Rachel? So, good morning, everyone, and welcome to British Americans, Slovakia 2018 Preliminary Presentation. I am Nick Andrew Dorente, Chief Executive of British American Tobacco. And with me is more is Jack Bose, Chief Executive Designated and Benny Stevens, Finance Director. Thank you all for coming to this results presentation, which will be my last before Jack drops the designated part of his title becomes chief executive in April.
As always, And one more outcome to those of you who are listening on the conference call or listening via our website, bt.com. As usual, after taking you through the results presentation, there will be an opportunity for those of you in the audience to ask questions. Before I start the presentation, I'll take you that you have all seen read the disclaimer on page 2. Entry. It is clear that these results have benefited significantly from the inclusion of Reynolds as a fully owned subsidiary.
Giving these volume, revenue and profit from operations, will be presented as though the group had owned acquisitions made in 2017 for the whole of last year. We will refer to comparison of results on this basis as performance as a representative basis. This comparison will provide shareholders with a better understanding of like for like performance. I would like to begin with a few highlights we have delivered another very strong performance in 2018, with our reported results benefiting from the full year impact of the Ry acquisition. We exceeded our target of high single figure earnings growth.
Adjusted EPS was up 5.2% at current rates, but this was an excellent 11.8% on a constant currency basis. This was driven by the strong currency representative revenue, 8.5 percent, demonstrating the strength of our brands across all four categories. We continue to consolidate our position in the combustible markets, delivering our 8th consecutive year of share growth, with another 40 basis points increase in market share. This is an outstanding performance. In NGP, We almost doubled our revenue from THPM Vapor to reach over 900,000,000 on a constant currency basis.
This was lower than our initial aspiration. It is low down in the THP category. All the reasons performed well. In the U. S, good pricing and continued value share growth delivered on nearly 6% in adjusted representative, constant currency operating profits.
This, together with the benefits of the West Tax Reform, which did not form part of our acquisition assessments means that the right deal is well ahead of our financial targets. I would like to take this opportunity to acknowledge that a good year for the business in terms of financial performance has not been shared by our investors in terms of the share price. I'd like to thank you for your continued support. We recognize investors are concerned about the long term outlook for the industry, principally driven by the regulatory announcements in the U. S, and the potential for regulation of Mentor.
I want to reassure our investors that to have a longer history of successfully managing for fears of regulatory change and a belief and restrictions are years away. These results demonstrate the business remains in very good shape and we remain confident in the future. This is reflected in the 4% increase Looking briefly at the reported results, volume, revenue and product phone operations benefited from the full year impact of the Ry acquisition and were up 3%, 25% 45%, respectively. On a representative basis, our global cigarette and THP volume was down 3.5%. In our key markets, which are represent about, around 80% of global volume and where our investment is focused We outperformed the industry with a decline of 2.7% against an industry estimated to be around 3.4%.
However, excluding the one off effects of inventory movements in the supply chain Russia and the impact of size increase in supply disruption in the Middle East, underlying volume declined just 1.9%. In 2019, we expect industry volume to be down around 3% and you had expected to outperform the industry. Constant currency adjusted revenue was up 3.5% on a representative basis. Driven by robust pricemix in series of 6% and an overall pricemix of 7%. Our transformation tobacco agenda delivered another strong growth across HP, oral and Vapore.
And we are making good progress building global brands across all the three categories. As you are aware, We have a Capital Markets Day planning 2 weeks' time. When you showcase our product pipeline, which has been in making for some years, This will demonstrate why we are so confident on achieving our aim of leadership across all those segments. We continue to expect strong new category growth leading to revenue of EUR 5,000,000,000 by 2023, 2024. In 2018, THP revenue increased over 180% driven by an increase in consumables volume to 1,000,000,000.
Although, it's still in the early stages of rollouts in many markets, We also saw consistent growth across the other 14 THP markets. In oral, our strong portfolio of brands involved a traditional and more than oral categories drove its strategic revenue growth of 11% on an adjusted representative constant currency basis. In more than oral, a range of low tobacco and tobacco free products under the EPOC and Lyft brands grew revenue 140 percent on a representative constant currency basis. In Vapor, We saw significant growth in both volume and value across basis with good performances in the world's 3 largest vehicle markets: the U. S, UK and France.
Vapor revenue from consumables grew 27%, while total Vapor revenue including device was up 26%. On a constant representative basis. We are the undisputed leader in the UK and who have made good progress in the U S with the performance of the views franchise and launch of Alto. So in summary, BT has reported another great set of results. As you can see from these slides, excluding the impact of currency movement, this is not a one off.
We have an excellent track record of delivering consistent DPS and consistent adjusted diluted diluted earnings growth year in year out. We have always delivered on our commitment to high single figure constant currency earnings growth. And we remain very confident that we can continue to do so. Over time, particularly as our new categories move, from investment phase to profit growth. We have built a great foundation for continued future growth.
