Good morning, everyone. I'm delighted to welcome you to our full year 2025 results presentation. With me this morning, Javid Iqbal, interim CFO, and Victoria Buxton, Group Head of Investor Relations. I will begin with our transformation highlights. Javid will then take you through our financial results in more detail. Finally, I will return to talk more about our performance outlook and why we are confident in the pathway ahead given the clear momentum we are driving. We will then take your questions. With that, I would like to draw your attention to the disclaimers on slides 2 and 3. So let's begin by looking at the positive transformation momentum we are driving. Starting with some key highlights, we added 4.7 million smokeless consumers, bringing our total to 34.1 million, mainly driven by our continued strong performance in modern oro. This marks our strongest growth acceleration to date and positioned us well for 2026. We delivered 2025 group results at the top end of guidance, driven by resilient delivery in combustibles and an excellent performance from VILO in all three regions. Our discipline focus on quality growth continues to improve returns on more targeted investments, with new category contributing now up 77% at constant rates. alongside these we remain committed to investing behind our premium innovation launches supporting long-term value creation we continue to deliver strong cash returns for shareholders in addition to our progressive dividend in december we announced an increase to our share buyback to 1.3 billion pounds in 2026 looking ahead we are confident in returning to our midterm algorithm this year, with the accelerated momentum through the second half of 2025, positioning us well for continued delivery. I'm proud that we have delivered on all of our 2025 priorities, and I want to thank our teams around the world for driving these encouraging results. Our performance reflects the clear momentum we are driving as we continue to build a track record of delivery. I'd like to take a moment to highlight two areas from last year that stand out to me. First, the return to both revenue and profit growth in the U.S. for the first time since 2022. A significant milestone driven by stronger combustibles performance, a return to revenue growth in vapor in the second half, and modern oil. As a result, we grew 30 base points of combustibles value share second we are delivering quality growth in new categories launching premium innovations in each category while delivering a return to double digit revenue growth in in second half and category contribution growth up 77% for the full year the progress we made in 2025 reinforces my confidence in our future delivery and with that I will hand over to Javid to take you through our 2025 performance in more detail.
Thank you, Tadeo, and good morning everyone. I'm pleased to share that we delivered results at the top end of guidance on a constant currency basis. The performance was driven by return to growth in the U.S., a robust performance in AME, and the strength of modern oral globally. Our reported numbers reflect some adjusting items including nearly £1.6 billion, mainly related to the annual monetization of our U.S. acquired trademarks, a net credit of £524 million, following a change in the forecasted outlook for the Canadian combustible industry. We also recognized a gain of nearly £900 million from the partial monetization of our ITC stake. To give you a clear view of our underlying performance i will focus on constant currency adjusted and where applicable adjusted for canada mattress you can find further detail on adjusting items and share data in the appendix we delivered group results at the top end of guidance supported by accelerated momentum through the second half group revenue increased by 2.1 percent adjusted profit rose 3.4 percent adjusted profit from operations grew 2.3%, and adjusted diluted EPS was up 3.4%. Let's now turn to new categories revenue, grew by 7%, driven by outstanding growth in modern oil, which was up strongly by 48%, with heated products up 1%. This was partially offset by a nearly 9% decline in vapour, mainly due to continued illicit pressures in the U.S. and Canada, our second-half use performance showed a clear improvement versus the mid-teens decline in H1, supported by early signs of strong enforcement activity in the U.S. We continue to deliver quality growth with gross profit up over £200 million and category contribution reaching £442 million. This reflects our disciplined approach to return on investment, targeted investments in high-value markets, and increasing scale benefit across our portfolio. I am proud of the progress we are making, and I am particularly pleased with our accelerated H2 momentum, where we returned to double-digit new category revenue growth. Now turning to combustible. Revenue grew 1% with volume decline more than offset by continued robust price mix across markets. We delivered quality growth here too. Both gross profit and category contribution increased 2.5%, driven by a strong performance in the U.S., positive price mix and continued productivity and simplification gains, which I will speak to shortly. Our performance highlights the breadth of our global footprint, with strong delivery in the U.S. and AME, more than offsetting fiscal and regulatory headwinds in Bangladesh and Australia, which impacted total group revenue by around 1% and group-adjusted profit from operations by around 2%. This resilience and increasing momentum in H2 reinforces our confidence in future delivery. Turning to our regions, starting with the U.S., in combustibles, we delivered a 4.6% increase in revenue, with our strengthened portfolio, sharper execution, and enhanced revenue growth management, driving price mix, including excise duty drawback. Value share increased 30 basis point, with volume share down 10 basis point. In new category, revenue grew nearly 20%, driven by the success of VLO+, which delivered over 300% growth. While vapor revenue was down 3.4% for the full year, we are encouraged that views return to revenue growth in age two, supported by early signs of enforcement actions. Overall, U.S. revenue increased 5.5 percent and adjusted profit grew 5.9 percent, mostly driven by a strong combustible performance. Importantly, VeloPlus reached positive category contribution within its first year, underscoring the scalability of our modern oral business model. Tadeo will share more detail on the U.S. shortly. In AME, we