![img-0.jpeg](img-0.jpeg) IMPERIAL BRANDS # A CHALLENGER WINDSEK ANNUAL REPORT AND ACCOUNTS 2022 --- # CONTENTS # STRATEGIC REPORT | Art's Clause | 3 | | --- | --- | | Chair's Statement | 4 | | Chief Executive's Statement | 6 | | Doc Distinct Approach | 10 | | Transformation in Action | 17 | | Doc Investment Case | 26 | | ICPIr | 28 | | Shareholder Engagement | 30 | | Non-Financial Information Statement | 36 | | ESG Review | 36 | | TCFD | 39 | | Operating Review | 66 | | Financial Review | 73 | | Principal Risks- and Uncertainties | 82 | # GOVERNANCE | Chair's Introduction | 94 | | --- | --- | | Board Leadership | 96 | | Section 172 | 108 | | Board Statements | 151 | | People and Governance Committee | 113 | | Audit Committee | 119 | | Remuneration Report | 130 | | Directors' Report | 140 | # FINANCIALS | Independent Auditors' Report | 154 | | --- | --- | | Consolidated Income Statement | 156 | | Consolidated Statement of Comprehensive Income | 166 | | Consolidated Balance Sheet | 167 | | Consolidated Statement of Changes in Equity | 168 | | Consolidated Cash Flow Statement | 169 | | Notes to the Consolidated Financial Statements | 170 | # SUPPLEMENTARY # INFORMATION | Adjusted Performance Measures | 221 | | --- | --- | | Summary | 224 | # IMPERIAL BRANDS PLC # FINANCIALS | Imperial Brands PLC Balance Sheet | 230 | | --- | --- | | Imperial Brands PLC Statement of Changes in Equity | 230 | | Notes to the Financial Statements of Imperial Brands PLC | 231 | # SHAREHOLDER # INFORMATION | Shareholder Information | 345 | | --- | --- | For more information please see www.imperialbrandsplc.com # MEET OUR PEOPLE | Avril | Case | | --- | --- | | Executive Assistant (very) Cash | | | Mike and Abeni | | | "Sally's Chain Manager" | | | and Finance Committee, Spain | 1 | | Shratha | | | "The Rampage" | 1 | | Overseas | | | Executive Members' Liaison | 4 | | June 2nd | | | "Sally's Specialist" | 10 | | APCL | | | Brand Manager, Spain | 12 | | Elise | | | and Implementation Ltd. | 15 | | Orliko | | | Assistant Services Manager, UK | 16 | | Marc-Leube | | | "Sally's Cash Business Partner" | | | "The Cash" | 18 | | Sandhys | | | --- | --- | | Executive Experience Manager, UAE | 17 | | Maria | | | Sales Representative, Spain | 18 | | Paul | | | "Industrial Methods" | 21 | | Groupal | | | Company Development Coordinator, France | 21 | | Matthew | | | "A Study" | 22 | | Corona and Montreal | | | "The Institute of Corporate Management" | 24 | | Intermediation Operator, Sweden | | | Andres | | | "Trade Marketing Analyst" | 25 | | Oleica | | | Executive Operator, Ukraine | 27 | | Jodi | | | "Lehansky Manager" UK | 28 | | Jerry | | | --- | --- | | Academic Engineer, Sweden | 43 | | David | | | Trade Marketing Manager, Sweden | 44 | | Jodi | | | Factory Operator Company | 50 | | Versaing | | | Inter-Product Manager, UK | 52 | | Alma | | | "Tobacco Management" | 53 | | Joshua | | | "The Credit" | 56 | | Alma | | | "Total Development Representative" | 58 | ![img-1.jpeg](img-1.jpeg) --- IMPERIAL BRANDS AT A GLANCE # DELIVERING ON OUR STRATEGY The five-year strategy we launched in January 2021 was the roadmap for our transformation. Since then we have been building the foundations for future success – and we are now on track to move to the next phase of delivery. Our purpose remains: Forging a path to a healthier future for moments of relaxation and pleasure. For more information please see www.imperialbrandopic.com # WE HAVE A CLEAR STRATEGY TO BECOME A STRONG CHALLENGER... # STRATEGIC PILLARS Pages 14-19 ![img-2.jpeg](img-2.jpeg) # CRITICAL ENABLERS Pages 20-25 # WHICH WE ARE ROLLING OUT WITH DISCIPLINE... # PHASE 1: BUILDING FOUNDATIONS Five-year strategy launched Top five aggregate market share stabilised NGP trials begin Exit of Russia completed Jan 2021 Sept 2021 Efficiency programme begins Purpose, vision and behaviours launched New Global Consumer Office established New management team in place Refresh of ESG strategy ![img-3.jpeg](img-3.jpeg) NGP trials validate further roll-outs Top five aggregate market share growth Further NGP market launches Sept 2022 Operational efficiencies drive improvements Behaviours embedded in performance-based culture # STRENGTHENING OUR INVESTMENT CASE... # PHASE 2: IMPROVING RETURNS - Revitalised tobacco business driving strong cash returns - NGP business providing options for potential harm reduction and growth - Strong, sustainable cash flow generated from a high-quality portfolio 2023 – 2025 - New capabilities and more efficient structures delivering operational improvement and strengthening performance - Progressive dividend supplemented by surplus capital returns via a share buyback # AND DELIVERING FOR ALL STAKEHOLDERS # Our consumers Millions of adults worldwide choose to enjoy our tobacco and NGP. Meeting their expectations of quality and understanding their evolving requirements are vital for the long-term sustainable growth of our business. # Our colleagues Our colleagues are our most important asset. It is essential we create a supportive, safe and rewarding work environment to enable them to deliver our goals and develop their careers. # Our customers We work closely with distributors, wholesalers and retailers to ensure our products are available to adult consumers in a diverse range of outlets worldwide. They play a crucial role in our business model. # Governments & regulators Approaches to legislation vary significantly across geographies. We support reasonable regulation of tobacco and nicotine products and look to have constructive engagement with policy makers and regulators. # Our investors Our investors provide capital to the business and monitor management's allocation of that capital within the business. # Our suppliers We maintain strong relationships with our tobacco, non-tobacco materials (NTM) and NGP suppliers to help ensure sustainable supply and business continuity, underpinned by fair contract and payment terms. # OUR FINANCIAL PERFORMANCE Tobacco & NGP net revenue £7.8 bn +1.5%* Reported EPS 165.9p -44.7% Adjusted EPS 265.2p +4.9%* Dividend per share 141.17p +1.5%* Performance measures used throughout the report # Reported (GAAP) Complete with International Financial Reporting Standard and the Selected Securities # Adjusted (Non-GAAP) Non-GAAP measures provide a useful comparison of performance from this period to the next. The basis of our adjusted measures is explained in the accounting policies of developing our financial guidelines and the APM liability within supplementary assumptions. # Constant currency basis Removing the effect of exchange rate movements on the elimination of the results of the OPP year operations, WV is based on year year results at plus year foreign exchange rates. See page 75 for more details. # Market share Market of revenues is presented as a 12-month moving average weighted across the market, as whole are operate. # 50th equivalent The6 equivalent assumes reflect our continued capacity, low net tobacco, large and small markets. # OUR BRANDS Our portfolio of brands connects with adult consumers in all the key tobacco and main generation product segments. We invest in innovation to meet evolving consumer preferences. c.120 markets Companies ![img-4.jpeg](img-4.jpeg) Other tobacco products & commodities products & commodities ![img-5.jpeg](img-5.jpeg) Various ![img-6.jpeg](img-6.jpeg) 2 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandopic.com 3 --- ![img-7.jpeg](img-7.jpeg) CHAIR'S STATEMENT # DEAR SHAREHOLDERS This has been a year of significant progress for Imperial against a backdrop of unexpected and challenging conditions. We have strengthened our core combustible business and reshaped our next-generation product (NGP) operations. We have reduced debt to our target range and begun a £1 billion share buyback. At the same time, we have further upskilled and diversified our Board and executive team, progressed our broader cultural change agenda, introduced new consumer capabilities and continued to build a simpler and more efficient organisation. All this has been achieved against the headwinds of the war in Ukraine and the exit from our Russian business, global supply chain disruptions, high inflation and a squeeze on household incomes. The team remained focused on the methodical roll-out of our strategy and we are emerging as a strong challenger business – our natural role as the smallest of the four global tobacco companies. On behalf of the Board, I would like to say a big "blank you" to the entire Imperial workforce for their commitment and the way they continue to embrace change with enthusiasm. # A purpose-led approach to ESG During 2021 alongside our new strategy we began articulating a new purpose: "forging a path to a healthier future for moments of relaxation and pleasure" as well as a clear vision "to build a strong challenger business powered by responsibility, focus and choice". In the past year we have evolved these high-level aspirations into granular objectives for our most material environmental, social and governance (ESG) priorities, and the Board has been engaged in the development of this fresh approach. For more on our People and Planet agenda see pages 36 to 58. Our most important area of focus will continue to be consumer health. Smoking is a cause of serious diseases and, despite these health risks, many people choose to continue to smoke. That is why it is important we are successful in offering attractive, 4 Imperial Brands | Annual Report and Accounts 2022 potentially less harmful alternatives to adult smokers. Our NGP operations over the past two years have become more consumer-centric and innovative, and in this year the Board was pleased to authorise an ambitious but disciplined expansion of our footprint. Another area where we can support a healthier future is by delivering on our goal to become a Net Zero company by 2040. This year, for the first time, we are publishing a full report detailing our strategy for climate change in line with the requirements of the Task Force on Climate-related Financial Disclosures (see pages 59 to 66). Building a more diverse and inclusive business – at all levels – is another important priority. During the year, we brought in new talent from outside the organisation to develop this agenda. I have also been encouraged by the way this team, working closely with our four Employee Resource Groups focusing on gender, disability, sexual orientation and ethnicity, are identifying the key structural issues and developing focused plans. Underlining our commitment to delivering on our ESG priorities, for FY23 we have introduced metrics on consumer health and climate change for Executive Directors' bonuses (see Directors' Remuneration Report, from page 210). And we will reflect on how ESG can be incorporated into our triennial review of remuneration policy in the coming year. # Upskilling and diversifying the Board Over the past two financial years, the Board has been substantially strengthened, with two new Executive Directors and four new Non-Executive Directors. These changes have brought a depth of knowledge and capabilities from consumer-facing businesses as well as expertise in strategy, managing international businesses, change management, finance and regulatory affairs. Steven Stanbrook retired from the Board following our Annual General Meeting in February 2022. I would like to thank Steven for his valuable service to the Board over the past six years. No new appointments to the Board were announced during the past year. Our focus therefore has been on deepening our knowledge of the business and enhancing our engagement with stakeholders, particularly consumers and employees, to enable us to provide more insightful challenge and improve decision making. # Broadening stakeholder engagement I have continued to have regular dialogue with our major investors and we recently undertook an investor perception study. Encouragingly, the survey suggests investors are supportive of the new strategy and management, and of the changes we are making to strengthen the business. During the year, we held Board meetings in London, Bristol, Madrid and Greensboro, North Carolina, giving us many opportunities to meet and have active dialogues with employees, customers, consumers and suppliers. In August, accompanied by Stefan, I visited Malawi to develop a greater understanding of our evolving approach to improving farmer livelihoods and agricultural sustainability. A clear example of how the Board carefully considers the needs of different stakeholders in its decision making in our successful exit from Russia. Our approach had to balance the need to ensure the personal security of our Russian team, with the clear expectations of shareholders, our global workforce and wider civil society. While we have now completed the transfer of our Russian business, we continue to support our 600 Ukraine staff, including through a hardship fund which has been used to finance the reconstruction of war-damaged homes. # Prioritising capital allocation The Board believes capital allocation is a key value lever alongside the delivery of the Group's strategy. Our strategic review in 2021 defined our capital allocation priorities and the Board regularly evaluates progress against these priorities, starting with the investment needs of the business, followed by the appropriate capital structure and the best way to maximise returns to shareholders through a progressive dividend policy and by returning surplus capital. The business now has the strategy to deliver sustainable growth in cash flows, and the balance sheet flexibility to deliver meaningful and ongoing returns to shareholders. Having reached our target leverage at the end of September 2022, the Board approved the launch of an ongoing buyback programme with a commitment to initially repurchase shares to the value of £1 billion during our 2023 financial year. We are also recommending a 1.5% increase for the final dividend this year, bringing total dividends for the year to £1.3 billion. # Towards a healthier future While Imperial is not immune to cost inflation and the squeeze on consumer incomes, the strong foundations we have built over the past two years mean we are now more resilient in the face of short-term pressures and better able to deliver sustainable returns for shareholders. Looking to the longer term, we see a shift towards potentially healthier ways of enjoying moments of relaxation and pleasure – and Imperial is increasingly well placed to support consumers on this journey. Thérèse Esperdy Thérèse Esperdy Chair www.imperialbrandspic.com 5 --- CHIEF EXECUTIVE STATEMENT # We are now two years into our strategy and I am pleased with our progress so far. The foundations have been built and we are moving to the next phase of the plan. Improved, more consistent performance and enhanced returns for investors. Since the launch of our strategy in January 2021, every action we have taken has been in support of a single overarching goal – the creation of a strong and sustainable challenger business. As the smallest of the four major global players in our industry, we know that we can only out compete our rivals by getting closer to consumers, spotting value that others overlook and then implementing at pace and at scale. The foundational elements in our strategy, which we call the critical enablers, are the capabilities, structures and culture needed to help us to act more successfully and consistently as a challenger. These firm foundations are already helping us deliver tangible operational and financial outcomes. Over the past two years we have revratised our five largest combustible markets, which account for around 75% of our operating profit. We've grown our aggregate share across these five markets by 20 basis points in the last 12 months, while maintaining pricing discipline. As we've previously said, we're unlikely to see growth in all five markets in any given year, but what is important is the aggregate gain (see pages 14-16 for more information). We have refreshed our next generation products (MGP) business with new propositions across all three categories. One year after launch, our heated tobacco proposition – Pulze and ID – is now available in five European markets including Italy, which is Europe's largest heated tobacco market. Following a successful pilot in France, we have launched our all-new blu 2.0 pod-based vape device in the UK, and added a disposable offering to the blu family of products. In modern oral, we have successfully launched Zone X in Norway. At the same time, we have reduced overall MGP losses and delivered an acceleration in net revenue growth of around 11% (see pages 18-19). We have also refocused our broader market portfolio, investing management time and expertise in our most promising opportunities. During the year we exited Japan and delivered on our commitment to exit the Russian market, while continuing to support our 600 colleagues in Ukraine (see page 17). # IMPROVED PERFORMANCE The success with which we are delivering our strategy is translating into improved operational and financial performance, with growth in net revenue of 1.9% and in adjusted operating profit of 1.8% at constant currency in this financial year. Reported revenue was down 0.7% driven by adverse foreign exchange translation and operating profit declined 14.7% driven primarily by charges related to our exit from Russia and associated markets and non- 6 Imperial Brands | Annual Report and Accounts 2022 recurrence of gains on disposal of the Premium Cigar Division. Strong cash performance delivered almost £2.6 billion of free cash flow, which has further strengthened the balance sheet, and enabled us to step up returns to shareholders. These achievements have been delivered against a backdrop of inflationary pressures and a squeeze on consumer purchasing power. As expected, our tobacco price mix strengthened in the second half to 10.7%, bringing overall price mix up to 6.0% for the year. We are a more resilient business than we were two years ago, and this gives us confidence that we can continue to successfully navigate these short-term headwinds and deliver on our strategy. It has also reinforced our view that the business can commit to an ongoing, multi-year shareholder returns strategy through a progressive dividend and share buyback. # FOUNDATIONS FOR A STRONG CHALLENGER Successful challenger businesses put consumers at the heart of everything they do. Over the past two years we have taken a structured series of steps to improve our consumer insights and our ability to act effectively on them. The investments we have made in building our consumer-centric capabilities are beginning to bear fruit. The way we are now able to innovate more rapidly can be seen in the successful launch this year of our blu 2.0 vape device. We have also introduced a more structured approach to brand building, which is evidenced in our refresh of Winston in the US. This initiative, which combined careful consumer research, imaginative pack design, distribution initiatives, and innovative digital partnerships, is already leading to encouraging market share progress (see pages 20-23). We have implemented further changes to make our structures simpler and more efficient, better enabling us to become a strong challenger. In 2021, we reorganized the Executive Leadership Team and made changes to our regional and cluster structure; for example, by creating a new AAA region to focus on market opportunities beyond Europe and the US. Over the past year, we have also been building new functional centres of excellence, which will enable the corporate functions to better support the growth agenda of our consumer- and market-facing teams and this work will continue into 2023. These new ways of working will be further enhanced by a multi-year digital transformation programme to upgrade our Enterprise Resource Planning processes, which is now underway. At the same time, I can also confirm that actions already taken will deliver £320 million of annual savings in FY23 (see pages 24-28). We continue to embed a high- performance culture, integrating our purpose, vision and new behaviours, which we call Connections. All of us at Imperial – the Executive Leadership Team, managers and front line colleagues – have invested considerable time over the past year understanding how to use our behaviour in our every-day working lives. For 1,100 of our senior leaders, this has meant spending 20 hours on immersive training sessions focusing on developing both individual behaviour and team dynamics. In addition, each function and region has gone through a detailed process, known as Leading Sustainable Change, to align its goals with our purpose, vision and Group strategy. During 2023, we will fully integrate our behaviours into how we manage the performance of our people and continue to develop the skills of our leaders. For us, cultural change is much more than putting slogans on office walls. This is a highly structured multi-year programme which plays an essential role in our strategy to build a company capable of long-term growth. (see pages 22-23). We have further strengthened our leadership team, to create a distinctive blend of deep tobacco knowledge and diverse experience from the consumer-packaged goods sector and beyond. During the year, Sean Roberts joined us as Chief Legal and Corporate Affairs Officer. This is a new position in our Executive Leadership Team, # UNDERSTANDING CONSUMER DYNAMICS # COVID-19 unwind Lifting of restrictions is causing changes to consumer buying patterns. Impact: Ongoing # Inflationary pressures Inflation likely to affect purchasing power of some consumers. Impact: Not material in 2022 # Potentially reduced harm Consumers continue to seek reduced harm alternatives. Impact: Long-term For more information, please see page 10. which underlines our commitment to acting with responsibility. Sean has 30 years' experience in legal and regulatory roles, most recently as General Counsel of OSK Consumer Healthcare. I would also like to thank Joerg Biebernick, who decided to step down as President of our Europe region in October 2022. I am grateful to Joerg for his support to me on the Executive Leadership Team and his contribution to Imperial over the past five years. We wish him all the best for the future. Joerg has been succeeded by Ariel Struminsky who, during his 20-year career with Imperial, has held a range of senior positions including most recently General Manager for the UK&I cluster. # PURPOSE, PEOPLE AND PLANET Alongside our new strategy, in 2021 we communicated an updated purpose, "forging a path to a healthier future for moments of relaxation and pleasure" and vision, "to build a strong challenger business powered by responsibility, focus and choice". Over the past year, informed by our strategy, purpose and vision, we have refreshed our environmental, social and governance (ESG) priorities, which internally we call our People and Planet agenda. We have upgraded our governance, creating a new ESG executive committee, which I chair and we ensure there are regular opportunities for the brand to scrutinise our progress. A comprehensive ESG materiality assessment has helped us zero in on www.imperialbrandspic.com 7 --- CHIEF EXECUTIVE'S STATEMENT continued the priorities across our value chain that matter most to our stakeholders (see pages 36-58). We recognise that there are health risks associated with smoking and, of course, our most material ESG priority remains consumer health. This Company's duty is therefore two-fold, to responsibly serve the needs of those adults who have made an informed choice to smoke; and to develop and scale up potentially less harmful choices which are attractive to existing consumers of nicotine products. Focusing on markets where we have established routes to market, we believe we can play a distinctive role in NGP by creating exciting choices for consumers, driving innovation across the industry, and accelerating potential harm reduction. We continue to make progress towards our ambitious Net Zero targets, reducing our Scope 1 and Scope 2 carbon emissions by 19% since our baseline year of 2017. Following a detailed scenario analysis we are this year publishing our first report articulating our approach to climate strategy and risk, in line with the requirements of the Task Force on Climate-related Financial Disclosures (see pages 59-63). # ALLOCATING CAPITAL WITH DISCIPLINE Focus and discipline are key elements that underpin our five-year strategy. They are also important principles behind our capital allocation priorities. I am pleased to report we are delivering against our four priorities exactly in line with what we set out in our strategic review in January 2021. Our strategy is supported by four clear capital priorities: - Invest behind the new strategy to deliver the growth initiatives - Deleverage to support a strong and efficient balance sheet with a target leverage towards the lower end of our net debt to EBITDA range of 2-2.5 times - A progressive dividend policy with dividend growing annually, taking into account underlying business performance - Surplus capital returns to shareholders once our target leverage has been achieved. Having now strengthened our balance sheet and reached our target leverage, I am delighted that, since October 2022, we have begun returning surplus capital to shareholders via an ongoing share buyback. We have committed to an initial buyback of £1 billion for the first year, which will be concluded by September 2023. Taking our dividends and buyback together, we expect our capital returns to shareholders will exceed £2.3 billion in the coming fiscal year. Our improving performance and our confidence in our ability to continue to generate strong cash flows in the coming years supports growing shareholder returns through a progressive dividend and an ongoing buyback programme to meaningfully reduce the capital base over time. # STRENGTHENING DELIVERY As COVID-19 restrictions have eased, I have spent time face to face with our consumers, people, customers and partners in every continent where we operate. Tobacco farmers in Malawi, factory workers in Poland, convenience store clerks in North Carolina and a panel of consumers convened in a Sydney pub are among the many stakeholders I have had the pleasure of meeting. These conversations have reinforced my initial analysis that Imperial benefits from hard-to-replicate competitive advantages, including effective supply chain management, deep scientific skills, powerful retail relationships, great brands and strong market positions in some of the world's largest and most attractive markets. Through these visits I am seeing more and more examples of how our transformation to become a challenger business is driving operational success. Stronger consumer insights, more effective structures and a single global performance culture are enabling us to deliver more consistent, sustainable operational and financial outcomes. # OUTLOOK We remain on track to deliver against our five-year plan. The additional investment and the actions we have taken during the initial two-year strengthening phase have built strong foundations for the next three-year phase of our plan to deliver improving returns. As we move into that phase, we continue to expect low single-digit constant currency net revenue growth with constant currency adjusted operating profit growth accelerating to deliver mid-single digit CAGR over the next three years. We are confident our investments and initiatives will continue to gain traction and we therefore expect the growth rate of our adjusted operating profit to improve within this mid-single digit range over the three years. In FY23, the acceleration will be driven by pricing and operational gearing, improved geographic mix from our priority market focus and cost savings, partially offset by cost inflation and increased NGP investment. Performance will be weighted to the second half of the year, due to the phasing of NGP investment, the impact of our exit from Russia in April 2022 and the continued unwind of COVID-19 that will all affect the first half. As a result, the first half adjusted operating profit is expected to be at a similar level to last year, at constant currency. At current rates, foreign exchange translation is expected to be a 5-6% tailwind to net revenue, adjusted operating profit and earnings per share. We remain confident in our plans in the face of current macro-economic challenges with potential pressure on consumer spending and high inflation. And as we align our business more closely with the secular consumer trend towards healthier moments of relaxation and pleasure, we believe we are well placed to generate long-term value for shareholders and all our stakeholders. Stefan Bomhard Chief Executive Officer LEADERSHIP For more information please visit www.imperialbrandsplc.com ![img-8.jpeg](img-8.jpeg) 1. Stefan Bomhard Chief Executive Officer 2. Lukas Paravicini Chief Financial Officer 3. Alison Clarke Chief People and Culture Officer 4. Anindya (Andy) Dasgupta Chief Consumer Officer 5. Javier Hueta Chief Supply Chain Officer 6. Murray McGowan Chief Strategy and Development Officer 7. Paola Pocci President, Africa, Asia and Australasia Region 8. Kim Reed President and CEO, Americas Region 9. Sean Roberts Chief Legal and Corporate Affairs Officer 10. Aleš Struminsky President, Europe Region 8 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandsplc.com 9 --- OUR DISTINCT APPROACH # RESPONDING TO MARKET DRIVERS As the global tobacco industry transforms to satisfy changing consumer needs, Imperial is responding by adopting a challenger mindset. ## OUR MARKET The global tobacco market is valued at US $850 billion, with cigarettes representing the largest category with over 5,200 billion cigarettes consumed each year. The market is heavily regulated and highly consolidated. It is also an industry in transformation as consumers transition to potentially reduced harm products. Despite the well-known health risks of smoking, more than 10% of the world's adult population still choose to smoke and many of our consumers tell us they value our products for the moments of relaxation and pleasure they provide. Our role, therefore, is to responsibly serve the needs of those adults who have made an informed choice to smoke by offering them a portfolio of high-quality tobacco products across a range of price points. We also have a role to meet the needs of those adult smokers who are increasingly looking for potentially less harmful alternatives to cigarettes. Our strategy is to understand the needs of these adult consumers and to provide potentially less harmful next generation products (NGP). This year we started to see a return to pre-COVID-consumer buying patterns as international travel recovered and, looking ahead, we anticipate inflationary pressures are likely to affect purchasing power of some consumers. ### Regulation and excise Tobacco and nicotine regulation continues to evolve and remains a significant influence on how we manufacture, advertise and sell our products, and how our consumers buy and enjoy them. Regulation varies widely across regions and markets. At a regional level, the EU is re-examining its Tobacco Products Directive. Nationally, countries such as New Zealand have unveiled comprehensive programmes of new regulation, while the US and Greece have further developed product-by-product approval pathways for the marketing of tobacco and nicotine products. Combustible tobacco is heavily taxed, constituting globally more than US $200 billion to governments each year. Imperial Brands supports reasonable and rational regulation of tobacco and nicotine products, in some cases going beyond requirements established in law. Most notably, our products are for adult nicotine consumers only. More information on our measures to prevent underage access can be found on pages 38-40. ### Harm reduction Across regions and markets regulators have adopted different approaches to promote tobacco harm reduction policies. Some governments accept that not all nicotine products are equally harmful, and that public health benefits can be realised at a population level if existing smokers transition to potentially less harmful products, so long as there is minimal transition in the other directions, and such products do not attract new users who would not otherwise have chosen to consume nicotine. While jurisdictions that have implemented tobacco harm reduction policies have seen positive public health results, the approach has not yet captured the support of all regulators. However, where policies have been adopted to limit the transition to potentially less harmful alternatives, such as aggressive excise duty or complete bans, there is a greater risk that this will fuel the growth in illicit trade. ### Illicit trade Unfortunately, the prevalence of the illicit trade in tobacco products means that we face competition from a less scrupulous criminal supply chain. Illicit tobacco deprives the responsible industry of revenue, deprives governments of vital excise, and deprives consumers of the security of enjoying rigorously tested, high-quality products. The illicit trade is a complex phenomenon, driven by economic, practical, and political factors. Fighting illicit trade requires a co-ordinated approach from government and industry. Imperial continues to work with enforcement agencies to reduce this scourge. ## OUR ASSETS ### Our colleagues Our colleagues are our most important asset. We have 26,000 committed and passionate employees who want to make a difference. ### Our brands Our portfolio of 650 brands provides enjoyment and pleasure for millions of adult consumers every day. ### Our relationships We have solid, trusted partnerships with stakeholders, including customers and suppliers across c.120 markets. ### Our operations We have a network of 30 manufacturing sites that source and process tobacco raw materials to provide high-quality products at lowest cost. ### Our industry knowledge Our deep knowledge of the tobacco and nicotine industry, including our consumer insights, helps us to operate responsibly in all our markets. ### Our financial strength We are able to raise prices to more than offset volume declines to deliver high margins and strong cash flows to invest and drive returns. ## ADULT CONSUMER INSIGHTS We start with the consumer – and everything we do is based around a deep understanding of adult smokers and nicotine consumers. Our insight is led by our Global Consumer, Office and we unlock value by ensuring we offer our customers the right product choices to meet consumer needs. These insights provide competitive advantage, and inform our product offerings in both combustible tobacco and NGP and how we communicate with adult consumers. ## STRONG RETAIL PARTNERSHIPS We sell our products to our customers. Our sales and marketing teams have built strong partnerships with them through sales force coverage, retailer incentivisation and point of sale advertising, where appropriate. We understand their needs and help them to navigate the changing regulatory environment. Our goal is to deliver mutually attractive commercial arrangements that support growth and value creation for our retailer, wholesaler and distributor customers. ## EFFICIENT MANUFACTURING Our manufacturing teams employ the latest production methods, working to the highest-quality and product manufacturing standards. Our scale and knowledge are competitive strengths, enabling us to supply quality products at lowest cost. Where appropriate, for example with NGP devices, we use third-party manufacturers with the technical expertise to deliver high-quality products. We also use third-party logistics companies to distribute our products. ## STAKEHOLDER VALUE ### Our consumers Millions of adults worldwide choose to enjoy our tobacco and next generation products. Meeting their expectations of quality and understanding their evolving requirements are vital for the long-term sustainable growth of our business. ### Our colleagues It is essential we create a supportive, safe and rewarding work environment to enable them to deliver our goals and develop their careers. ### Our customers We work closely with distributors, wholesalers and retailers to ensure our products are available to adult consumers in a diverse range of outlets worldwide. They play a crucial role in our business model. ### Governments and regulators Approaches to legislation vary significantly across geographies. We support reasonable regulation of tobacco and nicotine products and look to have constructive engagement with policy makers and regulators. ### Our investors Our investors provide capital to the business and monitor management's allocation of that capital within the business. ### Our suppliers We maintain strong relationships with our tobacco, non-tobacco materials (NTM) and NGP suppliers to help ensure sustainable supply and business continuity, underpinned by fair contract and payment terms. ## SCIENCE & REGULATION We use our know-how and smaller size to be agile in how we respond to regulatory changes. This is supported by our science and corporate affairs teams, who understand the regulatory environment in all our markets and ensure we operate responsibly and provide high-quality products compliant with local standards. ## MARKETING & INNOVATION Our marketing and innovation teams add value by using consumer insights to develop a portfolio of combustible tobacco and potentially reduced harm NGP to engage and excise adult consumers. We use sales and marketing communications and innovation to differentiate our brands and meet evolving consumer needs. ## SUSTAINABLE SOURCING Our leaf purchasing teams work with a diverse and complex supply chain from smallholder farmers to multinational companies to procure high-quality leaf and nicotine for our products. Our procurement teams add value by responsibly meeting all our sourcing needs including leaf, nicotine and non-tobacco materials such as papers, filters and packaging, as well as the power and water we use to run our factories. Their decisions are guided by our ESG commitments. 10 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 11 --- TRANSFORMATION IN ACTION Our choices are guided by our strategy, purpose and vision as well as our received approach to environmental, social and governance (ESG) priorities. ![img-9.jpeg](img-9.jpeg) 12 Imperial Brands | Annual Report of Accounts 2022 OUR PURPOSE Forging a path to a healthier future for moments of relaxation and pleasure. OUR VISION To build a strong challenger business powered by responsibility, focus and choice. STRATEGIC PILLARS Pages 14-19 ![img-10.jpeg](img-10.jpeg) CRITICAL ENABLERS Pages 20-28 OUR BEHAVIOURS Page 23 - Start with the Consumer - Collaborate with Purpose - Take Accountability with Confidence - Be Authentic, Inclusive to all - Build our Future HOW WE MEASURE OUR PERFORMANCE Pages 28-29 To measure our performance we have ten financial and four non-financial key performance indicators – see pages 28 and 29. We measure the performance of several other indicators. Financial performance is reported on pages 73 to 81, and non-financial performance is reported on pages 36 to 65. OUR APPROACH TO ESG Pages 36-68 HEALTHIER FUTURES Consumer health Climate change Packaging and waste POSITIVE CONTRIBUTION TO SOCIETY Farmer livelihoods & welfare Sustainable & responsible sourcing SAFE & INCLUSIVE WORKPLACE Employee health, safety & wellbeing Diversity, equity & inclusion Human rights www.imperialbrandspic.com 13 --- TRANSFORMATION IN ACTION continued # FOLLOWING ON # TOYOTA # COMBUSTIBLE MARKETS We're growing market share across our top five markets. The first pillar of our strategy is a renewed focus on priority combustible markets. Five markets – the US, Germany, UK, Spain and Australia – make up around 70% of our operating profit. In each of these markets, Imperial enjoys a top-three market share position, with established brands and strong customer relationships. Our two most significant markets are the US and Germany, which together account for around 50% of our net revenue. In both markets, cigarettes remain relatively affordable, providing headroom for future revenue growth through pricing. In Spain, tobacco is also relatively affordable and we have a leading position with a spread of 'local jewel' and global brands. In the UK, Imperial's historic home, we have a strong position in fine-cut tobacco in northern England and Scotland. Even in Australia, a market heavily restricted by regulation, we have opportunities to optimise value creation and capitalise on our status as the second largest player. In the past, however, there was an insufficient focus on these top-five markets, and in aggregate Imperial had been the leading donor of market share. At the heart of our new strategy was a recognition that for Imperial to become a business capable of sustainable growth, the long-term share declines in these markets needed to be reversed. Our strategy defined six operational levers to improve combustible performance and, two years on, we have made significant progress on each front: 1. Increase participation in premium. In the US, a new pack design for Winston and a more targeted marketing approach have driven increased share after a long-term period of decline. And in Germany, our investment behind our Gauloises brand has led to brand growth for the first time in years. 2. Rejuvenate local jewels. In Spain, we have successfully relaunched Nobel, with the brand gaining 180ps over the past two years. In the UK, we have revived the Embassy brand in southern England where we have historically been under-represented. 3. Optimise the value segment. In the US, we capitalised on the exit of KT&G from the market, capturing additional share of around 280ps by expanding our value offering. In Australia, we launched Lambert & Butler as an entirely new value offering to the market, and the brand has grown to around 2% market share in just 11 months. 4. Maximise the potential of fine-cut tobacco. We have been strengthening our offerings to consumers in markets where the category is relevant, such as Riverstone in the UK and Paramount in Germany. 5. Drive performance in under-penetrated channels. Investment in our sales teams is an important lever – particularly in markets where we had failed to keep pace with where consumers typically make their purchases. As a result, we have reshaped our sales forces in the US and Germany so that they are more closely aligned to our best growth opportunities by channel and geography. 6. Maximise value creation through key accounts. We have introduced a key account team in the US, where previously this was a gap in our capabilities, and we are refining our approach in other markets, including Germany. Our success in these six areas has led to growth in aggregate market share for these five priority markets of 380ps over the past year – while at the same time we have maintained strong pricing discipline. During 2002 we saw our US operations increase share by 90bps, Australia by 20bps, UK by 880ps and Spain by 5bps, with declines of 80bps in Germany. Of course, market share is only one measure of success and we will always take a balanced approach to optimise our operational and financial delivery. What matters strategically is the long-term aggregate strength of our brand franchises in these priority markets. 14 Imperial Brands | Annual Report and Accounts 2022 # PRIORITY MARKET SHARES 12 month share USA +90bps Germany -85bps UK +85bps Spain +5bps Australia +20bps In each of these markets Imperial enjoys a top-three market position, with established brands and strong customer relationships Growth in aggregate market share +35 bps www.imperialbrandspic.com 15 --- TRANSFORMATION IN ACTION continued ![img-11.jpeg](img-11.jpeg) 16 Issue 1: Annual Report and Accounts 2022 While our main combustible focus is on our five priority markets, we have a clear view on how we can drive value from the breadth of our full market portfolio. Our smaller markets typically have attractive margins and are potential platforms for future growth. And they are markets which are used to operating successfully with more limited resources and leveraging our global capabilities in manufacturing, distribution and brand building. Our strategy launched in January 2021 proposed a more rigorous approach to getting the most from this diverse set of markets. First, we strengthened our regional and cluster structures, creating a new AAA division under Paola Pucci to give our smaller markets the focus they need. Paola has brought experience and a skill set from working in developing markets for much of her career. Second, we have evaluated each of our markets and prioritized how we allocate investment behind the best opportunities for responsible growth. Third, we have identified a clear role for all our markets. As a result, we deploy a variety of operating models across these markets – from wholly owned sales and marketing operations in our larger markets, to distributor partnerships that leverage their local scale and expertise in many of our smaller markets. We manage many of them in regional clusters, which can represent sizeable profit pools with potential for future growth. For example, our Africa cluster represents almost 10% of our Group tobacco profit and we have strong market positions in several markets such as Morocco, Algeria and the Ivory Coast. We have adopted a clear brand portfolio strategy to leverage key international brands in targeted markets, such as Gauloises in the Francophone markets, while leveraging the strength of our local brands in key markets. This has delivered further market share gains in the region, for example in Morocco and the Ivory Coast, as well as continued growth in revenue and profit. Similarly, a clear focus on our Central & Eastern Europe cluster has delivered an improved performance despite the challenges arising in Ukraine. We grew revenue and profit from our combustibles portfolio, as well as delivering successful NGF trials. Managing these smaller markets is also about agility and being able to spot trends and capitalise on emerging growth opportunities. As the restrictions from the pandemic have gradually lifted in the majority of markets, international travel has resumed, and we have ensured our duty free and travel retail channel operations are ready to meet this shift in demand. Our duty free volumes grew by more than 100% this year and traditional holiday destination markets such as Spain also benefited. Market prioritisation is also about acknowledging when it is right to exit markets. Having entered Japan in 2013, the business remained relatively small and unprofitable, in spite of ongoing investment and huge efforts by our local teams. After a careful review, we concluded that it was unsustainable for us to continue trading in Japan and we exited during the year. The Russian conflict with Ukraine and the associated international sanctions created a highly challenging environment in Russia with severe disruption to supply chains. We decided to exit Russia this year, swiftly transferring the business as a going concern to local investors. # Russia and Ukraine In the wake of Russia's invasion of Ukraine, we took decisive action to exit the Russian market and completed the transfer of our entire operation there as a going concern to local investors in May. We suspended our operations in Ukraine at the outset of the invasion to prioritise the safety of our 600 employees. Following a careful review, many of our activities in Ukraine have been recommenced and we continue to support our people, including with resettlement assistance. Managing these smaller markets is about agility and being able to spot trends and capitalise on emerging growth opportunities SAME FREE www.samefree.com --- ![img-12.jpeg](img-12.jpeg) Our statement of purpose recognises a real opportunity to make a positive difference to society by “forging a path to a healthier future for moments of relaxation and pleasure”. We believe we have a role to help adult smokers to make informed choices about the products they consume – whether these are combustible tobacco or next generation products (NGP). We recognise that smoking is a cause of serious diseases in smokers, and we are committed to making a meaningful contribution to harm reduction by offering adult smokers potentially reduced risk products. This ambition is captured in our strategic pillar to build a targeted NGP business. As part of our strategy launched in January 2021 we overhauled our approach to NGP. The plan we are now rolling out plays to our strengths; it recognises our position as the smallest of the four global tobacco players, and is based on three clear principles: - Consumer led. We start by understanding consumers and their needs. This informs our choice of markets, choice of NGP category for each market – vapour, heated tobacco or modern oral – and how we differentiate our propositions. - Focused. Our role is not to provide a full offering in all markets. Instead we prioritise markets where there is an established category presence and where we have an existing route to market through our tobacco business. - Collaborative. Our in-house team works in close partnership with third-party innovation houses to harness their expertise and combine this with our knowledge and our insights from adult consumers. Taken together, this is an approach designed to maximise our contribution to harm reduction and build a sustainable, growing operation, while maintaining a tight focus on costs. In 2021 we validated this new approach through a series of consumer trials for each of our NGP categories. For heated tobacco, we ran successful trials for our device, Pulze, and iD-sticks in Greece and the Czech Republic. These markets were chosen because heated tobacco already represented at least 10% of nicotine consumption. Imperial had good distribution reach, and the markets were of a size that supported a nationwide launch. We received a positive response from consumers and the trade, and in just 12 months we built a 2.8% heated tobacco share in Greece and a 4.2% share in the Czech Republic. These results confirmed that we had a differentiated product offer with consumer appeal and validated our market investment approach. Building on our learnings, in 2022 we launched in a further three markets – Italy, Portugal and Hungary – and we intend to expand our offering to further European markets in 2023. In vapour, our enhanced partnership approach to innovation also delivered a first new product in blu 2.0, which we have successfully trialled in four cities in France. As a result, we will now be expanding blu 2.0 nationally in France and into the UK, as well as other markets in the coming year. Our sales in the US of blu declined due to uncertainties caused by the Marketing Denial Order from the FDA which we continue to seek to overturn. In modern oral, we have launched Zone X into Norway and expanded our flavour offering across other key European markets. The plan we are rolling out plays to our strengths and recognises our position as the smallest of the four global tobacco players NGP net revenue growth 10.8% on a constant currency basis New NGP strategy launched Enhanced our insights capabilities Pulze and iD launched in Greece and the Czech Republic blu 2.0 launched in France | Jan 2021 | Sep 2021 | | Sep 2022 | | --- | --- | --- | --- | | NGP teams brought together under new Global Consumer Office | NGP investment optimised with market exits completed | Zone X launched in several new markets | Further market and product launches planned throughout Europe | www.imperialbrandopic.com 19 --- TRANSFORMATION IN ACTION continued # PUTTING THE # A FINE CENTRE OF THE BUSINESS We're investing to support a rigorous approach to consumer insight. A critical enabler for our strategy is to place the consumer at the centre of the business. This means investing in capabilities, data and insights to ensure the voice of the consumer shapes and influences our decision making and becomes part of the fabric of our culture. Our first step was to appoint a Chief Consumer Officer, Andy Dangupta, to bring the voice of the consumer consistently to the Executive Leadership Team and to the broader business. Since joining in April 2021 Andy has built a connected multi-disciplinary team to drive these changes through the organisation. We have successfully attracted talent from a range of blue-chip consumer goods firms who are bringing best practice and combining it with our existing deep knowledge and experience of the tobacco sector. The Global Consumer Office led by Andy has focused on four priorities in the past year: - To embed consumer centricity into the organisation; - To rebuild consumer-preferred brands to stem the share losses across the priority combustible markets; - To undertake market trials to validate our approach to NGP; - To build our innovation capabilities by leveraging third-party partnerships. ### Embedding consumer centricity This starts with the consumer, and having strong consumer insights as the foundation to all decision making. This has involved multiple workstreams to enhance our existing consumer insight capabilities, changing how we purchase consumer research and, importantly, how we consistently handle data and use it across the organisation. Our objective is to put in place a framework that offers global and local insights and is accessible to all markets to carry out diagnostics directly linked to their consumers. TRANSFORMATION IN ACTION | May 2021 | Sept 2021 | 2021-22 | 2022 | | --- | --- | --- | --- | | New Global Consumer Office established | Consumer leadership team completed | New approach drives market share increase for flagship US brands | Innovation accelerated with launch of new NGP | We have also significantly increased the number of face-to-face consumer focus groups, initially with our five priority markets and then expanding to other key markets and into NGP categories. We have held these for multiple internal stakeholder groups, including the Board, the Executive Leadership Team, and market and category teams. This has brought the voice of the consumer directly into discussions throughout the organisation. We have invested in enhancing our revenue growth management capabilities to bring a more rigorous and consistent approach to our portfolio pricing decisions and sales channels' trade investment. In an external environment of rising costs, inflationary pressures and consequent changes to consumer behaviour, these additional capabilities have a key role to play in supporting market managers to respond quickly to market dynamics. ### Rebuilding brands to stem share losses across our priority markets The Global Consumer Office is working in conjunction with our five priority markets to refine their investment plans and initiatives by leveraging our improved consumer insights and capabilities. Each market has developed a detailed bottom-up portfolio strategy for their focus brands. This work has included 20 Imperial Brands | Annual Report and Accounts 2022 current changes redefining brand equity positioning, and working closely with digital, category and market teams to find new ways to engage consumers. This is already delivering an improvement in aggregate market share across these markets. We have delivered market share gains in the US with Winston and Kool in the cigarette segment, and through a continued strong performance from Backwords in the cigar segment. Another key shift in the strategy is to celebrate the heritage of our local brand portfolio in markets such as the UK and Spain. This local brand focus plays to our strengths and recognises consumer affection for these assets. We start with the consumer, focusing on consumer insight and consumer experience as a guide point so that suits them ### Undertaking market trials to validate our approach to NGP Our ongoing validation of product, brand positioning and consumer experience continues at pace. The proximity of the entire NGP team to our insights, innovation and marketing teams has enabled us to leverage the same consumer insights and data used by combustible tobacco teams, and in turn offers a holistic view of consumer behaviour and preferences – all of which continues to inform our approach to testing NGP in prioritised geographies. Consumer feedback from our NGP trials has given us actionable suggestions on how we can improve our propositions. In the Czech Republic, for example, heated tobacco consumers indicated a demand for a wider range of heat stick flavours. We launched two new flavours in response, and consumer reaction has been positive. ### Building our innovation capabilities We are reorienting our innovation capabilities to provide consistent and coherent consumer experiences across combustibles and NGP. We are doing this by exploring and integrating the latest ways of working and we have reorganised to work in more agile ways. We are also embracing external partnerships so that we are unencumbered by ownership of an entire value chain in a world where technologies and products are evolving quickly. We have created a partner ecosystem, and these partners are working with us on our innovation agenda across flavour, device, digital, sensory and packaging. This gives us the ability to test and learn from consumers as we innovate. www.imperialbrandspic.com 21 --- TRANSFORMATION IN ACTION continued 'Connections' will be an integral part of the way we set performance expectations and how we lead, recognise and reward people # TRANSFORMING # GOAL We're only doing a performance-based culture across the business. OFFICIAL ENVELOPE We're only doing a performance-based culture across the business. 22 International Division 1 Annual Report and Accounts 2022 Our new strategy launched in January 2021 identified the development of a performance-based culture and capabilities as a key enabler to successfully delivering our strategy. This reflects the importance of harnessing the skills, the performance, and the potential of every colleague in pursuit of our strategic goals. In October 2021, following extensive consultation with colleagues across all markets and functions, we launched 'Connections', our new purpose, vision and behaviours, to all 26,000 of our employees through our first global conference. Our five behaviours are: Start with the Consumer, Collaborate with Purpose, Take Accountability with Confidence, Be Authentic and Inclusive to all, and Build our Future. We are now rolling out a highly structured, multi-year programme, where all of our colleagues are expected to invest considerable time immersed in thinking about our behaviours and improving their broader capabilities. By the end of December 2022, every one of our employees around the world will have experienced development to gain an understanding of these behaviours, and what they mean for them in their role. This has been supported by leadership events featuring case studies demonstrating how our businesses and functions are applying the five behaviours to create positive operational and financial outcomes. Events in 2022 featured inspiring stories from markets as diverse as the US, Romania, Ivory Coast, Saudi Arabia and global travel retail. These activities have been underpinned by an internal communications campaign which has included online resources and new Connections branding across offices and factories. A recent pulse survey across our top 500 senior leadership population has shown that 93% understand our behaviours and what they mean for them in their role. The next phase of our cultural transformation is to embed Connections into our performance management framework for our 2023 financial year. Connections will be an integral part of the way we set performance expectations and how we lead, recognise and reward people. The bonus plan for all 1,200 of our senior leaders will measure and reward 'how individuals deliver', through the demonstration of our behaviours, as well as 'what they deliver'. A further 5,000 of our people will be aligned to the new performance framework in the coming year. Development planning will be a separate conversation to objective setting, with dedicated focused time given to this important activity. This approach will require our managers to further develop how they set both performance and behavioural objectives and how they coach, develop and support their teams to optimise performance and unlock potential. During the next 12 months we will invest in focused leadership development to deepen these skills with the aim of ensuring regular and meaningful performance conversations. In addition, functions and regions have gone through a detailed process, known as Leading Sustainable Change, to align their goals with our purpose, vision and strategy. While the development of a global performance-based culture will take time to accomplish, we have a clear plan and commitment at all levels of the Company to deliver on it. We will utilise regular employee experience surveys and targeted leadership pulse surveys in order to measure and report on our progress, with key performance indicators to be developed in 2023. ## HOW OUR IMMERSIVE ## CONNECTIONS SESSIONS WERE ## REVIEWED BY OUR COLLEAGUES "This is the best training I've ever had." "The workshops have been enlightening... I have enjoyed the meaningful interaction with colleagues around the business." "A lot of useful learning tools and tips... to transform behaviour and work collaboratively." "I was extremely sceptical of the invite... on reflection, every second was well spent." "Excellent tools... after 25 years in Imperial this was new for me." TRANSFORMATION IN ACTION | Jan 2021 | Spring/Summer 2021 | Oct 2021 | Nov 2021 | | --- | --- | --- | --- | | Strategy launch sets out case for culture change | Consultation with colleagues to develop purpose and vision | New purpose, vision & behaviours unveiled at first-ever all-colleague conference | Immersive Connections sessions start | | Feb 2022 | Spring 2022 | Sep 2022 | | --- | --- | --- | | First top 500 leadership event showcases new behaviours in action | Global office and factory rebranding | Connected Leadership coaching launched | www.imperialbrandopic.com 23 --- TRANSFORMATION IN ACTION continued ![img-13.jpeg](img-13.jpeg) Imperial emerged as the world's number four tobacco business through bold acquisitions over the past two decades. These transactions have given the Company significant positions in some of the world's most attractive markets and a stable of strong brands. Our new strategy identified a need to go further in integrating this portfolio of businesses to create simpler, more efficient operations, enabling us to better capture future opportunities. Two years on, our transformation is well underway with significant structural changes, the introduction of new capabilities, and investment in digital. We have restructured our sales and marketing operations to remove complexity, support faster decision making, and enable resources to be focused on the biggest opportunities. We have restructured our regions to allow a greater focus on our largest market, the United States, and develop our AAA region as a centre of expertise for emerging markets. We have also rationalised the number of clusters and defined clear operating models for our large, medium-sized and small markets. These changes have been supported by a rigorous new system of monthly performance management. We have also been introducing new capabilities, enabling us to catch up with best practice across the wider consumer packaged goods sector. A major focus has been the development and embedding of our new Global Consumer Office, which seeks to strengthen our marketing capabilities by joining up resources across markets, improving innovation capability and focusing our next generation product (NGP) agenda. Our drive towards greater consumer centricity is covered in more detail on pages 20-21. Work is now underway to streamline our global processes and systems to ensure that our resources are better allocated towards the customer and consumer-facing areas of the business - with a particular focus on our free priority markets. In Global Supply Chain, we are integrating our ways of working so that we are able to respond to changes in consumer demand with greater agility. We are working towards enhanced end-to-end oversight, visibility and budget ownership from forecasting demand to fulfilling customer orders. In our business partnering functions - including Finance, Procurement, IT and People & Culture - we are changing to provide more strategic support to our sales, marketing, and manufacturing teams. These changes are all being supported by significant digital improvements. These include our five-year, £300 million investment in an all-new Enterprise Resource Planning (ERP) system, which will replace 60 local legacy systems. This is a once-in-a-generation opportunity to enhance the speed, integrity and availability of business information, improving our decision making and agility. The actions we have taken to date will deliver annualised cost savings of around £120 million, and we are on track to realise annual savings of £150 million on completion of our programme at the end of our 2023 financial year. As outlined in our strategy, these savings are being re-invested in the new capabilities that will support sustainable growth. Our continued programme of initiatives and investments to create a simplified and efficient organisation will bring agility and resilience, and support the development of a performance-based culture, covered in more detail on pages 22-23. Two years on, our transformation is well underway with significant structural changes, the introduction of new capabilities, and investment in digital Investment in new ERP system £300m TRANSFORMATION IN ACTION | 2021 | 2022 | | | | --- | --- | --- | --- | | New performance management approach introduced | Market clusters reduced from 13 to 10 | Changes to business support functions | Investment in new ERP system announced | www.imperialbrandopic.com 25 --- OUR INVESTMENT CASE ![img-14.jpeg](img-14.jpeg) # 1. REVITALISED TOBACCO BUSINESS DRIVING STRONG CASH 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 contribution, and with selective investment in brand equity and our sales force, we are starting to stem market share losses. This, together with strong performance from our broader portfolio and the exit from select markets, undergoes the generation of improving cash returns from our combustible business. c.70% of profit contribution comes from top five combustible markets # 3. SELF-HELP INITIATIVES DELIVERING OPERATIONAL IMPROVEMENT AND STRENGTHENING PERFORMANCE Continued investment and operational improvements and enhance financial performance as we focus on making our enabling functions more efficient. We are placing the consumer at the centre of our business and our decision making. We are adopting a challenges mindset and embedding behaviours to support a performance-based culture. # 2. NGP BUSINESS PROVIDING OPTIONS FOR POTENTIAL HARM REDUCTION AND GROWTH Next generation products have growth potential as they are still a relatively innocent category in the majority of markets. We want to build a sustainable NGP business through a substitute consumer focus, focusing on offering consumers a choice where they have already expressed an NGP preference and where we can leverage our existing customer relationships. # 4. GENERATING STRONG SUSTAINABLE CASH FLOW FROM A HIGH-QUALITY PORTFOLIO The business remains 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%. With the foundations for growth in place, expectations are to deliver a three-year mid-single-digit compound annual growth rate in adjusted operating profit. # 5. ENHANCING CAPITAL RETURNS THROUGH PROGRESSIVE DIVIDEND AND SHARE BUYBACK We have clear capital allocation priorities (i) targeted investment to support our strategy, (ii) a strong and efficient balance sheet with an investment-grade credit rating, (iii) a progressive dividend policy reflecting underlying performance, and (iv) a return surplus capital to investors via a share buyback. # PHASE 2 OF OUR FIVE-YEAR PLAN Our five-year plan is delivering a stronger financial outlook. Having completed the initial two-year strengthening phase of our strategy, we are now focused on delivering improved performance over the remaining three years of our plan. ![img-15.jpeg](img-15.jpeg) Further information on our strategy can be found on pages 12 to 25. Improving returns FY23 to FY25 | Net revenue | Gradually improving trajectory with compound annual growth rate of 1-3% | | --- | --- | | Adjusted operating profit | Delivering improving profit growth through operational leverage, better geographic mix from continued stabilisation of priority market shares, reducing losses from our investment in NGP and restructuring cost savings Compound annual growth rate in mid-single-digits Adjusted operating cash flow conversion typically between 90% and 100% | | Dividend | Progressive dividend policy reflecting underlying performance | | Leverage | Committed to investment grade credit rating, with leverage at the lower end of the 2.0x to 2.9x net debt/EBITDA range | | Enhanced capital returns | An ongoing share buyback programme to return surplus capital, with up to £1 billion committed in FY23 | 26 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 27 --- KPIS # HOW WE ARE PERFORMING We use key performance indicators to assess the progress we are making in delivering our purpose, vision and strategy. ## FINANCIAL KPIs¹ Aggregate priority market share vs prior year (%) ![img-16.jpeg](img-16.jpeg) # Performance Our "focus on our priority markets" has led to encouraging progress with an increase in aggregate priority market share vs prior year, following several years of decline. Gains in the US, UK, Spain and Australia offset a decline in Germany. NGP net revenue (£m) ![img-17.jpeg](img-17.jpeg) # Performance NGP revenue grew by 31.8% on a constant currency basis in the year. This growth in our NGP revenue reflects our strategic priority to "build a targeted NGP business". This metric will be used as a bonus performance criterion for Executive Directors from FY23. Tobacco & NGP net revenue (£bn) ![img-18.jpeg](img-18.jpeg) # Performance Tobacco & NGP net revenue grew by 2.7% at actual exchange rates and increased by 1.5% on a constant currency basis. Tobacco net revenue was up 1.3% at constant currency, reflecting progress made in the two combustible strategic priorities of "focus on our priority markets" and "driving value from our broader portfolio". * ET file excluding Premium Cigar Division disposal Tobacco & NGP adjusted operating margin (%) ![img-19.jpeg](img-19.jpeg) # Performance Margins improved primarily due to lower NGP losses reflecting our strategic priority to "build a targeted NGP business". We also benefited from our focus to "drive value from our broader portfolio" as we visited the lower profitability markets of Japan and Russia during the period. * 42.1% excluding Premium Cigar Division disposal Adjusted earnings per share (pence) ![img-20.jpeg](img-20.jpeg) # Performance Adjusted earnings per share was up 4.9% on a constant currency basis, excluding a currency tailwind of 2.3%. Reported earnings per share declined 42.3%. This movement is explained in the Group Financial Review. * 247.2p excluding Premium Cigar Division disposal Adjusted operating cash conversion rate (%) ![img-21.jpeg](img-21.jpeg) # Performance 2022 adjusted operating cash conversion of 102% reflected neutral working capital in the year compared to a working capital outflow in FY21. Net debt to EBITDA (multiple) ![img-22.jpeg](img-22.jpeg) # Performance In line with our strategy to reduce leverage, net debt to EBITDA was 2.0x and is now in our target range. The improvement in the ratio was mainly a result of strong cash flow generation. 