We have pursued a multi category approach from the outset because different consumers want different products, and these results demonstrated this continues to be the right strategy. Over the last 80 years, we have made substantial investment in these new categories, building new capabilities, new brands, new products and a great product pipeline. As I hand over over the reins to Jack, I'm leaving the group in a strong position. I'm sure he'll continue to build a long term sustainability of the business. Jack now, we'll take you through the business performance in a little bit more detail.
Thank you, Nick Andro. Good morning, everyone. Firstly, let me start with the combustible business, which continues to perform very well. This provides the oxygen which will fuel our growth in new categories. Group market share grew another 40 basis points on top of the 40 basis points achieved last year.
This was driven by another strong market share performance from our strategic brands, which were up 200 basis points, All the brands performed well and in particular Kent and Rotman were outstanding, growing share by 50 basis points and 110 basis points actively. To give you more color, Kandi has an had an excellent performance in Japan, mainly due to the growth of THP consumables, and there was also good growth in the cigarette category. In fact, we are the fastest growing company in THP And Consumers. In Russia, Kent regained leadership in the premium segment. Kent Nanotech Capsules reached a record share of 1.9% driving Kent to its highest share level in Russia over the last 4 years.
In Turkey, Kent is the fastest growing brand in the market. Roadman's market share continued to grow strongly and was up another 110 basis points over the year. Volumes grew nearly 20% to reach just over 1,000,000,000 sticks, driven by good performance in Ukraine, Russia, Nigeria, Bulgaria, and migrations in Poland, Brazil and Colombia. In Brazil, the minister to Rotman's migration was the largest ever in the group. In Italy, the brand was the fastest growing cigarette brand in the market, reaching an exit share of more than 9% in December.
In Russia, Rotman's is now the number 2 brand with leadership in the capsules and Demi segment. Lucky Strike and Palmal also grew share. Demonstrating the strength of our differentiated brand portfolio and diverse geographic footprint. Dunhill's overall share was stable despite to down trading in many of its key markets. In the U.
S, our premium brands, natural American spirit and Newport both grew share and went up 20 and 10 basis points, respectively. CAMMEL share was stable and Palma was down 20 basis points. Due to the growth of the non big three discount brands. Overall, this was a very good performance In tobacco heating, Glow has performed very well in Japan. While we continue to see the THP category developing a different level, across markets globally.
Japan has experienced tremendous success, although growth slowed during 2018. However, in Korea, the category is less than half the size of Japan and to date, Europe has seen much lower levels of growth. This is why we have focused our efforts in 2018 in Japan. It is the most competitive THP market. And we have grown faster than any other competitors.
Our share of the total nicotine market has now reached 17% an increase of 160 basis points over the year, reflecting the good health of both combustibles and THP business. Glown national share reached 5% in January this year, growing consistently over the second half. Our share of the category is now 22.4 percent and our estimated share of the gross margin pool is 26 0.7%, up from 19.1% and 23.1%, respectively, This is a growth story, which is translating to strong financials. During 2018, we launched NIO our premium range of consumables priced above Kent with higher nicotine and capsules. NEEO has grown to a 1.5 share points driving growth for Glow and mix improvement.
We are the only THP player in Japan to offer capsule variance which together with our wide range of flavors provide more choices to consumers than any other competitors. In South Korea, the THP category returned to growth in the second half of the year and represents 9% of the tobacco market in December. Grow continued its share improvement with an improved mix and better activation model following the relaunch in August. In other markets, particularly in Europe, blow is still in the early stage of expansion. But with some encouraging results over the year.
In Romania, Glow has performed well with strong month on month growth and in Russia, device penetration reached record levels in December. Global's global footprint continued to increase during 2018 with a number of new market launches sell. We remain confident in our global product pipeline and support plans with a number of launches and activities planned for 2019. In Vapor, on a representative basis, volume was up 35 percent of revenue was up 26%. In the U.
S, the overall views family has grown both volume and value. Despite a 20% growth in revenue, Vue's value share was down 14 percentage points over the year to 18%. As the category continued to grow rapidly, although not always where we are willing to market our products. Performance was also impacted by the VIEP product recall. Importantly, I'm pleased to say that with the VIEF's family, has now returned to share growth in the last and the reintroduction of used VIP.
In addition, our share in starter kit sales which is a very good indicator of consumer uptake is growing rapidly with the latest view share at 27.4%. The introduction and phase rollout of Alto since August has progressed very well. It has grown from 0 to a national value share of 4.6 percent and continues to grow. Share of cartridges measured in milliliters' equivalent is increasing at a average of 1.5 percentage points in recent months and currently stands at 5.5%. While Alto share of starting kit has grown to 10.8%, reflecting significant growing consumer interest in the product.
The growth of the category slowed during the second half of twenty eighteen, and we are making good progress in improving our market position as the category begins to consolidate. In January, we commenced our full national support campaign having successfully scaled up production capabilities to meet anticipated demand. We continue to see good evidence of Alto's strong product performance across both our own product trials and among vapor experts and feedback from consumers. We remain very confident in its ability to drive share growth in the U S. In the UK, the market grew by almost 26% and VAT Vapor retail value grew by 20 basis points to 41%.
