Hello, and welcome to the British American Tobacco 2020 full year pre-close trading update. My name is Molly, and I'll be your coordinator for today's event. Please note that this call is being recorded, and for the duration of the call, your lines will be on listen- only. However, you will have the opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you will be connected to an operator. I would now like to hand the call over to your host, Mike Nightingale, Head of Investor Relations, to begin today's conference. Thank you.
Thank you, Molly. Good morning, everyone. I'm Mike Nightingale, Head of Investor Relations, and with me this morning is Tadeu Marroco, our Finance Director. Welcome to our full year 2020 pre-close conference call. Just before we begin, I need to draw your attention to the cautionary statements regarding forward-looking statements contained in the trading update. I will now hand over to Tadeu, who will say a few short words on the current trading before we open up to questions. Unless otherwise stated, our comments will focus on constant currency adjusted measures. Over to you, Tadeu.
Thank you, Mike. Good morning, everyone, and welcome. Thank you for joining us this morning. In 2020, we are transforming BAT and continuing to grow the business against the challenging global backdrop caused by COVID. Throughout the year, our priority has been the health and well-being of our employees. We have made no redundancy or furloughs as a result of the crisis, and we have continued to pay all our employees in full. It is the commitment and dedication of our people around the world that has ensured that we are on track to deliver a strong set of results in 2020. We are committed to building A Better Tomorrow, delivered by our continued focus on the three strategic priorities. Reducing the health impact of our business through providing a range of enjoyable and less risky products is the greatest contribution we can make to society.
We continue to be clear that combustible cigarettes pose serious health risks, and the only way to avoid this is to not start or to quit. BAT encourages those who would otherwise continue to smoke to switch completely to scientifically substantiated reduced risk alternatives. We are continuing to increase investments and to drive a step change in New Categories. We are very proud to now have around 30 million consumers in non-combustible products. We are growing value share in V apour, volume share in THP, and delivering strong revenue growth in Modern Oral. Our New Category revenue performance is accelerating in the second half despite a strong prior period comparator. We are continuing to drive value in our Combustible business and are on track to deliver savings of at least GBP 300 million from Quantum.
In addition, the radical transformation of the organization and increased agility brought about by new ways of working, have enabled us to quickly and effectively adapt to navigate the challenge caused by COVID. The business performing strongly against an environment which remains uncertain due to the global pandemic. We are on track to deliver on our 2020 guidance. Cigarette and THP volume has improved over the second half, driven by continued resilience in the developed markets and some improvements in emerging markets such as Brazil, Bangladesh and Turkey. We expect to outperform industry volume, which we now expect to be down around 5% decline, with U.S. industry volume broadly flat. Given this continued strong pricing and a reduced full-year revenue headwind from COVID of around -2.5%, we now expect to deliver revenue growth at the top end of the 1%-3% guidance range.
In this improving trading environment, and thanks to our strong cash generation and tight cost management, we have taken the opportunity to further increase New Category investments in the second half by close to GBP 200 million. This represents a total additional New Category investments of around GBP 450 million in 2020. We continue to expect to deliver mid-single figure constant currency adjusted diluted EPS growth. This is despite the further increase in New Category investment, absorption of a one-off impact of New Category revenue of GBP 50 million following our decision to withdraw glo Sens from the Japanese market, the effect of a strong prior period comparator, and associate income from ITC that is significantly negatively impacted by COVID.
We expect a translation headwind of 3.3% on full year 2020 adjusted diluted EPS, with the impact expected to be between 2%-3% for the full year 2021, applying current foreign exchange spot rates. Turning now to trading in the New Categories. In Vapour, Vuse/ Vype is fastest growing international vapour brand, growing value share of its top five markets by over 7 percentage points to 26% year- to- date. The brand has now achieved value share leadership in closed systems in four of the five largest vapour markets, exceeding 50% value share in two of them. Vuse/ Vype is number one in device sales in all top five markets, with device volume share in excess of 50%. In the U.S., Vuse is the fastest growing brand with 24% value share of total vapour year- to- date, driven by Alto at 19%.
