Release Date: July 30, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- New category revenue grew 18%, driven by a 66% surge in Modern Oral, with Velo capturing ~90% of category value growth in the US.
- Group revenue increased 2.9% and adjusted diluted EPS rose 7.9%, with EPS guidance upgraded to the middle of the 5%-8% range.
- US multi-category delivery was strong, with Vuse returning to double-digit growth and Velo+ growing over 200%, driving total US revenue up 8.5%.
- New category contribution improved 55% to £269 million, reflecting disciplined investment and increasing scale benefits.
- Strong cash generation supports a £1.3 billion share buyback in 2026, with leverage expected within the 2-2.5x target range by year-end.
Negative Points
- Heated product revenue declined nearly 12%, impacted by inventory movements and competitive intensity in the value segment.
- APMEA region revenue fell 6.3%, with slower-than-expected recovery due to regulatory pressures and illicit volume in Bangladesh and Australia.
- US combustible volume share declined 80 basis points, reflecting growth in the discount segment and heightened competitive activity.
- Vapor revenue in AME declined 14% due to regulatory changes in Poland, and APMEA vapor revenue fell 28% from strategic market exits.
- Full-year revenue and operating profit guidance is at the lower end of the mid-term algorithm, absorbing ~1% transactional FX headwind and active investment choices.
Q & A Highlights
Q: On U.S. E-vapor, do you see the illicit enforcement tailwind continuing into early H2? And for the launch of Vuse flavors in H2, could you give more color on the number of outlets targeted and the types of flavors?
A: (Tadeu Marroco, CEO) We are encouraged by the FDA's prioritization guidance, which allows legal manufacturers to offer substantiated products and create a more level playing field. We expect to continue seeing traction from legal vapor markets. For the flavor rollout, we will begin in Q3 with distribution to approximately 25,000 outlets, expanding to another 25,000 in Q4. We are being very thoughtful, ensuring retailers commit to ID scanning and underage access prevention compliance.
Q: On U.S. Combustibles, you registered plus 5% top-line growth in H1, significantly ahead of the value flat to plus 1% growth framework. How should we think about the U.S. Combustibles algo for the full year '26?
A: (Tadeu Marroco, CEO) The 5% performance is well ahead of the algorithm, partly due to beneficial trade inventory movements (around 2% of the 5%). Underlying performance is more like 3%. We intend to continue investing behind our portfolio in H2 to address the growing low-discount segment. Therefore, we expect a more moderate performance in H2, much closer to the algorithm, though possibly still slightly higher.
Q: On nicotine pouches in the U.S., could you help us with the speed of launching Velo Max, its likely economics compared to Velo Plus, and how you've seen competition impacting dynamics?
A: (Tadeu Marroco, CEO) We have a well-established network from Velo Plus, so the launch of Velo Max will be faster. It will complement Velo Plus with higher moisture, new strengths, and flavors. The category is competitive, but Velo Plus has strong retention rates (7%) and we are leaders in 11 states. All category growth in H1 came from Velo Plus. We believe we have the capabilities and product to maintain our position.
Q: On the full year '26 guidance, could you elaborate on the moving parts for the second-half, specifically how the 2.9% organic sales growth might develop?
A: (Tadeu Marroco, CEO) We expect H2 to be better than H1. APMEA is a clear recovery story, with H2 2026 expected to be better than H1 2026 due to lapping softer comparatives like in Australia. AME will also see improvement from investments. In the U.S., we don't expect the 5% combustible growth to continue due to necessary portfolio investments. This leads to a full-year top-line at the low end of our range, which allows us to make the right long-term investments for sustainable growth.
Q: At the trading update, the business lowered its expectation for global cigarette industry volumes from minus 2% to minus 2.5%. It now seems to be minus 3%. What is driving this?
A: (Tadeu Marroco, CEO) The reduction from 2.5% to 3% is primarily driven by Brazil, which experienced a massive excise shock with a meaningful price increase taking effect on August 1st. This will have significant implications for the size of that large market.
Q: On Velo in the U.S., following the rollout of Velo Max, how many SKUs do you expect to have by year-end? And your key competitor received a modified risk grant order. Do you think this moves the needle, and will you pursue this for Velo?
A: (Tadeu Marroco, CEO) We will have five strengths across the Velo family. Regarding the MRTPA, it is welcome for the category's advocacy, especially with the FDA, but it has less commercial impact in the local market. We have our own MRTPA applications for Velo and may receive one in due time. It is more important for the proper regulation of the category, which we see as the lowest-risk new category.
Q: On the new categories portfolio, you've made decisions to exit some vape markets and reprioritize in heated. Is this work now complete?
A: (Tadeu Marroco, CEO) Most of the actions have been taken, but there will likely be some impact still coming in H2 of this year. We exited markets in Asia where there is no proper regulatory environment or enforcement, making it impossible for a legal company to compete. In AME, exits were driven by legislation changes in Poland and the UK. We will continue to reassess for the best returns on our investments.
Q: On your vapor business in Europe, it has been under pressure. How should we think about this business in the medium term?
A: (Tadeu Marroco, CEO) The major drag is from Poland. However, we have strong positions in other key markets like Germany, where Vuse Ultra is making inroads. In France, we face competition but have a strong pipeline. We feel confident in our ability to sustain our leadership position in the European vapor markets we have selected to participate in.
Q: On free cash conversion, it was stronger than usual in H1. What are the drivers, and does this point to better full-year conversion?
A: (Javed Iqbal, Interim CFO) The strong conversion is due to lower net financing costs from debt repayment using ITC proceeds, and a continued focus by the finance and commercial teams on cash generation. This gives us confidence that we will deliver another year of more than 95% cash conversion for the full year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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