Imperial Brands : 03 Jun 2025 - dbAccess Global Consumer Conference transcript

Imperial Brands PLC | dbAccess - Global Consumer Conference 2025 3 June 2025

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DAMIAN MCNEELA:

Good afternoon everybody and thank you for attending this fireside chat with Imperial Brands. This afternoon with us we have Stefan Bomhard, Chief Exec, for now, of Imperial Brands and Lukas Paravicini, CFO, for now, of Imperial Brands. I'm Damian McNeela, research at Deutsche Bank. So we've just had the next iteration of what you expect to do for the five-year plan, but I was wondering whether we could take before we get into the next stage, what are you most proud of achieving over the last five years?

STEFAN BOMHARD, CEO:

Yeah, from my side, I think the most proud thing probably is if you look at the Imperial in the year 2025, we are now in a much better shape than we were in the year 2020. So I think we have very strong foundations, also for the next five years driving forward, which I'm sure we'll talk about today. What on behalf of the team I'm probably most proud of, if you really look at it, our core business is in a different shape than it was five years ago. Five years ago we were the number one share donor in our top five markets. Today we are holding share. We actually have gained these top five markets, 40 plus basis points in the last five years, and we've invested in the brand equities of our brands, and we've invested in our sales capabilities.

The second piece I would pray say is in NGP five years ago, I remember some of the earlier discussions. So, it was clearly I think a healthy dose of skepticism whether Imperial as the smallest player in our industry can actually play a role in NGP. And today at the last half year results, we clearly have a competitive offer in all three categories. We always believed there would be three categories, and we're gaining shares in all three.

So while there's still a long way to go still, there is now real evidence that despite being the smallest company in the industry, we really have a role to play also in the industry conversion towards a reduced time product offers. Yeah? And I think what I feel excited about is as well that the capabilities of Imperial to compete in this industry are materially changed. We've made significant investments in processes, significant investments in technology, and I've seen the quality of management team that we've promoted from within but also attracted from outside the tobacco industry into Imperial is something I think that will help us to continue to perform well in the industry going forward.

DAMIAN MCNEELA:

Yeah. And, how important as a cultural change that you pride yourself on the challenge of mindset that you brought into Imperial? How important has that been to delivering the success you've seen?

STEFAN BOMHARD, CEO:

Thank you Damian for reminding me. Look, reality is unfortunately Imperial if you go back in history, what's the challenge of its industry? It came from being number 16 to be number four in the industry through acquisitions and having an attitude about being faster, more agile, and a high risk-taker. And then for a variety of reasons, it lost that spirit. I feel in the last five years we've found that spirit that was always a differentiating feature of Imperial in the industry. We found that back again.

Yeah, we are seen as a challenge in the industry. We're proud to be the smallest. We're not apologetic of being the smallest. And I think that is something that bodes well, because I think this industry needed a challenger and I think it's the natural role for Imperial to play. And I think today, well, we're not perfect. To be clear, there's still way more to go. I do believe we're now today much more the challenger, and with that has come a significant culture change inside Imperial. Today, if we look at our employee engagement scores that we do religiously every year, you can see people are proud to work for Imperial. People are proud to work for the challenger company inside this industry.

DAMIAN MCNEELA:

And, I think a couple of weeks ago you announced that you're going to be retiring-

STEFAN BOMHARD, CEO:

Yeah.

DAMIAN MCNEELA:

... as Chief Executive, and Lukas you'll be stepping into fill Stefan's shoes. Can we address any concerns that people may have about your departure, and what that means for the strategy and the culture that you've set down through the team?

STEFAN BOMHARD, CEO:

Sure, sure. Damian, look, let me just start [inaudible 00:04:45]. We had some investors a bit like, "Okay," because they only saw me as the CEO of Imperial brands. Look, I look at Stefan, and for me this is my 11th year as a CEO, and anybody who's been in that job just knows this is a 24/7 job. So fundamentally having driven Imperial in the last five years and having driven another FTSE company before, and having worked with the team on the strategy in the last 18 months, very hard with Lukas, with Murray, with the rest of the executive leadership team, and many people one level down when we have the capital market stay in March of this year, seeing the executive leadership team present the strategy, largely on their own to the market, I felt this is the right time to step down because I felt I had done my job.

I think their reality is and what I'm super excited, you talked about team and culture before. I think what's great to see, the business is in a different place with now together, developed by the executive leadership team and beyond, laid out what we want to achieve for the next five years, a clear north star, a clear compass. Yeah? And what helped me make that decision and should also make feel investors very comfortable, Lukas, who's going to take over for me has been the partner in crime in the CFO role the last four years.

We've worked this together. Murray who will take over from Lukas and was here in the room, he set, he was one of the key architects of the original strategy, and as you would expect deeply involved in developing of the strategy 2030. Yeah? So I think what the board and we have done is about a clear understanding that as a large company, you have a responsibility to look at succession.

And I think to be able to go to the market saying with a clear strategy in the next five years, here's the numbers we want to deliver. Here's the key strategic drivers of that, and here is the management team that will take it forward, who actually is well known to investors. And, I'm staying on board to help for the right time to do that. Look, I have to say I felt proud that we've achieved that together because I think it's an orderly leadership transition with a very clear proven strategy that we will drive further.

