All right. Well, good morning to all of you, thank you for joining us here in person live for this presentation. It's great to see all of you, I also want to thank all the people who are watching us online for our half-year results. From my side, logically just draw your attention as usual to the disclaimer if it appears in a second. Before I introduce you to the rest of the team, hopefully you have some time to meet outside for the coffee as well. With us, Lukas, our CFO, and Peter Durman, our Head of Investor Relations. First, I will highlight the key achievements from today's results and the macro trends influencing our report. Lukas will discuss with you the financial outcomes for the first half and our outlook for the full year.
I will come back and give you some further details on the actions we're taking to strengthen our performance and transform Imperial into a business that can deliver sustainable growth year in, year out. Finally, as usual, we look really forward to taking all your questions. Okay. I'm pleased to report that today's results are in line with the guidance that we gave last year. You will recall that we set that performance would be weighted to the second half, and we are exactly where we expected to be at this stage of this year. The key headlines are these. First, on track to deliver full year results in line with our guidance. Second, this confidence in our ability to deliver a meaningful uplift in performance was underpinned by another improvement in our benchmark measure of market share.
Aggregates combustible share by top five markets rose by 20 basis points in half one. After several years of decline, we have now delivered four consecutive half year periods of stable or growing market share. Third, we delivered this improvement in market share while also achieving strong pricing gains across all top five priority markets and across our broader portfolio. We never take anything for granted. Our success in driving both share and pricing is for us further evidence with now stabilized at full combustible businesses. Now, a disciplined approach to raising prices has helped to offset the temporary increased pressure on volumes as the COVID effect on consumer buying patterns finally unwind. This disciplined approach also means that despite cost inflation, we have delivered a like for like 30 basis points improvement in profit margin.
Fourth, in NGP, over the past six months, we have moved confidently from the reboot phase to a broader rollout across markets, products, and categories. This has driven a 35% growth in NGP revenue in Europe, the region where we have focused our efforts. Fifth, these results have been underpinned by continued progress in transforming our culture and ways of working. We'll say a little more about how we're building these capabilities later in the presentation. Finally, we continue to deliver on our ongoing program of shareholder returns, with the first GBP 1 billion buyback on course to be completed by the end of the fifth year. I think it's important to frame these results against the broader macro climate and explain how this underpins our confidence in the second half delivery.
There are two headwinds which have weighed on volumes in the first half. These both will ease as we move into the second half. First, while COVID is thankfully for all of us in the rear view mirror, it is important to remember that consumer buying patterns in the equivalent period last year were still affected by lockdown restrictions. For example, as expected, market volumes in Northern Europe have been relatively weak against a strong comparator last year because it was this time last year in markets like the U.K. when people started to travel again en masse, which we're now annualizing. Lukas will provide you in a second with further details on this. Second, these results are affected by our decision to exit Russia in April last year. This has created a temporary drag on reported volumes and revenue.
Like the COVID effect, this pressure reduces as we move into the second half. There are also two tailwinds that support our outlook for the second half and beyond. First, as I mentioned, while delivering on our market share objectives, we have achieved strong pricing across many markets. This means that the effect of our pricing actions in the first half is already embedded in our second half financial performance. At the same time, we have seen some down trading. Underlying consumer demand has generally remained robust across most of our markets. Second, in NGP, we expect to see the new product launch in the first half, gaining great attraction with consumers during the second half. While we will continue to be disciplined in our approach, we also have further launches in the pipeline. In summary, underlying consumer demand remains resilient.
We expect volume headwinds to ease. We will benefit from strong embedded pricing. As we scale up our potentially reduced risk portfolio, we will make meaningful progress towards the healthier future, which is at the heart of the purpose of our business. I will hand it over to Lukas, who will take you through the financial results.
A very good morning to you all. Once again, I am pleased to show you a positive financial dashboard. As Stefan mentioned before, we have delivered gains in our aggregate share across our top five combustible tobacco markets, at the same time, achieving strong price gains. In NGP, we have stepped up investment in Europe. This has led to a revenue growth in that region of 35%. This more than offsets the headwinds in the U.S. caused by the uncertainty of the myblu marketing denial order. This resilient performance has meant that at the half year, we're on track to deliver against plan as well as meet our capital allocation priorities. Leverage remains within our 2-2.5 target range, and we'll be at the lower end of this range by the end of this fiscal year.
We have made good progress with our initial GBP 1 billion share buyback, which we're due to complete by the end of September. This chart really illustrates the point Stefan was making about the easing of COVID restrictions, the impact on volume. Between 2020 and the first half of 2022, COVID was a slight positive. Movement restrictions and fiscal stimulus measures helped to increase consumer demand across many of our markets. With the ending of pandemic restrictions last year, these positive volume effects have unwound, leading to a one-off volume decline compared to the strong COVID periods. Looking to the second half, we expect the volume declines to moderate as the comparative periods start to look less challenging. We have offset these challenging volume headwinds, shown in blue on this chart, with strong pricing gains across our footprint in orange.
