotine users, and that is a legal age up to 65 years old. In the Western sales region, where we started, we estimate that already 10% of those are using nicotine pouches. Nationally, as you can see on the slide, that number is estimated to be 7%.
And now within the West, who have been longer, obviously, there are more consumers that have been longer in the use. So the estimated consumption, average consumption per consumer and week in the West is a bit higher, 3.3, compared to the national average of 3.2. So if we look into the future with illustrative assumptions of how it could look, and we model a penetration from 10%-30%, where 10 then represents where the Western region is estimated to be already today. And a consumption ranging from 3.3 cans per consumer a week. Again, that's where we estimate the West to be today, up to 4 cans per consumer and week, which is more representative and an indication of where those that have been using the product for a longer time are in terms of their consumption.
Then we get this metrics of implied category sizes. Ranging from, in the most conservative scenario, where we have effectively frozen the West, and just let the expansion markets catch up in terms of penetration and consumption. In that scenario, the category would be 60% higher than today. Up to, if we believe that it's reasonable of a penetration of 30%, which is way below the Nordics, as an example, and the consumption of 4, which, would then apply category size more than 5 times as big as today.
If we take the midpoint here, with 3.5 cans per consumer a week and 20% penetration, the category size would be a little bit more than 3 times as big as today, which happens to align well with that illustrative scenario that was modeled based on velocities from the previous slide. If we zoom in on that midpoint, and we apply... So this is the total category, but we apply for ZYN the market share of Q2 to that category volume, and the manufacturer's net selling price, the PMI's net selling price from Q2 for ZYN. So we disregard any pricing, not even any inflation, that would translate into retail or net sales, I should say, for PMI of $3.5 billion.
As you know, ZYN is a highly profitable franchise. Let me provide a brief wrap up. First and foremost, and to be frank, I hope that you all are now as excited as I am in terms of the prospects for all the smoke-free products, and in particular for nicotine pouches. PMI is the global leader when it comes to nicotine pouches, and the company has outstanding prospects to ensure that it will stay that way, with excellent capabilities when it comes to not only, but certainly for our smoke-free products. We have a diligent approach to responsible marketing, which we believe is critical long-term for sustainable growth. We have an active innovation pipeline suited for the U.S., which, as I mentioned, includes moist variants for the Nordics as well as for international markets.
And in the U.S., while the FDA marketing, market authorization process restricts the continuous introduction of innovations into that market, PMI as well as Swedish Match historically have demonstrated their effectiveness to operate under the FDA regulatory regime, something you will learn more about also from Matt Holman's presentation. The commercial and operational infrastructure of PMI speaks for itself when it comes to the global potential for nicotine pouches and tapping into that. And in the U.S., we are accelerating our investments in resources and capabilities, both when it comes to commercial and supporting resources. And we are applying a disciplined multi-category approach, and we will, in the future, offer what many consider to be the two greatest smoke-free products in the world to U.S. consumers nationwide in the future. So with that, I'd like to thank you for your attention.
I know I've been holding you up for any breaks and, and lunch, but, before we go out, I'd just like to remind everybody also what Jane said, that there will be these breakout rooms. So there is a dedicated, ZYN room, which you absolutely should take the time to visit, because you will have a great opportunity to interact with, several members of our staff that, know the ZYN business as well as the total oral business, very well. So thank you very much.
Thank you, Lars. For those of you watching on the webcast, we will be back with you in just over an hour at approximately 1:15 P.M. local time here in Switzerland, or 7:15 A.M. Eastern Time. Thank you.
Good afternoon, everyone. Welcome back to the webcast. I'm Stefano Volpetti. I am the President for Smoke-Free Inhalable Products and Chief Consumer Officer, PMI. More importantly, I'm your Italian double espresso after lunch to keep you going for the entire afternoon. Okay? I am very excited to share with you our growth story. I will start from heat-not-burn first, and then we'll cover e-vapor, and I will conclude with our smoke-free multi-category approach. We started our journey towards a smoke-free future with a launch in November 2014, when we started with IQOS in Nagoya, Japan, and Milan, Italy, with 1 device and 2 consumables. Since then, we've been evolving our portfolio, powered by innovation, to create superior consumer experience.
That, together with the geographical footprint expansion, translated into a very impressive volume and user growth. By quarter two, 2023, IQOS is present in 70 countries, with 27 million legal-age users, and we have achieved a 9% share into the markets where we launched. This is up +1.6% versus prior year. Our strong user and volume growth translated it into an even stronger revenue contribution of IQOS into PMI, at exceeding 30% net revenue by 2022. It took us five years to reach $5 billion revenue, and in less than a decade, we created a $10 billion net revenue brand. Imagine the potential of our proposition. In June 2023, in top 20 smoke-free markets, the prevalence of the heat-not-burn category, powered by IQOS, exceeded 21%.
Simply put, this means that 1 out of 5 legal-age nicotine users have tried heat-not-burn in the past 7 days. For Japan, our first heat-not-burn market, this number is even higher. 2 out of 3 nicotine legal-age users have used heat-not-burn in the past 7 days. IQOS is the clear number one of the category, with over 70% share, 27 million users around the world, and its success really relies on superior consumer experience. This is powered by 3 pillars. First, superior product and portfolio, leading to 72% IQOS users stop smoking and switch to IQOS. 72% conversion rate. Second, a significant investment to build brand and superior consumer engagement, resulting in meaningful difference for IQOS, being 39% higher than the closest competition, as measured by Kantar. Third, we have built a commercial engine that is truly superior.
It creates high satisfaction for legal-age smokers and legal-age users, and this is indicated by a growing/stable Net Promoter Score in 85% of the volume of our business. 85% stable or growing Net Promoter Score is not only the best-in-class in the industry, is by far phenomenal number in the consumer goods overall. The superiority of IQOS is also reflected in the consumer journey metrics. Compared to the closest competition, IQOS is significantly more effective at all stages of the consumer journey, with a clear competitive advantage, especially at try and buy stage. Very importantly, IQOS achieved high conversion at 72%, and this conversion is consistent across markets, by far the best-in-class in the industry. IQOS ILUMA. Was Jacek a bit excited about IQOS ILUMA? He was consumer number two. I'm gonna talk about the other 27 million of it, okay?
So IQOS ILUMA marks an historic milestone for us. It's powered by SMARTCORE induction technology that brings IQOS really to the next level forward. Breakthrough induction technology provides stronger, bladeless and effortless experience with no cleaning ever. The simplest experience in the heat-not-burn category. TEREA, with IQOS ILUMA, offers a wide range of real tobacco flavors to give new depths of sensorial pleasure. IQOS ILUMA brought a step change in consumer experience, as proved by the net promoter score in launch markets. As of today, it is present in 27 markets and has already reached 13 million IQOS users. We aim to roll out IQOS ILUMA to approximately 50 markets by the end of this year, and we will expect to cover the majority of the IQOS markets by mid 2024. IQOS ILUMA, it's easy and simple to use.
The step change in consumers' experience translated into a higher Net Promoter Score, higher conversion, and accelerated share growth, with strong gains across all launch markets. In the first wave of IQOS ILUMA launch markets, Japan, Switzerland, Greece, higher Net Promoter Score brings significant market share growth, and majority IQOS users have already upgraded to IQOS ILUMA. As of quarter two, 2023, induction stick volume contribution reached 98% in Switzerland, 92% in Japan, and 81% in Greece.... It takes time to see improvement in conversion rates. Already, before the launch of IQOS ILUMA, IQOS enjoyed the best conversion rates in the category. Now, with long panel studies in Japan, after 18 months from launch, IQOS ILUMA conversion rate champions at 8 points higher. We are very encouraged to see such a sustainable and positive impact. IQOS ILUMA is a game changer to the business model.
It has high productivity, it's very reliable. Device defect rates is below 1%. This places IQOS in the excellence range of consumer electronic products. Consumer complaints related to induction sticks reduced by 40% versus blade sticks before re-launch. High product quality led to significant reduction of device replacement and customer contacts due to product issues, respectively, in Japan, -70% and -60%. With such a material improvement, IQOS ILUMA helps to optimize our investment in customer care and reverse logistics associated with defective devices. One more point I would like to highlight. With the next level technology, we expect IQOS ILUMA holder and charger to have heating system, aiming at constant uplift of the consumer experience in line with blade heating system since 2014.
Since then, we diligently innovated to address consumer pain points, as well to focus on bringing more delight to our users. I want to highlight a few critical milestones—category pioneer. IQOS 3 introduced buttonless side opening and expanded battery life. IQOS Multi, one-piece, pocket-size, a device with 10 consecutive uses. IQOS 3 DUO, 2 consecutive uses without recharging the holder. And then IQOS ILUMA, launched in August 2021 in Japan, is a breakthrough innovation, next level technology, next level simplicity, next level pleasure. Moving forward, we will continue to innovate, aiming to ultimate convenience and pleasure. As we evolve the heating system, also IQOS is evolving. We now have a wider range of devices. We offer greater personalization opportunities and more flexibility into our features.
Our device range evolved from one model in standard colors into a full range of device models and a wider palette of color choices for lifestyle integration. We are relentless in our desire to delight our IQOS community, and we invest extra efforts to elevate our approach to limited editions and accessories with an engaging story-led approach, as well as we expand our partnership footprint into collaboration with fashion and design brands to maximize lifestyle integration. IQOS features have been and will be evolving from basic to advanced, giving the users a higher flexibility to customize and personalize their experience. For example, flexible puff and flexible battery. Importantly, we use one brand, uniform, consistent, across 70 markets around the world. You heard from Werner this morning, legal-age smokers are looking for pleasure and taste superiority. Tobacco taste remains the most important flavor choice.
91% of exclusive legal-age smokers of cigarettes globally are using tobacco flavors, i.e., non-menthol, no new taste dimensions. When underlined this, since question number 1, number 2, and number 3, that I received this morning at breakfast was about flavors. Tobacco flavor, the most prominent flavor for those legal-age smokers that are still in cigarettes. Our classic tobacco variants contribute for more than 50% of our portfolio volume in Europe, and our global contribution is 1.7 times of the closest competition.... IQOS is successful across market archetypes. 20% share in full flavor market like Portugal, 26% share in menthol market like Japan, 19% and 17% share in non-menthol markets like Greece and Italy. Regardless of the market archetype, full flavor, menthol, non-menthol, IQOS' superior tobacco experience delivers leading share and superior conversion for legal-age smokers.
It is important to note that besides the product superiority, the progress of IQOS share is also linked to regulations, which allow adult nicotine users to access heat-not-burn product information and to access the product itself. Superior tobacco taste is critical to our ongoing success. Currently, TEREA, used with IQOS ILUMA, delivers superior tobacco experience with eight classic tobacco variants. We are further exploring complex tastes and new taste spaces to enhance our tobacco flavor experience. With multiple years of product development, we will soon bring to adult nicotine users, who seek tobacco flavor experience with natural sensations, a new-to-the-world sensorial experience, TEREA Crafted, a curated collection of tobacco flavors, perfectly blended with natural botanicals without artificial flavorings. By blending tobacco and botanical, such as rosemary, star anise, and clove, TEREA Crafted opens an authentic space, reinforcing IQOS taste leadership in the heat-not-burn category.
While we further reinforce our leadership in tobacco taste, we also invest in building novel consumables that go beyond tobacco. Introducing LEVIA, zero tobacco, rich flavor discovery. Instead of tobacco, the LEVIA stick is made of a non-tobacco substrate, infused with nicotine and flavor. LEVIA will bring a vivid and satisfying taste experience with pleasurable aromas and minimal social disturbance and zero tobacco. It's designed for the early adopters within the IQOS franchise and for legal-age nicotine users that are flavor explorers. To accelerate category and share growth, we are expanding the reach of our induction consumables. TEREA consumables have still an enormous potential of growth. We will continue to fuel TEREA with superior consumer experience at premium price positioning. But it is important to notice that by Q2 2023, IQOS market share ex- ... To further expand the reach among legal-age smokers via below-premium proposition.
SENTIA was developed with focus on essentials of taste at a more affordable price. It was launched in Japan in April 2022, at 9% below TEREA, but still 6% premium versus the closest competition. As you can see in the bar chart, in Japan, SENTIA helped to expand the reach to a broader adult nicotine user and to fuel the growth of IQOS ILUMA. One year after launch, TEREA and SENTIA, combined, reached a share of 24% in convenience store, bringing a significant incremental growth. Building on the success and learnings from Japan, we developed DELIA, the consumer-qualified name outside of Japan, with the same spirit, essence of taste at a more affordable price for select markets. IQOS is the number one smoke-free brand globally. As Jacek told you this morning, IQOS is a $10 billion smoke-free brand in less than ten years.
As of today, IQOS heat-not-burn category share is above 70%, and IQOS has 27 million users around the world. IQOS is a meaningful, loved brand, a brand that resonates with the heart and with the mind of legal-age smokers. IQOS already operates in the space as other iconic brands, such as Google, Netflix, Heineken, and of course, Marlboro. Keep in mind, IQOS is a brand launched less than 10 years ago. Imagine the potential that is ahead of us. IQOS is leading the way by a very wide margin on all equity attributes among IQOS legal-age users, making it not only a globally leading brand... Look at the turquoise circle in this chart. You can appreciate IQOS' superiority versus closest competition.
Just to mention a few items, IQOS enjoys a few very big margin on user experience, trust, and quality backed by science, intentional design, and sensorial satisfaction. This morning, Werner showed the unparalleled brand power of Marlboro, which was built over 50 years. IQOS, with less than 10 years history, achieved meaningful difference at parity or even superior to Marlboro in few top markets, like Japan, South Korea, Czech Republic, Poland, and Switzerland. By Q2 2023, in market representing 47% of IQOS volume, IQOS enjoys parity or higher meaningful difference than Marlboro. Price. With such a strong IQOS brand power, we translate it into premium price positioning.
As you can see in the slide, in key markets across the world, TEREA for IQOS ILUMA is priced between six- key markets with high need to heat-not-burn category share, ranging from 63% to 86%, despite its significant premium price versus competition on both consumables and devices. Our vision is clear. We aim to replace every cigarette for all adult smokers who don't quit. With IQOS, with 27 million users, we have a $10 billion business. Think about the potential: there are over 1 billion smokers around the world. Behavioral change, when it comes to legal-age users, requires a leading brand, a brand that is leader of science, leader of technology, but also leader of superior experience and leader of credibility with empathy.
