TIDM94JK
RNS Number : 6005A
Imperial Brands Finance PLC
03 February 2022
Company Number: 03214426
IMPERIAL BRANDS FINANCE PLC
Annual Report and Financial Statements 2021
STRATEGIC REPORT
For the year ended 30 September 2021
The Directors present their Strategic Report together with the
audited financial statements of Imperial Brands Finance PLC (the
"Company") for the year ended 30 September 2021.
Principal activity and principal risks and uncertainties of the
Company
The principal activity of the Company is to provide treasury
services to Imperial Brands PLC and its subsidiaries (the
"Group").
The Company, as the main financing and financial risk management
company for the Group, undertakes transactions to manage the
Group's financial risks, together with its financing and liquidity
requirements. Financial risks comprise, but are not limited to,
market, credit and liquidity risk. A summary of the Company's
policies in respect of foreign exchange, interest, credit and
liquidity risks is included in note 13.
The Company is a wholly owned indirect subsidiary of Imperial
Brands PLC, which is the ultimate parent company within the Group,
and the Directors of the Group manage operations at a Group level.
For this reason, the Company's Directors believe that analysis
using key performance indicators for the Company is not necessary
or appropriate for an understanding of the development, performance
or position of the business of the Company. The development,
performance and position of the treasury operations of the Group,
which includes the Company, are discussed in note 21 of the
Imperial Brands PLC Annual Report ("Imperial Brands Annual Report")
which does not form part of this report, but is available at
www.imperialbrandsplc.com. Financial risk management disclosures
can be found in note 13.
COVID-19
The Company'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 of the Group. The
Directors recognise that the current environment brings uncertainty
due to the COVID-19 pandemic; however, over the last 18 months, the
Group has effectively managed operations across the world, and has
proved it has an established mechanism to operate efficiently
despite the uncertainty.
To date, the observable impacts on the Imperial Brands group's
activities have been limited to low level changes in credit risk in
the duty free and travel retail operations area. However there are
ongoing risks arising from the COVID-19 pandemic that may impact
the Company including:
-- The pandemic has placed pressure on raw material suppliers
which may result in some cost increases which have limited
implications for future funding requirements.
-- The need to raise public finances following the cost of the
COVID-19 pandemic may increase the likelihood of changes in tax
legislation, and/or an increased propensity for regulators to
investigate large companies in the hope of achieving additional tax
revenues and fines. These challenges may result from differences of
opinion or changes in regulator interpretation of tax legislation
in place with which the Company considers itself to be
compliant.
-- There is an ongoing risk that failure to maintain cash flows
could impact the Group's and therefore the Company's ability to pay
down debt, impacting covenants, credit ratings, bank, bond, and
investor confidence. In addition a fall in certain of our credit
ratings would raise the cost of our existing committed funding and
is likely to raise the cost of future funding and affect our
ability to raise debt. However, the Group has a strong focus on
cash generation supported by robust governance processes. Cash
flows, financing requirements and key rating agency metrics are
regularly forecast and updated in line with performance and
expectations to manage future financing needs and optimise cost and
availability. The Company has investment grade credit ratings from
the main credit rating agencies, which supports it to access
financing in the global debt capital markets.
LIBOR
Following the announcement of the discontinuation of GBP LIBOR
at the end of 2021 and USD LIBOR discontinuation in 2023, the
Company 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 current GBP LIBOR derivatives
will be changed to reference SONIA instead of GBP LIBOR by the end
of 2021, then all USD LIBOR derivatives will be changed to
reference SOFR instead of USD LIBOR during the remainder of fiscal
year 2022. There are no changes pending for EUR derivatives.
Review of the business
The performance of the Company is dependent on external
borrowings and intragroup loans payable and receivable and interest
thereon, together with fair value gains and losses on derivative
financial instruments. While the Company remains the principal
financing entity for the Imperial Brands Group a new Group entity,
Imperial Brands Financing Netherlands BV, was incorporated during
the year. This company raised an initial bond of EUR1 billion in
March 2021 and is expected to raise external debt finance for the
Group going forward.
The profit for the financial year was GBP55 million (2020: loss
of GBP150 million) and is stated after a charge of GBP198 million
(2020: GBP294 million) arising on an increase in the expected
credit loss provision against the carrying value of certain of its
loans made to entities within the Imperial Brands Group. The
expected loss provision arises due to increases in the assessment
of credit risk associated with the future repayment of the loans.
The charge arising is not tax deductible and therefore there is no
associated tax credit.
Total equity as at 30 September 2021 was GBP2,313 million (2020:
GBP2,258 million).
The aggregate dividends on the ordinary shares recognised as a
charge to shareholders' funds during the year amount to GBPnil
million (2020: GBPnil million).
UK Companies Act: Section 172 (1) statement
The Company is part of the Imperial Brands Group and is
ultimately owned by Imperial Brands PLC. As set out above the
Company's principal activities comprise undertaking transactions to
manage the Group's financial risks, together with its financing and
liquidity requirements. Under Section 172 (1) of the UK Companies
Act 2006 and as part of the Directors' duty to the Company's
shareholders to act as they consider most likely to promote the
success of the Company, the Directors must have regard to the long
term consequences of decisions and the desirability of maintaining
a reputation for high standards of business conduct. The Directors
must also have regard for business relationships with the Company's
wider stakeholders, and the impact of the Company's operations on
the environment and communities in which it operates. Consideration
of these factors and other relevant matters is embedded into board
decision making and risk assessments throughout the year.
The Company's key stakeholders are financial institutions in
which it engages with in relation to the Company's financial
activities and those members of the Imperial Brands Group to which
it provides finance-related services. Primary ways in which the
Company engages with financial institutions are through meetings,
ongoing dialogue and relationship management conducted by the
Imperial Brands Group Treasury and Finance teams. There is regular
engagement with Imperial Brands PLC on finance related matters,
which is taken into account in the Company's decision making.
Primary ways in which the Company engages directly or indirectly,
as part of the Imperial Brands Group, with its key stakeholders are
summarised at pages 38 to 41 of the Imperial Brands Annual Report.
This enables the Directors to maintain an effective understanding
of what matters to those stakeholders and to draw on these
perspectives in Board decision making. During the decision making
process the Directors are made aware of the impact of decisions on
relevant stakeholders and engagement that has occurred with those
stakeholders where applicable.
In accordance with the Imperial Brands Group's overall
governance and internal control framework and in support of the
Company's purpose as part of the Imperial Brands Group, the Company
applies and the Directors have regard to all applicable Imperial
Brands Group policies and procedures, including the Group Statement
of Delegated Authorities, standards of business conduct, health and
safety and environmental policies. Where authority for decision
making is delegated to management under the Group delegated
authority rules, appropriate regard is given to the likely long
term consequences of decisions, the imperative of maintaining high
standards of business conduct, employees' interests, business
relationships with wider stakeholders, the impact of business
operations on the environment and communities, and other relevant
factors. The Imperial Brands Group Statement of Delegated
Authorities is part of the Imperial Brands Group's governance and
internal control framework through which good corporate governance,
risk management and internal control is promoted within the
Imperial Brands Group and does not derogate from any requirement
for Board review, oversight or approval in relation to the
Company's activities.
On behalf of the Board
M A Wall
Director
28 January 2022
REPORT OF THE DIRECTORS
For the year ended 30 September 2021
The Directors submit their report together with the Strategic
Report and the audited financial statements of the Company for the
year ended 30 September 2021.
Principal activity and financial risk management
As set out in the Strategic Report, the principal activity of
the Company is to provide treasury services to the Group. The
principal risks and uncertainties facing the Company are outlined
in the Strategic Report, with the management of those risks
discussed in note 13 to the financial statements.
Financial results and dividends
The financial results of the Company for the year are outlined
in the Strategic Report.
The Directors do not recommend the payment of a final dividend
for the year (2020: GBPnil million).
Responsibility statements under the Disclosure and Transparency
Rules
Each of the directors confirm that to the best of their
knowledge:
-- The financial statements, prepared in accordance with
applicable law and United Kingdom Accounting Standards (United
Kingdom Generally Accepted Accounting Practice), including
Financial Reporting Standard 101 'Reduced Disclosure Framework'
("FRS101"), give a true and fair view of the assets, liabilities,
financial position and profit of the company, and
-- The Strategic Report and Report of the Directors report
includes a fair review of the development and performance of the
business and the position of the Company together with a
description of the principal risks and uncertainties that it
faces.