Starting with the U.S., overall pricing increased 9%, driven primarily by gains with our cigarette portfolio. With volumes, it is important to differentiate between our cigarette portfolio and our mass market cigars. Cigarette volumes grew 1%, these were more than offset by mass market cigar volumes, resulting in an overall decline of 3%. The cigar volume decline was mainly caused by wholesalers de-stocking following a contingency stock build in September ahead of Hurricane Ian, mainly because our cigar warehouse is based in Florida, where the hurricane struck. There was also some market size and share pressure that Stefan will talk about later. These volume declines in mass market cigars have also resulted in a negative mix of 7%.
This is because our cigars are relatively high value and low volume products, with a net revenue per stick 2.6 times that of a cigarette. Any movement in our cigar business, up or down, has an outsized impact on overall product mix. This was compounded by some adverse product mix in the cigarette portfolio. This effect was an outcome, firstly, of our successful capture of KT&G share following their exit in December 2022. Secondly, it was thanks to the strong performance of our deep discount brands, Crowns and Sonoma. Moving to Europe, you can see that again, strong pricing has partially mitigated the effect of volume decline. In ACE, excluding Russia, we have seen a very strong pricing right across the footprint, up 12%, more than offsetting volume declines of 6%.
On a group basis, excluding Russia, constant currency tobacco net revenue is flat. Strong pricing has offset volume declines driven by Europe and adverse mix driven by the U.S. Excluding Russia, adjusted operating profit grew by 1.2% at constant currency. As you can see here, it was driven by an improved performance in tobacco and Logista. Profitability in tobacco benefited from strong pricing across our key markets, and excluding Russia, we grew tobacco operating margins by 30 basis points. In NGP, as expected, losses increased by GBP 14 million, in line with our plans to invest in new products and markets. In the second half, we will further increase investments. We continue to operate with discipline, focusing only on products and markets where we have the right to win. Importantly, we remain on course to break even by the end of our 5-year plan.
Logista also made a strong contribution with robust underlying performance helped by pricing and recent M&A. We have been supporting Logista in its successful diversification strategy, which you can see is enhancing the financials. Our adjusted EPS is broadly in line with our expectations. As we have said, our interest costs have increased with higher interest rates and new debt issues. We've mitigated the impact of rising interest rates by fixing around 85% of our interest costs this year. More details in the appendix. The strong first half performance of Logista resulted in an increase in minority interest. Our adjusted effective tax rate is slightly higher than last year, at 22.4%. We are now guiding for the rate to be around 22%-23% for the full year, slightly higher than you originally expected.
We continue to expect some upward pressure over the medium term. Our share buyback has begun to reduce the number of shares, and the full benefit to the weighted average share count will flow through with next year's buyback. Turning to cash and capital allocation. We remain focused on cash generation and being really disciplined in how we allocate capital. Operating cash conversion for the period was 77% on a 12-month basis against a strong comparator of 102%. A key element of the lower operating cash conversion has been a change in working capital outflow of around GBP 900 million, which reflects a number of factors. Firstly, we have had a planned increase of around GBP 500 million in pre-production stock as a result of the strong pricing achieved across all our footprint.
We expect this to unwind in the second half and so drop through to profit. Secondly, last year we benefited from a repayment of EUR 250 million of deferred consideration for the disposal of premium cigars, which did not repeat this year. Thirdly, we saw a similar increase in working capital at Logista, driven by strong pricing, as well as additional working capital from their recent acquisition. Capital allocation remains a key part of our strategy. Our first priority is to invest in the business. Leverage at the half year is flat year-on-year at 2.4x , and our year-end leverage will be at the lower end of our range of 2-2.5x . Our recent bond issue supports a strong balance sheet and extends weighted average maturity. The bond issue was oversubscribed, showing continued demand in debt markets except capital markets.
We have announced a dividend increase of 1.5%, and we will complete our GBP 1 billion share buyback by the end of September. We remain on track to deliver full year guidance, and we will generate improving returns in line with our 5-year strategy. As Stefan said earlier, our confidence in the second half is partly underpinned by our action on pricing taken in this first half. As the COVID and Russia impacts unwind, we expect the volume headwinds to ease. Top line performance continues to be supported by strong operational gearing. Over the second half, we will realize the remainder of the cost savings from our restructuring initiatives. These positive drivers will be partially offset, as we have previously guided, by higher NGP investment. Of course, like all businesses, we still face cost inflation.
For the full year, we continue to expect constant currency net revenue to grow in the low single digits. Constant currency adjusted operating profit will grow at the lower end of our mid-single digit range. At current rates, we expect foreign exchange translation to be a 3%-4% tailwind. As usual, there's a slide in the appendices with guidance on specific items. Our strategic transformation and our disciplined capital allocation means we are well placed to generate long-term value for shareholders. Thank you very much, and I now hand back to Stefan, who will give you an update on our operational progress. Thank you very much.