VIP E PEN3 was launched in the UK after an extensive pilot program with excellent results. While it is still early days, initial indications from the launches are very positive and EPEN 3 has already achieved a 3.9 national value share in retail in the UK. As well as has been voted product of the year by consumers. We continue to perform well in our other markets and we are the market leader in Poland and in Germany. Our global footprint continues to grow, including new market launches in New Zealand and further product rollouts of Yipentri in France and Canada.
In France, VIP has moved from being the number 5 brand in retail to take market leadership with an overall retail exit share of 13.7 percent. This has been driven by a strong performance from EPEN3, which just 8 weeks after launch as already achieved 7.1 value share in retail in January. VIP now accounts for over 23.7 of all closed system sales in the retail channel. Our new product VIEF switch was launched to a test market in the UK in December. I switch represents 1st world heating blade technology replacing the traditional coil and WIC system.
Value share in VIP stores in situ is 23% after 5 weeks. The oral tobacco category is becoming an increasing relevant category. And has 2 distinct subcategories. Traditional oral includes moist snuff and traditional snooze products, the modern oral category comprises very low tobacco or tobacco free white pouches products. While we have Hippo and Lyft, which both experienced significant growth in 2018.
In the US, strong pricing in traditional oral drove good growth in revenue and profit. Risney market share was down 40 basis points, largely due to lapping of tough comparator, which benefited from gains made during our competitors product recall in Q1 2017. In addition, In the last part of Camel snus also performed well and will remain very hopeful of a positive outcome as we continue to await the result of our MRTP application. Is performing extremely well across the whole of the Nordic markets and is the fastest growing premium brand in the overall oral market. As a result, we continued to grow share in oral and now have a December exit share of category of 8% in Norway.
In Switzerland, EPOC has also delivered strong growth to achieve 17% exit share of category in December after launching in Q2 of last year. Lyft, our tobacco free product was launched in Sweden in Q3 of last year and finished the year with The pilot is now currently on the way in the UK with encouraging early results. Moving on to the regions. Where for clarity, I will focus on the constant adjusted representative numbers. In the U.
S, Reynolds performed well Adjusted profit was up 5.8%, reflecting growth in revenue and good pricing as well as cost reductions since the acquisition. Cost synergies are progressing well with annualized savings of over USD 300,000,000 delivered to date. The group continues to expect to deliver over million over synergies by the end of 2020. Industry volumes were estimated to be down or at 4.5% in 2018, partly due to the impact of higher fuel prices on disposable income, the growth of the vapor category and the residual effect of the change in excise in 2017 half of the year to from 5.3percentto4.1percent. This year, we expect industry volume in the U.
S. To do better than last year, down 5.3% lower in part due to a strong comparator following the new variant launches for Camel and Newport in the first half of 2017. Importantly, overall value share grew 25 basis points. Driven by the continued growth of have clearly generated a significant investor uncertainty. However, we have a strong portfolio of brands with tumor profile.
While we believe FDA restrictions are years away, we have successfully navigated through mental restrictions in other markets, and I'm confident that we In ADME, revenue in the region grew 5.7%. The strongest performance since 2013, driven by good pricing and the growth in THP volumes. Profit from operation was up 1.2 This was driven by strong growth in Japan and increases in Australia, Pakistan and Bangladesh. This growth was partly offset by a reduction in Saudi Arabia caused by down trading following the excise increase midyear. Although share increased significantly following the successful launch of Palmal in the low price segment.
Volume was up 0.7%, driven by a recovery in volume in Pakistan and THP growth in Japan and South Korea. Market share in the region grew strongly and was up 110 basis points. With volume up 6%. Share was up 120 basis points, mainly driven by Palma in Pakistan and Saudi Arabia, as well as Revenue grew by 5.6%. As good pricing across the region more than offset the lower total volume and the negative mix impact of down trading following the significant excise led price increase in the number of markets.
Volume was down 5.4%, mainly due to the growth of illicit trade in Brazil and South Africa. The termination of a 3rd party license agreement in Mexico, together with market contractions in Canada, Colombia and Venezuela. Despite the challenging macroeconomic environment and excise increase, pricing remained strong. Profit grew strongly and was up by 6.5%, driven by good performances in Nigeria, Mexico and Chile. Partly offset by a lower duty paid market and down trading in South Africa.
We continue to await the outcome of the class action appeal in Canada, which is expected tomorrow evening. Strategic brands reached a record share in the region and was up 7 twenty basis points. This was driven by good performance in Brazil, where the strategic brands almost doubled volume, helped by 2 very successful migrations. Finally, in Ina, adjusted revenue grew 3.5% and profit was up by 0.8%. Following significantly increased investment behind our new category launches in was down by 5.3%, good key Egypt, Poland and Romania were offset by declines in Russia, Ukraine, Italy and France.
