Imperial Brands H1 2025 Earnings Report

Imperial Brands EPS Results

• Actual EPS: GBX 123.90
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Imperial Brands Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Imperial Brands Announcement Details

• Quarter: H1 2025
• Date: 5/14/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, May 15, 2025
• Conference Call Time: 3:30AM ET

We are Imperial Brands (LON:IMB), a global consumer-focused organisation and the fourth largest international tobacco company. We’re driven by our purpose: to forge a path to a healthier future for moments of relaxation and pleasure. The world’s one billion adult smokers are seeking new and potentially less harmful products and we are committed to meeting their diverse and evolving needs. We’re also committed to becoming fully Net Zero by 2040. As the smallest of the four major international tobacco businesses, we know that we are at our best when we are a focused challenger, battling on behalf of our retail partners, consumers and wider society. We celebrate the enduring success of our iconic portfolio of cigarette, fine cut and other tobacco brands, which generate the funds to build a targeted and sustainable range of vapour, heated tobacco and oral nicotine products. Our disciplined capital allocation framework enables us to continue to invest behind our strategy, while maintaining a strong, efficient balance sheet and delivering enhanced shareholder returns. For more information about Imperial Brands, our transformation, our ESG priorities, our investment case and our brands, visit www.imperialbrandsplc.com

Imperial Brands H1 2025 Earnings Call Transcript

Presentation

[Thérèse Esperdy, Chair at Imperial Brands]

Good morning, everyone. Thank you for joining us in the room. And for those of you on the phone, welcome to our presentation this morning. I wanted to say a few words before handing over to Stefan and Lucas. As you will have seen, we have announced today that Stefan has informed the Board of his intention to retire as CEO.

[Thérèse Esperdy, Chair at Imperial Brands]

And we're also announcing that Lucas, whom you all know well, will be succeeding Stefan as CEO on October 1. To ensure the smoothest possible transition, Stefan will remain on the PLC board until the end of the calendar year, and he will continue to be available to support us until May of twenty six. We're also announcing that Murray McGowan, currently our chief strategy and development officer, will step up to succeed Lucas as CFO. Murray is here today, and he's looking forward to getting to know you all better. I wanted to take this opportunity to express my deepest thank to Stefan for his service to this company.

[Thérèse Esperdy, Chair at Imperial Brands]

Under Stefan's leadership, Imperial Brands has delivered consistent growth and outstanding returns for shareholders. One of Stephan's many great achievements was the way he comprehensively refreshed our executive leadership team, making strong hires from other consumer businesses and nurturing internal talent. As you heard at our Capital Markets event in March, this management team has had a laser focus on consumer capabilities, agile ways of working, and a performance culture. And this focus has driven both a successful turnaround in our tobacco business and a strengthened platform in next generation products. Today's appointments follow a rigorous selection process and demonstrate our deep management bench strength.

[Thérèse Esperdy, Chair at Imperial Brands]

Lucas has a strong track record in driving growth in consumer businesses and delivering complex transformation programs, having held senior roles at Fonterra and Nestle. Similarly, Murray has diverse experience in both financial and operational leadership roles for consumer businesses including Costa Coffee, Yum! Brands and Cadbury. Over the past four years, Lucas and Murray have both played key roles in Imperial Brands' growing success. As you will have observed at our Capital Markets Day, they have both also been very important architects of our 02/1930 strategy.

[Thérèse Esperdy, Chair at Imperial Brands]

Under this executive leadership, I am confident that we'll continue to deliver for shareholders while moving purposefully towards our healthier future. I'd also like to confirm that the Board has agreed that I continue to serve as Chair to provide continuity while Lucas and Murray establish themselves in their new roles. And with that, I'd like to hand over to Stefan and Lucas for the usual half year results presentation.

[Stefan Bomhard, CEO at Imperial Brands]

Thank you, Therese, for your very kind words. And good morning to all of you and welcome to our presentation of our half year results. I want to thank all of you who have joined us here in the room. It's great to see you again. And of course, I want to welcome everybody who is watching this online.

[Stefan Bomhard, CEO at Imperial Brands]

I would like to draw your attention as usual to our cautionary before I introduce the team and the agenda. As usual, I'm joined by Lukas Parevicini, our CFO and Peter Duhrmann, our Head of Investor Relations. And I will start highlighting some of the key points from today's results presentation, and Lucas will, as usual, outline the financial performance and give us give you our outlook for the current fiscal year. I will then update you again on how we are delivering operationally and continue to deliver on our strategic transformation. And finally, we'll look forward to taking your questions.

[Stefan Bomhard, CEO at Imperial Brands]

Now this has been another six months of consistent delivery against our plan, and I am pleased to confirm that we are on track to also deliver our full year guidance. For the eighth half year period in a row, we are showing progress against our dashboard of key metrics. And once again, as you can see here, there is a tick in every box. And I would like to highlight that the six basis point market share gains in our top five markets, which is ahead of our strategic objective of holding market share. And for me, it's particularly pleasing to be able to report a 65 basis point market share gain in Germany, our first material market share gain in this important market for well over a decade.