The final point I would make, the hardest thing was to step away from Imperial because there's so much more to be done. Yeah? But then my wife reminded me, look, there will always be a lot more to be done. Yeah? And the reality is therefore, I felt this is the right time to pass the baton over to Lukas, Murray, and the rest of the leadership team.

LUKAS PARAVICINI:

And if I may, I know while Stefan will enjoy his well-deserved next steps, I think it is also important with all what Stefan has mentioned is this is an evolution. To the point we mentioned, I also want to make sure we understand from my side and from Murray's side, we're excited to continue this journey. We've built big foundations. We know what works well. We have established the CMD of the next strategy, and we are excited to drive that execution for the next five years and unleash further value for shareholders. So, it's really more an evolution than any changes that we should expect to be.

DAMIAN MCNEELA:

Yeah, I think that's very clear. Thank you. And I think if we then do now start to look at some of the individual markets where you have been successful in the last five years, if you start with the US, it's your biggest market. It's the biggest market for everybody, essentially. You've started to deliver good share gains in recent years. Can you talk about some of the things that you've put in place to provide people with the confidence that it's a sustainable business proposition that you've got there now?

STEFAN BOMHARD, CEO:

Sure. I think if you start with the US, but it's a principle that applies to all our markets, fundamentally, what have we put in place the last five years? A, we have invested more money in the brand equities of our key brands, especially at the premium end and the mid-price sense, the Winston and Core. If you look at the level of investment, it's less visible to investors. We don't break it out. I understand that. We have clear brand equities and clear understandings, what are the target consumers of these brands, and reinvested in AMP in these brands.

The same way, we've invested in our sales force capability. We've increased our sales force in the US by 40%, then at the start of the strategy, which means we cover a lot more outlets than we would ever cover before. And it isn't just the quantity, it's the quality of our people. It's also the tools we've given to them. This will continue to drive performance going forward. And as you rightly say, Damian, you can see it in the US performance. It's a business that has performed the last five years with great net revenue performance, great profit performance, and a nice drumbeat of actually us gaining shares in this context.

DAMIAN MCNEELA:

And given the pressure that the US consumer is under-

STEFAN BOMHARD, CEO:

Yeah?

DAMIAN MCNEELA:

... how do you see the market developing and what you need to do to make sure that you can continue executing?

STEFAN BOMHARD, CEO:

I think if you look at the US, what we see as a competitive advantage, what has allowed us to outperform the US market, we have brands at every single price point in the market. Which in a highly volatile market where consumers are continuously looking at different price points where they want to find the right brand for themselves, that has become a competitive advantage. But that's not just imperial in the US, that is across the majority of our top markets. And, I think that agility will serve us well. The brand equities we have at the individual price points today are stronger than they were five years ago. Now to be clear, the US is a highly competitive marketplace. That doesn't mean that we will be perfect every single half year, every single full year, but-

STEFAN BOMHARD, CEO:

... that we will be perfect every single half year, every single full year. But again, we come to the point that we've sat consistently. We look at our top five markets as a portfolio and our ambition is to hold our share flat in our top five markets.

DAMIAN MCNEELA:

Yeah. If we move on to Germany, I think it's probably been the most problematic market for you?

STEFAN BOMHARD, CEO:

Sure.

DAMIAN MCNEELA:

It's turned around recently.

STEFAN BOMHARD, CEO:

Yep.

DAMIAN MCNEELA:

Can you just talk about some of the things, why it's taken as long as it has to turn around, and what gives you confidence, or why shouldn't it continue to take market share, because it's lost an awful lot of market share, back to where it was?

STEFAN BOMHARD, CEO:

Well, Damian, the exciting news, that you asked me the same question last year in the same spot and we were still losing market share in Germany. My answer then was about, trust me, the must-win battles, the playbook we've defined for Germany is no different, it just takes longer to turn. The great news was, when we finally closed the full year, fiscal year '24, after this conference in September, we actually did hold share for the first time. Share was up two basis points. At the half-year results that we reported in mid-May, our share in the first half-year was up 60-plus basis points.

I told you it would take the longest and finally has turned as well. Why did it take longer? Simple. The years of under-investment in Germany were longer than many other places because in Germany it's still a very open market, so it still means meaningful A&P investments, meaningful investment sales force. So, it took us longer to turn that around.

The other thing also is the investment in better capability in the sales force took longer versus the US where actually you can expand quite quickly and you can change work practices quite quickly. In Germany, because of labor regulation, that took longer. It's great to see to turn around.

On your sub-question about can now Germany wonderfully fly on at shares? I see some of our competitors are here in the room. Look, to be very clear, it's a highly competitive nature. We know in our industry is we have never set an ambition to gain market share. We're set holding market shares what our strategy is based upon. We always continue to drive to try to take market share, but we will always do this in the balance of it. What does it cost to take market share? What's the level of investment, what is the right thing to do? But I think what investors should feel very comfortable with as when year five of our current strategy. Now, every single market in the top five has shown share growth at one point in time in this period, Germany is not the final one that actually shown share growth.

DAMIAN MCNEELA:

Yeah. No, no, it's very clear and I think it's really impressive performance. In the UK, I think the category dynamics are slightly different to other places. Can you just talk a little bit about what's going on in there and then perhaps some of the things that you're doing perhaps around paramount as well?

LUKAS PARAVICINI:

So I think in the UK we have to remember that the excise increases, which every year is related to inflation. So what you have seen actually in the last two years is a significant increase of