Good morning, everyone. I'm Jacques Bouldsch, Chief Executive of BAT, and I'm here with Thiago Marco, our Group Finance Director. We are very happy to be with you, albeit virtually, for our 2020 preliminary results presentation. I hope everybody listening this morning and your families are friends, our way. Today, I am excited to update on the progress we have made in 2020 on our journey towards a better tomorrow.
Tadeo will then share more details on our performance and 2021 outlook before I return with more color on our strategy moving forward. We are absolutely committed to transforming VAT. In 2020, we defined our corporate purpose to build a better tomorrow, which is central to everything we do. We have a clear vision to transform and grow, changing not just our portfolio, but our structures and culture. And it will be fundamentally changed the nature of our relationship with society.
We are transforming into a high growth, multi category FMCG business with a reduced risk to public health, driven by evolving consumer needs. We have already started this transformation, and today, we want to show you the progress we have already made. With 10% of our revenue now in non combustible products, We are on track and excited by the momentum, and we have clear targets going forward. We made excellent progress in 2020 with accelerating consumer acquisition and volume growth across all three new categories. We have generated great momentum, and we are growing share in all 3 new categories as we exit the year.
We took the opportunity to continue to invest a further £430,000,000 in the new categories and delivered 100 bps of margin expansion. This was fueled by our continued strong performance in combustible and GBP 660,000,000 of savings. We generated cash free cash flow of GBP 7,300,000,000 driven by operating cash flow conversion of 103%, well ahead of our 90% target. We are proud to have delivered revenue, profit and EPS growth and strong cash flow in challenging circumstances. While we have further to go, our transformation is well underway.
We have a clear responsibility to transform our business and lead the category. Why? Because we are the largest and also the only true global tobacco and nicotine company worldwide. And we are taking this responsibility seriously. We have strong points of difference, and we are uniquely positioned because we are the only truly international company present in over 180 markets, including the U.
S, which represents 40% of the global industry value and also creates trends across our multi categories. We are the only consumer centric multi category company With the global scale to leverage our insights on consumer satisfaction and taste preferences, we are the only company present in all 4 new categories, from tobacco to nicotine and beyond. Finally, we are the only company building strong, unique and recognized brands of the future, specifically positioned in each category. All of this is underpinned by the quality and diversity of our people who embrace our corporate ethos, a passion for change and speed. Our transformation is already underway.
In 2020, we accelerated non combustible consumer acquisition, adding another 3,000,000 consumers to reach 13,500,000 with growth in every category. We added 1,100,000,000 consumers in Q4, with sequential acceleration through the year as our growth doubled through the second half. Our continued investment generated tangible results, and we remain very confident in achieving our €50,000,000 target by 2,030. We have strong global brands across all three new categories. Vuz is well on the way to global leadership and was the fastest growing vapor brand in 2020, reaching 26% value share across our top 5 markets.
Low Hyper has closed the satisfaction gap with P and L, with total nicotine volume share reaching a latest February weekly share of 6.3% in Japan. This is up 100 bps since August, driven by the growth of our first to world induction heating product, Although revenues was impacted by the SENS withdrawal, THP consumable sticks volume was up 29%. And across our top 9 markets, Glo now achieved a 15% category share. In Modern Oral, we delivered excellent growth with a volume of 62%. We consolidated Modern Oral leadership internationally.
And our U. S. Portfolio was strengthened by the acquisition of Drift in September, with share in the U. S. Back to sequential growth in December, reaching 11% in January.
We have made excellent progress, particularly in the second half. We entered 2021 with strong volume and share momentum and a pipeline of exciting innovations, And we have further to go, with a huge opportunity ahead of us to accelerate across all three categories. Views and glow with the introduction of Hyper saw strong and clear volume acceleration in H2. And Wilo, with the acquisition of Drift at the end of the year, is expected to accelerate this momentum in 2021. Turning now to numbers.
Reported results benefited from the impact of one offs in the prior year. To better understand the key drivers of our performance. We will focus on constant currency adjusted results unless otherwise stated. And you will hear in more details from Tadeo in a moment. Our results show that we are delivering today with the continued strong performance in commerce stability.
We gained 20 bps of corporate value share in commerce stability, driven by our strategic brands, which grew 40 bps with continued strong pricemix and volumes ahead of the industry, demonstrating our strength and the strength of our combustible business, driving growth in revenue, profit, EPS and cash in a challenging environment, allowing us to pay dividends of GBP 4,700,000,000 and to continue to deliver the balance sheet. I am proud of the response of our people and teams around the world to global pandemic. It is their resilience and agility which has delivered these results. It has already brought out the best in BAT, allowing us to build on and accelerate of new capability. We simplified the organization, reducing management by 20%, further enhancing operational agility to Quantum.
Our rapid response in our supply chain ensured no combustible out of stock, And we accelerated our transformation to new ways of working, pivoting our business to faster Growth Digital Platforms. With ESG front and center in everything that we do, We supported our employees, suppliers, farmers and their broader community with a wide range of programs, both financial and practical. And our COVID vaccine candidate entered Phase 1 clinical trials in December. Our people have gone above and beyond, ensuring that our business performed strongly throughout the crisis and will exit even stronger. Now Over to Tadeo, which will talk you through the details of the results.
Thank you, Jack. Our performance in 2020 is a great Example of the journey BAT is on. We are transforming the business with strong share gains and consumer acquisition growth powering new categories As well as combustible and cost savings funding our investments, while Quantum simplifies our ways of working. We are delivering good revenue and earnings growth in challenging circumstances and excellent cash generation, enabling us to maintain our 65% dividend payout commitment and further delever the balance sheet. We are taking this strong momentum into 2021 and remain confident in our financial algorithm post COVID.
In 2020, we delivered revenue growth above our revised 1% to 3% guidance range, And we would have been comfortably above our 3% to 5% medium term guidance range without the impact of COVID. Combustibles is the engine growth of the business, and it is in great shape, and we remain global leaders in volume and revenue. In 2020, our pricemix was 7.3%, which, together with the strength Our brands delivered another year of both value and volume share gains, with combustibles contributing I've weighted 2.3 percent to Group revenue growth. Non combustibles added another 1% to Group growth With an accelerated performance in the second half, this is a number we are confident to increase in the coming years. I'm very pleased with the results delivered in 2020.
We are very happy with our performance in Vapor, With the standout market share performance of VEELS, we are committed to establish VEELS as the global leader in vapor. We are well on the way With number one positions in 4 of the top 5 markets, our value share in the U. S. In 2020 has nearly doubled, And we are now the leader in 15 states. In Canada, we achieved leadership while migrating the brand from Vyke to Vyuz.
And in Europe, we've further strengthened our leadership positions in top markets. With the momentum and scale we are building, We are very confident in our pathway to vapor profitability. Looking into 2021, With our number one device share across all these markets, we expect further share gains in consumables And we will be piloting new launch incorporating age verification technology in key markets in Q2. Earlier this year, we activated our Beyond Nicotine strategy with a thick city test of a CBD vaping products in the UK. We are excited about this opportunity, and we'll keep you updated on progress.
With the strength of our Vuz brand, we are confident we can be the global leaders in vapor, making Vuz both a high growth and highly profitable brand. With Globe, we have taken a significant step forward with our induction heating product, Hyper, Our best performing launch yet. We have been candid that we needed to close the satisfaction gap with peers. Hyper has done this. On key consumer attributes, it scores the same or better than competition.
