Hello, welcome to the BAT Capital Markets Day. Throughout the call, all participants will be in a listen-only mode. Afterwards, there will be a question and answer session. Just to remind you, this conference call is being recorded. Today, I'm pleased to present Jack Bowles. Please go ahead with your meeting.
Welcome everyone. Thank you for meeting us today. There's a lot we want to cover today about our business and about our strategic path. You will, of course, be wondering about the impact of coronavirus on BAT and on our industry. As you know, we are a major global business, and of course, the welfare of our people and stakeholders is a key priority. As you might expect, we are monitoring the situation extremely closely, and we're actively managing our business globally. I would like to emphasize two things. One, our business is one of the most resilient sector of the global economy. Second, to date, we have seen no material disruption to our business. You will hear more on this area from Tadeu later in the webcast.
That all said, it is also important for you to see today some key things about us, our strategic path, and our long-term future. First, we have consistently delivered against our financial guidelines. We have delivered again in 2019, and at present, we are confident we can deliver 2020. Second, we have a clear strategy for growth, founded on our unique cross-category consumer understanding, and we would like to tell you how this strategy is evolving. Third, we are building capabilities. We have the resources to continue to fund investment for the future, delivering the balance sheet, and deliver against our financial objectives. Finally, we have a focused, high-quality team of people, some of whom you will see speaking today, to lead this business in the future. During the presentations, we'll go more into details on each of these points.
We will demonstrate a number of things, that we are delivering our financial results, that we are committed to our 2020 priorities, that we have a clear strategy to build a better tomorrow, and that we already started building the capabilities for the future. We are already creating a bolder, faster, and more empowered organization. I'm sure that you will find these short presentations useful, and we look forward to answering the questions at a later stage. In March last year, I set out three clear priorities. In 2019, we have delivered against these priorities. We are creating a stronger, simpler, and faster business, and our commitment to delivery remains unchanged. In 2019, we delivered on all our financial commitments to the market, both in combustible and in New Categories, whilst also making significant additional investment for the future.
Importantly, we delivered on our high single-digit earnings growth commitment. Furthermore, we remain committed to delivering on our 2020 targets. We expect revenue growth of 3%-5% and high single-digit EPS growth, alongside strong cash generation, allowing us to continue to deleverage the business and deliver on our commitments. Finally, although the environment remains volatile, we will continue to drive value from our combustible business whilst driving a step change in New Categories and remain committed on our ambition to achieve GBP 5 billion of revenue in New Categories in 2023, 2024. Facing the opportunities ahead, it is clear to us that we need to evolve our strategy and purpose. We aim to build a better tomorrow, the heart of this is our new corporate purpose.
Our purpose is to build a better tomorrow by reducing the health impact of our business through offering a greater choice of enjoyable and less risky products to our consumers. The pillars of the strategies are, first, our mission, which is all about meeting consumer needs through world-class brands. Second, combustible value growth and step change in New Categories, which are fundamental to how to win. Third, we are committed to deliver a better tomorrow and creating value for all our shareholders and stakeholders. Last, we have a new ethos energizing the company to create an organization fit for the future. The presentations we have prepared for today will take you through more of the details of the strategy, but I would like to explain more now the most important aspects now. Our mission is about stimulating the sense of a new adult generation.
To do so, we have to win in high growth segments and priority markets. As you will see later today, we are clear on where and how to focus our investment in order to win. We are the only player to have a global business across four categories. This gives us unique and superior consumer insights and foresights. We leverage these to further develop and deploy remarkable innovations, partner with powerful brands. We are investing in a digitally enabled and connected organization, and we will energize our people and partners and partnerships to bring these to life. Our business in the U.S. gives us a truly global scale and a competitive advantage versus our peers. Our strategy recognizes the importance of winning in the U.S. Fundamentally, our strategy is about meeting consumer needs and recapturing lost consumer moments. It is also about addressing societal expectations.
Over the years, consumer moments that used to be satisfied by cigarettes have been replaced by other products. With our unique cross-category consumer understanding, we are clear there is a huge opportunity to recapture these moments with a broader portfolio of products that are less risky than cigarettes. These are new products that may, in time, go beyond our nicotine products. Meanwhile, we are going to continue to focus on generating value from our combustible business and adding a step change in our new existing new category business. For the long term, we will also investigate the opportunity to build a portfolio Beyond Nicotine, as this represents a clear future growth opportunity. We will do this in a way that is consistent with our new purpose. It is imperative that we follow clear boundaries to guide our portfolio expansion.
We are clear that our portfolio expansion has to leverage our strength and our existing delivery platforms in vapor and modern oral, should reduce health impact compared to cigarettes, make a positive environmental contribution, and of course, be strategically and financially sound. In doing so, we will build a better tomorrow for our consumers by offering them a wider choice of products that is less risky than cigarettes and stimulate their senses. We are clear that our business should create value to all stakeholders, for consumers, for our shareholders, for our employees, and most importantly, for society at large. Recognizing the importance of this, we're evolving from a business where sustainability and ESG has always been important to a business where it is front and center of all in what we do. We have therefore established a sustainable agenda for sustainability with key four pillars.
The first and most important pillar is to reduce the health impact of our products and our business. We are all focused on three underpinning priorities: excellence in environmental management, delivering a positive societal impact in our supply chain, and ensuring robust corporate governance across the group. In line with this commitment, we have stretched ambitious targets for the future. By 2030, we aim to have 50 million consumers in our non-combustible business, and we have a clear ambition for our operation in scope one and two to be carbon neutral by 2030. These are stretching goals which demonstrate our commitment to sustainability. Our core strength has always been our people, and this will never change. To build a better tomorrow, we need an organization that is fit for the future. We have already started to transform the organization.
In 2019, we announced Project Quantum, the first step in building a simpler, faster, more agile organization. The project was largely completed in January of this year. It has already delayered and streamlined the organization and reduced to 2,300 roles. It will also deliver GBP 300 millions of savings in 2020 to create the space to invest and to deliver against our financial commitments. Program Quantum is not just about organization design. It is also simplified our ways of working across the organization, allowing us to become a more energized, a more efficient, and a more resilient organization. In addition, we are building the capabilities around the organization. We need these capabilities for the future and have hired more than 300 new specialist managers in digital innovation and direct-to-consumer. We have simplified our ways of working across the organization to become a more agile and efficient organization.
No organization transformation can be delivered without its people empowered and committed to the change. We therefore have developed a new ethos with our people that defines the culture and behaviors required to drive the transformation and build a better tomorrow. We are bold, fast, empowered, diverse, and responsible. All of these pillars put together are the foundation of our strategy for growth, and you will see this through all the presentations today. BAT is changing. Today, BAT is a powerful combination of British American Tobacco and Reynolds American. Also today, BAT is a combination of a business with a strong multi-category business, with a clear purpose of creating a better tomorrow. We have recognized this through a new execution of our corporate look and feel. This represents the BAT of the future. In summary, we have an ambitious strategy for growth.
We are committed to deliver on our financial targets. We are stretching new ESG ambitions. We are creating space to invest for the future and deliver on the financials. Therefore, Project Quantum will continue, and we have the ambition to deliver GBP 1 billion of saving over the next three years. Tadeu will talk more about this in his presentation, where he will explain what a better tomorrow means for our shareholders. Thank you very much.
Thank you, Jack. Good morning and good afternoon, everyone. I'm Tadeu Marroco, Group Finance Director. Our purpose for delivering a better tomorrow was set out by Jack in his opening remarks. I will now provide details on how this will drive sustainable shareholder returns. Throughout my presentation, I would like to reinforce the following key messages. Over the last years, BAT has managed to deliver strong financial results while increasing investments for the future. We have taken a diligent approach to create space to continue investing and keeping delivering our financial targets. BAT is a very strong cash generative company with a relevant exposure for hard currency and a well-balanced debt profile. We are fully committed to continue deleveraging our balance sheet. BAT has the right strategy to promote a sustainable return for our shareholders. Before I start my presentation, I would like to address coronavirus upfront.
Jack has already alluded to the humanitarian impact of which we are all concerned and mobilized to mitigate as much as possible, securing the health and safety of our employees and partners. From the business perspective, we are fortunate to have a business that will be more resilient than others in the COVID-19 environment. We are not exposed to China on the demand side, given that our sales in that geography is immaterial. We saw disruption in our new category supply chain in February. Operations resumed from early March, and we expect to ramp up production over the next few weeks. We are also closely monitoring tier two and three suppliers and alternative logistics routes from China, all of them working relatively well at this stage. We are not completely isolated from the coronavirus impact.
Our new category sites, we saw some out of stocks in certain SKUs and in certain geographies, which is now recovering. We postponed a few launches, and we are seeing some certain disruption in activation activities in a few geographies. The impact of duty-free New Categories is immaterial. On the combustible side, the supply chain is geographically diverse and is operating well so far. On the demand side, apart from some softness in demand in some geographies badly hit by the virus, the biggest impact so far is in duty-free, which accounts to less than 1% for group revenue. I'd like to update you on the plans we have put in place to respond to this crisis. Of course, the health of our people is of paramount importance. BCP and crisis management teams and actions are underway, and we are adapting our ways of working, utilizing technology.
We are building stocks and supporting distribution across our network. We have demonstrated our continued ability to generate cash. Resource allocation is reviewed on an ongoing basis, and we are deploying tighter cash control measures. Last week, we renewed our GBP 6 billion revolving credit facility backstop. This, together with other funding lines which we will continue to develop, gives us good access to liquidity. As we stand today, there is no change to our 2020 guidance on group revenue and earnings growth. We also expect to continue to de-lever our balance sheet. New category revenue, as mentioned at year-end results, will be impacted in 2020 by the disruption caused by the coronavirus, as well as the vaping market is still recovering from the U.S. slowdown in the second half of last year and the uncertain regulatory environment.
We have a very resilient business, as we saw in past crises, and we will continue to monitor developments globally. To the extent we see any further impact on revenue, we'll seek to balance this with cost efficiency, which will be accelerated as required. As BAT, we are committed to deliver and have always delivered on our high single-figure earnings guidance. Over the last three years, we have improved our results alongside investing to establish our new category business. We are coming from a strong past record. Group revenue was boosted by consistent market and value share growth of our combustible business. Meanwhile, we also managed to grow across each of the three New Categories of THP, vapor, and modern oral. Global powerful brands in combustible have allowed a strong top-line performance.
We have also worked hard on our cost base over the last few years, and today we are in a very healthy operating margin position. We are confident we can continue to grow operating margin in the future. If we deep dive into the operating margin, you will notice that we are investing in the capabilities we need to create a competitive multi-category business whilst delivering today. The underlying business progress shown in this slide in green is a consequence of the strength of our combustible business and operating efficiencies management. Alongside this margin growth, we have been able to invest in the new capabilities, as highlighted in the right side of the chart, as well as build the global brands in the new category space, which you can see in the investments in blue. Our cash generation has easily above our long-term guidance of 9% cash conversion.
We were able to set up free cash flow generation, helping to pay down the corporate debt. A consequence of the cash generation, as well as our earnings growth, we have consistently been able to de-lever the balance sheet at a rate of 0.4 x on a constant FX. Due to the difference on year-end spot rates and average FX, we didn't see a linear trajectory of the leveraging over the last couple of years. We are now at 3.5 x and have an ambition to reach less than 3 x by the end of 2021. We have now grown dividends on a continuous basis by more than 20 years. Over the last 15 years, our dividend growth on an adjusted constant basis has averaged 11%, even higher than our earnings growth of 10% annual growth in the same period.