Corporate governance
The Company is a wholly owned indirect subsidiary of Imperial
Brands PLC and the Directors of the Group manage corporate
governance at a Group level. The Group's statement on corporate
governance can be found in the corporate governance report in the
Imperial Brands Annual Report, which does not form part of this
report, but is available at www.imperialbrandsplc.com. A
description of the internal control framework is provided in the
Strategic Report with consideration given to the risk management
policies of the Company included in note 13 to the financial
statements. For this reason, the Company's Directors consider
further detail of corporate governance in this report not
necessary.
Financial reporting
The Company has in place internal control and risk management
systems in relation to the Company's financial reporting process
and the process for the preparation of financial statements. These
systems include clearly defined lines of accountability and
delegation of authority, policies and procedures that cover
financial planning and reporting, preparation of monthly management
accounts, review of the disclosures within the report and accounts
to ensure that the disclosures made appropriately reflect the
developments within the Company in the year and meet the
requirement of being fair, balanced and understandable.
The above disclosures are made in accordance with the United
Kingdom Listing Authority Disclosure and Transparency Rules Section
7.2.5, requiring disclosure of internal control and risk compliance
systems.
Insurance
Imperial Brands PLC has purchased Directors' and Officers'
liability insurance that has been in force throughout the financial
year and is currently in force. The Directors of the Company have
the benefit of this insurance, which is a qualifying third party
indemnity provision as defined by the Companies Act 2006.
Future outlook
The business activity is expected to continue at levels similar
to the current level. The Company will continue to manage the
overall liquidity and financial risk management requirements of the
Group as they change over time. The Company will manage the Group's
financing requirement in combination with other Group entities
where it is beneficial to the Group as a whole.
Board of Directors
The Directors of the Company who were in office during the year
and up to the date of signing the financial statements are:
-- J M Jones Resigned on 1 November 2021
-- L J Paravicini Appointed on 19 May 2021
-- M E Slade Appointed on 13 December 2021
-- O R Tant Resigned on 18 May 2021
-- T R W Tildesley Resigned on 30 April 2021
-- M A Wall
Going concern
The Company has been issued a support letter from its parent
company, Imperial Brands PLC, confirming ongoing financial support
in meeting liabilities as they fall due for a period of 12 months
from the date of approval of the financial statements. Imperial
Brands PLC has undertaken its own assessment of going concern,
which it has confirmed and this is disclosed on page 164 of the
Imperial Brands Annual Report for the year ended 30 September 2021.
The Directors are satisfied that no events took place after the
release of the Imperial Brands PLC Annual Report that give rise to
any uncertainties relating to going concern, and accordingly the
Directors considered it appropriate to rely upon this support in
making their going concern assessment for these financial
statements. The Directors are satisfied that the Company has
adequate resources to meet its operational needs for the
foreseeable future which is 12 months from the date of signing the
financial statements and accordingly they continue to adopt the
going concern basis in preparing the financial statements.
Statement of Directors' responsibilities
The Directors are responsible for preparing the Strategic
Report, the Report of the Directors and the 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
have prepared the financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards, comprising FRS 101 "Reduced Disclosure
Framework", and applicable law). 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
Company and of the profit or loss of the Company for that
period.
In preparing these financial statements, the Directors are
required to:
-- select suitable accounting policies in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors and
applying them consistently;
-- make judgements and accounting estimates that are reasonable
and prudent;
-- 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 FRS 101 are insufficient to enable users
to understand the impact of particular transactions, other events
and conditions on the Company's financial position and financial
performance;
-- state whether applicable United Kingdom Accounting Standards,
comprising FRS 101, 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 Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Disclosure of information to Auditors
Each of the Directors in office as of the date of approval of
this report confirms that:
-- so far as they are aware, there is no relevant audit
information of which the Company's Auditors are unaware; and
-- they have each taken all the steps that they ought to have
taken as a Director in order to make themselves aware of any
relevant audit information and to establish that the Company's
Auditors are aware of that information.
On behalf of the Board
M A Wall
Director
28 January 2022
FINANCIAL STATEMENTS
For the year ended 30 September 2021
Income Statement
(In GBP million) Notes 2021 2020
------------------------------------- ----- ------- -------
Administrative expenses (1) (4)
Impairment losses 10 (198) (294)
Other operating income 1 1
===================================== ===== ======= =======
Operating loss 4 (298) (297)
Investment income 5 2,034 1,554
Finance costs 6 (1,721) (1,373)
===================================== ===== ======= =======
Profit/(loss) before taxation 115 (116)
Tax on profit/(loss) 8 (60) (34)
===================================== ===== ======= =======
Profit/(loss) for the financial year 55 (150)
===================================== ===== ======= =======
The Company has no other comprehensive income other than that
included above and, therefore, a separate statement of
comprehensive income has not been presented.
Balance Sheet
As at 30 September 2021
(In GBP million) Notes 2021 2020
--------------------------------- ----- -------- --------
Non-current assets
Trade and other receivables 10 64 109
Derivative financial instruments 14 391 784
455 893
================================= ===== ======== ========
Current assets
Trade and other receivables 10 33,731 31,983
Cash and cash equivalents 622 911
Derivative financial instruments 14 68 51
================================= ===== ======== ========
34,421 32,945
================================= ===== ======== ========
Total assets 34,876 33,838
================================= ===== ======== ========
Current liabilities
Borrowings 12 (1,056) (1,381)
Derivative financial instruments 14 (62) (37)
Other payables 11 (21,745) (18,334)
(22,863) (19,752)
================================= ===== ======== ========
Non-current liabilities
Borrowings 12 (7,857) (10,209)
Derivative financial instruments 14 (984) (1,619)
Other payables 11 (859) -
(9,700) (11,828)
================================= ===== ======== ========
Total liabilities (32,563) (31,580)
================================= ===== ======== ========
Net assets 2,313 2,258
================================= ===== ======== ========
Equity
Share capital 15 2,100 2,100
Retained earnings 213 158
Total equity 2,313 2,258
================================= ===== ======== ========
The financial statements were approved by the Board of Directors
on 28 January 2022 and signed on its behalf by:
L J Paravicini ________________
Director
M A Wall ________________
Director
Company Number: 03214426
Statement of Changes in Equity
For the year ended 30 September 2021
Share Retained Total
(In GBP million) capital earnings equity
--------------------------------------------- -------- --------- -------
At 1 October 2020 2,100 158 2,258
Total comprehensive income
============================================= ======== ========= =======
Profit for the financial year - 55 55
------------------------------------------------- -------- --------- -------
Total comprehensive income for the year year - 55 55
================================================= ======== ========= =======
At 31 September 2021 2,100 213 2,313
================================================= ======== ========= =======
Share Retained Total
(In GBP million) capital earnings equity
--------------------------------------------- -------- --------- -------
At 1 October 2019 2,100 308 2,408
Total comprehensive income
============================================= ======== ========= =======
Loss for the financial year - (150) (150)
------------------------------------------------- -------- --------- -------
Total comprehensive income for the year - (150) (150)
-
--------------------------------------------- -------- --------- -------
At 30 September 2020 2,100 158 2,258
================================================= ======== ========= =======
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2021
1. Authorisation of financial statements and statement of
compliance with FRS101
The principal activity of the Company is to provide treasury
services to the Group. The Company is a public limited company
incorporated and domiciled in England and Wales. The registered
address is 121 Winterstoke Road, Bristol, BS3 2LL. The Company is
classified as a financial institution as defined by FRS 101.
The financial statements of the Company for the year ended 30
September 2021 were authorised for issue by the Board of Directors
on 28 January 2022, and the balance sheet was signed on the Board's
behalf by M A Wall and L J Paravicini.
These financial statements have been prepared on the going
concern basis and in accordance with the United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting Standards
and applicable law) including the Companies Act 2006 and FRS 101.