Emotional bonding is needed to guide through the behavior change, make it aspirational, to create a new lifestyle for legal-age smokers. IQOS is leveraging all these elements through our superior product experience, but also through the way we tell our story, and we meaningfully engage with our consumers to build brand love, loyalty, and encourage full switching to IQOS. We activate our users as our best IQOS ambassadors for legal-age smokers lifestyle change. We have the knowledge, we have the scale, we have the resources, and consumer recognition to continue to grow our overall brand experience advantage versus competition. IQOS provides legal-age smoker a tobacco pleasure that enables them to move away from smoking and feel the joy of belonging, the joy of belonging to a new community, to a new lifestyle. Listen to Carlos. Carlos: "The truth is, I am all about pleasure.
This is the one thing I will not compromise." We celebrate our user ability to move together forward with pleasure. Within the Together Forward campaign, our brand engagement platform, Together X, experience the unexpected, creates national and cross-national events for legal-age users that are memorable, purposeful, experiential, and importantly, they are co-created with our, with our adult users, so they are meaningful and contemporary. The first global event, Together X, will take place in Athens tomorrow, and the platform will be rolled out this year and next. Transitioning to omni-channel commercial footprint, when it comes to smoke-free products, we deliver unparalleled reach with quality. We have over 1 million points of sales for our smoke-free products, with opportunity to continue to grow our weighted distribution. We have over 260 million annual traffic to our digital assets.
More importantly, we have invested in quality reach to deliver a superior consumer experience with over 5,400 IQOS stores and IQOS partners, which is a 40% growth over the last year. We have over 10,000 trained sales and service staff, and we have invested in own e-commerce capabilities. Our experiential touchpoints cater for over 380 million interactions annually, an impressive 20% year-on-year growth. Over 50% of our devices are sold in our experiential touchpoints. This allows our, outside of Japan, 80% of our legal-age users to be registered with us. 80% is a phenomenal asset to enable, as of day one, relationship management in the behavioral change journey of our users.
Experiential touchpoints deliver significantly higher quality of acquisition and retention, and this is reflected in 2 times higher intention to purchase, over 20 percentage points higher conversion to smoke-free products, and 2 times higher advocacy and positive word of mouth. This means we built a stronger portfolio of commercial assets to engage our legal-age nicotine users. Well, being effective and delivering the best-in-class quality across the consumer journey, we also managed to optimize the commercial engine efficiency via digitalization and scale. As of 2022, commercial costs per legal-age user reduced by 43% comparing to 2018. We foresee further reduction in the future on the same drivers, of course, partially offset by new markets. So far, I talked about IQOS. I now want to switch to cover our second-tier heat-not-burn portfolio with the objective of broadening our legal-age smoker reach.
Plenty of adult smokers who don't quit have yet to switch. Many still need to be convinced about the category benefits, and we will continue to work on it, eventually supporting regulation as a future catalyst. There are also many adult smokers who prefer full-flavor cigarettes and are more value-conscious than IQOS users. Our heat-not-burn portfolio needs to cater for their needs. Hence, we're building a second-tier portfolio to broaden the reach to mainstream adult nicotine users, addressing the main conversion barriers of taste satisfaction and affordability. BONDS by IQOS and lil are the two heating system that cover this space. lil was introduced through the partnership between PMI and KT&G in 2020. It delivers tobacco enjoyment with pin heating technology and has been successfully rolled out in more than 30 markets.
BONDS by IQOS , our peripheral heating system, provides IQOS quality at entry price with strong tobacco notes, addressing, in particular, full-flavor, legal-age smokers. We are leveraging the learnings from our two pilot markets to evolve the portfolio and the commercial model. Deployment of the second tier for the heat-not-burn portfolio provides flexibility to continue to grow the category while also responding to growing competition. We started our journey in 2014 with one device and two consumables. Today, I share with you a portfolio of four heating systems, seven device models, and more than 50 consumables. I invite you to discover them in the breakout session at the end of this day. With such a comprehensive heat-not-burn portfolio, where will the growth come from? There are many ways to look at growth opportunities for IQOS. Let me start. First, let's look at the existing IQOS launch markets.
They represent 1.3 trillion units, including heat, heated tobacco sticks and cigarettes. So far, IQOS only accounts for 9% of this universe. To note, 25% of the remaining cigarette industry is still in premium segment. Looking forward, to gain 200 billion sticks out of this 1.3 trillion, i.e., a 15% share, is not a dream. In fact, by Q2 2023, we have already 7 markets exceeding 15%. We will continue to leverage our consumer understanding, product superiority, comprehensive portfolio, cost-conscious innovation, brand equity, and commercial engine to convert the remaining legal-age smokers. Second, we still have opportunities in big markets with HTU market share below global average, such as Germany, U.K., Spain, France, and Canada. In markets like U.K. and Canada, legal-age smokers are under high social pressure, pressure to switch out of cigarettes...
In markets like France, Spain, and Germany, legal-age smokers feel relatively limited social pressure. In some of these markets, unfavorable regulation to heat-not-burn prevent legal-age smokers to access heat-not-burn information and to try the product itself. As a consequence, lack of understanding of the category benefits has made IQOS progress slower so far. In Germany, consumer and trade readiness was behind other markets. Despite good access to information, it took just longer to build the category understanding. But as you can see, our key city share above 10% shows the way forward. To seize growth opportunity in this market, we plan to leverage our commercial engine to unlock IQOS visibility, experiential touchpoints, and consumer activation. Don't forget the vast greenfield markets to unlock. U.S., around 30 million adult smokers, approximately 180 billion sticks and $70 billion cigarette retail value.
Our ambition is to achieve a 10% share of the total cigarette and HTU market within 5 years from the launch of IQOS ILUMA. This means roughly 18 billion sticks, full incremental to PMI. As introduced by Jacek, our preparation for the 2024 IQOS launch in the U.S. is well underway, including domestic manufacturing, as well as readiness of the commercial organization and indirect retail partners. As said by Jacek, the accessible market outside U.S. is another 800 billion units. 800 billion units. They include Indonesia for 300 billion units, and in Indonesia, we are still at the very, very, very early stage. We're just piloting in Jakarta via the IQOS Club, and the IQOS Club already includes 100,000 members. Our ambition is to reach a 10% market share, which means incremental HTU volume of 30 billion units.
On the lower side of this slide, if regulation changes in non-accessible markets today, such as Turkey, as well as India and Vietnam, they combined represent 300 billion units. Assuming that we have the opportunity to take 10%, this would mean another 30 billion units growth opportunity. We are very confident, very confident of the heat-not-burn category outlook for the following 3 years. We drive profit growth while investing in high return opportunities, and we target 180-200 billion units by 2026, focusing on 3 key drivers. First, IQOS ILUMA, the heat-not-burn leader to drive top line growth. Second, lil and VONS by IQOS to broaden the legal-age smokers reach. And third, seize opportunity in accessible greenfield markets. Let me now switch to e-vapor. Vaping is another important smoke-free alternative with undisputed harm reduction potential.
It has a growing prevalence, mainly driven by convenience, device format innovation, wide flavor, and affordability. In mature vaping markets, one out of five legal-age nicotine users is already using vaping product. The prevalence is even higher among younger adult nicotine users. There are about 60 million adult vape users globally. However, at current stage of the e-vapor industry, it is very fragmented, with low brand loyalty, low conversion rate, lower than heat-not-burn, significantly lower, and therefore, very unfavorable financials. There are two key challenges to address to make the e-vapor category long-term viable. One is regulation, the other one is user experience. From Q1 2022 to Q1 2023, negative media coverage, also fueled by social media, increased more than 200%, mainly in the areas of youth access prevention, environmental sustainability, and non-compliance.
Meanwhile, in the retail market, we see proliferation of similar products with thousands of brands, and the category expression really lacks societal maturity. Vaping Made Right is critical to the sustainable growth of the industry. On this slide, you can see what it takes to have Vaping Made Right. Be patient, we will spend a bit of time on this slide.... It starts with youth access prevention. Tobacco and nicotine-containing products should never be used by underage person. We developed and market our products in a way that they remain appealing for adult smokers and nicotine users to encourage switching out of cigarettes, while mitigating the risk to appeal to underage audience. This approach has been proven to be successful.
In another category, heat-not-burn, we demonstrated our track record with IQOS on youth access prevention. According to the National Lifestyle Survey of Adolescents in Japan, less than 0.5% of the youth, of our users have tried heat-not-burn in the past 30 days, less than 0.5%. Evidence from many other markets where we have a mature commercialization of IQOS also demonstrate a very low use by youth. We apply the same approach and the same principles of heat-not-burn to the e-vapor category with our brand, VEEV. Second, Vaping Made Right is about sustainability. We focus on design for sustainability and post-consumer waste management, principles that we apply across all our smoke-free portfolio. More than 80% of product components by weight are recyclable, 100% of the packaging is recyclable, and we are reducing the material usage, including unnecessary plastic where needed.
As part of our strategy to address the post-consumer waste of our products, we offer consumers access. We call on governments to regulate the industry, promote responsible marketing practices, and enable a level playing field with appropriate product standards, strong youth access prevention safeguards, commercial regulation, and fiscal regulation. All of that should be accompanied by rigorous law enforcement and imminent penalties for those who break the rules. In PMI, we do the utmost to minimize the risk to appeal to or access by youth. Let me share some more details about product development and commercialization. We start with adult design. Our VEEV portfolio has clear adult design language, from form factor, to color, to flavor, and packaging. We apply online and offline age verification.
While the level of control we have over the different channels where we commercialize the product is different, it is critical that we continue, even in those channels where our influence is limited, to use our best efforts to guard against youth access to PMI products. All adult consumers must be age-verified before providing access to PMI products. We continually investigate new technologies to make sure that we do age control. For example, we are exploring innovative, certified face age verification in our online channels. We conduct retail education for youth access prevention program to retail partners and to shop assistants. All point-of-sales brand marketing materials, including indirect retail, contain youth access prevention communication. In a nutshell, we are very committed to drive the responsible marketing practice of the entire nicotine industry, including the vaping industry.
Now, consumer is core, and in line with our Vaping Made Right principle, we enter the category in a responsible manner. We stick to our Vaping Made Right principles, even if it means slower pace of commercialization or being less competitive. We are launching our latest generation of products, which are designed for legal-age smokers, to help them transition from cigarettes. First, we introduce VEEV Now disposable vape to adult smokers who are open to trying new alternatives. Second, we recommend VEEV One closed pod to legal-age nicotine users who know the category and they are ready to commit. The deployment of this portfolio focuses on 20 markets, where there are an estimated 20 million adult vapers. By August 2023, VEEV Now is live in 16 markets, and VEEV One is live in nine markets, including duty-free.
We see progress in commercial start with VEEV Now weekly offtake more than two times versus quarter one, and VEEV One weekly sales over two times than the previous VEEV launch. I covered the first challenge in this category, regulation. Let me now address the second challenge, user experience. Studies show that many vapers do not switch exclusively to e-vapor, but they continue to smoke cigarettes. This is primarily due to the liquid formulation, which is different from the more natural tobacco taste preferred by adult smokers. To help legal-age smokers who don't quit to fully convert to e-vapor, it's critical to deliver superior tobacco flavor experience.
We have developed a proprietary e-liquid formulation using genuine tobacco flavors from real tobacco leaves, introducing VEEV Accents, the new e-liquid formulation, which deliver real tobacco taste and demonstrate better conversion and better retention of adult smokers than regular tobacco flavor, not only during consumer research, but also with a significant better sales performance than regular tobacco variants in the retail stores in the first market launch, Canada. Let me now transition to multi-category. Multi-category is a way to accelerate the smoke-free category growth. Dual and poly users of smoke-free product is a very sizable segment and is a consumer segment that is growing and will be a long-term great trend. According to consumer research, poly users of multiple smoke-free products have low probability to modify their behavior.
68% of poly users in 2021 were still poly users in 2022, so multi-category is a must to accelerate smoke-free category growth. We champion the smoke-free world with a range of superior alternatives: IQOS, number one smoke-free brand; ZYN, number one nicotine pouch brand; and VEEV, responsible vaping brand. Each of the brand has a clear image, positioning, space to play, superior equity, and superior product quality. Now, multi-category is proven to improve visibility, and therefore improve brand awareness by up to 17 points, and contact-to-buy ratio by up to five points with limited investment. Recent multi-category deployment in Dubai Airport duty-free shows very promising result. As introduced by Lars before, after combining ZYN and IQOS in the duty-free outlet, sales of of ZYN were more than doubled, while IQOS continued the growth momentum at +33% growth.
In summary, we are very well equipped for 2030. IQOS, number one heated tobacco brand with significant growth opportunities by leveraging portfolio evolution to broaden legal-age smoker reach, brand equity to acquire and convert legal-age smokers, and seize opportunity in new geographies. ZYN, number one nicotine pouch brand, the undisputed leader in the fastest-growing smoke-free category. VEEV, vaping made right, responsible play in select markets. Multi-category deployment is a way to accelerate smoke-free products category growth at a minimum investment. We are very, very confident to progress towards our 2030 vision. Thank you for your attention. I hand over to Badrul, who will cover the harm reduction from cigarette smoking.
Thanks, Stefano. Good afternoon. I joined PMI late last year and took on the role of Chief Life Science Officer, Smoke-Free Products, in January of this year. I'm a medical doctor, trained and licensed in the U.S. My training is in the clinical areas of internal medicine and respiratory medicine, and in the basic science of immunology. I worked at the U.S. FDA for about 20 years, mostly as Director of the Division of Pulmonary, Allergy, and Hematologic Products. I then left... on one of the greatest public health needs of the current time: reduce health harm from cigarette smoking. The concept of relative health harm reduction by developing alternative products to cigarettes has been endorsed by the U.S. FDA about 2 decades ago. I hope other regulatory bodies around the world and public health bodies, including the WHO, will also endorse this concept.
I have seen changes in pharmaceutical industry regulation driven by science that happened for the larger good of public health. I'm optimistic that PMI championing a smoke-free future is also going to make changes in the same direction for the larger good of public health. We have shared our science and third-party studies on smoke-free products on numerous occasions. However, I would like to take this opportunity to present some of these additional and nicotine. As Jacek mentioned earlier, such misinterpretations are often propagated by NGOs, including the WHO, and such misinformation effectively perpetuates the use of cigarettes. I will briefly cover the science behind smoke-free products, then speak about existing data that support the health harm reduction potential of these products relative to cigarettes. I will speak about heated tobacco products, e-vapor products, and oral products.
