Philip Morris International Inc (NYSE: PM) Q4 2022 earnings call dated Feb. 09, 2023
Corporate Participants:
James Bushnell — Vice President, Investor Relations and Financial Communications
Jacek Olczak — Chief Executive Officer
Emmanuel Babeau — Chief Financial Officer
Analysts:
Chris Growe — Stifel — Analyst
Bonnie Herzog — Goldman Sachs — Analyst
Gaurav Jain — Barclays — Analyst
Pamela Kaufman — Morgan Stanley — Analyst
Vivien Azer — Cowen — Analyst
Owen Bennett — Jefferies — Analyst
Andre Condra — UBS — Analyst
Jared Dinges — JPMorgan — Analyst
Presentation:
Operator
Good day and welcome to the Philip Morris International Fourth Quarter 2022 and Full-Year Earnings Conference Call. Today’s call is scheduled to last about one-hour, including remarks by Philip Morris International Management and the question-and-answer session. [Operator Instructions] Media representatives on the call will also be invited to ask questions at the conclusion of the questions from the investment community.
I will now turn the call over to Mr. James Bushnell, Vice President of Investor Relations and Financial Communications. Please go ahead, sir.
James Bushnell — Vice President, Investor Relations and Financial Communications
Welcome. Thank you for joining us. Earlier today, we issued a press release containing detailed information on our 2022 Fourth Quarter and Full-Year Results. You may access the release on pmi.com. A glossary of terms including the definition for smoke-free products as well as adjustments, other calculations, and reconciliations to the most directly comparable US GAAP measures and additional smoke-free volume and net revenue data are at the end of today’s webcast slides, which are posted on our websites.
Growth rates presented on an organic basis reflect 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. As mentioned previously, starting in the second quarter of 2022 and on a comparative basis, PMI excludes amortization and impairment of acquired intangibles from its adjusted results. 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 projections or forward-looking statements.
I’m joined today by Jacek Olczak, Chief Executive Officer; and Emmanuel Babeau, Chief Financial Officer. Over to you, Jacek.
Jacek Olczak — Chief Executive Officer
Thank you, James and welcome everyone. We had a remarkable year for our smoke-free transformations in 2022. Despite the exceptional challenges of the war in Ukraine, severe supply-chain disruptions, and global inflation, we delivered very strong financial performance and took two major strategic strides towards smoke-free future. I would like to express my deepest thanks to all my colleagues — effort to drive excellent business results during these unprecedented times. Our thoughts also continue to be with those affected by the war in Ukraine and the recent tragedy in Turkey and Syria.
In 2022, PMI delivered its second consecutive year of total volume growth, reflecting continued IQOS progress and broadly stable cigarette volumes. Full-year smoke-free net revenues reached almost one-third of total PMI and over 50% in 70 markets. This is impressive progress towards our ambition of becoming a predominantly smoke-free company by net revenues in 2025.
IQOS outstanding results continued with over 21% full-year growth in both shipment volumes and in-market sales excluding Russia and Ukraine. This reflects the broad-based momentum in the European Union Region, Japan, and emerging markets. IQOS ILUMA continues to generate excellent growth in its launch markets with upgrades from existing users and new user acquisition outperforming our initial expectations.
The success is supported by the increasing deployment of a two-tier heated tobacco units portfolio providing adult smokers with an expanding range of innovative and high-quality alternatives to cigarettes. In combustibles, we delivered a robust performance with a 3.7% growth in organic net revenues and 0.3 percentage points higher shared segment, excluding Russia and Ukraine, despite the impact of adult smokers moving to smoke-free products.
We also achieved critical strategic milestones this year, reaching an agreement to take full control of vehicles in the US in 2024 and successfully completing the acquisition of Swedish Match. This achievement will accelerate our smoke-free journey and further position us to lead the transformation of the wider industry. Clearly, currency headwinds were extremely strong and weight on our US dollar performance, but although the volatility remains, I am pleased that they seem to significantly abate in 2023. Overall, 2022 was a pivotal year and we look-forward with confidence to 2023 and beyond.
Let me now take a moment to cover our key strategic priorities for the coming year. With the acquisition of Swedish Match and securing the rights to IQOS in the US, we are now a global smoke-free champion. The addition of the world’s biggest market and the leading nicotine pouch brand in ZYN, alongside IQOS provides us with significant untapped opportunities to further accelerate the growth of smoke-free products. As the strength of our IQOS business continues to grow rapidly, the full global rollout of IQOS ILUMA is a major priority and we expect to make substantial progress on this in 2020 free.
The success of ILUMA in launch market so far demonstrates the importance of groundbreaking consumer-centric innovation and we continue to broaden our portfolio with new science-backed offerings. This includes bonds by IQOS, our latest heat-not-burn device aim at low and middle-income adult smokers. Pilot city launches in Colombia and the Philippines in the last quarter of last year show encouraging early results and we intend to take the learnings from these markets before deploying on a wider scale.
Following a successful first three years of partnership with KT&G, we also recently extended our long-term agreements to commercialize the innovative smoke-free portfolio outside South Korea. I am very pleased to welcome Swedish Match to the PMI family. In particular, the fast-growing potential of ZYN is an incredibly exciting addition to our company. We are focused on supporting the Swedish Match team to continue and accelerate ZYN’s outstanding success in the US, while also leveraging PMI commercial capabilities to prepare for international expansion of nicotine pouches.
IQOS and ZYN are premium brands leading the global categories. In the US, ZYN is helping American smokers leave cigarettes behind and offers great growth prospects. For IQOS, the world’s biggest smoke-free market is a fully untapped opportunity, and our plans are well underway in anticipation of our commercialization in the second quarter of 2024. We will be leveraging the sales and distribution capabilities of Swedish Match and deploying our commercial model digital engine organization and infrastructure for a successful rollout. We continue to expect to file an FDA application for ILUMA in the second half of 2023.
Logically, the international expansion of pouches, US IQOS penetration, and the replacement of IQOS through ILUMA entail additional investments this year, which combined with inflationary pressure will weigh temporarily on our margins. Indeed, many of the ILUMA-related costs are one-off in nature, as Emmanuel will explain shortly. In combustibles, we continue to target a stable category share over-time, despite the impact of IQOS cannibalization, while taking judicious pricing actions. As we have explained previously, maintaining our leadership in combustibles helps us maximize switching to smoke-free product through the connection to adult smokers and the retail trade. In terms of our financials, the strength of our business provides a robust operating cash-flow, which we intend to maximize to provide the reinvestment in our smoke-free business, the leveraging and growing dividend.
Finally and importantly, shaping tobacco harm reduction by providing better alternative to smokers and advocating for science-based regulation is critical to accelerate the end of smoke harm reduction is also at the core of our transformation, as we lead on sustainability to achieve a possible positive impact. We will be expanding on some of these topics at the CAGNY conference on February 22nd and we also plan to host an Investor Day in September this year, where we will go into greater detail on our strategies and future vision, particularly with regards to the US.
