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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning to all of you, and thank you for joining us here in person, live of this presentation. It's great to see all of you, but I also want to stand all the people who are watching us online for our half year results. So 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. So as you all know Lukas CFO, and Peter Durman, our Head of Investor Relations. And first, I will highlight the key achievements from today's results and the macro-trends influencing our performance. Lukas will discuss with you the financial outcomes for the first half and our outlook for the full year. And then 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 within gap. And finally, as usual, we take -- look really forward to taking 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 said that performance would be weighted to the second half, and we are exactly where we expected to be at this stage of the fiscal 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 is underpinned by another improvement in our benchmark measure of market share. The aggregate combustible share for our top 5 markets rose by 20 basis points in half 1. And after several years of decline, we have now delivered 4 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 5 priority markets and across our broader portfolio. And though we never take anything for granted, our success in driving both share and pricing is further evidence we've now stabilized our core combustible business. And our disciplined approach to raising prices has helped to offset the temporary increased pressure on volumes as the COVID effect on consumer buying patterns finally unwinds. 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 6 months, we have moved confidently from the reboot phase to a broader roll out across markets, products and categories. This has driven a 35% growth in NGP revenue in Europe, the region where we have focused our efforts. And fifth. These results have been underpinned by continued progress in transforming our culture and ways of working. Now I will say a little more about how we're building these capabilities later in the presentation. And 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 fiscal year.
Now, 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 2 headwinds which have weighted on volumes in the first half and 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 has been relatively weak against a strong comparator last year. Because it was this time last year, in markets like the United Kingdom, when people started to travel again en masse, which we're now annualizing, and 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. And this has created a temporary drag on reported volumes and revenues. But like the COVID effect, this pressure reduces as we move into the second half. And there are also 2 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. And 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, though we have seen some down trading, underlying consumer demand has generally remained robust across most of our markets. And second, in NGP, we expect to see the new product launched in the first half, gaining greater traction with consumers during the second half. And while we will continue to be disciplined in our approach, we also have further launches in the pipeline. So in summer, underlying consumer demand remains resilient. We expect volume headwinds to ease and we will benefit from strong embedded pricing. And 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. Now I will hand it over to Lukas, who will take you through the financial results.
And 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 5 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 offset the headwinds in the U.S. caused by the uncertainty of the myblu Marketing Denier Order. This resilient performance has meant that at the half year, we are on track to deliver against plan as well as meet our capital allocation priorities. Leverage remains with our 2 point -- within our 2 to 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 were due to complete by the end of September.
This chart really illustrates the point Stefan was making about the easing of COVID restrictions and so the impact on volume. Between 2020 and the first half of '22, COVID was a slight positive. Movement restrictions and fiscal stimulus, 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 be -- to moderate as the comparator 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% but 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 destocking 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 products with -- low volume products with a net revenue per stick 2.6x that of a cigarette. So 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. And secondly, it was thanks to the strong performance of our deep discount brands, Crown and Sonoma. Moving to Europe. You can see that, again, strong pricing has partially mitigated the effect of volume declines. In AAACE, 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. And 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. And 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 cost this year. More details in the appendix. The strong first half performance of Logista resulted in an increase in minority interests. Our adjusted effective tax rate is slightly higher than last year at 22.4%. And we are now guiding for the rate to be around 22% to 23% for the full year. Slightly higher than 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 900 million, which reflects a number of factors. Firstly, we have had a planned increase of around 500 million in preproduction stock as a result of the stroke 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. And thirdly, we saw a similar increase in working capital at Logista driven by strong pricing as well as additional working capital from the 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 to 2.5x. Our recent bond issue supports a strong balance sheet and extends weighted average maturities. The bond issue was oversubscribed, showing continued demand in debt market -- debt 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. And 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. And 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. And 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. And at current rates, we expect foreign exchange translation to be a 3% to 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. Now, 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 almost 2.5 years ago, January '21. So that means for our 5-year plan, because this was a 5-year plan, we're now approaching the halftime whistle. And 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. And as a smaller club, we won't outspend our bigger arrivals, but we can outperform with the right approach. And this is where our challenger vision does matter. By getting closer to our consumers, innovating fast and executing well, we know we can win. And 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. Now 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 have seen how our brand investors have been making the most of the opportunity created by the easing of COVID restrictions and British and German tourists coming back.