Vuse continues to close the gap on the market leader and has achieved value share leadership in seven states. Vuse also took market leadership in Canada in August, having commenced the brand migration from Vype in May. Canada is the first market within the top five to migrate to Vuse and achieved a 100% retention rate. Market share for Vuse at the end of October reached 64%, driven by the success of ePod. Migration to Vuse in the remaining top five markets will be completed during 2021. In THP, the continuous success of Hyper was reflected in glo reaching record total nicotine volume share in Japan of nearly 6% in October, with Hyper reaching 2.3% nicotine share. Hyper has maintained a conversion rate in excess of 50%, 2x higher than any previous glo product.
Glo continues to grow volume share in ENA with a THP category share of around 15% across the top eight markets. In Moscow, Hyper drove glo's volume share of total nicotine to a record 3.3% in October and was the top performing THP brand across all tracked social performance metrics. We expect growth of close to 20% in THP volume in 2020, reflective of the successful launch of Hyper in Japan in April and its subsequent rollout into key cities in ENA. THP revenue is expected to be down, mainly due to the year-on-year impact of the withdrawal of Sens and excise harmonization in Japan. In Modern Oral, we continue to grow strongly and to consolidate our leadership position outside the U.S. In the U.S., in November, we announced the acquisition of Dryft. The acquisition significantly strengthens our position, expanding our portfolio from 4 to 28 nicotine strengths and flavors.
It also enable us to participate in the segment above 6 mg nicotine, which represents 6% of the category. The Modern Oral category in the U.S. has benefited mostly from geographic expansion by all the key market participants and currently represents around 1% of the U.S. nicotine market. Velo-branded Dryft products have now been launched online and into distribution in Circle K stores in the U.S. We expect to expand the distribution of the Dryft products from 20,000 to around 100,000 outlets by the end of the first half of 2021. We are building capacity and expect to be unconstrained around mid-2021. In ENA, we are consolidating our clear leadership position with share growth in all key markets. We are achieving conversion rates from trial to regular users of over 50% and have higher average daily pouch consumption than the category average.
In summary, we are entering 2021 with good momentum across all three New Categories with some exciting new launches planned. In Vapour, we are launching a Bluetooth-enabled version of Vuse providing electronic age verification. The product will be launched in Canada as a pilot market in the first half of 2021. Our Vuse Alto PMTA submission in September also included age verification technology. In early 2021, in line with our ambitions to explore and to broaden our portfolio beyond nicotine, we are planning a city test of a CBD vaping product in the U.K. In Modern Oral, to better meet consumer needs, we are leading with the launch of the first mini pouches with a recyclable can in Sweden, Norway, Slovakia and Switzerland. We plan to expand to at least 10 markets by Q1 2021.
We also aim to make all our modern oral cans outside the U.S. recyclable in the first half of 2021. We will continue to lead in innovation in our multi-category approach. Moving to driving value from Combustibles. Our excellent performance is underpinned by resilient industry volumes, particularly in developed markets, with BAT outperforming the industry. Continued strong price mix drove global value share and is up 20 basis points, and our strategic brands' value share up 40 basis points. The U.S. business continues to perform strongly with an excellent performance from Vuse and good price in Combustibles. Corporate value share is up 40 bps and premium share is up 50 bps year- to- date. This is driven by Natural American Spirit and Newport. We are growing share in the branded value segment and to date, we have seen no accelerated downtrading. Moving to the balance sheet.
We maintain our strong liquidity profile following recent successful debt issues. We remain committed to our targets to reduce adjusted net debt to adjusted EBITDA to around 3x by end 2021, and maintain our 65% dividend payout ratio. This will be achieved through continued strong operational cash conversion in excess of 90% of adjusted profit from operations. Turning now to ESG, which is central to our strategy. I'm pleased to report that we have recently received further external recognition, building on our BBB MSCI rating and the recent improvements on our Sustainalytics score from 28.2 to 27.8. BAT has again been named in the Dow Jones Sustainability Index for the 19th consecutive year, and is the only tobacco company to be included in the DJSI World Index.
BAT has been included in the Financial Times Diversity Leaders list for a second consecutive year, with our score increasing from 7.08 to 7.23. We have also been included in the A list by the Carbon Disclosure Project, CDP, for climate change action for the second year in a row. Finally, tomorrow, we are launching a sustainability focus report on human rights, the first by any company in the tobacco industry. In conclusion, the business is performing strongly during this challenging circumstance, and we are on track to deliver on our guidance. We are investing, delivering, and transforming the business, thanks to our continued focus on our three strategic priorities. We are growing share in New Categories driven by innovation and increase in investments, supported by continued value growth in Combustible and the benefits of Project Quantum.