Half of Glo in Japan is already hyper, just 9 months after launch, which positioned us very well for the future growth. And this transformation has been borne out by sales, with good progress across all of our key THP markets. In the act, Hyper is just one step on the journey in our ambition to have the most satisfying products And the fastest growing THP brand. We are very excited about our future innovation pipeline and where we can take this brand. In Modern Oro, in 2020, we continued to consolidate our strong leadership position outside the U.
S. Our success in Scandinavia and across Europe showed that we have the best international portfolio of products in modern Europe. Beyond Europe, we see very exciting prospects for modern oral globally. In many emerging markets, Consumers are familiar with other similar oral products. With no electronic device to buy, This is an attractive, affordable product for consumers.
We are already seeing encouraging results From markets including Pakistan and Bangladesh. And we will continue to invest in its rollout. In contrast to our success in Europe, the U. S. Is the one market where we have not performed As well as we would have liked it, but this is changing.
Our recent Drift Acquisition really transforms our U. S. Portfolio, expanding our product range from 4 SKUs With only 2 flavors and strengths below 6 milligram to 28 SKUs across a range of flavors and strengths. With a great U. S.
Product and entry into the key 6 milligram plus segment for the first time, which accounts for 2 thirds of the markets. After an encouraging initial period of exclusivity with 1 chain, We are building distribution further under the Velo brand with the latest volume share reaching 11% in January. Overall, across the new categories and beyond, we are making great progress, giving us an excellent platform To further accelerate growth in the future, this strong momentum would not be possible without the cash flow And capabilities from our combustible business, which is industry leading. Our combustible business continues to perform very well across all key metrics. Overall, in 2020, we grew our revenue by 2.8% With 20 basis points of value share gains, and we continue to take strong pricing ahead of the industry And grew volume share.
This would not be possible without an excellent brand portfolio that spans a wide range of price points and is concentrated around strong strategic brands in each market. The price environment remains strong and we have seen no acceleration in down trading in developed markets. And with our revenue growth management tool, we are now able to precision targets with store level pricing to further enhance combustible's value. I'm really happy with the resilience demonstrated by our combustible business throughout the year, which has shown its ability to deliver whatever the environment. One example has been our performance through the menthol bans in EU and Turkey.
Our combustibles portfolio over indexed segmental, yet we significantly grew our share of liquidity. Overall, we achieved 110% retention of total nicotine consumers through the mental bands, capitalizing on our unique multi category position, adding over 300,000 new consumers in the last 6 months. Now taking a look at the regions more broadly. The regions reflect the impact of COVID, particularly in the emerging markets and global travel retail and a number of additional one off factors. Despite this, we delivered a resilient performance.
In EMEA, we invested strongly behind new categories To drive 50% revenue growth, led by a doubling of THP revenue from the successful launch of Hyper. And views also performed strongly. As mentioned, we grew our share of total nicotine through the mental events. In Acme, volume growth from hyper was more than offset by Japanese excise increase And the withdrawal of SENSE, our hybrid proposition. Yet we continue to take market share across the region And in the second half of the year, benefited from the gradual market recovered as lockdown restrictions eased.
The team's strong focus on our cost base drove margin expansion despite the tough external environment. In AMSA, strong growth in views drove new category revenue up almost 60%. And we responded quickly to government mandated shutdowns across the region, shifting production to available sites And avoiding out of stocks. South Africa reopened in August. Although the illicit trade remains above Pre lockdown levels, we rapidly returned to market leadership.
As we said at the half year, There was a clear differentiation between Emerging Markets and Developed Market performance. We saw a significant recovery in our emerging markets volume in the second half, and this has continued into 2021. While emerging markets represent around 70% of our volume, they are 25% of revenue. Despite COVID restrictions impacting consumers' ability to access the product in many emerging markets, consumption remained resilient. Although impacted by global travel retail, our developed markets remained resilient throughout the pandemic.
We expect the global industry volume to recover to a decline of around 3% in 2021. In the U. S, we had our most successful year to date with strong growth across revenue, Value share and profits, reflecting the strength of our brand portfolio, robust pricing And an accelerating performance in new categories, where revenue was up by over 80%, driven by views. In combustibles, we benefited from a strong portfolio across price tiers. At the premium end, we have the best performance Friends, in 2020, Newport and Natural America Spirit continued to grow revenue strongly, With Nieuport reaching 17% value share.
At this stage, we are not providing U. S. Industry volume guidance for 2021 given market uncertainties. While the positive Industry dynamics in 2020 will not necessarily benefit every year. We have a strong brand portfolio With lower elasticity than industry and a target approach enabled by RGM.
Together, this gives us confidence in our ability to deliver sustainable value growth and profitability going forward in the U. S. Moving on to operating margin. We delivered a 100 basis points increase, reached an overall margin of over 44% and invested an incremental £430,000,000 to drive our growth in new categories whilst absorbing one off costs related to COVID. This was funded by our strong value growth in combustibles and GBP 660,000,000 of savings driven by Quantum.
We expect to further increase our investment in new categories in 2021, with spend weighted towards the first half. We also expect the drag from new categories on operating margin to reduce for the full year as revenue growth offsets the additional investments. Simplifying the business, our 3rd operational priority is driven by quantum. We are releasing funds and creating a stronger, simpler, faster organization. We are on track to generate at least GBP 1,000,000,000 of savings by 2022.
In 2020, we realized GBP 660,000,000 total savings. These savings do not include Any net efficiencies related to COVID. We have created a more agile, empowered and fast organization With reduced management layers and clear accountabilities. For example, our development pipeline has reduced from 24 months To 12 months, and our speed to market deployment has improved by 40%. We delivered robust EPS growth of 5.5 percent in constant currency, meeting our guidance for 2020.
We could have easily delivered on our high single figure medium term guidance had we not continued to invest behind the new categories. But this would not have been the right thing to do for the business. Income from associates, mainly ITC, Was down, reflecting the impact of COVID, particularly in the second half. Our underlying tax rate was lower at 24.9 percent. We expect a similar underlying rate in 2021 of around 25%.
One of the highlights of our 2020 performance was our excellent cash generation. We delivered operating cash flow conversion of 103%, well ahead of our medium term targets of over 90%, driving our free cash flow of £7,300,000,000 This funded £4,700,000,000 in dividends to shareholders, the largest payment in the FTSE. We leveraged the balance sheet by 0.2x at current And 0.3x at constant rates. With adjusted net debt falling GBP 2,200,000,000 at both current and constant rates, We remain confident in our targets to reduce adjusted net debt to adjusted EBITDA to around 3x by the end of 2021. As mentioned, cash conversion in the period was strong at 103%.
During 2020, we further strengthened our liquidity position through bond issues, including a liability managing transaction, Repurchasing and redeeming debts that would have otherwise matured in 2021 2022, signing short term bilateral facilities and renegotiating our revolving credit facility, extending its maturity and removing the financial covenants. Our maturity profile improved and remains very manageable, with maximal annual debt maturities moving forward no higher £4,000,000,000 with an average maturity approaching 10 years and close currency matching. One of my priorities is maximize cash generation to fuel our transformation. We expect to generate cumulative free cash flow of around GBP 40,000,000,000 over the next 5 years. To drive this, we expect at least 90% operating cash conversion And good profit growth, and this will be supported by quantum savings.
In 2021, we expect Gross CapEx of GBP 700,000,000 broadly in line with adjusted depreciation and amortization. Looking forward, we remain committed to our capital allocation priorities with a 65% dividend payout ratio, Investing in new categories and deleverage it to within our new corridor of 2 to 3 times adjusted net debt to adjusted EBITDA. We believe this is the right level of gearing for the Group given our strong cash generation. And this will give us more in terms of capital allocation by the end of 2021. We are carrying great momentum into 2021 And I expect continued strong operational delivery with revenue growth in the 3% to 5% constant currency range.