I will outline some of the future studies we plan to conduct on smoke-free products. I will then speak about nicotine, because the health harm reduction products deliver nicotine, and the regulatory focus is shifting from health harm of cigarettes to health effects of nicotine. It is estimated that about 1 billion people around the world smoke today. The WHO projects that the number will remain roughly the same for the coming years. The negative health consequences from cigarette smoking are well understood. Those who don't quit deserve pragmatic and sensible alternatives. The potential health benefit of smokers, if they switch completely to smoke-free products, could be substantial. Here is an overview of two relevant product categories: inhaled products and oral products. The categories apply globally. However, I'm showing representative PMI products in each category.
Of the inhaled products, heated tobacco product use real tobacco, while e-vapor products use nicotine sourced from tobacco. Oral tobacco pouches, such as snus, use real tobacco, while oral nicotine pouches, such as ZYN, use nicotine sourced from tobacco. None of these products combust tobacco, therefore, all are smoke-free. At the core of the health harm caused by cigarette smoking is the combustion of tobacco, which I will cover briefly as it is a familiar topic for many. At temperatures higher than 400 degrees centigrade, tobacco ignites and combusts and generate more than 6,000 different chemicals. About 100 of them have been identified and listed by the U.S. FDA as harmful or potentially harmful. The figure on the right shows some polycyclic aromatic hydrocarbons, which are carcinogenic substances, which are released at high temperatures beyond the ignition point of tobacco.
Our current heated tobacco products heat tobacco without burning at temperatures below the ignition temperature of tobacco. At these lower temperatures, nicotine and flavors are released from tobacco while generating, on average, about 90%-95% lower level of chemicals that are harmful or potentially harmful compared to cigarette smoke. Aerosol generated from heated tobacco product is fundamentally different from cigarette smoke, as can be seen by analyzing the residue that is left on a filter pad after pass-through of cigarette smoke or heated tobacco product aerosol. The major mass of the heated tobacco product aerosol is water and glycerin. Heated tobacco products do not generate carbon-based solid particles, and the levels of free radicals in the collected residue is below the level of quantification. Carbon-based solid particles and free radicals deposit in the lungs and other tissues and can cause inflammation.
Heated tobacco product aerosol also contains significantly lower levels of carbon monoxide, so that the FDA removed the surgical warning on carbon monoxide for our leading heated tobacco product. The aerosol chemistry studies demonstrated that our leading heated tobacco product emits, on average, about 90%-95% lower levels of harmful and potentially harmful constituents for various smoking-related disease-causing risks compared to cigarette smoke. For the nine toxicants recommended for lowering by WHO in cigarette smoke, the reduction is more than 95%. Many animal studies have been done to assess the potential reduced health harm of our heated tobacco product compared to cigarettes. The results are suggestive of reduced harm. This slide shows results from one such study in mice, showing differential effects in the lungs and cardiovascular system...
In this study, mice were exposed for 8 months, including the first 2 months to cigarette smoke for cessation and switching groups. Eight months would be about one-third of the lifespan of mice. The graph and picture on the left show impressive change, which was pronounced in the cigarette group compared to other groups, including the heated tobacco product group. Histopathology of the lungs, as shown on the lower part on the left, show increased inflammatory cell infiltrate and increased air space in the cigarette smoke-exposed animals compared to heated tobacco product. The lung histopathology in cigarette smoke-exposed animals is reminiscent of chronic bronchitis and emphysema that occurs in humans who smoke cigarettes. The graphs on the right show some of the cardiovascular effects.
Atherosclerotic plaque volume and blood vessel occlusion measured in the aortic arch were pronounced in the cigarette smoking group compared to other groups, including the heated tobacco product group. Some studies done in humans showed the potential benefit of heated tobacco products compared to cigarettes. I will show results of a couple of such studies. Two human studies, one in the U.S. and one in Japan, compared three groups over a 90-day period. A group of persistent smokers, a group that switched to our heated tobacco product, and a group that stopped smoking. Results at day 90, as shown in this slide, showed reduced exposure to harmful and potentially harmful constituents in subjects using the heated tobacco product that were comparable within 90%-95% to subjects who stopped cigarette smoking for the duration of the study.
In both studies, 160 subjects were randomized, 2:1:1, to heated tobacco product, cigarettes, and smoking abstinence. Compliance to the allocated intervention in the U.S. study was low, ranging from 24%-78%, compared to the Japanese study, ranging from 90%-98%, reflecting the wide confidence interval in the study in the U.S. compared to Japan. One human study conducted in the U.S. compared biomarkers of potential harm in two groups over a 6-month period. A group of persistent smokers and a group that switched to our heated tobacco product. A total of 984 subjects were randomized, 1:1 to the two groups. Eight biomarkers were measured, four in the blood or serum, three in the urine, and one via lung function test.
The name of the biomarkers and their functions are shown on the slide on the right-hand side. The study protocol defined a priori, that for the study to claim success, statistical significance will be required in at least five out of any eight of the biomarkers. Results showed that all biomarkers moved in the direction of reduced potential harm for our heated tobacco product. That is, the direction as observed when people stop smoking. Five of the biomarkers were statistically different compared to persistent cigarette smoker using appropriate statistical methodology. Important to note that in this study, dual use with cigarettes, up to 30% of all product users, was allowed in the heated tobacco product group and was included in the analysis. I will now provide a few data points on e-vapor.
Like heated tobacco product, aerosol chemistry studies demonstrated that our leading e-vapor product emits, on average, about 99% lower levels of harmful and potentially harmful constituents compared to cigarette. The major ingredients of the liquid formulation, such as propylene glycol, vegetable glycerin, and nicotine, are correlated with the power setting and puffing volume. The toxicants measured are at trace levels and remain low at both power levels compared to cigarettes. We also conducted an animal study, similar to the one with the heated tobacco product, to investigate the effects of various e-vapor liquid components on the lung and cardiovascular system. We tested exposure to propylene glycol and vegetable glycerin, shown in this slide as carrier group, propylene glycol and vegetable glycerin, plus nicotine, the base group, and the group with added in flavors, the test group, and compared to cigarette smoke and air exposure.
Results in the lung showed that cellular infiltrate and inflammatory changes were lower in all groups compared to the cigarette group. Finally, we conducted a study in humans in the U.K. that compared four groups over a 5-day period in confinement. A group of persistent smokers, two groups that switched to our e-vapor product with either tobacco or menthol flavor, and a group that stopped smoking.... Results at day 5, as shown in this slide, show reduced exposure to harmful and potentially harmful constituents in the e-vapor group, subjects that were comparable to subjects who stopped smoking for the duration of the study. 68 subjects were randomized in equal numbers to the two e-vapor groups, cigarette and smoking abstinence. Compliance to the nicotine intervention was 100% due to the study being conducted in confinement and under control of the study staff.
Let me now address the harm reduction potential of our oral smoke-free products, snus and nicotine pouches. Cigarette smoke contains over 6,000 chemicals, including about 100 harmful and potentially harmful constituents, as well as carbon-based nanoparticles and free radicals, as I mentioned earlier. In contrast, oral tobacco products do not combust tobacco, so inherently exposes the body to lower levels of toxicants. A recent study, published in 2023, screened oral tobacco products and oral nicotine products for 36 compounds identified as harmful or potentially harmful. Only 15 harmful or potentially harmful compounds were quantifiable in snus, and 4 were quantifiable in ZYN. Snus had no polycyclic aromatic hydrocarbons and traces of nitrosamines, NNN and NNK, compounds that are known carcinogens. ZYN had no polycyclic aromatic hydrocarbons and no nitrosamines.
The number of quantifiable, harmful, and potentially harmful constituents were comparable between ZYN and oral replacement therapies, or NRTs. Generally, nominal amounts of carcinogens, NNN, NNK in microgram per gram tobacco is about sevenfold lower in snus compared to reference cigarettes. It is obvious that oral products do not expose the lungs directly to any toxicants. Of note, FDA has granted the first authorization of modified risk claims for snus in 2019. The claim is that snus, relative to cigarettes, reduces the risk of lung cancer, mouth cancer, emphysema, chronic bronchitis, heart disease, and stroke in humans. I will show some of the data underlying this decision in the following slide. These human data on snus, generated mainly from Sweden, is often referred to as the Swedish experience, as Lars mentioned earlier.
An indication of the direct human health benefit of smoke-free products can be seen from the use of oral tobacco products compared to cigarettes in Sweden. In Sweden, sales of cigarettes were on the rise till about 1980, and since then has been declining with the increased sales of oral products. Sales of oral products have increased since the first launch of pouched snus in 1973 and tobacco-free nicotine pouches in 2016, and have overtaken cigarettes lately. This slide shows use of cigarettes and oral products in Swedish males from 1980 onwards to till about today. Use of oral products increased slightly, while there has been a substantial reduction in smoking prevalence from about 35% in 1980 to about 6% now.
At the same time, and as shown in the smaller boxes on the right, there has been a reduction in ischemic heart disease and in lung cancer in Swedish men. The introduction and uptake of snus is related to changes that were relatively unique for Sweden. Snus is not permitted in many EU countries due to regulatory restrictions. But in Sweden, where oral tobacco product prevalence grew, men have one of the lowest smoking prevalence in the EU. Swedish male have one of the lowest tobacco-related mortality among the EU countries. This graph of mortality estimates does not exactly mimic the previous graph of smoking prevalence because of differences among countries about how death is counted, and there are varying lag periods in changes in mortality from various diseases attributable to cigarette smoking.
The observed changes in prevalence of cigarette versus oral tobacco seems to be causing this pattern of reduction in tobacco-attributable mortality in Sweden. This forest plot shows the health harm reduction estimates from snus in the granular fashion. The data are mostly from Sweden. It shows the estimated relative risk of mortality from five major smoking-related diseases. Relative risk is the ratio of the probability of an outcome in an exposed group to the probability of the outcome in an unexposed group. An example would be the probability of lung cancer death in smokers versus non-smokers.... The relative risk for snus, based on the list of studies in different diseases, are shown in the slide.
The relative risk point estimates were 0.8 for lung cancer, 1 for mouth cancer, 0.8 and 2 for COPD, there were 2 studies, and 0.9 and 1.3 for heart diseases and stroke. These estimates are from large sets of data, all but the COPD study are meta-analysis of multiple studies. The term COPD combines emphysema and chronic bronchitis. The relevant comparison of the relative risk for snus is cigarettes. There are publicly available relative risk numbers for cigarettes from multiple sources, including the U.S. Surgeon General report and the CDC, and also from other countries. The relative risks for cigarettes for these diseases are high. For lung cancer, mouth cancer, and COPD, diseases strongly linked to cigarettes, the relative risk is reported at around 10-20.
For heart attack and stroke, diseases that have multiple risk factors, the relative risk for cigarette is reported at around 1.5-4. The FDA has concluded that for all these diseases, the risk is lower with snus compared to cigarettes. The epidemiological data presented so far is primarily related to snus. It would be reasonable to assume that the data from snus would apply to the nicotine pouch, ZYN, given some fundamental assumptions are met, as shown in this slide. ZYN qualitatively and quantitatively contain similar or lesser amount of harmful chemicals compared to snus. Pattern of use data combined with exposure data from Sweden show a similar nicotine exposure for snus and ZYN. Based on this, long-term health effects are not expected to differ between snus and ZYN. The use pattern of snus and ZYN are also similar. Now, moving on to some future studies.
This slide shows a high-level summary of studies we at PMI are planning to further define the health and reduction potential of inhaled smoke-free products. Oral products have generated extensive and persuasive data from epidemiological study that has covered. Inhaled smoke-free products are a relatively new entry to the market, and sufficient time has not yet elapsed to generate large epidemiological data for study. We are launching studies in countries where the inhaled smoke-free products have been in the market for a number of years and have reasonable market penetration. As shown on the right side of the slide, our strategy is to show direct benefit in patients with disease, such as symptoms, function, and mortality, and in health utilization, such as hospitalization.
As shown on the left hand side of the slide, the primary diseases we are targeting are COPD, where beneficial changes from switching from cigarettes to smoke-free products could be rapid in weeks to months for some symptoms and function, and in cardiovascular disease, such as heart attack and stroke, where the beneficial changes from switching from cigarettes to smoke-free products could be seen in about 2 years. For cancer, unfortunately, the latency period for change is much longer, over 15-20 years, and the risk may never return to the level of non-smokers in lifetime. Now, moving on to diseases. For COPD, we have started a 3-year study assessing progressive lung damage from smoking compared to using our heated tobacco product. We will start a 6-month study assessing symptoms and function impairment in COPD with the same product.
We plan to retrospectively analyze real-world data for COPD-related hospitalization in subjects using heated tobacco product. For cardiovascular disease, we plan to conduct an outcome study assessing mortality, heart attack, and stroke, preferably retrospectively using real-world data. In some markets, we intend to launch product registry on product launch. Lastly, we are planning to conduct retrospective real-world evidence studies on nicotine pouches to demonstrate the harm reduction potential of these products. We may also launch product registry or cohort study for nicotine pouches. Now, real-world evidence study is a challenging to conduct, as medical or insurance records need to be linked to product use. In addition, high quality data must be ensured for all data we want to evaluate, for example, mortality status. Real-world evidence studies have limitations in terms of what they can or cannot show.
With the availability and increasing use of smoke-free products, there is interest to understand the health effects of nicotine. Historically, many of the human studies with nicotine were done in the context of cigarettes, and there is a spilling of negative effects of cigarettes over to nicotine. Health authorities and informed scientists understand and accept that nicotine is not the primary cause of health harm associated with cigarette smoking. Nicotine is addictive, but not intoxicating or physically impairing, as are some other addictive products, such as narcotics and alcohol. Nicotine does not cause tolerance. Tolerance occurs when a person takes higher doses to get the same effect as before with lower doses. Now, we, as larger scientific community, need to study and understand the health effects of nicotine in isolation and separate from cigarettes.
Furthermore, we need to understand the reasons why consumers use nicotine and understand which levels of nicotine may be associated with potential benefits. There's also room to develop better nicotine replacement therapies or NRTs, such as inhaled NRT, that may provide pharmacokinetic parameters matching better with nicotine delivery from cigarettes and mimic better the cigarette smoking experience. Nicotine has been studied for benefits in some human diseases, as listed in the slide. In vitro, animal or human studies have shown benefit, but the data available to date are not persuasive, and the addictiveness of nicotine could be a limiting adverse effect for developing nicotine as a medicine for human use, unless the benefit is overwhelming and there's a clear unmet medical need.
