Imperial Brands PLC Half-year Report 2022

IMPERIAL BRANDS PLC

Legal Entity Identifier (LEI) No. 549300DFVPOB67JL3A42

HALF YEAR RESULTS STATEMENT

17 MAY 2022

Report for the six months ended 31 March 2022

· Good progress in delivering on our strategic objectives

· Strategic investment driving growth in aggregate market share in top-five priority markets

· Successful NGP trials underpin further market roll-outs in heated tobacco and vapour

· Implementing our new purpose, vision and behaviours to align our culture to our strategy

· Strong operating cash generation delivering further deleverage, as anticipated

· On track to deliver full year results in line with guidance

Six months ended		Reported					Adjusted3
31 March 2022		2022	2021	Change		2022		20212	Actual	Constant currency4
Revenue/Net revenue1	£m	15,362	15,568	-1.3%		3,495		3,571	-2.1%	+0.3%
Operating profit	£m	1,201	1,637	-26.6%		1,600		1,586	+0.9%	+2.9%
Basic earnings per share	pence	105.2	191.2	-45.0%		113.0		107.0	+5.6%	+7.7%
Net debt	£m	(9,757)	(11,003)			(9,157)		(10,328)
Dividend per share	pence	42.54	42.12	+1.0%		42.54		42.12	+1.0%	+1.0%

¹ Reported revenue includes duty, similar items, distribution 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 revenue.

² The 2021 net revenue and adjusted operating profit metrics exclude the contribution of the Premium Cigar Division from that financial reporting period following its divestment in October 2020. The Premium Cigar Division contributed £21 million to net revenue and £3 million to adjusted operating profit in 2021.

³ See page 3 for basis of presentation, page 17 and notes 3, 5, 9 and 12 of the financial statements for the reconciliation between reported and adjusted measures.

⁴ Constant currency removes effect of exchange rate movements on the translation of the results of our overseas operations.

“We are now 18 months into our five-year strategy to build a more sustainable Imperial capable of consistent growth – and I am pleased with the progress we are making.

“These results provide further evidence that we have achieved the stabilisation of our core combustible business. During the first half of the year, we increased aggregate market share in the five priority markets which account for around 70 per cent of our operating profit, while maintaining pricing discipline. This strong performance is an outcome of our tighter performance management and disciplined investment in sales execution and brand building. Meanwhile, our more focused approach to our broader portfolio of markets is delivering a stronger performance from regions, such as Africa. In April, we delivered on our earlier commitment to exit Russia, with the orderly transfer of our business to local investors.

“In next generation products, consumers have given positive feedback on our recent trials, validating our new insights-driven approach. We will now roll out our Pulze and iD heated tobacco proposition to further European markets and, in US vape, we are extending our refreshed blu marketing proposition. We have also started a pilot in France for an all-new vapour device, the first new NGP product from our redesigned innovation pipeline.

“Our strategy is being supported by a comprehensive culture change programme, designed to embed more consumer-centric, collaborative and future-focused ways of working, across every level of the organisation.

“Our focus for the remainder of 2022 will be to invest further in our five priority markets and begin the roll-out of our NGP strategy. While these are uncertain times, as we move into 2023, we will have in place the capabilities and culture necessary to support the next phase of our strategy and deliver sustainable growth in shareholder value.”

Focus on priority combustible markets

· Investment in operational levers drives 25 bps growth in aggregate market share in priority combustible markets

· Share gains in USA, UK and Australia more than offset declines in Germany and Spain

· Investing in sales execution activities:

– Enhancing sales force capabilities, e.g. in the USA and Germany

–  Strengthening our key account management, e.g. in the USA

· Investing in multiple brand equity building initiatives:

–  Building brand equity in premium segment, e.g. Winston pack change and new campaign in USA

–  Optimising our approach to the value segment, e.g. launch of Lambert & Butler in Australia

–  Maximising fine cut opportunities, e.g. development of West in Germany; Riverstone in UK and Australia

Build a targeted NGP business

· Successful consumer trials validate our approach and strengthen our confidence in our NGP strategy

· Heated tobacco trial results from the Czech Republic and Greece support further launches into new markets

· Positive trial results of new marketing proposition for blu in the USA supports further roll-out

· Trials underway of all-new blu vapour device into selected French cities

Drive value from our broader market portfolio

· Market prioritisation driving improved operational and financial performance

· Clear portfolio strategy in Africa delivering share gains and growth in net revenue and profit

· Concluded our exit from Russia, with a transfer of our business to local investors

Transforming our ways of working through our critical enablers

· Strategy supported by structured culture change programme to embed more consumer-centric, collaborative and future focused ways of working

· Programme will be rolled out across our whole Group by the end of the year

· Simplified and efficient operations: on track to deliver cost savings in line with our strategic plan

· Our environmental, social and governance strategy has been refreshed, underpinning our new ambitions

Net revenue

· Net revenue up +0.3%, tobacco +0.1%, NGP +8.7%; reported revenue reduced -1.3%, due to lower excise duty in Europe

· Tobacco price mix of +0.8% reflects pricing of +1.2% and adverse mix of -0.4% (product mix in the Americas and market mix in AAA)

· Recent price increases in Q2 (+3.8%) support improved price mix in second half of the year

· Overall volumes down -0.7%: reflecting strong volume performance in the USA, Middle East and Australia, offsetting declines in Europe as COVID-19 restrictions ease

· NGP net revenue growth +8.7%, to £101m, driven by strong progress across all categories in Europe

Progress in improving profitability

· Group adjusted operating profit growth of 2.9%, driven by reduced losses in NGP reflecting prior year market exits

· Reported operating profit of £1,201m is lower by £436m, driven by charges related to our exit from Russia and associated markets (£201m) and non-recurrence of gains on disposal of Premium Cigar Division (£281m)

· Tobacco adjusted operating profit at a similar level to last year reflecting increased investment in strategy

· NGP adjusted operating losses reduced by +49.9% vs HY21, against comparator period that included exit from AAA

· Adjusted EPS up +7.7% driven by growth in adjusted operating profit and a reduction in tax rate to 21.9% following favourable developments in several tax authority audits and a lower adjusted finance charge

· Reported EPS down -45.0%, with lower reported operating profit and lower finance income as we reduced our exposure to unhedged currency exposures on financial instruments, partly offset by higher reported tax rate

Strong cash conversion supports year-on-year deleverage

· Strong 12-month cash conversion at +102%

· Adjusted and reported net debt both reduced by £1.2bn (12-month basis) driven by free cash flow

· Adjusted net debt to EBITDA improved to 2.4x in line with expectations (HY21: 2.6x), reflecting usual seasonality

· Maintaining our deleverage momentum to deliver further net reduction at the full year

· Interim dividend per share up 1%, consistent with our progressive dividend policy

* All measures at constant currency unless otherwise stated