We are absolutely committed to maintain our 65% dividend payout ratio with growth in sterling terms. Looking forward, we have set three clear financial focus areas to create the space to continue delivering. The first one is release funds to support future growth. The second one is maximize the effectiveness of our marketing investment, mainly in New Categories. The third one is to focus on deleverage our balance sheet. Let me show you each of them. Our first priority is to release funds. We have an ambition to deliver a minimum of GBP 1 billion in efficiencies on an annualized basis over the next three years, starting in 2020. This will support investments and continued delivery in the medium term as we build a strong business in New Categories. To that aim, we worked hard last year in the first phase of Project Quantum.
As we announced before, this first phase was about a full review of the organization design of the group. This resulted in the creation of a much more agile, empowered, and fast organization by reducing layers and putting clear accountabilities in place. Although the main driver behind this first phase was to increase the business competitiveness in the way we operate, we also achieved savings. We will be delivering GBP 300 million from Quantum phase I in 2020. Looking forward, we will focus on further work streams in phase II, including operational efficiencies with a focus on route to market reviews. We will continue to press ahead with our supply chain productivity agenda, operating as one virtual global factory with a one global planning hub and global procurement managing 90% of our direct materials and 8% of our indirect spend.
We have considerably scaled up our investments behind New Categories in the past three years, and we want to ensure we have the best return from these investments. We will be diligent using our methodology called MAPs, backed by consumer insights, in order to prioritize the geographies and markets where we will be investing. We will leverage data analytics and algorithm more and more to ensure we have the right information to make resource allocation decisions. We will be focused not just on growing New Categories, but also profitability. A key point to make it is that we will be first focused on winning the current categories that we are in and have a disciplined approach to further portfolio development. We will adopt a very disciplined approach to explore future opportunities in the Beyond Nicotine space when the right time comes. Cash generation is a key priority moving forward.
The focus will be on working capital managing, as well as our CapEx. We don't anticipate any large debt finance M&A. We expect to leverage on our newly created corporate venturing to develop the partnerships that are needed to further enhance our competitiveness. Our target is to de-lever the balance sheet to a ratio below 3x by the end of 2021. Two years target helps to navigate through the FX volatility. We see a massive opportunity in the non-combustible space. There are already 6 8 million consumers using nicotine non-combustible products, and just around 15% of them are currently consuming our own products. There is a huge combustible space already existing today, and our focus will be to grow in this space now and in the future.
The winners will need capabilities, including brand building, strong distribution reach, IPs, and science, as well as knowledge to be able to navigate in a regulated environment. We already have all these capabilities in our business, and this will be a differentiator factor moving forward. We will be focused to ensure we have a future business in New Categories with a profitability as robust as we have today in our combustible business. We have already a very good position in terms of gross margin in two out of the three categories. On THP, although consumables current margins are even higher than combustible, we expect some headwinds in future, mainly from excise and tobacco regulation. Some of that will be offset by continuous cost-saving reduction. Over the last three years, THP device costs reduced by 30% and consumables by 60%.
Consumables today is just 20% higher in terms of cost than our combustible products, with a clear trend to reduce further as we increase scale. On modern oral, with the benefits of no need for device, we already see high margins on our premium products. If anything, we expect margins to continue improving as we benefit from scale. We also have a robust plan to enhance the vapor profitability moving forward. This is expected to be achieved as we see consolidation of the business towards closed system and direct to consumers. The scale we will achieve as we consolidate our global brands will also be a key factor to improve profitability. These are our targets moving forward. They will give us the flexibility necessary to create a competitive and sustainable business in future.
Thank you, Tadeu. Good morning, everybody. My name is Kingsley Wheaton, I am the Chief Marketing Officer of BAT. I've been with the group for 24 years, and I have done a variety of senior management roles over the last decade. Today, I'd like to focus on three areas, in particular of the evolved strategy. I would like to talk more about our mission, stimulating the senses of new adult generations, and how we make that a reality. I would like to talk about where we must win, which is all about winning in high-growth segments of the future and key priority markets. I will talk in some more detail about the capabilities we are building in terms of how to win.
Finally, I'd like to build on the purpose that Jack has talked about and think about key stakeholder outcomes going forward, particularly with a lens on our impact on society. We are absolutely committed to delivering a better tomorrow. We have long said that we have a multi-category strategy, a strategy that puts the consumer first and right at the center of all that we do. We have unique insights across four global categories that can bring that to life. We have many strengths which are deep set within the BAT business, and we are investing in and accelerating new capabilities. I will talk about the what we're going to win with in terms of our portfolio, where we're going to win in terms of priority market focus, and how we're going to win in terms of activation and execution.
Finally, this is a strategy which I absolutely believe is about a sustainable future for BAT, and I will talk about that very sustainability at the end of my presentation. When we started to develop and think about this strategy, we had a long think about the core beliefs that underpin our business. Indeed, we have been showcasing and training those beliefs in a corporate advertising campaign, which has been running in the Financial Times since January. You can see some of those executions in front of me.
We've articulated here our purpose, how we are committed to progress through delivering consumer choice, powerful brands, which is underpinned by science and brought to life by the wonderful diversity, which has always been a BAT strength. Just to give some market context, there are about 68 million consumers of non-combustible products worldwide, of which BAT has currently about a 16% share with 11 million consumers, giving us ample contestable space to drive growth into the future. Roughly, that marketplace, in terms of consumers, splits 2/3 from our international markets and 1/3 from the U.S.A. Translating those numbers into revenue, you can see that those 68 million consumers turn into about GBP 16 billion of net sales revenue, which with currently GBP 1.3 billion or thereabouts, BAT currently has 14% share of that revenue pool, again, indicating there is substantial contestable space to go for in the future.
The characteristics of our international markets are slightly different from the U.S.A, where the categories split three ways in our international markets between vapor, tobacco heating, and oral products. Whereas in the U.S.A., we see almost exactly a 50/50 split between oral products and vapor products. Of course beyond the consumer numbers and how that's translating into revenue, there is a lot of change going on around us, and the context for our consumer-first multi-category strategy for growth is the societal change that's going on around us. Let's face it, with 115 years of history, BAT has seen a lot of societal change, and delivered, and succeeded through all of that. That societal change is giving rise to consumer change, who are probably changing faster than we've ever seen before.
The consumer dynamics over the last five years or so are probably the most progressive we've seen in the industry's history. That is amplified and accelerated by social media and the speed of today's communication. If we have a strategy to win, that strategy must be about winning in the high-growth segments of the future, because it is upon those high-growth segments of the future that we will be able to deliver long-term, sustainable growth, which is absolutely critical. If we take a step back and think about how that consumer has changed over the last 20 or 30 years, we can quite easily see that 20 or 30 years ago, smoking was able to satisfy a variety of consumer moments. Over time, as there has been societal shift and regulatory change, some of those moments have been reduced.
Therefore, we think that with a new portfolio, with a broader portfolio of tobacco and nicotine, and over time Beyond Nicotine, we will be able to recapture those consumer moments to fuel our sustainable growth over the long term. Jack talked about this earlier, a portfolio evolution which goes from combustibles through New Categories and Beyond Nicotine, and how social acceptance improves as we move from the left to the right. If we unpack that a bit further, as we build a combustibles business for value generation, which is the engine room of value creation, if you like, of our business, we are able to regain moments with New Categories products, and we're committed to delivering a step change in that.
We are able to find more moments and indeed more consumers when, over time, we think about moving into a broader portfolio that takes us Beyond Nicotine. Of course, the limits to that portfolio expansion are not boundless, and Jack touched upon the clear boundaries that we have set for that portfolio expansion. We must leverage the hard-won competency and capability that we have in our current delivery platforms, particularly vapor and modern oral. We have very long-standing capability in the areas of science and regulation, which will underpin our portfolio expansion going forward. That would all be nothing without using BAT's global marketing reach and expertise. I think it would go without saying that our portfolio expansion would always be subject to stringent financial and strategic attractiveness tests.
We are clear about the regulatory pathway that we seek going forward, and we are actively trying to shape the desired regulatory frameworks for our portfolio. We believe in category-specific regulation. That is to say, regulations for the three categories of vapor, modern oral, and tobacco heating. We think that regulation must be and should be scientifically evidenced and supported. We argue for product standards, clear packaging and labeling, responsible marketing standards, which is something we've been doing since 2001, when we launched our first international marketing principles. Of course, our products and our portfolio should be for sale to people of legal age and above only. I've touched on the science and evidence base that underpins that regulatory view and how we're trying to shape regulation going forward in a smart way.
I just want to update on behalf of Dr. David O'Reilly, where we are with our science program. We are nearing completion of our glo scientific assessment. We are in a very strong position, I think, with Vuse, given the PMTA submission we made on Vuse Solo in December, and more of the Vuse portfolio is to come before the May deadline. We have the science now to support Velo as a reduced-risk product. With this science package, we're able to build increasing confidence with our consumers in our products, which supports our purpose going forward. We are in the early stages of doing the right scientific work as you would expect on our portfolio that will go Beyond Nicotine. Another really important leg of R&D and our portfolio expansion is intellectual property, and we have been very active in that area.
We've had a step change in patent filings since 2017, with twice as many patents filed in 2019 as just two years ago. We are stepping up the talent and the capabilities we have in that area with external recruitment enabling us to bolster our capabilities. We're not only building IP organically through our R&D hubs in Southampton and in the U.S., we're also buttressing that IP portfolio through the M&A that we've been doing. Of course, I think it would go absolutely without saying, we are absolutely committed to robustly defending, protecting, and pursuing our IP rights on a going-forward basis. Our mission is all about stimulating the senses of a new adult generation. I think this is really exciting for BAT. This is a consumer-first strategy, and I believe we stand at a pivotal moment.
I think we will transition from a business which defines itself by the product it sells to the consumer needs that it meets, through a broader expanded portfolio of tobacco, nicotine, and beyond. In order to understand our consumer better, we have our proprietary intelligence segmentation methodology or PRISM, and we talked about that last year at the Capital Markets Day. That is a unique multi-category view of the consumer. It allows us to see over the arc of the horizon and be predictive about where the consumer is heading and what they demand of us next. That PRISM system allows us to guide our portfolio development and portfolio structure and frames what we have in terms of our portfolio today and tomorrow.
Using our market prioritization system or MAPS, we're able to take that portfolio and ensure that we are focusing on the right markets and the right priority opportunity spaces for the maximum commercial success. This is about deploying the right products in the right places to the right consumers, driving maximum consumer resonance and investment efficiency. We put all of our products through a four-step process where we look at the consumer and the commercial opportunity. We evaluate those products in any given marketplace against the Product Satisfaction Index, or PSI, which Paul will talk about later. We overlay the regulatory and tax environment, both today and as we anticipate it into the future, and we assess the distribution and channel landscape that's available, and that allows us to figure out how to build the right portfolio in the right place and deliver the right returns to BAT.
Finally, capabilities. As I said earlier, we've been a publicly listed business for 115 years. We have many deep-set capabilities, and we will continue to leverage our global marketing reach and scale. Also, we have new capabilities, and we are using those to accelerate our transformation. We are investing in those for the future, and we are committed to speeding up the development of things like Foresights, Beyond Nicotine, 21st century brand building, direct to consumer through our e-commerce model, and Paul will talk about those in more detail later. In essence, we're going to take our longstanding deep-set capabilities that this group has and partner with them with new-to-world capabilities to accelerate our transformation story. If I put that all together and think about our consumer-first multi-category strategy in action, we have a mission which is about stimulating the senses of a new adult generation.