The NIH in the U.S. sees cognitive impairment as a potential and has funded a multicenter study exploring whether nicotine patch, compared to placebo in 380 subjects exposed for two years, can improve memory and functioning in patients with cognitive impairment. A potential downstream indication could be Alzheimer's disease. Let me close by going back to where I started. Cigarette smoking is one of the biggest public health concern of our time. PMI has developed smoke-free products that have potential of reducing health harms, and we are doing clinical studies to demonstrate reduced health harm of our products relative to cigarettes. However, there are enough data available now for taking pragmatic actions to reduce cigarette use and their costs to human health of regulatory inactions. Encouraging progress is being made in many countries.
However, the failure to acknowledge the role that health harm reduction can play in bringing about the end of cigarettes hinders the ability of smokers to switch to better alternatives. The science is clear. It is no longer a case of if smoke-free alternatives are better than cigarettes, but by how much they are better. Many policymakers perceive it is safer to abstain from the debate rather than to be seen as siding with industry by adopting risk reduction policies. Governments and public health authorities must act quickly and decisively, rather than remaining tied to the outdated approaches that have failed to solve the problems of smoking. Embracing harm reduction by smoke-free products will accelerate the end of cigarette smoking. Thanks for your attention. I will now hand over the podium to Matt Holman, who will talk about our regulatory application.
Our last year, I spent over 20 years working in the FDA, including the last 12 years working at the Center for Tobacco Products within the agency, where I left there. Marketing application review program, that all tobacco product manufacturers must go through. I actually saw PMI's vision, their very aggressive approach to transforming this industry and therefore public health. This transformation that they're pursuing. I'm happy to say that I've been here now over a year, and really excited about what we have going on here in the future. Looking forward. What I want to do, though, is Badrul shared with you some of the science behind our products.
I want to actually talk to you about the products that we are seeking or have received authorization from the agency, so that you know what that portfolio in the US, what we expect it to look like in coming years. So as you all know, we have authorization from FDA to market our Blade product, the IQOS 3.0. We received that in 2019. That product comes with a couple different stick variants that mimic combustible cigarette flavors. So there's tobacco-flavored sticks and there are menthol-flavored sticks. What is wonderful about this product is we also, a year later, in 2020, got authorization for a modified risk claim. You can see the claim here on the screen.
Essentially says, "If you're a smoker and you put your cigarettes down and you switch to IQOS, you will significantly reduce your exposure to toxic chemicals." That, again, these products are authorized by FDA. That authorization doesn't have an expiration to be able to market these products. What it does - what does have an expiration, though, is the modified risk claim. When FDA authorizes these claims for any products, they set an expiration date. Our expiration date for the IQOS product is July of next year. In anticipation of this claim expiring, and us not being able to use it any longer in labeling and advertising, we submitted this past July a renewal request to FDA.
I'm very confident that FDA is going to renew these, this product, this claim on the product, although we will be, the first going through this renewal process. What we submitted essentially in the renewal application or submission to the agency, was all the new data we've collected on IQOS globally since FDA originally authorized it in 2020. That data, if you look at, is very... And, and some of it's been shared in earlier presentations today, it supports this claim, continues to support, in fact, it provides additional evidence that FDA didn't have in 2020 when they authorized this claim. By the end of the year, we plan to submit applications for ILUMA.
Again, just like the IQOS 3.0, we plan to submit PMTAs to get authorization to market in the United States, as well as MRTPAs. With the MRTPAs, we plan to request the exact same claim that we already have on the IQOS product that's currently there. Again, being that we're requesting the same exact claim, I think the probability that FDA will come to the same conclusion for our ILUMA product, which as you heard earlier today, is even better, has even higher potential to convert U.S. smokers to HTPs. I think the likelihood of a success in achieving authorization to market as well as authorization use claim for ILUMA is very high. Switching to a different product category, Swedish snus products.
You've heard about them already, earlier today, so I won't say that much about them. Really, the point here is just to say, again, they're authorized to be marketed. That authorization doesn't expire. But again, like I just said a moment ago, for IQOS, the modified risk claim does have an expiration date, which is also next year, like our IQOS. So this past summer, we submitted a renewal request for these products as well. Again, provided additional data that, excuse me, FDA didn't have when they authorized the product, the modified risk claim originally. Again, the data we have around the world, not just in the United States, for these products also supports the validity of this claim. So again, I think this will be a relatively...
Should be a relatively easy decision for FDA to renew and extend this claim so that we can continue to use it in advertising and labeling for these products. Next, looking at nicotine pouches. We do have ZYN products on the market in the United States. We submitted applications, PMTAs, in March 2020, ahead of the September 2020 deadline that the courts had instituted in the United States, for all marketed products that had not received authorization. These original products are dry products. They come in a variety of flavors and strengths that really align with the rest of the oral tobacco product category. These products have not yet been authorized by FDA. FDA has started the review of our applications, but has not completed the review and, and concluded.
But they are allowed to be marketed because the way, the court ruling was set, that if we submitted these applications by September of 2020, which we did, then FDA would allow us to continue to sell these products under what they call enforcement discretion. And so these products are on the market, even though FDA has not completed the review of the applications. We also would like to market in the U.S., ZYN Ultra, the moist pouches. Again, very similar to the dry pouches. The main difference is the moisture level. There are a couple other differences, but again, the same array of products. These products, unfortunately, even though we submitted the applications nearly two years ago, also have not completed. FDA has also not completed their review of these products.
We are not able to market these products. They were not submitted by that September 2020 deadline that would allow us to market under enforcement discretion. So we will not be able to market these until FDA authorizes the applications. I wanna just sort of step back for a minute at the end here and kind of give you a little bit of a big picture about what things look like in the U.S. from a regulatory perspective. As shown on the slide here, FDA has only authorized 45, they've only issued marketing granted orders for 45 different products in total. To contrast that, on the SE, it's many, many thousands at this point. I don't know the exact number off the top of my head, but many, many thousands.
As you've heard, I think in earlier talks, for a variety of reasons, I think PMI is a leader in smoke-free products. This is a good example where we have actually a third of all PMTA authorizations that FDA has issued to date for our IQOS product line and our General Snus product line. Similarly, if you look at the MRTP pathway to get these claims of either reduced exposure or reduced risk, we actually have 80%, this company has 80% of the authorized claims. Again, these are some of the reasons why I actually joined PMI as well. They've got proven success with FDA in getting through what are very difficult regulatory processes, both under the PMTA and MRTP, MRTPA pathway. Lastly, I just wanna wrap up by talking about some of the challenges.
As you saw, those numbers for total PMTAs and MRTPAs issued is very, very low, considering these programs have existed now for about 15 years. The situation at FDA is there's a substantial backlog in PMTAs. What that means is, there's a very long queue of applications that still need FDA review. As the consequence of that, there's also a challenge that it's very unpredictable as to when FDA is gonna complete their review for all these applications, because there's so many sitting there. It's difficult as an applicant to know exactly when FDA is gonna pick up your applications and review them. And that's a real challenge because as you, as you know, we are developing innovative products.
You know, for example, we have this ILUMA product, set of products that we would like to get on the market in the U.S. They are an innovation on the currently authorized, and authorized both for marketing, authorized as modified risk, blade versions of the product. And so, you know, how do we do this? How do we get these products on the market? We've got a number of different strategies that we're employing to try to get through the regulatory process and get our authorizations to both market and be able to label these products in the way that we think we should be able to label them.
One of the things we're doing, one of the strategies, is making sure that we give FDA all the data we think they're gonna need to ultimately make the conclusion that these products are appropriate for the protection of public health, and issue marketing authorizations for us. We don't wanna cut corners and not give them everything we need. We wanna give them enough data that they look at it, and they can quickly come to the conclusion that, yes, the totality of data here demonstrates that these products should be marketed in the United States. I think another strategy we're employing is just hiring folks with regulatory science expertise.
So PMI has a long history of having great scientific expertise, but in the U.S., dealing with the FDA, we're trying to bring in staff that also have that sort of regulatory science experience that FDA is looking for, so that we have a better understanding, back to the point I just made a moment ago, but what is the data that FDA would likely need? How would they look at a given product or set of products, and thinking about what data that they think they need to draw a conclusion. So bringing in people that have that sort of knowledge, that experience with the agency, because it's very unique. Their approach is very different than other regulatory bodies around the world. And then the last thing is just working to better educate adult consumers.
Fortunately, with the new center director, Brian King, well, new, it's been a little over a year, so relatively new. He's been vocal in recent months about the need to better educate adult smokers. Because again, we have products on the market. We would like to get additional innovative products on the market, that, you know, will improve both individual and population-level health. We also have to make sure that smokers understand these products, and so that's why, for example, our modified risk claims on the General Snus and our IQOS products are really important, so that consumers understand the impact they would receive to their health if they, in fact, put down their cigarettes and move to one of these smoke-free products.
With that, I thank you for your time, and I'll turn it over to Emmanuel.
Thank you, Matt. Good afternoon, everybody. Like all of us, I'm absolutely thrilled to be facing you to share outlook, perspective, objective for the next step of our journey, to become a smoke-free company. Stefano was your Italian double espresso. I would have loved to be your French glass of champagne. I'm afraid there are still a number of things that we want to do with you in the rest of the afternoon before we get there later on today. What I'm gonna do for the next 45 minutes or so is, of course, to explain how what Jacek and all the category owners have been explaining in term of performance, that we want to achieve all the great perspective, the potential that we are seeing in many dimensions. How is it going to translate into performance for PMI?
Here you have the agenda of what I'd like to cover. I certainly want to lead you through the very strong underlying driver of PMI today. We are flying with two very powerful engine, two champion in their respective category, IQOS and ZYN. They are fast-growing, they are profitable. I will lead you through a number of elements to emphasize that. I will certainly also explain why the resilience of our combustible category is very important to our performance. That will explain why we have achieved a great performance over the 2021-2023 period, that we're gonna close in three months from now. I will then, of course, elaborate on our objective for 2024-2026. I'll speak about the U.S. We have a formidable opportunity within reach, and we're going to add growth to growth.
That is also certainly explaining why we have such an exciting outlook for the coming years. I will certainly explain how we believe that this great performance is going to transform into the continuation of rewarding shareholders, and we are targeting to continue to deliver very strong shareholder return. And I will also say a few words about our 2030 vision on becoming substantially smoke-free. But before I do all that, before I do all that, I'd like to make sure that we are all on the same page on understanding, you know, what is at stake here. We're not talking about something on this transformational journey that would be something that we need to do to just kind of maintain what PMI is, or even something that would be marginal.
We're talking about something that has, for me, a second to none capacity and power in terms of delivering growth over a long period of time. Let me illustrate that. What I'm gonna say now is illustrative, of course, but I think is going to help us understand what is at stake. First of all, when we look at our volume, so today, we said it earlier today, on the combustible business, taking into account the U.S., we have 23% market share. When we look at the smoke-free world, we have about 50% market share. So let's assume for one second, for illustrative purposes, that we are successful in unsmoking the world, and the whole world is moving towards smoke-free product. We keep the same market share of 50%, it's a 2x factor on the volume.
Okay, that's what we could do. Now, when we look at the economics per unit, whether you look at the net revenue, where we see today net revenue, I'm going to elaborate on that in a second, 2-3 times higher on our per unit smoke-free product versus combustible, or you look at the gross profit, we are anywhere 2-2.5 times higher. Well, if we achieve that, okay, we're gonna multiply then by two, of course, the profit that we're gonna generate by per unit. And if we double the volume, in fact, we talk about a 4x potential in terms of gross profit pool. And of course, the SG&A below gross profit will not grow at the same pace. So all that to illustrate that we have, as I said, a formidable potential of growth ahead of us.
The good news is that the world is moving toward a smoke-free situation, far too slowly. We would like it to move much, much faster, but it is moving. We are today, in 2023, around 11% share for smoke-free product. We are targeting to grow this share, and we expect to be a big contributor, close to 50% by 2026, around 17%. And we believe that in 2030, we could be multiplying by close to 3 times versus today, the share of the smoke-free product. Globally, we expect the nicotine space to be close to stability in terms of volume, of course, growing in terms of value. Combustibles, when I said it, are going to decline between -4% and -2%. And we expect the smoke-free category to grow double-digit, 10%-15%.
Nicotine pouches, of course, from a lower base, being the most dynamic category, 30%-35%. Heat-not-burn growing 15%-20%, and e-vapor growing at 10%-15%. We are, of course, significantly ahead of the curve when it comes to becoming smoke-free. In H1, you've seen that we reached 35% of smoke-free revenue on our total revenue. We are making good inroads towards our objective of becoming predominantly smoke-free. Yet, like I said it, we may be a bit short of the objective in 2025 for a couple of reasons. First of all, certainly a number of market that we were hoping to open during this period did not open and are still closed to smoke-free product.
Second, the war in Ukraine and the impact both in Ukraine and Russia has been slowing down the growth of smoke-free, price increase on CC, as it is a ratio, of course, it's having an impact. We believe that rapidly after 2025, we're gonna be reaching this 50% threshold, and we're gonna become predominantly smoke-free. Actually, when we look at the market where IQOS is available and the 80 market where we are selling smoke-free product, we believe that by 2035, we should be predominantly smoke-free. Of course, we have the vision for 2030 to be above two third, but I will come back on that later in my presentation. Okay. Let's now move back for a few slides on our 2021, 2023 performance.
I guess we will all recognize that we've been delivering this performance in a relatively challenging environment. And, I mean, you can name the difficulty that we've been facing, but obviously, I could mention the surge in inflation. I could mention the shortage on IC component that has been disrupting the supply chain, and certainly the geopolitical situation and the war in Ukraine. All that has been, or have been an element that has been clearly a difficulty that we've had to overcome. And despite that, despite that, we are going to deliver, and in fact, over-deliver on most of our objectives.... We said at the beginning of this period, it was February 2021, we said, we think we can have volume broadly stable.
