Good morning, everyone. Thank you for being here. I'm Gaurav Jayan, Barclays Head of Global Tobacco. I'm thrilled to have the management of Imperial Brands here with me, Stefan Bombardt, CEO of Imperial Lucas Paravacini, CFO of Imperial and we also have Murray McGovern here. So as you might know, Stephane will retire from Imperial at the end of this month, and Lucas will become the CEO from October 1, and Murray will be the CFO of Imperial from the October 1.
So first of congratulations. Stefan, congratulations, Lucas, your role. Congratulations, Murray. Stefan, like before I ask all the questions, you have had a very interesting journey with Imperial over the last five years. You started in July 2020 when the stock was at £12 more or less, 4x PE.
You're leaving a stock which has done exceptionally well since you joined. And the multiple has also moved up, but it's still not like at eye watering levels. So what if you think like and you had an Analyst Day in March, you laid out the plans for the next five years, but what the things which you think are still left, which need to be done? And Lucas, please feel free to jump in here as what do you think could be the things which you would like to do over the next five years?
Sure. I mean, Gurup, as you said, I think, look, I'm very pleased what we've achieved as a team in the last five years with deep involvement with Lucas and with Murray as well. But I think we as a team are pleased that this has been reflected in the share price as a signal of appreciation of shareholders. At the same time, I think there is a great continued opportunity. And I think that is reflected in the next five year program that we shared at the Capital Markets Day in March.
And I think what is exciting, I think we've come a long way in the last five years, but there's still quite some way to go in the years to come. And one of them is clearly self help opportunities that we clearly see inside the company. As we as a management team that joined in the last five years. The deeper we understand the business, the more opportunity we have to see. The reality also is, I think on the NGP side or on the reduced harm product side, as you will recall, that has been a complete reset of our strategy.
And I think five years ago, there were quite some people when we revealed our strategy for the five years, quite some doubts whether we could compete there. And five years later now, I think there is a broad recognition that Empira can clearly play in this space. And as you will know at the half year, we reported that we're growing market share in all three categories. But there's still quite some way to go from a low base. So I think as I pass the baton over to Lucas at the end of this month and Lucas de Murray, I think the great news, the business has a much stronger foundation versus where it was in 2020.
But I think there's still a lot more potential in this business. And as I switch my position over from the CEO over to becoming a shareholder, I'm looking forward for the team to continue to drive this business to its full potential.
And I think as building on the track record that Stefan has just mentioned and highlighted, I think the team is very excited, not just with the value creation we have done in the past, but because we believe there's an equal opportunity to value creation for the future for our shareholders. So that's really the focus for us going forward. And in that sense, there's probably a combination of evolution and acceleration. Evolution in the sense that we will continue to focus on the consumer. I think that was the guiding principle, which is fundamental to drive and pure more as a fast moving consumer is good, a company that is starting and understanding better than nobody else, our consumers.
On that, we can then deliver against our combustible business, which is our core business and where we can extract further value for the benefit of our shareholders. That's one of the big pillars that we'll continue to drive and we hope we'll continue to share value for create value for shareholders. It is our outspoken desire and commitment to continue to build our NGP business to a meaningful business by growing double digit over the next five years. That is the other pillar that on top of a well humming combustibles business will hopefully deliver more value for shareholders. And that all culminates in our ongoing commitment to our capital allocation policy, which has worked really well because it allows us to invest in our business, in our future.
We're here for the long term. It helped us to trade a very strong balance sheet, which we intend to maintain. But it foremost allows us to return excess capital to shareholders. And we have committed, again, for the next five years to a share buyback in terms of the program, and we'll come back on the quantum every year. So to your point, that's the evolutionary part.
I think the acceleration will be more about how we accelerate the self help Stephan mentioned. There is an opportunity for us to exploit much more shared services to focus more our organization, what matters, that's the consumer and the capabilities we need to win with the consumer, but everything else, hopefully, we can use more shared services and for us, very important, the adoption of technology, machine learning, artificial intelligence. So you will see there more of an acceleration in transforming our organization, not just to be able to deliver value in the next five years, but beyond that as well.