Now, I will hand it over to Emmanuel to discuss our results in 2023 and outlook in more detail.
Emmanuel Babeau — Chief Financial Officer
Thank you, Jacek. Our business is driven by the strength of our innovative and expanding smoke-free portfolio generated excellent top and bottom line 2022 growth despite a very difficult operating environment, and currency headwinds. Our full-year net revenues grew organically by plus 7.7% excluding Russia and Ukraine and by plus 7.1% for total PMI, despite the impact of hyperinflationary accounting in Turkey. This reflects the continued strength of IQOS, accelerating pricing, and the recovery of combustible in many markets against a pandemic affected comparison, notably in H1.
IQOS devices accounted for approximately 5% of our full-year smoke-free net revenue, both including and excluding Russia and Ukraine. Our net revenue per unit grew plus 4.4% organically, excluding Russia and Ukraine and by plus 5.5% in total. This was driven by combustible pricing of plus 4%, excluding Russia and Ukraine and plus 5% overall and the positive mix impact of an increasing proportion of HTUs, heated tobacco units in our overall volumes at high yield net revenue per unit.
Our 2022 operating income margin contracted organically by 60 basis-points, excluding Russia and Ukraine, and by 70 basis points in total, due to a number of headwinds, which I will come back to. These headwinds were partially mitigated by the growth of IQOS, pricing, and ongoing cost-savings. In 2022, we delivered gross saving of $800 million with over $1.6 billion in the first two years of our cost-efficiency program. This puts us well on-track to exceed our target of $2 billion over 2021-2023 and mitigate recent inflationary pressures.
Despite margin pressures, our excellent top-line growth and diligent cost management enabled us to deliver currency-neutral adjusted diluted EPS growth of plus 11.9% to $5.34, excluding Russia and Ukraine. This includes unfavorable currency of $0.85 and a small contribution from Swedish Match net of financing cost for the 50 days of consolidated results. For total PMI, we delivered adjusted diluted EPS of $5.98. We also had a strong finish to the year, we delivered excellent Q4 organic net revenue growth of plus 7.9%, excluding Russia and Ukraine. Again, reflecting continued strong IQOS performance and robust combustible pricing.
Our Q4 operating income margin expanded organically by 80 basis-points, excluding Russia and Ukraine mainly due to a favorable comparison. On the total PMI basis, organic margins were flat including the impact of a challenging comparison in Ukraine and shipment timing in Russia. Fourth quarter currency-neutral adjusted diluted EPS grew by plus 20.8%, $1.23, excluding Russia and Ukraine and plus 15.3% in total to $1.39, an excellent performance.
Before discussing our 2023 guidance, I would like to provide an update on our Ukraine and Russia businesses. We continue to support our employees in Ukraine. I would like to personally thank them for their tremendous efforts to secure our business continuity during these extremely difficult times. In Russia, as the environment for divestment has become increasingly challenging and complex, especially given recent December 2022 regulatory developments. To provide more clarity to investors on the full extent of our business, we will now include both Ukraine and Russia in our 2023 outlook and reporting.
Now turning to the 2023 outlook, we expect to deliver very strong organic net revenue growth of plus 7% to plus 8.5%, supported by a step-up in combustible pricing and another year of rapid progress from IQOS. This would represent the third consecutive year of organic top-line growth with both plus 7% and excludes the impact of Swedish Match for the large majority of the year. Including Swedish Match, we expect our reported currency-neutral net revenues to grow into the teens, as its business continued to deliver strong performance. We expect excellent IQOS momentum to increase our HTU volume growth on the total PMI basis supported by the growing presence of ILUMA across our key markets. We forecast between 125 billion and 130 billion HTU shipment volumes, representing plus 15% to plus 19% growth. This reflects an acceleration compared to the total PMI growth rate in 2022, despite an expectation of significant progress in Russia, given our decision to restrict investment and innovation.
As mentioned previously, the base of ILUMA launches has also been constrained by supply-chain disruption and the outstanding ticket in initial launch markets. We expect these constraints to gradually improve through the first half, as we progressively roll-out to more geographies. We expect organic smoke-free net revenue growth to have aligned progression with the rate of HTU volume growth this year with less distortion from device revenues. Including Swedish Match and at constant-currency, we expect to deliver around $13.5 billion in smoke-free net revenue compared to $10 billion in 2022 and to approach 40% of total PMI net revenues this year.
While our topline outlook is very strong, like many other global companies, we are facing significant margin pressures from the intensifying inflationary environment in addition to a number of specific transitory factors and investment, which I will come back to shortly. As a result, we expect our adjusted operating income margin to contract between 50 to 150 basis-points organically. Accordingly, we forecast currency-neutral adjusted diluted EPS growth of plus 7% to plus 9%. This includes a full year’s positive contribution from Swedish Match, net of the related interest expense. However, this benefit is offset by the increase interest cost on our non-Swedish Match debt and planned investments. This translates into an adjusted diluted EPS range of $6.25 to $6.37, including $0.15 of unfavorable currency at prevailing rates.
This forecast, notably, does not factor any potential favorable court ruling in Germany regarding the legality of the surcharge on the existing excise tax on heated tobacco product effective in Germany as of 2022. We continue to account for the excise surcharge charge in our results and outlook. However, the obligation to pay the surcharge is currently suspended. If favorable, the difference to our forecasted 2023 excise payments would increase our net revenue by around 1% and adjusted diluted EPS growth by around 3 points, thereby increasing our forecast currency-neutral growth range to plus 10% to plus 12%. In this scenario, we would expect our operating cash-flow would move towards the upper of our forecast range. We expect a judgment, towards the end-of-the year. There are a number of other assumptions underpinning our outlook. We expect total international industry volume of cigarette and heated tobacco unit excluding China and the US to decline by minus 1% to minus 2%. Given our leadership in smoke-free product and the growth of the category, we expect to gain share and target total PMI shipment volume to be flat to plus 1%, which would represent a third consecutive year of growth.
While we seek to maintain our share of the combustible category, given the current inflationary environment, we assume combustible pricing will accelerate to around plus 6% on an organic basis, compared to the plus 5% realized in 2022. We also expect full-year capital expenditure of around $1.3 billion as compared to $1.1 billion in 2022, reflecting increased investment behind our smoke-free platform including ILUMA and Swedish Match portfolio.