So we are confident, but we are not complacent. With COVID and ongoing challenge An uncertain U. S. Volume outlook and a continued COVID impact on our associates, we retained our outlook for mid single digit adjusted diluted EPS growth for 2021. With performance within the mid single digit Repent dependent on the factors I just mentioned.
We will update you as the year progresses. And with that, I will now hand back to Jack.
Thank you, Talio. So we have grown earnings and accelerated our transformation in 2020 through COVID. We have genuine momentum doubling our rate of non combustible consumers acquisition in the second half with a further acceleration in Q4, And we are generating the resources and cash flow to do this from our focus on growing value in commerce development as well as the benefits of simplifying the company. We are led by the consumer, which is at the heart of our consumer centric multi category model. These leverages are well established cross category consumer insights, deep understanding of product satisfaction, detailed market opportunities mapping, digital consumer and RGM capability.
This has taken many years to build, and every element is vital for multi category success, giving us a unique competitive advantage. To further accelerate our transformation, we have put in place Quest. We announced Quantum in 2019 to deliver a simpler, faster, more agile organization. And Quest combines Quantum with 4 other work streams under Talio and myself And he's the catalyst to build the enterprise of the future, accelerating the move from a business that is used to sell cigarettes to a consumer centric, multi category consumer product group. What does it all mean?
Our targets are clear. With the momentum in the business, we are well on track. We're achieving €5,000,000,000 revenue with new categories by 2025, And we have mapped a clear pathway to 2025 profitability. And through our portfolio of products in nicotine and beyond, We are confident of reaching 50,000,000 non combustible consumers by 2,030. We have made excellent progress in 2020.
And post COVID, we are confident in returning to our medium term guidance, with revenue growth of 3% to 5% and EPS growth in high single figure. We are clear that by delivering in both our ESG and financial targets, we will generate Significant shared value for all stakeholders, including our shareholders. We are building a better tomorrow. We have started, We are accelerating in new categories, and we are a step ahead in multi category capability. And while we know we have further to go, we see a huge opportunity.
I am proud of what the organization delivered in 2020, and we're acquiring strong momentum in 2021. With combining our growth acceleration and pathway to profitability in new categories. This is a pivotal year in creating the enterprise of the future. We will be sharing more with you during our presentation at the CAGNY conference tomorrow, and I look forward to taking your questions at our Q and A session at 9:30 a. M.
U. K. Time. Thank you for listening and stay well. Good morning, everyone.
So 2020 has been the year of delivery, transformation and acceleration. We have a strong 2020 in combustibles and in NGP, we had a very good performance with the growth in volume in all three categories by around 50%. We also have 2,000,000 more consumers in H2. The dividend is strong. We did a lot of work on the cash and the deleverage.
So 2021 is really a pivotal year. We have momentum. We have strong foundations with the right strategy. So we are a global consumer multi category company accelerating our transformation. So now it's time for questions.
Can the questions come please?
Director. And I can see that we have several questions coming through. Director. And our first question comes from the line of Nick Oliver from UBS. Nick, you are now unmuted.
Please go ahead.
Hey, good morning guys and
thank you for taking
the questions. Hey, good. Thank you. Just a couple from me. Just on some of the COVID-nineteen headwinds that you flagged for 2020, could you just share like how much of that was The global travel piece.
And I
guess sort of then hence how much of that will sort of spill into 2021, Good to help us on the EPS bridge. And then secondly, is there any guidance you can share on what is the Implicit transactional headwind baked into the constant currency EPS because I know that transactional you absorbed through the organics. That would be very helpful. Thank you.
Okay. Jack, you want me to take this one?
Sure. Okay.
Nick, on the COVID-nineteen, on the we said at the mid of last year that we were expecting 3% hit on the line and that being better than that. So basically, it was a recovery of emerging market that went better than we first In the second half of the year, we end up with 2.5% hit in 2020 as of the net turnover. So half of that is global travel retailer. So 1.3% of our revenue was hit by global travel With Thiago and we are yet to see the recovery of that in 2021. Remember that this is one of the elements of uncertain that we have to take into consideration when we flag a guidance for this year in particular Because at the end of the day, we can see some rebound of that or we can see the number of situations because we still we had 1 quarter the Q1 Last year was still positive, was still selling.
And other sellers were completely shut down from quarter 2. So this is one of the The uncertainties as well. Taking on your second point about transaction, I would like to remember That our guidance includes transactional FX. So when we add mid single digit, There is an element of transaction FX that is already incorporated in these numbers. So last year, As you saw from the presentation, you have an idea because we highlight that in the operating margin waterfall.
But last year was around £30,000,000 which equates to something like £1,000,000,000 equivalent of operating product. In 2021, double that Based on current rates, so as we stand today, we actually have a 2% headwind in operating products As part of transaction FX which again is already part of our range when we say mid single digits range He's part of that, okay?
Okay, guys. That was really clear. Thanks so much.
Our next question comes from the line of Adam Spielman from Citi. Adam, you are now unmuted. Please go ahead.
Hi, Adam. How are you?
I'm fine. Thank you. Good morning to you. I really wanted to I guess a little bit of a sort of more understanding about the mid single digit constant currency EPS guidance. I suppose going into this, I had thought you've had a in some globally, You have a pretty easy comp because COVID was globally a negative in 2020.
Also for the first Time you've got reduced risk products turning to actually be a positive Profits contribution, as I understand it, so there's a swing in profitability from new categories. So I was just wondering if you can give me some of the elements that you think are leading to this mid single digit guidance. As I said, I would have thought your Comp was easy and you're beginning to see a positive swing in these categories.
Yes, Adam, thank you. I think that to start Director. We have a strong 2020 and we are very happy with that. We exit the year strong in combustible, strong in new categories. Nonetheless, there are some uncertainties in front of us.
And frankly speaking, we prefer to have guidance That is reasonable because there are some unknowns in there. You still have the COVID that is going to director. Bringing some attention, especially in mature markets. You have uncertainties in the U. S, of course.
Then you have our associates that are like ITC recovering slowly in terms of the COVID that has been quite brutal in India has an impact. So I think that we prefer to be reasonable in terms of the guidance and then it's going to be from the top and the bottom of the guidance and we will update you as we go along across the Tadeo?
Yes, I think that you're absolutely right. We are very, very happy with the performance that we have at the back Director. 2020, we had a good moment 2021. You are right, Adam. We expect to start reducing our P and L losses in new categories, But we cannot ignore that the problem of the pandemic is still there.
So we expect it should be better around Decline of 3%, most of it will probably be a record from the emerging markets. So there will be some elements of geographic mix there that we have to take into consideration. We are letting in the strong U. S. Markets in 2020.
And as you saw, we haven't provided any outlook for U. S. Markets Given that too unclear, yet to see how the market was COVID and that's the reason why we haven't provided the guidance. We spoke about GTI which is still some uncertainties there. Jack rightly alluded to ITC.
At the end of We report ITC with a 1 quarter lag. And this means that our kickers for 2021 can be also low as it is in 2020. So you consider all that, we decided to take a more prudent view around the mid single digits. And as we go along, we are bidding the market.
And you know, we will reduce our losses in new categories. We will be around 3 in terms of net debt to EBITDA. We will deliver in terms of combustible. We'll continue to accelerate director. In new categories and we'll simplify the company with Quantum and now the addition of Quest.
So I think that it's a pivotal year 2021 And I want to have the possibility to invest and to make sure that we deliver on our guidance, but also that we continue to transform the company and accelerate In the great momentum that we have in your categories across the 3 categories and also beyond.
