Our business delivered another strong performance in the third quarter of 2021 coming ahead of our expectation to achieve a record high quarterly adjusted diluted earnings per share of $1.58.
Most notable was the continued excellent growth of IQOS, driving plus 33% Q3 organic growth in RRP net revenue and plus 7.6% for total PMI.
HTU shipment volumes grew plus 24% compared to the same quarter last year to reach 23.5 billion units, with broad-based growth for both our volumes and the category across key geographies.
In combustibles, further sequential share gains supported total PMI volume growth of 2.1% in Q3 and we continue to expect total cigarette and HTU volume growth for the year.
Our smoke-free transformation is now also reflected in our financing with the launch of an industry-first Business Transformation-Linked Financing Framework, and we continue to prioritize returns to shareholders through a 4.2% increase in the dividend and ongoing share repurchases.
Turning to the headline numbers, our Q3 net revenues grew by plus 7.6% on an organic basis or plus 9.1% in dollar terms.
We witnessed good organic growth of plus 5.4% in our net revenue per unit, driven by the increasing weight of IQOS in our sales mix and pricing on both HTUs and combustibles.
Our adjusted operating income margin decreased by 10 basis points on an organic basis.
Our resulting adjusted diluted earnings per share of $1.58 represents plus 8.5% organic growth, and plus 11.3% in dollar terms, a very good performance.
Looking at year-to-date performance, our adjusted net revenues grew by almost plus 11% in dollar terms and by plus 7.3% organically.
We delivered strong organic growth of nearly plus 6% in our net revenue per unit, again reflecting our shifting business mix and pricing, with pricing on combustibles at just over 3% or around 5% excluding Indonesia.
Our year-to-date adjusted operating income margin increased by 280 basis points on an organic basis, an excellent performance driven by our top-line growth engines of IQOS and pricing combined with operating leverage and productivity savings.
Our adjusted diluted earnings per share grew plus 15.8% organically and plus 20.4% in dollar terms, also obviously a very strong result.
We are revising our organic growth outlook for net revenues to plus 6.5 to plus 7%, representing the upper half of the previous range, and reaffirming the strong outlook for organic OI margin expansion of around 200 basis points.
We also confirm our currency-neutral adjusted diluted earnings per share growth forecast at the upper end of our previous range, reflecting plus 13% to plus 14% growth, or plus 16% to plus 17% in dollar terms.
This translate into an adjusted diluted earnings per share range of $6.01 to $6.06, including an estimated favorable currency impact of $0.17 at prevailing rates.
Following on from our most recent public comments, as the tightness in device supply persists, we now expect our HTU shipment volumes to be around 95 billion units, as we prioritize devices for user retention.
Share repurchases through October 15th amount to around $170 million, after some limitations during Q3 from blackout restrictions.
We continue to assume full year combustible pricing of plus 2% to plus 3%, with a softer expected Q4 reflecting continued pandemic-related challenges in certain markets, notably in South & Southeast Asia, as well as tough comparisons in Germany and Australia.
Lastly, in 2021, we continue to expect around $11 billion of operating cash flow at prevailing exchange rates, subject to year-end working capital requirements.
We also update our expectation for full-year capital expenditures to around $0.6 billion, reflecting latest launch plans and pandemic-related timing factors.
Turning back now to our quarterly results, Q3 total shipment volumes increased by plus 2.1%, and by plus 1.5% year-to-date.
This reflects continued strong growth from HTUs of plus 24%, driven by the EU Region, Japan, Russia, Ukraine and encouraging progress from recently launched markets in the Middle East.
HTU shipments were around 1 billion units below IMS volumes for the third quarter, primarily reflecting timing around the August ILUMA launch and the October tax-driven price increase in Japan.
The minus 0.4% decline in our Q3 cigarette volumes reflects the continued sequential recovery of total industry volumes and of our market share.
Due to the impressive performance of IQOS, heated tobacco units comprised 13% of our total shipment volume year-to-date, as compared to 11% in full year 2020, 8% in 2019, and 5% in 2018.
Smoke-free products made up almost 30% of our adjusted net revenue year-to-date, compared to 23% for the same period in 2020.
IQOS devices accounted for over 6% of the $6.7 billion of RRP net revenue, with a step-up in Q3 reflecting the IQOS ILUMA launch, which outweighed the effect of supply constraints on other IQOS versions.
The plus 7.3% organic growth in year-to-date net revenues on shipment volume growth of plus 1.5% reflects the twin engines driving our top line.
Let me now go into the driver of our year-to-date margin expansion, starting with gross margin, which expanded by 240 basis points on an organic basis.
Our significant efforts on manufacturing and supply chain efficiencies are also bearing fruits, with around $450 million of gross productivity savings delivered.
