Now what we need to do, and we have been working for some time on that, with people on the ground, closer with the authorities, mainly in the Central Bank, it’s trying and with the help of ITC trying to reconstruct all the history of the shareholder of BAT that dates back 100 years. And through this period of time, as you can imagine, ITC has grown inorganically, so which is another complexity. We had bonus Issues, we have share splits, we have subscriptions. So we also have changed in the regulatory environment, mainly on the tobacco front. So we had to reconstruct his whole history, and that’s where we are working for some time now. Very difficult for me to give you a timeline on that, other than to say that we are doing all we can to create this flexibility so the board can make an assessment in terms of capital allocation decision moving forward.
Meanwhile, we are very supportive of our shareholding in ITC. It’s a fantastic company, well run, well managed, a very fast growing company in a very fast growing market with the most populous country in the world and contributing accretive for BAT in terms of earnings, also in terms of cash because they have a very good policy in terms of dividend payout, and the share price actually has doubled in the last three years. So that’s where we stand in terms of our ITC holding.
Faham Baig: Second was HP ban.
Tadeu Marroco: Yes, the HP product. Yes, the EU flavour ban. Well first of all, around 50% of the consumables in Heated Products in Europe is flavoured. In our case, we are over indexed to that is more than 7% of our portfolio that we sell in Heated Products in Europe are flavoured. So that’s why it was important to launch this new herbal product that we did, the first in the market and we are very pleased with the level of competitiveness of this product, and this resonate quite nicely with consumers. It’s up to the European markets to set their own timing. We have seen some markets that hasn’t done. So Czech, like you quoted is one of them. Romania is another one. In those markets that we have seen that the flavour ban has already happening in the market, we managed to hold and sometimes even grow our overall share with veo, which is very pleased to see.
There are some other important markets like Poland, Italy, still to come. So this is a process that we expect to come to a conclusion in terms of introduction of these flavour bans by mid of this year, and we are very well pleased with that because not just, it’s a great alternative, but also in the same time, we are rolling out this new device, which is the glo Hyper pro which has enhancement capabilities, new to the wall display. Also, the heating is much brings a higher temperature, hence, it’s more satisfying — satisfaction. The timing of the session is longer as well. So we are progressing in the right direction.
Victoria Buxton: Another question from the telephone lines.
Operator: Thank you. The next question goes to Gaurav Jain of Barclays. Gaurav, please go ahead. Your line is open.
Gaurav Jain: Hi, good morning. Thank you. I have three questions. So first question is on the Newport pricing trends. So clearly, you have a stabilized share and the share is growing, well, it is coming at the expense of pricing and there is a concern that what you are doing could lead to the breakdown of pricing discipline in the U.S. cigarette market. So could you please comment on that? The second question I have is on new product launches. So you are highlighting the glo new product launch, can you also talk of new product launches in the other two segments, i.e. Modern Oral and e-cigarettes? And the third question is on leverage. So your competitors are now they are all operating at less than 2x leverage and that’s where PM is also guiding to. So is the right leverage for you also closer to 2x rather than the middle of 2x to 3x? Thank you.
Tadeu Marroco: Okay, Gaurav. On Newport, we are doing, we are introducing, laddering in the brand and which is aligned with the commercial practice that we have seen in the markets. So in that sense, we are not really doing something unique. It’s just a recognition that, when we have an economic downturn, our consumers have absolutely no safeguard to continuing the brand. So we introduced a soft pack. We pilot that in some states in 2023 very successfully, as you could see in the numbers that we have demonstrated, and we expect to roll out this practice for throughout 2024. And it’s important, despite the fact that there is a mix impact on that should keep consumers in the family because we have seen from the past that when the economic cycle changed the consumer uptrends.
And so it’s important that we keep them in the family and that’s exactly what we want to achieve with the introduction of the laddering, the Newport specifically. For sure, it’s not just that, that we are doing. We are also assessing, reassessing some channels that we haven’t been really present before as we should, like for example deeper discount channels, $1 channels that consumers start migrating to and we are establishing some trade practice that can be competitive in those channels to support our brands as well. And on top of that, like I mentioned during the presentation, we are increasing our trade reps and all that has a positive consequence in the market. So we are very thoughtful in the way we are doing that, very measured in the way we are doing that, that’s why we said since day one that this is a process that will not take months, will take more than that and we are carrying on doing what we need to do throughout 2024.
The early signs are very positive on that space. It’s important just to make the point around the Combustible business to see that the U.S. market, the total nicotine in the U.S. market in terms of volume and revenue, without the issues that we face in 2023 are going, I understand the focus on the Combustible because it’s quite cash generative. But overall, nicotine space in the U.S. is still very favorable. And now for sure that a big chunk of that is going into the illegal products and modern disposals that we expect the enforcement should come through. And then once it comes through, open up this white space and we’ll be better positioned better than anyone because we are the leading brand in Vapour as well. And then just making a link with your second questions about other products.
We do have an improved product in Modern Oral in the U.S., we pilot this new refreshed, I would say offer to consumers in terms of campaign, in terms of communication, the feel and look of the product and very positively in New York. And we want to roll it out for throughout the year. We also have in Modern Oral all the plans, very exciting plans in terms of new SKUs that we’ll be launching in different markets where we have the freedom, not in the U.S. and that will be just supporting our leading position because we have basically leaders everywhere else other than the U.S. In terms of Vapour, we have a strong pipeline coming from the second quarter of this year on the disposable side, but also in the refillable side and with new technologies, and we’ll be hitting the market very soon and we are very positive around those innovations that are coming through.
And in terms of the leverage, like I said, the starting point for us to 2.5x is basically for us to be considered as a starting point to have a bit more flexibility than we have currently. We have been — it’s not to say that we want to stick to and stay there in the 2.5x. Like I said, I don’t have major concerns about the leverage because we have this very cash generative company, we can make improvements at about 0.2, 0.3 in any given year. So I think that once we get to the 2.5x, we can have more flexibility than we currently have today. That’s my whole point about the middle of the target.
Victoria Buxton: Another question from the lines.
Operator: Thank you. The next question goes to Rashad Kawan of Morgan Stanley. Rashad, please go ahead. Your line is open.
Rashad Kawan: Yes. Thank you and good morning, Victoria, Tadeu and Javed. Thanks for taking my questions. Just a couple from me. One, just to go back on heated tobacco, The settlement with PMI, can you just explain whether the legal disputes impacted your ability to innovate and how you think this will change your prospects if at all in the category going forward in the medium term? And then my second question just to drill down a bit more on U.S. Combustibles, I know you don’t want to give 2024 guidance on the U.S. but if I can ask things a bit differently, given how you’ve preliminarily guided on 2025, do you expect the level of competitiveness in the marketplace and the down trading that we’re seeing to continue into next year? Thank you.
