Final Results

Imperial Brands PLC

14 November 2023

 

IMPERIAL BRANDS PLC

Legal Entity Identifier (LEI) No. 549300DFVPOB67JL3A42

FULL YEAR RESULTS STATEMENT

14 NOVEMBER 2023

CONSUMER-FOCUSED
TRANSFORMATION DRIVES
IMPROVING RETURNS

Report for the year ended 30 September 2023

Business Highlights

•  Delivered an acceleration in adjusted operating profit growth in line with five-year strategic plan

•  Improved combustible tobacco performance with 10 basis points aggregate market share growth in top-five priority markets and strong, broad-based pricing gains

•  Next generation product net revenue up 26% as momentum grows in all categories; Europe NGP up 40%

•  Operational and financial delivery underpinned by new consumer capabilities, ways of working and cultural change, with employee engagement 100 basis points ahead of global benchmark at 74%

•  Enhanced shareholder returns with 4.0% dividend increase as well as a 10% increase in share buybacks; total FY24 returns of £2.4 billion equivalent to c. 15% of total market value

Financial Summary

		Reported					Adjusted2
		2023	2022	Change		2023	2022	Actual	Constant currency3	CC ex Russia4
Revenue/Net revenue1	£m	32,475	32,551	-0.2%		8,012	7,793	+2.8%	+0.7%	+1.4%
Operating profit	£m	3,402	2,683	+26.8%		3,887	3,694	+5.2%	+3.8%	+3.9%
Earnings per share	p	252.4	165.9	+52.1%		278.8	265.2	+5.1%	+4.2%	+4.3%
Free cash flow	£m	2,364	2,562	-		2,364	2,562	-	-	-
Net debt	£m	(8,438)	(8,492)	-		(8,026)	(8,054)	-	-	-
Dividend per share	p	146.82	141.17	4.0%		146.82	141.17	4.0%	4.0%	-

1.   Reported revenue includes duty, similar items, Distribution gross profit (Logista) and sale of peripheral products, which are excluded from net revenue; net revenue comprises reported revenue less duty and similar items, excluding sale of peripheral products and Distribution gross profit (Logista).

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.

4.   Constant currency movement excluding the prior year financial contribution from Russia, following our exit in April 2022.

Stefan Bomhard Chief Executive

"Three years into Imperial's transformation, our investments in consumer capabilities, changes to the way we work, and a new performance culture are translating into stronger, more sustainable operational and financial outcomes. In combustible tobacco, improving brand equity and investment in our salesforce capabilities has led to the third consecutive year of stable or growing aggregate market share in the five priority markets which account for 70% of our operating profit. At the same time, we have offset structural volume declines with strong pricing in all key markets.

"In next generation products, our challenger approach, which combines partnership-based innovation with disciplined market entry, is delivering positive results. We now have credible propositions across all categories - vape, heated tobacco and oral nicotine. Following recent launches, we now offer consumers potentially reduced-harm choices in more than 20 European markets, as well as the United States. This step-up in investment in Europe has driven an acceleration in net revenue growth.

"Underpinning this broad-based progress is our continued transformation, which includes new innovation hubs in Liverpool, Hamburg and Shenzhen, modernisation of legacy systems, and investments in upskilling our leaders.

"All of this means we are well placed to deliver on our commitment to enhance returns to investors, with increases to both our dividend and buyback programme. Looking ahead, we expect the continuing benefits of our transformation to enable a further acceleration in our adjusted operating profit growth in the final two years of our five-year strategy. We look forward to building on our growing operational track record to deliver sustainable returns to shareholders and play a positive, distinctive role in this industry's transition to a healthier future."

Delivering Against our Strategic Priorities

Growing market share in aggregate across our portfolio of five priority combustible markets

•  10 bps aggregate market share gain in our five priority markets, while achieving strong pricing in all markets

•  Continued investment in brand equity building and sales force initiatives is driving performance

•  Three out of five markets in share growth: gains in US, Australia and Spain offset declines in Germany and UK

Accelerating our NGP performance with disciplined execution

•  New product and market launches delivering acceleration in NGP net revenue growth in second half of the year

•  Driving growth across all three categories: vapour, heated tobacco and modern oral nicotine

•  Our new heated tobacco offering, Pulze 2.0 and iD launched across seven European markets

•  All-new blu 2.0 now available nationally in nine markets; disposable blu bar now available in 11 markets

•  In modern oral, growth in Zone X, and Skruf Super White supported by flavour launches

•  Acquisition of US nicotine pouch business creates opportunity to launch new modern oral in US in FY24

Driving value from our broader market portfolio

•  Strong pricing in our wider footprint markets has driven financial performance

•  Good progress in several smaller clusters, e.g. Africa, Asia, Middle East and Taiwan

