Half-year Report

Imperial Brands PLC

15 May 2024

 

IMPERIAL BRANDS PLC

LEGAL ENTITY IDENTIFIER (LEI) NO. 549300DFVPOB67JL3A42

HALF YEAR RESULTS STATEMENT

15 MAY 2024

delivering
accelerated
performance

Report for the six months ended 31 March 2024

Business Highlights

•  Strong tobacco pricing up 8.6% more than offsetting volume declines

•  Delivering stable aggregate market share in our five priority markets in line with our strategic objective

•  Next Generation Product net revenue up 16.8% by building scale in our market footprint and product innovation

•  Adjusted earnings per share benefited from adjusted operating profit growth and share count reduction

•  Cash conversion was strong on 12-month basis supported by improved working capital

•  Delivering the £1.1bn share buyback this year, alongside an increased interim dividend up 4.0%

•  Continued confidence in successful delivery of full-year results in line with guidance, with returns improving in line with five-year strategy

Financial Summary

Six months ended 31 March 2024		Reported						Adjusted2
		2024	2023	Change		2024	2023	Actual	Constant currency3
Revenue	£m	15,064	15,411	-2.3%		-	-	-	-
Tobacco & NGP net revenue1	£m	-	-	-		3,637	3,663	-0.7%	+2.8%
Operating profit	£m	1,494	1,534	-2.6%		1,669	1,716	-2.7%	+2.8%
Earnings per share	p	96.0	117.0	-18.0%		120.2	118.5	+1.4%	+7.7%
Net debt	£m	(10,585)	(10,239)	-		(10,085)	(9,799)	-	-
Dividend per share	p	44.90	43.18	+4.0%		44.90	43.18	+4.0%	+4.0%

1.   Tobacco & NGP net revenue is reported revenue less duty and similar items, sale of peripheral products and Distribution (Logista) gross profit.

2.   See page 3 for the basis of presentation and the supplementary section at the end of the financial statements for the reconciliation between reported and adjusted measures.

3.   Constant currency removes effect of exchange rate movements on the translation of the results of our overseas operations.

Stefan Bomhard Chief Executive

"Investment in consumer capabilities, more agile ways of working and further progress with our performance culture have made Imperial Brands a stronger business better able to deliver an acceleration in financial delivery. This is demonstrated in the first half with the strongest organic top-line growth in more than ten years, amid a challenging external environment.

"In tobacco, stronger brands and improved sales execution have enabled us both to consolidate the market share gains in our priority markets achieved in recent years and to deliver a strong price mix of 8.6%.

"In Next Generation Products (NGP), we are steadily building scale within our footprint and these efforts have resulted in net revenue growth of 16.8% on a constant currency basis. In the past six months, we have launched new products in all categories, including our entry into the US oral nicotine market with the new 'zone' brand. Our improved innovation capabilities, which now include three 'Sense Hubs' in Liverpool, Hamburg and Shenzhen, mean we are well set up to adapt to changing consumer preferences and regulatory requirements.

"Operational progress has translated into strong financial results and improving capital returns to shareholders. Alongside our progressive dividend, we are on track to complete our ongoing £1.1 billion share buyback programme and to deliver three-year cumulative returns of £6.0 billion including buybacks and our dividend.

"Pricing actions in tobacco taken in the first half and good momentum in NGP gives us confidence in our ability to deliver full-year results in line with our guidance."

Delivering Against our Strategic Priorities

Delivering strong pricing across our portfolio of five priority combustible markets

·  Maintaining aggregate market share in our five priority markets in line with our strategic objective

·  Share positions supported by continued investment in brand equity and sales force initiatives

·  Three out of five markets growing market share: gains in USA (+5 bps), Spain (+50 bps) and Australia (+10 bps) offsetting declines in Germany (-25 bps) and UK (-40 bps)

·  Encouraging improvement in German share trend -25 bps vs HY23 and FY23 -80 bps

·  Strong pricing supporting financial delivery while managing overall market share delivery