Let me now come back to the various factors impacting our margins. In 2022, total PMI gross margin contracted by 220 basis points organically. While growing inflationary pressures were a drag, the largest impact came from the combination of the rapid growth of ILUMA and transitory factors such as supply-chain disruption and the need to use airfreight. ILUMA drove accelerated device replacement from existing user in Japan and other launch market. Such devices are positive for acquisition, retention and food consumption. However, devices are margin dilutive and this dynamic is likely to continue on a temporary basis, as we roll out to more markets this year and consumers upgrade from IQOS blade. The initially higher weight and cost of ILUMA consumable also played a role. And this meant that the overall impact of our heat-not-burn business including devices was margin-dilutive in 2022.
Importantly, average gross margin on HTUs remain around 10 percentage points higher than for cigarette on the higher net revenue per unit. This is a fundamental long-term positive margin driver through the growing HTU volume mix in our business and this add a plus 110 basis-point favorable impact in 2022. Our two other key long-term margin drivers of pricing and productivity also continued to contribute favorably. Gross margin headwinds were mitigated at the operating income margin level by SG&A cost, which declined by 150 basis-points of net revenues, due primarily to cost-efficiency operating leverage and comparison effect.
The picture for 2023 is quite different. While our gross margin will face increased inflationary pressure, this is now primarily due to COGS for the cigarette business as leaf, acetate tow, salaries, and energy cost increase and acceleration in combustible pricing and lower effort cost will serve to mitigate this exceptional inflation. However, the timeline is built into our projections. Importantly, while cost inflation is also a headwind for IQOS, the 2023 margin impact of our heat-not-burn business is expected to be favorable due to the positive impact of increased HTU volume at higher net revenue per unit, planned ILUMA efficiency and a more measured increase in device volumes.
Overall, these underlying strengths from IQOS combined with pricing will not be sufficient to offset combustible cost inflation in 2023. However, we expect a lower organic gross margin decline compared to last year and for our heat-not-burn business, we have an increasingly visible positive impact as we approach 2024. 2023 SG&A cost will include incremental investment to drive future growth, including in the commercialization of ILUMA, also included is around $150 million with a broadly even split between the US, where we are preparing our organization capability for the launch of IQOS and wellness and care investment in product development and clinical trials. In addition to inflation and SG&A cost increase, more in-line with net revenue growth is likely with limited margin impact.
A few words now on 2023 phasing. We expect margin pressures to be weighted to the first half, particularly given the challenging Q1 2022 comparison and a progressive decrease in effort cost throughout the year. In addition, investments are expected to be front-loaded and we know that the rollout of ILUMA can lead to a shortage of slower user acquisition, as consumer wait for the launch. Combined with the timing of shipments and cost-saving, we expect our 2023 top and bottom-line delivery to be heavily H2 weighted. Indeed, we expect the first quarter to be the most challenging with low-single digit organic top-line growth and soft margin. Shipment timing and ILUMA launch impact are expected to be pronounced and we accordingly expect HTU shipment volume of around 26 billion to 28 billion HTUs.
We also face a comparison with a significantly lower impact from war related disruption. We forecast adjusted diluted EPS of $1.28 to $1.33, including $0.10 of unfavorable currency at prevailing rates. Importantly, we expect margin to improve, as we approach 2024, as headwinds relent and the fundamental margin-accretive driver of our smoke-free transformation continue in the form of heated tobacco unit growth, pricing, and cost optimization on ILUMA.
Our cash flow generation remains strong. We delivered $10.8 billion in 2022 operating cash flows, representing plus 3% growth on a currency-neutral basis. This includes a favorable timing of certain financing item of around $1.3 billion. Given nonrecurring item and working capital movements benefited 2021 by around $1 billion, this was an excellent result. In 2023, we forecast $10 billion to $11 billion in operating cash-flow despite the notable expected impact from higher working capital requirements due to growth, global inflation and the reversal of one of timing benefit. This put us on-track to deliver our ’21-’23 target of around $35 billion given in February 2021 at then prevailing rates.
While our net debt is 2.9 times adjusted EBITDA on a 12-month trailing basis, this reflects only 50 days of Swedish Match results including a full-year contribution for Swedish Match would clearly result in lower ratio. We target robust EBITDA growth, which combined with strong cash-flow allows us to focus on delivering, while continuing to invest in innovation and the growth of our business. In addition, our commitment to our progressive dividend policy is unwavering and in-line with our long-term commitment to return cash to shareholders.
Now turning back to our 2022 results, both our HTU an in-market sales, volume increased by around 21.5%, supporting total volume growth of plus 3.2%, excluding Russia and Ukraine. Q4 HTU shipment volume grew by plus 37.5%, partly reflecting the replenishment of inventory for ILUMA in Japan, following lower shipment earlier in the year and favorable shipment in the EU and notably in advance of new ILUMA launches. Supported by very solid cigarette performance, we delivered total volume growth for the second consecutive year, both including and excluding Russia and Ukraine.
Focusing now on combustibles, our portfolio delivered robust organic net revenue growth of plus 3.7% for the full year, excluding Russia and Ukraine. Combustible pricing increased in H2, as we continue to adjust to the inflationary environment. This resulted in Q4 organic pricing of plus 4.8%, excluding Russia and Ukraine and yielded full-year pricing in-line with our expectation with notable contribution from Germany, the Philippines and Turkey, despite the impact of hyper-inflationary accounting.
In 2022, our share of the cigarette category increased by plus 0.3 percentage points excluding Russia and Ukraine, following category share decline in 2020 and 2021, exacerbated by the pandemic. This includes sequential growth in every quarter of 2022. Marlboro remains extremely resilient despite pressure on disposable income and the impact of IQOS cannibalization with plus 0.2 percentage point share of Sigman groups. In addition, while we have not yet seen any meaningful acceleration in downtrading, our share in the low-price segment increased by plus 0.6 percentage points excluding Russia and Ukraine. As Jacek mentioned earlier, maintaining our leadership in the cigarette category is a key enabler in accelerating smokers switching to better alternative.
Our robust share combined with the growth of IQOS delivered an overall market-share gain of plus 0.6 point in 2022, excluding Russia and Ukraine, with notable contribution from Egypt, Italy, Japan and Poland. PMI heated tobacco units continued to strengthen the position towards becoming the largest nicotine brand in markets, where IQOS is present and reached the number two position in 2022 with a record-high share of 8.5% in Q4.
Now, focusing on IQOS user growth, there was an estimated 20.3 million IQOS user as of December 31st, excluding Russia and Ukraine. This reflects growth of around plus 3.5 million for the full year. For total PMI, we estimate there were almost 25 million IQOS user as of year-end. Consistent with comments in our recent disclosure, user growth in October and November were slower due to higher-than-expected impact from commercial activity and lower acquisition for IQOS blade product in anticipation of the launch of ILUMA in certain key markets. However, we saw a strong rebound in December as ILUMA launches continued, delivering robust user growth of plus 0.8 million for the quarter. This was actually close to our initial expectation and we look-forward with confidence to 2023 as ILUMA continues to be deployed.