[Stefan Bomhard, CEO at Imperial Brands]

Now turning to revenue. This is another period of strong top line growth. We are up 3.2%, which is driven by broad based improvements in both our tobacco and NGP business. This is supporting growth in adjusted operating profit and with the benefit of the buyback programs, therefore earnings per share are up 6%. Now this is translating into strong growth in capital returns for shareholders.

[Stefan Bomhard, CEO at Imperial Brands]

Our dividend is up 4.5% on an underlying basis. But including the re phasing that we announced previously, the interim dividend is up by almost 79%. And we are well on track with the buyback, which together with the dividend will deliver cumulative returns to shareholders of 10,000,000,000 over five years. Now I think you have the sense we are pleased with the performance, but as you will know, we are never complacent. So since we announced our 02/1930 strategy at the Capital Markets Day, the global economy has become more uncertain.

[Stefan Bomhard, CEO at Imperial Brands]

However, we believe we are relatively well placed to weather any future storms because the structure of our supply chain helps us to insulate us from direct impacts of tariffs. For example, in our U. S. Business, the manufacturing is largely local. And should we face a more generalized economic slowdown, our sector has proven for a long time itself to be relatively resilient during times when consumers rein in their spendings.

[Stefan Bomhard, CEO at Imperial Brands]

And there are features of Imperial Brands' own business model, not just the industry, which we think makes us especially well positioned. In our priority markets, we offer a comprehensive portfolio across the price ladder, so we can meet consumers' needs wherever they choose to go. And as you will know, we have a conservatively positioned balance sheet. And more generally, I think our investments over the last couple of years in our capabilities, culture and ways of working have made us more agile than we were a few years ago. This makes us better able to adopt and adapt to changing environments so we can deliver the consistent outcomes whatever the weather would be.

[Stefan Bomhard, CEO at Imperial Brands]

Now I will now hand it back to Lucas, so hand it to Lucas, who will take you through the financial results and the outlook in more detail.

[Lukas Paravicini, CFO & Director at Imperial Brands]

Thank you very much, Stefan, and a very good morning to all of you. As Stefan just said, this is a business now capable of delivering a consistent and sustainable improving performance year in and year out. The past six months has been a period of broad based growth across all regions. We delivered aggregate market share gains while also maintaining a robust tobacco pricing. And in NGP it has been another period of revenue growth as we build scale.

[Lukas Paravicini, CFO & Director at Imperial Brands]

This operational success has supported growth in Group adjusted operating profit of 1.8%, in line with our guidance. We have delivered GBP 2,400,000,000.0 of free cash flow on a twelve month basis. Leverage at 2.4 times was higher than the full year for the usual seasonal reasons, but it remains within our target range. Overall, we are on track to deliver against our plan for fiscal year and meet our capital allocation priorities. These results are another good illustration of the tobacco value model in action.

[Lukas Paravicini, CFO & Director at Imperial Brands]

Strong pricing across our footprint, in orange here, has more than offset volume declines to deliver an acceleration in tobacco net revenue growth. In Europe, our largest region, strong broad based pricing has significantly outpaced volume declines. In The US, pricemix increased 10.1%, driven by pricing in both our cigarette and mass market cigar portfolios. Volumes benefited from share gains in both cigarettes and cigars. Wholesale inventory movements ahead of price increases are expected to unwind in the second half.

[Lukas Paravicini, CFO & Director at Imperial Brands]

Group tobacco and NGP operating profit growth was driven by all three regions with improved profitability in tobacco and lower losses in NGP. In tobacco the strong pricing has dropped through to higher profit. In NGP we reduced our losses by building scale in our existing footprint. Overall, tobacco and NGP operating profit grew 2%. Logista was flat as growth from tobacco price increases offset the performance in long distance distribution transportation.

[Lukas Paravicini, CFO & Director at Imperial Brands]

Our adjusted EPS reflects our operating profit growth and the reduced share count due to our ongoing share buyback. The small increase in tax reflects a slightly higher adjusted effective tax rate at 23.5%. This is in line with our full year guidance. Now turning to cash and capital allocation. Our operating cash conversion was at 99% on a twelve month basis, reflecting our continued focus on working capital.

[Lukas Paravicini, CFO & Director at Imperial Brands]

Disciplined capital allocation remains a key part of how we create value for shareholders. Leverage at the half year improved year on year and we are on track to be around the lower end of our target range at year end. We previously announced our decision to re phase our dividend payments into four equal installments together with an underlying increase in dividend per share of 4.5%. This means that shareholders will benefit from a one time acceleration in dividend cash payments this year. We are now into our third consecutive year of share buybacks with a £1,250,000,000 programme, an increase of 14% over the previous year.

