Hello, and welcome to the BAT pre-close trading update. My name's Rhian, and I'll be your coordinator for today's event. Please note this call is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your question. For now, I'll hand you over to your host, Mike Nightingale, to begin today's conference. Thank you.
Thank you. Good morning, everyone. I'm Mike Nightingale, Head of Investor Relations. With me this morning is Tadeu Marroco, our Finance and Transformation Director. Welcome to our 2021 full year pre-close conference call. I hope you're all well. I'd like to thank you for taking the time to join us this morning. Before we begin, I need to draw your attention to the cautionary statement regarding forward-looking statements, as well as the notes and disclaimer contained in the trading update. I'll now hand over to Tadeu, who will say a few short words on current trading before opening it up to questions. Unless otherwise stated, our comments will focus on constant currency-adjusted measures, and all share data is year-to-date average to September 2021. Thank you, Tadeu.
Thank you, Mike. Good morning, everyone, and welcome. At the start of the year, we said that 2021 would be the pivotal year in our journey to transform BAT and build a better tomorrow. The business is delivering on that. Firstly, a strong new category revenue growth continues to be driven by accelerated consumer acquisition this year, and we are making excellent progress towards our 2025 GBP 5 billion revenue targets. Secondly, with increased scale and operating leverage, new category losses start to reduce this year. This is a key first step in our pathway to profitability by 2025. Finally, our strong focus on cash flow and the leverage means that we anticipate reaching around 3x net debt by the year end. This is important as it provide us greater capital allocation flexibility as we enter 2022.
Taking each of these in turn, the first key driver of our pivotal year is our accelerating new category performance. This is driven by continuous strong consumer acquisition. In the first nine months, we have added 3.6 million consumers of our non-combustible brands, reaching a total of over 70 million consumers in September. This is a rate more than the growth over the full 12 months of last year, and it's driving continued strong volume and revenue growth across all three new categories. We are building strong global new category brands of the future. Vuse is a great example, with the brands achieving global value share leadership in Vapour in September, and also becoming the first global carbon neutral vaping brand that has been independently validated.
With our products available in 77 category markets across 55 countries globally, we are leveraging our established multi-category consumer-centric approach to provide consumers with a wide choice of scientifically substantiated reduced risk alternatives. The rapid digitalization of our business is increasingly important in accelerating our transformation. Revenue growth management and marketing spend effectiveness are now being applied across the new categories, enabling us to generate higher returns on our investments and drive our improvements in profitability. Our new category performance over the second half is being fueled by our further increase in investment. Vuse is fast approaching value share leadership in the U.S. and is now leader in 26 states. In our all other tier five markets, Vuse continues to extend its value share leadership position with a global brand migration from Vype now successfully completed.
In October, Vuse Solo received the first of its kind U.S. FDA Vapour marketing authorization, confirming the marketing of Solo products is appropriate for the protection of public health. The Vuse Alto PMTA, submitted nearly a year after Vuse Solo, shares the same foundational science, giving us confidence in the quality of all other applications. In THP, the continued success of glo Hyper is driving category volume share growth in consumables across every one of our top nine markets, reaching an overall 17.7% category share, up 4.5 percentage points. In Japan, driven by the ongoing success of Hyper, Glo is growing THP category volume share, which is up 107 basis points, reaching 21.1%. Glo has captured 100% of the THP category volume share growth in Japan in the six months ended September 2021.
Glo's total nicotine volume share is up 120 basis points to reach 6.6%. In Italy, which now represents 50% of our THP volume, glo Hyper continues to accelerate volume and revenue growth with consecutive quarter-on-quarter share gains in key markets. In Russia and Ukraine, we have nearly doubled our consumables category volume share, with category volume share in both markets now around 20%. Across our top 9 markets, which account for over 95% of our THP volume, our consumables price is on average at an index of 90 to our main peer. glo Hyper is now available in 22 of 24 glo markets globally, with further market rollouts planned for 2022. In Modern Oral, we are extending our international volume share leadership.