Can I ask you just a couple of follow ups? And I think the answer just talking about the guidance, I think one way of saying the answer, and I just want to check I've got this right. Historically, there's more uncertainty in 2021 than pretty much any year you've seen before Given COVID and all its multiple effects. And because of that, perhaps you've been a little bit more conservative Than the previous, yes, in your guidance. Is that a little bit of a press summary?
I would agree with the first part of your comment. I would say more instead Conservative, I would say reasonable. As I said, we have a good momentum. We'll continue to accelerate in 2020 and we will update you in the mid year. I think it's the right way to go because we have momentum and we want to continue to accelerate our transformation.
But just to be clear, Albano, If we're not for the uncertain COVID, we would have returned to the high single digit again. There's nothing to prevent us to get there Director. Unless we until we get the clear of this, we cannot ignore that. We are still living through this pandemic.
Okay. And then just turning to the new category.
Yes.
UC 2021. I'm sorry, I didn't hear you.
Beginning of your question.
Okay. So turning to new categories.
Yes.
As you think about 2021 now, Compared with how you were thinking about 2021, let's say, 12 months ago, would you say things are In line with your plan, ahead of plan in terms of revenue, but also the investment needed behind this?
There are 3 sides to that. One is, as we said at the beginning of 2020, We expected an acceleration in terms of the new categories. We had a lot of launches, Hyper for instance, director. The launch of Modern Oral in the U. S.
With the acquisition of Grip, there were a lot of things that had to materialize. We So a very strong acceleration in the second half of the year with an additional 2,000,000 consumers across the world, 5,000,000 consumers, but 2,000,000 in the second half and 1,100,000 in the last quarter. So we have strong acceleration. As I said earlier, in the second half, The 3 categories in terms of volume grew around 50% in volume. So we're getting where we want to be.
We still have a lot Director. Developments to be done in terms of geo expansion, still a lot of things to be done in terms of putting our products in front of the consumers. And I think that it is a strong start with the Q4 and the beginning of the year and we'll continue to accelerate related to that. That's what we wanted. I think that we have to sustain the investment in terms of new categories.
As I said before, it is more now we have built the capabilities. It We've been present in the new categories, the 3 categories and beyond we have already started with CBD in the UK and other developments as you So I'm happy with the development that we can continue to accelerate. So we're on the journey and accelerating on the journey. Thadio, do you want to add something?
No, I think that you said all. I think that we the plans that I think that we have addressed the Three major points that we had around new categories. First, we knew about the satisfaction problem we had in THP and the Glow Hyper disproving, We have addressed this gap and given the performance and not just in Japan, but outside Japan, which is quite exciting. We know that we had a problem in modern U. S, which the acquisition of drilling puts us back with director.
In the competition, in the fight, because then we moved from 4 SKUs to 28 SKUs. And we knew that we had to address the Profitability is that we have in paper and we have made big inroads when we have a clear roadmap to profitability in paper. So we are very and that's the reason why we have very confident to start reducing the losses also in the P and L from 2021 onwards.
So we're on a very good track Adam for the €5,000,000,000 by 2025 and we'll accelerate as we go along. So we go step by step. You know me, I'm I'm more of a farmer somewhat. We do what we say and we say what we do and we deliver and we'll continue to do so. The pivotal moment is the year 2021, where we'll continue to invest, as Thadio said, reduce the losses in new category despite the additional investment and continue to plan forward.
We have the cash, why? Because we have a very strong combustible business and we are migrating the consumers from combustibles to new categories And there is a lot of space also. We are present internationally, but also in the U. S. And we're the only ones like that.
And that gives us the possibility to continue to plow through. In the U. S, for instance, on vapor, we have already 15 states where we are leaders in vapor. In Canada, we took the leadership in vapor and we're continuing to accelerate on THP. And in modern oil, we're the leader worldwide.
And now through the acquisition of the products that we did, now we went from 8% to 11.1%, 11.2% share And we're just in expansion of distribution. As you know, all these products including e cigarettes in the U. S. For instance are going more and more into General trade, which means lower trade margins by far and also the volume gives us reduction of COGS And all our innovation is not only geared at satisfaction to the consumer, but also reduction of COGS and scale. So I think that we're on the right path.
We will continue to accelerate.
Okay. Thank you very much. Thank you, Adam.
Our next question comes from the line of Gaurav Jain from Barclays. Gaurav, you are now unmuted. Please go ahead.
Yes, good morning. Thank you. I have 3 questions. So one is on heat not burn.
Okay, please, please. Can you start with 1, then go to the next one,
then go to the next one? I'm pretty sure we have
the time to digest. Thank you. I'm sorry, I don't have the time to digest. Thank you.
No worries, Jack. Okay. He's not on plans over the next few years. Like you are still in a limited number of markets. How many markets Should we expect that you launch over the next 3 years?
Is Europe going to be a big focus? I don't think you are still in Germany. So how are you thinking of his number for the
Yes, I think that you have always to go back To what we said in terms of the way we look at the full portfolio in terms of new categories. There are some markets where we will emphasize on one category and then reduce the investment on the other categories because the consumers are different from geographies, but also taxation, but also regulation. So we will have an expanded footprint in terms of THP, but we'll not put THP everywhere. We will have an expanded footprint on THP where we feel that the category has legs for the future, I. E.
The current markets plus others that we have determined as additional markets for THP. So it's an approach by category because we have these 3 categories that we can navigate.
Sure. Thank you. The second is on this $400,000,000 charge in relation to the MSA liability that you have booked In relation to the brand that you sold to Imperial, so how should we think about this because now you have booked a charge, So how do you think about it?
Tadeo, do you think that one?
Yes. This is look, this is an old This litigation that we had that comes back to the transaction that involved LORELA in the past, as you know. I don't want to make much comments about this because the litigation is ongoing. Book the charge because we have Request from the Florida States to pay for their old product or the MSA related to the Products that we sell we sold to Imperial or Banos at that time sold to Imperial
and at
the back of the transaction. So we had to book a charge and we paid actually some of that has already been paid and we made a provision based on the best Director. We have a final court judgment in Delaware. So I will prevent to make any further comments on that, but the important thing is that it's all already booked in our results. Some of that are at paid And Samad in terms of provision.
Sure. Thank you. Just a last question On the stock, so look, since April 1, 2019, stock is down 17%. And there is a lot of value within the company either through your estate and other companies. Now DB business is growing very fast and Director.
I think the e cigarette companies listed tech like valuations, whether it is in Hong Kong or in France. So is there a way for you to approach The unlocking of the value which resides within BAT?
Let me tell you. I mean, very clearly, a few years ago, When Tadeo and myself took the 2 jobs that we have now, we were told that in terms of new categories, Director. We were nowhere and we had a lot to do. We've created capabilities. We've taken director.
In 3 different categories and we're growing strongly.
So I
think what is important to consider is that we have a lot of potential moving forward We're already 3 years on the journey of multi category and we'll continue to accelerate on that journey. Tadeo?
Yeah, I think that is right. I don't have much more comment to take. The question is about the second one, Gerhard, because I missed your first part
What I was asking is that, look, NGP business is growing very fast and then we see Danske on e cigarette companies, they are trading at tech like valuations. Okay.
But you know what, I mean The reality is Yes. The reality is there was a bubble with e cigarettes, there was a bubble with other companies in new categories. The reality is you have to have a very strong foundation in terms of international footprint, you have to have the capabilities, I. E, the distribution in The 180 markets that we are in and you have to have the legs and the possibility and the understanding in terms Consumers in terms of regulation, in terms of pricing and in terms of distribution to be able to be there on the long run. And that's what I think we've demonstrated, we've created the capabilities and we go forward.