Market share in the region was stable and the strategic brands delivered another good performance with volume up 5.2%. So overall, it was a good performance across the regions. We are committed to invest in developing strong brands across categories and continue to improve our execution. I am looking forward for our Capital Market Day in March, where I will talk in more details. I will now hand you over to Ben which will take you through
Good morning, everyone. So while on a reported basis, EPS declined by 86% due to the impact of the RAI transaction accounting treatment the prior year. Adjusted diluted EPS was up more than 5% at current rates and nearly 12% on a constant basis, exceeding results, which are against a comparative base that assumes full ownership of Reynolds and the other acquisitions throughout 2017. This doesn't affect comparisons made on an EPS basis. As you've seen, the regions performed strongly in 2018, group adjusted operating profit growing by 4% at constant rates.
As we stated previously, our 2018 results enjoyed a benefit from the U. S. Tax reform, which we initially estimated, would be equivalent to around 6% on EPS, around half of which we said would be invested into increased support for our next generation products. So I'm pleased to say that even excluding that benefit, constant currency EPS would have grown around 9%, meeting our high single figure growth target and adjusted operating profit would have increased by around 7%, excluding the incremental spend funded by the tax reform. So this was a very strong performance.
Turning now to operating margin. On an adjusted basis, margin was up by 150 basis points, benefiting from the inclusion of rentals, as a fully owned subsidiary. Excluding this, our operating margin increased by 40 basis points to 42.6%. Changes in the business, including pricing, cost savings and synergies with rentals drove underlying margin improvements of 180 basis points. This was offset by higher investment in NGPs, which represented a headwind of 140 basis points We expect our net investment in new categories We will continue to make good progress with our margin on an underlying basis and remain confident in our ability to deliver 50 to 100 basis points of margin improvement on average over the years.
Now onto cash flow. Overall adjusted cash generated from operations was 1,000,000, which is 1,000,000 higher than last year. This was primarily driven by 2017 of 1,000,000,000. 1000000000 reduction in working capital year on year. However, underlying working capital was also lower.
As a result, operating cash flow conversion increased by 34.5 percentage points to 113% versus 2017. Excluding the early MSA payment, operating cash flow conversion would have been 100%. Depreciation is the main component of non cash items, and excluding MSA payment, working capital out inflows of 1,000,000 was significantly better than 2017, which was an outflow of 1,000,000. Net capital expenditure was 1,000,000 higher than 2017, largely due to investments 1,000,000. Net interest paid was higher at 1,000,000, driven by the full year impact of costs related to financing arrangements for the acquisition of Reynolds.
Tax outflows of 1000000 have increased by 1,000,000 from 2017. This reflects the inclusion of RAI as a subsidiary for a 12 month period and the increase in profits across the group. Lower dividend payments to minorities are attributable to lower profit in Malaysia in 2017. This delivers adjusted cash generated from operations of 1000000. Restructuring and settlement outflows were lower at 1,000,000, largely due to no further payments to the Quebec class action lawsuit.
Dividends from associates of 1,000,000 have reduced significantly from 2017 due to the acquisition of Reynolds and now comprises primarily receipts from ITC. This delivers free cash flow of 1,000,000. 7p was up 5.2% despite a currency headwind of 7 percentage points. On a constant basis, EPS grew 11.8 percent, driven by growth in operating profit, the contribution from rentals and the benefit of the U. S.
Tax before. Net finance costs increased, driven by the full year interest charged incurred on borrowings as a result of the RAI financing. We continue to expect the full The contribution from associates was down to the removal of Reynolds as an associate company, partly offset by an increased contribution from ITC in India. Our effective tax rate was Non controlling interests were marginally higher, driven by profit growth in Bangladesh. On currencies, if rates were to stay as at 27th February last night, the translational FX impact on full year results would be a headwind of around 0.8% on operating profit and 0.9% on EPS.
The group's net debt to EBITDA metrics are both stated on an adjusted basis. Net debt to EBITDA stayed at four times in 2018, purely as a result of the impact of exchange rates on net debt at the 31st December, and EBITDA at average rates during the year, and I'll show the impact of this on the next slide. I did want to emphasize that even at these unfavorable exchange rates, Our credit rating remains stable at BBB plus Baa2, just one notch with Moody's from our long term target of BBB plus Baa1. Our interest cover remains high at over 7 times, and we remain committed to paying a dividend which increases every year in sterling terms moving gradually to a payout ratio of 65% as we pick up an FX tailwind. We have historically generated a free cash flow after dividends of around 1000000000 every year, and we expect future EBITDA growth to benefit from our cost cutting programs as we begin to and we begin to make a return on our new category investment.
I'm also guiding towards an effective tax rate of 26 percent this year, down from the 2018 level of 26.4 percent. As noted on the previous slide, the group's net debt to EBITDA metrics are both stated on an adjusted basis. As you can see from the chart, translating our closing net debt at the same rates as the closing net debt for 2017 and translating our EBITDA at constant rates to 2017, our net debt to EBITDA would have been 3.6 times, in line with our deleveraging target of 0.4 to 0.5 turns a year. Translating our EBITDA at the 2018 average rates, I. E.