Thank you, Lukas. As Lukas said, I want to update you now on how we're delivering on our strategy and how this is translating into operational progress. I first introduced this strategic wheel to you almost two and a half years ago, January 2021. That means for our 5-year plan, because this was the 5-year plan, we're now approaching the halftime whistle. As the coach of Imperial FC, I'm proud of what the team has achieved, because I think we've combined great external signings with the best homegrown talent from Imperial, and I'm pleased how the players have gelled together as a team. As a smaller club, we won't outspend our bigger rivals, but we can outperform with the right approach. This is where our challenger vision does matter.
By getting closer to our consumers, innovating fast and executing well, we know we can win. Yeah. Win in the right way. The behaviors you see listed across the bottom of the chart are, if you like, the Imperial playbook, which we are embedding throughout the organization. This year, I have continued to visit our markets and seen some more great examples of this challenger mindset in action in the markets. I was in Taiwan, our largest Asian market, and I saw how the team is turning around market share in a highly competitive marketplace. In the Canary Islands, an important travel retail market, I've seen how our brand ambassadors have been making the most of the opportunity created by the easing of COVID restrictions and British and German tourists coming back.
In the U.S., I spent some more time with our sales reps, seeing how focused execution is enabling us to punch above our weight. Our colleagues on the front line are being enabled to perform more effectively through new consumer capabilities, a more performance-driven culture, and more effective ways of working. From a first, I want to talk about consumer capabilities, where we continue to build our skills in insights, marketing, and sales. The most concrete example of the progress in the first half has been the opening of our consumer innovation hub in Liverpool, which brings together consumers, our product development teams, and third-party partners in the same collaborative space. Further consumer centers will open in Hamburg and in Greensboro, as well as an innovation center in Shenzhen.
It's facilities like this that will allow us to accelerate our distinctive approach to innovation, which is based on deep partnership. We'll give you more insight into this new consumer capability and how we're driving operational progress in this area at an investor event in New York on the 27th of June. I hope that many of you here in the room will join us actually either in person or at least virtually. Second, we are continuing to embed the performance-driven culture I've spoken about at previous results presentations. Now, recent developments have included a new, more rigorous performance review system and a comprehensive coaching program for all our top 300 leaders, including myself, Lukas, and Peter. Yeah. Third, for business that was built through acquisitions, we have still plenty of opportunities to simplify how we work.
In the first half, we continued to build out our new centralized shared service centers and developed the design of our new global ERP system, which will replace 60 legacy systems. At the same time, we're on track to deliver the GBP 150 million of savings we've promised you before. Similarly, we've continued to make good progress with our ESG priorities. Internally, we've launched our Triple Zero campaign to build the movement among our colleagues to deliver three key ambitions: zero injuries, zero waste to landfill, and net zero across our entire value chain by 2040. Externally, our progress has been recognized by organizations including the Carbon Disclosure Project, MSCI, and others listed here on the chart. We continue to strive further towards further improvements across all eight priority areas and look forward to providing you with updates in the future.
Turning now to our three strategic pillars, and starting with our focus on priority combustible markets. Over the past 2 years, we have revitalized our five priority markets by focusing on tailored growth initiatives for each market. I'm pleased to report we have now increased our aggregate market share by 20 basis points following several years where we've been the number 1 share donor in these markets. As I said earlier, we have achieved this while maintaining our pricing discipline. Very important. As a reminder, also another important point, our objective is to stabilize our share, to no longer be the number one share donor. That's what the strategy was about 5, 2 and a half years ago. Because we are realistic in our assumptions.
We do not expect to grow share in aggregate every year, nor do we expect to grow in all five markets in any given year. We do manage these markets as a portfolio, we're pleased with the encouraging outperformance that we've seen so far. We do recognize these are highly competitive markets, our planning assumption is that we'll hold our share at full year flat on last year. Let's now review our performance in our priority markets, starting with the U.S. We delivered a very strong cigarette performance in the U.S., with market share up 95 basis points against a challenging market dynamic, with market volumes down around 9% year-on-year. We grew share in each of the three cigarette price segments where we're focused and achieved pricing across all our key price points.
Brand equity investments and innovative retail initiatives behind Winston and Kool supported continued share performance in the premium value price segment. We also performed strongly in the fast-growing deep discount price segment, where Sonoma and Crowns performed well. Now, as Lukas mentioned earlier, the performance of mass-market cigars has weighed on our overall U.S. results. Now, there are three reasons for that. First, we felt the impact of the destocking, which followed an earlier move last September by wholesalers, worried about potential supply disruption to increase inventories ahead of Hurricane Ian. Second, at the category level, we've continued to see volume declines following a period of strong growth, which had benefited from COVID. Third, we've lost some share as competitors resolve their supply chain issues, and we experienced some greater price competition versus last year.
