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

Good morning, everybody, and welcome to BAT at the DB Consumer Conference in Paris. It is my pleasure to welcome Tadeu Marroco, Chief Executive of BAT on stage. He's going to start with a few introductory remarks, and then we'll move into Q&A.

Thank you, Damian. Thank you for inviting me to be here today. I have the opportunity to talk to you all about BAT's transformation. Before we get to the Q&A, I have just want to spend some few minutes just to outline some of the journey that we have been on and some key points of the trade statements that we have issued yesterday. And first of all, BAT is very committed in building a smokeless world. And as part of that, we have set a very ambitious target to become revenue smokeless more than 50% by 2035. We believe that we have the right strategy. We have a multi-category strategy since the onset, and we are well equipped to be able to give the choice for smokers who prefer otherwise, you carry on smoking -- smokeless products that have a very, very different and very lower risk profile compared with cigarettes. And also, this provides a commercial opportunity for the group. So with that said, I would like to make the -- your -- call your attention for the disclaimer in this slide. And then basically, at the back of the revised strategy that we have done more recently, we are sharpening our execution and we are also making more target investment decisions. And over the last few months, we have been very focused on sustainably strengthen our U.S. business, also accelerate innovations momentum and also being able to enhance our capabilities in order to allow us to deliver our strategic vision. We have said yesterday, we are pretty much on track to deliver our full year guidance of low single-digit revenue and profit in 2024. We expect to have H1 delivered in line with expectations. So the points that I would like to highlight from the statement yesterday, I'm very pleased with the performance in the combustible business. We have grew market share by 30 basis points year-to-date. I'm particularly pleased with the results of our commercial plans in the U.S. that we have put in place since 2023. We have basically stabilized our market share position in the market and also grow premium share at the back of some interventions that we have to do in our Newport brand and also the strength of Natural American Spirit. We are pleased with the performance in glo at the back of new innovations. We have a new device, we have new consumables. We were the first to introduce a non-tobacco heated product in Europe. And as we speak, we are rolling out those innovations. And at the back of that, we were able to pretty much come in close to stabilize our category share. We have reduced by 110 basis points category share last year, year-to-date is 20 basis points. So a much improved performance at the back of what we already start seeing with the rollout of these innovations. Vuse continues to be market leader in vapour globally and also outside in the U.S., and we are very excited about some new innovations that are hitting the market and will be constant from the second half of the year. And Velo is doing extremely well with strong growth on volume, on revenue, on profits. And this is very supportive of new contributions -- the new categories contribution, we expect again in the first half of the year and also in the second half of the year, to make improvements in terms of overall category contributions. As you know, we have reached breakeven 2 years ahead of target in last year, and we'll carry on now improving our contribution in the years ahead. And this will be no different from the first half and the second half. We expect to see an acceleration of our performance in the second half of this year. These are the back of unwind wholesaler inventories that is depressing the H1 results. So this will be unwinded in the second half of the year. But also, we expect to see the impact of all those new innovations in all 3 categories hitting the market fully in the second half of the year. And we expect to continue to see strength of our AME region, and we expect the APME region to have a more soft comparator in the second half that will also be supportive. So I'm very confident that we will have a stronger H2 to allow us to get back to the guidance in the full year for 2024. In terms of the revised strategy, one of the first pillars of the strategy is the quality growth. And quality growth, just to be clear, what we mean about quality growth is basically to have focus not just on the top line, on the new categories growth, but also how it flows through to the bottom line. So it's a more balanced view in terms of how we target invest, how we do resource allocation to get the best return possible. We are very clear that a sustainable future is about to have a proper regulatory environment and not just the regulation, but also proper enforcement in order to be able to provide consumers of smokers of cigarettes with the new products and address some of the pain points that we note [indiscernible] in the category, i.e., the environmental impact and mostly the [indiscernible]. There are ways to address that via regulation and via enforcement, and we have been adopting a more front foot position on that. And I'm very pleased with the performance that we -- with the financial flexibility that we are generating in the group at the back of a strong -- continued strong cash conversion. We have monetized partially our ITC stake early in the year, and this allow us to get back to the problem of share buyback. We have announced GBP 700 million this year, GBP 900 million next year and this will be supportive as well to our trajectory to narrow the targets now of leverage for 2% to 2.5% that we expect to achieve by the end of the year. So in summary, before we start, I'm very confident that our focused investment decision will continue to drive this positive momentum that we already start seeing in the group and deliver our midterm guidance as we continue to transform and build a smokeless world. So I'm going to stop here and give the chance for Damian to articulate some of the questions.