Including the FX headwind of 5% increased the ratio by 0.2 turns. Translating net debt at 2018 closing rates also increased the ratio by 0.2 turns. However, even today, FX is moving in our favor and translating the 2018 net debt and EBITDA at today's rates, would give a net debt to EBITDA of 3.9x. FX rates will move where they will. The most important number is around the billion of free cash flow after dividends that we generate every year.
And this gives me confidence that we will deleverage back to our target of 1.5 to 2.5 times. So in summary, the business performed well in 2018. On a constant, representative basis, adjusted revenue grew 3.5%, profit by 4%, and adjusted diluted earnings per share 11.8 percent, exceeding our high single figure earnings growth target whilst investing in new categories. Thank you. And I'll now hand back to Nikandro to close.
Thank you, Ben. So 2018 saw another strong performance across all categories. This was driven by continued strong growth in our strategic portfolio showing the strength of our brands. Our near doubling of NGP Revenues and the improved financial performance across all regions, notably the U. S, driven by pricing and value shared growth of combustibles.
Overall, the business is performing well. We exceeded our high single figure target delivering constant currency earnings growth of nearly 12% while investing for the future. Looking ahead for 2019, We are confident of another good year of earnings growth. Our confidence in the future abilities reflected in the continued increase in the dividend up by 4%. I will now open it up for
Okay. Garo joined from Barclays. So I have three questions. 1 is on the U. S.
Volume outlook, which you have said is minus 3.5 to minus 4.5 percent for FY19, which is better than FY18. And I think Altria has said minus 3.5 to minus 5 percent. So can you please help us understand why volumes are improving? Question 2 is that you are in both the product categories, THP and Vaping, and much more than any other company is. So when you look at this country category combination around the world, and how many countries do you think vaping will be successful?
And then how many countries do you think THP will be successful? And the third thing is that when Altria has done the Zulu transaction, they have spoken about promoting June in several ways, including packet inserts and better retail placement and things like that. So why can't you do a similar thing with your existing cigarette portfolio and your views and white products? Like, why can't you promote them with Newport or natural American spirit? Thank you.
I'll try to grab the questions. Maybe Jackie wants to jump into the third one later? Yes, do you get the question? The first 2, let me try to answer the U. S.
Outlook. It's very difficult to predict how the industry is going to play, but, the three main factors that we had last year that affect the volume in West was the overlap of the California size. We don't have this year. We had the huge growth of vaping in the first half of the year, the growth of vaping at the last quarter of 2018 has stabilize. The third one was significant fuel price increase in U.
S. That you're not seeing now. So there are 3 factors here that shows that we have probably we will have a better volume environment. It has been shown in January January, if you think sales to retail was down 2.7%. It doesn't mean that I'm going to change my my outlook for 2019.
I still think that should be around 0.5to4.5. But these are the indicators that you'll have to be a little bit more confident in the industry outlook for 2019. And on top of this, the environment in U. S. Is a little bit better.
We just announced, as you know, our price increase, our announced was 5.50 a very solid price increase, $5.50 per 1000. So it just shows that it was ahead of plan. It was ahead of the plan of last year. So I think that we have a better environment. I hope that I answered your question, but it's very difficult to predict those numbers but our indications shows that we probably will have a stronger 2019 than 2018.
Regarding your second question, and about how many countries DHP are vaping? Well, you know, from the outset, as I said in my presentation, since 2011, we we always said that these categories are going to we're going to develop in different ways, in different markets. I'm very glad that now the industry is coming close to our direction, very happy with that. But anyway, we we said from the outset that, the 4 categories are going to be very important. And one example of that, we launched the one of our a snus product in Switzerland, 6 months ago against teach product that was there for a couple of years.
The market share of this news product is higher than they teach publicly in Switzerland. You saw that the categories are going to grow in different pace. The number of countries in which the categories are going to be successful, if you go back to the Investors Day that we went through in 2017, we had a chart in which we said in 5, 10 years' time, how does this, we think, the categories are going to evolve. And you show the most prevalent category in 5, 10 years' time. I don't feel that our view of the categories changed dramatically.
I recommend you go back, you know, our website, but in 2 day, 2 weeks' side, instead of me going through country by country now, we have a Capital Markets Day, There will be a presentation again. We will have that chart coming again, and you're going to explain how we think those things are going to develop. So very glad that you see that everybody is coming to the same conclusion. Very glad to see that because we started earlier, we will have a better portfolio to face this. I think that Jack highlighted extremely well in his presentation about the first award heating blade technology that will cause a VIP I switch, which we are just piloting this in our VIP stores, in our VIP stores it has reached 25% of market share after a couple of months.