Well, actually, today, with the latest guidance that we provided today, we believe that we're gonna be growing volume at a CAGR about 1.5%. So it's not 0.1%. I mean, it's a meaningful growth of our volume over 2021-2023, and of course, it's a big change in the outlook for the company when you see that even at the volume level today, we're in a capacity to generate a very nice growth. We said we want to grow more than 5% organically, the revenue over 2021-2023 period. We're gonna grow more than 7%. We said we want to grow, excluding currency, adjusted diluted EPS on average at more than 9%. We're gonna grow at more than 11%.
We wanted to be highly cash generative, so we're gonna be highly cash generative. Of course, the Forex have been moving quite a lot over the period, but if we make the calculation at the prevailing Forex in February 2021, when we made the guidance, we're gonna finish with an operating cash flow between $34.5 billion-$35.5 billion, versus an initial guidance of around $35 billion operating cash flow. So we have been delivering, in fact, largely over-delivering, despite the difficulty, and I think it gives a lot of solidity, a lot of credibility to the 2024-2026 vision that we are sharing with you today. Now, when we talk of performance at PMI, it cannot be just the financial performance.
Equally important are all the parameters, the actions, the achievements that we need to realize to make this financial performance sustainable. As you know, in order to make sure that we track them in a very clear, trackable manner, we put our key objectives in that respect in a sustainability index, the PMI Sustainability Index, where you have, the key, parameters, KPIs, to deliver sustainability to this performance. As you know, we classify them in two categories. The first one, which is probably for PMI, the most important, what is the impact of our product on sustainability? Are we able to come with the right smoke-free product to convince the smokers to switch to better products?
The second one, I would say, like the vast majority of the company, of course, the impact of our operation on the society, on the planet, and whether here, again, our action is generating sustainability. You have a select number here of parameters and KPI. I'm not gonna go through all of them. As you know, we are extensively describing that and this index in our integrated report. Just a few of them here that maybe that I can highlight. One is the number of market in percentage of our shipments, where we are coming with a program for youth access prevention. We want to be in 2025, above 90%, where we've been so far consistently above at 91%.
Second element, we want to have an anti-littering program for our combustible business in more than 80%, of our market in terms of volume. We are in, in 2022, so we continue to make progress already at 68%, so we're making good inroads. And we're also making good inroads in becoming carbon neutral on scope 1 and 2, and as you can see, between 2021, there is a big decrease. Because these objectives are very important, they are also part of the way the management is incentivized on the medium term. You know, this performance share unit, that is the vast majority of the remuneration over the medium term, for the management.
Of course, total shareholder return and EPS progression account for 70%, but 30% is based on this sustainability priority to make sure that the management is addressing them in an efficient and successful manner. One thing that we've seen, developing in the recent past, which I believe is extremely positive, is the fact that there is a growing number of stakeholders that are coming to us to sometimes challenge us, but certainly support us, help us, and are saying, "Well, you are in the right direction. Please continue, and if you can do more, you should do it." It, of course, starts with our shareholders, and, you know, in this room and through the broadcast, we welcome, your help, your challenge, but your support as well in making sure that you are- we are going in the right direction in building a sustainable business.
What is new is that even the lenders today accept for some of them to say that part of the cost that we are paying on, the debt they're providing, on the financing they're providing, is conditioned and, is, dependent on, our capacity to deliver on our sustainability, target. I think it's really going in the right direction to have, as I said, a growing number of stakeholders, thinking the same and being aligned to help us going in the right direction. The financial market, of course, also puts sustainability as an important element to assess the quality of the company and the valuation of the company. Here on this slide, you have the average PE valuation for our peer group, FMCG company, also tobacco industry.
As you can see, Swedish Match was, until we bought them, the one with the best valuation. Why is that? Well, we believe because precisely being around two-thirds of their business smoke-free, they have been making extremely good inroads in terms of sustainability of the business, and that was acknowledged and recognized by the financial market.
We stand as a nice number two here in the tobacco industry, and certainly our multiple is also reflecting the fact that we are delivering a strong and sustainable financial performance, and the rest of the industry is behind us. What we take as a positive element as well is the fact that when we look at, again, performance on total shareholder return versus our peer group, including the industry, but also vis-a-vis the S&P 500, I think we believe that the quality of our performance over 2021, 2023, and here is the total shareholder return since the first of January 2021 is acknowledged by investors. We are the number two of the peer group, which I think is reflecting the quality of the result that we've been delivering during this period.
Enough for 2021, 2023, and now let's look forward and let's look at our ambition for 2024, 2026. Of course, I'm going to elaborate on all these components. Everything is starting with the capacity to change the trajectory on volume and to grow volume. We believe that today, with IQOS, with ZYN, with VEEV use to a lower extent, there is a capacity for us to grow shipment over the next three years. That would be of course, after 2021, 2023, six years in a row, growing volume. When it comes to revenue, I'm going to detail in a few slides, all the elements that are going to enable a significant upside on the revenue growth versus the volume evolution.
You will see once again that IQOS and ZYN are gonna be strong provider of this extra growth versus volume evolution. I think very important, growth of our adjusted operating income. Here, as you can see, 8%-10%, that means that organically, we are targeting a margin improvement. We believe that over the next three years, we have identified the drivers to improve the operating margin, and therefore deliver an accelerated growth versus the revenue with our operating income. I'm also going to give more granularity behind that. Last but not least, of course, growing operating income translating into growth of the adjusted diluted EPS, excluding Forex, with a CAGR between 9% and 11% over the period. I will explain what's gonna be the dynamic behind that as well.
So when I look at 2024, 2026, the growth is gonna be really here generated by these two champions that we have in our portfolio today, IQOS and ZYN. As you're gonna see in a minute, they come with, of course, great growth capacity in term of volume, very powerful, positive mix impact on revenue, on profitability, on margin. And yes, of course, we will have to invest a lot to make sure that we extract the maximum potential of the growth that is available here. But we believe that we have here with IQOS and ZYN, the driver of a strong growth of the OI and also of margin expansion. The combustible business, Werner said it, is gonna be important. It's gonna continue to support, enable our journey to become smoke-free.
And what we expect from the combustible is with the price increase, that we expect to be about mid-single digit on average, over the period, to more than offset the volume decline, and together with the productivity, to also be able to grow operating income. But before I enter into all these building blocks, let me spend some time with you with what I think is a very important element to have in mind when it comes to the next three years. It is the super positive mix impact that is coming from IQOS and from ZYN. Maybe, you know, for some of you, all that is gonna sound like, you know, already known and understood, but I guess a few elements are gonna be new nevertheless. What we have done on that slide is relatively simple.
We've been taking our international cigarette business, and we've been calculating on a per thousand basis, what is the dollar amount for the various parameters here? So whether the net revenue, the cost of goods sold, the gross profit, the commercial and R&D cost, and the product contribution. We've been doing the same for IQOS, international IQOS today, and also as a reference for the Nordic nicotine pouches. So what do we see? Starting with the net revenue. So you see that on average, we have net revenue of $35 per thousand stick, that was in 2022, for our combustible business. When it comes to IQOS, we have an average of $85 or around $85 per thousand. So each stick of IQOS, on average, is delivering 2.5 times the revenue that we have on international cigarette.
Let me here clarify the fact that we are integrating the revenue coming from the device. So this is the kind of holistic number for IQOS. But let's be clear, the revenue coming from the device is about 4% of the total of the IQOS business revenue, so it's not playing a lot at the level of the revenue. It's gonna be a bit different at the level of the costs. So 2.5 times higher than international cigarette. So of course, when we have positive volume, but this volume that are coming positive for CC volume that are disappearing, when they come from IQOS, they are coming with a very positive mix on the revenue. Now, let's look at the COGS. So the COGS are higher here for IQOS on average, $30 per thousand, versus $12 per thousand for international cigarette.
But be careful. The large part of the difference is coming from the cost of the device, because for the cost of the consumable, we are talking about a bit higher on IQOS, but not, you know, that massively higher. This COGS, as we are generating now, productivity, and notably after the launch of ILUMA, and I think Jacek and several other, you described the work that we had been doing over 20 years on optimizing the cost on, on CT. We are just at the beginning when it comes to the consumable for IQOS. So productivity is in the pipe, and we think that we have a midterm opportunity to reduce the COGS on the consumable and on the device, once again, to something like $25 per thousand. So today, we have a gross profit on international cigarette on average of $23 per thousand.
On IQOS, we are at $55 per thousand already. So each stick that we sell of IQOS, each HTUs, is delivering 2.5 times the average gross profit on international cigarette. And of course, as we improve the COGS, that will further increase. In terms of gross margin rate, so the gross profit on net revenue, today, it's about the same, but the reality is that, as we shared already in the past, on the consumable, on the consumable, we are already even, you know, a bit more than 10 percentage points higher in terms of gross margin rate on the consumable of IQOS versus international cigarette. Now, looking at the commercial R&D cost, $25 per thousand for IQOS. Yes, of course, we are in the phase of investment. We are building the digital commercial engine.
We are building the infrastructure. We are investing in new countries. So it's 7 times more than international cigarette. We see that in the country where we start to have the critical mass, where we are scaling up, we rapidly move below 20, so it's gonna happen in a growing number of countries. But even taking the costs as they are today, we have a product contribution average per thousand of $20 for international cigarette, $30, so 50% more for IQOS stick. And with the improvement that we have, as an opportunity for the midterm, we're gonna move to $40 plus of product contribution, so it will be twice on IQOS consumable what we deliver on international cigarette.
So you can sense here, you can visualize what is the super powerful positive mix that we are generating each time that we grow the IQOS business and the volume of IQOS consumable. Now, when we look at the Nordics, well, as you can see, it's, you know, even better on the revenue per pouch. Here, we are on per pouch, or per thousand pouch, so we are at $100. The product contribution is about the same, around $30. But here again, on a kind of per unit basis, the nicotine pouch business in the Nordics, these are the reference, if you want, for what we could be developing internationally, is positive and more positive than international cigarette. Now, let's move to the US.
I think you all know that the U.S. is a super profitable market, so maybe some of what I'm gonna show is stating the obvious for you. But I think the numbers, nevertheless, are still impressive, and I think they, it shows why today the U.S. is already very material to us, and the growth in the U.S. is going to make a big difference in our growth. As a reminder, we put the numbers for international cigarette and international IQOS, calculation is the same. And here you have U.S. ZYN, so it's for per thousand pouch, if I may say, and you have a revenue of $190, so it's 5.5 times international cigarette. It's more than 2 times international IQOS.
COGS are a bit higher, actually, you know, 3 times international cigarette, very close to the IQOS cost of goods. And the gross profit, the gross profit per thousand is $150, so it's 3 times IQOS, 6.5 times international cigarette. We have, of course, high commercial and R&D costs. I mean, we are building the U.S. today. We are investing. You know, very often we're asked about what is the level of investment? But we are investing today behind ZYN, so you have some of that, that is clearly on this commercial and R&D costs. But it still deliver a product contribution of $115 per thousand. This is 6 times the average of our international cigarette business, and this is about 4 times IQOS international today.
So as you can see, when we are growing, and we are growing fast, the ZYN volume in the U.S., this is coming as well with a super, super powerful positive mix impact. Now, for illustrative purposes, here, we are giving a first view of what the U.S. IQOS number could be. And here, this is once we have reached some kind of scale effect, so several percentage of market share. I'm not saying the 10%, but several percentage of market share. So the net revenue, here, we have been positioning the IQOS consumable at a similar price point as premium cigarette in the U.S. That would give $150 per thousand.
The COGS here that is taken is as a proxy, the average cost that we have for international, so that would still give a very nice gross profit of $120 per thousand, 5 times the one that we have on international cigarette, more than 2 times international IQOS. Yes, we would still be, even at that stage, with significant level of commercial and R&D costs. Here we put $40-$50. Again, that would be after several percentage points of market share being gained, and the product contribution would be at $70-$80 per thousand, more than 2 times what we do on international IQOS and close to 4 times what we do on international cigarette. There is one number that I forgot to mention to you, which is the gross margin on U.S. ZYN.
So that is, on this one, it's quite simple. This is simple, simply with almost 80% gross margin, the best gross margin rate that we have in the group, okay? So again, you know, any growth of ZYN is contributing very nicely to the mix of the gross margin. Well, having said that, it is clear that we see a fantastic opportunity in the U.S. And sometime when we are talking to some of you, well, you have the feeling that, well, there is maybe more fear than excitement about what the U.S. is going to bring. And sometimes there is maybe even this feeling that, well, the U.S. is maybe for one day, but we don't know when the U.S. will be delivering. No, no, the U.S. is today. I mean, the U.S. today is a big market for us already.
In 2024, we believe we're gonna deliver more than $2 billion of revenue in the U.S., and we should be close to $1 billion OI. I don't need to come back on the positive mix that I've just been describing. So IQOS, that, of course, you know is not in this number, is just gonna come on top of that. So the U.S. is adding growth to the growth for the group. IQOS is adding growth to the growth in the U.S. That's what we want to deliver. Of course, it's gonna come with a plan to invest, both on IQOS and ZYN. You are very validly coming with question on what's gonna be the investment on IQOS, and it's gonna be, you know, at the level of the opportunity.
And in 2024, expect us to, of course, invest in the U.S. But let's be clear, first and foremost, for the time being, we are investing behind the ZYN potential, okay? So on the, on short term, most of the investments are gonna be behind ZYN. And by the way, when we increase the level of sales force, you know, when we invest on the commercial tool on to create a great digital commercial engine in the U.S. as well, when we invest in our capacity to be more present in term of external affair across the U.S., well, that is serving the whole portfolio, and today, of course, first, ZYN, that is really the brand that is with the global presence in the country.
So with everything I've just been mentioning, I can share our objective to see the U.S. as a strong contributor to the growth. We believe that the U.S. should deliver double-digit growth in term of volume, in term of revenue, and in term of operating income, and therefore be accretive to the group growth, even with investment that we will have to make to fully extract the U.S. potential taken into account. Okay, now I'm gonna go to the full granularity on the building blocks of our powerful growth model. It starts, as I explained, with the volume growth and our capacity to more than offset with our smoke-free portfolio, the decline on the CC. Second element, second building block, if you want, the positive mix.
I've been, I think, putting on the table a number of things regarding IQOS and ZYN and why they are coming with a very positive mix. Third element, pricing. First on CC, but I will elaborate not only on CC. And then on cost efficiency, and we want to continue to grow, generating cost efficiency, being prioritized and being focused. Also, scaling up and leveraging all the fixed, you know, investment or fixed cost that we've put in place to support our smoke-free business. And that means that we believe that we will have the capacity to make the investment for growth and still deliver strong top line, as I've shown, and also strong bottom line growth.