And 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.
Now 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. And from a -- first, I want to talk about consumer capabilities. Well, 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. And further consumer centers will open in Hamburg and in Greensboro as well as an innovation center in Shenzhen. And its facilities like this that will allow us to accelerate our distinctive approach to innovation, which is based on deep partnership. I will give you more insights 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. And 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. And then third, for business that was build through acquisitions, we have still plenty of opportunities to simplify how we work. In the first half, we continue to build out our new centralized shared service centers and develop the design as our new global ERP system, which will replace 60 legacy systems. And at the same time, we're on track to deliver the GBP 150 million of savings we've promised you before.
Now 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 3 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. And we continue to strive further towards further improvements across all 8 priority areas and look forward to providing you with updates in the future. So turning now to our 3 strategic pillars and starting with our focus on priority combustible markets.
Now over the past 2 years, we have revitalized our 5 priority markets, by focusing on tailored growth initiatives for each market. And 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 #1 share donor in these markets. And as I said earlier, we have achieved this while maintaining our pricing discipline, very important. And as a reminder, also another important point, our objective is to stabilize our share to no longer be the #1 share donor. That's what the strategy was about 5 -- because -- 2.5 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 5 markets in any given year. Because we do manage these markets as a portfolio and we're pleased with encouraging outperformance that we've seen so far. What we do recognize these are highly competitive markets and so our planning assumption is that we'll hold our share at full year flat on last year. Now 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 3 cigarette price segments where we focus 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 Crown performed well.
Now as Lukas mentioned earlier, the performance of mass market cigars has weighted -- has weighed on our overall U.S. results. And there are 3 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. And third, we've lost some share as competitors resolve their supply chain issues, and we experienced some greater price competition versus last year. But we continue to believe this category remains attractive and our iconic brands like Backwoods are very well positioned.
Now in the other 4 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 achieved price gains early in the period, while managing our overall market share delivery. And in Germany, after more than a decade of share losses, we continue to experience a further decline in the first half year. But we remain confident that the patient investment in building brand equities and sales force effectiveness in Germany will lead to stabilization over time. But 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. And 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. And strong pricing in these markets drove robust revenue growth. Similarly, in our African portfolio of markets, strong pricing more than offset weaker volumes. And 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. And in this period, we made a step change in the pace of innovation of 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. And consumers are expressing different preferences in different markets, and 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. And 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 the #1 NGP product in much of Central Eastern Europe and Southern Europe. And 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. And 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. So turning to each category in more detail. First, as you can see here in vapour, 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 were 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. And 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. And in the meantime, we recently launched us into 5 further European markets.
Now following extensive added 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 4 additional markets. And as you would expect, blu bar was brought to market with a responsible launch framework targeting other consumers and work is underway to improve the product's life cycle.
Now in heated tobacco, consumer feedback from our initial market launches 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 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. Now these are still early days, and we take nothing for granted. And competitors are, of course, innovating with new propositions of their own. But 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 of the 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, want to migrate from traditional snus and other product -- tobacco products. And we're delivering another step-up in revenue growth in line with our expectation. So I hope you can see we are gaining real momentum with NGP in Europe across all parties. And I think it's worth noting that NGP now represents 7% of our European sales, and it is growing. So to conclude. Halfway through our 5-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. And 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. And 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. So thank you again to all of you joining us today, and Lukas and me would be now more than happy to take any of your questions. Thank you.