Our overall category volume share in our top five markets, ex-U.S., reaches 28.9%, up 140 basis points. These markets account for more than half of top five modern oral volume. We are particularly pleased by strong performance in Sweden and Norway, where our modern oral category volume shares of 59.5% and 63.8% were up 5.6 and 1.7 percentage points respectively. In a highly competitive market in the U.S., while year-to-date volume share growth has slowed since the half year, we have still achieved 5.5 percentage points growth to reach 13.1%. Overall, modern oral category volume share in the top five markets was 36.1%, down 0.5 percentage points, driven by the increased weight of the U.S. market where we have lower share.
Turning now to improving new category profitability. Second key driver of our pivotal year. While we are continuing to increase our investment in new categories, we are leveraging our increasing scale and expect our new category business to contribute to profit growth in 2021 as losses start to reduce for the first time. For the 2022 financial reporting period, we will disclose new category contribution to group profits to provide investors with increased visibility and clarity on our pathway to new category profitability by 2025. We have invested and built significant IP in all three of our new categories. This is essential for the long-term profitability and sustainability of our business, and is critical to our work on tobacco harm reduction. We have many patents registrations across the world, some of which have been the subject of litigation.
In the U.S., we have successfully asserted our patents in THP with the recent determination by the ITC that the competitor's products infringe two valid patents owned by Reynolds. In Japan, THP patent litigation brought by both sides is ongoing. In the U.K., there has been one substantive decision against us regarding the validity of two U.K. THP patents in the same family. Four of our competitor's flagship THP patents have also been found to be invalid in the U.K. In Germany, our product, Vuse ePod, was found not to infringe a competitor vapour patent. Other than these, there have been no substantive main judgments on the merits in Europe. Patent registrations are unique to their jurisdiction, so judgments concerning patent validity in one country have no legal bearing on validity in another.
We believe we have strong patent protection for our new category products, and our litigation record in this area to date has been strong. Finally, turning now to the third driver of our pivotal year, our focus on cash flow and the leverage. With strong full-year operating cash conversion expected to be in excess of 90%, our year-end net debt to EBITDA would be expected to be below 3x at constant rates, reducing by more than 0.4 turns. As we approach the year-end, the ratio becomes sensitive to the difference between U.S. spot rates and average rates throughout the year, with a gap widening in recent months as the U.S. has strengthened. Despite this, we expect net debt to EBITDA, even at current spot rates, to be around 3x at 3.1x.
We recognize the clear value of a share buyback at the current valuation. We also continue to be clear on the need to deliver on our 2021 commitment to reduce leverage to around 3x. As we enter 2022, as our leverage approaches our medium-term leverage target corridor of 2x-3x, we anticipate having greater capital allocation flexibility. Our pivotal year is on track. We are also on track to deliver on our financial guidance. We continue to expect constant currency group revenue growth in excess of 5%, benefiting from the strong new category performance, which is now a sizable contributor to group revenue growth. We now expect full-year tobacco industry volumes to be broadly flat, an improvement from the previously forecast decline of around 1.5%.
This improvement is mostly due to a strong industry recovery in Indonesia, driven by the low price segment, which will not benefit our volume. We maintain our expectation for full-year U.S. industry volume decline of around 5.5%. Robust combustibles revenue growth is expected to be driven by strong pricing as we continue to drive value growth with cigarette value share up 10 basis points. We expect this to be partly offset by the mixed effect of volume recovered post-COVID and share growth in key emerging markets, including Bangladesh and Pakistan, as well as lower volume in the U.S. Our U.S. business continues to perform well, driven by good pricing and share growth, with value share up 50 basis points and premium share up 60 basis points. This is being driven by the continued strong performance of Newport and Natural American Spirit.