delivered another robust performance. Revenue grew over 3%, with combustible up more than 2%, supported by strong delivery in Brazil, Turkey and Mexico with solid pricing. New category revenue increased 4.3%, mainly driven by modern oral, which grew over 17%. We are the clear modern oral readers in the region, with over 60% volume share in top markets, selling at a premium, and strongly outperforming peers, which Tadeo will expand on later. Growth was further supported by heated products, with revenue up over 6%, driven by Italy, Germany and Ukraine. This was partially offset by competitive dynamics in Romania, as we reallocated resources ahead of the Glow Hilo launch. Vapor revenue declined more than 11%, mostly impacted by the lack of illicit enforcement in Canada and regulatory and excise changes in UK, France, and Poland. Adjusted operating profit grew by nearly 10%, driven by operating leverage and efficiency gains in combustibles, and scale benefit and resource allocation driving improved contribution across all three new categories. AME is a true multi-category region, delivering high-quality growth and demonstrating the resilience and balance of our portfolio. In APMEA, growth in key markets including Pakistan, Nigeria and Indonesia was more than offset by fiscal and regulatory headwinds in Bangladesh and Australia. Total revenue declined 7.2 percent, with combustibles down 8.3 percent. New category revenue was down 7.6%. Strong growth in modern oral was more than offset by heightened competitive activity in heated products in the value-for-money segment in South Korea and Japan, along the phase-out of our super-slim platform. Our vapor performance reflects strategic decisions taken to reduce our footprint and reallocate resources away from markets where regulation and enforcement do not support a responsible, competitive landscape. Adjusted profit was down 17.9%, mainly due to challenges in Bangladesh and Australia. As we continue to navigate headwinds into 2026, we expect our performance to stabilize for the full year, supported by Bangladesh as we lap last year's decline, and with the drag from Australia becoming progressively less material year on year. Turning now to our group operating margin, which was broadly flat at 44%, we successfully offset inflationary and FX pressures through a strong U.S. performance, higher profitability in new categories, and continued cost savings. Transactional FX headwinds on adjusted profit of approximately 1% were primarily driven by Turkey, Japan, and Nigeria. At current rate, operating margin expanded by close to 10 basis points. BAT has a strong track record of discipline and cost savings, and we continue to build on that foundation. Since 2023, we have delivered £1.2 billion in productivity savings. These efficiencies help us offset inflationary pressures and foreign exchange headwinds, while continue to fund innovations and growth in new categories. In 2025 alone, we absorbed around £300 million of inflationary cost increases in addition to transactional effects. Looking ahead, we remain focused on simplifying combustibles and scaling new categories, targeting a further £2 billion in productivity savings by 2030. In addition, we now expect our Fit to Win program to deliver 600 million pounds of annualized incremental savings by 2028. We expect around 500 million pounds of these savings to be delivered by 2027, with the remaining benefits realized by the end of 2028. We are committed to reinvesting these savings to support further sustainable growth initiatives. Fit to Win is a transformational project that is reinventing BAT. As outlined at our 2025 half-year results, it is centered on optimizing processes and ways of working to create a leaner, faster, and more data-driven organization. Since half-year, we have made strong progress. We have expanded the program to include organizational streamlining to sharpen focus and improve speed of execution, allowing us to raise total annualized savings by a further £100 million. To unlock these benefits, we now expect around £600 million of associated costs over the next two years. As a structured time-bound program, £500 million will be treated as adjusting, including around £100 million of non-cash items. As previously guided, this spend is already underway, with the majority of costs expected to be incurred this year and concluding in 2027. Bringing it all together, earning per share increased by 3.4% as operating profit growth and lower share count was partly offset by net finance costs, our reduced share of ITC profits and tax. Our underlying tax rate was 24.5%. Our strong cash generation continues to enhance our financial flexibility. This has enabled us to announce a 2% increase in our dividend and increase our share buyback by £200 million to £1.3 billion for 2026. Alongside this, we continue to deliver to 2.55 times adjusted net debt to adjusted EBITDA at the end of 2025, and we remain on track to be within our 2 to 2.5 times target range by year end. While our 2025 cash delivery was impacted by the CCAA upfront payment and the prior year deferral of tax payments in the U.S., we remain on track to deliver more than £50 billion in free cash flow by the end of 2030. And we continue to focus on our capital allocation priorities, which are investing in transformation, balancing de-leveraging with progressive dividends and sustainable share buybacks, and selective bolt-on M&A to support our transformation. I am excited about the future and confident in our ability to deliver our midterm algorithm of 3-5% revenue growth, 4-6% adjusted profit from operations growth, and 5-8% adjusted diluted EPS growth. Our return to this mid-term algorithm in 2026 marks a major milestone in our transformation journey and reinforces the strength and resilience of our strategy. Our confidence is underpinned by continued growth in the U.S., robust multi-category delivery in AME, low double-digit new category revenue growth led by VLO globally, a further improvement in new category contribution and continued savings from our productivity programs although we still have more work to do and it will take time to stabilize performance in apmia we will continue to invest in our premium innovations rollout as a result we expect 2026 to be at the lower end of these ranges and our profit performance to be second half weighted driven by the phasing of new category investment and as fit-to-win savings built through the year. And with that, I'll hand it back to Tadeo.
