IMPERIAL BRANDS PLC

Legal Entity Identifier (LEI) No. 549300DFVPOB67JL3A42

13 April 2023

Pre-close trading update: Imperial Brands on track to meet full-year guidance

·      Robust tobacco pricing and stable aggregate market share across top-five combustible markets - against a strong comparator

·      Product launches across vapour, heated tobacco and modern oral drive NGP net revenue growth

·      First-half adjusted Group operating profit similar to H1 2022 on constant currency basis, reflecting impact of COVID-19 unwind on volumes, higher NGP investment, and last year's Russia exit

·      On track to meet full-year expectations and our guidance of growing revenue and operating profit

·      Completed £523m of the FY23 £1bn share buyback, as part of ongoing programme of capital returns

We continue to make good progress implementing our five-year strategy to transform the business. We are on track to deliver full-year results in line with expectations and our guidance of low single-digit constant currency net revenue growth. Over the next three years, we continue to expect operating profit growth to accelerate to a mid-single digit CAGR at constant currency.

Focused investment in our priority combustible markets continues to support the stabilisation of market share.  We are consolidating the strong gains achieved last year with aggregate share in our top-five markets at the half year expected to be at a similar level to the prior period. The US, Spain and Australia are expected to show growing or stable market share, offsetting declines in Germany and the UK. This resilient performance has been achieved while maintaining strong pricing discipline across all five markets. These results now complete two years of stable market share delivery following several years of decline.

In all categories of next generation products (NGP), we have delivered a step-up in product and market launches. This follows the validation of our new more agile and consumer-focused approach. Our heated tobacco proposition, Pulze and iD, is now available in seven European markets. In vapour, we have launched our blu 2.0 product in the UK, Spain, France, Czech Republic and Portugal. Zone X, our modern oral product, continues to perform well, supported by new flavour launches and marketing initiatives. First-half NGP revenues are expected to be ahead of the prior period, driven by strong growth in Europe, more than offsetting declines in the US, driven by uncertainty caused by the marketing denial order for myblu.

Excluding the impact of our exit from Russia last year, our first-half Group net revenue is expected to be at a similar level to last year at constant currency, with strong combustible pricing offset by temporarily increased volume declines against a prior period which benefited from COVID-related changes in buying patterns.  We expect a stronger net revenue performance in the second half, supported by a normalisation of volume trends and price increases taken during the first half. As expected, our exit from Russia will result in first-half Group net revenue being slightly below last year on a constant currency basis. Details of the contribution from Russia last year are provided below.

As previously guided, first-half Group adjusted operating profit is expected to be at a similar level to last year on a constant currency basis. Tobacco & NGP adjusted operating profit has been impacted by the planned increase in NGP investment, the impact of our exit from Russia, and the continued unwind of COVID-19. Growth in Distribution adjusted operating profit has helped to mitigate these headwinds.

At current exchange rates, translation foreign exchange is expected to be a c. 6.5 per cent tailwind on first-half earnings per share and a c. 2.5-3.5 per cent tailwind on full-year earnings per share.

Our first-half leverage (adjusted net debt to EBITDA) is expected to improve year on year, on a 12-month basis. We expect our full-year leverage to remain at the lower end of our 2.0-2.5 range for net debt to EBITDA.

To date, we have completed £523m of our £1bn share buyback for this year, representing approximately 2.7% of the issued share capital. We remain committed to delivering a material reduction in the share capital base. This buyback programme represents an ongoing source of shareholder returns alongside our progressive dividend policy.

The interim results for the six months ended 31 March 2023 will be announced on 16 May 2023.

Central & Eastern Europe transferred to AAA to support wider market portfolio initiatives

To provide a greater focus on 'driving value from our broader market portfolio', which is one of our strategic pillars, we have transferred the management of our Central and Eastern Europe cluster from our Europe region to the Africa, Asia and Australasia (AAA) region. Under the leadership of Paola Pocci, we have been enhancing our capabilities and expertise in managing our smaller markets, many of which have attractive margins and the potential to become platforms for future growth in combustible tobacco and NGP. The AAA region will now be known as AAACE.

We will make the change in our regional reporting for the interim results for the six months to 31 March 2023 and the annual results for the year to 30 September 2023 and we have provided below the key regional metrics for HY22 and FY22 restated for the new reporting basis. The affected markets are Poland, Czech Republic, Ukraine, Slovakia, Hungary, Azerbaijan, Armenia, Georgia, Moldova, Croatia and Slovenia. The Americas region is unaffected by the change.

Impact of Russia Exit

On 20 April 2022, we announced the transfer of our Russian business to local investors.  We provide below the contribution from our Russian business in HY22 for key metrics to assist with the modelling the year-on-year impact.

ENDS

Notes:

The Group uses 'adjusted' (non-GAAP) measures as we believe they provide a better comparison between reporting periods. The definition of our adjusted measures is unchanged from our full-year results. We also use the term 'constant currency', which removes the effect of exchange rate movements on the translation of the results of our overseas operations.

Cautionary Statement

Certain statements in this announcement constitute or may constitute forward-looking statements. Any statement in this announcement that is not a statement of historical fact including, without limitation, those regarding the Company's future expectations, operations, financial performance, financial condition and business is or may be a forward-looking statement. Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected or implied in any forward-looking statement. These risks and uncertainties include, among other factors, changing economic, financial, business or other market conditions. These and other factors could adversely affect the outcome and financial effects of the plans and events described in this announcement. As a result, you are cautioned not to place any reliance on such forward-looking statements. The forward-looking statements reflect knowledge and information available at the date of this announcement and the Company undertakes no obligation to update its view of such risks and uncertainties or to update the forward-looking statements contained herein. Nothing in this announcement should be construed as a profit forecast or profit estimate and no statement in this announcement should be interpreted to mean that the future earnings per share of the Company for current or future financial years will necessarily match or exceed the historical or published earnings per share of the Company. This announcement has been prepared for, and only for the members of the Company, as a body, and no other persons. The Company, its Directors, employees, agents or advisers do not accept or assume responsibility to any other person to whom this announcement is shown or into whose hands it may come and any such responsibility or liability is expressly disclaimed.