We're not a hay fire. We're there building capabilities on the long term accelerating our transformation. We're a global consumer multi category company and we're the only one. And that is our point of difference and It is paying off. H2 2020 has been the testament to that and that gives us a strong strength for 2021 and we'll continue to grow.
I'm very confident in the $5,000,000,000 and I'm very confident in the 50,000,000 consumers that we won by 2030. It's a long journey. It's not a Sprint is a marathon and we're winning the marathon, multi categories and all the elements of the puzzles are coming together as we speak.
I fully agree with Jack that we need to persevere. It's a question of time. We have created the right foundations. We are already seeing the benefit of It's delivered time. That's why Jacques referred to 2021 being a pivotal year.
We agree with that. And this will come the published.
Okay. Well, thanks a lot.
Our next question comes from the line of Richard Felton from Goldman Sachs. Richard, you are now unmuted. Please go ahead.
Hi, Richard. Hi, good morning.
My first question is on NGP margins. So at your Capital Markets Day in March last year, you showed a very interesting slide with gross margin to each of your NGT categories and An indication of whether you are facing headwinds or tailwinds. So my question is, were the things that have developed as you had anticipated? In particular for the Vapor, you called out various reasons for gross margins to improve. Have you actually seen that in your FY 2020 numbers?
That's my first question.
Yes, I mean, I think what's important to note is that we have improved in terms of our COGS, we have improved in terms of director. Distribution costs and we have improved in terms of efficiency of marketing. That's why we say that for 2021, we will Not only continue to invest at a high level in new categories, but we will start to reduce our losses in terms of new categories. And I think that's a very important testament to the journey that we're going through in terms of financial efficiency in new categories. But Thalio, maybe you want to add something.
Yes. Just going back to the FMD and what we see today, look, on the modern order, if anything, the margin is even higher than what we showed before. So the payback, we always said that with the payback in modern OS, once we launch in the markets, it's not more than 15 months. So it's a product that there is no device. There is a very good margin and we are very satisfied with that.
When the THP thought that there will be probably some headwinds ahead, we are seeing around some governments taking exercise up, which means that will be some Director. Margin wins that we'll be facing. But overall, that in our case that we Use most of our cigarettes machines adapted to our consumables. I think that we still have Space to reduce the cost of our consumers and keep our mind as attractive as they are in cigarettes, not more. So The only problem that we have been facing and you know that's around the day and the ingrowth made in 2020 It's around trade margins because as big as you get, you start having more negotiation power.
So we are seeing already in France. So far, we have been renegotiating trade margin with some of the key accounts, the main accounts in France. The other element that we are leveraging is e commerce. We now have already 20,000 subscriptions And the subscriptions has more than doubled of a normal buyer and e commerce has more than twice When you sell in a convenience stores. So we grew our performance by more than 60% And it's doing extremely well.
And the other element that we are now introducing in vapor and in new cadence Director. It's our revenue growth management group that is doing extremely well in combustible and we can now take So we have been doing that in the UK, for example, with very good results. And finally, we introduced a model now with The return of investments in terms of marketing investments spent in different effect to define exactly the effective touch points behind The investments will allow us to do better resource allocation decisions. So all in all, we are progressing for sure that when you see one particular year It's a combination of market where you are just starting and market doesn't mature, but we are already seeing the results of all these initiatives coming through in more mature markets.
Do you know what makes the difference at the end of the day is all the points that Talio spoke about and scale. And scale in terms of e cigarettes, we're growing in the second half 59%. In terms of THP, we're growing 45%. And in terms of modern oil, we're growing 56%. So that plus all the points that Tadeo said, I mean, that's why we're saying that we will reduce our losses in 2021.
So that's the pathway and we'll continue to plow through.
Great. Thank you. That's very clear. And my second question is on the outlook for U. S.
Cigarettes. I understand you haven't given any specific guidance for industry volume, but could you maybe outline some of the scenarios you're thinking about for the U. S. In FY 2021, which Underpins your group guidance for 3% to 5% constant currency growth. And related to that, are you expecting a More challenging tax environment in FY 2021 than you would expect in a normal yes?
Yes. First of all thank you very much. First of all, in terms of the U. S, yes, we're not giving guidance. What you have to start with is 2020.
We had a very strong performance in the U. S. Why? Because we have an Director. Strong portfolio.
We are much better in pricing than anybody else. We led pricing twice during the year And we took more pricing than competition. We grew volume share and we grew value share. We didn't see any acceleration of our down trading. So we have a very strong portfolio.
On the back of that, you will have also the consequences of the COVID that will still be there in 2021. You will have also all the impact in terms of taxation, in terms of regulation. But Already in the U. S, you have prices that are ranging from $5 in Houston, Texas to $10 in New York, so there is a lot of space. And because we have a very strong portfolio, we will be certainly able to navigate all this.
We don't give guidance for the U. S. Because there is uncertainty and Talio might elaborate a little bit about that later. But the reality is we see that our performance in the U. S.
Is going to have an increase in revenue because the market will be good, but to what level these external factors will impact the business moving forward. We're very well positioned in the U. S. Market and we will be the ones that we will be benefiting more. But Tadeo, you want to add something?
Yes. I think it's important to when you think about the market, you should bear in mind that there is a historic decline around 3% to 4% In the markets. Now last year, we had an up the industry was up 1.5%. But there were these factors that Jack alluded to for the dispensaries was a big factor. We noticed that retailer and wholesalers in general, they increased their level of inventories to cope with these uncertainties around lockdown throughout the pandemic.
We Thought that drove us more consumer moments and this generate more the ADC if anything was slightly up in the US for example. We also saw that Director. The flow back that we have seen in paper in the year before 2019, they Actually contributes to positive momentum in the cigarette business at the back of the value crisis and then the regulation, the FDA is stripping out flavors out of a part of Tabakon Manto from the e cigarette business in January 2020. So there were a number of factors And that's exactly what we meant about uncertainties because we don't know how the pandemic will develop And hence all these elements that I was referring to will actually impact the marketing in 2021. Markers will perform the macroeconomic environment how the vapor in particular that we saw at some liquid vapor From the last quarter the last two quarters last year if we will continue or not.
So that's why when we talk about our guidance we always talk about the range. We say mid single digit, but there is a range there that could be upper and high or low. It is exactly one of the elements That is part of these uncertainties that we are facing.
You know what's important is that we have a very strong portfolio in the U. S, both in combustibles and in new categories and we're applying for 1. So what is very important to consider is that we know how to navigate all these things, But yet it's too early, especially with competition not giving guidance. I'm not feeling director. Interested in giving guidance at this stage.
We'll see more towards the half year what has developed in the U. S. And we'll take it from there. But the start is strong.
Great. Thank you very much.
Our next question comes from the line of Alan Erskine from Credit Suisse. Alan, you are now unmuted. Please go ahead.
Director. Diane, now on.
Hey, good morning. I'm very well. I hope you're well as well. I have three questions for me. So I'll ask Director.
The first question is on heated tobacco in Japan. And two parts to that. You say you exited the year with 6.3% share. Can I just Check how much of that or what proportion of that is hyper? And then my second question is
Let me start with that one, so if you don't mind. So the answer is 50%. And what is interesting is that we don't see an acceleration of decline of the products that were there prior to the launch of Hyper. What we see is that some consumers are very happy with the Super SIM segment, with the Super SIM product that we have in the market. It's placed to older consumers.
