Good morning, everyone, and welcome to our full year results presentation. Thank you to all of you for joining us here live in this room. It's really great to see all of you. Of course, I also want to say welcome to anybody who's viewing our event today, this morning online. As usual, I will draw your attention to the disclaimer before I introduce you to the team. I have here, hopefully not the first time you see him, it would be Lukas Paravicini, our CFO, and Peter Durman, our Head of Investor Relations. What we'll do this morning, I will first outline some key headlines and key achievements of today's results. Lukas will then explain how our strategy is delivering positive financial returns.
I will come back with some further color on how we're delivering in our key markets and in our key categories. Finally, as usual, I very much look forward with Lukas to answer any question that you might have. I'm pleased to report that we're well-positioned to deliver on our five-year plan to transform Imperial. Today's results demonstrate good progress against that strategy so far. Now, the key headlines are, first, our targeted investments in delivering operational improvements, both in our combustible business and in NGP. In combustibles, the actions we've taken in our top five markets have been driving a 35 basis point improvement in aggregate market share. This follows at least five years of consecutive decline, and it's further evidence that we've now stabilized our core combustible business.
In NGP, our trials over the past year have validated our approach, and here we're also back in growth with more targeted and effective investments, also in delivering reduced losses. We now have a clear plan to build momentum in the existing markets, launch in additional markets, and introduce all new products. Now, second, the operational progress is now visible also in our financial delivery. We grew Group adjusted operating profit by 1.8%, slightly ahead of the guidance, and we grew EPS by 4.9%. The strong cash generation of the business has allowed us to reduce debt in the business. We've reached our targeted leverage at the end of September already. Third, confidence in the sustainability of our cash flow has enabled us to recommend a dividend increase on top of the GBP 1 billion share buyback that is now already underway.
We see this as just the start of an ongoing program to meaningfully reduce the share capital and drive shareholder value over the medium term. Now, these results and our confidence in the future, both a consequence of how our five-year strategic plan is beginning to bear fruit. We've now concluded the two-year strengthening phase and the building the foundations for the future. We're exactly where we hope we would be at this time. We're well-positioned for the next phase of our strategy when shareholders can expect to see improved returns. Now, this timeline conveys only a fraction of the transformation activity over the past two years. The bottom line illustrates how we have strengthened the foundations of the company. These outputs include a new senior leadership team, a refreshed approach to ESG, new consumer capabilities under the leadership of our global consumer office.
Along the top line, in the red, you can see how these foundations are driving tangible outcomes. The stabilization of the core tobacco business, growth in NGP, and greater clarity on the role of our broader market portfolio. Now, what's even more pleasing is that while delivering on our long-term strategy, our teams have also responded nimbly to unexpected events, such as our exit from Russia in April 2022, this year. Now, before I hand over to Lukas, I want to take a step back and look at how the changes in the broader environment are affecting our consumers and set out how we are managing the business to meet these evolving behaviors and needs. I highlighted these three big trends that you see on the screen at our half-year results, and they are still relevant today.
First, as lockdown restrictions eased this year, consumers are back on the move, and buying habits have returned to pre-pandemic patterns. As expected, market volumes have weakened in Western Europe and strengthened in travel and tourist destinations. In these locations, we are working hard with our retailers to make sure consumers can easily find the brands and the formats that they would expect. Second, we're all aware of the high level of inflation and its potential impact on consumer spending. Now, this trend is still at an early stage and there is no material impact on today's results. While the future impact of this potential headwind is uncertain, we have been actively managing the business to ensure we're as well prepared as possible.
In particular, across our major markets, we've been developing brand portfolios to ensure we have quality products available at whatever price point consumers ultimately choose. We will continue to adapt our offerings. Third, consumers continue to seek products which brings them relaxation and pleasure while having the potential reduced risk to their health. Now, this is a long-term trend, and we're committed to playing our part to building a sustainable NGP business led by consumer insights. Over the past year, we've made tangible progress on this journey. Now I will hand it over to Lukas now, who will take you through the financial results. Okay.
Thank you, Stefan. Good morning, everyone. As Stefan outlined, over the last two years, we've strengthened the business in our financial delivery. Once again, I'm pleased to show a positive trajectory for each of the key metrics on our financial dashboards, with all the signs in the green and pointing in the direct direction. Tobacco is a resilient, if low-growth business, that even with low single-digit revenue growth, we are able to generate substantial free cash flow and returns for shareholders. Our earnings per share growth exceeded expectations. This was driven by our increased operating profit and a lower finance cost due to an early repayment of debt last year. Our focus on cash generation supported the delivery of GBP 2.6 billion of free cash flow, GBP 1 billion more than last year.