1. Definitions for financial KPIs can be found in Supplementary Information. Dividend per share (pence) ![img-23.jpeg](img-23.jpeg) # Performance The dividend grew 1.9% reflecting our progressive dividend policy. This follows the Board's decision in May 2020 to refuse the dividend by one-third to accelerate debt repayment, which we have achieved. ![img-24.jpeg](img-24.jpeg) 2 KPIs used as bonus and LTIP performance criteria for Executive Directors. See Remuneration Report on pages 130 to 149 for more information. Return on invested capital (%) ![img-25.jpeg](img-25.jpeg) # Performance Return on invested capital improved in the year by 20 days to 17.7% driven by the increase in adjusted operating profit and the reduction in annual average capital. Total shareholder return ![img-26.jpeg](img-26.jpeg) Imperial Brands total return FTSE 100 index total return # Performance Total shareholder returns continued to rebound in the year, growing 33%, as our results were in line with our guidance and market participants gained confidence in our new management team and our strategy delivery. Over the prior ten years, Imperial Brand's total return remains below that for the FTSE 100 index. ## NON-FINANCIAL KPIs¹ More non-financial performance indicators can be found in the ESG Review on pages 40, 42, 43, 45, 47, 54 and 55 and in our Reporting Criteria document available on our website. Energy consumption (GWh) ![img-27.jpeg](img-27.jpeg) # Performance We have seen a 19% decrease in energy consumption from our baseline year. Our target is to reduce energy consumption by 20% by 2030. We remain on track to achieve that target. Our 2022 relative energy consumption is 91,364 KWb/lbm net revenue. Absolute CO₂ equivalent emissions (tonnes) ![img-28.jpeg](img-28.jpeg) Scope 1 2. Scope 2 Total value is total Scope 1 and Scope 2 absolute CO₂ emissions # Performance We have seen a 19% decrease in our total Scope 1 and 2 emissions from our 2017 baseline. Our target is to be at Net Zero in our direct operations by 2030. We have also set a Scope 3 target, to be Net Zero by 2040. Waste (tonnes) ![img-29.jpeg](img-29.jpeg) # Performance We have seen a 15% decrease in waste from our 2017 baseline year. The slight increase in waste of 0.6% we have seen compared to last year is due to increased production volume at our McAdon site. Our target is to reduce waste by 20% by 2030. Lost time accident frequency rate (per 200,000 hours) ![img-30.jpeg](img-30.jpeg) # Performance We have seen a 11% reduction in the LTA rate compared to last year and a 40% reduction compared to the 2019 baseline year. Our target is to achieve a 75% reduction in LTA rate from the baseline year by 2030. We are utilising targeted leadership pulse surveys to measure and report on the progress of our cultural change programme and will develop KPIs to track this in 2023. 1. Definitions for non-financial KPIs can be found in the ESG Review on pages 39 to 98 and in the Reporting Criteria Report available on our website. 2. 2020, 2021 and 2022 non-financial information databases independently secured by IIT. Our Reporting Criteria Document contains detail on definition and scope of all non-financial KPIs. 3. See www.imperialbrandopic.com/contestability for more information. 4. Our 2022 environmental data follows the reporting period: 04 financial year 2020 to 03 financial year 2022. This is to allow for data reduction, validation and external assistance. In FY23, we meet our baseline and subsequent years' data for Scope 1 and 2 (365) emissions increase if consistent with the latest guidance from the Greenhouse Gas Council and IGP. Our reporting scope and definitions are detailed in the Reporting Criteria Document published on our website. 5. Our health and safety data for the full 2022 financial year. Our reporting scope and definitions are detailed in the Reporting Criteria Document published on our website. 28 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandopic.com 29 --- STAKEHOLDER ENGAGEMENT # BUILDING TRUST WITH OUR STAKEHOLDERS Building and maintaining trust with our stakeholders underpins the success and reputation of Imperial Brands. Through stakeholder collaboration we aim to develop the Company, minimise our environmental impact, make a positive social contribution and uphold high standards of governance. This section of the Annual Report provides insight into how stakeholder engagement is taken into consideration by the Board and the Executive Leadership Team (ELT) in their decision-making processes. It goes on to describe how we monitor the effectiveness of our engagement. The Board's decision-making process is brought to life in our Section 172 statement on pages 108 to 112 which references specific recent examples. Further information on how the Board has considered stakeholders when making key decisions is also given on the following pages and in the Governance Report on pages 108 to 112 # CONSUMERS Our strategy starts with our consumers. Millions of adults worldwide choose to enjoy our tobacco and next generation products. The better we understand the preferences of our consumers, the better we are able to serve them. This helps us grow our business, and it helps us identify and capitalise on opportunities as a challenger business. # How the Board considers this stakeholder - The Board participated in a number of consumer immersion events over the course of the year, in the UK, Spain and the US. These afforded Board members the opportunity to get closer to the consumer by hearing directly from them about their habits, likes and dislikes. Board members were also able to discuss matters important to both combustible and nicotine product consumers, including the dynamic between local and international brands. The Board was also updated on the impact of the cost of living crisis on consumers. - A tour of our Greensboro factory during the Board visit to the US also helped Board members understand the full life-cycle of the products our consumers enjoy. # How we engage with this stakeholder - Consumer roundtables and focus groups are held – virtually where COVID-19 restricted face-to-face meetings – to understand consumers' specific requirements and changing preferences. - Feedback from these focus groups is used in our decision-making for investments in brand refreshes and marketing. - The Global Consumer Office, headed by the Chief Consumer Officer, leads consumer-listening initiatives across the Group. # What matters to this stakeholder - Our focus groups informed us that adult consumers want a choice of brands and quality products at the right price points. - Feedback has also shown us that consumer preferences such as cigarette pack formats, flavours and filters, as well as the choice of potentially less harmful NGP, evolve over time. - Our focus groups have shown us that listening to these needs and remaining relevant underpin consumer loyalty to brands. # How we monitor the effectiveness of our engagement - We hold regular consumer focus groups to assess the impact of our brand refreshes and marketing campaigns on consumers. - We believe market share changes across products, channels and geographies reflect the effectiveness of our engagement with consumers. - Regular data-led updates from the Global Consumer Office provide the Board with evidence and an opportunity to challenge assumptions when making decisions related to our product portfolio. # COLLEAGUES Our colleagues are Imperial's most important asset and are critical to the success of the business. It is essential we create a supportive, safe and rewarding work environment to enable them to deliver our goals and develop their careers. We believe that a diverse and engaged workforce is imperative for business success. # How the Board considers this stakeholder - Collective responsibility for workforce engagement has been embedded into the Board's governance framework in the remit of the redefined People and Governance Committee. - The Board held four Meet the Board events with groups of colleagues during the year. These events gave the Board the opportunity to hear colleagues' perspectives as part of our overall engagement strategy. This engagement allows the Board to incorporate colleagues' views into its decision making. - The Board also engages with a broad cross-section of employees by way of dinners with teams, informal drinks and site visits. - The Board receives regular feedback from our employees through updates at the People and Governance Committee. These include the results of our pulse surveys which gather the views of colleagues on particular topics, for example the progress of our "Connections" workshops and the work of our Employee Resource Groups (ERGs). - The Board met to consider the implications of the Russian invasion of Ukraine. Its prompt action allowed the Company to safeguard the interests of our Russian colleagues by transferring the business as a going concern. The long-term interests of our colleagues in Ukraine were a key factor in this decision. # How we engage with this stakeholder - During the year, following extensive consultation we launched "Connections", our new purpose, vision and behaviours through our global all-staff conference. All colleagues have experienced training to enhance their understanding of these behaviours, and what they mean for them in their role. - We continued to hold CEO and leadership town hall meetings, in person and virtually, providing opportunities for colleagues to give feedback directly to the ELT. - Feedback from our four ERGs, focusing on gender, ethnicity, LGBTQ+ and disability, has helped us to understand how better to co-create strategies and policies for including underrepresented groups. - We use various channels including our intranet and IB News to ensure regular internal communication with colleagues. # What matters to this stakeholder - Our colleagues want to see continued progress on equality and diversity and to feel included. They want to see that issues of authenticity and inclusion around gender, ethnicity, LGBTQ+ and disability are taken seriously throughout the Company. - They want to see that responsibility and accountability are underpinned by a fair assessment of contribution. - Colleagues want to see senior management lead the new behaviours by example to create an environment where innovative approaches are encouraged and we learn from our failures. - Health, safety and wellbeing continue to be a priority in the workplace. # How we monitor the effectiveness of our engagement - We review the results of our annual workforce engagement "Have Your Say" survey. - We review the results of our interim pulse surveys. - The ESG Committee, chaired by the CEO, receives feedback from the ERGs. In addition, as each ERG is sponsored by a member of the ELT and co-chaired by members of senior management, feedback from colleagues on how the Company is progressing in relation to inclusivity concerns is given to the ELT via these sponsors. - Feedback is obtained during the Board listening sessions. - We collate feedback from exit interviews to find out why employees choose to leave us. 30 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 31 --- STAKEHOLDER ENGAGEMENT continued ## CUSTOMERS Where it is difficult to engage directly with consumers, engaging with retailers provides useful insights into our consumers' behaviour and preferences. This helps us grow our business, even where there are regulatory headwinds, and identify opportunities to be a successful challenger. We work closely with distributors, wholesalers and retailers to ensure our products are available to adult consumers in a diverse range of outlets. These stakeholders play a crucial role in our business model. ### How the Board considers this stakeholder - The Board has participated in three visits in the UK, Spain and the US over the last year. These visits provide the opportunity to talk directly to retailers. - Our CEO meets with customers regularly throughout the year. ### How we engage with this stakeholder - Our market cluster leadership teams engage with our customers to understand how to improve the effectiveness of their sales forces. - We work closely with our distributors to understand how we can best manage our relationships, and have a dedicated team to support distributor sales and build best practice in distributor management across the Company. - We use key account management practices to engage with our largest customers to better understand their needs and to create strong commercial partnerships to help our businesses create value together. ### What matters to this stakeholder - A diverse portfolio of quality products that appeal to consumers. - Consistent communication on the launch pipeline and investment behind relevant brands in their region. - Ease of ordering and a strong supply chain to maintain high levels of on-shelf availability. - Support to protect against illicit trade and underage sales. - Support and guidance through industry changes, e.g. initiatives to help customers manage their business through regulatory change such as display bans or plain packaging. - Trade programmes that reward customer business growth. ### How we monitor the effectiveness of our engagement - We monitor our performance relative to other FMCG companies through the Advantage Survey and other benchmarking surveys. Feedback from these surveys is reviewed and taken into account in our engagement plans and in setting priorities. - We hold management roundtable events with regional customers to hear first-hand how Imperial is performing relative to peers. - A quarterly pulse report provides performance feedback which is used to highlight areas for improvement. - We have KPIs to monitor progress against operational initiatives. ## GOVERNMENTS AND REGULATORS Approaches to legislation vary significantly across geographies. We support reasonable regulation of tobacco and nicotine products and look to have constructive engagement with policy makers and regulators. ### How the Board considers this stakeholder - Our corporate strategy includes a commitment to building an NGP portfolio of potentially reduced harm products. - The Board approves our Modern Slavery Statement annually. - Regular updates on regulatory matters are provided to the Board. - Following his appointment, our Chief Legal & Corporate Affairs Officer has presented to the Board both on the US regulatory environment, during the Board's visit to our US business, and on the Group's key regulatory risks and our corporate affairs strategy to manage these risks. ### How we engage with this stakeholder - Whilst management is primarily responsible for understanding and ensuring compliance with applicable laws and regulations, the Board also looks to encourage direct constructive engagement. - We monitor changing regulations in our markets and assess the impact on our existing portfolio and innovations. - We assess regulatory impact on pack design and marketing support around brand launches. - This monitoring allows the Board to take relevant legislation and regulation into account when making its decisions. ### What matters to this stakeholder - Tobacco excise revenues and public health spending on smoking-related health issues. - Assessment of reduced harm from NGP. - Compliance with local laws and regulations. - Confidence that our business is operating legally and responsibly in each government or regulator's region. - Collaboration with law enforcement agencies countering illicit trade and preventing youth access to tobacco and nicotine products. ### How we monitor the effectiveness of our engagement - We monitor the approval of the listing of our products in various markets. - We review proposed new regulation and the Company's ability to be involved in the development of reasonable and rational regulation. - We monitor feedback and complaints from regulators. ## INVESTORS Our investors provide capital to the business and monitor management's allocation of that capital within the business. ### How the Board considers this stakeholder - Our CEO, CFO and Chair have regular meetings with our major investors to update them on our performance, hear their views directly and consult with them. - The Board receives a report at every meeting on investor engagement, as well as a feedback report following all investor events. - During the year, the Board commissioned an investor perception study to gather feedback on our strategy, performance and communications. - Our AGM provides an opportunity for the Board to meet with investors. - Sue Clark, Chair of our Remuneration Committee, wrote to investors in July 2022 about ESG metrics and, together with the Global Reward Director, hosted follow-on investor calls where requested. Further details of the ESG metrics can be found in the Directors' Remuneration Report on page 132. ### How we engage with this stakeholder - Our Annual and Interim results presentations inform investors how the business is performing. - We maintain a programme of active dialogue with our key financial stakeholders, including institutional shareholders, potential investors, holders of our bonds and sell-side research analysts. - Our CEO hosted two webinars during the year for investors and analysts. In March, the US management team presented on how Imperial Brands' consumer-centric strategy is gaining traction in the US market. In September, the Global ESG Director together with senior management outlined how we have refreshed our approach to our ESG agenda to further support our strategy. - Senior management supported a new bond issue in July 2022, including an investor roadshow to market the bond. - Senior management present at various industry conferences. ### What matters to this stakeholder - Confidence in the Board that it has appropriate oversight of the management team. - Trust in the management team to have a strategy and operational plan to optimise value creation and ensure the long-term sustainability of returns. - The setting of realistic expectations combined with transparent reporting of performance against KPIs, both financial and non-financial, including ESG metrics. - Disciplined capital allocation. ### How we monitor the effectiveness of our engagement - Our CEO, CFO and Chair engage with investors to gather feedback on how we are performing against our strategy. - Topics discussed during the year included the actions taken to improve performance, progress with executive and non-executive recruitment, capital allocation considerations and ESG. - The Board receives an investor relations update at every Board meeting, which sets out the latest investor views, share register movements and recent market developments. - Detailed feedback from investors is collected after each investor event and roadshow, which is shared with and discussed by the Board so it has a good understanding of investor views. - Key findings from the investor perception study included widespread support for Imperial's strategy, capital allocation policy, management team and operational progress to date. Shareholders would like to see progress in NGP and signs of the overall financial performance of the Group improving into the next three-year phase of the plan. 32 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 33 --- STAKEHOLDER ENGAGEMENT continued # SUPPLIERS We maintain strong relationships with our tobacco, non-tobacco materials (NTM) and NGP suppliers to help ensure sustainable supply and business continuity, ensuring fair contract and payment terms. We are conscious of the key dependencies in our supplier relationships, especially those partners we are relying on to support delivery against our strategic objectives. We are working to increase the resilience of these relationships, including by building out our business continuity capability at Group level, and deepening our understanding of critical dependencies. Working in partnership with our suppliers ensures we have the right resources in place to respond with agility to global challenges, and supports our growth. # How the Board considers this stakeholder - The Board approves our Modern Slavery Statement annually. - Suppliers within our supply chain are included as part of the Board's ESG considerations. - During the year we reviewed the risk posed to suppliers, including in respect of logistics arising from COVID-19, as well as other economic and geopolitical influences. - Factory and site visits help the Board understand the complexities of our global supply chain. - Our Chair and CEO visited Africa during the year, where they met with the CEOs of our two largest tobacco leaf suppliers. - Supplier considerations were intrinsic to our response to the Ukraine crisis, in particular the Board decision to exit Russia # How we engage with this stakeholder - Our Supplier Qualification Programme is a screening process for all new NTM and NGP suppliers, requiring completion of a self-assessment on business conduct, environmental management, and labour practices such as discrimination, child and forced labour, freedom of association, remuneration, working hours, and health and safety. - All our leaf suppliers are expected to participate in the Sustainable Tobacco Programme (STP). - Through our leaf partnership projects we support communities in tobacco-growing countries identified as having the most need. - Our Supplier Code of Conduct helps ensure we engage suppliers that offer resilience in our supply chain and security in our technology platforms. # What matters to this stakeholder - Our support with Leaf Partnership projects focusing on having an impact on important issues in the countries from which we source our tobacco, including Malawi, Mozambique, Indonesia, India, the Philippines, Dominican Republic, Honduras and Turkey. - We set and abide by fair contract and payment terms. # How we monitor the effectiveness of our engagement - We operate a vendor rating system for our key NTM suppliers, and carry out annual business reviews. - The STP supports the sustainable supply of quality tobacco leaf. It is a framework to improve labour standards, raise standards of living and address environmental challenges by sharing good agricultural practices. - The annual STP assessment is part of our formal supplier relationship management. It forms part of the suppliers' ratings that we determine along with quality, cost and value. - We carry out online engagement and performance reviews. NON-FINANCIAL INFORMATION STATEMENT # NON-FINANCIAL INFORMATION STATEMENT 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. | Reporting requirement | Policies and standards which govern our approach | Information necessary to understand our business and its impact, policy, data diligence and outcomes | | | --- | --- | --- | --- | | Environmental matters | Occupational health, safety and environmental policy and framework Sustainable Tobacco Programme | Environmental targets | 29, 41, 44, 62, 64 | | | | International management systems | 42, 59 to 65 | | | | Climate and energy | 29, 41 to 43, 59 to 65 | | | | Reducing waste | 29, 44, 45 | | | | Sustainable tobacco supply | 37, 46 to 49 | | Employees | Code of Conduct Group-wide employment policy Fairness at work policy Occupational health, safety and environmental policy and framework | Diverse and engaged workforce | 55 to 57 | | | | Workplace health and safety | 29, 52 to 54 | | | | International management systems | 54 | | | | Lost time accident (LTA) rate | 29 | | Respect for human rights | Human rights policy Code of Conduct Supplier Code Supplier qualification programme Modern slavery statement Speaking Up policy | Diverse and engaged workforce | 55 to 57 | | | | Workplace health and safety | 29, 52 to 54 | | | | Human rights | 50, 51 | | | | International management systems | 54 | | | | | | | Social matters | International marketing standards Finstem marketing standards Policy on taxation Community contributions and volunteering policy Information security policy | Human rights | 50 and 51 | | | | Youth access prevention | 39 | | | | Farmer livelihoods and welfare | 46, 47 | | | | Charitable and political donations | 149 | | | | | | | Anti-corruption and anti-bribery | Code of Conduct Fraud risk management policy Speaking Up policy Finance manual Group control matrix Supplier Code of Conduct | How we manage risk | 82 | | | | Governance, risk management and internal control | 82 to 93 | | Description of principal risks and impact of business activity | Principal risks and uncertainties Governance, risk management and internal control | | 82 to 93 128, 129 | | Description of the business model | Our business model | | 10 and 11 | | Non-financial key performance indicators | Key performance indicators Sustainability performance indicators | | 29 | | | | | 42, 45, 48, 54, 55 | 1. Not all of our Group policies and standards are publicly available 34 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 35 --- ESG REVIEW ![img-31.jpeg](img-31.jpeg) Tony Dunnage Global ESG Director In January 2022, we outlined our new five-year strategy to transform Imperial into a business better able to deliver sustainable growth year in, year out. Later that year, we launched a new Company purpose and vision, defining why we are here and what we are trying to achieve. Our commitment to environmental, social and governance (ESG) issues is enshrined in these two statements. Our purpose expresses our ambition to build a "healthier future" and this applies not only to our consumers but also to our communities and planet. Our vision states that our pursuit of commercial success will be "powered by responsibility". **Purpose:** Tackling a path to a healthier future for moment not advertising and generate. **Vision:** to build a strong, challenger business powered by responsibility, value and safety. Working with our employees, we also created five core behaviours that articulate what success looks like in our new culture, and these too are linked directly to our ESG commitments. Following the launch of our strategy, purpose, vision and behaviours, we completed an ESG materiality assessment, listening to the views of consumers, customers, employees, investors and shareholders. This survey identified eight focus areas, which we have grouped into three broad categories: Healthier Futures, Positive Contribution to Society, and Safe & Inclusive Workplace. Each of our eight focus areas is also aligned to at least one of the United Nations' Sustainable Development Goals (UN SDGs). Alongside this work, we introduced a new ESG governance framework to ensure rigour in the way in which we set objectives and deliver on our commitments. See page 66 for further details. Our focus areas and the linked metrics and targets have been endorsed by the Board. Executive Leadership Team sponsors have been appointed for each of our eight ESG priorities. This is intended to inspire engagement throughout the business. We believe this executive-level sponsorship puts us in a stronger position to deliver against our goals. We have made external hires and promoted internal subject matter experts in order to build a strong team capable of delivering on our ambitious objectives. For each of the eight priority issues, we are at varying levels of maturity, but we are committed to delivering our ambitions on all of them. # TRANSFORMATION IN ACTION | Jan 2021 | | | | | | Sept 2022 | | | --- | --- | --- | --- | --- | --- | --- | --- | | New strategy launched | Purpose, vision and behaviours unveiled | ESG materiality study completed | ESG Board and executive governance agreed | New ESG strategy developed | ESG strategy signed off by ESG Committee and Board | Internal "People and Planet" agenda launched | ESG priorities integrated into executive remuneration metrics. (Introduced for FY23) | We refer to ESG internally as our "People and Planet" agenda and our new approach was introduced to our top 500 senior leadership population in July 2022, through a series of webinars. This was followed by a roll out to all colleagues using digital and face-to-face channels. In September 2022, we introduced our new ESG approach to some of our investors in a webinar. This focused on three of the eight priority areas: consumer health, climate change, and farmer livelihoods and welfare. We also highlighted the importance of the culture change programme. We have integrated ESG metrics for consumer health and climate into our executive remuneration for FY23. Please see page 132 for further details. Further information on our People and Planet agenda is available in our website on our ESG Strategy document and our 2022 ESG People and Planet Performance Summary. ESG Reporting Commissionments provides further information on ESG-related APCs. Former Logistics remeasures of scope for all ESG-related SDGs. For input, ESG-related information in accordance with the core options of the Global Reporting Initiative (GRI) Standards and against the Sustainable Accounting Standards Board (SASB) requirements, namely, it would only be found in our 2022 GSI and SASB Index. ![img-32.jpeg](img-32.jpeg) Further information in the Healthier Futures section of our website # HEALTHIER FUTURES # CONSUMER HEALTH We are committed to strengthening our next generation products (NGP) and making a more meaningful contribution to harm reduction by offering adult smokers a range of potentially less harmful products. # CLIMATE CHANGE We are committed to reducing our impact on the climate throughout our value chain. For using on both mitigation and adaptation. # PACKAGING AND WASTE We are committed to minimising waste associated with our products, packaging and production processes. # POSITIVE CONTRIBUTION TO SOCIETY # FARMER LIVELIHOODS & WELFARE We are committed to engaging with our suppliers to support and develop farming communities and promote sustainable agriculture. # SUSTAINABLE & RESPONSIBLE SOURCING We are committed to sourcing products and services in a compliant, sustainable and socially conscious manner. We will work with our suppliers to ensure continuous improvements. # SUSTAINABLE DEVELOPMENT GOALS Our ESG strategy remains aligned with the United Nations Sustainable Development Goals. # SAFE & INCLUSIVE WORKPLACE # EMPLOYEE HEALTH, SAFETY & WELLBEING We are committed to achieving world-class occupational health, safety and wellbeing for all our employees. # DIVERSITY, EQUITY & INCLUSION We are committed to creating a truly diverse and inclusive organisation renowned for celebrating difference, enabling our people to feel that they belong and be their authentic selves. We will respect, recognise and value the diversity of our consumers and reflect the communities in which we operate. # HUMAN RIGHTS We are committed to raising awareness and improving processes in our supply chains recognising the importance, influence and role we have in promoting and protecting human rights. 36 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandngic.com 37 --- ESG REVIEW continued # HEALTHIER FUTURES # CONSUMER HEALTH We are committed to strengthening our next generation products (NGP) to make a more meaningful contribution to harm reduction, by offering adult smokers a range of potentially less harmful products. # Consumer-led harm reduction strategy We start with our consumers, focusing on consumer insight and research to ensure we build a portfolio that suits them. The only way we can make a material contribution to harm reduction is by getting ever closer to our consumers, understanding their needs and behaviours, and then innovating at pace and creating new compelling propositions. # Tobacco Harm Reduction (THR) # Potentially Less Harmful Product # Consumer Acceptance As illustrated in the above equation, NGP have the potential to be less harmful to consumer health than tobacco. However, in order to do so, these new products must be accepted by consumers as alternatives to cigarettes. This is why we believe harm reduction starts with the consumer. # Behaviours # Link to SDGs We are committed to tobacco harm reduction Start with the Consumer We understand society's concerns about the health risks of smoking and recognize our role in helping to reduce the harm caused by combustible tobacco products. Our ambition is to make a meaningful contribution to tobacco harm reduction. This ambition is also directly linked to target 3-6 of the UN SDG 3, which is "to reduce mortality from non-communicable diseases and promote mental health". Tobacco harm reduction starts with the consumer. This means developing a deep understanding of the diverse lives of the world's one billion adult smokers, and the individual occasions when they choose to smoke. Smoking is deeply rooted in our cultures. People desire pleasure from smoking and many are reluctant to compromise on that pleasure. So, when we provide adult smokers with an alternative to combustible tobacco products, it is important to ensure their experience is as close to the experience of smoking as possible. Our products are focused solely on existing adult smokers. Clearly, the best health-related outcome is for adult smokers to stop smoking. However, the next best option is to offer potentially harm reduced alternative products to those consumers who are uninterested or unwilling to stop smoking. We have found these consumers fall into two distinct categories and are likely to be attracted to different product types: 1. Willing to try new products but wanting an experience as close to smoking as possible. 2. A more health-conscious smoker, looking to find something potentially less harmful and likely to compromise somewhat on the experience but not fully. By increasing NGP choice and improving the experience, tobacco companies can increase the number of adult smokers who choose potentially harm-reduced alternatives. ![img-33.jpeg](img-33.jpeg) Imperial Brands | Annual Report and Accounts 2022 # The relative risk scale An illustrative representation of the current scientific evidence ![img-34.jpeg](img-34.jpeg) Our new NGP strategy is focused on driving consumer choice. We have defined an approach which plays to our strengths and is centred on meeting consumer needs. As the smallest of the global players, it is not our role to create categories in markets. At this stage, we are focused on markets where an NGP category is already well established and where we can leverage our existing combustible routes to market. Once we have identified which markets are attractive to us, we seek to understand what our target consumers value most about their smoking experience. Having clearly understood the consumer dynamics, our role in these markets is then to provide greater consumer choice with a differentiated product offering that meets an untapped consumer need. NGP have the potential to make a significant contribution to harm reduction. Products in other nicotine categories, whilst not risk free, differ from cigarettes in their risk profiles, as illustrated on the chart above. Current scientific evidence suggests NGP have the potential to significantly reduce harm, relative to continuing to smoke cigarettes. While each category of NGP has a differing risk profile, no NGP involve the burning of tobacco and so do not produce the smoke which is the primary cause of smoking-related disease. Persuading consumers to choose potentially reduced risk products requires innovation across the entire value chain. For an adult smoker to choose a potentially reduced risk product, we need to ensure their journey is as frictionless as possible. This requires innovation across our supply chain, superior distribution networks, focused consumer insights and novel marketing models. We seek to substantiate the reduced harm potential through our scientific research in the laboratory, the clinic and once products are in market. Our products target existing adult smokers. Our focus is on driving consumer acceptance, while recognising that not all consumers and markets are the same. There are different preferences and regulations across different markets, which is why we are taking a portfolio approach with our range of NGP. Our heated tobacco product, for instance, is targeted at consumers who prefer multiple sessions between changing. We also know that some consumers prefer a compact heated tobacco device. This is why we have focused on these two key attributes for our first launches in heated tobacco with our Pulse product. In vaping, feedback on our all-new blu 2.0 product launched in France suggests consumers find it among the best vaping experiences. It has a longer battery life and enhanced ergonomics, so it feels more comfortable to use. The new pods address the previous industry concerns over leakage, and the pods now dock neatly with a magnetic "click". In modern oral, we are focused on improving taste and smell to better satisfy our target consumers – while delivering the nicotine that they want. Under-age people should never use our products. Regulators have expressed concern that NGP could become a gateway to cigarette smoking for consumers who do not already smoke. It is vital that any NGP use by "never-smokers", including youth, is minimised or eliminated altogether. NGP are for adult smokers and adult nicotine users only. Our entire NGP philosophy reflects a no-tolerance approach to youth access through every stage of our products' life. This applies from conception, development and manufacturing through to perception and behavioural science, marketing and post-market surveillance. We maintain a strict responsible marketing protocol. To reinforce our commitment to youth access prevention, we seek to ensure that regulatory requirements are implemented, adhered to and enforced. We are committed to marketing and advertising our products responsibly within the laws, codes of practice and voluntary agreements of those countries within which we operate. Our commitment to responsible marketing and sale of our NGP and combustible tobacco products is summarised by our Marketing Principles detailed in the blue box overleaf. By collectively committing to responsible marketing and high product standards across the board, we can create a united front against youth access to tobacco and nicotine products. We are also developing a framework to assess, understand and act to mitigate the risk of underage use. We intend to expand on this framework in 2023. www.imperialbrandspic.com 39 --- ESG REVIEW continued We seek to substantiate the reduced harm potential of NGP through our rigorous scientific research in the laboratory, the clinic and once products are in market. We firmly believe in starting with the consumer, and this is reflected in our commitment to improving the way we substantiate and communicate the tobacco harm reduction (THR) potential of our NGP to adult smokers in FY23 and beyond. We have refined our scientific assessment framework (SAF), which is a multi-stage, multi-year testing and research programme designed to evaluate the harm reduction potential of each of our NGP relative to combustible cigarettes. Our comprehensive consumer product safety programme ensures we are rigorously validating NGP safety profiles throughout their lifestyles. Simultaneously, we are scientifically assessing the THR potential and relative risks of our NGP compared to cigarettes, focusing on both individuals and wider populations. We believe the SAF is crucial in generating the necessary scientific proof points and evidence to build and maintain trust in NGP with consumers, regulators, public health and the media. We also think the comprehensive scientific assessment of these relative risks should form the basis of risk-proportionate, evidence-based regulation. Our SAF is therefore aligned with guidelines provided by leading global public health authorities and regulators. We believe that the totality of the research generated by the SAF, alongside in-market consumer data on adult smoker switching/retention rates and the broader scientific literature, will ultimately confirm that our NGP contribute to improved consumer health outcomes compared to continuing to smoke, thus demonstrating our meaningful contribution to THR. We continue to make our scientific research publicly available, find out more on our dedicated science website. We have published 30 peer-reviewed Imperial-authored papers, and delivered 25 presentations at conferences over the last five years. # MARKETING PRINCIPLES 1. We only engage with adult consumers of tobacco and nicotine products. 2. Our marketing is honest and transparent. 3. We give our consumers the information they need to make informed choices. 4. We will never encourage people to start smoking or non-smokers to use recreational nicotine products, and never discourage consumers of our products from quitting. 5. We comply with the local laws, codes of practice and voluntary agreements which govern the advertising, promotion and sale of our products. By the end of FY22, our commercially available NGP had achieved the following SAF completion rates to demonstrate harm reduction potential: PROGRESS OF TESTING HARM REDUCTION POTENTIAL OF OUR NGP AGAINST THE SCIENTIFIC ASSESSMENT FRAMEWORK | NGP type | | SAF progress | Scientific highlights | | --- | --- | --- | --- | | Vape device | | | | | myblu | % | 97 | Analysis of behavioural data from a 12-month longitudinal study shows 23.1% of smokers quit smoking with myblu after 3 months, 35.9% after 6 months, and 46.2% after 12 months. For smokers who did not quit, they reduced the number of cigarettes smoked per day on average by 51%. For blu 2.0 we have completed safety testing and assessment for launch, and SAF assessment continues. | | blu 2.0 | % | 28 | | | Heated tobacco | | | | | Pulite and 20 | % | 62 | Our first clinical study on Pulite and 20, with adult smokers with no intention to quit smoking, demonstrated a good safety profile and that the product reduces their desire to smoke. | | Tobacco-free oral nicotine pouch | | | | | Zone X | % | 47 | We have now completed two clinical studies on a range of Zone X nicotine strengths. They demonstrate the product has a good short-term safety profile, offers a satisfying alternative to combustible cigarettes and snus, and reduces the users' urge to use nicotine. | 1. Challenge is defined as consumers under the age of 18 in a higher legal age for purchase. 2. Please note 20% SAF completion is not required for market product launch. 3. Study not yet published in the scientific literature. 4. Only one of these studies is currently published in the scientific literature. 40 Imperial Brands | Annual Report and Accounts 2022 # HEALTHIER FUTURES # CLIMATE CHANGE We are committed to reducing our impact on the climate throughout our value chain, focusing on both mitigation and adaptation. # Strong track record of performance From our 2017 baseline year we have: - Reduced our absolute Scope 1 and 2 carbon emissions ( CO₂e tonnes) by 19% - Reduced our absolute energy consumption (GWb) by 19% - Reduced our absolute water consumption in our operations (m³) by 28% # Our plan (from a 2017 baseline year) # 2025 - 100% of our purchased grid electricity will come from traceable renewable sources - Reduce absolute Scope 1 and 2 GHG emissions by more than 50% # 2030 - 100% of energy sourced for our operations will be from renewable sources - Be net zero in our direct operations (Scope 1 and 2 GHG emissions) - Reduce our total carbon footprint (absolute Scope 1, 2 and 3 GHG emissions) by 30% - Reduce absolute Scope 3 emissions by 20% - Reduce energy consumption by 25% - Reduce water consumption across our operations by 30% # 2040 - Our value chain will be Net Zero emissions (absolute Scope 1, 2 and 3 GHG emissions) # Behaviours Redline Times # Link to SDGs We are taking action to combat climate change and its impacts. As identified in our materiality assessment, climate change is a priority for us. We know that climate change represents a potential long-term risk across the whole of our value chain and to society in general. Disruption in climate and energy has the potential to impact our business from challenges as diverse as crop failure, asset destruction and interruption in distribution. In line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), we have explored the impact that climate change is likely to have on our value chain. Please see page 59 for details. We monitor climate-related risks and put in place intervention or mitigation measures where necessary. Our targets on climate change also represent potential business opportunities. We expect to see cost and environmental benefits flow from our energy-saving and efficiency programmes. We are focused both on making our use of energy and changing the mix of the energy we continue to use. Our ambitious are aligned to UN SDG 7: affordable and clean energy, specifically targeting points 7.2 and 7.3, which are to "increase the global percentage of renewable energy" and "double the improvement in energy efficiency". Our first renewable energy site (for definition see our Reporting Criteria document), the Skruf plant in Savoia, Sweden, is now acting as an exemplar for our other facilities as they work to further prove their energy efficiency. We are currently evaluating options for our Scope 1 fuel transition and are engaging with external partners. We will be looking both at technology change and fuel transition for example, through a switch to biogenic fuels. ![img-35.jpeg](img-35.jpeg) --- ESG REVIEW continued Our Scope 3 emissions are those that we accrue from our value chain and we are working with our suppliers and other partners to better understand these emissions. We do this largely through the internationally recognised CDP Supply Chain Programme. Although we do not have water-intensive manufacturing processes, we maintain a strong track record of managing water use effectively, having reduced consumption by 28% since our 2017 baseline year. # NET ZERO BY 2040 We have a strong track record of reducing our environmental impact through energy efficiency and carbon emissions management. Since 2019, we have had Scope 1, 2 and 3 targets, consistent with reductions required to limit climate warming to 2°C, approved by the Science Based Targets initiative (SBTi). However, in FY21 we set our sights higher and joined the Business Ambition for 1.5°C Race to Zero initiative, a campaign led by the SBTi. This means we are now committed to reaching science-based Net Zero emissions by 2040. To achieve this, we have reset our science-based targets for carbon, increasing our ambition in line with 1.5°C global warming limits. These are detailed in "Our plan" which we will submit to the SBTi for their approval in FY23. We have also set new energy targets which support our Net Zero emissions ambition. For example, during FY22 we took a Company decision to accelerate our transition to renewable electricity. At the end of FY22, 52% of our purchased grid electricity was supplied by traceable renewable source We will also continue to work towards validating our Scope 3 data. # We have mapped a five-step approach towards Net Zero: 1. Undertake energy efficiency initiatives. 2. Switch to 100% renewable grid electricity. 3. Transition all other energy types to renewable sources. 4. Achieve Net Zero in our operations. 5. Become climate positive, which means removing additional carbon dioxide from the atmosphere. CLIMATE CHANGE PERFORMANCE | Performance Indicator | Unit | 2017 (base year) | 2020 | 2021 | 2022 | Comments | | --- | --- | --- | --- | --- | --- | --- | | Operations with ISO 14001 certification | % | 92 | 86 | 78 | 83 | Travel restrictions resulting from the COVID-19 pandemic adversely impacted recertifications in 2020 and 2021, but these are now increasing. We aim to continue increasing certification levels in FY23. | | Absolute energy consumption^{1} | GWh | 875 | 773 | 729 | 712^{2} | Within our Net Zero ambition, one of the targets is to reduce energy consumption by 26% by 2030 versus a 2017 baseline. In FY22, energy consumption had reduced by 19% compared to 2017 and therefore we are on track to achieve this target. | | Relative energy consumption^{1} | KWh/Em net revenue | 112,801 | 96,625 | 95,740 | 91,364^{2} | In compliance with the UK streamlined energy and carbon reporting (SECR) requirements, our total UK energy consumption was 12.42 GWh which is 1.74% of the global total (2021, 13.46 GWh and 1.84%). | | Electricity from purchased renewable sources^{1} | % | 8 | 5 | 6 | 52^{2} | We purchase Renewable Energy Certificates (RECs) from within the same market boundary as electricity is being consumed, where possible, as defined by CDP. In markets where the means to purchase renewable electricity is less developed, we purchase from a nearby geographical location, but keep this under constant review with an intention to purchase from within the same market boundary once a source becomes available. | | Absolute Scope 1 CO_{2}e emissions^{1} | Tonnes | 114,270 | 105,242 | 92,900 | 91,007^{2} | Our Scope 1 emissions arise from stationary fuel combustion at our sites, refrigerant gases, and mobile fuel combustion in our fleet of Company sales vehicles. We have seen a 2% decrease in Scope 1 emissions since last year and a 20% reduction from our 2017 baseline year. | | Absolute Scope 2 CO_{2}e location-based emissions^{1} | Tonnes | 161,360 | 131,463 | 133,292 | 131,236^{2} | Our Scope 2 emissions comprise the indirect emissions resulting from the use of purchased electricity, heat and steam at our sites. We have seen a 1.5% decrease in Scope 2 location-based emissions since last year and a 19% reduction from our 2017 baseline year. | | Absolute Scope 2 CO_{2}e market-based emissions^{1} | Tonnes | 179,932 | - | - | 84,759^{2} | We report Scope 2 location-based and market-based emissions according to the GNO Protocol Scope 2 Guidance (2018) and CDP guidance. We have seen a 51% reduction in emissions compared to the 2017 baseline year. | | Total absolute Scope 1 and 2 location-based CO_{2}e emissions^{1} | Tonnes | 275,630 | 236,887 | 226,192 | 222,243^{2} | We have seen a 19% decrease in our total Scope 1 and 2 emissions from our 2017 baseline. Our target is to be at Net Zero in our direct operations by 2030. We have also set a Scope 3 target to be Net Zero by 2040. | 42 Imperial Brands | Annual Report and Accounts 2022 | Performance Indicator | Unit | 2017 (base year) | 2020 | 2021 | 2022 | Commentary | | --- | --- | --- | --- | --- | --- | --- | | Relative Scope 1 and 2 location-based CO_{2}e emissions^{1} | Tonnes/Em net revenue | 35.5 | 29.6 | 29.7 | 28.5^{2} | In compliance with the UK SECR requirements, our total UK Scope 1 and 2 emissions were 2695 tonnes CO_{2}e emissions, which is 1.39% of the global total (2021, 2975 CO_{2}e emissions and 1.24%). | | Scope 3 CO_{2}e emissions: business travel^{1} | Tonnes | | | 1,837 | 5,901^{2} | Business travel is travel undertaken for work or business purposes. Increased emissions from business travel in FY22 reflect the easing of COVID-19 restrictions enabling increased business travel. | | Key suppliers by spend with science-based targets | % | - | 38 | 41 | 34 | We aim to ensure that 50% of our suppliers by spend will have set science-based targets by 2034. In 2022 we more than doubled the number of suppliers in scope to 104 (2021, 51) and of these 34% had set science-based targets. | | Logista absolute Scope 1 and 2 CO_{2}e emissions | Tonnes | 38,554 | 38,407 | 45,557 | - | Logista is managed remotely due to commercial sensitivities and has provided independently assured data for absolute Scope 1, 2 and 3 emissions. Data for 2022 is still undergoing independent assurance. In 2021 Logista significantly increased transport activity under their operational control which resulted in an increase in their Scope 1 emissions. Logista's 2021 relative Scope 1 and 2 emissions comprise 43 tonnes (2020, 38) of CO_{2}e per Emillion of 2021 distribution fees (our non-GAAP revenue measure for Logista). Further information on the scope of Logista's GNO reporting is available at www.gn.polelgista.com | | Logista absolute Scope 3 CO_{2}e emissions | Tonnes | 193,611 | 205,240 | 194,634 | - | | | Absolute water consumption^{1} | m^{3} | 1,468,626 | 1,198,523 | 1,109,178 | 1,056,982^{2} | Having already achieved the original target of 18% reduction in water consumption by 2030, we have set a new target of 30% by 2030 versus a 2017 baseline. In FY22, we saw a 28% reduction in water consumption compared to the 2017 baseline year. | | Relative water consumption | m^{3}/Em net revenue | 189 | 150 | 146 | 136^{2} | | A. Select 2022 data has been independently assured by Green & Young LLP (GY) under the limited assurance requirements of the GAE 2000 standard. GY Assurance Options is available on our website. Our reporting scope and definitions are detailed in the Reporting Criteria document published on our website. 1. Our 2022 environmental data covers the reporting period (in 2021 to 12/2022). This is to allow for data collection, validation and external assistance. We use the industry leading GNO Protocol standard to inform our reporting of Scope 1 and 2 emissions. In FY21 we meet our baseline and subsequent years' data for Scope 1 and 2 2030 emissions to make it consistent with the latest guidance from the Greenhouse Gas Protocol and CDP, particularly relating to Scope 2 market-based emissions reporting. We are proud to have been been recognised for a second consecutive year as a Climate Leader by the Financial Times in its ranking of actions taken by European businesses. Our actions to cut emissions and mitigate climate risks have earned us a position on the CDP's "A List" for climate change for a third consecutive year. Our 2021 CDP scorecard is available on our website. www.imperialbrands.com 43 --- ESG REVIEW continued # HEALTHIER FUTURES # PACKAGING AND WASTE We are committed to minimising waste associated with our products, packaging and production processes. # Consumer research Our consumer research provides insights into what consumers value most. While they do not want to see compromise on the quality of the product, they do: - Value waste reduction. They would like more information on how to recycle products, and they would like to see brands reduce the amount of packaging used and remove unnecessary plastic. - Seek clarity on how we source materials which go into our products as well as the proportions sourced from recycled materials. - Value human rights and expect us to commit to ethical work practices. Please see page 50 for our approach to human rights. # Our plan (from a 2017 base year) # 2025 - Our operations will send zero waste to landfill. - 100% of our packaging will be reusable, recyclable or compostable in the EU and UK. # 2030 - We aim to reduce waste generated within our operations by 20% # Behaviours Start with the Comment # Link to SDGs We aim to ensure sustainable consumption and production patterns ![img-36.jpeg](img-36.jpeg) Given our global reach we want to play a role in protecting the natural environment and we actively work to minimise our environmental impacts. We also recognise that certain resources are finite and, as such, this presents us opportunities to explore solutions that support our business sustainably and protect the environment. We are committed to compliance with environmental legislation. Reducing our environmental impact also supports efficiency and cost optimisation. As part of our role in protecting the natural environment, we seek to minimise overall waste, eliminate waste to landfill and make all our packaging in the EU and UK reusable, recyclable or compostable. In April 2022, we launched our zero waste to landfill project across our manufacturing sites, and since last year, we have seen a 20% decrease in waste to landfill. We have established a global knowledge hub on waste management to share best practice across sites and to encourage collaboration. We have conducted recycling assessments on our packaging for products sold in the EU. These assessments have been conducted by a third party and have allowed us to identify non-recyclable packaging on which to focus our improvement efforts. To date, 86% of packaging formats that we have assessed in the EU are recyclable. We acknowledge that as our NGP business grows, we are faced with additional waste and recyclability issues. We continue to look at how we can improve the sustainability of NGP materials and packaging. We will continue to implement a consumer-led, regulatory compliant packaging strategy in FY23 and we are aiming to provide further details during this year. We have reviewed and updated our waste and packaging-related targets, and these are detailed in 'Our plan'. As we target zero waste to landfill, we amended our definitions for waste to account for local regulations which require hazardous waste to be landfilled. For this reason we have restated our waste to landfill baseline and subsequent years' data. Our waste performance is shown in the table below. # WASTE PERFORMANCE | Performance indicator | Unit | 2017 (base year) | 2020 | 2021 | 2022 | Commentary | | --- | --- | --- | --- | --- | --- | --- | | Absolute waste^{1} | Tonnes | 49,141 | 40,253 | 41,714 | **41,969*** | Our target is to reduce waste by 20% by 2030. We have seen a 15% decrease in waste from our 2017 baseline year. We have seen a slight increase of 0.8% in waste compared to last year which is mainly due to increased production volumes at our MoAdoo site. | | Relative waste^{1} | Tonnes/Em net revenue | 6.34 | 5.03 | 5.48 | **5.39*** | Our target is to achieve zero non-hazardous waste sent to landfill by 2028. This year we have redefined waste to landfill to include waste incinerated without energy recovery and have therefore restated our data. Compared to last year, we have seen a 20% decrease in waste sent to landfill. | | All waste sent to landfill^{1} | Tonnes | 7,200 | 6,646 | 10,619 | **8,544*** | | | Relative waste to landfill^{1} | Tonnes/Em net revenue | 0.93 | 0.83 | 1.40 | **1.10*** | A key element of our environmental approach is to minimise the waste sent to landfill. Some factories have reduced the amount of waste they send to landfill by reusing waste, recycling, composting and incineration (with energy recovery). | | Landfill avoidance rate^{1} | % | 88 | 88 | 83 | **85*** | | 1. Select 2023 data has been independently sourced by Ernst & Young LLP (EY) under the limited assurance requirements of the GAG 2020 standard. EY Assurance Options is available on our website. 2. Our reporting scope and definitions are detailed in the Reporting Criteria document published on our website. 3. Our 2022 environmental data covers the reporting period Q4 2022 to Q5 2022. This is to allow for data collection, validation and external assistance. To note: Absolute waste does not include reused waste. ![img-37.jpeg](img-37.jpeg) 44 Imperial Brands | Annual Report and Accounts 2022 --- ESG REVIEW continued # POSITIVE CONTRIBUTION TO SOCIETY # FARMER LIVELIHOODS AND WELFARE We are committed to engaging with our suppliers to support and develop farming communities and promote sustainable agriculture. # Aims Purchasing from leaf suppliers who are committed to supporting their farmers to access a decent standard of living. We aim to purchase from and engage leaf suppliers who support their farmers to achieve a decent standard of living by: - Continuing to enhance due diligence in our leaf supply chain, co-ordinated through our leaf Compliance and Reporting e-tool (CARE) programme - Continuing to set high expectations for suppliers who contract with farmers. - Increasing our support for projects that have a direct impact within the tobacco communities in our supply chain # Our plan # 2025 - Support suppliers to provide access to 100% sustainable wood use 2030 - Support suppliers to improve access to basic needs for 100,000 farmers and their families ![img-38.jpeg](img-38.jpeg) # Behaviours Collaborate with Response # Link to SDGs ![img-39.jpeg](img-39.jpeg) We aspire to have a positive impact on the planet, and the farming communities in which our suppliers operate. We do this by continuing to support our suppliers to help their contracted farmers increase access to basic needs, diversify their income and farm sustainability. This supports our efforts to build a more responsible supply chain that is sustainable for the future. We are working to enhance standards in our leaf supply chain both directly with our suppliers and through partnerships, such as those created through the Sustainable Tobacco Programme (STP). The STP aims to have a positive impact in tobacco-growing communities, and all tobacco leaf suppliers are expected to participate. This is an independently managed framework that provides us with visibility over our supply chain in two ways: first, by empowering our suppliers to report on the actions they are taking to address any risks identified, and how they are having a positive impact on the ground; and second, by verifying these actions both remotely and in the field. This informs our strategy to support our suppliers in taking effective action. In 2022 (based on the tobacco leaf crop year 2021), 90% of our suppliers reported on their due diligence to the STP. Our suppliers provide training on sustainable practices, human rights, and modern slavery to their farmers, especially prior to peak growing periods. In addition, they use posters, handbooks, storytelling and kits to help convey key messages in their tobacco-growing communities. Within the last year we participated in four independent Supply Chain Impact Assessments (SCIA). These assessments help focus our suppliers to prioritise topics and develop or enhance action plans to have a meaningful impact on the ground. Where collaboration is beneficial to achieving impact, we jointly commission these assessments with other manufacturers or suppliers. A recent example of industry collaboration is the Türkiye 2021 SCIA. A total of 560 stakeholders' perspectives on social conditions in the Turkish Tobacco Leaf supply chain were secured during field research in tobacco-growing communities during the harvest period. The third party also worked with each of the six participating suppliers in establishing individual action plans that address the findings, and an outcome was the establishment of an industry-wide body to collectively address areas of common focus. We have closely followed the development of these action plans and working groups over the last year, and will continue to stay informed through dialogue with our suppliers on their progress. Through Leaf Partnerships we work directly with suppliers to fund specific projects that complement the work they are already doing and thereby amplify their impact in tobacco-growing communities. These projects range from enhancing farmers' businesses to supporting communities increase access to basic needs, such as education and clean drinking water. In FY22, Imperial provided financial support to projects in 11 countries. These projects are benefiting at least 84,000 farmers and their families. # We are committed to purchasing tobacco from socially and environmentally responsible suppliers # FORESTRY Many of our suppliers' contracted farmers use wood in tobacco production, either as a fuel in the curing of tobacco or for constructing barns required for the curing of tobacco. In support of our ESG strategy, Imperial has committed to supporting suppliers and their farmers to access sustainable wood by 2025. There are various tobacco leaf curing methods, including air-curing, sun-curing, and flue-curing. The type of curing method is dependent on the tobacco variety. Flue-cured tobacco requires wood for curing, since the tobacco leaf is dried, in curing barns, by means of heated air. As such, to be wood sustainable, the wood used for curing should not contribute towards deforestation or should utilise renewable energy curing methods. In 2023, Imperial will continue to create partnerships in those remaining countries that are working towards wood sustainability and will directly fund commercial forestry programmes. This builds on the forestry programme Imperial directly funded with suppliers in Africa between 2015 and 2019. Through our Leaf Partnership programme since 2012, we have funded the construction of over 5,000 energy-efficient tobacco-curing barns. These barns can use up to 20% less wood fuel compared to standard curing barns. # 2,000 energy-efficient curing barns compared with suppliers between 2012 and 2018 Through the tobacco leaf we purchase, Imperial also financially supports national forestry programmes, such as the Tobacco Afforestation Programme in Tanzania. Planting trees decreases the pressures on the indigenous woodland that is being harvested for use in tobacco production. There are also economic benefits for farmers in labour saving, reduced cost of wood and transport. In Madagascar, since 2017 we have planted 1300 hectares of commercial forestry, delivering 80% wood sustainability to date (2022), with 100% wood sustainability expected to be achieved by 2028. Please see our Madagascar video on our website for more details. # 1,300 hectares of commercial forestry planted in our own operations in Madagascar Chief Executive Stefan Bernhard during a visit to a tobacco farm in 2022 # ADDRESSING CHILD LABOUR 1. The sustainable tobacco Programme – STP The African and Labour High in terms of the STP is informed by the relevant international tobacco organisations (ISO) the implementation of the immediate cash exchange contained within the UK tobacco programme on the three-and-fame a rights for local sustainable projects We are work positively with our suppliers to fund projects to help make sense of the net causes of social labour. Minimising child labour in Tobacco Growing (BEST) Programme We are very support the BEST and its aims to tackle the net causes of social labour. FARMER LIVELIHOODS AND WELFARE PERFORMANCE | Performance Indicator | 2020 | 2022 | Correlation | | --- | --- | --- | --- | | Percentage of suppliers' directly contracted farmers growing complementary crops^{1} | 88 | 94 | Complementary crops are grown alongside or in rotation with tobacco. These crops are grown for household consumption, sale, or as rotational crops to enrich and conserve the soil. These efforts have resulted in an increase of 7% in this metric over the last reporting year. | | Percentage of suppliers' directly contracted farmers with access to initiatives to improve agricultural productivity^{1} | 97 | 98 | Suppliers aim to provide all their directly contracted farmers with access to initiatives to improve agricultural productivity, including technical support, improved efficiencies, and improved infrastructure. These efforts have resulted in an increase of 1% for suppliers' directly contracted farmers with access to initiatives to improve agricultural activity over the last reporting year. | | Tobacco farming community members benefiting from new Imperial Leaf Partnership projects | 130,000 | 84,000 | Imperial continues to fund projects aimed at addressing key livelihood and welfare issues in tobacco communities. This number represents the number of new beneficiaries from 2022 projects. Imperial currently supports 230,000 farmers and their families through ongoing projects. | 1 Data in three strategic suppliers to prioritised countries to meet need of support, as outlined by a sustainability index compiled using Maplecroft risk indexes. 