We expect to generate savings of GBP 1 billion from Quantum one- year ahead of plan, and we are confident in achieving our upgraded target of GBP 1.5 billion by the end of 2022. Overall, this strong operational performance is allowing us to absorb a large one-off profit headwind of GBP 260 million for the full year. This includes a GBP 220 million impact from excise and competitive price in Australia in second half, an increase from the GBP 170 million excise impact previously stated at our interim results, together with a GBP 40 million impact from excise in New Zealand. As a result, we are maintaining our expectations for mid-single figure constant currency adjusted diluted EPS growth for 2021.
Applying current foreign exchange spot rates of 1.32 as of December 3rd, we continue to expect a transactional headwind of 2% on adjusted profit growth for 2024, and the translation headwind of over 7% on adjusted diluted EPS and around 9% on the new category revenue growth. Overall, we are confident in delivering our financial guidance in this pivotal year. The core of our transformation is to build a better tomorrow, and that's now deeply embedded throughout the business. Our strong new category growth is a demonstration of our transition and is central to our purpose to reduce the health impact of our business. To deliver on this ambition, we continue to develop a substantial body of scientific data of our reduced risk products across each new category.
This includes the 180-day results from our landmark one-year clinical study on glo, published in July, which demonstrated that completely switching to glo resulted in positive change to all indicators of potential harm compared to smoking, with the majority similar to quitting smoking. During the year, we have continued to make good progress towards our other ESG objectives. In addition, we recently signed up to the UN-backed Race to Zero global campaign. The next phase of our journey to create a sustainable enterprise of the future is being driven by our transformation program Quest. Digital technology and innovation will drive that transition, leveraging our agile organization in building on the success of Quantum. Our focus on scientifically substantiated reduced risk tobacco and nicotine products continues and will not stop there. We are expanding our portfolio beyond nicotine.
That means delivering products that stimulate the sense of our adult consumers while enhancing satisfaction, enjoyment, and well-being. The BAT of tomorrow will be a high-growth consumer goods company, global consumer-centric multi-category with sustainability at our core. Thank you, and I will now open the call to questions.
Thank you. As a reminder, if you would like to ask a question or make a contribution on today's call, please press star one on your telephone keypad. Our first question this morning comes from the line of Gaurav Jain. You're now unmuted. Please go ahead.
Good morning, Tadeu Marroco. Thanks a lot for taking my questions. I have a few questions. One is, you know, on the leverage and share repurchase. Could you please again comment on what your leverage is at the end of the year? And I thought that because of the hybrid debt issuance, it would be south of 3x, but it seems to be slightly ahead of it. You know, what's the leverage, and then how does one think of share repurchase going forward? Like, would you like to keep this flat leverage and free cash flow after dividends, you know, investors should expect all of it comes back in the form of share repurchases, or you would still like to de-lever to the benefit of the.
Okay. Thank you, Gaurav, for your question. Look, the hybrid is a more niche product. We did the hybrid with the intention actually to reach out to new types of investors that we haven't had the opportunity before, which we did successfully. Also to provide a better match in terms of hedging with our euro debts, because we didn't have much euro capacity to issue senior debts. But the total magnitude of it is not in the grand scheme that much relevant. You would expect some benefit, more or less 0.1 turn.
The fact is that we are seeing in terms of currency, as I explained in the statement, and you know that we are now subject to the spot rate of U.S. dollar at the 31st of December. What we have, what we are seeing now is after a stronger pound throughout the year, we are seeing weakness mostly. This puts a pressure on this indicator of net debt to EBITDA because the net debt is translated into the 31st December spot rate, while the EBITDA, the earnings is the average of the year, which was, you know, a stronger pound. This is more than offsets the potential benefit that we saw from hybrids.
That's why we are mentioning this. This is the 3x at this point in time. In terms of the expectation, we will be satisfied to be within the range of 2x-3x. We are not making any type of commitment to go to, for example, low end of the range or all that. We want to be in the range. We think that is important that we reach the range and having the flexibility I was referring to to make other types of calls in terms of capital allocation. You know that we are quite committed, and we understand the importance of dividends to many of our shareholders.