The Company has been issued a support letter from its parent
company, Imperial Brands PLC, confirming ongoing financial support
in meeting liabilities as they fall due for a period of 12 months
from the date of approval of the financial statements. Imperial
Brands PLC has undertaken its own assessment of going concern,
which it has confirmed and this is disclosed on page 164 of the
Imperial Brands Annual Report for the year ended 30 September 2021.
The Directors are satisfied that no events took place after the
release of the Imperial Brands PLC Annual Report that give rise to
any uncertainties relating to going concern, and accordingly the
Directors considered it appropriate to rely upon this support in
making their going concern assessment for these financial
statements. The Directors are satisfied that the Company has
adequate resources to meet its operational needs for the
foreseeable future which is 12 months from the date of signing the
financial statements and accordingly they continue to adopt the
going concern basis in preparing the financial statements.
The Company's financial statements are presented in pounds
sterling, its functional currency, and all values are rounded to
the nearest million pounds (GBP million) except when otherwise
indicated.
The principal accounting policies adopted by the Company are set
out in note 2.
2. Accounting policies
Basis of preparation of financial statements
The preparation of financial statements in conformity with FRS
101 requires the use of certain critical accounting estimates and
judgements in applying the Company's accounting policies. The areas
involving a higher degree of judgement or complexity, or areas
where assumptions and estimates are significant to the financial
statements are disclosed in note 3.
The Company has taken advantage of the following disclosure
exemptions under FRS 101 on the basis that the disclosures are
available within the consolidated financial statements of the
ultimate parent company, which is Imperial Brands Plc. The
disclosures may be found via the investor relations section of the
Imperial Brands PLC website at www.imperialbrandsplc.com/investors
.
a) the requirement in paragraph 38 of IAS 1 Presentation of
Financial Statements to present comparative information in respect
of paragraph 79(a)(iv) of IAS 1 Presentation of Financial
Statements.
b) the requirements of paragraphs 10(d) and 10(f) of IAS 1 Presentation of Financial Statements.
c) the requirements of IAS 7 Statement of Cash Flows.
d) the requirements of paragraph 17 of IAS 24 Related Party Disclosures.
e) the requirements in IAS 24 Related Party Disclosures to
disclose related party transactions entered into between two or
more members of a group, provided that any subsidiary which is a
party to the transaction is wholly owned by such a member.
The financial statements have been prepared on an amortised cost
or fair value basis as described in the accounting policies on
financial instruments below.
New accounting standards and interpretations
For the year ended 30 September 2021 the Company continued to
apply international accounting standards in conformity with the
requirements of United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law)
including the Companies Act 2006 and FRS 101. From 1 October 2021,
as a result of the UK leaving the European Union, the Company will
be required to prepare financial statements in line with FRS 101
applying applicable international accounting standards, issued by
the IASB or International Financial Reporting Interpretations
Committee (IFRIC) and endorsed for use in the UK, referred to as
'UK-adopted IFRS'.
The following amendments to the accounting standards, issued by
the IASB or IFRIC, have been adopted by the Company from 1 October
2020 with no impact on the Company's results, financial position or
disclosures:
-- Amendments to References to the Conceptual Framework in IFRS
-- Amendments to IAS 1 and IAS 8 - Definition of Material
-- Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest rate benchmark reform (phase 1)
The Company holds derivative contracts which will be impacted by
the impending reforms to the calculation of the Interbank Offered
Rates (IBOR). However, the Company does not expect the reforms will
result in a material impact on its results and the derivatives are
not included within hedge accounting relationships in the Company.
Changes in the fair value of these derivatives attributable to
changes in interest rates and the effect of discounting are
recognised directly in profit or loss within the Finance costs
line.
Accounting standards and interpretations not yet in issue
The following standard and amendment, issued by the IASB has not
yet been adopted by the Company:
-- 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
Company 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 current GBP LIBOR derivatives
will be changed to reference SONIA instead of GBP LIBOR by the end
of 2021, then all USD LIBOR derivatives will be changed to
reference SOFR instead of USD LIBOR during the remainder of fiscal
year 2022. There are no changes pending for EUR derivatives.
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 Company's results or financial
position.
Interest
Interest payable and receivable is recognised in the income
statement using the effective interest method.
The principal activity of the Company is to provide treasury
services to the Group. However, the Company has chosen to present
interest receivable and payable below operating profit, including
foreign exchange gains and losses on financing activities, in order
to have a consistent treatment with the format of the consolidated
financial statements of the Group. This is considered appropriate
since the Company undertakes transactions on behalf of the
Group.
Foreign currencies
Monetary assets and liabilities denominated in foreign
currencies are translated into pound sterling at the rates of
exchange ruling at the balance sheet date.
Transactions in currencies other than pound sterling 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 are taken to the income
statement.
Taxes
The tax expense for the period comprises current and deferred
tax. Tax is recognised in the income statement, except to the
extent that it relates to items recognised in other comprehensive
income or directly in shareholders' funds. In this case, the tax is
also recognised in other comprehensive income or directly in the
shareholders' funds, respectively.
Current tax is the expected tax payable on the taxable income
for the period, using tax rates enacted or substantively enacted at
the balance sheet date, and any adjustments to tax payable in
respect of previous periods.
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 assets are recognised only to the extent that it is
probable that future taxable profits will be available against
which the assets can be realised. Deferred tax is determined using
the tax rates that have been enacted or substantively enacted at
the balance sheet date, and are expected to apply when the deferred
tax liability is settled or the deferred tax asset is realised.
Deferred tax is determined using tax rates that have been
enacted or substantively enacted by the balance sheet date and are
expected to apply when the related deferred tax asset is realised
or the deferred tax liability is settled. Deferred tax is measured
on a non-discounted basis.
Dividends
Final dividends are recognised as a liability in the period in
which the dividends are approved by shareholders, whereas interim
dividends are recognised in the period in which the dividends are
paid.
Financial instruments
Receivables held under a hold to collect business model are
stated at amortised cost.
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 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
(where applicable) 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.
Financial assets and financial liabilities are recognised when
the Company becomes a party to the contractual provisions of the
relevant instrument. Financial assets are de-recognised when the
rights to receive benefits have expired or been transferred, and
the Company has transferred substantially all risks and rewards of
ownership. Financial liabilities are de-recognised when the
obligation is extinguished.
Non-derivative financial liabilities are initially recognised at
fair value and are subsequently stated at amortised cost using the
effective interest method under a hold to collect business model.
For borrowings, the carrying value includes accrued interest
payable, as well as unamortised transaction costs. Cash and cash
equivalents include cash in hand and deposits held on call,
together with other short-term highly liquid investments.
The Company transacts both intragroup and external derivative
financial instruments to manage the Company's and the Group's
underlying exposure to foreign exchange and interest rate risks.
The Company 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 balance sheet at fair value, and include accrued interest
receivable and payable where relevant. The Company has decided (as
permitted under FRS 101) not to hedge account for its derivative
financial instruments and so changes in fair values are recognised
in the income statement in the period in which they arise.
Collateral transferred under the terms and conditions of a
credit support annex document under an International Swaps and
Derivatives Association ("ISDA") agreement in respect of one
derivative is net settled and is, therefore, netted off the
carrying value of the derivative in the balance sheet.
3. Critical accounting estimates and assumptions
The Company makes estimates and assumptions concerning the
future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. The estimates and
assumptions that have significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year are addressed below. There were no critical
judgements involved in the preparation of these financial
statements.
Expected credit loss on other receivables
An expected credit loss provision has been recognised against
the carrying value of certain trade and other receivables. The
provision is a reduction in the carrying value of the asset
involved reflecting an assessment of the level of risk that future
repayment may default. The loans receivable involved are all loans
made to entities within the Imperial Brands Group. The provision
has been calculated based on the size of the loan, the probability
of default (measured through credit default rates or expected
future cashflows) and the loss estimated to arise if a default
occurred (considered with regard to the value of the realisable
assets of the counterparty). The probability of default rates used
vary from 1% up to 75%. The loss given default rates ranged from
nil up to 100% for certain entities where the counterparty has
insufficient assets that could be realised to repay the loan. All
intergroup loans continue to perform at present, are not in default
and operate within their loan limits.
