Hello, and welcome to the BAT Capital Markets Day.
Welcome, everyone, and thank you for meeting us today. There is 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 2 things. 1, our business is one of the most resilient sector of the global economy. And second, to date, we have seen no material disruption to our business. You will hear more on this area from Taleo 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. 2nd, 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. 3rd, 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. And 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. And 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 3 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. And 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% to 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 $5,000,000,000 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. And 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: 1st, our mission, which is all about meeting consumer needs through world class brands 2nd, combustible value growth and step change in new categories, which are fundamental to how to win. 3rd, 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. And 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 4 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. Finally, 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, but 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, while 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 4 pillars. The first and most important pillar is to reduce the health impact of our products and our business. Yet, we are all focused on 3 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 2,030, we aim to have 50,000,000 consumers in our non combustible business, and we have a clear ambition for our operation in Scope 12 to be carbon neutral by 2,030.
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 delayed and streamlined the organization and reduced to 2,300 roles. It will also deliver €300,000,000 of savings in 2020 to create the space to invest and to deliver against our financial commitments. Programme Contour is not just about organization design. It has also simplified our ways of working across the organization, allowing us to become a more energized, a more efficient and a more resilience 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 specialists, managers in digital, innovation and direct to consumer. And we have simplified our ways of working across the organization to become a more agile and efficient organization. But 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, Beatty is a combination of a business with a strong multi category business with clear purpose of creating a better tomorrow, and we have recognized this through a new execution of our corporate look and feel.
This represents the BAT of the future. So 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 €1,000,000,000 of saving over the next 3 years. Daniel will talk more about this in his presentation, where he will explain what a better to more means for our shareholders. Thank you very much.
Thank you, Jack. Good morning and good afternoon, everyone. I'm Padil Morocco, 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 whilst 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, and we are fully committed to continue delivering 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-nineteen 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 2 and 3 suppliers and alternative logistics routes from China, all of them working relatively well at this stage. But 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 few launches and we are seeing some certain disruption in activation activities in fuel 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 of 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 would like to update you on the plans we have put in place to respond to these crises. 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 €6,000,000,000 revolving credit facility backstop.
This, together with other funding lines, which we will continue to develop, give 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 delever 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 markets 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 crisis, and we will continue to monitor our developments globally. And to the extent we see any further impact on revenue, we will seek to balance this with cost efficiencies, which will be accelerated as required. As VAT, we are committed to deliver and have always delivered on our high single figure earnings guidance. Over the last 3 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 3 new category of THP, Vapor and Modern Auto. 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 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 heads 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. As a consequence of the cash generation as well as our earnings growth, we have consistently been able to delever the balance sheet at a rate of 0.4 times on a constant FX. Due to the difference on year end spot rates and average FX, we didn't see a linear trajectory of deleveraging over the last couple of years. We are now at 3.5 multiple and have an ambition to reach less than 3x 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 3 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.
And 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 1,000,000,000 pounds in efficiencies on an annualized basis over the next 3 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. And although the main driver behind this first place was to increase the business competitiveness in the way we operate, we also achieved savings. We'll be delivering £300,000,000 from Quantum Phase 1 in 2020.
Looking forward, we will focus our on further work streams in Phase 2, 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 1 virtual global factory with a 1 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 3 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'll 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 and A. We expect to leverage on our newly created corporate venture to develop the partnerships that are needed to further enhance our competitiveness. Our target is to delever the balance sheet to a ratio below 3 times by the end of 2021. 2 years target helps to navigate through the FX volatility. We see a massive opportunity in the non combustible space.
There are already 6000000 to 8000000 consumers using nicotine non combustible products, and just around 15% of them are currently consuming our own products. There is a huge contestable 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 2 out of the 3 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 3 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 Auto, with the benefits of no need for device, we already see high margins on our premium products. And 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, Tadeo. 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 3 areas in particular of the evolved strategy. I would like to talk more about our mission, stimulating the senses of new and old 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. And I will talk in some more detail about the capabilities we are building in terms of how to win. And 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.
So, 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. And we have unique insights across 4 global categories that can bring that to life. Also 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.
And 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. And indeed, we have been showcasing and training those beliefs in a corporate advertising campaign, which has been running in the Financial Times since January. And you can see some of those executions in front of me. You've articulated 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 68,000,000 consumers of non combustible products worldwide, of which BAT has currently about a 16% share with 11,000,000 consumers, giving us ample contestable space to drive growth into the future. Roughly that marketplace in terms of consumer splits 2 thirds from our international markets and 1 third from the USA. Translating those numbers into revenue, you can see that those 68,000,000 consumers turn into about £16,000,000,000 of net sales revenue, which with currently £1,300,000,000 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 USA, where the category is split 3 ways in our international markets between vapor, tobacco, heating and oral products, whereas in the USA, we see almost exactly a fifty-fifty split between oil 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. And 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. And the consumer dynamics over the last 5 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.
