Good morning, everybody. Time for the next presentation slot. My name is Gerry Gallagher. I'm a member of the European-based consumer staples team. With me this morning, I have Lukas and Stefan from Imperial Brands, who are here to present on their business. I think the format will be... I don't think, I know. The format will be that Stefan and Lukas will make a few opening comments with a couple of slides. I'll then take it from there with questions, but as always, questions from the audience are very welcome. Please put your hand up, make it known you want to ask one, and I'll be very happy to interject on my questions for people from the audience to ask theirs. With that, over to Stefan.
Yeah, I mean, from my side, also good morning, and great to see you over here in the room, and also casting this on the web. Look, from my side, just a few opening comments, is first, I think I have to go through the technical comments that logically, our usual disclaimer is here. What we'll do, I want to take you just a few minutes through about where are we on our strategy. Lukas will talk about our capital allocation. I think what's exciting is that we are exactly right now at half-time of our five-year strategy. We're two and a half years into our five-year strategy. I think what is exciting, we just presented a few weeks ago, a half-year results for fiscal year 23, that we're exactly at the place we wanted to be at half-time of our strategy.
I think some of the key points of that are captured here. I mean, first, in our tobacco business, which is in our top five markets, which make up more than 70% of our adjusted operating profit, we have achieved our goal of not being any longer the number one share donor in these markets. Yeah? We've held or gained market share in the aggregate of these five markets in the last four half-year results. Yeah? I think it's also important to remind you, because sometimes we get asked the question about each market. No, we've always said it's about the aggregate of these five markets. That doesn't mean that every single market will gain market share or hold market share in every period of time, because that is just not realistic in such a competitive industry as ours.
Number two, you can clearly now see the acceleration in new generation products or NGP products. That's one of the things I was most excited with in the half-year results. Now, you as investors, can see the step up that we've done. Number one, the majority of our products in NGP have been renovated, rejuvenated, reworked in the last 12 months. The evidence of the consumer impact, you can see in our European region, our largest region, also of NGP, the biggest region, where in half one, we grew by 35% versus a year ago. All of that was achieved with an incremental investment of GBP 14 million year-on-year. Yeah. I think that hopefully gives you some evidence that our very differentiated strategy in NGP is working. It is a disciplined and cost-effective way.
Third, a key element of our strategy was to look beyond the top five tobacco markets, where we have a clear strategy to driving growth for a wider market portfolio. Here, again, in the half-year results, show you the evidence of this strategy is working. Our growth in the AAACE region, which brings together many of these markets, and net revenue increased by 9%, and our adjusted operating profit also increased by 9%. Something is clearly working in this area. Finally, a bit away from the numbers, but a very important part of the transformation of Imperial, is the major investments to align our culture with our strategy. We are clearly building the foundations for a different culture, a culture of a challenger in our industry, a culture of a consumer-facing company. I use this as my tease as well.
On the 27th of June, so this month, later this month in New York, we will be hosting an event that is dedicated towards bringing alive the progress we've made on becoming more of a consumer-facing business. Finally, before I hand it over to Lukas, we are clearly on track to deliver our full year results that we guided at the beginning of the year, and that is also to support our medium-term guidance that we shared in January 2021.
That sounds a long time ago. A lot of things have happened, that should give you confidence that two and a half years on, we're exactly where we want to be, and we feel very confident that we will deliver the back half of the year. Now, as I know, many of you are always very interested in the capital allocation policy of this company. Lukas is spending a few more minutes on this.
Thank you very much, Stefan. Good morning from my side as well. I think it's only natural that after the strategy update, we would talk a bit more about the capital allocation, since it was actually developed along the strategy in 2021, and it is a key value driver of our proposition. Its first pillar is to invest in our business. Oh, thank you very much. I forgot that technical piece. Thank you very much, Stefan. The first pillar is to invest in our business to ensure that we deliver the strategy. That is our first priority.
