Good morning, everyone. I'm Jack Bowles, the Chief Executive of BAT, and I'm here with Tadeu Marroco, the Group Finance and Transformation Director. We are very happy to be with you this morning to present our 2021 results. I hope everyone listening this morning, and your families and friends are well. In 2021, we delivered the pivotal year, a key milestone towards our 2025 targets and a clear acceleration in our transformation journey to build a better tomorrow. This morning, I will share the key highlights of our progress, and then Tadeu will provide more details on our performance and outlook. A year ago, we said 2021 would be a pivotal year, and we were at a critical turning point in BAT's transformation journey.
We committed to accelerating new category revenue growth, reducing new category losses for the first time, and deleveraging to around 3x net debt to EBITDA. I'm delighted to say that we have delivered on all three areas. We accelerated constant currency new categories revenue growth to over 50%. We reduced new category losses for the first time with circa GBP 100 million improvement in profitability. With continued strong cash conversion, we reduced leverage to below 3x. As we said, this has given us the financial flexibility to be more active on our capital allocation to deliver sustainable long-term value for shareholders. As a first step in our new capital allocation framework, while maintaining a growing dividend, we have announced a GBP 2 billion share buyback for 2022. Tadeu will talk more about this later.
With strong progress in new categories, we successfully accelerated our transformation in 2021, and we are well on track to deliver on our 2025 targets. Our purpose to reduce the health impact of our business is central to our strategy, and we're actively encouraging smokers to switch from cigarettes to our reduced-risk new category products. Demonstrating this, we delivered a record increase in consumers of non-combustible products in 2021. We grew this consumer base by 4.8 million to reach 18.3 million, with strong growth across all three new categories. This shows the power of our multi-category strategy to encourage the largest numbers of smokers to switch to our broad range of reduced-risk products. With this strong momentum, we are confident in achieving our target of 50 million consumers of non-combustible products by 2030.
Over the last three years, we have built three powerful New Category global drive brands. Vuse is the number one global vaping brand with a value share of 34%. I am particularly pleased that in the U.S., Vuse delivered strong revenue and share growth, and in the second half of 2021, became profitable at the category contribution level for the first time. glo has achieved 18% volume share of THP in its key markets. Growth has accelerated, driven by the success of Hyper, which is delivering a step change in product satisfaction and a significant improvement in consumer conversion. With Velo, while we still have work to do in the U.S., our superior international product further extended our volume share leadership in ENA. I am delighted with the performance of our New Category brands, with each of them growing revenue by more than 40% in 2021.
This demonstrates the importance of a global multi-category strategy with strong brands, great products in the right markets. Our new category drive brands are supported by a clear ESG focus, which is both important to our consumers and is actively contributing to our group's sustainability targets. For example, we have already reduced plastic in our Vuse packaging, saving 250 tons globally, and we have commenced take-back schemes on new category devices and vapor cartridges. This is fully in line with consumers' evolving expectations of global brands and reflects our work to embed ESG across our business. Turning now to the financials. We delivered robust results in 2021 while navigating the continuing challenges of COVID. Our reported results reflect a translational currency headwind of over 7% on EPS, partly offset by a reduction in adjusting items in 2021.
To better understand the key drivers of our performance, we will focus on constant currency adjusted results unless otherwise stated. Revenue was up nearly seven percentage points, driven by excellent new category revenue growth and a strong performance from combustibles. EPS growth at 6.6%, which was at the top end of our mid-single figure guidance range, having absorbed the net impact of a number of one-off factors. I would like to take the opportunity to thank all our people and partners for their continued focus and commitment in delivering this performance through this difficult COVID period. Having delivered on our pivotal year, we are now entering the next phase of our journey, faster transformation.
This means, first, New Categories contribution to group revenue will continue to grow and is expected to more than double from GBP 2 billion- GBP 5 billion by 2025, as we continue to encourage more smokers to switch to our reduced-risk products. Second, as we leverage our increasing scale and reduced losses, New Categories contribution to group profit growth is expected to accelerate. Third, with our more active and new capital allocation framework, we are committed to delivering enhanced long-term value for shareholders. With these foundations, we are building a better tomorrow. We are making strong progress towards our New Category targets of GBP 5 billion in revenue and profitability by 2025. In addition, we see significant opportunities beyond nicotine.
With our investment in Organigram and through our corporate ventures unit, Btomorrow Ventures, we are building an ecosystem of capabilities as consumers increasingly seek products offering well-being and stimulation. We will continue to deliver robust financial results and return to our medium-term outlook for revenue growth of 3%-5% and high single figure EPS growth. With our continued focus on cash, we expect to generate around GBP 40 billion of cumulative free cash flow over the next five years, representing more than half of our current market capitalization. Tadeu will now provide more details on the strong momentum in our business. Tadeu?
