INTRODUCTION AND CONTENTS
WE ARE TRANSFORMING INTO
- CONSUMER-LEDCHALLENGER BUSINESS
New capabilities, a performance culture and more effective ways of working are enabling Imperial to deliver a stronger operational performance and enhanced financial returns.
STRATEGIC REPORT | GOVERNANCE |
SUPPLEMENTARY
At a Glance | 2 |
Our Consumer Focus | 4 |
Our Investment Case | 6 |
Chair's Statement | 8 |
Chief Executive's Statement | 10 |
Our Distinct Approach | 14 |
Our Strategy in Action | 16 |
KPIs | 30 |
Stakeholder Engagement | 32 |
Non-Financial and Sustainability | 37 |
Information Statement | |
ESG Review | 38 |
TCFD | 70 |
Market Review | 82 |
Operating Review | 84 |
Group Financial Review | 92 |
Principal Risks and Uncertainties | 100 |
Governance at a Glance | 112 |
Chair's Introduction | 114 |
Board Leadership | 116 |
Section 172 | 126 |
Board Statements | 128 |
People and | 129 |
Governance Committee | |
Audit Committee | 134 |
Remuneration Report | 142 |
Directors' Report | 164 |
FINANCIALS
Independent Auditor's Report | 169 |
Consolidated Income Statement | 178 |
Consolidated Statement | 178 |
of Comprehensive Income | |
Consolidated Balance Sheet | 179 |
Consolidated Statement | 180 |
of Changes in Equity |
INFORMATION
Alternative Performance | 235 |
Measures | |
Glossary | 244 |
IMPERIAL BRANDS PLC
FINANCIALS
Imperial Brands PLC | 247 |
Balance Sheet | |
Imperial Brands PLC Statement of | 247 |
Changes in Equity | |
Notes to the Financial Statements | 248 |
of Imperial Brands PLC |
SHAREHOLDER
INFORMATION
Shareholder Information | 263 |
Consolidated Cash | 181 |
Flow Statement | |
Notes to the Consolidated | 182 |
Financial Statements |
For more information see www.imperialbrandsplc.com
MEET OUR PEOPLE
Hind, Brand Manager, Morocco | Cover | Jennifer and Wen-Hsiang,Production | 21 | Chih-Min and Chang-Wei,Production | 61 | ||
Operator and Production Team Leader, | Shift Leaders, Taiwan | ||||||
Sarah Jean, Regulatory Toxicology | Cover | ||||||
Coordinator, Germany | Taiwan | Marina, Machinist, Spain | 62 | ||||
Sara, Trade Marketing Analyst, Portugal | 21 | ||||||
Mandjou, Insights & Intelligence | Cover | Iryna, Production Operator, Ukraine | 64 | ||||
Analyst, Morocco | Rafael, Process Engineer, Dominican | 24 | |||||
Reka, People & Culture Operations | 67 | ||||||
Miguel, Market Manager, Portugal | 1 | Republic | Specialist, Germany | ||||
Matthew, Retail Development | 24 | ||||||
Hind, Communications Manager, | 3 | Emmanuel, Product Characterisation | 69 | ||||
Morocco | Representative, UK | Specialist, UK | |||||
Christoph, OHS&E Coordinator, Germany | 27 | ||||||
Elio, End-to-end Planner, Poland | 7 | Rogelio and Carmen, Tobacco | 76 | ||||
Assia, Accountant, Morocco | 27 | Operations Leader and People & | |||||
Andrea, Electronics Development | 14 | ||||||
Manager, UK | Culture Clerk, Dominican Republic | ||||||
Zineb, Production Operator, Morocco | 28 | ||||||
Adam, Sales Representative, US | 83 | ||||||
Thomas, Sales & Marketing Manager, | 16 | ||||||
Omar, Production Operator, Morocco | 29 | ||||||
Ivory Coast | Jamal, Sales Representative, US | 87 | |||||
Ana, People & Culture Business | 33 | ||||||
Angelina, Production Engineer, | 16 | ||||||
Partner, Portugal | Said, Factory Storekeeper, Morocco | 91 | |||||
Germany | |||||||
Mykola, Factory Storekeeper, Ukraine | 35 | Henry, Reporting Specialist, Germany | 115 | ||||
Mirko, Area Sales Manager, Germany | 19 | ||||||
Andreas, Lab Technician, Germany | 44 | Alanah, Supply Chain Manager, | 126 | ||||
Lea, Sales Representative, US | 19 | Dominican Republic | |||||
Mikaela, Machine Operator, Sweden | 48 | ||||||
Adery, Regional Sales Manager, Taiwan | 20 | ||||||
Peikerr, Retail Development Executive, | 52 | ||||||
Taiwan
Performance measures used throughout the report
Reported (GAAP)
Complies with UK-adopted International Accounting Standards and the relevant legislation.
Adjusted (Non-GAAP)
Non-GAAP measures provide a useful comparison of performance from one period to the next. The basis of our adjusted measures is explained in the accounting policies accompanying our financial statements and the APM section within Supplementary Information.