This enable us to both deliver on our financial commitments and become a faster, simpler, more agile business. In summary, we are delivering on our three strategic priorities. We now have around 30 million consumers in non-combustible. We are investing an additional GBP 450 million in New Categories and continue to deleverage the company. We are committed to our A Better Tomorrow purpose. Thank you. I will now open the call to questions.
Thank you. If you would like to ask a question, please press star one on your telephone keypad. Please ensure that your line is unmuted locally. You'll then be advised when to go ahead with your question. This question comes from the line of John Lienster calling from Societe Generale. Please go ahead.
Good morning, gentlemen.
Hi, John.
Hi. Yeah, a few questions, if I may.
Yeah.
First question is on glo in Japan. I think at the interim results, you said your exit rate in June was sort of 5.9%, and then you say here it hit a sort of high in October of 5.9% with Hyper, having risen from 1.3% to 2.3%. Does that imply that Hyper is just cannibalizing existing glo? Why is the total share of glo not really risen in a segment that has clearly risen within the total market? Would be my first question.
Okay. John, look, the point, the reading in the middle of the year was one ad hoc reading, a weekly reading that we quoted at that time of 5.9%. This one now in October is a more robust reading throughout the end of the month. We are clearly growing as a family. There is some cannibalization. Our total category market share is growing as well in Japan, where now is likely above the 20% mark. We were below that by the middle of the year. There is clearly a growth expansion on the whole glo family. The glo Hyper is outperforming within that.
Okay. Secondly, I think you mentioned that you don't expect to be capacity constrained in U.S. Modern Oral by the middle of 2021. Can you give us some idea of what that capacity would be?
We have already a very well-established capacity in our current SKUs, and as part of the Dryft acquisition, we are also inheriting third-party supply capacity for the current Dryft volumes, and we are bringing machine from outside also to reinforce our capacity in the U.S. When we mean to be unconstrained, it's basically a combination of all those three. Eventually move some capacity from the current one to the Dryft format, but also being able to reach at least 60 million by mid of next year, which we believe that will be a good capacity to fulfill our plans and go above that in the subsequent periods.
Thanks. Lastly, if I may, obviously South Africa was rather bizarrely shut for a long time. Now it's reopened.
Has the market moved back to the legal market, or is there still significant problems with illicit trade?
Well, the South Africa market, you have to consider that before the crisis, the government was doing massive inroads in illicit. In 2019, for the first time in many years, we saw a reduction on the illicit trade, given the enforcement of the new government that has been assuming power at that time. Clearly, for the first time, BAT in many years was growing volume, was growing turnover, was growing share, growing profit. All of a sudden, this came to a halt in the end of Q1 this year. The illicit at that time has been dropped back to the likes of 52%. Then you have this extended period of time without being able to sell any cigarettes. The illicit dominate the market. New network were established as a consequence of that.
Now the level of illicit is higher than was before, as you would expect, because it takes some time for these networks to be disassembled again and the government to be refocused on what they had done before. As we speak today, we saw an increase in illicit trade from the likes of 52% before to close to 60%. The government now needs to go back and do what they have done before the pandemic, which is a clear demonstration that when we have the willingness, there are ways to tackle that. We'll be supporting for sure.
Okay. Well, thank you very much.
The next question comes from the line of Gaurav Jain calling from Barclays. Please go ahead.
Good morning, Tadeu. Thank you for taking my questions.
Good morning.
Two questions. Number one is, can you share your initial thoughts on FY 2021 volume outlook, especially in the U.S.?
Well, Gaurav, 2021, you know that today is still very volatile for us to make predictions now. We have a new government in the U.S. There are now discussions about fiscal stimulus. The COVID crisis nowhere near the end. We have a bright light at the end of the tunnel, but it's still a long months to go the vaccine to be rolled out. It's very difficult, at this point in time, to have a firm prediction about the volumes. The fact is that 2020, as you saw in our statements, a very solid U.S. market. It's a number of factors impacting in a favorable way the U.S. market, but it's very early to call. We expect to do a more firm view on the U.S. market by our year-end results in February.
Thank you. My next question is, your two long-term objectives. One is high single-digit EPS growth, and the second is New Categories revenue of $5 billion by 2025.