Thank you. Thank you, Jack. I'm very pleased with our results in 2021. We delivered strong progress against all of our key financial focus areas. We further increased investment in new categories by almost GBP 500 million, while at the same time reducing new category losses by close to GBP 100 million. Quantum is fueling our transformation, and in total, we have delivered around GBP 1.3 billion of savings and expect to deliver at least GBP 1.5 billion of savings by the end of this year. Cash generation is a key focus for the group, and we deliver another year of operating cash conversion in excess of 100%. As Jack has said, this has given us the financial flexibility to be more active in our capital allocation to deliver sustainable long-term value for shareholders.
As a first step, we have announced the dividend increase and a GBP 2 billion share buyback for 2022. Turning now to the results. Revenue growth was strong at 6.9%, comfortably outbeating our guidance of above 5%. The impact of excise changes in Australia, and the sale of our business in Iran partway through the year were partially offset by the impact of trade inventory movements in the U.S. Excellent new category revenue growth of 51% was driven by strong growth across all three categories. Non-combustibles contributed nearly half of our total group revenue growth at three percentage points, a significant step up from their 1% contribution in 2020. Combustibles volume benefited from the performance of emerging markets, with their partial recovery from the impact of COVID in the prior year.
With value share up 10 basis points, we continue to drive value from combustibles. Combustible price mix of 4.2% reflected strong pricing, partially offset by significant geographic mix from the emerging market recovery. The FX headwinds on group and new category revenue were around 7% and 8%, respectively. We are delighted to announce Vuse global value share leadership in vapor in July 2021. We continue to build on this momentum in the second half, with Vuse achieving a full year value share of 34% in our top five markets, up 7.8 percentage points. In addition, Vuse remains the device share leader across all our top five markets, a good indicator of future growth. With Vuse growing brand strength, we raised prices in all key markets in 2021, driving second half revenue growth above volume growth for the first time.
We also made good progress across all three key levers of profitability improvements. Trade margins, cost of goods, and marketing spend effectiveness drive a strong improvement in vapor profitability. In the U.S., Vuse performed particularly well and has closed a 27 percentage points value share gap in just two years and is now on the verge of leadership. Growth has been powered by continued brand equity improvement, increased consumer relevant assortments, including single and quad packs, which drove higher trial and conversion and now represent over 60% of volume, and the focus on excellence in our in-store execution. In addition, the state-by-state execution planning has helped us to deliver hyperlocal Vuse marketing expressions.
At the same time, as Jack has said, we reduced the year-on-year losses, resulting in Vuse achieving profitability in the second half of 2021. This is a fantastic performance by our U.S. team, and is an important milestone on our way to profitability to our group level by 2025. In October, Vuse Solo received the first of its kind PMTA authorization, confirming that the marketing of original flavor Vuse Solo product is appropriate for the protection of public health. This approval give us further confidence in our other PMTA applications, which share the same foundational science. In addition to our success in vapor, we have also gained significant share in THP, powered by the continued success of glo Hyper.
In 2021, glo's share of the Japanese total nicotine market grew in every quarter to reach an average of 7.4% in Q4. In ENA, Hyper continues to drive strong share momentum, with glo gaining volume share of total cigarette and THP in key markets. In Russia, our THP growth has been enabled by the investments we made in the late 2020, partnered with outstanding brand equity building, which blends the best of glo with local Russian flavor. Our share of the THP category in the T9 key markets was up 480 basis points to 18% for 2021, with Hyper now accounting for over 70% of glo's volume.
In ENA, glo volume growth is outpacing category growth by a factor of more than five times, driving our category volume share up 930 basis points to 16.6%. As glo Hyper rapidly generates scale, we are reducing production and consumer acquisition costs, supported by our marketing spend effectiveness digital tools. In Modern Oral, global volume growth was up over 70%. In the U.S., while we recognize we have more to do, the category represents only around 1% of total nicotine industry revenue due to the availability of established alternatives, including vapor and traditional oral and significant discounting. In ENA, we consolidated our clear leadership in both established oral markets in Scandinavia and more broadly across Europe with further share gains.
