British American Tobacco p.l.c. (BATS) Earnings Call Transcript & Summary

Hello, and welcome to the BAT Pre-close Trading Update. My name is Jess, and I'll be your coordinator for today's event. [Operator Instructions] I will now hand over to your host, Mike Nightingale, to begin today's call. Thank you.

Thank you. Good morning, everyone. I'm Mike Nightingale, Head of Investor Relations. And with me this morning is Tadeu Marroco, our Finance and Transformation Director. Welcome to our 2022 first half pre-close conference call. I hope you're all well, and I'd like to thank you for taking the time to join us this morning. Before we begin, I need to draw your attention to the cautionary statement regarding forward-looking statements as well as the notes and disclaimers containing the trading update. I will now hand you over to Tadeu, who will say a few words on current trading before opening it up to questions. Unless otherwise stated, our comments will focus on constant currency adjusted measures and all share data is year-to-date average to April 2022.

Thank you, Mike. Good morning, everyone, and welcome. We are delighted to report this morning that BAT's transformation continues at pace. Our New Category business is becoming an increasing contributor to group performance and is driving our faster transformation. This has been supported by robust pricing in combustibles and the continued benefits of our cost saving program, Quantum. . I would like to take this opportunity to express our deep concern and sadness for everyone affected by the devastating conflict in Ukraine. Our priority remains the safety and well-being of our people in Ukraine and across the wider region. As previously announced, given the continued conflict, we are working towards transferring our business, Russia -- in Russia in full compliance with international and local laws. In addition, this conflict is increasing global uncertainty and disruption, further exacerbating inflationary pressures on supply chains, impacting consumer consumption and resulting in increased finance costs. While we are not immune to these pressures, we are confident in delivering on our current financial targets irrespective of the timing of the transfer of our Russian business. This is thanks to our well-established multi-category strategy, our strong portfolio of global brands and our resilient, highly cash-generative business. In New Categories, we increased our audit noncombustible consumer base by 1.1 million to reach 19.4 million in Q1 and continue to grow. Our New Category products are now available in 59 countries globally with a total of 84 category market combinations, driving strong revenue and volume growth and market share gains in our key markets. We continue to expand investing our New Category business with over GBP 1 billion invested in the first half alone. Our marketing spend effectiveness too is allowing ever greater focus on targeting of our marketing spend resulting in lower incremental spend increases in the current year. Benefiting from the strength of our 3 global drive brands across all categories, we have been able to increase price, reduce discounting and leverage scale to drive cost reduction while lowering recommended trade margin across our key markets. As a result, we expect a marked improvement in New Category contribution in 2022. We are confident in the delivering on our targets of GBP 5 billion New Category revenue and profitability by 2025 and 50 million adult consumers of our noncombustible products by 2030. We continue to drive value through our combustible business and through Quantum, we are making good progress towards achieving at least GBP 1.5 billion of annualized cost savings by the end of 2022. With this continued growth performance, we are confident in delivering on our full year guidance. We also expect another year of strong operating cash generation and to exceed our 90% operating cash conversion targets. In line with our more active capital allocation framework and in addition to our growing dividend, we are on track to return GBP 2 billion to shareholders through our share buyback program in 2022. This demonstrates our commitment to delivering enhanced long-term value for shareholders. Turning now to our performance in detail. We continue to build on our global category leadership position in vapor with Vuse achieving 34.4% value share in the top 5 vapor markets, up 1.1 percentage points. In April, Vuse achieved the #1 value share position in the U.S., the #1 vapor markets. Vuse reached in that market, 35.9% share, up 3.4 percentage points and is now the market leader in 34 states. As a good lead indicator for -- of sustainable future growth, Vuse has maintained its device share leadership in closed systems in all top 5 vapor markets. BAT has been leading the pace of vapor innovation with 8 successful launches in the past 8 years. In May, we launched Vuse ePod 2+ in Canada our first connected device. And in the U.K., we launched Vuse Go, our new disposable offering with 9 flavors, and we had further rollout plans in the second half. Vuse on e-commerce continues to grow strongly, driving conversion, loyalty and profitability. Total subscriber numbers are up 6% year-to-date and now represents 34% of our total e-commerce revenue. Encouragingly, data indicates that subscribers have over 7x the lifetime value versus an average third-party retail customer. We are delighted to have received the vapor market authorizations for Vuse Ciro and Vibe in original flavor from the U.S. FDA last month. Together with our Vuse Solo authorization from last year, this gives BAT the broadest portfolio of market authorizations provided to any company in the U.S. Additionally, it provides further confidence in our auto PMTA, which shares the same foundational science. Subject to the ongoing FDA discretion, all Vuse products currently available in the U.S. may continue to be market. In THP, the continued strong performance of glo Hyper in Europe drove category volume share in the top 9 markets, up 1.5 percentage points to reach 19.6%. Excluding