There may be circumstances where intragroup guarantees are in
place where a Group company accepts the credit risk associated with
an intergroup loan between the Company and a further third Group
entity. These guarantees are evaluated in terms of their effect on
the level of credit risk retained by the Company and therefore the
total amount of the expected credit loss provision. Further
information as to the sensitivity of expected credit loss risk is
disclosed in note 13, B) credit risk.
Derivatives
The fair value of derivatives are determined based on observable
market data such as yield curves, foreign exchange rates and credit
default swap prices to calculate the present value of future cash
flows associated with each derivative at the balance sheet date.
Those techniques are significantly affected by the assumptions
used, including discount rates, estimates of future cash flows,
exchange rates and interest rates. The valuation of derivatives is
subject to changes in the underlying assumptions used by financial
markets in valuing financial instruments. The impact of changes in
these assumptions can be significant resulting in volatility in
valuations. Further information as to the sensitivity of valuations
is disclosed in note 13.
The categorisation within the fair value hierarchy (i.e. level
1, 2 or 3) of the inputs to the fair value measurements of
derivatives carried at fair value is set out in note 13.
4. Operating loss
The operating loss includes an expected credit loss charge on
loans receivable of GBP198 million (2020: GBP294 million). It is
stated after charging auditors' fees of GBP155,270 (2020:
GBP44,716) which were met by Imperial Tobacco Limited ("ITL"), a
wholly owned indirect subsidiary of Imperial Brands PLC. There were
no non-audit fees paid during the year (2020: GBPnil). The Company
has also been recharged office rental costs from another Group
company of GBP30,960 (2020: GBP30,960).
5. Investment income
(In GBP million) 2021 2020
----------------------------------------------------------------- ------ ------
Interest receivable from Group undertakings 554 836
Interest on bank deposits - 2
Exchange gains on monetary assets and liabilities 997 -
Fair value gains on external derivative financial instruments 483 660
Fair value gains on intragroup derivative financial instruments - 56
2,034 1,554
================================================================= ====== ======
6. Finance costs
(In GBP million) 2021 2020
------------------------------------------------------------------ ------ ------
Interest payable to Group undertakings 70 141
Interest on bank loans and other loans 380 414
Exchange losses on monetary assets and liabilities - 233
Fair value losses on external derivative financial instruments 427 585
Fair value losses on intragroup derivative financial instruments 844 -
1,721 1,373
================================================================== ====== ======
7. Directors' emoluments and pensions
Employment costs
Employment costs, which do not include pension costs, are paid
by ITL and subsequently recharged to the Company.
The total salary costs recharged in the year was GBP710,114
(2020: GBP933,467) and social security costs of GBP72,851 (2020:
GBP106,539) recognised within administrative expenses in the income
statement. The average monthly number of employees during the year
was 8 (2020: 8).
The emoluments of the Directors are paid by ITL. The Directors'
services to the Company and to a number of fellow subsidiaries
below the ultimate parent company are of a non-executive nature and
their emoluments and retirement benefits are deemed to be wholly
attributable to their services to ITL and the Group. Services
directly attributable to the Company are a negligible proportion of
those provided to the Group, accordingly no emoluments or
retirement benefits are disclosed in these financial
statements.
8. Tax on profit
Analysis of charge in the year:
(In GBP million) 2021 2020
-------------------------------------------------- ----- -----
UK Corporation tax on profit/(loss) for the year 60 34
Withholding tax 1 1
Double taxation relief (1) (1)
=================================================== ===== =====
Current tax 60 34
--------------------------------------------------- ----- -----
Total tax charge 60 34
=================================================== ===== =====
Tax for the year is higher than (2020: higher than) the standard
rate of corporation tax in the UK for the year of 19% (2020:
19%).
The differences are explained as follows:
(In GBP million) 2021 2020
------------------------------------------------------------------- ----- ------
Profit/(loss) before taxation 115 (116)
==================================================================== ===== ======
Profit before taxation multiplied by standard rate of corporation
tax in the UK of 19% (2020: 19%) 22 (22)
Effects of:
Non-deductible expected credit loss provision charge 38 56
Total tax charge 60 34
==================================================================== ===== ======
Movement on current tax account
(In GBP million) 2021 2020
------------------------------------------------ ----- -----
At 1 October 33 25
Charged to the income statement - current year 60 34
Cash paid - (26)
At 30 September 93 33
================================================= ===== =====
Factors that may affect future tax charges
The current year tax rate of 19% arises from profits being taxed
at 19% for the year to 30 September 2021.
The Finance Act 2021 received Royal Assent on 10th June 2021,
which confirmed that the main rate for UK corporation tax rate will
increase to 25% with effect from 1st April 2023.
9. Dividends
No dividend is proposed for the current year (2020: nil).
10. Other receivables
2021 2021 2020 2020
(In GBP million) Current Non-Current Current Non-Current
------------------------------------ -------- ------------ -------- ------------
Amounts owed by Group undertakings 33,724 64 31,980 109
Other receivables and prepayments 7 - 3 -
==================================== ======== ============ ======== ============
33,731 64 31,983 109
==================================== ======== ============ ======== ============
Amounts owed by Group undertakings are unsecured, both interest
bearing and non-interest bearing and can be either repayable on a
future date to be mutually agreed between the Company and the
counterparty borrower or have fixed repayment dates. At 30
September 2021 GBP30,585 million (2020: GBP28,652 million) of the
amounts owed by Group undertakings were repayable on a mutually
agreed future date (treated as a current receivable) and GBP3,139
million (2020: GBP3,328 million) were term loans treated as current
receivables and GBP64 million (2020: GBP109 million) were term
loans treated as non-current receivables. There were GBP32,795
million (2020: GBP31,195 million) of interest bearing loans and
GBP993 million (2020: GBP894 million) of non-interest bearing
loans. Where loans were subject to interest the rates charged
varied from 0.125% to 6.750% (2020: 0.125% to 5.750%).
The Directors have assessed the extent to which amounts owed by
the Group companies are impaired. For those balances that are
neither overdue nor impaired the Directors have concluded that the
expected credit losses (ECL) that are possible from default events
over the next twelve months are immaterial and consequently no
allowance for impairment has been recognised. For those balances
assessed to be impaired, an expected credit loss adjustment of
GBP492 million (2020: GBP294 million) has been recognised to
reflect the credit risk inherent within a number of the current
intercompany loans receivable, as follows:
2021
------------- -------------- ------------
Gross amount ECL allowance Net balance
Loan receivable balances that are not impaired 33,513 - 33,513
Loan receivable balances that are impaired 767 492 275
================================================= ============= ============== ============
34,280 492 33,788
================================================ ============= ============== ============
2020
------------- -------------- ------------
Gross amount ECL allowance Net balance
Loan receivable balances that are not impaired 31,465 - 31,465
Loan receivable balances that are impaired 918 294 624
================================================= ============= ============== ============
32,383 294 32,089
================================================ ============= ============== ============
11. Other payables
2021 2020
------------------------------------ ---------------------- ----------------------
(In GBP million) Current Non-current Current Non-current
------------------------------------ -------- ------------ -------- ------------
Amounts owed to Group undertakings 21,653 859 18,301 -
Corporation tax payable 92 - 33 -
------------------------------------- -------- ------------ -------- ------------
21,745 859 18,344 -
------------------------------------ -------- ------------ -------- ------------
Amounts owed to Group undertakings are unsecured, both interest
bearing and non-interest bearing and repayable on a future date to
be mutually agreed between the Company and the counterparty lender
(treated as a current liability). There were GBP12,958 million
(2020: GBP11,747 million) of interest bearing loans and GBP9,553
million (2020: GBP6,552 million) of non-interest bearing loans.
Where loans were subject to interest the rates charged varied from
0.19% to 3.73% (2020: 0.13% to 4.36%).
Amounts owed to Group undertakings are not included in the
borrowings analysis in note 12 of the financial statements which
only includes borrowings with external counterparties.