In our largest market, Sweden, Lyft Lab, our Modern Oral innovation hub, is a great example of where we have co-created with consumers to better meet their specific taste preference. The highly digitally focused activation has reached more than 12 million adult consumers. In combustibles, we continue to drive value growth. Overall, we deliver combustibles revenue growth of 4% with continued strong cigarette pricing of 18%, partially offset by geographic mix. This was driven by the performance of emerging markets and their potential recovery from the impact of COVID in the prior year, particularly in Bangladesh, Pakistan, and Vietnam. As a result, combustible volume was flat. We are continuing to leverage our scale in combustibles to drive our transformation. Last year, 1 billion of our cigarette packs worldwide carried communication to encourage adult smokers to switch to our New Category products.
This year, we plan to double this to 2 billion packs. Turning now to the regions. In ENA, new category revenue grew by 80%, with all three categories recording more than 40% growth. glo revenue more than doubled, driven by glo Hyper success, and THP is now the largest of our three categories in the region. High investments associated with the rollout of Hyper impacted regional profits. In vapor, revenue growth was ahead of volume growth in the year, driven by higher pricing on Vuse. Combustible revenue grew 1% as volume decline was more than offset by price mix, which reflected the impact of excise increase in Russia. In APME, glo revenue grew by 13%, driven by volume share gains with a strong acceleration in revenue in the second half.
In combustibles, higher volume and pricing was more than offset by geographic mix, the Australasian impact, and the sale of our business in Iran. In AMSA, continued strong growth of Vuse in Canada and the recovery of vapor in South Africa following the sales ban in 2020 drove new category revenue up over 100%. Combustible volume was flat, with revenue up 4% driven by strong pricing. Cigarette and THP value share declining 70 basis points, driven by growth in the value segments due to the lower illicit trade in Canada and some down trade in Mexico. In the U.S., we continue our strong momentum. New category revenue was up over 50%, led by continued significant value share gains from Vuse. Revenue was up 9%, driven by the excellent new category growth and a continued strong performance in combustibles.
Combustible volume was down 5%, partly benefiting from trade inventory movements, which are expected to unwind in 2022. These movements were mainly linked to the timing of price increase in 2021 and uncertainty about a potential excise increase. Our underlying volume decline, adjusted for the number of selling days and inventory movement, was around 7%. Combustible revenue growth was 8.1% at constant currency, driven by strong pricing with four BAT price increases during the year, and also benefited from around GBP 200 million additional revenue due to the trade inventory movements. These results reflect the strength of our U.S. brand portfolio. Value share increased by six basis points, driven by our premium brands, Newport and Natural American Spirit.
We relaunched the iconic brand Lucky Strike in December 2020, successfully broadening our portfolio in the lower priced segment and achieving around 1% national volume share in 2021. Moving on to operating margin. Price mix and operational efficiencies contributed 40 basis points to operating margin. A strong operational improvement was partially offset by geographic mix and the net impact of an estimated GBP 260 million negative profit impact in Australasia and the benefit of the U.S. trade inventory movements. The group absorbed a 1.7% transactional FX impact on profits, which was a headwind of 60 basis points to margin. We continue to increase new category investment with an additional GBP 500 million invested in 2021, while at the same time, reducing new category loss for the first time by nearly 10%.
As a result, the margin headwind from new categories has materially reduced. This reduction in new category loss was driven by improved trade margins with a 31% improvement in vapor. Overall, GBP 220 million productivity savings through increased automation and reduced cost of goods sold, and a significant improvement in our cost of consumer acquisition across all three brands, leveraging our marketing spend effectiveness tools. With Vuse now profitable in the U.S., driven by the progress on all three levers, we have reached an important milestone. For the 2022 financial reporting periods, we will disclose new category contribution to group profits to provide investors with increased visibility and clarity on our pathway to new category profitability by 2025. Through Quantum, we are continuing to drive further simplification of the business.
We have cut the number of business units by 40%, reduced management layers with a 22% reduction in senior management headcount, and we have redesigned our operating model to empower our people and increase our speed to market. As part of our continued focus on simplification and efficiency, the U.S. will join our global tower operating model and SAP platform during 2022. In total, through Quantum, we have delivered around GBP 1.3 billion in savings, fueling our investment in our transformation, and we now expect to deliver savings of at least GBP 1.5 billion by the end of 2022. Turning now to EPS. We delivered constant currency adjusted dilute EPS growth of 6.6%.
This was at the top end of our mid-single figure of guidance range, reflecting a robust operating performance that enabled us to absorb the net impact of the one-off factors I have already talked about. Earnings growth also benefited from lower net finance cost, a partial recovery in our associate income, and a slightly lower underlying tax rate. For 2022, we expect net finance costs to be around GBP 1.5 billion. Based on current tax rates globally, we expect a similar tax rate of around 25%. Finally, extrapolating current spot rates, we expect currency translation to be broadly neutral on full year adjusted EPS growth. Operating cash conversion was strong at 104%, reflecting our focus on cash delivery and also benefiting from the absence of a stock build in Australia following the change in excise structure.