Okay. Thank you very much, Tadeu, for those introductory remarks. I think you've been in your role as Chief Executive for just over a year now. And I was just wondering if you could sort of talk about the purpose around sort of achieving or building a smokeless world. And what do you think the key assumptions are behind getting to 50% of revenues from noncombustibles by 2035?

Yes, our start point, if you go back to now where we stand today is around 17% and we have, give or take, a decade to get us to the ambition of 50%. We have to bear in mind the backdrop of that is that nicotine revenue is growing globally. So it's growing. And so we are in a growing industry revenue-wise. And this is the first point I would like to make. The second point, there are over 1 billion of smokers in the world today. There are just 100 million of noncombustible users today. But this 100 million is growing exponentially. So we, as I said in my introduction remarks, we have adopted this multi-category approach since the onset. This puts us in a very well position now to be able to address the growth of this segment of consumers that are more interest in those lower-risk profile products, establishing very strong global brands. We have now leadership in vapour, we have a very strong leadership in Modern Oral nicotine pouches outside the U.S. We are in a strong position -- second strong position in Tobacco eating product and getting more momentum behind now. So we believe that we have all it takes now to be able to get more traction from moving forward. And if anything, the strategy that we have to give more inputs and more target investments in terms of better returns of investments should allow us to get this momentum through and be able to achieve our ambition.

Yes. And just on that sort of the refined strategy, I think you articulated when you started last year the refined strategy. Can you just sort of outline the sort of key priorities within that refined strategy to drive the multi-category growth?

Yes. We -- the first priority that we call the quality growth is basic recognition that in tandem with the growth of revenue coming from the new categories, we also need to make sure that we are tuned to the margins improvement because at the end of the day, what we want is to make those products to mimic in terms of margins that we have in cigarettes and making it indifferent. If you sell a stick of cigarette or if you sell consumables and heated products or a pod in vapour or a pouch in nicotine pouches. So that's our focus and the -- and we are very encouraging to see where we are at stand today in terms of gross margin and the operating margin that we have just reached breakeven last year will be a consequence of that as we move forward. But it's also about being conscious about the -- and being very disciplined in the way that we manage the transition in the combustible business. The combustible is business that want -- that pays the bill at the end. We have to ensure that we strike the best value out of it. That's why areas like SKU rationalization, but also markets of rationalization, BAT has pulled out of more than 35 markets over the last 2 years, is exactly at the back of being more focused on where we invest and where we get the best of return. And this is part of this pillar as well. So is the foundations that we are start -- establishing to move beyond Nicotine at a certain stage. We have created an ecosystem investments around cannabis, for example, in companies like [ stakes ] and companies like Organigram in Canada. But also we have a well-being stimulations, some experiments and some organic developments there that we have pilots now in Australia, in Canada, in shorts, and we are -- start to rolling out the U.S. as well. So this is more for the medium to long term. So the median category, the pillar is about sustainable future. It's the recognition that we have to have scientific evidence base in order to be able to engage with regulators and have a proper regulation that could address those pain points I was referring to, i.e., [indiscernible] and having the proper enforcement to make it sustainable over time. And the third pillar is about the dynamic business that we call is all about operational excellence. It's all about having the capital and financial flexibility and even more important to have the right culture across the organization. I have been putting a lot of emphasis since I took over CEO in terms of creating a more diverse and more inclusive and more collaborative organization because I understand that this is fundamental, the building block for what we want to achieve.

Well, that leads nicely on to my next question about [indiscernible] I think about this time last year, you sort of said you wanted to build a much more collaborative and inclusive organization. Obviously, changing culture takes time, but how far or how well have you progressed in changing the culture? And are you able to provide any sort of tangible evidence of where that cultures come through?

Yes. Well, I'm very -- I can see that it has been resonating quite nicely. What we have done, we have revise the values of the company, which are behaviors that we would expect to see across the organization. These values actually was shared across with a number of our employees across the group, so they can fill part of building this together. So we established 6 values, which I have been in my -- I have been visiting a lot of markets, I have been doing town halls and we have a program called internal call let's talk, where I address the whole population of BAT and a future basis, they ask questions, and then we have a more transparency debate. And we are already seeing this resonating across the organization. People are more motivated, more driven, more positive about the future and that is creating the momentum that I was expecting. But like you said, this takes time. This doesn't have [indiscernible] today. And but this is -- we are definitely in the right way.