12. Borrowings
The Company's borrowings are held at amortised cost as
follows:
(In GBP million) 2021 2020
------------------------------------------- ------ -------
Current borrowings
Bank loans and overdrafts - -
Capital market issuance:
EUR1,000m 2.25% notes due February 2021 - 925
EUR500m 0.5% notes due July 2021 - 456
GBP1,000m 9.0% notes due February 2022 1,056 -
Total current borrowings 1,056 1,381
============================================ ====== =======
Non-current borrowings
Bank loans 9 -
Capital market issuance:
GBP1,000m 9.0% notes due February 2022 - 1,056
$1,250m 3.75% notes due July 2022 - 980
$1,000m 3.5% notes due February 2023 746 782
EUR750m 1.25% notes due August 2023 646 684
GBP600m 8.125% notes due March 2024 626 626
$1,000m 3.125% notes due July 2024 745 782
EUR500m 1.375% notes due January 2025 434 460
$1,500m 4.25% notes due July 2025 1,119 1,172
EUR650m 3.375% notes due February 2026 570 604
$750m 3.5% notes due July 2026 559 586
GBP500m 5.5% notes due September 2026 500 500
EUR750m 2.125% notes due February 2027 653 692
$1,000m 3.875% notes due July 2029 745 781
GBP500m 4.875% notes due June 2032 505 504
-------------------------------------------- ------ -------
Total non-current borrowings 7,857 10,209
============================================ ====== =======
Total borrowings 8,913 11,590
============================================ ====== =======
Analysed as:
Capital market issuance 8,904 11,590
Bank loans and overdrafts 9 -
============================================ ====== =======
Current and non-current borrowings include interest payable of
GBP56 million (2020: GBP13 million) and GBP85 million (2020: GBP151
million) respectively as at 30 September 2021.
Interest payable on capital market issuances are at fixed rates
of interest and interest payable on bank loans and overdrafts are
at floating rates of interest. All capital market issuances are
listed on the London Stock Exchange.
On 30 November 2020, EUR1,000 million 2.25 per cent notes were
repaid. On 27 April 2021, EUR500 million 0.5 per cent notes were
repaid. On 29 September 2021, $1,250 million 3.75 per cent notes
were repaid.
All borrowings are unsecured and the Company has not defaulted
on any during the year (2020: no defaults).
Non-current financial liabilities
The maturity profile of non-current financial liabilities
outstanding as at 30 September 2021 (including the impact of
derivative financial instruments detailed in note 14) is as
follows:
2021 2020
------------------ ------------------ -------- ------------------ ----------------- --------
Net derivative Net derivative
financial financial
Borrowings and (assets)/ Borrowings and (assets) /
(In GBP million) overdrafts liabilities Total overdrafts liabilities Total
------------------- ------------------ ------------------ -------- ------------------ ----------------- --------
Amounts expiring:
Between one and
two years 1,393 (6) 1,387 2,036 24 2,060
Between two and
five years 4,554 (9) 4,545 4,506 (31) 4,475
In five years or
more 1,910 608 2,518 3,667 842 4,509
=================== ================== ================== ======== ================== ================= ========
7,857 593 8,450 10,209 835 11,044
=================== ================== ================== ======== ================== ================= ========
Fair value of borrowings
The fair value of borrowings as at 30 September 2021 is
estimated to be GBP9,479 million (2020: GBP12,434 million).
GBP9,474 million (2020: GBP12,434 million) relates to capital
market issuance and has been determined by reference to market
prices as at the balance sheet date. A comparison of the carrying
amount and fair value of capital market issuance by currency is
provided below. The fair value of all other borrowings is
considered to equal their carrying amount.
2021 2020
--------------------- ----------- --------------------- -----------
(In GBP million) Balance sheet amount Fair value Balance sheet amount Fair value
------------------ --------------------- ----------- --------------------- -----------
GBP 2,686 2,894 2,686 3,054
EUR 2,302 2,418 3,821 3,943
USD 3,916 4,162 5,083 5,437
================== ===================== =========== ===================== ===========
Total bonds 8,904 9,474 11,590 12,434
================== ===================== =========== ===================== ===========
Undrawn borrowing facilities
At 30 September the Company had the following undrawn committed
facilities:
(In GBP million) 2021 2020
---------------------------- ------ ------
Amounts expiring:
Between one and two years - 1,551
Between two and five years 3,012 3,193
3,012 4,744
============================ ====== ======
During the year the maturity date of the Group's existing
syndicated multicurrency facility for EUR3,500 million was extended
to 30 September 2024. During the year six bilateral facilities for
a total of EUR1,700 million were cancelled.
13. Financial risk management
Overview
The Company, as the main financing and financial risk management
company for the Group, undertakes transactions to manage the
Group's financial risks, together with its financing and liquidity
requirements. As a result, the Company is exposed to risks
including, but not limited to, market, credit and liquidity risk.
This note explains the Company's exposure to these risks, how they
are measured and assessed, and summarises the policies and
processes used to manage them, including those related to the
management of capital.
The Group's treasury activities are overseen by the Treasury
Committee, which meets when required and comprises the Chief
Financial Officer, the Company Secretary and the Director of
Treasury of Imperial Brands PLC. The Treasury Committee operates in
accordance with the terms of reference set out by the Board of
Directors of Imperial Brands PLC and a framework (the "Treasury
Committee Framework") which sets out the expectations and
boundaries to assist in the effective oversight of treasury
activities. The Director of Treasury reports on a regular basis to
the Treasury Committee.
The Board of Directors of Imperial Brands PLC reviews and
approves all major Treasury decisions. The treasury function does
not operate as a profit centre, nor does it enter into speculative
transactions.
The Company's management of financial risks cover the
following:
(a) Market risk
Price risk
The Company is not exposed to equity securities price risk.
Foreign exchange risk
The Company is exposed to movements in foreign exchange rates
due to the translation of balance sheet items held in
non-functional currencies. The Company's financial results are
principally exposed to fluctuations in euro and US dollar exchange
rates.
Management of the Company's foreign exchange translation risk is
addressed below.
Translation risk
The Company has translation risk on cash, borrowings,
derivatives and intragroup loans held in non-functional currencies.
The Company enters into intragroup derivative contracts to manage
some of the Company's exposure to exchange rate movements.
The Company issues debt in the most appropriate market or
markets at the time of raising new finance and has a policy of
using derivative financial instruments, cross currency swaps, to
change the currency of debt as required.
Foreign exchange sensitivity analysis
The Company's sensitivity to foreign exchange rate movements,
which impacts the translation of monetary items held by the Company
in currencies other than its functional currency, is illustrated on
an indicative basis below. The sensitivity analysis has been
prepared on the basis that the proportion of cash, borrowings,
derivatives and intragroup loans held in non-functional currencies
remains constant.
The Company manages its sensitivity to foreign exchange rates
through the use of intragroup derivative contracts to reduce
foreign exchange gains or losses on the translation of financial
instruments. The sensitivity analysis does not reflect any change
to non-finance costs that may result from changing exchange rates
and ignores any taxation implications and offsetting effects of
movements in the fair value of derivative financial
instruments.
2021 2020
------------------------------- -------------------------------
(In GBP million) Increase/ (decrease) in income Increase/ (decrease) in income
------------------------------------------------- ------------------------------- -------------------------------
Income Statement impact on non-functional
currency foreign exchange exposures:
10% appreciation of euro (2020: 10%) 44 337
10% appreciation of US dollar (2020: 10%) 261 (138)
-------------------------------------------------- ------------------------------- -------------------------------
An equivalent depreciation of Sterling against the above
currencies would cause a decrease in income of GBP54 million and
decrease of GBP318 million for euro and US dollar exchange rates
respectively (2020: decrease of GBP411 million and increase of
GBP169 million respectively).
There is no direct net impact on equity (2020: GBPnil).
Interest rate risk
The Company's interest rate risk arises from its borrowings net
of cash and cash equivalents, with the primary exposures arising
from fluctuations in euro and US dollar interest rates. Borrowings
at variable rates expose the Company to cash flow interest rate
risk. Borrowings at fixed rates expose the Company to fair value
interest rate risk.
The Company manages its exposure to interest rate risk on its
borrowings by entering into derivative financial instruments,
interest rate swaps, to achieve an appropriate mix of fixed and
floating interest rate debt in accordance with the Treasury
Committee Framework and Treasury Committee decisions.