So 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. And over time as there has been societal shift and regulatory change, some of those moments have been reduced. And so therefore, we think that with a new portfolio, with a broader portfolio of tobacco and nicotine and over time and beyond, we will be able to recapture those consumer moments to fuel our sustainable growth over the long term. And 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. And 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. And that would all be nothing without using BAT's global marketing reach and expertise. And I think it would go without saying that our portfolio expansion would always be subject to stringent financial and strategic attractiveness tests. And 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 3 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 2000 and 1 when we launched our first international marketing principles and 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 Doctor. David O'Reilly where we are with our science program.
We are nearing completion of our GLOW Scientific Assessment. We are in a very strong position I think with Vues given the PMTA submission we made on Vuesolo in December and more of the View's portfolio is to come before the May deadline. We have the science now to support Velo as a reduced risk product. And with this science package, we're able to build increasing confidence with our consumers in our products, which supports our purpose going forward. And 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 and D and our portfolio expansion is intellectual property and we have been very, 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 2 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. And we're not only building IP organically through our R and D hubs in Southampton and in the U. S, we're also buttressing that IP portfolio through the M and A that we've been doing.
And of course I think it would go absolutely without saying we are absolutely committed to robustly defending, protected and pursuing our IP rights on a going forward basis. So, our mission is all about stimulating the senses of a new adult generation. I think this is really, 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 horizon, over the arc of the horizon and be predictive about where the consumer is heading and what they demand of us next. And 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 it through all of our products through a 4 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 anticipated 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.
And finally, capabilities. As I said earlier, we've been a business, a public listed business for 115 years. We have many deep set capabilities and we will continue to leverage our global marketing reach and scale. But 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 Foresight's 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 long standing deep set capabilities that this group has and partner with them with new to world capabilities to accelerate our transformation story. So 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. And 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 3rd leg of my presentation. We have split our stakeholders into 4 in our strategy: consumers, society, employees and shareholders and we aim to deliver a better tomorrow to all 4 of those stakeholder groups. But I would like to focus here on how we deliver a better tomorrow to society in particular. And 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. And I personally am very, 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 and we have been active in the world of sustainability for 2 decades and more. We were industry pioneering when we entered the DJSI and we have been a member of the World Index for 18 years consecutively. Most recently, we received a Seal Award, which places us in 1 of the 50 most sustainable companies in the world.
If you have a look at the all important sustainability indices, on the MCSI, we are currently BBB and 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. Jack has talked earlier about our really big ambitions for the future. And I am really delighted to be able to reemphasize our commitment to these two ambitions for the future.
So we aim to have by 2,030, 50 1,000,000 consumers worldwide of non combustible consumers. That's up from the 11,000,000 we have today, a journey of an additional 39,000,000 consumers over the next decade. And 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 2,030. Those are our ambitions. The organization is excited, motivated and energized about accelerating this ESG journey.
And 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 3 really, 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. But 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 2,030 ambitions. So, 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 68,000,000 of them and growing and we aim to have 50,000,000 consumers by 2,030. We're going to do this through a broader portfolio of tobacco products, nicotine products and beyond.
And 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. And all of that is supported by 2 big sustainability goals, the number of consumers we have in the future and our commitment to carbon neutrality in 2,030. So 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 Evolv strategy in action.
And as I said, I think we are at a crucial moment as we turn from a company that defines itself by the product itself to the consumer needs that we can increasingly meet. Thank you very much indeed. I think we will now have a short coffee break.
Good afternoon, and welcome back. I am Paul Harver. My role is Director for the new categories. And in the last year, my key focus has all been about step changing the performance in the new categories. And this is obviously a key pillar of our newly articulated strategy.
And you have heard Jack and Kingsley explain this. And we're making good progress. Firstly, and 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 that provides higher and more sustainable levels of industry revenue growth for two simple reasons. Firstly, the gross margin of these products are generally higher than what we are enjoying for cigarettes. And secondly, we are regaining consumption moments that we have lost for cigarettes.
And 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 PET itself. 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.
And we have become the global leader in modern oral, a category with a massive future growth potential. And 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. And we want to lead this industry evolution as this offers a massive growth opportunity to BAT.
And this growth is value accretive. Not only is the margins per unit are generally higher for reduced risk products due to the lower excise rates, but also as we are regaining consumer moments. And 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. And we grew our revenues last year by 5.6%, supported by the growth of our new category products.
A very few large global consumer packaged goods companies managed to deliver that level of revenue growth. As you know, we as BAT have always believed in a multi category portfolio. This is core to our strategy. And the level of satisfaction that each category delivers in each market is an important driver of its commercial success. So 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. Now 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 Pollock 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. And this really allows us to launch the wide categories in the wide markets with optimal resource allocation. The multicategory portfolio approach is clearly wide, but we must prioritize ruthlessly. Kingsey 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. But for our multi category portfolio, we can reclaim most of these moments and needs.