Thank you, Javid. So moving on now to the positive transformation momentum we are driving. In 2023, when I became chief executive, I committed to sharpening our focus and execution, guided by a refining strategy and ambition to become a predominantly smokeless business by 2035. And I'm proud to say that we have made significant progress across all three strategic pillars as we continue to build a track record of delivery. While there is still more to do, I'm confident that our focus, investment, and sharp execution are driving real momentum, as you can see from our 2025 results. Our progress underpins our confidence in sustainably delivering our mid-term algorithm while continuing to reward shareholders with strong cash returns. I'd now like to highlight five points that demonstrate this. First, we have successfully reset our U.S. business, returned to revenue and profit growth in 2025. While the U.S. macroeconomic environment remains dynamic, the pace of combustibles industry volume decline started to moderate in 2025, down 7.4%. Against this backdrop, driven by the actions we have taken to strengthen our portfolio and sharpen execution, our U.S. combustibles business delivers strong revenue and profit growth in 2025. Driving value from our combustible business is essential to funding our transformation, and the U.S. is a key driver of this. In line with this strategy, we gained 30 base points of total industry value share. I particularly encourage that our financial performance accelerate in the second half. This positive momentum reinforces my confidence in the resilience of our U.S. combustible business and our ability to deliver sustainable value going forward. VeloPlus is the fastest-growing modern auto brand in the largest modern auto value pool globally. Since launch at the end of 2024, it has already reached the number two position in both volume and value share, gaining nearly 18 percentage points of volume share and nearly 14 points of value share. And we are pleased that our share momentum has continued into the start of 2026. VeloPlus has more than doubled its consumer base and driven over 300 percent more than our revenue growth, capturing around 70 percent of industry volume growth and 80 percent of industry value growth in December. All of this is underpinned by a consistent repurchase rate of around 70% throughout the year. Importantly, we achieved positive category contribution within the first 12 months of launch, fully aligned with Vila's global payback profile. The total U.S. modern oil category continues to grow strongly and has already overtaken the size of the legitimate vapor category at over £2 billion of revenue in 2025. VeloPlus is a great product, and these results demonstrate this in what remains a highly dynamic category. Its impressive success also highlights the broader strength of our U.S. capabilities and executional excellence, from consumer insights and branding to enhanced digital analytics and distribution enabled by a rejuvenated Reynolds. Our performance was further enhanced by the successful launch of Grizzly Modern Oro in the summer, which achieved close to 2% volume share by year-end, taking our total volume share of U.S. Modern Oro to 25.8%. Through this momentum, I am delighted to announce that at the end of the year, we reached global volume share leadership in modern oro, measured across the top modern oro markets, representing around 90% of total industry revenue. Second, we are premiumizing our new category portfolio. Vilo is already the clear European leader around six times larger than our nearest competitor. We continue to focus on consumer-led innovation to strengthen product satisfaction among adult consumers and extend Velo's success. At the start of this year, we began the nationwide rollout of our latest innovation, VeloShift, in Sweden, following a successful pilot with key retailers and online partners. Velo Shift is reshaping the modern order experience, featuring a new comfort pouch design, five distinct sensory flavors, and a differentiated X-CAN that stands out on shelf. Trading at a premium to the core Velo range, Velo Shift is a red drive incremental share in the channels where it has launched, with further market rollouts planned through 2026. These results highlight not only the strength of Velo Brand and Innovation Pipeline, but also the quality of our execution across European markets. We see premium vapor done right as a highly attractive, untapped segment for further value creation. Vios Ultra is our most advanced vapor device yet, driving meaningful performance improvement for Vios in markets where we have launched. including value share gains of nearly 80 percentage points in Canada, close to 4 percentage points in Germany, and above 2 percentage points in France. As Javid highlighted, we have made proactive strategic decisions to focus our execution on the largest profit pools with more supportive regulation and enforcement. Vios Ultra is central to this approach, and I'm encouraged by the strength of its early performance with further launches planned in the key markets in 2026. Our breakthrough innovation platform, Glow Hilo, introduced our first two-piece device, and is designed to establish Glow in the premium segment. While still early days, we are starting to drive encouraging results in priority launch markets, Japan, Poland, and Italy, with the majority of consumers new to GLOW coming from both premium combustibles and the broader heated products category. We are also strengthening GLOW's overall brand equity across key consumer metrics. This consumer response is translating to early volume share momentum. We are encouraged by early trial to retention rates of around 50%, providing further confidence in the platform's potential. In 2026, our focus will be on accelerating trial among premium consumers across both combustibles and heated products supported by target online and in-person activations. We will continue to scale Glow Hilo through additional market rollouts in the largest heated product profit pools, where we can generate the strongest returns. Overall, we remain confident in the strength of this innovation platform and expect to progressively build share within the premium segment over time. As Javid highlighted, the heated products category remains highly competitive, and this has impacted our 2025 performance in the value-for-money segment where we are present with Glow Hyper. Introducing Glow Hilo into the premium space allows us to further differentiate and tier our portfolio. We see a clear opportunity to strengthen Glow's overall performance across both premium and value-for-money segments. Central to this is the launch of our next-generation Glow Hyper device from Q2. The new Glow Hyper delivers a step-change offering, quick start, longer-started session length, new connectivity, and a replaceable battery. This innovation significantly improved the consumer experience, and we are also further enhancing the consumables range. Taken together, these upgrades create a much stronger proposition designed to reinforce our competitiveness in the value-for-money segment. Third, I'm proud of the strong progress we have made in improving new category profitability. Since 2021, we have driven a £1.4 billion improvement in category contribution, with all three new categories contributing to this momentum. Importantly, we have achieved this while continuing to invest in our transformation to drive future sustainable growth. Our new categories are meaningfully contributing to group results, as we benefit from increased scale, reflecting traction, and established markets while continuing to invest in new market launches. This is supported by more consistent and constructive regulatory frameworks, such as those in place for modern oil in 24 markets, up from just four markets in 2022. We have sequentially improved our performance each year, and through our quality growth approach, we remain committed to driving sustainable profitability improvement moving forward. fourth i'm encouraged by the signs of positive progress we are seeing the regulation and