And perhaps sort of one of the things that sort of you can see from BAT in the last sort of year has been a step change in the NPD that's been launched. Can you talk, is that sort of linked to the cultural change that you're driving? Or are there other things that you've explicitly put in place to sort of behind sort of glo Hyper maybe or some of the stuff you're doing on Vuse?

Yes. Look, we -- the culture is important because I do believe that the world is very complex today, yes. So this whole era of having an individual that has all the answers, it's gone, far gone. The world has changed substantially, it's on the technology side, it's geopolitics and so on. And we, ourselves, in our industry is changing dramatically. Our company is going through a massive change. So I want really people that can contribute. We are going more and more outside and bringing more resource to fulfill capabilities that we need to develop that we didn't need in the previous 100 years. Areas like IT, science, technology, we didn't need necessarily to be successful and innovation, like you referred to, is a critical enabler for growth moving forward. So the focus on innovation and brand building is massive. So we have been out and recruiting and bringing new capabilities. We have reeducating our own people. So with all that, we need to create the space for them to have the freedom to speak their mind without any fears and in a collaborative way. So one thing is linked with another, but the emphasis that you are referring to in the innovation is the recognition that for us to be successful in this new world, we have to be more innovation obsessed organization. So -- and we have been working tirelessly around that. And we'll start seeing the outcome of that hitting the market, mainly in the second half of the year.

Yes. Well, you're doing a really good job of leading me into the next question. But so the next question was around sort of guidance we had the sort of trading statement yesterday. And you're sort of still on track to deliver sort of low single-digit growth for full year '24, but that implies an acceleration in the second half. I'm just wondering, could you sort of talk a bit around what are the drivers of that acceleration that we should expect to see in the second half to give you confidence in hitting?

First of all, the guidance is exactly what we expect to see early in the year because we had these movements in inventory, wholesaler inventory movements in the U.S. This is equivalent to something like 2% to 2.5% of U.S. sales that will be worse in the first half. So if you strip this out, which will be the case in the second half because we will unwind, that our revenue will be pretty much flattish in the first half of the year as opposed to be a loss of low single digit that we referred yesterday. But this is all linked with these movements in inventory. So if you are in a full year, of low single digits. And we said since day 1, that will be second half weighted. That's the type of performance we would expect in the first half. So there's nothing strange, let's go in that way. So it's completely aligned with our expectation. The second point is that we are seeing improvements on the commercial plans in the U.S. that I expect the combustible business in the U.S. be better in this year than the previous year. Remember that we started to do the commercial plans back in 2023 and this generated a decline in profit and revenue in combustible in the U.S. This will still be the case in -- will be the case in 2024 because of the carryover from '23, '24 end up impacting the year but will be better compared relatively with '23. The issue in the U.S. specifically is on the vapour side because of the illegal, and we can talk more about that on the vapour because vapour was a big driver of the profitability of Reynolds in '23 that will not be repeating itself for obviously reason because of the lack of enforcement in '24. So -- but the improvement in the combustible side will happen in '24 -- in the second half, mainly on the back of the inventory movements and the commercial plans results. The second point is about our rollout of innovation. So we're clearly seeing some of this uptick in terms of category share performance in heated products coming along at the back of the innovation that, if anything, will be solidified in the second half, but also the performance that we expect to achieve in Vapour and in Velo. In terms of revenue for the whole new categories, we expect to grow single digit in the first half. We expect to grow double digits as a consequence of the innovations rollout in the second half. So this also will be supportive for the second half. And finally, we expect to see the strength in AME. As I said, that is doing extremely well -- has been doing extremely well since last year, continue to happen in second half. And APME that have a tough comparator in the first half will have a most softer one in the second. So these are, for me, the key drivers that will lead us to have a better performance in the second half vis-a-vis the first and allow us to deliver the guidance.

And I think the multiyear guidance delivered mid-single digits. So we're playing a further acceleration in'25 and '26.

Yes, that' right.

Are they the similar sort of characteristics that underpin that sort of those assumptions?