ILUMA is driving volume and share growth across its market, supporting our strong position in heat-not-burn category. We launched in eight new markets in Q4, including the Czech Republic, Italy, Portugal, and South Korea, bringing the total to 16 markets with ILUMA launch now represents more than half of our total HTU volumes. ILUMA delivers a superior consumer experience as evidenced by net promoter scores, which on average increased by more than 10 points across the different market architects and higher conversion rate compared to IQOS 3 DUO. While the rates of acceleration differ by market, in both Switzerland and the more recently launched United Arab Emirates, off-take share has almost doubled since launch. Importantly, as I mentioned earlier, the benefit of scale and optimization should allow us to bring down the cost of ILUMA overtime, starting in the second half of 2023.
Focusing now on the European Union, where smoke-free net revenue exceeded 40% of the region for the full year. Our fourth quarter HTU share increased by plus 2.4 points to reach 8.8% of total cigarette and HTU industry volume with modest flattering effect from tiny factors. IMS volume continued to grow sequentially and reached a record-high of 9.3 billion units on the focus on moving average. This reflects success across many markets and TCT including Venice with over 43% share, as well as Athens and Rome with over 25%.
In Japan, the heat-not-burn category now represent close to 35% of total tobacco with IQOS increasingly driving its growth. In Q4, the adjusted total tobacco share for our H2 brands increase by plus 2.6 points to 24.5% with off-take share in 2Q surpassing 30%. Our two-tier considerable portfolio continued to deliver strong results. IMS again grew sequentially to reach a record-high of 8.8 billion units on the four-quarter moving average as a number of Japanese IQOS user cross a remarkable 7.5 million adult consumers.
In addition to strong IQOS gain in developed markets, we continue to see very promising growth in low and middle-income market. In 2022, our HTU shipments grew by almost 50%, excluding Russia and Ukraine. This robust performance reflects success across many markets, including Egypt, where Cairo exit offtake share surpassed 7%, Bulgaria and Malaysia, where Q4 offtake share reached 14% in both capital cities.
Let’s now move on to Swedish Match, which finished the year strongly, further confirming our belief that this combination will be accretive to our growth and margin profile over the coming years. Please note for housekeeping purposes, that my comments on Swedish Match financial result are based on publicly available information through September 30th and from November 11th when it was consolidated in PMI’s financial statements. Swedish Match delivered excellent performance following the acquisition with strong net revenue and adjusted operating income. Most impressive was the phenomenal US growth of ZYN, which I will come back to on the next slide.
In other US smoke-free product, moist snuff also perform well gaining almost one percentage point share of segment and going 2022 volume within a declining category. In Scandinavia, the overall smoke-free market and Swedish Match continued to grow, albeit helped by year-end trade inventory movement, the weight of the January excise tax increase in Sweden. The cigar business delivered a robust performance too and a challenging year with growth in volume and category share. We are very pleased with a strong 2022 Results from Swedish Match, which also included positive pricing across all smoke-free category. We look-forward to reporting our combined results going-forward.
Now, let’s discuss ZYN’s recent US performance in more detail. Excellent progress continues with shipment volume growth of plus 37% in 2022 and plus 35% in Q4, reaching record quarterly high. ZYN’s category volume share grew sequentially by one percentage point compared to the third quarter and by 2.2 percentage points compared to the prior year, further strengthening its position as the clear number-one nicotine pouch brand, despite continued competitive discounting from less premium offering. Importantly, the retail value share for ZYN remain strong at 75.7%, highlighting its premium positioning and high brand equity.
2023 promises to be a very exciting year. We are thrilled to have welcome Swedish Match employee and leading oral nicotine portfolio into the PMI family to create a global smoke-free champion. And we will work together to create value, as we accelerate our shared vision of a smoke-free future. In particular, bringing ZYN and IQOS together in both the US and international markets, presents a significant opportunity to drive accelerated growth and switching of adult smokers to better alternative.
As a well-run and successful business, we expect continued strong performance from Swedish Match existing operation. A key focus this year will be supporting and further driving strong ZYN growth in the US. In addition, we are now preparing for the international expansion of nicotine pouches, leveraging Swedish Match product portfolio and PMI’s extensive smoke-free commercial infrastructure. In parallel, we will be actively enhancing Swedish Match US distribution and commercial capabilities for the launch of IQOS in 2024.
Moving now to sustainability. As we transform our company, our business and sustainability strategy, our advancing hand-in-hand with increasing momentum. PMI and Swedish Match have shared vision and ideas. The combination helps us further accelerates towards achieving our purpose, transforming for Good to make cigarettes obsolete and maximize the benefit of smoke-free products. Our goal for best-in class ESG performance is aligned, as we seek to address the mental impact of our product, eradicate child labor, reduce our carbon footprint and provide more inclusive and empowered working environment for all our employees. In December, we published a standalone report detailing our new biodiversity and water ambitions. For biodiversity, we aim to achieve no net loss on ecosystem connected to our value chain by 2033 and contributes to a net positive impact on nature by 2015. For Water Stewardship, we aim to scale solutions to the positive impact on water resources by 2033 and contributes to our positive impact on water resources by 2015. I am also proud to share that for the third consecutive year, we have been awarded CDP’s triple-A. CDP score nearly 15 on the climate change, forest, and water security disclosures, of which only 12 received this prestigious score. In addition, I am excited to share that we are included in the 2023 Bloomberg Gender Equality Index for the third year running.
I’ll now turn it back to Jacek for concluding remarks.
Jacek Olczak — Chief Executive Officer
Thank you, Emmanuel. Overall, our business delivered both a strong fourth quarter and full-year performance despite many challenging headwinds. We achieved excellent top and bottom-line growth with double-digit currency-neutral adjusted diluted EPS growth and almost $6 of adjusted EPS for total PMI. The consistent quality and sustainability of our organic top and bottom-line delivery has been clearly demonstrated over the last three years. Most impressive was the continued outstanding performance of IQOS, which is now complemented by the remarkable growth of ZYN. Combined with Swedish Match, we have a comprehensive global smoke-free portfolio with leadership positions in the heat-not-burn and the fastest-growing category of oral nicotine.
We expect 2023 to be a landmark year for our smoke-free transformation with smoke-free net revenues of around $13.5 billion at constant-currency, approaching 40% of our combustible. We have exciting opportunities for growing nicotine pouches in the US and internationally, along with the US commercialization of IQOS next year. We expect the margin headwinds will persist in 2023, before improving in 2024. However, our underlying growth fundamentals remain strong, and we look forward with confidence.
With an excellent performance over the past two years and our strong 2023 outlook, we expect to comfortably exceed our prior minimum CAGR targets of more than 5% organic net revenue growth, more than 9% in currency-neutral adjusted diluted EPS growth and broadly stable shipment volumes. Finally, our strong growth outlook and a highly cash-generative business enables us to deliver, while maintaining our steadfast commitment to our progressive dividend policy.