This led to a year-on-year improvement in our leverage to 2.0 times, the lower end of our target gearing range. In line with our capital allocation framework, this enabled us to start an ongoing share buyback with an initial GBP 1 billion to be returned this year. Capital allocation will remain a key value lever as we move into our next phase. As Stefan mentioned, the lifting of COVID-19 restrictions has affected consumer buying patterns. As expected, year-on-year percentage changes are magnified by the strong growth recorded in the comparative periods when restrictions were in place. With open borders and a relaxation of travel restrictions, particularly in the second half of the year, we have seen consumers in Northern Europe traveling again and taking advantage of lower pricing in destination markets.
This is most notable in the U.K., where local cigarette prices mean there is a greater incentive to purchase cheaper products overseas or through the illicit market. Similarly, for Germany, while tobacco products remain affordable, the ease of travel to lower-cost markets such as Poland weigh on German market size. U.S. market declines have been impacted by the removal of temporary fiscal stimulus payments, as well as consumers having fewer opportunities to smoke now they have returned to their workplace. On the positive side, we have seen growth in our traditional tourist markets such as Spain and global duty-free. Starting with net revenue, there are a couple additional moving parts I want to draw out for you here, the exit from Russia and the H1, H2 phasing. Overall, net revenue grew by 1.5% at constant currency and 2.3% excluding Russia.
Tobacco volume declines of 4.7% for the year accelerated into the second half, reflecting the COVID unwind and our exit from Russia in April. Excluding Russia, volumes fell just 1.2%. Tobacco price mix was up 6% or 3.4% excluding Russia. As signaled at the half year, tobacco price mix improved in the second half, up 10.7% due to price phasing and a positive market mix with our exit from Russia. This was somewhat offset by an adverse product mix in the US as we grew our share of the deep discount segment. Overall gross pricing was 4.8% and mix was positive at 1.2%, driven by market mix. A good NGP performance in Europe was supported by growth in all three categories.
Now looking at the drivers by region and starting with volume trends. Europe volumes reflected a return to more normal decline rates due to the COVID unwind. In the U.S., volumes grew 2%, driven by market share gains in a declining market. We also experienced a trade pull of around 180 million sticks ahead of anticipated price rises and as the trade built contingency stocks for Hurricane Ian. Excluding this trade inventory pull, U.S. volumes still grew by 1%. The AAA volumes were impacted by our exit from Russia. Excluding this impact, volumes in the region grew 3.2%, benefiting from the removal of COVID-related travel restrictions, particularly in the Middle East. Europe's tobacco performance is driven mainly by the adverse market mix from the unwind of COVID and delayed pricing in the first half.
Tobacco net revenue grew 5.2% in the Americas, driven by strong pricing, partially offset by product mix due to share gains in the growing deep discount segment, including the benefit from the KT&G exit. Excluding Russia, underlying tobacco net revenue growth in AAA was 3.9%, reflecting strong price mix in Africa and the Middle East. NGP net revenue grew 10.8% at constant currency, driven by strong performance in Europe, which more than offset the declines in the Americas. We continue to sell myblu in the US, but its performance has been affected by the uncertainty caused by the FDA's marketing denial order issued in early April. We continue to work on overturning this order.
Adjusted operating profit grew by 1.8% at constant currency, driven by an improved performance in both tobacco and NGP. Tobacco profitability benefited from the non-repeat of the litigation settlement in Minnesota and Texas in the prior year. This was more than offset by increased investment behind our strategy and new ways of working, which Stefan will cover later. Excluding these effects, underlying tobacco profit improved by GBP 76 million or 2.2%. The reduction in NGP losses reflects our decision to exit certain AAA markets last year, partially offset by increased investment to support growth in Europe. Logista's contribution declined slightly as its restructuring charges were expensed. This is consistent with our policy to avoid adjustments for restructuring costs outside our current strategic program. Like other businesses, we make certain adjustments to our IFRS numbers to aid performance comparison over time.
We will always be transparent about these adjustments. First, our decision to exit Russia and associated markets triggered a GBP 399 million charge, which includes a GBP 190 million of accumulated FX losses that were recognized in the second half of the year. These are largely non-cash charges. Second, the lower annual amortization in this period is from certain assets not being fully amortized. Third, the restructuring charges have supported further reorganization and new ways of working to unlock efficiency savings and enable increased investment behind our five-year plan. This concludes the P&L charges for this program in line with our plans, and we expect further cash charges of about a GBP 120 million in fiscal year 2023.