•  Leveraging our capabilities in driving growth from portfolios of smaller markets with transfer of Central and Eastern Europe cluster from Europe region to the Africa, Asia and Australasia (AAA) region

Transforming our ways of working

•  Consumer centricity: Significantly strengthened our consumer-facing capabilities under Global Consumer Office

•  Performance-based culture: Continued roll-out with 'how' objectives incorporated within remuneration incentives as well as senior leadership coaching programme

•  Benchmark-beating employee engagement scores - showing buy-in to new strategy, vision, purpose and behaviours

•  Simplified and efficient operations: have delivered the target cost savings of £150m by end FY23

Results Overview*

Tobacco & NGP net revenue growth driven by resilient tobacco pricing

•  Strong tobacco pricing across all key markets mitigating volume declines

•  Excluding Russia, tobacco price mix of 8%: pricing +11% with adverse mix of -3%, driven primarily by adverse product mix in the USA (mass market cigars and cigarettes)

•  Tobacco volumes down 10.4% driven by our exit from Russia and weakness in US mass market cigars

•  Excluding Russia, tobacco volumes declined 7.1%, as anticipated against a stronger prior year comparator, down 1.2%

•  NGP net revenue up 26.4% driven by growth across all categories; Europe net revenue up 40.4%

•  Reported revenue declined -0.2% reflecting lower excise partially offset by higher Logista revenue

Delivering improved profitability and increased investment

•  Group adjusted operating profit grew +3.8%, driven by our tobacco portfolio and Logista; excluding Russia, Group adjusted operating profit grew +3.9%

•  Reported operating profit grew 26.8% because charges relating to our Russia exit last year were not repeated

•  Tobacco adjusted operating profit grew +3.9%, reflecting strong pricing and cost control; excluding Russia +4.1%

•  Tobacco adjusted operating margins increased +180bps driven by pricing more than offsetting cost inflation; ex. Russia +150bps

•  NGP adjusted losses increased +48.3% to £135m as new product and market launches led to higher investment

•  Distribution adjusted operating profit up 17.0% reflecting organic growth and the contribution from acquisitions

•  Adjusted EPS grew +4.2% driven by operating results and reduced share count, partially offset by higher finance costs and increased minority interests; excluding Russia adjusted EPS grew +4.3%

•  Reported EPS grew 52.1% driven by higher reported operating profit and a reduction in tax charge relating to favourable FX translation

Strong free cash flow and clear capital allocation framework supports growing shareholder returns

•  Adjusted operating cash conversion of 92%, against a strong comparator (102%); free cash flow of £2.4bn

•  Investing in organic growth initiatives and targeted bolt-on acquisitions in NGP and Logista

•  Adjusted net debt £8.0bn (2022: £8.1bn); adjusted net debt to EBITDA at 1.9x (2022: 2.0x)

•  Reported net debt £8.4bn (2022: £8.5bn)

•  Annual dividend per share up 4.0% to 146.82 pence per share, in line with our progressive dividend policy

•  Ongoing multi-year share buyback with £1.1bn underway for FY24; 10% increase on FY23 buyback

•  Cumulative capital returns of £4.7bn in FY23 and FY24

*  All measures at constant currency unless otherwise stated

Outlook

Our five-year strategy is continuing to drive the operational and cultural changes which, despite challenging macro-economic headwinds, are strengthening 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. In the coming year, we expect to deliver low-single-digit constant currency revenue growth and to grow our constant currency adjusted operating profit close to the middle of our mid-single digit range. Performance will be weighted to the second half of the year driven by the phasing of our pricing in the prior year and investments in NGP. As a result, first-half operating profit is expected to grow at low single digits. at constant currency. Our 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 rates, foreign exchange translation is expected to be a 0-1% headwind to net revenue, adjusted operating profit and 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.

For a Copy of the full statement

To view  a copy of the full statement please click here: https://www.imperialbrandsplc.com/FY23
and it is also available here: http://www.rns-pdf.londonstockexchange.com/rns/3065T_1-2023-11-13.pdf

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 12-month average to the end of September (MAT - moving annual 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

Imperial Brands PLC will be hosting a live webcast at 09:00 (GMT) on 14 November 2023 for investors and investment analysts following
the publication of our interim results at 07:00 (GMT). The webcast will be hosted by Stefan Bomhard, Chief Executive, and Lukas Paravicini, Chief Financial Officer. The presentation will be followed by a question and answer session. The presentation slides will be available on www.imperialbrandsplc.com from 07.00 (GMT). A webcast recording and the presentation script will also be available after the live webcast has concluded.

The webcast will be available on https://edge.media-server.com/mmc/p/mmry9v55. To participate in the Q&A session, please register in advance via this link: https://register.vevent.com/register/BI3cc04a0f77b246ea8dfafdf340b87071. 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.

 

END