Yes. We -- moving forward, for sure that with a better second half, you get better momentum for '25. So '25, most of the commercial initiatives in the U.S. is done by now, okay? So I shouldn't have in the likes of headwinds that I had in terms of carryover that I was referring to in '24 going to '25. If anything, it gets a better momentum in '25. On top of that, we expect to see some improvements on the macros, which was never in factoring our guidance for '24, but the macros in the U.S. has been difficult, and we hopefully see some green shoots mainly at the end of the year if interest rates start to come down. And also, we expect to see some levels of enforcement in the legal Vapour market in the U.S. at the back of very different measures that has been announced and taken that will come to fruition more in the beginning of 2025. So this all should be supportive for us to go towards our final targets of 3% to 5% revenue growth, mid-single-digit operating profit growth by 2026.

Yes. Thank you. As U.S. has come up quite a bit. It's been one of the challenging markets for you. I think overall volumes down in the period about 9%, but you're seeing an improved performance from Newport and Natural American Spirit and Lucky Strike. Can you just talk about the improvements that you've made or the incentives and the changes that you've put in place on those brands and the sort of the confidence that you can see coming through?

Yes. First, we need to understand the consumer dynamic in the U.S. markets. We came from a period of a lot of fiscal stimulus at the back of COVID, massive fiscal stimulus, probably the highest in the world in terms of state and federal stimulus. And this was taken completely out 2 years later and at the back of that, exacerbated by very high level pressures of inflation and interest rates high. So our consumers were heated badly by -- and stretched by a lot of price increase in utilities, in foods and on top of that, credit cards, mortgage at the back of interest rates. As a consequence of that, consumer confidence that was in the high 90s, prepandemic went all way down to 60% in 2023. So for sure that this has a reflection in terms of the cigarette business in the U.S. Now what we are seeing is unemployment still low, we are seeing that -- we knew that real wage inflation takes time to catch up with the inflationary pressures. And this is -- as we go along, start happening. And hopefully, when the Fed starts to reduce interest rates, that seems to be a kind of consensus that will happen more to us more -- in the second half of the year. This could reflect into consumer confidence start to rebounce. We are already seeing it up to 69% as opposed to [ 60% ] at the end of '23, which is positive and get some extra momentum. For sure, the 9% decline is not just about the macros, but it's also about the contamination of the -- proliferation of these illegal vapour products that we believe that accounts to something related to 2% out of this 9% in terms of decline. And this one at the back of the announcements that the FDA, but also measures that have been taken by states give us some hope that we are going to see some enforcement finally coming to fruition next year.

Yes. And if we -- well, let's go.

The brands itself, we have to adjust the brands through this reality. So Newport, for example, we didn't have any safeguard for consumers. So when this economic cycle hit consumers in Newport, they reacted for -- in 2 ways: one, reducing every day to consume. There are that moving away completely from the brands. So what we have done is not something creative because this has already been done in the past, even in the U.S. market, we created different price points. So we launched a price laddering for Newport with an 80% index in 19 states. So we haven't done this [indiscernible] but this was a very, very good measure to retain consumers within the family. And this has helped us a lot to stabilize the share of Newport. So we are very pleased with the results that we have achieved because the [ 8% ] index is not that high compared with what we saw already in the market. And it's fulfilling its promise, let's put it that way. And we activate when needed at the back of a lot of insights that we have with the analyst -- data analysis that we have implemented in the U.S. in terms of revenue growth management. The other brand, Natural American Spirit is a fantastic brand. This brand has never seen any discounting life and continues, if anything, to grow. It's like immune to economic cycles, if you want. And these are the drivers behind our performance in the premium segment that has increased 40 basis points. Now one thing is encouraging is that the pace of growth of the deep discount has stabilized. And this is also supportive for the premium segment as a whole. And also for the -- what we call the brand -- the value segment where Lucky Strike is. And the Lucky Strike today is the fastest-growing cigarette brand in the U.S. So it has grown 80 basis points year-to-date. So we are very pleased with the -- and that's the whole idea about the commercial plans for sure that we haven't just addressed the brands, but also we increased our sales force. We increased our coverage. We invest even more in terms of data analytics, in revenue growth management. And -- because the whole purpose has always been to create a more resilient cigarette portfolio in Reynolds and not just resilient in terms of macroeconomic cycles, but also in terms of regulation. So we are taking a lot of learnings from California introduction of menthol brand, which, if anything, should be well seen by authorities before they come to any conclusion on a federal level because it's a bad experience that's happening already in the U.S. in terms of illegal products coming from Mexico borders, in terms of self menthol [ ventilation, ] in terms of proliferations of even more of these illegal vapour products and so on and so forth. So -- anyway, but we are trying to use these insights from California to also adopt our combustible portfolio in case this regulation comes one day, it's a [ bad ] regulation, it's a [indiscernible] regulation. And there is no need for that. We know that there is -- whenever this has been implemented outside the U.S., it's ineffective. We go to Canada, 99% of retention of consumers just migrate for no menthol. We go to Europe, 93%. They are the 7% -- 70% moved to vapour. So they're still using nicotine. So at the end of the day is [indiscernible] that has a lot of unintended consequence as being has now demonstrated in California, and there are much better ways to address the problem with cigarettes through embracing tobacco [ reduction. ]