So Lucas, a question for you because you mentioned NGP would want to grow it to double digit. Now one, sort of if I compare Imperial to your peers, then Imperial clearly has a lower share of NGPs right now. So how do you plan to do that? Like do you plan to do more M and A? Or is it going to be more organic growth that you think you will like to do there?
Good question. Clearly, the evolutionary part here is that our strategy is an organic, predominantly organic strategy, as we have always said. But we also said that we will also want to do some bolt on acquisitions. When it comes to NGP, that's probably the area where we would see those bolt on M and As to come through. Now our NGP so our next generation products or reduced harm product, that strategy is based on us actually going in the markets where the market has been established.
We are the fourth largest, and we're happy to be the fourth largest. It gives us a bit more freedom to act. But when there is a market established and when we have a route to market, we will go into those markets and deliver with our innovative products a value for a certain number of consumers that will actually accelerate the growth in that area. That's our strategy. But we'll continue to your point to complement that strategy with bolt on M and A.
That's probably the area where you see that, but it's always going to be a bolt on attitude and strategy.
Okay. And to build on Lucas' point, I think growth, the reality is the ambition that we outlined at the Capital Markets Markets Day to grow double digit in net revenue in new gross products tells you it is an ambition. But the reality is if you look back at the last two years, we have delivered that. We have grown double digit. We have gained market share actually in the last year across all three categories.
So shareholders I think can take comfort. What was outlined in the Capital Markets Day isn't an ambition that the company has no track record in. And I think the key drivers as you asked Lucas about, yes, M and A, board on M and A is important, but we shouldn't forget the key investment we've made. We've built in the last five years, what we call the global consumer organization, have made very significant investments in marketing, very significant investments in our market insights teams that allow us to really understand what consumers want and need in this field of reduced harm products.
Sure. So now let's focus on the existing business, and you have always spoken of your five key markets. So let's start with The U. S, which is your largest market, onethree of the company. And about 80 of your business is cigarettes, about 20% is cigars.
We have seen a lot of changes happening in The U. S. Cigarette market over time. Volumes have been weak. You have gained share for a long time.
But recently, it seems that your share gains have slowed down in The U. S. As your peers are becoming more aggressive in the deep discount space, including the larger companies, Altria and BAT, who haven't really gone down the price ladder, so as much as they have gone down recently. So can you just help us understand what is happening and how you're planning to react to what those companies are doing?
Absolutely.
I think you rightly referred to we always look at our top five markets, which make more than 70% of our operating profit. And The U. S. Is the largest of this one with roughly a bit more like a third of our business. And I think what is exciting the last four years, we have delivered a holding share in these top five markets, while before the current strategy we were the number one shared owner in these five markets.
And you're absolutely right. If you look at the last four years, our U. S. Business has gained market share. Now to be clear, we the ambition in the next five years is exactly the same, to hold our market share in our top five markets.
And we've always been very transparent in saying we don't think we'll ever gain market share in all five. So we still believe that The U. S. Will be a meaningful contributor to our success. But we as a leadership team and look at America going forward, we'll continuously look at where is the right mix to deliver this overall flatness of the market share.
And you're absolutely right, it's become a more competitive field in The U. S. But to be fair, this is a highly competitive industry. And I think what doesn't go away, Imperial has had for a long period of time, a brand portfolio that offer U. S.
Consumers different brands at different price points in The U. S. Market. That has been a competitive advantage as U. S.
Consumers, as incomes have come under pressure that Imperial has well established brands at every single price point.
Okay. And recently, has been a lot of talk around the double drawback, which is benefiting some of your peers. Can you talk about where you are? And maybe for our audience, can you also just briefly help our audience understand what exactly is it? How does it work? And where do you stand on that?