So we'd now like to take your questions as Stefan said. We'll take questions from the room first, and then we'll take questions from those who joined on the telephone and we'll just alternate back and forth until we've exhausted. If you wish to ask a question remotely, you'll need to register via the dial-in details, to receive the dial-in details and the link to do that is in today's press release. And if you wish to ask a question on the telephone, please press star and 1,1 on your keypad. And if you want to cancel that, you can press star and 1,1 to account for your quarter as well. So 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 1 from Richard. Thank you.
Richard Felton from Goldman Sachs. First question is on cigars. So 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? And then 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. But 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, cigars. And I want a follow-up.
Richard, on stock levels in the U.S., most market cigars, they're exactly back to where they were pre the hurricane, 6 weeks of stock. So any destocking effect is virtually covered in half 1 results. And to your second half question, it's always difficult to predict how consumers will behave in the future. But as you would expect, we analyze this in a lot of steps. And our assumption, our prediction is that the market will more normalize and return back to the pattern that we've seen for 4 to 5 years, which is around kind of a segment that is grows a little, yes, but doesn't really shrink. So reality is this is a highly attractive market to be in, and we don't see that the market has fundamentally changed.
Great. And then the follow-up is on NGP. So congratulations to the revenue growth in Europe and building traction with that business. But as we think about FY '24, 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 going to 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 fiscal year '24. But I think what should give you confidence that when we roll out our 5-year strategy, we kind of said that the end of that 5-year cycle, it would be a breakeven business. And that picture hasn't changed. And then if you look at it, we give you some clear where we are in '23 and '24 sets in between and '25. 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.
Richard, I think we are very pleased, as Stefan mentioned, with the multiple launches and products in the last 6 months, and you've seen that. As you would expect from a challenger organization that we have supported our products 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 or more we had anticipated because of that challenger mindset and well-supported programs. So that's one thing. You'll see a step up in the next half as well. But we have still committed and we're absolutely online with that 5 years plan, and it's always good to go back to that 5 years plan. Where we will have a breakeven in 2025.
It's Jacob from Redburn. Just a follow-up on the NGP question. In previously, you've got a partnership model, [Indiscernible] still have it. You said, you release this morning that you're going to focus on small bolt-on acquisitions. Now what does that exactly mean? And is that focused more on the vapour and [indiscernible] brand? Will that also be on the modern oral category.
Number 1 is, I think it just reshow you the phase about if we do any M&A would be bold on primary focus on NGP is not a new statement. We have this since the launch. If we go back to January 2021 when we rolled out a tranche always said, we see our strategic plan primarily being an organic growth plan for Imperial. The one we said, if there is anything we would want to invest from M&A perspective, it would be in the area of NGP, but there would be bolt-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 home 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 a bolt-on acquisition, if we see a gap developing in our portfolio, that's where old on acquisitions would fit in. But just to reiterate, but it would be all within the wrap up that we've provided as part of our capital allocation.
Andrei from UBS here. Two for me, please. Just looking at the U.S. on the FMC business. Obviously, there's been a strong performer, pricing 9%, positive volumes, which is quite a site in the space. But 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?
Sure. I mean thank you, Andrei, for the question. logically kind of gives us the advertising spot again on our FMC performance because if you look at it, net revenue up 5%, yes, with pricing up 9 and some mix effect in there. So I think a very, very respectable performance in the marketplace. So we're very pleased with our U.S. performance. And I think what is important to your point, we've taken share in every single segment that we operate in. Logically, deep discount was the biggest contributor, because we also shouldn't forget last year. Korean tobacco were still in the marketplace. And therefore, we have now the benefit of comping over that period of time. But I think to your underlying question, we -- 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. And 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 now, 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.
And my second one would be just on your capital allocation because next year, it sounds like you're going to do another buyback. And that was the plan initially the multiyear. But just in terms of the amount, obviously, you won't be -- you won't tell us distinct figure. But is there scope to increase the amount or at least keep it stable?
