Investment Case
We offer a compelling investment proposition.
We offer a compelling investment proposition.
By building a more consumer-focused challenger business and following a disciplined capital allocation framework we are continuing to invest behind our strategy, while maintaining a strong, efficient balance sheet and delivering enhanced shareholder returns.
The tobacco value creation model remains resilient, with affordability and strong brand loyalty supporting sustainable pricing. By focusing on our top-five combustible markets that generate c.70% of operating profit, and through selective investment in brand equity and our sales force, we have stabilised market share, after years of sharp declines. This, combined with a more disciplined focus on our broader market portfolio, is driving improved combustible returns.
Next generation products have growth potential as they are still a relatively nascent category in the majority of markets. We seek to build a sustainable NGP business through a consumer focus, a partnership approach to innovation and disciplined execution. As a challenger, our role is to offer consumers a choice where they have already expressed an NGP preference and where we can leverage our existing customer relationships.
We have identified multiple initiatives to deliver operational improvements that will enhance our decision-making and drive efficiencies. For example, we are adopting new ways of working with our enabling functions using a global business service model and implementing a new ERP system to replace our 60 legacy systems.
Improving tobacco and NGP net revenue trajectory, with a compound annual growth rate of 1% to 2%.
Improving profitability through operational leverage, better geographic mix from continued stabilisation of priority market shares, reduced losses from our investment in NGP and restructuring cost savings driving a mid-single-digit compound annual growth rate for Group adjusted operating profit.
The business is highly cash generative with low capital intensity, a working capital focus and disciplined capital expenditure producing adjusted operating cash conversion of typically 90% to 100%.
We have a clear capital allocation framework alongside our strategy:
1. Invest in strategy
Since our strategy is largely organic and we work with innovation partners, our capital expenditure needs are relatively light. Any M&A is likely to be small.
2. Maintain leverage
We are committed to an investment grade credit rating and will maintain our leverage at the lower end of the range 2.0-2.5 times adjusted net debt/ EBITDA range.
3. Progressive dividend growth
We have committed to grow our dividend every year, taking into account the underlying business performance.
4. Return surplus capital to shareholders
Having reached our leverage target, we have committed to an ongoing share buyback programme, with £1.1 billion committed in FY24.