Thank you for your attention. Emmanuel and I will be happy now to answer your questions.
Questions and Answers:
Operator
Thank you. We will now conduct the question-and-answer portion of the conference. [Operator Instructions] We’ll take our first question from Chris Growe with Stifel.
Chris Growe — Stifel — Analyst
Hi, good morning.
Jacek Olczak — Chief Executive Officer
Good morning.
Emmanuel Babeau — Chief Financial Officer
Hi, Chris.
Chris Growe — Stifel — Analyst
Good morning. I want to ask you first of all, you gave some great color there and detail in your remarks. As I look at the EPS growth in 2023, just understand some of the burdens on that growth. We know about $150 million of investment you’ve outlined for the US in your health and wellness division. What other costs, do you foresee in some of the supply-chain costs and use of airfreight for example, how much are those burdening your cost for the year, if you can give some color on that.
Jacek Olczak — Chief Executive Officer
Yeah. So maybe I start then Emmanuel will chip in. I guess, yes, it’s a $115 between the US and the wellness healthcare, almost evenly spread between the two. Now, you have their freight and this is more of the thing, which I think we should start seeing some improvement in 2023 and especially, as we go towards the second half of the year, I think we should start to normalize the use of airfreight, which will then obviously continue for the 2024. Now, you have the inflationary pressure on the COGS, I think Emmanuel mentioned in his remarks, the leaf, obviously, as you know, due to our duration of inventory itself the leaf and the way the leaf prices are rolling through the P&L, that’s something which lasts usually longer, you’ll have three years about the duration of inventory, so on a moving average, valuation familiar that spreads over the period of time, you have energy, which is obviously the big hit across the number of directly or indirectly for the materials.
Now, we start seeing energy prices easing at this stage, but also you bind it by some contractual arrangements, et-cetera, so I don’t think that’s helping ’23, but I remain cautiously optimistic business of ’24, we should start seeing the result of those, obviously, you’ll have a cost of IQOS ILUMA rollout, right, because we are at the year end, we’ve been at the 60 markets, out of 73 markets, total IQOS. So there is a bulk of markets in front of us in ’23 and we don’t want to stop or slow-down the rollout of ILUMA. So obviously, you have that pressure on the margin coming from the extra sales of the devices, right, which obviously are the drag on the margins, and we’re essentially accelerating replacement of the devices at the existing consumers level, but with a very clear view now that we have a very nice favor going-forward with the accelerated acquisition, better consumption, better conversion rates. And that’s the key items. Emmanuel, if I miss something important.
Emmanuel Babeau — Chief Financial Officer
No. I think you were very exhaustive, clearly, yes, just a couple of further detail. Clearly, in ’23, we’ve been flagging it. We expect our heat-not-burn business to contribute positively at the level of the gross margin rate evolution. So in ’23, it’s really inflation impacting us very negatively at the level of all cost of goods, but on combustible going to increase, but it’s not going to be sufficient to offset this impact. And just to give you a color, Jacek was alluding to energy products. We’re not talking about even inflation, I mean energy price between ’23 and ’21, we are talking about close to a three X factor. So it’s a big increase with the big impact on the P&L. Overtime with price increase, we’re going to overcome that, but there is just a lag as we said on matching that. Then, there is a big difference also on our SG&A cost evolution in 2022, we were flat because we’ve been generating a lot of efficiencies, inflation we’re not as others, it’s going to be in ’23 with a lot of salary increase and probably basis of comparison were more favorable.
In ’23, we expect to grow our SG&A in-line with top-line, more or less, which one would expect. We continue to invest a lot in order to support the growth of the business to acquire new user digital investment, we talk about the US and wellness and healthcare and there would still be efficiency, but not at the same level.
Last element that I have to add is the cost of the debt. I’m not talking about the debt of acquisition of Swedish Match, because for Swedish Match, we are in-line with expectation, i.e., low-single digit accretion on the EPS. But clearly for the existing debt, there is also an increase in the cost and that is having an impact on the evolution of the adjusted EPS. I think with that, Chris, we are giving all the information we can on what we are facing in term of evolution on our cost.
Chris Growe — Stifel — Analyst
That was sure exhaustive. Thank you for that. It was very-very helpful. I had just one quick follow-up, which would be that you have heated tobacco unit growth expectation of that 15% to 19%. I just wanted to get an understanding on two facets of that, is Russia, Ukraine down likely in 2023, given you’re not investing there. And then just to what degree, its capacity limited today. If you had more ILUMA capacity, could that grow even faster. Thank you for your time.
Jacek Olczak — Chief Executive Officer
Okay. So actually, the Russia and Ukraine, and obviously Russia due to its weight even more, there were a drag on our performance both in ’22 and will be — and it’s fair to assume, it will be a drag in 2023. As you know, our strong decisions today Investor and essentially, ILUMA for example, is the key technology advancements, which will have, which we decided not to rollout in Russia has an impact, right. So the numbers which we now just for the visibility to the investors of the business, as-is today were including Russia and Ukraine. But both are very much Russia not contributing to the growth. So, one good thing opposite excluding Russia and Ukraine are interoperates would be at the higher-level on a comparable level.
Capacity, we will — I think we have — we are guiding the market that we expect the better results in the second half of the year and that partially reflects the moment when we think we will be beyond the bottleneck with regards to the capacity around ILUMA. So we are really managing the business on a very tight supply-chain still 2022 and for the first half of ’23 and the second half of ’23, we should be okay. And again, I can bridge back to the famous airfreight, et-cetera, because all of these things are consequences of us riding on if any very tight supply-chain.
Chris Growe — Stifel — Analyst
Yeah. That makes sense. Thank you.
Operator
We’ll take our next question from Bonnie Herzog with Goldman Sachs.
Bonnie Herzog — Goldman Sachs — Analyst
All right, thanks. Hi.
Jacek Olczak — Chief Executive Officer
Good morning, Bonnie.
Bonnie Herzog — Goldman Sachs — Analyst
Good morning. My first question is on your op margin guidance and the implied deleverage. Maybe you could break-down the headwinds you highlighted just a bit further and thinking about in the context of what you can control like the investments you’re making to drive future growth. Could you help frame that for us, just trying to think through, how big of a step-up the investments will be this year versus last year. And then how do we think about the investments required next year and beyond. I guess I’m trying to get a sense of how much of the investments required to essentially rollout IQOS in the West. It will take place this year versus next year and well aware of the investments you need to rollout ILUMA. But anything there would be helpful.