We continue to believe this category remains attractive and our iconic brands like Backwoods are very well-positioned. Now, in the other four priority markets, we've made some clear choices around balancing market share with the delivery of pricing and value. In the U.K., we increased prices in November last year. Given the structure of the market, we anticipated this would impact on our share in the short term, but it was the right decision for value creation. We expect some share recovery in the second half of the year as investments in local jewel brands such as Embassy and Regal continue to gain traction. In Spain, we raised prices for the second year after many years of price stability. At the same time, we achieved modest share gains, driven again by our local jewel brands initiatives such as we launched a new super slim format for Nobel.
In Australia, we again achieve price gains early in the period while managing our overall market share delivery. In Germany, after more than a decade of share losses, we continued to experience a further decline in the first half year. We remain confident that the patient investment in building brand equities and sales force effectiveness in Germany will lead to stabilization over time. As I said before, this will take some time to achieve. Now, the second pillar of our strategy is to drive value from our broader market portfolio. Here, a clearly defined role for each of our markets has meant a greater focus for some clusters like Africa and Central and Eastern Europe.
We've decided to leverage the capabilities that we have been building in our AAA region to manage these smaller markets more effectively by transferring our Central and Eastern European cluster into this region. Strong pricing in these markets drove robust revenue growth. Similarly, in our African portfolio of markets, strong pricing more than offset weaker volumes. We continue to focus on increased customer engagement, tailoring our portfolio of local jewel and key international brands to meet local consumer demands. Now, our third strategic pillar is to build a targeted NGP business. In this period, we made a step change in the pace of innovation, new products, and market launches. That said, we continue to adopt the same disciplined approach we talked about in the past.
We only launch products in markets where first, there's already a clear consumer demand, and second, we have a well-established route to market through our combustible business. Consumers are expressing different preferences in different markets. That is why we are pursuing a multi-category approach. Vaping is clearly the consumer's choice in the United Kingdom, France, and much of Western Europe. Over the past 6 months, we have introduced new products, including the blu 2.0 pod system and our disposable blu bar in 8 markets. Heated tobacco is the number 1 NGP product in much of Central Eastern Europe and Southern Europe. Having validated our proposition, Pulze and iD, in the Czech Republic and Greece, we're now in a total of 7 markets, 5 of which were launched in the last 6 months.
We're continuing to build our modern oral business with brands like Zone X, through new flavor launches in markets, particularly in the Nordics, where this is the preferred category by consumers. Turning to each category in more detail. First, as you can see here in vapor, we have seen positive market share growth following the successful launch of blu 2.0 and blu bar. Our blu vaping brand is differentiated in the way it is targeted at what we call next steppers, more mature consumers who are making a broader lifestyle choice. We took feedback from these consumers to develop our new blu 2.0 device, improving the product design, pod performance, and battery life. This was the first product to be delivered from our refocused innovation pipeline.
Following city trials in France last year, we launched blu 2.0 nationally in the United Kingdom, France and Spain, where it has been positively received by consumers, as demonstrated by the national market shares you see here. In the meantime, we recently launched it into five further European markets. Following extensive adult consumer research, we broadened the blu brand with a disposable vaping product called blu bar, and have seen early progress following its launch in the United Kingdom, France and Spain, with more recent launches in four additional markets. As you would expect, blu bar was brought to market with a responsible launch framework targeting adult consumers, and work is underway to improve the product's life cycle.
In heated tobacco, consumer feedback from our initial market launch was fed into our product innovation with the development of Pulze 2.0, our newest device. This device, with its compact all-in-one design and 25 or more sessions from a single battery charge, appeal to consumer who appreciate the simplicity and convenience of not having to recharge. The new device has been supplemented by new tobacco and flavor additions of our iD sticks, and we're seeing some encouraging initial share gains. Following 5 new market launches in the period, our heated tobacco proposition, Pulze and iD, is now available in 7 European markets. This means we're now present in more than 60% of the addressable heated tobacco market in Europe. These are still early days, and we take nothing for granted. Competitors are, of course, innovating with new propositions of their own.
We are receiving positive feedback from our consumers and our customers, and we see an opportunity to carve out our fair share in this category. In modern oral nicotine, the footprint of our Zone X product is focused on the Nordics and some other European markets with a heritage of snus tobacco. Here too, we're building a distinctive proposition with innovative flavors designed to attract and retain consumers who want to migrate from traditional snus and other products, tobacco products. We're delivering another step up in revenue growth in line with our expectations. I hope you can see we are gaining real momentum with NGP in Europe across all categories. I think it's worth noting that NGP now represents 7% of our European sales, and it is growing.
To conclude, halfway through our five-year strategy, we're exactly where we wanted to be at this point in time. We've navigated some challenging macro headwinds to land a resilient first half performance. As these headwinds start to ease in the second half, we are confident in our ability to deliver a full year performance in line with our guidance. More broadly, we are well on the way to building a business which is more consumer-centric, more performance-driven, and more effective in how it operates. We have secured the stabilization of our core combustible business. With the disciplined approach of expansion of our NGP operations, we're moving towards a healthier future, which is at the heart of our purpose.