It just shows that the portfolio that comes to place now In all these categories, there is no product that we're launching in Switzerland. This product that we are launching here in the second half, We are coming from hybrid product in Japan. All these figs is coming to fruition now. And I think that we, you know, starting early is always the best way to be innovative in any place. In 2 weeks' time, as I said, during the capital, during the meeting, we will showcase the innovations that we have.
We said last year that most of them were going to be executed the beginning of this year, they are, the THP, for example, the majority of the losses was the second half last year, September, and I think that we'll see the results this year. So I'm very optimistic about that. But you have a little bit more detail in 2 weeks' time. I have to stop here. If you're not, I'll queue the much.
It's very important. So Jeff, would like to take the first question?
Yes, what was the third question? It was around June.
Yes, what I was asking is that our guys spoken about has been due on retail sales media placement also putting, in pack inserts of Jewel within Malbora Packet. So why can't you have a similar strategy around your vaping business and helping your vaping products with the strength of your cigarette portfolio?
It's a very good question. We're looking at the moment at all the different options for us to accelerate the development of our portfolio. Sorry, and especially related to Alto has seen a very good performance. What we do with Alto in is gradually to increase the pressure, especially in terms of consumer engagement because we had some shortfalls in terms of availability of products. And we are now going full blast.
As we said in the presentation, the results are extremely good. We're more than 5%. And we want to continue that. And we're exploring all the different avenues related to, the best way to promote our products.
Okay. Eddie, question. Yes, please.
Owen Bennett at Jefferies. And just a question on the outlook for NGP, particularly for 2019, if you could give any more visibility on the target this year. And then the 1,000,000,000 a few years out, I mean, that could be seen by the market is slightly underwhelming when you consider where consensus expectations are for 2019 at one of your competitors now. And I'm just considering the market has concerns around your RRP outlook, I was just wondering, do you think that number is somewhat conservative for 2023?
Well, we put the numbers together, since we did 900,000,000 in 2018. And by the way, We did a 1,000,000 reduced in significantly the stock level that we had at the trade at the end of 2018, just to highlight at this point because We have a huge pipeline of innovations coming in 2019. We saw this slowdown of the cattle in Japan. So we reduce the stock level at the end of 2018. If you had kept the stock level that we had planned initially, our numbers will be much higher than 900, but just to highlight this point, because there was a question that came today about that.
Having said that, if you put the 900 and you look at 2023, 2024, you are talking about a growth of around 30% to 50% every every year. On average. And we still think that is feasible. We will have in 2 weeks' time, as I said, if you keep your question, you have all the plans detail in terms of then how we are going to achieve this EUR 5,000,000,000, why we are confident about that the rate of growth that you have by category, more than auto, vaping and THP, and you'll try to playing in a much more detail, I expect. I'm not going to give you a target for 2019, but I think that average 30% to 50% growth every single year is a number that we believe is achievable.
I think that in some years going to be better than that. In some years, depends on the growth of the category in a specific country like Japan, 70% of the category in Japan. We see you saw this slowdown last year. Of course, there is an impact in terms of growth. But in 2 weeks' time, you have a much more detail in these new categories one by one what we expect for growth in the next 5 years and how we are going to achieve that power by innovation and portfolio.
Okay. You have a question
Full year is off from Goldman Sachs. Just a couple from me. You'd normally give us a bit of a sense of how you see the pricing environment in combustibles? For example, how much of your planned price increases you have already taken by around this time? And then my second question is on the modern oral tobacco, which you commented quite a lot about your developments in Europe.
Can you maybe give a bit of a comment on the U. S? What your plans are there given that one of your competitors is, it seems to be growing quite nicely. In that market? Thank you.
Okay. I'll take the first question and Jack will take the second one. Okay? The first question is about pricing. Listen, the price environment is very solid.
Last year, we had a price mix of 7%, 6% came from combustible. Remember that I had a question last year, that all the price was being driven by new categories. That's why we want to split the numbers because we think that is very solid. I don't see this changing for 2019. As you know, the majority of the pricing usually happens in the first half of the year.
So it's very solid. In terms of the pricing that you have gotten so far, I think that is around the same one that we have year around this time, around 60%. So very solid. We have good expectations. The price environment is very solid, but this is an aggregation of a lot of different markets, 200 markets.
But given, talking about something that already happened, because I cannot talk anything about what's going to happen, but U. S, for example, came ahead of plan, in terms of timing, came ahead of last year, and a very solid price increase of $5.50 per 1000, but it's a solid price environment that I see out there.
In terms of modern oral, first on, on oral, what is interesting is that the consumers are younger. The consumers are more educated. And the consumers are, with more income. So it's an extremely interesting category. The second point, related to the different 1st developments that were in Scandinavia and in Switzerland, plus the tests that we're doing in UK at the moment are very encouraging in terms of the ritual and the of the consumer.
In the U. S, it's a very interesting category because the mature category of, traditional oral is already there. There is a great opportunity for this category moving forward. Why? Because in a lot of places, the occasions And the opportunities for the smokers to use the products are reduced.