Starting with the volumes, maybe I can go relatively because both Stefano and Lars led you through the number. We want to grow first, of course, our IQOS business very strongly at double-digit over the coming years to be within 180-200 billion stick. It is probable that to be in the high end of the bracket, we would need to have a few markets opening. Could we be above the 200 billion?
Well, that would require that, you know, relatively, rapidly over the next quarters, we have a number, or most of the market that are close to the end, that we describe, you know, between Turkey, Brazil, India, Vietnam, that this market open to IQOS so that we can really accelerate our volume. But we have this ambition of a strong growth. When it comes to nicotine pouches, we target to be between 800 million and 1 billion can. Certainly, the U.S. is gonna support what would be more than doubling up the volume.
To be in the high end of this bracket, to get to the $1 billion, that would mean probably that we need to be successful in some of the new markets where we're gonna launch, and we should be able to develop in a meaningful manner in some of this market, the nicotine pouch business. But it means that if you take all the smoke-free units, so all the oral and heat-not-burn, we would be, in 2026, above 200 billion units. So that's for the volume growth, and we believe that we have the capacity to more than offset, as I said, the decline on combustible. Now, let's move to the positive mix coming from our smoke-free portfolio. It's not something new.
I mean, if you look at the performance, that we've been delivering in the past years, we have systematically been coming with a positive mix, thanks to what I presented on the IQOS economics, which has been ranging between 2%-3%. That's what we've been delivering over the last four years. ZYN is just adding here a potential for more positive mix. As you can see, in H1 2023, on a pro forma basis, we would have had an additional 50 basis points of positive mix coming from smoke-free product. Now, moving to price, which is the first stage of the rocket, if I may say, when it comes to growing revenue. I believe that if 2023 demonstrates one thing, it is our pricing power.
We are going to grow our price on combustible by 7%-8%, and while we are doing that, I think you see the resilience on the volume, and you see the resilience on the market share. So it shows that what Werner presented in terms of strength of the brand is enabling us to have this very nice pricing power, and I guess 2023 is clearly evidencing this pricing power. Now, when we look forward, you know, we're not saying we're gonna keep growing price at 7%-8% every year. We believe that targeting mid-single digit average growth for the foreseeable future is a realistic and reasonable assumption. Now, when it comes to the smoke-free product, the name of the game here, as you understand now, is not so much to increase price.
We have such a positive mix impact on the revenue per stick, that what we want to do is to maximize the growth in terms of volumes. That's really what is delivering the most positive impact on the overall performance. Now, having said that, you know, we are not discarding the fact that selectively, we could increase price on our smoke-free portfolio. But as I said, it's not at all the same strategy as on combustible, and we do that very selectively. But just, you know, for the sake of clarity and presenting things as they are, today, both our heated tobacco unit and nicotine pouches in the U.S. present a price positioning that is very reasonable versus premium cigarettes.
It's partly here because it is here to help the smokers to move away from combustible cigarettes and make a better choice at a cheaper price. But of course, it means that we have, because that remains both of them, whether IQOS or ZYN, they remain premium products, so we have the capacity to price up, if we want to. And remember, because in many, many countries, we have more specific tax on smoke-free product, and it's more ad valorem on combustible, we have a better productivity on price increase than on combustible. So all that is enabling us to target to grow, organically, our revenue at a CAGR of 6%-8% over the next three years.
Now, when we look at 2024-2026, we also believe we can grow our operating income very nicely, and actually, that we can improve margin. So when we look at 2021-2023, one could say, "Well, maybe, but you did not do that in 2021-2023." Actually, the margin are going to be about flat organically over the 2021-2023 period. So it is true, this has been a year with a lot of investment, as we all know, but we've been facing, during this period of time, let's be clear, massive supply chain disruption, geopolitical situation, shortages. This was the Iluma transition, and we told you that there would be a cost on transitioning to Iluma, and we've been clearly seeing it in 2021-2023. And then we've been seeing this surge in inflation, that it took us some time to overcome.
Now, when we look at 2024, 2026, we see a number of positive driver to expand margin. We believe that we have this very positive mix coming from our smoke-free product. There is the confirmation of our pricing power. That is very important. We believe that we will be able to move to a new cycle on the Iluma launch, where we're gonna be able to start generating productivity, and we are targeting globally, $2 billion of efficiency on our cost. Let me provide you some detail on that, and starting with the gross margin outlook.
As explained, we expect the top line to be driven by IQOS and ZYN, and I think I've been explaining that these two products come with very superior dollar per unit gross profit, but also in terms of consumable with a higher gross margin rate. So when we grow this product, that is generating a positive mix on the gross margin. We also, of course, have the pricing power. I don't need to come back to that. We mentioned that on Iluma, at the beginning, we were launching, we are not optimized. We are now, you know, making the normal productivity gain on Iluma. We are optimizing the manufacturing footprint around Iluma. It's gonna happen gradually through the 2024-2026 period... And then we have the ambition to generate $1 billion on productivity over the 2024-2026 period.
It's gonna be certainly on working on our manufacturing footprint to make sure that with the plan that we have, we optimize the location of the flows, and we optimize how we position our production. It's gonna be working, of course, on procurement. It's gonna be quality value engineering on our product. We're gonna try to have air freight shipment, if possible, as close to zero as we can. And if there is less in the supply chain, that should be possible. And all that give us the clear objective to improve the gross margin rate over the, So is the question, do you need to invest? Well, yes, we need to invest—We have new market that we can develop and expand, and we need to keep building our digital capability.
We are going to have a lot of efficiency in the way we're gonna grow our smoke-free product. We are reducing our cost per user as we are increasing the volumes. We have all this investment that we made, that we are leveraging up as we reach certain scale, and, you know, among other, with Iluma. And on top of that, we're going to generate a $1 billion cost efficiency program, which will come through, the, I would say, natural way of being more digitized, of, going through our process to be leaner and more efficient, to be also more focused and more headwind, which is, the increased cost of financing. We are very happy with the way we've been financing the Swedish Match acquisition, but we will come to the market for a number of refinancing over the coming years.
Of course, in the current condition, at least, we know that the debt that has to come to refinance, I think, is gonna cost a bit more. So we are taking into account some increase in the cost of refinancing, but despite that, we believe that we can grow our adjusted diluted income. I have to emphasize here that this is done with the current tax rate of the group, and we haven't been here of continuous increase of the dividend. In total, 183%, that is a CAGR of 7.2% since 2008. We are highly cash generative, around $35 billion of operating cash flow generated over 2021-2023 period. So between $36 billion and $39 billion dollars at prevailing exchange rate.
In front of that, we will have to make a number of CapEx, notably to ensure that we have the capacity for ZYN. And we believe that we're gonna stay at the level of 23 or even below in the next three years. Remember, we will certainly need to accelerate on the capacity for ZYN, but there was a big transition on IQOS ILUMA to create the capacity, and part of that is behind us. So when we look at the next three years, we think that our CapEx should be between $3.5-$3.7 billion. And of course, the vast majority, 75%, will be on the smoke-free product. We will pay a growing dividend, as I explained.
But as we are going to, with all these elements, we believe, be in a position to decrease the debt and at the same time, of course, to grow over 2024-2026. For 2023, as expected, because we knew that we would have to pay the remaining amount to Altria to buy back the right to IQOS in the U.S. There was the minority shareholder to leverage, and, and that's still what we, we believe. But for the 2024-2026 period, we are expecting a rapid deleveraging, and we believe that we should be around 2x net debt to adjusted EBITDA by the end of 2026, which would be broadly in line with where we were before the Swedish Match acquisition.
Once we have clarified that we're going to reach this objective, at that time, and of course, subject to board approval, we would be in a position to consider moving back to a buyback plan. On the 2030 vision, it has been, you know, widely commented today. Of course, you know, that's gonna be absolutely a game changer. To continue the growth of IQOS, where we have growth today, there are a number of markets where we need to accelerate. Certainly in some of the emerging country, but in some of the Western country where we haven't been successful yet. It is clear that we need to keep expanding VEEV to do that.
The assumption is that this could be achieved with an excise duty environment and evolution, I would say, that is broadly consistent with what we see today. There is a possibility that we could be even further, but then for that, we will need the help of the regulators. So we will need the markets that are closed today to open up to smoke-free product. We will need the help of the FDA to help us accelerate the innovation, and we will be needing to have the world helping us really to phase out cigarette and to put the right regulation to convince smokers to move to better product.
As a conclusion, just want to go through again the various elements of this successful, sustainable, profitable growth model that is really based on the strengths of the duo today, IQOS and VEEV. Fast-growing, very profitable, you've seen the positive mix impact. We have the ambition to create success for VEEV in a select number of markets. We have the resilience of the CC business. That has been generating strong performance in 2023. We have exciting growth outlook for 2024-2026. This very powerful financial model is going to enable us to keep delivering a strong shareholder return, and we aim to be substantially smoke-free by 2030, more than two-thirds, and at that time, PMI will have change of paradigm. Thank you very much.
Here in Central European Time or 5 minutes to 10, Eastern Time. Thank you.
...Welcome back, everyone. We will now begin the question and answer session, taking questions from those here in Lausanne. Jacek and Emmanuel are here with us on stage, and our other presenters and select senior executives are also here in the room. Please raise your hand to ask a question, and we'll get started. Who would like to go first? A mic will be brought to you when you ask a question, John and Don answer. Oops.
Two quick questions on some of the new IQOS variants launched today or announced today. With regard to the LEVIA product, given it's got no tobacco in it, what are the tax and marketing implications on that? Will it actually be a taxed product? Does it fall under tobacco marketing rules? And secondly, just on the DELIA, if I pronounce that right, product, is that the implication that when you say select markets for the sort of developed world discount product or lower price products, and then the VONS and BLENDS will be for the emerging markets?
Yeah, so the LEVIA, the non-tobacco, nicotine-containing, non-tobacco flavor product. It's a very good question about the taxation. I mean, we're in discussions with the several target, first target markets, how the regulators are, very much the fiscal regulators, gonna approach it. Because technically, as one of the innovations which doesn't fit into the fiscal categories today. So one could assume that day one, you could launch this product without the taxation and paying zero excise tax. But I think we also have to be realistic that we better proactively engage with regulators and set the tax, also recognizing, as I mentioned in my remarks, the risk continuum of the products. The taxes should be somehow proportionate to the risk continuum. The second thing is, this is not containing tobacco product.
In some jurisdictions, this may not be subject to, for example, labor regulations. Okay, so that's, that's we'll have to see. But, you know, see, the whole regulatory environment is that we know it very well. There's no other product category or no product category where the regulations will regulate the product before the product arrives in the market. So we're dealing with the sort of ambiguity, especially that if we're going to the more complex type of innovations with the products, clearly we are going outside the frameworks, and we need to have this conversation. Second is on the bonds. So yes, obviously, if you're going to the LMC markets, there is an affordability which we'll have to take into consider- we're taking into consideration.
So bonds would allow us, on the one hand, to have a more attractive or lower cost of the life of a device, but also, quite importantly, the cost of a consumable, which is somehow more, goes in hand with what is the available pricing potential, right? The margin potential. Now, having said so, I believe it is too simplistic to assume that there, you know, there are developed, rich countries and underdeveloped poor countries, right? You have, price affordabilities, essentially, visibility in all markets. The degree of this whole thing is different. Now, we also know that the lower you go of the price ladder in the, the price segments in the markets, consumers try to... Are looking for a more impactful tobacco, clear tobacco, pure tobacco, if you like that. So we'll have to address to this one.
Our objective and our strategy is very clear. Wherever we go, we go with IQOS flagship first to establish the benchmark in the market, and it's obviously not only in terms of the quality, but also the quality of the experience, but also very importantly, set the premium in the market. And then, you know, depending how far and to which audiences we go, we are then trying to adjust it. Now, as you know very well, on the cigarette category, there is a lot of learnings which you can draw from a cigarette category. We have been very successful and continue to be very successful on international.
On the one hand, leveraging the strength of the, the world's, biggest, global brand, Marlboro, but complementing this, very actively with the other brands, which allows us to position brand, from the price perspective, Marlboro in the premium segment, but then also participate in the medium segment, low price segment, et cetera. You cannot. If, if we want to play at scale, and we're playing at scale, this is impossible that you can have a one brand, which you can start stretching across the price point. And also from a brand equity building perspective, you can, you cannot be a brand for everyone.
So we need to start and somehow draw the territories of IQOS, which is, you know, in many countries, many markets. We still have time, but in some markets, we have to start thinking more from a portfolio perspective rather than just the one brand perspective. Because this opens, again, the possibilities for the differentiated pricing, both to the upside, to the premium, but also managing, for example, competition, if this is needed. But secondly, also allows us for the different positioning from an image perspective of the brands, which is longer play.
Next, we go to Pam Kaufman first, and then we'll go to Bonnie Herzog.
... Pam Kaufman, Morgan Stanley. Can you elaborate more on the U.S. rollout strategy and how you expect the performance in the U.S. market to evolve over the next 5-6 years? It sounds like 2024 is going to be a softer launch. So how do you envision the progression of the market share in the U.S.? And can you comment on device pricing and the HeatStick branding strategy?
Okay, excellent question. It helps me very much because I was receiving these questions on all of this, coffee and lunch breaks, et cetera. So in order to be in accordance with the perfect disclosure requirements, it gives me also possibility to address it. And Stacey, our head of the Americas business, and I think, Tom, the head of our Swedish Match business in the US, is somewhere there, so they can chip in. If I go - or stop me if I am going too far because I am disclosing things which we shouldn't disclose. So assuming we will be filing IQOS ILUMA in the next couple of months, okay? As Matt has demonstrated, we have our assessment is we have a pretty good chances that somewhere, say 25, in the middle of the plan period, we should have IQOS ILUMA authorization.
Knowing what we know today, after almost two years of experience with Iluma on international, and knowing what is the business model to support IQOS Blade versus IQOS Iluma, if this was happened, that we had this authorization, say, somewhere in 2025, beginning or end of 2025, it would be very unwise, frankly speaking, for us to go as of May next year, put the resources and effort behind the Blade, knowing that anyway, unheard of in a consumer goods industry, we would keep U.S. American smokers consumer at the two generations behind what we have on international. So we'll just confuse also from a brand perspective, the consumer. So if IQOS Iluma comes in 2025, then we start doing the national rollout.