We have already taken action to deliver GBP 120 million pounds of savings in fiscal year 2023 out of the total GBP 150 million savings expected. We are on track to deliver all the savings by the end of fiscal year 2023. In summary, around half of these charges, the Russian exit and the restructuring costs, will not be repeated next year. Adjusted earnings per share growth has been driven by both our increased operating profit and lower finance cost due to lower average debt levels and the early repayment of a U.S. bond at the end of last year. Going forward, we anticipate interest costs to slowly increase as we continue our refinancing into a rising interest rate environment.
However, earlier this year, our treasury committee decided to increase the proportion of fixed rate debt from around 2/3 to an expected average of 85% for fiscal year 2023. More details of our financing are in the appendix. During the year, we received favorable decisions in several tax jurisdictions, which reduced uncertainty for the current financial year and resulted in a slightly lower adjusted tax rate year on year. We anticipate a tax rate of around 22% in fiscal year 2023, with upward pressure thereafter over the medium term. Now turning to cash. Our priority is to optimize sustainable free cash flow generation from the business. As you can see from the year, our cash delivery remains strong with cash conversion of 102%, helped in part by the timing of duty payments at Logista. Free cash flow from.
Free cash flow improved by around GBP 1 billion- GBP 2.6 billion. We increased the dividend by 1.5%, with net cash flow after dividends of GBP 1.3 billion to drive debt reduction. This focus on strong cash generation underpins our ability to deliver our four capital allocation priorities. Active capital discipline remains a key value driver. As a reminder, our first priority is to invest in the strategy to create a sustainable business with growing cash flows. Second, it is to strengthen the balance sheet. Strong cash generation enabled a reduction in adjusted net debt, adjusted net debt of almost GBP 0.6 billion- GBP 8.1 billion. Third, we are committed to providing reliable cash returns through the dividend. Fourth, having now reached our target leverage, we have now committed to an ongoing buyback.
We expect to maintain our leverage around the current level. This good progress in capital allocation has been supported by the delivery of our strategy. We are now at the start of the next phase of our strategy, and we are well-placed to deliver against our five-year plan. The additional investment and actions we have taken during the initial two-year strengthening phase have built strong foundations for the next three-year phase of our plan to deliver improving returns. As we move into this next phase, we do continue to expect constant currency net revenue to grow in the low single digits. A constant currency adjusted operating profit growth is expected to accelerate to a mid-single digit CAGR.
During the course of this three-year period, as our investments and initiatives gain great traction, we anticipated an improvement in the growth rate of our adjusted operating profit within this mid-single digit range. In fiscal year 2023, the acceleration will be driven by operational gearing, by geographic mix, cost savings that we have anticipated. This will be partially offset by cost inflation and increased NGP investment in fiscal year 2023. Although NGP losses will increase to a similar level to fiscal year 2021 to support new product and market launches, we still expect to reach breakeven by the end of our five-year plan. Performance will be weighted to the second half of the year due to the phasing of NGP investment, our exit from Russia in April this year, and the continued unwind of COVID, which will all affect the first half.
As a result, the first half adjusted operating profit is expected to be at a similar level to last year at constant currency. At current rates, foreign exchange translation is expected to be at 5%-6% tailwind to net revenue, adjusted operating profit and EPS. As usual, there is a slide in the appendices with guidance on specific items. Our strategy and investment have strengthened the business as we face into current macroeconomic challenges. We remain well-placed to generate long-term value for shareholders. Thank you very much, and I'll hand back to Stefan.
Thank you, Lukas. I want to give you some deeper insight into the changes we have been making to align our culture to our new strategy and how our people are driving forward our strategy. We have been building our capabilities with new teams, with new skills and new ways of working, all of it with a laser focus on the consumer. We also launched, as you will know, a new company purpose and vision, defining why we're here and what we're trying to achieve. The simple objective of all of this activity is to transform Imperial into a business better able to deliver sustainable growth year in, year out. Now, as a reminder, this strategy was built around the six concepts contained in our strategy wheel, which hopefully you will have seen before.
I will start by looking at how we've built our critical enablers, yeah. The essential foundations of future success, which are shown here in the blue segments in the wheel. First, on ESG, we've taken the time this year to understand our ESG agenda and how it fully integrates with our five-year plan and our purpose and our vision and our behaviors. Now, during the year, we have used a materiality assessment to listen to our key stakeholders and inform our priority focus areas. The resulting ESG strategy and the associated metrics have been signed off by our board of directors, and we've begun to socialize this strategy with our people in order to build broad support for our new objectives. We are integrating the ESG metrics for consumer health and climate into our executive remuneration for the first time.
