Tobacco Max Webinar

Imperial Brands PLC

2 July 2018
Disclaimer
Certain statements in this presentation
constitute or may constitute forward-looking
statements. Any statement in this
presentation 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,
competitive or other market conditions. These
and other factors could adversely affect the
outcome and financial effects of the plans
2 | Imperial Brands: Tobacco Max Webinar | July 2018
and events described in this presentation. 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 presentation 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 presentation should be
construed as a profit forecast or profit
estimate and no statement in this
presentation 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 presentation 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 presentation is shown or into whose
hands it may come and any such
responsibility or liability is expressly
disclaimed. The material in this presentation
is not provided for tobacco product
advertising or promotional purposes. This
material does not constitute and should not
be construed as constituting an offer to sell,
or a solicitation of an offer to buy, any
tobacco products. The Company’s products
are sold only in compliance with the laws of
the particular jurisdictions in which they are
sold.
 Alison Cooper
Our Strategy
Focus on quality growth

Maximise sustainable shareholder returns

Tobacco Maximisation and NGP Growth

Strengthen Portfolio Develop Footprint Drive Cost Embed Capital

right brands right markets Optimisation Discipline
• Simplify tobacco • Prioritise growth • Simplify operating • Maximise cash
portfolio Market opportunities model conversion
repeatable
model
• Invest in Asset • Robust capital allocation
• Quality share focus • Lean manufacturing
Brands – Debt repayment
• Proprietary • Sustained investment • Control of overheads
– Dividend
innovation in NGP – Investment

3 | Imperial Brands: Tobacco Max Webinar | July 2018

 Alison Cooper
Strategic Focus; Informed Choices

Tobacco model resilient within evolving consumer environment

• margin potential
Right markets Sustainable high
• where we can win
margin growth
• strong equities
Choices Right brands
• broad appeal Strong cash
Sustainable flows
returns for Right route to • codified MRM
shareholders market • retailer focus
Maximise
Right operating • lean & agile tobacco returns
model • revenue focus
Fund NGP
Right capital • NGP M&A
investment
allocation • Divestments/exits

4 | Imperial Brands: Tobacco Max Webinar | July 2018

 Alison Cooper
Informed Choices Delivering…

Invest in Right Invest in Right Right Operating Right Capital

Markets Brands Model Allocation

Strengthened footprint revenue from

65% Asset Brands £370m savings to date Consistent cash conversion
through investment
90% to 95%
reduction in
35% brands savings by
Volumes outperforming £600m 2020 Active capital discipline
9.0%
wider market 7.2% 7.7%
8.5%

5.7% debt
+20bps share H1 5.4%
of existing cost £0.9bn reduction p.a.
2013 2014 2015 2016 2017 H1 '18
15% base by 2020

share gains in Focus on value creation

+360 Growth Brand
priority markets bps share
Industry-leading Up to divestments
margins over next 2 yrs
Innovative pipeline £2bn
of NGP products

5 | Imperial Brands: Tobacco Max Webinar | July 2018

Agenda

Industry Context &

Where to Invest
Amal Pramanik Director of Strategy

MRM & How to Win Dominic Brisby Director, Growth Division

Markets: USA Dan Carr President & CEO, ITG Brands

Markets: Germany Michael Kaib General Manager, Germany

Markets: UK Melvin Ruigrok General Manager, UK

Lean Operating Model Oliver Tant Chief Financial Officer

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 Amal Pramanik
Tobacco Value Creation Model Intact
Long term resilience; recent short term variation

Tobacco Market Prior 5 years FY16 FY17 FY18

Footprint Improving
-3-4% -0.9% -4.4%
Volume volume trend

Footprint Stronger
+5-6% +4.0% +2.3%
Price/Mix price/mix

2016 Benign environment: limited regulatory and excise disruption; supportive macro drivers
2017 EUTPD regulation; greater excise shocks; more limited pricing opportunity and mix pressures

7 | Imperial Brands: Tobacco Max Webinar | July 2018

 Amal Pramanik
Industry Context
Well-positioned in an evolving environment
Tobacco environment resilient within evolving consumer environment

Regulation Affordability Demand Shifts Route to Market NGP

Bigger formats Evolving retailer

Ongoing industry Value bias Growing tobacco
Lighter products & marketing
feature alternatives
Functionality landscape