So we are quoting the cake itself. And we are targeting each of these consumer spaces with 1 dedicated brand. Now flow is this new space beyond nicotine, and I will explain that a little bit later in more detail. But we have a very solid foundation. We are the global market leader in modern oral.
We're also the leader in vaping in Europe. And we're increasingly becoming a strong number 2 in vaping in North America. And we're also the number 2 in tobacco heating products. So in total, we have now 11,000,000 consumers that are using our non combustible brands on a weekly basis. But we want more.
And for that, we have to establish new capabilities. So 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. So let me just give you a few examples. It obviously all starts with the consumer.
We believe that having superior multicategory consumer insights and foresights will be a true competitive advantage. We're the only company that has this multi category understanding of consumers. And in those fast chasing categories, we need four sides and more fundamental understanding of the underlying consumer drivers. We also need to collect these foresight much faster. Instance, instead of doing large traditional consumer surveys with traditional fieldwork and then tabulation of results that can easily last up to 2 months, we now have online expert panels for each of our categories that provide insights within a few days.
And a lot of our consumer research was always done locally, but it didn't always ladder up to relevant global insights. So 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. And of course, we are also extensively leveraging this powerful database of 7,000,000 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.
Now we lack capability in this area, and our devices are simply not looking good enough. But 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 twice very strong consumer appeal. We are also building a more agile and externally focused innovation model.
And 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. And 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.
So let me just give you one more example. We are also entirely changing how we interact with consumers. We have now 7,000,000 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 costs by up to 85%.
Now we are also driving a lot more of our consumer base into e commerce through, for instance, subscription models. So 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. So this is truly a major transformation of PAT itself. And 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.
And of course, that has all been funded by Polyacquantum and the resource allocation that we're doing within the business. So 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 Clopo and Nano at the end of last year. We're also building on the learnings of Closense, and we make further improvements this year through the launch of Clow Hyper in April.
So step by step, we will be closing the gaps. But an acceleration is clearly required. Last year, we grew only 23% in terms of revenue. And our share was flattish for most of the year. So 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 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. But 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. So for us to grow our business in tobacco healing products, we need to do much better amongst this group. As a first step, we launched there for a Clopo and Nano at the end of last year.
And Clopo is really the first device that has tobacco sorry, that has induction heating. It also has a boost button, and it delivers there for 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 Po and Nano, we are back to quos again in Japan. And 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, and 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 Glow Pro and Nano. So this is a good step in the first direction. Not all our launches have been as successful as this. The performance of Close Sense 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. But it is evident that step by step, we are closing the gap. The next significant step is being launched right now, Clow Hyper.
This product delivers the best station density 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. So for most of last year, we still had an inferior platform. But going forward, we are now very competitive, especially on sensorial satisfaction, on taste and on flavors.
And then we have this regular premium king format that we know consumers know and love. So this is a big step forward, but there's always more to be done. For instance, we have more work to be done on device appeal. But it is clear that consumers like this new hyper experience. 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. And unlike the market leader, we offer a wide variety So this is also a key area of strength that will benefit us during the MENTAL ban in Europe in May. So in summary, we are making step by step progress to reduce our capping competitiveness. Still loads more to be done. But I am confident that we will credibly emerge from a distant number 2 to a very strong number 2 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. And 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. And 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.
And as I mentioned, we're clearly winning now in all key vapor markets. This is the superior portfolio. So we have both the stylish EPOT, what is called Alto in the U. S, which is superior on all key attributes versus the competition. And then we also have the power horse, EPEN3, which delivers almost 3x the vaping cloud of our competition.
And this is especially relevant in the European TBD markets with nicotine ceilings. So both these platforms are superior. And therefore, it's not surprising that consumers in the U. K. Have awarded us now for the 2nd year in the world with the Product of the Year award against all our key competitors.
Now not only our platforms are superior, we have also done a lot of work recently on our flavors. And we are now rolling out a portfolio of flavors, of which most are the absolute best in the entire industry. And then we're doing a lot of work to premiumize our brand offer through limited editions, color ranges and accessories. And 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 Fuse, 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. And we're also increasingly starting to recycle the cartridges itself in most of our markets. But 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 FE 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 7 50 stores. Now all these stores are totally different today with names like Twist, High End Smoke and VIP. But we also have a very different portfolio in all these stores.
So we have piloted bringing these stores together under the same Fuse Inspiration store banner with the same portfolio, the same layout and the same consistent retail practices. This has been hugely successful, so 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. Now when we attract consumers into our superior closed systems, we try to guide them very quickly to our e commerce platform.