In September, we held an investor webinar to set out our approach, and I would encourage you to watch the webinar if you haven't already done so. Yeah? I see this as an opening exchange in an ongoing conversation with all of you, and we look forward to discussing our progress in the future. Turning now to the steps that we're taking to transform the culture of the company. Our strategy, as you remember, is underpinned by three critical enablers, which we define how we are changing our ways of working. I will start with how we're placing the consumer at the center of the company. Our approach in the past was often fragmented. We have lacked some of the capabilities that you would typically find in today's consumer goods company.
First, last year, we established a group consumer office to provide common leadership and strengthen our capabilities in this area. I'm very pleased that we've been able to attract top talent from a wide-ranging of blue-chip consumer goods companies, which are shown here at the bottom of the chart. Our approach blends the capabilities of these new hires with our preexisting deep expertise of tobacco and local market knowledge. I believe this is a powerful combination that is creating a more consistent approach in key areas such as consumer insights, innovation, marketing, brand portfolio management, and revenue growth management. Our second critical enabler is building a performance-based culture. Here, we're focused on providing training and development to ensure all our people have a strong understanding of our purpose, vision, and our behaviors, which we internally call Connections.
Now, this has been a big investment, as discussed earlier in the coffee break already. Our 1,500 most senior leaders have experienced a 15-hour program where they have had the time to think deeply about the behaviors, what the behaviors mean to them, and how they will operate going forward. This has been rolled out in waves cascading throughout the entire group. It started with the executive leadership team, and by the end of this calendar year, every one of our employees, including all employees in our factories, will have completed Connections. The recent survey conducted with our top 500 leaders shows the culture change program is exceeding every single external benchmark with 93% understanding what our behaviors mean for them in their specific roles.
The next phase is to embed our behaviors into management incentives, with the bonuses of senior leaders now going to be awarded against both what they deliver and how they deliver. Now, our third enabler is the opportunity we have to simplify our operations by adopting new ways of working. Now, Imperial's acquisitive history has resulted in fragmented systems and processes with limited integration of the back-office functions. We've now embarked on a global transformation program that will simplify these operations with the primary objective of freeing up our people's time with the right tools and equipping them with the right skills, so they can really focus on supporting the consumer and market-facing organization. This will be supported by a digital transformation over the next five years, where a new ERP platform will replace 60 legacy systems.
Now, let me reassure you as well that this is all within the scope of the existing CapEx framework that was shared with you. Turning now to our three strategic pillars and starting with our focus on the priority combustible markets. Over the past two years, we have revitalized our five largest combustible markets by focusing on a tailored set of growth initiatives in each market. I'm pleased to report we increased aggregate market share by 35 basis points. This follows several years we've been the number one share donor in our industry. We've achieved this while maintaining pricing discipline. As I've said before, it is unrealistic to expect growth in all five markets in any given year. We have achieved our objective of stabilizing our share with some encouraging outperformance this year.
Now, let's review the performance in each one of the individual markets, starting with the USA. Here, we delivered strong combustible tobacco performance, benefiting from focused investments in our brands and sales executions. In cigarettes, we grew share in each one of the three price segments where we participate. We performed strongly in the deep discount segment with Sonoma and Crown as consumers to seek value offers. In the next tier, Maverick grew share in traditional discount segment. In premium value, our largest segment, Winston and Kool enjoyed share growth increases, thanks to investments in brand equity and some innovative retail initiatives to raise awareness. We achieved these share gains while delivering full price increases during the last fiscal year.
In mass market cigars, we have strengthened our position as the second-largest manufacturer in the US with further share gains supported by activation and innovation initiatives. However, overall industry volume in mass market declines against the prior period of strong growth, which has benefited from COVID. Investment in sales capabilities has enabled us to increase coverage in under-penetrated channels and regions, all of which is supporting our delivery across the total portfolio. Now, turning to Germany. We have delivered the first annual share growth in Gauloises for six years and stabilized share in West after brand investment. With consumers increasingly seeking value offers, we've responded by repositioning one of our heritage brands within the lower peer value segment in fine cut tobacco.
We continue to work on turning around our brand equity on JPS through a more contemporary brand positioning with a new pack design and retail advocacy programs. I was just in Germany two weeks ago, and I was encouraged to see the key brand equity indicators are starting to turn. Given the lack of a clear positioning over many years for JPS, it is taking time before this will translate into improved share. I firmly believe we are focused on the right initiatives, and it will make a difference over time. In the UK, we delivered a strong market share performance driven by investments in our local jewel brands and effective supply management. Price mix improved in the second half of the year, reflecting the price increases taken in the first half of the year.