We have our proprietary insight system, PRISM, which guides our portfolio development. We use our MAPS system to understand priority markets, focus, and investment returns. Then we link that to our in-market activation and execution to build our products and brands as fast as is possible to deliver returns to BAT. This is an exciting framework which will power long-term growth in high-growth segments of the future. I just want to come back to our sustainable future, which was the third leg of my presentation. We have split our stakeholders into four in our strategy, consumers, society, employees, and shareholders, and we aim to deliver a better tomorrow to all four of those stakeholder groups. I would like to focus here on how we deliver a better tomorrow to society in particular.
Jack has outlined our ESG mission earlier, and that is a business where sustainability, which has always been important, is put front and center in all that we do. I personally am very excited about that mission and accelerating that journey going forward. Although we don't do it for this, it is nice to be rewarded and recognized. We have been active in the world of sustainability for two decades and more. We were industry pioneering when we entered the DJSI. We have been a member of the World Index for 18 years consecutively. Most recently, we received a SEAL award, which places us in one of the 50 most sustainable companies in the world. If you have a look at the all-important sustainability indices on the MSCI, we are currently BB B. On Sustainalytics, we post a score of 65 out of 100.
There's a lot more work to be done, but we have a great starting point, and we are committed to accelerating our ESG approach. I'd like to now play a short video which encapsulates our ESG journey so far and a hint of where we're going into the future.
[Presentation]
Jack has talked earlier about our really big ambitions for the future, and I am really delighted to be able to re-emphasize our commitment to these two ambitions for the future. We aim to have, by 2030, 50 million consumers worldwide of non-combustible consumers. That's up from the 11 million we have today, a journey of an additional 39 million consumers over the next decade. Also, I'm very pleased to say that we have an ambition to be carbon neutral in our operations over the same time period, also delivering that in 2030. Those are our ambitions.
The organization is excited, motivated, and energized about accelerating this ESG journey. To bring that to life, we have framed a new sustainability agenda. The headline act, of course, is reducing the health impact of our business, but there are three really critical supporting pillars. That's about excellence in environmental management, making sure that we deliver a positive societal impact through our value chain, and as you would expect, the highest standards of corporate governance. I think more than the agenda itself, it's about accelerating those ambitions. It's about measuring those ambitions against clearly laid out metrics and objectives and making sure we publish our progress so that people, our stakeholders, can monitor our journey over the next years to come, culminating in those 2030 ambitions. We have a clear consumer-first multi-category strategy for long-term sustainable growth.
This strategy is about winning in high-growth segments of the future to deliver sustainable value. There is a large pool of non-combustible consumers today, some 68 million of them, and growing. We aim to have 50 million consumers by 2030. We're going to do this through a broader portfolio of tobacco products, nicotine products, and beyond. We have a system for activation and execution, which takes us from mission through our insights, guides our portfolio through our MAPS system in terms of where to win, which we link to our capabilities to ensure powerful activation and execution. All of that is supported by two big sustainability goals, the number of consumers we have in the future and our commitment to carbon neutrality in 2030. I've been with BAT for 24 years.
I feel more excited today than when I joined 24 years ago about the future of this business. I'm very excited to see this evolved strategy in action. As I said, I think we are at a crucial moment as we turn from a company that defines itself by the product it sells to the consumer needs that we can increasingly meet. Thank you very much indeed. I think we will now have a short coffee break.
[Break]
Good afternoon, and welcome back. I am Paul Lageweg. My role is Director for the New Categories. In the last year, my key focus has all been about step changing the performance in the New Categories. This is obviously a key pillar of our newly articulated strategy. You have heard Jack and Kingsley explain this. We're making good progress. Firstly, this is very important for you, I would like to reinforce that the growth of the New Categories is a very positive development for the industry. It provides higher and more sustainable levels of industry revenue growth for two simple reasons. Firstly, the growth margin of these products are generally higher than what we're enjoying for cigarettes. Secondly, we are regaining consumption moments that we have lost for cigarettes. BAT is increasingly doing well.
There is an enormous amount of work happening in building the right capabilities, and that is to ensure our competitiveness over the mid to long term through a major transformation of BAT itself. Now we are not yet where we want to be in tobacco heating products, but we are making good progress in closing down the gap in product performance, especially in terms of sensorial satisfaction. We are already the clear winner in all key vapor markets by consistently growing share. We have become the global leader in modern oral, a category with a massive future growth potential. As part of our newly articulated strategy, we also see a midterm opportunity to explore Beyond Nicotine. You should recognize that the emergence of New Categories is still in its infancy. Not only far more smokers will switch to reduced-risk products, but also the categories themselves will transform.
We want to lead this industry evolution, as this offers a massive growth opportunity to BAT. This growth is value accretive, not only as the margins per unit are generally higher for reduced-risk products due to the lower excise rates, but also as we're regaining consumer moments. Even consumers that haven't yet fully converted and are still using a combination of combustibles and new category products are also more profitable, as they tend to use a lot of new category products at times that they cannot smoke. We are already seeing how this is sustaining higher levels of industry revenue growth. We grew our revenues last year by 5.6%, supported by the growth of our new category products. Very few large global consumer packaged goods companies managed to deliver that level of revenue growth. You know, we as BAT have always believed in a multi-category portfolio.
This is core to our strategy. The level of satisfaction that each category delivers in each market is an important driver of its commercial success. This is a simplified version of our satisfaction index. In the low flavor markets, like for instance, Japan and Korea, THP provides a high level of satisfaction. While in the mid-flavor markets, like for instance, in Eastern Europe, the picture is more balanced. While in most of the rest of the world, in the high-flavor markets, vapor is clearly preferred. The very important thing for me is that modern oral has a universally high appeal, and therefore has a truly very large global potential. This Product Satisfaction Index is only one of the inputs in how we determine which categories to launch in which markets.
We also take into account other factors like, for instance, the regulation and excise environment, and our capability on the ground, our ability to win. This really allows us to launch the right categories in the right markets with optimal resource allocation. A multi-category portfolio approach is clearly right, but we must prioritize ruthlessly. Kingsley already shared that cigarettes have lost some of their historic needs and moments, and that now in, especially the developed markets, they predominantly are occupying this classic space. Through our multi-category portfolio, we can reclaim most of these moments and needs. We are growing the cake itself. We are targeting each of these consumer spaces with one dedicated brand. Flow is this new space Beyond Nicotine, and I will explain that a little bit later in more detail. We have a very solid foundation.
We are the global market leader in modern oral. We're also the leader in vaping in Europe. We're increasingly becoming a strong number two in vaping in North America. We're also the number two in tobacco heating products. In total, we have now 11 million consumers that are using our non-combustible brands on a weekly basis. We want more. For that, we have to establish new capabilities. We are working hard on an entire transformation of BAT itself. We are building several new and powerful capabilities that will become a key source of competitive advantage over the mid to long term. Let me just give you a few examples. It obviously all starts with the consumer. We believe that having superior multi-category consumer insights and foresights will be a true competitive advantage. We're the only company that has this multi-category understanding of consumers.
In those fast-changing categories, we need foresights and more fundamental understanding of the underlying consumer drivers. We also need to collect these foresights much faster. For instance, instead of doing large traditional consumer surveys with traditional fieldwork and then tabulation of results that can easily last up to two months, we now have online expert panels for each of our categories that provide insights within a few days. A lot of our consumer research was always done locally, but it didn't always ladder up to relevant global insights. We have now replaced this with a global program where all data goes into a large database, and we combine this data for any question that we have about our business. Of course, we are also extensively leveraging this powerful database of 7 million consumers.
I think that the design of our new category devices, including of course the user interface and user experience, are very important choice drivers for consumers. We lacked capability in this area, and our devices are simply not looking good enough. We have hired a world-class head of design who is now building hubs in Asia and the U.K., where we work with leading external partners to ensure that the design of our devices drives very strong consumer appeal. We're also building a more agile and externally focused innovation model. This has already cut our development time in half and built a much stronger pipeline of truly breakthrough technologies. For instance, we established open innovation hubs in China, Shenzhen, and in the U.K. last year, and we will do the same this year in San Francisco and Israel.
In those hubs, we systematically scan the market for new ideas and new solutions, but also we develop most of our new platforms with strategic external partners. Let me just give you one more example. We are also entirely changing how we interact with consumers. We have now 7 million consumers in our database, and we know a lot about each of those consumers, and that allows us to interact with them in a highly personalized basis. This is very effective, and it is reducing conversion cost by up to 85%. We are also driving a lot more of our consumer base into e-commerce through, for instance, subscription models. Our e-commerce is now becoming a multi-category platform, and that allows us to introduce New Categories, but also new offers at a very low cost. This is truly a major transformation of BAT itself.
We are bringing a lot of new top talent into the company to lead this transformation. Last year, we recruited more than 300 managers externally. Of course, that has all been funded by Project Quantum and the resource allocation that we are doing within the business. Let us now quickly walk through each of those categories, starting with tobacco heating products, where we are not yet where we want to be. We are working hard to improve our product competitiveness. As a first step, we launched glo pro and nano at the end of last year. We are also building on the learnings of glo sens, and we make further improvements this year through the launch of glo hyper in April. Step by step, we will be closing the gaps. An acceleration is clearly required. Last year, we grew only 23% in terms of revenue.
Our share was flattish for most of the year. Today, we have only 15% of the global THP category, and that is predominantly concentrated in North Asia, where the category is already saturating. We have always done very well amongst considerates. This is a relatively older cohort that is looking for a milder taste. They don't care as much about the design, but they want products that are easy to use and clean, and value is also important to them. Clearly, the much bigger opportunity is among the innovation enthusiasts, even more so in Europe. These are relatively younger consumers that came from smoking higher flavor cigarettes, so taste intensity is very important to them. They also like to explore novel flavors, and for them, the size and design of the device are very important.
For us to grow our business in tobacco heating products, we need to do much better among this group. As a first step, we launched therefore glo pro and nano at the end of last year. glo pro is really the first device that has induction heating. It also has a boost button, and it delivers therefore much higher levels of taste intensity. While nano is more stylish, and a first step therefore towards addressing our device appeal. We were flattish for most of last year, but since the launch of pro and nano, we are back to growth again in Japan. The same counts elsewhere, like Russia, where we are still focusing only on the top five cities, but we're growing strongly from a low base.
We have now 2.2% share in Moscow of total nicotine. We will therefore now be expanding to another 10 cities in Russia. Not only our growth has improved, but also the conversion rates have improved after the launch of glo pro and n ano. This is a good step in the first direction. Not all our launches have been as successful as this. The performance of glo sens has been below our expectations, but we fully understand why performance is not better. We have captured the learnings as we still see a sizable opportunity in offering the best of both worlds between tobacco heating products and vaping. This was still a legacy project. We clearly have to design this a bit differently, and that is what we're doing now. It is evident that step by step, we are closing the gap.
The next significant step is being launched right now, glo hyper. This product delivers the best taste intensity in the market. It has a regular premium king stick format with 30% more tobacco. It also uses our patented induction heating technology with the boost button for extra satisfaction. For most of last year, we still had an inferior platform. Going forward, we are now very competitive, especially on sensorial satisfaction, on taste, and on flavors. We have this regular premium king format that we know consumers know and love. This is a big step forward. There's always more to be done. For instance, we have more work to be done on device appeal. It is clear that consumers like this new hyper experience, how we offer much higher level of taste satisfaction that can also be controlled through the boost button.