Building a sustainable NGP business for a healthier future

·  Delivering improved scale in our existing footprint and a further step-up in innovation across all NGP categories

·  NGP net revenue now represents c. 7% of total tobacco and NGP net revenue in Europe, including Central & Eastern Europe

·  New blu bar vape launch with 1,000 puff capacity, removable battery and reduced plastic content

·  Expanding our heated product offering for Pulze 2.0 with iSenzia flavoured herbal sticks in Europe

·  Entered the fast-growing modern oral category in the USA with the targeted launch of 'zone' in 12 US cities

Driving value from our broader market portfolio

·  Strong pricing in our wider footprint, mitigating volume declines

·  Good progress in broader geographies, e.g. Africa, Central and Eastern Europe, Southeast Europe and Scandinavia

·  Disruption in the Middle East affecting shipment timings and results in the AAACE region

·  Strong NGP growth as we build momentum in our broader market portfolio

Transforming our ways of working

·  Consumer capabilities: strengthened with all three Sense Hub innovation centres now fully operational

·  Simplified and efficient operations: Continued progress in adopting new ways of working and driving self-help initiatives, e.g. further scale up of our Global Business Services

·  Good progress with implementation of ERP roll-out; the programme will replace 60 legacy systems with a single platform over time

Results Overview*

Tobacco & NGP net revenue growth driven by resilient tobacco pricing

·  Tobacco and NGP net revenue up +2.8%; the strongest organic revenue growth in more than ten years

·  Strong tobacco pricing of +8.6% driven by a broad base of markets; tobacco net revenue up +2.3%

·  Tobacco volumes down -6.3% (to 89.9bn SE) reflecting wider industry market size declines across our footprint

·  NGP revenue up +16.8% as strong growth in Europe and AAACE more than offset declines in USA

·  Reported revenue declined -2.3%; reflecting the decline in tobacco and NGP revenue due to adverse foreign exchange movements, partly offset by growth in Distribution revenue

Delivering improved profitability and increased investment

·  Group adjusted operating profit grew +2.8%, driven by improved profitability in tobacco and NGP and growth in Distribution

·  Reported operating profit declined -2.6% as the decline in tobacco operating profit due to foreign exchange translation movements was partially offset by reduced losses in NGP and increased Distribution operating profit

·  Tobacco adjusted operating profit increased +1.0%, reflecting strong pricing offsetting volume declines

·  NGP adjusted losses reduced by +8.9% to £50m as expected, with improved gross margin and volume growth supporting continued investment in new product launches

·  Distribution adjusted operating profit up +18.2% reflecting good underlying growth due to tobacco price increases

·  Adjusted EPS grew +7.7% with adjusted operating profit growth enhanced by reduced share count due to the ongoing share buyback more than offsetting higher finance costs and a higher tax rate

·  Reported EPS declined -18.0% reflecting mark-to-market movements on financial instruments and adverse foreign exchange translation

Free cash flow supporting investment and shareholder returns

·  Adjusted operating cash conversion of c. 97% on a 12-month basis, reflecting working capital improvements

·  Adjusted net debt £10.1bn; adjusted net debt to EBITDA on a 12-month basis broadly flat at 2.5x; reported net debt £10.6bn

·  On track to deliver adjusted net debt to EBITDA of around 2.0 times at the year end

·  Interim dividend per share up 4.0% to 44.90 pence, in line with our progressive dividend policy

·  £604m buyback completed in period; on track to complete £1.1bn this year

·  Since starting the buyback in October 2022, we have repurchased 9% of share capital

·  On track to return at least £2.4bn to shareholders in FY24; and cumulative three-year returns of £6.0bn