[Lukas Paravicini, CFO & Director at Imperial Brands]

This will bring the total under the current strategy to £3,350,000,000 As we said at the CMD, we are now committed to an evergreen, always on share buyback through the next five year strategic period. We would like to confirm we remain committed to our previous full year guidance across all metrics. This step up will be underpinned by combustible pricing already taken in this first half and improved operational gearing. We continue to expect full year constant currency tobacco revenue growth in the low single digits and double digit NGP net revenue growth. Constant currency adjusted operating profit is expected to grow close to the middle of our mid single digit range.

[Lukas Paravicini, CFO & Director at Imperial Brands]

That is similar to the growth rate of last year. At current rates, we expect foreign exchange to be a headwind: 2% to 2.5% to net revenue and 35% to 4.5% to operating profit and earnings per share. As usual, there is a slide in the appendices with guidance on the specific items. Sorry and we expect at least high single digit EPS growth for the full year supported by profit growth and the ongoing share buyback program. And I can reassure you we remain committed to the medium term guidance we set out at our CMD in March.

[Lukas Paravicini, CFO & Director at Imperial Brands]

This means we remain well placed to generate long term value for shareholders. Thank you and I'll hand back now to Stefan who will give us an update on the operational progress. Stefan, come on. Okay.

[Stefan Bomhard, CEO at Imperial Brands]

Well, thank you, Lucas. Today's presentations are focused on our performance for the first six months of fiscal year '20 '20 '6, F5, and our expectations for the balance of the fiscal year. But I also want to reassure you that in the background, we are also preparing for the official start of our next five year program as of October 1. Now during the past few weeks, since we met all together in London, our focus has been on sharing our syncing with our important stakeholders. Any because you know any business strategy can only succeed if it resonates with and inspires the people of that business.

[Stefan Bomhard, CEO at Imperial Brands]

So we have been spending a lot of time discussing our 2,030 plans with our colleagues. And week, Lucas and I and the whole of the executive team will be with our senior leaders for two days exploring in-depth how we turn the high level principles we described to you into detailed action plans. Last month, I also met with our 30 largest suppliers as we socialized our strategy with them. Because if you remember, we always said as a challenger business, we rely on long term partnerships with third parties and we thrive when they will bring us their best work. Now meanwhile, Paola, our Chief Consumer Officer and the consumer team are continuing to refine their view on the target consumer.

[Stefan Bomhard, CEO at Imperial Brands]

So in future presentations, expect to hear a lot more about how we are serving those trust seekers and progressive achievers you heard about in the March Capital Markets Day. Lucas Murray, Alison Hour, Chief People Officer and their teams are also continuing the detailed work on how we can further strengthen our culture and become more data led to help our people become more agile challengers and drive in that way sustainable growth. Now in past presentations, you've heard me discuss the importance of our five behaviors. Now one of these five behaviors is build our future. So this is about being able to simultaneously deliver short term performance and plan for the long term.

[Stefan Bomhard, CEO at Imperial Brands]

Now a few years ago, candidly, our leaders lacked the bandwidth or structures to effectively balance those two competing pressures. I do believe by contrast today now, as you're seeing today and as you saw in March in the Capital Markets Day, we are able to deliver performance today while ensuring we can also perform tomorrow. And with each six month period, we are adding another solid layer to the foundations we are building for the future. In the first half, we gained market share in aggregate again, across our five largest markets. That means cumulatively, since 2021, we have delivered more than 50 basis points of share gains.

[Stefan Bomhard, CEO at Imperial Brands]

And as a reminder, these five markets generate more than 70% of our Group operating profit. And as a management team, we focus a similar proportion of time and energy to drive performance in these markets while also nurturing their long term growth. Now these markets are managed as a portfolio, as you will know, and it is not our target to gain market share in all markets in each period. Because our ultimate goal is to balance market share, pricing and long term brand building to build sustainable value. And in any period of time, we may make deliberate decisions in individual markets, which leads us to sacrificing share.

[Stefan Bomhard, CEO at Imperial Brands]

Now if we look at the first half, we gained market share in The U. S, Germany, our two top markets, and Australia, and we lost market share in The UK and in Spain. Now let us look in more detail on the performance in The U. S. Our cigarette and mass market portfolios demonstrated another six month of strong performance.

[Stefan Bomhard, CEO at Imperial Brands]

In cigarettes, we continued to gain market share of the overall market. Now this is against the backdrop of elevated volume declines in the market, which were impacted by illicit vapes and the continued pressure on consumers' wallets. And as you heard from Lucas, strong pricemix has more than offset volume declines, leading to tobacco overall net revenue growth in The U. S. Close to 5%.

[Stefan Bomhard, CEO at Imperial Brands]

Our balanced portfolio of cigarette brands across different price points has clearly again served us well in this context. In the premium segment, Winston gained market share driven by brand extensions, offset by CORE, which was impacted by competitive pressure. Our strong portfolio of discount brands continue to drive share and revenue growth. Crown's has been a strong performer, benefiting from greater consumer focus and investment and increased store rollout. Now turning to cigars or mass market cigars.