46 Regional Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 47 --- ESG REVIEW continued # BIODIVERSITY The responsible husbandry and restoration of natural habitats, soils, and water are integral to sustainable agriculture. Our suppliers are encouraged to protect and enhance biodiversity in their growing areas. This includes topic areas covered by STP, such as: the mapping of sensitive areas, responsible soil management and integrated pest management (IPM) to reduce the use of pesticides and increase micro-flops. We also support and engage with suppliers in the planting of indigenous trees to encourage and grow local biodiversity by supporting insect and bird life. We intend to publish a full biodiversity policy in FY23. # WATER In FY22 Imperial committed to supporting suppliers to improve access to basic needs for 180,000 farmers and their families by 2030. This includes access to clean water, sanitation, and hygiene (WASH). Up to 136,000 farmers and their families benefiting from water, sanitation, and hygiene projects are here hosted Encouraging a water stewardship approach to managing water in our suppliers' catchment areas and directly supporting their projects through our Leaf Partnership are key areas of importance for Imperial. Between 2021 and 2022 our investment in water, sanitation, and hygiene projects in countries of most need, including Mozambique, India, the Dominican Republic, Guatemala, Brazil, and Honduras equates to around US$ 1.8bn # CHILD LABOUR Like other agricultural industries, the risk of child labour is highest in the cultivation part of our supply chain. In addition to working directly with our suppliers, we recognize that child labour is a multi-stakeholder issue, which no single entry can address in isolation. In collaboration with key stakeholders including the industry, suppliers and others operating in these communities, we seek to address child labour through three main avenues detailed in the green box on page 47. # POSITIVE CONTRIBUTION TO SOCIETY # SUSTAINABLE AND RESPONSIBLE SOURCING We are committed to sourcing products and services in a compliant, sustainable and socially conscious manner. We will work with our suppliers to ensure continuous improvements. # Procurement strategy Our updated procurement strategy covers all third-party spend among all five of our supply chain categories: 1. Tobacco leaf 2. Non-tobacco materials (NTM) 3. Next generation products (NGP) 4. Indirect goods and services 5. Logistics While suppliers may be managed globally, regionally, or locally, the ambition is that all suppliers meet the same standard to enable Imperial to meet its commitments to stakeholders, employees, and communities. # Our plan To source products and services from a diverse supply base that matches our ESG values and ambitions # Delivered in 2022 - Refreshed our Supplier Code of Conduct - Further developed our risk assessment framework # 2023 - Launch refreshed Supplier Code of Conduct - Update risk assessment of our supply base according to our refreshed Supplier Code of Conduct # 2024 - 50% of our suppliers, by spend will have science-based targets by 2024. # Behaviours Collaborate with Purpose Take Accountability with Contribution # Link to SDGs We aim to ensure sustainable consumption and production patterns Ensuring continuity in our supply chain has a direct impact on our business today, as well as the potential to impact business sustainability in the future. It is important that the standards we expect in terms of quality, labour practices, human rights and environmental concerns are adhered to by our suppliers. We establish a relationship of trust and integrity with our suppliers. We expect them to conduct their business in an ethical and responsible manner and comply with all applicable laws and regulations. We only select and do business with suppliers who can demonstrate that they operate as a manner consistent with our standards and Supplier Code of Conduct. Sustainability strategies are integrated into the management of our supply chains, via supplier management programmes and standards. # Supply Chain Due Diligence Tobacco leaf supply due diligence is covered in the Farmer Livelihoods and Welfare section on page 46. Our existing Supplier Qualification Programme is the first screening process for all new non-tobacco material (NTM) and NGP suppliers. Once on board, our Supplier Quality Assurance Audit team undertake a phased cycle of onsite supplier validation audits using a risk-based approach, following a detailed Supplier Audit Risk and Control Matrix which includes the supplier providing evidence for their management of ESG issues which are listed in the green box below. In FY22 we engaged with relevant internal stakeholders from across the business to review and update our Supplier Code of Conduct, and agreed to include more detail on environmental and human rights aspects. The updated Supplier Code of Conduct will be rolled out in FY23. We have also developed our risk assessment framework to include the five major categories within our supply chain and this will also be rolled out to the business in FY22. We have been recognised as a Supplier Engagement Leader by CDP for a third successive year. All companies making climate change disclosures to CDP receive a Supplier Engagement Rating (SER), in addition to their climate change score, rating them on how effectively they engage their suppliers on climate issues. # 2022 PERFORMANCE HIGHLIGHTS In 2022, 34% of our suppliers by spend have an science-based targets. This supports our Scope 3 reduction activities. We have refreshed our Supplier Code of Conduct, dividing totals into three sections for clarity: Business Integrity, Human Rights and Environment. This will be launched externally in 2023. # THE SUPPLIER QUALIFICATION PROGRAMME Self-assessment questionnaire completed by suppliers and includes questions on - Business conduct - Environmental management - Labour practices including discrimination - Child and forced labour - Freedom of association - Wages and working hours - Health and safety 48 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 49 --- ESG REVIEW continued # HEALTHIER FUTURES # HUMAN RIGHTS We are committed to raising awareness and improving processes in our supply chains, and we recognise the importance, influence, and role we have in promoting and protecting human rights. We take allegations relating to human rights extremely seriously and are committed to investigating any potential human rights issues within our supply chain and direct operations. We have identified the following key human rights issues that are particularly relevant to our direct operations: - The potential for modern slavery – which includes forced labour, slavery, servitude, and human trafficking. - Ongoing commitment towards fair wages and decent work, gender equity, non-discrimination and non-harassment, freedom of association, and collective bargaining. Human rights topics within our value chain are covered in the Farmer Livelihoods & Welfare and Sustainable & Responsible Sourcing sections. # Our plan Strengthen our due diligence process in alignment with international frameworks, including the United Nations Guiding Principles on Business and Human Rights, and legislation to ensure we are equipped to identify, prevent, and mitigate potential human rights risks. We have a duty of care to protect and support our employees. We aim to avoid disruptions, create a thriving workplace, and consolidate best practices. # Continue to strengthen - Employee access to Speaking Up channels and a remediation process. - Monitoring of human rights leading indicators in our operations and report on the number of audits completed. - The audit process of our facilities management supplier across its Europe sites, using our anti-modern slavery internal audit module. - Modern slavery training needs to ensure effective understanding globally. # 2023 - Assess priority locations for salient human rights issues, to inform and test the robustness of our due diligence processes. # Behaviours Take Accountability with Confidence # Link to SDGs We are committed to decent work for all and to sustainable economic growth. Human rights abuses are unacceptable. We have established due diligence programmes to respond to and mitigate the risk of human rights abuses in our direct operations and supply chain through appropriate processes and procedures. As part of this, our internal escalation channels, including the Human Rights Compliance Working Group and Leaf Compliance Working Group, ensure potential and actual risks are reported and responded to appropriately within the business. Human Rights within our value chain are covered in the Farmer Livelihoods & Welfare (page 46) and Sustainable & Responsible Sourcing (page 49) topics. Where non-conformance is identified in our direct operations, we prioritise, respond, measure and report on actions taken to implement corrective and preventative actions. We have created a Modern Slavery Working Group to ring up our alignment and response to potential human rights violations as and when required. Raising awareness and broadening our knowledge about human rights are crucial factors in delivering our strategic objectives. Throughout the year we run several communication campaigns focused on human rights, modern slavery, and the use of our independently operated Speaking Up tool. Through our Slave-Free Alliance membership, we commemorated UK Anti-Slavery Week, which was an opportunity to raise the profile of our work to maximise our exposure to modern slavery and human trafficking. In 2022 we created an ESG digital learning programme and its Human Rights module pays special attention to modern slavery, its most prominent indicators and how to report perceived or real concerns. This digital learning programme is mandatory and will be available both online and offline to our employees across the business with roll-out planned for FY23. Having a training programme that covers the needs and specificity of a wide range of our working locations will help to apply our knowledge most effectively. Our Human Rights Policy has been updated to align with our refreshed ESG Strategy. We included feedback from several external agencies, as well as our internal stakeholders. The result is a Policy in line with our current progress and understanding, which lays the foundation for future improvements. We aim to review the Policy annually to ensure it captures new developments and reviews its ambitions regarding respecting and promoting human rights. Our Human Rights Policy is informed by the International Bill of Human Rights, the International Labour Organization (ILO) Declaration on Fundamental Principles and Rights at Work and the ILO's core conventions, as well as the principles contained within the United Nations Guiding Principles (UNGP) on Business and Human Rights, OECD Guidelines for Responsible Business and the UN Sustainable Development Goals. In 2022, we also carried out an internal analysis to update our list of salient human rights issues. They are: child labour, modern slavery, occupational health, safety and wellbeing fair wages and decent work, gender equity, non-discrimination and non-harassment, and freedom of association and collective bargaining. Having a clearer picture of the type of risks our business and operations might be exposed to will help us take the most informed course of action to prevent and mitigate negative impacts. By focusing our efforts on these new salient human rights issues, Imperial Brands additionally contributes to UN SDGs 1, 3, 4, 5, 8, 10, and 15, which aligns with our new ESG Strategy and Human Rights Policy. We are proud to be a founding member of the Slave-Free Alliance (SFA) and we continue to support the international charity Hope for Justice, in their pursuit of a slave-free world. # 2022 PERFORMANCE HIGHLIGHTS - Strengthened our due diligence framework and embedded human rights awareness across the business through designing an anti-modern slavery internal audit module, reinforcing human rights - Focused internal structures, and creating a dedicated new mandatory ESG digital learning programme which includes a focus on human rights and modern slavery - Improved governance through the appointment of a new Human Rights Manager and reinstated a refreshed cross-functional Human Rights Compliance Working Group to drive and steer actions related to the human rights ambitions of our ESG strategy - Updated our Human Rights Policy to ensure better alignment to evolving international best practice guidelines and principles - Continued to monitor human rights leading indicators in our operations and updated modern slavery internal audits of our manufacturing sites - Conducted an anti-modern slavery audit with our Europe facilities management provider in Germany, and an internal review of our manufacturing sites in Poland and the Philippines - Updated our list of salient human rights issues for our priority locations. ![img-40.jpeg](img-40.jpeg) 50 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 51 --- ESG REVIEW continued # SAFE & INCLUSIVE WORKPLACE # EMPLOYEE HEALTH, SAFETY & WELLBEING We are committed to achieving world-class occupational health, safety & wellbeing for all our employees. # Commitment The health, safety & wellbeing of our employees continues to be of the utmost importance to us. We want to continue to create a working environment where wellbeing and safety are absolute priorities. # Our plan (from a 2019 base year) # 2023 - Obtain employee feedback on wellbeing and safety via our global employee experience survey. - Design and launch a global wellbeing strategy based on employee feedback. - Establish wellbeing KPIs. - Launch zero injury aspiration programme. # 2025 - 75% of fleet vehicles fitted with an in-vehicle monitoring system (IVMS). - 60% reduction in fleet collision rate. - 100% compliance with the OHSE Framework. # 2030 - 75% reduction in lost time accident rate (LTA). # Behaviours Take Accountability with Confidence Be Authentic, inclusive to all # Link to SDGs We aim to promote healthy lives and wellbeing for all. We want to continue to create a working environment where the wellbeing and safety of our employees are absolute priorities. As part of this commitment, we have health, safety & wellbeing as one of the core focus areas of our refreshed ESG strategy. This includes setting new, long-term targets as well as launching a "zero injury" aspiration. But we can only achieve this if all colleagues take personal responsibility. Therefore, our health, safety and wellbeing key message to colleagues is "I Own Safety". To help achieve our vision we have adopted an Occupational Health, Safety and Environmental (OHSE) framework based on a "Plan Do Check Act" model. This is applied throughout the business, with a focus on the consistent integration of our health and safety standards as well as adopting robust governance and reporting processes. To support continuous improvement we have developed a range of leading indicators to help us measure compliance and identify improvement opportunities. We use these leading indicators to manage our key health and safety risks – such as working at height, operating machinery, and driving – and to measure compliance against our framework. This approach ensures we focus resources in the right areas and can effectively manage risk across all our factories, warehouses, offices, and sales forces. We have global procedures to help maintain consistent standards across the entire business, covering areas such as hazard identification, risk assessment, road risk and incident investigation. These are applicable to all locations and are audited as part of our internal and external audit programmes. # Wellbeing The wellbeing of our employees is of paramount importance to us and has been confirmed as an ESG priority, following the refresh of our ESG strategy and the outcome of a materiality assessment. The COVID-19 pandemic has had a significant impact on this topic, further increasing the need to do more. We are working to improve our management of and approach to this issue. The personal support we give employees is focused on three key areas: mental, physical, and social wellbeing. Currently, our employee wellbeing support is managed locally and includes resilience training, employee assistance programmes, health checks and awareness programmes, flexible working, family-friendly policies and facilities, and workplace celebrations and social events. We also provide occupational healthcare services to support the needs of our employees. Some of our larger sites have in-house occupational health professionals, whereas other sites use third-party healthcare service providers. In addition a number of sites also have wellness rooms for employees to use. We advocate flexible working and have encouraged our people to find a routine that works best for them and their families. We communicate regularly with employees and have initiated several surveys to check-in on their wellbeing. We also encourage volunteering as a positive way for our people to engage with local communities, broaden their perspectives and support work-life balance. We aim to demonstrate our commitment to the mental health and wellbeing of employees, contractors and visitors in its broadest, holistic sense, with our new Wellbeing Plan detailed in the purple box. In October 2021 we celebrated World Mental Health Day with a new campaign called "The Importance of Belonging". The campaign's purpose was to encourage awareness of mental health and create opportunities for us to promote positive mental health and wellbeing. We provided resources for employees to access on our internal Safe & Well hub. In May 2022 we also supported Mental Health Awareness Week in the UK. The official theme was "loneliness" and, across the week, we encouraged people to build meaningful connections with their friends, family, colleagues, and communities. As part of this, we launched two optional training courses on Workday, our HR platform, Stress Awareness and Managing Anxiety. In the UK we also involved our Mental Health Champions in another initiative during this campaign, where we offered three "wellbeing tickets" (vouchers for free coffee) to # Our Wellbeing Plan: - Extensive or refreshed wellbeing strategy during our 2023 financial year. - Include wellbeing responsibilities into our policies. - Assemble a Wellbeing Working Group responsible for over-seeing and maintaining effective governance of wellbeing activities within Imperial's operations. - Benchmark the range of support available in our priority locations for the maintenance of mental health. - Develop a Wellbeing Framework with key leading indicators. - Measure our performance moving forward. - Foster a mentally healthy culture by incorporating these principles into People Leader training. - Run regular initiatives to raise awareness of mental health issues at work. encourage them to promote themselves as wellbeing ambassadors and hold meaningful conversations with three of their colleagues. In addition, we launched two new sessions: face to face "Tea & Talk" sessions and online "Spotlight on Wellbeing" guest speaker sessions, during this campaign. We have reviewed and updated our targets related to health and safety and these are detailed in "Our Plan". Performance against these targets is provided in the Health and Safety Performance table. ![img-41.jpeg](img-41.jpeg) 52 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandsplc.com 53 --- ESG REVIEW continued HEALTH AND SAFETY PERFORMANCE | Performance Indicator | | 2009 (base year) | 2020 | 2021 | 2022 | Commentary | | --- | --- | --- | --- | --- | --- | --- | | Employee fatalities^{1} | Number | 2 | 3 | 1 | 0 | Health and safety remains a priority for all our employees | | Contractor fatalities^{1} | Number | 0 | 0 | 0 | 0 | Health and safety remains a priority for all our stakeholders. | | Members of the public fatalities involving Imperial Brands vehicles^{1} | Number | 1 | 0 | 0 | 0 | Road safety remains a priority across all our operations. | | Lost time accidents (LTAs)^{1,2} | Number | 101 | 80 | 65 | 57 | There has been a 12% decrease in the number of lost time accidents compared to last year. | | LTA rate^{1,3} | LTAs per 200,000 hours worked | 0.40 | 0.32 | 0.27 | 0.24^{4} | We have seen an 11% decrease in our lost time accident rate compared to last year. During FY22 we continued to increase the use of leading indicators to better manage risk throughout our operations. | | Total number of accidents^{1,3} | Number | 850 | 720 | 573 | 522 | We have seen a 9% decrease in total accidents compared to last year. | | Accident rate^{1,3} | Total accidents per 200,000 hours worked | 3.39 | 2.19 | 2.36 | 2.24 | We have seen a 5% decrease in our accident rate compared to last year. We are pleased to see a continued reduction in our total number of accidents and our LTA rate. | | Fleet collision rate | Accidents per million kilometres | 5.03 | 4.19 | 3.95 | 2.8 | There has been a 29% decrease in our vehicle accident rate compared to last year. Road safety remains a key priority for us. We adopt global standards for road safety and use our Drive Safe campaign to promote awareness and influence behaviour. | | Fleet vehicles fitted with an IVM system | % | - | - | - | 57.3 | Evidence shows that in vehicle monitoring systems (IVM) typically lead to fuel reduction and improved safety performance – we will continue to test and extend coverage. | | Compliance with the OHSE Framework (Manufacturing) | % | - | - | - | 87 | We aim to be at 100% compliance with our framework standards by 2025. | | Compliance with the OHSE Framework (Sales) | % | - | - | - | 93 | We aim to be at 100% compliance with our framework standards by 2025. | | OHSAS 18001/ISO 45001 certification | % | 79 | 79 | 74 | 71 | Re-certification of some sites (particularly in Africa) continues to be a challenge since the Covid-19 pandemic. | A. Select 2022 data has been independently sourced by Covid & Young (LJP:ZY) under the limited assurance requirements of the OHSAS 18001 standard. ZY Assurance Options is available on our website. Our reporting-approved definitions are detailed in the Reporting Criteria document published on our website. 1. Our health and safety data is on the full 2022 financial year. 2. Accidents reported do not include commuting to or from work, or those contacted by third parties such as distributors. # SAFE & INCLUSIVE WORKPLACE ## DIVERSITY, EQUITY & INCLUSION We are committed to creating a truly diverse and inclusive organisation renowned for celebrating difference, enabling our people to feel that they belong and be their authentic selves. We will respect, recognise and value the diversity of our consumers and reflect the communities in which we operate. We have developed our approach to diversity, equity and inclusion in close collaboration with our employees. At the centre of our efforts have been four new Employee Resource Groups (ERGs). The 500 members of these groups have been instrumental in helping us to develop an end-to-end five-year strategy which will be launched in FY23. # Global Employee Resource Groups - Gender ERG - Ethnicity ERG - LGBTQ+ ERG - Disability ERG Our four ERGs have continued to grow their memberships and raise awareness across the organisation on key diversity topics. The ERGs have also begun to partner with DEI Centre of Expertise (CoE) on priority programmes of work, including increasing diversity data disclosure throughout the business and creating a community of global allies to support our DEI ambitions. # Behaviours Be Authentic, Exclusive to all # Link to SDGs We aim to achieve gender equality and a more inclusive organisation. Diversity, equity and inclusion (DEI) is critical for our business, for our culture change programme and for our ESG ambitions. We are developing a performance-driven and inclusive culture which supports the delivery of Imperial's strategy. Underpinning our cultural shift is a set of five clear behaviours, which demonstrate how we need to think and act to succeed. To 'be authentic and inclusive to all' is one of our core behaviours and aligned to our commitment to DEI. A key aspect of our cultural transformation is our focus on creating a more diverse and inclusive organisation. We strongly believe that diversity across our organisation not only makes it a better place to work but also helps us realise our commercial strategy. We define diversity as everything that makes us unique, equity as giving fair treatment, access, opportunity, and advancement for everyone, and inclusion as involving and accepting every individual and valuing their difference. Promoting a diverse and inclusive culture also results in the increased attractiveness of Imperial as an employer for both current and potential employees. We are committed to treating employees with respect and we support equal opportunities, as outlined in our Fairness at Work Policy and Code of Conduct. We want a culture that is vibrant and where our employees can be themselves at work. In FY22 we formed a new Global Diversity, Equity, and Inclusion Centre of Expertise (CoE). The CoE is developing our new global DEI ambition and strategy which will inform our activities across the business in pursuit of becoming a truly diverse and inclusive organisation. 54 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 55 --- ESG REVIEW continued # DIVERSITY, EQUITY AND INCLUSION PERFORMANCE¹ | Performance indicator | | 2020 | 2021 | 2022 | Commentary | | --- | --- | --- | --- | --- | --- | | Female employees in the workforce | % | 43 | 40 | 40ᵃ | Female employee numbers remain the same as last year, even though there has been a significant increase in the employee turnover rate. | | Female senior management² | % | - | - | 29ᵇ | We are committed to increasing representation of women in senior management (Global Grades 3, 4, 5) and clear KPIs will be set as part of our strategy. | | Female Executive Leadership Team (ELT) members | % | 14 | 33 | 30ᵇ | Female representation on the ELT as at 30 September 2022 (end of FY22) was 30%. | | Female PLC Board members | % | 28 | 22 | 40ᵇ | We made a commitment to increase female representation in senior management roles to 30% by 2023. We are pleased to report that on 30 September 2022 (end of FY22) female representation on the Board was 40% and includes the Chair of Imperial Brands. | | Ethnic background on our Board | % | - | 10 | 20 | At 30 September 2022 (end of FY22), 30% of the Board members identified as being from an ethnic minority background. | | Employee turnover rate³ | % | 14 | 10 | 30 | There has been a significant increase in involuntary turnover for employees with permanent contracts due to workforce reduction and divestiture. | A. Select 2022 data has been independently sourced by Ernst & Young LLP (EY) under the limited assurance requirements of the ISAE 2000 standard. EY Assurance Opinion is available on our website. Our reporting scope and definitions are detailed in the Reporting Criteria document published on our website. 1. We recognize the need to gain more comprehensive employee-demographic data in order to understand the diversity of our employee base and drive inclusion. This will form a key part of our new DEI strategy and will help us measure (where appropriate) ethnic minority, disability, LGBTQ+ and other key DEI dimensions. 2. The properties of senior management employees (Global Grade 4 and above) recorded as female across Imperial Brands Group excluding Logbits. 3. This reflects all employees excluding those employed by ITC Brands and Logbits. We promote diversity within the business through awareness campaigns, career talks, unconscious bias training and diversity celebrations. We have provided bespoke e-learning courses in 11 languages to help our people leaders understand the issues of unconscious bias and microaggressions. Throughout FY22 we continued to celebrate globally important cultural events, including International Day of Persons with Disabilities, International Women's Day, World Day for Cultural Diversity for Dialogue and Development, and Pride. Members of our Executive Leadership Team globally sponsor our ERGs and actively steer and support their work. Our new global DEI strategy is expected to be finalised in the first quarter of FY23 and this will set out our diversity and inclusion approach for the next five years. In FY23 we intend to focus on three areas: One, improving our employee data. We know we need a more solid baseline to measure future progress. Two, creating a community of allies, which is a bedrock for a sustainable approach to DEI. And three, reviewing how we attract, recruit and retain talent, and how we manage career advancement. We will continue to raise awareness of DEI through learning modules in inclusion and allyship and embedding DEI into everything we do. We are pleased with the progress we have made to date but we know we have more to do. ![img-42.jpeg](img-42.jpeg) # POWERED BY RESPONSIBILITY ESG Governance structure ![img-43.jpeg](img-43.jpeg) # Leadership and governance We are committed to operating responsibly in everything we do, respecting our people, our communities, and our planet. We discharge our ESG responsibilities through a framework of governance. To ensure the Board has full oversight of all relevant ESG issues, we have established a cross-functional ESG Committee, chaired by the CIO of Imperial Brands. The Committee meets at least three times per year. Permanent members of the Committee include all of the Executive Leadership Team (ELT), making it an executive committee to oversee the management of our material ESG issues and ensure the successful delivery of our ESG strategy. Senior managers representing functions including Investor Relations, Group Legal, Governance, Corporate Affairs, Supply Chain and Procurement, Communications and ESG attend meetings as required. We have a comprehensive governance structure, ensuring appropriate levels of focus, cross-collaboration, risk management and escalation pathways covering every ESG area of focus. The Board reviews our ESG performance on a quarterly basis. The ESG Committee reports to the Board for ESG-related opportunities, and to the Group Risk Committee for potential material ESG-related risks. The cross-functional Environmental and Social Strategy groups report to the ESG Committee and are in turn fed into by a range of ESG topic-specific working groups. This strengthened governance approach enables cross-functional collaboration and avoids duplication of efforts. Further information on our approach to risk and opportunity management is available on page 82. We have a broad range of policies to support our approach to risk management and good governance. Our Code of Conduct, translated into 22 languages, is embedded throughout Imperial Brands and drives our responsible approach. It is aligned with the policies, internal controls and risk management processes that underpin our strategy. The Code of Conduct sets out the responsible behaviours we expect from employees in their dealings with colleagues, customers, consumers, suppliers agents, intermediaries, advisers, governments, and competitors. All employees and business partners are expected to act with integrity and in accordance with the standards of behaviour set out in the Code. We expect our suppliers to conduct their business in an ethical and responsible manner and to comply with all applicable laws and regulations. Our Supplier Code of Conduct, based on our employee Code of Conduct, sets out the behaviours we expect our suppliers to demonstrate. The Supplier Code of Conduct is embedded into our Procurement Policy and processes, which govern how we select and contract with our suppliers. Our Supplier Code of Conduct is available in 19 languages. # Governance education training for employees Mandatory governance education modules on a variety of topics are rolled out to employees with online access, based on role and location. For employees who do not have access to our online systems, we work with local markets to provide translated PDF versions of courses that can be used locally to deliver face-to-face training. All employees who are assigned courses are required to complete these modules. One of our key e-learning courses is in our Code of Conduct. Part 1 of this course introduces our Code of Conduct, reviews our Company values, explains why we have a Code and emphasises how we all have a responsibility to follow the Code. Part 2 of the Code of Conduct course explains the responsibilities each of us has, regardless of our role, seniority or location, to act in ways that promote a culture of mutual trust and respect. We also have an e-learning course on www.imperialleandopic.com 57 --- ESG REVIEW continued modern slavery, now available in 16 languages. This course provides a short overview of modern slavery and explains how employees can raise concerns. # Speaking Up Our Speaking Up platform is available both to our employees and to other stakeholders, including suppliers and farmers. The platform offers a wide range of reporting routes and supports anonymous reporting and feedback. The Speaking Up policy is made available both internally and on the Group website. Issues raised included allegations of mistreatment of employees, claims of unfair treatment or wrongful termination, allegations of unprofessional behaviour, pay concerns and protection of personal data. Claims of conflict of interest, breach of control environment, and bribery and corruption were also raised. These claims were investigated and found to be without merit. Our People and Culture teams were involved in dealing with a number of these issues, while others were managed by the Company Secretary, with investigation support and advice provided by members of our Finance, Group Security, Group Legal, HR and Internal Audit functions. At all times, the anonymity of the individual making the complaint was a key consideration. # INVESTOR BENCHMARKS Our ESG management and performance is evaluated by a wide range of external rating agencies. We maintained our A rating from MSCI ESG Ratings in their last report updated in October 2022. In its June 2022 update, Sustainalytics gave us a medium risk rating score of 27.9 and concluded that 'the company is at medium risk of experiencing material financial impacts from ESG factors, due to its medium exposure and strong management of material ESG issues. The company is noted for its strong corporate governance performance, which is reducing its overall risk.' Vigeo Euro (part of Moody's ESG solutions since 2019) gave us an overall ESG score of 42/100 and a Company Reporting Rate of 82% in their last update in October 2021. In 2021, CDP awarded us an A rating for our Climate Change submission for a third consecutive year. We await the results of our 2022 submissions to CDP. We continue to participate in the CDP Supply Chain Programme, which gathers information from our key suppliers on how they are managing their climate risks and opportunities. We were pleased to be recognised as a Supplier Engagement Leader by CDP in 2021 for a third consecutive year. We have also participated in the investor-backed Workforce Disclosure Initiative (WDI) since 2019. This benchmark is currently based on disclosure, and performance scores have not been allocated. We believe it is important for rating agencies to work together with companies, investors and other stakeholders to improve consistency and transparency in producing robust ESG data and ratings. # INDEPENDENT ASSURANCE We appointed Ernst & Young LLP to provide limited independent assurance over selected ESG content within the Annual Report for the period ended 30 September 2022. The assurance engagement was planned and performed in accordance with the International Standard for Assurance Engagements (ISAE) 3000 Revised, Assurance Engagements Other Than Audits or Reviews of Historical Financial Information. These procedures were designed to conclude on the accuracy and completeness of selected ESG indicators, which are indicated in the Report with an A. An unqualified opinion was issued and is available on our website along with further details of the scope, respective responsibilities, work performed, limitations and conclusions. TCFD # TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD) We continue to align and improve our climate-related disclosures because we recognise the benefit the guidelines bring to our stakeholders as well as our business itself. In accordance with its four primary components: governance, strategy, risk management, and metrics and targets, the TCFD mandates the sharing of both qualitative and quantitative information. It also seeks to enhance the transparency of climate-related risks and opportunities and give stakeholders the knowledge they need to conduct thorough and consistent analysis of the possible financial effects of climate change. For more information on our climate change strategy, please refer to page 41. # COMPLIANCE STATEMENT In accordance with LSE Listing Rule 9.8.6(8) R, we present our 2022 TCFD compliance index. We confirm that in this report we have made climate-related financial disclosures for the financial year ended 30 September 2022 (FY22). In the table below, we include cross-references to disclosures made elsewhere within the Annual Report and explain the reasons for only partially complying with certain of the TCFD recommendations and recommended disclosures. We are set to expand on the partially compliant disclosures in FY23. In assessing compliance with LSE Listing Rules 9.8.6(8) R, we look into consideration the documents referred to in the guidance notes to the Listing Rules, as well as considering on a voluntary basis the updated guidance on implementing the Recommendations of the Task Force on Climate-Related Financial Disclosures published in October 2021. | TCFD elements | TCFD recommended disclosures | Cross-reference or explanation for non-compliance | Compliance Statement | Next steps and other comments | | --- | --- | --- | --- | --- | | Governance | a. Board oversight | Page | Compliant | Will be evolved to reflect status as it develops. | | | b. Management's role | Page | Compliant | Will be evolved to reflect status as it develops. | | Strategy | a. Climate-related risks and opportunities | Page | Compliant | Will be evolved to include comment on specific risk areas, particularly in regard to mitigations in place. | | | b. Impact on the organization's strategy | Page | Compliant | Will continue to evolve in line with our strategy, including mitigation and transition plans. | | | c. Resilience of the organization's strategy | Page | Partially compliant | Existing mitigation analysis and further localized action plans will be put in place in 2023. Financial materiality assessment will also be considered. Will continue to evolve in line with our strategy, including mitigation and transition plans. | | Risk management | a. Risk identification and assessment process | Page | Partially compliant | Existing mitigation analysis and further localized action plans will be put in place in 2023. Financial materiality assessment will also be considered. Will be evolved to include comment on specific risk areas, particularly in regard to mitigations in place. | | | b. Risk management process | Page | Compliant | Our risk management for climate is integrated into our company wide risk management, and will evolve accordingly. | | | c. Integration into overall risk management | Page | Compliant | Will continue to evolve in line with our risk management. | | Metrics and targets | a. Climate-related metrics in line with strategy and risk management process | Page | Partially compliant | We are developing our understanding of how to link our analysis to specific actions within our strategy. Will continue to develop, in line with our strategy. | | | b. Scope 1, 2, (and 3) GHG metrics and the related risk | Page | Compliant | We report in accordance to the GHG protocol, and have integrated our principle rules into this reporting. | | | c. Climate-related targets and performance against targets | Page | Partially compliant | We are developing our understanding of how to link our analysis to specific actions within our strategy. Will continue to develop, in line with our strategy and performance against it. | www.imperialbrandopic.com 99 ![img-44.jpeg](img-44.jpeg) --- TCFD continued # GOVERNANCE We have integrated ESG oversight and management, including climate change, at all levels of the business. # The Board's role The Board of Directors has regard to climate-related matters through our ESG strategy and performance, which includes management of climate risk. The Board has endorsed all climate-related targets. To ensure the Board has appropriate regard to climate-related issues, the Board endorsed the formation of a cross-functional ESG Committee which is chaired by the CEO. The ESG Committee reports to the Board. In FY22 the Board of Directors were updated on climate-change related matters quarterly, following the ESG Committee meetings in November 2021, February 2022, May 2022 and September 2022. In November 2021, the Board endorsed new climate change metrics and targets, which included the activities ongoing for this TCFD disclosure, and in all other meetings the Board has been updated on performance against our climate change targets. The Board is also informed on the detail of our climate transition plan, which includes financial risk and opportunity. It is through reporting from the ESG Committee, as well as Board-level consideration and approval of (i) enterprise risk appetite, assessment, and management, (ii) longer-term strategy, and (iii) the annual budget plan that the Board has regard to business plans, including expenditure for climate-related matters. Tony Dunnage, Global ESG Director, conducted an additional ESG training to the Board in May 2022 to ensure the Board has appropriate regard to material environmental topics. We also have two Non-Executive Directors (NEDs) with specific experience in climate-related matters. Diane de Saint Victor, appointed to the Board in November 2021, has been associated with a variety of companies playing a major role in addressing climate change. This includes serving as an executive committee member at one of the world leaders in technology solutions that help industries in reducing their energy consumption. Alan Johnson, another of our NEDs, appointed in January 2021 is also the president and chair of the Board at the International Federation of Accountants. This organization campaigned successfully to establish the International Sustainability Standards Board (ISSB), which was established at COP26 in November 2021. The Federation is now supporting the new ISSB and working with regulators across the world on the assurance of climate-related disclosures. # Management's role We have integrated climate governance across our functions, which enables us to bring together experts and decision-makers across the organization. Climate change is a central topic of the ESG strategy and is fully covered by the ESG Committee. The Committee is informed about the performance and progress of the strategy on a quarterly basis by the ESG team, and other internal subject matter experts. The ESG team is led by the Global ESG Director, who reports to the Chief People and Culture Officer, and is the secretariat of the ESG Committee. The Senior Planning Manager in Group Finance is responsible for the long-term financial planning and alignment of climate-related risks and opportunities. Risk factors are overseen by the Group Risk Committee. The Group's formal approach to risk management includes an update to the Board on a half-yearly basis on the enterprise-wide risk management framework (EWRMF), which contains all the Group risks and their associated control measures. This fully incorporates climate-related risks and opportunities and links them to our principal risks. The Group Risk Committee meets at least three times per year and works closely with the ESG Committee. Please see page 87 for the governance structure. Both the ESG Committee and Group Risk Committee are informed by a matrix of supporting functions including the Group ESG function. The Environmental and Social Strategy Groups consist of experts from across the business, providing coverage of our eight material ESG topics including climate change. The groups meet on a regular basis and directly influence the Company's detailed ESG strategy. Climate-related issues in the business are assessed and managed through the Environmental Strategy Group. These Groups are chaired by the Global ESG Director and provide oversight of ESG risks and opportunities across the business. # STRATEGY In an ESG materiality assessment conducted in November 2021, climate-related issues were ranked as second most important ESG topic for our Company, after consumer health. This mandate, combined with the requirements of the listing rule formed our strategy to approach this TCFD disclosure. # Our Approach In 2022 we conducted a quantified climate scenario analysis with a 4°C and 1.5°C pathways (RCP 2.6 and RCP 8.5), aligned with the recommendations of TCFD and the Paris Agreement utilising a third party supplier for modelling, and with a cross functional group including members from Group ESG, Group Finance and Group Governance. The scenario analysis takes into consideration climate-related physical and transition risks as well as opportunities in the short, medium and long term – the period from 2022-2050. Imperial Brands financial planning period covers three years and is thus included in the short-term period. Imperial Brand's risk time horizon covers 10 years, as recommended by GDP and is presented in the table on page 62. However, in line with requirements the analyses have considered a longer time frame of at least until 2050. The climate scenario analysis covers key owned and third-party sites. Overall, 44 operational sites and 9 leaf sourcing regions, covering 31 countries, were identified for a "deep dive" risk assessment. Sites and sourcing regions included were chosen due to their strategic and financial importance to Imperial Brands. This structured approach was taken to define a short-list of the potentially most significant climate risks and opportunities within the portfolio. The short-list is the result of a thorough data and document analysis and a quantitative financial value chain analysis. The short-list was then carried forward for further analysis for financial impact. For the scenario analysis (KPMG's Climate IQ tool was used). This tool combines climate science, macro-economics and financial information. The table on page 62 sets out the different types of risks aligned to Imperial Brands risk framework, and the associated maximum value at risk (MVAR). MVAR is defined as the accumulated maximum risk quantum over 10 years between the 1.5°C and 4°C scenarios. The MVAR relates to the gross risk and assumes no mitigation or adaptation activities by Imperial. The dots represent the degree of significance of the risk in each of the 1.5°C and 4°C scenarios comparing to the total of the Company asset base. The MVAR calculation does not include inflation, nor does it take into account the impacts of government policies, or any mitigating action already taken. To qualify the MVAR values, an expected impact has been added to reflect the position once mitigation or adaptation associated with our strategy is applied – such as the Imperial Brands Net Zero 2040 ambition. Risks and opportunities have been prioritised based on the findings of the scenario analyses. # Scope The scenario analysis covers both physical and transition risk for Imperial Brands PLC, inclusive of Eastern Ventures and ITG Brands, but not Logista', who voluntarily make a TCFD disclosure separately (see Logista's 2021 Annual Report, page 83). We have assessed the impact of climate change on Logista and have found nothing to represent a material risk at Group level. 60 Imperial Brands | Annual Report and Accounts 2022 1. A not-for-profit charity previously known as the Carbon Disclosure Project https://www.cdp.net/en. 2. Logista is not a FTSE listed company and therefore is not under mandatory TCFD disclosure rules. www.imperialbrandsplc.com 61 --- TCFD continued Climate-related risks and opportunities | | Type of Risk^{1} | Maximum value at risk calculated over time frame (km) | Timeframe | | Scenario | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | Short (0–3s) | Medium (3–5s) | Long (6–10s) | 15°C | Net Zero by 2040 | | Physical risks associated with climate change | | | | | | | | | Chronic | Impact of physical hazards (e.g. exercise flooding) on key assets could lead to a decrease in revenues due to supply chain disruption and its effect on production capacity | Product supply | 10 | | | | The group takes out insurance for the coverage of this risk, within direct operations, and maintains business contingency plans | | | Chronic drought risk^{2} could lead to a decrease in revenues due to supply chain disruption and its effects on production capacity | Product supply | 14 | | | | The group takes out insurance for the coverage of this risk, within direct operations, and maintains business contingency plans | | | Changes in tobacco crop yield^{2} resulting from climate change could lead to decrease in revenues due to agricultural supply chain disruption and its effects on production capacity | Product supply | 14 | | | | Expected to be partially offset by an increase in land outside for the growing of tobacco, and the flexibility of the leaf sourcing supply chain, allowing for location selection on a yearly basis | | Acute | Increased frequency and severity of extreme weather events could lead to a decrease in revenues due to supply chain disruption and its effects on production capacity | Product supply | 2 | | | | The group maintains supply chain contingency plans and insurance cover for the coverage of this risk within the supply chain | | | More severe hurricane risk^{2} could lead to a decrease in revenues due to supply chain disruption and its effects on production capacity | Product supply | 14 | | | | The group maintains supply chain contingency plans and insurance cover for the coverage of this risk within the supply chain | | Transition risks associated with transitioning to a low carbon economy | | | | | | | | | Emerging regulation | Increased costs could result from emerging regulations such as carbon taxation^{2} and the carbon pricing mechanism, predicted to begin in 2024 | ESG Delivery | 20 | | | | It is expected that we will mitigate this through our net zero strategy, aiming to be net zero in our direct operations by 2030 | | Market | Materials costs in NTM and Leaf could increase due to increases in the operating costs of suppliers and raw materials. This could reduce access to capital. Key impact is expected to be from the introduction of carbon taxation through our supply chain, predicted to begin in 2024 | ESG Delivery | 360 | | | | It is expected that mitigation will be possible through partnership with key suppliers to drive change in supply chain before financial impact occurs | | Climate-related opportunities | | | | | | | | | Energy sourcing | Energy supply costs^{1} could decrease due to resource efficiency and the use of zero emission sources of energy in our direct operations | ESG Delivery | 11 | | | | The Group is prioritizing early action to limit costs and mitigate impact, reflected in the step change in renewable electricity reporting in our performance summary | Footnotes: 1. Assuming no decarbonization measures are taken by Imperial Brands 2. Impact has been quantified from financials 3. Cost avoidance from energy transition 4. In accordance with Imperial Brands risk assessment 5. % of asset value Mild Change$^{2}$ = 0.2% Moderate Change$^{2}$ 0.2% 1% Significant Change$^{2}$ >1% May not quantifiable. These risks have not been quantified due to the complexity in calculating financial impact and lack of test capability. Further assessment is required in these areas to develop a link to financial impact, including an assessment of materiality when taking into account integration and action plans in place. 62 Imperial Brands | Annual Report and Accounts 2022 ### Physical risk Scenario analysis has considered the physical risk from coastal inundation, soil subsidence, surface water flooding, riverine flooding, extreme wind, forest fire and water stress to our direct operations, and our tobacco purchasing regions. Of particular note, the analysis considered the impact of storm damage, which to date has been the most prevalent impact of climate change on the business. The analysis predicts that storms are likely to increase resulting in an increase of costs at a rate of 5% but despite this it is not likely to result in a significant impact at Group level. As shown in the table on page 62, the work completed demonstrates that the business is relatively unaffected in both climate scenarios in the short term for physical risk, both chronic and acute. In the 4°C scenario, the probability of physical risks in the medium and long term increases compared to the aimed 15°C scenario, but financial impact can still be considered not significant overall. When viewed by location and based on the third party model, Spain is most affected by physical risks. The Spanish factory is located close to a river, and as such it is considered to have the highest risk of riverine flooding as well as a risk of drought in a 4°C scenario. When considered at Group level, this impact is immaterial. Physical risks in other locations were also considered immaterial. Other physical climate risks, though not considered material at Group level, continue to be monitored locally as part of business continuity planning. This confirms that our current approach, where climate risks are integrated into local business plans, and do not form a material risk at Group level, will continue to serve us. ### Transition risk Our scenario analysis indicates the most significant climate-related impacts for Imperial Brands are the transition risks common to FMCG organizations operating in the same markets. Imperial's greatest exposure is to the impact of changing materials costs and emerging climate-related regulation, such as carbon pricing. As indicated in the table, materials cost represents the biggest absolute risk as a result of climate change, however the accumulated value over the next 10 years is still likely to be less than 1% of our spend if mitigating action is not taken. This result confirms that our suppliers' cost base is also likely to increase if they are not already taking steps towards becoming net zero. The analysis indicates that the increase in material costs are mostly represented by 'non tobacco materials' (NTM) and leaf. Our climate ambitions include targets for reduction of Scope 3 emissions, and we are working with key suppliers to reduce these. For more information, please refer to the section on Metrics and Targets on page 68. We anticipate that material costs can be significantly reduced by meeting our long-term ESG strategy, particularly as we begin to collaborate with partners on Scope 3 emissions. ### Impact of risks ### in financial reporting Imperial Brands' long-term financial planning covers a 3-year period. Based on the outcomes of this report, increased physical risks and transition risks associated with climate change are not significant over this time period, and as such are not included in long term financial planning. In the coming year we do not expect the risk associated with climate change to be material to the Group, with the largest expected not to exceed 12m GBP (and 56m GBP over the 3-year period). For other financial statement areas that cover a period beyond the financial planning of 3 years and beyond the Imperial Brand's risk time horizon of 10 years, we have considered the MYAR of the material climate-related risks for the relevant period of those specific areas. For example assessing goodwill and intangible assets impairment assessment (note 1) and recoverability of deferred tax assets (note 22). We also challenged the Directors' considerations of climate change in their assessment of going concern (note 1) and viability and associated disclosures. ### Climate-related opportunities Proactive ESG management represents our biggest climate opportunity. We have committed to a series of targets, and outline our Net Zero strategy further in the Metrics and Targets section on page 66. By successfully implementing this Net Zero strategy, we can maximise the benefits of the green energy transition and avoid carbon costs across the period in the 15°C climate scenario. We have a glide path and transition plan to achieve Net Zero which we expand on in Metrics and Targets on page 66 and in our ESG Review on page 41. Our analysis shows us that in either scenario, our strategic approach should have a positive effect in managing costs. However, we will continue to monitor the impact that carbon prices could have on our cost base and consider the business' ability to manage or pass through some or all the costs. If new climate-related risks are identified, we are committed to aligning our strategy accordingly and integrating the respective costs into our profit and loss. ### Assumptions This analysis assumes that no action is taken to decarbonize to the supply chain, or within our operations. The work also does not take into account inflation, consider the impacts of government policies or subsidies, or currently existing mitigation. Material costs stated in the analysis include the costs of physical risk materialising in the supply chain. During FY23 we will build on the scenario analyses conducted in 2022. Our ESG Strategy can turn risk into opportunity ![img-45.jpeg](img-45.jpeg) Figure Potential Carbon Cost of Scope 1 to 15°C Scenario www.imperialbrandsplc.com 63 --- TCFD continued to gain a more detailed longer term understanding of the financial materiality of the climate risks and opportunities identified. # RISK MANAGEMENT For a number of years, we have included information on managing and mitigating climate-related risks in both our ESG reporting and CDP disclosures. We are aligned to CDP's definition of risk terminology. In 2021 our ESG materiality assessment placed climate change as our second most material issue, and as such it is included in both our ESG strategy, and focused on separately as part of our risk management process. We integrate climate-related risks and opportunities in our business strategy and financial planning. Whilst we have assessed both the physical (dilmatic) and transitional (technological) risks that may impact our business, we do not focus on climate change as a principal risk in itself. Instead we find greater value in ensuring that the risks and opportunities are assessed by each risk owner. With the support of subject matter experts, risk owners review the potential cause and likelihood of any risk materialising. As a business, we are accustomed to managing risk across a variety of topic areas, including emerging regulatory requirements related to climate change, and we apply the same process for all risk areas. For further information on how we manage risk, please refer to the risk section on page 82. The Board is responsible for setting the Group's risk appetite and is ultimately accountable for managing the Group's risks and opportunities. It delegates responsibility for managing the Group risks and opportunities to the Audit Committee. The Audit Committee is responsible for approving the risk management approach and for oversight of its ongoing effectiveness. The Group's formal approach to risk management includes an update to the Board on a twice-yearly basis on the Group's risk register documents, including our EWIMIF. Our EWIMIF specifies accountability for the identification, assessment and mitigation of risks throughout the business and is based on the "three lines of defence" model. The first line of defence is our people in operational roles, who identify potential risks and opportunities at an operational level. The ESG team, led by the Global ESG Director, are subject matter experts and are part of the second line of defence. They develop appropriate policy, process, control structures and analyse the impacts of the risks upon the business in line with the Board's risk appetite. Therefore, the second line of defence provides support to the first line of defence. The ESG team is informed about climate-related risks and opportunities that occur at a local and global level related to the achievement of our climate targets. Our third line of defence consists of our internal Audit Team who independently review compliance with, and the effectiveness of, our risk management and internal control system. On an intermittent basis, we also commission a third party to perform its own analyses to validate risks identified by the business. Due to the long term nature of climate-related risks, and in order to make this disclosure, a cross functional project team considered actions relating to these analyses covering and beyond the standard risk time frame we typically consider for risk and financial planning. In accordance with the listing rule, we have taken into account the period 2022-2050. # Transition Risk Management The transition risks identified in our climate scenario analysis are embedded in the risk framework and are communicated with the effected sites and functions; action plans are being implemented accordingly, particularly for the primary risks: carbon taxation and materials costs. Physical and transition risk within our supply chain and direct operations related to climate change are considered on each of our principal risks. This helps us manage and monitor climate risks for core business decisions. Please also view our 2022 risk matrix on page 82 where we demonstrate climate related and regulatory risk to be of high importance to the Company. We integrate our management of these into our responsible business functions. In the future, Imperial Brands aims to conduct climate scenario analysis on a regular basis. # METRICS AND TARGETS We monitor the risks identified and put in place intervention or mitigation measures where necessary. However, our targets on climate change represent multiple business opportunities: there are cost and environmental benefits to energy savings, and to efficiency programs. Since 2005, we have had Scope 1, 2 and 3 targets, consistent with reductions required to limit climate warming to 2°C, approved by the Science Based Targets initiative (SBTi). However, in FY21 we set our sights higher and joined the Business Ambition for 1.5°C. Race to Zero initiative, a campaign led by the SBTi. For more details on how this commitment impacts our climate change strategy, please see 'Our plan' on page 64. To drive business focus in FY23, for the first time, we will have remuneration relating to performance against our climate change objectives. We have carefully considered the outcome of the analysis, and aligned our climate change metrics and targets with our most material risks: Carbon Pricing and Material Costs. # Carbon pricing Our carbon pricing risk relates to the likely increase of carbon taxation on emissions within our operations. To drive our emissions down, we have joined Business Ambition for 1.5°C, a campaign led by the SBTi. This means we are committed to reaching science-based net-zero emissions by 2040. To achieve this, we will reset our science-based targets for carbon, increasing our ambition in line with 1.5°C global warming limits and submit them for approval by the SBTi. Further, in order to support our Net Zero strategy, we also aim to explore an internal carbon pricing mechanism. For more on our FY23 performance and future plans to decaffeine our operations, please see page 41. # Materials costs The materials cost relates to the likely impact of carbon taxation on emissions, and the impact of physical risks within our value chain. To drive down emissions within our value chain, we have an SBTi approved supplier engagement target 50% of our suppliers by spend will set science-based targets by 2024. This target helps us reduce our Scope 3 emissions and thus is fully aligned with our 2040 Net Zero ambition. In our ESG Review we report that 34% of suppliers by spend had already achieved this target. As part of our submission to SBTi, we are also working towards validating our Scope 3 data! Our target to achieve Net Zero in our entire value chain by 2040 is also supported by an emission reduction target of Scope 1 of 28% by 2030. In FY23 we will expand on how we will partner to collectively drive emissions down within our supply chain. Carbon transition plan for our operations ![img-46.jpeg](img-46.jpeg) Our methodology for calculating Scope 1, 2 and 3 emissions is compliant with the GHG Protocol and we disclose our environmental performance in CDP. The scope of targets set includes companies, entities or groups over which we have operational control. For more information on our 2022 performance, and further information on our current ambitions related to climate and ESG, please refer to our company website and our ESG People and Performance Summary 2022. Our plan (from a 2017 baseline year) | 2025 | 2030 | 2040 | | --- | --- | --- | | 100% of our purchased grid electricity will come from traceable renewable sources Reduce absolute scope 1 and 2 GHG emissions by more than 50% | 100% of the energy sourced for our operations from renewable sources Be net zero In our direct operations (scope 1 and 2 GHG emissions) Reduce: - Our total carbon footprint (absolute scope 1,2 and 3 GHG emissions) by 30% - Absolute scope 3 emissions by 20% - Energy consumption by 25% | Our value chain will be Net zero emissions (absolute scope 1,2 and 3 GHG emissions) | 1 Our Scope 3 emissions include the following categories: Purchased Goods and Services, Capital goods, Fuel and energy related activities, Upstream transportation and distribution, Waste generated in operations, Business travel, Employee commuting, Developmental transportation and distribution, Use of cold products, End of life treatment of cold products, Inventories. 