We are also very clear in terms of delivering of our commitment to deleverage the company after the acquisition of Reynolds. That's why we have put in so much emphasis on cash generation, and we have a massive cash generative company today after the acquisition of Reynolds with a very strong conversion. We want to, and we have all the possibility to keep there. Our debt moving forward is very well managed. We did a liability exercise last year, retiring some of the most expensive debts, 2022, 2023. In every single year moving forward, we have a peak of debt of GBP 4 billion, in which more than half of that we can generate organically. It's completely manageable, the need of refinance.
We have a good match between currencies in terms of debts and earnings. Our interest cover is very healthy. It's approaching 4.8 x. All the metrics on treasuries is quite substantial. For me, within the range of 2-3 is enough to have the flexibility that we are referring to. We understand that there is a lot of attention for buybacks given the share price. The main board is quite sensible to that as well. We have done in the past, we understand the value of that, and this will be one of the considerations that we'll take as we close the year.
Sure. Thank you. My second question is on cigarette pricing in the industry. Your key competitor is now, you know, saying explicitly that they don't think they need to take a lot of cigarette pricing because of the mixed benefits that they are seeing from IQOS. How do you think of cigarette pricing, you know, outside the U.S. as you go forward?
The price environment is still very healthy. If you see what we expect to achieve in 2021, it's even higher level than what we had in 2020. We in particular in BAT are quite pleased with the strength of the strong portfolio that we have. We are now reaching 7% of our portfolio in what we call our global drive brands, and well-represented in the very different pricing categories. We are rolling out the data analytics tool that we develop in the U.S. across the world. That gives us a better chance to leverage on the strength of our portfolio.
We believe that we have a strong foundation to continue delivering the results and the value that we expect to deliver, and is aligned with our strategic objective of BAT from combustibles moving forward.
Sure. My last question is on Germany, you know, the recreational cannabis legalization proposal that is there. Clearly in Canada, you did not participate directly, and you have an investment in one of the companies there. Germany is a much bigger and more important market. Would you look at participating in the cannabis market in Germany if it were to really legalize next year?
Look, well, this is a continuous reassessment that we make on that space. We saw the opportunity in Canada because we like the Organigram as a company. We thought that was well-positioned for growth in the future. We entered also in this in a product development collaboration agreement with Organigram that leverages the combined expertise in plant-based science and product development with initial focus on CBD. We are satisfied with these levels of investments that we have. We have to see the evolution of cannabis moving forward, the legalization, because you know that we have some restrictions here in the U.K., where we have to comply with POC and all that. We will be continually prioritizing that, the level of compliance.
We have to keep assessing the opportunities out there. It's very early to say that we're gonna take part in this. We have to understand first the dynamics of the markets.
Sure. Thanks a lot, Tadeu.
Thank you.
Our next question comes from the line of Nik Oliver from UBS. Nik, you're now unmuted. Please go ahead.
Good morning, Tadeu and Mike, and thanks for the questions. Two from my side. Firstly, another one on pricing, but this time the U.S., because I guess we've seen, I think, three price increases year to date in the U.S. I think there was four last year. Just, you know, what's giving you the confidence to push so hard on price and any changes you've observed on elasticity, you know, either nationally or at the regional level? And then second one on Modern Oral. You mentioned in the U.S., you know, it's a highly competitive market. Just interested whether there's any plans for a PMTA on the non-U.S. Velo going forward.
Okay. Thank you, Nick. Look, Nick, the US, we are very pleased with the performance of our portfolio in the US in the first place. As you saw from the announcement, we have now grown premium share by 6 basis points. The value share is 50 basis points. We are not seeing any down trade in our portfolio. We are well represented in all the different price points with the introduction now of the Lucky Strike at the end of the portfolio, and which we have deployed tactically in some of the states where we see stronger competition from these non-big three brands.
We are very pleased, and this gives us a reassurance that we can still pursue value from the markets, given the fact that the elasticity is still very benign. We haven't seen any major difference in terms of elasticity in the U.S., [which] is around 0.4, which is an indication that there is still a lot of pricing power in the U.S. to go after.