We reduced the leverage to just below three times and have a strong balance sheet with a very manageable maturity profile, with 90% of our debt fixed, an average maturity of 10 years, and close currency matching, and maximum annual debt maturities no higher than GBP 4 billion. We expect gross CapEx for 2022 to be broadly in line with adjusted depreciation and amortization at around GBP 750 million. Over the next five years, we are on track to generate around GBP 40 billion of free cash flow before dividends. With strong profitability, cash conversion in excess of 90% and leverage within our 2x-3x net debt to EBITDA corridor, we now have the flexibility to be more active in our capital allocation to deliver long-term value for shareholders.
This will include continuing to grow the dividend and maintaining leverage within our target corridor of 2x-3x adjusted net debt to adjusted EBITDA, while also considering potential bolt-on M&A opportunities and share buybacks to enhance shareholder returns. The board will prioritize these capital allocation opportunities while taking into account macro and fiscal factors and potential regulatory and litigation outcomes. As a first step, we have announced the dividend increase of 1% and a GBP 2 billion share buyback for 2022. Looking forward, 2022 results are expected to be driven by strong category growth and a further reduction in losses. We expect a continued good underlying performance in combustibles while lapping a very strong performance in the U.S., absorbing the unwinding of the U.S. trade inventory movements, and reflecting a highly competitive price environment in Australia.
As a result, we expect revenue growth of 3%-5% and EPS growth reaching high single figures. With incremental benefits from the share buyback and growth weighted to the second half. With that, I will now hand you back to Jack.
Thank you, Tadeu. Now we're at the time of the Q&A.
Thank you so much, Jack. If you would like to ask a question on today's call, please press star one on your telephone keypad. You'll then be introduced and to ask your question. Again, it is star one on your telephone keypad to ask a question. The first question is coming from the line of Jonathan Leinster from Société Générale. You're now unmuted, and now go ahead.
Thank you very much, good morning, gentlemen.
Good morning.
On the NGP, I mean, clearly the cost base in 2021 was around GBP 3 billion. Given that you're expecting revenues to be GBP 5 billion by 2025, how, I mean, does that imply a significant increase in operating leverage and that the costs for the whole NGP operations are not gonna grow significantly between now and 2025? How do you get profitability?
Well, first of all, we need to consider that these are very consolidated figures. When you see the broader group numbers, it's a combination of markets where we have been very mature for some time. For example, vapor in the U.S., we have been investing that market for longer. We referred to in the presentation that in the second half, we just got to a positive category contribution from vapor, which was a fantastic result from the U.S. team. At the same time, we have other markets where we are just starting the geographic expansion. If you see many markets in ENA, for example, THP has been rolled out very recently through Hyper. It's difficult to make a kind of, you know, consolidated view. You have to go in a more isolated case.
The fact is that our levers of profitability is working properly. The trade margins, like I mentioned before, has reduced significantly, mainly on the vapor side. We are taking pricing. Pricing will be an element of us reaching profitability. We are now being able to, like you said, getting some operational leverage because our fixed cost has been invested and a lot of incremental consumers are coming to the platform in many different markets. We are very confident that with the progress that we have made, and we will see more of that in the years to come, and we are very comfortable to reach the profitability of by 2025.
You have seen that, in 2021 we started to reduce the losses despite an investment of GBP 500 million in new categories. We have the levers that are working well and we're continuing to expand.
Ja-Jack?
Yeah. No problem.
Just to follow up on that. I mean, in the past you've mentioned that automating the supply chain on the vaping side would represent a considerable saving. Is there any evidence of that sort of coming through, or is that still work in progress?
No, there is clear evidence. This is clearly coming through. We have been seeing the reduction in the liquids that we produce because we are replacing manual lines with automation as a consequence of us being able to gain scale. And these investments has a very, very fast payback, to be honest. And we are benefiting from that, and this is clearly one of the elements. That's why I highlight that in terms of our levers to improve profitability. Automation is clearly one of these elements there.
Thank you. Quickly, the share repurchase of GBP 2 billion seems to imply that roughly, looking forward, you're targeting sort of maintaining net debt to EBITDA at about 3x, or at least on my figures. Should we assume that although you say 2x-3x, going forward that buybacks are more important than sort of further debt reduction or de-leveraging from that perspective? Should we assume that sort of the high end of your target range of 2x-3x is where you're, you know, comfortable?