This is one of my favorite questions. And because it is really strategic to us. So just to remind you why the strategic review drives the performance, really, we do this to fulfill our capital allocation. And we are doing well on that capital allocation. We have a strong balance sheet. We have announced a 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. And when we get closer to the next year, we'll give you guidance on what that number will be. But rest assured that it is a systematic share buyback and will go on over the years.
Gaurav Jain from Barclays. So one question on the very strong pricing in the AC segment. And I think a lot of that is probably driven by Australia. And probably, it's north of like it's high teens, and can you just explain what is happening there? Are there any inventory gains, were there changed excise track structure again and the higher incidence of excise tax growth going forward. So does it mean you will have some inventory gains coming in this year, next year. And I think the reason I'm asking is that NPL had some profit warnings around Australia 3 years ago before you started Stefan. So can it now reverse and could that contribute to your FY '24 EBIT growth guidance...
Sure. Number one, just when you look at what is now the AAACE region, Australia is an important part of it, but it's not the majority part. So 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. So it's very broad-based. Australia doesn't stick out in any positive or negative way. The -- and the numbers we 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 announced for September a 5% duty increase, yes. So we'll work through that. But fundamentally, we do not want to be reliant on delivering a number in Imperial around the duty windfall opportunities that present themselves. 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 referred to was a 12% hike. This is a 5% hike. Like everything in life, it's about choices, and we have to do trade-offs between windfall and working capital. So as Stefan said, we will get to that point, when we get there, we'll take the right decision for the business, whether we do windfall or we do working capital, et cetera. So there are some implications on this.
John Leinster, Societe Generale. I mentioned the sort of normalization again going back to the U.S. market and the U.K. market. In terms of the sort of volume outlook, what does that look like?
John, I think it's a great question. The challenge to a certain extent 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. So I want to be very clear, I'm not stating this is how we look at the next 6, 12 months. We fundamentally when you look at our top 5 markets, we don't see a materially changed world out there because 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. So the relative pricing of the category has not changed as much as people see. Now again, that is where we look at the broader picture, also beyond our 5-year strategic plan, that doesn't stop that in the short term because of duty changes on that could be a short-term change. But we fundamentally do not see the volume outlook for our industry, specifically focused on our top 5 markets having materially worsened as we come out of COVID.
Sorry, again, if I may just complement going -- if you look backwards again because this is really a critical point. If you look at last half year, our volume has already decreased 0.7%. So that underpins that volatility from 1 year to the other. And if you take a 5-year CAGR over the last 5 years, that's a 3.5% decrease. So I'm not saying that we're extrapolating as Stefan said it 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 a longer period of time.
Sorry, just a follow-up, give some sort of time line in terms of sort of the major IT upgrade and then the shared services and to when you'd expect whether that -- how much that's going to affect CapEx in the next few years and also when those savings are expected to come through.
So 2 things. All these changes are done in the wrapper of the guidance as of today. So we were very clear in our organization that we want to transform the organization. but that has to come at the 350 million -- 300 million to 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 5 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 year also on the front side. This will enable 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 and so it's more about that than the savings. There will be savings. And 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. But we have refrained from giving a specific target on that.
Sorry. In terms of time line, if you're looking at the first -- the top 5 markets first, -- is that likely to be one within the first 2 or 3 years? And is the potential improvement in business practice is likely to be relatively quick? Or is that going to be relatively slow as the sort of share...
Thanks for the follow-up question. Yes, you're right. I mean like every systems rollout and business transformation, there will be some period of time until we actually harness 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 a sort of second, third year, you would see probably more of the unlocking of the potential.
Great. I think before we take any more in the room, we'll have some online. So I'm just going to hand over to Sharon to the operator to line up the next questions.
[Operator Instructions] We will now go to our first phone question. the question comes from Alicia Forry from Investec Bank.
I hope you can hear me. Is that right?
Yes, we can hear you Alicia.
Fantastic. Stefan and Lukas. 3 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 hosting, particularly in the U.S. FMC, why do you expect share losses in your aggregate 5 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.
And 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 time line. 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?