So this is growing rapidly. We had 5,000,000 visitors last year, and we are doing much better now to convert them to loyal consumers, for instance, leveraging subscription models amongst others. And this is on average providing 40% higher profit per user. Now vaping is by far the largest reduced risk product category in terms of the number of consumers. But we also have to improve its profitability.
And 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. So 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 clothes systems, sold predominantly in our traditional retail where our strength is and where retail margins tend to be significantly lower.
So the industry is quickly consolidating around a few big global brands that are all controlled by the tobacco major. And regulation like the FDA in the U. S. Will only further accelerate this trend and for the U. S, generate a contestable space of €1,500,000,000 this May.
In addition to this positive industry trend, we are also doing a lot of things to improve the vaping margins. And there are 2 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. But we're also working for various reasons to convert more of our user base on a to a D2C platform, so onto our e commerce, including through subscriptions. And this will also help us to personalize and customize our consumer communication. And we can sell a much wider range of liquids through e commerce. And 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. So we are now fully automating our cartridge manufacturing. So ePEN3, we fully automated last quarter and next quarter, we're doing the same for EPOLT. This will drive very significant savings.
And further margin improvement will also come from consolidating our portfolio. Behind 1 leading global brand, Fuse, are 2 winning superior platforms, but 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. So how is all of this now translating into our performance? Well, we are truly winning everywhere. And 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 Fuse. And as a result, we have been consistently quoting share in the last 6 months, tripling our Alto share and doubling our fuel share over that 6 months period. Now in the state of Georgia, we tested a new marketing model that yielded even better success. And no surprise that we will be replicating key elements of this model now nationwide.
Our PMTA submissions are on track. And 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. And we're also successfully building a portfolio of lower nicotine strengths products. Canada is a very similar story where we have had the highest device share in the last 6 months.
And as a result, we are consistently, every single month, growing share at the expense of the market leader. Then on to Europe, where we are the clear market leader, like in France, where a year ago we were still neck to neck with MyBLUE. But now we are more than twice their size. In October, we launched ePALT, 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 Vybe share at 12%. And it's important to note that in the U. K, only from May, we will be rolling out ePelt at scale. And you have seen how this has helped us to accelerate our share momentum in funds. Also in Germany, we have clearly now overtaken MyBlue to achieve market leadership, and we're almost 3x the size of Dew.
So we are the clear leader truly actually in all European markets, all the way from Poland to the Netherlands. So 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 2 in North America. So we are well poised to become the vapor leader globally, and we are improving our profitability at the same time. Now 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. So we are the global leader both in volume but also in value, given our strength in Europe. And we believe that this category has the potential to be very large. There is a massive advantage of not needing a device that takes, for instance, away the cash outlay for trial and therefore makes the category more accessible for developing and emerging markets. And 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. So increasingly, we start selling a lot of these products in airlines as well. And satisfaction levels are universally high for this category. And we have, therefore, very high conversion rates, especially amongst Millennials and adult Gen Z. But the commercial model is also very attractive, with margins per unit on average 2.8 times what we make out of cigarettes.
And this is without a large upfront device cost. So we see a large global potential. We expanded last year to 17 countries, and our growth is strong but from a low base. So we are working hard to grow this category in its existing markets, and obviously, we will be expanding to new markets as well. Now we do have a portfolio gap in the United States as we only have 2 and 4 milligram nicotine variants and also a more limited flavor range.
But 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. But since our launch, we have been the fastest growing brand in the United States since we launched last July. So 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. But we're clearly doing very well elsewhere as well.
And 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. And we are very, very pleased with the results that we got out of Pakistan
and Kenya.
So as you know, we will be migrating, where legally possible, all our modern oral brands to Wilo, and we are very confident in the future of Wilo. We also have a great track record in migration. We successfully migrated over 100 brands in the last decade. And 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. But we're working on more. We will soon be introducing another unique and patented upgrade with longer lasting flavors, and this is a clear unmet need into the categories. And we are working on a lot of exciting packaging innovation, for instance, to make the product more portable. So 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 and, of course, a single global brand in velo.
So 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, and we aim to emerge as a strong number 2 in tobacco heating products through addressing our competitiveness. But as I mentioned in the beginning, we also see a mid- to long term opportunity that we want to explore beyond nicotine. And this is all around this consumer space that we call Flow.
So 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. And we think we are very well positioned to come up with some breakthrough offers for these consumers. But 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.
But we will also leverage our superior delivery platforms. So let me just explain why we believe that, that is such an important competitive advantage. Because 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 straightaway get the impact, so 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. So for any active, from for instance CBD to caffeine, this is a more effective way to satisfy consumers. So our initial focus is really on 2 areas. 1 of them is our Consumer Fore sites. So we see 3 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 3 important principles. We will not mix any of these potentially new actives with nicotine. We will utilize the wide signs in terms of product safety and, of course, the efficacy of the products. But all of this is still very much in an exploratory space.