And for the younger consumers, now we have the Glow Hyper that complements the portfolio if you want. And he is the 1st to the world induction heating that we launched a few months ago. So I think that we're in a good position in a very, very competitive market where everybody throws everything in. Fili Moritz and JTI throwing everything in. We have grown since August 100 bps in terms of market share.
So we had a deficiency in terms of products at the beginning of last year. And now with Glo Hyper and GloPro, we have a portfolio that resonates very well with the consumers. We have also extended our capabilities in terms of digital and in terms of consumer activation, digital especially during the coding. So there was a lot of closures of shops in the first half of the year and we've accelerated strongly in the second half of the year. As I said, I mean, THP in Japan, we make money.
We're happy about that and we'll continue to do so. It represents more than percent of our revenue in Japan, but our combustible business also in Japan is doing very well. And then we'll continue to have these 2 engines of growth in Japan. That was for the first question.
I think to be fair, you've covered most of my second part as well. But I was just going to say, clearly, it is a pivotal
I'm not a mind reader, but I'm trying to give complete answers.
I mean, it is a key battleground, I guess. And given the momentum that you have going into the year, Director. Would you be confident that would your ambition be to grow share of the heated tobacco category In 2021 in Japan, I'm conscious PMI have got some innovation coming, but would you aspire to grow in share 2021 on 2020 In Japan, he did.
Yes, I think that our position is strong. We have momentum. I think that innovations have been launched Everybody in the course of 2019 2020. And now we have the right portfolio and we'll continue to blossom.
Thank you. And then my second question, and forgive me, this may be a stupid question, but My understanding of transaction issues, a large part of that was that you're buying tobacco leaf Profit in dollars and then selling the cigarettes in obviously the currencies of the end market. But And just looking, obviously, the dollar has weakened against the euro quite materially. So maybe just from my understanding, can you just very To explain why the transaction headwind is greater in 2021 than in 2020?
Yes. That's why I'm a Finance Director that is an engineer. Thadio, that's for you.
Well, it's basically our exposure to emerging markets. There is a massive devaluation of currencies. Director. For example, go to Russia, for example, you're absolutely right. You have to pay your leave in dollars and all of a sudden, you have a massive devaluation of the ruble And started last year and but I think the average last year compared with the spot this year is a much stronger devaluation And the average.
So that's what makes the same happens in Brazil, the same happens. So it's exactly the exposure more towards the emerging markets that makes these big hits.
Thank you. And my last question is just conceptual really. I mean, as we look to the journey On MGP products to breakeven and profitability at some point. Could I just ask, Director. Which of the 2 categories, paper and heated tobacco, do you think will go through breakeven first?
Well, they are all improving sequentially, which is very good. Then it will all depend on taxation environment. We see that there's more taxation acceleration in THP at the moment, but we'll have to see through the years. What is most important to us is that we want to reduce our losses as of this year in terms of new categories and then a clear road to profitability. As I said before, The scale is very important and we're expanding geographically because we have the right capabilities and we have the right portfolio.
We have innovation today and we'll have innovation this year and next year coming to the market. So I think that we have a clear pathway. After that, that's the beauty of being in multi category. See, as I said, THP has more acceleration in terms of taxation. Well, we are in 3 categories, so we can balance our activities.
And remember always that in terms of combustible, we have the best performing business. We're growing share, we're growing value share and we have the biggest in volume. So I mean the fact of having all these artillery in weaponry, if you want, gives us a very strong position. And I think that also you cannot forget the fact that we have a team in BAT Across the different levels of the organization because we have that genetic of being entrepreneurs At Core, and because we have simplified our organization, we've taken out 20% of the management of the company. And also we have changed, I and Talio have changed most of the management board with new responsibilities and new people, And we've changed the 120s that are below.
We've changed something around 3 quarters of the jobs of the different people that were there, Including the replacements. So we have taken a lot of people from outside. So I think that we have a clear path in terms of development. Tadeo?
Yeah, I agree with you. I think that we cannot forget that depends a lot in terms of the mapping that we'll be doing in terms of Expansion in terms of consumer needs and we have all the tools necessary to identify that. And so At global scale, it's always tricky to answer questions like that because at any point in entering new markets and you have some more mature markets. But the dynamic behind the categories, like Jack said, we'll have to see how this pan out to these factors that he was
We have Clear pathway for each category in terms of profitability. And we have a very clear pathway in terms of geo expansion. We said that 1 year ago and we continue. We do what we said 1 year ago basically. And we are accelerating in our transformation And that makes us successful.
Now is it to the point where we are already reaching the 5,000,000,000? The answer is no. Well, we're on the very strong acceleration and that is why we are in the situation in which we are, which is the base It's extremely strong. The foundation is extremely strong. We have the right strategy.
We're expanding on that portfolio. We have the right innovations, the right capabilities and radical cost allocation and resources allocation. And we go very, very director. Close to the cash and to the dividend in order to make sure that we're able to deliver as we transform the company. It's a pivotal year in 2021 where the Investments that we've made in last year is the momentum that we have at the end of 2020 will take us through to a next phase of the development when we start Quantum and redeploying the company in a very different way in way and forward.
Super. Thanks a lot guys.
Super. Thank you.
Our next question comes from the line of John Lanster from Societe Generale. John, you are now unmuted. Please go ahead.
Thank
you very much and good morning. Yes. A couple of few questions. I'll go one at a time as well. Thank you.
So first of all, on the NGP, I mean, clearly, The target implies sort of 25%, 30% sales growth. Is that something we should write in? Is that going to be exponential or should we assume that for 2021?
It's a very good question. And again, I think that there is a lot of moving parts in the development of new categories. There is taxation, there is regulation, there is geographical footprint, as Consumer Choices. As you saw, we don't stand because we wanted to experiment in hybrid between kind of e cigarettes and THP. It was not successful, but yet we took a lot of learning.
So the portfolio will evolve as we go along And there are lots of things that will happen. So I think that it's going to be a journey where I'm telling you now that we are very confident with €5,000,000,000 And we are continuing to develop our business. We will invest strongly in 2021 to continue to benefit from the acceleration that we have. Again, I insist it's the first time that we have in the half year 2 more 1000000 consumers And this is massive. That's $1,100,000 in Q4 only.
So we are in best in class and that's great because we need to continue to do so. And because we're edged between our 3 categories plus beyond Nicotin that we have already explored since more than a few years now and started with the pilot in terms of CBD. We'll continue to accelerate in that category also. So it's a question of deploying all this and making sure that we make the right calls. That's why I want to have Director.
I want to make sure that I do the right things for the business with Talio and making sure that we have the right resources in place.
Right, okay. Just following on for that, I mean, the €5,000,000,000 target for 2025, I mean, clearly, one of your competitors is Just talking half of revenues by the same period, which implies a business or NGP business sort of 2 to 3 times Bigger, I mean is €5,000,000,000 ambitious enough?
As I said, I'm a farmer. We take it step by step. We have a very strong start. We're happy with that. And then we'll navigate as we go along.
I think that our strategy is the right one. I'm sorry, I'm repeating myself, director. But I think our strategy is the right one and we'll continue to accelerate. So they give no, that's fine. It's for them.
It's fine. It's perfect. Very good. Our numbers are our numbers and we'll continue to develop as we go along.
Okay. And just more Technical ones. I mean, the FDA has begun to sort of Issue sort of notices to de list some of the non PMT compliant vaping. I think in the past, you've talked about a sort of contestable space of a couple of $1,000,000,000 Is that beginning to show? Or is the are the FDA Measures as we speak still very limited in terms of U.
S. Vaping?
The way it works in the U. S. Is and it has been slowed down a bit by the COVID. As you saw, The date was moved back a bit about 9 months ago. But the reality is the market is going in very clear directions.