Since our strategy was always an organic proposition, since we were very clear that we will innovate, but we will do so together with partners in an open innovation approach, our CapEx requirements are fairly limited. Also is our M&A, which we have been very clear that at best it will be a bolt-on small acquisition along the way. Our second pillar, important, is that we want to be or to have a strong balance sheet, strengthen our balance sheet, and we define that to be at the lower end of the range of 2-2.5 times net debt to EBITDA. We've reached that destination last year, and we've guided the market that that is the range we would like to be at going forward.
Third, we were clear that we'd like to continue with our progressive dividend policy. Progressive really meaning that it will increase year-on-year in line with our underlying business performance. Finally, now that we have reached our leverage target, we're very pleased that we could launch this year our share buyback, which is an ongoing share buyback, which in the first year, we made the statement of a GBP 1 billion share buyback, a GBP 1 billion share buyback, which we're well progressing this year. Just to put this share buyback in context, that's approximately at current share price, roughly 5% our share capital. If you add to that, roughly 8% of dividend yield, you can see that it's an attractive shareholder return.
Alongside that, I always look at what the free cash flow yield is, which obviously in our company, again, shows that we have a very strong business in terms of also attractive valuation. I think it's just to give you a brief update on where we stayed on the capital allocation. With that, I hand back also to Gerry for the Q&A. Thank you very much.
Thanks, Lukas. Thanks, Stefan. My first question is gonna link what Stefan said and what Lukas said. Given where the valuation is, given the free cash flow yield, whether you look at it on an equity basis or an EV basis, given the leverage in inverted commas is only two and half times, there or thereabouts, the math of your share, your value proposition, given you've got the healthy dividend, which is two times covered, give or take, and you've got the ongoing buyback, it looks pretty compelling. Maybe the question is about your five key markets and the question of, and I'll come back to capital allocation later, and the question of concentration risk around those five, both in terms of geography being 70% of the profits and also in terms of product as the industry is transitioning.
The math on the, on the value side of the share price are pretty compelling. The question is, what happens? I know there's a few others, but the big question is, what happens in those five markets from a geographic concentration, product question? Can you help us join the dots?
Sure. Absolutely, Gerry. Very happy to help. I'm very happy with that concentration. That's probably number one. Why is that? Ultimately, what are the five? Because we didn't spell them out before, is U.S., Germany, U.K., Spain, Australia. Yeah? Within that, the two most important market by far are the U.S. and Germany, not surprisingly. When you look at our industry, and I think that's important, these are twotwo markets that in our industry still have the most affordable products in the marketplace. In relative pricing, they're very attractive markets. Number two, the two of them, and sometimes noise might give you a different impression, but in reality, the facts are they are still, also from a regulatory perspective, two of the most attractive markets in the world in our industry.
We shouldn't forget that where our profit concentration is, it happens to be in very attractive markets that also overall have quite predictable regulators that the industry has learned to work with over a long period of time. I feel good about where our profit pool is concentrated. Now, you logically will always have an outlier that in Australia is clearly not as attractive as the U.S. and Germany, but that is the smallest of the five. I think as we talked about it earlier, Gerry, and I think it's an important piece, as we have the half-time of our strategy. We, obvious reasons, having been a number one share owner in these five markets for an extended period of time, our key focus in the beginning had to be of getting these five's right.
We're clearly at the half-time of our strategy, we got them right. Suddenly, as I mentioned before, we're clearly, there's a lot of good markets beyond these top five, and for the AAACE region to grow 9% in net revenue and 9% in adjusted operating profit in our industry, I think you will find it hard to find something comparable. That should give you as investors also a sense, Imperial is bigger than the top five. We'll continue to talk a lot about them, and we're very happy about these five, but there's more to Imperial than these top five.
Okay, thanks very much for that. Could you talk a little about your next generation product strategy? There's a sense that in the global market, you're maybe the number four player out of the big four multinational companies. Can you talk about how you see that business developing, the amount of resource you're going to put into it, how big it can be in five years relative to the existing business? Just give us a sort of a medium-term strategic vision of that part of your business.