enforcement of new categories especially in the u.s while the vapor category continues to be impacted by the proliferation of illicit products views return to revenue growth in the second half after 18 months of decline this has been supported by increased state level enforcement with vapor directory and enforcement legislation representing around 50 percent of tracking the industry volume by year end. In addition, views' performance in the second half benefited from a competitor exit, further strengthening our market's position. Our recovery has also been supported by early signs of increased federal enforcement targeting borders and larger distributors, resulting in high levels of seizures and fines. Looking ahead, we are encouraged by the increased focus and funding directed towards strengthening the FDA's enforcement capabilities. We were also pleased to receive a favorable initial determination on our International Trade Commission complaint from the administrative law judge, who has recommended a general exclusion order on imported illicit vapor device. We expect a final determination from the ITC in the coming weeks. which will then be subject to a 60-day presidential review. With an estimated 70% of the U.S. vapor industry value still illicit, we are hopeful the authorities will continue with enforcement initiatives in 2026. Reynolds continues to advocate for a level playing field so that adult nicotine consumers have access to high-quality, compliant vapor products. Over time, we believe VILS is well-positioned to benefit from strong enforcement at both the federal and state levels. In addition, the FDA has recently recognized the positive role that nicotine pouches can play in helping adult smokers who would otherwise continue to smoke to transition to less risk alternatives, reinforcing their role in tobacco harm reduction. We welcome the FDA's new pilot program to streamline the PMTA review process for nicotine pouches. This is an important step towards keeping underage-appealing illicit products out of the market, while giving responsible manufacturers a more predictable path to PMTA authorization. We are confident in the strength of our science and portfolio, and we look forward to being able to complement our existing U.S. portfolio with VeloMax, a higher moisture modern oil product in 2026, and we have increased capacity to support our sustainable growth agenda. And the final point I would like to highlight is that our financial flexibility continues to strengthen, and we remain on track to generate more than 50 billion pounds of free cash flow by 2030. BAT is a highly cash-generative business, delivering at least 100 operating cash conversions annually since 2020, 100% of operating cash conversions, reflecting our strong cash discipline and clear focus on returns, and enabling us to return 34 billion pounds of cash to shareholders over the same period. We remain committed to delivering sustainable shareholder returns with a 25-year track record of dividend growth and our sustainable share-by-back program. I'm confident that we will sustainably deliver our mid-term algorithm as we are firmly committed to growing revenue, sustainably, and improving profitability. To conclude, we are carrying momentum into 2026, underpinned by a robust innovation pipeline, strong strategic partnerships, and confidence in our future fit capabilities. We are executing with discipline and delivering against our priorities. At the same time, we are enhancing financial flexibility, enabling continued investment in our transformation, together with strong cash returns. I'm excited about the future for BAT and believe we are well positioned to deliver long-term sustainable growth and value for our stakeholders. Thank you for listening. We will now be joined on stage by Victoria for the question and answer session.
Thank you, Tadeo, and good morning, everyone. If you've joined us via the webcast, you can type your question directly into the online question box. Or if you joined the call, you can press star one on your telephone keypad. Tadeo and Javed will be very happy to take your questions and I will now hand over to the conference call operator.
Operator
Thank you. Our first question is from Andrej Andon-Ionita from Jefferies. Please go ahead, sir.
Good morning, Tadeo, Javed, MVB, and thank you very much for for taking my questions. First of all, two questions on Modern Aural, please. Number one, what are your expectations in terms of performance in the U.S. in Fiscal 26 for Modern Aural specifically? And secondly, are these expectations underpinned by the FDA approving the European Velo product for sale in the U.S., or are they mainly driven by the existing VeloPlus product?
And perhaps finally, in terms of profitability, could you tell us a bit more about how you expect new categories profitability to evolve in fiscal 26 thank you okay thank you for the question we have look we have a very strong product team with villa plus in the us the levels of retention has been 70 throughout the year which is really really a very stronger rate when you compare with other offers in the market so basically at the back of that we believe that the product is competitive enough to continue growing in the u.s market has all the indications for that today we still have a low level of of awareness in the brand around 30 percent and we are present now in 150 plus outlet thousand outlets which account for something like 93 percent of the total auto revenue we are also seeing that the average daily consumption as new products start to to be more satisfying for consumers in the u.s is increasing so it used to be around 2.8 pouches per day today is around 3.6 pouches per day if you compare that with the with the european market which is around six pouches per day You see a lot of potential growth is still in the u.s. And in the Nordics is 12 pounds per day so when you pull all this together a strong product and And and the dynamics of the markets evolving at the pace that is are it is in the u.s. So the expectations that we will Continue growing. That's why we are investing capacity like I mentioned during my my presentation we we mentioned Velo max which is our even higher moisture product that we have in as part of the pilot that the FDA is running we welcome the first of all the that FDA is in brains embracing nicotine pouch as a as a key category to address tobacco harm reduction the u.s. because it's the lowest risk profile if you want there is no inhalation there is no tobacco there is no smell there is much easier for consumers of cigarettes to convert into a much lower risk profile product so they are putting place the these pilots we hope that for the next few months we see our products and I we are all cautious that other competitors will come with all the products as well and and for us there is no problem with that was when I look outside the US where everyone is free to compete the leading brand outside the u.s is velo like we said in europe we uh our volumes in velo are six times higher than the second largest competitor so what we want to see in the u.s is a level playing field because in a level playing field we know that we can win so that's the the first question on on velo on in terms of profitability we have made a a very strong profitability if you come improvement in profitability when you compare that not long ago back in 2023 we're just reaching break-even in this category and today we'll have a 12% category contribution obviously I always said that this will not be linear year after year because there will be years where we are going to reinvest back in the business at the back of exciting innovations and 2026 is one of these years because as i said during my presentation we have now premium innovation in every single of those categories so we want to roll out glow hilo we want to to roll out a village shift we want to carry on rolling out views ultra so we are not uh concerned about stipulating a specific pace of category growth year on year because this will vary over time but the trend is very clearly the category will continue to grow.