Yeah. We have said that we will do the right balance between the different elements that we spoke about in our model. We'll take the opportunities as we go. We're very happy now to be at 2.99x in terms of net debt to EBITDA, and we have a corridor of 2x-3x. We have space to navigate in the different parameters of that new approach in terms of capital allocation.
Yeah. Just to complement that, we have proved now that we were able to deliver between 0.3x-0.4x every year on a constant FX basis. For sure, we cannot control FX. Just in 2021 alone, our free cash flow was on a constant FX basis £3 billion on top of the dividends that were paid. We are in a very strong position. That's why we are making the point about £40 billion free cash flow for the next five years. We have a very cash-generative company. Like Jack said, we will be weighing the priorities year by year. I'll not be guiding on the top of the range or the low of the range. We need to keep in the corridor and make the right calls to improve shareholder returns over time.
Thanks. Lastly, can I just ask a quick question? Yesterday, one of your competitors reported that or stated that there'd been a trademark infringement patent ruling against you in Germany. Does that impact glo hyper's launch or expansion or continuing sales in Germany?
No, it does not. The more broader question is, there are a lot of cases, as it is normal in, I would say, an emerging category in the last 4-5 years really. There's a lot of patent challenges across the world. You win some, you lose some. They mostly look at backward-looking, and technology is evolving fast and no, there's no problem in Germany.
Great. Thank you very much.
Thank you for your question, John. The next question is coming from the line of Gaurav Jain from Barclays. You're now unmuted. Now ask your question.
Good morning. Thank you, Jack. Thank you, Tadeu. I have three questions. One is on the, you know, dividend philosophy going forward. This year, you have increased dividend by 1%, and you haven't written the statement that, you know, dividend payout will be 65% of EPS. Should we assume that dividend will still grow going forward, but it could be below EPS growth, and more of free cash flow will be returned to shareholders in the form of share repurchases? Clearly, we have seen, you know, that the stock has been very strong in anticipation of share repurchases. Clearly, markets value share repurchases more than dividends. How are you thinking about dividend growth going forward over the next few years?
Yeah. Dividend, first, dividend will continue to grow. Tadeu?
Look, we have a 20-year-plus track record of dividend growth, even during the crisis of COVID, and we were one of the companies out there keeping the growth in dividends. We believe that this is aligned with the majority of the BAT shareholders, and we want to keep the dividends growing in sterling terms. At the end of the day, this would be more relevant for us than the 65%. As we speak today, the ratio is even above the 65%, is slightly above the 66%. Moving forward, we will make considerations around dividend, around buyback, with a clear assumption that the dividend continues to grow, not necessarily at that 65% payout like you referred to.
How we can enhance shareholder return as a combination of the dividend, of the buyback, and also the investments that we have to make to accelerate the transformation of the group eventually, if we find interesting in terms of M&A bolt-on within the range of 2x-3x. That's the active capital allocation framework that we have highlighted today, which is quite aligned with a company that is transforming fast as BAT.
You know, what's very important to me is that in the last three years, we developed the company and we went from a low position in new categories, where boldly we put together and forward, you know, multi-category consumer-centric approach in terms of new categories. That was a lot of investment for three years, creating the capabilities, hiring the people, simplifying the company, making sure that our combustible business, revenue, and value supports that. We had that pivotal year in 2021, where you saw that the results, I mean, are extremely strong. We're very proud of that. Now we have a bit more space and less of a straitjacket where we can make more calls moving forward.
That's more the fact of having more opportunities that is extremely important to Tadeu and myself. We will continue to grow the company faster in the transformation. That's the key. That's the key to our business moving forward.
That's very, very helpful. My second question is on the U.S. market. The U.S. cigarette volumes last year and, you know, you are saying that the e-cigarette volumes grew 20% last year, and we had a difficult comp. We also had price increases, which were more than historical averages, and still cigarette volumes have turned out to be only down, you know, -6%. How are you looking at FY 2022 volumes? Like, will there be worsening from here because of e-cigarette growth and overall price increases? Or you could have another year of -5% kind of volume decline in the U.S.?
Yeah. I'm not going to give some guidance in terms of the size of the U.S. market. I mean, that's much too soon in the year to do this kind of exercise. What I can tell you is that the market was strong last year. We grew value share. The premium segment was extremely strong. There was no massive acceleration in terms of down trading. I think that the U.S. market is strong. We have a very strong portfolio over there. We had the launch of Lucky Strike there, as one of the best launches in many years in the U.S. market. We go for value in the U.S. market, as you know.
We go for value, and we'll continue to do that. You will have to temper that a bit related to everything that is happening, the price of oil and other things in the U.S. The springboard is very strong.
