Imperial Brands(IMBBY) - 2020 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a 1.8% increase in Tobacco net revenue, driven by a strong second half performance in the U.S. and a return to growth in the AAA division [45] - Adjusted operating profit decreased by 4.8% at constant currency, with Tobacco profits down £118 million [61] - Earnings per share (EPS) declined by 5.6%, reflecting a higher tax rate [45][46] Business Line Data and Key Metrics Changes - Tobacco volumes declined by 2.1%, with a 3.5% decrease in Europe and a 3.3% decline in the Americas [36][47] - NGP (Next Generation Products) revenue fell by 27%, primarily due to destocking and reduced investment levels [45][55] - The AAA division saw a 5% increase in net revenue, supported by strong performance in the Middle East and Africa [59] Market Data and Key Metrics Changes - The company gained 50 basis points in total market share, with growth in seven of its ten priority markets, although it continued to lose share in the UK and Germany [45][51] - The U.S. market saw a cigarette share increase for the second consecutive year, driven by successful product offerings [53] - The overall market size decreased by 4.3%, with stronger performance in Northern Europe and the U.S. offset by declines in Australia and Spain [54] Company Strategy and Development Direction - The company is undergoing a strategic review to address performance issues and improve accountability, focusing on core markets and enhancing management oversight [14][72] - There is an emphasis on consumer insights and adapting to changing consumer preferences, particularly in the NGP segment [25][32] - The company aims to strengthen its organizational capabilities and improve capital allocation to support strategic objectives [33] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the resilience of tobacco demand despite challenges posed by COVID-19, with expectations for a cautious recovery in 2021 [35][70] - The company is taking a disciplined approach to managing NGP investments, with a focus on improving execution and product differentiation [26][27] - Future performance is expected to be impacted by ongoing COVID-19 restrictions and regulatory costs, with a cautious outlook for the duty-free business [70][71] Other Important Information - The company completed the sale of its Premium Cigar business for €1.2 billion, which will be used to support deleveraging efforts [37] - An ESG Steering Committee has been established to enhance the company's focus on environmental, social, and governance issues [41][42] Q&A Session Summary Question: Trends on blu in the U.S. and market share improvement - Management noted a flattening of market share for blu and indicated that future NGP strategy details will be shared at the Capital Markets Day [77] Question: Potential divestiture of non-core assets - Management confirmed that a rigorous review of business units is underway, but specific divestiture plans will be discussed post-strategic review [79] Question: Margin reset concerns and EPS guidance - Management reassured that there will not be a major margin reset and that current guidance is expected to be retained [83] Question: Focus on top five markets - Management emphasized the importance of focusing on the top five markets that significantly impact business performance [85] Question: Impact of excise tax cycles in Australia and France - Management indicated that while excise tax cycles may be stabilizing, Australia is expected to face headwinds due to previous duty windfalls [88] Question: Changes in profitability concentration among main markets - Management acknowledged that profitability has increasingly concentrated in the top five markets, which are critical for overall performance [92][94] Question: Agility in decision-making and organizational structure - Management highlighted that becoming more agile involves cultural changes and improved focus on core markets rather than structural IT investments [96] Question: Trends in fine cut tobacco - Management observed that fine cut tobacco has seen growth in certain markets, primarily due to shifts from illicit trade rather than consumer down-trading [98]