Constant currency basis
Removes the effect of exchange rate movements on the translation of the results of our overseas operations. We translate current year results at prior year foreign exchange rates. See page 94 for more details.
Market share
Market share data is presented as a 12-month moving average weighted across the markets in which we operate.
Stick equivalent
Stick equivalent volumes reflect our combined cigarette, fine cut tobacco, cigar and snus volumes.
www.imperialbrandsplc.com 1
IMPERIAL BRANDS AT A GLANCE | ON | ||||
Three years into our strategy, we have built a | |||||
consistent track record of delivery against our | |||||
key objectives. At the same time we are making | |||||
progress on bringing to life our purpose: forging | |||||
STRATEGY | |||||
a path to a healthier future for moments of | |||||
relaxation and pleasure. | |||||
DELIVERING | |||||
OUR | |||||
OUR FOCUSED STRATEGY | OUR PASSION FOR BRANDS | ||||
STRATEGIC PILLARS | International brands | ||||
Pages 18-23 |
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Local jewels
CRITICAL ENABLERS
Pages 24-29
Next generation products (NGP)
Markets we operate in:
c.120
Vapour | Heated tobacco | Modern oral |
2 Imperial Brands | Annual Report and Accounts 2023
ACCELERATING DELIVERY ON OUR STRATEGIC PRIORITIES
Operational improvements, enhanced capital returns to shareholders and progress on environmental, social and governance priorities
Aggregate market share of our five | NGP net revenue growth at | FY24 share repurchase announced | ||||||
priority combustible markets | constant currency | £1.1bn | ||||||
+10bps | +26.4% | |||||||
(2023: £1.0bn) | ||||||||
(2022: +35bps) | (2022: +10.8%) | |||||||
Tobacco & NGP net revenue | Dividend per share (pence) | Absolute CO2 equivalent emissions | ||||||
(£ billion) | 146.82p | Scope 1 and Scope 2 market-based | ||||||
£8.0bn | (tonnes) | |||||||
2022: 141.17p | 99,985t | |||||||
2022: £7.7bn* | ||||||||
2022: 175,766t | ||||||||
7.6bn | 7.7bn* | 8.0bn | 139.08p | 141.17p | 146.82p | 288,172t | ||
175,766t | ||||||||
99,985t | ||||||||
21 | 22 | 23 | 21 | 22 | 23 | 17* | 22 | 23 |
2023 Tobacco & NGP net revenue growth | 2023 DPS growth +4.0% | Our target is to be Net Zero in our direct |
at constant currency +1.4% | operations by 2030 | |
* Excluding Russia | * 2017 is the baseline year |
www.imperialbrandsplc.com 3
OUR CONSUMER FOCUS
Our portfolio of brands and products is designed to meet the diverse and evolving
expectations of adult consumers in | |
markets worldwide. We responsibly serve | |
those who choose to smoke and, at the | |
same time, we continue to develop | |
potentially less harmful products which | |
also satisfy consumer needs. | |
WE | START WITH |
CONSUMER | |
THE |
"I use Pulze and iD heat sticks every day, and on different occasions, like when I am waiting for the bus, having a beer, or during a break from work. Sometimes I vape too, for the flavours. I used to smoke regular cigarettes, but I haven't for more than five years now."
Karolina,
Czech Republic
"I started vaping to stop smoking, as I was worried about the effect on my health and the odours. I love the wide variety of flavours that are available with blu 2.0, the ease of use, its affordability, and the battery life. For me, these are all advantages."
Salvador,
Spain
4 Imperial Brands | Annual Report and Accounts 2023
"I switched to Davidoff about 10 years ago. It's a longer cigarette and I like its quality and taste and the less lingering smells that other brands have. As an engineer, I know that machines built in Germany are renowned for their craftsmanship and I think this is true for Davidoff too."
Chien-Hung,
Taiwan
"I smoke Golden Virginia as it's tastier than other tobacco I've used, and easier to roll. I've tried other brands but always come back to this one. Golden Virginia is part of my daily routine now. I've tried vaping but I don't think I would change anytime soon."
Mark,
UK
"A Backwoods with my crew is always in the mix. A Backwoods moment is when you are with friends, and when you need to unwind. The ritual is familiar and like nothing else. If Backwoods can continue to deliver on high quality and freshness, I will always be a consumer."
Mark,
USA
"Winston has always been my go-to brand; I enjoy the taste. Smoking is part of my daily routine - in the morning with my coffee, after a meal. There is nothing like sitting on the porch after a long day at work and taking a moment to wind down and relax with Winston."
Amy,
USA
www.imperialbrandsplc.com 5
OUR INVESTMENT CASE
INVEST | ||
IMPERIAL? | ||
WHY | ||
IN |
By building a more consumer-focused challenger business and following a disciplined capital allocation framework we are continuing to invest behind our strategy, while maintaining a strong, efficient balance sheet and delivering enhanced shareholder returns.
