27th Jan 2021 14:07
(Alliance News) - Imperial Brands PLC on Wednesday unveiled a new strategy to transform the company, with a "revitalised tobacco business" at the centre of value creation.
Shares in Imperial were down 4.9% at 1,545.50 pence in London in afternoon trading.
The new strategy and five-year plan has been developed following a strategic review and has three main pillars. These are a focus on priority combustible markets, driving value from its boarder market portfolio, and building a targeted next generation products business.
FTSE 100-listed tobacco firm Imperial, which owns the Winston cigarette and blu e-cigarette brands, will concentrate its investment and resources round the US, Germany, UK, Spain, and Australia - those being its five most important markets and representing 72% of combustible operating profit.
Additionally, it has identified opportunities within its broader market portfolio for diving future growth and "efficiencies in how we operate these markets", with some investment and some exits.
"Although these markets are smaller, they benefit from attractive margins and relatively limited investment requirements. We will selectively build those where we have attractive leadership positions, such as Africa and other European markets, and will selectively exit a small number of others where we have a relatively weaker presence," said Imperial.
Further, Imperial plans to reset its NGP strategy, taking a "significantly different approach" and focusing investment on heated tobacco opportunities in Europe as well as "selective market opportunities in vapour", especially in the US. Oral nicotine is to remain focused on exiting markets in Europe with any investment in NGP to be "disciplined and based on detailed market testing".
Additionally, Imperial will improve ways of working, investing to support a consistent approach to consumer insight as it acknowledged that "decisions in the past have not been sufficiently informed by consumer insights and data".
It will also embed a "performance-based culture" through rewards and incentives that reinforce performance and delivery of company objectives. Senior monthly performance reviews are already taking place to reinforce this.
Moreover, it is simplifying its operations and increasing efficiency, combining its NGP operations under a "unified, entrepreneurial business unit" while finance and human resources will be aligned with supporting this new strategy and efficient resource allocation.
Given all of these changes, Imperial plans to increase its core capabilities investment, such as in sales and marketing, by around GBP50 million to GBP60 million a year, funded by efficiency savings from reorganising and simplifying the company. Annualised savings are expected to be between around GBP100 million and GBP150 million by its financial year ending September 2023.
The cash costs of its initiatives are forecast at between approximately GBP245 million and GBP275 million, mostly spent in financial 2022. Associated non-cash restructuring charges are expected at around GBP150 million.
"This programme is necessary to reshape the business and support delivery of the strategy. As a one-off and time-bound programme, we intend to treat the costs as an adjusting item to aid comparison of performance over time. Any additional restructuring charges beyond [financial 2022] will not be treated as an adjusting item," said Imperial.
For financial 2021, Imperial's outlook is still in line with what was provided at the time of its November preliminary results, with no further update on current trading.
Its new plan is predicted to deliver a gradually improving net revenue trajectory for the next five years with a compound annual growth rate of around 1% to 2% for financial 2020 to financial 2025.
No major reset to operating profit will be needed for the first two years of Imperial's plan, given it will be funded through cost savings and resource reallocation. Adjusted operating profit is expected to improve, delivering a mid-single digit organic CAGR for the three year period for financial 2023 to financial 2025.
Debt reduction will remain a priority as Imperial seeks to deliver its target for the lower end of its net debt to earnings before interest, tax, depreciation, and amortisation range of 2 to 2.5 timrs.
Its dividend will grow annually from the current rebased level and surplus capital returned to shareholders once target leverage is achieved.
Chief Executive Stefan Bomhard said: "We have undertaken a comprehensive strategic review, examining all opportunities for unlocking value. This process has reinforced my view that the group has solid foundations on which we can build a better and stronger business.
"Our new detailed five-year plan sets out clear strategic priorities, which will drive targeted investment behind those markets and brands with the greatest opportunities for value creation. We have put the consumer at the centre of everything we do and are beginning to reshape our culture to support the new strategy. This will improve our ways of working and create an agile, collaborative and performance-based business that will deliver a stronger, more consistent performance."
By Anna Farley; [email protected]
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