Leverage strong Optimising Increasing focus Enhancing Additive growth

capabilities & portfolio & investment engagement opportunity for
experience positioning in portfolio with retailers Imperial

8 | Imperial Brands: Tobacco Max Webinar | July 2018

 Minutes of labour at avg.
wage per 20 cigarettes

-
170

100

25
50
75
India
Morocco
South Africa
Egypt
Indonesia
Malaysia
Romania
Algeria
Ukraine
Philippines

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Thailand
New Zealand
Vietnam
Hungary
Brazil
United Kingdom
Australia
Poland
Right Markets: Market Prioritisation

Greece
Turkey
Portugal
Slovakia
France
Affordability supports future pricing opportunities

Increasing Affordability

Argentina
Russia
Norway
Italy
Spain
Belgium
Ireland
Netherlands
Key Imperial markets

Germany
South Korea
No or immaterial presence

Sweden
USA
Saudi Arabia
Austria
Data Source: Euromonitor Passport 2017 & WHO

Japan
Amal Pramanik
 Amal Pramanik
Right Markets: Profit Pool Analysis
Market profile supports future growth

Australia USA
Priority Markets
UK Saudi
Tobacco Profitability

No presence

France Germany Japan

Morocco
Italy

India Spain
Indonesia Brazil
Russia
Ukraine
Philippines Argentina

Tobacco Affordability
10 | Imperial Brands: Tobacco Max Webinar | July 2018 Data Source: Euromonitor Passport 2017 & WHO
Bubble size illustrative of relative market sizes in billion stick equivalents
 Amal Pramanik
Right Brands: Strongest Equities, Broadest Appeal
Focus on fewer brands supporting outperformance

Growth Brands

• Growing quality of revenue by investing in

strongest equities

• Successful migration process supporting

simplification

• Organic volume growth (ex. migrations)

• Outperforming and gaining share

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 Dominic Brisby
Right Markets: Prioritisation
Priority markets over 70% of profit

100%

Priority
50%

Key
0% Partner
No. of Markets Volume Profit
12 | Imperial Brands: Tobacco Max Webinar | July 2018
 Dominic Brisby
Right Markets: Prioritisation
Focusing resources behind market potential

10 Priority Markets 23 Key Markets 100+ Partner Markets

Profitably growing share Lean portfolio Minimise complexity

Objective
Driving to full potential Cost focus Maintain profit

Market-led/tailored
Standard business tools
Execution & initiatives
& initiatives Divisional oversight
Support Group & divisional
Divisional support
support

Investment Majority of investment Some new investment Limited investment

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 Dominic Brisby
Right Route to Market: Market Repeatable Model
Consistent framework - successful execution

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 Dominic Brisby
Market Repeatable Model in Practice

Global Demand Shifts

Investment prioritised towards
Poland growth in changing consumer trends

Portfolio simplification supports

P&S, now c.10% share

Germany

Investment driving JPS equity

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 Dominic Brisby
Market Repeatable Model in Practice

UK

Retailer engagement programme

supports UK share turnaround
Always on Price Strategy*
£££

PREMIUM A B C
Russia
VALUE A B C

% vol via key a/cs market share

ECONOMY A B C

Increased distribution in key Competitor

accounts drives share in Russia Brands

16 | Imperial Brands: Tobacco Max Webinar | July 2018 * Market by market implementation of this global strategy on price will vary
 Dominic Brisby
Leveraging the Market Repeatable Model
Investment delivering share gains

Simplification & focused investment driving Quality growth with improving share
consistent improvement in Growth Brands in our Priority Markets

Growth Brand Share 9.0%

8.5% +10bps -20bps
7.7%
7.2%
5.4% 5.7%
+50bps +60bps

-100bps +490bps

-80bps +20bps
2013 2014 2015 2016 2017 H1 '18

+10bps +20bps

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 Dan Carr
USA: Exceeding Acquisition Expectations
Strong financial performance
Expanded US Business Strategic Objectives Delivering