All of that means that while the future will always be uncertain, we remain on track to transform Imperial into a business that can deliver growth year and year out and create highly consistent value for shareholders. Thank you again to all of you for joining us today, and Lukas and me would be now more than happy to take any of your questions. Thank you.
Great. Thank you, Stefan. We'd now like to take your questions, as Stefan said. We'll take questions from the room first, then we'll take questions from those who joined on the telephone, we'll just alternate back and forth until we've exhausted you. If you wish to ask a question remotely, you'll need to register via the dial-in details, the link to do that is in today's press release.
If you wish to ask a question on the telephone, please press star and one one on your keypad. If you want to cancel that, you can press star and one one to cancel your call as well. We'll now take the first question from the room. Please wait for the microphone and state your name and organization before posing your question. We'll take the first one from Richard. Thank you.
Thanks. Good morning. Richard Felton from Goldman Sachs. First question's on cigars. Firstly, can you just confirm that the destocking which impacted your numbers in H1 is done, or is there more to come in the second half? Thinking about the overall category, look, you had a nice boost during COVID. There's been a bit of an unwind in the last couple of periods. As you see the category today, should we expect a return to normalized trends, or is the overall category still under a bit of pressure? That's the first one on cigars, I've got a follow-up.
Sure, absolutely. Richard, on stock levels, in the U.S. mass market cigars, they're exactly back to where they were pre the Hurricane Ian. Six weeks of stock, so any destocking effect is virtually covered in half one results. Yeah. To your second half question, it's always difficult to predict how consumers will behave in the future. As you would expect, we analyze this in a lot of depths. Our assumption, our prediction is that the market will more normalize and return back to the pattern that was seen for 4 to 5 years, which is around kind of a segment that it grows a little, yet but doesn't really shrink. Reality is this is a highly attractive market to be in, and we don't see that the market has fundamentally changed.
Great. Thanks. Then the follow-up is on NGP. Congratulations to the revenue growth in Europe and building traction with that business. As we think about FY 2024.
Mm-hmm.
Should we think about a further headwind for EBIT growth from NGP as you're in investment mode and building you out in new geographies? Or are we gonna start to see those losses narrow and it become a tailwind to your EBIT growth?
Sure. Richard, it's particularly difficult to say what the number for NGP losses will or investments will look for at fiscal 2024. I think what should give you confidence, that when we rolled out our five-year strategy, we kinda said at the end of that five-year cycle, it would be a break-even business. That picture hasn't changed. If you look at it, we give you some clear where we are in 2023, then 2024 sits in between and 2025. At the same time, you hopefully see here that our proposition, what we've put out as we rebooted our offer, we now can see the clear evidence, what we have to offer to consumers is appealing to consumers, and we are investing behind it in a responsible way.
Thank you.
If I may.
Yeah.
Stefan, Richard, I think we are very pleased, as Stefan mentioned, with the multiple launches and products in the last six months, and you've seen that. As you would expect from a challenger organization, that we have supported our product quite cost-effective, if you look at our losses so far in the first half, which while it is a step up over last year, as we had guided, it is less than what we had anticipated because of that challenger mindset and well-supported program. That's one thing. You'll see a step up in the next half as well, but we have still committed and we absolutely, you know, online with that five years plan, and it's always good to go back to that five years plan where we will have a break even in 2025.
Morning. It's Jacob from Redburn. Just to follow up on the NGP question. Previously you've had a partnership model. I'm pretty sure you still have it. You said in your release this morning, that you're gonna focus on small bolt-on acquisitions. What does that exactly mean? Is that focused more on the vapor and heat not burn, or will that also be on the modern oral category?
Sure. I mean, number one is I think it's just reassure you the phase about if we do any M&A would be bold on primary focus on NGP is not a new statement. We had this since the launch. If we go back to January 2021, when we rolled out the strategy, always said, we see our strategic plan primarily being an organic growth plan for Imperial Brands, yeah? The one we said, if there is anything we would want to invest from an M&A perspective, it probably would be in the area of NGP, but there would be bold on acquisitions, and that picture hasn't changed. Now, to answer the second part of your question, I go back to our consumer centricity.
It's very clear that consumers have made different choices, what is their preferred reduced harm product based on where they sit in the world versus the U.S. and Scandinavia or Eastern Europe. Therefore, our focus is to compete in the areas what consumers want, and therefore from an bolt-on acquisition, if we see a gap developing in our portfolio, that's where bolt-on acquisitions would fit in. just to reiterate, but it would be all within the wrapper that was provided as part of our capital allocation.
Thank you. Andre from UBS here. Two for me, please. Just looking at the U.S. on the FMC business, obviously it's been a strong performer, pricing 9%, volume, positive volumes, which is quite a sight in the space.