On top of that, like I mentioned the previous question, we have developed a very strong analytical tool that we call Revenue Growth Management Tool that allow us to have a very granular visibility of competitiveness even at in pricing, even at post code or different channels or key accounts, and we can react to any lack of competitiveness in pricing and changing trade terms, for example, very fast. When you pull all this together, we feel comfortable in taking the value out of the markets, and that's exactly what we are doing in line with the strategic imperatives of the group.
Now, in terms of Modern Oral, the U.S. Modern Oral category remains highly price competitive and is a very, very small one. Just to give an idea, it's only around 20% of the value of the vapour category. For example, to provide an idea is the value, I think that reached now something like 1.5, around 1.5% of the total nicotine value. It's a continued low average daily consumption, with the vast majority of consumers poly users with other nicotine products. Just to provide an information, for example, the average daily consumption in the U.S. of Modern Oral is around three pouch, while in Sweden is nine, and Denmark is eight pouch.
It's a segment that is still in its infancy and trying to mature. We have learned a lot in the last year after the acquisition of Dryft. There are clearly some areas that we want to improve in terms of our product mix and consumer acquisition. You are referring to PMTA of international products. That clearly is something that it's in our strategy because as you know, we have a leadership in our Modern Oral products outside the U.S. because basically they are the best in class, and we want to bring those products in the U.S. There is a process to go through.
The PMTA is there, but there is science that we need to deploy, so there is some time that we need to materialize that. Meanwhile, our priority also has been where we see the biggest opportunity to switch smokers in the U.S., which is vapour, which we are doing extremely well. Now leaders in 26 states, very close to take leadership in the market. We are very pleased with the progress we are making our non-combustible business in the U.S.
Great. Thank you. That's really clear.
Our next question comes from the line of Richard Felton from Goldman Sachs. You are now unmuted. Please go ahead.
Yeah. Good morning. Two questions from me, please. My first question is on potential changes to federal excise taxes in the U.S., which could, if they are implemented, have a very fairly material impact on the Modern Oral and Vapour categories. Could you maybe share some thoughts on how you see those potential changes impacting those categories? And specifically, I guess my question is how important is price in the consumer decision to switch from smoking to Vapour, for instance? My second question, you've confirmed that new categories will contribute to profit growth for the first time this year as losses begin to reduce. Is there anything you can share at this stage on how big that impact is gonna be for your EBIT growth this year? Thank you.
Okay. Richard, look, just on the first one, I think that is premature to speculate what will happen in terms of the federal excise tax. We saw a bill that went to the lower house, which is different from the one that now is in the Senate. You are right, the current bill is expecting increase in excise Smokeless products, mainly, which doesn't make much sense in terms of the risk continuum or the benefits for health for consumers. That's the only comment that I can make for you at this point in time. I think that it's very, as I said, very early on to make any conclusions of the outcome of that. There is still a lot of negotiations, debates we're going through.
For sure, that price is an important element of this transition. That's why we believe that common sense will prevail at the end and they will probably not jeopardize all the transitions that has already happening in terms of incentivize the alternatives to cigarettes in the U.S. But to be seen. On the loss, we are not providing any disclosure in terms of the magnitude of the loss reduction. But the important point is that from now on, from 2021 onwards, new categories will be accretive for the profit of the group. Has already been material in our revenue growth.
That's one of the reasons why we have upgrade our guidance for revenue of above 5% is exactly that. You're already seeing a material impact of revenue coming from new categories. This will slowly build from the profit side as well. From 2022, as I said in the statement, we'll provide now a full disclosure about the profit impact on new categories, so we'll know exactly where we stand on that. But we are very pleased with the progress we are making in terms of margins improvement across the patch, mainly on the vaping business. As you know, we have some levers to play, which is materializing.
