Imperial Brands PLC - Final Results

Delivering Against Our Strategy

·     Net revenue up 2% (1% tobacco and 1% NGP); adjusted EPS up 5%

·     Sustained tobacco investment delivering quality growth with Asset Brands now 67% of net revenue

·     Strong NGP results: blu growth and expanding innovation pipeline

·     Reported EPS down 2.7% at actual rates impacted by Palmer & Harvey write-off and adverse FX

·     Dividend growth of 10%, supported by cash conversion of 97%

·     Divestment programme on track to deliver up to £2bn of proceeds

 

Overview - Adjusted Basis

Full Year Result

Change

 

2018

2017

Actual

Constant Currency1

Total tobacco volume

bn SE

255.5

265.2

-3.6%

 

Growth Brand volume

bn SE

162.9

159.6

+2.1%

 

Tobacco & NGP net revenue

£m

7,730

7,757

-0.3%

+2.1%

Tobacco & NGP adjusted operating profit

£m

3,557

3,595

-1.1%

+1.9%

Distribution adjusted operating profit

£m

212

181

+17.3%

+15.5%

Total adjusted operating profit

£m

3,766

3,761

+0.1%

+2.9%

Adjusted earnings per share

pence

272.2

267.0

+1.9%

+5.0%

Adjusted net debt

£m

(11,474)

(12,147)

 

 

 

Overview - Reported Basis

Full Year Result

Change

 

2018

2017

Actual

 

Revenue

£m

30,524

30,247

+0.9%

 

Operating profit

£m

2,407

2,278

+5.7%

 

Basic earnings per share

pence

143.6

147.6

-2.7%

 

Dividend per share

pence

187.8

170.7

+10.0%

 

Reported net debt

£m

(11,899)

(12,490)

 

 

 

Alison Cooper, Chief Executive, commented

"FY18 was a successful year of delivery against our strategy and I'm pleased with the progress we are making in creating something better for the world's smokers. In NGP our main focus is on transitioning smokers to blu, a significantly less harmful alternative to cigarettes. NGP also offers additive opportunities for our shareholders and the success of the international rollout of myblu has put us in a strong position to further invest and accelerate sales growth in FY19. In tobacco we focus on providing smokers with an evolving portfolio of high quality brands. Following our additional brand investment in tobacco over the past two years, we have increased Growth Brand volume, share and revenue in our priority markets. Our financial delivery was strong, with revenue and earnings growth, high cash generation and a further dividend increase of 10 per cent. Capital discipline remains central to all our activities, providing funds for investment and enhancing returns. We have the strategy, assets and capabilities to realise the significant opportunities presented by a changing environment and to generate growing returns for our shareholders."

Highlights show movements based on adjusted numbers at constant currency

Creating Something Better for the World's Smokers

Investments in Tobacco Maximisation driving enhanced performance

·     Reported volumes down 3.6%, outperforming industry volumes across footprint

·     Share growth in many of our priority markets; Growth Brand share up 70 bps

·     Improved price/mix delivered tobacco net revenue growth of 0.9%

·     Asset Brand net revenue up 8.0% and up 420 bps; now 66.9% of net revenue

·     Strong performances from tobacco Specialist Brands: Backwoods, Kool, Rizla, Skruf and Premium Cigars

Strong growth in Next Generation Products focused on smoker conversion

·     Delivering a satisfying, safer experience with a trusted brand, blu, supported by leading-edge science

·     Net revenue grew strongly to £200m, with an annualised exit rate of c. £300m

·     myblu available in US, UK, France, Germany, Japan, Italy and Russia

·     Strong innovation pipeline focused on reduced risk products in vapour, heated tobacco and oral nicotine

·     Creating optionality with the launch of Pulze, our first heated tobacco product, planned for early 2019

Cost and Capital Discipline

·     Cost optimisation is on track and has delivered £110m of incremental savings in FY18

·     Divestment programme on track with proceeds to date of £281m from the sell down of Logista stake (£234m) and the sale of 'other tobacco products' in the US (£47m)

·     Cash conversion of 97%

·     Adjusted net debt reduced by £0.8bn at constant currency; adjusted net debt/EBITDA at 2.9 times

·     Reported net debt lower by £0.6bn at actual exchange rates

·     Annual dividend of 187.8p up 10%; dividend pay-out ratio of 69%

 

Delivering Quality Growth in our Priority Tobacco Markets

In Tobacco Maximisation, we focus our investment behind our Growth Brands in priority markets. The additional investment we have made over the last two years behind our Market Repeatable Model has delivered share gains in priority markets and improved revenue. Our Growth Brand focus has meant we have further enhanced our quality of growth. The tobacco environment improved during the year enabling us to achieve significantly stronger price mix in the second half. We have also continued to make clear choices to balance share growth with financial returns, in line with our strategy.

MAT share %

Share

Change

 

 

Growth

 

 

 

 

USA

8.7%

-10 bps

 

Improving share trajectory with growth in Winston, Kool and Maverick offset by decline in Portfolio Brands

Russia

7.8%

+90 bps

 

Continued growth in Parker & Simpson in the queen size and crushball segments supported by growing presence in key accounts

Saudi Arabia

14.5%

+60 bps

 

Growth in the value segment with West

Italy

5.1%

+40 bps

 

JPS continues to increase share

Japan

1.0%

+20 bps

 

West share gains continue in the value segment

Returns

 

 

 

 

Germany

22.2%

-20 bps

 

Fine cut tobacco growth more than offset by a lower cigarette share mainly in Gauloises; portfolio being realigned to strengthen performance

UK

42.0%

+10 bps

 

Focused investment driving continued share growth led by Players and Gold Leaf

Australia

32.2%

-160 bps

 

Share decline in H1 driven by price discipline to prioritise returns; spot share recovering with new portfolio initiatives capturing demand shifts

France

19.7%

-120 bps

 

Profitability and value share growth prioritised at the expense of volume share following significant excise increases

Spain

29.0%

-50 bps

 

Dark segment continues decline while blonde share trend is improving driven by new formats

Outlook

The Group is well positioned to deliver strong, sustainable shareholder returns. We remain committed to our Tobacco Maximisation strategy and investment in growth opportunities to enhance the performance of our Growth Brands and priority markets.  Our tobacco business will continue to deliver modest revenue growth, high margins and strong cash flows.  Our NGP business is a significant additive opportunity on top of tobacco, with its stronger growth prospects contributing to margins and cash returns over time.

 

In the year ahead, we expect to deliver constant currency revenue growth at, or above, the upper end of our 1-4% revenue growth range driven by consistent growth in tobacco and an acceleration in NGP revenues. We will increase our investment in blu by around £100m in the first half to support further revenue acceleration. This will result in a slightly lower adjusted operating profit in the first half that will be more than offset in the second half to deliver full year profit growth. We have clear levers to drive profitability and expect the NGP business to begin to contribute to Group profit as we exit FY19, with margins continuing to build thereafter. Our medium term guidance for constant currency EPS growth of 4-8% remains in place.