IMPERIAL BRANDS PLC BRANDS IMPERIAL ANNUAL REPORT AND ACCOUNTS 2019 ACCOUNTS AND REPORT ANNUAL ANNUAL REPORT AND ACCOUNTS 2019 OUR PURPOSE WE CAN I OWN Our purpose is to create something Everything See it, seize it, is possible, make it happen better for the world’s smokers with together we win our portfolio of high quality next generation and tobacco products. In doing so we are transforming WE SURPRISE I AM our business and strengthening New thinking, My contribution new actions, counts, think free, our sustainability and value creation. exceed what’s speak free, act possible with integrity OUR VALUES Our values express who we are and WE ENJOY I ENGAGE capture the behaviours we expect Thrive on Listen, challenge, share, make from everyone who works for us. make it fun connections The following table constitutes our Non-Financial Information Statement in compliance with Sections 414CA and 414CB of the Companies Act 2006. The information listed is incorporated by cross-reference. Additional Non-Financial Information is also available on our website www.imperialbrands.com. Policies and standards which Information necessary to understand our business Page Reporting requirement govern our approach1 and its impact, policy due diligence and outcomes reference Environmental matters • Occupational health, safety and Environmental targets 21 environmental policy and framework • Sustainable tobacco programme International management systems 21 Climate and energy 21 Reducing waste 19 Sustainable tobacco supply 20 Supporting wood sustainability 20 Employees • Code of Conduct Diverse and engaged workforce 22 • Our values • Group wide employment policy Workforce Engagement Director 41 and 61 • Fairness at work policy Workplace health and safety 22 • Occupational health, safety and environmental policy and framework International management systems 21 Lost time accident (LTA) rate 22 Respect for human rights • Human rights policy Respecting human rights 9 • Code of Conduct • Supplier Code Responsible operations and people 21 • Supplier qualification programme Sustainable tobacco supply 20 • Modern slavery statement • Speaking up policy Tackling child labour 45 and 61 Social matters • International marketing standards Responsible operations and people 21 • Fontem marketing standards • Policy on taxation Youth access prevention 21 • Community contributions and Charitable and political donations 61 volunteering policy • Information security policy Anti-corruption • Code of Conduct How we manage risk 33 and anti-bribery • Fraud risk management policy • Speaking up policy Governance, risk management and internal control 55 • Finance manual • Group control matrix Description of principal • Principal risks and uncertainties 33 to 40 risks and impact of • Governance, risk management 55 business activity and internal control Description of the • Our business model 4 business model Non-financial key • Key performance indicators 16 performance indicators • Sustainability performance indicators 17 1. Not all of our Group policies and standards are publicly available OVERVIEW OVERVIEW Performance Overview 1 2019 Chairman’s Statement 2 STRATEGY Our Strategy 3 OVERVIEW Our Business Model 4 Our Market 6 Chief Executive’s Statement 8 TOBACCO & NGP ASSET BRAND Investment Case 11 NET REVENUE* NET REVENUE* Our Environment 12 Our Stakeholders 14 STRATEGY Key Performance Indicators 16 £8.0bn £5.3bn PERFORMANCE +2.2% +4.4% Sustainability Review 18 Operating Review 23 REPORTED EARNINGS ADJUSTED EARNINGS Financial Review 29 PER SHARE PER SHARE* Principal Risks and Uncertainties 33 GOVERNANCE 106.0p 273.3p Chairman’s Introduction 41 Board of Directors 42 -26.2% -1.6% PERFORMANCE Board Engagement 44 The Board and its Committees 46 DIVIDEND PER SHARE * Movement on a constant currency basis Directors’ Report 58 Directors’ Remuneration Report 66 206.6p FINANCIALS +10% Independent Auditors’ Report 87 Consolidated Income Statement 96 Consolidated Statement 97 of Comprehensive Income Consolidated Balance Sheet 98 PERFORMANCE MEASURES USED THROUGHOUT THE REPORT Consolidated Statement 99 GOVERNANCE of Changes in Equity Reported Complies with International Financial Reporting Standards and Consolidated Cash Flow Statement 100 (GAAP) the relevant legislation. Notes to the Financial Statements 101 Adjusted Non-GAAP measures provide a useful comparison of performance from Imperial Brands PLC Balance Sheet 146 (Non-GAAP) one period to the next. Reconciliations can be found in notes 3, 8, 10 and 30. Imperial Brands PLC Statement 146 of Changes in Equity Constant Removes the effect of exchange rate movements on the translation of currency the results of our overseas operations. We translate current year results Notes to the Financial Statements 147 basis at prior year