Imperial Brands 2030 Strategy: Driving Growth and Value Creation

Key points of focus:

Imperial Tobacco has released its 2030 strategy to drive growth in both traditional tobacco and new generation tobacco products (NGPs).

Focus on five major traditional tobacco markets, expand NGP business, and achieve net income growth.

Maintain the capital allocation framework, implement stock repurchases and a progressive dividend policy, and anticipate continued growth in financial indicators over the next five years.

On March 26th, Imperial Brands plc (referred to as "IMB") announced on its official website its 2030 strategy during Capital Markets Day. The strategy aims to achieve sustainable growth and long-term value creation over the next five years by strengthening its traditional tobacco business and expanding into Next Generation Products (NGP).

Focus on promoting traditional tobacco and new tobacco businesses.

The 2030 strategy of IBP will build on the successful foundation of its current five-year plan, focusing on five priority traditional tobacco markets (USA, Germany, UK, Spain, and Australia), which account for approximately 70% of IBP's adjusted tobacco operating profit. IBP will continue to advance in these markets to drive sustainable growth and cash flow.

In the field of Next Generation Products (NGP), IMB has established a rapidly growing and flexible business platform, encompassing credible brands and differentiated products in all three categories. IMB plans to expand its NGP business by further deepening consumer insights, leveraging differentiated brands, and developing sales capabilities.

Strengthening brand and organizational capabilities.

IBM will drive the achievement of its goals through the following three strategic elements:

Differentiated consumers and brand capability: Deepening insights into target groups, developing more differentiated and challenging brands, and innovating core needs. High-performance culture: Cultivating a culture of clear responsibilities, cross-regional collaboration, and long-term thinking, investing in leadership skills and improving business planning. Simplified, efficient, data-driven organization: Enhancing supply chain efficiency through global business services and excellence in manufacturing, utilizing data to support employee decision-making. Capital allocation framework and shareholder returns.

IBM will maintain its capital allocation framework, prioritizing organic growth in both traditional tobacco and NGP businesses, while keeping a strong and efficient balance sheet to support its investment grade credit rating. The company plans to return capital to shareholders through ongoing "evergreen" stock buyback programs, with the buyback amount determined by business performance. IBM will also continue its progressive dividend policy, providing reliable cash returns to shareholders.

Financial forecasts for the next five years.

IBM expects that its 2030 strategy will support the company in achieving the following mid-term growth targets (calculated at fixed exchange rates):

Tobacco and NGP Net Income: Net income from tobacco is expected to achieve low single-digit growth, while net income from NGPs is expected to achieve double-digit growth. Adjusted operating profit for the Group is expected to grow by around 3-5% annually. Adjusted Earnings Per Share (EPS) is expected to grow at a high single-digit rate, benefiting from ongoing stock buyback programs. Free cash flow is expected to generate £2.2 billion to £3 billion annually by the 2025 fiscal year.

British American Tobacco (BAT) has expressed confidence in achieving its full-year expectations for the 2025 fiscal year. The net revenue for tobacco and Next Generation Products (NGP) is expected to see low single-digit growth, with adjusted operating profit for the group nearing moderate single-digit growth, similar to last year. The NGP business is anticipated to achieve double-digit growth in net revenue for the full year. Adjusted earnings per share are expected to see high single-digit growth, despite increased financial and tax costs, with the share buyback program providing support. Adjusted operating profit for the group in the first half of the year is forecasted to grow by 1-2%, with adjusted earnings per share expected to grow in the moderate single-digit range. The tobacco business in the first half of the year will rely mainly on strong pricing power, maintaining overall market share in the five key markets, while NGP business is expected to see a net revenue growth of 10-15%. Performance in the second half of the year will be stronger due to tobacco pricing and investment phases. Exchange rate fluctuations are expected to have a negative impact of 2-3% on net revenue and adjusted operating profit in the first half of the year, and 1-2% for the full year.

IMB CEO Stefan Bomhard stated,

Our 2030 strategy outlines the choices we will make to strengthen our fuels and Next Generation Products (NGP) business, creating sustainable growth and long-term value for our shareholders. This strategy is built upon a solid foundation of our current plans, which have improved our business and delivered stronger, more consistent operational and financial performance, as well as outstanding returns for shareholders. This enhances my confidence that in the next five years, we will unlock more opportunities to create value.

We will maintain our unique challenger approach, which involves deeply understanding our consumers, enabling our employees to work flexibly, and focusing on our biggest growth opportunities. We will continue to enhance our capabilities, create differentiated brands, high-performance culture, and data-driven more efficient organization. This will support growth in combustibles, and we will continue to focus on the top five markets which account for approximately 70% of adjusted operating profit, as well as NGP. We will uphold our rigorous investment and market access standards.

“We maintain a strict capital allocation framework that supports investments in growth and delivers significant, growing returns to shareholders. We are committed to a progressive dividend per share and have announced today a 'evergreen' stock buyback program for the next five years. We believe that this combination of sustainable growth and capital returns provides shareholders with a compelling investment thesis.”