[Stefan Bomhard, CEO at Imperial Brands]

After a period of instability following COVID, the category declines have normalized now to be around 4% in the first half. And our performance was led by market share gains with our premium Backwoods brand. And we have continued to innovate with new flavor launches and brand extensions, which clearly has driven consumer engagement. Now our other four priority markets have also continued to deliver well. In Germany, we started to see an improving share trajectory last year, if you remember, after a decade of share declines, and this has continued in the first half of this fiscal year.

[Stefan Bomhard, CEO at Imperial Brands]

You will have heard from Ales, our Head of Europe, at our Capital Markets Day describe our patient investments in that market. They include the expansion of our sales force and investments in building our brands, which are now more carefully targeted at our consumers. And it is very pleasing to see that this long term effort are now really paying off. In The UK and Spain, we have seen some share losses having taken deliberate pricing actions from our side. Now this was a strategic choice to ensure we are meeting our overall share objectives and continue at the same time to drive value for our shareholders.

[Stefan Bomhard, CEO at Imperial Brands]

Australia, smaller size of top five, continues to be a challenging market from a volume perspective driven by the high level of excise and illicit products. But despite this, our team has been successful in delivering small market share gains and managing the market to optimize value for us. Now turning to NGP. In the first half, we have continued to see market share growth and revenue growth across all three categories. In Vapor, we focus our investments in Europe, and we're growing market share across the major markets in this region.

[Stefan Bomhard, CEO at Imperial Brands]

Now this disciplined focused approach you saw Paula and her team describe at the Capital Markets Day is clearly serving us well. And as they explained, the blue brand is highly focused on a type of consumer we call the progressive achievers. They are seeking authentic flavors, well designed products and a trusted brand name. And this is exactly what we can offer them. So step by step, we are building a more distinctive, more differentiated brand.

[Stefan Bomhard, CEO at Imperial Brands]

And this means we are well placed to continue to grow sustainably however this market develops over time. Now turning to modern oral. I know that at our Capital Markets Day, many of you were very interested in this category. And we too are very excited about the long term opportunities in this space, both in The U. S.

[Stefan Bomhard, CEO at Imperial Brands]

As well as in Europe. In these results at half year, we have grown market share and revenue across both regions. It has now also been a year since we launched Zone in The U. S. And have been really pleased with the progress so far.

[Stefan Bomhard, CEO at Imperial Brands]

And as we explained to you before, it is our Zone offer in The U. S. Is a differentiated product with a more moist mouthfeel than many other products in the marketplace. Over the past twelve months, we rolled out the brand with focus and discipline. And now we are scaling up with greater distribution, growing revenues and improving margins.

[Stefan Bomhard, CEO at Imperial Brands]

At the half year, we had over 5% market share within our footprint, a significant achievement, especially in the light of the short period of time since the launch. In Europe, our focus is on meeting consumer preferences with the European variant of Zone and Skruf, a great brand with deep Nordic heritage. Here, we have launched a new pouch format for Zone in Sweden and new flavors variants for Skruf in Norway. Now these innovations have helped drive overall revenue and market share growth. In heated tobacco, we are consolidating market launches throughout fiscal year twenty twenty three and fiscal year twenty twenty four by carving out a subset of consumers within the category, what the group of consumers we call the trust seekers.

[Stefan Bomhard, CEO at Imperial Brands]

We expanded our product offering for Pulse two point zero with Vicensia flavored herbal sticks in Europe. And our heated portfolio has proved popular with consumers in Italy, where we have now reached a market share of 3.3% in the first half. And as we announced at the Capital Markets Day, we are upgrading our heated tobacco device and plan to launch Pulse three point zero in the second half of this fiscal year. Now this is a further demonstration of our improved approach to innovation and faster speed to market. Now moving off NGP, looking to the full year, we are on track to deliver our guidance across combustibles and NGP.

[Stefan Bomhard, CEO at Imperial Brands]

In combustibles, our goal will be to maintain share as always in the priority markets. In NGP, we will continue to drive double digit net revenue growth. By staying focused on the operational delivery, we will continue to drive growth in our key financial metrics and with that, return to shareholders. Now I hope you agree, Imperial Brands is, of course, much more than just a six month story. We have now built some foundations to continue to deliver value to shareholders over the long term.

[Stefan Bomhard, CEO at Imperial Brands]

We now have a stronger combustible business with better brands, better data and a better understanding of our consumers. In NGP, we have competitive products across all three categories, and we are building scale and margins. And our focused approach to getting closer to our consumers and building differentiated brands is working well. And there are great opportunities to invest in our people, technology, processes and data to drive even more efficiency. Now all of this is brought together in a clear plan to create value and generate another five years of growing shareholder returns.