foreign exchange rates. of Imperial Brands PLC Market Market share data is presented as a 12-month moving average share weighted across the markets in which we operate. SUPPLEMENTARY INFORMATION Stick Stick equivalent (SE) volumes reflect our combined cigarette, Related Undertakings 151 equivalent fine cut tobacco, cigar and snus volumes. Shareholder Information 168 FINANCIALS OUR STRATEGY AN EVOLVING ENGAGING WITH ENABLING DELIVERING GOOD FOR GROWTH ENVIRONMENT STAKEHOLDERS GROWTH, GOVERNANCE Our strategy is aligned Addressing the Stakeholder CREATING VALUE High standards to our purpose and issues posed by our engagement is Managing our of governance focuses on creating changing operating essential for the environmental, underpin our sustainable value environment growth of the social and long-term business governance issues sustainability PAGE 3 PAGE 12 PAGE 14 PAGE 18 PAGE 41 CHAIRMAN’S STATEMENT This report provides an overview of performance and the actions we are taking to strengthen our sustainability and create long-term value for our stakeholders. MARK WILLIAMSON Chairman This was a difficult year for the Group, one in which our BOARD CHANGES financial delivery was impacted by a challenging Next In February, I announced my intention to step down from Generation Products (NGP) market in the USA and lower than the Board in anticipation of the requirements of the new expected results in our Africa, Asia and Australasia division. UK Corporate Governance Code regarding a Chairman’s On a constant currency basis these factors resulted in Board tenure. I will be succeeded by Thérèse Esperdy, Tobacco & NGP revenue growth of 2.2 per cent, and a currently Senior Independent Director, who will be 1.6 per cent decline in adjusted earnings per share. appointed Chairman on 1 January 2020. Reported earnings per share declined 26.2 per cent. Thérèse has made a significant contribution since she Whilst this is disappointing, we continue to believe that became a Non-Executive Director in 2016 and I am delighted NGP provides a significant opportunity to deliver additive that she has agreed to take on this role. Her international growth to complement the resilience of our tobacco business. executive experience and the acute understanding she has We have a robust tobacco value creation model that will of the business, the sector we operate in and the concerns of continue to grow profit and cash flows in the years ahead. investors is invaluable. In NGP we have adjusted our plans for growth in light of the In October Chief Executive Officer Alison Cooper and the volatile environment in the USA and continue to work with Board agreed that Alison will step down from the role of stakeholders globally to develop a regulatory framework that CEO and from the Board once a suitable successor is found. enforces high product and marketing standards. Alison has worked tirelessly and with great energy and NEW DIVIDEND POLICY passion during her 20 years with Imperial, nine of which have been as CEO. Under Alison’s leadership the business has been We increased the dividend by 10 per cent this year, in line simplified and reshaped to strengthen its long-term growth with our long-standing policy. In July the Board announced potential and around £12 billion in dividends has been a revised dividend policy to support continued growth and returned to shareholders. The Board thanks her for the optimise returns for shareholders. tremendous contribution she has made. The new policy recognises the Company’s continued strong Details of further Board changes are included in our cash generation and the importance of growing dividends Governance Report, which provides an overview of our for shareholders, while providing greater flexibility in governance framework and the work of the Board and capital allocation. its Committees. ASSET DIVESTMENT PROGRAMME STRENGTHENING DELIVERY We have identified a number of assets that are not central to I would like to thank our employees for all their hard work our growth strategy, including our premium cigar business during the year and I know that the learnings taken from 2019 which is in the process of being sold as part of a divestment will be used to drive a stronger performance in 2020. I would programme that will realise up to £2 billion by May 2020. The also like to thank my Board colleagues for their support Board will make a decision at that time regarding the most during my 12 years with the Company. appropriate use of the proceeds. It has been a privilege to serve as Chairman for five of those A RESPONSIBLE BUSINESS years and I look forward to seeing Imperial Brands grow and We run our business responsibly and take pride in the positive prosper as it continues to focus on creating something better stakeholder