So in summary, the growth of the new category helps to sustain higher levels of industry revenue growth. And 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 2. We are already winning in all vapor markets and building the world's best vapor business. And we are leveraging our leadership in modern oral to scale this category to its full potential.
And we're also now starting to explore these midterm opportunities beyond nicotine. So we are confident, I am confident that we can deliver the €5,000,000,000 revenue by 2023 2004, despite some of our severe headwinds this year. Thank you very much. I now like to hand over to Chris Seitzma, who will take you through our core business, our combustible business.
Thanks very much, Paul. My name is Chris Heitzma, 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. And 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. And 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. And our resource allocation will be focused and prioritized to deliver better results with fewer initiatives.
Over the past 3 years, combustible duty paid industry volumes have declined at a CAGR of 3.6%. However, 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 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%. And 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. For 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, with our knowledge of today, we maintain our current outlook and are 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 2 low value markets, Indonesia and Turkey. Aggregated performance, however, only tells a partial story. And to give you a flavor of the depth and breadth of our performance, I will now take you through our high value markets, the United States, Australia, Japan, Germany and Romania 3 developing and emerging markets: Russia, Pakistan and Nigeria and free markets, Malaysia, South Africa and Brazil, where the size of the illegal cigarette segment is very significant. And 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're all facing their own unique challenges and opportunities, but they have one important thing in common. In the 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. And 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 mental 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 minus 0.38, but with better, much better elasticities for Camel Crush, Newport Mantle and Natural America 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 America Spirit outperformed the market with 580 basis points, Newport with 310 and Camel Crush with 4.20 basis points. Our strong performance among smokers between 21 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 in plain packaging have been in place now for many years. And with prices for a pack of 25s averaging at £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 3 years, combustible duty paid industry volumes have declined at a CAGR of 5%.
But we are performing well. We have a strong portfolio with high equity brands. B and H is a leader in the premium segment. Winfield is the number one brand in the aspirational premium segment and Pall Mall is a leading brand in low. By effective price laddering 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 3 years. And 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 3 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 Cool. Across the 2 categories, we've grown share with 170 basis points. And this compares with share declines for our 2 key competitors with 50 basis points and 130 basis points respectively. We've had strong revenue growth over the past 3 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 and Premium and Pall Mall in the value segment, we have a strong and consolidated portfolio of brands. And over the past 3 years, BAT Germany has grown revenue from combustibles at a CAGR of 9%. 1 of the very few growing markets in Europe is Romania.
Over the past 3 years, combustible duty paid industry volumes have grown at a CAGR of 3%. And on the back of a very strong brand portfolio with Dunnell in premium, Kent at mainstream pricing and Pall Mall in the value segment, we are holding close to 60% share of the market. Over the past 3 years, we have grown revenues from combustibles with 13%. Let me now continue with the developing and emerging markets. Over the past 7 years, combustible industry volumes in Russia have been consistently declining as the government progressively increased excise tax on cigarette.
Today, the tax incidence on cigarettes is 65%. And this has resulted in market contraction, and the growth of the consumption of illegal cigarettes and market down trading. 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 3 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 are holding a category share of close to 75%.
Over the past 3 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 3 years, combustible duty paid volumes have been gradually growing at a CAGR of 1.5%. With category leading brands like B and H, Rothmans and Pall Mall, we are holding a strong and growing consumer share. Over the past 3 years, we have grown our revenues at a CAGR of 10%.
I will now continue with 3 other markets, Malaysia, South Africa and Brazil. In these three markets, the size of the illegal cigarette segment is very significant. And 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 20,000,000,000 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%. But things can turn around very quickly, which takes me to South Africa. South Africa needs an introduction. There has 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 37,000,000,000 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. And we start getting traction for the issue, so much so that in mid-twenty 19, the illegal manufacturers were forced to raise their prices. At the same time, we modernized our brands and we price laddered our brands.
And after years of decline, in 2019, we grow in volumes again with combustible revenue growth of 4%. Another market that's significantly impacted by illegal cigarettes is Brazil. Total consumption is €116,000,000,000 but more than half, 55 percent 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. And in 2019, we migrated another significant local brand, Derby to Kent as well. And at the same time, we consolidated our local low priced brands into roughness. Today, our strategic brands have a voting 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 4 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 are all facing their own unique challenges and opportunities.
But as I said, they have one important thing in common. And the 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 8 brands represent £53,000,000,000 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. And the spend on Newport is comparable to Cadbury. Our brands are significant, they're sizable and they're performing well. We now have 8 years of consistent group volume share growth behind us.
