Imperial Brands : Presentation and Q&A transcript

Imperial Brands

CAGNY Script - 22 February 2023

Tim Gamache (CAGNY)

Slide - A Challenger Mindset

Good afternoon. Next up we have Imperial Brands represented

by Chief Executive Officer Stefan Bomhard, Chief Financial Officer, Lukas Paravicini

• I think I got that right -- and Director of Investor Relations, Peter Durman. Though Stefan and Lukas are not new to Imperial, or investors anymore, they are both new to the CAGNY stage, having arrived at Imperial with their broad CPG experience within the past three years. Welcome to you both.

Their impact over that short time has been meaningful. Two years into a five-year strategy, Imperial has turned around market share performance in its key tobacco markets and its next generation products business is back to growth.

These efforts have been rewarded by shareholders. Imperial was the 10th best performing stock in the FTSE 100 last year, but still trades in attractive valuation. With that, Stefan, I will turn it over to you to hear more about your efforts.

Stefan Bomhard

Slide - Disclaimer

Thank you Tim, for your introduction and good afternoon, everyone…

It's a real pleasure to present Imperial Brands to you today.

Slide - CAGNY 2021: Outlined a New Five-Year Strategy

The last time I presented at CAGNY was in 2021. At that point our new five-year strategy was just three weeks old.

The team had done a lot of work with detailed bottom-up plans to strengthen our performance in tobacco and next generation products.

But, we still had to prove this strategy would translate from a conceptual plan into real world success!

Well, I'm pleased to report today that the strategy is working.

We've turned around our core combustible business.

We've successfully rebooted our next generation products.

And we've delivered a step-up in returns to shareholders.

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But what is most exciting for me is that we've still barely scratched the surface of what our business can achieve.

As you'll hear today, across every link in the value chain, we have plenty of self-help opportunities that will drive further value creation.

While I'm really proud of our achievements over the past two years, in an important sense, the journey has just begun.

I'll provide some more colour on the business, what makes us distinctive, how we are delivering and where we are going next.

Lukas Paravicini, our CFO, will explain in more detail how we are creating shareholder value.

Slide - Imperial Brands is a Global Consumer Business

So, let's start by zooming right out and giving you a broad overview of the business.

A key fact is that we are the smallest of the four global tobacco companies.

And, while, of course, we admire our larger rivals, we are really comfortable in our own skin.

Everything we do is tailored towards maximising the advantages of our footprint.

We operate in 120 markets, and we love our people and our consumers everywhere.

But, from a value creation perspective, we focus tightly on the five markets which account for 70 percent of our profit… but more about that in a moment.

Slide - A Range of Tobacco and Nicotine Offerings

A second fact you should know is that we are passionate about brands.

Tobacco and nicotine products do, of course, operate under tight regulatory restrictions.

And we never shy away from the simple truth that smoking causes serious harm to people's health.

That said, consumers tell us that they value our products for the moments of relaxation and pleasure they provide - and they form very close relationships with our brands.

We have a stable of iconic international brands, such as JPS, Gauloises, Davidoff and West.

But what's distinctive about Imperial is the strength of our local jewel brands, such as Fortuna in Spain, Embassy in the UK and Fine in West Africa.

And, as we will discuss later, we are taking a differentiated approach to developing our portfolio of next generation products - with a step up in the pace of our innovation.

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Slide - Strategy overview

So let me first remind you of our strategy…

Slide - Our New Strategy, Purpose and Vision

I showed this strategy wheel to you for the first time two years ago. And it has appeared in every single investor presentation since.

And the wheel is still rolling!

Today I'll highlight our progress and prospects, not only in our strategic priorities to build our combustible and NGP positions, but also in our critical enablers - the crucial foundations of our success.

You'll see we have clear plans to become more consumer-centric, to drive positive culture change, and to upgrade our structures and data capabilities.

Alongside our strategy, we developed a new 'purpose'.

Of course, we're not the only tobacco company to be working towards a "healthier future".