That would imply that annual New Category revenue growth would be like GBP 700 million per annum versus the GBP 200 million-GBP 300 million growth that we have seen in the last two, three years. Does it require a significant step up in NCR growth rate and investment? I guess the question I'm trying to ask is that, are these two goals incompatible with each other?
No, I don't think that they are. We clearly have prepared the company to allow us to continue to generating the savings that we need. That's why we launch Project Quantum. We also have a very strong Combustibles business, as you know. These both factors will be generating the funds necessary to fulfill the growth of New Categories. You have to take into considerations that 2020 is a very particular year. We had, for example, a number of headwinds in 2020 New Categories that materialize. The COVID impact on supply chain in the first quarter as a consequence of the shutdown in China, like we spoke in the half-year results. The closure of shops in India and Japan happened again in the second lockdown in Europe.
In marketing activation disruption, we have the Modern Oral ban in Russia at the end of 2019, beginning of this year that we had to lap. We had also the impact of glo Sens that we've talked about. There were a number of factors. The Vapour industry is still recovering from the value crisis in the U.S., and also the new legislation, the FDA at beginning of the year. I think that we cannot read much through the numbers in absolute terms in 2020, in terms of [audio distortion]. The most important thing is just to understand and to recognize the momentum that we have in all those categories. As we've quoted before, we are growing share in every single of those categories. In Vapour, we are really leading four out of the five top markets and making big inroads in the U.S.
In Modern Oral, it's just solidifying our leadership outside the U.S. In the U.S. now with Dryft, we have a much more competitive offers to consumers. In THP, we are getting close to 20% volume growth despite the headwind of glo Sens. I think that this gives us the reassurance that we'll be able to achieve our GBP 5 billion target by 2025. At the same time, continue delivering our financial algorithm as soon as the pandemic is over.
Sure. Thank you. My last question is just on share repurchases, like you're issuing that at maybe like 2%, 3% cost of debt, and your equity free cash flow yield is north of 10%.
The leverage once we adjust for the associates, I mean, it's not really 3.2x. The economic leverage is much lower. Why not start buying back the stock today?
Look, the capital allocation is a subject that we'll be reviewing on a constant basis. We believe that the best thing we can do for the next year is to strengthen our balance sheet. We have done a very good exercise recently in terms of liability management that changed the shape of profile of the debt moving forward quite nicely, like we point out in the announcement. We believe that the best way to remunerate our shareholders at this point in time is to keep the dividends as it is. It's part of the DNA of the company. We also want to continue investing in our M&A business, in New Categories business through eventually some M&As like we just did with Dryft in the U.S.
By the time we get to the end of 2021, and we have reached around 3x leverage, we'll be reviewing again the capital allocation, and if the circumstance persists as it is today, because I agree with you about the undervalue of the company, we'll be reconsidering all those points again by then. Okay.
Well, thanks a lot.
The next question comes from the line of Alicia Forry calling from Investec. Please go ahead.
Hi, good morning, Tadeu. My first question is on the guidance. The global volumes look to have been about 2% better than you're previously expecting, and that's with a skew to on the higher price mix developed market.
I'm surprised that the top line guidance was not raised by more than the roughly 1% you've indicated. I appreciate you've touched on a few factors holding back revenue growth this year, but could you perhaps be a bit more specific on which factors have primarily held back that top line?
Yes. Sure, Alicia. Look, like we articulated between the half year, there are three major drags for BAT this year. The first one is the global travel retailer. Although the volumes is not that much material, there is a massive value intrinsic to those volumes and the business, if anything, was completely decimated. The second one is South Africa is a big market for us because we are leaders, and we couldn't sell one stick of cigarettes since the end of April until the second half of August. It was a big blow in terms of revenue. Weakness that we saw many emerging markets. There are a lot of disruption, mainly that happened in the first half of the year. The likes of Mexico, the likes of Pakistan and Sri Lanka, markets where stick sales are predominant. This was a big drag that was difficult to recover.
We had some upsides, like you referred to. The developed markets clearly outperformed in this crisis. Our performance in the U.S. in particular as well, was very beneficial. This all nets to this 2.5% i mpact that we are quoting in terms of turnover. That's why it lies behind the numbers.
Okay. Thank you. My second question is on Modern Oral, in the U.S. Obviously, a very exciting growth category. Many companies are involved in developing this space. Can you characterize the competitive landscape that you're seeing there, and has there been any change in competitive dynamics there, in particular, with regard to price mix?