• Asset Brand
• Rejuvenate latent brand share +50bps
equity: Winston & Kool
• Broad national coverage • MMC share +150bps
• Reverse MMC decline
• Experienced salesforce
• Realise synergies • Margin growth +15%
• Growing retail influence
• Deliver financial return • Return on investment
• Stronger brand portfolio exceeding deal model

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 Dan Carr
USA: Positive Growth Outlook
Attractive and growing tobacco & NGP market

Market Attractiveness Focus to Win

Predictable excise • Strong portfolio: cigarettes, MMC,
Rational regulatory framework premium cigars, NGP

Affordability offers long • Growing key brand equities

term pricing opportunity
• Experienced salesforce
25% of world tobacco profit
$ Strong future growth • Strong retailer network

• Further efficiency opportunities

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 Dan Carr
USA Cigarette: Focused Portfolio Strategy
Investment prioritised behind Winston & Kool
Enhanced Distribution Market-focused portfolio

Premium
180,000
retailers
Discount

Deep
Brand Investments: Demand Shifts Discount

Premium +2% share Brand investments

Menthol of market in
past 2 years

Deep discount
Value 9% of industry
seeking +1.3% since
2015

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 Dan Carr
USA MMC: Strong Portfolio and Business Model
Consumer-led approach driving share
Core range in stores Focused Portfolio

49% SKU reduction

210
107

2015 2018

Brand Investments: Demand Shifts Brand marketing

Growth in Natural MMC Leaf Wrapper Lifestyle Events Influencers
30%
4 Layer
Consumer
Engagement
20%
Ecosystem
Natural Leaf segment % of MMC
01/15 07/15 01/16 07/16 01/17 07/17 01/18 Organic Social Retail

21 | Imperial Brands: Tobacco Max Webinar | July 2018

 Dan Carr
USA: Share Growth in Asset Brands
Asset brands building quality revenue
Growing Asset Brand Share
H1 MAT Shares
2.4
Acquisition
FMC: 8.8% -10 bps
2.2
+30bps MMC: 14.4% +27 bps
2.0

1.8
+22bps + 13 bps
1.6
Apr 14 Sept 15 Sept 16 Apr 18
+ 10 bps
8
+ 160 bps
6

4
+350bps Asset Brand Net Rev
2
48% +490bps
0
Apr 14 Sept 15 Sept 16 Apr 18

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 Michael Kaib
Germany: Consistent & Growing Profit Pool
Macro stability & supportive regulatory framework

Market Attractiveness Focus to Win

Clear excise structure
Relative marketing flexibility
Very affordable
Seen consistent pricing
• No 2 in market; leader in fine cut
• Focus brand portfolio
• Partnership approach in Key Accounts

• Differentiated customer solutions

Profit pool +3% CAGR 2011-17
$
Expected to continue
• Effective corporate affairs engagement

23 | Imperial Brands: Tobacco Max Webinar | July 2018

 Michael Kaib
Germany: Investment in Brand Equity and Distribution
Focus on demand shifts & tailored customer solutions
Tailor Customer Solutions Capturing Demand Shifts

31.5
27.3
25.0
22.6

Retailer A Retailer B Retailer C

Share (%) Performance in Partner Customers

• Bigger formats in both FMC & FCT
• Partnerships support share growth
• JPS Blue Stream & Gauloises L’Autre

Core Range Everywhere Brand Investment

• +10% increase in
distribution points since 2016
• Gauloises equity
campaign
supports recent
quality upgrade

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 Michael Kaib
Germany: Targeted Consumer Messaging
Digital POS enables tailored communication

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 Michael Kaib
Germany: Asset Brands Driving Performance
Gains in fine cut driving improved trajectory
H1 MAT Shares
Total WSE share Asset Brand share
23.6 Total WSE share
22.7
22.1 22.2 22.2% +12bps

Asset Brands share

18.6 18.9 18.9% +33bps

18.0 18.6

Asset Brand Net Rev

82%
H1'15 H1'16 H1'17 H1'18

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 Melvin Ruigrok
UK: Leading in a Challenging Environment
Strong market position in large profit pool

Market Attractiveness Focus to Win

Predictable excise • Market-leading position: JPS Players
Dark tobacco market No.1 FMC brand