So the what we refer to the duty drawback is a federal U. S. Federal incentive export. It basically requires companies to export a certain amount and then import it again. It cannot be the same product, so you have to have a factory somewhere in the abroad who can produce products and you can then import it.
It also requires it to be brand based. So you have to have a complete brand. You have to export and then import. You can't just do piecemeal. That incentive has been there.
It was quite disputed. It was clarified in the latest Big and Beautiful Bill that the administration brought through Congress a couple of weeks ago or a few weeks ago. And I think with that clarity, we will be looking into this incentive and see whether we can take opportunity. It takes a few months. It's quite complex because you have to, obviously, in our case, certify external factors or factors abroad through the FDA.
Currently, we do not use that incentive. But given the clarity of the law today, we will be looking into this going forward.
Thank you. And then there is this other dynamic which is happening, which is that your largest or the largest company in The U. S, they have decided to launch their nicotine pouch product, which still doesn't have a PMTA. Now you are playing in the nicotine pouch market, and you have a 2.7% share, which has been now stable for the last few months. So do you see that as a route through which you would also want to go launch maybe another product and gain market share?
Sure. I think what is important here is we're very happy with the offer we have to U. S. Consumers in the modern RNA teen space with our SOM brand, which we launched in February 2024 and in eighteen months has actually achieved already a 3% share from zero to three. And as you refer to one competitor publicly announcing launching a more moist product versus the base brand.
We have that product today in the marketplace. So we have found an avenue and Lucas touched upon our bold on M and A strategy. This is a primary example where we have been able to bring to U. S. Consumers a product that we know has a very significant consumer appeal.
But we have been able to do this in the way with respecting the process. So we see less of a need to go outside the process, given we have an offer that absolutely respects the process, yes. And assume that we will continue to be innovative in this space going forward.
Sure. Now coming to the cigar business, which is about 20% of your business, COVID created some unusual dynamics. Before COVID, that business used to grow on a very steady basis. During COVID, that business was, I think, growing 20%, 30 at one time just because everybody was at home and receiving government checks and then spending on combustible product. And then for two years, there was a decline.
So where do you see the cigar businesses now? And do you think it can again be sort of a secular mid single digit, high single digit kind of growth business for you?
Yes. I mean, obviously, we so the mass market cigar is a small business for us in The U. S, but a highly attractive and profitable business where we actually own the most iconic brand called Backwoods, which is very much linked to grassroots music, Afro American grassroots music. So highly sought after, commands a big price premium, so a very good brand, which we're very proud of and runs really well. It is an important business, we invest a lot of time to make sure we curate that business and we make sure that it grows.
To your point on the volumes, I think there was indeed a volume spike through COVID because obviously, it is also used recreationally a lot this product. It has naturally come down. But to be fair, it is now at the level of reduction in volume, which is consistent with the long term trend. So it's not that it is has accelerated like in combustible. It's actually the reduction is way less than it is in combustible.
So overall, a positive outlook in a business where we have the lead and a very strong brand.
Sure. So now let's so that's The U. S. Business. We have spoken of the various elements there, cigarettes, cigars, nicotine pouches.
Let's now move internationally. So U. S. Was onethree Germany is about 17% of EBIT, your second largest market, but you were losing market share forever till the last few months. And now market share is stable.
The market itself is very attractive. So how do you see yourself now in Germany going forward? Like do we think these market share trends can stay like this, accelerate? Or would you look to take pricing to monetize some of these German market share gains?
Sure. Absolutely. Go ahead. I mean, it's exciting to sit here because in the past which is sitting here talking about our more than ten years market share losses. As a German national, I always said, we can fix Germany and it's the same must win battles, but it was a promise.
The great news is the first time we together here we say and we fixed Germany's market share. We're not the number one share donor in Germany any longer. In the last fiscal year, we stabilized market share. At the half year for this fiscal year, we reported market share gains. And it's pretty fair to assume we will report for the full year market share gains in Germany.