Now, I need to clarify what is national, because we haven't, for as, as a comparison, we haven't done Europe in one day, right? Europe, which I'm not saying that Europe is U.S., right? Don't get me wrong, and I don't want to end up in any political or cultural conversation. But size and, size of the market and division into states or member states, et cetera, dictates that we'll have to approach, well, obviously, with the objective to ultimately eventually cover entire U.S., we'll have to do in phases. The way we see this whole thing, presumably from the day of IQOS out, IQOS ILUMA authorization, would be fair to assume that in a span of the first 12 months, we will hit the first 10 states. And then we will consecutively, we, we'll be adding the states, because frankly speaking, there is no...
This would be the right approach, okay? Second thing is, we had a little bit of different plans couple years ago, not more than a couple of years ago, but we didn't have the learnings from Iluma, how much it really gives us as the incremental and also help us with a better cost utilization resource management, because on the upstream, we require less support, so we can focus more direct to the consumer because it's very intuitive device, et cetera. Second thing is, if we get Iluma in the U.S., any further, innovations to Iluma, we trying to maintain compatibility of the consumables and the device. So this is less painful.
The most painful for us, and we're still going through that process, is when you go from a blade technology to the induction technology, because it's not just the new device, we need to go and redo the entire consumable piece, okay? So this is on ILUMA. Now, also, two years or so ago, we didn't know whether we will first close with Altria, the negotiations. Second, we didn't know that we can conclude with Swedish Match. So now, if I take all, we take all these elements into equations, okay, we have a freedom from Altria.
Now, we know what is IQOS ILUMA, and we have already billions in brand, in the billion dollars, actually $2 billion, billion bottom line, business in the U.S., and on the same thing, which is clearly fitting into smoke-free harm reductions and is growing at the, you know, very high speed, very high rate. So we're not really wasting a time because we can focus in the meantime on a continuing growing ZYN. ZYN will require more infrastructure, and that infrastructure, anyway, later on, we will be using for IQOS. Just to give you example, one of the things which we're doing at the retail in international is the brand retail. The different formats, flagship boutiques, pop-up, et cetera.
There is nothing stopping us or starting to deploy this also to further enhance the visibility, brand building and a continued accelerated growth of ZYN over deploying brand retail. And the only thing is that later on, the same brand retail will have an IQOS, which we will do on the international, because we will not be doing any extra investments behind ZYN, other than bringing ZYN now to other channels. And essentially, consumer smokers who are looking for alternatives, now we offering them the portfolio of the product, which we're doing already with the P4. So I think it's a better use of the resources versus opportunities which we have, and this is, that's the plan. Now, you may ask me further to which stage we're gonna... Sorry. So in May 2024, when we will start the commercializations of Blade, which we needed to-...
“Warm up the tires,” okay? Go get the first experience with the consumers, make sure that the messaging and everything is properly done. We will do it in a two-state, four cities, okay? I won't tell you in which, because my other competitor from the same town will presumably block the roads. Forget that. Okay, sorry. But this is for the test market. For us, it's more important, the first contact with American consumers, we do it ourselves. We will see how we can serve this product, et cetera, knowing that this is blade, so it's not our interest to go too much.
When we will go to the national, the so-called national rollout of IQOS ILUMA, this, you know, assume 10 states per 12 months, cadence, we will presumably be looking for the states when, at best, at this stage, from also positioning IQOS as the leader of the category from the brand perspective, et cetera. So will we follow what Swedish Match successfully did west and going to east, or we'll start a little bit differently? This remains to be seen. Ultimately, anyway, we'll cover VEEV in... Sorry, entire U.S. with a VEEV and an IQOS. But how we get to this point, that, you know, this we'll have to, this we'll have to see. Is everybody clear now on the U.S. or okay?
All right, thank you. It's Bonnie Herzog, Goldman Sachs. Emmanuel, I maybe have a question for you just regarding the new targets that you laid out. You now expect your business to grow faster, which is great, both top and bottom lines. But when I look at the new targets, the leverage from the midpoints of those new targets versus what you had before, the leverage is a little bit less. It's essentially three points versus four points before. So I was hoping you could spend a little time talking about the drivers of that. I know you've called out higher costs of financing. I assume there's gonna be stepped up spending, so if you could help frame that for us, maybe give us some sense of how much your investment spend is expected to increase in the next three years versus, you know, the last three years.
I guess I'm ultimately trying to frame all of this in the context of you transforming your business into a much more, you know, powerful and higher margin, you know, products. Thanks.
Sure, Bonnie. So, you said it. It is obvious that the cost of financing with the level of debt that we have today will have an impact. Today, we have an average cost of the debt of the net debt that is around 3%. That is quite remarkable. That is partly due to the fact that we have a significant chunk of our debt that is in euro, where we are still enjoying rates that are lower than in dollar. And that, by the way, is also enabling us to have some edge on the currency because we try to make our liability more in phase with our assets. And of course, we generate more euro than dollar today, still. So that's gonna be an element.
The other element, which is the other way around, is that we've been really helping the bottom line with an evolution of the tax rate that has been very positive in the last three years. And we don't expect that this is going to be the case, because in the number we've been showing, we're taking as an assumption, as I explained, not taking any OECD reform, that we have a flat tax rate. So what has been positive is not playing positive. So we have negative on the cost of the debt, and you don't have the positive on the tax rate. So that, these are really the two elements I think that are driving maybe the difference you're identifying.
Just to clarify, so not a substantial step up in your expectation for investment spend than in the next, you know, three years? As you roll out everything that you laid out for us today, just trying to frame it in the context of spend.
No, I think that if you're referring to the need of investment, as I explained, we will invest, and we have, you know, with the growth on top line, significant capacity to grow our SG&A and therefore to grow investment. But together with the positive scaling effect that I described, you know, on the fact that there is a lot now of infrastructure, asset, commercial tools that are in place, and that we're going to leverage with bigger volume, plus our plan on efficiency on cost, we think we have the capacity to absorb this extra investment and have, as I explained, SG&A growing at a lower pace than the top line, generating sharp profitability.
All right. Perfect. Thank you.
Okay. Who would like to go next? We go to Vivien first, and then we'll go to Owen afterwards.
Hi. Hi, thank you. Vivien Azer, TD Cowen. I wanted to ask a question about your targets for IQOS. So you've laid out an industry expectation for a CAGR of 15%-20%. The midpoint of your 2026 volume target would suggest that you expect to slightly underperform that range, which I think is maybe a little bit surprising given the innovation that you guys have, are putting in place and price tiering the portfolio. So can you just elaborate on that outlook and where you think there are opportunities to maybe stabilize or hold market share?
Yeah, so we're trying to Look, IQOS enjoys for the last, whatever, 8, 9 years, the extremely strong share of segment position. So yes, somewhere in the model, we're assuming that maybe finally there will be some success coming from, you know, 2 or 3 of our competitors. It's not that we want to give it up and leave it to the competitors, but I think we need to be a little bit realistic that maintaining the first mover advantage of that level for a dead long period of time is a little bit unheard. And if you go to many of the... Well, unless you, you know, somebody is dreaming in a, you know, about the monopoly type of a, of a situation....
We know very well that, you know, competition is working behind, you know, improving, continuously improving the heat-not-burn proposition. Not maybe extremely successful, but yes, I mean, it somehow is reflected there. Second thing is that I think, absence the very meaningful innovation from a competition, what is happening is there is a quite of growing price pressure, as a compensation for the fact that nobody can match IQOS when it comes to its performance. So we have to be a little bit cautious in the fact that we respond with the price, which would be, I think, wrong, rather than, you know, for some maybe short-term volume pressures, rather than try to occupy that space and apply to the value, rather than a chase, you know, every billion of that thing.
It is a pretty dynamic piece and, you know, part of the market, or others are dynamic as well. But you could see this, that, you know, competition has not significantly, in most of the markets, eroded our position. I mean, there are a few central European markets which are maybe more price type of a sensitive, et cetera. But if I look at, okay, Japan also is becoming extremely priced, you know, fighting type of a territory. We have a market when we're sitting at 80%-90% of the share, so we—this is what is reflected there. But you are right, that we predict the category to go a bit ahead of what we've of what we have put in our own estimates.
Now, we have not factored in, in this forecast, any opening of any major market, which I believe there is a chance that at least one or two of these big markets will open the door to the, you know, to the... And these are pretty sizable markets, door to propositions like IQOS. Okay, then we'll go and start adjusting the numbers. So today, we're assuming no further significant, if at all, improvements in terms of the space in which IQOS can play, is the markets which we are. We've said that we're working on a proposition for Indonesia, excuse me, with a kretek. Okay, US, you know, what is our story, and that's it from a major market, right? The other markets will have to wait.
Owen?
Hi, guys, Owen Bennett at Jefferies. I had a couple of questions, if I could be greedy, please. So first one, I'm just curious, in terms of ILUMA, I'm assuming originally when IQOS was rolled out, it was sourcing a certain amount of volumes from, from Marlboro smokers. I'm just wondering now, now that you roll out ILUMA, is that taking a similar amount of smokers from, from Marlboro, or is it now starting to source more smokers from competitive cigarette brands?
As you're asking, whether cannibalization. I think at the very beginning, if you recall, when we entered the first markets, the cannibalization rates were about 10% above our, you know, country market share or national market share, which was reflecting also our premium, you know, positioning, right, with Marlboro medium plus positioning. I think on the markets, if we enter today, the markets which we entering, I mean, that's about the same cannibalization. But if I go to the markets, when IQOS is 5, 6, 7 years, that cannibalization rate versus the... We're essentially at the fair rate of the cannibalization. Okay? So initially, we've been sourcing more from Philip Morris consumers, okay, and now we're sourcing equally from everyone.
Great, thanks. And then the second question is on nicotine pouches in the U.S., big ambitions there. It's obviously performing well. I'm just wondering how you see the importance of modified risk. So you spoke about modified risk on snus, modified risk on IQOS. Is that something you'd look to apply for on nicotine pouches? 'Cause I've- when I've spoken to Swedish Match in the past about this, they said it's intuitively seen as healthier anyway, 'cause it's tobacco-free, and with a modified risk message, it could potentially confuse the, the consumer. Just wondering how you view that going forward.
Okay, so our priorities, as you've heard in last presentations, we have this PMTAs, pending, filings, Iluma, and the two pending PMTAs with ZYN. And this is our priority, just also not to create too much of a clogging at the agency level, et cetera. But we will be preparing for the filing for MRTPA for ZYN.
Okay.
Okay? Now, importance, when you ask about the importance, is that I think ultimately this will make a differentiation at the consumer level. What is happening today is absence of one voice communicating the benefits of these products, including authorizations and the review and the claims, et cetera. You have this, this, this noise in the system, confusion about the nicotine and all the other things. So today, one can have, you know, perceptions that maybe is not aware of the effort of having MRTPA, because consumer doesn't really pay attention, you know, visibly, to this thing. But I think we're reading this whole thing wrongly because of this background noise. Second thing is MRTPA for, Z- excuse me, for a Swedish snus product, I think there was some factor, what else does the Swedish traditional, Swedish snus can make?
But a good comeback, we will be preparing for filing of the ZYN MRTPA in the U.S., but whether we, it's not a priority as we have to do in this quarter, we can, we can wait and focus on the other, on the other things.
Thank you. Next question. First we go to Andrei Condrea from UBS.
Andrei Condrea from UBS here. Just one from me. So obviously, for your IQOS volumes over the next three years, you're not factoring in any market openings. However, you are going to deal with headwinds in Europe, especially when it comes to the flavor ban, first of all, which is impending. And secondly, I think from the TPD2, which should have happened last year, but we're still waiting on it. Any inkling you could give on the impact you could see there, both on the pricing side and the volume for IQOS?
Yeah. So the flavor ban, okay, you saw the portfolio, which we're preparing partially is to respond to any potential headwinds from a flavor ban, okay? This is the one thing what we can do. Second is, you know, if we go through the history of the flavor bans in the, especially in the EU, on the cigarette market, you may recall, there was always flagged as the big risk and a headwind, and the net, what has happened, not much has happened, okay? So I'm not saying that we know that nothing will happen. Okay, we obviously have to see. There will be some turbulences or distortions in the market around the period that each of the member states will be implementing the regulations.
It's not the, you know, the same process or the same date for everyone. So you might have a trade holding, you might have a retail holding, who will need to presumably, you know, wait for the good few months to realize what is happening. ... A couple of months, but if you go a little bit longer period of time, still within 12 months, you won't realize that the flavors have been eliminated. I'm not saying that the flavors don't play an important role and help smokers to switch, but also absence of flavor is not maybe as dramatic as many think, okay? But there is a period of adjustment in this thing. And your second question was on TPD?
Tobacco Excise Directive.
Tobacco Excise Directive. Okay, then this will have to go through the very extensive process... Of the Tobacco Excise Directive is coming more towards the end.
Yeah.
Even though we'll have to see it.
Just remember that on the TPD, it requires unanimity, and quite obviously, you have a number of countries in the EU today which are embarked into a clear differentiation, and some of them, you know, putting that into law and tobacco harm reduction as an objective. So-
Matt here, please.
Hi, good afternoon, Matt Smith with Stifel. Pricing in the combustible business has... shifts, including gains in the more value-oriented segments of the category. You mentioned customer - consumers that had not shifted to smoke-free products are more value sensitive. What gives you the confidence and the ability to continue to realize strong pricing in combustibles as the demographic of smokers shift? Are you seeing any markets where price points are reaching a level that is causing more sensitivity with consumers?
We're in a spirit of inclusion and empowerment, Werner.
Thank you for the question, Matt, and thank you for including me. Particularly proud that it's a combustible question. So, no, what you have seen, I think consistently, if you take the recent history, that we were able to perform pricing. That may not always be in the very same market at the same expense. So sometimes you will look at the market and say, well, either from a competitive angle or from a consumer affordability angle, you... I think that has played out out very well over the last years, and little reason to believe that will not play out in the future. The one thing, obviously, we also look at-
... FX headwind that you talked about today. I know you called out certainly Argentina, but any other visibility on some of the other currencies where you're exposed? And any sense on, you know, the potential impact that we might see next year? And then ultimately, I'd love to ask from a longer term perspective, is there anything that you could do to minimize, you know, what seems to be never-ending headwinds that you continue to face from the dollar? Thanks.