As at 30 September 2021, after adjusting for the effect of
derivative financial instruments detailed in note 14, approximately
63% (2020: 69%) of the Company's borrowings were at fixed rates of
interest.
Interest rate sensitivity analysis
The Company's sensitivity to interest rates on its euro and US
dollar monetary items which are primarily external borrowings, cash
and cash equivalents, is illustrated on an indicative basis below.
The impact in the Company's Income Statement reflects the effect on
net finance costs in respect of the Company's net debt and the
fixed to floating rate debt ratio prevailing at 30 September 2021,
ignoring any taxation implications and offsetting effects of
movements in the fair value of derivative financial
instruments.
The sensitivity analysis has been prepared on the basis that net
debt and the derivatives portfolio remain constant and that there
is no direct net impact on equity (2020: GBPnil).
The movement in interest rates is considered reasonable for the
purposes of this analysis and the estimated effect assumes a lower
limit of zero for interest rates where relevant.
(In GBP million) 2021 2020
----------------- -----------------
Change in income Change in income
-------------------------------------------------------- ----------------- -----------------
Income Statement impact of interest rate movements:
+/- 1% increase in euro interest rates (2020: 1%) 25 30
+/- 1% increase in US dollar interest rates (2020: 1%) 7 8
--------------------------------------------------------- ----------------- -----------------
(b) Credit risk
IFRS 9 requires an expected credit loss (ECL) model to be
applied to financial assets. The ECL model requires the Company to
account for expected losses as a result of credit risk on initial
recognition of financial assets and to recognise changes in those
expected credit losses at each reporting date. Allowances are
measured at an amount equal to the lifetime expected credit losses
where the credit risk on the receivables increases significantly
after initial recognition. The Company is exposed to credit risk
arising from loans to entities within the Imperial Brands Group,
cash deposits, derivatives and other amounts due from external
financial counterparties arising on other financial instruments.
The maximum credit risk relating to intergroup loans was GBP33,788
million (2020: GBP32,089 million). The maximum aggregate credit
risk to parties external to the Imperial Brands Group was
considered to be GBP1,081 million at 30 September 2021 (2020:
GBP1,777 million). Intragroup counterparty credit risk may be
mitigated where there is control of a counterparty within the
Group, allowing the Group to facilitate repayment through realising
counterparty assets or through refinancing. At 30 September 2021 an
ECL provision of GBP492 million was recognised relating to the risk
of intergroup loans not being repaid (2020: GBP294 million).
As discussed in the accounting policies note the calculation of
the expected credit loss provision is based on management's
assessment of the probability of default (PoD) and the percentage
loss expected to arise in the event of default (LGD), multiplied by
the current size of the loan receivable. The PoD and LGD rates are
estimated on a loan by loan basis. Most of the intragroup loan
receivables have very low PoD and LGD due to their low credit risk
and do not contribute significantly to the overall ECL provision.
However, there are a small group of intragroup loan with higher
credit risk that contribute most towards the ECL provision and
these loans have an average PoD of 75% and LGD of 100%. Management
estimates of these rates is judgemental and any changes in
estimates would change the amount of ECL recognised. For the higher
credit risk loans a 1% increase in the PoD would increase the ECL
by approximately GBP7 million (2020: approximately GBP4 million).
In regards to the LGD estimate a 1% reduction would reduce the ECL
by approximately GBP5 million (2020: approximately GBP3 million).
It is not possible to increase the LGD and therefore there is no
risk of the ECL increasing due to this factor.
Trade and other receivables
Policies are in place to manage the risk associated with the
extension of credit to third parties, including companies within
the Group, to ensure that commercial intent is balanced effectively
with credit risk management. Credit is extended with consideration
to financial risk and creditworthiness. Analysis of trade and other
receivables is provided in note 10.
Financial instruments
In order to manage its credit risk to any one counterparty, the
Company places cash deposits and enters into derivative financial
instruments with a diversified group of financial institutions
carrying suitable credit ratings in line with the Treasury
Committee Framework. Utilisation of counterparty credit limits is
regularly monitored by Treasury and ISDA agreements are in place to
permit the net settlement of assets and liabilities in certain
circumstances. In connection with one ISDA Credit Support Annex the
Company had placed GBP37 million as at 30 September 2021 (2020:
GBP47 million) as collateral with a third party in order to manage
their counterparty risk on the Company under derivative financial
instruments.
The table below summarises the Company's largest exposures to
financial counterparties as at 30 September 2021. At the balance
sheet date management does not expect these counterparties to
default on their current obligations.
2021 2020
------------------- ------------------------ ---------------------------- ------------------------
S&P credit rating Maximum exposure to S&P credit rating Maximum exposure to
credit risk credit risk
GBP million GBP million
--------------- ------------------- ------------------------ ---------------------------- ------------------------
Highest A+ 35 A+ 14
2(nd) highest - - A 11
3(rd) highest - - A+ 5
4(th) highest - - A+ 2
=============== =================== ======================== ============================ ========================
(c) Liquidity risk
The Company is exposed to liquidity risk, which represents the
risk of having insufficient funds to meet its financing needs. To
manage this risk the Company has a policy of actively maintaining a
mixture of short, medium and long-term committed facilities that
are structured to ensure that the Company has sufficient available
funds to meet the forecast requirements of the Group over the short
to medium term. To prevent over-reliance on individual sources of
liquidity, funding is provided across a range of instruments
including debt capital market issuance, bank bilateral agreements,
bank revolving credit facilities and European commercial paper.
Certain of these borrowings contain cross default provisions and
negative pledges. The core committed bank facilities are subject to
two financial covenants, these being minimum interest cover ratio
of four times and maximum gearing of four times (per the definition
within the agreement) and are subject to pari passu ranking and
negative pledge covenants. Any non-compliance with covenants
underlying the Company's financing arrangements could, if not
waived, constitute an event of default with respect to any such
arrangements, and any non-compliance with covenants may, in
particular circumstances, lead to an acceleration of maturity on
certain borrowings and the inability to access committed
facilities.
We remain fully compliant with all our banking covenants (2020:
fully compliant).
The Group primarily borrows centrally in order to meet forecast
funding requirements, and the treasury function is in regular
dialogue with subsidiaries in the Group to ensure their liquidity
needs are met. Subsidiaries in the Group are funded by a
combination of share capital and retained earnings, intercompany
loans, and in very limited cases through external local borrowings.
Cash pooling processes are used to centralise surplus cash held by
subsidiaries in the Group where possible in order to minimise
external borrowing requirements and interest costs. Treasury
invests surplus cash in bank deposits and uses foreign exchange
contracts to manage short term liquidity requirements in line with
short term cash flow forecasts. As at 30 September 2021, the
Company held liquid assets of GBP622 million (2020: GBP911
million).
The table below summarises the Company's non derivative
financial liabilities by maturity based on their remaining
contractual cash flows as at 30 September 2021. The amounts
disclosed are undiscounted cash flows calculated using spot rates
of exchange prevailing at the relevant balance sheet date.
Contractual cash flows in respect of the Company's derivative
financial instruments are detailed in note 14.
At 30 September
2021
Contractual
Balance sheet cash flows Between 1 and 2 Between 2 and 5
(In GBP million) amount Total < 1 year years years > 5 years
------------------ ----------------- ---------------- ----------- ---------------- ---------------- ------------
Non-derivative
financial
liabilities
Bank loans 9 56 56 - - -
Capital market
issuance 8,904 10,125 1,326 1,663 5,023 2,113
Amounts owed to
group
undertakings 22,512 22,522 21,622 - - 860
================== ================= ================ =========== ================ ================ ============
Total
non-derivative
financial
liabilities 31,425 32,703 23,044 1,663 5,023 2,973
================== ================= ================ =========== ================ ================ ============
At 30 September
2020
Contractual
Balance sheet cash flows Between 1 and 2 Between 2 and 5
(In GBP million) amount Total < 1 year years years > 5 years
------------------ ----------------- ---------------- ----------- ---------------- ---------------- ------------
Non-derivative
financial
liabilities
Bank loans - - - - - -
Capital market
issuance 11,590 13,302 1,806 2,339 5,165 3,992
Amounts owed to
group
undertakings 18,301 18,301 18,301 - - -
================== ================= ================ =========== ================ ================ ============
Total
non-derivative
financial
liabilities 29,891 31,603 20,107 2,339 5,165 3,992
================== ================= ================ =========== ================ ================ ============
Amounts owed to the Company by Group undertakings of GBP33,788
million (2020: GBP32,089 million) are excluded from the above
tables, as disclosure of contractual cash flows is only required
for liabilities.