It logically triggers the question you ask is, can we please continue to build market share? You will know we are a very prudent company. And I think what doesn't change at all is a principle where we've always said, we look at the combination of our top five markets together and the ambition that our shareholders can count upon is that we will hold share in these top five markets. So I wouldn't sit here and say, oh, I can promise in fiscal year twenty twenty six, there will be continued market share gains. I think what is fair to say, our investments in the quantity of our sales force in Germany, our investment in the quality and capabilities of our sales force from training and technology support, there's that, yeah.
And at the same time, the investments in the brand equities of our German brands are there, yeah. But at the same time, Germany is not just an attractive market for Imperial, but it's an important market for our competitors. But I think what's fair to say, I don't think under the leadership of Lucas Murray and the executive leadership team, we will return to the share losses that we would have seen in Germany in over the last ten years. So we feel very good about the German market, but it is a very attractive market for our competitors as well.
Sure. Now coming to your third key market, which is The U. K, which is it used to be a much bigger portion of your profit pool. Now it is high single digit. The market has been declining volumes mid teens probably for the last few years after the COVID boost that had happened.
Excise taxes have gone up. The fiscal situation is pretty bad. We can see all read the news lines in U. K. Every day right now.
There is a budget coming next month where we'll probably all see whoever is living in U. K. Another tax hike, and cigarettes are always an easy sector to tax. So why shouldn't we expect that something could happen on the tobacco side of things, which could prolong the pain which we have had in The U. K?
Listen, I think when you run a multinational, when you have a portfolio of markets, you will have markets who do better and markets who have different environments. The one good thing is in our top five markets, they are highly profitable. They all have done well. And it actually talks to the effort and the strength of the management team that we actually could still extract value out of The UK And then Australia in a very difficult environment, also regulatory point of view, we maintain market share.
It is U. S, Germany, Spain, our biggest markets are way more affordable. They are driving and thriving, But doesn't mean that we will drop U. K. And Australia because they are profitable.
And we they are consumers who want our products, and we can extract further value for our shareholders from that. U. K. Specifically is very attractive in the sense of that it is obviously possible to do NGP business, which is different in Australia again. And we have just crossed 10% market share in our NGP, in our vapor business in The UK for the first time at half year.
So there is an avenue that we can work through. It's not an easy avenue, I'll be honest with you, and it takes a lot of effort. And the government does not often help when it increases excise tax. What happens in the future? I can't tell you, especially not when it comes to budgets in government, but we are prepared for whatever comes.
To be clear, I think the UK government does understand what the laffity curve is, that actually by increasing further the excise tax beyond the inflation, they would reduce their income. And I think that stays well understood. So we'll see what happens, and then we'll work with whatever comes.
And just sticking with The U. K, so you highlighted it's a NGP market. But I've been surprised that you haven't yet launched your nicotine pouch product in U. K. And what I have heard is that since the disposable e cigarette ban happened a couple of months ago, the nicotine pouch market has really accelerated in The U.
So can you just help us understand your why you haven't launched your product
I in The U.
Think this we Stephan and myself are really sort of the expression of an ant company, okay? So we want to grow, but we also want to be disciplined with shareholder money. So we have a very clear strategy. They want to build a meaningful NGP business.
And our strategy is we go in the market where there is a market existing and then we put our money behind that because we now also understand the consumer, we have good products. And we will continue to look at markets where a category comes to the size where it makes sense for us. And so O and D is a good example where we have a big business in The Nordics doing extremely well. We have exciting opportunity in The U. S.
And we have lots of our internal market managers who would like to launch O and D, because everybody talks about O and D. But when you go to The UK and you go beyond London and you looked at the facts, O and D is very small. And so the question then becomes not if, but when we launch that and when it makes sense for a fourth largest to invest money of shareholders to create return on that. So we understand the excitement, we understand the opportunity, but it is also our strategy to be really measured to find the right time to launch in those categories when the market is there. But we will be watching that very closely.