[Stefan Bomhard, CEO at Imperial Brands]

Now since we held our Capital Markets Day, global economic outlook has been more uncertain. However, we remain confident that the building blocks of our five year plan are robust and we expect to deliver against our next five year medium term guidance unchanged. And this is underpinned by our operating model, which starts with operational delivery for our consumers, which then translates into financial delivery, particularly cash. This reinforces our confidence in our progressive dividend and evergreen share buyback, which will drive growing capital returns for So all in all, I am confident with the management team this represents an attractive investment case for both existing and potential new investors. So thank you.

[Stefan Bomhard, CEO at Imperial Brands]

I will now hand it over to Peter, who will take us through your questions. Thank you.

[Peter Durman, Director - IR at Imperial Brands]

Great. Thanks very much, Stefan. So we'd now like to take your questions. As usual, we'll take questions from the room first and then we'll take questions from those who've joined by the telephone. If you wish to ask a question via the telephone, you'll need to register to receive the dial in details or you can do this by clicking on Phone Details on the menu at the top right hand of the webcast window.

[Peter Durman, Director - IR at Imperial Brands]

The link to register is also available in today's press release. So we'd now like to take the first question from the room. Please wait for the microphone and please state your name and organization before posing your question. Thanks very much.

[Rashad Kawan, Analyst at Morgan Stanley]

Hey guys, Rochat Cohen, Morgan Stanley. Thank you very much. Stefan, congrats on a fantastic track record, wishing you all the best for the future. I guess first question for Lucas as you kind of think through the next five years. Obviously, you've been core to implementing this new strategy that you guys announced at the CMD.

[Rashad Kawan, Analyst at Morgan Stanley]

Should we read into that that we shouldn't expect much change from here to that strategy going forward, including the capital allocation framework that you talked about earlier today? And then second question, just on tobacco volumes. Declines were just north of 3%, four % last year. It feels like you're kind of getting to a more normalized level. Is that how you guys think about it?

[Rashad Kawan, Analyst at Morgan Stanley]

And even if you have one or two markets that are more elevated like The U. S, the portfolio should be enough to kind of keep you within that under normal conditions?

[Lukas Paravicini, CFO & Director at Imperial Brands]

Thank you very much. And yes, I am tremendously excited with the opportunity to actually continue to forge a healthier path for our future for Imperial and with it unlock further value for shareholders. And absolutely you should see this as a continuity of what we have been doing in the last five years what we have reinforced at the CMD. The purpose, the vision of being a challenger, our behaviors are at the heart of what we have done and will continue to be at the heart of what we are doing going forward. The strategy which you have just seen at the CMD has been crafted not just by Stefan Murry and myself but the whole ELT and we stand behind that as a team and we will make sure that we implement that as we have presented it.

[Lukas Paravicini, CFO & Director at Imperial Brands]

And I will not forget where I come from. And so the capital allocation is close to my heart and has worked well in the past. And so you could expect that that will also continue as we have again said at the CMD. So absolutely it is about continuity.

[Stefan Bomhard, CEO at Imperial Brands]

Let me absolutely give Lucas a break. Yes, on the second on your question on volume outlook, think you absolutely rightly picked up. What you can see in these half years results is kind of returning back to where we came from. And I think that's very reassuring because I think logically there's always a lot of attention on the markets, whether that's UK, Australia and so on, where you see elevated level of volume, market size declines. But you can see in these half year results the effect of two very attractive markets fundamentally from an affordability perspective with The U.

[Stefan Bomhard, CEO at Imperial Brands]

S. And Germany playing an important role. We shouldn't forget Spain is also a market where relatively high good level of affordability drives relatively attractive returns of market size declines. So look, can't tell you what the market size declines will look like in the next five years, but I think you can take comfort with the market footprint that Imperial has. We looked very hard at that in the context of the next five years.

[Stefan Bomhard, CEO at Imperial Brands]

Murray played an important role to look at that and you can see in these half year results data points that validates that.

[Peter Durman, Director - IR at Imperial Brands]

Next question, we'll take it front row please, for Harm in the front row. Thank you.

[Analyst]

Thank you. Good morning, guys. Two questions from my side as well. I want to start off with The U. S, please.

[Analyst]

Pretty impressive top line performance, almost 6% top line growth. But I noticed operating profit growth was slightly lower at 1%. Could you maybe share some of the dynamics between top and bottom line, particularly interested in understanding the growth of brands such as Crowns and Deep Discount and how profitable that growth and share gains are? And the second question is on NGPs. You highlighted some additional rollouts, both in vapor and heated tobacco.

[Analyst]

And of course, you want to continue press on with Zone. I just want to understand how some of these innovations and hopefully an acceleration in top line growth marry with the improved NGP losses that you've highlighted and whether actually it could be an opportunity to invest that extra dollar because as we see at other organizations, they pay back very quickly?

[Stefan Bomhard, CEO at Imperial Brands]

Lucas will take the first and I take your second question.

[Lukas Paravicini, CFO & Director at Imperial Brands]

So indeed we are very excited with the performance of our role in The U. S. And again especially also in the context of The U. S. And against our competitors.