Russia and Ukraine, our share of the top 7 markets representing around 7% of total THP volume reached 18.7%, up 1.2 percentage points. The THP category has continued to grow in line with historical trends with growth in Europe significantly higher than APME. Glo continues to drive strong consumer conversion, revenue and volume growth. Our consumer conversion rate is now comparable to the industry. In Japan, glo's share of the tobacco market reached a high of 7.4 percentage, up 60 basis points, as smokers continue to switch to THP. In a highly competitive market, our THP category volume share was 20.6%, down 60 basis points. Glo continued to grow category volume share across all key European markets with aggregate category share in the top 7 markets reaching 20.1%, up 3.5 percentage points. Excluding Russia and Ukraine, our aggregate share of category reached 17.7%, up 5.1 percentage points. The success of Hyper is driving consistent improvements in glo's brand power. This has enabled us to increase pricing in a number of key markets in Europe. And in the first half, we expect to deliver THP revenue growth ahead of volume growth for the first time. Glo continued its geo expansion. It is now present in 26 markets. And in the second half, we have strong investment plans, including additional launches, supported by strong marketing activation initiatives. Turning to Modern Oral. In Europe, we continue to be market leaders in 15 Modern Oral markets. Aggregate share in our top 5 markets, excluding the U.S., was broadly stable at 69.3%. In Norway and Switzerland, we continue to strengthen our volume share position in the Modern Oral category from a high base. Our share of total Oral in Sweden continued to grow, reaching 9.7%, up 160 basis points. We continue to drive innovation across the category. Mini pouches are now available in [ 15 ] markets and max ranges available in 11, driving strong overall growth. We expect to launch Velo in further markets in the second half. In the U.S., Modern Oral remains only 1.5% of total nicotine value share. Current low moisture products formulations continue to result in lower levels of average daily consumption and high poly usage. This is leading to a highly competitive price environment. Velo share was 6.9%, down 4.8 percentage points with our main focus remaining on Vuse in vapor. We continue to drive value through our combustible business with value share up 10 basis points. Full year global tobacco industry volume is now expected to be down around 3% versus our previous guidance of down around 2.5%. This is due to the impact of continued global macroeconomic uncertainty resulting from the ongoing conflict in Ukraine. With a well-balanced portfolio of brands across all key price tiers and the benefits of our digital revenue growth management tool, we believe we are well placed to navigate the increasing inflationary pressures this is causing. While our combustible performance remains robust, the first half volume is expect to reflect the impact of the sale of our business in Iran in August last year as well as the very strong prior year comparator in the U.S. First half pricing remained strong, partially offset by a continued geographic mix, driven mainly by the impact of the U.S. While we have seen the reemergence of illicit trade following the end of lockdown restrictions in certain markets, to date, we have seen no evidence of accelerated downtrading in our portfolio. In the U.S., industry volume decline is returning to historical norms with the first half additionally -- reflecting the impact of the prior year comparator. U.S. value share continues to be strong, up 40 basis points driven by our premium brands, Newport and Natural American Spirit. In addition, in the first half, the unwinding of prior year U.S. inventory movements is now expected to be partially offset by the phasing of inventories ahead of the U.S. implementation of our group-wide SAP platform in July. In the second half, this inventory phasing around our SAP rollout is expected to fully unwind. This means full year results will reflect the unwinding of the prior year U.S. inventory movements. In conclusion on our financial performance, while we are not immune to our current global macroeconomic pressures, with our strong new category performance, a robust underlying performing combustible and at least GBP 1.5 billion of savings from Quantum by the end of 2022, we are confident in delivering our guidance of 2% to 4% constant currency revenue growth and mid-single figure adjusted diluted EPS growth. Applying current foreign exchange spot rates of 1.26, we expect a translational tailwind of around plus 2% on adjusted diluted EPS for the half year and around plus 5% on adjusted diluted EPS for the full year. So while we recognize that there will be challenges ahead and that there is more work to do, our execution capabilities continue to evolve, and we are rapidly transforming the business. We are now in our faster transformation phase and making strong progress towards our purpose to build a better tomorrow. Driven by the strong growth of our new category business, we are continuing to reduce the health impact of our business whilst also delivering on our wider ESG targets. Key highlights in the first half includes we now have 18 certified carbon neutral manufacturing commercial facilities, including a further two added in the first half, as we continue our work towards achieving carbon-neutral operations by 2030. Our landmark 1-year glo clinical study is completed with full results expected to be published shortly. 180-day clinical study results have already showed that completely switching to glo from cigarettes resulted in positive change to all major indicators of potential harm, with the majority of indicators similar to quitting. In summary, with our well-established multi-category strategy, strong portfolio of global brands and our resilient, highly cash generative business, we are now in our period of fast transformation as we build A Better Tomorrow. Thank you, and I will now open to the call to questions.