Sure. And now coming again to the disposable e cigarette ban, which happened in The U. K. And it's spoken of in a few other countries in EU. So your NGPs, it's about 75% is e cigarettes, 25% is nicotine pouches.
UNIDENTIFIED So how is that impacting your Sure. U. K. E cigarette And I think you're absolutely right, Gareth, is that what would have happened the last twelve months since we sat here with you the last time was that certain European markets, primarily UK and France implemented a ban on disposals. However, as this was well flagged, we worked very hard with our R and D centers and our partners to actually allow our consumers and potential consumers to give them an offer that would be a pot based rechargeable system. The point that Lucas mentioned before, what we're very excited about in the last twelve months, we've more than doubled our market share in the vaping segment that is by far the largest NGP category in The UK. And with today our business is completely based on a pod based offer with consumers. So we're happy, we have not only been able to take our own consumers that we had before the change into our new offer, but also being able to attract competitive users into what we have to offer.
And we have seen a very similar picture in our French operation. So I think what I would take away is regulation will continue to change. But I think we've built now the capability to really understand how do we take our consumers with us, because the consumer need for a reduced harm product Sure.
Now coming just to Australia, it is a it has been a challenging market. One of your peers this year did guide down on Australia. Now Australia used to be much bigger for you at one time, and it is much smaller. It's, I think, about 4% of your EBIT. At one time, it was high single digit.
So is it still the right top five priority market for you? Or is there something in North Africa, Middle East? I'm sure some of those countries are also now the same size as Australia, which should be now a top five market. I mean, listen,
it is a fact that Australia is the fifth largest market in profit. And so that's a fact we have there. And so these we don't just stop at the end of those five markets. There is a whole range of markets which are hugely interesting and are growing. If you look at our Africa portfolio, you have a number of markets, which are growing rapidly.
And no doubt, at some stage, some of those markets will and might take over Australia. But right now, Australia is profitable. And I think we have shown that we could actually manage Australia within that very difficult environment and extract value. And so I think it's I don't think it's our role just to say, well, it gets tough in Australia, let's put another market up and so it's easier for us to show. I think you want to see also how we manage markets, which might be a bit more difficult and we could still extract value.
By the way, Australia is managed as a region. We have New Zealand there, which is equally adamant in reducing tobacco, but where we have grown significantly in the NGP business again. So it is also good for Australian market to test how we can launch NGP, hoping that in Australia, at some stage, the politicians will understand that harm reduction actually is helpful. But right now, it is the fifth largest market, and we'll continue there.
Okay. Now coming to your financial framework, which is a key part of Imperial Brands. You laid out targets till 02/1930, mid single digit EBIT growth, continued share repurchases. I think you put out a free cash flow number as well, almost £3,000,000,000 in 02/1930. So all of that will equate to almost a high single digit, low double digit EPS growth depending on what's the share price and at which you repurchase shares.
And then you also have a cost efficiency program. So is this cost efficiency program on top of this mid single digit growth on EBIT? Or you will reinvest all those cost savings into the business? How should we think about it?
Yes. I think I probably need to clarify this is not Christmas in September. I think to be fair, we put out a program there, which is really driving the high single digit EPS. We're really focusing on delivering that value, which is a combination on us delivering an ongoing EBIT growth between 3% to 5%, but then incrementing it significantly with our share buyback commitment that will drive that high single digit EPS. You're right.
We also, in parallel, communicated that we want to continue to invest in our company to make sure that we are at the forefront of efficiency and effectiveness, as I mentioned in my opening remarks. That will deliver €320,000,000 annualized savings towards the end of those 2030 period. Hopefully, also will create more effectiveness of the organization. But that money that saving is embedded in the guidance we have given because we will use it to increase our NGP business, to strengthen our capability around brands and consumer insights and to return excess capital to our shareholders.