Sure, absolutely. Now, there are many components to this. I mean. To be clear, we see this as an important part of our business. As I said at the beginning, we are a consumer-centric company. One of the mantras of us and one of the behaviors about, we start with the consumer. That is also our North Star for our investments on NGP. It's very clear, unless the consumer is convinced to switch from a cigarette to an NGP product, that is the starting point. We're not here to create the market. Our job is to offer consumers great products and choices, but we are adamant about ultimately, it is the consumer that has to make that choice. The facts are the facts.
The facts are that in our top five markets, when you look at retail sales value as an element where you can compare things, not in a single one of them, net new generation products make up more than 10% of retail sales value. We have to live with the reality of consumer choices being made out there. That means nine out of 10 smokers out there in these markets make a clear choice for cigarettes. Yeah? We want to participate in the NGP business, where we see the market achieving the right size. That's a key differentiation versus our prior strategy. We want to be part of it. We are part of it, but we focus on the markets, where we clearly see a sizable market being there, where we can offer consumers a differentiated proposition.
The other important piece for us is, if you start with the consumer, if that's your guiding light, then you also have to come to the conclusion that if you look across the world, consumers are making different choices when they choose an NGP product. There are markets like here in France, which is all about vaping. This is a vaping market. You go to a market like Poland, where I was a couple of weeks ago, it's a heated tobacco market. You go to Sweden, it's an oral nicotine market. Being guided by consumers, we fundamentally believe an NGP approach has to be a multi-category approach.
Okay, you've talked a lot about the consumer, and being driven by where the consumer wants to go, and you've also talked in the past, and you touched on it in your opening comments around the culture of the business. Imperial used to talk about the consumer a lot before you and Lukas arrived, but what did you have to do to the business to make it, for want of a better phrase, really think about the consumer? What did you have to change about the culture of the business when it was. The consumer was constantly referenced in the past, but you've needed to change things?
I mean, I start in a very practical way. We're here at your consumer goods conference, we were pretty distinguished by having nobody on the executive committee was in charge of consumer, no chief marketing officer at Imperial for quite a while. I think that would have been quite a distinguishing feature in a consumer goods company. That's what we fundamentally have changed. We established a Global Consumer Office, yeah, which is now not just a central team. All the marketeers in Imperial report to the central team. We've really created a function that didn't exist in its current form before. Yeah? The other thing is, I give you, we talk about culture. Virtually every single country visit that we have, starts with the consumer. I was in Germany last week. We met at our, one of our Sense Hubs.
We met a group of consumer, of fine cut tobacco consumers. The symbolism about the CEO spending his time, not just looking first at the numbers, but actually meeting with consumers and meeting, in this case, also our largest German customer on top. Yeah, these are the symbolism that is. I think it's one thing when we talk about, the other thing, please always check where does management change its time? In an organization like Imperial, that clearly is a different point. Lukas can contribute to this one as well, because he spent a long time with other consumer goods companies.
I think, you know, I always tell Stefan that in my previous life, in fast-moving consumer goods, I spent probably less time with consumer than I spend in the last two years. You know, when we go with the board, I do a market visit, with Stefan or alone, it typically ends up with a consumer meeting or an, you know, an immersion group, so that you actually can talk to the consumer, and you listen to them and actually understand what drives their behavior and their consumption. Which is really helpful because it actually allows us to be able to tailor our solution.
Thanks. Linked to that, can you talk a little about the Liverpool and Shenzhen innovation centers?
Yeah.
What is their task? What's their purpose? What have you told them to do?