*  All measures at constant currency unless otherwise stated

Outlook

Our five-year strategy is continuing to drive the operational and cultural benefits which, despite a challenging external environment, are strengthening performance and our financial delivery. This underpins our confidence in delivering against the final two years of our plan with a further improvement in adjusted operating profit growth to support a mid-single-digit constant currency CAGR over FY23-FY25, in line with our medium-term guidance. We remain firmly on track to deliver against the guidance and expectations for the current year and expect to deliver low-single-digit constant currency tobacco and NGP net revenue growth, while growing our constant currency adjusted operating profit close to the middle of our mid-single digit range. Strong tobacco pricing already taken in the first half of the year and lower NGP losses will support a stronger second half delivery. Earnings per share growth will benefit additionally from the continued reduction in share count as a result of our ongoing share buyback programme, although this will be offset slightly by increased adjusted finance and tax costs. At current exchange rates, translation foreign exchange is expected to be a c. 2% headwind to full year tobacco and NGP net revenue and a c. 3.0-3.5% headwind on full-year adjusted operating profit and adjusted earnings per share. We look forward to building on our growing operational track record to deliver shareholder returns through an ongoing buyback and progressive dividend, and to play a positive, distinctive role in this industry's transition to a healthier future.

Basis of Presentation

·  To aid understanding of our results, we use 'adjusted' (non-GAAP) measures to provide a consistent comparison of performance from one period to the next. Reconciliations between adjusted and reported (GAAP) measures and further definitions of adjusted measures are provided in the supplementary information section. Change at constant currency removes the effect of exchange rate movements on the translation of the results of our overseas operations. References in this document to percentage growth and increases or decreases in our adjusted results are on a constant currency basis unless stated otherwise. These are calculated by translating current year results at prior year exchange rates.

·  Stick Equivalent (SE) volumes reflect our combined cigarette, fine cut tobacco, cigar and snus volumes but exclude any NGP volume such as heated tobacco, modern oral nicotine and vapour.

·  Market share is presented as a six-month average to the end of March (MHT - moving half-year trend), unless otherwise stated. Aggregate market share is a weighted average across markets within our footprint.

Other Information

Investor Contacts		Media Contacts
Peter Durman	[phone]	Jonathan Oliver	[phone]
Jennifer Ramsey	[phone]	Simon Evans	[phone]
Henry Dodd	[phone]

Analyst Presentation Webcast

·      Stefan Bomhard, Chief Executive, and Lukas Paravicini, Chief Financial Officer, will present the results to investors and investment analysts via a webcast at 08:30 (BST) on 15 May 2024. It will be followed by a live question and answer session. The presentation slides will be available on www.imperialbrandsplc.com from 07.00 (BST). A webcast recording and the presentation script will also be available after the webcast has concluded.

·      The webcast will be available on https://edge.media-server.com/mmc/p/dyhu43t6. To participate in the Q&A session, please register in advance via this link: https://register.vevent.com/register/BI5a84680374a54342bf327e3d2fc3f310. You will then receive the dial-in details and your own PIN to access the live Q&A session.

Cautionary Statement

Certain statements in this announcement constitute or may constitute forward-looking statements. Any statement in this announcement that is not a statement of historical fact including, without limitation, those regarding the Company's future expectations, operations, financial performance, financial condition and business is or may be a forward-looking statement. Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected or implied in any forward-looking statement. These risks and uncertainties include, among other factors, changing economic, financial, business or other market conditions. These and other factors could adversely affect the outcome and financial effects of the plans and events described in this announcement. As a result, you are cautioned not to place any reliance on such forward-looking statements. The forward-looking statements reflect knowledge and information available at the date of this announcement and the Company undertakes no obligation to update its view of such risks and uncertainties or to update the forward-looking statements contained herein. Nothing in this announcement should be construed as a profit forecast or profit estimate and no statement in this announcement should be interpreted to mean that the future earnings per share of the Company for current or future financial years will necessarily match or exceed the historical or published earnings per share of the Company. This announcement has been prepared for, and only for the members of the Company, as a body, and no other persons. The Company, its Directors, employees, agents or advisers do not accept or assume responsibility to any other person to whom this announcement is shown or into whose hands it may come, and any such responsibility or liability is expressly disclaimed.

For a Copy of the full statement

To view a copy of the full statement please click here: https://www.imperialbrandsplc.com/HY24
and is also available here: http://www.rns-pdf.londonstockexchange.com/rns/4423O_1-2024-5-14.pdf

 

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