Sure. And on your leverage framework, you have said you want to be at 2x. And every year, EBITDA grows, your leverage will keep coming down because ultimately, your total cash returns, they're not exceeding your free cash flow generation. So is there an opportunity to enhance shareholder returns beyond the free cash flow generation of the business?
So our commitment was always that we would return excess capital, not necessarily free cash flow. And I think you've seen this also this year, where we have taken the advantage to normalize our dividend payment throughout the year, which actually meant that this year, we're already returning more than the free cash flow. Again, we have committed to an evergreen share buyback for the next five years. And we'll come back at the end of every year with a quantum, because we will look at what is the headwinds, FX, some headroom we need, etcetera. But the underlying notion is return of excess capital, not necessarily free cash flow alone.
Okay. There has been a topic which has often been discussed, which is that U. K. Stocks trade at a significant discount to U. S.
Stocks. Imperial is clearly a U. K. Company. The stock is listed in U.
K. But and there was a time when nobody wanted to buy tobacco stock, so there was no point in thinking about moving listed from U. K. To U. S.
But given the interest which is there now in U. S. Tobacco stocks and the continued lack of interest in U. K. Equities given all the fiscal issues, is there a point of discussion where you might think about moving your listing from U. K. To U. S?
Okay. Would clarify, I think it's simple. I mean ultimately we're here in The U. S. Conference.
What we have seen in the last five years, a lot of interest from U. S. Investors in Imperial stock. We have seen a significant increase in this one. So we do believe irrespective where your listing is, investors are smart to find the right companies that offers them a growth opportunity and clearly Imperial has offered that growth opportunity.
So look, it's that wouldn't be the plan to change the listing of the company at the same time as a responsible management team is always going to be one of the subjects that you look at. Same time, we shouldn't forget there are some very specific legal requirements. And we shouldn't forget that unlike some of our competitors, our U. S. Market is an important part of the business, but it is about a third of our business.
The majority of this company's total sales still reside in Europe and the rest of the world.
Stefan, if I may, I think one thing we have seen also is that our ADR program has gone very well. And for those U. S. Investors who have some restrictions or preferences, it is a very good program, and it has grown significantly. So that's another complementary mitigating factor that we put in place.
Sure. Now just coming back to your nicotine pouch business, it's about GBP 100,000,000. And the reason I'm coming back again and again is that it is clearly a business where your peers are seeing a lot of excitement. What are the markets you could be looking to launch in the next year? Or is there a target that you have, let's say, right now in 10 countries, you want to be in 20 countries by next year or something like that?
Sure. UNIDENTIFIED Gurup, I think, let me take the opportunity because it's kind of a reflection on five years here. I think hopefully what has become clear to shareholder last five years is we start with the consumer. And
I do remember presenting Capital Markets Day with Murray five years ago and five years ago the moment that the flavor of the moment was it's all about heated tobacco. Today we experience where it's a very strong feeling it's all about modern oral nicotine. I think hopefully what you have a sense that we as Imperial, we start with the consumer. And it's exciting to see that consumers are very interested in modern oral nicotine. But Lucas talked about it, we are a very disciplined company.
We start with the consumer, we look at what is the market size And if there is a critical mass for modern oral nicotine in a specific country, what you hopefully can see and what investors can see, Imperial has a very competitive offer having reset its entire NGP product portfolio in the last five years. So I know it's a long one, but the principles are very simple. If a market achieves a certain size of modern oral nicotine, Imperial will have the right offer. That is I think the exciting piece. We have offers in all three categories.
And we'll see where in five years' time the excitement will lie, but I think the offer is there enough from Imperial to compete and our growth from 0% to 3% market share in The U. S. Behind Zone is a good example of what we can achieve.
Sure. Well, with that, I'm out of questions. We have a breakout in the next room. Thank you so much, Stephane. Thank you so much, Lucas, and congratulations on a very deserved retirement.
And I think shareholders have had a great run with you. And Lucas, I'm hoping we have the same great run with you as well
Thank so Thank Arun. Thank you.