Emmanuel Babeau — Chief Financial Officer
I can take that one, Bonnie. So, I think in the US, we’ve been clear on the fact that we expect something like as $150 million, of course, it’s surrounding of extra investment in the US, as we prepare the launch of IQOS in the US, that is for 2023, when we have a plan for the coming years and of course, with more detail, we of course come to you and elaborate and detail that. Now for the rest of the business, I think we are and that was a sense of my comment on the SG&A evolution, on a relatively regular basis, we are investing an extra few $100 million ILUMA to be more specific, because of course that is sensitive information, behind the acceleration of IQOS and is going to come of course behind IQOS ILUMA in 2023, so the growth, when we say we expect SG&A to grow broadly in-line with topline, there is a huge impact of inflation, I mean I don’t need to explain that inflation is in most country around high single-digit and we need to reflect that on salary increase. We have efficiency on cost in front of that and that is enabling us to on top of the inflation impact to keep investing on the growth of the business and we do that in a rather consistent manner, of course, very much focus behind ILUMA in 2023.
Bonnie Herzog — Goldman Sachs — Analyst
Okay. That’s helpful and then just a second question if I may. It’s just related to the user growth in Q4 and IQOS, could you maybe talk through some of the puts and takes that you saw in the quarter, I mean, it seems to accelerate relative to Q3, despite some of the headwinds you had recently highlighted. And then you did mention that ILUMA drives higher conversion rates than IQOS 3 DUO. So, could you possibly quantify that for us. I guess I’m trying to think through, when that platform scales, do you expect your overall conversion to grow meaningfully, possibly above your current 70% rate.
Jacek Olczak — Chief Executive Officer
Yeah. So I’ll take it. ILUMA conversion rates in the markets at this stage versus a run-rate conversion rates before IQOS Blade will be somewhere up in the range of 10 percentage points. Okay, so obviously different markets, there is some difference in the market, but it’s a rule of thumb, it’s about the 10 percentage points, which essentially means the way we measure conversion that for 10% of the devices sold through acquisition of new users, and they should — and they are generating the recurring demand for the consumables. So this also has — there’s a better productivity on deals and acquisitions and the device itself.
I want to just to bridge back to your previous question, Bonnie, if you allow me. When we look at the US investment, we’ve highlighted, including the wellness healthcare, about $150 million. But we shouldn’t just look at the investment from the lenses of IQOS, because part of the investments, which we already started what we committed to make this year, I believe we will also benefit further growth opportunity for ZYN, okay, for Swedish Match. So it’s not that we’re really running this as a two separate type of businesses. We try to look at this from the leveraging and further enhancing the capabilities of Swedish Match and I believe the opportunities for ZYN in the US had spectacular phenomenal growth depends, which objective you like better, but I think there is more to come on this one. So the way we’re looking in allocating the result is that, it is not just going to prepare us for IQOS 24, but also in the meantime can further — can be a further boost to the ZYN.
Now to your question also about the future rollout of IQOS LOANO in the US, I think September when we met, I hope during the Investors Day, we will be in a position to give more precise plans. We are obviously taking a consideration, the expected timelines vis-a-vis from FDA. We said that we’re going to file IQOS ILUMA, which is our best flagship and the best propositions we have today. And obviously, our prime objective would be to enter US markets with very big momentum coming from international on the best what we have. But I think by September this year, we should have more details and more visibility about this.
Bonnie Herzog — Goldman Sachs — Analyst
Okay, that’s super helpful. I appreciate it.
Jacek Olczak — Chief Executive Officer
Thank you, Bonnie.
Operator
We’ll take our next question from Gaurav Jain with Barclays.
Gaurav Jain — Barclays — Analyst
Hi, good morning. A couple of questions–
Emmanuel Babeau — Chief Financial Officer
Hi, Gaurav.
Gaurav Jain — Barclays — Analyst
Hi, Emmanuel. So the first is on the step-up in cigarette pricing, so it was 5% last year, you are saying it will be 6% in FY ’23. Japan had 5% pricing last year, this year it will be 0, so clearly ex-Japan cigarette pricing is accelerating from 4 to 7 approximately. So, where exactly is the biggest step-up happening in cigarette pricing.
Jacek Olczak — Chief Executive Officer
Japan yields do pretty good in a single out Japan in this case, right, this is the biggest in pricing from the unknown, right and it’s difficult to make any assumptions in Japan, but we are already this year working pretty well with the good results on the reversing the pricing trend in Indonesia. As you may recall, and I believe we’re really turned the corner in Indonesia, which always due to volume underlying size of the — and the weight of the business to us is very important. I think we’ll have a stronger Philippines, plus the European markets also come with a strong pricing, so the 6%, which we fuel for this year is just the reflection of this, now depends what’s happened in Japan, I mean, all of these things will be coming on the on the top, but actually Japan from the land geographies is the other market, where the visibility for obvious reason is it’s very limited.
Gaurav Jain — Barclays — Analyst
Sure, thank you. And then on the EU heated tobacco flavor ban, which is expected to come later this year, how should we think about it and how is that factored in your guidance.
Jacek Olczak — Chief Executive Officer
I mean, it’s one of the events which nobody ever experienced. We have some sort of similarities with the flavor bans including menthol and the combustible cigarettes, you may recall a few years ago, and frankly speaking, this has not had any material sort of impact on the cigarette volume, so I think we have — okay, well, let’s see what’s going to happen. We think it’s going to be manageable.
Gaurav Jain — Barclays — Analyst
Sure, thank you so much.
Emmanuel Babeau — Chief Financial Officer
Thank you, Gaurav.
Operator
We’ll take our next question from Pamela Kaufman with Morgan Stanley.
Pamela Kaufman — Morgan Stanley — Analyst
Hi, good morning.
Emmanuel Babeau — Chief Financial Officer
Hi, Pam. Good morning.
Pamela Kaufman — Morgan Stanley — Analyst
Can you discuss your strategy for the US market this year for Swedish Match and what your key priorities are, and then what are your plans for the international rollout of ZYN and the timeline.
Jacek Olczak — Chief Executive Officer
Yeah. So obviously the focus is to continue and enhance the spectacular momentum over pouches in growth in the US. I mentioned this before answering another question that part of the investments we’re allocating to US, I believe also will benefit the current business of Swedish Match. I think there should be a better pricing, especially on the cigar business, although it is not really our strategic focus, but still obviously helps the overall business performance. And the strategy in terms of long-term, the big question obviously is how we will approach IQOS commercialization, the moment when we fully take it back in 2024, and we know what sort of actual capabilities are missing at the Swedish Match level. So we’re adding them. But the real big commercial spend, I mean, it will depend on the timing and the dense and the intensity of our rollout plans, which we will share, I guess, around the September during the Investor — September this year, around the Investor Day. When it comes to the pouches, on the international, I think Swedish Match and us now together have plans how to start addressing some share pressure especially in the Nordics. Okay, but on the bigger international scale, we have quite a few markets, which we will start rolling out the pouches this year for obvious reasons, I will not mention which markets, but that was the whole purpose of acquisition of Swedish Match, as you’ll recall, leveraged the base and growth opportunity in the US each day. This is a relief in a sense of a preparedness for IQOS, but also I believe the category sense, quite potential in the reduced product space on international basis. So, we’ll have infrastructure in most of the markets. I’m not really disclosing any strategy confidential matters obviously IQOS is present in 70 plus markets. This is where the developed infrastructure is most developed and very likely the markets for ZYN products will be included within the list of this markets.