Yeah. You said it's a very fast-growing segment, although it's still 1% of the U.S. nicotine pool. It's important to quote that because we have to put things into perspective. If you look from the other more developed traditional oral markets, the likes of Norway, for example, modern oral is now reaching a bit more of 20% of the market. In Sweden, for example, it's something like 8%, where similar to the West, that's closer to the 10%. It's a very competitive category, like you referred to. We have players investing with new products and in our case, in particular, we were not able to compete freely across the whole scope of the category because we were limited with the offers that we had in place. We are testing.
The reason that we are now in Circle K is actually to test our marketing mix to make it as more competitive as possible and in order to be able to roll out the rest of the country from beginning of next year onwards. I think that we'll see how this pans out and we are very optimistic in terms of the possibility to extend our range of offers from 4 SKUs to 28, as you can imagine, and be able and compete in a segment of above 6 mg that we were not before. Have to see, and I think that it's a bit early to make predictions in terms of price mix. I think at the moment, all players are trying to compete, trying to increase distribution. More important now is to have the right marketing mix in place.
Thank you. If I could just ask a final one. Can you update on anything that you're seeing in the U.S. market with respect to various local menthol bans? What impact, if any, are you seeing on consumer behavior in those areas where there have been local menthol bans?
Well, where they have been, in reality, we haven't seen much impact, because at the end of the day, the consumer end up circumvent that and buying in other geographies, close by or by e-commerce, if possible. There was no really implications in terms of sales. We still believe that the FDA is the body that is the one responsible to make this type of calls. In seeing in the priority list of the FDA, we are not expecting to see either menthol ban or nicotine control enforcement any time soon. In reality, we are seeing, for example, based on the latest youth research incidence in terms of use of menthol in cigarettes and vaping, that was a remarkable reduction compared with the previous year, which just takes the pressure off.
Another point that I would like to make around that is that as time passed by and you start having examples of menthol ban outside the U.S., you can use this as a kind of a reference for the future. We just saw this year, for example, the introduction of menthol ban in Turkey in January this year, and as you know, in May in Europe. Both of these countries, in Turkey, the level of retention was even higher than 100%. In our case, we gain that market share because we had a differentiated product in Turkey with a differentiated format and a differentiated filter. In Europe, we had also make a retention above 100% because we were present in the New Category space, and we saw that out of the cigarettes, we had a retention of 91%.
Some 2%, 3% decide to quit completely the category, the balance decide to move to New Categories, where 7% move to Vapour, where, like we just spoke about, we were very strong. As a consequence of that, in terms of nicotine retention, we were more than 100% than we were before the menthol ban. If you now make an analogy of those circumstances back to the U.S., you see that Newport, which our largest menthol brand in the U.S., is the one that has the 7% of the franchise in a differentiated format with 100 mm length that cannot be copied. As you know, the FDA has frozen all specification of cigarettes since 2007, you cannot launch new SKUs in the market. It has also the lowest level of mentholation in the market. We are present and making big inroads in the New Categories.
I think that in future, if we see a menthol ban coming in the U.S., we'll be well-prepared and those facts already happening outside the U.S. is a clear indication for that.
Thank you.
Your next question comes from the line of Sanath Sudarsan calling from Morgan Stanley. Please go ahead.
Hello. Good morning, all. A very quick question on the level of investment. You've done a very good job recruiting new consumers this year, but the level keeps higher. How should we think about what seems to be the right level of overall investment in this category going forward? I'm particularly interested about you still maintaining the GBP 5 billion revenue ambition by 2025. What should it mean in terms of profits for the shareholders? Secondly, could you just briefly touch upon how your emerging market is shaping up post all the restrictions. Are you seeing down-trading? Are you seeing brand migration? Are you seeing more coming away from the illicit market? Could you just give us more general view on emerging market consumer, please? Thank you.
Okay. It's a lot of questions, Sanath. Let me try to address them. Look, we are very pleased with the performance on the non-combustibles consumers base. We have 13 million. It's almost 30% more than a year ago. As you know, we have the ambition to reach 50 million by 2030. That we set out in our revised strategy back in the CMD March. It's important to recognize that today there are already more than 80 million of those non-combustibles consumers out there, and we have 13 million of that. There is already today a massive contestable space for us to go after.