Average affordability • Award winning retailer engagement

Positive recent pricing programme

Challenging market recently • Effective distribution network

$
‘Reset’ post EUTPD
• Regulatory expertise

27 | Imperial Brands: Tobacco Max Webinar | July 2018

 Melvin Ruigrok
UK: Targeted Investment
Prioritising portfolio & strong customer engagement
Learn & improve Simple market-focused portfolio

35%
39% 40% 41% • Leveraging equity to recruit and retain
30%
17%
7% 16% 22% 29%

23% 19% 23% 17% 12%

FMC FCT
FY13 FY14 FY15 FY16 FY17 89% of
Carlton Player's YTD 73% of
volume volume
Share (%) of Sub Economy

Tailor Customer Solutions

• Capture evolving consumer demand
49
48 47 19%

17%
42 11%
6% 6% 6%

Retailer A Retailer B Retailer C FY13 FY14 FY15 FY16 FY17 FY18

Share (%) Performance in Partner Customers Capsule Filter Market Share % YTD

28 | Imperial Brands: Tobacco Max Webinar | July 2018

 Melvin Ruigrok
UK: Achieving Share Gains
Portfolio choices & retail partnering key to share recovery
H1 MAT Shares
Market Share by Category %
MAT share

41.9 41.9% +50bps

41.5
41.4
287 bps
17.4 444 bps
13.0 13.2
11.0 10.3
6.1 Asset Brand Net Rev

HY16 HY17 HY18 74%

Total WSE Gold Leaf Player's

29 | Imperial Brands: Tobacco Max Webinar | July 2018

 Oliver Tant
Right Operating Model
Aligned to strategic focus

Right Markets
Footprint Right Brands
Portfolio Cost Optimisation Capital discipline

Prioritisation Simplification Control of costs Efficient capital

160 Mkts Brands allocation
250 • Lean operating model
13 Clusters • Manufacturing & supply chain optimisation

10 Priority Markets
125 • Shared services

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 Oliver Tant
Right Cost of Goods
Industry-leading manufacturing cost base

COGs Analysis
Leaf complexity reduction
47% reduction in grades purchased
20% reduction in suppliers and origins

NTM complexity reduction -4%

>20% reduction in suppliers More than offsetting
inflation & volume
decline
Factory cost reduction
23 sites reduced over 8 years
Production locations optimised

31 | Imperial Brands: Tobacco Max Webinar | July 2018

 Oliver Tant
Right Operating Model
Improving agility & efficiency
From To

160 Markets 13 Clusters

Sales
organisation 13 Clusters 5 Divisions 2 Divisions

2 Supply functions 1 Supply function

MSC Manufacturing and Supply Chain 5 Manufacturing regions 3 Regions

Category Mgt. Tobacco Max NGP High fixed costs High variable costs

Corporate Support Functions No shared services 4 Business services

32 | Imperial Brands: Tobacco Max Webinar | July 2018

 Oliver Tant
Strong Cash Delivery
Enables deleverage, investment & dividend increases

Cash Conversion Net Debt/EBITDA

3.6x
97% 95% 3.4x
91% 91%
3.0x

2.5x

2014 2015 2016 2017 2014 2015 2016 2017

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 Oliver Tant
Right Capital Allocation

Strategic Focus More Focus Strategic Benefits

• Fewer brands, SKUs • More active portfolio • Enhanced growth focus

management
• Market prioritisation • Simplification/complexity
• Divestments and exits reduction
• NGP growth opportunity
• Proceeds of up to £2bn • Cost and cash
• Lean operating model/ over next 24 months efficiencies
footprint optimisation
• Effective capital allocation

34 | Imperial Brands: Tobacco Max Webinar | July 2018

 Alison Cooper
Strategic Focus; Informed Choices

Tobacco model resilient within evolving consumer environment

• margin potential
Right markets Sustainable high
• where we can win
margin growth
• strong equities
Choices Right brands
• broad appeal Strong cash
Sustainable flows
returns for Right route to • codified MRM
shareholders market • retailer focus
Maximise
Right operating • lean & agile tobacco returns
model • revenue focus
Fund NGP
Right capital • NGP M&A
investment
allocation • Divestments/exits

35 | Imperial Brands: Tobacco Max Webinar | July 2018

Tobacco Max Webinar: Q&A

36 | Imperial Brands: Tobacco Max Webinar | July 2018