We have a familiar premium king stick format with 30% more tobacco, in addition to our slimmer format. Unlike the market leader, we offer a wide variety of capsules with different flavors. Two-thirds of our franchise is already today in menthol and other flavors. This is also a key area of strength that will benefit us during the menthol ban in Europe in May. In summary, we are making step-by-step progress to reduce our gap in competitiveness. Still loads more to be done. I am confident that we will credibly emerge from a distant number two to a very strong number two in tobacco heating products. Now, let's now move on to vaping. This is already a category where we are ahead of where we are in THP.
As a result, we are now consistently gaining share in truly all the key vapor markets around the world. We are the clear market leader in Europe, and we are determined to become the global leader. These results are driven by a superior portfolio, combined with powerful consumer engagement, building a strong global brand, and we are making progress to enhance our profitability. As I mentioned, we're clearly winning now in all key vapor markets. This is the superior portfolio. We have both the stylish ePod, what is called Alto in the U.S., which is superior on all key attributes versus the competition. We also have the power horse, ePen 3 , which delivers almost three times the vaping clouds of our competition. This is especially relevant in the European TPD markets with nicotine ceilings.
Both these platforms are superior, and therefore, it's not surprising that consumers in the U.K. have awarded us now for the second year in a row with the Product of the Year award against all our key competitors. Not only our platforms are superior, we have also done a lot of work recently on our flavors. We are now rolling out a portfolio of flavors of which most are the absolute best in the entire industry. We're doing a lot of work to premiumize our brand offer through limited editions, color ranges, and accessories. For all our brands, we're doing a lot of work to reduce the environmental footprint, the impact on the environment. For instance, in the case of Vuse, we eliminated the silicone hygiene caps from our cartridges.
Our new packaging that we will soon be introducing will not have any outer plastic wrap anymore. We're also increasingly starting to recycle the cartridges itself in most of our markets. A really key driver of our success is our highly effective marketing campaigns. We have won several prestigious awards for our marketing campaigns, including an Effie and an IPA. This is truly unprecedented for our industry and a great reflection of the strength of our marketing efforts. As part of that, we're also transforming our retail stores. You may remember that we acquired a number of vaping retail chains in recent years in the U.K., Germany, Poland, and South Africa, with a total of about 750 stores. All these stores are totally different today, with names like Twist, High End Smoke, and VIP. We also have a very different portfolio in all these stores.
We have piloted bringing these stores together under this same Vuse Inspiration Store banner with the same portfolio, the same layout, and the same consistent retail practices. This has been hugely successful. We are now planning to convert all of our stores during 2020. In addition, we plan to open some new stores as well. For instance, just today, we opened a store here in London on Oxford Street. When we attract consumers into our superior closed systems, we try to guide them very quickly to our e-commerce platform. This is growing rapidly. We had 5 million visitors last year, and w e are doing much better now to convert them to loyal consumers. For instance, leveraging subscription models amongst others. This is on average, providing 40% higher profit per user.
Vaping is by far the largest reduced risk product category in terms of the number of consumers. We also have to improve its profitability. The good news is that the industry profitability continues to develop very positively. You will remember that the category just a few years ago was dominated by open systems. You had thousands of brands, your open liquids that were predominantly being sold in vape stores and dedicated online retail, and they actually made most of the margin out of the category. This is now quickly transforming to branded closed systems, sold predominantly in our traditional retail, where our strength is, and where retail margins tend to be significantly lower. The industry is quickly consolidating around a few big global brands that are all controlled by the tobacco major.
Regulation like the FDA in the U.S. will only further accelerate this trend, and for the U.S., generate a contestable space of GBP 1.5 billion this May. In addition to this positive industry trend, we are also doing a lot of things to improve the vaping margins. There are two areas that specifically stand out. One is the retail margins. On average, vaping retail margins are around 40% as compared to roughly 11% for cigarettes. This is because the category was created by many small players. Now obviously our increased scale with powerful global brands will help us to manage the retail margins. We're also working for various reasons to convert more of our user base onto a D2C platform, so onto our e-commerce, including through subscriptions. This will also help us to personalize and customize our consumer communication.
We can sell a much wider range of liquids through e-commerce. You may know this has been a key driver of the success historically of open systems. Another key opportunity is really in the cartridge cost. A quite shocking fact is that the liquids in our cartridges account for only 7% of the total cost. We are now fully automating our cartridge manufacturing, ePen 3 we fully automated last quarter, and next quarter we're doing the same for ePod. This will drive very significant savings. Further margin improvement will also come from consolidating our portfolio behind one leading global brand, Vuse, our two winning superior platforms. We're also, for instance, harmonizing our global liquid portfolio behind the best liquids that we had in the portfolio, and they will all be produced in one factory in Poland.
How is all of this now translating into our performance? We are truly winning everywhere. This is the U.S., the most important market, where we are consistently getting more consumers into our brands. If you look at the last period, 65% of all new device kits that were sold were from Vuse. As a result, we have been consistently growing share in the last six months, tripling our Alto share and doubling our Vuse share over that six months period. In the state of Georgia, we tested a new marketing model that yielded even better success. No surprise that we will be replicating key elements of this model now nationwide. Our PMTA submissions are on track. Frankly, our portfolio is very well positioned for success in this environment.
Unlike our competition, as you can see from this data, we clearly have no issue with underage users. We're also successfully building a portfolio of lower nicotine strength products. Canada is a very similar story, where we have had the highest device share in the last six months, and as a result, we are consistently, every single month, growing share at the expense of the market leader. On to Europe, where we are the clear market leader. Like in France, where a year ago we were still neck and neck with myblu. Now we are more than twice their size. In October, we launched ePod, and you can see how this further accelerated our share momentum. The same counts for the U.K., where our total share is actually close to 40%, but this is just showing the Vype share at 12%.
It's important to note that in the U.K., only from May, we will be rolling out ePod at scale. You have seen how this has helped us to accelerate our share momentum in France. In Germany, we have clearly now overtaken myblu to achieve market leadership, and we're almost three times the size of JUUL. We are the clear leader, truly actually in all European markets, all the way from Poland to the Netherlands. In summary, we are building the world's best vapor business with a superior portfolio of award-winning products and a powerful brand supported by award-winning marketing campaigns. We're leading in Europe, and we're becoming a very strong number two in North America. We are well-poised to become the vapor leader globally, and we are improving our profitability at the same time. On to modern oral.
We are already the global leader in modern oral, but we aspire to scale this category to its true global potential that we believe will be very large. We are the global leader both in volume but also in value, given our strength in Europe. We believe that this category has the potential to be very large. There is a massive advantage of not needing a device. It takes, for instance, away the cash outlay for trial and therefore makes the category more accessible for developing and emerging markets. This is the only category that offers true discretion. You can't see when you're using it, and you can truly use it anywhere and any time. Increasingly, we start selling a lot of these products in airlines as well.
Satisfaction levels are universally high for this category, and we have therefore very high conversion rates, especially amongst millennials and adult Gen Z. The commercial model is also very attractive, with margins per unit on average 2.8 x what we make out of cigarettes. This is without a large upfront device cost. We see a large global potential. We expanded last year to 17 countries, and our core is strong but from a low base. We are working hard to grow this category in its existing markets, and obviously, we will be expanding to new markets as well. We do have a portfolio gap in the U.S. as we only have 2 mg and 4 mg nicotine variants and also a more limited flavor range.
We are doing well in the segment where we are focused on, and this is the fastest-growing segment in the market, and we have an opportunity to address our portfolio gap through future submissions to the FDA. Since our launch, we have been the fastest-growing brand in the United States since we launched last July. We don't have really a product performance issue. Based on our research, our product is actually superior to the competition at the same nicotine strength, and we are therefore enjoying very good conversion levels. We're clearly doing very well elsewhere as well.
Probably the thing that excites us most is the pilots that we did last year in Pakistan and Kenya because they demonstrate the true potential in the developing emerging markets, where more than 60% of our business is based today and, of course, where most of the world population is living as well. We are very, very pleased with the results that we got out of Pakistan and Kenya. As you know, we will be migrating where legally possible all our modern oral brands to Velo. We are very confident in the future of Velo. We also have a great track record in migration. We successfully migrated over 100 brands in the last decade. We have some outstanding products. Today outside of the U.S., we have a unique and patented nicotine delivery system, which is clearly a major competitive advantage. We're working on more.
We will soon be introducing another unique and patented upgrade with longer-lasting flavors. This is a clear unmet need into the categories. We are working on a lot of exciting packaging innovation, for instance, to make the product more portable. Our focus will be on scaling our leadership in modern oral to build this category to its true global potential, leveraging our superior patented technologies. Of course, a single global brand in Velo. We have a strong foundation. We will be scaling, as I mentioned, our leadership in modern oral to build this category to its full potential. We are building the world's best vaping business. We aim to emerge as a strong number two in tobacco heating products through addressing our competitiveness. As I mentioned in the beginning, we also see a mid to long-term opportunity that we want to explore Beyond Nicotine.
This is all around this consumer space that we call flow. This segment is particularly large amongst adult Gen Z and millennials. These consumers are still looking for ways to manage their flow, their energy levels during the day, but they want to use more natural ingredients that are better for you. We think we are very well positioned to come up with some breakthrough offers for these consumers. We will do that in a very disciplined way, focused on leveraging our core capabilities. For instance, we are covering more retail outlets globally in the markets where we operate than any other consumer product company. We will also leverage our superior delivery platforms. Let me just explain why we believe that that is such an important competitive advantage. There's a reason why cigarettes historically have always been so successful.
Any active ingredient that is delivered through the buccal or the aerosol system is simply far more effective. You straight away get the impact, you enjoy the impact immediately. You can use less of the active as well, and you can control a lot better how much you want to consume. For any active, from for instance CBD to caffeine, this is a more effective way to satisfy consumers. Our initial focus is really on two areas. One of them is our consumer Foresights. We see three very attractive consumer spaces where we're doing more work on: focus, boost, and calm or relaxation. Secondly, we're doing some early work on the science, and here we really follow three important principles. We will not mix any of these potentially new actives with nicotine.
We will utilize the wide science in terms of product safety and, of course, the efficacy of the products. All of this is still very much in an exploratory space. In summary, the growth of the new category helps to sustain higher levels of industry revenue growth. We as BAT, we are building the wide capabilities to emerge as a clear winner in this industry transformation. We are step by step closing our gap in tobacco heating products to emerge as a strong number two. We are already winning in all vapor markets and building the world's best vapor business. We are leveraging our leadership in modern oral to scale this category to its full potential. We're also now starting to explore these midterm opportunities Beyond Nicotine.
We are confident, I am confident, that we can deliver the GBP 5 billion revenue by 2023 and 2024, despite some of our severe headwinds this year. Thank you very much. I'd now like to hand over to Chris Sijtsma, who will take you through our core business, our combustible business.
Thanks very much, Paul. My name is Chris Sijtsma, and I'm the Group Head of Combustibles. Today, I will present the role of combustibles within the context of our new strategy and how combustible underpins sustainable value growth. Here are my key messages. The objective for the combustible category is to drive for sustainable revenue growth with continued volume share and value share growth. We will continue to develop and invest in our brands for equity and future value by offering winning brand and product propositions enabled by purposeful innovation. This is underpinned by a hard drive to accelerate the delivery of efficiencies. We will further consolidate our portfolio of strategic brands and deliver efficiencies through a much leaner portfolio with far fewer SKUs designed to a margin.