This is what gives the confidence that we are able to achieve the GBP 5 billion by 2025, because given the strength of our portfolio in the New Categories and the contestable space that already is there today, and if anything, will continue increasing over time, will give us all the indications that we are able to achieve that and start accelerating our growth from next year. In terms of profit for shareholders, I do believe that we have invested a lot in the New Categories in the first years in building the necessary capabilities to be successful, the likes of IPs, designs, digital innovations, and so on and so forth. More recently, we have resource allocate this level of investments to more consumer-facing type of investments. We think that we have the right level.
It's a consequence now of year after year, it's a consequence now to see the revenue growing faster. In reality, we expect that we have reached the peak in terms of losses in our P&L in new categories in 2020, which means that for 2021 onwards, the New Categories we expect to be more EPS accretive. This, together with our cost agenda that we articulated at mid-year in terms of the Quantum, the full year, last year, we expect to generate the true levers necessary for us to continue delivering our financial algorithm while transforming the business. In terms of your emerging markets, as it is today, it's a basket case here in terms of mix. It's a mixed case. We have countries like Brazil, for example, performing extremely well.
We are seeing double-digit volume growth in Brazil this year as a consequence of interruption of illicit flow from Paraguay. Remember that a lot of those emerging markets has been impacted by illicit, and illicit, if anything, is still grow. It's growing slightly lower this year, it's still above the previous year. The likes of Pakistan, for example, is growing, the likes of Indonesia now more recently because of the excise and so on. We have markets where we can control illicit, Brazil is a typical example, perform extremely well. Where you cannot, like South Africa was an extreme example, still with a lot of work to do in terms of recovering that space that we lost. I think at the end of the day, it's a very mixed picture out there. Overall, we are seeing some spots of good performance.
We quoted Turkey, we talked Bangladesh and Brazil, which is trying to offset some others that is a more negative view. Okay?
Thank you very much.
Before we move to the next question, please be reminded that if you would like to ask a question, please press star one on your telephone keypads. The next question comes from the line of Rey Wium calling from SBG Securities. Please go ahead.
Hi, Tadeu. Good day.
Hello.
I'm just curious if you maybe can just elaborate a little bit more on South Africa. If we now take since you have been allowed back in the market.
What is your market share, for instance, relative to what it was in the same months in the prior year? Are you down? What I understood is that the illicit side, well, it has gained a foothold, and you're struggling to dismantle that. Is this a correct assumption?
Yeah. The problem with the South African market is not about market share. The problem is the whole market because the illicit, like I mentioned before, we had this problem related to the incidence of illicit growing from the likes of 52% to very close to 60%. Our share is pretty much flattish throughout the period when you saw our performance, and we had been growing share, like I mentioned before, until Q1 2020. We enter in a very strong momentum just before the COVID crisis, and we were able to cap at that level broadly after the crisis went through. The problem is the size of the market because of the illicit now make some inroads because of these networks that were established in those months that there was no legal sales of cigarettes. This needs to be dismantled.
I have to say, the problem to tackle illicit in South Africa, the government has demonstrated in the past that it's possible to be done. We are very optimist that with the learnings that they had before the COVID, they could reassess that and making again inroads tackling illicit problem in South Africa.
Good. I just have a question regarding the overall New Categories revenue. I know your longer term or medium-term target, I think it's 30%- 50% a year. In the first half, I think it was 15%. Based on what you've said about the GBP 50 million hit in Japan and heated tobacco products revenue down, are we going to get a bit of an acceleration into the second half revenue versus the first half? Probably still falling short of that 30% target. I just want to get an idea, sort of the ramp up, until we get to growth rates, about 30%.
Yeah, no, we didn't provide guidance for New Categories into revenue growth. For this year, 2020, we had a 12% increase in the first half of the year, we are saying that we accelerate in the second half. Despite the headwinds coming from glo Sens, for example, and all the points that I mentioned before, we are expecting to perform better in the second half than we did in the first half. That is the comment that we want to make at this point in time. My point that I raised before is that we had to be cautious that this was a very particular year, a very difficult year, giving all the backdrop that I highlighted before. We were, for example, in until recently with all our Vapour stores closed again and across Europe.
A second lockdown. We have problems in the first half and so on. We have to put this into context now.
Okay. Finally, I just want to put you back on the spot about the share buybacks. Did I understand it correctly that you said that once you get to a net debt to EBITDA around about 3x , you would probably then put it back on the table to consider? I just want to get a broad idea at what sort of levels share buybacks could be a feature again.