Operator
Thank you. We'll now take our next question from Faham Baik from UBS. Please go ahead.
Good morning, guys. Thank you for taking my question. The first one is on guidance for full year 26. You've guided for the lower end of the mid-term targets. Could you maybe share factors that could result in the performance, whether in 26 or beyond that, getting you to the middle or even upper half of the range would be helpful. And then the second question is on heated tobacco. I guess it was a tough year in 2025 from a share perspective.
How do you think about share progressing through 2026, um particularly as competition in in in the category is is intensifying okay uh thank you look i'm going to start with the second one first and then we address the the the guidance yeah we are we we we clearly see areas of improvement uh in our performance in heated products uh what we saw throughout 26 uh is that the below up uh which is basically where we were present until the launch of glow hill later in the year is has been you know uh very competitive in in some of the key markets and uh and uh and that's the reason why i have just uh made the point today that we are coming with a revamped hyper product that we believe that together with revamped consumables will strengthening our our position in that particular segment so we we are very encouraged by what we have seen of the performance of this this product and in let in initial tests that we have been doing and we believe that this will support our performance moving forward and obviously glow hilo will complement that because it's the first attempt that we have done in the where seven percent of the value of the category seats which is the the awap the the premium sec part of it which is uh and and we are extremely pleased with the performance we are growing uh week after week with a level retention of 50 percent and uh and this complemented by a revamped uh value for money proposition gives us the confidence that we can revert this trend and start growing from from from here Now, in terms of the guidance, I think that Javid can explain a bit more about 2026. I just want to call the attention that after two years of investing, resetting our business, the U.S. business, our innovations pipeline, BAT is ready to go back to the midterm algorithm that we have always had in the company, around a 3% revenue, 5% revenue, leading to a 4% to 6% operating profits, with a kick around 1% to 2% for APS. That's the range of 5% to 8%. Obviously, our targets have incorporated transaction FX. I always try to make this disclaimer about BAT's targets. But the profile of growth of this range will differ now from where we were, I would say, several years ago, because the new category will be even more proeminent on that. Out of the 3 to 5, we have mentioned before that combustible, we expect to be delivering around 1 to 2 percent, and with the U.S. being, you know, in the medium term between 0 to 1, and the rest of the group, the international part, I would say, the other two regions above 2 percent. And in 2025, we have, despite all the difficulties that we face, mainly in the APMEA region, we were able to deliver 1 percent. And we said that Bangladesh and Australia had an impact of 1 percent at top line, which otherwise would be high end of this range. So I'm very confident that moving forward, we can comfortably be delivering within those And when you move to new categories, for the algorithm to work, we had to deliver a double-digit new category. It hasn't been the case in 2025, basically because of the headwind we face in vapor. There are a number of reasons for that, but mainly related to the legal market in the Now we are seeing signs that the authorities, be federal or state-level, are addressing. So we expect, moving forward, to have less of a drag and eventually even a tailwind coming from Vapor that will be supportive of the category for BAT. And THP, we just spoke about, and we expect to accelerate our growth from now on with all its offers. And obviously, Modern Oro, we have a leading brand now, and we expect to grow from strength to strength. So I'm very confident about being able to deliver the double-digit new category revenue growth to deliver 1% to 2% on the combustible side. This will flow through to the 4 to 6% in terms of increasing margins that is supported by all the productivity savings that we have already mapped out until 2030. And specifically in 26%, I would like to, Javi, to comment about.
Thank you, Tadil. I think on 2026, specifically, if I go region by region, and then we can look at overall, in case of APMEA, as I highlighted, that we expect Bangladesh to be not a big drag, but Australia still remains a meaningful drag, which is becoming smaller and smaller every year. So, in 2026, Australia will still be a drag, but will be less meaningful in 2027. Having said that, also, we will continue to invest in the rollout of premium innovations in APMEA as well, as you saw in terms of GLOW, HYPER, so that will be there as well. The other thing in that area is that, in case of AME, we still face headwinds from the illicit environment in vapor, and also the regulation changes in Poland, which happened at the end of the year, which has made the legal vapor out of the market, which is again a drag for us. Coming to U.S., you have to keep in mind that comparator from 24 to 25 versus 25 to 26 is very different. We had a very good performance in 25, so that comparator changes. And also we are resuming for now stable volumes in views in U.S. So we are expecting that the enforcement level as we've seen so today will stop the decline but we'll keep the volume overall stable. And lastly also we highlighted in our pre-closed trading update that we are exiting certain geographies which are not adjusted but they will have an impact on our numbers in 2026. So hope this all gives you an idea why the lower end of 2026. But having said that, we are all very proud and confident in the business that we are entering the first year of our mid-term algorithm.
Very comprehensive. Thank you both. Appreciate it.
Operator
Thank you. Our next question is from Ray Liam from Anchor Stockbrokers. Please go ahead.
Good day, Taro, Javid, Victoria. I just want to get back to, I mean, it's quite interesting to listen to your optimism around the new categories. And I just had a quick look at the numbers. Obviously, modern oil is doing exceptionally well. You have the opportunity for vapor to at least stabilize and heated tobacco. I don't know whether the jury's still out there, but I don't know if you can just talk high-level stuff here to give us an idea how do you, which of these categories give you, or make sure the most excited in terms of the future growth in terms of that. I mean, especially now until 2026, we talk of a double-digit revenue growth. And then just to follow up, just in Australia, I mean, it's quite interesting because I sit in this market. I mean, the legal market is now down to like $3 billion, six or less. Now, clearly, I mean, if I look at Japan, I mean, that's basically what Japan will consume in the space of seven days. So, I mean, I struggle to understand why you do say it will still be a drag. Is it not at a time, you know, that you must consider to exit this market? So, I'm just curious to hear your thoughts around that.