Yes. 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 yes. As prices have increased, you've seen consumers over time down trading to a cheaper price point. And then this price has been got lift -- up 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 in the U.S. We see a slight uptick in this one. We see a slight uptick, for example, in the German market.
But 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 it's 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 not comping for the first time over a period of time where they had already left. So that will be a headwind from a market share perspective in the second half. But 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 strategy outlined 2.5 years ago meant that we would hold our share stable in our top 5 markets. We have always said we will not return to where we came from of being the #1 share owner in these 5 markets. That is the underlying fundamental of our strategy. And I think 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. So that was question one, if I captured you correctly.
Question number 2 was about menthol ban in California. A couple of points here. A menthol ban came into the Californian marketplace in December, end of December last year, so it is very early days because don't forget there are still stocks in the marketplace. So it's quite messy to REIT. But 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. and the 5% with his normal share. What we can see, if you remember, we've always said if a menthol ban comes into place our observation from Europe and general market observation in Canada and so on, would clearly indicate the majority of menthol consumers will stay in the category. And we're also seeing these early indications in the California marketplace. You see some consumers trying to look for different choices. So you see some slight decline in market share on what were your menthol brands before, but nothing to worry about. So it's early days. It is behaving exactly in the way that we would expect it.
And then to your third question, just to clarify, the opening of the innovation center was in Liverpool, Shenzhen is going to come in the next 6 months. So what's unique about it? And I think that's an important part. The uniqueness of it is, it's bringing all partners together in one place. So virtually, our partners that were asked earlier about our innovations partner app virtually permanently in these sites with us.
Together with consumers, will virtually bring consumers there on a daily basis plus our own innovation capability. So 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 ours, with our partners together and you can immediately expose it back to consumers.
That is the uniqueness of the features and 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. And then as you rightly referred to, Shenzhen as being clearly an important hub for partnering with innovation partners in the NGP space will 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. So we'll take the next question in the room from Gaurav.
So question on capital allocation. So clearly, next year, you will have more free cash flow after dividends. And one part of that you have mentioned is acquisitions as well. So 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 and so will be sold off, not contributing to...
Let me probably deal with this first. I mean, number one, I think we should not lose sight of when we rolled out the strategy in January '21, we clearly said this is an organic strategy. So I think that's very important too, that absolutely hasn't changed. M&A is not the key feature of our business plan. So 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 out. But it would not be something that would make a material difference to our ability to return cash to our shareholders.
And then to deal very directly with the question of M&A in core combustible business, that wasn't part of our strategy at the beginning and that clearly hasn't changed. Reality is -- here is a talk about -- realities no assets have come to the marketplace in the late -- in the last 2 years. in any major form. And honestly, none of them would have come to the marketplace at attractive multiples. So it's not a thing where we're looking at as a company, which I think should reassure the capital allocation that we talked about 2.5 years ago, that is very clear, very consistent, actually still the one in place today.
So there are no further questions online. Any further -- John, do you want to -- a further question.
Maybe I might have misheard this, but certainly, the -- I think you mentioned a step-up NGP in the second half as well with new launches. Is that launches geographically? Or is that launch as a product or a mixture of the 2?
I think that when I refer to the step-up, I was referring to the step-up investment against last year. So you have had a step-up in the first half very much under the challenger mindset, 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. So that step-up was referring to that investment, not to say multiple more launches, et cetera. There will be some more launches, but the step-up I referred to was on the investment side.
Great. Any more any more questions? There were none. Great. Well, thanks very much. I hand back to Stefan.
I mean first, a big thank you to all of you for your questions. But hopefully, what you got this morning from our [indiscernible], you can clearly see. We continue to stabilize our core performance in our top 5 markets, 20 basis points, another proof point for you. We're getting our core business in the right place and doing pricing at the right way. You also hopefully see from 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 challenge in this area. And probably less visible from the presentation, but you have to trust Lukas, and 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.
And 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. And 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, it's 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 to you as the [indiscernible] . So thank you very much. And 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.