Thank you, Bonnie. Very good question. I can tell you, I spend a lot of time on the FX question, so, it's quite obvious that we are permanently wondering, you know, how can we try to, minimize impact? And there are a number of things that we can do, and there are things that we cannot do. So to be very clear, when the dollar is strengthening, as it did over the last, you know, several weeks against all major currency, I mean, we see a loss in our translation impact. Quite obviously, there is not much we can do. Now, what we do nevertheless are a number of things. First of all, as I explained on the debt, we have today a large part, and more than 60% of our debt is in euro.
And therefore, when we have some negative impact on our profit in euro, our debt in euro is also decreasing in term of cost of the debt in euro, but in term of absolute quantum. So it means that we are not having, you know, immediately the full impact of the yen depreciation. It takes some time, so we try to kind of smoothen the impact over time. Then we are trying to increase our exposure to the U.S. dollar, you know, which is probably not a bad idea, but that's exactly what we are doing with the Swedish Match acquisition. And we have the ambition to keep, as we've explained today, the U.S. business very nicely.
We hope that the weight of the U.S. business in U.S. dollar is gonna keep growing and therefore limiting a bit more the impact of the currency. Then there is all the work that we should be doing in trying to do the best possible job on at least what is squeezing the margin. So to have our revenue and our cost maybe better align and try to reduce, to have, to reduce the, you know, the hard currency exposure in terms of cost, and try to have a supply chain that is also taking that into account. I'm sure we can do better than what we do today, no doubt, but there is, of course, some limitation as well in what we can do in the way we buy.
A special reflection on, okay, what do we do to try to limit the exposure to this kind of, you know, permanent impact. But the fact is that we are tied up by the accounting rules on hyperinflation.
Okay, question from Alex, I think at the back, and then we'll go to Vivien afterwards.
Hi. Can you talk a little bit more about the gross margin trajectory? Because I think you guys had called out a bunch of one-time things that have happened even beyond currency. If I just look at the forecast period, SG&A below sales, that means gross margin may be muted, but we're kind of way down off the peak from 2021. So just can you talk a little bit more about the puts and takes on gross margin?
Sure, with pleasure. I've been sharing with you what are the positive driver for the gross margin evolution. I guess you are talking about the gross margin rate.
Yeah.
And today, with the IQOS consumable and with ZYN, we have two positive mix on the gross margin rate. So remember, ZYN in the U.S. is close to 80% gross margin rate, best-in-class. IQOS consumable on average are about 10 percentage point, even a bit better, than combustible cigarettes. So when we grow the IQOS business, this is coming with a higher gross margin rate. Now, in front of that, of course, we have a number of investment that we make, notably, you know, to introduce a new product, that are ending up into more amortization on the CapEx, for instance, when we are launching a new product. We have the pressure coming from inflation. We are partly offsetting that with price.
I think that I explained that we believe that we have capacity to have a good performance on gross margin. As I explained, you know, on pricing, for instance, for the smoke-free product, the name of the game for us is more to try to expand volume than really to increase price, to have a short-term impact on the gross margin rate, but more to increase the quantum of gross profit. I think we have a number of driver that we should use in order to improve the gross margin. For us, it's about, you know, how can we maximize the growth and optimize the growth margin evolution, and then below that, as I said, to reduce the SG&A on revenue to add extra profitability driver, but play with the two elements.
Hi, thank you for the, thank you for the follow-up. This might be for there's a very modest delta between what you were assuming for the western part of the United States versus the, the country as a whole. But in a prior slide, when you laid out kind of what the market looks like today, there's a very large gap in terms of, per can weekly consumption in, in the West versus the 11, can national average. So as you think about kind of growth in ZYN in the United States, can you just offer a little bit more context on, on how we should reconcile those two sets of, of data? Does it assume that most, if not all, of your growth is gonna come from outside of the western region? Thank you.
Sure. Thank you for the question. I think, and correct me if I'm wrong, but I think you're referring to one of the earlier slides where I said, ZYN consumers, that those that have been longer in use consume more. And or at an average of a little bit more than four cans per consumer a week. And that is true for consumers that have been longer in the use, and that is certainly true for consumers in the western region that have been longer in the use. And there are more of those consumers in the western region, that brings up the weighted average.
But also, if you look at the velocity transition, the fact is that the growth in the western region has continued at a very rapid pace, which means that also in the West, a relatively small difference. And then the numbers 3.2 and 3.3, they obviously come with a narrower margin, 'cause these are based on self-reported consumption, where people say, "How many pouches do you estimate are used per day?" So I think one has to take a little bit of caveat on the exact numbers, but see them as more indicative.
Thanks, Lars. We have another question from Jon Leinster .
Hi, yeah, thank you for the follow-up question. In the targets going forward, you spelled out very clearly the impact of the mix element, of the product mix element in terms of, heated tobacco being sort of 2.5 times cigarettes. But are you... Within the actual heated tobacco segment, are you expecting price mix to be consistently positive as well? 'Cause being slightly inconsistent in the past, and I was just wondering whether that was expected to turn positive on a consistent basis.
Yeah, we're not entering into the detail of the mix within the heat-not-burn category and IQOS. A lot of things are gonna play. There will be certainly some positive driver. We could have some headwinds that will depend on. You know, we've made some broad assumption on excise duty evolution to continue as we have seen in the past years, so a kind of gradual increase, but at a moderate pace of the excise duty. And we're not disclosing more than what we've been sharing on our IQOS. Beyond the fact that we believe that this positive impact is gonna stay even with the mix evolution that we will face.
There is nothing specific, I would say, to mention that would be worth, I would say, taking as this is an element that you should be taking into account. I think the vision assumption behind the plan.
Yeah, just to add to this, you saw the, on the chart, I think Stefano had the example of a SENTIA and the TEREA in Japan. And, you know, if we play that thing, that we not really cannibalize our volumes, but every new additions in a portfolio is adding the volume. And frankly speaking, we don't have a mix, right? Because each of this proposition is, so they solve it at a slightly different price. In the case of TEREA, SENTIA is the same, the slightly lower margins, because it is bringing incremental volumes. It's not really the, it's not really the mix. When it comes to the propositions like VONS, which clearly, you know, will be addressing the affordability pressures in some markets, but the VONS is also coming in a different technology and a different cost.
The way also to look at the TEREA, there might be innovations around the TEREA-
There's gonna be small incremental-
Yeah, which can be more expensive, but they also will be positioned in the market differently. And the Bonds, which are intended to go on the different price points, but also-
Hey, guys, thank you for taking my question. Jacob de Klerk from Redburn Atlantic. Stefano earlier said in his presentation that, lil has launched in 30 markets successfully. I just wanna know, how do you define success for a lil launch in a market?
Hi, Zize.
You have two mics.
You have two mics, that should work.
I know. Can you hear me? Can you hear me? Yes. Okay. Thank you. Think about it this way, for us, the priority is to continue to drive the growth with our top tier, and our top tier is clearly IQOS with the ILUMA technology. We have multiple markets around the world where we can extend the audience we are talking to with smoke-free products by offering a second-tier technology. And that second-tier technology in the... Our global portfolio of technologies, we have both the PIN technology from lil, and we have the peripheral heating technology from VONS. So our play is all about incrementality, okay? If thanks to the launch of lil, we are addressing smokers that are from a different cohort than the one we are addressing with IQOS ILUMA, we maximize the incrementality.
Hence, as you have seen in the case of TEREA and SENTIA, we maximize the total volume of the smoke-free products. That is a good news for us. So the idea is to make sure that each smoker in CC, in combustible cigarettes, can find a relatively proposition in the heat-not-burn category that tailors to the taste, tailors to the pricing, but also tailoring to the aptitude of the brand that is different between an IQOS and a lil.
Pam.
Hi, Pam Kaufman again from Morgan Stanley. I was wondering if you could talk a little bit more about how you expect your innovation to evolve. The portfolio now has a range of products, ILUMA, VONS, and the tobacco-free heat sticks are very innovative, and you're clearly expanding across a range of price points. But are there new product forms that you think...
I mean, you saw here that, not all, but the key type of innovations which we will be bringing as we speak, this year, we start with the LEVIA, and which will be a key going forward, at least for this three-year plan period. When it comes to the devices, obviously, we're working also on the further improving them. But in terms of, you know, changing the technology as we have done with the blade going to induction, I think at least for this plan period, and as you saw it, we're very excited what we have, but actually, I think we can demo satisfaction.
So we're also paying a lot of attention to how much innovations goes at the consumable space rather than device, because at the end of the day, device is just a facilitator to reach the world of experience. Device is a lighter. People didn't smoke Marlboro for the satisfaction. So yes, in order to be a smoke-free, in order to deliver on the, you know, harm reduction criteria, et cetera, we had to now go and use the help of electronics. But the way to look about this, people are using smokers or adult smokers are using this product for satisfaction. Knowing that the market, all this opportunity market is with, in terms of the size of untapped existing markets, new markets, et cetera, they extremely very skewed toward the tobacco flavor.
I think, you know, it can deviate us going in the wrong direction. Somebody who will crack the code, and I believe already today, IQOS is very well cracking the code of delivering superb tobacco taste satisfaction, but on the harm reduction side rather than on the combustible side.
Okay, I think we have one question here, and then we'll get to Andre afterwards.
Earlier today, you talked about, I think it was merchandising in the Dubai duty-free shop. You talked about putting the pouches next to IQOS and that the pouches then sales doubled while IQOS continued to grow. Like, this isn't potato chips and soft drinks that you're selling together. Like, what, what is the opportunity to really do the merchandising here? Because you're gonna have this opportunity in the U.S. in a couple of years.
Stefano, you want to?
...power of the multi-category comes together, moving the question from yes, no- upcycling or refurbishing devices in certain markets. Playing this out over the medium to long term, could this be a way to get those IQOS devices into the low and middle income countries? Because obviously, the device price is a barrier to entry-
Yeah.
into the category.
Yeah. So we are at work sure they have been doing this or done the in some markets. So actually, some of the devices which are being returned to us, essentially. But consumers don't want to return the device because there is no need to replace the device, need to return the device. So we need to accom- recycling and so on. So yes, we've been ready, but the new technology somehow deprived us from this massive inflow of the devices. So, but we know how to do it.
There's another reason in the U.S., that I think instead of going and with the device and all of this upstream logistics, supply chain, et cetera, we just scale, obviously, the blade product or drive us into, why don't we just hold it and then do ILUMA, and then we can focus on the consumer work rather than a, you know, more logistic type of, of ecosystem.
I have a question here from Simon, and then after this, we'll go to Owen. Thank you.
Oh, hi. Thank you. I wonder if you could just talk a little about your Russian business, and how that is or is-
We need to talk here when talking about the Russia. First, okay, let me first address one thing. When we had the conversations about our growth algorithm, volume, medical evolution of HeatSticks today and going forward, we need to acknowledge one fact, that essentially we have no growth from a cautious decisions that will not roll out the innovation very much into Russia. So Russia doesn't have an access to ILUMA, and I believe for a very good reasons. And, we essentially stopped the whole acquisition effort, et cetera. So Russia sits in our base when it comes to the HeatSticks IQOS, but the growth is not existing, so very negligible compared to the group, which obviously continues to be a drag on our growth rate because we're missing a growth from the device. So that's the one thing.
Second thing is, Russia today is run by our Philip Morris but Russian management team. Russia is completely separated from a perspective of a systems dependent. And that's it. This is where with Russia, because everything else would be et cetera perspective, and business essentially cruises without much support in terms we're not... our EPS, which is between 6% and 7%, which is materially lower than what it used.
When we look at vape, high levels of fragmentation, lots of dual usage, and specifically when you look at European markets, where there's a 2%. Back in 2018 or 2019, I think. I was just wondering, why is the industry not being successful in developing differentiated and better technology in vape, when you've been very successful in developing very strong technology in heated tobacco?
Which the e-vape category has, is the lack of this differentiation. I think the industry, industry, I mean, all the players, right? Not just- Solving the problem. I think a lot of effort has been put on the flavors rather than saying that I can do something. Efficiency of a nicotine delivery, even within a two, to the European thresholds. However, you know, the whole attention again- Than the top-selling, whatever it is, the brand market. But then is again, the question is what is the differentiation, right? And the industry is missing this whole thing. You know, effort was put, historically in the heat not burn, and it resulted that you have a three, four, actually, technologies which are still subject to the further innovations. You had the blade, you had the pin, you had the, peripheral heating, you had the induction, okay?
Sort of internal heating. So you could see is a lot of effort, how to optimize this one, and this evolved. E-vape didn't go into this whole thing. Maybe because it was market fragmentation and, you know, product has evolved. We all remember that the history of e-vape was the cigarette looking like cigar-like disposables, and they were not performing. Then we went into open tank system, then open tank systems were too cumbersome for many, for most. Then we come to the cartridges. Cartridges going now to the disposables. Disposable is exactly what we had at the very beginning, although the products are of the better quality, et cetera. Okay, now some countries are banning disposables, so now we will unglue the cartridge from the battery, we'll go to the cartridge.
There is a lot of a lot of moving parts, parts, therefore, yes, we have tried the mesh, as you pointed out. I don't think it was... Maybe technology was good. The problem is we couldn't cut through the clutter without doing things we would, we would rather not do. I go to the extreme flavors and I try to cut through these clutters. But I think propositions which we have for now, if we played responsibly in a mature way, okay, this will not have a short-term result. A true tobacco taste, because the taste which you have today in the e-vape market, even if they claim, "I am tobacco-" Stefano was talking about extracting the natural flavors of a tobacco leaf and putting them into the liquid, might be the, might be the solution.
So, you know, even from now, we need to figure it out from a marketing also perspective, how we elevate ourself from this crowd, because in this crowd, is even if you are right and you get the right product, you might get unnoticed.
Thank you.
We have time for one more question. Over to Jacek for some closing remarks.
Yeah. So, well, thank you very much for coming, spending your time with us. Actually, even more important, thank you very much for investing in Philip Morris. And I know that many of you have invested in Philip Morris for the long time, and I hope you, you're happy with that investment. These all transformations, I have to admit one thing, that transformations to smoke-free, to smoke-free, wouldn't happen if we wouldn't have a license to operate for you, our investors. So we appreciate this one, but I hope that you can see the results, and we're really driving a business to the better, but actually more important, more sustainable to the business that we used to have in the past. So thank you very much, and enjoy the rest of the time.
Thank you, Jacek, and thank you to all those joining on the webcast today. Please contact the investor relations team with any questions. Thank you.