Revenue growth management is a critical enabler to unlock future value. Our resource allocation will be focused and prioritized to deliver better results with fewer initiatives. Over the past three years, combustible duty paid industry volumes have declined at a CAGR of 3.6%. Industry revenues, they've grown at 1.1%. BAT has grown its revenues from combustibles at a rate 2.5x the industry average and at a CAGR of 2.8%. With further momentum in 2019, when we grew revenues from combustibles with 4.6%. In 2019, we've grown our group volume share and our group value share with 20 basis points, with 70 basis points share growth for our strategic brand portfolio. This chart shows the price mix for BAT for 2018 and 2019. The reason for the revenue acceleration in 2019 is an improved geographic mix.
Our performance has been delivered in a market with total consumption down, moderately down, at a CAGR of 2.3%. Here, total consumption means the consumption of duty paid cigarettes plus the consumption of illegal cigarettes. Over the past few years, we've seen an acceleration in the growth of illegal cigarettes, putting some further pressure on duty paid industry volumes. Due to the growth of illicit cigarettes, combustible duty paid industry volumes have declined at a CAGR of 3.6%. The year started well in the United States, f or the full year, we assume the U.S. cigarette market to be down by 5%. Globally, there may be some limited impact from the coronavirus. On balance, and with our knowledge of today, we maintain our current outlook in our forecasting duty paid industry volumes to decline with circa 4%.
This is slightly worse than the historical rate of decline due to significant excise increases in two low-value markets, Indonesia and Turkey. Aggregated performance, however, only tells a partial story. To give you a flavor of the depth and breadth of our performance, I will now take you through our high-value markets, the U.S., Australia, Japan, Germany, and Romania, three developing and emerging markets, Russia, Pakistan, and Nigeria, and three markets, Malaysia, South Africa, and Brazil, where the size of the illegal cigarette segment is very significant. I will conclude with a few markets we internally refer to as our hidden gems. Together, these 50 markets represent 63% of our revenues and 42% of our volumes. They all facing their own unique challenges and opportunities, but they have one important thing in common.
In a majority of these markets, we grow revenues on the back of strong equity brand portfolio. 2019 was a good year for our U.S. business. Against a flattish volume share, we've grown our value share with 30 basis points. This is important. We're growing in the right consumer and product segments. We've grown our share of premium with 50 basis points, our share of menthol with 70 basis points, and our share amongst 21 to 30-year-old smokers with 30 basis points. This performance has delivered revenue growth at a CAGR of 2.3%, with further momentum in 2019, where we grew revenues from combustibles with 3.8%. Our strong performance is a direct function of the strength of our brand portfolio. The chart shows the price elasticities for our strategic brands.
The industry average price elasticity is -0.38%, with better, much better elasticities for Camel Crush, Newport Menthol, and Natural American Spirit. In terms of revenues, 67% of our revenues have a better than average industry price elasticity. 76% have an equal or better than industry average price elasticity. Better elasticities translate into better volume performance. In 2019, the U.S. cigarette market was down with 5.3%. Natural American Spirit outperformed the market with 580 basis points, Newport with 310, and Camel Crush with 420 basis points. Our strong performance amongst smokers between 21 and 30 years old is a further contributing factor to the price resilience of our brand portfolio.
To conclude the U.S., despite the market volume decline, and because of the strength of our brand portfolio, the price resilience of our brands, and the strong performance amongst 21 to 30-years-old smokers, we're confident that we will continue to grow value for combustibles in the U.S. Australia is one of the most regulated tobacco markets in the world. A retail display ban and plain packaging have been in place now for many years. With prices for a pack of 25s averaging at GBP 17, cigarette prices in Australia are amongst the highest in the world. In 2017, we've seen a sharp market volume contraction due to excise tax increases, and over the past three years, combustible duty paid industry volumes have declined at a CAGR of 5%. We are performing well. We have a strong portfolio with high equity brands.
B&H is a leader in the premium segment, Winfield is the number one brand in the aspirational premium segment, Pall Mall is a leading brand in low. By effective price lettering and by offering superior and differentiated smoking experiences, we've grown our share since January 2017 with 360 basis points. This performance has delivered revenue growth at a CAGR of 6% over the past three years. Australia shows and demonstrates that also in highly regulated markets, we can deliver sustainable revenue growth. With 77% of consumption in combustibles and 23% in tobacco heated products, Japan is a true multi-category market. Nicotine industry volumes over the past three years have declined at a CAGR of 3%, with combustibles declining at 9%. We're performing well. We've grown our THP share with 64 basis points, our cigarette share with 102 basis points, driven by strong performances of Lucky Strike and Kool.
Across the two categories, we've grown share with 170 basis points, this compares with share declines for our two key competitors, with 50 basis points and 130 basis points respectively. We've had strong revenue growth over the past three years at a CAGR of 23%. In 2019, the cigarette market declined with 8%. In contrast to that, we've grown volumes with 7% and revenues with 14%. Germany is a stable market with combustible duty paid industry volumes moderately declining at a CAGR of 2%. With Lucky Strike in premium and Pall Mall in the value segment, we have a strong and consolidated portfolio of brands. Over the past three years, BAT Germany has grown revenue from combustibles at a CAGR of 9%. One of the very few growing markets in Europe is Romania.
Over the past three years, combustible duty paid industry volumes have grown at a CAGR of 3%, and on the back of a very strong brand portfolio with Dunhill in premium, Kent at mainstream pricing, and Pall Mall in the value segment, we're holding close to 60% share of the market. Over the past three years, we've grown revenues from combustibles with 13%. Let me now continue with the developing and emerging markets. Over the past seven years, combustible industry volumes in Russia have been consistently declining as the government progressively increased excise tax on cigarettes. Today, the tax incidence on cigarettes is 65%, and this has resulted in market contraction, in the growth of the consumption of illegal cigarettes, and market downtrading. As a consequence of this, our revenues from combustibles in 2019 were down by 10%.
With excise on cigarettes normalized, we expect the outlook for the Russian market to improve. We're well-positioned for that. We've had strong share growth driven by our strategic brands, in particular by Rothmans. Due to excise tax changes, industry volumes in Pakistan have been fluctuating. Net net and over the past three years, combustible duty paid industry volumes have grown at a CAGR of 7%. We've had strong share growth driven by outstanding performance of Pall Mall, and today we're holding a category share of close to 75%. Over the past three years, Pakistan has grown revenues from combustibles at a CAGR of 8%. Nigeria is one of the most important markets in sub-Saharan Africa. Over the past three years, combustible duty paid volumes have been gradually growing at a CAGR of 1.5%.
With category leading brands like B&H, Rothmans, and Pall Mall, we're holding a strong and growing consumer share. Over the past three years, we've grown our revenues at a CAGR of 10%. I will now continue with three other markets, Malaysia, South Africa, and Brazil. In these three markets, the size of the illegal cigarette segment is very significant. As we're holding shares between 55% and in excess of 75% in South Africa, reverting illegal cigarettes back into the duty paid market represents a real and significant value opportunity. Malaysia, however, is not a great story. Total consumption is 20 billion sticks, with 64% of that in illegal cigarettes. As we are the market leader, this development mostly impacted BAT, and in 2019, our revenues were down with 90%. Things can turn around very quickly. Which takes me to South Africa. South Africa needs an introduction.
There's always been a certain level of illegal cigarettes in the South African market, but things really spiraled out of control when these traders started building factories in South African mainland, manufacturing billions of cigarettes without paying a penny of excise tax. Total consumption of the South African market is 37 billion sticks. Half of that is in illegal cigarettes. A few years back, we started a very aggressive campaign to attack illegal cigarettes, Take Back the Tax. We start getting traction for the issue, so much so that in mid-2019, the illegal manufacturers were forced to raise their prices. At the same time, we modernized our brands, and we price-led our brands. After years of decline, in 2019, we're growing volumes again with combustible revenue growth of 4%. Another market that's significantly impacted by illegal cigarettes is Brazil.
Total consumption is 116 billion, but more than half, 55% to be precise, is in illegal cigarettes. Amid this turmoil, we embarked on a very ambitious journey to migrate a brand of local brands to our strategic brands. This journey started in 2009, where we migrated Carlton to Dunhill. That was followed by the migration of Free to Kent in 2017. In 2019, we migrated another significant local brand, Derby, to Kent as well. At the same time, we consolidated our local low price brands into Rothmans. Today, our strategic brands have a volume contribution of 72%. We have a much better portfolio with much better equity, ready to recapture volume from the illegal cigarette segment. In 2019, we slowed down the growth of the illegal cigarette market. We slowed down our volume decline, and BAT Brazil has grown revenues from combustibles with 6%.
Hidden gems are markets that may not necessarily be top of mind. They're smaller in terms of their volume contribution, but they are very profitable. On the chart, you see four examples, Sri Lanka, Papua New Guinea, New Zealand, and Norway. Year on year on year, these markets deliver revenue growth contributing to the group's results. So far, my market update, I showed you 50 markets. They're all facing their own unique challenges and opportunities. As I said, they have one important thing in common. In a majority of them, we consistently grow revenues backed by a very strong portfolio of high equity brands. We will continue to develop and invest our brands for equity and future value by offering winning brand and product experiences enabled by purposeful innovation. Today, I will briefly touch on the performance of our strategic brand portfolio.
Together, our eight brands represent GBP 53 billion in terms of consumer spend, in terms of consumer price turnover. A brand like Pall Mall, in terms of consumer spend, is comparable to the global spend on a brand like Pepsi. The consumer spend on Kent is comparable to the global spend on Diet Coke. The spend on Newport is comparable to Cadbury. Our brands are significant, they're sizable, and they're performing well. We now have eight years of consistent group volume share growth behind us. Over the past three years, since January 2017, we've grown our group volume share with 70 basis points. This is driven by stellar performance of our strategic brands, which have grown 310 basis points over that same period. In 2019, we've grown six of our eight strategic brands. We're growing in the right segments. The mega trend in combustibles is consideration.
Non-full flavor, products that offer a more considerate smoking experience, slimmer products with a circumference thinner than regular king size, and freshness and stimulation, products that offer an exciting flavor experience are all different expressions of consideration. On the chart, you see the share growth of each of these three product segments and our share of that growth. We're punching above our weight by taking more than our fair share of the segment growth. I will conclude with our efficiency agenda. Portfolio consolidation, portfolio rationalization, revenue growth management, and resource allocation. BAT has always been a multi-brand company, but it doesn't mean that scale is not important. Back in 2004, and with a volume of 128 billion sticks, our strategic brands accounted for 90% of our total volume.
Today, the strategic brand's volume contribution is 64%, Our ambition for the next few year is to take it significantly beyond that. We will do this as follows. We will continue to organically grow our strategic brands and where opportune migrate local brands to one of our strategic brands. Secondly, for some of our local brands, we adopted a shadowing concept, meaning that we take the brand mix of a strategic brand and apply that very same mix to a local brand to make the management of these brands simpler and more effective. We will go a lot further in this than what we've done so far. Finally, there will always be a tail of local brands that cannot be migrated for whatever reason.
For these brands, we will develop a common chassis, a range of standardized brand and product expressions, again, to make the management of these brands simpler and more efficient. Over the past few years, we significantly reduced the complexity of our business by reducing our SKU count by 10%. In 2019, we agreed to make a real step change in complexity reduction with a further SKU count reduction of 25% from the basis of quarter two 2019. This will have many benefits across our primary and secondary supply chains, but most importantly, and at retail, it will create a space for expanding our new category assortments. We design our SKUs to a margin. The principle is simple. We developed a framework of flexible brand standards, allowing high margin markets to adopt a high-end product spec, giving low margin markets the flexibility to go for a lower-end product spec.
