In 2015 we made a $7.1 billion investment that transformed
our presence in the US and created ITG Brands,
the country’s third largest tobacco business.
This gave us broad national coverage
with stronger brands carrying much heavier weight
with our retailers and consumers.
We also acquired vaping brand blu, which
became part of Fontem Ventures.
blu was not only a strong brand in the US,
but also a platform for innovation
and international growth.
Three years on we look at why we invested,
how we’ve developed and our plans for the future.
Beyond the tangible assets, Imperial
acquired an experienced management team,
solid infrastructure, and strong retail influence
with capabilities to execute in the market place.
But there were challenges.
We had to reverse the long-term decline of Winston and Kool,
two iconic American brands that had been out of focus
and lacked meaningful investment for many years.
We also had to integrate our combined organisations
and prepare for new ways of working while selling a new
product portfolio.
So, we set out a clear strategy to focus our investment
and drive profitable, sustainable share
by revitalising our biggest cigarette brands
and turning around our mass market cigar business.
The US market remains highly attractive.
It’s the world's largest revenue pool after China and accounts
for about a quarter of the global tobacco profit annually.
The US profit pool has grown consistently over many years
and we expect this to continue.
In addition cigarettes are highly affordable in comparison
to other developed countries.
The regulatory environment is also
reasonably predictable with a greater reliance on science
and evidence-based regulation than some other markets.
We also welcome the regulators recognition
that reduced risk products such as e-vapour
can play in converting consumers from combustible products.
We made some clear portfolio choices
to prioritise resources behind Winston and Kool
in the premium segment with meaningful investments
behind equity building and consumer activations.
New positioning work has enabled more modern imagery – building
on the foundations of our brand heritage.
We are currently developing the brand’s portfolio with
the launch of Winston Black - a premium cigarette
in a contemporary and stylish pack.
In our second year, Kool went through a re-branding process
similar to Winston and by June 2017,
both Winston and Kool became two of only three
of the nation's top ten premium cigarette brands
showing volume growth.
And we continue to support and grow our distribution network
with over 180,000 retail stores on contract,
building shelf presence with our brands
enabling us to gain broad awareness, visibility,
and range for our portfolio.
Our mass-market-cigar portfolio is uniquely positioned
as we own super-premium with Backwoods and premium
with Dutch Masters, while participating
with Dutch and Phillies in the highly contested 2
for 99 cents segment.
The Mass Market Cigar business made an even greater
turnaround.
Primarily because of two key changes in strategy.
First, we changed our go to market model,
focusing on retail distribution and visibility
versus our previous push strategy.
This resulted in programmes that were more reliable,
equitable and uncomplicated making it more attractive
for our retail and wholesale partners to build our brands.
Secondly we focused on the consumer
through a four layer ecosystem that
includes activation, social media,
and leveraging influencers and taste-makers.
As a result, we became the fastest growing Mass Market
Cigar business in the US in only our second year.
But like every organisation ITG Brands needs to evolve if it is
to stay successful in the future.
We have leveraged talented people from the two companies
that came together to form ITG Brands, as well
as increasing diversity of thinking
through external hires.
Our focus now is on creating even more opportunities
for teaming and collaboration, giving people
the critical information they need to drive performance.
And we're having more fun as we win.
We’re also investing in our brands,
consumers and market insights.
All of which, will help fuel our growth today
and set the standards needed in the categories in which we
compete.
Our strategy is to move at the speed of the consumer
and be well positioned in the segments of tomorrow.
ITG Brands’ manufacturing is geared toward domestic
cigarette production at its two North Carolina factories.
Focus brands Winston and Kool along with Maverick
are produced in the larger Greensboro
factory, while USA Gold, Montclair and Sonoma are
manufactured in Reidsville.
Both factories embrace lean manufacturing practice
to improve productivity and efficiency.
We've been working on our cost base, but not purely
for the sake of cutting costs.
We’re making significant investments for instance,
in our manufacturing technology.
This is more about aligning to our current business,
identifying where we can best invest, and spend
in areas that will return more efficiencies and enhanced
productivities.
In Greensboro a new generation of making and packing machines
are being installed over the next two years which
will push production capacity up to 12,000 cigarettes
a minute for each machine.
Since the acquisition our investment
and strategic choices have grown market share in our focus
brands of Winston and Kool along with 3.5 percentage point leap
for Backwoods.
We are also improving the quality
of our growth with Asset Brand net revenue up to 48%.
ITG Brands is currently delivering
around a quarter of Imperial Brands global profit.
So we have delivered on the goals we set
for ourselves three years ago.
Our cigarette asset brands have grown.
The turnaround of the cigar business
has been a huge success.
And we’ve consistently delivered strong revenue and profit
growth.
As we deliver this commercial performance,
we also know we must redefine our strategic approach
to accelerate ways to win and deliver our part in Imperial’s
ambition to double the size of its global business by 2025.
To remain competitive both now and in the years to come,
we’ll continue to challenge our organizational design and roles
while strengthening our core functions.
The US market remains a lucrative profit pool
both for tobacco and next generation products.
We’re building a business to maximise our opportunities
by being focused, smart and more agile than our competition.