The cost of products, for example, reducing as a consequence of more automation and the trade margins improving as a consequence of the deployment of Revenue Growth Management, which translates into new offers for consumers in different pods and formats and pricing taking, for example. The device, we are start recovering price in device. In consumers, we have never taken discounts, and we are also increasing our price in consumers. The improvement that we are making now in the e-commerce side, which is one of the top branded websites that we have out there. We are very pleased with the performance we are making in commerce.
When you put all this together, the margins in vaping are being a big driver of this recovery in terms of profitability across the new categories. We are very pleased, but we wanna see this in more details from next year onwards.
Great. Thank you very much.
Our next question comes from the line of Rey Wium from SBG Securities. You're now unmuted. Please go ahead.
Hi, Tadeu Marroco and Mike Nightingale. Thanks for the questions.
Hi, Rey.
Just a few quick ones. I just wanna get an understanding of your commentary around cigarette volumes. You said the industry you expect to be largely flat. You also talk about your value share is up ten basis points, but there's no reference to your actual volume share.
Mm-hmm.
I don't know if you could maybe just elaborate on what we can expect on the volume share maybe.
Okay, sure. Rey, though, yes, what we said is that the major driver is compared with what we have guided before in the interim results, is the improvement in Indonesia. The consequence of that is basically the reason for that is basically the government hasn't enforced the minimum price yet, so industry hasn't taken the price and so there is clearly a trade-off there between value from one side and volume. You have more volume with less value. For BAT, it's not much relevant because we don't have much presence in that market in particular. That's why we call the attention for that. On the
Excellent.
On the cigarettes, the way that we are measuring now, cigarette market share, given the transition between tobacco heating products to cigarettes, is putting all them together. As we stand today, year- to- date, we have a 10 basis points increase in market share.
Okay, excellent. I just wanna get an understanding of the profit drag in Australia and New Zealand. I mean, the increase of about GBP 19 million.
Mm-hmm.
This half year. I mean, clearly, I mean, you probably more or less knew the impact of the excise situation. Is it therefore fair to assume that this additional increase in the drag is a result of price competitiveness?
Yes. We have quoted already in the interim an expectation GBP 170 million as basically a consequence of excise. What we saw as we move around the second half is the impact of excise that materialized as we were expecting, but also a very competitive pricing environment. We had to react to some of the actions taken by competition there and this reflecting in higher losses in the market. We are also quoting New Zealand that also changed the excise. Let me tell you, the excise it's a headwind in this short term, but it's beneficial for the long term of the business.
Because what we have seen is ad hoc excise increase since 2012, when the government introduced plain packaging in that market. This has stopped now. It's good for the sustainability of the business in the long run. It's bad in terms of impact in the short term. That's one of the reasons why we kept our mid-single-digit performance this year. We had this impact. We noted also transaction effects. We had already said that some time ago, since the beginning of the year. The transaction effects this year quite substantially account for close to 2% of operating profits.
We also had to deal, for example, with our Iranian business that we divested the Iranian business in August this year. We are lacking that as well. The fact that we still are not out of the woods in terms of COVID. Italy, in particular, has been badly impacted and this reflects in ITC performance, hence our keepers between operating profit and EPS. Remember that we report ITC numbers with six months lag. We are still reporting a very difficult environment for ITC as a consequence of COVID in Italy. That's where we decide to keep the mid-single digit for this year.
Okay. Just quickly, just confirm, did you say the market share in tobacco heating products in Russia and Ukraine was around about 20%?
Yes. Our share in THP category in Russia, Ukraine, also Romania, and is around 20%. Japan is slightly above that, as you saw in the statement.
Yeah. Excellent. Thank you.
Our final question comes from the line of Jonathan Leinster at Société Générale. You are now unmuted. Please go ahead.
Thank you very much. Good morning, gentlemen.
Morning.
Yeah, a few questions, if I may.
Mm-hmm.
First one, a number of your competitors have said they've got problems in terms of supply chain with semiconductors, which will limit their growth in terms of heated tobacco, and I suppose potentially some of the more advanced vaping products. Is that an issue that you have going into 2022 or indeed in the second half of this year?