This all within clearly defined quality standards and parameters. In a mature category like combustibles, revenue growth management is absolutely key. It's about building a digitally enabled analytics and insights capability to execute pricing as effective as possible to optimize assortments and trade investments. Over the next 18 months, we will progressively build this capability in our high-value markets. I talked about the importance of the three product segments, non-full flavor, slimmer, and freshness and stimulation. In 2019, 88% of our new brand launches were against these three product segments. By better focusing, by better targeting, we reduced the number of new brand launches since 2016 with 60%, but we are achieving better results. We call a new brand launch successful if it achieves half a share within 12 months' time.
Historically, our success rate was 26%, but in 2019, and with a success rate of 56%, we're setting a new industry standard. Altogether, the new brand launches contributed 1.4 percentage points to our group volume share, representing GBP 700 million in terms of revenues, which is 70% of our revenue growth. The objective of our efficiency agenda is to improve the revenue to gross margin conversion. On the chart, you see the progression of revenues and gross margins for our strategic brands since 2017, with 2017 indexed at 100. We've grown revenues at a CAGR of 5.2%, but more importantly, gross margins ahead of that at a CAGR of 8.7%.
By further consolidating our portfolio, by rationalizing the tail of our portfolio through our framework of flexible brand standards, the revenue growth management capability we are building, and through focused and prioritized resource allocation, we are confident that we will continue to grow gross margins ahead of revenues. That takes me to the end of my presentation, and let me summarize. Over the past three years, industry volumes have declined at a CAGR of 3.6%. Revenues, however, have grown at 1.1%. We have grown revenues at a CAGR of 2.8%, but with further momentum in 2019, where we grew revenues with 4.6%. For the next few years, we have a few very simple priorities. Our objective is to drive for sustainable revenue growth with continued volume share and value share growth.
We will continue to develop and invest in our brands for equity and future value. This is underpinned by a hard drive for efficiencies. Thanks very much. Thanks for listening, and let me hand over to Marina. Thank you.
Thank you, Chris. Good morning. Good afternoon. I am Marina Bellini, Information and Digital Director, Chief Information and Digital Officer in the group since 2018. With over 20 years' experience working across the globe with AB InBev, PepsiCo, and PwC. Leading the digital agenda for BAT over the past two years has been very rewarding, because strong results are being delivered and the opportunities ahead of us are also big, while leveraging technology in our business to deliver exponential value. In our strategy, digital plays a key role in strengthening many capabilities across the organization, such as insights, consumer brands, innovation, and connecting ourselves internally and externally in an agile way. Our approach to digital is to apply new technologies to existing and new business process to accelerate our results.
Key principles we follow in this path are digital being applied across the enterprise, big focus on consumer marketing, and also way beyond it in the entire value chain of BAT. Technology is a key enabler, and its exponential value comes to fruition when the organization has the skills, the ways of working, and the culture of how to exploit it. Data and analytics is center on how we manage technology in the group, continuously challenging ourselves to bring automation, insights, and foresights to drive sharper and differentiated decision-making inputs to our managers. The story that I'm excited to share with you is the following. Digital has delivered in 2019. We are for sure not an old dinosaur, as sometimes people see the tobacco industry. Here, technology has been applied in a meaningful and modern way and brought results to BAT. We know how to drive change.
This has started and is accelerating at pace. The group's priorities of combustible value growth, step change in New Categories, and simplification of the company are powered by new technologies. We have an ambitious plan, we are on track to achieve it. This is, and will always be done, guaranteeing a stable, efficient, and secure technology stack, building on our strong foundations, addressing GDPR, cyber, and overall compliance requirements such as TPD, SOX, and many others. In 2019, strong results were delivered in BAT leveraging digital. Over 25 million consumers, of which 7 million are New Categories that we have in our database, and we are communicating with on their journey of migrating to and engaging with reduced risk products.
Our 88,000 farmers and almost 700 tobacco leaf technicians are supported by a mobile solution that allow us to have crop yield estimation, track sustainability metrics, transact contracts all real time, bringing efficiency and accuracy to the process. 500 million of packaging materials inventory is constantly optimizing, enabled by advanced analytic tools. It has allowed for 5% reduction of this working capital item. Through robotics, analytics, several new technologies, and external partnership, we've delivered over 40 million in efficiencies in shared service and IT, while launching a digital expertise program that has already covered over 1,000 senior managers in the group. Strong resources and plans were put in place behind strengthening the technology and the digital team, and we have skilled resources in our markets and in our four tech hubs, in Poland, Malaysia, Mexico, and the U.S.
We are setting up our innovation labs in San Francisco, London, and Tel Aviv to further develop external partnerships that can accelerate our journey building a better tomorrow. With the new employer branding, BAT's purpose and vision, and the digital transformation plans, we were able to hire over 100 people from top companies of many different industries, such as pharma, big tech, fintech, FMCG, while improving on the diversity of our teams. Over 30% women, more than 60 nationalities, and people with very diverse professional experiences in BAT and from outside. Key skills are being raised in the group, such as design thinking, disruptive technologies, and data sciences, through training and on-the-job learning. It's not only about skilling up our people, but also about building strong partnerships that bring experience and value to the group at speed, with partners such as McLaren and Salesforce.
To deliver digital transformation at scale in the group, our strategy is, first, to drive process to be data-centric. One example, using multiple data sources and AI for better informed pricing approach in Australia. With micro-segmentation, with discounting, and portfolio defined at store level. Another example, using more and more real-time insights with social media, e-commerce, traditional and new methods of consumer research, and many other data sources brought together to improve consumer engagement in the U.K., Italy, and in Japan. In Japan, the engagement rate is up by 21%. We've trained the organization to use agile methodology and leverage technology solutions globally and allow for local differentiation that brings competitive advantage at speed.
One example is that we have over 10,000 trade reps worldwide in a single global technology platform that all leverage on a daily basis and gets activated by each market with the components that matters by differentiating the solutions that helps them win in each marketplace. Also another case, we have 6 million new category consumers records in our global consumer relationship management platform, deployed at speed in 19 markets with solutions in different channels, in line with each market opportunity, regulation, and experience in countries such as Japan, U.S., and the U.K. Using these records, we have sent over 90 million personalized messages last year.
Third, our strategy pulls value from a structured innovation process, connecting with many new external partners, big tech, entrepreneurs, VCs, to deliver a solution, for example, like we are piloting Chile, Mexico, South Africa, and Brazil, to have an Uber-like network to deliver to our trade partners, reducing logistics costs potentially by 5%-30%, and achieving greater than 99% delivery on time. Great case also driving consumer research, not on eight months' time frame, but eight weeks, as we just did in the U.S. and Japan for new actives. Innovative solutions on age gating. They are being piloting and looking very promising for retail and e-commerce. Last, we are embedding digital in BAT's DNA. Specific training for marketers, technologists, HR, legal, finance people in digital marketing. Digital immersion programs for our senior leadership, and squads, mission-based teams in Canada, Mexico, and Japan successfully delivering on New Categories growth.
Supporting our combustible value growth priority, we have improved our B2B revenue 5x in 2019, freeing up cost and time from our sales team to support higher performance of our trade partners. We've created analytics models as part of the plan to fight illicit trade in Brazil, and we're able to bring back to the duty paid part of the market 1.8 billion sticks. We are now investing to grow our B2B channel and better serve our trade partners, leveraging our global trade platform that enables for multi-channel and multi-category route to market. Continue expanding analytics and execution solution to support micro-segmentation to price and portfolio manage our offers. Digital has been critical to the acceleration of New Categories. In 2019, we grew by 3.5 times t he number of followers in social media.
We achieved 7 million consumers of New Categories in our database that we engage regular with. Moving forward, we will continue to deliver on the growth via direct-to-consumer e-commerce sales, improving margin, experience, and services. We are going to grow the consumer database and the personalization of messages with each one of them to continue to expand their understanding and engagement with the non-combustible products. As it's just happening today in Oxford Street here in London, our BAT vapor retail stores will offer a unique shopping experience connecting all consumer touch points. Delivering on the priority of simplifying BAT was achieved through changes in organization and process, as mentioned before by my colleagues, but also by the exploitation of technology at scale.
Automating back-office process and achieving billing, pricing, and some other activities up to 90% reduction in processing time, and reducing by circa 30% the energy consumption of our data centers. With higher complexity in our supply chain, given increased portfolio in New Categories, concurrent planning is coming live in Australia, Brazil, Japan, and the U.K. this year that allows for a more responsible and flexible operation. Leveraging IoT in our tobacco leaf operations will bring speed and a more precise quality differentiation. Increasing the number of bots in our organization will further deliver efficiencies to the group. We are on track to deliver on our ambitious plans to be amongst the most technology-enabled FMCGs. We aim to have 25 million new category consumers in our database that we engage with in an individual way.
We will have personalized products as we grow in understanding of individual preferences and can customize accordingly. We aim to have almost zero touch factories running at maximum efficiency and flexibility, and a workforce that focuses on value-added activities, and a bot workforce that delivers on the transactional and repetitive tasks. We will be top quartile on cybersecurity. We will be top quartile on digital quotient. We are going to be not only amongst the best companies to work for overall, as we already are today, but also the best companies to work for millennials and Gen Zs. We will be amongst the most tech-enabled FMCGs globally. This is an exciting story of digital having delivered in 2019, an organization that knows how to drive change and leverage technology at scale, supporting our priorities and delivering against our very ambitious plans.
Now, I will hand over to Jack for closing remarks. Thank you.
Thank you, Marina. We have covered a lot of ground today. I am sure you will agree with me that our foundations are strong. As I said in my opening presentation, we are very fortunate that ours is a business that is one of the most resilient in these difficult times. The welfare of our employees and our stakeholders remains our priority. However, despite the challenges that we are facing due to the coronavirus pandemic, to date, we have seen no material impact in our business. Today, we have shown you that we are resilient and have consistently delivered against our financial guidance, and we delivered again in 2019. While we do not know what the future may hold, at present, we are maintaining our guidance for 2020 with 3%-5% revenue growth, high single-figure EPS growth, and continue to deleverage the balance sheet.
We have an ambition to build a better tomorrow by reducing the health impact of our business through offering a greater choice of enjoyable and less risky products to our consumers. Our strategy is clear. We know where to win and how to win. We are building capabilities across the organization that we need to support our growth. As an organization that is bold, fast, empowered, diverse, and responsible, we have the right culture to accelerate our delivery. The strategy I have outlined today underpins our confidence to continue delivering revenue growth of 3%-5% with GBP 1 billion of saving and efficiencies over the next three years. This allows us to deliver on our financial commitment, make substantial further investment in the growth of the new category business, and continue to deliver the deleveraging of the balance sheet, while also delivering on our stretching new ESG ambitions.
In summary, we're a resilient business and remains very confident in our ability to deliver on our commitments to high single-figure EPS growth in the future. Thank you. I will now open to questions.
If you do wish to ask your question, please press zero, one on your telephone keypad. If you wish to withdraw at any point, you may do so by pressing zero, two to cancel. Once again, it is zero, one on your telephone keypads if you would like to register for any questions. Our first question comes from the line of Nico von Stackelberg for Liberum. Please go ahead. Your line is open.
Hi, everyone. Thanks for the question. I just wanted to ask about pricing in some of your key markets. I know last year was a very strong year with pricing, price mix of 9%. Can you tell me a little bit more about where the pricing will come from this year and how you see the geographic mix playing into this? Thanks.