1, it is from open system to closed system 2, from vapor shops to general distribution and 3, from products to brands because people need to be reassured by the quality of their brands. And we've doubled our position in the U. S. In the last 12 months. So we'll continue to do so.
I think that all our products are where they should be in the PMTA process. And I continue to believe that there is for the 2 years to come a contestable space of 1,500,000,000 Now how will that materialize in terms of the implementation of the PMTAs? We'll have to see. That's going to be the starting element. But already the fact that they are producing a list of products that are not going through the process in the right way Gives you some idea that the body has started to roll.
But we'll have to see as we go along.
Let the whole thing unfold and we still consider that there is a contestable space of $1,500,000,000 moving forward. Tadeo, do you want to add something?
Yes. Look, Jack, on the I just want to point on the €5,000,000,000 I think that more important for sure that we are confident that we clearly have the momentum. 2020 was very unique year, but we have Face a number of headwinds as you probably had noticed from what we disclosed. But more important that the drug formations aren't happening. The world is changing.
So our footprint is our footprint is unique. No other company will be comparable with each other because they are different. So we have a footprint that is different. So if you see Below the group level at market level, you go to Japan, more than 40% of our revenue is already in the what we call non combustible. You go to Sweden, it's more than 6%.
You go to UK, it's 30%. So this is happening in a number of markets. But for sure, we are present in a we have a very strong footprint across the world. So I think that that's what is important to have their own pace. Yes, very confident we can deliver the €5,000,000,000 and this is a transformation and that's what is in my view.
Okay. Lastly, can I ask, I mean, you tried the modern oral category in a number of a couple of emerging market? I was just wondering whether there's any update on whether that had proved successful or not.
Yes. It's a very good question. The answer is yes. Director. And we're taking learnings from there because there are a lot of countries in emerging markets where the ritual director of chewing this kind of products is there already.
And also always remember, You don't need to buy a device to go to modern oil. So the cost barrier is not there. And there's a director. In these different markets and this is a product that will be with taxation. So it's all beneficial to both The governments in terms of revenue, the consumers in terms of risk reduction because they cannot afford the device and to us because we have the geographical footprint to support them.
So we're taking the learnings as we speak in these different markets and we'll continue to move forward. I strongly believe that we have a major strength in our geographical footprint and our revenue. 75% of our revenue globally is in developed markets. 25% of our revenue is in emerging markets. But yet on the volume side, 60% of our volume He's in emerging markets.
So we have the distribution in all these markets that we can leverage. Tadeo, you want to add something?
Yes, I would just add to that COVID didn't help us at all in a year like that in those tests we were referring to. But I think that Clearly, there are a number of those markets are stick markets, so we can sell not even more. We can sell sache Director. Very few pouches, for example, 4 or 5 make it very affordable. So clearly, and it's a way that we can to democratize The journey towards a reduced risk product.
So we will see that, but we believe that there is a lot of potential there. Hence, the right thing to do for society as well.
Okay. Thank you very much.
Our next question comes from the line of Ray Viam Director. Ray, you are now unmuted. Please go ahead.
Hi, Ray. How are you? Long time no see.
Hi, Jack, it's Thaddeus. Now all good. Just a couple of questions from my side as well. I just noted The net
debt to EBITDA corridor, I
think you've now said 2 to 3 times as opposed to the previous guidance, I think it was 1.5 to 2.5s. I was just curious what has led to the thinking of increasing it a bit. And to follow on from that Is if you get to net debt to EBITDA of around about 3 times, is share buybacks maybe Something on the radar screen for 2022?
Tadeo, you want to take that one?
Well, we have
Tadeo will start. What's very important to me is that we go to around 3 because that gives us then a strict jacket that is unleashed and then we can relook at the way we do Capital allocation. That is going to be by the end of the year. But Tadeo?
Yes. Look, Greg, we have set this new leverage corridor Director. This is aligned with our credit rating ambitions and our business needs as well. We have clearly expressed it in terms of priorities for capital allocation that we are committed to 55% and the payouts ratio, Continue investing in the new category space and the leverage in line with our targets. We have a very high Cash generative company, even in a difficult year like 2020 as you saw in our results, we are able to take essential cash.
Hence we expect to generate around $40,000,000,000 in terms of free cash flow in the next 5 years, which is 2 thirds of the maximum of VAT today. So once we reach this level or this corridor, we will have more flexibility to assess the areas as share buyback like you alluded to. If the circumstances are the right one, bear in mind that our focus continue to be investing in the new categories of business and beyond nicotine space as well.
Excellent. And just in terms of your industry volume guidance, I think you're saying roughly around about 3% lower. So now obviously, will we be far off Director. Given that you've always gained a bit of market share, you think that you may do a little bit better than that or So I just want to get a bit more color on your own specific volume numbers.
Yes, we do believe that in 2021, the emerging markets director. We'll recover a bit in terms of volume. And as you rightly say, we grow share and we grow value share. So that's what we say for the size of the market. We always aim, of course, to do better than the market.
And maybe if I can just throw in the last one there. Just in terms of the Canada litigation, It's now 2 years basically that this stay has been in place. I mean, I know you've provided just an update director. In the release, but I mean, how much longer can we expect this to continue? I mean, any sort of Evidence that we can maybe get you some finality on that?
Yes. I think, first of all, it's a legal case. So We have to be cautious in the way we speak about that. 2nd one, there has been some Part that has been covered in the last 2 years, but I think that looking at it through the lenses of legal, It will take some time and it takes a lot to tango, a lot of people to tango and it will take some time. So it's known, it's taken care of, but we'll have to be patient I think.
Okay. Excellent. Thank you so much.
Thank you. Have a nice day. Next question?
Our next Next question comes from the line of Sanath Sudarsan from Morgan Stanley. Sanath, you are now unmuted. Please go ahead.
Hello, sir. Good morning, Jag. Good morning, Tadeo. Hi, Tadeo. Hi, Tadeo.
You're well.
Yes.
Great. So a few from my side. Starting off, I just wanted to Understand. What's the kind of split we are thinking about or we should be thinking about in terms of your Investments in NGP, reservists, promotions versus core platform investments. And what I'm more keen to understand is, What's the impact you've seen in older markets as you kind of lifted your promotions in terms of the sales growth or consumer retention?
That's the first question.
Yes. I think the second part, Thadio will take the first part. I think what we see is that the efficiency that we have in terms of Converting consumers is increasing. I think that the quality of the portfolio resonates very well with the consumer. And I think that There has been a lot of places where there has been either heavy promotions done by competition like Enjoy in the U.
S, When you have to have the resources in order to follow and in order to make sure that you're in the game and we did so. So in of course, we are for value, value I mean growing value of the category, but we will take the
actions that are necessary when necessary.
I think that the path we necessary when necessary. I think that the pathway is clear. We have the right platforms in 3 different categories And we are accelerating. I think that the road to profitability in terms of these three categories is clear and we start to reduce our in 2021. Tadeo, you want to take the first part of the question?
Yes. On the promotion side, we are if you take the year 20 director. 20% of the investment was around promotions. And sure, this is just a reminder, these are Initiatives that are very close to our turnover. So when you see our numbers is already net of those, let's put it that way.
And we have a very clear way to track the return of those promotions. And we have a very clear payback time in each of those markets and we track it very diligently As you can imagine. And then we I spoke about the marketing factors that we have in place that is completely linked with consumer funnel. So we can identify exactly based on our plan to in terms of numbers of buyers, loyalty, in terms of consumers that want to generate How much we need to invest in each of their touch points, which is the other 8 of 8.
