TIDMIMB
RNS Number : 0055E
Imperial Brands PLC
03 May 2017
IMPERIAL BRANDS PLC
HALF YEAR RESULTS FOR THE SIX MONTHSED 31 MARCH 2017
INVESTING IN QUALITY GROWTH AND DELIVERING SUSTAINABLE
RETURNS
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Delivering against our strategy
-- Results in line with expectations with additional investment programme on track
-- Investments are strengthening share trends in many priority
markets, supporting quality growth
-- Strong results from Growth and Specialist Brands, which now
generate 60.4% of tobacco net revenue
-- Excellent progress with cost optimisation and reducing business complexity
-- Focus on capital discipline delivering 99.6% cash conversion and 10% dividend growth
Alison Cooper, Chief Executive, commented
"We're delivering encouraging improvements in share trends in
many of our priority markets after significantly stepping up
investment behind our strategy and quality growth. The volume and
share gains we achieved with our Growth Brands in the period were
particularly pleasing. Our performance is underpinned by the
rollout of our Market Repeatable Model, which provides an effective
and consistent approach for delivering sustainable quality growth
in markets. We are deploying this model in e-vapour and believe it
can also be successfully applied to drive growth in other consumer
adjacencies. As expected, first half revenue and profit were
impacted by the considerable increase in investment. In a
challenging industry environment, we are delivering against our
strategy and remain on track to meet full year earnings
expectations at constant currency. Cash conversion remains strong
and we are delivering another dividend increase of 10%."
Headline Financials
Overview - Adjusted Half Year Change
Basis Result
========= ==============================
Constant
2017 2016 Actual Currency(1)
============================ ========= ======== ====== ============
Total tobacco bn
volume SE 126.3 133.9 -5.7%
==================== ====== ========= ======== ====== ============
bn
Growth Brand volume SE 73.0 70.7 +3.2%
==================== ====== ========= ======== ====== ============
Tobacco net revenue GBPm 3,716 3,399 +9.3% -5.5%
==================== ====== ========= ======== ====== ============
Tobacco adjusted
operating profit GBPm 1,667 1,577 +5.7% -8.1%
==================== ====== ========= ======== ====== ============
Logistics adjusted
operating profit GBPm 82 68 +20.6% +4.4%
==================== ====== ========= ======== ====== ============
Total adjusted
operating profit GBPm 1,740 1,637 +6.3% -7.6%
==================== ====== ========= ======== ====== ============
Adjusted earnings
per share pence 121.9 113.0 +7.9% -5.9%
==================== ====== ========= ======== ====== ============
Dividend per share pence 51.7 47.0 +10.0%
==================== ====== ========= ======== ====== ============
Adjusted net debt GBPm (13,927) (13,710)
==================== ====== ========= ======== ====== ============
Overview - Reported Half Year Change
Basis Result
========= =================
2017 2016 Actual
========================= ========= ====== =======
Revenue GBPm 14,298 12,806 +11.7%
================= ====== ========= ====== =======
Operating profit GBPm 902 1,002 -10.0%
================= ====== ========= ====== =======
Basic earnings
per share pence 70.7 30.4 +132.6%
================= ====== ========= ====== =======
See page 4 for basis of preparation and page 13 for the
reconciliation between reported and adjusted measures.
(1) Change at constant currency removes the effect of exchange
rate movements on the translation of the results of our overseas
operations
Delivering Against Strategic Priorities
We are investing more behind the right brands and the right
markets to deliver further quality growth and ongoing returns. Our
Market Repeatable Model provides a clear framework for our
investment and is supporting Growth Brand performance and improved
market share trends in priority markets.