Yes. Thank you very much for your question. I think what's very important to realize is that the springboard that we have coming out of 2019 is a very strong one that gives us the ability to deliver on our numbers for the year. Of course, there is the coronavirus, which is going to be an unknown as we go along. Yet to date, we didn't see any major impact on our business moving forward. I think that this is going to be the biggest impact, the biggest risk, but we are a very resilient industry, and we are a very successful company in that industry.
Okay, t hank you. My next question is on next generation products. I'm just wondering, can you tell me what percent is repeat purchase versus how much is merely pipeline fill, or how do you break that down internally, and can you put some numbers around it, please?
Yeah. Thank you very much. What's important is that most of our volume is not related to pipeline filling because we had very little launches at the end of the year. Most of our volume is effectively genuine volumes coming through because as you saw in the presentation of Paul Lageweg, we have an acceleration in terms of share, both in the three categories, and that will continue in the months to come. What we see very clearly is a very strong springboard in Q4, and that will continue to help us for delivering our numbers for 2020.
Excellent. Final question, please.
Yes.
On the Beyond Nicotine category. I assume it's something around cannabis, CBD, nootropics, and so forth. Could you just tell me a little bit more about which segments you find economically attractive? I've seen a number of heavyweights in the industry really suffering recently. I really question the economics of some of these categories. Could you give us a bit more confidence that some of these categories will prove profitable and attractive for shareholders in the long run?
Yes. First of all, what you have to remember is that we have three categories today, and these three categories are going very well. We grew by 32% last year. Now, we have still a lot of ground to cover and a lot of space for growth and a lot of potential in these three categories as they exist today. Nonetheless, we're going to go further and beyond that on the mid-term, long-term. We have time for that. First, what is very important is to have the right scientific understanding coupled with our consumer insights that we have across the three categories. Then, as we said during the presentations, it is going to be first focusing on the different platforms of delivery that we have. That makes absolute sense for us. We don't want to spread ourselves thin.
What we want to do is to build from a strong foundation with a very clear framed approach in terms of science in order to make sure that we're successful. That's for the long term.
Okay. Thank you, Jack.
Thank you.
Thank you. Our next question comes from the line of Owen Bennett from Jefferies. Please go ahead. Your line is open.
Afternoon, all. A couple of questions, please. Firstly, on the vape performance, there was no mention of iSwitch. I was hoping maybe you could comment on what's happening with this product and the future plans. Secondly, you've spoken about the improvement driven in Japan by pro and nano. I was just wondering when can we expect these to be rolled out beyond Japan. Thank you.
Yeah. The first question, as Paul said in his presentation, what we're doing is we're refocusing our portfolio in terms of number of SKUs, but also in terms of number of devices. What we have for the time being is two very successful ones that are ePen 3 and Alto. We are extremely successful with these two platforms and certainly very successful in the U.S. We'll continue to push on these platforms. What is important is that we have the focus related to the different platforms. The second question was? Sorry.
Just on the...
Yes.
...improvements in Japan by pro and nano. I was just wondering when they may be rolled out beyond Japan.
Yes. It's a very good question. What we do always is we, I would say, concept proof the launches that we have, and we've done that in Japan. These two platforms are working very well for the reasons explained by Paul during the presentation. Gradually, looking at resource allocation and looking at MAPS and looking at the consumers, we will expand these launches through the year. What is very important to us is the new launch that we're going to have in the next few weeks. That is going to be extremely important for us because it has 30% more tobacco, and it has also a boost button, and it has also a larger heating surface that allows us to put more tobacco and to have more flavor coming out of it, thus increasing the satisfaction to the consumer.
We had some gaps, and we're going to continue to push on that, and we're closing the gaps.
Cool. Thanks, Jack, I a ppreciate it.
Thank you very much.
Thank you. The next question comes from the line of Sanath Sudarsan from Morgan Stanley. Please go ahead. Your line is open.
Thanks very much. T hanks for the presentation today, v ery insightful. Can I ask two quick questions, please? Can you please help to understand better the level of migration of current smokers into NGP? You have set a target about 50 million consumers in a decade. How big a share of the NGP market do you expect this to be? Where is the category sourcing consumers from, in your view? That's question number one. Question number two, can you give us much more insight on the level of pricing power you still have in many of these markets, given from the data you showed on combustibles, pricing has remained very strong across even matured markets. Longer term, over the next five, 10 years, how do you see the pricing power evolve? Thank you.
First of all, I don't have a crystal ball, but what we see is that there is a strong pricing that has happened in 2019. What we see at the beginning of the year, with 65% of our pricing that was planned that went through, it means that there is pricing opportunities moving forward. The second element is what Chris Sijtsma spoke about, which is the fact that our pricing elasticity numbers are very good, especially in the U.S., and it gives us a lot of space to grow. At the end of the day, what is important is the adequacy of the pricing and the speed at which the pricing is taken, and at the same time, the affordability to the consumer. I think that we're in a good position looking forward, but it's very difficult to plan further and beyond the two years to come.
The first question was? Sorry.
Sorry. Just in case, in terms of your NGP number you set out for a decade, you want to be near 50 million consumers. How big a share of the consumers of NGP do you expect that to be? Where do you expect to source these consumers into the market? Are they coming from smoking? Are these new consumers? How do you think that pie evolves?
First of all, mostly they will come from smokers. What we said is we want to have a health footprint that is reduced and that will give us a more sustainable and a more, I would say, dynamic company. That's the first point. The second point is the migration will happen gradually. We thought two years ago that there will be one category, t hat's what the industry thought. Now we know that there are three categories. We thought that the consumer was a bit monolithic. You saw through Paul's presentation that it's a very dynamic environment with a lot of consumers. Our insights are telling us much more. We know that these categories will continue to evolve. Why? Consumer acceptance to satisfaction, also regulation and price and excise. These three categories will develop differently as we go along.
What is important is because we have a portfolio of three categories, we are more immune in a way to the development that are coming. We will be making sure, because we have an agile organization, an agile ways of planning our business, and a very strong new organization with new capabilities, we will be able to navigate better all these developments of these different categories. We want to have the 50 million consumers because this is important to us.
Sorry, Jack, just to follow up on that, so those two questions together. How much do you think price could be a variable pushing consumers out of smoking into NGP or accelerating that shift?
I think you have to come back to Chris Sijtsma's presentation on that one. You saw, for instance, in Australia, where the prices are very high, a verage price is around GBP 17. The consumers are reducing in number, the value of the market is increasing. What I'm interested in, that's what I said in the three priorities I outlined one year ago, is that on combustibles, I'm going after value. I don't want to lose my share, of course, in terms of share. We grew share last year, the most important is the value. I think that there's still a lot of space in terms of pricing for the future.
Thank you very much.
Thank you.
Thank you. The next question comes from the line of Jonathan Leinster from Société Générale . Please go ahead, your line is open.
Thank you very much. Good afternoon, gentlemen. A couple of questions, if I may. First one, with regards to the modern oral segment, as the industry leader on that, particularly in Europe. When you talk to regulators about this market, what are their concerns regarding modern oral? What are you looking for in terms of the regulatory outlook for that segment?
I think it's a very good question and a very fundamental question. What we want to have, as we said last year, is a clear regulatory framework in each of these different categories. That modern oral category is developing very fast, yet we're trying to follow systematically with the regulatory framework that is discussed and engaged with the different governments in the different countries in order to make sure that we're on the right side of the regulatory framework to ensure, as we do a lot in terms of science, to ensure the quality of our products. That the overall competitive environment is not only a level playing field, but also, I would say, a secure environment for our consumers.
We go step by step, yet at the same time, modern oral, as was said, is a very good way of recapturing consumer moments for the consumers in the different countries. That gives us the possibility to expand quite fast. By the way, we have no limitations at the moment in terms of capacity of production. We have patents, we have good products, and we'll continue to deliver these good products. As Paul said, we are starting to sell in airlines, that's a very good sign in terms of the potential expansion of the different categories.
Okay, thanks. Secondly, just to be clear on the heated tobacco segment.
Yes.
You seem to indicate that the focus this year outside of Japan was going to be very much on Eastern Europe rather than Western Europe. Is that broadly correct? Is Western Europe relegated to a relatively minor role because it's a high-tar market?
I would answer that question first by saying that it's quite a sensitive competitive information that you're asking me, so I'm not going to answer directly your question. The second thing is, I think that we have some launches that are going to happen this year in H1. We have some launches that have happened in quarter four last year. We're taking the learnings because we have insights on the four categories, and we'll continue to expand our footprint in the right way moving forward.
Okay. Thank you very much.
Thank you.
Thank you. The next question comes from the line of Alicia Forry from Investec. Please go ahead. Your line is open.
Hi. Good afternoon, Jack. Two questions from me, one on the vapor product consolidation. I'm curious why you've chosen to consolidate behind the Vuse brand. You put up a lot of charts showing how Vype has outperformed a bit more strongly in Europe than Vuse has in North America. Perhaps if you could discuss that. It seems like consumers of these products are quite fragmented, and everyone wants something different from it. Can you explain how one brand umbrella can really satisfy all of those various needs of the consumer, please? Secondly, on menthol-
Can I start with this one?
Yes, of course.
Okay, f irst, thank you very much. First of all, vapor, very important. It was an extremely fragmented market, n ow it is consolidating. We have more focus on one major brand. We took the decision of that brand against that one because we knew that the different capabilities that we have related to that brand, the consumer resonance, and the way we can market in the different markets, allowed us to take that brand, which is Vuse, and to put it everywhere. At the same time, what we are going to do is to reduce the number of SKUs, to reduce the number of flavors that we have, and to have a more consequent approach in terms of the financials and a more radical approach in terms of concentration.
Okay, t hank you. On menthol, we haven't touched too much on it here today, but it does seem to be under a lot of attack from various legislative bodies at varying levels of the government in the U.S. We assume that this pressure on the segment continues and possibly could even worsen, what is BAT's strategy for the possibility of transitioning to a menthol-free U.S. market in the future? What can you say about your preparations for that possibility?
Yeah, t hank you very much. Very good question. It is true that menthol has been a bit off the agenda recently. It has been very high on the agenda in the last two years. Nothing has changed. Why? There is no scientific evidence that makes any difference at the moment. There is no piece of information that says that it is going to go further in terms of scientific evidence. We do strongly believe that menthol should be in the market. We see in the U.S. that even for vapor products, you are still allowed to use menthol products. First, you have to remember that even for combustible business, first of all, consumers are smokers. Secondly, they are using a brand, and they are very proud, and they are very happy to use this brand.
Thirdly, we have the strongest cohort in terms of the beyond 21 years old in terms of menthol. I think that we have an extremely good resilience. There are markets, as you asked the question, there are markets where menthol ban has already happened. Like for instance, Canada. What has happened in Canada in 2017? Menthol was banned. What happened? Retention was 98%, and the consumers continued to use their own brands that they like and enjoy. I think that there's a lot of experience in BAT how to tackle these new environments, but also, I don't think that the risk is extremely high at the moment in terms of the U.S. In terms of Europe, you will have a menthol ban during the summer, and we are very well prepared in order to go through and to come out stronger out of that menthol ban.
Thank you.
Thank you.
Thank you. Our next question comes from the line of Gaurav Jain from Barclays. Please go ahead. Your line is open.
Hello, t hank you. I have three questions. Question one is that some of the consumer staple categories, such as food products and hygiene products, are seeing a huge amount of pantry loading right now. This has led to a question whether consumers are taking money out of some other categories, such as tobacco, and whether consumers are downtrading. Can you please talk about what's happening in the U.S. as well as also in Italy and Spain?