Sure, absolutely. It's one of the other elements, thank you, Jerry, for reminding me, is about what's also different. We are now strategically investing in innovation centers in the markets. Yeah? While we had a center in Liverpool before, we've completely revamped it now. What's different? We are big believers in partnerships around innovation. We're the smallest. We fundamentally, when you look at NGPs, a lot of innovation has to happen there, and we fundamentally believe that innovation will not be found in-house, that our R&D team, their role is to work with partners. Yeah? To actually jointly develop innovations. The new center in Liverpool, the revamped center in Liverpool, is exactly that. We actually bring our partners into it, so they co-develop with us. The other thing, what we have there, we have now a pilot facility.
Let me describe it to you, why this is, why I'm so excited about it. You bring in consumers in the morning, you talk with them about a certain product. They give you feedback. You go to your pilot lab and your pilot manufacturing facility, you manufacture that product, make modification, and two hours later, with your partners, who can tell you about immediately what manufacturing-wise that would look like in China, so you don't design something that nobody can replicate. Two hours later, you bring that prototype back to the same consumers and tells them about, Hmm, does that meet your needs? I think that is about the challenger mindset. That's about the agility of Imperial, because we're embracing our partners. We don't just treat them as a contract manufacturer, really see them as partners. That's what's unique about it.
Okay. staying on the big picture perspective, you talked about where you are in the five-year journey, halfway through. You've gone through the initial phase, you're now in the three-year phase moving forward, which then leads to the question of: Where can we be post year three? Given the investment you're making, the geographic profile, the products, et cetera, et cetera, where do you think this business can go on a medium-term view? I'm thinking post 2026 or 2025.
Sure.
What do you think a steady state environment for Imperial is in terms of top line growth and margins?
Sure. I mean, mostly, put it this way, I don't want to sit here and give a target for what it looks beyond.
Yes. Yeah.
If I look at in general terms, what you hopefully experience is we're halfway on this five-year strategy. We've come from a quite erratic delivery to something that we're now on a steady pace to a mid-single digit adjusted operating profit growth. Yeah? Probably not lost on you, doing that allows us to pay a dividend yield of 8%, and the share buybacks that Lukas talked about that we're executing right now, gives you another more than 5% return. Yeah? These are attractive numbers for shareholders, especially when you benchmark against other consumer goods companies. Yeah? Do I believe that at the end of that five year, we will be falling back to where we came from? Honestly, we won't. Yeah? Why am I so confident and excited about it?
Because when I look at the level of self-help that was available at Imperial, I'm really excited. Yeah? There's so many things to be in humble that competitors would have done five to 10 years before us, but opportunities that were still available to us, absolutely. I see that growth opportunity available. The reality is we are getting better. We're filling more and more our role as a challenger in our industry, which the smallest one in an industry should naturally be, and I think we're now increasingly starting to fill that. I do, like, won't give you any numbers beyond fiscal year 25, but I think it should be an exciting future for shareholders as well.
Okay. I want to ask a more market-oriented question. The industry's ability to price has been long-standing. Personally, been asked a question about industry pricing for more years than I care to remember.
Yeah.
things are always evolving. There's a tipping point and maybe one or two markets there. I'm talking about the US, I don't think we're at a tipping point.
Yeah
Talk to me about discounting, consumer pressures, you know, market moving to lower price categories and discounting within that. How good, bad, or indifferent is the US market currently?
I would start off exactly, Jerry, on your first comment. I think we need to step away from the current noise, and you look at the fundamentals of the US market. From an affordability context, a pack of cigarettes in the US is among the most affordable packs of cigarettes in the world, and that hasn't changed. Yeah? We shouldn't forget that, yeah? At the same time, the US consumer, like many other consumers, is under pressure across the world. Therefore, you do see a slight acceleration in their trend to look for cheaper cigarettes. Yeah? Now, in a very selfish way, as Imperial, we are in the US, like most of our top markets, we have a portfolio of brand that starts at the top all the way to the entry price point.