Pamela Kaufman — Morgan Stanley — Analyst
Thanks. And then can you just talk about your strategy with the bonds products that you launched in test markets and what your early observations are and then how are you thinking about a broader rollout over-time.
Jacek Olczak — Chief Executive Officer
Yeah. I mean it’s a broader rollout of the bonds for more strategically planned for the 2024, for the next year. We will have some volume, but nothing compared to be very frank, to what we have about the IQOS and ILUMA product. This is by far the prime focus, but I think the early results, which will get from the Philippines and Colombia, I mean, they are very strong, actually, they’re very strong obviously in our expectations after 7 or so years of experience, the IQOS products are much higher than we ever had. So bonds have to come and meet the expectations as well. The proposition essentially, we knew that the moment when will be going into more into their emerging markets lower income when they afford, consumer affordability might be at a bottleneck in achieving our smoke-free ambitions. We had to also come up with a technology both on consumables and on the device would somehow adjust the cost of the propositions to the potential pricing we can offer to the market. So obviously, the focus will be on the on the emerging markets, but I do believe that that proposition also nicely will help in some developed economies, because across the spectrum of the smokers, obviously they’re also a group of people, for whom the affordability might create some constraint. So that will be a very nice complementary propositions in our portfolio. And essentially, it also had IQOS to continue on a you know extremely successful history of occupying this premium or medium plus pace this mega brand, which we’re trying to build, while we preparing ourselves that one billion-plus smokers in the warrant and they’re growing across the different various price segments from the premium, low, super-low et-cetera and we need to provide the relevant propositions there. So I think bonds is on the drag and this is how we are going to play strategically in the portfolio.
Pamela Kaufman — Morgan Stanley — Analyst
Thank you. That’s very helpful.
Jacek Olczak — Chief Executive Officer
Thank you, Pam.
Operator
We’ll take our next question from Vivien Azer with Cowen.
Vivien Azer — Cowen — Analyst
Thank you, good morning.
Emmanuel Babeau — Chief Financial Officer
Hey, Vivien.
Vivien Azer — Cowen — Analyst
Hey, I was hoping to talk about the IQOS outlook, please, in terms of the stakes and in particular, what impact is the removal of characterizing flavors on HTUs in the EU impacting your outlook, how are you accounting for that, and what’s the expected timing of that, please. Thank you.
Jacek Olczak — Chief Executive Officer
Yeah. So I partially answered that question before, Vivien. But the characterizing flavor we had that experience with cigarettes, combustible cigarettes in the past and it’s the only reference point we have today. And as you’ll recall the menthol and others ban in Europe, didn’t really impact in any material way, the volumes of the cigarette. So I think here, one can expect the similar sort of a manageable impact if you like of that ban.
The second thing, it’s also reminding everyone that IQOS by far today is the best tobacco flavor proposition. Yes, there are some flavors which we have in our portfolio in the market that performance might be different, but by far IQOS on the pure tobacco flavor and this is by the way, what is the bulk of the cigarette market, the rest in essentially all geographies, I mean this is an IQOS strength. So there was a portion of our portfolio, which will be impacted. But and I think for the vast majority of the smokers, existing comparative to like us, users and the smokers, who are still on a combustible, I mean IQOS still offers today best-in-class the taste and the flavor experience, which is in the core of the of the tobacco flavor.
Vivien Azer — Cowen — Analyst
Thank you for that. And I apologize if I missed this, but is there any way that you can provide an update on kind of the infrastructure build-out for IQOS in the US ahead of your re-acquiring the commercial rights to that proposition, both in terms of the consumables as well as the devices. Thank you.
Jacek Olczak — Chief Executive Officer
Yeah. I think there was, look, there was — we’re looking also — We’re also looking at is not only on IQOS on under standard on basis, but IQOS and ZYN and other parts of the Swedish Match business and I believe the obvious questions up the optimal distribution and I believe this kind of very well and enhancements, sorry, to the distribution, which serves not only in future IQOS, but can and will serve actually ZYN growth opportunities today. There was the whole digital aspect, there was a better management of the pricing promotions. The whole consumer piece, right, which is so strong behind the IQOS’ success. I mean, that’s something which we are preparing the infrastructure for.
Vivien Azer — Cowen — Analyst
Okay, thank you.
Jacek Olczak — Chief Executive Officer
Thank you.
Operator
We’ll take our next question from Owen Bennett with Jefferies.
Owen Bennett — Jefferies — Analyst
Afternoon, gents.
Jacek Olczak — Chief Executive Officer
Good afternoon, Owen.
Owen Bennett — Jefferies — Analyst
Yeah. My question is more a bigger-picture longer-term one around the US and the overall RRPs space, now you’ve got control of your own destiny. I was hoping to get your thoughts on how you see RRP overall develop longer-term across the different categories. Where do you see so more attractive than office. And do you still think heated can be sizable when we introduced into the US, obviously bearing in mind the limited traction and it got with Altria and then just linked to these US RRP plans, any update on timing for a PMTA submission with your product. Thank you.
Jacek Olczak — Chief Executive Officer
Yeah. So I’ll start with the last one. We plan to submit IQOS ILUMA to PMTA to FDA in the second half of this year. Now with regards to the potential, look, we think that the IQOS strength, which is really if you go to the core of the of the smokers today, when they really enjoy this pure unaffected by any flavors et cetera tobacco flavor and so on is undisputed, every market you go IQOS exactly delivers on the flavor expectations to this audience, and that’s also I believe a critical factor in ICOS high conversion rate and how many people fully adopt IQOS and not only that they’re leaving cigarette fully behind them, they don’t even attempt it on an occasional basis to go back to cigarettes. Okay, so that’s the core and I believe for the audience which were the smoking audience, which we will have in the US, IQOS perfectly fits into this whole thing. Obviously, the other platforms, which offer you the differently to all different experience, the cigarettes and the pouches. Cigarettes usually more driven by the flavors and obviously absence the pure of tobacco natural type of flavor, that’s the challenge, which partially in our opinion is behind the more of the dual consumption that the full conversion, but also the products are under development and they’re getting better. And pouch is actually on the risk continuum of the products, I mean, it’s another, it’s important offering for the consumers, who really want to reduce significantly exposure and potentially the harder by while enjoying the products. So I think there is this complementary, there is this complementary role of each of these platforms, you know also that we’re working on our platform forward, which is VEEV and the VEEV products, electronic cigarette segments going through the zone dynamics, this mix of the flavors disposable et cetera, it’s not necessarily great for the economics, but partially also because of the slower conversion rate compared to our platforms.