Yes.
That's my question one.
Okay. Let's start with that one, if I may. First of all, what's important is that we don't see any change in terms of patterns of consumption recently. Why? Because cigarettes do the opposite of a lot of other categories, is a daily purchase. Consumers continue to go to the shops. Even in Italy and in France, you still have the tobacconists that are open, and consumers can continue to supply. We don't see important stockage or building stocks from the consumers. It is much more the daily consumption that is happening, and that is continuing to happen. We didn't see any changes in the last two months in terms of that pattern.
Sure, t hat's very helpful. Question number two is, yesterday the FDA passed the rule on graphic health warnings on cigarette packs in the U.S., and this has to be implemented next year. How do you think this will impact your business over the next three to five years?
I didn't hear your question. It's about the health warning in the U.S.?
Yes. The graphic health warnings...
Okay.
...on cigarette packs in the U.S.
Yeah, our position-.
How will that impact your business?
Sorry. Our position has always been the same. We are supporting of regulation, yet that regulation has to be balanced regulation. First of all, we have to see the content, and we are in close contact with the regulators in order to make sure that we have our voice at the table, in order to make sure that that regulatory framework is balanced. We'll take the opportunities as we go along. As you said, that's going to be for the mid of 2021.
Sure. Last question, and this is for Tadeu. One of the initiators earlier this year was that you will drive working capital savings through better inventory management. I think you mentioned during your discussion on coronavirus that you are building up stocks. Do you think that inventory management initiative will get pushed out?
Yeah. I quoted that as one of many that we are doing in order to manage working capital, and it's not just about working capital, about CapEx as well. Remember that we made this commitment to reduce the CapEx to the level of depreciation. We see this as a temporary measure. It's difficult to predict now exactly how long this will take. At the end, we are not expect to have a major impact in terms of working capital in our numbers. We proved the last two years that we have a very cash generative company in terms of free cash flow, and our levels of conversion is very high, in the 90s plus. We don't expect to have any difference this year compared with the previous one.
In the next coming months, probably we'll have some drag coming from the working capital, which overall shouldn't be a big weight for the position of the group.
Thank you.
Thank you. The next question comes from the line of Vivien Azer from Cowen. Please go ahead. Your line is now open.
Thank you. Good afternoon. Two questions from me, please. The first on glo hybrid. How are you guys thinking about pricing both on the device and the consumables? Will they be priced at a premium or parity to the legacy product? Thanks.
You're speaking about hybrid?
Yes, please.
Yes. These are things, it is exactly the model that I spoke about. We launch something in the market because we see an opportunity. We do believe that hybrid in specific markets, because of regulatory frameworks, is an interesting concept for the consumer. We have done a lot of research on it, post, prior, and during the launch. We know, as Paul said in his presentation, that there's a lot of things that we can improve. That's an unknown category that we're discovering as we speak. We are the ones that are pioneering in that category, and we'll continue to do so, and we'll take the learnings and continue to expand.
Sorry. I apologize if I'm misunderstanding something. It sounds like this is a new device. It's certainly a bigger, different consumable with 30% more tobacco. I'm just trying to understand, will this product be priced at a premium to the legacy glo products that are in the market, or will it be priced on par?
Are you not confusing? I'm not sure. I'm trying to understand the question. Are you speaking about the hybrid?
Well.
Hyper.
Hyper or hybrid?
Sorry.
Hyper, no?
No. I apologize if I'm mischaracterizing it. Let me be just more clear. You've got slim consumables, and now you have these new consumables that have 30% more tobacco. Will they be priced the same, or will the larger consumables with 30% more tobacco be priced at a premium?
Thank you. You're referring to hyper. Okay, t hank you very much.
Oh, I'm sorry.
No, no problem. This is the consumable and the device that we're going to launch in a few weeks from now. I think this one is a very important one in our portfolio in terms of THP. Why? We know that the satisfaction index, and you can refer to the chart that was in Paul's presentation. The satisfaction index is extremely important. We know that with the current products that are in the market at the moment, there is a gap in terms of satisfaction. In all the markets that are not low tar. What we've developed is a product where the consumable is bigger and thicker, closer to the format of a normal cigarette. First point. The second point is it has 30% tobacco more, which allows you to give more flavor to the consumers with a risk-reduced product.
Thirdly, there is more heating surface around the stick that allows you to heat better the tobacco and to get the satisfaction to the consumer. Lastly, there's a boost button on that device. That should increase your level of satisfaction and the delivery to the consumer. This is a breakthrough that we're going to launch in the next few weeks. In terms of pricing, it will depend on the different market situations in Asia and in the rest of the world in order to make sure that we have the best adequation and the best trial levels for the consumers.
Okay, t hat's fine. Thank you very much. As you think about the U.S. marketplace, clearly, your market share performance in 2019 was really quite healthy. I appreciate your comments on price elasticity. As you think about the outlook for the U.S., there have certainly been some alarming predictions around what unemployment could become given COVID and the lockdowns that are happening in key cities. How have you guys thought about the evolution of price elasticity to the extent that the macro landscape in the U.S. deteriorates pretty meaningfully? Thanks.
Yes. First of all, I think the important first point is that we see our situation or our position in the U.S. as extremely strong. We have the strongest brands, w e have the strongest development in terms of the different categories that we operate in, and we have a better price elasticity coefficient than others. Our portfolio is extremely strong. As you said, our share is good, and our value share is increasing quite significantly. It will continue to go in the same direction. What we see now, looking at moving forward, is the first two months of the year, the market has been 1% better than the same period last year, which is a good indication for the beginning of the year of the health of the industry in the U.S.
Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Michael Lavery from Piper Sandler. Please go ahead. Your line is open.
Hi, this is Jeff Kratky on for Michael. Thank you. Beyond Nicotine, would we infer correctly that cannabis and hemp are under consideration? For any non-nicotine push, do you expect to use M&A or launch products organically?
Okay, t here are two things. One is in terms of products for that next generation of products, we're looking at a variety of different stimulants. The list is long. We are reviewing them all at the moment, and we're doing all the assessments that we need to do in the frame that we spoke about earlier in the presentation. What we have to make sure is that we understand the different factors related to the launches, and we have to make sure that this is health beneficial to our consumers moving forward. We'll review in time, and that's for midterm to long term, further and beyond what we have at the moment in the market.
Can I just comment on the M&A side? We are not expected to do any type of major acquisition in that space. We rather prefer to use our newly created Corporate Venture Entity exactly to explore partnerships and joint ventures that would be interesting for us to develop the capabilities that we need to in that new space.
I think it's a very important point that you're raising. In the future, you will see more and more partnerships with other companies in terms of either IP or technology or processes. What I want to do is to own as much as possible the end-to-end in terms of the development and the launches of this product supported by third parties. I think it is very important to us to own our future and to be able to leverage in the future.
Got it, t hat is really helpful, color. Thank you. Just a quick follow-up on M&A. You mentioned it as a strength and part of your strategy. What level of leverage would you need to consider another large deal? Would that only be after going below 3 x in 2021?
Well, yeah, we have fully committed, like I said, several times in the past that to deleverage the company at this point in time. We don't envisage any substantial M&A coming forward in the next short term or even medium term. We want to now focus on our corporate venture capital because to be honest, if you see what's happening in terms of M&A in that space, they haven't been very successful independent of our current position. We think that we'll be better off leveraging the capabilities that we are building through the corporate venture, and like Jack said, trying to explore potential joint ventures and partnerships in the future. I think that will be much more effective and efficient for us.
Great, t hank you very much. I'll pass it on.
Thank you.
Thank you. Our next question comes from the line of Priya Ohri-Gupta from Barclays. Go ahead, your line is now open.
Good afternoon, Priya Ohri-Gupta at Barclays. I was hoping that you could further build on some of your comments around actions you highlighted that are specific to the short term sort of COVID-19 response. For example, could you tell us a little bit about the tighter cash control measures that you're implementing? Given some of the seasonal cash flow needs that you typically experience in the first half of the year, particularly around like MSA payments, do you anticipate having to need accessing any of the credit lines you have available to improve your liquidity position, even if it's out of an abundance of caution at this point? Thank you.
Yes. Thank you for the question. Some comments on that. In 2019, we refunded in order to reduce our exposure of 2020. The other point that is important is that we have already proved over the last two years that we were able to generate almost GBP 2 billion in terms of free cash flow after dividends, and most of it had been used to pay down debt. Our debt and our bonds and bank maturities is adding up to GBP 4.3 billion now in 2020. We expect to some of debt being paid down like we did in the previous two years with the free cash flow that we generate. We have been active in terms of CP markets in euro and the US dollar.
We have just renewed a new RCF, GBP 6 billion tranche, which is a liquidity backstop with a syndicate of 21 banks. They are very solid and diverse banks. There is no financial covenant around those. We are pretty sure that we can have access to them at any time. There is no reason for us to do preemptive movement at this point in time.
Great, t hank you so much.
Thank you. Our last question comes from the line of Nico von Stackelberg from Liberum. Please go ahead. Line is open.
Hi there, t hanks again for the question. I have a follow-up. I hear some rumors that there might be a EU TPD3. Do you know what's in scope or have you had any conversations around EU TPD3? Is there anything worth noting there in terms of closed systems? I have one more question. Thanks.
Yeah, t here are always rumors. At the end of the day, facts matter more than rumors, and we don't see anything at this stage. There might be some adaptations in terms of regulations. I think that we've always said regulatory framework is extremely important, and if that regulatory framework makes sense for the consumer, moving forward, then we will be interested in this. First, let's start with TPD. That is going to happen soon, and we're well prepared for that, and we'll make sure that we take the benefit of that change in the regulation because we want to be a successful company and we are a successful company.
Okay, great. I want to ask on menthol cigarettes, I'm going to sort of use your question to understand what might happen in the U.S. if menthol cigarettes are banned at a federal level. Can you tell me about what you're doing currently in Europe on the menthol ban here? What were some of the learnings that you had from your Canadian experience? What are you doing differently versus Canada over here in Europe and does any of it really apply for the U.S. or is it just such a different market?
Yeah, thank you very much. It's a very good question, and it's going to happen in a few months, so I understand the concern and the interest. Let me tell you, we're very well prepared for it. We know how to navigate these kind of changes of regulatory framework, and we know how to adapt our portfolio as we go along in order to make sure that we continue to grow value share and that we continue to grow market share. What's important to us is serving the consumers in the right way, having strong brands and continuing to deliver our business moving forward.
Okay, t hank you, guys. Take care.
Thank you very much.
Thank you.
I think it was the last question. Thank you very much. I know it has been a long day. It's an unusual format for this day. We've tried to make it as clear for you in terms of where do we want to be and how do we want to evolve the company. Let me recap a little bit. First of all, we started the year very well. The second thing is we're a very resilient company in a very resilient industry. We have a very clear strategy in terms of growth moving forward. We even gave ourselves some ambition for 2030 because you need to have visibility and navigation. 50 million of non-combustible product consumers. Carbon neutrality.
Also, as Tadeu demonstrated during his presentation, we want to deliver on the financial side of our business further and beyond growing share and growing value share. We are confident in high single-figure EPS growth for 2020. We are building a better tomorrow, which is a company with a purpose, a company with a direction, and a company that has delivered not only in 2019, but that will deliver in 2020 and will continue to do so. We are extremely confident in our long-term growth opportunity for BAT moving forward. I think it is a very robust company that has very strong foundations and that will continue to deliver in the future. Thank you very much for taking the time, and looking forward to see you soon. Thank you.