On the new categories, obviously, modern oil is the exciting category out of the three. The pace of growth of modern oil around the world is very clear. And even in markets where there is no oral tradition, you take, for example, the UK. When we launched Velo here four years ago, the incidence of nicotine in oral was zero. And today it's around 3 percent. It sporadically can go all the way to 4 percent in terms of use. And this is happening also in the likes of Poland. It's happening in emerging markets, because it's very affordable. and like Pakistan, that is doing extremely well, South Africa doing extremely well, Kenya. So there is a massive potential, and we are very pleased with the fact that now we have 24 markets already that have passed legislation. The last one has actually been Argentina a few weeks ago. Portugal has just passed legislation as well. So we see clearly a lot of potential in this category, and we are obviously very pleased that we have a leading brand in this category. In terms of a tobacco heating product, it's a $9 billion revenue category in which BAT has just below $1 billion. So there is a lot of white space for us, and it has been more and more competitive. But we have now a product that is being present in the value side of the category, if you want, on the premium side. That has never been the case before. so with glow hilo we are tapping a very very as has been an untapped subcategory within the category for for BAT and we we are extremely excited about the this possibility of to occupy some of that white space in a category that is still growing not at the same rate of a modern order obviously but it still grows at a meet a meet single digit high single digit so and the end vapor is a is a difficult category because of lack of enforcement and or regulation and that's the reason why we have there is actually a difficult to compete with some of these illegal products or products that doesn't have concerns in some are responsible way of doing vapor that's why we came with this campaign because Because you see a proliferation of a device with thousands of puffs that have a very different negative risk profile than the ones that we sell. So there is no level playing field. And the reason why we are addressing a premium subcategory within vapor with the likes of Views Ultra is exactly a recognition of that. We are not really competing for volume, we are competing for value and offering consumers a responsible way to do vapor and and obviously the u.s. is the largest vapor market so all the attention is to to the fda that i think that has give some indications now that they understand that the root cause also of the problem is the lack of level playing fields and and hopefully we can see some of the pilots that they are doing now in nicotine pouch into vapor in the future as well. So that's the new categories. Australia, look, Australia has, as you know, come with a, since the introduction of plan package in 2012, with a very misguided and illogical regulations year after year, and increasing excise at much higher than inflation to a points to date that the average price of cigarettes legal markets in the Australia's is more than 20 equivalent of 20 pounds 22 pounds and whereas the illicit products is around six pounds so as a consequence of that 65% of the combustible market now is illegal they have in essence reduced the average price for consumers and for the first time in many years we see an uptick of incidents of smokers in Australia. Not just they decimated the tax collection, but also with this illogical regulation, they are seeing now incentivizing consumers to smoke a product that is much cheaper than the legal markets, and obviously carrying on with all the criminality as we know, have seen in many different markets. Now, the impact for us is that has always been a very important market for BAT and and but like Javid said we've come to a point that becomes it's significant so the drag in 26 will not be the same as 25 is still a drag but it's not be the same and from there on if the government carries on doing that which seems to be heading towards a hundred percent illegality anyway we don't even need to take this issue leave because these are the direction of travel has been very clear if you add the vapor category that has an incidence of 9% of all the consumer and is 100% illegal today, 85% of nicotine consumption in Australia today is illegal. So it's just a question of, you know, a question of a couple of years and unless they decide to do something more reasonable, no?
Operator
Thank you very much. Okay, our next question is from, allow me to, from Barclays. Please go ahead.
Speaker 7
Good morning. Thanks for taking my questions. Two of them. Firstly, on the U.S. business, clearly your price mix is pretty strong at 12% plus. Can you help us understand what percentage of your U.S. volume portfolio is right now benefiting from the exercise duty drawback? And how much scope does it have to increase in the future given your global business? That's the first one. And then secondly, appreciate all the commentary on your NGP guidance for 2026. But your low double-digit growth, it still, I mean, seems like you're factoring a pretty sharp normalization versus what we can see in data, especially on nicotine pouches and the e-vapor side of things. So, can you just help us understand the moving parts for your low double-digit guidance for Okay, Javed, we'll cover your second question.
On the duty drawback, this is a long-standing legislation in the U.S. to incentivize local manufacturing and promote export from the U.S. So, obviously, what we are doing is exactly that. Reynolds has invested more than $200 million in terms of manufacture over the last couple of years. We have generated more than 800 jobs. And we increased our purchase of leaf in the U.S. by 65 percent. And today Reynolds is the number one company in terms of volume of leaf purchase in the U.S. markets. So we are not making disclosure specifically about the duty drawback impact. But one data point for you to consider is the fact that our revenue in combustible would have been positive independent of the duty drawback. so it's important to mention that because at the end of the day if when you go back to what i was referring to in terms of the long-term algorithm we expect the the u.s market in terms of combustible to be declining at rates around six to seven percent and this should be given the elasticity and that still exists in the market, the possibility for renters should get to a positive revenue around 0 to 1%. In the current years, it has been more than that, because the company is doing extremely well in terms of the strength of the portfolio, but also the duty drawback is helping for those in that sense as well.