I just insist on the point that Tadeo RACE, which is the price promotions, the promotions are already in the NTO, already in the revenue.
Great. Thank you very much. And the second one I want to understand is in terms of your global Cigarette user pool, of course, people have been staying at home probably smoking more, but you've had lockdowns, especially in emerging markets to deal with. But as you exit 2020, how have you seen your consumer pool evolve? Have they kind of been more sticky, remaining the same with you Or you've seen the normal rate of decline in users, which you traditionally see in emerging markets.
Just want to understand your user pool, how that has kind of evolved?
We didn't see any acceleration or reduction of the user rate of the products. What we saw more is the fact that the borders were closed has reduced illicit in a certain number of countries, but also consumers did not move. For instance, in Germany, a market that is historically going down by 2% to 3% has grown by more than 4% because German stayed in Germany and Germany is a high value market. So it's more these kind of things that have influenced the thing rather than consumption by consumers. No change in the patent.
Right. And then the last one I would say is just probably for Tadeo. Just trying to kind of deconstruct that $40,000,000,000 cumulative
director. Cash flow
over the next 5 years. You did about SEK7000000000, SEK7.5000000000 in 2020, yes, even though you had some payments to be made. But you have guidance of mid single digit 'twenty one, high single digit thereafter, but just mathematically puts you more like 45,000,000,000 Should we be thinking about cash generation kind of differently post 2021?
No, at the end, we are seeing 40 plus to be Precise, but this is predicated in our ability to continue to generate a lot of cash out of the product. So that conversion Has been exceptional good in 2020 with target as you know above 90%. But the reality is that we had been Above 95% over the last years because the focus that we have given on the cash side, I don't know if you remember, but we decided also to Make some calls in terms of CapEx. We picked our CapEx to levels of depreciation and they start to kick in 2020. It's one of the explanation why our conversion has been so high.
So the SEK40 1,000,000,000 plus and our ability to continue to generate director. We convert as much as possible cash and also in our algorithm, financial algorithm of Mid single digit and going back to high single digit as soon as we look at the skies on the bundling. So that's all together and considering all those numbers and offs that we have here and there.
Right. Thank you. Can I just ask you on the 2021 cash flow, please, if I may? I'm trying to just think through your deleveraging target of around 3 turns by 21, I mean, you have a normal deleveraging run rate of about 0.4 turns. And given how the GBPS moved versus Dollar, maybe it's a year where it's actually beneficial to you.
So is it a more conservative guidance of around 3 rather than, let's say, more like 2.8, Which should be more normal run rate?
No, I don't think so. Look, in terms of the leverage, You're right. We have been able to deleverage at 0.4 the last 3 years. This year 2020 at constant is all constant effects at the 2020 a good example. We managed to deliver on because of the current headwind that we face, which is basically the difference between the 31st December year end position and throughout the year.
So if you see 2021, for sure that our net debt If it stays as it is now for the end of the year, it's a stretch to imagine that, it's not because it's still a year to go. For sure that the net debt will be reduced. On the other hand, they beat the whole quarter. So you have to balance out this. So we have to see this is too early to speculate how it would be this, but our ambition is to get around 3 times Was at certain stage last year an ambition to get below 2x, but we moved that director.
We delivered guidance from high to mid single digits last year because of the earnings and so we still believe that we are on track Get to around 3 times by the end of the year.
And you know, I mean, the important point, I mean, we, of course, continue to pursue Our approach in terms of dividend at 65%. Last year, we had more than $2,000,000,000 in terms of free cash to take care of this. I think that the company is in a good situation. We'll go step by step. We'll go step by step.
Great. Thank you very much.
Our last question for today comes from the line of Gaurav Jain from Barclays. Director. Gaurav, you are now unmuted. Please go ahead.
Yes. Thank you for taking the follow-up. And it's actually follow-up from Sadat's Question on leverage. So how would you calculate leverage? Because what the As I have heard from Jeff Morris and Imperial, it's that rating agencies are taking a very conservative view of tobacco companies leverage and doing all sort of And they are over planning higher repurchases at a much lower level of leverage than what 3x.
So how should we think about How many agencies are looking at leverage?
You are a bit cut Gareth. I don't know if you But anyway, you want to know how we calculate. Look, at the end
of the At the core of the question, I'm not sure I heard everything also because the line was not so good. I think what's important is what we said is that we go to around 3 net debt to EBITDA and then we review Capital allocation. But Tadeo, from what you understood from the question, I'm sorry, it was not very clear and the line was broken.
Well, director. The calculations the net debt is basically a conversion back to starting on the 31st December is a balance sheet conversion, Great one. So if given the fact that most of our debt is U. S. Nominated, if there is a strength in pounds At that point in time, we will benefit it because it's less pound at the 31st December.
So that's one element. So if the current state that it is today compared with the previous year, clearly it will be less lower net debt figure. On the other hand, they did Calculate throughout with the average the exchange rate how much profit we translate into cash At the cumulative rates, average rates throughout the year and this has also suffered an impact. So we have to see how this performs throughout the year. Remember that the correlation between FX to pound dollar is important for the debt, But not that much for the EBITDA that also gets impacted by emerging market currency and all that.
So and then we get Director. To the year end figure. Now for me, I can explain all that the constant FX and all that, but what matters is what is The headline number. We don't incorporate ITC in those numbers, if you want to know. So our EBITDA doesn't count with ITC despite the fact that ITC is part of our investments.
But that's basically the way we calculate.
Sure. I mean, what I was asking is how do rating agencies do any Just mention those numbers.
Okay. Now I got it. Okay. Well, depends on the rating. Some of them use broad debt
director. As opposed to
net debt, some others that just for PPA, some are ECS. So depending on the agents, but they're slightly different from what we calculate.
Sure. And is there a range of how much higher is your leverage in their eyes Versus a number that you have like is it 0.3 tons, 0.4 tons higher than what we are seeing?
Our corridor 322 is in line with our credit rating ambitions. We have a BBB plus and which is exactly where we want to be. We are BWA 1, so 2, so one should be BWA 1. So I think that is what we want to achieve Of the new corridor is aligned with our credit rating ambitions.
Okay. Brilliant. Thanks a lot.
Thank you very much.
I will now hand the call back to your host, Jack Bowles, for any closing remarks.
Thank you very much. Thank you very much for all your questions and your support during the year. I mean, what's important for me is that we deliver, we transform and we have a director. We have a strong 2020 in combustible and in NGP, we really did the step forward. We have growth in volume in all three categories in the second half by around 50%.
We have 2,000,000 more consumers in H2 alone. Dividend cash flow and deleverage we're taking care of. Tadeo does that very well. So 2021 is really a pivotal year. We have momentum, We have strong foundations and we have the right multi category strategy.
We are the only global consumer multi category company And we're accelerating our transformation. Guys, it's nothing to do with standstill. We have an accelerating path and we'll continue to do so. By doing so, we will also reduce our loss in new categories. We will go around 3 net debt to EBITDA.
We will deliver on combustibles and on value on combustibles But specifically, continue to accelerate on our momentum of new categories. We will simplify our business with Quantum and now we have added Quest, which is the enterprise of the future and the next step of our transformation. This is a pivotal year in 2021. We will deliver, we'll transform and we'll accelerate. So thank you very much for your questions and thank you very much for your patience.
Have a nice day and stay safe. And also I remind you that tomorrow we will be at CAGNY. So some of you or the ones that can Participate and join, that would be absolutely fantastic. So see you tomorrow at the CAGNY conference. Tadeo and myself will be there doing presentation and Q and A.
Thank you very much. Have a nice day. Thank you.