I do believe we have the right portfolio in the U.S. market to meet the needs of consumers. Reality is, that's one of the key drivers of our share growth in the US, where in the period of time since the strategy started, we started at the nine share, we're now at a 10.8 share. You see that. That's not just consumers in the bottom end of the market, that's consumers choosing our brands behind our franchise at every single price point. Reality is, I think it's you're not seeing a real change in the trend in the U.S. Fundamentally, what we believe is you might see a slight acceleration of some trends you would have seen, but the fundamental underlying is U.S. market remains a very affordable market for consumers. We're not seeing a major change in consumer trends.
That might be difficult to see in the all the noise we're seeing at this point in time, but I'm paid to look through the noise and look beyond, and I think the U.S. will continue to be a very attractive market.
I believe you, by the way, for what it's worth.
Thank you.
Agree with you. Believe or agree, I'm not sure which, but both. Sticking with the U.S., talk to us a little bit about cigar market. Saw tremendous growth. COVID helped that growth. Seems to have leveled off. Could you talk about how you see volumes and pricing developing in the U.S. cigar, mass-market cigar?
Mass-market cigar.
Yeah.
Gerry, as you touched upon it, I think if you look at the historical performance of mass market cigars, if you look at the longer term, five to 10 year trend, it's been a market where volumes have actually been either stable or growing. Yeah? Which is distinguishing features. This is a very attractive market. Yeah. As you rightly touched, in COVID, the market exploded, which had to do with consumption patterns. At the same time, we have to be realistic, that was a one-off, yeah, that we are now living to a certain extent through the reversal of that. It doesn't change the underlying attractiveness of that market. This is an attractive market where volume will either grow a little or be stagnant, which is good. I think the pricing you would have seen will continue over time.
What I am excited, and I think sometimes not fully understood, we might be a number three player in the cigarette business in the U.S. If you look at our brands in the mass-market cigar, we have two big brands, Backwoods and Dutch. The Backwoods brand is one of the most powerful brands in mass-market cigars. It's the most premium brand in mass-market cigars, and it's a brand that has a brand equity and a consumer association and strengths that is second to none in the marketplace. I feel very good, behind our new strategy, we've made that one of our must-win battles. We've elevated the importance of our mass-market cigar business in the U.S. overall, and I feel very good about the long-term prospect of that business.
Can you touch on some of the markets outside the top five, wherever they happen to be geographically? Maybe France, Morocco, some of the other bigger markets for you guys.
Absolutely. I mean, what's exciting is about as our strategy progresses, we're spending a lot more time on these markets beyond the top five, yeah? I'm going to spend a day with the French business tomorrow. I'm going to be in Morocco in two weeks' time, yeah.
I didn't know either of those. That just shows, you know-
Yeah, it's an accident.
I do know what's going on.
It's a nice coincidence. I think the toolset that has driven the share performance in our top five market, that is very visible to you and to investors, that same toolbox is now being applied to all markets, yeah? There are quite a number of attractive markets in it. To be clear, it depends on the individual market. I mean, for example, it's fair to say that the French market has seen some very heavy regulation, especially some very significant excise increases. Reality is our toolbox is there to be competitive in the marketplace. I'm quite excited, and in the background behind our new strategy, made some significant changes in the structure.
It's a dedicated division that we call AAACE, yeah, that is driving performance and net revenue up 9% and profits up 9%. That would include a market like Morocco. That is exciting news. I think there's a real growth engine being built in the background, very quietly in the background, to drive that performance in the years to come.
I'm gonna ask a slightly left field question. Well, it's not. Davidoff was a brand that previously Imperial used to laud for its potential, but I notice it's missing, might not be the right word, but it doesn't get the same airtime from you guys. Can you talk a little bit about that brand?
Thank you for the question, Gerry. Funny, one of the investors asked exactly the question half an hour ago.
Right.
It reminded me, Davidoff is one of our key brands. I love Davidoff. Our people love Davidoff. It's a great brand to have. It's a premium brand. It has a great equity. It gives me the opportunity to a larger audience to explain why you've heard less of it. Simplistically, top five markets. The Davidoff brand is a very important brand for Imperial, but not necessarily in the top five. That's the reason why you've heard less of it, because we focused a lot of our communication on our top five markets. In the background, a lot of good work has happened on Davidoff. The whole brand equity was written down for the first time.