Capital management
The management of the Company's capital structure forms part of
the Group's capital risk management, details of which can be found
in note 21 of the Imperial Brands Annual Report which does not form
part of this report, but is available at www.imperialbrandsplc.com
.
Fair value estimation and hierarchy
All financial assets and liabilities are carried on the balance
sheet at amortised cost, other than derivative financial
instruments which are carried at fair value. Derivative financial
instruments are valued using techniques based significantly on
observable market data such as yield curves, foreign exchange rates
and credit default swap prices for the Imperial Brands PLC Group as
at the balance sheet date (Level 2 classification hierarchy per
IFRS 7) as detailed in note 14. There were no changes to the
valuation methods or transfers between hierarchies during the year.
With the exception of capital market issuance, the fair value of
all financial assets and financial liabilities is considered
approximate to their carrying amount as outlined in note 14.
Netting arrangements of financial instruments
The following tables set out the Company's financial assets and
financial liabilities that are subject to netting and set-off
arrangements. Financial assets and liabilities that are subject to
set-off arrangements and disclosed on a net basis in the Company's
balance sheet primarily relate to collateral in respect of one
derivative financial instrument under an ISDA credit support annex.
Amounts which do not meet the criteria for offsetting on the
balance sheet but could be settled net in certain circumstances
principally relate to derivative transactions executed under ISDA
agreements where each party has the option to settle amounts on a
net basis in the event of default of the other party.
2021
==============================================================================================
Gross financial Gross financial Net financial Related amounts not Net
assets / assets / assets /liabilities set off in the
(In GBP million) liabilities liabilities set off per balance sheet balance sheet
---------------------- -------------------- -------------------- -------------------- -------------------- ------
Assets
Derivative financial
instruments 496 (37) 459 (435) 23
496 (37) 459 (435) 23
====================== ==================== ==================== ==================== ==================== ======
Liabilities
Derivative financial
instruments (1,083) 37 (1,046) 435 (611)
====================== ==================== ==================== ==================== ==================== ======
(1,083) 37 (1,046) 435 (611)
====================== ==================== ==================== ==================== ==================== ======
2020
==============================================================================================
Gross financial Gross financial Net financial Related amounts not Net
assets / assets / assets /liabilities set off in the
(In GBP million) liabilities liabilities set off per balance sheet balance sheet
---------------------- -------------------- -------------------- -------------------- -------------------- ------
Assets
Derivative financial
instruments 882 (47) 835 (828) 7
882 (47) 835 (828) 7
====================== ==================== ==================== ==================== ==================== ======
Liabilities
Derivative financial
instruments (1,703) 47 (1,656) 828 (828)
====================== ==================== ==================== ==================== ==================== ======
(1,703) 47 (1,656) 828 (828)
====================== ==================== ==================== ==================== ==================== ======
Classification of financial instruments
The following table sets out the Company's accounting
classification of each class of financial assets and
liabilities:
2021
--------------------------- -------------------------- ------------------------- --------- --------- ------------
Fair value through income Assets and liabilities Total Current Non-current
statement at amortised cost
--------------------------- -------------------------- ------------------------- --------- --------- ------------
Trade and other
receivables - 33,795 33,795 33,731 64
Cash and cash equivalents - 622 622 622 -
Derivatives 459 - 459 68 391
Total financial assets 459 34,417 34,876 34,421 455
=========================== ========================== ========================= ========= ========= ============
Borrowings - (8,913) (8,913) (1,056) (7,857)
Trade and other payables - (22,604) (22,604) (21,745) (859)
Derivatives (1,046) - (1,046) (62) (984)
Total financial
liabilities (1,046) (31,517) (32,563) (22,863) (9,700)
=========================== ========================== ========================= ========= ========= ============
Net financial
assets/(liabilities) (587) 2,900 2,313 11,558 (9,245)
=========================== ========================== ========================= ========= ========= ============
2020
--------------------------- -------------------------- ------------------------- --------- --------- ------------
Fair value through income Assets and liabilities Total Current Non-current
statement at amortised cost
--------------------------- -------------------------- ------------------------- --------- --------- ------------
Trade and other
receivables - 32,092 32,092 31,983 109
Cash and cash equivalents - 911 911 911 -
Derivatives 835 - 835 51 784
Total financial assets 835 33,003 33,838 32,945 893
=========================== ========================== ========================= ========= ========= ============
Borrowings - (11,590) (11,590) (1,381) (10,209)
Trade and other payables - (18,334) (18,334) (18,334) -
Derivatives (1,656) - (1,656) (37) (1,619)
Total financial
liabilities (1,656) (29,924) (31,580) (19,752) (11,828)
=========================== ========================== ========================= ========= ========= ============
Net financial
assets/(liabilities) (821) 3,079 2,258 13,193 (10,935)
=========================== ========================== ========================= ========= ========= ============
14. Derivative financial instruments
The Company has the following derivative financial instruments
measured at fair value through profit and loss:
Current derivative financial instruments 2021 2020
---------------------------------------------------------- ------- ------------ ------- ------------
(In GBP million) Assets Liabilities Assets Liabilities
---------------------------------------------------------- ------- ------------ ------- ------------
Interest rate swaps 60 (33) 39 (27)
Foreign exchange contracts 4 (4) 9 (10)
Cross currency swaps 4 (25) 3 -
Collateral(1) - - - -
========================================================== ======= ============ ======= ============
Total current derivatives 68 (62) 51 (37)
========================================================== ======= ============ ======= ============
Non-current derivative financial instruments
---------------------------------------------------------- ------- ------------ ------- ------------
(In GBP million) Assets Liabilities Assets Liabilities
---------------------------------------------------------- ------- ------------ ------- ------------
Interest rate swaps 391 (780) 784 (1,183)
Cross currency swaps - (241) - (483)
Collateral(1) - 37 - 47
Total non-current derivatives 391 (984) 784 (1,619)
========================================================== ======= ============ ======= ============
Total carrying value of derivative financial instruments 459 (1,046) 835 (1,656)
========================================================== ======= ============ ======= ============
Net liability (587) (822)
========================================================== ======= ============ ======= ============
Analysed as:
---------------------------------------------------------- ------- ------------ ------- ------------
Interest rate swaps 451 (813) 823 (1,210)
Foreign exchange contracts 4 (4) 9 (10)
Cross currency swaps 4 (266) 3 (483)
Collateral(1) - 37 - 47
========================================================== ======= ============ ======= ============
Total carrying value of derivative financial instruments 459 (1,046) 835 (1,656)
========================================================== ======= ============ ======= ============
Net liability (587) (822)
========================================================== ======= ============ ======= ============
(1) Collateral deposited against derivative financial
liabilities under the terms and conditions of an ISDA credit
support annex.
Fair values are determined based on observable market data such
as yield curves, foreign exchange rates and credit default swap
prices to calculate the present value of future cash flows
associated with each derivative at the balance sheet date. Market
data is sourced through Bloomberg and valuations are validated by
reference to counterparty valuations where appropriate. Some of the
Group's derivative financial instruments contain early termination
options and these have been considered when assessing the element
of the fair value related to credit risk. On this basis the
reduction in reported net derivative liabilities due to credit risk
is GBP19m (2020:GBP27 million) and would have been a GBP49m
(2020:GBP76 million) reduction without considering the early
termination options. All derivative assets and liabilities are
classified under the FRS 101 fair value hierarchy as being level
2.
Maturity of obligations under derivative financial
instruments
Derivative financial instruments have been classified in the
balance sheet as current or non-current on an undiscounted
contractual basis based on spot rates as at the balance sheet date.