[Operator Instructions] The first question comes from the line of Richard Felton from Goldman Sachs.

Two questions for me, please. So my first question is on Vuse Go, which I'm seeing a lot around London, so it looks like the launch is going quite well. My question is, firstly, in the cities or regions where it has first been launched, can you say roughly how big Vuse Go has become as a proportion of your overall vapor business? And then secondly, thinking about Vuse Go or disposables in vapor more broadly, how should we think of those impacting the gross margin of your vapor business? Will it be accretive to gross margins or will dilute over time? Then my second question is on combustibles in the U.S. So both BAT and the industry have taken a lot more pricing over the last 3 or 4 years certainly has been the case historically, which I would assume means that affordability is in a slightly different place today than it was a few years ago or when we had the last recession in the U.S., for instance. Given that step-up in pricing and also all the headwinds that the consumer is currently facing, have you seen any shifts in elasticity compared to historical levels?

Okay. Thank you, Richard, for your questions. Look, Vuse glo -- Go, we have just launched it. So it's early days to make a reference in terms of how much this is the volume compared with our own portfolio. But one thing that I can tell you is that the modern disposable is getting a lot of traction in a number of markets. If you exclude the U.K. in the top vapor markets, it's already above 20% of our overall market. And the U.K. is double than that. So it's not a surprise that you see a lot of device on disposable and the fact that we have just launched our product, we are very positive in terms of the progress that we can make because we are the ones that have a well-established brand by this point in time. So as you know, we are a leader in vapor in the U.K. And we are very confident that in this new segment that is opening up in a number of marketing, particularly in the U.K., we will be able to make a good inroad there. In terms of the margins, we expect to have similar margins that we currently have with our cartridge pods products. And we are building the products across to our margin. So we have the margin in our minds. We are not expecting any potential derail of that. So we -- in these new products, we are very conscious about the margins that we want to achieve. Also in terms of the ESG element. So we will be taking -- putting recyclable initiatives on that and surely continue our responsible marketing avoiding any type of sales for youth. So these are the key elements that we always have in mind when we are launching these products in -- first in the U.K. And like I said in my opening, we are also rolling out for other markets in the second half of the year. In terms of U.S., you have to consider that we are seeing some softness of volumes in the first half of the year, but if you take the last 3 years and you'll make an average of that, you saw in 2020, we had even increasing volumes in the U.S. 2021 was a more normal expectation. This year, it's a bit less. But at the end of the day, the average is not that much dissimilar to our historical trends. The affordability is having a particular impact at this point in time because of the high levels of inflation. But on the other hand, we also have a market where you have full employment and we have wage inflation as well. So that's why we are not giving any guidance at this point in time. We have to see how it performs. We expect in the second half that the comparators will be more benign for us. This year -- this first half is a bit more complicated because of the comparator was very strong last year. In terms of elasticity, we are not seeing that much difference from the portfolio that we always said. And we believe that we are well positioned given the strength of our portfolio, the digital tools that we have in place. [indiscernible], if anything, is growing in a pace that is even slower than the historical ones. Normally, you'll see the [indiscernible] year. What we have seen so far this year, doesn't suggest this level of pace. And we are not seeing, like as I mentioned before, any type of downtrading on our brands Newport and Natural American Spirit in particular performed extremely well. And we are very well positioned in the U.S. market and independent of the pricing that we are taking.