Yes. Very clear. If we switch now to sort of NGP profitability, you managed to sort of achieve breakeven 2 years ahead of the plan. Can you talk about the things that sort of underpin that sort of better-than-expected performance? And then how we should expect the development of NGP profitability going forward?

Yes. Look, the major drivers behind that is basically first scale. You scale, you translate into lower cost of goods sold. You can automate, for example, you can do stronger negotiations with our suppliers and this all revert in a better cost of goods sold for you. So this definitely is one area. And we have done a lot as well in terms of footprint and trying to maximize a lot of the reduction in costs. So this is clearly one. The second one is when you have strong brands, you actually have a better negotiation power to deal with your partners and customers. For example, trade margins, in particular in vapour that is very elevated, for example, has been mitigated through instead of moving away from a percentage of revenue, for example, towards back margin of -- front margin that is paid for or performance and so on and so forth. So a lot of that comes from a better management of trade margins. And obviously, as you go along, you learn a lot in terms of marketing spend effectiveness. And that's how you optimize your investment now, if anything, with the focus in the new strategy of resource location and having a more target investments, we'll be continuously improving our profitability in new categories. We are very pleased with the margins that we have been seeing so far. Gross margin of cigarettes as a whole is around 68%, 69% at group level. When you go individually by category, we have tobacco or heated products already there, we have a pouch, if anything, slightly up and even consumables of vapour now is above 60%. So it's going all in the right direction. And so we are very pleased with that. But for sure, we have investments below the gross line in terms of market investments that -- and some discounts to attract consumers. And this is what impacts the operating margin that we reached breakeven like we said 2 years before, and we are going to continue to progress as we roll out of these new more attractive and competitive products.

Okay. That's very clear. You sort of -- you've touched on it -- so the illicit trade problem around vapes in the U.S. Can you just sort of remind us the scale of the problem. And then we've also sort of seen improved or proposed improved enforcement from some of the U.S. states. Is that sufficient to stop the problem? Should we be encouraged? Or -- and what else would you like to see?

Well, so far hasn't been sufficient. This clearly because this is a category of GBP 10 billion revenue, more than 6% is on these [ illegal ] products. So where we basically compete is 20% of the category today, which is the legal market. The other 20% is open [ device ] that is still there as well, waiting for the definition of PMTA. So -- and we have more than half of these -- the legal markets in terms of revenue because we have the leadership of vapour legal in the U.S. The -- I think that the milestone that needs to be achieved is that FDA clearly concluding the process of PMTA assessment and publicly announced what are the products that they gave the marketing granted order, MGO. And as a consequence, what are the ones that gave the MGO because we still see key accounts in the U.S. selling some of these products that shouldn't be in the first place at the back of the argument from the manufacturers that are waiting for the PMTA to be assessed from the FDA. So once the FDA produced finally this consideration and put in place penalties that can motivate even not just the [indiscernible] because I don't have any doubts that the [indiscernible] will comply with that as soon as they announced the list, and this is something like 20% of where these products can be found. But they also need to put in place penalties to address the likes of vape stores where these products also are being sold. So I have no doubt that this will be a turning point. And the other turning point that we are now encouraging to see is what the states are taking probably on their own hands and legislating by themselves, creating a depository of type of PMTA certification to prove actually what are the products that are actually waiting for the FDA or not. So for -- if you are retaining those states, you have to go through this database and buy through a wholesaler that just can sell the products that are authorized in that database. Louisiana has already implemented that since November last year. We have seen a reduction in double digits in terms of illegal. So instead of continuing growing, like it's still the case today in the U.S., they have reversed that trend and now declined. And most of the decline has been absorbed by views in the legal markets. So this is encouraging, but just 3 out of these 20 states has already implemented. The vast majority is coming in early next year. So a combination of PMTA finally being concluded by the FDA, hopefully, at some point in time this year, and the states implement those measures give us encouragement to see some of those enforcement happening from next year onwards.