Sure. My last question is, you know, on potential, you know, future launches on glo. Your competitor is clearly out there, and they are talking very bullishly of their device out there. We haven't seen an update on glo on Hyper now, I would say, in almost two years. When could we expect the next device launch out of glo?
Well, that's a very good question and a bit too early in the process. Let me tell you the following, you know. Since two years, or since a year and a half rather, we have launched glo Hyper in a lot of geographies. The rollout has been extremely successful, and we have been able to grow positions everywhere. We have a very good product. Now we've not been sleeping in terms of R&D, to say the least. We have a lot of things that are, you know, getting ready for launch in the foreseeable future. It's too soon to speak about that. We're very happy with the performance that we have at the moment, and we're still doing geo expansion of the current one.
You know, I'm a farmer. You do one, then you bring the second one, then you continue to accelerate. We're growing by, you know, close to 5 million additional consumers every year. That is a record on the record of last year, and it means that we have the right portfolio for the consumers. We have, because we're multi-category, a lot of insights on consumers on the three categories. We know a lot about consumers that are going to new categories, not only one, but three.
That's very helpful, guys. Thanks a lot.
Thank you.
Thank you.
Thank you very much.
The next question is coming from the line of Nik Oliver from UBS.
Hey, good morning, Jack and Tadeu.
Morning.
Two questions from me as well, please. Firstly, just on the EPS guidance, obviously very nice to see a return to the high single digit constant FX algorithm. I guess, you know, that was the historic BAT model, and now we've got the buyback as well. Just any words on just, you know, why it's not higher? Is that just investments in new categories or maybe some of the unwind of the U.S. trade inventories you mentioned? Second question on the U.S. I mean, you mentioned obviously the very strong pricing in the U.S., you know, eight price increases in two years, that your peer has done seven. Any words on how you're thinking about pricing going forward? Thank you.
Yeah, Tadeu.
I'll take that. The EPS one. On the EPS, we are coming out of two years of mid-single-digit on the back of COVID. We want to remind everyone about the high single-digit figure that we used to have in the past. At the end of the day, this is a slightly different company than the one that we have in the past. Today, Reynolds was part of our associate, now is part of our subsidiaries.
We believe that the return to high single digits would be a natural step for a company that now has turned into the investment mode in new categories and moving now to path to profitability, which in essence will translate into a kind of profit driver and profit enhancement for us for the years to come, which is very, very positive. But we have to remind everyone that our numbers include FX transactional different from others that give guidance in EPS on excluding transactional FX. We incorporate these in our numbers. And with the fact that Reynolds now is part of the subsidiaries, means that the EPS mostly needs to come from our operational performance from the group.
In 2022 in particular, we made reference to some of the headwinds that we faced during my presentation. That's the reason why we were referring to us being able to start reaching the high single digits% in 2022. That will be boosted by the share buyback in accordance with how we can execute throughout the year.
Step by step.
The U.S. pricing, I don't think that we can make any comments on that.
Yeah, U.S. price, we're not going to make any comments related to that. Price elasticity is still strong in the U.S. There is a lot of moving parts at the moment in terms of price of gas, employment, and inflation and everything. I mean, we'll take it step by step. We have a very robust portfolio. We have grown premium share. We have launched brands in different parts of the portfolio, and we have a very strong position. I think there is a good momentum. We'll have to see how it develops during the year.
Great. No, thanks so much. Maybe just one quick follow-up on the U.S. Obviously you mentioned, you know, Lucky Strike, how that's taken 1% of share. I mean, when you think about sort of segmentation in the U.S., is it really premium growing strongly in value and then maybe the midsection is struggling? Is that how we should think about volumes in the U.S.?
What you have at the moment in the U.S. is a strong premium market, and we're doing very well in that strong premium market. You have a high level of pricing, but it's 50 different states with 50 different levels of pricing in the different states. That's an aggregator number, which is less representative of one given market somewhere, but it gives you the possibility to do a lot of pricing because you can do geo pricing much more effectively in the U.S. The other thing is that you see that in the lower part of the market, you have some competitive brands that are doing well.
Lucky Strike has taken a very good position, and the non-big three players are taking some pricing. I think that it's a geo expansion approach plus the fact of having the right portfolio that makes the difference.
Cool. Perfect. Thanks, guys. Really clear as always. Perfect. Thank you.
Thank you very much.
Thank you for your question. As another reminder, it is star one on your telephone keypad to ask a question on today's call. The next question in the queue is coming from the line of Owen Bennett from Jefferies. Owen, you are now unmuted. Go ahead.
Morning, gents.
Good morning.