Your next question comes from the line of Rashad Kawan from Morgan Stanley.

Just one for me. Just wanted to get your thoughts on the implications to BAT from the Philip Morris, Swedish Match deal. I mean, does that change the way you approach the U.S. NGP market at all? I mean how much flexibility do you have to push heat-not-burn in the U.S. market, as an example, if IQOS is pushed aggressively there and start taking traction as a category?

Rashad, look, we are not seeing any -- to be honest, I don't see any implications from BAT in terms of our strategy. We are very clear in terms of -- first of all, it's interesting to see that everyone now is seeing what we have already seen many years ago. That's the direction is the multi-category. We were the first ones to start saying that, and not just saying but executing that. So as a consequence of this, we are very well positioned already in Modern Oral, and we are well positioned in vapor. And the THP in particular in the U.S., like you said, we -- first of all, I think we have mentioned this before, we don't believe that really is a category that has a lot of potential because we see the differentiation between the levels of tar and nicotine in combustible was really high compared with THP. And we saw this in markets like Canada, which has a similar level of tar and nicotine in combustible and the industry after trying for many years with very heavy investment THP, THP got nowhere in terms of presence in that market. And we will be more as an insurance making sure that we have our PMT of glo Hyper that -- by the way, has already been filed in the FDA and in the necessary, we'll activate that. But we still believe that this is pretty much a vapor established market like we saw in France, like we saw in U.K. And when you have a very well established market with a very high levels of tar and nicotine, the potential of THP is much reduced. And that's the beauty of the multi-category. The fact that we are addressing different consumer needs in different geographies with different levels of offers in terms of nicotine enjoyment. Okay?

The next question comes from the line of Pallav Mittal from Barclays.

It's been 8 months now since the PMTA approval on some Vuse products in the U.S. So have you witnessed any change in the consumer acceptance of the product post-approval?

No. In reality, the consumers are not even aware that the products get approved. That's an important point. The approval just give you the right to keep your products in the market. So once you get the approval in the marketing authorization, you cannot publicize that. You cannot advertise that for consumers. So it's completely indifferent. So this is -- that's why we are not very precious about the timing of approval, for example, of the Vuse Alto. We were one of the last to submit our PMTA. We'll probably be seeing other approvals before us, but this wouldn't be a problem because the consumers are unaware of what the FDA did in terms of approval or not. We feel very confident in our -- and that's the important bit. We feel very confident about the approval of Vuse Alto because the science foundation of the product is exactly the same that we use in the other SKUs of the family and they all got approved it. And we make sure that we took the learnings before from the orders to give a robust dossier for Vuse Alto. So we are confident that we get approved. But independent of the timing that, we can keep the product in the mind and consumers will not perceive the difference once they finally get approved.

Sure. And considering the ban on importation of IQOS in the U.S., while the ITTPs are going on, what are your plans on heat-not-burn in the U.S.?

Well, like I said in the previous one, we are -- we don't believe that the category be as strong as vapor. We -- our plan continues to focus on vaping. We spoke about Modern Oral before. Modern Oral is a category that is still lagging a lot of product features on that. The product that you see in the U.S. are the ones that had to be in the market before August 2016. As a consequence, the level of moisture is very low compared with the ones that you see outside the U.S., and it's not really satisfying enough. And that's -- the consequence of that's the level of poly use is very high, like 95% of the users Modern Oral are poly-users and the level of consumption is 2 to 3 pouches a day, whilst if you go to Scandinavia is between 6% to 7% and the level of Solo use is much higher. So we believe that if vapor category will still continue to be a very well-established category. Once we start getting approval from the FDA to modern products in Modern Oral, better quality similar to the ones outside the U.S We probably see somewhat traction in that category. In THP, we don't believe that we'll be as successful as you see in other parts of the world because of the characteristics of the U.S. market like I just mentioned before, is a very high tar -- level of nicotine and tar in cigarette is a market where the excise is 100%. You have difficulty in terms of commercializing, in terms of advertising. And we don't see really a massive potential on that. Saying that, like I mentioned before, we have applied for our PMTA with glo Hyper, and we are in the process of getting this approved. And of course, we believe that having [indiscernible] when you engage with regulators outside in the US. That's our major driver to that. And if needed, we can activate in the due time.