This was accompanied by robust SG&A efficiencies, with our adjusted year-to-date marketing, administration and research costs 40 basis points lower as a percentage of adjusted net revenue on an organic basis.
With SG&A saving of more than $200 million, before inflation and reinvestment, this means we have generated over $650 million in overall gross efficiencies year-to-date.
This is strong progress toward the combined target of $2 billion for 2021, 2023.
Moving to market share, sequential gains for both our IQOS and combustible portfolios give us strong momentum going into Q4 and next year despite an approximate 0.3 points year-over-year drag in Q3 from market mix.
Device shipments outside Japan were limited to a 7% year-over-year increase, significantly below the growth in HTUs.
This resulted in slower user growth of several hundred thousand in the quarter, notably in Russia given limitations on the IQOS 2.4 Plus device, as flagged in recent communications.
Including the investments already made in Q3, we anticipate around $300 million of incremental H2 spending compared to the first half.
We estimate there were 20.4 million IQOS users as of September 30th, excluding the impact of international sanction in Belarus, this reflects growth of around 0.4 million users in the quarter, with the rate of growth subdued by the tightness of device supply and the time needed to adjust our commercial programs.
The reduced user growth for the second half should therefore be broadly consistent with the potential 2 to 3 billion HTU impact flagged in recent communication.
We estimate that 73% of total users or 14.9 million adult smokers have switched to IQOS and stopped smoking, with the balance in various stages of conversion.
In the EU Region, third-quarter share for HEETS reached 5.3% of total cigarette and HTU industry volume, plus 1.4 points higher than Q3 last year.
Robust performance continued in Russia, with our Q3 HTU share up by plus 1.1 points to reach 6.9%.
In Japan, the adjusted total tobacco share for our HTU brands increased by plus 2.0 points versus the prior year quarter to 20.8% and adjusted IMS grew sequentially to reach a record high of 8.2 billion units, reflecting the strength of our portfolio and the launch of IQOS ILUMA.
Adjusted sequential share fell by 0.2 points sequentially, reflecting volatility in the total market ahead of the October 1st excise increase in addition to normal seasonality.
The overall heated tobacco category continues to grow, making up almost 30% of the adjusted total Japanese tobacco market in Q3, with IQOS maintaining a high share of segment and capturing the majority of the category's growth.
In addition to strong growth in existing markets, we continue to drive the geographic expansion of our smoke-free product as we aim to be in 100 markets by 2025.
During the quarter, we launched IQOS in Egypt, the first market in North Africa, and reached an offtake exit share of 2% in Urban Cairo.
This takes the total number of markets where PMI smoke-free products are available for sale to 70, of which 28 are in low and middle income market, which we are introducing as a more robust measure of making smoke-free products available to adult smokers in emerging countries.
Building on the success of IQOS 3 DUO, we believe this simple and intuitive device will support easier switching and higher conversion for legal-age smoker, using Smartcore internal induction-heating technology.
While still early days with the national roll-out taking place at the start of September, initial results were outstanding, with device sales well ahead of all comparable past launches at the same stage, despite some limitation on device availability, and the proportion of new users growing to 18%.
TEREA purchases are growing rapidly, exiting the quarter at over 10% of total PMI HTU offtake volume.
We see encouraging early success in Italy where VEEV reached an estimated 7% national exit volume offtake share of closed system pods, despite not yet being available nationally.
And in the Czech Republic with an estimated 8% national volume offtake exit share.
We see significant opportunity in adjacent area, with our two focus corridors of selfcare wellness including botanicals and inhaled therapeutics expected to have an addressable market of around $65 billion by 2025.
The acquisitions of Fertin Pharma, Otitopic and Vectura enable us to more rapidly expand our development capabilities with over 250 scientists, infrastructure, technology and expertise in innovative inhaled and oral product formulations, while continuing to grow CDMO activities.
Last, we remain on track to achieve carbon neutrality of our direct operation by 2025, five years ahead of our 2030 target.

Summary:
Our business delivered another strong performance in the third quarter of 2021 coming ahead of our expectation to achieve a record high quarterly adjusted diluted earnings per share of $1.58.
In combustibles, further sequential share gains supported total PMI volume growth of 2.1% in Q3 and we continue to expect total cigarette and HTU volume growth for the year.
Our resulting adjusted diluted earnings per share of $1.58 represents plus 8.5% organic growth, and plus 11.3% in dollar terms, a very good performance.
This translate into an adjusted diluted earnings per share range of $6.01 to $6.06, including an estimated favorable currency impact of $0.17 at prevailing rates.
Turning back now to our quarterly results, Q3 total shipment volumes increased by plus 2.1%, and by plus 1.5% year-to-date.