And over the past 3 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 3 10 basis points over that same period. In 2019, we've grown 6 of our 8 strategic brands. We'll be growing in the right segments. The megatrend 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 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 3 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 128,000,000,000 sticks, our strategic brands accounted for 90% of our total volume. Today, the strategic brands' volume contribution is 64% and our ambition for the next few years is to take it significantly beyond that. And we will do this as follows. We will continue to organically grow our strategic brands and we're opportuning to migrate local brands to one of our strategic brands.
Secondly, for some of our local brands, we adopted the 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. And finally, there will always be a tale 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 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 2019. Now this will have many benefits across our primary and secondary supply chains. But most importantly, and at retail, we will create a space for expanding our new category assortments. And 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 3 product segments, non full flavor, slimmer and freshness and stimulation. In 2019, 88% of our new brand launches were against these 3 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 more 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 are setting a new industry standard. Altogether, the new brand launches contributed 1.4 percentage points to our group volume share, representing €700,000,000 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 percent.
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 focus 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 3 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.
And 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 2 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 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 VAT. 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 foresight 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 VAT.
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 and we are on track to achieve it. And this is and will always be done guaranteeing and 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 delivering BAT Leveraging Digital. Over 25,000,000 consumers, of which 7,000,000 on 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. €500,000,000 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 partnerships, we've delivered over €40,000,000 inefficiencies 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 4 tech hubs in Poland, Malaysia, Mexico and the U. S.
And 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 VAT and from outside. Key skills are being enhanced in the group such as design thinking, disruptive technologies and data sciences through training and on the job learning. And 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, 1st, to drive process to be data centric. One example, using multiple data sources and AI for better informed pricing approach in Australia is 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 UK, Italy and in Japan. In Japan, the engagement rate is up by 21%. Then we've trained the organization to use agile methodology and leverage technology solutions globally and allow for local differentiation that brings competitive advantage at speeds.
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. And also another case, we have 6,000,000 new category consumers, records in our global consumer 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 UK. And using these records, we have sent over 90,000,000 personalized messages last year.
3rd, our strategy pulls value from a structured innovation process, connecting 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% to 30% and achieving greater than 99% delivery on time. Great case also driving consumer research not on 8 months time frame, but 8 weeks as we just did in the U. S. And Japan for new actives. And 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 marketeers, 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 costs 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, CHF 1,800,000,000. We are now investing to grow our B2B channel and better serve our trade partners, leveraging our global trade platform that enables for multichannel and multicategory route to market and 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 3.5x the number of followers in social media. We achieved 7,000,000 consumers of new categories in our database that we engage regular with. And 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. And 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 change 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 BISORCA 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. And increasing the number of bots in our organization, you 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 25,000,000 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.
Weighing to have almost 0 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. So we have covered a lot of grounds 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 corona 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. And while we do not know what the future may hold, at present, we are maintaining our guidance for 2020 with 3% to 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, and we know where to win and how to win.
And 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 to date underpins our confidence to continue delivering revenue growth of 3% to 5%, with €1,000,000,000 of saving and efficiencies over the next 3 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 are 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. And I will now open to questions.
And our first question comes from the line of Nico from Stackelberg from 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. So 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. Yet, of course, there is the coronavirus, which is going to be an unknown as we go along.
But yet to date, we didn't see any major impact on our business moving forward. So 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. And 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?
Yes. What's important 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. So most of our volume is effectively genuine volumes coming through because as you saw in the presentation of Paul Lagerveig, we have an acceleration in terms of share, both in the 3 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. On the next on the Beyond Nicotine category, so I assume it's something around cannabis, CBD, nootropics and so forth. But could you just tell me a little bit more about which segments you find economically attractive? So 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 3 categories today and these 3 categories are growing 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. But nonetheless, we're going to go further and beyond that on the midterm, long term.
So we have time for that. First, what presentation, it is going to be first focusing on the different platforms of delivery that we have. And that makes absolute sense for us. We don't want to spread ourselves thin. What we want to 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.
So 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. And then 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.
Yes. So 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 2 very successful ones that are EPEN3 and Alto. We are successful, extremely successful with these two platforms and certainly very successful in the U. S.
So we'll continue to push on these platforms. What is important is that we have the focus related to the different platforms. And the second question was, sorry?
So non improvement.
And just on the 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. And 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. And 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. Appreciate it.
Thank you very
much. Thank you. The next question comes from the line of Sanath Fadasan from Morgan Stanley. Please go ahead. Your line is open.
Thanks very much. Thanks for
the presentation today. Very insightful. Can I ask 2 quick questions, please? One, can you please help
us understand better the level of migration of current smokers into NGP? You have set a target about 50,000,000 consumers in a decade. How big a share of the NGP market do
you expect this to be? And where is the category sourcing consumers from in your view? That's question number 1. And question number 2, 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. So longer term, over
the next 5, 10 years, how do
you see the pricing power evolve?