The next question comes from the line of Rey Wium from SBG Securities.

First of all, I just want a clarification around the Russian business. Will you continue to account for it until you have successfully completed the sale? Or will it be only be in for like the first 2 months of the year? And then just a follow-up on Russia. I mean, it is such a large market. So how do you, longer term, think of basically reentering the market? Or what plans are there? Because I mean, just from my perspective, by just executing it and let all your business there go and basically open it up for competitors. So I just want to get just a bit of a steer of how you think longer term of the Russian business?

Okay. Thank you, Rey, for your question. Look, Rey we -- just answer to your question on the reporting. Why is the exact time of the sale remains unclear. We -- under IFRS, we must continue to include our Russian operations and our reported numbers. Now we are -- like we communicated back in March, we are working as fast as we can towards exiting our Russian business, but it's an extremely complex process to fully separate the business from the group. Some of you probably know, we have spent 5 years -- for example, I've just given one example. We integrating our ERP systems and creating this unique platform that we call our [ Project Quantum ] across all the group. And so the Russian business is not different than others. So it's completely tied up for the mother ship. So to untangle all that takes a long and very complex steps to be done. And then you go through -- to the discussion around the patterns around trademarks and all that. So you can imagine the level of complexity. Because in addition to the negotiation happening, we want to make sure that we remain compliant with all regulations and international sanctions and they are changing continually, which, again, translates into some adjustments to the term sheet. So in terms of the future, it's difficult to predict now. I think that we'll be just speculating at this point in time, if we'll be able to go back and to come back to the market. And I think that is -- we have to see how it goes, but the important thing is that we are working to get it done. The point that we made about our guidance is that irrespective of the timing of the Russia disposal, we are confident in delivering the revenue, the EPS guidance that we gave in the RNS today, and that is what matters and let's see what happen as we move along because we are -- like I said, it's a very complex process.

Good. And maybe just a quick follow-up. Just in terms of -- I mean the updates around the vapor business sounds quite positive. I was just wondering about the profitability in the U.S. You talked about obviously trade margins reducing. I think you mentioned last year, the second half Vuse turned profitable in the U.S. Is there a chance of getting to full profitability in the full year?

Well, we will be providing a category contribution on a consolidated base from half year results. So you will start seeing the progress we have in terms of reduction of losses. And what I can tell you, so we are not providing disclosure by category by market. But what I can tell you is that the U.S. has been one of the biggest drivers for us to reduce losses. We are very pleased with the performance. You're absolutely right. From second half last year, we turned into a positive contributor. What we have done in the U.S. is exactly the model that we are applying elsewhere. You'll note that we have started with very high levels of discounts in the device to get our products in the hand of consumers, because we always believe that our products are better than competitors. And this translates into more and more consumables being sold. And we are in the phase now that we are able to increase the price, not just on the consumables but also on the device. And we do that using this digital tool that we have developed for combustible because then we can play with different package. For example, we have a package of [ one cartridge to cartridge for cartridge ]. So we understand the elasticity in different geographies, different channels. and we are using all opportunities to get as much value as possible. And we are also able now that we are leaders in 34 states to have a better negotiation in terms of trade margins. And on top of that, we have just reviewed our supply chain. And we start moving production out of China to other locations to avoid import tariffs in China that also enhance profitability on the vapor business. So when you put all this together, we are -- it's clear and accretive business for us today in the U.S., and we are very pleased with that.

[Operator Instructions] And the next question comes from the line of Alicia Forry from Investec.