But independent of the duty drawback, we are positive, and I feel very comfortable with the range that we have set ourselves for our long-term algorithm i think on the uh overall new category revenue uh guidance of uh loaded double teens is is one thing is one a couple of points one of the u.s even i as i explained in my presentation that we had the negative number for the full year on views so what we are expecting in the views numbers to be flattish because it will require a more meaningful and more stronger enforcement and given a very complex and long supply chain, even those measures will take time to have a meaningful impact. So even the ITC regulation, which Taddeo was talking about, if it gets passed through, it will be much later in the year when we'll see some meaningful impact. And having said that, also, as I highlighted the regulations, for example, in Poland and Europe, which has put a drag on the use volume, because it has made the whole illegal business negative in that number, so that's not possible to enter that market. And also the highly competitive environment we see in the BWAP segment within the heated product portfolio, as we were talking about earlier, that competitiveness will continue to be there for the short term. So if you put all these together, that's why our guidance on the low end of the teens. But having said that, we are very confident in midterm that Velo will lead the charge of new category revenue growth, being the fastest growing brand in the fastest growing nicotine category globally, including U.S. Howard said that given all these points, that's why we have guided on this front at the low teens for now.
Operator
The question is from Simon Hales from Citi. Please go ahead.
Thank you. Morning today. Morning, Javid. Morning, Vivi. So a couple for me. I wonder if I could just first come back to some of those comments you just made on the U.S. business on a go-forward basis. Javid, just back to the point in terms of the vapour performance and the flat vapour expectation for 2026. I'm still just trying to square that circle, given you've had pretty strong exit rate momentum through the second half of the year. I appreciate enforcement actions in vapour aren't a straight upward line, but we're still probably going to annualise at least through the first half some of the building enforcement we saw in 2025, and that should help the vapour category, one would imagine, or the legal vapour category in the first half. So you're therefore expecting, as we come into age two of 2026, to see your boost business down year on year to get you back to that flat guidance for the year. That's the first point. And then secondly, on the U.S. today, you talked about 6% to 7% being the normal run rate of decline on combustibles volumes. Is that something you expect to see in 2026? And could you also perhaps talk a little bit about what you're doing in discount at the moment, the performance of Doral last year and your plans on that brand going forward?
So if I take the first one, so I think one thing which I have to highlight further on the second half performance of 2025 of views in U.S. Other than the enforcement, there is also one item which will not see repetition was the delisting of competition product in which views gained. So 63% of those consumers stayed within the closed systems. And in RCS system, views gained more than their fair share of our category. So that is one thing which is also boosting views performance in the second half. So I wouldn't be reciprocating that second half into the full year of 26. The full year of 26 is more focused and will be more dependent upon the level of enforcement we see. And as also highlighted by Tadeo, that although we have seen regulation covering 40 percent of the legal volume, but level of enforcement varies from state to state.
So one, not having that one-off of the exit of a competition, which we gained more than fair share, and enforcement still seems to be early days. so that's why our guidance on the views comment was made by me yeah on the on the volume side my comment is more i would say a hypothetical situation no it's not a 2026 what's happening in the u.s markets default if you go back to 2020 54 percent of the nicotine users were using traditional nicotine products combustible traditional or you go now to 2025 is 34 percent so the balance is happening is what's happening is the transition of these consumers to either polyusing or using solo users of becoming solo users of smokeless products either modern oral of vapour products. So, obviously, the secular decline that was related to ADC and level of incidence reducing over time around 4 percent will not be coming back. That's my point. So, even if you see a meaningful enforcement in vapour in disposables that we know that has currently plays a role in terms of the level of decline of cigarettes, even if we see that, that, even if we see improvement in the macroeconomics in the U.S., it's very hard to imagine the market going back to 4 percent decline because of the dynamic of the poly-use and solid-use in new categories that I was referring to. So my point is that, in the long run, with a meaningful enforcement in disposable, with macroeconomics strengthening between 6 to 7, I think that where we see today, in the next couple of years in the scenario that we are seeing i think that the the the performance in 25 around seven to eight is a more reasonable one to assume so that's what i would assume now obviously this is overall market when you this when you separate from the overall market the deeper discounts the deeper discount has a very different dynamic we are seeing more activity there from competitors, and as a consequence, we saw the deeper discount growing by 10 percent in 2024. Four or five was even higher than the 7 percent that they grew in 2024. So we have been piloting door out to your question. We have been always very mindful because despite the fact that the deeper discount is growing as opposed to the general market, 95 percent of the value continues to be outside the deeper discount. So we are very mindful in terms of testing the product. In this case, it's Doral. We did pilots in Louisiana in West Virginia. And what we are seeing in those pilots is suggesting that we'll be able to expand Doral for other states as well, taking into consideration the source of business, the potential downtrades of our own brands. We are doing that with the value in mind. We are not doing that for the sake of market share. We want to expand the role in the States that makes sense from the value point of view.
Operator
Our next question is from Richard Kelton from Goldman Sachs.
Thank you. Good morning. Thanks for taking my questions. Tea, please. The first one is on vapor. So, look, great news that the U.S. is starting to take some proper enforcement action against illicit vapor. But, you know, your comments point to, I suppose, a challenging environment in markets ex-US. So thinking about those ex-US markets, are you seeing any shifts in appetite from governments or regulators to start to enforce against that illicit segment a little bit more stringently? Or does that remain very challenging? Any comments on some of your top vapour markets ex-US on that topic would be very helpful. And then the second one, sorry to come back on the duty drawback question. I appreciate you don't want to give us the exact numbers for 2025, but just sort of, I suppose, from a high-level perspective, thinking about duty drawback into 2026, is the tailwind going to be more or less than it was in 2025 at a similar level? Any high-level comments just to sort of help us triangulate on that would be very helpful. OK, Richard.
