Imperial Brands PLC – Final Results

·     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

“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

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%

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.

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.