Well, I think that we are getting very ahead of the game here. As I said, capital allocation is constantly being reviewed. We are very clear for the year to come that we want to strengthen our balance sheet, hence the leverage the company to the levels that we have said before. We want to continue investing in New Categories and continue doing the dividends of the 65% payouts as we have been saying for a while. What I said is that, for sure, by the time we get to this level of the leverage around 3x , we will get more flexibility, and hence you have to put all those things back on the table. This will depend a lot in terms of the evaluation of the company at that time as well. A number of factors.
Yeah.
Are in play now.
Yeah. Okay, excellent. Thank you.
Thank you.
The next question comes from the line of Alan Erskine calling from Credit Suisse. Please go ahead.
Hi. Good morning, everyone. Just two questions for me. One, a point of clarification on the 2.5% impact of COVID-19. Obviously, some elements are very easy to quantify, like travel, retail, et cetera.
Some are harder to quantify. I would imagine that certainly some of the better performance in the U.S. is because people have more discretionary income to spend. They have more home time. Similarly, Northern Europe will have benefited from tourists staying at home. I think, Tadeu, you indicated that the 2.5% was a net number, that was your best guess of what all of those easy to quantify and less easy to quantify impacts were. I just want to clarify that is the case.
My second question is just, what learnings have you had from the failure of glo Sens? Clearly you did a work going into the launch of that. What disappointed you? What went wrong with that product? Thank you.
Thank you, Alan. Yeah, look, your first question, you're absolutely right. It's very hard to disentangle all those different elements. You see the U.S., for example, market that is performing quite well this year. We saw that one of the big impacts that is responsible for that is related to the vaping slowdown and stopping the outflow to cigarettes. We know that. There were, for example, shipment days that were beneficial this year, oil price, a very low price, and we know about the correlation between oil price and the sales of cigarettes. There are a number of effects other than the potential fiscal stimulus and all that, because you saw that the fiscal stimulus withdraw in July, and the volume was still holding on very nicely throughout the second half. The same happened in many other markets.
For example, we were in Mexico, Argentina, where it was very badly hit by COVID, and hence the sales. We were able to come back to the market in a much more agile way and making inroads in terms of share that mitigate some of that. This 2.5% is a really consolidated figure related to that. That's the first question. The second point, well, look, I think that the glo Sens, just to remind us, the glo Sens was the use of basically two different consumables. One is tobacco and the other is the liquid pods that were running out at different times and were clearly complicated for consumers. While the satisfaction was not optimal either. We gave all the support to increase the penetration. That was the key metric for us in the first half of the year.
We finally decided to withdraw the product to avoid being distracted to a very successful glo Hyper launch. I think we have fundamentally changed our beta testing, our consumer validation methods to prevent such failures in the future. One point that is important, because this is a consequence of trying to be leaders in innovating. We can be successful, as we demonstrate through the glo Hyper being the first in the market with the induction technology, or not, as was the fact of glo Sens. The important is to learn fast and to improve for the following launches.
Thanks, guys.
Thanks you .
We have no further questions coming through on the phone lines, so I'd like to hand the call back over to Tadeu Marroco to close the call. Thank you.
Thank you, everyone. In summary, just to leave the message with you all, the business is performing well in challenging circumstances. We are guiding to the top end of our 1%-3% revenue range, and we are capitalizing on strong momentum in the business to invest a further GBP 450 million in our New Categories. We have been, as you saw, making big inroads in terms of our non-combustibles product consumers, growing almost 30% to 30 million now. In Vapour, Vuse has increased substantially its value share across the top five markets. In THP, we're expecting the top eight markets now to be above 50% of the category. In Modern Oral, Velo Lyft has consolidated their leadership outside the U.S., and the Dryft acquisition, significant strength to our U.S. position. The business is performing well.
We are on track to deliver on our mid-single digit constant currency EPS growth guidance. Let me tell you, we could have delivered high single figure EPS this year in 2020. We are clear that continuing to invest behind New Categories is the right thing to do for the business, and we want to leverage on the momentum that we have. We are investing, we are delivering, we are transforming the business, and we are committed to our purpose to build A Better Tomorrow. Thank you. I look forward to speaking to you all in February at the prelims, and I wish you and your families a very happy Christmas. Thank you, everyone.
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