The brand essence, the brand equity of Davidoff, which had never happened in Imperial before, under a chief marketing officer, with a team dedicated to Davidoff, that is now really driving Davidoff forward in the right way. We have, for example, Flankit. There is something we have launched, Davidoff Evolve, in quite a number of markets which are outside the top five. We're working through some exciting plans for Davidoff. For example, in Germany, Davidoff is an important brand, and when I was in Germany last week, we talked about Davidoff. Yeah.
If I move to next generation products, I'm gonna keep this question very high level, and I suspect I know how you're gonna answer it, but I'm gonna ask it anyway. Lukas, what's the biggest driver for you guys? Heat, heated products, vaping, oral, mix of all three, depending on the market. Can you just talk a little bit about that?
My answer is the consumer decides. I feel very strongly about it. Who am I as an industry player to tell the consumers what they should consume? Sorry, I mean, I'm a trained consumer marketeer, consumer first. It's one of our behaviors. What I clearly would observe when I travel and meet consumers, it's very simple. You have markets where consumers have a preference for heated tobacco. Now, in their markets, where consumers have a preference for vaping, you have markets where consumers have a preference for oral nicotine. Two drivers: A, often regulation. I mean, we can look at Japan as an example, where it's easy why consumers choose heated tobacco, because vaping, nicotine vaping is not allowed, nor is oral nicotine. Surprise, surprise, if you're only given one choice by the government, you go towards that.
You go to the Nordics, it's driven by historical behavior of overall oral nicotine consumption. Where we are as Imperial, we're big believers, let the consumer decide. Ultimately, I do believe if you want to be successful in NGP long term, you have to offer a multi-category approach. Based on the product solutions that are available today, I want to put that as a big flag over it. Based on the choices the industry has been able to develop over quite a long period of time, there might be a killer product coming down the road that might change that dynamic.
I have to observe consumers' preferences today, and it really depends on the market, what choice they have. My role, our role as Imperial, is to offer consumers choices. Here in France, we're offering them our vape products because that's their preferred choice. You go to the Nordics, we offer them our oral nicotine products. You go to Poland, we offer them heated tobacco. That is our role.
I'm gonna switch to ESG. Could you To what extent is the door opening even a little bit with ESG-focused investors, or is it just not happening? Can you give us your sense of people being prepared to buy into your story?
I think I see a door opening. Yeah. It's not swinging wide open, Jerry, but I think there are two things. I do believe with the progress that we're making in our NGP strategy, which goes against the social responsibility that the company has, I think we are starting to gain some credibility about this can make a difference. In one number, in Europe, our biggest region, 7% of our net revenue gets generated from our NGP products already. That hopefully will grow over time, but it's not zero, it's not one, it's not two. It's a meaningful number now, yeah? I think our commitment is becoming clearer and clearer to the outside audiences.
What we shouldn't forget, while the focus naturally in our industry has to be on reduced harm products, we have a big component about our social, our environmental responsibility and our governance responsibility. We had a forum of a net zero symposium about the environmental impact at our offices a while ago. A professor at the university came, and I think it was Lukas, who asked him the question about: You as a professor here with a tobacco company. The beautiful answer was: "You know what? For the environment, it doesn't matter whether it's one ton of CO2 less emitted from a tobacco company or another company." I think there's a recognition that this company can make significant progress on this front as well.
I think it will always live within the confines of our industry, but I think what you have is a management team that truly wants to make a difference. We've hired a very senior executive from Unilever who joined us because who lived in the ESG space all his life, Unilever. I can tell you, he's super excited because he can really make a difference.
