“With smoke-free commercial costs also increasing by less than net revenues, this clearly bodes well for 2024 as we continue to benefit from scale effects and manufacturing optimization.”

In context

“n a pro forma basis. Cigarette shipments declined by a modest 1.4% in 2023, outperforming the international category decline of 2.4%. Turning to profits. Organic operating income growth stepped up in H2 to plus 10% following the exceptional headwinds of H1. We believe this is more representative of the underlying momentum of our business, and in line with our 2024/2026 CAGR target range of plus 8% to 10%. Focusing now on some key drivers of our full year operating income, smoke-free gross profit grew organically by an excellent plus 19%, expanding gross margins by 340 basis points. This reflects part of the operating leverage of IQOS I already mentioned, with a notable contribution from Swedish Match oral nicotine in the last 50 days of Q4 with organic operating profit growth of over 50%. With smoke-free commercial costs also increasing by less than net revenues, this clearly bodes well for 2024 as we continue to benefit from scale effects and manufacturing optimization. Despite very strong pricing there was only marginal organic growth in combustible gross profits. This partly reflects the negative geographic mix I already mentioned, with greater volume declines in higher margin markets like Japan as adult smokers switch to smoke-free products, and better volume trends in lower margin geographies where smoke-free products are small or not available such as Turkey. There were also significant inflationary pressures on leaf, direct materials and other manufacturing costs. Cost increases on leaf, where inventories cover multiple crop years, and wages are likely to carry over into 2024, and should ease thereafter. Moving now to Swedish Match, which delivered outstanding performance in its first full year as part of PMI, with adjusted pro forma currency neutr”