64 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 65 --- OPERATING REVIEW # EUROPE REGION # AT A GLANCE Tobacco volume -4.1% Tobacco net revenue* -1.0% Tobacco & NGP adjusted operating profit* -5.2% * Change at constant currency # HEADLINES - Market share growth in UK and Spain driven by local jewel brands strategy share declines in Germany - Industry volumes affected by increased travel, with consumer buying patterns reverting to historical channels and markets - Price mix improved in the second half, driven by price phasing Tobacco & NGP net revenue* +0.2% NGP net revenue* +34.2% - Strong NGP performance with growth across heated tobacco, vapour and modern oral - Successful Pulse and iD trials in heated tobacco supported further launches in Italy, Portugal and Hungary - Successful trial of all-new vapour device blu 2.0 in France validates roll-out into UK. - Adjusted operating profit decline also reflects increased investment behind strategic initiatives ![img-47.jpeg](img-47.jpeg) Alek Struminsky President, Europe Region Our results in Europe should be viewed against a strong comparator year, which benefited from COVID-related travel restrictions and changes in consumer buying patterns. The lifting of restrictions and increased travel have led to volumes reverting to pre-COVID channels and markets. Strong market share growth in the UK was driven by investment behind our strategic initiatives, with local jewel brand, Embassy, making gains in under-penetrated regions of the country, and share gains in fine cut. As expected, our initiatives to rejuvenate our brands in Germany are taking time, with activations on our largest brand JPS, focused on appealing to a wider demographic of adult smokers. Our initiatives with Gauloises, West and Davidoff have begun to gain some traction in Germany. In Spain, we grew market share driven by our brand portfolio approach, offering consumers choice across the price ladder and leveraging local heritage brands. ![img-48.jpeg](img-48.jpeg) 66 Imperial Brands / Annual Report and Accounts 2022 | | Full year result | | Change | | | | --- | --- | --- | --- | --- | --- | | | | 2022 | 2021 | Actual | Constant currency | | Tobacco volume | bn SE | 121.5 | 126.7 | -4.1% | | | Total net revenue | £m | 3,472 | 3,551 | -2.2% | +0.2% | | Tobacco net revenue | £m | 3,306 | 3,425 | -3.5% | -1.0% | | NGP net revenue | £m | 166 | 126 | +35.4% | +34.2% | | Adjusted operating profit | £m | 1,562 | 1,670 | -6.5% | -5.2% | Volumes for the region declined 4.1%, as expected, with sales increasingly reverting to pre-COVID channels and markets during the year. This has resulted in increased volume declines in higher margin northern European markets such as UK, Germany and Scandinavia, partially offset by increased volumes in lower margin southern European holiday destinations such as Spain and strong growth in the duty free channel. Tobacco net revenue was down 1.0% at constant currency, reflecting the volume declines and price mix of 3.1%. Price mix was affected by the timing of price increases and the adverse geographic mix effects as COVID-19 restrictions were lifted. Price increases taken in Germany and the UK in the latter part of the first half of the year led to improved tobacco price mix in the second half of 6.0%, compared to price mix of -0.2% in the first half of the year. Our priority in Ukraine remains the safety and wellbeing of our 600 Ukrainian colleagues and families. In the second half we were able to restart production at our factory in Kyiv, including some contract manufacturing. This remains a fast-moving situation, which we continue to monitor closely. Our NGP portfolio has performed well with net revenue up 34.2% at constant currency, and with growth across all three categories. A positive response from both consumers and the trade to our launches of Pulse and iD in the Czech Republic and Greece has supported further share gains during the second half. These market learnings have reinforced our confidence in the recent launches of Pulse and iD in Portugal and Hungary as well as in Italy, Europe's largest heated tobacco market. In vapour, the successful trial of a new ped-based vapour proposition, blu 2.0, in four selected cities in France has led us to roll out the product to the UK market in November 2022. This is the first product to be delivered from our refocused innovation pipeline. This consumer-led and partnership-based approach to innovation has also supported the launch in the UK of blu bar, a new disposable vapour device, to meet the rapidly growing demand in this category. In modern oral nicotine, we are continuing to evolve our offerings to meet consumer preferences and have achieved strong growth in Sweden, Norway and Austria. Adjusted operating profit for the year declined 5.2% at constant currency against a strong comparator year, which benefited from consumers buying in higher margin northern European domestic markets. The profit performance also reflects increased investment behind our strategic initiatives in both the combustible and NGP opportunities in Europe. # PRIORITY MARKET # PERFORMANCE Tobacco share | Germany - 19.0% (-85 bps) + 12% of Group net revenue | Market size declined 4.1% in the year against a strong price-year comparator, which benefited from COVID-19 travel restrictions. Our market share declined despite increased investment behind our strategy, though we have started to see stabilisation in Gauloises and West following brand equity investment. Our brand portfolio is well positioned across price segments, after we took action to net Gauloises variants within premium and repositioned portfolio heritage brands within the lower-tier value segment to offer consumers choice in both cigarettes and fine cut tobacco. We continue to invest behind JPS to rejuvenate brand equity, with a pack redesign and targeted point-of-sale marketing campaigns coupled with retailer advocacy programmes driving increased consumer awareness. | | --- | --- | | UK - 41.6% (+85 bps) + 7% of Group net revenue | Market size declined 3% in the year as COVID-19-related travel restrictions unwound in the second half of the year and there was growth in illicit trade as borders reopened. Our strong market share gains reflected investment in our portfolio, particularly behind the local jewel brand, Embassy, and in fine cut tobacco with our Players Easy Rolling and Riverstone brands. We also invested in new sales effectiveness initiatives to enhance on-shelf availability with retailers. Price increases taken towards the end of the first half, the first increases in two years, led to improved price mix in the second half. | | Spain - 28.3% (+5 bps) + 4% of Group net revenue | Tobacco market volumes grew 4.8% following two years of decline due to COVID-19 related restrictions. In the first half of the year, we achieved price increases across key product lines for the first time in five years. This led to temporary share declines in the first half, which we have been able to recover in the second half. We continued to invest behind our local jewel brands and captured downtrading through a super-king variant of our West brand. Our increased focus and investment in these brands has helped us to record three consecutive years of share gains. | www.imperialbrandspic.com 67 --- PRINCIPAL RISKS AND UNCERTAINTIES continued | Principal risk | Change in year | Impact | Mitigation | Opportunity | | --- | --- | --- | --- | --- | | **INABILITY TO DEVELOP, EXECUTE AND COMMUNICATE AN EFFECTIVE ESG STRATEGY IN LINE WITH EXPECTATIONS OF RELEVANT STAKEHOLDERS** Risk profile: ☑ Strategic impact: ☐ Performance-based culture and capabilities Failure to align the development, execution and communication of the Group's ESG strategy to external expectations. The pace of change in external requirements and expectations remains significant, with greater focus on integrity and assurance of reporting and comparison cross-industry and between sector peers | • Continued focus on ESG-related matters from investors and external stakeholders • Increasing reporting requirements exist, notably for climate and environmental-related risks, with the Group committed to actions to reduce its impact on the environment (e.g. TCFD reporting) • Recruitment of specialist human rights capabilities to further improve the Group's approach, and ensure proactive readiness for changes in regulatory requirements • As with all multinationals, the Group faces increasing climatic impacts across its global footprint • Investments in the NGP business to offer adult smokers potentially reduced harm products continue and have been communicated and included within the Group's ESG agenda | • Failure to meet expectations, or to ensure at least parity with industry peers, may impact the Group's reputation as a sustainable business and adversely affect stakeholder sentiment • Failure to comply with key ESG-related regulation, including environmental and human rights legislation, would result in a material impact to the Group, including, but not limited to, financial penalties • Reputational damage may result from allegations, even where no wrongdoing has occurred • Employee engagement or attractiveness of the Group as an employer may be adversely affected as a result of any perception that the Group is acting in an inappropriate manner | • ESG strategy, agenda and communications, including ongoing development and materiality assessment, aligned to strategic goals and targets • ESG Committee with executive representation in place to provide oversight • Investor and stakeholder presentations ensure alignment with expectations and transparency on progress of Group actions • TCFD disclosures and related actions facilitate robust reporting and control frameworks • Responsibility and accountability for identification and mitigation of ESG-related risks understood and continues to be embedded across the business • Policy, training, guidance and effective governance provided by both internal and external subject matter experts | • Positive ESG strategies and communications can increase the attractiveness of the organisation to new joiners, and increase the engagement of existing employees • Sustainability is a growing factor in customer and consumer choices across PMCO sectors • Sustainability initiatives can reduce long-term financial costs through greater efficiency and reduced waste • Investor and wider stakeholder sentiment is more positive toward companies with successful and proven ESG strategies and initiatives | | **FAILURE TO DEVELOP COMMERCIALLY SUSTAINABLE NGP CATEGORIES** Risk profile: ☑ Strategic impact: ☐ Building a targeted NGP business Failure to develop a portfolio of commercially sustainable, science-based, reduced harm products, that meet consumer needs, could impact the Group's ability to seize market opportunities and deliver its ESG agenda | • Successful completion of Pulse heated tobacco pilot launches and development of accelerated launch strategy • Continued focus on development of the heated tobacco portfolio and product offering • Successful launch of updated vape product in pilot market • Continued competitor activity in the NGP market with growth in category size through product development and marketing initiatives • Failure to achieve PMTA approval in US impacted sale of mykka product; this is currently being appealed | • Failure to accurately predict or identify current and emerging consumer trends could result in lost opportunities, and lower volumes should products have reduced relevance to consumers • Failure to align NGP portfolio to consumer needs and expectations could result in failure to achieve NGP ambition • Failure to develop NGP categories could impact achievement of key ESG priorities | • Pilot market approach implemented to ensure feedback and learnings captured and responded to in development and execution of heated tobacco strategy • Dynamic consumer and market analysis integral to product development and go-to-market model • Development of consumer-centric products bringing alive the Group's agile 'fast-follower' strategy • Consolidated NGP category management approach enabling holistic view of opportunities and informed investment strategy | • Improved ability to meet consumer needs and robust consumer validation are key drivers of commercial success • The Group's experience in combustibles and NGP provides it with a strong base to meet the needs of the wider changing nicotine market dynamic | | **PRODUCT PORTFOLIO AND/OR CONSUMER INTERACTION APPROACH NOT ALIGNED TO CONSUMER PREFERENCES** Risk profile: ☑ Strategic impact: ☐ Consumer at the centre of the business Product portfolio not aligned to consumer needs or demands, and/or product development not sufficiently agile to respond to changes in preferences or market structure and competitor offerings. Brand strength is not sufficient to attract or retain customers. | • Continued emergence and growth of new low-price tiers across many markets • Continuation of down-trading trend in which consumers become increasingly value-driven due to inflationary pressures on disposable income | • If the Group's product portfolio fails to meet consumer preferences, then reduced demand will result in lower sales volumes and reduced brand equity • Failure to ensure effective implementation of market or retail initiatives could result in lost opportunities, wasted investments, and potential loss of share • Failure to act upon consumer insights could prevent opportunities from being seized and impact growth • Failure to identify intellectual property (IP) constraints in the innovation of new products could impact development and/or launch, limiting the ability to respond to competitor offerings | • Global Consumer Office in place with accountability for product/brand strategy and initiatives • Brand initiatives and opportunities continually assessed, and developments completed • Consumer panel approach in place to provide robust and independent feedback processes • Brand monitoring, including equity tracking • Innovation processes designed to develop consumer products based upon robust analysis, testing and scientific support, with cross-functional expertise utilised in approach • IP risks managed by subject matter experts within the Group and external legal support | • Facilitates the development of products and/or relevant route to market and pricing strategies that meet and drive consumer demand • Speed and quality of innovation enables the dismissal of consumer activation that ensures both brand relevance and continued brand loyalty • Management of 'local hero' brands in markets offers ability to realise local opportunities and strengthen consumer loyalties | 88 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandsipic.com 89 --- PRINCIPAL RISKS AND UNCERTAINTIES continued | Principal risk | Change in year | Impact | Mitigation | Opportunity | | --- | --- | --- | --- | --- | | **FAILURE TO APPROPRIATELY MANAGE LITIGATION AND INVESTIGATIONS RESULTS IN ADVERSE JUDGEMENTS AND/OR RELATED COSTS** Risk profile: ☑ Strategic impact: ☐ Simplified and efficient operations As with other corporates, litigation and other claims are pending against the Group. The interpretation of the law and the related judgements made in relation to these laws can lead to dispute or investigation and possible financial costs or reputational damage | • Consolidation of Legal, Corporate Affairs, and Governance and Security functions facilitates consistent approach across key engagement activities • Recruitment of a new Chief Legal and Corporate Affairs Officer as well as a dedicated Human Rights Manager | • Failure to comply with regulations could result in investigation and the enforcement of financial penalties or regulatory censure • Investigation or allegations of wrongdoing can result in significant management time being required, potentially reducing focus on other operational matters • If any claim against the Group was to be successful, it might result in a significant liability for damages and could lead to further claims • Regardless of the outcome, the costs of defending such claims can be substantial and may not be fully recoverable • A successful claim against a competitor could result in an increased likelihood of similar claims against the Group • The reputational damage arising from investigations or allegations of non-compliance could have a greater impact with external stakeholders than the penalties or actions related to the matter itself | • Internal and external lawyers employed, specializing in the defence of product liability claims and other litigation. To date, no tobacco litigation claim brought against the Group has been successful and/or resulted in the recovery of damages or settlement monies • Advice is provided to mitigate the causes of litigation, along with guidance on defence strategies to direct and manage litigation risk and monitor potential claims around the Group • The Group's Code of Conduct and core behaviours articulate the way employees are expected to act, with compliance certified by management across the business • The Group's policies and standards mandate that employees must comply with legislation relevant to both a UK listed company and local law • In the event of an investigation (which may or may not result in actions), the Group co-operates fully with the relevant authority and will continue to do so | | | **FAILURE TO MANAGE DIRECT/INDIRECT TAX POSITIONS/REPORTING** Risk profile: ☑ Strategic impact: ☐ Focusing on our priority markets Risk of changing tax legislation, or interpretation thereof, resulting in higher effective tax rate, tax disputes and related financial loss | • G7 proposal to enforce minimum levels of tax payable in the country in which profits are generated. This is intended to protect developing nations and potentially reduces effectiveness of current tax planning strategies • Increased regulatory enforcement across major markets • Uncertain Tax Positions (UTP's) have decreased as we have concluded a number of tax audits | • Failure to comply with regulations could result in investigation and the enforcement of financial penalties or regulatory censure • Investigation or allegations of wrongdoing can result in significant management time being required, potentially reducing focus on other operational matters • The reputational damage arising from investigations or allegations of non-compliance could have a greater impact with external stakeholders than the penalties or actions related to the matter itself | • Tax control framework in place and subject to update and development • Subject matter experts employed to develop processes and manage issues arising • Local tax managers in position in key markets • Clear communication of delegated authorities for tax planning purposes • Key risk areas identified including transfer pricing • Matters-to-be-Reported framework in place to best ensure appropriate oversight of issues arising | • Optimisation of Group tax liabilities in line with Group risk appetite, supporting compliance with local regulations | | **PEOPLE AND ORGANISATION** Risk profile: ☑ Strategic impact: ☐ Performance-based culture and capabilities Inability to attract, retain and develop required capabilities to achieve strategic objectives and/or provide a safe, healthy working environment | • The Russian invasion of Ukraine has and continues to have an impact on the welfare of our Ukraine-based employees and their families, with both Group and employee-led initiatives having been delivered • We have been able to continue to attract skilled and experienced candidates into senior and key roles in an increasingly supply-constrained job market | • Organisational culture and mindset fail to facilitate consumer focus and the requirements of a business operating in new and fast-changing categories • Failure to achieve operational or strategic objectives because of a misalignment of skills and capabilities • Failure to ensure safe working practices, appropriate environment and culture, and the required personal support to ensure the safety and well-being of employees and others working with the Group • Loss of life or serious injury/illness to employees or other individuals working with/for Imperial Brands • Financial penalty, censure or prosecution for breach of regulations • Interruption of Group operations (notably manufacturing) resulting from significant incident, failure to comply with regulations, or failure to manage employee relations | • Group "Connections" programme rolled out across our global footprint • Group-wide diversity, and inclusion focus including survey and resultant action plans • Diversity, Equity and Inclusion working groups in place to facilitate cultural and corporate change • Capability requirements evaluated on an ongoing basis, with required actions developed and actioned locally and at Group level to address short- and medium-term requirements • Health and safety policies, procedures, training and monitoring in place • Employee wellbeing support mechanisms in place | • Increased attractiveness of Imperial as an employer for both current and potential employees through the promotion of a diverse and inclusive culture, opportunities for personal development, and support for individual and team well being • People and skills are a key facilitator of strategy delivery, with success enhanced by the attraction and retention of requisite capabilities and mindset • Continued promotion of safety culture facilitating reduced lost working time and operational effectiveness confirming Imperial as an employer of choice | 90 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 91 --- PRINCIPAL RISKS AND UNCERTAINTIES continued ## LIQUIDITY AND GOING CONCERN STATEMENT The Group's policy is to ensure that we always have sufficient capital markets funding and committed bank facilities in place to meet foreseeable peak borrowing requirements. The Group recognizes uncertainty of the external environment. Given the current macroeconomic situation, our plans include higher than historical inflation impact to cost of sales driven by commodity price increases, energy and logistic costs, as well as higher people costs. During the period of the COVID-19 pandemic, as well as during the ongoing period of political uncertainty with regard to Ukraine and Russia, the Group effectively managed operations across the world, and has proved it has an established mechanism to operate efficiently despite uncertainty. The Directors consider that a one-off discrete event with immediate cash outflow would pose the greatest potential challenge to short term liquidity of the Group. The Directors have assessed the principal risks of the business, including stress testing a range of different scenarios that may affect the business. These included scenarios which examined the implications of: - A one-off discrete event resulting in immediate cash outflow, such as unexpected duty or tax payments of c. £1 billion. - A rapid and lasting deterioration in the Group's profitability due to markets becoming closed to tobacco products or sustained failures in our tobacco manufacturing and supply chains. These assumed a permanent reduction in profitability of 16% from 1 October 2022. - Additional impact of potential bad debt risks arising from a recession, of c. £220 million. - Withdrawal of facilities that provide receivables factoring of c. £900 million. The scenario planning also considered mitigation actions including reductions to capital expenditure and dividend payments and share buyback programme. There are additional actions that were not modelled but could be taken, including other cost mitigations such as staff redundancies, retrenchment of leases, and discussions with lenders about capital structure. Under the worst-case scenario, where the largest envisaged downside scenarios all take place at the same time, the Group would have sufficient headroom until December 2023. The Group believes this worst-case scenario to be highly unlikely given the relatively small impact on our trading performance and bad debt levels during the COVID-19 pandemic. In addition, the Group has a number of mitigating actions available that could be implemented should such a scenario arise. Based on its review of future cash flows covering the period through to March 2024, and having assessed the principal risks facing the Group, the Board is of the opinion that the Group as a whole, and Imperial Brands PLC specifically, have adequate resources to meet their operational needs from the date of this Report through to 31 March 2024, and concludes that it is appropriate to prepare the financial statements on a going concern basis. ## VIABILITY STATEMENT The Board has reviewed the long-term prospects of the Group in order to assess its viability. This review, which is based on the business plan which was completed in July 2022, incorporated the activities and key risks of the Group together with the factors likely to affect the Group's future development, performance, financial position, cash flows, liquidity position and borrowing facilities as described in the 'Managing risk' section of this report on pages 82 to 83. In addition, we describe in notes 20 to 21 the Group's objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities, and its exposures to market, credit and liquidity risk. ## Assessment In order to report on the long-term viability of the Group, the Board reviewed the overall funding capacity and headroom available to withstand severe events and carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. The assessment assumes that any bank debt maturing in the next three years can be re-financed at commercially acceptable terms or via our current standby facility. The Board believes that three years is an appropriate time horizon given the current business portfolio and limited visibility beyond three years. This assessment also included reviewing and understanding both the impact and the mitigation factors in respect of each of these risks. The viability assessment has two parts: - First, the Board considered the period over which it has a reasonable expectation that the Group will continue to operate and meet its liabilities, taking into account current debt facilities and debt headroom; and - Second, it considered the potential impact of severe but plausible scenarios over this period, including: - assessing scenarios for each individual principal risk, for example commercial issues and the impact of regulatory challenges; and - assessing scenarios that involve more than one principal risk, including multi-risk scenarios. ## Findings ### Viability review period Whilst the Board has no reason to believe the Group will not be viable over a longer period, the period over which the Board considers it possible to form a reasonable expectation as to the Group's longer-term viability, based on the risk and sensitivity analysis undertaken, is the three-year period to September 2025. This reflects the period used for the Group's business plans and has been selected because, together with the planning process set out above, it gives management and the Board sufficient, realistic viability on the future in the context of the industry environment. The Group's annual corporate planning processes include completion of a strategic review, preparation of a three-year business plan and a periodic re-forecast of current year business performance and prospects. The plans and projections prepared as part of these corporate planning processes consider the Group's cash flows, committed funding, forecast future funding requirements, banking covenants, and other key financial ratios, including those relevant to maintaining our investment-grade ratings. These projections represent the Directors' best estimate of the expected future financial prospects of the business, based on all currently available information. The use of the strategic plan enables a high level of confidence in assessing viability, even in extreme adverse events, due to a number of mitigating factors such as: - The Group has mature business relationships and operates globally within well established markets - The Group's operations are highly cash-potentially and the Group has access to the external debt markets to raise further funding - Flexibility of cash outflow with respect to the ability to manage dividend returns to investors, capital expenditure projects planned to take place within the three-year horizon, and promotional marketing programmes. ## Risk impact review For each of our principal risks, plausible risk impact scenarios have been assessed together with a multiple risk scenario. The following table summarises the key scenarios that were considered, both individually and in aggregate: | Risk scenarios modelled | Level of severity reviewed | Link to principal risk | | --- | --- | --- | | The consequences of adverse operating and commercial pressures, involving volume reduction and/or falls in margin, driven by unforeseen reductions in the size of the legitimate tobacco market or other changes in the level of consumer demand for our products. | The maximum quantifiable impact of all envisaged business risks, including the impact of a loss of market size and share and lack of pricing. The value of these combined risks total £1.4 billion over the three-year period under review. A further worst-case scenario has also been considered, modelling a 16% reduction on remaining EBITDA after consideration of the isolated business risks. The value of this EBITDA modelled totals £1.8 billion over the three-year period under review. | • Pricing, excise or other product tax outcomes not in line with planning assumptions • Failure to manage the impacts of regulatory change • Product supply fails to meet market demands • Major incident resulting from cyber or similar technology risk • Change in consumer behaviour • Inability to develop, execute and communicate an effective ESG strategy in line with expectations of relevant stakeholders • Failure to develop a commercially sustainable harm reduction category • Product portfolio and/or interaction approach not aligned to consumer preferences | | The possible costs associated with legal and other regulatory challenges, including competition inquiries and tax audits. | Failure to successfully defend existing and reasonably foreseeable future legal and regulatory challenges, at the expected financial exposure. The value of these combined risks is c.£100m. | • Failure to appropriately manage litigation results in adverse judgements and/or related costs • Failure to manage direct and indirect tax positions and reporting • Failure to attract or retain required capabilities and talent • Inability to develop, execute, and communicate an effective ESG strategy in line with expectations of relevant stakeholders | None of the scenarios reviewed, either individually or in aggregate, would cause Imperial Brands to cease to be viable. Climate-related risks have been assessed as causes of a number of the underlying risks which are included within the scenario modelling, including, but not limited to, the failure to supply product due to weather-related impacts on individual factories, the cost of computing with environmental legislation, and the impact that climate change has upon the supply of raw materials (totally leaf). Any incremental cost would have an EBITDA impact lower than that modelled as part of the scenario testing (in 2022 climate-related risks have been assessed as part of the quantified climate scenario and also concluding that during FY23 FY25 business will be relatively unaffected by either physical or transition risks and therefore these do not represent a material risk from a viability perspective. ## CONCLUSION On the basis of this robust assessment of the principal risks facing the Group, the assumption that they are managed or mitigated in the ways disclosed, the Board's review of the business plan and other matters considered and reviewed during the year, and the results of the sensitivity analysis undertaken and described above, the Board has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period to September 2025. 92 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 93 --- GOVERNANCE CHAIR'S INTRODUCTION # DEAR SHAREHOLDER I am pleased to introduce Imperial Brands PLCs Corporate Governance Report for the financial year ended 30 September 2022. # The year in review During 2022, the Board remained focused on supporting management's disciplined delivery of our five-year strategy amid continued challenges, including rising inflation and a growing cost-of-living squeeze. This year our business has also been challenged by Russia's invasion of Ukraine, which necessitated urgent action to protect the long-term interests of the Company. Our first priority is the safety and wellbeing of our people and their families. This continues to be the case for our Ukraine colleagues. On page 109, you can find our more about how we took into consideration the interests of our stakeholders in addressing the situation in Ukraine and in exiting from Russia. With the ending of COVID-19 restrictions, the Board has resumed its person meetings and engaged face to face with our broad range of stakeholders, including shareholders, consumers, customers, suppliers and, of course, our people. During the year the Board has met in the UK, US and Spain. This report marks the end of the second year of our renewed five-year strategy. It has been a year of consolidation, reinforcing the progress of the previous year to ensure a stable platform from which to move into the next phase of our strategy. The Board and the Executive Leadership Team have worked hard to maintain and build on a resilient and sustainable governance framework, which we believe makes us stronger and better placed to take sound decisions in the interests of the Company and its stakeholders. # Purpose, vision and behaviours Last year, we committed to oversee the further development and embedding of the Company's purpose, vision and behaviours, a key framework that underpins the delivery of our strategy. Responsibility sits at the heart of our vision and this year in particular saw developments in our approach to ESG issues. The reconstituted ESG Executive Committee, evolved out of the Board's ESG Steering Committee that I was chasing, is in place. It is chasing by our Chief Executive Officer and reports directly to the Board, which retains close oversight of this important work. You can read more about our purpose and vision on page 13, our behaviours on page 22, our corporate governance framework in the pages that follow, and our ESG programme on pages 36 to 58. # Our people and culture Our people remain our greatest asset. We have been following the progress being made in developing a performance-based culture aligned to our purpose, vision and behaviours. The Board has been closely involved in the cultural transformation journey being led by our People and Culture team. More details on our workforce engagement activities can be found on page 31, and more information about our people and culture initiatives can be found on pages 52 to 58. I would like to take this opportunity to thank all our people for their contribution to the business, demonstrated in their focus on our consumers, and their care for each other, most vividly reflected in the amazing EBTA raised by colleagues around the world for those affected by the situation in Ukraine. # Succession planning and diversity Our strong focus on succession planning, as well as our firm commitment to diversity, continue and the commitment does not stop with the Board. You will read in the People and Governance Committee report on pages 133 to 138 about the progress we are making to address diversity recommendations at Board and senior management level. It is an important feature of delivering our strategy that our culture is transformed and becomes performance based. See pages 56 to 56 for a deep dive into the progress of our Employee Resource Groups. # Stakeholders You will read on pages 30 to 34 about how we ensure that we consider the views of our stakeholders in our decision-making process. Our engagement with stakeholders, including our employees, provides the Board with rich context and background when making decisions. I am particularly pleased with how we addressed one of our key objectives for the year, which was to get closer to the consumer. Further information on our stakeholder engagement can be found on pages 30 to 34 and in our Section 172 statement on pages 108 to 112. Our people, under the aegis of our the ESG Executive Committee, have worked hard on our ESG strategy, building on previous years' work and honing our approach, which we believe now has clarity and depth. # Risk management Regular reporting has provided the Board and its Committees with information to consider and use to guide management in responding to the events of the year, including the ongoing COVID-19 pandemic and the situation in Ukraine, as well as to monitor our underlying principal risks. These are more fully described on pages 82 to 93. Like many companies, the Board recognizes climate change as a global threat as well as a direct threat to the Group's operations. We are committed to addressing climate change and we were one of the first FTSE100 companies to commit to being a Net Zero company across our global operations and value chain by 2040. For more information on our sustainability initiatives and our first stand-alone report aligned to the requirements of the Task Force on Climate-related Financial Disclosures, see pages 59 to 66. # Shareholder engagement Our Chief Executive Officer, Chief Financial Officer, and I have met virtually and in person with shareholders throughout the year. In addition to hearing about our strategy, purpose and vision, shareholders have been interested in our ESG initiatives and our approach to creating a culture and environment within which our people will perform best to support our strategy. As I mentioned earlier, our investor perception survey suggests they are supportive of these initiatives. You can find further detail on our investor engagement on page 107. # Changes to the Board In November 2021, we welcomed Ngon Edrosen and Diane de Saint Victor as independent Non-Executive Directors. Their appointments enhance the breadth of experience and diversity of views we have on the Board. Following the Annual General Meeting on 2 February 2022, Steven Stanbrook retired as a Non-Executive Director. I would like to thank Steven for six years' valuable service to the Company. He was a highly engaged member of the Board, including in his role as Workforce Engagement Director. Read about all our Board's skills and experience on pages 96 to 100. # Board effectiveness To ensure the Board and its Committees continue to work effectively, the Board has undertaken an internal review of its performance. The outcome of this year's evaluation concludes that the Board continues to operate effectively. Details of this year's evaluation, and the significant progress made against last year's actions can be found on pages 116 to 118. # STRUCTURE AND CONTENT OF THE GOVERNANCE REPORT | Chair's introduction | 94 | | --- | --- | | Board Leadership | 96 | | Compliance statement | 100 | | Role and purpose of the Board and its Committees | 101 | | Governance framework | 102 | | Board in action | 104 | | Board engagement with stakeholders | 106 | | People and Governance Committee report | 107 | | Audit Committee report | 110 | | Reincarnation Committee report | 130 | | Director's report | 140 | | Directors statement | 180 | # Looking forward The progress we have made this year has provided us with a sound platform from which to look forward with confidence to the next phase of our strategy. The 2023 Annual General Meeting will be held on 1 February 2023. Further details can be found in the Notice of Annual General Meeting sent to shareholders and made available on the Company's website. I look forward to meeting many of you then. Thérèse Espardy Thérèse Espardy Chair # BOARD LEADERSHIP AND COMPANY PURPOSE The Company is led by an effective and determined devel, focused on the long-term sustainable success of the Company, generating value for shareholders and stakeholders and contributing to wider society. Read more on pages 17 and 18 to 60. # 3. COMPOSITION, SUCCESSION AND EVALUATION Approximately one subject May simply, purpose and transparent, as well as the Corporate plans, designed to promote diversity of people, social and, vision, backgrounds and corporate and personal strengths, are in place for the Board and senior management for evaluation of the Board and its Committees in undertaken annually, in line with the Code. Read more on pages 118 to 118. # 2. DIVISION OF RESPONSIBILITIES The Chair and the Chief Executive Officer have closely defined and separate responsibilities, and their main appropriate construction of Executive and Engagement Non-Executive Directors. Read more on page 102. # 4. AUDIT, RISK MANAGEMENT AND INTERNAL CONTROL I would like to attend the data and procedures are in place to ensure the independence and effectiveness of the internal and external business system and the integrity of financial and narrative statements, and to manage and integrate risks. Read more on pages 128 to 130. # 5. REMUNERATION The Company has reconstituted policies and practices designed to support its strategy and promote long-term sustainable success. Executive remuneration is aligned with Company's purpose and vision, and is clearly linked to the security of the Company's long-term strategy. Read more on pages 130 to 148. 94 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 95 --- GOVERNANCE BOARD LEADERSHIP ![img-49.jpeg](img-49.jpeg) Find out more at www.imperialbrandspic.com/about-us/leadership-team # BOARD OF DIRECTORS # 1. Thérèse Esperdy Chair Ⓟ Ⓟ # Appointment Joined the Board in July 2016, serving as Senior Independent Director from May 2019 and appointed Chair in January 2020. # Career and Experience Thérèse has significant international investment banking experience having held a number of roles at JP Morgan including Global Chair of JP Morgan's Financial Institutions Group, Co-Head of Asia-Pacific Corporate & Investment Banking, Global Head of Debt Capital Markets, and Head of US Debt Capital Markets. She began her career at Lehman Brothers and joined Chase Securities in 1997 prior to the firm's merger with JP Morgan in 2000. # Skills and Competencies Thérèse brings to Imperial her excellent international leadership experience from serving on boards of both US and UK listed companies. She brings to bear her artists' understanding of our business, the sector we operate in and the concerns of our investors. # External Appointments - Non-Executive Director, Senior Independent Director and Chair of the Finance Committee of National Grid Plc! - Non-Executive Director of Moody's Corporation! # 2. Stefan Bomhard # Chief Executive Officer # Appointment Appointed in July 2020. # Career and Experience Stefan joined Imperial from Inchcape plc, a global distribution and retail leader in the premium and luxury automotive sectors, where he delivered successful transformational change during a five-year tenure as Chief Executive. Prior to Inchcape, Stefan was President of Bacardi Limited's European region and was also responsible for Bacardi's Global commercial organisation and Global Travel Retail. Previous roles have included Chief Commercial Officer of Cadbury plc and Chief Operating Officer of Unilever Food Solutions Europe. This followed senior management and sales and marketing positions at Diageo (Burger King) and Procter & Gamble. # Skills and Competencies With a PhD in marketing and significant exposure to multiple consumer sectors in large multinational organisations, Stefan brings excellent brand-building and consumer-led sales and marketing experience to Imperial, notably in other "challenger" businesses (Burger King and Bacardi). # External Appointments - Non-Executive Director of Compass Group PLC # 3. Lukas Parasicini # Chief Financial Officer # Appointment Appointed May 2021. # Career and Experience Lukas has a proven track record in multinational consumer goods companies around the world. He joined Imperial from agricultural commodities and brokerage group ED&P Man Holdings, where he was Chief Financial Officer. He has also held senior positions at Fonterra, a New Zealand and Australia listed co-operative and the world's largest dairy exporter, with sales in 130 countries. He was Chief Financial Officer from 2015-2017 and Chief Operating Officer, Global Consumer and Foodservice Business from 2017-2018. Prior to that, he spent 22 years with Nestle in various senior finance and general management roles. # Skills and Competencies Lukas brings to Imperial broad financial and operational experience in consumer goods companies, and expertise in driving transformational change, including implementing global shared services in large international organisations. # External Appointments - None. # 4. Sue Clark # Senior Independent Director Ⓟ Ⓟ Ⓟ # Appointment Appointed Non-Executive Director in December 2018, Chair of the Remuneration Committee in February 2018 and Senior Independent Director in January 2021. # Career and Experience Sue has strong international business credentials with over 20 years' Executive Committee and Board-level experience in the FMCG, regulated transport and utility sectors. Sue held the role of Managing Director of SABMiller Europe and was an Executive Committee member of SABMiller plc. She joined SABMiller in 2003 as Corporate Affairs Director and was part of the executive team that built the business into a top-five FTSE company. # Skills and Competencies With a background in corporate and regulatory affairs, Sue brings to Imperial international experience in FMCG and regulated businesses and major corporate transactions, as well as expertise in governmental and regulatory relations. Sue is a passionate advocate for the contribution business can make to wider society, which brings valuable insight to Imperial's ESG ambitions. # External Appointments - Non-Executive Director, Chair of the Remuneration Committee and member of the Nominations Committee of Britvic plc! - Non-Executive Director and member of the Audit, Nominations and Remuneration Committees of Monti plc! - Non-Executive Director of Tulchan Communications LLP, a leading advisory firm. # 5. Diane de Saint Victor # Non-Executive Director Ⓟ Ⓟ # Appointment Appointed November 2021. # Career and Experience Diane has strong legal, regulatory, M&A, business alliance and ESG experience, having held a number of General Counsel, Company Secretary and other key roles in an international career. She spent 13 years on the Executive Committee, as General Counsel & Company Secretary, of ABB, the global technology company. Prior to joining ABB, she served as a Senior Vice President and General Counsel of Airbus Group from 2004 to 2006 and from 2001 to 2004 as a Vice President and General Counsel at SCA Hygiene Products. She spent a decade working at Honeywell, ultimately holding the post of Vice President and General Counsel International. 96 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 97 --- GOVERNANCE BOARD LEADERSHIP continued # Skills and Competencies Diane brings over 30 years' experience of broad international legal, governance and regulatory expertise gained from a range of senior executive and non-executive positions in multinational organisations, as well as experience of transforming organisations in sectors undergoing change. # External Appointments - Non-Executive Director of Netixis, SA¹ - Non-Executive Director and member of the Audit and HSES Committees of Transocean Ltd² - Non-Executive Director of C&A¹ # 6. Ngozi Edozien Non-Executive Director A P # Appointment Appointed November 2021. # Career and Experience Ngozi has over 25 years' experience in finance/private equity, general management and strategy/business development functions with multinational companies in Europe, the US and Africa. She joined McKinsey & Company in 1992, leaving in 1999 to join Pfizer Inc. as Vice President, Pfizer Global Pharmaceuticals (PGP) Strategic Planning and Business Development, a position she held until her appointment in January 2006 as the Regional Director, PGP East, Central and Anglophone West Africa. She served as Head of West Africa for Actis LLP from 2009 until 2014. She spent six years on the Board of PZ Comona and four years on the Board of Vliace PLC. # Skills and Competencies Ngozi brings to Imperial over 30 years' experience in general management, finance, strategy, business development and transformation gained at multinational companies, including in regulated consumer goods, in Europe, the US and Africa. # External appointments - Non-Executive Director and member of the Finance and Risk Committee of Guinness Nigeria, a listed subsidiary of Diageo¹ - Non-Executive Director of Stanbic IBTC Holdings PLC² - Non-Executive Director of Barloworld Ltd² # 7. Alan Johnson Non-Executive Director A P # Appointment Appointed in January 2021. # Career and Experience Alan has a strong financial background in consumer goods and retail, having held a number of senior finance positions at Unilever in Africa, Europe and Latin America during a 10+ year career, including Chief Audit Executive and Chief Financial Officer of the Global Foods Division. He was previously Chief Financial Officer and then a Non-Executive Director of Jerónimo Martins SGPS, S.A., a food retailer with operations in Portugal, Poland, and Colombia, until April 2016, and retains a role as the independent chairman of the company's Internal Control Committee. Between July 2018 and September 2020 he was a Non-Executive Director of the UK Department for International Development (DFID) and chaired its Audit & Risk Assurance Committee. # Skills and Competencies As well as his financial acumen and international experience across mature and developing markets, Alan brings to Imperial experience of risk management and successfully managing business transformations, lending further strength to the Board's governance and effectiveness. # External appointments - President and Chair of the Board of the International Federation of Accountants² - Member of the Board and Chair of the Audit Committee of the International Valuation Standards Council³ - Non-Executive Director of William Grant & Sons Ltd² - Non-Executive Director of DS Smith plc² # 8. Bob Kunze-Concewitz Non-Executive Director A B # Appointment Appointed November 2020. # Career and Experience Bob is an experienced marketing professional and has held a number of senior roles at leading FMOO companies. He was appointed Chief Executive Officer of Campani Group, a major player in the global spirits industry, in May 2007 having joined the business in 2008 as Group Marketing Director. Bob previously held positions of increasing responsibility and global reach at Procter & Gamble, including Global Prestige Products Corporate Marketing Director. # Skills and Competencies With a strong track record of successfully executing brand and marketing strategies at the most senior level, Bob brings to Imperial international brand experience and a profound understanding of delivering for the consumer. # External appointments - Chief Executive Officer of Campani Group¹ - Non-Executive Director of Luigi Lavazza S.p.A.¹ # 9. Simon Langelier Non-Executive Director A P # Appointment Appointed June 2017. # Career and Experience Simon has significant international experience within the tobacco industry. He held a number of senior commercial positions during a 30-year career with Philip Morris International, including in Latin America, Asia, Western and Eastern Europe, the Middle East and Africa. In addition, he was President of their Next Generation Products & Adjacent Businesses. Simon was also Chairman for almost six years of PharmaCarlo Limited, a Canadian-based supplier of medicinal-grade cannabis oil extracts and related products. # Skills and Competencies As well as a deep understanding of the tobacco industry, Simon brings to Imperial knowledge and experience of its NGP agenda. # External appointments - Non-Executive Director of CryoMass Technologies Inc.¹ ![img-50.jpeg](img-50.jpeg) # 10. Jon Stanton Non-Executive Director A P B # Appointment Appointed May 2019. # Career and Experience Jon has a wide range of international leadership experience, encompassing transformation, M&A and all aspects of finance, principally in the R2B sector. In 2016 he was appointed Chief Executive of The Weir Group PLC, one of the world's leading engineering businesses, having previously been CFO from 2010. Prior to that he spent 22 years at Ernst & Young, LLP, the last nine years of which were as a partner in its London office, where he led global board-level relationships. Jon is a Chartered Accountant and a member of the Institute of Chartered Accountants in England and Wales. # Skills and Competencies Jon brings a breadth of experience, with a first-class international business track record, including significant US exposure, as well as investor relations experience and the financial acuity to challenge constructively at the Board and its Committees. # External appointments - Chief Executive of The Weir Group PLC¹ # 11. John Downing Company Secretary # Appointment Appointed June 2012. Secretary to the Board and each of the Board Committees. # Career and Experience John, a qualified solicitor, joined Imperial in 2005 having previously worked for the law firm Linklaters. He has had a number of senior legal roles in Imperial, including playing a leading role in the acquisition of the Almalis business, and becoming Head of Group Legal in 2010. He has considerable experience in managing key corporate projects related to financing, business development and other commercial matters. In addition to his Group Company Secretary role, John has responsibility for the Group's governance, security, anti-illicit trade and information security functions. 98 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandsplc.com 99 --- GOVERNANCE BOARD LEADERSHIP continued # BOARD LEADERSHIP # BOARD LEADERSHIP Early in the year, we strengthened the depth and breadth of capability and experience on our Board and in our Executive Leadership Team. The enhanced combination of skills and competencies sets up Imperial for delivering the next phase of our five-year strategy. Leadership Skills Matrix | | Other current NED in Exec roles | FTSE/NYSE experience | UK corporate governance | Financial qualification | FMCG | Marketing & digital | Product development | Strategy | International | Change management / HR | ESG | Gov & Peg Affairs | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Non-Executive Directors | | | | | | | | | | | | | | Thérèse Esperdy (Chair) | ◆ | ◆ | ◆ | ◆ | | | | ◆ | ◆ | ◆ | ◆ | ◆ | | Sue Clark (SID) | ◆ | ◆ | ◆ | | ◆ | | | ◆ | ◆ | ◆ | ◆ | ◆ | | Diane de Saint Victor ** | ◆ | ◆ | ◆ | | | ◆ | | ◆ | ◆ | ◆ | ◆ | ◆ | | Ngoni Edonien ** | ◆ | ◆ | | ◆ | ◆ | | | ◆ | ◆ | ◆ | | | | Alan Johnson | ◆ | ◆ | | ◆ | ◆ | | | ◆ | ◆ | | ◆ | | | Bob Kunze-Concewitz | ◆ | | | | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | | Simon Langelier | ◆ | ◆ | | | ◆ | | ◆ | | ◆ | ◆ | | | | Steven Stanbrook * | ◆ | ◆ | | | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | | | | Jon Stanton | ◆ | ◆ | ◆ | ◆ | | | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | | Executive Directors | | | | | | | | | | | | | | Stefan Bomhard (CEO) | ◆ | ◆ | ◆ | | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | | | | Lukas Paravicini (CFO) | | | | ◆ | ◆ | | | ◆ | ◆ | ◆ | | | * Until 2 February 2022 at the end of the ACM ** Ngoni Edonien and Diane de Saint Victor appointed 30 November 2021 # COMPLIANCE STATEMENT It is the Board's view that for the financial year ended 30 September 2022, the Company has complied with all the requirements of the UK Corporate Governance Code 2018 (the Code). The Company's auditor, EY LLP, is required to review whether the above statement reflects the Company's compliance with the provisions of the Code specified for its review by the UK Listing Authority's Rules (UKLA) and to report if it does not reflect such compliance. No such report has been made. # Our Commitment to Corporate Governance The Board is committed to the high standards of corporate governance set out in the Code. The Code can be found at https://www.lrc.org.uk/directors/corporate-governance-and-stewardship/uk-corporate-governance-code. This Corporate Governance Report, together with the Directors' Remuneration Report set out on pages 130 to 148, describe how the Board has applied the main principles of good corporate governance and complied with the relevant provisions as set out in the Code for the year under review. The Directors' Report also contains information required to be disclosed under the UKLA Rules and under the Disclosure Guidance and Transparency Rules (DTR). To the extent necessary, certain information has been incorporated into this Report by reference. Throughout the Corporate Governance Report and Directors' Report, we have set out how we apply the main principles and complied with the relevant provisions of the Code. 100 Imperial Brands | Annual Report and Accounts 2022 # THE ROLE AND PURPOSE OF THE BOARD AND ITS COMMITTEES # FOCUS IN 2022 - The wellbeing of our people and continuing business stability during the ongoing COVID-19 pandemic, as well as the Russia/Ukraine conflict. - Board succession and diversity. - Further development and embedding of our renewed culture and purpose. - Delivery against our strategy. - Our NGP strategy. - Our ESG strategy. # LOOKING AHEAD TO 2023 - The wellbeing of our people, particularly in Ukraine, as well as those impacted by the cost-of-living crisis. - Delivery in our first year of Phase 2 of our strategy, particularly given geopolitical and macro-economic factors. - Our NGP agenda, as we move into an accelerated roll-out phase. - The embedding of our cultural transformation. - Our ESG agenda. Board and Committee membership as at 30 September 2022 | | Board | Audit Committee | Remuneration Committee | People & Governance Committee | | --- | --- | --- | --- | --- | | Non-Executive Directors | | | | | | Thérèse Esperdy (Chair) | ◆ | | ◆ | ◆ | | Sue Clark (SID) | ◆ | ◆ | ◆ | ◆ | | Diane de Saint Victor | ◆ | | ◆ | ◆ | | Ngoni Edonien | ◆ | ◆ | | ◆ | | Alan Johnson | ◆ | ◆ | | ◆ | | Bob Kunze-Concewitz | ◆ | | ◆ | ◆ | | Simon Langelier | ◆ | ◆ | | ◆ | | Jon Stanton | ◆ | ◆ | ◆ | ◆ | | Executive Directors | | | | | | Stefan Bomhard (CEO) | ◆ | | | | | Lukas Paravicini (CFO) | ◆ | | | | 1 Unless dealing with the succession of the Chair 2 Director Chair Executive Directors are invited to attend other appropriate Jobs Directing is Secretary to the Board and each of the Board Committees. Ngoni Edonien and Diane de Saint Victor appointed 30 November 2021. # GOVERNANCE FRAMEWORK The Board is responsible for the governance of the Company, undertaking its duties within a framework of clear authorities and governance structures, with effective controls that enable risk to be assessed and managed effectively. The Board sets the tone for the Group from the top and delegates specific tasks to its Committees. Each of these Committees has specific written terms of reference issued by the Board, adopted by the respective Committee and published on our website. All Committee chairs report on the proceedings of their Committee at the next meeting of the Board, and make recommendations to the Board where appropriate. Minutes of Committee meetings are circulated to all Board members. To ensure Directors are kept up to date on developments and to enhance the overall effectiveness of the Board, the Board Chair and Committee chairs communicate regularly with the Chief Executive Officer and the Chief Financial Officer. Where appropriate the Board convenes virtually outside of scheduled meetings to consider time-sensitive matters. The Board is responsible to shareholders and stakeholders for approving the strategy of the Group, for overseeing the performance of the Group and evaluating and monitoring the management of risk in a manner that is most likely to promote the Company's long-term success. As part of the governance framework, the Board has adopted a schedule of matters on which it must take the final decision. These include approving the Group's strategy, business plans, dividend, major financial announcements, and acquisitions and disposals exceeding defined thresholds. Each member of the Board has access, collectively and individually, to the Company Secretary and is also entitled to obtain independent professional advice at the Company's expense, should they decide it is necessary in order to fulfil their responsibilities as Directors. www.imperialbrandsplc.com 101 --- GOVERNANCE BOARD LEADERSHIP continued ### BOARD ROLES AND COMPOSITION While the Board shares collective responsibility for its activities, some roles have been defined in greater depth below. # Chair Leads the Board and creates an environment that ensures there are strong links between the Board, management and stakeholders. # Senior Independent Director Assists the Chair with effective shareholder communications including if investors have any issues which have not been resolved through the normal channels. Is available to other Directors should they have any concerns not appropriate to raise with the Chair. # Non-Executive Directors Evaluate information provided and challenge constructively management's viewpoints, assumptions and performance. They bring a diverse range of business and financial skills and experience that complement and supplement those of the Executive Directors. # Chief Executive Officer With the CFO, has day-to-day management responsibility for the Group and for implementing the Group's strategy. # Chief Financial Officer Supports the CEO in implementing strategy and overseeing the finances, operations and development of the Group. # Company Secretary Provides independent advice to the Board on matters of corporate governance and supports the Chair and the Non-Executive Directors. Is responsible for ensuring good governance practices at Board level and throughout the Group. ### BOARD COMMITTEES The Board delegates certain matters, listed below, to Board Committees, consisting of members of the Board. For further details, see the table of Board and Committee membership at 30 September 2022 on page 103. # Audit Committee Assists the Board in fulfilling its corporate governance responsibilities. This includes oversight of the Group's external audit, internal control systems, risk management framework and processes, and the Group-Internal Audit department. The Committee's responsibilities also include ensuring the integrity of the Group's financial statements and related announcements. This Committee is chaired by Jon Stanton. See page 119. # People and Governance Committee Reviews and evaluates the composition and succession plans of the Board and its Committees, to maintain an appropriate balance of skills, knowledge, experience and diversity. Retains oversight of the development plans for Executive Leadership Team (ELT) members together with the Company's wider organisational structure, its diversity, equity and inclusion agenda, and its talent management processes. Oversees workforce engagement and culture. Reviews and develops the Board's corporate governance framework, including the Board performance evaluation process. This Committee is chaired by Thérèse Esperdy. See page 113. # Remuneration Committee Sets and implements our Remuneration Policy aimed at aligning the interests of Executive Directors and senior management with those of our stakeholders, ensuring our ability to attract and retain high-performing executives whilst incentivising the delivery of our strategic objectives and sustained returns for investors. This Committee is chaired by Sue Clark. See page 130. # Ad hoc committees Ad hoc committees may be established to review and approve specific matters or projects. For example, this year an ad hoc sub-committee of the Board was established to consider the Company's approach in respect of the Ukraine crisis. ### EXECUTIVE LEADERSHIP TEAM The Board delegates responsibility for developing and implementing strategy, and for the day-to-day running of the business, to Stefan Bomhard, Chief Executive Officer, who is assisted in his role by the Executive Leadership Team (ELT) comprising the members listed on page 9. The ELT is responsible for overseeing the operational execution and delivery of our strategic and financial plans. This includes: business performance management; transformation and cultural change initiatives; talent, capability and succession; major investments, divestment and capital expenditure proposals; business development considerations; ESG initiatives; and risk assessment and management. For further details, see page 9. ### OTHER NON-BOARD COMMITTEES The Board delegates certain matters, as follows, to management committees consisting of senior executives: # Treasury Committee (reporting to the Audit Committee) This Committee reviews and approves material banking and treasury matters, providing second line of defence oversight of treasury-related risks. This Committee is chaired by the Chief Financial Officer. # Disclosure Committee (reporting to the Board) Approves the release of communications to investors and the London Stock Exchange. Reviews whether communications are inside information. This Committee is chaired by the Company Secretary. # ESG Steering Committee (reporting to the People and Governance Committee, the Audit Committee and the Remuneration Committee as well as the Board) As highlighted in our last Annual Report, with the new ELT in place, it was appropriate to reconstitute this Committee with delegated responsibility to management, and so this was done this financial year. The purpose of this Committee is to define the Company's strategy relating to ESG and to provide oversight of its ESG programme, which is designed to assist in promoting the long-term sustainable success of the Company. This Committee is chaired by the Chief Executive Officer. # Risk Committee (reporting to the Board and Audit Committee) This Committee oversees and manages enterprise-wide risk by ensuring that the Group Risk Register remains relevant on an ongoing basis, reflecting the Group's risk appetite against those identified risks, and providing perspectives on the risks raised whilst also establishing the most effective penetration of risks for ELT and Board review. In addition, the Committee oversees and, where necessary, directs the effective design and operation of the Group's governance, risk management and internal control framework. This Committee is chaired by the Chief Executive Officer. # Group Pensions Committee (reporting to the Audit Committee and the Remuneration Committee) This Committee has been established to provide global oversight on both risk and reward elements of the Group's pension arrangements, which were historically dealt with locally. The Committee's objectives include tackling the risks inherent in the Group's defined benefit pension schemes as well as reward matters. This Committee is chaired by the Chief Financial Officer. ### BOARD PROGRAMME IN 2022 # How the Board discharged its responsibilities in 2022 In addition to the seven scheduled Board meetings, the Board also met virtually a number of times, including during March and April 2022 to consider and make a decision in response to Russia's invasion of Ukraine. Attendance at meetings of the Board, Board Committees and AGM | Name/Meeting | 1 2021 | 2 2022 | 3 2022 | 4 2022 | 5 2022 | 6 2022 | 7 2022 | AGM | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Non-Executive Directors | | | | | | | | | | Thérèse Esperdy (Chair) | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | | Sue Clark (SID) | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | | Doane de Saint Victor^{1} | n/a | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | | | Ngozi Edm390^{2} | n/a | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | | | Alan Johnson | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | | | Bob Kunze-Concewitz | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | | | Simon Langelier | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | | | Steven Stanknick^{3} | ◆ | ◆ | n/a | n/a | n/a | n/a | n/a | | | Jon Stanton^{4} | ◆ | ◆ | ◆ | ◆ | ◆ | | ◆ | | | Executive Directors | | | | | | | | | | Stefan Bomhard (CEO) | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | | Lukas Paraviczos (CFO) | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | ◆ | Notes: 1. In light of a row in COVID-19 following the emergence of the Grincione strain, the Board decided that it was in the best interests of the Company to limit the number of Directors attending the AGM in person. 2. Appointed 18 November 2022. 3. Refund 2 February 2022 following the conclusion of the 2022 Annual General Meeting. 4. Jon Stanton was unable to attend any meeting due to a prior personal commitment. Note: n/a signifies not eligible in attend. Standard agenda items include strategy development and implementation, business performance and general corporate housekeeping. These are supplemented by updates, deep dives, special reports and matters brought to the Board for decision. 102 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 103 --- GOVERNANCE BOARD LEADERSHIP continued # BOARD IN ACTION We focused on the following in 2022: The wellbeing of our people and our continuing business stability during the COVID-19 pandemic: Delivery against our renewed strategy (COVID-19 continued to impact Imperial, its people and its business. As a Board, we remained vigilant and ready to respond to the ongoing challenges of the global pandemic. In this second year of our five-year strategy, building secure foundations in preparation for the acceleration phase, the Board maintained its focus on delivery. See opposite for an in-depth study of how we monitored the wellbeing of our people and ensured the stability of the business. See page 106 for an in-depth study of the Board's considerations in the context of some of the strategic pillars and critical enablers. Stakeholders engaged: employees, suppliers, customers, investors Stakeholders engaged: employees, consumers, suppliers, customers, investors, regulators S172 factors: a, b, c, d, e, f S172 factors: a, b, c, d, e, f See page 108 for definitions of S172 factors. Board succession and diversity Further development and embedding of our renewed culture and purpose During 2022 we strengthened the Board, and in doing so addressed succession planning and diversity. In addition, succession planning for the ELT was a focus during the year. Nonetheless, succession planning is an ongoing requirement and diversity is an area where continuous improvement is an absolute necessity – this is acknowledged and has been codified in the People and Governance Committee's terms of reference, which were amended and approved at the People and Governance Committee's September meeting. As highlighted in the Transforming our culture section on pages 22 & 23, as well as the People and Governance Committee report, the Board takes a keen interest in the cultural transformation that the organisation is undertaking. In addition to regular updates to both the full Board, and the People and Governance Committee, the Board has undertaken a number of 'Meet the Board' sessions in November (Bristol), February (Bristol), March (Spain), June (US), and September (London). For further information, please see the People and Governance Committee report at pages 113 to 118. Find details on pages 107, 112, and 133. Stakeholders engaged: employees, investors Stakeholders engaged: employees, investors S172 factors: a, b, c, d, e, f S172 factors: a, b, c, d, e, f 104 Imperial Board Global Report and Accounts 2022 Non-Executive Director Ngozi Edmore during a visit to a trade customer in the US # IN-DEPTH STUDY: The wellbeing of our people and our continuing business stability during the COVID-19 pandemic: It is easily forgotten how the first half of our financial year continued to be impacted by COVID-19. The Board was kept informed of the impact of the pandemic on our people and on the business on at least a monthly basis. The November 2021 meeting noted that whilst the trend in positive tests was largely stable, some markets were showing renewed spikes (for example Russia, UK and Ukraine), and others were experiencing refreshed lockdown challenges (for example Laos, forcing the temporary closure of the factory there). In addition, challenges were being experienced in Global Supply Chain (GSC), particularly with non-tobacco materials (NTMs), where there was a significant watch-out on price pressures, commodity shortages and logistics. GSC confirmed that the situation could be managed successfully. By the time of the February meeting, the Omicron variant appeared to be responsible for a rise in cases across the business, with the biggest spikes in the US, Spain and UK. Whilst these cases amongst our employees appeared to have a lower health impact and cause less business disruption to the business than earlier variants, steps continued to be taken to ensure our people were fully looked after, including continuous improvement steps to reinforce segregation in factories to avoid the risk of cross-infection. Even at the March Board meeting, weekly infection numbers were still higher, but with no further hospitalisations since the last update in early February. The Board noted the ongoing challenge of absenteeism for the factories, in particular with the Europe region seeing rates of up to 15%. Nonetheless, our factories continued to manage through this, maintaining a zero out-of-stock standard. Likewise, the supply chain situation remained unchanged, with the business again managing through the logistics challenges and supplier pressures. After over two years, management took the decision at the start of April to cancel its weekly Group COVID-19 calls and to consider absenteeism and any discernible COVID-19-related supply chain impacts within the wider context of performance management. As such, the Board was also updated on the wellbeing of our people and our continuing business stability pursuant to the COVID-19 pandemic in that wider context. During our regular investor meetings we provided updates on how we were managing COVID-19-related challenges to our business. Having been fully updated on a very regular basis throughout, the Board remains proud of the Company's response to the pandemic, with our employees also acknowledging that response as a defining feature of the Group's positive attitude towards the wellbeing of our people. # BOARD ACTIVITIES 2021/22 The topics covered by the Board in its meetings during the financial year are detailed below: | Meeting | Focus area | Discussion points/Decisions made | | --- | --- | --- | | November 2021 (Bristol, UK) | • FY23 Performance • ESG | • Approval of the full year announcement, the year-end results presentation and the Annual Report and Accounts. • Review of work on our renewed ESG strategy, including approval of the terms of reference for the reconstituted ESG Committee. | | February 2022 (Bristol, UK) | • Performance • Russia-Ukraine • ESG • NGP Strategic Review • Cyber security | • 13 performance update, including ongoing COVID-19 challenges, contingency planning in respect of the escalating situation in Ukraine, and the growing inflation cost challenge. • Endorsement of the Group's ESG strategy. • Board experience, consumer immersion and deep dive into the NGP strategy one year on from the announcement of the Group strategy. • Update on the Group's cyber security posture, including its response preparedness in the event of a cyber attack. | | March 2022 (Madrid, Spain) | • Priority markets (Spain) • Russia / Ukraine • Risk | • Performance update overall, but with an emphasis on Spain, including management discussions, consumer immersion, employee engagement, store visits and an update from Logistics (CES). • Assessment of the Ukraine crisis and actions being, and to be taken. • Risk assessment update. | | May 2022 (London, UK) | • Performance • Inflation update • Digital Transformation • ESG | • Half year performance and announcement, with an update and assessment of the business being on track with the implementation of its strategy, including the NGP pilots and progress on the cultural transformation. • Discussion with the Chief Supply Chain Officer on inflationary pressures and actions to mitigate the impact of these. • Investment case for a single digital technology core enterprise resource planning (ERP) system. • A review of the ESG landscape. | | June 2022 (Greensboro, US) | • Priority markets (US) • NGP strategy | • Performance update overall, but with an emphasis on the US, including management discussions, factory visit, leaf education session, consumer immersion, employee engagement and store visits. • Focus on the US NGP market, including the legal and regulatory environment. | | August 2022 (virtual, via Teams) | • Performance • Regulatory affairs | • Q3 update, including inflation management, manufacturing capacity (COVID-19 absenteeism, the exit from Russia and the relocation of Kyiv factory production). • Regulation horizon scanning and strategy. | | September 2022 (London, UK) | • Performance • Business Plan • Risk • Investor audit | • Performance update, including inflation tracker. • Discussion and approval of the FY23 business plan. • Board risk assessment, including risk appetite. • Investor feedback discussion. | www.imperialboardspic.com 105 --- GOVERNANCE BOARD LEADERSHIP continued # IN-DEPTH STUDY: DELIVERY AGAINST OUR RENEWED STRATEGY As can be seen from the summary of key items discussed at the various Board meetings over the year, the Board has maintained its focus on delivery against the strategy, with this being the second year of building foundations in preparation for the acceleration phase for years three to five. The Board looks at delivery, performance and improvement in the context of the Group's strategic pillars and critical enablers, about which you will read elsewhere. By way of example, the Board's activities in 2022 included the following consideration in respect of key elements of the strategy: # Focusing on our priority markets The Board looks to detail at the performance of each priority market as part of the monthly performance reporting and/or in the business review at each meeting. In addition, in March and June the Board visited two of the five priority markets, Spain and the US. In each review, discussions carried on overall strategy (including people and culture and must-win battles, as well as combustibles and NGP), consumers, portfolio management (including "local jewel" brands), route to market, market share, regulation and competitors. # Building a targeted NGP business Our Chief Consumer Officer presented to the Board in February on the NGP strategy one year on from the launch of the Group strategy, outlining the renewed analysis of the NGP landscape that had been undertaken, together with data points and learnings from the ongoing NGP pilots in Europe and US. The Board endorsed the strategy and approach, noting that with an improved product, focused execution, and clear and differentiated target consumer. Imperial can expect to start to build up its NGP share position. Learning from the pilots have provided a clearer view of the challenges and the investments required to deliver on our NGP ambition. Taking into account the investment and project spend required to support a step-up in innovation and consumer investment, the Board approved the necessary investment, including the incremental investment behind the NGP strategy, as part of the FY23 business plan at the September Board meeting. For more information on the Board's decision, refer to Stakeholder engagement on pages 30 to 34. As mentioned above, the Board continues to be informed of, and discuss, the NGP strategy and performance, including market-specific considerations during its visits to Spain and the US. Building a targeted NGP business is also a key part of the Group's ESG strategy in relation to consumer health. As set out above and on pages 36 to 68, ESG has been a focus area for the Board, with the overall ESG strategy being endorsed at the February Board meeting. In addition, and following engagement with investors, as set out in the Directors' Remuneration Report on page 132, we have included a consumer health metric into the annual bonus metrics. # Consumer at the centre of the business The Board has focused on this key enabler to the strategy by overseeing the strengthening of critical capabilities required to deliver it, including with the building of the Chief Consumer Office. The consumer has been noticeably "present" in the Board room, both through regular updates and discussions on key aspects of bringing the consumer to the centre of the business, and by Board members participating in three consumer immersion events at the February (Bristol), March (Spain), and June (US) Board meetings. The Board also participated in store visits in March, June and November. # Simplified and efficient operations As set out on page 24, a key enabler of our strategy is to simplify the organisation through global processes underpinned by technology. With the need to replace end of life fragmented enterprise resource planning (ERP) systems, the opportunity to do so in a way that delivers better standardization and integration was acknowledged by the Board. Building on the Central Finance (CFU) investment, the intention is therefore to create a standard core ERP with master data integrity and business platforms supporting all markets and factories, on which other applications can be built as the business evolves. The investment case for this single digital technology core ERP was discussed and approved at the May Board meeting, with the Board recognising that the significant multi-year investment will be a key enabler of the strategy and associated key business objectives. Details of how the Board took stakeholders into account in making its decision can be found on page 110. # Driving value from our broader market portfolio As set out on page 17, our strategy proposed a more rigorous approach to driving value from the breadth of our full market portfolio. The strategy is focused on strengthening our regional and cluster structures, ensuring each of our markets is allocated the appropriate investment while managing our smaller markets to ensure they have the agility they need to spot trends and capitalise on emerging growth opportunities. The Board was kept up to date with progress during the year, including discussions at its May meeting relating to the creation of a product innovations team and work reviewing the positioning of the right brands at the right price point across a number of markets. # Performance-based culture and capabilities As set out on page 23, the Board approved the launch of "Connections", our new purpose, vision and behaviours to all of our employees globally. At its June meeting the Board received a progress report on culture and capabilities. A further update relating to the interaction of talent, capability and culture with the transformation of the operating model was provided to the Board in September. # Engagement with Investors We value the support and engagement of our equity and debt investors and understand the importance of this to our ability to access capital. Our aim is to provide balanced, clear and transparent communications enabling investors to understand how we see our prospects and the market environments in which we operate. Over the course of 2022 our teams held around 650 meetings with investors and research analysts through the following: - results presentations and trading updates; - CEO and CFO participation at investment banking conferences; - investor roadshows in the UK, North America, Asia, with private client brokers and wealth managers and with debt investors in support of US dollar bond issue; - two webinars "Gaining traction in the US market" and "Our refreshed ESG agenda"; - our AGM, providing an opportunity for the Board to meet with shareholders, particularly our retail investors; - shareholder engagement on our proposed ESG metrics into FY23 executive remuneration; and - ad hoc meetings at the investors' request To monitor the effectiveness of this engagement, the Board commissioned an investor perception study during 2022 to gather feedback from investors and non-shareholders. The key findings were that shareholders believe Imperial has the right strategy in both combustible tobacco and in NGP, which plays to its strengths and position in the industry and there is widespread support for the new capital allocation policy. Shareholders are also supportive of the management team and are pleased with the operational progress to date. They are keen to see progress in NGP, which is considered a critical area to underpin long-term growth, and they also want to see signs of performance improving in the next three-year phase of the plan. # Engagement with Colleagues Despite the challenges of the COVID-19 pandemic, we have continued our workforce engagement activities. The People and Governance Committee has embraced its wider role as the workforce champion. Our "Meet the Board" listening sessions continue to provide the opportunity for a two-way dialogue between our colleagues and NEDs, tackling themes such as diversity and inclusion, ESG and culture. The sessions also included discussion in respect of investor sentiment, the Group's NGP ambitions, its digital marketing approach, regulation and the Russian invasion of Ukraine. These open and honest sessions have been positively received, and are considered by colleagues to be helpful in connecting to the strategy and the enablers for delivering it. # Specific engagement: | November 2021 UK | • "Meet the Board" session • Store visit with UKI team | | --- | --- | | March 2022 Spain | • "Meet the Board" session • Office drinks • Dinner with local management | | June 2022 USA | • "Meet the Board" session • Office drinks • Dinner with management • Factory tour and leaf education | | September 2022 UK | • "Meet the Board" session • Dinner with management | Read more on how the Board considers all our stakeholders, and how the Directors fulfil their duties under Section 172 of the Companies Act 2006, in our 5172 statement and accompanying information on pages 108 to 112. # INVESTOR ENGAGEMENT DURING FY22 # OCTOBER Results • Pre-dose trading update # NOVEMBER Results • FY Results Roadshow • UK • Private Client # DECEMBER Comparison • Virtual Roadshow • North America • Private Client # FEBRUARY Roadshow • Private Client Engagement • AGM 2022 # MARCH Conferences • Burma • Virtual Engagement • Webinar on growing traction in the US market # APRIL Results • Pre-dose trading update # MAY Results • FY Results Roadshow • UK • North America # JUNE Conferences • Paris Roadshow • Private Client # JULY Roadshow • Canada • Asia # AUGUST Engagement • Engagement on ESG metrics in remuneration # SEPTEMBER Conference • Burma Engagement • Webinar on Environmental, Social & Governance 106 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 107 --- GOVERNANCE SECTION 172 # STATEMENT ON SECTION 172 OF THE COMPANIES ACT 2006 **Effective engagement with a wide range of stakeholders, including consumers, colleagues, governments and regulators, our customers, suppliers, and investors is key to the successful delivery of our strategy and vision in the long term.