Imperial Brands(US:IMBBY)2022-05-17 20:55Financial Data and Key Metrics Changes - The company reported a year-on-year improvement in leverage to 2.4x, with free cash flow of GBP 336 million in the first half of the year [19][30] - Earnings per share growth exceeded expectations, driven by increased operating profit and lower finance costs due to early debt repayment [19][27] - Net revenue grew by 0.3% at constant currency, with tobacco volumes declining only 0.7% [20][21] Business Line Data and Key Metrics Changes - The NGP portfolio saw net revenue up 8.7% at constant currency, reflecting strong performance across heated tobacco, moderate oral, and vapor categories [23] - Adjusted operating profit grew by 2.9% at constant currency, with the majority of profit growth coming from improved NGP performance [24] - The company achieved a 25 basis points improvement in aggregate market share for its top 5 markets, marking the third consecutive half-year period of stable or positive share numbers [11][12] Market Data and Key Metrics Changes - Market volumes are reverting to historical trends as COVID-19 restrictions are lifted, with declines in the U.S. market attributed to the removal of fiscal stimulus payments [20][31] - The U.S. market delivered strong underlying performance, with share gains achieved following KT&G's exit from the market [12][43] - In Germany, market size contraction was noted due to increased cross-border travel, impacting performance [20][44] Company Strategy and Development Direction - The company is focused on a 5-year strategy aimed at building a more sustainable business, with a two-year strengthening phase followed by a three-year acceleration phase [8][9] - The strategy emphasizes targeted investments in the top 5 combustible markets, which account for 70% of operating profit, and building a material NGP business [7][8] - The company aims to create a performance-based culture and has completed senior hires for its new group consumer office [5][6] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate inflationary pressures and consumer spending challenges, highlighting the resilience of the tobacco industry [68] - The company anticipates that price increases taken in the first half will support revenue growth in line with previous guidance of 0% to 1% [31] - Management acknowledged the challenges posed by the current economic environment but remains committed to delivering on its strategic plan [58] Other Important Information - The company has exited the Russian market and is focused on safeguarding its Ukrainian employees [10] - A restructuring program is underway to simplify the business and unlock efficiency savings, with expected annualized savings of around GBP 90 million by the end of fiscal year '22 [26][30] - The company is committed to becoming a net-zero company by 2040, with significant progress made in sourcing renewable electricity [40][41] Q&A Session All Questions and Answers Question: Progress in Germany's Market - Management confirmed that the strategic plan for Germany is on track, focusing on sales activation and rebuilding brand equity, particularly for the JPS brand [63][64] Question: Consumer Environment and Down-Trading Risks - Management reassured that the company is well-positioned to manage potential down-trading due to its diverse portfolio across price points [68] Question: Investment in NGP Strategy - Management indicated that NGP losses are expected to be around GBP 140 million for the year, with investments included in the overall guidance [70] Question: Sales Force Deployment in Germany - Management noted that the focus in Germany has been on redeploying the sales force to important channels, with satisfactory progress reported [75] Question: Operating Profit Growth Drivers - Management highlighted that the primary driver for future growth will be sustainable contributions from the core business, supported by ongoing investments in brands and sales force [79]