And in big cities, there will be some possibilities to develop that kind of products. More and more people are trying these products. And we're putting a lot of efforts in our U. S. Business to develop that category as fast as possible.
Might be worth just adding
that we already have a modern oral product with a PMTA approval for the U. S. So we are in a position to test market that pretty much immediately.
Yes.
It's James Edwards Jones from RBC. Can I ask about your attitude towards your stake in ITC? Obviously, your indebtedness is a concern amongst investors at the moment. Under what circumstances, if any, would you consider disposing of all or part of that ITC state to lay those concerns?
I don't think it's, something that we necessarily need to consider. First of all, our stake in ITC is a strategic stake for us. There'll be more Indians than Chinese out there in a few years' time. The segments in India are quite attractive as big or all segment in India, for example, and we've thoroughly support the ITC strategy going forward and they're doing very, very good job. And secondly, we're not particularly concerned about deleveraging, we generate more than 1,000,000,000 of free cash flow every year.
It's enough to take 0.4.5 of our net debt to EBITDA figure. So we're very comfortable with that as well. So I don't think it's two things that you should necessarily put together. Deleveraging will happen because of our strong cash generation and we are fully supportive ITC and our shareholding in it.
Hi, three questions if I can. First of all, this is just for Jack. What are you going to do differently? Could you then, then I'll go some of it.
I can start with this one. I can start with this one. Do differently. 1st of all, is, what I think is very important for the business. What is very important for the business is we have a strong strategy that we have to, more and more execute to a level where we can have a smaller results moving forward.
We have been extremely good in the combustible business and the combustible business is the most important category because it pays both for the dividend and it helps us to deleverage the company. So that's a very important business. We have a certain market share and we're growing since 8 years market share every year. The second point is the new categories as Nick and 2 more and more people are speaking about the right approach of being multi category. And we're going to continue to push in those multi categories.
We'll continue to develop what we spoke about in terms of oral. Also in THP, we focused in Japan and we put the right level of investment in order to make sure that we're successful in Japan, which we are. We have started in Q4 to take some positions in Western Europe. Specifically and we'll continue to do so. In terms of oral, we have in terms of sorry, in terms of e cigarettes, We have launches like Alto and others to come in the second half of the year.
So we will stay true to the category. The strategy is right. We're expanding our footprint and we're going to continue to push for the delivery of the results. But I think it will be much easier on the 40 to go more in details in the plan and to explain what are the differences and the accelerations that we're going to have.
I just want to make sure that I heard 2 things right. I think you said right at the beginning, you expect to be market leaders both in heating tobacco and e vapor over time. And I also think I heard, but I may have got this wrong, but the total sort of amount of investment in NGPs is going to be about flat year on year. So we're not expecting another margin to reset. You're fundamentally thinking that both the investment is correct and it will lead to market leadership in the various categories.
Have I got that right or am I mishearing?
I think that you have, because I've been saying that for the last 8 years. I'm just saying something now that I said every single year, because PET doesn't get into business like that should be the number 2 or number 3. We had a showing combustible capabilities We are the only company that has grown market share, 8 years in a row and consistently. And if you look at the if you look at just our global drive brand, as compared to the global drivers of the competition, we have grown more than 500 basis points in 80 years. So I think that you can replicate this kind of performance in the other categories.
Yes, the objective is to be the leaders in each of the categories, in vaping by the way. We are global leaders already with a small market share. But if you look at the performance of United States, the recent performance. And this is doesn't happen because we wake up in a single day and say, now we needed to do better in U. K.
In U. You have been developed a portfolio to be able to have this kind of performance in the last 6 months. If you look at the target segment, that we are United States, we have been leading there for some time. So I think that you can do the same in THP. I hope that in 2 weeks time, you guys will feel as confident as I'm feeling that this is going to be achieved.
In oral, we are global leaders as well. If you can the position that you have in U. S. So you worked quite well. I have been saying this for 8 years and probably I won't be here next year.
But I have high expectations as a watchful shareholder and a big shareholder VAT that Jack will keep saying that. And I hope that you'll achieve it as soon as possible. And that's the first question.
I didn't understand Ben's point that margin isn't going to be We
invested quite a lot more in the next generation products category this year compared to last year. During 2019, it'll be roughly a similar result from next generation products. There won't be the drag on margin that there was last year as a result of increasing the investment in next generation products. NGPs that will then move to a position of being a net contributor to the group. And that's why I'm confident one of the reasons anyway I'm very confident we'll continue to grow our operating margin 50 to 100 basis points a year.
And that turnaround will be 2020, you hope?
Well, we'll start. It's increased investment last year. Flat this year and then it starts sort of turning up beyond that, yes. But it does just be, I mean, it does depend on the opportunities we see. Obviously, if we see a bigger opportunity to go faster in modern oral in a particular country, then we will put investment behind it.
And then the final question And I don't know whether it's easy to answer this, but you've obviously set out leverage targets. We've got an exciting announcement on tomorrow evening. And I'm just wondering whether that 0.4to0.5 reduction in multiple, how litigation plays into that could, could Engel disrupt that? How are you thinking about the ongoing payments you have to make or might have to make for the angle Progyny potentially putting more money losing money in Canada?