[Lukas Paravicini, CFO & Director at Imperial Brands]

That's not just limited to the revenue, it's also on the market share growth. And again, U. S. Is one of the countries where we it's an affordable market, which is great. But it's also a market where we have an offer at all price points.

[Lukas Paravicini, CFO & Director at Imperial Brands]

To your point, we do have an offer at a deep discount. That is doing well even though there is increased competition coming in and we expected that, but we continue to do well. But we also continue to do well at the level of Winston, for example, which is very helpful. So very pleasing to see that. You're right, the margins might be shifting slightly this year because we also have phasing.

[Lukas Paravicini, CFO & Director at Imperial Brands]

We have quite a bit of investment, especially in NGP in this first half. But we remain very confident over the full year with the results of The U. S. And remember, we went from 30,000 to 40,000 to now 70,000 stores in NGP in zone, there is quite a bit of investment going in there now. So that's really the issue here.

[Stefan Bomhard, CEO at Imperial Brands]

From which is the nice bridge to your second part, confidence level investments in NGP. I think the way I think you should look at the first half year result, another 15% plus growth and market share gains across all three categories, which is exactly glide path we want to be on, yes? And it is, as we said at the Capital Markets Day, the ambitions of the next five years on October 1 is to gain scale. We have now attractive offers for our consumers, yes, in these three categories. We have the right footprint of markets.

[Stefan Bomhard, CEO at Imperial Brands]

And I think what you see in these results, top line growth, double digit top line growth, double digit improvement in the bottom line. So as we gain scale, you will slowly see that also filtering its way through into better cost of goods as we gain scale. Look, we're also learning with I talked about the partners. I mean spending time with our 30 top suppliers where a meaningful number from them were our NGP suppliers. They're excited to work with us.

[Stefan Bomhard, CEO at Imperial Brands]

At the same time, trust me, I was with the procurement team. They also say, okay, what price are you going to give us for these ones? So the big story here is that what if you look at these half year results, you can see how the pieces are coming together. Now I also will tell you, there will always be hiccups in next five years. The NGP business is a highly volatile business.

[Stefan Bomhard, CEO at Imperial Brands]

But I think what you can now see, another half year of track record of delivering on the strategy.

[Peter Durman, Director - IR at Imperial Brands]

It's a quick question there from Damian.

[Damian McNeela, Director at Deutsche Numis]

Morning. Damian McNeill from Deutsche Bank. Two for me, please. First one is on Germany. And I think congratulations on finally delivering a meaningful improvement in share there.

[Damian McNeela, Director at Deutsche Numis]

And I appreciate that the sort of tobacco business is measured or managed on a sort of portfolio basis. But given ten years of share losses and how much the organization has improved, how should we think about share gains in Germany going forward?

[Stefan Bomhard, CEO at Imperial Brands]

Yes, yes. David, I was waiting for that question because after a decade of market share losses gaining 65 basis points is logically something that excites us. The same time, we always said we play a portfolio. I think what's great for us, this was the one country in the last five years that every single half year tracked the other numbers down. I think what's exciting to see is that Germany is our second largest market.

[Stefan Bomhard, CEO at Imperial Brands]

And as you will know, a very attractive market in our portfolio, it finally can actually grow market share. Same time, I look, while Lucas and me will push our German team to do the best, at the same time, we are always realistic. It's a highly it's not just an attractive market for Imperial, it's also a highly attractive market for our competitors. So look, one thing we shall not return to being the number one share donor in Germany is that we've been a long period of time. But I don't want to promise you there will be share gains all the way along because, again, we're managed as a portfolio.

[Stefan Bomhard, CEO at Imperial Brands]

What is the commitment we've made at the Capital Markets Day is that we will hold our share at minimum flat in the top five markets as an aggregate

[Damian McNeela, Director at Deutsche Numis]

position. My second question is on U. S. Illicit. I'm just wondering whether you've seen any improvement in the environment in that marketplace given what's been going on with Trump and tariffs in China.

[Stefan Bomhard, CEO at Imperial Brands]

Sure. Like you, we're eagerly watching all those things happening there, but you know us as a management team, number one, we're very prudent in what we forecast. And number two, we look at the facts, not the factoids. The reality is ultimately you can only see where in U. S.

[Stefan Bomhard, CEO at Imperial Brands]

States like Louisiana where the government has come down hard on these illicit players, you can see an improvement in the market dynamics for the legal players like ourselves. But at the same time, look, we take it as it comes. It's not with prudent approach. We don't have planned into our plans. We're not relying on a meaningful improvement.

[Stefan Bomhard, CEO at Imperial Brands]

If that happens, it would be great. We're happy to take it at this point in time. We're not really yet seeing apart from the places where government has put some very specific steps into place a meaningful change out there. But if it comes, wonderful. We're happy to take it, but we don't need it to deliver our back half and beyond.

[Stefan Bomhard, CEO at Imperial Brands]

You.

[Peter Durman, Director - IR at Imperial Brands]

I'll go to Richard Felton, just the road behind.