Yeah.
How do you think about rather than this year or next year for the market? Do you see a return to premium taking share from deep discount or, and, you know.
Sure. I mean, thank you, Andre, for the question. Logically kind of gives us the advertising spot again on FMC, our FMC performance, because if you look at it, net revenue up 5%, yeah, with pricing up nine and some mix effect in there. I think a very, very respectable performance in the marketplace, yeah. We're very pleased with our U.S. performance. I think what is important to your point, we've taken share in every single segment that we operated. Logically, deep discount was the biggest contributor because we always shouldn't forget last year, Korean tobacco was still in the marketplace, and therefore we have now the benefit of comping over that period of time. I think to your underlying question, that long-term trend of U.S. consumers to actually looking for more attractively priced products is still there.
At the same time, it has accelerated a little, not dramatically, despite all the inflation, but we don't see that trend reversing. Reality is for Imperial being the company which has a portfolio of brands at every single price point in the U.S., and on top of that, the track record where we can grow, hold or grow share in every single segment, I think that bodes well for our presence in the U.S.
Thank you very much. My second one would be just on your capital allocation, 'cause next year sounds like you're gonna do another buyback. That was the plan initially, the multi-year. Just in terms of the amount, obviously you won't tell us the distinct figure, but is there scope to increase the amount or at least keep it stable? Thank you.
This is one of my favorite questions because it is really strategic to us. Just to remind you why, you know, the strategic review drives the performance. Really, we do this to fulfill our capital allocation, we are doing well on that capital allocation. We have a strong balance sheet. We have announced the share buyback this year, which is a 5% share capital reduction, which is important. Now, you pointed it out properly. We are conservative. We look at this year, we do this year, when we get closer to the next year, we'll give you guidance on what that number will be. Rest assured that it is a systematic share buyback and will go on over the years.
Thank you.
Hi, Gaurav Jain from Barclays. One question on, you know, the very strong pricing, in the AAA segment, and I think a lot of that is probably driven by Australia, and, you know, probably it's north of, like it's high teens.
Mm-hmm.
Can you just explain what is happening there? Are there any inventory gains? You know, they've changed the excise tax structure again, and there will be a higher incidence of excise tax growth going forward. Does it mean you will have some inventory gains coming in this year, next year? I think the reason I'm asking is that Imperial had some profit warnings around Australia three years ago before you started, Stefan.
Yeah.
Can it now reverse, and could that contribute to your FY 2024 EBIT growth guidance as well?
Sure. Gaurav, the number one, just when you look at what is now the ACE region, Australia is an important part of it, but it's not the majority part. Just to reassure everybody, that pricing number that you saw in the deck is broad-based. It is across Australia, Africa, Asia and the Middle East, and now also Central Eastern Europe. It's very broad-based. Australia doesn't stick out in any positive or negative way. And the numbers we've reported here does not include any duty windfall profits in pricing, because in that period of time, the Australian government did not change anything on excise. What you're rightly referring to, the Australian government has now announced for September a 5% duty increase, yeah. We'll work through that.
Fundamentally, we do not want to be relying on delivering a number in Imperial around the duty windfall opportunities that present themselves, yeah. If there's an opportunity, we'll look at it in the right way, but it will not be a key driver of our plan. At the same time, we're good business people, we have to do what is right. If there is an opportunity for our shareholders around this within the framework offered by the Australian government, we'll definitely look at it.
Stefan, just to complement that, I think it's worthwhile remembering that the windfall you refer to was a 12% hike. This is a 5% hike. Like everything in life, it's about choices. You know, we have to do trade-offs between windfall and working capital. As Stefan said, you know, we will get to that point where we get there, and we'll take the right decision for the business, whether we do windfall or we do working capital, et cetera. There are some implications on this.
Jon. The next question from Jon.
Hi, Jonathan Leinster, Société Générale. You mentioned the sort of normalization again going back to the U.S. market and indeed the U.K. market. In terms of the sort of volume outlook, what does that look like?
Jon, I think it's a great question. The challenge to certainly extend for us today is we're going through one of the most volatile periods, as you referred to, because of the COVID adjustment. If we look at the longer-term trends, I want to be very clear, I'm not stating this is how we'll look the next 6-12 months. We fundamentally, when you look at our top five markets, we don't see a materially changed world out there. Yeah. We shouldn't forget that while Our industry has seen some meaningful price inflation, so has every other FMCG category in the world right now. The relative pricing of the category has not changed as much as people think. Now again, that is where we look at the broader picture also beyond our 5-year strategic plan. Yeah?
That doesn't stop that in the short term, because of duty changes on, that could be a short-term change. We fundamentally do not see the volume outlook for our industry, specifically focused on our top five markets, having materially worsened as we come out of COVID.