** During the year, the Directors acted in a way they considered, in good faith, most likely to promote the Company's long-term success for the benefit of its members as a whole, paying due regard to the matters set out in Section 172 of the Companies Act 2006. In taking into account the various interests of all relevant stakeholders when making decisions, the Board recognises it is not always possible to achieve each stakeholder's preferred outcome. Which stakeholder groups' interests are considered depends on the decision at hand. The Board endeavours to balance the different priorities and interests of our stakeholders in a way compatible with the long-term, sustainable success of the business and which aligns with our purpose, vision and behaviours. Examples of key decisions taken by the Board during the year and how stakeholder views and inputs, as well as Section 172 factors, have been considered in its decision-making are shown on the following pages, which together form our Section 172 statement. The Board recognises its responsibility to give due regard to the following matters in arriving at its decisions: ## Section 172 factors - ① The likely consequences of any decision in the long term - ② The interests of the Company's employees - ③ The need to foster business relationships with suppliers, customers and others - ④ The impact of the Company's operations on the community and the environment - ⑤ The desirability of the Company maintaining a reputation for high standards of business conduct - ⑥ The need to act fairly as between members of the Company Examples of decisions taken by the Board and how stakeholder views and inputs, as well as 172 considerations, have been considered in its decision-making are shown on the following pages. ## Key stakeholders - Consumers - Customers - Governments and regulators - Colleagues - Suppliers - Investors # CONSIDERING STAKEHOLDERS IN KEY DECISIONS ## Decision to withdraw from Russia The Board was informed of the Company's ongoing contingency planning in respect of a possible invasion of Ukraine at its Board meeting on 1 February 2022. It was kept updated on the Company's response to the unfolding situation with regular reports, including being fully briefed on measures being taken to assist our employees in Ukraine. Following an emergency Board call on 7 March 2022, we announced the suspension of all operations in Russia. This decision took into account the complex implications for various stakeholders, including Imperial's reputation as a responsible UK public company, an assessment of evolving international sanctions and growing concerns among suppliers and shareholders. The Board then met as scheduled on 10 March 2022 and was briefed on how stakeholders were reacting to the crisis, including employees, consumers, shareholders, media and governments. The Board discussed next steps regarding the Russian business, again taking into account key stakeholders in both Russia and Ukraine, as well as competitor and other FMCG company reactions. A Board sub-committee was established to deal with urgent matters, whilst ensuring the Board was kept informed of developments. Taking into account the implications for its various stakeholders, the Board decided that it was best for the success of the Company in the long term to exit Russia. On 15 March 2022, following a sub-committee meeting, the Company announced that it had begun negotiations to transfer its Russian assets and operations to a local third party. In negotiating the Company's exit from Russia, the safety and wellbeing of its employees was the key priority, with the Board deciding that an orderly transfer of the business as a going concern would be in the best interests of its 1,000 colleagues in Russia. In addition, despite always operating within the law, it was increasingly apparent that the international sanctions being imposed upon Russia were making several suppliers nervous about supplying Imperial, which could have impacted their business and Imperial's relationship with them in the longer term. The Board continued to receive updates on both the proposed exit from Russia and the situation in Ukraine, allowing a sub-committee of the Board to approve the exit, which completed on 20 April 2022. The Company safeguarded every Imperial job in Russia, with all employees transferring with the business. This was particularly important for those employed in Volgograd, given the importance of our factories in the communities in which they are located. The Board continued to be updated on the crisis in Ukraine throughout the year, including the sad news in August that one of our Kyiv factory employees, who had joined the Ukrainian military, had been killed in the fighting. ## S172 CONSIDERATIONS AT A GLANCE | Likely long-term consequences of the decision | Our decision brought stability to a complex and quickly evolving situation. It was informed at every step by consideration of the long-term consequences to the Group of continuing to do business in Russia or withdrawing from the market and protecting the wider business and its stakeholders. | | --- | --- | | Interests of our colleagues | Prompt action meant we safeguarded the interests of our Imperial Russia colleagues by ensuring their transfer as part of a going concern. At the same time, the interests of our colleagues in Ukraine and the wider business was a key factor in considering the long-term consequences of our decision. | | Postering business relationships with suppliers, customers and others | We took into account our suppliers' concerns about the potential impact of international sanctions on Russia. Our decision has secured our relationships with those suppliers. | | Impact on community and environment | We recognised our decision would particularly affect the community around our factory at Volgograd. Taking that into account, we acted quickly to transfer the business as a going concern, safeguarding local jobs. | | Maintaining a reputation for high standards of business conduct | Imperial conducted itself in this internationally volatile political situation with integrity and discipline. The Board remained updated and ready to act at short notice, applying high standards of governance, and considering the interests of all our stakeholders, while responding decisively. | | Need to act fairly between members | The Board acted fairly when considering all key stakeholders in its decision-making. Once decisions were made, we provided clear and transparent reporting on our plans and progress. | 108 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandsplc.com 109 --- GOVERNANCE SECTION 172 continued # Decision to approve investment behind our digital transformation strategy The Board was fully supportive of the digital transformation strategy and therefore the investment case for a single digital technology core enterprise resource planning (EVP) capability with master data integrity. In particular, the Board took into account the long-term sustainability of Imperial as a whole, seeing the investment as a key enabler of the strategy and associated key business objectives, which will further strengthen the foundations for a stronger, more resilient future, by: - allowing the business to better serve its customers, with a consistent view of the consumer enabled by data; - enabling rapid and nimble product innovation and introduction to help provide consumers with greater choice; - increasing supply chain responsiveness and reducing wastage through an integrated end-to-end supply chain; - allowing greater insight into customer and supplier data, and greater consistency of data across the entire business, enabling it to make decisions about strategic partners that, for example, share its ESG values; - allowing the business to rely on more predictable and consistent data, which gives the right information upon which to make clear, informed and agile decisions; - delivering better standardisation and integration, allowing consistent reporting and use of data, and better placing the business to oversee governance and reinforce its capabilities to deliver high standards of business conduct. S172 CONSIDERATIONS AT A GLANCE | Likely long-term consequences of the decision | Transforming our digital capabilities is core to the strategy and Imperial's long-term success. | | --- | --- | | Interests of our colleagues | Streamlined systems and processes will empower our people to deliver their best work and make sound data-driven choices. In making its decision, the Board was keen to strike a balance between speed of implementation and the burden on colleagues to deliver a multi-year programme. | | Fostering business relationships with suppliers, customers and others | Improved access to information allows the business to put the consumer first, giving it the ability to innovate and introduce new products quickly to satisfy consumer demand. At the same time, having an enhanced data analytics capability will allow the business to further develop its strong commercial relationships with our customers and suppliers. | | Impact on community and environment | Greater insight into customer and supplier data, and greater consistency of data across our business, will enable us to make decisions about strategic partners that share our values, for example, on ESG and information security. | | Maintaining a reputation for high standards of business conduct | Consistent reporting from across our international business means we are better placed to oversee governance and reinforces our capabilities to deliver high standards of business conduct. | # Decision to extend the roll-out of NGP With NGP being a key enabler to achieving the Group's purpose and vision, as well as the commercial reality that NGP is gaining an increasing share of the total nicotine profit pools, the Board has fully supported Imperial's commitment to building a targeted NGP business based on consumer insights and validation. To assist the Board in understanding the NGP strategy, one year on from the launch of Imperial's overall strategy, and to allow the Board to make a decision on the NGP roll-out for the next few years, the NGP Strategy Team provided the Board with a brand experience for both EVP and heated tobacco. Brand and product display booths were used to bring the consumer, product and experience to life for the Board, together with a comparison to competitor brands. This was supplemented with a consumer immersion event, with Board members talking to a group of vapers and a cohort of heated tobacco consumers. In addition, the Board was presented with renewed analysis of the NGP landscape, together with data from the ongoing NGP pilots in Europe and the US. The Board was able to consider the Group's proposed footprint and category offerings with data points which indicated that with an improved product, focused execution, and a clear and differentiated target consumer, Imperial should be able to start building its NGP share position. Linked to this was consideration of the need to establish and maintain key supplier partnerships, as well as an understanding of the regulatory environment in the short, medium and longer term. Taking into account a number of factors, including, consumer preferences, the attraction and retention of employees linked to having a growing non-tobacco business, investor and ESG analysts' appetite to see evidence of the transformation from a predominantly tobacco business to NGP business, adopting a challenger mentality by leading with supplier partnerships for innovation, and the regulatory landscape and horizon – the Board endorsed the roll-out plan for EVP benefiting from a better product and scale in Europe, and the accelerated roll-out of heated tobacco to new markets, thus helping Imperial's sustainability for the long-term. S172 CONSIDERATIONS AT A GLANCE | Likely long-term consequences of the decision | Building a targeted NGP business is one of our key strategic pillars. Our decision to support the considered extension of our NGP products to new markets is based on learning from the past while continuing to secure our future. | | --- | --- | | Interests of our colleagues | Strengthening the portfolio and building a sustainable NGP business is fundamental to our Purpose and what we are all striving to achieve over the long term. This not only improves opportunities for growth for existing employees, but also attracts new talent into a growing non-tobacco business. | | Fostering business relationships with suppliers, customers and others | Implementing a successful NGP business, which is responsive to consumer demands, allows the business to build connections with new partners, while strengthening relationships with existing ones. | | Impact on community and environment | Our decision to support our NGP strategy underpins our Purpose, which is to forge a path to a healthier future for moments of relaxation and pleasure. This is our commitment to make a positive contribution to a healthier future for our consumers and society, including through potentially reduced risk products. | 110 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 111 --- GOVERNANCE BOARD STATEMENTS # Section 172 of the Companies Act 2006 The Board seeks to consider the interests of all relevant stakeholders when making decisions. Our formal statement is disclosed on page 108. Throughout this Annual Report we have included information on how the Board operates and considers the interests of stakeholders when making its decisions. Read more on pages 108 to 111. # Viability statement On the basis of a robust assessment of the principal risks facing the Group, and the assumption that they are managed or mitigated in the ways disclosed on pages 82 to 93, the Board's review of the business plan and other matters considered and reviewed during the year, and the results of the sensitivity analysis undertaken, the Board has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period to September 2025. Read more on pages 92 and 93. # Going concern basis Having assessed the principal risks facing the Group, including the current and forecast future impacts of the ongoing COVID-19 pandemic, emerging geopolitical strains, and the impact on consumers of fuel, food and inflation challenges, the Board is of the opinion that the Group as a whole and Imperial Brands PLC have adequate resources to meet operational needs from the date of this Report through to March 2026 and, therefore, concludes that it is appropriate to prepare the financial statements on a going concern basis. Read more on page 92. # Principal risks and uncertainties The processes and related reporting described in the Principal Risks and Uncertainties section on pages 82 to 93 enables the Audit Committee to review and monitor the effectiveness of our risk management and internal control systems and confirm their effectiveness to the Board, in accordance with the recommendations of the Code. Read more on pages 82 to 93. # Fair, balanced and understandable The Directors confirm that they consider, taken as a whole, this Annual Report and Financial Statements are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy. Read more on page 117. # Modern slavery statement As an international business, we recognise the importance, influence and duty we have in promoting respect for human rights across our business and supply chains. We prepare an annual modern slavery statement which is available on our website. Our e-learning module, which provides a global overview of human rights abuse of modern slavery, and explains how employees can raise concerns, is now available in 18 languages and rolled out to employees. This year, the course was also delivered in person to over 2,500 people who do not have access to online learning in Laos and Madagascar including farmers. Read more on page 90 and 91. 112 Imperial Brands | Annual Report and Accounts 2022 GOVERNANCE # PEOPLE AND GOVERNANCE COMMITTEE # ABOUT THE PEOPLE AND GOVERNANCE COMMITTEE Membership* and attendance: | Share/Month | 1 9/21 | 2 05/22 | 3 05/22 | 4 09/22 | | --- | --- | --- | --- | --- | | Therese Esperdy (Chair)^{1} | ◆ | ◆ | ◆ | ◆ | | Sue Clark (SID) | ◆ | ◆ | ◆ | ◆ | | Diane de Saint Victor^{2} | n/a | ◆ | ◆ | ◆ | | Ngori Edonien^{3} | n/a | ◆ | ◆ | ◆ | | Alan Johnson | ◆ | ◆ | ◆ | ◆ | | Bob Kunze-Cinnewitz | ◆ | ◆ | ◆ | ◆ | | Simon Langelier | ◆ | ◆ | ◆ | ◆ | | Steven Stanknock^{4} | ◆ | n/a | n/a | n/a | | Jon Stanton | ◆ | ◆ | ◆ | ◆ | 1. Stolen dealing with the succession of the Chair 2. Approved 16 November 2022. 3. Refund 2 February 2023 following the conclusion of the 2022 Annual General Meeting Only members are entitled to attend. Executive Directors are invited to attend when appropriate. Note: n/a signifies not eligible to attend. # Other regular attendees - Company Secretary, as Secretary to the People and Governance Committee - Chief Executive Officer - Chief Financial Officer - Chief People and Culture Officer - Other senior executives as appropriate # Role of the People and Governance Committee Following the decision to extend its remit, the People and Governance Committee is also responsible for the social and governance components of our ESG agenda. The Committee assists the Board in fulfilling its governance responsibilities to maintain an appropriate balance of skills, experience and diversity on the Board and in senior management, to implement succession plans for the Board and senior management, and to evaluate Board, Committee and Director effectiveness. It also covers the Board's corporate governance framework and its workforce engagement strategy. # PEOPLE AND GOVERNANCE COMMITTEE CHAIR'S OVERVIEW # Dear shareholder I am pleased to present to shareholders the report of the People and Governance Committee for the year ended 30 September 2022, which sets out how the Committee has discharged its duties in accordance with the Code and details the key matters it considered during the year. ![img-51.jpeg](img-51.jpeg) # STRUCTURE AND CONTENT OF THE PEOPLE AND GOVERNANCE COMMITTEE REPORT - About the People and Governance Committee 113 - People and Governance Committee chair's overview 114 - Board balance 115 - Gender balance in senior management 116 - Diversity and Increased Policy 117 - Committee's mail responsibilities 118 - Activities to a 2-year looking ahead to 2023 119 - Board Evaluation 119 - Ward/nice engagement 119 # Broader scope and terms of reference The externally facilitated Board evaluation conducted in 2021 recommended that, to support the Company's cultural transformation, the remit of the then Succession and Nominations Committee be broadened to include employee engagement strategy and monitoring our wider culture change activities, essential to meeting our objectives under the renewed strategy. To reflect the wider remit, we changed the name of the Committee to the "People and Governance Committee" and updated its terms of reference, which can be found on our website. www.imperialbrandsplc.com 113 --- GOVERNANCE PEOPLE AND GOVERNANCE COMMITTEE continued # Board diversity The diversity we achieved at Board level by 30 September 2022 is summarised opposite. We are always mindful of our diversity obligations, including the recommendations of the Hampton-Alexander Review and the ongoing FTSE Women Leaders Review, and will continue to incorporate their recommendations into our search criteria for new Board members and senior management. We remain committed to the Hampton-Alexander target of at least 33% female Board membership. As at the date of this report, Imperial's figure is 40%. We continue to embrace diversity of gender, cultural background and experience, and expect this to be increasingly reflected in our Board composition over the coming years. We support the Parker Review's ethnic diversity recommendations. We currently have two Board members (26%) who identify as being from an ethnic minority background. In 18 months, we have transformed our Executive Leadership Team from 14% women and 0% People of Colour/ethnic minority, to 30% women and 20% people of colour/ethnic minority This was important in sending an initial, early signal to our people of the positive action we will take to create a truly diverse and inclusive organisation. We have also created a dedicated diversity, equity and inclusion (DEI) team – the first in the history of the organisation. As a Group, we are working to address imbalances in representation throughout the business and, in support of this aim, we will be setting clear KPIs to increase female representation at senior levels and taking targeted action as part of our DEI strategy to maintain oversight of the delivery of talent and diversity initiatives, to ensure they remain consistent with our emerging culture. See pages 58 and 56 for more information about our DEI agenda. # BOARD CHANGES DURING THE YEAR As you will have read in my letter on page 95, during the year we welcomed Ngozi Eskoren and Diane de Saint Victor to the Board and, after six years' valuable service, Steven Stardzosek retired. # Induction programme Since their appointment, Ngozi and Diane have undertaken a series of induction meetings with key areas of the business, both individually and together, as well as furthering their understanding of the business when attending Board meetings – for example via the educational sessions held at the Greensboro factory. # Board evaluation This year's Board evaluation was internally facilitated. You can read more about how we responded to last year's externally facilitated evaluation and the recommendations drawn from this year's evaluation on pages 116 to 118. # Election and re-election of Directors All Directors are appointed following a rigorous selection process. This is led by the People and Governance Committee which, supported by the Group People and Culture function, makes recommendations to the Board. Read more about the skills and experience of our Board on pages 96 to 110. In accordance with the Code and with the Company's Articles of Association, all Directors who are not retiring put themselves up for re-election annually at the AGM. The Board recommends the re-election of all Directors who are standing at our 2023 AGM. Each Director may be removed at any time by the Board or our shareholders. Thérèse Esperdy # Thérèse Esperdy Chair of the People and Governance Committee Board gender balance ![img-52.jpeg](img-52.jpeg) Board ethnicity ![img-53.jpeg](img-53.jpeg) ![img-54.jpeg](img-54.jpeg) Tenure of Non-Executive Directors at 30 September 2022 ![img-55.jpeg](img-55.jpeg) ![img-56.jpeg](img-56.jpeg) Senior management gender balance ![img-57.jpeg](img-57.jpeg) ![img-58.jpeg](img-58.jpeg) # MAIN RESPONSIBILITIES In one with the author, it is targeted by the Board, the People and Governance Committee. - Reviews and evaluates the composition and effectiveness of the Board and its Committees to maintain the appropriate balance of skills, knowledge, experience and independence, and makes recommendations to the Board with negative any changes which having due regard to the benefits of diversity on the Board. - Enables that succession plans for the Chair, Non-Executive Directors (NEDs) Executive Directors and Group senior management are in place and kept under review. - Nominates suitable candidates for appointment to the Board and its Committees and makes recommendations to the Board on any matters relating to the continuation or office of any Director at any time. - Approves the appointment of any Director to executive or other offices and retains oversight of the development plans for Executive Leadership Team members. - Reviews and develops the board's corporate governance framework and monitors its compliance with corporate governance standards and practices, ensuring that it remains appropriate in the safe complexity and strategy of the Company. - Maintains the Directory conflicts of interest policy and determines the principles on which outside the country may be accepted by Executive Directors. - Reviews the Board's policy on diversity, equality and inclusion and the effectiveness of its implementation. - Owns the workforce engagement strategy on behalf of the board, maintaining its effectiveness, and reports to the Board. - Strengthens the employee voice within the businesses. - Assesses and monitors the Group's culture. The People and Governance Committee consists entirely of independent NEDs, as defined in the UK Corporate Governance Code 2018 (the Code). The Board Chair is the Chair of the Committee, and was independent, as defined by the Code, in appointment. Biographical details of the current members of the Committee are set out on pages 96 – 99. The Committee's terms of reference, which can be found on our website, make it valid, meet at least three hours a year, a quorum for meeting in two NEDs. The Committee is authorised to seek external legal advice and other independent professional advice as it uses fit. | Meeting | Matters discussed and decisions taken | | --- | --- | | November 2021 | • 'Connections' launch update • Diversity and inclusion, including executives | | March 2022 | • Committee terms of reference • Workforce engagement • Board evaluation actions update | | May 2022 | • Workforce engagement • 'Have Your Say' survey • Initiatives in place building culture change and engagement | | September 2022 | • Engagement survey updates • Talent and capability deep dive • Committee terms of reference • Progress updates on people and organisation strategies, including leadership, operating model and culture change • ELT succession • Board evaluation feedback | 114 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 115 --- GOVERNANCE PEOPLE AND GOVERNANCE COMMITTEE continued # PEOPLE AND GOVERNANCE COMMITTEE'S ACTIVITIES 2021/22 The revised terms of reference of the People and Governance Committee have helped it focus its agenda over the year, covering the issues highlighted in the summary of meetings on page 115 with "Connections" being the umbrella initiative covering the culture change, including the establishment of a performance-based culture. This included our DEI strategy, updates on the roll-out of behavioural, talent and capability-building strategies, and succession planning. The Committee also embraced workforce engagement through its "Meet the Board" sessions and feedback on the employee engagement initiatives. # Looking ahead to 2023 The focus of the Committee in 2023 will continue to be on the cultural transformation of the business, which will include: updates, discussions and decisions on our DEI strategy and its implementation; planned cultural change activation, talent and capabilities, a continued focus on strengthening our succession, employee engagement and health, safety and wellbeing. # INDEPENDENCE OF NON-EXECUTIVE DIRECTORS We require our Non-Executive Directors to remain independent from management so that they are able to exercise independent oversight and effectively challenge management. We therefore continually assess the independence of each of our NEDs. The Board is satisfied that the independence of those Directors who have external board appointments has not been compromised and there are currently no cross-directorships between Board members. The Board confirms that, with the exception of the Chair, who is not subject to the Code's independence test but met the independence criteria on appointment, all NEDs remained independent throughout the year as defined in the Code. # CONFLICTS OF INTEREST Our Directors have a statutory duty to avoid situations where they have, or could have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the Company, and must give notice of any such conflict at the start of any Board meeting. The Company's Articles of Association allow the Board to authorise potential conflicts of interest that may arise and to impose such limits or conditions as it thinks fit. Directors are not allowed to participate in such considerations or to vote regarding their own conflicts. The Board considers all external directorships prior to appointment, reviewing any potential conflict of interests and time commitment for both Executive and Non-Executive Directors. All potential conflicts are submitted to the Board for consideration and, if appropriate, authorisation in accordance with our Articles of Association and the Companies Act 2006, and are entered into our Conflicts Register. As part of our annual review process, all situations entered in the Conflicts Register are reviewed and reconsidered. Details of the Directors' share interests are shown in the Directors' Remuneration Report on page 143. # EXTERNAL DIRECTORSHIPS Non-Executive Directors, including the Chair, may serve on a number of other boards provided that they can demonstrate that any such appointment will not interfere with their time commitment to the Company, nor represent a conflict of interest. The People and Governance Committee reviews the extent of the NEDs' other interests throughout the year. In line with the provisions of the Code, they are required to obtain approval of the Board prior to accepting any new office or employment. The Board is satisfied that each of the Non-Executive Directors commits sufficient time to their duties in relation to the Company. The Chair and each of the Non-Executive Directors have confirmed they have sufficient time to fulfil their obligations to the Company. The Board encourages the Executive Directors and members of the Executive Leadership Team (ELT) to serve as Non-Executive Directors of external companies in order to widen their experience and knowledge for the benefit of the Company. Accordingly, in accordance with the Code and subject to the agreement of the Board, Executive Directors and members of the ELT are permitted to accept one external non-executive board appointment and to retain any fees received from such appointment. During the financial year, Stefan Bomhard was also a non-executive director of Compass Group PLC. No other ELT members had an external appointment. # REAPPOINTMENT OF DIRECTORS In accordance with the Code, all Directors offer themselves to shareholders for re-election annually, except those who are retiring immediately after the Annual General Meeting. Each Director may be removed at any time by the Board or the shareholders. # INSURANCE AND INDEMNITIES Our Directors and Officers can face significant personal liability under criminal or civil law or the UK Listing regime, and can face a range of penalties, including censure, fines and imprisonment. Each Director is covered by appropriate directors' and officers' liability insurance which the Company purchased and maintained throughout the year. Qualifying third-party indemnity arrangements for the benefit of Directors, in a form and scope which comply with the requirements of the UK Companies Act 2006, were also in force throughout the year and up to the date of this Annual Report. # BOARD EVALUATION # Background The Code requires that an external evaluation is carried out every three years, with an internal evaluation in the intervening years. # Action taken in relation to 2021 evaluation An externally facilitated independent evaluation was undertaken during May and June 2021, conducted by Lisa Thomas of Independent Board Evaluation. A summary of the recommendations arising from that evaluation together with how they have been addressed is as follows: | Actions identified | Action taken | | --- | --- | | **Board focus** In addition to its standard agenda, the Board agreed to prioritise its focus on certain key topics, including ESG, NGP and people and talent. | (i) As agreed, the Board's ESG Steering Committee has been reconstituted as an executive committee, chaired by the CEO. The ESG Committee reports directly on its meetings to the Board, ensuring the Board retains oversight of this important topic. As set out on pages 36 to 58, the Board has been closely involved in the ESG strategy; (ii) NGP has remained a key focus, with the Board approving the continued investment behind developing the Group's NGP agenda, as set out on page 111; and (iii) in addition to its expansion to include governance, the People and Governance Committee (formerly the Succession & Nominations Committee) has evolved to encompass the Group's people agenda, with updates on the cultural transformation, including talent, capability and succession, as further set out on pages 115. Management has also assisted the Board to further enhance its approach to risk management, and has further improved the provision of information to the Board, both by way of Board papers and at meetings themselves, thus enabling appropriately-focused discussions to take place. | | **Workforce engagement** In support of deepening its knowledge of the business and encouraging greater collaboration with the new senior leadership team, the Board should ensure there would be a plan for greater engagement. | The People and Governance Committee has evolved to encompass a broader remit, including the Board's annual programme of workforce engagement initiatives. A number of workforce engagement activities took place in the year, as further highlighted on page 115. The Board has also continued to build its own relationships and ways of working, including further cementing its relationships with management through regular contact, both inside and outside the boardroom. | | **Board materials** The Board's more-focused agenda will be reflected in the approach to Board materials, including enhancing the information brought to bear in considering the Company's stakeholders. | As set out on pages 30 to 34, the Board has considered a broad range of stakeholders in the decisions it has taken. In addition, and in line with the strategy, the Board has had a particular focus on the consumer during the year, including by participating in a number of consumer immersion events (see page 30). Feedback to this year's evaluation noted the improvements made on overall processes, logistics and materials. | 116 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 117 --- GOVERNANCE PEOPLE AND GOVERNANCE COMMITTEE continued # 2022 BOARD EVALUATION During July and August this year, the Board underwent an internally facilitated effectiveness review. This was led by our Chair, supported by the Company Secretary. # REVIEW PROCESS The review considered Board culture, Board focus, governance and process, and the Board Committees. As part of the evaluation, the Chair held one-to-one meetings with each of the Board members to discuss their performance on the Board. The Senior Independent Director also held separate meetings with individual Board members and the Board as a whole, without the Chair present, to consider the performance of the Chair. The evaluation showed that another year had further strengthened Board culture and dynamics, with an inclusive environment allowing for open discussions on focused agenda items. The evaluation confirmed that all our Directors have sufficient time, knowledge and commitment to contribute effectively to our Board and its Committees, and that the Committees remain appropriately constituted. The Board will prioritize its deep-dive focus on NGP, talent and longer-term strategic thinking. In addition, the Board will develop and monitor non-financial KPIs for qualitative issues such as culture and change management. Other areas for consideration included bringing more external perspectives into the boardroom and broadening the Board's exposure to, and engagement with, external stakeholders. # INDUCTION AND TRAINING Following their appointment to the Board, new Directors receive a personalised induction programme which includes industry-specific training, meetings with senior management and site visits to the Group's businesses – although during the financial year these were initially restricted due to the COVID-19 pandemic. New Directors are also briefed on internal controls at both head office and business unit level and provided with information on relevant Company policies and governance-related matters. This year, we concluded the induction programmes for Ngozi Edonien and Diane de Saint Victor. These programmes were tailored to their individual skills and experiences; and their roles on the Board. These induction programmes included: - One-to-one meetings with senior executives to understand the roles played by our senior employees, and specifically how we do things at Imperial. - Meetings with our external advisers, such as Allen & Overy, our corporate lawyers, EYLLP, our auditor, and Deloitte LLP, our Remuneration Committee adviser, to explain the legal and regulatory background to their roles on our Board and how these matters are approached at Imperial. Our Board development programme focuses on facilitating a greater awareness and understanding of our business and stakeholders. Briefings are given by our advisers on legislative change and corporate governance developments, as well as focused Committee topics such as executive remuneration, financial reporting requirements and environmental issues. Periodic "deep dives" into various areas of the business are presented to the Board in the regular meeting schedule, and all Board members value and learn from their visits to the different Imperial sites around the world, where they meet with local managers of the businesses and see the daily operations in action. You can read more about our stakeholder engagement in more detail on pages 108 and 112. The Chair regularly reviews the development needs of individual Directors and the Board as a whole. The Company Secretary is responsible for advising the Board, through the Chair, on matters of corporate governance. In addition, all Directors have access to the advice of the Company Secretary and, where appropriate, the services of other employees for all governance and regulatory matters. Independent professional advice is available to all Directors, in appropriate circumstances, at the Company's expense. # WORKFORCE ENGAGEMENT Steven Stanknock, our nominated Workforce Engagement Director, stepped down from the Board on 2 February 2022. In light of Imperial's global nature, and given the importance of our cultural transformation to the successful delivery of our strategy, the Board has determined that a more appropriate and impactful approach to workforce engagement is for all NEDs to be involved in this important aspect of Board responsibility and oversight. This is an alternative method to the Code's three suggested options. Our programme for employee engagement has therefore been embedded in the wider remit of the People and Governance Committee. As well as participating in site visits, the Board receives the results of workforce surveys and engages with employees directly through structured listening sessions. Regular updates provide the Board with information about progress on our people agenda, including our "Connections" programme, and our talent and capability mechanisms to nurture strength, depth and diversity in our talent pool. To increase the reach of its workforce engagement the Board held four Meet the Board sessions and participated in a number of dinners, informal drinks and office visits. In addition, our Chair and CEO met with works counsel representatives in Poland during a visit to our factory in Radom, and our CEO met with the works counsel representative during a visit to Germany. Workforce engagement is a key element of our wider people and culture initiatives and further detail can be found on page 31. GOVERNANCE # AUDIT COMMITTEE # ABOUT THE AUDIT COMMITTEE Membership* and attendance | Non-Marketing | 2021 | 2022 | 2023 | 2024 | | --- | --- | --- | --- | --- | | Jon Stanton (Chair) | ◆ | ◆ | ◆ | ◆ | | Sue Clark (SID) | ◆ | ◆ | ◆ | ◆ | | Ngozi Edonien 1 | n/a | ◆ | ◆ | ◆ | | Alan Johnson | ◆ | ◆ | ◆ | ◆ | | Simon Langelier | ◆ | ◆ | ◆ | ◆ | * Daily members are entitled to attend. 1. Approved (3 November 2022). Note: n/a signifies not eligible to attend. # Other regular attendees during FY22 - Board Chair - Chief Executive Officer - Chief Financial Officer - Finance Director – Group - Company Secretary, as Secretary to the Audit Committee - Group Financial Controller - Director of Assurance and Risk - Director of Tea - Head of Internal Audit - Representatives from EY, our external auditor # Role of the Audit Committee The Audit Committee assists the Board in fulfilling its corporate governance responsibilities relating to financial and narrative reporting and controls. This includes oversight of the Group's internal control systems, risk management process and framework, the Group Internal Audit department and the external audit. It also involves ensuring the integrity of the Group's financial statements and related announcements. # AUDIT COMMITTEE CHAIR'S OVERVIEW # Dear shareholder I am pleased to present the report to shareholders of the Audit Committee for the year ended 30 September 2022, which sets out how it has discharged its duties in accordance with the UK Corporate Governance Code 2018 (the Code) and details the key matters considered and findings during the year. The Audit Committee has exercised the authority delegated to it by the Board to provide assurance for # STRUCTURE AND CONTENT OF THE AUDIT COMMITTEE REPORT | About the Audit Committee | 119 | | --- | --- | | Audit committee chair's overview | 119 | | Focus in 2022 and looking ahead to 2023 | 117 | | Audit committee's activities in 2021/22 | 122 | | Key matters considered | 123 | | Governance, risk management and internal control | 128 | | Internal audit | 128 | | External audit | 128 | | Directors' statement | 125 | the integrity of the Group's financial statements, to oversee the Group's external and internal audit and to review the Group's internal control and compliance frameworks. This year, the ongoing COVID-19 pandemic, the war in Ukraine and the challenging global macro-economic environment provided the backdrop to Imperial's second year of its five-year strategy. It has been a year of continued improvement for Imperial's risk management, control and financial governance framework. 118 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 119 --- GOVERNANCE REMUNERATION REPORT continued # Meetings held in FY22 In FY22, the Committee met on four occasions and the table below summarises the matters discussed: | | November 2021 | May 2022 | June 2023 | September 2023 | | --- | --- | --- | --- | --- | | Review of Executive Directors' remuneration dashboards | | ◆ | | ◆ | | Approval of FY21 Annual Bonus out-turn | ◆ | | | | | Approval of 2019-2021 LTP out-turn | ◆ | | | | | Approval of FY22 Annual Bonus metrics and weightings | ◆ | | | | | Approval of FY22 LTP metrics and weightings | ◆ | | | | | Approval of D&R | ◆ | | | | | Review of CEO pay ratio | ◆ | | | | | Approval of vesting of Share Matching Scheme and Bonus Matching Plan for senior management and FY22 grant | ◆ | | | | | Approval of operation of Discretionary Share Plan and Sharewave for FY22 | ◆ | | | | | Review of FY23 bonus plan design | ◆ | ◆ | ◆ | ◆ | | Discussion on workforce remuneration | | ◆ | | ◆ | | Review of forecast Annual Bonus out-turn | | ◆ | | | | Review of forecast LTP out-turns | | ◆ | | ◆ | | Discussion on ESG measures and remuneration | | ◆ | ◆ | ◆ | | Review of ESG measures and targets in incentives | | | ◆ | ◆ | | Discussion of FY23 Annual Bonus plan | | | | ◆ | | Approval of base salaries for Executive Leadership Team and Chair's fee | | | | ◆ | | Review of the Committee's terms of reference | | | | ◆ | # Environmental, social and governance (ESG) As noted above, over the last year the Committee has carefully considered all areas of our ESG strategy and how these key priorities could be introduced into our incentive plans for FY23. The Committee considered a broad range of metrics and was mindful that any measures used must be appropriate for the business, reflecting the stage of the business on its ESG journey, and have the ability to be tracked and measured. We recognise that consumer health is the most important ESG priority for many of our stakeholders. This is a key pillar of our business strategy, which demonstrates our commitment to making a meaningful contribution to harm reduction by offering adult smokers a range of potentially reduced harm products. The Group has refreshed its BGP strategy, focusing on heated tobacco and vapour. We are also committed to making a distinctive contribution to the environment and have pledged to become a net zero company by 2040, with a series of challenging intermediate objectives to reduce our carbon footprint as set out on page 41. Imperial Brands has been recognised as a 2022 Climate Leader by the Financial Times for a second consecutive year, and we are proud to have maintained our position on CDF's climate A list this year. Reflecting these key priorities, as a first step for FY23 we will introduce two quantitative ESG measures under the Annual Bonus plan, with an overall weighting of 10%. The measures have been selected as areas of high priority for our key stakeholders, including investors and employees. Consumer health (5%) – will be measured by reference to revenue from our next generation products, which offer adult smokers a range of products with the potential of harm reduction. Climate change (5%) – will measure reduction in Scope 1 and 2 CO₂e emissions and energy consumption (total GWh), Scope 1 and 2 emissions, and energy data, are independently assured on an annual basis and reported in our Annual Report and Accounts. An overall weighting of 80% on financial metrics will be retained and the ESG metric will be incorporated by reducing the weighting of strategic performance objectives. We intend to consider the longer-term approach to ESG as part of the detailed Remuneration Policy review over the coming 12-18 months. # Implementation for FY23 The Committee reviews remuneration trends and plans for the wider workforce each year and considers this to be important and relevant context for the decisions it makes regarding the Executive Directors and senior managers. In reviewing salaries this year, the Committee has been mindful of the global inflationary pressures that have been impacting many of our people across the Group. The Company has put in place measures to target support where needed, as described above. The annual salary review is effective from 1 October 2022. As I mentioned earlier salary increases awarded to employees have typically ranged from 3% to 9% across the markets we operate in (excluding higher increases made in countries experiencing hyperinflation), with increases in the UK expected to be approximately 5% or higher for FY23. In setting the salary for the CEO, the Committee took into consideration global inflationary pressures, the approach taken for colleagues, the need to balance restraint with fair reward for contribution, and the impact on total remuneration. After careful consideration, the Committee decided to award a salary increase of 3% to Stefan, in the light of his exceptional contribution during the year. In taking this decision, the Committee considered the comparison with wider workforce increases noting that the increase was below the average increase for the UK workforce. His new salary is £1,339,747 pa. The CFO was appointed to the Board in May 2021, and at that time it was agreed that his salary would not be adjusted before 1 January 2023. At the end of the year, the Committee did however take the opportunity to review both Directors' salaries and after careful consideration concluded that a 4% increase be awarded to Lukas, effective from 1 January 2023. This increase reflects his strong contribution and impact since joining the Company and acknowledges that he will not have received an increase for over 18 months. Lukas' new salary will be £759,200 pa. The increase for Lukas is also below the average increase for the UK workforce. FY23 is an important year of delivery as we move from the investment and foundation-building phase of our strategy into the "improving returns" phase. At the same time, the Committee recognised that it is a more uncertain and challenging macroeconomic and geopolitical environment. The Committee considered carefully the Annual Bonus measures for FY23 and concluded that the financial metrics will remain the same as those for FY22: adjusted operating profit at constant currency (40% weighting), adjusted operating cash conversion (20% weighting) and market share growth (20% weighting). Individual/strategic objectives will reduce from a 20% weighting to 10% and the new ESG measure of 10% will be introduced as detailed above. The financial targets will be aligned with the guidance provided at our Capital Markets Day and in our latest trading statements. The FY23 LTP will be granted in February 2023. As the business reached its target leverage levels in FY22, net debt/EBITDA will be removed as a measure for the FY23 plan and its 20% weighting reallocated to TSR. The measures for the FY23 award will therefore be: adjusted EPS growth at constant currency (40% weighting), return on invested capital (20% weighting) and relative TSR (40% weighting). The targets are detailed on page 138. # Chair fees The Committee reviewed and approved a 3% fee increase for the Company Chair. Thibitse-Experdy's fee will be £638,728 pa from 1 October 2022. # Consideration of shareholder views We are very grateful for the time shareholders spent with us to discuss plans prior to the 2022 AGM, and were delighted with the strong support we received by the Directors' Remuneration Report (96-98%). During the course of the year, we continued to engage with shareholders to understand their views on our proposals to include ESG measures in our incentive plans. The feedback received was very valuable and has helped inform the proposals shared in this report. In the coming year, we will undertake the financial review of our current Remuneration Policy (approved by 95.3% of shareholders at the 2021 AGM) to ensure that it remains appropriate and continues to support the retention and incentivisation of a world-class executive team. This will involve engagement with a range of key stakeholders and we will consult with shareholders on any material changes proposed. # Consideration of colleagues' views The Committee has been directly involved in the Board's work during the year on workforce engagement which is described in detail on page 107. Our "Meet the Board" sessions are a valuable way of training open conversations with colleagues about a wide range of matters, which have included the role of the Board in decision making, our strategy, the ESG agenda, our purpose, vision and culture, and diversity, equity and inclusion. We have also explored the topic of reward, giving participants the opportunity to learn about how the Committee aligns executive reward with the wider workforce and to understand their views on reward at Imperial Brands. We also spent time answering their questions on a range of reward topics covering attraction and retention, flexible working practices and the cost of living crisis. I have been encouraged by the level of openness, engagement and interest shown by our colleagues, and would like to thank them for their valued contribution. # Remuneration Committee advisers During the year, the Committee undertook a competitive tender of its advisers, following which Deloitte LLP (Deloitte) was appointed. The process involved submission of written proposals, followed by shortlisted candidates being interviewed by members of the Committee. The Committee selected and appointed Deloitte with effect from February 2022. Further details are provided on page 148. # Conclusion As Imperial Brands continues to deliver on its five-year strategy and to embed its new Purpose, Vision and Behaviours, we strongly believe that this business has great potential to grow value for all its stakeholders. In the coming year, the Committee will continue to support management in achieving its ambitious objectives, while listening closely to all our key stakeholders and acting thoughtfully to meet their evolving expectations. Should any shareholder wish to contact me or my Committee members, please in the first instance write to John Downing, Company Secretary, at @glimpbrands.com. We hope to have your support at the upcoming AGM. Sue Clark Sue Clark Chair of the Remuneration Committee 132 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 133 --- GOVERNANCE REMUNERATION REPORT continued # REMUNERATION AT A GLANCE # OUR EXECUTIVE PAY PRINCIPLES - To attract and retain the very best global talent - To reward executives well for maximizing shareholder returns substantially and delivering long-term quality growth that benefits all our stakeholders - To motivate executives to consistently perform to the best of their ability - To reinforce the behaviours that support our values - To align executive reward with the experience of our shareholders through encouraging share ownership and an "ownership" mindset - To balance restraint with fair reward for contribution, in the way we reward executives, as we do for the wider workforce # OUR APPROACH TO REWARDING EXECUTIVE DIRECTORS IN 2023 Our strategic priorities ![img-59.jpeg](img-59.jpeg) # Measuring performance # Annual Bonus: - Adjusted operating profit growth at constant currency (40%) - Adjusted operating cash conversion (20%) - Market share growth (20%) - Strategic/individual (10%) - Climate change, consumer health (10%) # LTIP: - Adjusted EPS growth at constant currency (40%) - Return on invested capital (ROIC) (20%) - Relative TSR (40%) EXECUTIVE DIRECTORS' VARIABLE REMUNERATION OUTCOMES FOR 2022 | | | Maximum % of bonus/ LTIP | Out-turn on a % of maximum bonus/ LTIP | % of weighting achieved | | --- | --- | --- | --- | --- | | Annual Bonus | Adjusted operating profit growth at constant currency | 40% | 25% | 40% | | | Adjusted operating cash conversion | 20% | 20% | 100% | | | Weighted market share growth | 20% | 20% | 100% | | | Strategic/individual - Stefan Bomhard | 20% | 19% | 80% | | | Strategic/individual - Lukas Panestoni | 20% | 17.5% | 83.5% | | Long-Term Incentive Plan^{1} | Adjusted EPS growth at constant currency | 40% | 0% | 0% | | | Adjusted net revenue growth at constant currency | 40% | 37.08% | 34.83% | | | Relative TSR | 20% | 25% | 5% | 1 In respect of Stefan Bomhard only TOTAL SINGLE FIGURE IN 2022 | Stefan Bomhard | 58.7% | 59.3% | 59.6% | | --- | --- | --- | --- | | Lukas Panestoni | 53.4% | 52.6% | 51.5% | | Fixed pay | Annual Bonus | LTIP | Other | | (£,000) | Stefan Bomhard | Lukas Panestoni | | --- | --- | --- | | Base salary | 1,301 | 730 | | Benefits and pension | 199 | 117 | | Total fixed pay | 1,500 | 847 | | Annual Bonus | 2,185 | 1,205 | | LTIP^{2} | 2,022 | 0 | | Other^{3} | 0 | 566 | | Total remuneration | 5,707 | 2,618 | 1 Includes FYSE LTIP and Recruitment Award tranches 3 & 4 of 4. 2 Proved from previous employee # DIRECTORS' REMUNERATION POLICY (SUMMARY) There are no changes proposed to our Directors' Remuneration Policy approved by shareholders at our AGM held on 3 February 2021, which is intended to be in place for three years, and a summary of which is set out below. It does not replace or override the full approved policy, which is available on our website within the 2020 Annual Report and Accounts. | Element | Purpose | Operation | Maximum opportunity | | --- | --- | --- | --- | | Salary | Attract and retain high-performing individuals, reflecting market value of the role and the Executive Director's skills, experience and performance. | Reviewed, but not necessarily increased, annually by the Committee taking into account Company performance as well as each Executive Director's performance together with changes in role and responsibility. Salary increases, if any, are generally effective from 1 October. The Committee considers pay data for UK listed companies closest to the Company by FTSE ranking (and excluding those in the financial services sector). These comparators serve to define a "playing field" within which an individual's reward needs to be positioned. In determining individual remuneration, the primary factors taken into account are individual performance, the scale of the challenges intrinsic to that individual's role, changes in role, their ability and experience. The Committee also considers general increases for the wider workforce, with a focus on increases in the country in which the Executive Director is based. | Whilst there is no maximum salary or maximum increase in salary, the Committee would only set a salary which exceeded the top quartile of salaries of the comparator group in unforeseen and exceptional circumstances. | | Pension | Provision of market-competitive pension aligned to workforce. | Pension provision for Executive Directors is provided in line with other employees through the Imperial Tobacco Pension Fund in the UK (the Fund). Executive Directors are offered membership of the defined contribution section. Executives have the option to receive a cash supplement in lieu of membership of the Fund, or in lieu of accrual on pensionable salary above the Fund's earnings cap, or in lieu of future service accrual. The rules of the Fund detail the pension benefits which members can receive on retirement, death or leaving service. The Committee may amend the form of any Executive Director's pension arrangements in response to changes in pensions legislation or similar developments, so long as any amendment does not increase the cost to the Company of an Executive Director's pension provision. | Executive Directors receive a workforce aligned pension rate (currently 14% of salary). | | Benefits | Competitive benefits taking into account market value of role and benefits across the workforce. | Benefits include provision of a company car (or cash allowance in lieu), health insurance, life insurance and income protection insurance which are provided directly or through the Company's pension scheme. Other benefits, including expatriate or relocation arrangements, may also be provided on the basis that they are also offered more widely across the Company or are necessary in order to be competitive locally. Reasonable business-related expenses will be reimbursed including any consequential tax arising. | The level of benefit provision is fixed although the value may vary depending on the cost of providing such provisions. | | Annual Bonus Plan | Incentivise delivery of Group strategic objectives and enhance performance, including against the indicators we use to measure our performance. | The Annual Bonus will be subject to the relevant performance measures set by the Committee usually at the start of each year to reflect the Group's KPIs at that time. The measures may be a balance of financial and non-financial, but with the expectation that the majority of the Annual Bonus will be subject to quantifiable financial measures. | 100% of base salary or such lower sum as determined by the Committee. | 134 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 135 --- GOVERNANCE REMUNERATION REPORT continued | Element | Purpose | Operation | Maximum opportunity | | --- | --- | --- | --- | | Annual Bonus Plan – continued | | Performance below the threshold results in zero payment. Payments rise from zero to 100% of the maximum opportunity for levels of performance between the threshold and maximum targets. Half of any Annual Bonus earned is deferred into an award over shares which vests after a minimum of three years, with the other half paid in cash. These awards are forfeitable if the Executive Director resigns voluntarily or is dismissed for cause. Dividend roll-up may apply to any element of an annual bonus deferred into an award over shares. Any such dividend roll-up may be paid in additional shares (or, exceptionally, cash), and may assume dividend reinvestment. Malus and clawback provisions are in place. The deferred shares are not subject to performance conditions. | | | Long-Term Incentive Plan | Incentivise long-term Group performance in line with the Group's strategic objectives, including against the indicators we use to measure our performance and long-term shareholder returns. Align Executive Directors' interests with those of shareholders. | Awards have a performance period normally of three financial years starting at the beginning of the financial year in which the award is made. Performance measures may include financial, non-financial or value creation (e.g. TSR) conditions as determined by the Committee normally before each grant to align with the strategic priorities of the business at that time. In normal circumstances, at least 70% of the LTIP award will be subject to financial and/or value creation measures. Malus and clawback provisions are in place. Executive Directors are ordinarily required to retain the net-of-tax number of vested LTIP award shares for a period of two years after vesting. | CEO: 350% of base salary. Other Executive Directors: 250% of base salary or such lower sum as determined by the Committee. LTIP awards may include additional shares (or, exceptionally, cash) equivalent to the value of the dividend roll-up, and which may assume dividend reinvestment. | | All-employee arrangements | Provision of market competitive arrangements aligned to workforce. | Executive Directors may participate in any all-employee arrangements established and operated by the Company, on the same basis as other Group employees. The Company currently operates a savings-related option plan for the benefit of its worldwide employees, and in which Executive Directors are eligible to participate. | In accordance with the limits applicable to the relevant all-employee arrangements. | | Shareholding guideline | Align Executive Directors' interests with long-term interests of shareholders. | Executive Directors are expected to build a holding in the Company's shares to a minimum value broadly equivalent to 300% of gross base salary over a five-year period from date of appointment in role. For Executive Directors there is an additional requirement to hold shares after cessation of employment. The requirement is to hold shares to the value of the shareholding guideline (i.e. 300% of salary or the existing shareholding if lower at the time) for a period of one year, with the requirement reducing to half the shareholding guideline for the second year. Progress towards the shareholding guideline is monitored on an annual basis and the Committee will consider any necessary sanctions required for non-compliance. | No maximum holding but requirement to build to a minimum value broadly equivalent to 300% of gross base salary. | # EXECUTIVE DIRECTORS' SERVICE AGREEMENTS | Executive Directors | Date of contract | Expiry date | Compensation or termination following a change of control | | --- | --- | --- | --- | | Stefan Bomhard | 31 January 2020^{1} | Terminable on 12 months' notice | No provisions | | Lukas Paravicini | 11 April 2021^{2} | Terminable on 12 months' notice | No provisions | 1. Service agreement dated 31 January 2020 with a start date of 1 July 2020. 2. Service agreement dated 11 April 2021 with a start date of 1 May 2021. # POLICY FOR THE CHAIR AND NON-EXECUTIVE DIRECTORS | Element | Purpose and link to strategy | Operation | Maximum opportunity | | --- | --- | --- | --- | | Fees | Attract and retain high-performing individuals. Portion of fees applied to purchase of shares to align interests with those of shareholders. | • Reviewed, but not necessarily increased, annually by the Board • Fee increases, if applicable, are normally effective from 1 October • The Board considers fee data at comparator companies of similar scale • The Senior Independent Director and the choice of the Audit and Remuneration Committees receive additional fees. Additional fees are paid for Remuneration and Audit Committee memberships. An allowance is paid when regular intercontinental travel is required • Higher fees may be paid to a Non-Executive Director should they be required to assume executive duties on a temporary basis • No eligibility for annual bonus, retirement benefits or to participate in the Group's employee share plans | No prescribed maximum annual increase. Aggregate annual fees limited to £2.0 million by Articles of Association. | | Benefits | Reimbursement of business-related expenses. | • Travel to the Company's registered office is recognised as a taxable benefit • To the extent that any other reasonable business-related expenses are recognised as a taxable benefit, these will be reimbursed at cost (including any consequential tax arising) • Reasonable benefits may be provided from time to time on a case-by-case basis | Groused-up costs. | ### CHAIR AND NON-EXECUTIVE DIRECTORS' LETTERS OF APPOINTMENT The Chair and Non-Executive Directors do not have service agreements, but the terms of their appointment, including the time commitment expected, are recorded in letters of appointment which are available for viewing at the Company's registered office during normal business hours, and both prior to and at the AGM. In line with the Board's annual review policy, the Chair's and Non-Executive Directors' terms of appointment were reviewed and confirmed by the Board on 1 February 2022. There are no provisions regarding notice periods in their letters of appointment, which state that the Chair and Non-Executive Directors will only receive payment until the date their appointment ends and, therefore, no compensation is payable on termination. Under the terms of the Company's Articles of Association, all Non-Executive Directors are subject to annual re-election by shareholders. 