No, it's not. We have a very strong supply chain management and engagement with our suppliers in terms of tier one, tier two, with a product that allows us a lot of flexibility and we could accommodate all these pressures that we are reading the news in a sense that we are not seeing any headwind coming from that.
Okay. Secondly, again, I suppose on input costs are clearly a feature of the day for consumer goods in general.
Mm-hmm.
Looking forward into 2022, do you foresee any major increases in costs or input costs going into 2022?
We definitely are seeing increase in costs for next year. Remember that we have vertically integrated leaf operations, so this is being helped by the devaluation of real in Brazil because this is the major source of leaves that we have in the group. We mitigate some of this impact there. The impact is mainly on the labor costs and the factories, but also freight in general. We expect the inflation overall will be double the ones that we face in 2021. As a consequence of rolling out Quantum, and you saw that we have just upgraded our target from $1 billion-$1.5 billion, we expect to generate savings to mitigate all these cost impacts for next year.
Thanks. Then also, clearly you've been looking at the nicotine pouch product, particularly even in some of the emerging markets and some of the non-Scandinavian European markets. Can you give feedback on the size of the markets in the sort of non-Scandi European, but also any feedback you can give on whether the trials in some of the emerging markets have been successful or whether the product needs to be adjusted?
Yeah. Look, we are excited about this opportunity in the emerging markets. We believe that the affordability that is allowed by Modern Oral, it's a good match with some of those markets. Mainly, for example, the ones that you saw a lot of cigarettes being sold by stick, where affordability is an issue, because in those markets you can provide, for example, these nicotine pouches even in sachets if you want. We are in test markets in the likes of Pakistan, Indonesia. We are trying to do it in a very balanced way, plus there is in some of those markets there is already a tradition, oral tradition, which makes it easier for this product to be accepted, some others not. You have to build the awareness of the product first.
We are really excited with the first results that we are having. It's early days for us to make a meaningful difference in terms of volume. It's building nicely and this business some of those markets.
Thanks. I mean, clearly glo Hyper's had very good success in Europe and Japan. Is a similar question to one that I think that was put forward with the European nicotine pouches. Is there any plans for PMTA for the U.S. market?
Yeah. The U.S. market, I think we spoke about this before. We are not seeing any major attractiveness in terms of THP in that market, which is not a surprise for us, because we know from experience that we had before in the likes of Canada, where the industry has invested a lot, and with the absence of any profits from THP, that would be a hard sell given the circumstance of the characteristic of the market, is a very high inequity in markets in cigarettes, and where we have a very well-established vapour markets already.
When the consumers have made already a call to move away from cigarettes into vaping, for example, it's difficult to see them, for example, moving back to a tobacco rod. That is still, you still have to deal with tobacco rod. Instead of burning, you are heating it, but it's still a tobacco rod. We have seen that in Canada. That's the reason why in markets like France, for example, where a vape is also well-established, or U.K., you haven't seen much progress on that. What is not a surprise to see that there is no traction in THP in the U.S. market.
We have plans to apply for PMTA and in our own product there, 'cause we believe that is also an important movement in terms of FDA advocacy outside the U.S. to have that product approved in the U.S. Yes, we are on track to do that.
Okay, great. Thank you very much.
Okay. Thank you all for listening, for your questions. In conclusion, 2021 is the pivotal year in our journey to transform and build a better tomorrow. We are delivering strong new category revenue growth, driven by accelerated consumer acquisition this year, resulting in further good progress towards achieving our GBP 5 billion revenue target by 2025. Secondly, we increased the scale and operating leverage in new categories losses start to reduce this year. This is a key first step in our pathway to profitability by 2025. Finally, our strong focus on cash flow and the leverage means that we anticipate reaching around the 3 x net debt by the year-end. Importantly, this provide us with greater capital allocation flexibility as we enter 2022.
With that, I hope that you will all keep safe in these uncertain times, and would like to wish you and your families a very enjoyable holiday season.