For the purposes of the above and following analysis, maturity
dates have been based on the likelihood of any early termination
options being exercised with consideration to counterparty
expectations and market conditions prevailing as at 30 September
2021. Any collateral transferred to counterparties in respect of
derivative financial liabilities has been classified consistently
with the related underlying derivative.
The table below summarises the Company's derivative financial
instruments by maturity based on their remaining contractual cash
flows as at 30 September 2021. The amounts disclosed are the
undiscounted cash flows calculated using spot rates of exchange
prevailing at the relevant balance sheet date. Contractual cash
flows in respect of the Company's non derivative financial
instruments are detailed in note 13.
At 30 September
2021
Contractual
Balance sheet cash flows Between 1 and 2 Between 2 and 5
(In GBP million) amount Total < 1 year years years > 5 years
------------------ ----------------- ---------------- ----------- ---------------- ---------------- ------------
Net settled
derivatives (325) (480) 16 (1) (157) (338)
Gross settled (262) - - - -
derivatives -
Receipts - 5,667 2,516 66 2,522 563
Payments - (5,818) (2,521) (48) (2,661) (588)
================== ================= ================ =========== ================ ================ ============
(587) (631) 11 17 (296) (363)
================== ================= ================ =========== ================ ================ ============
At 30 September
2020
Contractual
Balance sheet cash flows Between 1 and 2 Between 2 and 5
(In GBP million) amount Total < 1 year years years > 5 years
------------------ ----------------- ---------------- ----------- ---------------- ---------------- ------------
Net settled
derivatives (340) (479) 62 19 (104) (456)
Gross settled (481) - - - -
derivatives -
Receipts - 6,530 2,240 1,084 1,528 1,678
Payments - (6,858) (2,221) (1,153) (1,633) (1,851)
================== ================= ================ =========== ================ ================ ============
(821) (807) 81 (50) (209) (629)
================== ================= ================ =========== ================ ================ ============
Derivatives as hedging instruments
As outlined in note 13, the Company hedges its underlying
interest rate exposure and foreign currency translation exposure in
an efficient, commercial and structured manner, primarily using
interest rate swaps and cross currency swaps. Foreign exchange
contracts are used to manage the Company's short term liquidity
requirements in line with short term cash flow forecasts as
appropriate. The Company does not apply cash flow or fair value
hedge accounting as permitted under IFRS 9, which results in fair
value gains and losses attributable to derivative financial
instruments being recognised in net finance costs.
The Company has considered the impending requirements to re-base
LIBOR based interest rates to new risk-free based rates. The
Company is currently undertaking an exercise to re-base to
risk-free rates all its affected interest rate derivative contracts
that mature after the end of September 2021. GBP LIBOR contracts
will be rebased to SONIA in the last quarter of the 2021 calendar
year with USD LIBOR contracts to be rebased later in the 2022
fiscal year. At present, it is not anticipated that these changes
will impact the Group's commercial hedging strategy, nor should
they have a material financial impact.
Interest rate swaps
To manage interest rate risk on its borrowings, the Company
issues debt in the market or markets that are most appropriate at
the time of raising new finance with regard to currency, interest
denomination and duration, and then uses interest rate swaps and/or
cross currency swaps to re-base the debt into the appropriate
proportions of fixed and floating interest rates where necessary.
Interest rate swaps are also transacted to manage and re-profile
the Company's interest rate risk over the short, medium and long
term in accordance with the Treasury Committee Framework and
Treasury Committee decisions. Fair value movements are recognised
in investment income and finance costs in the relevant reporting
period.
As at 30 September 2021, the notional amount of interest rate
swaps outstanding that were entered into to convert fixed rate
borrowings into floating rates of interest at the time of raising
new finance were GBP10,775 million (2020: GBP11,656 million) with a
fair value of GBP425 million asset (2020: GBP822 million asset).
The fixed interest rates vary from 1.1% to 8.7% (2020: 0.5% to
8.7%), and the floating rates are EURIBOR, GBP LIBOR and USD
LIBOR.
As at 30 September 2021, the notional amount of interest rate
swaps outstanding that were entered into to convert the Group's
debt into the appropriate proportion of fixed and floating rates to
manage and re-profile the Group's interest rate risk were GBP8,806
million (2020: GBP10,311 million) with a fair value of GBP750
million liability (2020: GBP1,163 million liability). The fixed
interest rates vary from 0.5% to 4.4% (2020: 0.5% to 4.4%), and the
floating rates are EURIBOR, GBP LIBOR and USD LIBOR. This includes
forward starting interest rate swaps with a total notional amount
of GBP1,531 million equivalent (2020: GBP2,519 million equivalent)
with tenors between 3.5 and 6 years, starting between May 2022 and
October 2024.
Cross currency swaps
The Company enters into cross currency swaps to covert the
currency of debt into the appropriate currency with consideration
to the underlying assets of the Group as appropriate. Fair value
movements are recognised in investment income and finance costs in
the relevant reporting period.
As at 30 September 2021, the notional amount of cross currency
swaps entered into to convert floating rate sterling debt into the
desired currency at floating rates of interest was GBP2,600 million
(2020: GBP2,600 million) and the fair value of these swaps was
GBP214 million net liability (2020: GBP409 million net liability);
the notional amount of cross currency swaps entered into to convert
floating rate US Dollar debt into the desired currency at floating
rates of interest was $1,750 million (2020: $1,750 million) and the
fair value of these swaps was GBP48 million net liability (2020:
GBP71 million net liability).
Foreign exchange contracts
The Company enters into foreign exchange contracts to manage
short term liquidity requirements in line with cash flow forecasts.
As at 30 September 2021, the notional amount of these contracts was
GBP1,430 million (2020: GBP2,126 million) and the fair value of
these contracts was a net liability of GBP0.6 million (2020: GBP0.7
million net liability).
15. Share capital
(In GBP million) 2021 2020
------------------------------------------------------------------ ------ ------
Issued and fully paid
2,100,000,000 ordinary shares of GBP1 each (2020: 2,100,000,000) 2,100 2,100
------------------------------------------------------------------- ------ ------
16. Related party transactions
The Company has taken advantage of the Group exemption under the
terms of FRS 101 from disclosing related party transactions with
entities that are part of the Group since the Company is a wholly
owned indirect subsidiary of Imperial Brands PLC and is included in
the consolidated financial statements of the Group, which are
publicly available.
17. Guarantees
The Company is party to a cross guarantee of its bank accounts
held at HSBC Bank plc against accounts of Imperial Brands PLC and
some of its subsidiary companies. At 30 September 2021, the amount
drawn under this cross guarantee was GBPnil million (2020: GBP10
million). Together with other Group undertakings, the Company
guarantees various borrowings and liabilities of other subsidiary
companies under this arrangement with HSBC Bank plc.
The Company is party to five counter-indemnity deeds, each dated
July 2020, made on substantially the same terms under which certain
insurance companies have made available to Imperial Brands PLC,
Imperial Tobacco Limited and the Company, a surety bond. In each
case issued on a standalone basis but in aggregate forming an
amount of GBP225 million, until January 2026. These surety bonds
provide support to the Imperial Tobacco Pension Trustees Ltd, the
main UK pension scheme.
At 30 September 2021, the contingent liability totalled GBP225
million (2020: GBP235 million).
The Directors have assessed the fair value of the above
guarantees and do not consider them to be material. They have,
therefore, not been recognised on the balance sheet.
18. Number of employees
The average monthly number of employees during the year was 8
(2020: 8).
19. Immediate and ultimate parent undertakings
The ultimate parent undertaking and controlling party of the
Company at 30 September 2021 was Imperial Brands PLC, a company
incorporated in Great Britain and registered in England and Wales.
The smallest and largest group in which the results of the Company
are consolidated is that headed by Imperial Brands PLC, whose
consolidated financial statements may be obtained from The Company
Secretary, Imperial Brands PLC, 121 Winterstoke Road, Bristol, BS3
2LL and are also available in the investors section of the Group
website at www.imperialbrandsplc.com .
The immediate parent undertaking of the Company at 30 September
2021 was Imperial Tobacco Holdings Limited, a company incorporated
in Great Britain and registered in England and Wales.
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END
FR SSASADEESEEE
(END) Dow Jones Newswires
February 03, 2022 03:31 ET (08:31 GMT)
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