Imperial Brands Announces New Strategy
Imperial Brands has announced a new strategy to create long-term value. The company says it will focus on priority combustible markets, drive value from its broader market portfolio and build a targeted next-generation products (NGP) business.
Imperial Brands will focus its investment and resources around the U.S., Germany, the U.K., Australia and Spain, which represent 72 percent of its combustible operating profit.
At the same time, the company will selectively build markets where it has attractive leadership positions, such as Africa and other European markets, while selectively exiting a small number of markets where it has a relatively weaker presence.
Furthermore, Imperial Brands will focus its investment behind heated tobacco opportunities in Europe and in selective market opportunities in vapor, particularly in the U.S. Imperial’s oral nicotine business will remain focused on its existing markets within Europe. The aim is to develop a sustainable NGP business that supports Imperial’s ESG agenda by making a meaningful contribution to harm reduction.
“We have undertaken a comprehensive strategic review, examining all opportunities for unlocking value,” said Stefan Bomhard, CEO of Imperial Brands, in a statement. “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 center 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.”
To support the delivery of its strategic priorities, Imperial is changing how it operates to embrace new ways of working and to enhance its culture. Three critical enablers to drive these changes have been identified: consumer at the center of the business; performance-based culture and capabilities; and simplified and efficient operations.
As a result of these changes, Imperial will increase its investment in core capabilities, such as sales and marketing, by £50 million ($68,28 million) to £60 million per year. This additional investment will be funded by efficiency savings as the company reorganizes and simplifies the business, generating annualized savings of £100 million to £150 million by the end of fiscal year 2023. The anticipated cash costs of the initiatives are £245 million to £275 million, with the majority of the spend occurring in fiscal year 2022. In addition, the company expects to incur associated non-cash restructuring charges, currently expected to be around £150 million. Any additional restructuring charges beyond fiscal year 22 will not be treated as an adjusting item.
Imperial’s outlook for fiscal year 21 remains in line with the statement provided at the preliminary results on Nov. 17, 2020.
The new plan is expected to deliver a gradually improving trajectory in net revenue over the five years with a compound annual growth rate of 1 percent to 2 percent for fiscal year 2020 to fiscal year 2025.