Now, success is using our refreshed Embassy brand to improve our position in under-penetrated regions in the U.K., and that continues. At the same time, our Player's, Easy Rolling, and Riverstone brands continue to gain share in the fine cut segment. Our on-shelf availability benefited from a strong collaboration between our teams in sales and marketing and manufacturing as we adapted the portfolio to meet new regulatory standards for filters. Availability was also enhanced by an agile response to the delivery drivers crisis in the U.K. in the first half of the year. Turning to Spain. In Spain, we put through the first price increases in five years across our product lines, which at the beginning of the year temporarily impacted our market share.
The good news is that we have been able to recover these losses in the second half and are able to report growth for the full year. This has been driven by our continued investment in our local jewel brands, Fortuna, Ducados, and Nobel. These initiatives are targeted at building equity and reinforcing their national heritage connections. Now, this is a distinctive strategy compared to our competitors who are focused on global brands. We're also leveraging our own international brands, specifically West, to meet consumer need for value propositions with targeted super-sized, king-size promotions and relaunching our fine cut range. Now turning to Australia, where our initiatives and brand portfolio investments are now helping us to deliver share growth in this high-margin market.
The launch of Lambert & Butler in the fifth price tier in the first half of the year created clear brand offerings in each of the different price segments, enabling a clear differentiation between Parker & Simpson and JPS in the fourth and third price tier. Now, our performance in JPS was further supported by launching new pack size variants in roll your own. Our whole approach here is about providing a better choice for consumers and enhancing our resilience, particularly in times like this when consumers' wallets are feeling the pinch. This is, for me, a great example of the type of careful segmentation work we're doing across all our major markets. In Australia, our share recovery was also supported by investments in improving our sales force effectiveness and strengthening our supply chain to ensure on-shelf availability. Okay.
The second pillar of our strategy is to drive value from our broader market portfolio beyond the top five. Here, we have defined a clear role for each one of our markets. This has meant greater focus on some clusters like Africa and Central and Eastern Europe. While we have also decided to exit two markets this year with Russia and Japan. Our African portfolio of markets continues to perform strongly, driven by a clear brand focus, tailoring our portfolio of local jewels and key international brands to meet the local consumer demand. For example, in Côte d'Ivoire, consumer activation and increased distribution of our brand Fine has led to strong share gains. In Central and Eastern Europe, we have adopted a new brand portfolio strategy, increasing our focus on the sub-premium segment with Davidoff and leveraging our West and Parker & Simpson brands in fine cut.
Now, our broader market portfolio has also benefited from COVID-related travel restrictions when they were removed during the year with our global duty-free performance reflecting increased travel throughout the world. Our third key pillar is to build a targeted NGP business, and we have made some very encouraging progress here. One year after the launch of our heated tobacco proposition, Pulze and iD, in the Czech Republic and Greece, we continue to receive positive response from both consumers and our retail partners. Further market share gains in the Czech Republic were supported by the launch of new flavors to our iD range and an agile response to clear consumer feedback. We held our share in Greece despite new product launches from competitors. We have established, demonstrate that our heated tobacco proposition in these initial test markets is meeting consumers' demand in that category with all our key indicators remaining positive.
The consumer endorsement in our test markets of our heated tobacco products has provided us with the confidence to initiate new market launches. Today, Pulze and iD are now available in five European markets, including Italy, which is Europe's largest. Today, Pulze and iD are now available in five European markets, including Italy, which is Europe's largest heated tobacco market. Now, new market launches were selected using the same selection criteria as in our initial trials. First, the heated tobacco category needs to be a well-established segment of the total nicotine pool. Second, we need to be able to leverage our existing tobacco-based route to market and distribute our products. The learnings from our initial markets have been used to inform our new rollouts and guide interaction with the trade as well as with consumers.
We continue to take a measured approach to expanding our heated tobacco offering with our confidence reinforced by our achievements in fiscal year 2022. Now, our city trial of our all-new blu 2.0 pod-based system in France has been positively received by consumers. Sales and consumer data demonstrates good consumer retention, with pods in just six months achieving a 6.9% market share of the pod market in the markets where we're sold. Our sales will support our point-of-sales activation and brand ambassadors. blu 2.0 was the first product to be delivered from our refocused innovation pipeline. Now, following the success for pilots in France in the four cities, blu has now also been launched in the United Kingdom market this month.