REVITALISED
TOBACCO BUSINESS
The tobacco value creation model remains resilient, with affordability and strong brand loyalty supporting sustainable pricing. By focusing on our top-five combustible markets that generate c.70% of operating profit, and through selective investment in brand equity and our sales force, we have stabilised market share, after years of sharp declines. This, combined with a more disciplined focus on our broader market portfolio, is driving improved combustible returns.
BUILDING A SUSTAINABLE NEXT GENERATION PRODUCT BUSINESS
Next generation products have growth potential as they are still a relatively nascent category in the majority of markets. We seek to build a sustainable NGP business through a consumer focus, a partnership approach to innovation and disciplined execution. As a challenger, our role is to offer consumers a choice where they have already expressed an NGP preference and where we can leverage our existing customer relationships.
SELF-HELP INITIATIVES DELIVERING OPERATIONAL IMPROVEMENT
We have identified multiple initiatives to deliver operational improvements that will enhance our decision-making and drive efficiencies. For example, we are adopting new ways of working with our enabling functions using a global business service model and implementing a new ERP system to replace our 60 legacy systems.
Aggregate priority market | NGP net revenue (£ million) | Annual cost savings from |
share vs prior year (%) | restructuring programme |
£150m | |||||||||||
23 | 23 | ||||||||||
10bps | £265m | ||||||||||
22 | 22 | ||||||||||
35bps | £208m | ||||||||||
21-2bps | 21 | ||||||||||
£188m | |||||||||||
COMBINED, THESE ARE GENERATING
A STRONG FINANCIAL OUTLOOK
Improving tobacco and NGP net revenue trajectory, with a compound annual growth rate of 1% to 2%.
Improving profitability through operational leverage, better geographic mix from continued stabilisation of priority market shares, reduced losses from our investment in NGP and restructuring cost savings driving a mid-single-digit compound annual growth rate for Group adjusted operating profit.
The business is highly cash generative with low capital intensity, a working capital focus and disciplined capital expenditure producing adjusted operating cash conversion of typically 90% to 100%.
Free cash flow generated in FY23
£2.4bn
6 Imperial Brands | Annual Report and Accounts 2023
ENHANCING OUR CAPITAL RETURNS
We have a clear capital allocation framework alongside our strategy:
1. INVEST IN STRATEGY
Since our strategy is largely organic and we work with innovation partners, our capital expenditure needs are relatively light. Any M&A is likely
to be small.
2. MAINTAIN LEVERAGE
We are committed to an investment grade credit rating and will maintain our leverage at the lower end of the range 2.0-2.5 times adjusted net debt/ EBITDA range.
3. PROGRESSIVE DIVIDEND GROWTH
We have committed to grow our dividend every year, taking into account the underlying business performance.
4. RETURN SURPLUS CAPITAL TO SHAREHOLDERS
Having reached our leverage target, we have committed to an ongoing share buyback programme, with £1.1 billion committed in FY24.
Capital returned to shareholders in FY23
£2.3bn
Further information on our strategy can be found on pages 16 to 29.
www.imperialbrandsplc.com 7
CHAIR'S STATEMENT
TRANSFORMING
FORSUCCESS
Dear Shareholders
The transformation of Imperial into a consumer-focused challenger business is now translating into a stronger and more consistent operational performance and enhanced shareholder returns. Despite a difficult macroeconomic and geopolitical environment, with inflationary headwinds, shifting consumer preferences and regulatory challenges, we continue to methodically deliver on our external commitments.
One of my highlights of the past year was attending our capital markets event in New York in June, where management showcased our new consumer capabilities in insights, innovation and marketing. What impressed me was both the best-in- class quality of the work by our new global centres of expertise and the deep collaboration with local markets. We are making progress in other transformation priorities:
improvements in data, simplification of processes, and the development of a performance-based culture.
All of this enabled the business to deliver an improved performance in both combustible and next generation products (NGP) during the 2023 fiscal year. Furthermore, we are providing shareholders with consistent, growing returns through a progressive dividend policy and an ongoing share buyback programme.
I would like to thank the 25,000 people who work at Imperial, as well as our many valued business partners, for their individual contributions to our growing collective success.
CONSUMER INSIGHTS ARE DRIVING OUR TRANSFORMATION
Everything we do starts with consumers - and their diverse voices can be heard on pages 4-5 and
throughout this report. Consumers tell us they value local brands with strong heritage and global brands with distinctive personalities - traditional areas of strength for Imperial, which we are now further developing. Many consumers also tell us they have yet to find a perfect potentially reduced-harm replacement for cigarettes. This means we are seeing a growing diversity of behaviour with consumers using different products for different moments in their day.
Therefore, we see a future for this industry where multiple nicotine categories and a diverse ecosystem of businesses will coexist and evolve. Innovation, and responsible competition and regulation, will be the motors which drive us to a healthier future. Thanks to our focused investments in transformation, Imperial is now well placed to make a positive contribution to this wider industry transition.
8 Imperial Brands | Annual Report and Accounts 2023
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Imperial Brands plc published this content on 08 December 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 11 December 2023 14:09:08 UTC.