5 cost leadership - imperial brands · introducing manufacturing, supply and r&d cost...

Cost Leadership at Competitive QualityWalter Prinz, Manufacturing, Supply and R&D Director

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Disclaimer

Certain statements in this presentationconstitute or may constitute forward-lookingstatements. Any statement in thispresentation that is not a statement ofhistorical fact including, without limitation,those regarding the Company’s futureexpectations, operations, financialperformance, financial condition andbusiness is or may be a forward-lookingstatement. Such forward-looking statementsare subject to risks and uncertainties thatmay cause actual results to differ materiallyfrom those projected or implied in anyforward-looking statement. These risks anduncertainties include, among other factors,changing economic, financial, business orother market conditions. These and otherfactors could adversely affect the outcome

and financial effects of the plans and eventsdescribed in this presentation. As a result,you are cautioned not to place any relianceon such forward-looking statements. Theforward-looking statements reflect knowledgeand information available at the date of thispresentation and the Company undertakes noobligation to update its view of such risks anduncertainties or to update the forward-lookingstatements contained herein. Nothing in thispresentation should be construed as a profitforecast or profit estimate and no statementin this presentation should be interpreted tomean that the future earnings per share ofthe Company for current or future financialyears will necessarily match or exceed thehistorical or published earnings per share ofthe Company. This presentation has been

prepared for, and only for the members of theCompany, as a body, and no other persons.The Company, its directors, employees,agents or advisers do not accept or assumeresponsibility to any other person to whomthis presentation is shown or into whosehands it may come and any suchresponsibility or liability is expresslydisclaimed. The material in this presentationis not provided for tobacco productadvertising or promotional purposes. Thismaterial does not constitute and should notbe construed as constituting an offer to sell,or a solicitation of an offer to buy, anytobacco products. The Company’s productsare sold only in compliance with the laws ofthe particular jurisdictions in which they aresold.

Imperial Brands Investor Day | June 2016

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Introducing Manufacturing, Supply and R&D

COST LEADERSHIP


Core Capability Purpose Identity

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Execution excellence

Strategic Focus Areas

Winning through engaged peoplefocusing on customer and product

EfficiencyValue creation

ResponsivenessSpeed and agility

Quality and Compliance

Consumer value focus


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Quality Consumer centric



Consumers told us what they perceive

as quality

How severe production faults are

rated


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Improved quality – fewer complaints

FY12 FY13 FY14 FY15

0%

+20%

+10%

-10%

-20%

+17% Production

quality

-11% Consumer complaints

(volume adjusted)

Quality Focus – the Results

Complaint system upgrade


Complaints per100m sticks

World Class = 5

Imperial = 3.4

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Agility

Key building blocks

• Simplification agenda

• Lean manufacturing

• Scalability

Reduce time to market



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Responsiveness

0

5

10

15

20

25

30

FY11 FY12 FY13 FY14 FY15

Cap

acity

Bn

SE

Big Box

Scalability capability

0

2

4

6

8

10

12

14

16


Cap

acity

Bn

SE

Queen Size

0

0.5

1

1.5

2

2.5


Cap

acity

000

tns

Snus

+113% +226% +77%


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Complexity ReductionGreat progress on component reduction

28%weighted average

reduction


-25%

-46%

-32%

-20%

-49%

-46%

-54%

-18%

Cigarette Paper

Filter Tow

Plug Wrap

Tipping Paper

Adhesive

Tear Tape

Inner Frame

Pack Wrap

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World class performance Availability in Market and Supply Reliability


Availability in market FY16

80%

85%

90%

95%

100%

FY13 FY14 FY15 H11696%

97%

98%

99%

100%

FY13 FY14 FY15 H116

World Class

Supply reliability

Worst Average Worst Average World Class

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Strengthened R&D capacity Agile Innovation


10 weeks from GO to launch

Ideas and patents

filed

Dedicated team

Expertise andcapability

Leverage suppliers

Revised innovationgate process

24 liveprojects

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Conversion33%

Leaf34%

NTM33%

Discipline



Keep unit cost flat

13 | Imperial Brands Investor Day | June 2016

CURRENT28 Cigarettes & OTP7 Cigar4 Processing2 Papers/Tubes

Cigarettes and Other Tobacco Products

Tobacco Processing OperationsPapers/Tubes

Cigar

Factory FootprintContinuous review to optimise

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Maintaining cost leadership Conversion Costs

• 143bn SE capacity reduction

• Overheads lowered by 21%

• Lean - Overall Equipment Effectiveness +9%

• Complexity reduction

• Fully offset inflation

• FMC Europe benchmark study -11%


1.6 1.6 1.6 1.6

FY13 FY14 FY15 Est. FY16

£s p

er 0

00

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Balancing investment choices with cash deliveryCapital Discipline

£770m£820m

£730m

£660m

FY12 FY13 FY14 FY15

Leaf stock

£230m£200m

£175m

£140m

FY12 FY13 FY14 FY15

Manufacturing capex

89%

93%

88%

97%

FY12 FY13 FY14 FY15

Manufacturing cash conversion


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Leaf Cost LeadershipBenchmarking

4.81

5.07

5.345.15

4.234.33 4.39

3.99

2012 2013 2014 2015

US$/K

G

Alliance One average sales pricevs.

Imperial average purchase price (excl. cigar leaf)

SustainabilitySupply Integrity

Cost Leadership

Agile Leaf Strategy


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Further opportunities Key Efficiency Initiatives

• Product supply strategy

• Factory excellence (lean)

• Simplification

• Leaf strategy

• Working capital and capex


Keep unit conversion costs flat YoY

Compensate for raw material inflation

Focus oncash

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Execution excellence

A World Class Enabler

Winning through engaged peoplefocusing on customer and product






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