I'm also pleased to report that another output from our innovation pipeline is that we will be adding a disposable blu brand offering in Europe with the launch of blu bar in the UK later this month. This follows extensive adult consumer research and a development program throughout our partnership in innovation. Now meanwhile, in modern oral, we have achieved strong growth with net revenue up 37% and share gains in Sweden and Norway. We continue to evolve our offerings to meet consumer preferences and attract consumers to our Zone X brand franchise. The launch of new flavors in response to consumer demand has enabled us to increase awareness for Zone X and drive strong growth in Sweden, Norway, and Austria against very well-established larger competitors, providing evidence for our challenger-based model.
Now, standing back for a moment, probably one of the most exciting things that we've achieved this year has been the validation of our ecosystem around innovation. We do now have an established network of more than 20 third-party innovation partners, and this is allowing us to innovate faster across targeted projects, especially in NGP. I have now met many of these partners, and I know how excited they are to work with us on these joint projects. Let me summarize. The strengthening phase of our strategy is now drawing to a close. We've built the foundations to support improving returns to enter into the next phase of our strategy. We continue to see the benefits of the actions we are taking to strengthen the key areas of our investment case.
We've also delivered on our capital allocation priorities to strengthen the balance sheet and to deliver the step up in shareholder returns. Looking to our priorities for the new financial year, we will continue to build our critical enablers, stronger consumer capabilities and embedded performance culture, and a simpler organization. In combustibles, we are focused on consolidating this year's significant gains in our priority market share. We need to ensure we never again become the number one share donor in aggregate share across our top five markets. We will continue our disciplined investment approach behind the key operational levers. Of course, in future presentations, we look forward to showcasing more of the exciting work that's taking place across the wider market portfolio. In NGP, consumer feedback has validated our approach, providing confidence to increase investments to build momentum in existing markets and through new product and market launches.
Our overarching priority will be to deliver the improvements in returns for the next phase of our plan, with a clear view on the levers to realize that acceleration. We also will remain highly disciplined in our capital allocation, which we fully recognize is a key part of our investment case. We're very conscious these are increasingly challenging times for all kind of businesses. However, I am convinced that our actions are creating a stronger business, better able to navigate these uncertain times. We are committed to delivering our plan and unlock long-term value for our shareholders. Thank you for joining me and Lukas today, and we would now more than welcome any of your questions. Okay.
Great. Thanks, Stefan. So as Stefan said, we'd like to take your questions now. As before, what we'll do is we'll take them in the room, and then we'll take questions on the telephone. We'll take first the questions from the room. For those of you who joined remotely, you'll need to have registered to ask a question. You'll find the details of the registration on the press release. If you register on there, you'll get the dial-in details and the unique pin to access. Those are all in today's press release. If you're on the telephone and you want to ask a question, please press star and one on your keypad. We'll now take the first question from the room.
Please wait for the microphone, and please state your name and organization before posing your question. Thanks very much. If we take the question from John and then Richard.
Hi. Sorry. John Leinster from Société Générale. If you're expecting losses, NGP losses to be similar to FY 2021 and total EBIT grow by sort of low end of mid-single digit, I mean, that implies a fairly dramatic growth in tobacco profitability by my rough calculations of 4%-5% or sort of double the absolute underlying increase that you achieved in this year. How can you outline, given the ongoing volume declines, certainly in the first half, how that's gonna be achieved?
Again, I think good morning, and thanks for the question. I think as we pointed out, there are a few key levers, being the most important one, the operational gearing. You know, with the indicated growth of net revenue of roughly 1%-2% and the volume decrease, that will generate an upside on the operating profit. This is what we call the operational gearing, and this is the biggest lever. It will also contribute that we are focusing on the top five markets, especially the US inside there as well, which have obviously a geographical mix effect on that.
The savings program that we have pointed out, which we expect to deliver 120 million GBP for the full year of fiscal year 2023, will be another driver of that acceleration phase. Yes, we are committed to that lower end of a mid-single-digit percent growth for next year. It will happen, as you pointed out, John, in the second half due to more of the NGP investment being upfront, Russia exit and the COVID unwind. Those are the levers that we point out to.
To a certain extent, to build on Lukas' point, you could already see in Lukas' presentation, when we look at the underlying performance, if you take the investments in the core tobacco business out in the fiscal year 2022 results, you can already see that strength in the portfolio. It's de facto logically helped by us gaining share or holding our share in our top five markets, which clearly, as Lukas touched upon, are the most profitable markets for us. That gives us the confidence in the delivery for fiscal year 2023.
Great. You can turn to Richard.