136 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 137 --- GOVERNANCE REMUNERATION REPORT continued # PAY ARRANGEMENTS FOR 2023 Stefan Bomhard ![img-60.jpeg](img-60.jpeg) ● Fixed pay ● Annual bonus ● LTIP ● Share price growth Lukas Paravicini ![img-61.jpeg](img-61.jpeg) The table below summarizes how we intend to apply the main areas of our Directors' Remuneration Policy for FY23. | Element | Implementation | | --- | --- | | Salary Attract and retain high-performing individuals, reflecting market value of the role and the Executive Director's skills, experience and performance. | The CEO's salary was increased by 3% on 1 October 2022 to £1,339,747 pa. The CFO's salary will increase by 4% to £759,200 pa on 1 January 2023. | | Annual Bonus Maximum opportunity is 200% of base salary. 50% deferred into an award of shares for three years, which is forfeitable if the Executive Director resigns voluntarily or is dismissed for cause. Males and clawback provisions will apply. | No change to maximum opportunity. Measures and weightings: • Adjusted operating profit growth at constant currency 40% • Adjusted operating cash conversion 20% • Market share growth 20% • ESG – climate change (Scope 1 and 2 CO₂e emissions / energy consumption) and consumer health (KCP revenue) 10% • Strategic/individual 10% Underlying targets are commercially sensitive and will be fully disclosed in next year's Annual Report. | | LTIP Maximum award size: CEO 350% of base salary, CFO 250% of base salary. Awards have a performance period of three financial years starting at the beginning of the financial year in which the award is made. Performance measures may include financial, non-financial or value creation conditions. Males and clawback provisions are in place. Executive Directors are ordinarily required to retain the net-of-tax number of vested LTIP award shares for a period of two years after vesting. | No change to maximum opportunity. Measures, weightings and targets: • Adjusted EPS growth at constant currency (40%). Cut in 4.4% – max 6.3% • Return on invested capital (ROIC) (20%). Cut in 20.2% – max 21.0% • Relative TSR against a group of FMCG companies (40%). Cut in at median – max upper quartile. Cut in would deliver a 25% pay out with a straight-line pro-rata to 100% payout at maximum. Should the Company be acquired the performance period would end on the date of acquisition. Any outstanding awards would vest on a time-located basis subject to the achievement of the applicable performance criteria. | | Chair and Non-Executive Directors' fees Attract and retain high-performing individuals. Portion of fees applied to purchase of shares to align interests with those of shareholders. | With effect from 1 October 2022. • Chair's fee will increase by 3% from £620,125 to £638,729 pa • NED base fee will increase by approximately 3% from £ 681,500 to £83,945 pa • Sense Independent Director and chairs of the Remuneration and Audit Committees' fees will increase by approximately 1.9% from £27,000 to £27,500 pa • Committee membership fees will remain at £5,500 pa | | Shareholding requirement Align Executive Directors' interests with long-term interests of shareholders. | 300% of base salary. Requirement to hold shares after cessation of employment to the value of the shareholding guideline (i.e. 300% or the existing shareholding if lower at the time) for a period of one year, with the requirement reducing to half the shareholding guideline for the second year. | 138 Imperial Brands | Annual Report and Accounts 2022 # ANNUAL REPORT ON REMUNERATION The Annual Report on Remuneration has been split into the following sections: 1. The remuneration earned by our Directors for the financial year ended 30 September 2022 2. Details of share awards granted, share interests held and historical CEO total single figure versus shareholder returns 3. How Directors' remuneration compares with employee pay including the CEO pay ratio, our relative spend on pay and current dilution 4. Remuneration Committee membership and work undertakes during the year, details of advice received and consideration of shareholders' views # 1. REMUNERATION EARNED BY OUR DIRECTORS FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2022 Single Total Figure of Remuneration for each Director (Audited) | Executive Directors | Year | Salary £'000 | Benefits £'000 | Pension £'000 | Total fixed pay | Annual bonus £'000 | LTIP £'000 | Other £'000 | Total variable pay | Total pay | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 2022 | 1,301 | 17 | 182 | 1,500 | 2,185 | 2,022 | - | 4,207 | 5,797 | | Stefan Bomhard | 2023 | 1,269 | 17 | 177 | 1,463 | 1,627 | 366 | - | 1,993 | 3,456 | | | 2022 | 730 | 15 | 102 | 847 | 1,205 | - | 566 | 1,771 | 2,618 | | Lukas Paravicini | 2023 | 304 | 6 | 43 | 353 | 353 | - | - | 353 | 706 | | Total | 2022 | 2,031 | 32 | 284 | 2,347 | 3,390 | 2,022 | 566 | 5,978 | 8,325 | | Total | 2023 | 1,573 | 23 | 220 | 1,816 | 1,980 | 366 | - | 2,346 | 4,162 | Notes: 1. Each individual received an annual car allowance of £21,000. Stefan Bomhard received private medical insurance and Lukas Paravicini received health cash plan. 2. Each individual received a cash supplement of 14% of salary in lieu of membership of the pension fund. 3. Annual bonus for the year ended 30 September 2022. Half of the gross value is deferred into an award over shares for three years, no further performance conditions apply. 4. For Stefan Bomhard, LTIP also represents the value of the FY23-22 LTIP awards whose performance period ended 30 September 2022. As these awards do not vest until February 2023 they are based on a share price of £34.71 being the three-month average to 30 September 2022, and an estimate of dividend roll-up based on announced dividend payable on 31 December 2022. For Stefan Bomhard, LTIP also represents the third and fourth liabilities of the Recruitment Award which vested on 11 April 2022 on a share price of £19.90. Of the values shown, £522,761 and £42,292 is attributable to share price growth under the FY23-LTIP and Recruitment Award, respectively. The 2023-LTIP value represents the first transfer of the Recruitment Award which vested on 11 April 2022 and has been retained to reflect the actual dividend roll-up applying to this award. 5. For Lukas Paravicini, "Other" represents the layout of a guaranteed bonus he would have received from his previous employer. | Non-Executive Directors | Fees £'000 | | Taxable benefits^{1} | | Total | | | --- | --- | --- | --- | --- | --- | --- | | | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | | Thérèse Esperdy | 620 | 605 | 14 | - | 654 | 605 | | Sue Clark^{2} | 141 | 138 | 2 | - | 143 | 138 | | Duane de Saint Victor^{3} | 77 | - | 3 | - | 80 | - | | Ngozi Edonson^{4} | 87 | - | 17 | - | 104 | - | | Alan Johnson^{5} | 87 | 64 | 3 | - | 90 | 64 | | Bob Kunze-Concewitz | 87 | 78 | 3 | - | 90 | 78 | | Simon Langelier | 87 | 85 | 3 | - | 90 | 85 | | Pierre-Jean Sirognon^{6} | - | 58 | - | - | - | 58 | | Steven Stanbrook^{7} | 36 | 103 | 0.4 | - | 36 | 103 | | Jon Stanton^{8} | 114 | 112 | 1 | - | 115 | 112 | | Total | 1,336 | 1,243 | 46 | - | 1,382 | 1,243 | Notes: 1. Benefits is kind for Non-Executive Directors where to the reimbursement of travelling expenses to meetings held at the Company's registered office. 2. Includes payments in respect of Sense Independent Director and Chair of the Remuneration Committee fees of £27,000 respectively pa. 3. Share de Saint Victor and Ngozi Edonson were appointed to the Board on 30 November 2022. 4. Includes a payment in respect of a non-European travel allowance of £21,000 pa in recognition of the extra time commitment required for travel. 5. Alan Johnson was appointed to the Board on 1 January 2023. 6. Pierre-Jean Sirognon (stopped down from the Board on 4 June 2022). 7. Steven Stanbrook (stopped down from the Board on 17 February 2022). Includes a payment in respect of Workforce Engagement Director of £5,000 pa and a non-European travel allowance of £21,000 pa in recognition of the extra time commitment required for travel. 8. Includes payment in respect of chair of the Audit Committee fees of £27,000 pa. www.imperialbrandspic.com 139 --- GOVERNANCE REMUNERATION REPORT continued The aggregate remuneration of all Executive and Non-Executive Directors under salary, fees, benefits, cash supplements in lieu of pensions, Annual Bonus, LTIP was £9,708k (2021 restated: £6,715k) No Director is eligible to participate in the defined benefit pension fund. Each Director eligible for membership of the defined contribution pension fund has opted to receive a cash supplement in lieu and therefore, no pension disclosure is required. # Determination of 2022 Annual Bonus (Audited) The 2022 Annual Bonus was based on a scorecard of measures. Details of the measures, their weightings, targets and extent of achievement are set out in the table below: | Measure | Weighting | Cal to | Target | Max | Achievement | Pay-out | | --- | --- | --- | --- | --- | --- | --- | | Adjusted operating profit at constant currency | 40% | 1.0% | 1.8% | 3.0% | 1.9% | 25% | | Adjusted operating cash conversion | 20% | 87% | 90% | 97% | 102% | 20% | | Weighted market share | 20% | -2bps | +2bps | +7bps | 38bps | 20% | | Strategic/individual – Stefan Bomhard | 20% | - | - | - | 95% | 15% | | Strategic/individual – Lukas Paravicini | 20% | - | - | - | 87.5% | 17.5% | | Total bonus Stefan Bomhard | 100% | | | | | 84% of max | | Total bonus Lukas Paravicini | 100% | | | | | 82.5% of max | The Committee set the following strategic goals for the Executive Directors: | | Strategic/individual measures and targets | Performance assessment highlighting key achievements | | --- | --- | --- | | Stefan Bomhard | • Deploy new Purpose, Vision, Behaviours and Operating Model (10%) | • Significant senior leader investment with impact measured through Top 500 Pulse Survey which showed: - Overall engagement score top quintile versus other global organisations. - 90% fully understand our Behaviours and what they mean for them in their role. - 91% understand our Purpose, Vision, and Strategy and how we will achieve them. • High performing ELT in place and operating as a committed and cohesive team. • Substantial investment in series of immersion and development events for every employee across the 120 markets. | | | • Formulate and start to deploy rejuvenated ESG strategy (5%) | • ESG Strategy launched and in progress, with clear ambitions, sponsors, and owners in place. • People and Planet Strategy launched to whole organisation. • Enhanced ESG reporting to stakeholders including an ESG focused webinar for investors. • Updated SBTi in line with the LSC Net Zero by 2040 commitment. • Strengthened governance, agreed by ESG Committee and endorsed by Board. | | | • Qualify a sustainable NGP proposition (5%) | • NGP Pilots executed in line with timelines with all metrics ahead of target. • New consumer proposition for both Blu and Pulse resonating strongly with consumers. • Blu 2.0 rolled out in France ahead of schedule. • Launch of disposables through an agile team. | Total payout as a % of maximum bonus: 19% | Lukas Paravicini | • Drive shareholder value (10%) | • Strategy delivering strong Free Cash Flow for FY22 above target levels. • Group ERP Strategy developed to implement industry standard, integrated, end-to-end commercial and manufacturing processes, data and technology globally. Strategy approved by Board. • ERP Programme Director and Leadership Team appointed. • Vendor partnerships finalised. • Robust governance in place, project mobilisation and first wave implementation commenced. • CFin (Finance SAP/S4 Hana) Solution deployment commenced and in budget. • Strengthening of cybersecurity with 13 key sites all upgraded to cautious risk levels of security. • Acceleration of planned FY23 activities providing improved cyber security to remaining sites including 'Forexcout' Network Access Controls, perimeter firewalls, autopilot devices enrolments, partner VPN improvements and Azure cloud server migrations for visibility and patching. | | --- | --- | --- | Strategic/individual measures and targets Performance assessment highlighting key achievements • Create efficient operations (10%) • New Finance and IT Operating model, supporting Group strategy, designed and deployment well underway. • Extended Financial Shared Services, providing top quartile transactional scope, to all key markets. • Increased Financial Shared Services scope to include value-add Reporting, Tax and Statutory and Risk and Control Compliance services with new roles based in and first reports provided from Krakow, Poland. • Building on Financial Shared Service created Global Business Service (GBS), as the Group's shared service platform, with GBS IT and Data Services roll-out having commenced including new IT roles based in Sofia, Bulgaria. • In market, consumer and customer centric Finance and IT organisation designed and in consultation for key markets. Total payout as a % of maximum bonus: 17.5% # Individual Annual Bonus payments: Total annual bonus: £1000 | Executive Directors | Maximum | Actual | | --- | --- | --- | | Stefan Bomhard | £2,601 | £2,185 | | Lukas Paravicini | £1,460 | £1,205 | Notes: 1. Staff of the bonus will be deferred into as award over shares. # Long-Term Incentive Plan awards vesting (Audited) Performance awards vesting in February 2023 are based on performance measured over the three-year period ended 30 September 2022. Of the current Directors only Stefan Bomhard participated in this LTIP cycle. | Measure | Weighting | Cal to (25% vesting) | Target (50% vesting) | Maximum (100% vesting) | Actual performance | Percentage of award vesting | | --- | --- | --- | --- | --- | --- | --- | | Adjusted EPS growth at constant currency (average annual growth) | 40% | 2.00% | 3.87% | 6.00% | 0.57% | 8% | | Adjusted net revenue growth at constant currency (average annual growth) | 40% | 1.00% | 2.40% | 4.00% | 1.48% | 14.83% | | Relative TSR (return over three financial years) | 20% | Median | n/a | Upper quartile | 13/25 | 5% | | Achievement | | | | | | 19.83% | The TSR measure compared the Company's performance against the following companies: Altria Group, Anheuser-Busch InBev, Beiersdorf, British American Tobacco, Brown-Forman, Carlsberg, Clorox, Constellation Brands, Diageo, Heineken, Henkel, Japan Tobacco, Kimberly-Clark, Kirin Holdings, L'Oreal, Monster Beverage, Pernod Picard, PepsiCo, Philip Morris International, Procter & Gamble, Reckitt Benckiser Group, Swedish Match, Unicharm and Unilever PLC. Vested awards granted for FY21 onwards are subject to a two-year holding period. # Recruitment Award vesting during the year ended 30 September 2022 In July 2020, Stefan Bomhard was granted a Recruitment Award to facilitate his recruitment as CEO and to replace certain outstanding awards granted to him by his previous employer, which were forfeited when he joined the Company. Full details of the Recruitment Award were disclosed in our 2020 DRR, but in summary Stefan was granted 116,921 shares set by reference to the value of the forfeited awards (£1,790,568). To replicate the terms of the forfeited awards, the Recruitment Award was split into four tranches, vesting in April 2021 and April 2022. Vesting of each tranche of the Recruitment Award is subject to the extent to which the original performance conditions applicable to the forfeited awards are met over the original performance period. The third and fourth tranches of the Recruitment Award were capable of vesting on 11 April 2022, and the final vesting outcome was 40%. Full details of the vesting of the forfeited award are disclosed in Inchcape Plc's Annual Report and Accounts 2021. 47,899 shares were granted under the third and fourth tranches of the Recruitment Award and the number of shares vesting (including dividend roll-up) was 24,698 at a value of £467,346. # Payments for loss of office and payments to former Directors (Audited) Oliver Tant stepped down from the Board on 18 May 2021 and retired on 4 August 2021. As disclosed last year, his outstanding LTIP awards remained eligible to vest on their normal vesting dates, subject to their original performance conditions and prorated to reflect the period of service rendered. The LTIP award due to vest in February 2023 will vest in part resulting in 19.83% of the total award vesting. 140 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandsplc.com 141 --- GOVERNANCE REMUNERATION REPORT continued ## 2. DETAILS OF SHARE AWARDS GRANTED, SHARE INTERESTS HELD AND HISTORICAL CEO TOTAL SINGLE FIGURE VERSUS SHAREHOLDER RETURNS ### Performance awards granted during the year (Audited) When determining the Directors' awards, the Committee took into account the prevailing share price performance over the year and the number of shares awarded as a result. | | Date of grant | Share price^{1} | Number of nil-cost options | First value | Amount of base salary | End of performance period | | --- | --- | --- | --- | --- | --- | --- | | Stefan Bomhard | 15 February 2022 | £17.81 | 255,616 | £4,552,521 | 350% | 30 September 2024 | | Lukas Paravicini | 15 February 2022 | £17.81 | 102,470 | £1,824,991 | 250% | 30 September 2024 | 1. Values using the closing share price the trading day prior to grant The targets for the above performance awards are as follows: | Measure | Weight | Maximum performance (25% vesting) | | Maximum performance (100% vesting) | | | --- | --- | --- | --- | --- | --- | | | | | Target | | Target | | Adjusted EPS growth at constant currency | 40% | | 3.7% | | 5.6% or higher | | Adjusted net debt/EBITDA (for FY24) | 20% | | 1.46x | | 1.28x or lower | | Return on invested capital (ROIC) (average annual) | 20% | | 18.7% | | 19.5% or higher | | Relative TSR | 20% | | Median | | Upper quartile | Adjusted net debt/EBITDA measure – The level of the gearing criterion assumes an additional shareholder distribution will be made either via share buybacks and/or special dividends during the period in line with the Group's capital allocation policy. To the extent the shareholder distribution is increased above the assumed level during the period, there is an agreed formula to raise the gearing target accordingly so as to incentivise incremental shareholder returns during the period. Similarly, if the shareholder distribution is reduced, the target gearing will be lowered. This will reinforce alignment of this measure to the Group's capital allocation policy and shareholder value creation. The TSR comparator group comprises the following companies – Altria Group, Anheuser Busch Inbre, British American Tobacco, Brown-Forman, Carlsberg B, Carnival, Clorox, Constellation Brands, Diageo, Heineken, Henkel, Japan Tobacco, Kimberly-Clark, Kirin Holdings, L'Oreal, Monster Beverage, Pernod Ricard, PepsiCo, Philip Morris International, Procter & Gamble, Reckitt, Swedish Match, Unicharm, and Unilever. Each measure operates independently and is capable of vesting regardless of the Company's performance in respect of the other metrics. The Committee retains discretion to adjust up or down including to zero the number of shares that vest taking into account a number of factors including personal or corporate performance and circumstances that were unforeseen at the date of grant. ### SHARE INTERESTS AND INCENTIVES (AUDITED) | | Shares held at earlier of 30 September 2022 and leaving date | | Dividends reinvested past year end | | Conditional awards and options held at earlier of 30 September 2022 and leaving date | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Owned outright | Subject to a holding period | Owned outright | Awards invested and subject to performance conditions | Awards invested and subject to continued employment | Options invested and subject to continued employment | Vested but not exercised | Options exercised during the year | | Executive Directors | | | | | | | | | | Stefan Bomhard | 3,930 | 29,419 | 338 | 871,754 | 51,926 | 687 | - | 48,242 | | Lukas Paravicini | - | - | - | 215,543 | 11,281 | - | - | - | | Non-Executive Directors | | | | | | | | | | Thérèse Esperdy^{2} | 37,787 | - | - | - | - | - | - | - | | Sue Clark | 6,506 | - | 13 | - | - | - | - | - | | Diane de Saint Victor | 252 | - | - | - | - | - | - | - | | Ngozi Edozien | 252 | - | - | - | - | - | - | - | | Alan Johnson | 586 | - | 3 | - | - | - | - | - | | Bob Kunze-Concewitz | 50,630 | - | - | - | - | - | - | - | | Simon Langelier | 26,101 | - | 19 | - | - | - | - | - | | Steven Stanbrook^{3} | 19,559 | - | - | - | - | - | - | - | | Jon Stanton | 2,820 | - | 11 | - | - | - | - | - | 1 Thérèse Esperdy and Steven Stanbrook hold their shares in the form of American Depository Newspit. 2 Steven Stanbrook stopped down from the Board on 2 February 2022. Our middle market share price at the close of business on 30 September 2022, being the last trading day of the financial year, was £18.55 and the range of the middle market price during the year was £14.86 to £19.525. Full details of the Directors' share interests are available for inspection in the Register of Directors' Interests at our registered office. ### EXECUTIVE SHAREHOLDINGS AND DIRECTORS' INTERESTS (AUDITED) | | Shares held at start of year | Shares held at end of year | Increase in shares held during year | Value of shares held at start of year £'000 | Value of shares held at end of year £'000 | Difference in value £'000 | Shareholding required (% salary) | Current shareholding (% salary/loss) | Requirement met^{1,2,3} | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Executive Directors | | | | | | | | | | | Stefan Bomhard^{4} | 7,659 | 33,349 | 25,690 | 119 | 619 | 500 | 300 | 48 | Yes | | Lukas Paravicini^{5} | - | - | - | - | - | - | 300 | - | Yes | Non-Executive Directors$^{1}$ | Thérèse Esperdy | 36,125 | 37,787 | 1,662 | 563 | 701 | 138 | - | - | n/a | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Sue Clark | 6,121 | 6,506 | 385 | 95 | 131 | 26 | - | - | n/a | | Alan Johnson | 263 | 586 | 323 | 4 | 11 | 7 | - | - | n/a | | Bob Kunze-Concewitz | 50,388 | 50,630 | 242 | 785 | 939 | 154 | - | - | n/a | | Simon Langelier | 25,665 | 26,101 | 436 | 400 | 484 | 84 | - | - | n/a | | Diane de Saint Victor^{1} | - | 252 | 252 | - | 5 | 5 | - | - | n/a | | Ngozi Edozien^{1} | - | 252 | 252 | - | 5 | 5 | - | - | n/a | | Steven Stanbrook^{2} | 19,559 | 19,559 | - | 305 | 363 | 58 | - | - | n/a | | Jon Stanton | 2,451 | 2,820 | 369 | 38 | 52 | 14 | - | - | n/a | 1. On date of leaving (I earlier) 2. Based on a share price of £19.585, being the closing price on 30 September 2022, and includes the value of shares owned outright and those vested but subject to a holding period, being the deferred element of the bonus. 3. Based on a share price of £18.55, being the closing price on 30 September 2022. 4. Stefan Bomhard joined the Board on 1 July 2020 and has five years to build to his shareholding requirement. 5. Lukas Paravicini joined the Board on 1 May 2021 and has five years to build to his shareholding requirement. 6. With Executive Directors do not have a shareholding requirement but are required to invest a minimum percentage of their loss in the Company's shares which they are required to re-sus for the duration of their appointment. 7. Diane de Saint Victor and Ngozi Edozien joined the Board on 15 November 2021. 8. Steven Stanbrook stopped down from the Board on 2 February 2022. ### REVIEW OF PAST PERFORMANCE The chart below shows the value of £100 invested in the Company on 1 October 2022 compared with the value of £100 invested in the FTSE 100 Index for each of our financial year-ends to 30 September 2022. We have chosen the FTSE 100 Index as it provides the most appropriate and widely recognized index for benchmarking our corporate performance over a 10-year period. Total shareholder return ![img-62.jpeg](img-62.jpeg) 142 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 143 --- GOVERNANCE REMUNERATION REPORT continued # CHANGE IN CHIEF EXECUTIVE OFFICER REMUNERATION | | 2022 Stefan Borchard | 2021 Stefan Borchard | 2020 Stefan Borchard | 2019 Jenny Robinson | 2018 Stevens Bristu | 2017 Alison Langer | 2016 Alison Langer | 2015 Alison Langer | 2014 Alison Langer | 2013 Alison Langer | 2012 Alison Langer | 2011 Alison Langer | 2010 Alison Langer | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Total remuneration £000 | 5,707 | 3,421 | 1,104 | 963 | 943 | 448 | 2,137 | 3,935 | 4,657 | 5,404 | 3,637 | 2,686 | 2,011 | | Annual bonus as a percentage of maximum | 84 | 64.1 | 40¹ | 40¹ | 40¹ | 40¹ | 31¹ | 87 | 60 | 72 | 80 | 69 | 34 | | Shares vesting as a percentage of maximum | 19.8² | 30.8⁴ | nil | nil | nil | nil | nil | 20 | 44.4 | 45.7 | 15.8 | 5.8 | nil | 1. 40.4% was the formulae; see, note, however, the Remuneration Committee accepted the CEO's recommendation and used its discretion to reduce this to 40%. 2. 50% was the formulae; see, note, however, the Remuneration Committee used its discretion and reduced this to 50%. 3. Retains to vesting of Long-term Incentive Plan (excluding Recruitment Award). 4. Retains to vesting of Recruitment Award based on performance criteria of former employer. ### 3. HOW DIRECTORS' REMUNERATION COMPARES WITH EMPLOYEES' REMUNERATION There is a strong alignment between how we approach pay for our Executive Directors and the wider workforce, with a focus on performance-related pay and similar performance metrics in our Annual Bonus and LTIP. Our reward packages are designed to attract, incentivise and retain the best talent, driven by market practice, skills and experience. | Executive Directors | | UK employees | | --- | --- | --- | | Increase in line with wider workforce | Salary | Average increase for FY22 – between 3% and 9% | | Mix of financial/strategic measures, with 50% of bonus deferred into award over shares | Annual Bonus | Mix of financial/strategic measures 100% paid in cash | | Performance metrics measured over three years, with two-year holding period after vesting | LTIP | Performance metrics measured over three years No holding period | | 14% cash or contributions into Company's pension fund | Pension | The majority of UK employees receive a contribution of 14% of salary | | £250 per month and three-year savings period | Sharesave | £250 per month and three-year savings period | ### Consideration of colleagues' views Our colleagues are at the core of our business, and during the year the Board expanded on its listening sessions and workforce engagement which gave us an opportunity to hear feedback from colleagues on a variety of topics including our strategy, ESG, culture, and diversity, equity and inclusion. We also explored the topic of remuneration, giving participants the opportunity to learn about how the Committee is required to align executive reward with the approach to pay for all employees, and to understand their views on reward at Imperial Brands. The level of engagement was extremely high with a constructive discussion covering: - Selection of Annual Bonus measures and how this links to culture and performance - Focus on the wider package including opportunities and culture and links to attraction and retention - Flexible working practices - Recognition that pay and benefits are attractive within the Company and discussion on how these can be made more transparent - Linking ESG targets to remuneration - Cost-of-living crisis The Board is committed to listening to colleagues and appreciates the opportunity to understand what is important to them. These views, such as the importance of ESG, are taken into account in decision-making and have been reflected in actions taken in the year. We will look to hold further listening sessions on reward in FY23. ### PERCENTAGE CHANGE IN BOARD REMUNERATION The table below shows the percentage change in the salary, benefits and Annual Bonus for the Directors, between FY22 and FY21, as well as the disclosures for FY21 and FY20. Year-on-year change in pay for Directors compared with UK employees | | 2022 | | | | 2021 | | | | 2020 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Salary | Benefits | Annual Bonus | Salary | Benefits | Annual Bonus | Salary | Benefits | Annual Bonus | | Executive Director | | | | | | | | | | | Stefan Borchard | 2.5% | 0.0% | 34.3% | 58.6% | 183.3% | 540.6% | Stefan was appointed to the Board on 1 July 2020 | | | | Lukas Paravicini¹ | 140.1% | 150.0% | 241.4% | Lukas was appointed to the Board on 1 May 2021 | | | | | | | Non-Executive Directors | | | | | | | | | | | Therese Esperdy | 2.5% | n/a | n/a | 24.7% | (100%) | n/a | 353.27%² | -41.30% | n/a | | Sue Clark | 2.2% | n/a | n/a | 7.0% | (100%) | n/a | 59.42% | -50.00% | n/a | | Alan Johnson | Alan was appointed to the Board on 1 January 2021³ | | | | | | | | | | Bob Kunze-Concewith⁴ | 11.5% | n/a | n/a | Bob was appointed to the Board on 1 November 2020 | | | | | | | Simon Langelier | 2.4% | n/a | n/a | 0.0% | (100%) | n/a | 2.41% | -40.00% | n/a | | Pierre-Jean Sivignon | Pierre-Jean stepped down from the Board on 4 June 2021 | | | 176.2% | n/a | n/a | Pierre-Jean was appointed to the Board on 1 July 2020 | | | | Steven Stanbrook | Steven stepped down from the Board on 2 Feb 2022 | | | 0.0% | (100%) | n/a | 8.42% | -66.67% | n/a | | Jon Stanton⁵ | 1.8% | n/a | n/a | 17.9% | (100%) | n/a | 187.88%² | 0.00% | n/a | | Ngoni Edm390 | Ngoni was appointed to the Board on 15 Nov 2021⁵ | | | | | | | | | | Diane de Saint Victor | Diane was appointed to the Board on 15 Nov 2021⁵ | | | | | | | | | | All UK employees | 2.7% | 7.3% | 2.9% | 0.0% | 2.4% | 7.9% | 6.69% | -5.72% | 32.44% | 1. Lukas was appointed to the Board on 1 May 2021. 2. Increase reflects first full year as Chair. 3. A year on year comparison is not possible in these circumstances. 4. Bob was appointed to the Board on 1 November 2020. 5. Increase reflects first full year as chair of the Audit Committee. ### CEO PAY RATIO The table below shows the multiple of our CEO's pay ratio to median, lower quartile and upper quartile pay in the UK. The calculations are based on methodology Option A as defined by the regulations and by calculating the pay and benefits of all UK employees on a full-time equivalent basis. Option A was chosen as it is the most robust approach. The CEO pay ratio is based on comparing the CEO's pay to that of Imperial Brands' UK-based employee population, a large proportion of whom are in sales roles. The Committee anticipates that the ratios are likely to be volatile over time, largely driven by the CEO's incentive outcomes which are dependent on Group-wide results. In light of financial performance outcomes being signed off close to the publication of the Annual Report, the Annual Bonus outcomes for employees other than the CEO have been calculated at target performance (60% of maximum bonus opportunity), although some employees may receive a variation of this in practice. In 2021 total CEO remuneration used to calculate the ratios was £3,421,078, and in respect of base salary only £1,269,000 was used. The pay levels shown for the percentiles reflect remuneration for the 12 months to 30 September 2022. | Financial year | Calculation methodology | FY21 (lower quartile) x 1 | FY20 (median) x 1 | FY19 (upper quartile) x 1 | | --- | --- | --- | --- | --- | | 2022 | A | 102.9 | 79.6 | 52.1 | | 2022¹ | A | 60.7 | 48.4 | 31.1 | | 2020 | A | 50.2 | 38.7 | 24.4 | | 2019 | A | 53.0 | 36.5 | 22.0 | | | Stefan Borchard | FY25 (lower quartile) | FY20 (median) | FY19 (upper quartile) | | Total remuneration | £9,707,264 | 102.9 | 79.6 | 52.1 | | Base salary | £1,309,728 | 32.3 | 26.3 | 18.4 | 1. 2022 CEO pay ratios have been updated to reflect the value of the updated 2021 CEO single figure which incorporates long-term incentives based on actual vesting, rather than the estimate used for the 2021 disclosure. Identical data excludes formula. The CEO total remuneration pay ratio has increased across all percentiles, due to an increase in CEO total remuneration driven by incentive out-turns and strong share price performance. The CEO base salary ratio has remained static, confirming that the variance is driven by performance-related variable pay. The salary component for FY22 at each quartile is £40,232 (P28), £49,412 (P50) and £70,647 (P75). The equivalent total pay numbers are £55,452 (P25), £71,685 (P50) and £109,463 (P75). The Committee is satisfied that the overall picture presented by the 2022 pay ratios is consistent with the reward policies for our UK employees. The Committee takes into account these ratios when making decisions around the Executive Director pay packages, and Imperial Brands takes seriously the need to ensure competitive pay packages across the organisation. 144 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 145 --- GOVERNANCE REMUNERATION REPORT continued # RELATIVE IMPORTANCE OF SPEND ON PAY The table below shows the expenditure and percentage change in overall spend on employee remuneration and dividends. | 6 million unless otherwise stated | 2022 | 2021 | Percentage change | | --- | --- | --- | --- | | Executive Directors' total remuneration^{1,2} | 8 | 9^{3} | 52 | | Overall expenditure on pay^{3} | 642 | 775 | (17.2) | | Dividend paid in the year^{4} | 1,320 | 1,305 | 11 | 1. Executive Directors' total remuneration is based on the total single figure for all Executive Directors and is included to provide a comparison between Executive Director and overall employee pay. 2. Excludes employee's usual security costs. 3. There were no share dividends during either FY21 or FY22. 4. The total single figure for FY21 has been restated to reflect the actual rearing of Stefan Bombard's 2021 LTIF award on 12 April 2021. # EMPLOYEE BENEFIT TRUSTS Our policy remains to satisfy options and awards under our employee share plans either from market-purchased ordinary shares or ordinary shares held in treasury. Distributed through our employee benefit trusts: the Imperial Tobacco Group PLC Employee and Executive Benefit Trust (the Executive Trust) and the Imperial Tobacco Group PLC 2001 Employee Benefit Trust (the 2001 Trust) (together the Employee Benefit Trusts). As at 30 September 2022, we held 70,289,137 ordinary shares in treasury which can be used to satisfy options and awards under our employee share plans either directly or by gifting them to the Employee Benefit Trusts. Options and awards may also be satisfied by the issue of new ordinary shares. Details of the ordinary shares held by the Employee Benefit Trusts are as follows: | | Balance at 07/09/2021 | Required during year | Distributed during year | Balance at 30/09/2022 | Ordinary shares under award at 30/09/2022 | Surplus (shortfall) | | --- | --- | --- | --- | --- | --- | --- | | Executive Trust | 584,370 | 1,000,000 | (30,037) | 1,504,333 | 2,049,346 | (545,013) | | 2001 Trust | 371,833 | 3,050,000 | (1,264,376) | 2,167,457 | 8,669,590 | (6,443,123) | # SHARE PLAN FLOW RATES The rules of each of the Company's share plans contain provisions limiting the grant of options and awards to shares representing no more than 10% of the issued share capital of the Company over a period of 10 years (or, in the case of options and awards granted under the LTIF and Deferred Share Bonus Plan, 5% of issued share capital over the same 10-year period). As at 30 September 2022, an aggregate total of 1% of the Company's issued share capital (including shares held in treasury) is subject to options and awards under our executive and all-employee share plans. # SUMMARY OF OPTIONS AND AWARDS GRANTED | Limit in awards | Cumulative options and awards granted as a percentage of issued share capital (including those held in treasury) | Options and awards granted during the year as a percentage of issued share capital (including those held in treasury) | | --- | --- | --- | | 10% in 10 years | 2.5 | 0.3 | | 5% in 5 years | 1.7 | 0.3 | | 5% in 10 years (executive plans) | 2.0 | 0.3 | # EXTERNAL BOARD DIRECTORSHIPS The Committee recognizes that external non-executive directorships are beneficial for both the Executive Director concerned and the Company. Each serving Executive Director is restricted to one external non-executive directorship in a listed company and may not serve as the chair of a FTSE 100 company. At the discretion of the Board, Executive Directors are permitted to retain fees received in respect of any such non-executive directorship. Stefan Bombard is a non-executive director of Compass Group PLC and was permitted to retain the £90,000 fee received from this position in the financial year. # 4. REMUNERATION COMMITTEE MEMBERSHIP AND DUTIES The Board is ultimately accountable for executive remuneration, but has delegated this responsibility to the Committee, at least three of whose members are independent Non-Executive Directors. The Chair, who is a member of the Committee, was independent on appointment. We consider this independence fundamental in ensuring that Executive Directors' and senior management's remuneration is set by those who have no personal financial interest, other than as shareholders, in the matters discussed. To reinforce this independence, a standing item at each Committee meeting allows the members to meet without any Executive Director or other manager being present. Biographical details of the current members of the Remuneration Committee are set out at pages 96 to 99. Members of the Committee are appointed by the Board following recommendation by the People and Governance Committee (formerly known as the Succession and Nominations Committee). The Committee must meet at least twice a year. A quorum for meeting is two. The Committee considers its key responsibility as being to support the Company's strategy and its short and long-term sustainable success. This is ensured by the adherence to our Executive Pay Principles set out on pages 134 to 136 and to the Directors' Remuneration Policy which together set the right conditions for high-calibre executives to deliver and, further, to provide long-term benefits to all stakeholders. It also determines the specific remuneration package, including service agreements and pension arrangements, for the Chair, each Executive Director and our Executive Leadership Team. When setting the policy for Executive Director remuneration, the Committee reviews workforce remuneration and related policies to ensure the alignment of incentives and rewards across the Group. The Committee's other responsibilities include: - Maintaining a competitive Remuneration Policy appropriate to the business environment of the countries in which we operate, thereby ensuring we can attract, retain and motivate high-calibre individuals throughout the business; - Aligning Executive Directors' and senior management's remuneration with the interests of long-term shareholders and other stakeholders whilst ensuring that remuneration is fair but not excessive and reflects the contribution made; - Setting measures and targets for the performance-related elements of variable pay; - Oversight of our overall policy for employee remuneration, employment conditions and our employee share plans; and - Ensuring appropriate independent advisers are appointed to provide advice and guidance to the Committee. The Committee's terms of reference are reviewed annually and were last reviewed in September 2022. They are available on our website www.imperialbrandsplc.com. When carrying out its duties the Committee considers the Remuneration Policy and practices in the context of provision 40 of the UK Corporate Governance Code, as follows: Clarity – The Remuneration Policy sets out clearly each element of remuneration limits in terms of quantum and the discretions the Committee can apply. The DRR sets out the arrangements clearly and transparently. Questions on the remuneration arrangements can be raised at the AGM and through our "Meet the Board" programme. Simplicity – The remuneration structure for our Executive Directors consists of fixed pay (base salary, pension and benefits), Annual Bonus and a Long-Term Incentive Plan. Our remuneration structures throughout the organisation are simple in nature and understood by employees. Risk – A number of features within the Remuneration Policy exist to manage different kinds of risks; these include: - Malus and clawback provisions operating across all discretionary incentive plans; - Deferral of remuneration and holding periods; - Remuneration Committee discretion to override formulaic out-turns to ensure incentive pay-outs reflect underlying business performance and shareholder experience; - Limits on awards specified within the policy and plan rules; and - Regular interaction with the Audit Committee. Predictability – The Committee regularly reviews the performance of in-flight awards so it understands the likely outcomes. Proportionality – The Committee is against rewarding poor performance and, therefore, a significant portion of remuneration is performance-based and dependent on delivering the Company's strategy. Performance targets are based on a combination of measures to ensure there is no undue focus on a single measure. Alignment – There is a clear progression of remuneration throughout the workforce with performance measures supporting the key performance indicators and the long-term sustainability of the business. The Committee reviews the Remuneration Policy, taking into account the feedback received from shareholders and the impact on the wider workforce. 146 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandsplc.com 147 --- GOVERNANCE REMUNERATION REPORT continued # **Remuneration Committee meetings 2021/22** The Remuneration Committee met for four scheduled meetings during the year, although there was significant work outside these meetings for the Committee to agree remuneration packages for new members of the senior leadership team and to review and appoint a remuneration adviser, Deloitte LLP. On appointment, Deloitte conducted a training session, which was an opportunity for Non-Executive Directors and relevant senior managers to meet the new adviser. Details of the main activities are set out in the Chair's statement at the beginning of the DRR on page 130. Other regular attendees include the CEO, Company Secretary, Remuneration Committee Secretary, Chief People and Culture Officer, Global Reward Director and the Committee's principal adviser. None of the individuals were involved in any decisions relating to their own remuneration. # **Advice provided to the Remuneration Committee** FIT Remuneration Consultants LLP (FIT) acted as the independent remuneration adviser to the Committee until 6 January 2022. FIT was appointed by the Committee with effect from 1 November 2017. Following a comprehensive tendering process, Deloitte LLP was appointed as the independent adviser to the Committee effective 7 February 2022. FIT was paid fees of £14,774 for its services during the year. Deloitte was paid fees of £221,200 for its services during the year. Both FIT and Deloitte are members of the Remuneration Consultants' Group and comply with its Code of Conduct which sets out guidelines to ensure that their advice is independent and free of undue influence. FIT carried out no other work for Imperial Brands or its subsidiaries. Deloitte LLP provided other advisory services including corporate tax and employee mobility advice, and technology consulting services. The Committee is satisfied that advice received by FIT and Deloitte during the year was independent and objective and that all individuals who provided remuneration advice to the Committee have no connections with Imperial Brands that may impair their independence. # **Other companies which provided advice to the Remuneration Committee are as follows:** Author's limited undertook total shareholder return (TRR) calculations and provided advice on all TSR-related matters. During the year it was paid £19,500 and provided no other services to the Company. Willis Towers Watson provided market pay data and was paid £16,900 for these services. Willis Towers Watson also provided actuarial and wider reward-related services to the Company. All of these advisers were appointed by the Committee, which remains satisfied that the provision of these other services in no way compromises their independence. They are all paid on the basis of actual work performed rather than on a fixed fee basis. # **VOTING ON THE REMUNERATION REPORT AT THE 2022 AGM** At the 2022 AGM there was a vote to approve the Directors' Remuneration Report. We received a strong vote in favour of our Director's Remuneration Policy at our 2021 AGM. | Resolution | Votes for including discretionary votes | Percentage for | Votes against | Percentage against | Total votes cast including votes withheld | Votes withheld | Total votes cast including votes withheld | | --- | --- | --- | --- | --- | --- | --- | --- | | Directors' Remuneration Report (2022 AGM) | 702,037,143 | 95.93 | 29,784,340 | 4.07 | 731,821,483 | 680,193 | 732,581,676 | | Directors' Remuneration Policy (2021 AGM) | 706,375,474 | 95.28 | 34,950,587 | 4.72 | 741,334,031 | 1,374,300 | 742,708,331 | 1. Votes withheld are not included in the final figures as they are not recognised as a vote in law The strong support received for the Directors' Remuneration Report followed engagement with our largest shareholders during 2021 and 2022. The input we received from shareholders was extremely helpful. Following the AGM, we continued to engage with our largest shareholders, taking their feedback on our plans to include ESG measures into our FY23 incentives. At the 2023 AGM, shareholders will be invited to vote on the 2022 Directors' Remuneration Report (advisory vote). Chair of the Remuneration Committee GOVERNANCE DIRECTORS' REPORT # **DIRECTORS' REPORT** The Directors present their report and audited financial statements for the year ended 30 September 2022. This Directors' Report forms part of the management report required under the Disclosure Guidance and Transparency Rules (DTR). The Company has chosen, in accordance with Section 414 C(1) of the Companies Act 2006, to include certain matters in the Strategic Report that would otherwise be required to be disclosed in the Directors' Report. The Strategic Report can be found on pages 65 to 93 and includes an indication of future likely developments of the Company, details of important Company events and the Company's business model and strategy. The Corporate Governance Report on pages 94 to 128, the Directors' Report on pages 150 to 154 and the Directors' Responsibilities Statement on page 155 are incorporated into the Directors' Report by reference. Specifically, the following disclosures have been included elsewhere in the Annual Report and are incorporated into the Directors' Report by reference: | Disclosure | Page | | --- | --- | | Future developments in the business | 26 | | Disclosure of greenhouse gas emissions | 42 | | Going concern statement | 92 | | Viability statement | 92 | | Qualifying Director's indemnity provisions | 116 | | Statement of Directors' responsibilities including disclosure of information to the auditor | 129 and 188 | | Financial risk management | 197 | | Shareholder information | 245 | # **EQUAL OPPORTUNITIES** We regard equality and fairness as a fundamental right of all our people. We aim to create a work environment that allows equal opportunities so people are employed fairly, safely and in compliance with applicable employment laws and regulation. We respect each person for who they are and what they can contribute and provide the same opportunity for career development and promotion regardless of disability, physical or mental health, age, race, origin, gender, sexual orientation, political views, religion, marital status or any other legally protected status. # **CHARITABLE AND POLITICAL DONATIONS** As part of our responsible approach, we continued to support a number of communities in which we operate by allocating a central budget. This budget largely funds our support of the Eliminating Child Labour in Tobacco: Growing (ECL2) Foundation and our support of Hope for Justice. In addition, a number of our subsidiaries donate to charitable and community endeavours from local budgets. All charitable donations and partnership investments are subject to the requirements of our Code of Conduct. No political donations were made to UK or non-UK political parties, organisations or candidates during the year (2021: nil). This approach is aligned with our Group policy and Code of Conduct. # **SHARE CAPITAL** Details of our share capital are shown in note 26 to the financial statements. All shares other than those held in treasury are freely transferable and rank pari passu for voting and dividend rights. As at 30 September 2022 we held 70,289,137 shares in treasury, which represented approximately 7.39 per cent of the Company's issued share capital and had an aggregate nominal value of £7,028,061. We have not cancelled these shares but hold them in a treasury shares reserve within our profit and loss account reserve, and they represent a deduction from equity shareholders' funds. # **Transaction in own shares** Imperial Brands PLC (the Company) was on Friday 4 February 2022 informed of the transfer, on 4 February 2022, by way of gift of 3,000,000 (three million) of its ordinary shares of 18 pence each (Shares), which were held in treasury, to the Imperial Tobacco Group PLC 2001 Employee Benefit Trust and 1,000,000 (one million) Shares, which were held in treasury, to the Imperial Tobacco Group PLC Employee and Executive Benefit Trust. The shares were to be used to satisfy awards outstanding under the Company's employee share plans. # **Purchase of ordinary shares** During 2022, we announced a commitment to return surplus capital to shareholders though regular annual share buybacks of circumstances were right, expected to be in the region of £1 billion in the financial year ending 30 September 2023. At its AGM on 2 February 2022, the Company obtained shareholder authorisation for the buyback of up to 94,600,000 shares. No shares were purchased during the year or in the previous financial year. 148 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandsplc.com 149 --- GOVERNANCE DIRECTORS' REPORT continued ## INTEREST IN VOTING RIGHTS The Company has been notified of the following interest in 3 per cent or more of our shares in accordance with Section 5.1.2 of the Disclosure Guidance and Transparency Rules (DTRs). The Company has not been notified of any changes to these interests since the year-end and up to 14 November 2022, being a date not more than one month prior to the date of the AGM Notice of Meeting, in accordance with DTR 5. | Disclosure | Number of ordinary shares at the date of notification (millions) | Percentage of issued share capital at the date of notification | | --- | --- | --- | | BlackRock | 53 | 5.62* | | Spring Mountain Investments Ltd | 48 | 5.19* | | Capital Group Companies Inc | 48 | 5.09* | | FIL Limited | 47 | 4.98* | 1. Direct holding 2. Indirect holding ## RESULTS AND DIVIDENDS We include a review of our operational and financial performance on pages 28 and 29. The profit attributable to equity holders of the Company for the financial year was 61,570 million, as shown in our Consolidated Income Statement. Note 3 to the financial statements gives an analysis of revenue and operating profit. An analysis of net assets is provided in the Consolidated Balance Sheet and the related notes to the financial statements. We pay quarterly dividends. The first and second dividends for financial year 2022 were paid on 30 June 2022 and 30 September 2022 respectively. The third dividend will be paid on 30 December 2022 and, subject to AGM approval, the final dividend will be paid on 31 March 2023 to our shareholders on the Register of Members at the close of business on 17 February 2023. The associated ex-dividend date will be 16 February 2023. Following a review by the Audit Committee at its meeting in November 2022, which confirmed the accounts showed distributable reserves sufficient to support the expected third interim and final dividends and the interim dividends in financial year 2023, the Directors have declared and propose dividends as follows: | Ordinary shares | 2022 £ million | 2021 £ million | | --- | --- | --- | | Interim paid – June 2022 21.27p per share | 202 | 199 | | Interim paid – September 2022 21.27p per share | 202 | 199 | | Declared interim – December 2022 49.31p per share | 467 | 458 | | Proposed final – March 2023 49.52p per share | 467 | 458 | | Total ordinary dividends 141.17p per share (2021: 139.08p) | 1,338 | 1,314 | ## PENSION FUND The Group Pensions Committee has been established to provide global oversight on both risk and reward elements of the Group's Pension arrangements. The Committee's objectives include tackling the risks inherent in the Group's defined benefit pension schemes as well as reward matters. The Group has three main pension arrangements, the largest being the Imperial Tobacco Pension Fund, which is not controlled by the Board but by a trustee company. Its board consists of five Directors nominated by the Company, one Director nominated by employee members and two Directors nominated by current and deferred pensioners. This trustee company is responsible for the assets of the pension fund, which are held separately from those of the Group and are managed by independent fund managers. The pension fund assets can only be used in accordance with the fund's rules and for no other purpose. ## ARTICLES The Company's Articles of Association do not contain any entrenchment provisions and, therefore, may be altered or added to, or completely new Articles may be adopted, by special resolution, subject to the provisions of the Companies Act 2006. ## SIGNIFICANT AGREEMENTS The agreements summarised below are those which we consider to be significant to the Group as a whole and which contain provisions that take effect, or give the other party or parties a specific right to alter or terminate them if we are subject to a change of control following a takeover bid. The Group has a credit facility agreement that provides that, unless the lenders (as defined within each agreement) otherwise agree, if any person or group of associated persons and/or any connected persons acquires the right to exercise more than 50 per cent of the votes exercisable at a general meeting of the Company, the respective borrowers (as defined within each agreement) must repay any outstanding utilization owed by them under the facility agreement and the total commitments under that facility agreement will be cancelled. The credit agreement is: - A credit facilities agreement dated March 2020 under which certain banks and/or financial institutions make available to Imperial Brands Finance PLC and Imperial Tobacco Germany Finance GmbH (now Reemtsma Cigarettenfabriken GmbH) committed credit facilities of €3,500 million for a period of up to three years with bi-annual six month auto-extensions In addition, five deeds of counter- indemnity each dated July 2020 made on substantially the same terms under which certain insurance companies (the Sureties) have made available to the Company, Imperial Brands Finance PLC and Imperial Tobacco Limited a surety bond, in each case issued on a standalone basis but in aggregate forming an amount of €228 million, until January 2026. If any person or group of associated persons (as defined within each agreement) acquires the right to exercise more than 50% of the votes exercisable at a general meeting of the Company, the Sureties may demand that Imperial Tobacco Limited, amongst other things, pay a sum to a cash collateral account equal to but not exceeding the aggregate amount outstanding under each guarantee. Imperial Brands Finance PLC and Imperial Brands Finance Netherlands B.V. have issued bonds under Euro Medium Term Notes (EMTN) Debt Issuance Programmes. The Company acts as guarantor. The final terms of these series of notes contain change of control provisions under which the holder of each note will, subject to any earlier exercise by the Issuer, have the option to require the Issuer to redeem or, at the Issuer's option, purchase that note at its nominal value if (a) any person, or persons acting in concert or on behalf of any such person(s), becomes interested in: (i) more than 50% of the issued or allotted ordinary share capital of the Company; or (ii) such number of shares in the capital of the Company carrying more than 50% of the voting rights normally exercisable at a general meeting of the Company; and (b) as a result of the change of control, there is either: (i) a reduction to a non-investment grade rating or withdrawal of the investment grade rating of the notes which is not raised again, reinstated to or replaced by an investment grade rating during the change of control period specified in the final terms; or (ii) to the extent that the notes are not rated at the time of the change of control, the Issuer fails to obtain an investment grade credit rating of the notes within the change of control period as a result of the change of control. The bonds Imperial Brands Finance PLC issued in such manner are as follows: - 15 September 2008 €600 million 8.125 per cent guaranteed notes due 2024; - 17 February 2009 €1,000 million 9 per cent guaranteed notes due 2022; - 26 September 2011 €600 million 5.8 per cent guaranteed notes due 2026; - 28 February 2014 €650 million 3.375 per cent guaranteed notes due 2026; - 28 February 2014 €500 million 4.875 per cent guaranteed notes due 2032; - 27 January 2017 €500 million 1.375% guaranteed notes due 2025; - 12 February 2019 €750 million 1.125% guaranteed notes due 2023; and - 12 February 2019 €750 million 2.125% guaranteed notes due 2027. 150 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 151 --- GOVERNANCE DIRECTORS' REPORT continued The bonds Imperial Brands Finance Netherlands B.V. issued in such manner are as follows: • 18 March 2021 £1,000 million 1.750% guaranteed notes due 2023. Imperial Brands Finance PLC has also issued bonds in the United States of America under the provisions of Section 144a and Regulation S respectively of the US Securities Act (1933). The Company acts as guarantor. The final terms of this series of notes contain change of control provisions under which the holder of each note will, subject to any earlier exercise by the Issuer, have the option to require the Issuer to redeem or, at the Issuer's option, purchase that note at 101 per cent of its nominal value if (a) (i) any person (as such term is used in the US Securities Exchange Act of 1934 (the Exchange Act)) becomes the beneficial owner of more than 50 per cent of the Company's voting stock; or (ii) there is a transfer (other than by merger, consolidation, amalgamation or other combination) of all or substantially all of the Company's assets and those of its subsidiaries to any person (as such term is used in the Exchange Act); or (iii) a majority of the members of the Company's Board of Directors is not continuing in such capacity; and (b) as a result of the change of control, there is a reduction to a non-investment grade rating or withdrawal of the investment grade rating of the notes which is not raised again, reinstated to or replaced by an investment grade rating during the change of control period specified in the final terms. The bonds issued in such manner are as follows: • 11 February 2013 $1,000 million 3.5 per cent guaranteed notes due 2023; • 21 July 2015 $1,500 million 4.25 per cent guaranteed notes due 2025; • 26 July 2019 $1,000 million 3.125 per cent guaranteed notes due 2024; • 26 July 2019 $750 million 3.5% guaranteed notes due 2026; • 26 July 2019 $1,000 million 3.875 per cent guaranteed notes due 2029; and • 27 July 2022 $1,000 million 6.125% guaranteed notes due 2027. # OTHER INFORMATION – LISTING RULES In respect of LR 9.8.4R (12) and (13) the trustee of the Imperial Tobacco Group PLC Employee and Executive Benefit Trust and the Imperial Tobacco Group PLC 2001 Employee Benefit Trust agrees to waive dividends payable on the Group's shares it holds for satisfying awards under various Imperial Brands PLC share plans. In accordance with Section 726 of the Act no dividends can be paid to the Company in respect of the shares it holds in treasury. # 2022 ANNUAL GENERAL MEETING VOTE At the Annual General Meeting in 2022, the Company received strong support for all its resolutions. # POST-YEAR-END EVENTS # Share buybacks On 6 October 2022 the Company announced the start of an ongoing share buyback programme, to initially repurchase up to £1 billion of shares in the period from 7 October 2022 to 30 September 2023. # Pension fund loan Imperial Brands Finance PLC provided a temporary loan facility of £320 million to the Imperial Tobacco Pension Fund, of which £200 million had been drawn down during the first half of October 2022 to support ongoing liquidity requirements within the Fund's Liability Driven Investment holdings during a period of volatility in the UK Government Bond market. £70 million of the drawn amount has been repaid, with the remaining £130 million to be repaid before 31 March 2023. # Logista acquisitions In October 2022, the Group's subsidiary Logista completed the acquisition of Carbo Colliatelle, S.L. and Transportes El Mosca. Further details can be found in note 10 to the consolidated financial statements. # Russian disposal – associate market exits Following the decision to sell the Volgograd factory that completed April 2022, it was determined that it would no longer be economically viable to operate in a number of associated markets. As a consequence of this, the Group announced on 1 November 2022 that it was ending all operations in Kazakhstan, Kyrgyzstan, Mongolia and Armenia. # 2023 ANNUAL GENERAL MEETING This year's AGM will be held at the Bristol Marriott Hotel City Centre, 2 Lower Castle Street, Old Market, Bristol, BS1 3AD on 1 February 2023 at 2.30pm. Details of the resolutions to be put to the meeting can be found in the Notice of Annual General Meeting sent to shareholders and made available on the Company's website. # SUMMARY For the purposes of LR 9.8.4R, the information required to be disclosed by LR 9.8.4R can be found on the pages set out below: | Section | Information | Page | | --- | --- | --- | | (1) | Interest capitalised | N/A | | (2) | Publication of unaudited financial information | N/A | | (4) | Details of long-term incentive schemes | 134, 136, 138, 139, 141 and 142 | | (5) | Waiver of emoluments by a Director | N/A | | (6) | Waiver of future emoluments by a Director | 135, 136 and 140 | | (7) | Non pre-emptive issues of equity for cash | N/A | | (8) | Non pre-emptive issue by major subsidiary undertakings | N/A | | (9) | Listed subsidiary | N/A | | (10) | Contracts of significance | 151 | | (11) | Provision of services by a controlling shareholder | N/A | | (12) | Shareholder waivers of dividends | See above | | (13) | Shareholder waivers of future dividends | See above | | (14) | Agreements with controlling shareholders | N/A | 152 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 153 --- GOVERNANCE DIRECTORS' REPORT continued # OTHER INFORMATION In accordance with the Companies Act 2006, the following items have been included in other sections of this Annual Report: - a fair review of the business, as required by the Companies Act 2006, is included in the Strategic Report; - the information in our Governance Report is included in this Directors' Report by reference; - future developments in the business are included in the investment case commencing on page 26; - information relating to our people, including colleague engagement, is included in the Stakeholder Engagement section on page 31, our People and Planet agenda on pages 36 and 37, Safe and inclusive workforce on pages 52 to 57 and on pages 106 and 107 in our Governance Report; - our principal risks are detailed on pages 82 to 93; - information relating to our sustainability approach that supports our environmental, social and governance agenda is included on pages 36 to 58; - responsibilities to a broader stakeholder group, including consumers and customers, are included on pages 30 to 34, and 108 to 112; - information on our greenhouse gas emissions is included on page 42; and - the Directors of the Company are listed on pages 96 to 99. Our report under the Streamlined Energy and Carbon Reporting requirements can be found on pages 42 and 43. The Strategic Report and this Directors' Report were approved and signed by order of the Board. **John Downing** Company Secretary 15 November 2022 Imperial Brands PLC Incorporated and domiciled in England and Wales No. 3236483 # STATEMENT OF DIRECTORS' RESPONSIBILITIES The Directors are responsible for preparing the Annual Report and Group and Parent Company financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors are required to prepare the Group financial statements in accordance with UK – adopted International Accounting Standards (UK – adopted IFRS). In addition, the Directors have elected to prepare the Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), including FRS 101 'Reduced Disclosure Framework'. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of the profit or loss of the Group and Parent Company for that period. In preparing the Group financial statements, International Accounting Standard 1 requires that Directors: - properly select and consistently apply suitable accounting policies; - present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; - provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; - state whether the Group financial statements have been prepared in accordance with UK- adopted International Accounting Standards, subject to any material departures disclosed and explained in the financial statements; and - prepare the Group financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. In preparing the Parent Company financial statements, the Directors are required to: - select suitable accounting policies and then apply them consistently; - make judgements and accounting estimates that are reasonable and prudent; - state whether applicable United Kingdom Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and - prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Parent Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Parent Company on a consolidated and individual basis, and to enable them to ensure that the Group financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Parent Company and its subsidiaries and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Remuneration Report and Corporate Governance Statement that comply with the law and those regulations. The Directors are responsible for the maintenance and integrity of the Parent Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Each of the Directors, whose names and functions are listed on pages 96 to 99, confirms that, to the best of their knowledge - the Group and Parent Company financial statements, which have been prepared in accordance with IFRS as adopted by the UK and UK GAAP FRS 101 respectively, give a true and fair view of the assets, liabilities, financial position and profit of the Group and Parent Company on a consolidated and individual basis; - the Strategic Report and the Directors' Report contained in the Annual Report and Accounts include a fair review of the development and performance of the business and position of the Group and Parent Company, together with a description of the principal risks and uncertainties that it faces; and - they consider that the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group and the Parent Company's position and performance, business model and strategy. The Directors' responsibilities in relation to the disclosure of information to auditors is disclosed in the Audit Committee Report on page 129. This Statement of Directors' Responsibilities was approved by the Board and signed on its behalf. The Strategic Report and the Directors' Report were approved by the Board and signed on its behalf. By order of the Board. John Downing Company Secretary 15 November 2022 Imperial Brands PLC Incorporated and domiciled in England and Wales No. 3236483 154 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandsplc.com 155 --- # INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF IMPERIAL BRANDS PLC ## Opinion In our opinion: - Imperial Brands PLC's consolidated financial statements and parent company financial statements (the "financial statements") give a true and fair view of the state of the group's and of the parent company's affairs as at 30 September 2022 and of the group's profit for the year then ended; - the consolidated financial statements have been properly prepared in accordance with UK adopted international accounting standards; - the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice and in accordance with section 408 of the Companies Act 2006; and - the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements of Imperial Brands PLC (the 'parent company') and its subsidiaries (the 'group') for the year ended 30 September 2022 which comprise: | Group | Parent company | | --- | --- | | Consolidated balance sheet at 30 September 2022 | Balance sheet at 30 September 2022 | | Consolidated income statement for the year then ended | Statement of changes in equity for the year then ended | | Consolidated statement of comprehensive income for the year then ended | Related notes I to X to the financial statements including a summary of significant accounting policies | | Consolidated statement of changes in equity for the year then ended | | | Consolidated cash flow statement for the year then ended | | | Related notes I to 34 to the financial statements, including a summary of significant accounting policies and the supplementary information on pages 221 to 228 | | The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and UK adopted international accounting standards. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 "Reduced Disclosure Framework" (United Kingdom Generally Accepted Accounting Practice). ## Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. ## Independence We are independent of the group and parent in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FNC's Ethical Standard as applied to listed public interest entities; and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services prohibited by the FNC's Ethical Standard were not provided to the group or the parent company and we remain independent of the group and the parent company in conducting the audit. ## Conclusions relating to going concern In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors' assessment of the group and parent company's ability to continue to adopt the going concern basis of accounting included: - confirming our understanding of the directors' going concern assessment process, including the controls over the review and approval of the business plan and cash flow forecasts covering the period through to 31 March 2024; - assessing the appropriateness of the duration of the going concern assessment period to 31 March 2024 and considering the existence of any significant events or conditions beyond this period based on our procedures on the group's business plan, cash flow forecasts and from knowledge arising from other areas of the audit; - verifying inputs against the board-approved business plan, cash flow forecasts and debt facility terms, and reconciling the opening liquidity position to the prior year end and half year going concern assessments; - reviewing borrowing facilities to confirm both their availability to the group and the forecast debt repayments through the going concern assessment period and to validate that there are only two financial covenants in relation to the revolving credit facility; - evaluating management's historical forecasting accuracy and the consistency of the going concern assessment with information obtained from other areas of the audit, such as our audit procedures on the business plan and cash flow forecasts which underpin management's goodwill impairment assessments; - testing the assessment, including forecast liquidity under base and downside scenarios, for clerical accuracy; - assessing whether assumptions made, including those relating to current economic challenges, were reasonable and in the case of downside scenarios; appropriately severe, in light of the group's relevant principal risks and uncertainties and our own independent assessment of those risks; - assessing management's considerations related to material climate change impacts in the going concern period; - evaluated the amount and timing of identified mitigating actions available to respond to a severe downside scenario, and whether those actions are feasible and within the group's control; - performing independent stress testing on management's assumptions including applying incremental adverse cash flow sensitivities. Our sensitivities included the impact of certain severe but plausible scenarios identified in other areas of our audit, including litigation and tax, materialising within the going concern period; and, - performing reverse stress testing on management's base case scenario to understand how severe conditions would have to be to breach liquidity or financial covenants and whether the reduction in EBITDA that result in breaches to liquidity or financial covenants has no more than a remote possibility of occurring; - assessing the appropriateness of the going concern disclosure on page 92. ## Our key observations - The directors' assessment forecasts that the group will maintain sufficient liquidity throughout the going concern assessment period in the base case scenario and will not breach banking covenants. Under management's worst-case scenario, which includes a permanent reduction in profitability of 30%, an increase in bad debt and the loss of factoring facilities, liquidity is eliminated in January 2024. This scenario is not considered plausible. We have not identified any climate-related risks that would materially impact the group's forecasts to 31 March 2024. - Controllable mitigating actions available to management over the going concern assessment period, including reductions to non-declared dividend payments and uncommitted share buybacks, are sufficient to restore liquidity in both management's plausible downside scenario and the audit team's additional downside sensitivities. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group and parent company's ability to continue as a going concern for the period to 31 March 2024. In relation to the group and parent company's reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors' statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group's ability to continue as a going concern. ## Overview of our audit approach | Audit scope | • We performed an audit of the complete financial information of 5 components and audit procedures on specific balances for a further 14 components • The components where we performed full or specific audit procedures accounted for 91% of Profit before tax on an absolute basis, 82% of Revenue and 89% of Total assets. | | --- | --- | | Key audit matters | • Revenue recognition, including management override of controls • Measurement and classification of adjusting items • Uncertain tax positions • Litigation | | Materiality | • Overall group materiality of £120m which represents 6% of profit before tax. | ## An overview of the scope of the parent company and group audits ### Tailoring the scope Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each company within the group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account the level of revenue, assets and profit before tax, risk profile (including country risk, management's assessment of control effectiveness, internal audit findings and the extent of changes in the business environment) and other known factors when assessing the level of work to be performed at each component. In assessing the risk of material misstatement to the group financial statements, and to ensure we had adequate quantitative coverage of significant accounts in the financial statements, of the 394 reporting components of the group, we selected 19 components covering entities within the UK, USA, Germany, Spain, Australia, Morocco, France, Poland and Belgium, which represent the principal business units within the group. Of the 19 components selected, we performed an audit of the complete financial information of 5 components ('full scope components') which were selected based on their size or risk characteristics. For the remaining 14 components ('specific scope components'), we performed audit procedures on specific accounts within that component that we considered had the potential for the greatest impact on the significant accounts in the financial statements either because of the size of these accounts or their risk profile. The audit scope of specific scope components may not have included testing of all significant accounts of the component but will have contributed to the coverage of significant accounts tested for the group. We also covered 18 additional locations and performed specified procedures over Cash and Cash equivalents by obtaining bank confirmation letters to validate the amounts held in those locations in order to increase the coverage of this account to 98% of the total group cash balance at 30 September 2022. Of the remaining 187 components that together represent 9% of the group's Profit before tax on an absolute basis, none are individually greater than 1% of the group's Profit before tax. For these components, we performed other procedures, including analytical review, testing of consolidative journals, intercompany eliminations and foreign currency translation recalculations to respond to any potential risks of material misstatement to the group financial statements. 156 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandsplc.com 157 --- # INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF IMPERIAL BRANDS PLC continued The table below illustrates the coverage obtained from the work performed by our audit teams. | Reporting components | 2022 | | | | 2021 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Number | % of group PBT (as absolute basis)^{1} | % of group Revenue | % of group Assets | Number | % of group PBT (as absolute basis)^{1} | % of group Revenue | % of group Assets | | Full scope | 5 | 73% | 60% | 70% | 5 | 63% | 60% | 55% | | Specific scope | 14 | 18% | 23% | 19% | 19 | 32% | 25% | 25% | | Specified procedures | 18 | 0% | 0% | 1% | 10 | 1% | 1% | 2% | | Full, specific, and specified procedures coverage | 37 | 91% | 83% | 90% | 34 | 96% | 86% | 82% | | Remaining components | 397 | 9% | 17% | 10% | 354 | 4% | 14% | 18% | | Total reporting components | 394 | 100% | 100% | 100% | 388 | 100% | 100% | 100% | 1. Coverage of profit before tax measured on an absolute basis for each component (components with a loss would be added to both the numerator and denominator). ## Changes from the prior year The approach to audit scoping is similar to the prior year audit. Our scoping changes from the prior year arise due to a change in either the risk assigned to the components or the contribution by the component include the following: - The Russian component has been removed from scope as a result of its disposal which completed in April 2022; - Certain components in Belgium, Netherlands and USA have moved from specific scope to review scope reflecting lowered audit risk and reduced contribution in comparison to the prior year. ## Involvement with component teams In establishing our overall approach to the group audit, we determined the type of work that needed to be undertaken at each of the components by us, as the primary audit engagement team, or by component auditors from other EY global network firms operating under our instruction. Of the 5 full scope components, audit procedures were performed on one of three directly by the primary audit team and four by component audit teams. For the 14 specific scope components, where the work was performed by component auditors, we determined the appropriate level of involvement to enable us to determine that sufficient audit evidence had been obtained as a basis for our opinion on the group as a whole. Imperial has centralised processes and controls in relation to certain accounts managed by its Finance Shared Services ("FSS") centres in Manila and Krakow. Members of the group engagement team provided direct oversight, review, and coordination of the EY FSS audit teams. The EY FSS audit teams performed centralised testing for certain accounts covered at the Imperial FSS locations, including revenue and receivables and purchases and payables. In establishing our overall approach to the group audit, we determined the work that needed to be undertaken at each of the locations by the group engagement team or by auditors from local EY teams. The group audit team continued to follow a programme of planned visits that has been designed to ensure that the Senior Statutory Auditor, and other group Partners, visit all full scope and other key locations. During the current year's audit cycle, visits were undertaken by the primary audit team to the component teams in the USA, Germany, Spain, Morocco, France and Poland. These visits involved discussing the audit approach with the component team and any issues arising from their work, meeting with local management, and reviewing relevant audit working papers on risk areas. The primary team interacted regularly with the component teams, where appropriate, during various stages of the audit, reviewed relevant working papers and were responsible for the scope and direction of the audit process. At critical periods of the audit, we increased the use of online collaboration tools to facilitate team meetings, information sharing and the evaluation, review and oversight of component teams. We requested more detailed deliverables from component teams, and we utilised fully the interactive capability of EY Canvas, our global audit workflow tool, to review remotely the relevant underlying work performed. Other group partners are responsible for the UK component teams. For the UK components, communication has been maintained throughout the audit with the Senior Statutory Auditor covering the same areas described above applicable to all non-UK component teams. This, together with the additional procedures performed at group level, gave us appropriate evidence for our opinion on the group financial statements. ## Climate change There has been increasing interest from stakeholders as to how climate change will impact Imperial Brands PLC. The group has determined that the most significant future impacts from climate change on their operations will be from: - an increase in material costs - increased costs from emerging regulation such as carbon taxation - changes in the tobacco crop yield that may lead to agricultural supply chain disruption; and - other impacts that may cause supply chain disruption or affect production capacity, namely: - increased frequency and severity of extreme weather events - physical hazards such as flooding - chronic drought risk; and - more severe hurricane risk. These are explained on pages 59 to 65 in the required Task Force for Climate related Financial Disclosures, which form part of the "Other information," rather than the audited financial statements. Our procedures on these disclosures therefore consisted solely of considering whether they are materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appear to be materially misstated. As explained in note 2, Accounting estimates and judgements, governmental and societal responses to climate change risks are still developing, and are interdependent upon each other, and consequently financial statements cannot capture all possible future outcomes as these are not yet known. The degree of certainty of these changes may also mean that they cannot be taken into account when determining asset and liability valuations and the timing of future cash flows under the requirements of UK adopted international accounting standards. Our audit effort in considering climate change was focused on evaluating management's assessment of the impact of physical and transition climate risk, and ensuring that the effects of material climate risks disclosed in pages 62 and 63 have been appropriately reflected in asset values and associated disclosures where values are determined through modelling future cash flows, being goodwill and intangible assets impairment assessment (note 11) and the recoverability of deferred tax assets (note 22). We also challenged the Directors' considerations of climate change in their assessment and disclosure of going concern (note 1) and viability. Whilst the group have stated their commitment to the aspirations of the Paris Agreement to achieve net zero emissions by 2040, the group are currently unable to determine the full future economic impact on their business model, operational plans and customers to achieve this and therefore as set out above the potential impacts are not fully incorporated in these financial statements. ## Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters. | Risk | Our response to the risk | | --- | --- | | Revenue recognition, including management override of controls (2022: £32,551m, 2021: £32,791m) Tobacco revenue is an area of focus for stakeholders interested in the performance of the company against an industry backdrop of declining global sales volumes. Most of the group's sales arrangements require little judgement to be exercised, with revenue being recognised on the delivery of goods. However, there is a risk that management may override controls to intentionally mandate revenue transactions by recording fictitious manual journals to revenue (e.g. by inappropriate rebate accounting). There is also a risk of error relating to the accounting for non-routine transactions. Due to the size of the revenue balance, even errors representing a relatively small proportion could lead to material misstatement of profit. In addition, the impact of promotional activity around period ends leading to trade loading can have a material impact on performance in the following period. This anticipated impact, if material, should be described in the front half of the annual report to provide investors with a fair and balanced understanding of the drivers of business performance. Refer to the audit committee report (page 126) accounting policies (note 1), accounting estimates and judgements (note 2), and segmental information (note 3) of the consolidated financial statements. | We have reviewed Imperial's Code of Conduct, Speaking-up, and Fraud risk management policies in order to evaluate the 'core at the top'. We obtained an understanding of the revenue process and understood how Imperial's revenue recognition policies are applied. We also assessed the processes and key controls over rebate accounting, by walking through the process from identification to recording. We reviewed the group revenue recognition policies, as documented in the group Accounting Manual, for compliance with IFRS 15 Revenue from contracts with customers. We discussed and reviewed key contractual arrangements with management and obtained relevant documentation, including those in respect of rebate arrangements. As part of our overall revenue recognition testing, for Tobacco & NGP components with revenue in scope, we used data analytics techniques. This included testing the occurrence of revenue by analysing the correlation of journal entries posted to revenue with journals posted to accounts receivables and then subsequently as cash receipts. We validated cash receipt postings by tracing to bank statements on a sample basis. This provided us with a high level of assurance over £17.6 billion (75%) of Tobacco & NGP revenue recognised by the group. For one in-scope component where we did not use data analytics techniques, we performed substantive tests of detail, including procedures to identify fictitious manual journals and non-routine transactions to ensure these were appropriately recorded. For the Distribution component, we performed a combination of tests of controls and substantive tests of detail to obtain assurance over £0.5 billion (67%) of Distribution revenue recognised by the group. We performed detailed, disaggregated, analytical review to identify unusual trends and inventory positions at all full and specific scope locations. Our procedures focused on variances in receivable days and customers rebates/discounts of period ends, which could represent inventory being 'pushed' into the channel. We reviewed external factors for indicators of trade pull factors with a focus on full scope and high-risk markets. We made response outside of finance to identify instances of late or unusual requests for shipments or extensions of credit terms. On a sample basis, we obtained third-party confirmations of trade terms from customers to assess for indicators of trade loading, where relevant, such as unusual sales patterns, rebates/discounts or increased receivable days at period ends. We performed appropriate alternative procedures where confirmations were requested and not received, including reviewing contracts and recalculating rebates, validating the inputs of management's calculations, and tracing rebate provision amounts to post year end settlements. | 158 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandsplc.com 159 --- # INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF IMPERIAL BRANDS PLC continued Risk Our response to the risk Our remaining procedures, applicable to all full and specific scope components included the following: - Cut-off testing for a sample of revenue transactions near the period end to check that they were recognised in the appropriate period; - Targeted manual journal entry testing in response to the risk of fraud; and, - Review of disclosures against the requirements of IFRS 15. The audit procedures performed to address this risk were performed by component and shared service centre teams and reviewed by the group team. # Key observations communicated to the Audit Committee Based on the procedures performed, including those in respect of manual adjustments to revenue, we did not identify any evidence of material misstatement in the revenue recognised during the year. # Measurement and classification of adjusting items A number of Alternative Performance Measures (APMs) are used in the annual report, including adjusted measures that are linked to executive remuneration. There is a risk that management could override controls by classifying costs as adjusting that do not meet the criteria as defined by group policy to manipulate KPIs which have a bearing on remuneration. In the current year we identified the following adjusting items as areas of focus: - Incorrect classification of items as restructuring costs, including Project Novo, in order to manipulate the adjusted operating profit metric; - Errors relating to working capital metrics, particularly focused on inappropriate cash cut-off to manipulate working capital and therefore the adjusted operating cash conversion metric. Refer to the audit committee report (page 125), accounting policies (note 1), accounting estimates and judgements (note 2), restructuring provision (note 6) of the consolidated financial statements; and the supplementary information. # Measurement and classification of adjusting items We considered the appropriateness of the APM policy implemented by management, including how this linked to metrics which impact management remuneration, with reference to FRC guidance and recent thematic reviews. We assessed the APM policy for alignment with EIMA guidance, specifically: - The clarity of definitions and explanations for the use of APMs; - adequacy of reconciliations to GAAP measures; - equal prominence to GAAP measures; and, - consistency of application, including explanations for any changes. In respect of our focus on restructuring costs, we have: - Challenged the classification and timing of recognition of one-off costs as adjusting and evaluated the one-off adjustments for indicators of management bias, in particular, whether both income and expense items are treated consistently. - We tested the completeness and accuracy of restructuring costs including verifying that IAS 37 criteria had been correctly met. We also verified that the company's accounting policy, including the treatment of all restructuring costs as adjusting, was appropriately approved by the Audit Committee. In respect of our focus on working capital metrics, we have: - performed cut-off testing at year end on working capital balances to a lower testing threshold. Namely, on trade receivables, inventory and trade payables to ensure that working capital metrics are not recorded pre year end and then reversed post year end to manipulate the adjusted operating cash conversion metric; - performed detailed, disaggregated analytical review to identify unusual trends and positions in key significant accounts such as cash, trade receivables, trade payables and inventory to identify potential manipulation of these balances that would influence working capital balances - Made inquires outside of finance, for example with Sales, to identify any unusual and new arrangements entered into during the last quarter of Imperial's financial year to assess if these are being manipulated to flatter working capital. We reviewed the annual report disclosures, including Imperial's management rationale for treating as adjusting, whether equal prominence had been given with statutory measures and the transparency of the reconciliation of statutory measures to APM's. # Key observations communicated to the Audit Committee We confirmed that the APM policy is substantially aligned to EIMA guidance, with the basis for use and reconciliation to GAAP measures appropriately disclosed in the annual report. We consider that restructuring costs and provisions are materially correct and disclosed appropriately. Following our procedures performed over working capital metrics, we consider these balances are materially correct. Risk Our response to the risk # Uncertain tax positions (Provision for uncertain tax positions – 2022; £148m, 2021; £306m) The global nature of the group's operations results in complexities in the payment of, and accounting for, tax. Management applies judgement in assessing tax exposures in each jurisdiction, many of which require interpretation of local tax laws. Given this judgement, there is a risk that tax provisions are misstated. Refer to the audit committee report (page 128), accounting policies (note 1), accounting estimates and judgements (note 2), and tax disclosure (note 7) of the consolidated financial statements. We understood: - the group's process for determining the completeness and measurement of provisions for tax; - the methodology for the calculation of the tax charge; and - management's controls over tax reporting. The group audit team, including tax specialists, evaluated the tax positions taken by management in each significant jurisdiction in the context of local tax law, correspondence with tax authorities and the status of any tax audits. Our assessment included consideration of the past outcome of comparable cases and look-back analysis on management's historic provisioning for uncertain tax positions. Our work utilised additional support from country tax specialists in France, Germany, Malta, Netherlands and the USA. We assessed the group's transfer pricing judgements, considering the way in which we observed the group's businesses operating and the correspondence and agreements reached with tax authorities. We developed our own independent range of potential provisions for the group's transfer pricing tax exposures, based on the evidence we obtained, and compared management's provision to our range. We assessed the group's judgement relating to the UK OFC's State Aid investigations, including holding discussions with management's legal advisors. We assessed whether the group's disclosures, detailing the year end status of material open tax inquiries, adequately disclose relevant facts and circumstances and potential liabilities of the group. The audit procedures were designed and led by the group audit team, with support from component teams whose work was reviewed by the group audit team. # Key observations communicated to the Audit Committee Based on the procedures performed, we consider the amounts provided are reasonable. We consider the group's tax disclosures are also appropriate. We conclude that the group's approach to judgements for uncertain tax positions is balanced and that the approach in calculating the transfer pricing provisions is reasonable based on our assessment of the range of potential outcomes and the latest status of tax audits. 160 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandsplc.com 161 --- # INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF IMPERIAL BRANDS PLC continued Risk Our response to the risk # Litigation There are a number of ongoing legal cases in different jurisdictions relating to competition, product liability, intellectual property and commercial litigation. Significant judgements are involved in determining the likelihood of a probable outflow occurring from legal cases, together with the estimate of the likely financial cost. The group's assessment includes evaluating the relevant law, historical and pending court rulings with the support of legal counsel. We assessed the processes and controls over litigation operated by management at group by making through the process from identification of potential litigation to the evaluation of probability of outcome and the quantification and recording of a provision or disclosure of a contingent liability. We inspected Imperial's litigation log and communications to the Executive Leadership Team and met with group Finance, group General Legal Counsel, and the group's external legal counsel to discuss the developments in significant cases. We requested, received and read letters received directly from the management's external legal counsel that evaluated the current status of legal proceedings and independently quantified the estimate of any economic outflow arising from settlement of the litigation. For certain cases we involved legal specialists or met with external legal counsel to further our understanding and assess potential outcomes. We evaluated whether any of the fines levied or ongoing litigation cases gave rise to evidence that there had been instances of non-compliance with the relevant laws and regulations. We assessed whether the group's disclosures detailing contingent liabilities and financial commitments adequately disclose relevant facts and circumstances and potential liabilities of the group. The audit procedures were designed and led by the group audit team, with support from component teams whose work was reviewed by the group audit team. Given the judgements and the significance of the amounts involved, there is a risk that legal provisions are misstated or that contingent liabilities are inadequately disclosed. Specifically, our audit risk relates to legal cases for which the financial cost to the business could be material if the potential exposures were to be realised, and any cases which could indicate non-compliance with the legal and regulatory frameworks with which the group is required to comply. Refer to the audit committee report (page 125) accounting policies (note 1), accounting estimates and judgements (note 2), and contingent liabilities (note 24) of the consolidated financial statements. # Key observations communicated to the Audit Committee Having met with internal Legal Counsel and received responses from external lawyers, we consider that where an economic outflow is probable management have appropriately recorded a provision. For those cases which we consider meet the criteria of a contingent liability we concluded that sufficient disclosure exists in the annual report to allow users to understand the range of exposures facing the company, where that is possible. In the prior year, our auditor's report included a key audit matter in relation to the carrying value of NGP intangible assets. In the current year, the continued amortisation of such assets and absence of additions meant this was no longer considered as significant for the financial statements as a whole. In the prior year, our auditor's report included a key audit matter in relation to reporting performance. This year, the key audit matter has been refined to focus on the measurement and classification of adjusting items. We now focus on the manipulation of adjusted measures that are linked to executive remuneration, namely working capital balances that impact the adjusted operating cash conversion metric, and the classification of items as restructuring. Both in the current year and prior year, our auditor's report includes key audit matters in relation to revenue recognition including management override, uncertain tax positions and litigation. The risk associated with these matters remained consistent with the prior year. # Our application of materiality We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion. # Materiality The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures. We determined materiality for the group to be £126 million (2021: £148 million), which is 5% of Profit before tax (2021: 5% of profit before tax, adjusted for one-off gain on disposal of subsidiaries). We believe that Profit before tax provides the most relevant performance measure to the stakeholders of the group. We determined materiality for the Parent Company to be £109 million (2021: £275 million), which is 2% (2021: 2%) of net assets. In performing our procedures, materiality was capped at the group allocated materiality of £30 million (2021: £25 million). # Performance materiality The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level for probability that the aggregate of uncorrected and undetected misstatements exceeds materiality. On the basis of our risk assessments, together with our assessment of the group's overall control environment, our judgement was that performance materiality was 75% (2021: 50%) of our planning materiality, namely £95 million (2021: £74 million). Performance materiality has increased to 75% this year as a result of a lower number of audit adjustments identified in the September 2021 audit. Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative scale and risk of the component to the group as a whole and our assessment of the risk of misstatement at that component. In the current year, the range of performance materiality allocated to components was £19 million to £30 million (2021: £7 million to £39 million). # Reporting threshold An amount below which identified misstatements are considered as being clearly trivial. We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £6 million (2021: £7 million), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion. # Other information The other information comprises the information included in the annual report set out on pages 1-155, other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. # Opinions on other matters prescribed by the Companies Act 2006 In our opinion, the part of the directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: - the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and - the strategic report and the directors' report have been prepared in accordance with applicable legal requirements. # Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: - adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or - the parent company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or - certain disclosures of directors' remuneration specified by law are not made; or - we have not received all the information and explanations we require for our audit. # Corporate Governance Statement We have reviewed the directors' statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the group and company's compliance with the provisions of the UK Corporate Governance Code specified for our review by the Listing Rules. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit: - Directors' statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on page 112. 162 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 163 --- # INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF IMPERIAL BRANDS PLC continued - Directors' explanation as to its assessment of the company's prospects, the period this assessment covers and why the period is appropriate set out on page 92 to 93; - Directors' statement on whether it has a reasonable expectation that the group will be able to continue in operation and meets its liabilities set out on page 112; - Directors' statement on fair, balanced and understandable set out on page 112; - Brand's confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 84 to 91; - The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 82 to 83; and; - The section describing the work of the audit committee set out on page 119 to 120 ## Responsibilities of directors As explained more fully in the directors' responsibilities statement set out on page 118, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group and parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. ## Auditor's responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. ## Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the company and management. - We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and determined that the most significant are frameworks which are directly relevant to specific assertions in the financial statements and are those that relate to the reporting framework (UK adopted international accounting standards, the Companies Act 2006 and the UK Corporate Governance Code) and the relevant tax laws and regulations in the jurisdictions in which the group operates. In addition, we concluded that there are certain significant laws and regulations which may have an effect on the determination of the amounts and disclosures in the financial statements being the Listing Rules of the UK Listing Authority, and those laws and regulations relating to health and safety, employee matters and country-specific regulations on tobacco control. - We understood how the group is complying with those frameworks by making inquiries of management, internal audit, those responsible for legal and compliance procedures and the company secretary. We corroborated our inquiries through our review of board minutes, papers provided to the Audit Committee and attendance at meetings of the Audit Committee, as well as consideration of the results of our audit procedures across the group. - We assessed the susceptibility of the group's financial statements to material misstatement, including how fraud might occur by meeting with management from various parts of the business to understand where it considered there was susceptibility to fraud and assessing whistleblowing incidences for those with a potential financial reporting impact. Where necessary, our procedures included our forensic investigation specialists. We also considered performance targets and their influence on efforts made by management to manage earnings or influence the perceptions of analysts. We considered the programmes and controls that the group has established to address risks identified, or that otherwise prevent, deter and detect fraud; and how senior management monitors those programs and controls. Where the risk was considered to be higher, we performed audit procedures to address each identified fraud risk. These procedures included testing manual journals and were designed to provide reasonable assurance that the financial statements were free from fraud or error. - Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures involved inquiries of group management, those charged with governance and legal counsel, as well as journal entry testing, with a focus on manual consolidation journals and journals indicating significant or unusual transactions based on our understanding of the business. Through our testing we challenged the assumptions and judgements made by management in respect of significant one-off transactions in the financial year and significant accounting estimates as referred to in the key audit matters section above. At a component level, our full and specific scope component audit team's procedures included inquiries of component management, journal entry testing, and focused testing, including in respect of the key audit matter of revenue recognition. We also leveraged our data analytics platform in performing our work on the order to cash and purchase to pay and inventory processes to assist in identifying higher risk transactions for testing. In addition, as a result of the sanctions imposed to Russia and Belarus companies and individuals, we have performed inquiries to understand Imperial's process to identify these and whether there were impacts to the business. - Where we identified potential non-compliance with laws and regulations, we developed an appropriate audit response and communicated directly with components impacted. Our procedures involved: understanding the process and controls to identify non-compliance, inquiring of internal and external legal counsel, performing an analysis of press reporting on these matters, understanding the fact patterns in each case and documenting the positions taken by management, and using specialists to support us in concluding on the matters identified. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at https://www.frc.org.uk/auditors/responsibilities. This description forms part of our auditor's report. ## Other matters we are required to address - Following the recommendation from the audit committee, we signed an engagement letter on 18 January 2020 which was subsequently replaced on 23 August 2022. We were appointed by the shareholders at the AGM on 5 February 2020 to audit the financial statements for the year ending 30 September 2020 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments in three years, covering the years ending 2020 to 2022. - The audit opinion is consistent with the additional report to the audit committee. ## Use of our report This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Ernst & Young LLP Andrew Walton (Senior statutory auditor) For and on behalf of Ernst & Young LLP, Statutory Auditor London 15 November 2022 164 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandsplc.com 165 --- ## CONSOLIDATED INCOME STATEMENT for the year ended 30 September 2022 | £ million unless otherwise indicated | Notes | 2022 | 2021 | | --- | --- | --- | --- | | **Revenue** | 3 | 32,501 | 32,791 | | Duty and similar items | | (35,644) | (36,229) | | Other cost of sales | | (20,000) | (10,535) | | Cost of sales | | (26,513) | (26,754) | | **Gross profit** | | 6,038 | 6,027 | | Distribution, advertising and selling costs | | (2,021) | (2,118) | | Administrative and other expenses | | (1,334) | (763) | | **Operating profit** | 4 | 2,683 | 3,145 | | Investment income | | 1,600 | 1,000 | | Finance costs | | (1,717) | (979) | | Net finance (rents) income | | (317) | 81 | | Share of (loss)/profit of investments accounted for using the equity method | 14 | (15) | 11 | | **Profit before tax** | 4 | 2,501 | 3,238 | | Tax | 7 | (886) | (331) | | **Profit for the year** | | 1,005 | 2,907 | | Attributable to | | | | | Owners of the parent | | 1,070 | 2,834 | | Non-controlling interests | | 95 | 73 | | **Earnings per ordinary share (pence)** | | | | | — Basic | 9 | 165.9 | 299.9 | | — Diluted | 9 | 164.7 | 298.1 | ## CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 30 September 2022 | £ million | Notes | 2022 | 2021 | | --- | --- | --- | --- | | **Profit for the year** | | 1,005 | 2,907 | | **Other comprehensive income** | | | | | Exchange movements | | 841 | (680) | | Exchange movements recycled to profit and loss upon disposal of subsidiaries | 10 | 190 | (337) | | Hyperinflation adjustment in the year | 1 | 11 | — | | Current tax on hedge of net investments and quasi-equity loans | | 148 | (205) | | Deferred tax on hedge of net investments and quasi-equity loans | | — | (12) | | Items that may be reclassified to profit and loss | | 1,100 | (1,154) | | Net actuarial gains on retirement benefits | 23 | 76 | 41 | | Current tax relating to net actuarial gains on retirement benefits | | 10 | 2 | | Deferred tax relating to net actuarial gains on retirement benefits | | (52) | (21) | | Items that will not be reclassified to profit and loss | | 34 | 23 | | **Other comprehensive income/(loss) for the year, net of tax** | | 1,224 | (1,112) | | **Total comprehensive income for the year** | | 2,889 | 1,798 | | Attributable to | | | | | Owners of the parent | | 2,778 | 1,761 | | Non-controlling interests | | 111 | 34 | | **Total comprehensive income for the year** | | 2,889 | 1,798 | ## CONSOLIDATED BALANCE SHEET at 30 September | £ million | Notes | 2022 | 2021 | | --- | --- | --- | --- | | **Non-current assets** | | | | | Intangible assets | 11 | 17,777 | 16,674 | | Property, plant and equipment | 12 | 1,650 | 1,755 | | Right of use assets | 13 | 228 | 242 | | Investments accounted for using the equity method | 14 | 56 | 88 | | Retirement benefit assets | 23 | 836 | 1,046 | | Trade and other receivables | 16 | 67 | 62 | | Derivative financial instruments | 20/21 | 985 | 391 | | Deferred tax assets | 22 | 439 | 554 | | State and tax recoverable | 7 | — | 101 | | | | 22,037 | 20,083 | | **Current assets** | | | | | Inventories | 18 | 4,140 | 3,834 | | Trade and other receivables | 18 | 2,543 | 2,749 | | Current tax assets | 7 | 334 | 334 | | Cash and cash equivalents | 17 | 1,850 | 1,287 | | Derivative financial instruments | 20/21 | 54 | 68 | | Current assets held for disposal | 10 | — | 35 | | | | 8,921 | 8,207 | | **Total assets** | | 30,958 | 29,090 | | **Current liabilities** | | | | | Borrowings | 19 | (1,011) | (1,107) | | Derivative financial instruments | 20/21 | (54) | (62) | | Lease liabilities | 13 | (58) | (57) | | Trade and other payables | 18 | (9,506) | (9,106) | | Current tax liabilities | 7 | (307) | (253) | | Provisions | 24 | (203) | (188) | | Current liabilities held for disposal | 10 | — | (35) | | | | (12,139) | (10,808) | | **Non-current liabilities** | | | | | Borrowings | 19 | (8,996) | (8,735) | | Derivative financial instruments | 20/21 | (1,072) | (984) | | Lease liabilities | 13 | (190) | (194) | | Trade and other payables | 18 | (30) | (7) | | Deferred tax liabilities | 22 | (961) | (1,037) | | Retirement benefit liabilities | 23 | (894) | (1,106) | | Provisions | 24 | (222) | (206) | | | | (12,346) | (12,362) | | **Total liabilities** | | (23,485) | (23,250) | | **Net assets** | | 7,473 | 5,943 | | **Equity** | | | | | Share capital | 25 | 103 | 102 | | Share premium and capital redemption | | 5,837 | 5,837 | | Retained earnings | | (443) | (788) | | Exchange translation reserve | | 1,363 | 200 | | **Equity attributable to owners of the parent** | | 6,865 | 6,262 | | Non-controlling interests | | 613 | 588 | | **Total equity** | | 7,473 | 5,943 | The financial statements on pages 166 to 244 were approved by the Board of Directors on 15 November 2022 and signed on its behalf by: **LUKAS PARAVICINI** DIRECTOR 166 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 167 --- # CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 30 September 2022 | £ million | Share capital | Share premium and capital redemption | Retained earnings | Exchange translation reserve | Equity attributable to owners of the parent | Non-controlling interests | Total equity | | --- | --- | --- | --- | --- | --- | --- | --- | | At 30 September 2022 | 103 | 5,837 | (788) | 200 | 5,352 | 588 | 5,940 | | Hyperinflation restatement in 1 October 2021 | - | - | 22 | - | 22 | - | 22 | | At 1 October 2021 | 103 | 5,837 | (766) | 200 | 5,374 | 588 | 5,962 | | Profit for the year | - | - | 1,570 | - | 1,570 | 90 | 1,668 | | Exchange movements on retranslation of net assets | - | - | - | 1,518 | 1,518 | 16 | 1,534 | | Exchange movements in net investment hedges | - | - | - | (649) | (649) | - | (649) | | Exchange movements on quasi-equity loans | - | - | - | (44) | (44) | - | (44) | | Exchange movements recycled to profit and loss upon disposal of subsidiaries | - | - | - | 190 | 190 | - | 190 | | Hyperinflation adjustment in the year | - | - | 11 | - | 11 | - | 11 | | Current tax on hedge of net investments and quasi-equity loans | - | - | - | 148 | 148 | - | 148 | | Net actuarial gains on retirement benefits | - | - | 76 | - | 76 | - | 76 | | Current tax relating to net actuarial gains on retirement benefits | - | - | 10 | - | 10 | - | 10 | | Deferred tax relating to net actuarial gains on retirement benefits | - | - | (52) | - | (52) | - | (52) | | Other comprehensive income | - | - | 45 | 1,163 | 1,228 | 16 | 1,224 | | Total comprehensive income | - | - | 1,615 | 1,163 | 2,778 | 111 | 2,889 | | Transactions with owners | | | | | | | | | Costs of employees' services compensated by share schemes | - | - | 29 | - | 29 | - | 29 | | Changes in non-controlling interests | - | - | (3) | - | (3) | 3 | - | | Deferred tax on share based payments | - | - | 2 | - | 2 | - | 2 | | Dividends paid | - | - | (1,320) | - | (1,320) | (89) | (1,409) | | At 30 September 2022 | 103 | 5,837 | (443) | 1,363 | 6,860 | 613 | 7,473 | | At 1 October 2020 | 103 | 5,837 | (2,364) | 1,296 | 4,871 | 647 | 5,518 | | Profit for the year | - | - | 2,834 | - | 2,834 | 73 | 2,907 | | Exchange movements on retranslation of net assets | - | - | - | (1,034) | (1,034) | (39) | (1,073) | | Exchange movements in net investment hedges | - | - | - | 476 | 476 | - | 476 | | Exchange movements on quasi-equity loans | - | - | - | (83) | (83) | - | (83) | | Exchange movements recycled to profit and loss upon disposal of subsidiaries | - | - | - | (337) | (337) | - | (337) | | Current tax on hedge of net investments and quasi-equity loans | - | - | - | (105) | (105) | - | (105) | | Deferred tax hedge of net investments and quasi-equity loans | - | - | - | (12) | (12) | - | (12) | | Net actuarial gains on retirement benefits | - | - | 41 | - | 41 | - | 41 | | Current tax relating to net actuarial gains on retirement benefits | - | - | 2 | - | 2 | - | 2 | | Deferred tax relating to net actuarial gains on retirement benefits | - | - | (21) | - | (21) | - | (21) | | Other comprehensive income/(expense) | - | - | 22 | (1,095) | (1,073) | (39) | (1,112) | | Total comprehensive income/(expense) | - | - | 2,886 | (1,095) | 1,761 | 34 | 1,798 | | Transactions with owners | | | | | | | | | Costs of employees' services compensated by share schemes | - | - | 28 | - | 28 | - | 28 | | Dividends paid | - | - | (1,205) | - | (1,205) | (93) | (1,298) | | At 30 September 2021 | 103 | 5,837 | (738) | 200 | 5,352 | 588 | 5,940 | # CONSOLIDATED CASH FLOW STATEMENT for the year ended 30 September 2022 | £ million | 2022 | 2021 | | --- | --- | --- | | Cash flows from operating activities | | | | Operating profit | 2,683 | 3,146 | | Dividends received from investments accounted for under the equity method | 7 | 4 | | Depreciation, amortisation and impairment | 660 | 815 | | Loss on disposal of non-current assets | - | 2 | | Loss/(profit) on disposal of subsidiaries | 428 | (282) | | Post-employment benefits | (96) | (93) | | Costs of employees' services compensated by share schemes | 29 | 28 | | Fair value adjustment to financial assets | 37 | (35) | | Movement in provisions | 39 | 18 | | Operating cash flows before movement in working capital | 3,827 | 3,661 | | (Increase)/decrease in inventories | (195) | 73 | | (Increase)/increase in trade and other receivables | 89 | (301) | | (Increase)/decrease in trade and other payables | 146 | (523) | | Movement in working capital | 40 | (664) | | Tax paid | (981) | (823) | | Net cash flows generated from operating activities | 3,186 | 2,167 | | Cash flows from investing activities | | | | Interest received | 8 | 35 | | Proceeds from the sale of non-current assets | 53 | 50 | | Proceeds from sale of subsidiaries, net of cash disposed of (note 10) | 27 | 846 | | Purchase of non-current assets | (230) | (200) | | Purchase of brands and operations (note 10) | (13) | - | | Net cash (used in)/generated from investing activities | (155) | 753 | | Cash flows from financing activities | | | | Interest paid | (366) | (435) | | Purchase of shares by Employee Share Ownership Trusts | (1) | - | | Lease liabilities paid | (68) | (84) | | Increase in borrowings | 1,710 | 858 | | Repayment of borrowings | (2,476) | (2,224) | | Cash flows relating to derivative financial instruments | 94 | 41 | | Dividends paid to non-controlling interests | (89) | (93) | | Dividends paid to owners of the parent | (1,320) | (1,305) | | Net cash used in financing activities | (2,516) | (3,207) | | Net increase/(decrease) in cash and cash equivalents | 515 | (330) | | Cash and cash equivalents at start of year | 1,387 | 1,626 | | Effect of foreign exchange rates on cash and cash equivalents | 48 | (9) | | Cash and cash equivalents at end of year | 1,850 | 1,287 | 168 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 169 --- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ### 1. ACCOUNTING POLICIES # **Basis of preparation** The consolidated financial statements comprise the results of the Company, a public company limited by shares, incorporated in England and Wales, and its subsidiary undertakings, together with the Group's share of the results of its associates and joint arrangements. The Company's registered number is 3236483 and its registered address is 321 Winterstoke Road, Bristol, BS3 2LL. The consolidated financial statements have been prepared in accordance with UK-adopted International Accounting Standards ("UK-adopted IAS"). The financial statements have been prepared under the historical cost convention except where fair value measurement is required under IFRS as described below in the accounting policies on financial instruments, and on a going concern basis. The consolidated financial statements are presented in pounds sterling, the presentation currency of the Group, and the functional currency of the Company. All values are rounded to the nearest one million (£1 million) except where otherwise indicated. # **Adjusted performance measures** During the year the Group conducted a review of Adjusted Performance Measure (APM) metrics within the Annual Report and Accounts. The aim of the review was to increase transparency as to the definition of APMs and to ensure that reconciliations to IFRS-based measures were presented in a consistent and understandable format. Information on APMs is now presented within the Supplementary Financial section of this document. As part of the changes/key adjusting items within administration costs which were previously shown on the face of the Group Income Statement are now set out within the APM disclosures area. # **Basis for going concern** The Group's policy is to ensure that we always have sufficient capital markets funding and committed bank facilities in place to meet foreseeable peak borrowing requirements. The Group recognizes uncertainty of the external environment. Given the current macroeconomic situation, our plans include higher than historical inflation impact to cost of sales driven by commodity price increases, energy and logistic costs, as well as higher people costs. During the period of the Covid-19 pandemic as well as during the ongoing period of political uncertainty with regard to Ukraine and Russia, the Group effectively managed operations across the world, and has proved it has an established mechanism to operate efficiently despite uncertainty. The Directors consider that a one-off discrete event with immediate cash outflow is of greatest concern to short-term liquidity of the Group. The Directors have assessed the principal risks of the business, including stress testing a range of different scenarios that may affect the business. These included scenarios which examined the implications of: - A one-off discrete event resulting in immediate cash outflow such as unexpected duty and tax payments; and/or other legal and regulatory risks materialising of c. £1,000 million. - A rapid and lasting deterioration to the Group's profitability because markets become closed to tobacco products or there are sustained failures to our tobacco manufacturing and supply chains. These assumed a permanent reduction in profitability of 18% from 1 October 2022. - The additional impact of potential bad debt risks arising from a recession of c. £228 million. - The withdrawal of facilities that provide receivables factoring of c. £960 million. The scenario planning also considered mitigation actions including reductions to capital expenditure, dividend payments and share buyback programme. There are additional actions that were not modelled but could be taken including other cost mitigations such as staff redundancies, retrenchment of losses, and discussions with leaders about capital structure. Under the worst-case scenario, where the largest envisaged downside scenarios all take place at the same time the Group would have sufficient healthcare until December 2023. The Group believes this worst-case scenario to be highly unlikely given the relatively small impact on our trading performance and bad debt levels during the Covid-19 pandemic. In this scenario Group would implement a number of mitigating actions including revoking the uncommitted dividend, pausing share buyback and reducing discretionary spend such as capex. Based on its review of future cash flows covering the period through to March 2024, and having assessed the principal risks facing the Group, the Board is of the opinion that the Group as a whole and Imperial Brands PLC have adequate resources to meet their operational needs from the date of this Report through to 31 March 2024 and concludes that it is appropriate to prepare the financial statements on a going concern basis. Imperial Brands PLC (the Company) provides guarantees to a number of subsidiaries under section 479A of the Companies Act 2005, whereby the subsidiaries, incorporated in the UK and Ireland, are exempt from the requirements of the Act relating to the audit of individual accounts for the financial year ending 30 September 2022. See note VII Guarantees of the Imperial Brands Plc financial statements for further details. The principal accounting policies, which have been applied consistently other than where new policies (detailed below) have been adopted, are set out below. # **Basis of consolidation** Subsidiaries are those entities controlled by the Group. Control exists when the Group is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Where necessary, accounting policies of subsidiaries are changed to ensure consistency with the policies adopted by the Group. The acquisition method of accounting is used to account for the purchase of subsidiaries. The excess of the value transferred to the seller in return for control of the acquired business together with the fair value of any previously held equity interest in that business over the Group's share of the fair value of the identifiable net assets is recorded as goodwill. Intragroup transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless costs cannot be recovered. # **Joint ventures** The Group applies IFRS 11 to all joint arrangements. Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint arrangements and determined them to be joint ventures. The financial statements of joint ventures are included in the Group financial statements using the equity accounting method, with the Group's share of net assets included as a single line item entitled Investments accounted for using the equity method. In the same way, the Group's share of earnings is presented in the consolidated income statement below operating profit entitled 'Share of (loss)/profit of investments accounted for using the equity method'. # **Foreign currency** Items included in the financial statements of each Group company are measured using the currency of the primary economic environment in which the company operates (the functional currency). The income and cash flow statements of Group companies using non-sterling functional currencies are translated to sterling (the Group's presentational currency) at average rates of exchange in each period. Assets and liabilities of these companies are translated at rates of exchange ruling at the balance sheet date. The differences between retained profits and losses translated at average and closing rates are taken, to reserves, as are differences arising on the retranslation of the net assets at the beginning of the year. Transactions in currencies other than a company's functional currency are initially recorded at the exchange rate ruling at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at exchange rates ruling at the balance sheet date of monetary assets and liabilities demonstrated in foreign currencies are recognized in the consolidated income statement with exchange differences arising on trading transactions being reported in operating profit, and those arising on financing transactions being reported in net finance costs unless as a result of net investment hedging they are reported in other comprehensive income. The Group designates as net investment hedges certain external borrowings and derivatives up to the value of the net assets of Group companies that use non-sterling functional currencies after deducting permanent intercompany loans. Gains or losses on these hedges that are regarded as highly effective are transferred to other comprehensive income, where they offset gains or losses on translation of the net investments that are recorded in equity, in the exchange translation reserve. The Group's financial results are principally exposed to euro and US dollar exchange rates, which are detailed in the table below. | Foreign exchange rate versus GBP | 2022 | | 2021 | | | --- | --- | --- | --- | --- | | | Closing rate | Average rate | Closing rate | Average rate | | EUR | 1.1328 | 1.2807 | 1.1622 | 1.1455 | | USD | 1.1040 | 1.2813 | 1.2406 | 1.3040 | # **Revenue recognition** For the Tobacco & Nest Generation Products (Tobacco & NGP) business, Revenue comprises the invoiced value for the sale of goods net of sales taxes, rebates and discounts. Revenue is based on the completion of performance obligations that constitute the delivery of goods. The performance obligation is recognized as complete at the point in time when a Group company has delivered products to the customer, the customer has accepted the products and collectability of the related receivables is reasonably assured. The distribution business also recognizes revenue associated with logistics services, recognized on the basis of the invoiced value for the provision of these services net of sales taxes, rebates and discounts. The performance obligations associated with distribution services, which include fees for distributing certain third party products, are linked to the successful distribution of products for customers. The Group recognizes income arising from the licensing of intellectual property, occurring in the ordinary course of business, which is treated as revenue. Licensing revenue will be recognized over the period of the licence. The licences granted are distinct from other promises in the contract. For the Distribution business, revenue comprises the invoiced value for the sale of goods and services net of sales taxes, rebates and discounts when goods have been delivered or distribution services have been provided. The Distribution business only recognises commission revenue on purchase and sale transactions in which it acts as a commission agent. Distribution and marketing commissions are included in revenue. Revenue is recognized on products on consignment when these are sold by the consignee. 170 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandsplc.com 171 --- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued Payments are made to both direct and indirect customers for rebates, discounts and other promotional activities. Direct customers are those to which the Group supplies goods or services. Indirect customers are other entities within the supply chain to the end consumer. Rebates and discounts are deducted from Revenue. Where the contract with customers has an entitlement to variable consideration due to the existence of retrospective rebates and discounts, revenue is estimated based on the amount of consideration expected to be received. This estimation is a determination of the most likely amount to be received using all known factors including historic experience. Typically there is a high degree of certainty over the amount of retrospective rebates discounts paid due to relatively low year in year variations in the volume and pattern of product sales. As the provision of distribution services typically involves product delivery tasks undertaken in a short period of time, revenue and any associated rebates and discounts relating to these services do not normally span an accounting year end Payments for promotional activities will also be deducted from Revenue where the payments relate to goods or service that are closely related to or indistinct from associated sales of goods or services to that customer. The calculated costs are accrued and accounted for as incurred and matched as a deduction from the associated revenues (i.e. excluded from revenues reported in the Group's consolidated income statement). # Duty and similar items Duty and similar items includes duty and levies having the characteristics of duty. In countries where duty is a production tax, duty is included in revenue and in cost of sales in the consolidated income statement. Duty is regarded as a sales tax and excluded from revenue where: - duty becomes payable to the tax authority when the goods are sold, - there is an obligation to change the sales price when a change in the rate of duty is imposed, and - there is a requirement to identify the duty separately on sales information such as invoices. Payments made in the USA under the Master Settlement Agreement are recognized in other cost of sales, for further disclosure see note 29 contingent liabilities. # Taxes Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustments to tax payable in respect of previous years. Uncertain tax positions are assessed and measured on an issue by issue basis within the jurisdictions in which we operate using management's estimate of the most likely outcome. Where management determines that a greater than 50% probability exists that the tax authorities would accept the position taken in the tax return, amounts are recognized in the consolidated financial statements on that basis. Where the amount of tax payable or recoverable is uncertain, the Group recognizes a liability or asset based on either management's judgement of the most likely outcome, or, when there is a wide range of possible outcomes, a probability weighted average approach. The Group recognizes interest on late paid taxes as part of financing costs. The Group recognizes penalties, if applicable, as part of administrative and other expenses. Deferred tax is provided in full on temporary differences between the carrying amount of assets and liabilities in the financial statements and the tax base, except if it arises from the initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is provided on temporary differences arising in investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognized only to the extent that it is probable that future taxable profits will be available against which the assets can be realized. Deferred tax is determined using the tax rates that have been enacted or substantially enacted at the balance sheet date, and are expected to apply when the deferred tax liability is settled or the deferred tax asset is realized. # Intangible assets – goodwill Goodwill represents the excess of value transferred to the seller in return for control of the acquired business together with the fair value of any previously held equity interest in that business over the Group's share of the fair value of the identifiable net assets. Goodwill is tested at least annually for impairment and carried at cost less accumulated impairment losses. Any impairment is recognized immediately in the consolidated income statement and cannot be subsequently reversed. If any negative goodwill arises this is recognized immediately in the income statement. For the purpose of impairment testing, goodwill is allocated to groups of cash generating units that are expected to benefit from the business combination in which the goodwill arose. # Intangible assets – other Other intangible assets are initially recognized in the consolidated balance sheet at historical cost unless they are acquired as part of a business combination, in which case they are initially recognized at fair value. They are shown in the balance sheet at historical cost less accumulated amortization and impairment. The Group does not operate a revaluation model and therefore assets are not subject to ongoing revaluations. These assets consist mainly of acquired trademarks, intellectual property, product development, concessions and rights, acquired customer relationships and computer software. The Davidoff cigarette trademark is considered by the Directors to have an indefinite life based on the fact that it is an established international brand with global potential. Trademarks with indefinite lives are not amortized but are reviewed annually for impairment. The carrying value of Davidoff is subject to an annual impairment review under the requirements of IAS 36 as the Group does not currently foresee a limit to the period over which the asset is expected to generate net cash inflows. The most recent assessment indicates that the carrying value is not impaired. Intellectual property (including trademarks), product development, supply agreements (including customer relationships) and computer software are amortized over their estimated useful lives as follows: | Intellectual property | 5 – 30 years | straight line | | --- | --- | --- | | Supply agreements | 3 – 18 years | straight line | | Software | 3 – 10 years | straight line | | Product development | 3 – 10 years | straight line | # Property, plant and equipment Property, plant and equipment are recognized in the consolidated balance sheet at historical cost or at their initial fair value where they are acquired as part of an acquisition, subject to depreciation or impairment. The Group does not operate a revaluation model and therefore assets are not subject to ongoing revaluations. Land is not depreciated. Depreciation is provided on other property, plant and equipment so as to write down the initial cost of each asset to its residual value over its estimated useful life as follows: | Property | up to 50 years | straight line | | --- | --- | --- | | Plant and equipment | 2 – 20 years | straight line/reducing balance | | Fixtures and motor vehicles | 2 – 10 years | straight line | The assets' residual values and useful lives are reviewed and, if appropriate, adjusted at each balance sheet date. # Financial instruments and hedging Receivables held under a hold to collect business model are stated at amortized cost. Receivables held under a hold to sell business model, which are expected to be sold via a non-recourse factoring arrangement are separately classified as fair value through profit or loss, within trade and other receivables. The calculation of impairment provisions is subject to an expected credit loss model, involving a prediction of future credit losses based on past loss patterns. The revised approach involves the recognition of provisions relating to potential future impairments, in addition to impairments that have already occurred. The expected credit loss approach involves modelling of historic loss rates and consideration of the level of future credit risk. Expected loss rates are then applied to the gross receivables balance to calculate the impairment provision. Cash and cash equivalents include cash in hand and deposits held on call, together with other short-term highly liquid investments. The Group transacts derivative financial instruments to manage the underlying exposure to foreign exchange and interest rate risks. The Group does not transact derivative financial instruments for trading purposes. Derivative financial instruments are initially recorded at fair value plus any directly attributable transaction costs. Derivative financial assets and liabilities are included in the consolidated balance sheet at fair value, and include accrued interest receivable and payable where relevant. However, as the Group has decided (as permitted under IFRS 9) not to cash flow or fair value hedge account for its derivative financial instruments, changes in fair values are recognized in the consolidated income statement in the period in which they arise unless the derivative qualifies and has been designated as a net investment hedging instrument in which case the changes in fair values, attributable to foreign exchange, are recognized in other comprehensive income. Collateral transferred under the terms and conditions of collateral-appendix documents in respect of certain derivatives are sorted off the carrying value of those derivatives in the consolidated balance sheet. # Right of use assets The Group has lease contracts relating to property and other assets (which predominantly relates to motor vehicles). The Group recognizes right of use assets, at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right of use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right of use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognized right of use assets are depreciated on a straight line basis over the shorter of its estimated useful life and the lease term. Right of use assets are subject to impairment. # Lease liabilities At the commencement date of the lease, the Group recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments less any lease incentives receivable, variable lease payments which depend on an index or a rate, and amounts expected to be paid under residual value guarantees. Lease payments include the exercise of purchase options if determined reasonably certain to be exercised and termination payments if the lease term reflects the exercise of an option to terminate. In calculating the present value of lease payments, the Group uses the incremental borrowing rate, defined as the rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right of use asset in a similar economic environment, at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accumulation of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset. 172 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 173 --- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued Lease payments on short-term leases and leases of low value assets are recognised as expense on a straight line basis over the lease term in cost of sales or distribution, advertising and selling costs. # Short-term leases, leases of low value assets and practical expedients applied The Group has applied a number of practical expedients permitted by IFRS 15. These include: - the exclusion of leases where the lease term ends within 12 months of the commencement of the lease or date of initial application; and - the exclusion of leases of low value assets, defined as those of less than US$ 6,000. IFRS 16 was applied using the modified retrospective method, to contracts that were previously identified as operating leases in accordance with IAS 17 and IFRIC 4. The Group has elected to: - apply hindsight in determining the lease term if the contract contains options to extend or terminate the lease; - exclude initial direct costs from the measurement of the right of use asset; and - use a single discount rate to a portfolio of leases with reasonably similar characteristics. These elections were only applied on transition to IFRS 16 and have not been applied to new leases following adoption of the standard. # Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first in first out (FIFO) method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Inventory is considered for obsolescence or other impairment arises and an associated provision is booked where necessary. Leaf tobacco inventory which has an operating cycle that exceeds 12 months is classified as a current asset, consistent with recognised industry practice. # Provisions A provision is recognised in the consolidated balance sheet when the Group has a legal or constructive obligation as a result of a past event, it is more likely than not that an outflow of resources will be required to settle that obligation, and a reliable estimate of the amount can be made. A provision for restructuring is recognised when the Group has approved a detailed formal restructuring plan, and the restructuring has either commenced or has been publicly announced, and it is more likely than not that the plan will be implemented, and the amount required to settle any obligations arising can be reliably estimated. Future operating losses are not provided for. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. # Contingent liabilities Contingent liabilities are possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events, not wholly within the control of the Group. Contingent liabilities are not recognised, only disclosed, unless the possibility of a future outflow of resources is considered remote, or where a disclosure would seriously prejudice the position of the Group. # Retirement benefit schemes For defined benefit schemes, the amount recognised in the consolidated balance sheet is the difference between the present value of the defined benefit obligation at the balance sheet date and the fair value of the scheme assets to the extent that they are demonstrably recoverable either by refund or a reduction in future contributions. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash flows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation. The service cost of providing retirement benefits to employees during the year is charged to operating profit. Past service costs are recognised immediately in operating profit, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time. All actuarial gains and losses, including differences between actual and expected returns on assets and differences that arise as a result of changes in actuarial assumptions, are recognised immediately in full in the statement of comprehensive income for the period in which they arise. An interest charge is made in the income statement by applying the rate used to discount the defined benefit obligations to the net defined benefit liability of the schemes. For defined contribution schemes, contributions are recognised as an employee benefit expense when they are due. # Share-based payments The Group applies the requirements of IFRS 2 Share-Based Payment Transactions to both equity-settled and cash-settled share-based employee compensation schemes. The majority of the Group's schemes are equity-settled. Equity-settled share-based payments are measured at fair value at the date of grant and are expressed over the vesting period, based on the number of instruments that are expected to vest. For plans where vesting conditions are based on total shareholder returns, the fair value at the date of grant reflects these conditions. Earnings per share and net revenue vesting conditions are reflected in the estimate of awards that will eventually vest. For cash-settled share-based payments, a liability equal to the portion of the services received is recognised at its current fair value at each balance sheet date. Where applicable the Group recognises the impact of revisions to original estimates in the consolidated income statement, with a corresponding adjustment to equity for equity-settled schemes and current liabilities for cash-settled schemes. Fair values are measured using appropriate valuation models, taking into account the terms and conditions of the awards. The Group funds the purchase of shares to satisfy rights to shares arising under share-based employee compensation schemes. Shares acquired to satisfy those rights are held in Employee Share Ownership Trusts. On consolidation, these shares are accounted for as a deduction from equity attributable to owners of the parent. When the rights are exercised, equity is increased by the amount of any proceeds received by the Employee Share Ownership Trusts. # Treasury shares When the Company purchases its own equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted on consolidation from equity attributable to owners of the parent until the shares are reissued or disposed of. When such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, increases equity attributable to owners of the parent. When such shares are cancelled they are transferred to the capital redemption reserve. Where the Group enters into a contract with a third party that contains an obligation to re-purchase its own shares for cash or another financial asset, a financial liability is recognised by the present value of the redemption amount. One example is an obligation under a forward contract to re-purchase shares in Imperial Brands PLC for cash. The financial liability is recognised initially at the present value of the redemption amount, and is reclassified from equity. Subsequently, the financial liability is measured in accordance with IFRS 9, and is revalued at subsequent reporting points as appropriate. If the contract expires without delivery, the carrying amount of the financial liability is reclassified to equity. # Hyperinflation The Turkish economy was designated hyperinflationary from April 2022. The Group has applied IAS 29 Financial Reporting in Hyperinflationary Economies to its Turkish operations from the beginning of the 2022 financial year. IAS 29 requires that hyperinflationary adjustments are reflected from the start of the reporting period in which it is applied. For the Group's Turkish operations this is 1 October 2021. In accordance with IAS 22 The Effects of Changes in Foreign Exchange Rates, the comparative figures for the year ended 30 September 2021 have not been modified. The adjustments required by IAS 29 are set out below: - Adjustment of historical cost non-monetary assets and liabilities from their date of initial recognition to the balance sheet date to reflect the changes in purchasing power of the currency caused by inflation, as measured by the official Consumer Price Index (CPI) published by the Turkish Statistical Institute (TUKISM). - Adjustment of the components of the income statement and cash flow statement for the inflation index since their generation, with a balancing entry in the income statement and a reconciling item in the cash flow statement, respectively. - Adjustment of the income statement to reflect the impact of inflation on holding monetary assets and liabilities in local currency, where necessary. - The financial statements of the Group's Turkish operations have been translated into Sterling at the closing exchange rate at 30 September 2022. - The impact of adjustments to non-monetary assets recognising inflation from the adoption date to the closing balance sheet date, on translation into Sterling at the closing balance sheet rate has been recognised within Other Comprehensive Income. - The cumulative impact corresponding to previous years has been reflected directly in equity as an adjustment to the opening retained earnings reserve at 1 October 2021. The TurkStat CPI index was 570.66 at 30 September 2021 and 1,046.89 at 30 September 2022. The inflation index for the year is therefore 1.0345. The Turkish economy has been designated hyperinflationary since April 2022, but the impact on the Group's results remains immaterial. # New accounting standards The following amendments to the accounting standards, issued by the IASB or International Financial Reporting Interpretations Committee (IFRIC) and endorsed for use in the UK, have been adopted by the Group from 1 October 2021 with no impact on the Group's consolidated results, financial position or disclosures: - Amendments to IFRS 9, IAS 39 and IFRS 7 – Interest rate benchmark reform (phase 2) (effective in the year ending 30 September 2022) Following the announcement of the discontinuation of GBP LIBOR at the end of 2021 and USD LIBOR discontinuation in 2023, the Group has amended its bank facility agreement to stop referencing GBP and USD LIBOR and instead reference the daily risk free rates of SONIA and SOFR respectively. All GBP LIBOR derivatives were changed to reference SONIA instead of GBP LIBOR. All USD LIBOR derivatives will be changed to reference SOFR instead of USD LIBOR during the remainder of calendar year 2022. There are no changes pending by euro derivatives. No temporary reliefs or practical expedients were required to be taken by the Group. # New accounting standards and interpretations not yet in issue There are also a number of other amendments and clarifications to IFRS, effective in future years, none of which are expected to significantly impact the Group's consolidated results in financial position. 174 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 175 --- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued ## 2. ACCOUNTING ESTIMATES AND JUDGEMENTS The Group makes estimates and judgements associated with accounting entries which will be affected by future events. Estimates and judgements are continually evaluated based on historical experience, and other factors, including current information that helps form a forward-looking view of expected future outcomes. Estimates involve the determination of the quantum of accounting balances to be recognised. Judgements typically involve decisions such as whether to recognise an asset or liability. The actual amounts recognised in the future may deviate from these estimates and judgements. ### Significant estimates Companies are required to state whether estimates have a significant risk of a material adjustment to the carrying amounts of assets and liabilities within the next financial year. We have reviewed the items below where estimation uncertainty exists. While a number of these areas do involve estimation of the carrying value of assets or liabilities that are potentially significant within the context of the financial statements the Group considers the probability of a significant risk of material adjustment to be low. None of these estimates are expected to present a material adjustment to the carrying amount of assets and liabilities in the next financial year. Therefore, no significant estimates are required to be disclosed. ### Other estimates Other estimates involve other uncertainties, such as those carrying lower risk, which have a smaller potential impact or would be expected to crystallise over a longer timeframe than a significant estimate. These items, listed below, are only disclosed where this provides material relevant information. ### Determination of useful economic life of intangible assets For non-goodwill intangible assets, there is a need to estimate the useful economical life of each asset. This includes determining whether the asset has an indefinite useful economic life, or not. The Davidoff trademark has a significant market share and positive cash flow growth expectations. There are no regulatory or contractual restrictions on the use of this trademark, and there are no plans to significantly redirect resources elsewhere which would reduce the value of this asset. Consequently, in the view of management, the Davidoff trademark does not have a foreseeable and definite end to its ability to generate future cash flows and hence it is not amortised. The carrying value of Davidoff is subject to an annual impairment review under the requirements of IAS 36. The most recent assessment indicates that the carrying value is not impaired. ### Amortisation and impairment of intangible assets For non-indefinite life assets, which are amortised, the useful economic life and recoverable amounts are estimated based upon the expectation of the time period during which an intangible asset will support future cash flows, and the quantum of those cash flows. Due to estimation uncertainties the useful economic lives and associated amortisation rates have to be reviewed and revised where necessary. In addition, where there are indications that the current carrying value of an intangible asset is greater than its recoverable amount, an impairment to the carrying value of the asset may be required. Factors considered important that could trigger an impairment review of intangible assets include the following: - significant underperformance relative to historical or projected future operating results - significant changes in the manner of the use of the acquired assets or the strategy for the overall business; and - significant negative industry or economic trends. The complexity of the estimation process and issues related to the assumptions, risks and uncertainties inherent in the application of the Group's accounting estimates in relation to intangible assets can affect the amounts reported in the financial statements, especially the estimates of the expected useful economic lives and the carrying values of those assets. If business conditions significantly change it is possible that materially different amounts could be reported in the Group's financial statements in future periods. Indefinite life intangible assets, including goodwill, are subject to annual impairment testing where an assessment of the carrying value of the asset against its recoverable amount is undertaken. There are long term uncertainties associated with estimating the value of the recoverable amount, particularly with regard to long term cash flow growth rates which are influenced by the future size and shape of the tobacco sector. While long term growth rates currently used in impairment assessments are based on current best estimates of future performance, there may be changes in these assumptions when conducting impairment tests in subsequent years. Details of goodwill and intangible asset impairment assessments are included in note 11. ### Corporate income taxes Where tax liabilities have been judged to exist, estimation is often required to determine the potential future tax payments. The Group is subject to tax in numerous jurisdictions and significant judgement is required in determining the provision for tax. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Group recognises provisions for tax based on estimates of the taxes that are likely to become due. Where the final tax outcome is different from the amounts that were initially recorded, such differences will impact the current income tax and deferred tax provisions in the period in which such determination is made. Consideration of the valuation estimates related to tax provisions are given in note 7 to these financial statements. ### Legal proceedings and disputes Where a liability is determined there can be a degree of estimation of the potential level of damages expected. Key areas of estimation uncertainty include consideration as to the expected future amount to be paid out in the event the claim succeeds. In some situations where a probability risk calculation is required to determine the amount of an associated provision, both the quantum of future payments and the probability of those payments crystallising needs to be considered, both factors having a degree of uncertainty. More detail as to the considered position of these claims is given in note 29 of the financial statements. To the extent that the Group's assessments at any time do not reflect subsequent developments or the eventual outcome of any claim, its future financial statements may be materially affected, with a favourable or adverse impact upon the Group's operating profit, financial position and liquidity. ### Restructuring provisions The Group holds restructuring provisions where appropriate in respect of estimated future economic outflows which arise due to past events. Estimates are based on information available at the balance sheet date. Actual outflows may not occur as anticipated, and estimates may prove to be incorrect, leading to further changes or releases of provisions as circumstances dictate. These provisions cover the cost of factory closures, scaling down of capacity and other structural changes to the business. These programmes are run as discrete projects with controls over the expected costs and the associated accounting impacts. The calculation of restructuring provisions includes estimation challenges relating to asset remediation costs, the valuation of disposals and termination costs. More details relating to the estimates associated with these restructuring programmes can be found in notes 5 and 24. ### Judgements Paragraph 122 of IAS 1 requires disclosure of judgements made by management in applying an entity's accounting policies, other than those relating to estimation uncertainty. Paragraph 125 of IAS 1 requires more wide-ranging disclosures of judgements that depend on management assumptions about the future, and other major sources of estimation uncertainty ('Significant Judgements'). ### Corporate income taxes Judgement is involved in determining whether the Group is subject to a tax liability or not in line with tax law. The Group is subject to income tax in numerous jurisdictions and significant judgement is required in determining whether there is a liability requiring a provision for tax. Recognition of tax liabilities in situations where there is uncertainty is based on precedent in similar tax cases and external advice as to whether challenges by tax authorities are likely to result in future tax payments being made. The recognition of a tax liability involves consideration of the probability of tax authorities would accept the position taken in the tax return and there is therefore some uncertainty. ### Deferred tax assets Deferred tax assets are recognised for deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which the temporary differences, losses and credits can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits, together with future tax planning strategies. The Group has determined that it cannot recognise deferred tax assets on the temporary differences, tax losses and tax credits carried forward for certain subsidiaries. Further details of the estimates related to deferred taxes are given in note 22 to these financial statements. ### Legal proceedings and disputes The Group reviews outstanding legal cases following developments in the legal proceedings at each balance sheet date, considering the nature of the litigation, claim or assessment, the legal processes and potential level of damages in the jurisdiction in which the litigation, claim or assessment has been brought; the progress of the case (including progress after the date of the financial statements but before those statements are issued), the opinions or views of legal counsel and other advisers; experience of similar cases, and any decision of the Group's management as to how it will respond to the litigation, claim or assessment. Judgement is required as to whether a liability exists. A provision will only be recognised where it is probable that the Group will be required to settle a claim. ### Control of Logista A key judgement relates to whether the Group has effective control of Logista sufficient that the Group can consolidate this entity within its Group accounts in line with the requirements of IFRS 10 Consolidated Financial Statements. The Group holds 50.0% of the voting shares. The Group has reviewed its control of Logista and that it is appropriate to consolidate this entity in line with the requirements of IFRS 10 Consolidated Financial Statements. The Group continues to have Director presence on the Board of Logista, representing 4 out of 10 Directors. The Group has powers to control as set out in the Relationship Framework Agreement which specifies certain areas of operation reserved for shareholder approval and through these measures the Group is able to exercise control of Logista. The Group has therefore concluded that it continues to be appropriate to recognise Logista as a fully consolidated subsidiary. ### Climate change The Group have a designated a programme to manage and mitigate climate related risks. The effect of climate change is not considered to have a material effect on the estimates in the financial statements. Governmental and societal responses to climate change risks are still developing and consequently financial statements cannot capture all possible future outcomes as these are not yet known in doubt have sufficient certainty to be taken into account when determining asset and liability valuations and the timing of future cash flows under the requirements of UK adopted international accounting standards. Please refer to the following sections for further discussion on the impact of climate change relating to going concern assumptions in note 1, intangible assets impairment assumptions in note 11 and recoverability of deferred tax assets in note 22. 176 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 177 --- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued ### 3. SEGMENT INFORMATION Imperial Brands comprises two distinct businesses – Tobacco & NGP and Distribution. The Tobacco & NGP business comprises the manufacture, marketing and sale of Tobacco & NGP and Tobacco & NGP related products, including sales to (but not by) the Distribution business. The Distribution business comprises the distribution of Tobacco & NGP products for Tobacco & NGP product manufacturers, including Imperial Brands, as well as a wide range of non-Tobacco & NGP products and services. The Distribution business is run on an operationally neutral basis ensuring all customers are treated equally, and consequently transactions between the Tobacco & NGP and Distribution businesses are undertaken on an arm's length basis reflecting market prices for comparable goods and services. The function of the Chief Operating Decision Maker (defined in IFRS-8), which is to review performance and allocate resources, is performed by the Board and the Chief Executive, who are regularly provided with information on our segments. This information is used as the basis of the segment revenue and profit disclosures provided below. The main profit measure used by the Board and the Chief Executive is adjusted operating profit. Segment balance sheet information is not provided to the Board or the Chief Executive. Our reportable segments are Europe, Americas, Africa, Asia & Australasia (AAA) and Distribution. Operating segments are comprised of geographical groupings of business markets. The main Tobacco & NGP business markets within the Europe, Americas and AAA reportable segments are: Europe – United Kingdom, Germany, Spain, France, Italy, Greece, Sweden, Norway, Belgium, Netherlands, Ukraine and Poland. Americas – United States. AAA – Australia, Japan, Saudi Arabia, Taiwan and our African markets including Algeria and Morocco Tobacco & NGP | | 2022 | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | £ million unless otherwise indicated | Tobacco | NGP | Tobacco & NGP | Tobacco | NGP | Tobacco & NGP | | Revenue | 23,232 | 324 | 23,498 | 23,664 | 199 | 23,863 | | Net revenue | 7,945 | 200 | 7,793 | 7,432 | 188 | 7,610 | | Operating profit | | | 2,472 | | | 2,991 | | Adjusted operating profit | | | 3,445 | | | 3,308 | | Adjusted operating margin % | | | 44.3 | | | 43.5 | Distribution | £ million unless otherwise indicated | 2022 | 2021 | | --- | --- | --- | | Revenue | 9,706 | 9,589 | | Distribution net revenue | 1,046 | 1,069 | | Operating profit | 212 | 148 | | Adjusted operating profit | 254 | 158 | | Adjusted operating margin % | 24.3 | 24.1 | Revenue | | 2022 | | | 2021 | | --- | --- | --- | --- | --- | | £ million | Total revenue | External revenue | Total revenue | External revenue | | Tobacco & NGP | | | | | | Europe | 14,194 | 13,633 | 14,720 | 14,089 | | Americas | 3,756 | 3,756 | 3,393 | 3,393 | | Africa, Asia & Australasia | 5,506 | 5,506 | 5,750 | 5,750 | | Total Tobacco & NGP | 23,498 | 22,795 | 23,863 | 23,202 | | Distribution | 9,706 | 9,706 | 9,589 | 9,589 | | Eliminations | (661) | – | (661) | – | | Total Group | 32,101 | 32,551 | 32,791 | 32,791 | The eliminations all relate to Tobacco & NGP sales to Distribution. Tobacco & NGP net revenue | | 2022 | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | £ million | Tobacco | NGP | Total | Tobacco | NGP | Total | | Europe | 3,306 | 166 | 3,472 | 3,420 | 126 | 3,581 | | Americas | 2,784 | 42 | 2,828 | 2,478 | 56 | 2,534 | | Africa, Asia & Australasia | 1,496 | – | 1,496 | 1,519 | 6 | 1,505 | | Total Tobacco & NGP | 7,586 | 208 | 7,793 | 7,422 | 188 | 7,610 | Adjusted operating profit and reconciliation to profit before tax | £ million | 2022 | 2021 | | --- | --- | --- | | Tobacco & NGP | | | | Europe | 1,562 | 1,675 | | Americas | 1,179 | 1,107 | | Africa, Asia & Australasia | 700 | 603 | | Total Tobacco & NGP | 3,441 | 3,308 | | Distribution | 254 | 258 | | Eliminations | (1) | 7 | | Adjusted operating profit | 3,694 | 3,573 | | Russian and associated markets exit – Tobacco & NGP | (399) | – | | Acquisition and disposal costs – Tobacco & NGP | (5) | – | | Acquisition and disposal costs – Distribution | – | (27) | | (Loss)/profit on disposal of subsidiaries – Tobacco & NGP | (13) | 281 | | Loss on disposal of subsidiaries – Distribution | (26) | – | | Amortisation and impairment of acquired intangibles – Tobacco & NGP | (323) | (365) | | Amortisation of acquired intangibles – Distribution | (26) | (26) | | Excise tax provision – Tobacco & NGP | 6 | 1 | | Fair value adjustment to financial assets – Tobacco & NGP | (37) | 35 | | Buy-out of liabilities on, Irish pension scheme – Tobacco & NGP | (4) | – | | Restructuring costs – Tobacco & NGP | (197) | (249) | | Restructuring costs – Distribution | – | (8) | | Operating profit | 2,883 | 3,146 | | Net finance (costs)/income | (117) | 81 | | Share of (loss)/profit of investments accounted for using the equity method | (35) | 11 | | Profit before tax | 2,501 | 3,238 | Other information | | 2022 | | | 2021 | | --- | --- | --- | --- | --- | | £ million | Additions to property, plant and equipment | Depreciation and software amortisation | Additions to property, plant and equipment | Depreciation and software amortisation | | Tobacco & NGP | | | | | | Europe | 63 | 103 | 87 | 99 | | Americas | 31 | 35 | 26 | 28 | | Africa, Asia & Australasia | 23 | 25 | 30 | 27 | | Total Tobacco & NGP | 118 | 153 | 133 | 154 | | Distribution | 29 | 32 | 32 | 40 | | Total Group | 145 | 185 | 155 | 194 | ### Additional geographic analysis External revenue and non-current assets are presented for individually significant countries. The geographical analysis is based on country of origin. The Group's products are sold in over 120 countries. | | 2022 | | | 2021 | | --- | --- | --- | --- | --- | | £ million | External revenue | Non-current assets | External revenue | Non-current assets | | UK | 4,286 | 112 | 4,558 | 132 | | Germany | 4,238 | 3,266 | 4,566 | 3,246 | | France | 3,215 | 2,365 | 3,537 | 2,336 | | USA | 3,726 | 6,410 | 3,405 | 5,496 | | Other | 17,086 | 7,336 | 10,723 | 7,207 | | Total Group | 32,551 | 19,402 | 32,791 | 18,477 | Non-current assets comprise intangible assets, property, plant and equipment and investments accounted for using the equity method. 178 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 179 --- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued ### 4. PROFIT BEFORE TAX Profit before tax is stated after charging (crediting) | £ million | 2022 | 2021 | | --- | --- | --- | | Raw materials and consumables used | 807 | 947 | | Changes in inventories of finished goods – Tobacco & NGP | 2,660 | 2,700 | | Changes in inventories of finished goods – Distribution | 7,300 | 7,000 | | Depreciation and impairment of fixed assets | 230 | 170 | | Amortisation and impairment of intangible assets and impairment to investments in associates | 406 | 875 | | Acquisition and disposal costs | 5 | 17 | | Expenses relating to short-term leases | 3 | 4 | | Expenses relating to low value asset leases | 2 | 2 | | Depreciation and impairment of right of use assets | 74 | 66 | | Net foreign exchange losses/(gains) | 75 | (442) | | Write down of inventories | 20 | 117 | | Loss on disposal of non-current assets | – | 2 | | Write back of trade receivables | (3) | (20) | Analysis of fees payables to Ernst and Young LLP and its associates | £ million | 2022 | 2021 | | --- | --- | --- | | Parent Company and consolidated financial statements | 2.2 | 2.0 | | The Company's subsidiaries | 5.6 | 5.1 | | Total audit fees | 7.8 | 7.1 | | Audit related assurance services | 0.4 | 0.4 | | Total audit related fees | 8.2 | 7.8 | | Other assurance services | 0.6 | 0.4 | | Total non-audit fees | 0.6 | 0.4 | | Total auditor's remuneration | 8.8 | 7.9 | ### 5. RESTRUCTURING COSTS | £ million | 2022 | 2021 | | --- | --- | --- | | Employment related | 103 | 145 | | Asset impairments | 70 | 92 | | Other charges | 24 | 20 | | | 197 | 187 | Analysed by workstream: | £ million | 2022 | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | Costs | Cash spend | Cumulative cash spend | Costs | Cash spend | Cumulative cash spend | | 2021 Strategic review programme | 197 | 56 | 104 | 226 | 48 | 48 | | Cost optimisation II | – | 19 | 567 | 16 | 41 | 648 | | Cost optimisation I | – | 11 | 582 | 7 | 12 | 671 | | Other | – | 5 | 90 | 8 | 11 | 88 | | | 197 | 91 | 1,343 | 207 | 112 | 1,282 | The charge for the year is £197 million (2021: £207 million). In the year to 30 September 2022 this all relates to the 2021 Strategic review programme. Restructuring projects involve significant one-off costs that are incurred in integrating acquired businesses and in major rationalisation and optimisation initiatives together with their related tax effects. As these projects are not part of business as usual any costs incurred are classified as restructuring costs and are included within administrative and other expenses in the consolidated income statement and treated as adjusting items. ### 2021 strategic review programme In January 2021, the Group announced the results of a Strategic review programme including an associated and specific time-bound restructuring programme. The total restructuring costs in respect of the programme were expected to be in the range of £375 million – £425 million. The programme is now complete, and total restructuring costs in respect of the programme are £423 million, there are no further costs expected beyond September 2022. Restructuring costs of £197 million (2021: £226 million) related to the 2021 Strategic review programme have been incurred in the year, representing £121 million costs in respect of the change programme itself and £76 million of impairments and other non-cash costs associated with machine and property assets. ### Cost optimisation programmes The cost optimisation programmes (Phase I announced in 2013 and Phase II announced in November 2016) were part of the Group strategy to optimise costs and drive operational efficiencies. The programmes were time-bound projects which, given their scale, were delivered over a number of years. Phase I was concluded at the end of 2018 and has delivered savings of c. £306 million per annum from September 2018. Phase II was concluded at the end of 2021 and has delivered savings of c. £320 million per annum from September 2021. Whilst both programmes are concluded there remain some ongoing cash costs. ### 6. DIRECTORS AND EMPLOYEES Employment costs | £ million | 2022 | 2021 | | --- | --- | --- | | Wages and salaries | 442 | 770 | | Social security costs | 142 | 277 | | Other pension costs (note 23) | 64 | 75 | | Share-based payments (note 26) | 29 | 25 | | | 877 | 1,082 | Operating executive (excluding executive directors) | £ million | 2022 | 2021 | | --- | --- | --- | | Base salary | 4.3 | 3.0 | | Benefits | 0.7 | 0.7 | | Pension salary supplement | 0.7 | 0.5 | | Bonus | 5.3 | 2.9 | | Termination payments | 6.8 | – | | LTP annual/setting | 1.5 | 0.8 | | | 18.3 | 7.7 | 1. Share plans vesting represent the value of LTP awards (to date of recruitment awards) where the performance periods ends in the year. Note: aggregate remuneration paid to or receivable by Executive directors, Non-Executive Directors and members of the Operating Executive for qualifying services in accordance with IAS 24, which includes National Insurance and similar charges was £31,671,710 (2021: £26,439,675). Key management compensation¹ | £ million | 2022 | 2021 | | --- | --- | --- | | Short term employee benefits | 17.6 | 11.7 | | Post-employment benefits | 0.1 | 0.5 | | Termination payments | 0.7 | – | | Share based payments (in accordance with IAS 24) | 3.6 | 0.9 | | | 27.0 | 14.1 | 1. Key management includes Directors, members of the Executive Committee and the Company Secretary. Details of Directors' emoluments and interests, and of key management compensation which represent related party transactions requiring disclosure under IAS 24, are provided within the Directors' Remuneration Report. The Directors' Remuneration Report, on pages 130–148 includes details on salary, benefits, pension and share plans. These disclosures form part of the financial statements. Number of people employed by the group during the year | | 2022 | | 2021 | | | --- | --- | --- | --- | --- | | | At 30 September | Average | At 30 September | Average | | Tobacco & NGP | 19,900 | 22,600 | 24,200 | 24,000 | | Distribution | 5,800 | 6,000 | 6,200 | 6,200 | | | 25,700 | 28,600 | 30,300 | 30,200 | Number of people employed by the group by location during the year | | 2022 | | 2021 | | | --- | --- | --- | --- | --- | | | At 30 September | Average | At 30 September | Average | | UK and European Union | 14,000 | 14,200 | 14,600 | 14,700 | | American | 5,700 | 7,800 | 8,300 | 8,000 | | Rest of the World | 6,000 | 6,600 | 7,400 | 7,500 | | | 25,700 | 28,600 | 30,300 | 30,200 | 180 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 181 --- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued # 7. TAX The major components of income tax expense for the years ended 30 September 2022 and 2021 are | € million | 2022 | 2021 | | --- | --- | --- | | UK current tax | | | | Current year charged to the consolidated income statement | 217 | 21 | | Current year (credited)/charged to consolidated other comprehensive income | (158) | 105 | | Total current year UK current tax | 99 | 126 | | Adjustments in respect of prior years charged (credited) to the consolidated income statement | 149 | (38) | | Total UK current tax | 208 | 88 | | Overseas current tax | | | | Current year charged to the consolidated income statement | 670 | 458 | | Current year charged to consolidated other comprehensive income | - | (2) | | Total current year overseas current tax | 670 | 458 | | Adjustments in respect of prior years (credited)/charged to the consolidated income statement | (116) | 46 | | Total overseas current tax | 664 | 502 | | Total current tax charged to the consolidated statement of other comprehensive income | 762 | 595 | | € million | 2022 | 2021 | | UK current tax | | | | Current year | 217 | 21 | | Adjustments in respect of prior years | 149 | (38) | | Overseas current tax | | | | Current year | 670 | 458 | | Adjustments in respect of prior years | (116) | 46 | | Total current tax | 920 | 687 | | Deferred tax | | | | Relating to origination and reversal of temporary differences | (34) | (156) | | Total tax charged to the consolidated income statement | 886 | 321 | | € million | 2022 | 2021 | | Tax related to items recognized in consolidated other comprehensive income during the year | | | | Current tax on hedge of net investment and quasi-equity loans | (148) | 105 | | Current tax on actuarial gains and losses | (10) | (2) | | Total current tax | (158) | 105 | | Deferred tax on hedge of net investment and quasi-equity loans | - | 12 | | Deferred tax on actuarial gains and losses | 52 | 21 | | Deferred tax on hyperinflation adjustment | 3 | - | | Total deferred tax | 55 | 33 | | Total tax (credited)/charged to consolidated other comprehensive income | (103) | 136 | | € million | 2022 | 2021 | | Tax related to items recognized in equity during the year | | | | Deferred tax on share based payments | (2) | - | | Total tax charged to equity | (2) | - | # Factors affecting the tax charge for the year The tax on the Group's profit before tax differs from the theoretical amount that would arise using the average UK corporation tax rate of 19.0% (2021: 19.0%) as follows | € million | 2022 | 2021 | | --- | --- | --- | | Profit before tax | 2,951 | 3,238 | | Tax at the UK corporation tax rate of 19.0% (2021: 19.0%) | 484 | 615 | | Tax effects of | | | | Differences in effective tax rates on overseas earnings | 118 | 107 | | Movement in provision for uncertain tax positions | (78) | 49 | | Remeasurement of deferred tax balances arising from changes in tax rates | 4 | 15 | | Recognition of deferred tax assets for tax credits | - | (239) | | Remeasurement of previously recognized deferred tax assets | (1) | (5) | | Increase in unrecognised deferred tax assets | 14 | 12 | | Deferred tax on unremitted earnings | (26) | (4) | | Share of fixed/profit of investments accounted for using the equity method | 3 | (2) | | Non-deductible expenses | 18 | 35 | | Non-deductible losses/(non-taxable gains) on net foreign exchange on financial instruments | 145 | (209) | | Non-taxable gain on Premium Cigar Division disposal | - | (81) | | Exempt losses on Russian and associated markets-exit | 88 | - | | Provision for state aid recoverable | 101 | - | | Adjustments in respect of prior years | 16 | (2) | | Total tax charged to the consolidated income statement | 886 | 351 | Differences in effective tax rates on overseas earnings represents the impact of worldwide profits being taxed at rates different from 19.0%. The effective tax rate benefits from internal financing arrangements between group subsidiaries in different countries which are subject to differing tax rates and legislation and the application of double taxation treaties. Recognition of deferred tax assets for credits includes £nil (2021: £239 million) in the Group's Spanish business arising from an internal reorganization during the prior year Remeasurement of previously recognized deferred tax assets includes £nil (2021: £8 million) recognition in relation to deferred tax assets for tax losses in the Group's Dutch business. The Group's assessment of the recoverability of deferred tax assets is based on a review of underlying performance of subsidiaries' changes in tax legislation, the interpretation thereof and changes in the Group structure The remeasurement of deferred tax balances arising from changes in tax rates for the year is £4 million (2021: £15 million) During the year the Group has decreased the provision for deferred tax on unremitted earnings by £26 million (2021: £4 million). The tax will arise on the distribution of profits through the Group and on planned group simplification. # Movement on the current tax account | € million | 2022 | 2021 | | --- | --- | --- | | At 1 October | 82 | (144) | | Charged to the consolidated income statement | (920) | (487) | | Credited/(charged) to other comprehensive income | 158 | (103) | | Cash paid | 681 | 820 | | Exchange movements | (7) | 3 | | Balance sheet reclassification | 33 | (7) | | At 30 September | 27 | 82 | The cash tax paid in the year is £239 million lower than the current tax charge (2021: £233 million higher). This arises as a result of taxing differences between the accrual of income taxes and the actual payment of cash and the movement in the provision for uncertain tax positions. # Analysis of current tax account | € million | 2022 | 2021 | | --- | --- | --- | | State aid tax recoverable | - | 101 | | Current tax assets | 234 | 234 | | Current tax liabilities | (307) | (253) | | | 27 | 82 | 182 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 183 --- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued ### Uncertain tax positions As an international business the Group is exposed to uncertain tax positions and changes in legislation in the jurisdictions in which it operates. The Group's uncertain tax positions principally include cross-border transfer pricing, interpretation of new or complex tax legislation and tax arising on the valuation of assets. Provisions arising from uncertain tax positions taken in the calculation of tax assets and liabilities are included within current tax liabilities. At 30 September 2022 the total value of these provisions, including foreign exchange movements, was £248 million (2021: £306 million). The assessment of uncertain tax positions is subjective and significant management judgement is required. This judgement is based on current interpretation of legislation, management experience and professional advice. Until matters are finally concluded it is possible that amounts ultimately paid will be different from the amounts provided. Management have assessed the Group's provision for uncertain tax positions and have concluded that apart from the matters referred to below, the provisions in place are not material individually or in aggregate, and that a reasonably possible change in the next financial year would not have a material impact to the results of the Group. ### French tax litigation In November 2015 the Group received a challenge from the French tax authorities that could lead to additional tax liabilities of up to £240 million. The challenge concerns the valuation placed on the shares of Alhade Distribution France (now known as Logista France) following an intragroup transfer of shares in October 2012 and the tax consequences flowing from a potentially higher value that is argued for by the tax authorities. In October 2018 the Commission Nationale, an independent adjudication body, whose decision is advisory only, issued a report supportive of the Group's arguments for no adjustment. In December 2018 the French tax authorities issued their final assessments seeking the full amount of additional tax assessed of £240 million (2021: £234 million). In January 2019 the Group appealed against the assessment. In August 2020, the French tax authorities rejected the Group's appeal and the matter will now proceed to litigation. All submissions have been made to the court and we await a hearing date. The Group believes it is appropriate to maintain a £42 million (2021: £41 million) provision for uncertain tax positions in respect of this matter. ### State aid UK CFC The Group continues to monitor developments in relation to EU State Aid investigations. On 26 April 2019, the EU Commission's final decision regarding its investigation into the UK's Controlled Foreign Company regime was published. It concludes that the legislation up until December 2018 does partially represent State Aid. The UK Government has appealed to the European Court seeking annulment of the EU Commission's decision. The Group, along with a number of UK corporates, has made a similar application to the European Court. The UK Government is obliged to collect any State Aid granted pending the outcome of the European Court process. Based on the Commission's decision and despite the appeals, the UK government was obliged to recover State Aid received. Whilst the Group's position remains no State Aid has been received, in February 2021 a recovery charging notice for £101 million was issued to the Group by HMRC, and has since been paid. In June 2022 the European General Court rejected the appeals. Whilst this decision has been appealed to the Court of Justice of the European Union (CJEU) and the appeal may possibly be successful, in the light of the European General Court's decision, we have reassessed recoverability of the £101 million previously recorded as a receivable and have now determined it is appropriate to provide in full. ### Transfer pricing The Group has tax audits in progress, relating to transfer pricing matters in a number of jurisdictions, principally UK, France and Germany. The Group estimates the potential gross level of exposure relating to transfer pricing issues is approximately £200 million (2021: £900 million). The Group holds a provision of £54 million (2021: £260 million) in respect of these items. In August 2020 the Group notified HMRC of a potential Diverted Profits Tax (DPT) issue relating to brand rewards. In September 2020, HMRC issued a preliminary notice under the DPT regime in respect of the year ended 30 September 2016 indicating a potential liability of c. £6 million. Collaborative discussions on the issue continue and it is the Group's belief the issue is a transfer pricing one, and will be resolved as such. In November 2020, HMRC issued a final DPT notice, which has since been paid and recognised as a receivable. In September 2021, further preliminary DPT notices were received in respect of the year ended 30 September 2017 indicating a potential liability of c. £4 million, which has since been paid and recognised as a receivable. Based on advice, the Group continues to believe this is a transfer pricing matter. In September 2022 this matter was concluded as a transfer pricing matter, in respect of which a settlement was made. These DPT payments are now expected to be refunded. In December 2021 the Group concluded a transfer pricing audit with the French tax authorities. In September 2022 the Group concluded transfer pricing audits with the UK and German tax authorities. Settlements of the French and UK audits were made during the Group's year ended 30 September 2022. The Group believe the transfer pricing provision held above appropriately provides for this and other transfer pricing issues. ### French branch tax In December 2021 the Group received assessments from the French tax authorities which could lead to additional liabilities of £69 million. The challenge concerns the intragroup financing of the French branch of Imperial Tobacco Limited. In February 2022 the Group appealed against the assessment. In September 2022 the French tax authorities opened a further tax audit into this matter. Following discussions with the French tax authorities a settlement proposal covering all years has been made for £48 million including interest, for which a provision has been made. ### 8. DIVIDENDS Distributions to ordinary equity holders | £ million | 2022 | 2021 | 2020 | | --- | --- | --- | --- | | Paid interim of 42.54 pence per share (2021: 42.12 pence, 2020: 41.70 pence) | | | | | – Paid June 2020 | – | – | 197 | | – Paid September 2020 | – | – | 197 | | – Paid December 2020 | – | – | 453 | | – Paid June 2021 | – | 199 | – | | – Paid September 2021 | – | 199 | – | | – Paid December 2021 | – | 458 | – | | – Paid June 2022 | 202 | – | – | | – Paid September 2022 | 202 | – | – | | Interim dividend paid | 454 | 856 | 847 | | Proposed interim of 49.31 pence per share (2021: 48.48 pence, 2020: 48.01 pence) | | | | | – To be paid December 2022 | 467 | – | – | | Interim dividend proposed | 467 | – | – | | Proposed final of 49.32 pence per share (2021: 48.48 pence, 2020: 48.01 pence) | | | | | – Paid March 2022 | – | – | 454 | | – Paid March 2022 | – | 458 | – | | – To be paid March 2023 | 467 | – | – | | Final dividend | 467 | 458 | 454 | | Total ordinary share dividends of 141.17 pence per share (2021: 139.08 pence, 2020: 137.71 pence) | 1,228 | 1,314 | 1,305 | The third interim dividend for the year ended 30 September 2022 of 49.31 pence per share amounts to a proposed dividend of £467 million, which will be paid in December 2022. The proposed final dividend for the year ended 30 September 2022 of 49.32 pence per share amounts to a proposed dividend payment of £467 million in March 2023 based on the number of shares ranking for dividend at 30 September 2022, and is subject to shareholder approval. If approved, the total dividend paid in respect of 2022 will be £1,338 million (2021: £1,314 million). The dividend paid during 2022 is £1,320 million (2021: £1,305 million). ### 9. EARNINGS PER ORDINARY SHARE Basic earnings per share is based on the profit for the period attributable to the owners of the parent and the weighted average number of ordinary shares in issue during the period excluding shares held to satisfy the Group's employee share schemes and shares purchased by the Company and held as treasury shares. Diluted earnings per share have been calculated by taking into account the weighted average number of shares that would be issued if rights held under the employee share schemes were exercised. No instruments have been excluded from the calculation for any period on the grounds that they are anti-dilutive. | £ million | 2022 | 2021 | | --- | --- | --- | | Earnings basic and diluted – attributable to owners of the Parent Company | 1,970 | 2,034 | | Millions of shares | 2022 | 2021 | | Weighted average number of shares: | | | | Shares for basic earnings per share | 946.2 | 945.0 | | Potentially dilutive share options | 6.8 | 2.5 | | Shares for diluted earnings per share | 953.0 | 947.5 | | Pence | 2022 | 2021 | | Basic earnings per share | 185.9 | 209.9 | | Diluted earnings per share | 164.7 | 209.1 | 184 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 185 --- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued ### 10. ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES #### Russian and associated markets exit The total loss on exit from the Russian and associated markets was £423 million, comprising a loss on transfer of Russian operations of £364 million, impairment of assets and exit costs of the associated markets of £38 million and the impairment of an intangible asset held by the Global Horizon Ventures Limited joint venture of £24 million. #### Loss on transfer of Russian operations On 27 April 2022, following registration with the Russian tax authority, the Group completed the transfer of its Russian assets to a third party for a total consideration of £20 million. Disposal costs of c. £4 million were incurred. An impairment charge against the Russian assets of £166 million was recognised as at 31 March 2022 when the assets were classified as an asset held for sale. A further net loss of £98 million arose on completion including recycled foreign exchange losses of £190 million. The total loss on disposal was £364 million. The impairment and disposal losses have been treated as adjusting items and are excluded from adjusted earnings. #### Exit of the associated markets The decision to transfer the assets of the Russian operations has implications for a limited number of Group markets that have historically been supplied by the Volgograd factory. Following a review of the impacts resulting from the decision to transfer the Russian factory it was determined that it was unstable to continue trading in these areas for a number of reasons including duty and supply chain challenges. The decision to exit operations results in a number of assets held by these markets having been impaired. In addition certain exit costs are expected to have to be incurred in the process of ending operations. Total impairment and exit costs of £35 million are now required to be recognised. Provisions for the costs of exit have been recognised as at the 30 September 2022 balance sheet date. #### Impairment of Global Horizons Ventures Limited The Group has an investment in the Global Horizon Ventures Limited joint venture company which is accounted for as an investment using the equity method. This entity held an intangible asset relating to royalties arising on the sales of a specific brand within Russia. Following the transfer of the Russian assets these royalties will cease and therefore the Group's share of this asset has now been fully impaired with a charge of £24 million. #### Premium Cigar Division On 27 April 2020 the Group announced that it had agreed the sale of the Premium Cigar Division ('the Division'). The share sale element of the sale of the Division completed on 29 October 2020. Further deferred consideration of £88 million (£74 million) relating to the share sale was received on 26 October 2021. The sale of the La Romana factory in the Dominican Republic completed on 2nd August 2022. Sales consideration of £54 million (£46 million) was received on completion. A loss of £13 million was recognised on disposal. #### Logista #### Disposals On 2 February 2022 the Group's subsidiary Logista sold its interest in Supergroup S.A.S. for a consideration of £nil. As at 30 September 2021 Supergroup S.A.S was held as an asset held for sale. A loss on disposal of £16 million before tax and £9 million after tax has been recognised. In addition Logista sold two properties in the year that had previously been recognised as assets held for sale for consideration of £18 million (£13 million). #### Speedlink On 16 February 2022, the Group's subsidiary Logista acquired 70% of the share capital of Speedlink Worldwide Express B.V. for a purchase consideration of £17 million (£14 million) comprised of £35 million (£13 million) which has been paid in cash and £2 million (£2 million) of contingent consideration which is payable upon achievement of certain business objectives, the maximum contingent consideration payable is £5 million (£3 million). There is an intention to purchase the remaining 30% of share capital over the next 3 years. As effective control has been achieved through this acquisition, Speedlink Worldwide Express B.V. has been consolidated as a subsidiary within the Group with a 65% minority interest. Goodwill of £11 million (£10 million), intangible assets of £35 million (£13 million) and deferred tax liability of £4 million (£3 million) were recognised on acquisition. #### Carbi Colbatelli, S.L. In April 2022, the Group's subsidiary Logista reached an agreement to acquire 100% of Carbi Colbatelli, S.L. for an expected maximum purchase consideration of £51 million (£44 million) based on achievement of certain business conditions being met. The acquisition was completed in October 2022, after these conditions had been met and payment of the full £51 million (£44 million) was made. #### Transportes El Mosca On 17 June 2022, the Group's subsidiary Logista announced the acquisition of 60% of Transportes El Mosca for an expected maximum purchase consideration of £106 million (£91 million). The acquisition of the remaining 40% is expected over the next three years. The acquisition is was completed in October 2022, when Logista paid £63 million in addition to an advance payment of £15 million contingent consideration which will be payable or repayable in part or in full based on achievement of certain business conditions being met. #### Assets and Liabilities Held For Disposal There are no Assets or liabilities classified as held for disposal in 2022 (2021: £35 million assets, £35 million liabilities). ### 11. INTANGIBLE ASSETS | | 2022 | | | | | | --- | --- | --- | --- | --- | --- | | £ million | Goodwill | Intellectual property and product development | Supply agreements | Software | Total | | Cost | | | | | | | At 1 October 2021 | 13,417 | 12,359 | 1,387 | 451 | 27,614 | | Additions | - | 20 | 1 | 65 | 86 | | Acquisitions | 10 | - | 13 | - | 23 | | Disposals | - | - | - | (8) | (8) | | Reclassifications | 4 | - | - | - | 4 | | Exchange movements | 797 | 1,452 | 32 | 14 | 2,338 | | At 30 September 2022 | 14,228 | 13,871 | 1,433 | 522 | 30,054 | | Amortisation and impairment | | | | | | | At 1 October 2021 | 1,542 | 7,735 | 1,355 | 308 | 10,940 | | Amortisation charge for the year | - | 331 | 27 | 35 | 393 | | Impairment | - | - | - | 1 | 1 | | Disposals | - | - | - | (5) | (5) | | Reclassifications | 4 | - | - | - | 4 | | Exchange movements | 41 | 859 | 32 | 12 | 944 | | Accumulated amortisation | - | 8,386 | 1,414 | 350 | 10,150 | | Accumulated impairment | 1,587 | 539 | - | 1 | 2,137 | | At 30 September 2022 | 1,587 | 8,925 | 1,414 | 351 | 12,277 | | Net book value | | | | | | | At 30 September 2022 | 12,542 | 4,946 | 19 | 171 | 17,777 | | | 2021 | | | | | | --- | --- | --- | --- | --- | --- | | £ million | Goodwill | Intellectual property and product development | Supply agreements | Software | Total | | Cost | | | | | | | At 1 October 2020 | 14,435 | 12,994 | 1,463 | 465 | 29,357 | | Additions | - | 9 | - | 28 | 37 | | Disposals | (260) | 5 | (2) | (22) | (279) | | Exchange movements | (758) | (649) | (74) | (20) | (1,501) | | At 30 September 2021 | 13,417 | 12,359 | 1,387 | 451 | 27,614 | | Amortisation and impairment | | | | | | | At 1 October 2020 | 1,895 | 7,663 | 1,241 | 298 | 11,197 | | Amortisation charge for the year | - | 333 | 85 | 37 | 400 | | Impairment | - | 118 | - | 2 | 120 | | Disposals | (260) | - | (1) | (15) | (279) | | Exchange movements | (93) | (379) | (70) | (14) | (994) | | Accumulated amortisation | - | 7,195 | 1,355 | 304 | 8,855 | | Accumulated impairment | 1,542 | 539 | - | 4 | 2,085 | | At 30 September 2021 | 1,542 | 7,735 | 1,355 | 308 | 10,940 | | Net book value | | | | | | | At 30 September 2021 | 11,875 | 4,624 | 32 | 143 | 15,674 | Amortisation and impairment of acquired intangibles excluded from adjusted operating profit amounted to £349 million (2021: £492 million); this comprises amortisation on intellectual property of £323 million (2021: £320 million) and amortisation on supply agreements of £26 million (2021: £85 million). Intellectual property mainly comprises brands acquired in the USA in 2015 and through the purchases of Altadis in 2008 and Commonwealth Brands in 2007. Supply agreements include Distribution customer relationships. All were acquired as part of the Altadis purchase. Intangible amortisation and impairment are included within administrative and other expenses in the consolidated income statement. Amortisation and impairment in respect of intangible assets other than software and internally generated intellectual property are treated as reconciling items between reported operating profit and adjusted operating profit, except to the extent these have been treated as restructuring costs. 186 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 187 --- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued ### Goodwill and intangible asset impairment review Goodwill is allocated to groups of cash-generating units (CGUs) that are expected to benefit from the business combination in which the goodwill arose. For the Tobacco & NGP business CGUs are based on the markets where the business operates and are grouped in line with the divisional structure in operation during the year. The groupings represent the lowest level at which goodwill is monitored for internal management purposes. A summary of the carrying value of goodwill and intangible assets with indefinite lives is set out below: | % value | 2022 | | 2021 | | | --- | --- | --- | --- | --- | | | Goodwill | Intangible assets with indefinite lives | Goodwill | Intangible assets with indefinite lives | | Europe | 4,710 | 343 | 4,452 | 334 | | Americas | 4,326 | – | 4,042 | – | | Africa, Asia & Australasia | 1,862 | – | 1,740 | 132 | | Tobacco & NGP | 10,898 | 343 | 10,184 | 406 | | Distribution | 1,743 | – | 1,631 | – | | | 13,641 | 343 | 12,875 | 406 | Goodwill has arisen principally on the acquisitions of Reemtsma in 2002 (all CGU groupings), Commonwealth Brands in 2007 (USA), Altadis in 2008 (all CGU groupings) and ITG Brands in 2015 (USA). Intangible assets with indefinite lives relate to the tobacco trademark, Davidoff, which was purchased as part of the acquisition of Reemtsma in 2002. The Group tests goodwill and intangible assets with indefinite lives for impairment annually, or more frequently if there are any indications that impairment may have arisen. The value of a Cash Generating Unit Grouping (CGUG) is based on value-in-use calculations. These calculations use cash flow projections derived from financial plans of our Tobacco business which are based on detailed bottom-up market-by-market forecasts of projected sales volumes for each product line. These forecasts reflect, on an individual market basis, numerous assumptions and estimates regarding anticipated changes in market size, prices and duty regimes, consumer up-trading and down-trading, consumer preferences and other changes in product mix, based on long-term market trends, market data, anticipated regulatory developments, and management experience and expectations. We consider that pricing, market size, market shares and cost inflation are the key assumptions used in our plans. ### Growth rates and discount rates used The compound annual growth rates implicit in these value-in-use calculations are shown below. | % | 2022 | | | | | | 2021 | | --- | --- | --- | --- | --- | --- | --- | --- | | | Pre-tax discount rate | Initial growth rate | Long-term growth rate | Pre-tax discount rate | Initial growth rate | Long-term growth rate | | | Europe | 10.3 | 4.6 | 0.6 | 9.9 | 2.7 | 0.1 | | | Americas | 8.7 | 5.2 | 1.6 | 9.8 | 0.7 | 1.6 | | | Africa, Asia & Australasia | 11.1 | 2.8 | 1.3 | 12.1 | 1.7 | 0.3 | | | Distribution | 11.8 | 3.9 | 1.0 | 11.2 | 1.0 | 1.4 | | The calculation to determine the value in use involves a discounted future cash flow forecast model. Nominal cash flows are used in the calculation which will themselves already factor in the effects of inflation. The cash flows are sourced from the Group business plan which considers and factors in the risk of variability of future business performance and hence cash flow variation. A nominal discount rate is used within the model based on the Group's weighted average cost of capital which is itself calculated using the Capital Asset Pricing Model. As risk has been applied within the undiscounted cash flows no adjustment is made to the discount rate for risk, except for the application of country risk premium over and above the Group weighted average cost of capital where appropriate. Country specific discount rates are used based on the Group's weighted average cost of capital adjusted for country risk premium. The impairment review is undertaken at a CGUG level which involves the aggregation of the individual value in use amounts for the individual countries which constitute each CGUG. Our impairment projections are prepared under the basis set out in IAS 16 which can differ from our internal plans. Nominal cash flows from the business plan period are used for year one, two and three, then extrapolated out to year five using the implicit growth rate, shown in the table above as the initial growth rate. In certain markets, the extrapolated cash flow growth rate can exceed the long-term growth rate based on the business plan being a better reflection of the anticipated initial growth. Estimated long-term weighted average compound growth rates are used beyond year five. Long term growth rates are determined as the lower of: - the nominal GDP-growth rates for the country of operation; and - the extrapolation of the initial growth rates as estimated by management for years one to five. Long-term growth rates are based on management's long-term expectations, taking account of industry specific factors such as the nature of our products, the role of excise in government fiscal policy, and relatively stable and predictable long-term macro trends in the Tobacco industry. Year on year variations in initial growth rates may result in consequential changes to estimated long-term rates. Europe's initial growth rate has improved compared with the prior year, with a minor improvement in the long term growth rate. This primarily reflects improvements in the Spanish market, travel retail and global duty free businesses. Americas was broadly in line with the prior year growth assumptions for the initial and medium growth rate. Africa, Asia & Australasia (AAA) increases in the initial growth rates are driven by improved medium term forecasts, which are due to changes in the growth outlook for a number of key markets. Improvements in forecast profitability reflect actions delivered in line with our strategic goals. The long term growth rate improvement reflects changes in certain assumptions associated with the extrapolation of the initial growth rate for a number of individual markets. ### Goodwill and intangible asset impairment review conclusion Our impairment testing confirms there are sufficient cash flows to support the current carrying values of the goodwill held at 30 September 2022. Any reasonable movement in the assumptions used in the impairment tests would not result in an impairment. The complexity of the estimation process and issues related to the assumptions, risks and uncertainties inherent in the application of the Group's accounting estimates in relation to intangible assets can affect the amounts reported in the financial statements, especially the estimates of the expected useful economic lives and the carrying values of those assets. If business conditions significantly change it is possible that materially different amounts could be reported in the Group's financial statements in future periods. There are uncertainties associated with estimating the valuation of the recoverable amount. At the present time the recoverable amount is significantly in excess of the carrying value of goodwill and other intangible assets. However, given the uncertainties mentioned above this could change in the future. ### Consideration of the impact of climate change The Group has completed an assessment of the impact of climate change which includes how it will vary future costs and therefore cash flows. The detail of the Tobacco & NGP climate change review can be found in the ESG review section. The review has concluded that there are limited impacts on future cash flows as a result of climate change. Within the impact assessment there is recognition that gross incremental costs of up to £3,466 million may be incurred in the period up to 2019. We have factored these additional costs to the Group into our discounted cash flow forecasts used for impairment testing valuation purposes. This concluded that there continues to be sufficient headroom. There is therefore no impairment recognised as result of incremental climate change costs. However, the Group will continue to review the climate change impact going forward and any future changes in impact assessment could potentially result in changes to the impairment assessment. ### Other intangible assets Other intangible assets are considered for impairment risk. The carrying values of brand intangibles are reviewed against expected future cash flows of associated products. Impairment will only be recognised where there is evidence that the carrying value of the brand cannot be recovered through those cash flows. No impairments have been recognised for brand intangibles. Intellectual property and product development intangible assets have also been reviewed to identify potential impairment triggers. No such impairment triggers were noted in the year ended 30 September 2022 and hence no impairment charge has been incurred (2021: £118 million). £1 million (2021: £2 million) impairment charge was incurred in the year relating to software. 188 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 189 --- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued # 12. PROPERTY, PLANT AND EQUIPMENT | £ million | Property | Plant and equipment | Fixtures and motor vehicles | Total | | --- | --- | --- | --- | --- | | Cost | | | | | | At 30 September 2021 | 797 | 2,086 | 411 | 3,294 | | Hyperinflation restatement to 1 October 2021 | 1 | 24 | 2 | 27 | | At 1 October 2021 | 798 | 2,110 | 413 | 3,321 | | Additions | 13 | 74 | 58 | 145 | | Disposals | (51) | (170) | (24) | (245) | | Hyperinflation adjustment | 1 | 7 | - | 8 | | Reclassifications | 19 | (4) | (5) | 10 | | Exchange movements | 26 | 63 | 13 | 102 | | At 30 September 2022 | 806 | 2,080 | 405 | 3,341 | | Depreciation and impairment | | | | | | At 30 September 2021 | 162 | 1,146 | 271 | 1,579 | | Hyperinflation restatement to 1 October 2021 | - | - | - | - | | At 1 October 2021 | 162 | 1,146 | 271 | 1,579 | | Depreciation charge for the year | 14 | 102 | 34 | 150 | | Impairment | 10 | 69 | 6 | 85 | | Disposals | (13) | (146) | (21) | (180) | | Reclassifications | - | (4) | 1 | (3) | | Exchange movements | 8 | 33 | 10 | 51 | | At 30 September 2022 | 181 | 1,350 | 301 | 1,682 | | Net book value | | | | | | At 30 September 2022 | 635 | 880 | 154 | 1,659 | | £ million | Property | Plant and equipment | Fixtures and motor vehicles | Total | | Cost | | | | | | At 1 October 2020 | 900 | 2,216 | 438 | 3,589 | | Additions | 13 | 90 | 53 | 158 | | Disposals | (78) | (114) | (43) | (228) | | Reclassifications | 4 | 1 | (4) | 1 | | Transfer to current assets held for disposal | (8) | - | (12) | (20) | | Exchange movements | (39) | (116) | (21) | (176) | | At 30 September 2021 | 797 | 2,086 | 411 | 3,294 | | Depreciation and impairment | | | | | | At 1 October 2020 | 188 | 1,350 | 282 | 2,660 | | Depreciation charge for the year | 20 | 104 | 33 | - | | Impairment | 2 | 11 | - | 13 | | Disposals | (40) | (50) | (30) | (160) | | Reclassifications | 4 | (6) | (2) | (4) | | Exchange movements | (12) | (50) | (12) | (84) | | At 30 September 2021 | 162 | 1,146 | 271 | 1,579 | | Net book value | | | | | | At 30 September 2021 | 639 | 940 | 140 | 1,718 | # 13. RIGHT OF USE ASSETS AND LEASE LIABILITY The movements in right of use assets in the year were as follows: | £ million | Property | Plant and equipment | Fixtures and motor vehicles | Total | | --- | --- | --- | --- | --- | | Net book value | | | | - | | At 1 October 2021 | 202 | 6 | 34 | 262 | | Additions | 57 | 1 | 11 | 69 | | Terminations and modifications | (13) | - | (2) | (15) | | Depreciation and impairment | (56) | (4) | (14) | (74) | | Exchange movements | 4 | - | 2 | 6 | | At 30 September 2022 | 194 | 2 | 31 | 228 | The movements in lease liabilities in the year were as follows: | £ million | Lease Liabilities | | --- | --- | | At 1 October 2021 | 251 | | Cash flow | (64) | | Accretion of interest | 6 | | New leases, terminations and modifications | 54 | | Exchange movements | 5 | | At 30 September 2022 | 248 | The maturity profile of the carrying amount of the Group's lease liabilities and the contractual cash flows as at 30 September 2022 is as follows: | £ million | Lease liabilities | Effect of discounting | Contractual cash flows | | --- | --- | --- | --- | | Amounts maturing | | | | | Within one year | 58 | 6 | 64 | | Between one and five years | 100 | 32 | 140 | | In five years or more | 82 | 3 | 85 | | | 248 | 41 | 289 | Future minimum lease payments liabilities are analysed as below: | £ million | Property | Plant and equipment | Fixtures and motor vehicles | Total | | --- | --- | --- | --- | --- | | Due in less than one year | 48 | 2 | 14 | 64 | | Due between one and five years | 121 | 2 | 17 | 140 | | Due in more than five years | 85 | - | - | 85 | | Total future minimum lease payments payable | 204 | 4 | 31 | 289 | | Effect of discounting | | | | (41) | | Lease liability | | | | 248 | The following are the amounts recognized in the consolidated income statement: | £ million | 2022 | 2021 | | --- | --- | --- | | Expenses relating to short-term leases | 3 | 4 | | Expenses relating to low value asset leases | 2 | 2 | | Depreciation and impairment expense of right of use assets | 74 | 66 | | Interest on lease liabilities | 6 | 7 | 190 Imperial Brands | Annual Report and Accounts 2022 www.imperialbrandspic.com 191