[Richard Felton, Equity Research Analyst at Goldman Sachs]

Great. Thank you very much. Richard Felton from Goldman Sachs. Two questions for me, please. First one, on the strong U.

[Richard Felton, Equity Research Analyst at Goldman Sachs]

S. Pricing in H1, could you maybe add a bit more color on how mix was impacting that? So I just imagine you've got some headwinds on mix from the discount segment doing well, maybe some tailwinds from cigars seeing slightly better. So just a little bit more color on the mix component in U. S.

[Richard Felton, Equity Research Analyst at Goldman Sachs]

Pricing. And then the second question is on Zone in The U. S. I appreciate that Nielsen data is far from perfect, but at least the data we can see suggests that the momentum has plateaued a little bit year to date. So interesting to hear any thoughts on your strategy for ZONE into the second half of the year in context of the competitive environment, which I suppose has also shifted slightly?

[Richard Felton, Equity Research Analyst at Goldman Sachs]

Thank you.

[Lukas Paravicini, CFO & Director at Imperial Brands]

Thank you very much. Yes, on the pricing, in general, both areas had very strong pricing. That's a starting point from MMC and FMC. And mix is actually not as impactful, especially not in MMC. There's a little bit of mix to your point with FMC, but it's actually quite a neglect to build that was my English.

[Lukas Paravicini, CFO & Director at Imperial Brands]

So it's not that important in that sense. So it is driven by pricing, not by mix. And there's a bit of mix in the FMC, not in the MMC.

[Stefan Bomhard, CEO at Imperial Brands]

And on your question on Zone, as I said earlier, it's like we're really pleased with the performance. We shouldn't forget we started with zero share, yes, a year ago, yes. And to be able to gain traction in our market footprint to reach a five share in such a short period of time against very well established competitors is something that we're really pleased with. It shows that challenge of mindset we've always talked about, better consumer understanding, really identifying who our core consumers are, having a differentiated product but also a differentiated brand has really served us well. I wouldn't read too much into the short term share movements because we're playing the longer game here.

[Stefan Bomhard, CEO at Imperial Brands]

Look, it's very clear. The success that we have enjoyed with ZONE and this very differentiated product would lead to a competitive reaction at one point in time, to a certain extent, which we were surprised how long it took the competitors to come out with a competitive reaction. We feel very good about the offer we have to our consumers. We continue to expand. We continue to invest into it.

[Stefan Bomhard, CEO at Imperial Brands]

And I think that's why we've continued to gain market share. Will competitors react to it? Will there be new offers in the marketplace? Will there be promotional pricing from some of our competitors as they introduce new products in the market? Absolutely.

[Stefan Bomhard, CEO at Imperial Brands]

But it's something we're not worried about.

[Gaurav Jain, Head of EU SMID, EU packaging, and Global Tobacco and Cannabis at Barclays Investment Bank]

Question from Gaurav. Hi, good morning. Gaurav Jain from Barclays. So congratulations, Stephen, Lucas on all the changes. Congratulations, Maria as well.

[Gaurav Jain, Head of EU SMID, EU packaging, and Global Tobacco and Cannabis at Barclays Investment Bank]

So the stock is down 7% as we are talking. And I think we have seen now two departures. And both of you are retiring at an age which people will not essentially associate with retirement. So I think what people are wondering is that Imperial had a fantastic run over the last five years. So is it that you are leaving at the high and there could be some risk down the road as we look out?

[Stefan Bomhard, CEO at Imperial Brands]

Gov, let me answer that question. Mean, number one, to be clear, we love Peter, but if you look at through the lens of the executive team, look it's a very and I can be very personal with you and as you may know each other, people look at me as the CEO of Imperial for a five year period, but you will know well that's not how Stefan looks at this. This is my eleventh year as a CEO having been the CEO of Inchcape before. So clearly after eleven years, for me when we did the Capital Markets Day and you saw many of you were there, present the team at the Capital Markets Day. And as I said, at that point in time, business is a team sport.

[Stefan Bomhard, CEO at Imperial Brands]

And I really felt the team showed up in a great way. And I really felt we have a strategy that is now clearly the compass for the business for the next five years. That logically came to the point where I was reflecting on was that I wanted to do the same job for another five years and make it sixteen years as a CEO. And I think also logically there's a reflection on things in life. If you're a CEO that is a full time job.

[Stefan Bomhard, CEO at Imperial Brands]

That's a 20 fourseven. There are many things that you can't do as a CEO that you might do as another exec. So with my family I had this inflection point after Capital Markets Day and with Lucas and Mary, with two people who are absolutely committed to know this business inside and out and in discussion with the Board of Directors, I then started that discussion. I think that has culminated in what I think is very much a continuity of the business. So apologies, but at one point in time I have to look after Stefan and Stefan and the family as well and I felt after five years of transformation at Imperial and in my eleventh year of being a CEO, I think I had earned the right to retire.