We're committed to playing our role in the long-term,industry-wide transformation that is creating an ever stronger choice of potentially reduced harm options for the world's 1 billion smokers.

Accompanying our purpose is our new vision - and at the heart of this is our ambition to be the strong challenger in our industry.

Slide - Differentiated Approach Plays to Our Strengths

Throughout my career, some of my most engaging and interesting roles have been in businesses, which have been distant number twos, or threes in their sectors, such as Burger King and Bacardi.

It's easy to make bold declarations about being an "agile challenger".

But they need to be backed up by the plans, capabilities, and data that empower people to act with agility and seize opportunities others miss.

And this is exactly what we've been doing at Imperial - giving our people the tools to become true challengers.

Being a challenger is about focus. We focus on the markets where we have a right to win.

Being a challenger is about choice. Our role is to provide a differentiated offering and strong competition when others have built a category. This plays to our heritage as the industry challenger.

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Being a challenger is about being very close to our customers… and our retail partners want a strong smaller player to provide competitive tension.

And being a challenger is about having reliable, actionable data. This is why we're investing to enhance our consumer data and insights and in a new ERP system.

Slide - On Track with Our Five-Year Transformation

This timeline conveys only a tiny fraction of the transformation activity over the past two years.

The bottom line shows the critical enablers… such as a strengthened leadership team, a refreshed approach to ESG, and enhanced consumer capabilities under the leadership of our Global Consumer Office.

Along the top line you can see how these foundations are driving tangible outcomes: the stabilisation of the core tobacco business, a stronger NGP performance, and greater clarity on the role of our broader market portfolio.

While delivering our long-term strategy, our teams have also responded nimbly to unexpected events, such as our exit from Russia in April last year. And today, we are still the only global tobacco player to have exited the market.

Slide - Building our Capabilities

So, a critical part of our strategic transformation is how we are changing our culture and building stronger capabilities.

Slide - Strengthened Leadership Team

Given the transformation our sector is undergoing, I believe we can really benefit from having a diverse leadership team that brings fresh perspectives and capabilities.

With this in mind, we've strengthened our leadership team so that we now have the broadest FMCG experience of any global tobacco company.

We're successfully blending deep tobacco knowledge with best practice from the wider consumer goods sector.

Another important shift is how we're attracting top international talent.

No fewer than eight different nationalities - and four different continents - are now represented on our 10-strong executive leadership team.

Slide - Putting the Consumer at the Centre

One of the most profound shifts in our culture and capabilities is how we are placing the consumer at the centre of the business.

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An early action under the new strategy was to establish a Global Consumer Office and appoint a Chief Consumer Officer, Andy Dasgupta.

Andy's role has been to introduce the global FMCG best practices into our business - and embed them in our markets.

Only last month, I joined Andy in London for Imperial's first ever global consumer conference.

What struck me was both the great work being done by our new global centres of expertise and the way they were already adding clear value for our people on the front line.

We saw how our new revenue growth management team was helping Australia, one of our priority markets, more effectively price its portfolio, driving share and profit.

We saw how our new insights programme looking at demand spaces - the individual moments when consumers enjoy our products - was informing brand building in the US.

Our approach to innovation has changed as well with a new partnership model - embracing the talents and capabilities of trusted experts in key areas such as device technology and flavours.

We've also established an innovation hub in Shenzen where we can truly collaborate.

Another key change is how our new consumer insights are being fully integrated into the innovation process with our partners.

This model suits our smaller size and is enabling us to be faster and more agile, as you'll hear later.

It's exciting to see this investment starting to bear fruit. But we are only at the start of the harvest!

Slide - Building a Performance-Based Culture

We're also building a performance-based culture…

I know this isn't unique and there are, no doubt, many companies here at CAGNY all talking about culture and behaviours.

What I think is a little unusual about Imperial is:

• First, the scale of the opportunity to create a stronger business through culture change, and
• Second, the rigour with which we have been approaching this process.

Imperial grew rapidly through acquisition over the past 25 years. This meant we lacked a single common culture, which led to blurred lines of accountability and a lack of collaboration.

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