Good morning, Richard Felton from Goldman Sachs. Two questions from me, please. First of all, on the US, I was wondering, first of all, if you could call out how much of the share gains this year was linked to the KT&G share that you gained when they left the market. And then secondly, on the US, I'd love to hear a bit more about your outlook for FY 2023. You know, overall, the market's under a little bit of pressure at the moment. You've got a tough comp from a market share perspective. What kind of scenario for the US have you got embedded in your FY 2023 guidance?
Richard, I mean, on the U.S., on your first question, we gained 90 basis points in the U.S. We're actually now a 10-share player in FMC, which we've never been since the business got acquired. So that gives us really nice scale with the trade, yeah. Are we happy about the exit of KT&G? Yes. Did it help in the numbers on this 90 basis points? Yes, it did. It's probably around 30 basis points. I mean, it's difficult to say because you don't know where the consumers really switched and what did they do. But I think what is very important, which gives us great confidence as we go into next year, we gain share in every single of the three segments that we operate in.
I think the important piece was, when you look at Winston & Kool, which is in the premium segment, which is still the largest segment, it's our largest part of the business, where we've lost share for more than five years. This is the first year we've actually gained share in that segment. Yeah. That gives us the confidence. While we're happy to take the benefit from the exit of KT&G, FY 2022 actually saw the right level of renovation. Our brand plans in all segments actually delivered. Yeah. Now, outlook for next year, our overall outlook is I think we will now leave the COVID effects behind us, yeah. I think you will see the US return more back to its normal market development of decline. That is what we've put into our plan.
At the same time, we'll always be agile, and I think one thing that will benefit us as a company, we operate in every single segment that exists in the US, and that will enable us to have an offer for any consumer out there, whatever price point they will choose. That puts us in a good place, we believe, in the US.
Great. Thank you. My follow-up. You finished the strengthening phase, your five-year plan. Now you're into the accelerating returns phase. Very clear about what that means for the financial performance of the business. I'd love to hear a bit more detail on the sort of mind shift in the organization and maybe the KPIs that you want your team to be more focused on as you make this shift from strengthening to the accelerating returns phase?
Yeah. I think the interesting thing, the KPIs are probably relatively similar because we've trained them in the last two years. A lot of the performance-based cultural elements that we've kind of worked on the last two years, like monthly performance calls, paying attention to market share, not just overall, but by brand, by SKU, all these things are there. Yeah. I think what is exciting is that the teams can see the benefit and the rewards from focusing on these things. The results of fiscal year 2022 give also the entire organization that confidence we are on track to deliver these results. Yeah. I mean, the exciting thing I had yesterday, the entire European leadership team, the top 80 together, in the office, and they are super excited in making the difference.
What is important, with a very clearly defined strategy, each one of them knows where they're supposed to make a contribution. I think that clarity, that focus that is embedded in the wheel is very helpful.
Thank you.
Take the next question in the back. Where was Alicia? Thanks.
Thanks. It's Alicia Forry with Investec. The price mix excluding Russia is a little bit below trend for tobacco, historically. I was just wondering if you could elaborate on what's been going on and with the inflationary pressures that are coming through around the world, you know, what's your outlook for pricing in that part of the business going forward?
Let's perhaps take, Alicia, this question in two. First of all, our pricing, if you look at the full year of 6% price mix and 4.8-4.9% of pricing is actually within the range of the longer-term pricing trend that we have. It's within the range. I think it is important that you can separate them into half. We indicated at half year that the first half was a more difficult one in terms of the European facing, and we had indicated then that the second quarter actually had a much stronger pricing. Even though the pricing in the first half was 1.2%, it was actually skewed to the second quarter. The second half of this year, with a price mix of 10.7% is very strong.
The underlying pricing, to be very clear, is around 8%-9%, so that is a strong pricing in the second half, if you take all the mix away from that. You can see that carrying into this year. I would say, you know, and this is important because that is relative to other industries, why tobacco is in a better position. We have, you know, a track record of being much more better prepared for inflation due to that pricing power that we have just shown. You know, again, also to your question before, in the U.S., we have just taken other pricing in September. We had four pricing in the U.S. last year, and we'll continue that rhythm. We had good pricing in Europe, by the way, as well, and Africa.
We're gonna continue with that strong pricing. The other thing which I highlight always when it comes to inflation is the gross margin that we have, a strong gross margin, and that a third of our cost leaves are booked a year in advance. We have some security about that inflation there. We are not immune. I would be very careful to that. Clearly not immune, but we are well prepared, as an industry to weather the inflation also in fiscal year 2023.
I'll just repeat for anyone who's on the telephone, if you want to ask a question, please press star and one. Otherwise we'll take a question. We'll take question from Gaurav, please.