Yes. I mean, 1st 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 Seitzman 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 adequation of the pricing and the speed at which the pricing is taken and at the same time the affordability to the consumers. So I think that we're in a good position looking forward, but it's very difficult to plan further and beyond the 2 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 50,000,000 consumers. So how big
a share of the consumers of NGP do you expect that to be? And 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?
Yes. 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. So that's the first point. The second point is the migration will happen gradually.
We thought 2 years ago that there will be 1 category. That's what the industry thought. Now we know that there are 3 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, but we know that these categories will continue to evolve. Why? Consumer acceptance to satisfaction, but also regulation and price and excise. So these 3 categories will develop differently as we go along. What is important is as big as we have a portfolio of 3 categories, we are more immune in a way to the development that are coming.
And 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 50,000,000 consumers because this is important to us.
So Jack, just to follow-up on that, so those two questions together. So how much do you think price could be a variable pushing consumers out of smoking into NGP or accelerating that shift?
Yes. I think you have to come back to Chris Sizemath's presentation on that one, which is you saw, for instance, in Australia where the prices are very high, average price is around £17 The consumers are reducing in number, but the value of the market is increasing. What I'm interested in, and that's what I said in the three priorities outlined 1 year ago, is that on combustibles, I'm going after value. I don't want to lose my shot, of course, in terms of share, and we grew share last year. But the most important is the value.
And 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 Leister from Societe Generale. 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 this sort of industry leader on that, particularly in Europe, when you talk to regulators about this market, what are their concerns regarding modern order? And what are you looking for in terms of the sort of 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 and that the overall competitive environment is not only a level playing field, but also a, I would say, a secure environment for our consumers. So we go step by step. Yet at the same time, modern And 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, and that's a very good sign in terms of the potential expansion of the different categories.
Okay. And secondly, on the heated, just to be clear on the heated tobacco segment, 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. But 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 4 last year. We're taking the learnings because we have insights on the 4 categories, and we'll continue to expand our footprint in the right way moving forward.
The next question comes from the line of Alicia Fori from Investec. Please go ahead. Your line is open.
Hi, good afternoon, Jack. Two questions from me. 1 on the vapor product consolidation. I'm curious why you've chosen to consolidate behind the VIEUS brand. You put up a lot of charts showing how VIEUS has outperformed a bit more strongly in Europe than VIEUS has in North America.
Perhaps if you could discuss that? And also, it seems like consumers of these products are quite fragmented and everyone wants something different from it. So can you explain how one brand umbrella can really satisfy all of those various needs of the consumer, please? And then secondly on men's health.
Yes, of course.
Okay. So first, thank you very much. First of all, vapor, very important. It was an extremely fragmented market. Now it is consolidating.
So we have more focus on 1 major brand. And 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 Vuz and to put it everywhere. At the same time, what we're 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. Thank you. And on MENSOL, 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. If 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?
Yes. Thank you very much. Very good question. It is true that mental has been a bit off the agenda recently. It has been very high on the agenda in the last 2 years.
Nonetheless, nothing has changed. Why? Because 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.
And we see in the U. S. That even for vapor products, you are still allowed to use menthol products. 1st, 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.
And thirdly, we have the strongest cohort in terms of the beyond 21 years old in terms of metal. So I think that we have an extremely good resilience. There are markets, as you asked the questions, there are markets where mental ban has already happened, like for instance Canada. What has happened in Canada in 2017? Mental was banned.
What happened? Retention was 98%, then the consumers continue to use their own brands that they like and enjoy. So I think that there is 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 mental ban during the summer, and we are very well prepared in order to go through and to come out stronger out of that mental bank.
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. Thank you. I have three questions. So question 1 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. Now this has led to a question whether consumers are taking money out of some other categories such as tobacco and whether consumers are down trading.
So can you please talk about what's happening in U. S. As well as also in Italy and Spain? That's my question, man.
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 patents of consumers, recent patents of consumption recently. Why? Because cigarettes do the opposite of a lot of other categories is a daily purchase.
So consumers continue to go to the shops. And even in Italy and in France, you still have the tobaccones that are open and consumers can continue to supply. So 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 2 months in terms of that pattern.
Sure. That's very, very helpful. Question number 2 is, yesterday the FDA passed the rule on graphic health warnings on cigarette packs in the U. S. And this has to be implemented near next year.
How do you think this will impact your business over the next 3 to 5 years?
That's the I didn't hear your question. It's about the health warning in the U. S?
Yes. The graphic health warning on cigarette packs in the U. S. Yes. I mean How will that impact your business?
Our position has always been the same. We are supporting of regulation, yet that regulation has to be balanced regulation. So 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 regulatory framework is balanced. So we'll take the opportunities as we go along. As you said, that's going to be for the mid of 2021.