Hope all well. Morning, guys. I just had a quick question on glo in the U.S. IQOS obviously delayed from being back on the U.S. market for a while, at least now. I'm just of the view, would it not be better for you to get your PMTA in on glo sooner rather than later, so maybe you can be on the market not long after IQOS is potentially introduced? Just wanted to get the latest with the glo PMTA in the U.S., you know. Are you maybe even waiting to do a PMTA on HEETS versus the original glo? Is that the strategy there?
As you know, I mean, the PMTA process is a very long process, so we're taking all the steps that we need to take related to that in order to be in the market when we will need to be in the market. Yet always remember there's a lot of offers to the consumers already in the U.S. market. The results of e-cigarettes and the results of traditional oral and the results of Modern Oral gives a lot of opportunities for the consumers to use non-combustible products in the U.S. It will take a long time. The process with the PMTA is very long, so we'll play the long game, and there is no problem related to that.
First, we focused on e-cigarettes because that was the closest product to the needs of the consumers. We've done that well. Remember three years ago, a lot of people said we would never have a place in there. Now, we're leading there worldwide and very close to be there in the U.S. We're taking pricing, we're taking position. In terms of oral, with traditional oral, that is around 10% of the market in the U.S., we have a very strong position also. Modern Oral is a, you know, very small category at 1% with a lot of, as Tadeu said, the price promotions that needs better products in the future, and that will need PMTAs again. That's pushing it down the road a few years before it's absolutely there.
Step by step, and yes, we are pursuing that very closely.
Okay. Just a quick follow-up there.
Sure.
On the vape side. You moved to profitability in the second half. If we do see PMTAs in the near term, could we expect spend behind the vape category from you guys to really materially pick up again, or would you expect kind of spend levels where they are to just persist?
I think that what we have at the moment is a very efficient approach in terms of investment and in terms of marketing in the U.S. for e-cigarettes. There would be no need for further acceleration. What we have at the moment is an overall ecosystem that is working very well and working in our favor. We are the only ones who have 2,500 reps in the U.S. that are supporting vapor. That gives us a very strong position. We still have to do some geo expansion. As you know, we are very close to be the leader at point one, but yet we're the leaders in only 26 states.
I still have a lot of states to go and to do geo expansion. I'm very much confident in the fact that we'll continue to grow in the U.S. in the vapor business, and we start to make money.
Cool. Thanks, guys. Very helpful.
Thank you all.
Thank you for your question. The next question is coming from the line of Rashad Kawan from Morgan Stanley. Rashad, you're now unmuted. I mean, now go ahead.
Good morning.
Hi. Good morning, gentlemen. Thank you for taking my questions. Just a couple from me. The first one, if I can follow up on the U.S. cigarette market. Are you seeing signs of accelerated downgrading in 2022, as inflation and rising kind of gas prices remain elevated? I'm just trying to get a sense on whether you're seeing or expect to see any major changes to consumption trends this year. My second question is around Velo in the U.S. Just how are you thinking about that kind of on the medium term? I guess if you take a step back, have your views on the U.S. Modern Oral market changed? Do you expect kind of some level of normalization to promotional activities in 2022?
In terms of the U.S., again, it's more related to, you know, what happens in 2022. I mean, the market has been very strong in the U.S. in 2021. You have something that has happened towards the last part of the year, Q4, is a reduction in discounting because you have the absolute pricing, and then you have the discounting that gives more space to the consumer. This discounting has been lower than what they are normally at this period of the year. That's why you see a bit of inflection that reflects into a bit of a pickup at the low end of the market.
What's very important as an indicator is the strength of the premium, and the strength of the premium is there. I would not be too concerned with that. The second question is related to Modern Oral. Yeah. Modern Oral, you know, you have already, as I say always, there's a lot of offers in the market already in terms of reduced risk products, especially with e-cigarettes and traditional oral. Modern Oral is only 1% of the market. As we said last year, it's mostly a geo expansion in the course of 2021, so it starts to stall a little bit.
What you have is big companies that are investing heavily in discounting and offers of products to the consumer, buy one, get one free, kind of, you know? That's quite extreme at the moment. The second thing that we know is that the value is not there. It's very much occasional usage because of the satisfaction of the product. Remember, they have been in the market for a long time, yeah? The satisfaction of these products are very low, yeah? You have to do PMTA, so it takes a few years more so that you have product satisfaction to the right level. That very occasional usage of these products costs you a bomb in terms of consumer conversion. A bomb.