Hi, Gaurav Jain from Barclays. I'm quite intrigued by your decision to launch heated tobacco in new markets, where the market share in Czech and Greece is 3%- 4%. Wouldn't it be better to put more money in those markets and take your market share to, let's say, 10%? You know, some number which shows, you know, a level of market share at which you can break even and then launch into new markets rather than launching into new markets.
Sure. Let me take that question. Gaurav, I think number one, I think you can do both. Yeah. I think that it's not a trade-off decision you have to make between them. I think one thing, what we've always said, we take a measured approach to NGP strategy. We go back to our business plan that we wrote before we entered Greece and Czech Republic. We were very clear internally, these are the KPIs we need to meet. It goes back to Richard's question, very clear KPIs. This is the market shares we want to achieve as part of our long-term growth process. The shares that I shared with you are absolutely in line, actually ahead of where we wanted to be at this point in time. One of the key observations is, it's a gradual building of share over time.
Therefore, we felt very confident to move on into additional markets. Yeah. It goes without saying that there will be continuous focus on the original launch markets like the Czech Republic and Greece. That's. We will continue to drive all of them forward. Yeah. It's not a trade-off decision we'll have to make. Yeah?
Follow-up question on capital allocation. Look on our model, your leverage will now continue to decline to 1.8, 1.7.
Mm-hmm.
because, you know, EBITDA growth is higher than, you know, the share, the capital returns in total across share repurchases and dividends. If I'm sure you will look at acquisitions, and that actually the envelope is quite big. It could be as much as like GBP 400-500 million, and still your leverage will be within 2x. Where all could you invest? Like, will it all be acquisitions in NGPs, or could you also look at tobacco-specific acquisitions?
Gaurav Jain, thank you very much. You know, I was waiting for this question about capital allocation, just to remind you how important that is for us and the value driver it is. It is really an important strategy piece for us. We celebrate with you also that we actually received now, you know, we are able to do the share buyback. You know, this is an important milestone for us because it completes the capital allocation, and it is a direct benefit of the lower leverage that we have now achieved. Okay? You know, we have committed to a multi-year share buyback, with the first year being GBP 1 billion share buyback. We like to take it step by step. Okay?
We are very keen to take things step by step, especially in this uncertain environment. GBP 1 billion is a significant share buyback. It's 5% of our share capital, which is on top of the dividend. And, you know, we'll come back in a year's time on what else and what is the next share buyback amount we will do. Just to remind you also that our five-year plan is an organic plan, largely. It has some element of M&A in Logista, and you can see for next year roughly GBP 150-GBP 170 million already committed in M&A for the Logista, but I would keep it at that. It's smaller bolt-ons. There is no large M&A included or foreseen in our organic plan.
You know, I do understand your modeling, and we'll see when we get to the next year, how is the best way to return share capital once we satisfy the needs of the business.
The only thing I would add, Gaurav, is I think when I talked earlier about the partnerships that we have now, more than 20 partners in the space of NGP, yeah, that gives me the confidence that the organic strategy that we've, that Lukas touched upon is something we can deliver, that won't stop us from if there is a need in certain areas to make a small inorganic acquisition and bolt on to the business. I have the confidence now from what I've seen in the last two years, that we can deliver against our ambition in the core business as well as in the NGP business to deliver what we promised you as part of the strategic plan.
If I could sneak in one last question. There is M&A happening right now in the industry, and one of your key competitors in the cigar business in the U.S. will now be owned by another company.
Mm-hmm.
Which probably is focused more on NGPs than on cigars. If there is a dislocation in the U.S. cigar market, do you think that's an opportunity for you now to really scale up your cigar business in the U.S.?
Gaurav, I think for us, the most important thing, and you saw it in the results, I mean, we've come from being number four in mass market cigars in the U.S. two years ago to being number two. Fiscal year 2022 saw another share gain from us. At this point in time, I feel we have the right portfolio for our U.S. consumers in the marketplace with some very strong brands. Our focus has to be to build out further our brand strengths in these markets. That's where we would be at this point in time.
Sure. Thank you.
No further questions?
Yeah. Okay.
Okay.
I mean, well, first, thank you to all of you for being here with us in the room. Hopefully, what the presentation got across to you is the progress we're making on the transformation of the company. Yeah, I think you can see the operational progress we're making, not just in the core business, but also in the NGP business, and also the beginning of the cultural transformation that we've talked about. Really excited where we are today. I think we're well prepared for the future into uncertain times that all companies will enter now, and we'll keep updating you at the half-year results. Thank you for coming today and listening to this call. Thank you.
Thank you very much.
Thank you.