Look, Vapor is—I don't think that there is one side fits all here. We know, based on our own experience, that when we have geographies where we have retail license, we have proper regulation and proper enforcement. I would say, for example, France is one of the cases. You just can sell vapors in tobacco in these stores. And if you are caught selling, for example, a disposable now, you have a massive fine in euros. And this helps with the discipline in the market. And in the UK, for example, despite the fact that we have been asking for a retail license and we haven't seen the movement in that direction, there is a tobacco vaping bill being discussed as we speak, and hopefully they will address that. But the attempt to ban disposable has failed, because the manufacturers that are not responsible, they try to circumvent, in the case, these regulations. So 50 percent of the market is illegal today in vapor. And this is a demonstration of how difficult the governments find to either regulate, but more important, to enforce regulation in some markets. We have, you know, as much as we can, and we have promoted this Vapor Deserves Better campaign, we have been very vocal about what are the measures that governments should be taking into consideration to try to discipline that. And this, with no surprise, you will see us talking about retail license, heft fines if they got caught a more stringent this discussion in terms of age verification when you buy the product and a negative lease to avoid things like sucralose that in in the liquids to suit the liquid so there is a uh in our webcast and all that there is a plenty of uh but there is still a lot of work to be done on that and as a consequence we are trying to as part of our resource resource allocation return of investment mindset their the quality growth which is not just about top line but also bottom line we have been focused on uh and more important markets uh the likes of uh france like i said the likes of germany the likes of italy uh which is uh is is is is is standing out from from others and then pulling back in markets like malaysia for example in south korea and so on so forth so that's the the situation on on vapor and Outside the u.s. in terms of of duty drawback look We we are not giving guidance specifically for the for the drawback There is we see that the Benefits that we are generate for the economy for example is the driver behind as much as we can start uh you know grow employment and growing the activities in the farmers domestic in the west we carry on obviously this is not forever this will be like you suggest a peak and uh and in the meantime we are strengthening our portfolio in combustible we are seeing the the overall market decline uh uh being more supportive uh which is also important for the future and uh and more important is us being able to create a strong position outside combustible because I understand the concern on the combustible side but overall nicotine in the u.s. is growing is growing value and is growing volume so despite the fact that you see consistent decline in cigarettes you see massive increase in the modern order space you see strong increases still in vapor unfortunately on the illegal side, but it's very encouraging, the signs that the new administration is giving to address that. Because in untapping this potential there, there is no much concern about the direction of the cigarette. Because what we want, in essence, is exactly to migrate smokers out of cigarette towards those products. But what is needed is a level playing field.
Our next question from Bastian Agu from Bank of America. potentially increase it at some point or another during the year. I understand that your debt is approximately 70% in dollar, so it could be quite volatile on that. But just to understand the moving part on your buyback for FUGIA 26. Thank you.
I think, Sebastian, thank you very much. We started a sustainable share buyback program in 2024, and we started it with 700 million. And now we are at $1.3 billion with an increase of $200 million for 2026. We remain our focus on cash and also deliver. We have to enter into our range of 2 to 2.5. And also, we want to make sure that we continue to deliver additional incremental dividend in sterling terms and continue our 25 years plus record on that front and continue a sustainable share buyback. What we want to ensure is to create more optionality for capital allocation in medium to long term for the business. So for now, I'm very comfortable with the increase we have done of 200 million from 1.1 to 1.3 for 2026. And we keep on focusing on generating cash to bring us back into our range of 2 to 2.5 and continue a sustainable buyback.
Operator
Thank you very much. Thank you. Our next question is from Damian McNeela from Deutsche Niemö. Please go ahead.
Hi. Morning, everybody. Thanks for taking the questions. The first question is just on U.S. combustible and particularly on pricing. I was wondering if you could provide any more granularity on the pricing within the subsegment that you operate in and what the sort of outlook for 26 might be for pricing given the very strong year last year. And then the second question is on capex. You've indicated a step up this year. I'm just wondering whether that level of capex is what we should be expecting for our two years past 2026.
Thank you, Daniel. Look, on the capex side, we are increasing at the back of investments, mainly on the modern oil space. Most of the capex today is being reverted back to the new categories and giving the space for us to continue growing. uh we we don't have a you know huge expectations to be much beyond the level that is currently and uh and and this is suiting as well because at that level we still can be very close to the 100 percent of uh operating conversion it's not a limitation but it's just a fact that uh with this level of capex address the business needs at the same time it puts us in a strong position to continue having high levels of operating cash conversion, which is very helpful for the financial flexibility in capital allocation that Javed was referring to. On the U.S. combustible, look, I cannot be talking about pricing. And we—what I can say to you is that the price elasticity is still very benign in the U.S. when you compare the price of cigarettes vis-a-vis the average household income. And obviously, there is a dynamic there because of the specific tax that when we increase the price of a pack of cigarettes, the manufacturer have a higher benefit than the consumer perceive as a price increase, which is also helpful. But what Reynolds has been doing is laddering some of our brands. We did that very successfully with Newport. We have launched Palmol Select as well, which is another laddering. And we have now Doral, like I said, in pilot phase that we probably will expect to roll out to more states. But I cannot speculate with you about future price.
Thank you very much, everybody, for your questions. I'm afraid that's all we have time for today. So if you put a question into the web, then the IR team will be delighted to answer the question as soon as we can. I'd now like to hand back to today for closing remarks.
Okay. Thank you all for listening today and for your questions. To close, I'm confident we have the right building blocks in place to deliver our mid-term algorithm, supported by delivering 2025 results at the top end of guidance. We will continue to reward our shareholders through strong cash returns, including our progressive dividend and sustainable share buyback, and enabling us to deliver long-term growth and value creation. Thank you again for joining us. I look forward to see many of you at the Cagney Conference next week, where we are presenting on the 18th of February.