Okay. Well, look, we'll have to wait till tomorrow to see what happens in Canada. But pretty much whatever happens tomorrow won't be the end of the story because it's much more likely that those cases will be appealed either by us or by the the other side to the Supreme Court, I think it's unlikely that the Supreme Court wouldn't take a case of such magnitude in Canada. So Canada has probably got many years still before it plays out. Engel Progyny cases are pretty much business as usual now because we We have a certain number of cases a year.
We lose a certain number. We win a certain number, and that's a cash strain on the company and has been for a number of years. Whatever happens in Canada, it's sure that we will continue to consolidate the Canadian results. So Canada will gradually build up cash. It won't be paying dividends to VAT, but it lends out money to VAT and it will still be consolidated as part of our result.
So I don't see anything major changing from an accounting perspective after tomorrow. We'll have to see what the actual outcome of the case is and what legal strategy we pursue beyond that.
Any other questions? Yes, Jeremy.
I have to, stand up for my question or maybe it should be and observation. I couldn't let today pass without saying a few words, Nickandro, as you, move on to your retirement. Ben, your term will come in 6 months. You'll have to wait 6 months. I've known you a bit longer than Nick Andro, so all I can say is I would start worrying now.
If I was you? I'm doing
some time as well.
Yeah. My position is less grand than yours, so I can take it. When I was preparing my comments as to what I would say about Nickandro over the last few days, a couple of things kept occurring to me that may, may preoccupy me. The first one is that when Jack proceeds to the role, He will be my 4th VAT CEO, and I only just missed Patrick Sheehy, And there's a few people in this room who remember those days, but not many on the investor and analyst side. And there may even be a few on the VAT side who were not around at time, but I was.
But it occurred to me that based on my wife's one woman mission to keep Amazon and the John Lewis Partnership going, The recurring theme in my life that is school fees and the stock price of my employer that I may be here to see another for VAT CEOs. And that was one of Life's more sobering thoughts. The other point that occurred to me was I was paranoid as to whether I would get Nickandro's citizenship correct, as to whether he was Brazilian Italian or Italian Brazilian, and I was paranoid about getting it wrong. And then it occurred to me it didn't really matter. And the reason it didn't really matter was because both football teams are not very good.
Now you may recall that Italy never even made the World Cup. And Brazil would be a tenth of the population, if not less than itself. Not there's anything wrong with Belgian, but that is nevertheless a fact And the one thing I did promise myself was I would not mention the Italian rugby team. Moving on to slightly more serious matters. I just think it's worth taking a step back and looking at some of the metrics at VAT that have changed under Nickandro's tenure as the CEO.
Revenues have gone from 1,000,000,000 sterling to 1,000,000,000. The earnings have gone from 176p to as we've seen today, 297p. The dividends gone from 114p to as we've seen today 203, and the margins have grown by 1000 basis points from 1000000 to 1000000. And the EV of the business has grown from 1000000000 sterling to GBP 110,000,000,000 sterling. If we then move on to consider some more strategic and operational matters, a few things occurred to me over the time of Decander's tenure.
Nicko Ventures was created, and we've seen today that oral THP and Vaping have contributed 1,000,000 sterling of revenue and more, if they hadn't decided to, to, take some stock out ahead of the launches. They've launched Glow and VIP And as we've seen today, this is the 8th year in a row where global share in combustibles has grown. You created the JV with the CNTC. You bought in the Souzer Cruise minority, a business I know you know very well. You part financed the Reynolds acquisition of Loralard, and finally, you acquired the Reynolds business itself.
So I think it's fair to say or fair to conclude that operationally, strategically and geographically, Nikandra leaves the business today, as he said himself, in a very strong position, and it's something I personally concur with. So with that, I'd like to take the opportunity from the investment and analytical community to, wish you all the very best in your retirement and very well done.
Okay, guys.
Thank you very much, Jerry. You will do your well until raising the football thing. And, but that's fine. Okay. I really appreciate the words, but thank you for listening.
I'd like to take this opportunity to thank our investors for being with us and supporting the business in the last, the last years and has been an honor to serve BT as a CEO As I said, they will remain as a watchful shareholders. I'll be calling Jack in a monthly base. And I hope that over time, we'll call less and less and less. But I have a huge amount of shares in VAT. And, I'll keep them.
And the reason that I'm going to keep my shares in because I think that you have a fantastic strategy, you have a fantastic talent across the group. And I, and I truly believe as a shareholder, that this business is going to do extremely well going forward under the leadership of Jack. Okay. Thank you very much and, all the best. And, you're going to see each other in 2 weeks' time.
I won't be there. But, I'll, I'll get some updates during the day, I hope. But it'll be a fantastic capital markets day. You have been working with that for that for some time. And I hope that you guys will enjoy that.
Thank you very much.