Sure. And last question, and this is for Tadeo. One of the initiatives earlier this year was that you will drive working capital savings through better inventory management. And I think you mentioned during your discussion on coronavirus that you are building up stocks. So do you think that inventory management initiative will get pushed out?
Yes, 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, it's about CapEx as well. Remember that we made this commitment to reduce the CapEx to the level of depreciation. We see this on 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 2 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. So we don't expect to have be any difference this year compared with the previous one. Although in the next coming months, probably we'll have some drag coming from the work capital, which overall shouldn't be a big weight for the position of the group.
The next question comes from the line of Vivien Aysa from Cowen. Please go ahead. Your line is now open.
Thank you. Good afternoon. Two questions for me, please. The first on Glow 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 products? Thanks.
You're speaking about hybrid?
Yes, please.
Yes. So I mean, these are things it is exactly the model that I spoke about. We launched something in the market because we see an opportunity. We do believe that the 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.
And we know, as Paul said in his presentation, that there's a lot of things that we can improve. So 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, just and 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. And so I'm just trying to understand, will this product be priced at a premium to the legacy glow products that are in the market or to 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 with hyper or hybrid?
Sorry.
So no, I apologize if I'm mischaracterizing it. But 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?
So you're referring to hyper. Okay. Thank you very much.
Oh, I'm sorry.
No, no problem. So 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? Because 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. And 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 lota. So 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 the risk reduced product. And thirdly, there is more heating surface around the stick that allows you to hit better the tobacco and to get the satisfaction to the consumer.
And lastly, there's a boost button on that device. So that should increase your level of satisfaction and the delivery to the consumer. So 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. That'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. And I appreciate your comments on price elasticity. But as you kind of think about the outlook for the U. S, there have certainly been some alarming predictions around given COVID and the lockdowns that are happening in key cities. So 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?
See our situation or our position in the U. S. As extremely strong. We have the strongest brands. We have the strongest development in terms of the different categories that we operate in.
And we have a better price Our portfolio is extremely strong. As you said, our share is good and our value share is increasing quite significantly. So it will continue to go in the same direction. What we see now looking at moving forward is the 1st 2 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 Patusander. Please go ahead. Your line is open.
Hi. This is Jeff Kratky on for Michael. Thank you. So beyond nicotine, would we infer correctly that cannabis and hemp are under consideration? And for any non nicotine push, do you expect to use M and A or launch products organically?
Okay. So there are two things. 1 is in terms of products for that next generation of products, we're looking at a variety of different stimulants. The list is long and 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 beneficial to our consumers moving forward. So we'll review in time, and that's for mid term to long term further and beyond what we have at the moment in the market.
On the can I just compliment on the M and A side? We are not expect 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 mean, 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. And what we want to do is to own as much as possible the end to end in terms of the development and the launches of these products supported by 3rd parties. I think it is very important to us to own our future and to be able to leverage in the future.
Got it. That is really helpful color. And just a quick follow-up on M and A. You mentioned it as part of 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 times in 2021?
Yes. We are fully committed, like I said, several times in the past, that's to deleverage the company at this point in time. We don't envisage any substantial M and 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 and 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.
Our next question comes from the line of Priya Gupta from Barclays. Please go ahead. Your line is now open.
Good afternoon, Priya, Ori Gupta, 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 COVID-nineteen response. For example, could you tell us a little bit about the tighter cash control measures that you're implementing? And then, 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 any 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 EUR 2,000,000,000 in terms of free cash flow after dividends and most of it had been €2,000,000,000 in terms of free cash flow after dividends and most of it had been used to pay down debt. So our debt and our bonds and bank maturities is adding up to €4,300,000,000 now in 2020.
We expect to some of that being paid down like we did in the previous 2 years with the free cash flow that we generate. And we have been active in terms of CP markets in euro and the U. S. Dollar. And we have just renewed a new RCF 6,000,000,000 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. We there is no reason for us to do a preventive movement at this point in time.
Our last question comes from the line of Nico from Stackelberg from Liberum. Please go ahead. Your line is open.
Hi there. Thanks again for the question. I have a follow-up. I hear some rumors that there might be a EU TPD 3. Do you know what's in scope or have you had any conversations around EU TPD 3?
Is there anything worth noting there in terms of closed systems? And I have one more question.
Yes. There is there are always rumors. Yet 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. And then I want to ask on menthol cigarettes. And I'm going to sort of use your question to understand what might happen in the U. S. If cigarettes 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? So 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?
Yes. 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. Thank you, guys. Take care.
Thank you very much. So I think it was the last question. So 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. But 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 2,030 because you need to have visibility and navigation, €50,000,000 of non combustible product consumers, carbon neutrality. And also, as Tadeo has 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, a company that has delivered not only in 2019, but that will deliver in 2020 and will that has very strong foundations and that will continue to deliver in the future. 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.