The products are not yet there to the right level for the consumers. That category will take some time before PMTAs come in and bring additional new products. As you see in the rest of the world, we're the leaders. Why? Because the products are much better. They are much more adequate to the consumer needs. I think that category is really under tension in terms of pricing and margins at the moment. A lot of price promotions gaining. You know, it's the Wild West a little bit out there. That will take two years, three years in order to get the PMTAs on the road. Small segment.
Thank you very much.
Thank you for your question. The last question is coming from Richard Felton, Goldman Sachs. Richard, you're now unmuted. I'm gonna go ahead. Morning.
Thanks. Good morning, guys. My first question is on another one on U.S. pricing. I know you're not gonna give us the detail of your FY 2022 pricing plans, but clearly the frequency and the size of your price increase in the U.S. has stepped up quite materially over the last few years. I guess can you help us understand what the strategy has been? Has that been kind of opportunistic as the consumers had a bit more disposable income or is that a sort of strategic shift in the way that you've been approaching pricing in the U.S. over the last few years?
Strategic shift is not opportunistic. We understood much better and sooner the price elasticity and the fact that the U.S. is 50 states. The tools and the approach was much more national than it was regional or even state by state or community by community or city by city. That gave us a lot of opportunity to do pricing. As we can monitor that very well, we took more pricing. Remember there are two levels of pricing in the U.S. One is the public price list, the published price list, and the second one is the discounting. There is more than $4 billion in discounting in the U.S. to the consumer. Forget the trade, to the consumer.
You can modulate and adapt as you go along, and you can make sure that your rhythm is maintained. Strong pricing in the last two years in the U.S. The environment, we have to see exactly how it works, as I said earlier, and then we'll modulate our pricing related to that. But I think that there's still some space for pricing in the U.S. for sure.
Just to add to what Jack is saying, it's important to highlight the data analytics that we have put in place in the U.S. over the last two years. The revenue growth management that give us visibility that we didn't have in the past, even by postcode or channel.
We can make very targeted movements in terms of pricing and overall trading in particular. This combined with a very strong portfolio and very well represented, not just in the premium, but also in the mid and the low, will give us all the confidence to take the actions that we have taken the last two years.
By the way, by the same token, because we have size and scale and a very strong brand in e-cigarette, we can do exactly the same now. Use the tools that we have in combustible and put them on e-cigarettes, because we can exactly do the same, the same approach. That's why we have started in the second half of 2021 to take much more pricing, adapt our offers, and go more granular in terms of e-cigarettes. We're all about value. Okay?
Thank you. That's very clear. You seem very confident on the free cash flow generation of GBP 40 billion over the next five years. In that context, why have you decided to do a one-year share buyback target rather than committing to a multi-year program? And is there any reason that we shouldn't expect that buyback program to continue in future years?
You know, I mean, I'm a reasonable person. Three years ago we started, and we had very little growth in new categories. It was a nascent category. We had a lot of investments to do. We were starting to accelerate, and then you have COVID that goes in there. We continued to grow the dividend. We said we're going to do an enormous effort in terms of cash, and that's what we did in the last three years. We did a cash conversion of more than 100%. We said we're going to save £1 billion, and we did £1.5 billion. Now we say more than GBP 1.5 billion. Now we're starting to go to.
We went from mid-single-digit to crawling nicely our way towards high single-digit. Give us a little bit of space. We do GBP 2 billion in terms of pounds, which is not far from $3 billion in terms of U.S. dollars of the leverage in one year. We're telling you that in a short period of time we're going to do all this. We've put a mechanism in reviewing that all on an ongoing basis. Give us a little bit of space. Give us a little bit of possibility to grow the business. I will come back to you at the appropriate timing.
Excellent. Thank you very much.
Thank you very much. I think that the questions are finished, so I am now going back to the end of the presentation. We are very proud to have delivered the pivotal year. That was a very important moment for the company. We accelerated our transformation, delivering over 50% new category revenue growth. The losses have reduced for the first time, and we have invested GBP 500 million, and will continue to do so. We have driven net debt to EBITDA below 3x , and our capital allocation flexibility has increased, as we just said, which is reflected in our share buyback announcement of today. We are well on track to meet our key ESG targets as we enter the next phase of our journey.
That next phase is faster transformation, and this phase will be led by continued strong new category growth and improving profitability together with further development of opportunities in beyond nicotine. This will not only transform our business and the nature of our relationship with society, but will also generate strong financial results with medium-term outlook of revenue growth of 3%-5%, high single figure EPS growth, and continued strong cash flow. We are transforming BAT to a high-growth, multi-category, consumer-led CPG with a reduced impact on public health and ESG at its core. I am confident this will create value for all our stakeholders. Thank you very much for joining us today.