A few questions from me. Just wondered if you could dig in a little bit into the confidence in reiterating guidance despite a little bit of increased macro pressures that you cite. Is this based on -- is this confidence based on kind of price increases that you've taken or internal cost savings that you see? Just a bit more color would be helpful. And maybe as sort of part of that question, you mentioned illicit returning. I don't think that's a surprise post the crisis, but are you able to kind of detail where that's occurring and it sounds like it's not affecting your business, but perhaps you could confirm that?

Okay. Yes. Yes, we are seeing a better environment price wide. And I'm talking here the global wide. It is not just particular markets. But worldwide, we are seeing a better price environment than we saw last year, which is a positive for us. And -- so this will be one element that we'll be using to navigate through the headwinds that we face, the savings, the fact that we had already established problem to deal with. What we are doing is just really trying to leverage as much as possible the mobilization of the company around the cost savings to get it as stretched as we can so that we are very comfortable now to get above GBP 1.5 billion savings by the end of 2022 that will have the discrete year of '22. And this will be together with the strength of our portfolio, the rollout of the revenue growth management tool I was referring to in the U.S., to other parts of the world. This will be the key elements that we'll be using to navigate through this turbulence. And we are already 88% of the pricing that we need for the year. So that's the level of confidence that I was referring to. For sure that they know that is the timing of the transfer of the business in Russia. So you would expect that if it takes a longer down the year, we'll be more in the upper range of the range. And -- but overall, we are very confident that we can be able to deliver that. On the illicit, of course, we are also doing quite well in the noncombustible, which is another element that I spoke in the -- scripted. The combustible -- remember that we -- for the first time last year, we reduced our loss by GBP 100 million, and we expect now to consolidate this trend moving forward in 2022 because all the initiatives that I was referring to during my opening. And this will be also an element that will help us to go through this. Now for sure that we'll have some headwinds and on top of the pressures we have to in the U.S., to lap a very strong first half this year. We have to -- stocks that needs to be unwinded throughout the year that we referred to at the beginning of the year. So when you pull all this together, we are very confident on the targets that we put for ourselves. We expect a more balanced result between the first half and second half subject to what happened with Russia for sure, but -- because the pressures that we'll be facing more on the combustible side, will be pretty much balance out with the improvement we are doing in New Categories. In the second half, we expect the pressure in combustible to ease a bit because of the comparator, mainly in the U.S. But on the other hand, we are investing more in the New Categories. Like I said in my opening, we are going for new launchings. We are going for new marketing activations. And so we expect pretty much a more balanced half 1, half 2 in 2022, subject for sure of what happens in Russia. In terms of illicit, we still have some legacy markets from COVID that are still doing quite well. We have Brazil, for example, where illicit continues to decline, which is very good news. And all this trend started with the COVID -- with close of borders, the government then started acting, and we haven't seen any excise increased for 5 years now, even state excise in Brazil, which is very helpful. And we are also seeing improvements in place like Malaysia, which, as you know, has a very high levels of illicit and it continues to improve this year. But we saw some reversal of this trend in place like South Africa [indiscernible] 2020. We see problems in KSA, in Saudi, for example. But like we said, overall, we expect -- we are expecting a 1% increase in illicit this year. Illicit, today, is adding to something close to 12% of the total market, and we expect this to be pretty much on the 13% when you consider a place like -- the user suspects like Pakistan or KSA like I referred to and some of that offset by the other markets that I was referring to you. Okay?

The last question comes from the line of Jared Dinges from JPMorgan.

Thanks for the questions. So in recent years, we've seen industry pricing ahead of inflation in the U.S. in cigarettes. And given this year, you actually have a very inflationary backdrop across other categories. But essentially, you're seeing cigarettes becoming more affordable. Do you see any opportunity to kind of offset any U.S. down trading through accelerated pricing even further? Would you -- or do you kind of prefer to take this year to make cigarettes relatively more affordable in the U.S.? That's the first one.