So we have said from the very beginning of our transformation, if you follow us 7-8 years ago, I recall it, one of the first investors conferences, when we announced, the purpose that we want to go smoke-free. We have said that there is a room for every platform at the different moments for different consumers and our job is that the right time to deploy these platforms and the deleverage the opportunities and to benefit the smokers.
Owen Bennett — Jefferies — Analyst
Great. And just sorry, a follow-up the question on the PMTA was not for ILUMA, I think previously for VEEV, you said you targeted first half of ’23, just any update on VEEV PMTA submission.
Jacek Olczak — Chief Executive Officer
Yeah. I think we’re also thinking about the 2023, but now have been goals of ZYN and knowing what ILUMA can do and knowing that P4 we also need to make sure that we have the right PMTA submission strategy, right, because an effort behind digital of them and we need to prioritize, but the — I mean we’re thinking, not just sort of thinking, it’s more than thinking, we’re working going to bringing our P4 to the US as well.
Owen Bennett — Jefferies — Analyst
Great. Thanks guys, appreciate it.
Jacek Olczak — Chief Executive Officer
Thank you, Owen.
Operator
We’ll take our next question from Andre Condra with UBS.
Andre Condra — UBS — Analyst
Hi everyone, thank you for taking my question. Just one from me please. Sticking to US IQOS, we know that the US menthol ban from the FDA proposed standards allows — potentially will allow for some exceptions to it. And thinking that your IQOS has MRTP designation, which is rather unique versus all its peers. Were you factoring this in when you set-out your ambition of I believe 10% market share by 2030 if I’m not mistaken.
Jacek Olczak — Chief Executive Officer
Yeah. I think you’re quoting my words. This is Jacek here. Yeah, I still do believe that IQOS by 2030, and knowing how it performs on the many other international markets, the 10% is not out of — it can be a realistic ambition or a realistic, now to be very frank, when we look into this, we have not been trying to factor being that there might be some flavors of menthol ban or some another products. But you’re rightly, it’s that IQOS today is volumes of IQOS authorized with the menthol flavor, will this be an accelerating factor or not, look, I mean, the future will tell, but I still believe that IQOS as is, in the current environment, due to its strength and the satisfaction it gives the smokers, et cetera, has that big potential.
Andre Condra — UBS — Analyst
I see. Very clear. Thank you.
Jacek Olczak — Chief Executive Officer
Thank you, Andre.
Operator
We’ll take our last question from Jared Dinges with JPMorgan.
Jared Dinges — JPMorgan — Analyst
Yeah, thanks. Hi, guys.
Jacek Olczak — Chief Executive Officer
Hi, Jared.
Jared Dinges — JPMorgan — Analyst
A couple from me please. First, given the CapEx, step-up in CapEx that you expect for this year. I just wanted to ask, how should we be thinking about CapEx levels beyond ’23, is next year kind of a one-off given the ZYN international expansion plans.
Jacek Olczak — Chief Executive Officer
Look, I think you should expect us of course to accompany the growth we are growing volume within more capacity. So, the CapEx will reflect that. There is certainly when it comes to real ILUMA, a moment where we build the capacity for ILUMA and that is translating into a significant investment. So you see that in the 1.3, I would say we are going to regularly invest on the capacity for the Swedish Match overall business. So I’m not very yet at that stage, I’m not giving guidance on ’24. I certainly believe that there is this transition moment, where we are building the capacity on ILUMA, then of course that will be accompanying the growth of ILUMA and we are very ambitious, as you know on growing overall product, so that will come with investment, but of course, they are not of the same magnitude as the one that we’ve been making in order to build the capacity on IQOS, smaller volume, smaller base, so not with the same impact on the long-term anyway.
Jared Dinges — JPMorgan — Analyst
Okay, that’s clear. And for the second one. And maybe just on the Healthcare and Wellness segment, 2023 will be another investment year. I know you guys have talked about that probably being a multi-year investment cycle, but I don’t know if you can give any indication on when you think that business could potentially start to contribute to growth and maybe also, could you guys talk about your learnings so far in those businesses that you have acquired.
Jacek Olczak — Chief Executive Officer
Yeah. I mean, look, obviously, we’ve been very clear about this from the very beginning, I mean, in order to develop and bring to the market. I think couple of the programs or products, which we have it in mind. I mean I will have to go for the investments, we feel about us prevail. We also have a very promising investment in the medical — in the medical space of cannabinoids etcetera. So all of this programs, they agree to established milestones in terms of the development of these products, including a series of clinicals and meeting different regulatory expectations. So that’s about what it’s going to be. We have said historically our ambitious target of achieving this one $1 billion revenue by 2025, there is a pipeline of the product to, but the more interesting actually is what’s going to happen with that business beyond 2005, because it’s a longer-term investment, obviously when we allocate the capital, we look first, we allocate the capital behind those things, which are in the near and mid-term for us and it is obviously heat-not-burn and IQOS, ILUMA, expansions to the US and they can go for the long-term opportunities, but keeping also denied that this businesses have quite wellness and healthcare offers us a very interesting opportunities in the longer run, when we very well leverage both our scientific, life science expertise capabilities combined with the commercial et cetera. So, this is outlook look on this thing. I think when we meet in September 2023 for the Investors Day, we’ll start obviously opening much more longer-term horizon of the management, how we see the future of PMI, not just in the next year or two, but a bit longer time of a perspective and this is the moment when I guess we will share more details by the way, also I think we’ll be able to answer more precisely your first questions to Emmanuel about the CapEx, because obviously if we opened 10-year horizon for Philip Morris, we’ll have to touch upon debt capital allocation component as well.
Jared Dinges — JPMorgan — Analyst
Great, that’s helpful. Thank you.
Jacek Olczak — Chief Executive Officer
Thank you.
Operator
It appears we have no further questions at this time. I will now turn the program back over to management for any additional or closing remarks.
James Bushnell — Vice President, Investor Relations and Financial Communications
Thank you. Before closing our call, I would like to remind you that we will be presenting at the CAGNY conference on February 22nd. And as we mentioned earlier, we plan to host the September Investor Day, in Switzerland. We hope you will be able to join these events, either in-person or virtually. That concludes our call today. Thank you again for joining us. If you have any follow-up questions, please contact the Investor Relations team. Thank you.
Jacek Olczak — Chief Executive Officer
Thank you. Talk to you soon.
Emmanuel Babeau — Chief Financial Officer
Thank you.
Operator
[Operator Closing Remarks]