Hopefully, that comes early. There's been a sort of a reinvigoration around your sort of heated tobacco product, glo, and the launch -- well, first of all, you sort of resolved the litigation with PMI, sort of the first question on that is, how does that -- what does that change in reality in terms of your innovation pipeline? And then secondly, what's the initial sort of feedback from the new product launches?

Yes. The agreement with PMI was the right one for -- and we have seen other industry coming through these sort of agreements. And it's confidential, I cannot talk much about that, but give us within some boundaries more freedom to innovate clearly. And -- but it's not just about the IP deal, but also about the ecosystem that we are creating, have established a hub in Shenzhen. We have today almost 300 people there. We have established very good relationship with exclusive few suppliers and also, we have invested a lot in terms of insights, foresights in order to be able to connect that hub with the one we have in South Hampton. We have another one in North Italy. So we create an ecosystem of innovation and the rhythm of innovation that is very different from what we had in the past. And this has resulted in, for example, being the first in the market with a nontobacco product called [indiscernible]. It's doing extremely well in Europe. And the device that we have today is well ahead the previous one. We have a very nice display. We have boost bottom. We have a different heating profile, which is translating more satisfaction. But obviously, when we see all that last year, we are lapping the first half the price reposition we have done in Japan and Italy. And so this will create some pressure in the first half of the year, but we expect more than -- then recover that in the second half of the year, even though because these new innovation is allowing us to for the first time on the device side, compete on the premium segment, which is 7% of the value is of the category. We have never had an offer in that segment. And also, we have started taking some price up in markets like Italy, more recently and also Japan.

Okay. That's, again, another encouraging development. And on Velo, the Modern Oral product, can you talk about your strategy to relaunch in the U.S.? And just any initial feedback from what you're seeing there?

Yes. Obviously, the best solution for the U.S. in terms of Modern Oral for BAT is to bring our leader product, outside the U.S. into the U.S. That's what we want you to maintain because we have a very strong product outside the U.S. when we have freedom to operate. This to be realistic is 12 or 18 months away because it's in the PMTA queue that's put in that way. So we have revamped our Velo product in the U.S. with a very different, I would say, proposition for the consumer in terms of the way that we express the brand and this has resonated quite nicely because the product is a good product, in blind test is parity with the leader. So we saw a market share in our pilot state of New York reaching 13.5%, which is well ahead of the national share of 4.5%. And we have just started to roll out these new products across the country. In parallel to that, in recognition to that a lot of traditional oral users are also migrating for this new category. We have just launched. It will be on the 10th of June, a national rollout of Grizzly Modern Oral in that space, and we expect to achieve 51% of the distribution of Modern Oral by the end of the year. So with those 2 offers, we are more positive about making progress in this category in the U.S. from now on.

Okay. I'm going to answer sort of these 2 questions together because slightly conscious of time. You recently sort of revised gearing guidance down to 2 to 2.5x. What was the thinking behind that? And also, what's the sort of thinking around share buybacks? Obviously, you're returning those proceeds of the ITC sell-down. But sort of longer term, how does Board think about sort of share buyback?

Yes. We have to consider it is a very highly cash-generative company in the first place. So what we need is to reduce the target to face the macroeconomic reality. This time of very low cost of capital is gone, way gone. So -- and we have to adjust that, and that's exactly what we did, narrowing the target. What we want is to -- we know that we have a [indiscernible], but also we know that we have some headwinds to face, Canada, for example, as soon as we settle the way and we have been more transparent in terms of the numbers of Canada. And I have been saying to investors that the best way to think about Canada because I cannot speculate on Canada, even though it's confidential, is to consider out of the BAT numbers. And if you do that, your leverage will be up another 0.3x. So what we are aiming for is to get to this new corridor by 2026, ex Canada. And because when I mean about reaching this target by the end of this year, for sure, Canada is still consolidating the BAT numbers. So we want to make all we can to be able to get to that range ex Canada in 2026. And we believe that we have -- with the cash generation we generate, conversion rates that we generate and to do it in a way that we can get keep the share buyback, which we believe that is part of the capital allocation policy of the group moving forward and at the same time, being able to manage the leverage of the company and do the right investments for the growth of the business moving forward.

Okay. Thank you very much today. I think we're out of time. So thank you very much, everybody, for your attendance, and we'll see you later.

Thank you, Damian.

Thank you.