Look, Jared, this is a continuous checking for us. We have these very sophisticated models to analyze, the level of elasticity in a very granular base. It's not that we take one initiative because we have to consider that pricing is one thing, but the discount is what it really matters in the U.S. And the discount varies a lot. So you see the headline prices, but what the consumer end up paying at the end is what is offering him after discount. So the levels of discount varies a lot, and this is a consequence of us analyzing exactly the point that you are raising, the level of affordability. And this will vary between different states, for example, or even between different channels. And so overall, my point about the comment on the price is that we are seeing a better price environment than the previous year. And we are not seeing, particularly in the U.S. at this point in time, a big difference in terms of elasticity from what we have seen in the previous years. We got -- consumers are still spending similar amounts of money. But overall, I'm not just talking about cigarettes, but they are a bit more selective in terms of where they spend the money. And we are using all these intelligence and follow-up from consumers to understand where we need to apply the right levels of discount. We haven't seen the down trade in our portfolio, like I said, and we have -- and the reason why we are growing 40 basis points in terms of value share is exactly the fact that we have brands like Natural Spirit, which is a fantastic brand that, by the way, is the only brand in the U.S. that has no discount at all, is still continuing to grow. And also our Newport, which is our premium brands in the U.S. So the fact that we have this strong portfolio combined with this level of knowledge from the digital tool is very helpful. And we -- you have to remember that the industry has this particularity that we can leverage the exercise in the retail price, meaning that we are more resilient than other consumer goods. So the characteristics of the exercise and how much we pass on to the consumers and how much comes to the manufacturer itself makes this category very attractive and more resilient in an environment of high inflationary pressures.

Got it. That's very helpful. And then maybe just switch gears but also in the U.S. So you guys have talked about in the past a potential shakeout kind of post-PMTA, I think you quantified the size of that potential opportunity in the past. We've continued to see the disposable category grow and grow. Like I know which brand a winner within that is changing and it's become pretty fragmented, but it is combined fairly sizable now, and it's almost all flavored and primarily non-menthol flavored. We've seen some PMTA denials come through. I know some of those are going through the court system that are under review. But maybe you can give us an update on how big you think that opportunity is and will be. And when you think we'll finally see that shake out? And then maybe just to add to that, how many of those consumers that are consuming kind of like the fruity-flavored vapor products? How many do you think would actually stay within vapor if it was only menthol and tobacco flavors being offered?

Yes. Look, we -- you have to consider -- the bigger picture is that the FDA has [ 100 ] employees to deal with this massive amount of dossiers of submissions, millions of that. So they have provided some market authorization, some market denials. I think that they have something like 500,000 to 1 million of case still to be analyzed. So they are really late on that. And it's pretty not a surprise -- pretty much not a surprise because there are amount of SKUs that exist in the market was very substantial vis-a-vis the capacity they have to assimilate all that. So that's the first thing. The second is we are seeing a more and more concentration of -- in the U.S. for closed systems because all these open systems and the liquids having tremendous difficulty to get approved through the FDA, which, again, is not a surprise. And as we move along, we expect this to materialize. One big loophole that existed that the FDA just recently acted on that is related to the disposable synthetic nicotine. And why I'm saying the loophole because remember that they ban all flavors other than menthol and tobacco back in January 2020, but there was no mention to synthetic nicotine because synthetic nicotine in principle doesn't have -- was not subject to the remit of the FDA. So this type of products grew to something close to 20% of the total market over the last couple of years. And the FDA has just enact -- the President, actually, enact the mandate that the FDA has now having authorization to regulate these products as well. So we expect the FDA to do -- to request PMTA in these products, as they did for the other products in the markets with tobacco. So the question here is how long this will take and the level of enforcement that we will see for this to materialize? So -- but the size of the price can be as big as 20% of the market, but it's very difficult to precise the timing of that. And my point is not just a question of time, but it's also a question of enforcement. In terms of our consumers, we are seeing still a very good attraction in terms of menthol and tobacco. And you saw that the category continued growing since January 2020 when the fruit flavors has been taken out. Okay?

There are no further questions. So I will hand the call back to your host for some closing remarks.

Okay. So thank you all for listening and for your questions. I'd like to leave you with a few final comments from my side. We are very proud of the progress we are making transformed BAT, driven by the continued strong momentum across all 3 New Categories, driving value through our combustible business and generating cost savings through Quantum. We are confident in delivering on our 2022 guidance. And with that, I look forward to update you further on our transformation at our half year 2022 results presentation on the 27th of July. Thank you very much, and stay well.

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