Sorry again, if I may just complement. If you look backwards again, because this is really a critical point. If you look at last half year, our volume has only decreased 0.7%. You know that underpins that volatility from one year to the other. If you take a five years cargo over the last five years, that's a 3.5% decrease. You know, I'm not saying that we're extrapolating, as Stefan said, in the future, but it does show you how important that volatility is of COVID. If you go and take a longer view, that normalizes significantly in the short term, like last half year to this half year or over the longer period of time.
Sorry, just a follow-up. Can you give some sort of timeline in terms of sort of IT, a major IT upgrade and the shared services and to when you'd expect, you know, how much that's gonna affect CapEx in the next few years and also when those savings are expected to come through?
Two things. You know, all these changes are done in the wrapper of the guidance as of today. We were very clear in our organization that we want to transform the organization, but that has to come at the GBP 300 million-GBP 350 million CapEx envelope. The systems program is really more a business transformation around the systems. Will take about 5 years from starting point to end. We're obviously focusing on the five key markets first to get the biggest benefit out of that. We have not published any savings, and I would really highlight the importance of this here also on the front side.
This will enable it to us unlock potential in terms of how we do business, how fast we can do business, how we grow our business, the data we get, what we can do with data. It's less, it's more about that than the savings. There will be savings and, you know, we've always pointed out that our organization, while we have tapped into self-help, there's more to come and there will be more to come. We have refrained from giving a specific target on that.
Just take the mic. Sorry. In terms of timeline, if you're, if you're looking at the first year, the top five markets first, is that likely to be done within the first two or three years? And is potential improvement in business practices likely to be relatively quick, or is that gonna be relatively slow as the sort of shares?
Thanks for the follow-up question. Yeah, you're right. I mean, like every systems rollout and business transformation, there will be some period of time till we actually harness and, you know, often some of those costs or investments will come first. Again, very clear within the wrapper of the guidance, within our strategic goals that we have set, and then you can expect really sort of second, third year, you would see probably more of the unlocking of the potential.
Great. Before we take any more in the room, we have some online. I'm just gonna hand over to Sharon, to the operator to line up the next question.
Thank you. As a reminder, if you'd like to ask a question via the telephone, please press star one one on your telephone keypad. We will now go to your first phone question. The question comes from Alicia Forry from Investec Bank. Please go ahead. Your line is open.
Hi. Thank you. I hope you can hear me. Is that right?
Yes, we can hear you, Alicia.
Fantastic. Thank you, Stefan and Lukas. Three questions from me, please. The first one, given you referenced down trading in some markets, and I think that is generally considered to be something we would expect to see given the pressure on consumers at the moment, and the good momentum that you're posting, particularly in the U.S., FMC. Why do you expect share losses in your aggregate five markets in H2 such that your full year aggregate market share will be flat? That's the first question. Second question, just wondering if you have any insights from your team on the ground in the U.S. regarding the recent menthol ban in California, and what impact that's having just generally. Then thirdly, I think you mentioned you're opening an innovation center in Shenzhen.
Just wondering if there's any more detail you can share with us around that timeline, what the size of the center might be, who you might partner with, and any additional color on how that will benefit Imperial, and the NGP strategy going forward. Thank you.
Sure. Absolutely. Yeah, I hope I have captured all three correctly. On your question of down trading and market share, I think it's. You will always find us very transparent. I think one thing to keep in mind, down trading has existed in this industry for the last 10 years, 20 years. Yeah. As prices have increased, you've seen consumers over time down trading to a cheaper price point, and then this price been got lifted again. In principle. We're not. We're seeing a trend around this, especially as consumers are clearly getting under more pressure, but we don't see broad-based. We see it in a select market. You rightly mentioned the U.S., we see a slight uptick in this one. We see a slight uptick, for example, in the German market.
The reality is, it is not a real massive change versus what has been an industry feature for quite a long period of time. Linked to your questions about market share, I think what is very important, A, when we report that 20 basis points gain in the first half, we shouldn't forget that a meaningful contribution from that comes from our extra share gains in the U.S. and deep discount as Korean Tobacco exited this market. That is not going to repeat in the second half because we're now comping for the first time over a period of time where they had already left. Yeah? That will be a headwind from a market share perspective in the second half. I also want to be clear, look, it's a highly competitive marketplace. I'm not sitting here about promising market shares.
I think it was important to remind all of us that our share, our strategy outlined 2.5 years ago meant that we would hold our share stable in our top five markets. We have always said, we will not return to where we came from of being the number 1 shareowner in these five markets. That is the underlying fundamental of our strategy. What is important to see when you look at the investment case, that's exactly what we've delivered now 4 half years in a row, and that's our ambition for the next half year as well. Yeah? That was question 1, if I captured you correctly. Question number 2 was about menthol ban in California. Couple of points here. A menthol ban came into the Californian marketplace in December, end of December last year.
