Coronavirus Update

Imperial Brands Plc - Half-year Report March 2021

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Report for the six months ended 31 March 2021

Business Highlights

· Positive start in implementing our new strategy to transform the business

· Organic growth in net revenue and adjusted profit coupled with strong cash flows

· Performance management focus has begun to stabilise aggregate market share in five priority markets

· Tobacco net revenue continues to benefit from strong pricing

· Improved NGP performance against a weak comparator period

· Market trials for vapour and heated tobacco on schedule underpinning our commitment to harm reduction

· Good deleverage progress with net debt reduced by >£3bn on a 12-month basis

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

Financial Summary

Six months ended




Organic adjusted2

31 March 2021








Constant currency3

Revenue/Net revenue1










Operating profit










Basic earnings per share










Net debt










Dividend per share











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.

See page 3 for basis of presentation, page 16 and notes 3, 5 and 9 of the financial statements for the reconciliation between reported and adjusted measures. For comparison purposes, the Group uses the term "organic" to exclude the contribution of the Premium Cigar Division, which was divested on 29 October 2020.

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

Stefan Bomhard Chief Executive

"We have made a good start in implementing our new strategy to transform Imperial and remain on track to meet full year expectations.

"In tobacco, we have put in place a clear market prioritisation to increase focus on our best opportunities for sustainable profit delivery. We have begun to stabilise the aggregate market share performance across our top five priority markets reflecting the changes we have made to tighten performance management and the good underlying momentum established over the past year. This is an encouraging start and one that I look forward to building on over time as we begin to step up investment in new strategic initiatives.

"Our NGP performance has improved, albeit against a weak comparator period. We have focused investment more tightly behind our NGP market strongholds and are on track to activate market trials in vapour and heated tobacco later this year. Our aim is to create a successful NGP business that meets consumer needs and, over time, can make a meaningful contribution to harm reduction.

"We have started to change our culture and ways of working, including developing a new market cluster structure to simplify the organisation and allocating resources more effectively. I have now assembled my new Executive Team with key external hires, who have the necessary skills and expertise to complement Imperial's existing tobacco experience. This has significantly strengthened the capabilities we need to support the successful delivery of the new strategy.

"All of this has been achieved against the background of the ongoing global pandemic and I would like to thank employees throughout the business for their hard work and willingness to embrace change."

Results Overview

Volume and net revenue

· Organic net revenue up 3.5% driven by tobacco growth of 3.2% and NGP net revenue up 16.0%

· COVID-19 related changes to consumer buying patterns has continued to be a net benefit to revenue

· Tobacco price mix up 6.5% reflecting gross pricing growth of 5.3% (e.g. US, Germany, UK) and favourable product mix of 1.2% driven by a strong performance in US mass market cigars, while market mix was neutral

· Organic tobacco volumes down 3.3% with consumer demand partially offset by weaker duty free volumes and a reduction in US inventories following strong wholesaler purchases in March 2020

· Reported revenue grew 6.1%, higher than organic adjusted net revenue growth due to increased excise duties

· Begun to stabilise long-term aggregate market share performance in our five priority markets with gains in US, UK, and Spain partially offset by declines in Germany and Australia

· Priority market aggregate market share up 6 basis points; Group tobacco share growth of 30 basis points (MHT)


· Organic adjusted Group operating profit up 8.1% driven by a reduction in NGP losses and higher Distribution profit

· Reported operating profit of £1,637 million is higher by £712m, driven primarily by profit on disposal of the Premium Cigar Division (£281m) and a reduction in amortisation and impairment of acquired intangibles (£225m)

· Organic tobacco profitability is lower by 3.4% (£56m) driven by:

  •  lower US trade inventories (£49m) reflecting the phasing of purchases in March 2020 to support consumer demand
  • lower stock profit in Australia (£41m) as previously guided
  • a charge to meet US state litigation costs (£42m)
  • partially offset by the underlying growth in tobacco profitability, up 4.8%, or £76m

· Charge (£42m) for US state litigation settlement in Minnesota and expected settlement in Texas removes the uncertainty; and full year guidance remains unchanged despite impact on adjusted profit

· NGP losses reduced by 62.5% to £83m as we continue to optimise investment and as the prior year write-downs (£95m) were not repeated to the same extent

· Distribution adjusted operating profit (including eliminations) up 39.4% with good growth in pharmaceuticals as well as reduced intra-company stock

· Organic adjusted EPS up 6.9% at constant currency driven by growth in operating profit, partially offset by an increase in the tax rate to 23.1%

· Reported basic EPS up 244% at 191.2p reflecting the higher reported operating profit, gain on disposal of Premium Cigar Division and marked to market foreign exchange accounting gains on financial instruments caused by a 7% weakening in the euro against sterling

Capital allocation

· Strong cash conversion of 122% (12-month basis) driven by working capital improvements and lower capex;

· Full year cash conversion guidance unchanged at c. 80% due to the unwind of the temporary Logista working capital benefits in the second half of last year

· Adjusted net debt reduced by £3.1bn (12-month basis) due to higher profit, the reduced dividend and the proceeds from the sale of the Premium Cigar Division and favourable FX; adjusted net debt to EBITDA was 2.6x (2020: 3.5x)

· Reported net debt reduced by £3.1bn (12-month basis), in line with reduction in adjusted net debt

· Interim dividend per share up 1.0%, or £4m, in line with our progressive dividend policy


We have made a good start to the year. Although the pandemic continues to affect aspects of our business, our full year guidance remains unchanged with low-mid single digit organic adjusted operating profit growth at constant currency.

In the second half we anticipate some of the benefit we have seen in duty paid market size in certain territories to unwind as we lap a stronger comparator period and as volume trends start to normalise. Some second half prior period COVID-related benefits will not be repeated (e.g. UK stock profit, German VAT benefit) and the recently announced Australian excise regime will create a headwind of around £50 million.

Despite these factors, and increased investment behind our new strategy, we expect second half tobacco profitability to grow modestly against the same period last year. In NGP, our disciplined investment approach will support market trials in heated tobacco and vapour, with second half investment at a similar level to the first half.

At current exchange rates, adverse foreign exchange translation is expected to be a 2.5% - 3% headwind on full year earnings. As previously guided, a higher tax rate will have a c. 2% impact on earnings with organic adjusted earnings per share expected to be slightly ahead of the prior year at constant currency.