I'm going to move on to capital allocation. I think the way you outline your capital allocation policy is pretty straightforward and to be lauded. We can argue about, or not argue, we can debate dividend growth relative to share buybacks, but would it be reasonable to assume, and I appreciate both decisions of the Boards, not just the two of you sat here.
Would it be reasonable to assume that the buyback will stay at least at GBP 1 billion moving forward and may grow, and that the dividend will grow as well, and that prodigious free cash flow you have, bearing in mind your leverage is, you know, two- two and a half times, that the vast majority, and your CapEx requirements aren't huge, there's only going to be built on M&As. Is it the point that your free cash flow, which is not gonna be diluted materially by bolt-ons or CapEx, is all coming back?
Let me answer that in two forms. One is the progressive dividend that you approached or touched on, and then the share buyback program. I mean, we've been very clear that our dividend policy is a progressive one, which really means, as I said before, will increase over time. You know, I think the progressive dividend is currently linked to the underlying performance. We have chosen the operating profit as the proxy for that, the underlying performance, and I think it's a good proxy for cash. We will remain and keep the flexibility to decide what we do and what is the underlying proxy we take. I think, you know, we are, you know, our cash generation is unbroken, and therefore, we can maintain that flexibility to do what's best for the shareholder.
One thing is clear, it will be progressive, it will grow, and we will see what is the best metric to take to compare that to our underlying performance. The other good thing of our business is that we are an and company, so we don't just see share, the progressive dividend as one and then say, Okay, do we do this or the share buyback?" We want to do both, and it's very clearly stated in our capital allocation that we want to do both, and we can do both. We have just started the first year of our accelerated strategic plan. We're delivering accelerated returns. As you have seen, we've guided the market to the lower end of our mid-single digit this year. We remain unbroken with our cash generation.
You know, we're very pleased that we have been able to launch the GBP 1 billion share buyback this year. Clearly, from what you said, this is an ongoing program. Having said that, also, not to pre-judge and preempt the board discussion and the board decision, you know, we'll come to the market when the time is ready to give the advice of next year.
Okay. I think that's a pretty clear message. Any questions from the audience before I progress? I've got one more I'd like to ask. Okay, we've got about three minutes left. Stefan, you mentioned fine cut.
Mm-hmm.
Can you talk a little bit about your fine cut business, given the consumer pressures, how much you see that business developing moving forward? Maybe touch on the U.S. Is the U.S. just not viable because of excise? Just help us understand that.
Sure. I mean, Gerry, I think it's a good example. In our talk, there wasn't an accident that we had to talk with fine cut consumers in Germany, because, again, if you're consumer-driven, then number of our markets, Germany is a good example, where fine cut are a very important part of the total market. Part of our strategy, if I start with the consumer, we have some countries where fine cut growth is one of our must-win battles.
Yeah? As you rightly touched upon it, reality in some market that is driven, they have sizable fine cut segments because the government have recognized they need to offer lower-income consumers or people who have really a preference for roll your own, a tax incentive, yeah? Otherwise, they will drift into illicit markets, or they drift into the markets of neighboring countries. That cannot be in the interest of governments, yeah? To answer U.S. questions, I think we come back to the affordability.
Mm.
I mean, the reality there is that typically, size of a fine cut markets where the excise take is very high, so where there is a real economical trade-off, where there's an incentive for consumers to move into fine cut. Given the relatively affordable pricing of cigarettes in the U.S., you don't have that element, yeah? The challenge is, and you have historically, not a big consumer need for fine cut. It's always one on the watchlist. We just don't see that as a priority at this point in time. There's so much we can do with our portfolio of cigarette brands, as you mentioned before, our mass market cigar business. Don't expect us to launch a fine cut business in the U.S. at this point in time. I think there's so much growth opportunity in fine cut in many of the other markets.
Great. Okay, unless there's any questions from the audience, there's a final wrap-up. Doesn't look like there is. Stefan and Lukas, thank you very much for your time. Really appreciate your comments. Thank you very much.
Thank you, Jerry.
Thank you.