It is very early days because don't forget, there's still stocks in the marketplace, so it's quite messy to read. A couple of points. The California market is about 5% of the U.S. market, and for us as Imperial, for historical reasons about our brand footprint, it's a significantly smaller part of our business of the U.S. than the 5% world, which is normal share. What we can see, if you remember, we've always said, if a menthol ban comes into place, our observations from Europe and general market observation, Canada and so on, would clearly indicate the majority of menthol consumers will stay in the category. We're also seeing these early indications in the California marketplace. Yeah? You see some consumers trying to look for different choices.
We see some slight decline in market share on what were your menthol brands before, but nothing to worry about. It's early days. It is behaving exactly in the way that we would expect it to. To your third question, just to clarify, the opening of the innovation center was in Liverpool. Shenzhen is going to come in the next six months. What's unique about it? I think that's the important part. The uniqueness of it is it's bringing all partners together in one place. Yeah? Virtually, our partners that were asked earlier about our innovations partner are virtually permanently in these sites with us, together with consumers, we virtually bring consumers there on a daily basis, plus our own innovation capability. What is unique there, for example, we have piloting facilities now in Liverpool.
That means you talk with the consumer, they describe what they want to have, the pilot facility can produce that prototype virtually within hours with our partners together, and you can immediately expose it back to consumer. That is the uniqueness of the features. That is something that we started in Liverpool. The intention is to bring that to Greensboro, our biggest market, to bring the same capabilities to our German market. As you rightly refer to Shenzhen as being clearly an important hub for partnering with innovation partners in the NGP space, we'll also have a permanent representation as an innovation center in China.
Thank you. There are currently no further phone questions. I will hand the call back to Peter.
Great. Thanks. I will take the next question in the room from Gaurav.
Hi. Question on capital allocation. You know, clearly next year, you will have more free cash flow after dividends. One part of that you have mentioned is acquisitions as well. What is better for Imperial? To buy sort of combustible assets trading at very cheap valuations, which are accretive to free cash flow and hence contribute to dividend growth and further share repurchases? Or to buy more expensive NGP assets which won't have any earnings associated with it, will be sort of not contributing?
Okay. Let me probably deal with this first. I mean, number one, I think we shouldn't lose sight of when we rolled out the strategy in January 2021, we clearly said this is an organic strategy. I think that's very important, too. That absolutely hasn't changed. M&A is not a key feature of our business plan. Yeah? In principle, the only thing where we kind of reserve judgment, we said as we develop our NGP strategy for the years to come, if we see there is a bolt-on acquisition around technology, branding, whatever, then we wouldn't want to close the doors to that. Yeah? It would not be something that would make a material difference to our ability to return cash to our shareholders. Yeah?
To deal very directly with the question of M&A in a core combustible business, that wasn't part of our strategy at the beginning, and that clearly hasn't changed. Reality is, there is the talk about... Reality is no assets have come to the marketplace in the last two years in any major form, and honestly, none of them would have come to the marketplace at attractive multiples. It's not a thing what we're looking at as a company. Which I think should reassure you, the capital allocation that we talked about two and a half years ago, that is very clear, very consistent, absolutely still the one in place today.
There are no further questions online. Jon, do you have a further question?
Maybe I might have misheard this, but certainly the, I think you mentioned the step up of NGP in the second half as well with new launches. Is that launches geographically, or is that launches of product or a mixture of the two?
Jon, I think that when I referred to the step up, it was referring to the step up investment against last year. You have had a step up in the first half, very much under the challenger mindset, so cost effective, but still a step up. We do expect a similar step up or a step up in the second half to support our ongoing and further investments. That step up was referring to that investment, not to necessarily multiple more launches, et cetera. There will be some more launches, but the step up I referred to was on the investment side.
Right. Any more, any more, any more questions? Nope, no more online. Great. Thanks so much. I'll hand back to Stefan.
Sure. I mean, first a big thank you to all of you for your questions, but hopefully what you got this morning from our survey, you can clearly see we continue to stabilize our core performance in our top five markets. 20 basis points, another proof point for you, we're getting our core business in the right place doing pricing it the right way. You also hopefully see, going back to John's last question, is about you're clearly seeing now we are gaining momentum in NGP exactly along the lines of our strategy that we outlined of being a challenger in this area. Probably less visible from the presentation, but you have to trust Lukas and Stefan, we continue to drive the building of capabilities, the cultural change, embracing the new ways of working throughout the business.
Now, that is a significant tailwind behind the delivery of our results. I think what you can clearly see is that that is driving the strengthening of the business and the delivery of our numbers within that. Hopefully, you also take away the reassurance that our the combination of our strategy with the capital allocation policy that we have, and that hasn't changed since we launched it, is going to drive very sustainable cash flows in the business and gives the right level of shareholder returns that I think is a feature that we promised you as shareholders. Thank you very much. Yeah? Looking forward to hopefully see you all in New York on the 27th of June, where we want to give you more lights and more insight on what we're doing on the consumer side. Thank you.
Thank you.