[Stefan Bomhard, CEO at Imperial Brands]

Thank you.

[Gaurav Jain, Head of EU SMID, EU packaging, and Global Tobacco and Cannabis at Barclays Investment Bank]

The second question is on just the FX impact. It's a bit more than historically used to be

[Gaurav Jain, Head of EU SMID, EU packaging, and Global Tobacco and Cannabis at Barclays Investment Bank]

the case.

[Stefan Bomhard, CEO at Imperial Brands]

That's one for Lucas now.

[Gaurav Jain, Head of EU SMID, EU packaging, and Global Tobacco and Cannabis at Barclays Investment Bank]

For Imperial on the transaction side. So yes, on the revenue side, it's a 2.5% impact, which I think everybody had in their models. But on the EBIT side, it is much more. So what has changed at Imperial that the transaction impact is much more than historically was the case?

[Lukas Paravicini, CFO & Director at Imperial Brands]

So let's just for the sake of good orders, we talk about translation or transaction because we naturally hedged on the transactional elements of FX. On the translation, you're right, we indicated a 3.5% to 4.5% on the operating profit and earnings. And it is probably useful to just highlight in your pack of the appendices. You have a slide with the details of what is exactly the FX rate that we have taken. And there is quite a volatile situation out there not necessarily induced by ourselves.

[Lukas Paravicini, CFO & Director at Imperial Brands]

And so we took the exchange rate last Friday which is sort of the last data point we can take to get it all through the documentation and present it to you in an orderly way. And we took it at that moment of volatility. There's nothing has really changed in the underlying mixture or composition. It is also probably useful to highlight that the rather large range is due to the probably the 3.5% is more to the operating profit side and the 4.5% is more when you consider the below the operating profit items that will extend it to 4.5 That's why the range is. But nothing really has changed in the underlying composition.

[Lukas Paravicini, CFO & Director at Imperial Brands]

It's just the volatility of the market.

[Gaurav Jain, Head of EU SMID, EU packaging, and Global Tobacco and Cannabis at Barclays Investment Bank]

Thank you. And one last question on the synthetic nicotine market. So clearly, are you have Zone in The U. S, which is synthetic nicotine. Any thoughts about entering the synthetic nicotine e cigarette market in

[Gaurav Jain, Head of EU SMID, EU packaging, and Global Tobacco and Cannabis at Barclays Investment Bank]

The U. S. As well?

[Stefan Bomhard, CEO at Imperial Brands]

I mean, at this point in time, we will always evaluate all options. As you know, we are still, like most of the industry, waiting for our PMTA application to be fully assessed on our current offer. And that is where the attention is at this point in time.

[Peter Durman, Director - IR at Imperial Brands]

Any more questions in the room? We don't have any questions online actually currently. So if there are no more questions, then I'll hand over to Stefan to close. Thank Yes.

[Stefan Bomhard, CEO at Imperial Brands]

Look, it's hopefully, what you have a sense after today's results presentation about it's another half year of delivery from the business when you look at the key indicators. And I highlight the one we talked about it is Germany having finally turned market share in the right direction, probably for all of us, one of the key highlights. But also, you can see the NGP business with 15% growth and market share growth across all three categories gives you some confidence about that our challenger mindset really works. But also hopefully, you take away and have some memory about when we talk about the Capital Markets Day in only in March about this is at the bigger picture, continues to be a very attractive opportunity for investors to come into. We have a stronger tobacco business as a company versus where we were five years ago.

[Stefan Bomhard, CEO at Imperial Brands]

We have now differentiated and competitive NGP business. And I think as you touched upon, the capital allocation strategy I think is a differentiating feature in the way and you heard from Lucas that ain't going to change in the next five years, yes? And hopefully at especially the Capital Markets Day, you saw the level of talent we have in the organization, not just at the ELT but also when you were downstairs at the next level of management. Only showed you the marketing team, but trust me, it's the same across the functions. So with this comment on team in mind, I feel really this is the right time to pass the baton to Lucas and to Murray.

[Stefan Bomhard, CEO at Imperial Brands]

Look, the baton doesn't get passed now, to be clear, as Therese also reminds me, the baton gets passed at the September. So look, I'm absolutely with Lucas and the team absolutely accounted to deliver for this fiscal year. But I really feel the business is in the right shape to take it over the next five years and the right team is in place to take it to that full potential in the next five years. So and hopefully, we'll have the time to see all of you in the upcoming road shows and other opportunities. Thank you.

Participants

Executives

• Thérèse Esperdy, Chair
• Stefan Bomhard, CEO
• Lukas Paravicini, CFO & Director
• Peter Durman, Director - IR

Analysts

• Rashad Kawan, Analyst at Morgan Stanley
• Analyst
• Damian McNeela, Director at Deutsche Numis
• Richard Felton, Equity Research Analyst at Goldman Sachs
• Gaurav Jain, Head of EU SMID, EU packaging, and Global Tobacco and Cannabis at Barclays Investment Bank