Strengthening our Portfolio
-- Growth Brand volumes up 3.2% with a 60 bps increase in market share
-- Growth and Specialist Brands up 200bps to 60.4% of reported tobacco net revenue
-- Brand migrations and SKU rationalisation realising simplification benefits
-- Building blu through investment in brand building and technology development
Developing our Footprint
-- Investment is delivering improved share trends in priority
markets; Growth Brand share gains in all divisions
-- In USA: Winston and Kool share increased; mass market cigars performing well
-- Growth Markets: increased share in Italy, Japan and Saudi
Arabia; and improving trend in Russia
-- Returns Markets: gaining share with Growth Brands in UK and
Australia; other priority markets stabilising
-- Market Repeatable Model informing investment choices and
supporting effective market execution
Cost Optimisation
-- Cost optimisation expected to deliver GBP130m of savings in
FY17, ahead of the GBP90m announced in November
-- Continued focus on reducing business complexity driving effectiveness and efficiency
-- Savings supporting investment programme
Capital Discipline
-- Cash conversion of 99.6%
-- Net debt reduction of GBP1.2bn before adverse FX of GBP1.4bn:
adjusted net debt of GBP13.9bn
-- Interim dividend of 51.7p; up 10%
Highlights show movements based on adjusted numbers at constant
currency
Portfolio Strengthened through Growth Brand Performance
-- Reported volume 126.3bn SE; down 5.7% driven primarily by
increased industry volume declines
-- Industry volumes down 4.3% year to date, following a strong
comparator period last year and affected by increased excise and
regulatory changes
-- Growth Brands gaining volume (up 3.2%) and share (up 60 basis
points) reflecting improved quality of growth
-- Rest of portfolio share down 90 basis points as our portfolio
transformation focuses on Growth Brands
-- Specialist Brands volume driven by migration of Route 66 to
Growth Brands and market size declines
-- Portfolio Brands volume affected by multiple migrations to
Growth Brands, delistings and market size
VOLUME BRIDGE: -5.7%
==========================================
133.9 bn
HY16 reported volume SE
====================== ========== ======
Growth Brands -2.3bn
====================== ========== ======
Specialist Brands -0.7bn
====================== ========== ======
Portfolio Brands -9.2bn
====================== ========== ======
126.3 bn
HY17 reported volume SE -5.7%
====================== ========== ======
Net Revenue Growth of 9.3% at Actual Exchange Rates
-- Net revenue of GBP3.7bn; up 9.3% at actual exchange rates;
down 5.5% on a constant currency basis
-- Flat price/mix reflects increased price investment, the
phasing of price increases and the impact of termination of PMI
contracts in the UK and Morocco
-- 14.8% benefit from foreign exchange on translation
NET REVENUE BRIDGE: +9.3%
======================================
HY16 net revenue GBP3,399m
================== ========== ======
Volume -5.7%
================== ========== ======
Price/mix +0.2%
================== ========== ======
Translation FX +14.8%
================== ========== ======
HY17 net revenue GBP3,716m +9.3%
================== ========== ======
Adjusted Earnings per Share up 7.9% at Actual Exchange Rates
-- Adjusted EPS of 121.9p
-- Constant currency adjusted EPS down 5.9% reflecting impact of
increased investment of GBP160m
-- Translation FX benefit of 15.6p with 7.8p from US dollar;
3.9p Euro, 2.3p Australian dollar and 1.6p of other currencies
-- Reported EPS up 132.6% to 70.7p driven primarily by the
impact of foreign exchange on the fair value of derivatives
EPS BRIDGE: -5.9% (CC); +7.9%
(Reported)
======================================================
HY16 adjusted EPS 113.0p
======================== ==================== ======
Investment -13.1p
======================== ==================== ======
Operating profit
ex-investment +2.7p
======================== ==================== ======
Interest, Tax,
MI and JV +3.7p
======================== ==================== ======
HY17 constant currency
EPS 106.3p -5.9%
======================== ==================== ======
Translation FX +15.6p
======================== ==================== ======
HY17 adjusted EPS 121.9p +7.9%
======================== ==================== ======
OTHER INFORMATION
Investor Contacts Media Contacts
Peter Durman +44 (0)7970 328 093 Alex Parsons +44 (0)7967 467 241
Matt Sharff +44 (0)7964 110 921 Simon Evans +44 (0)7967 467 684
Mat Slade +44 (0)7811 974 438
------------------- -------------------- --------------- --------------------
Webcast and Conference Call
Imperial Brands PLC will be hosting a live webcast for investors
and investment analysts with senior management following the
publication of our Interim Results on 3 May 2017. The webcast will
be hosted by Alison Cooper, Chief Executive, and available on
www.imperialbrandsplc.com from 9.00am (GMT). An archive of the
webcast and the presentation script and slides will also be
available.
The webcast can also be accessed on a listen only basis using
the following telephone details:
United Kingdom: +44(0)20 3427 191
USA: +1646 254 3388
Confirmation code: 3011623
A media conference call will be hosted at 7.30am, at which there
will be the opportunity for questions.
Dial-in Number: +44 (0)330 336 9412
Participant code: 2618718
A replay of this call will be available for one week. To listen,
please dial:
Replay Number: +44 (0)207 984 7568
Access Code: 2618718
Basis of Presentation
-- To aid understanding of our results, we use 'adjusted'
(non-GAAP) measures in accordance with our usual practice.
Reconciliations between adjusted and reported (GAAP) measures are
also included in the relevant notes. Further definitions of
adjusted measures are provided in the 2016 Annual Report and
Accounts.
-- Stick Equivalent (SE) volumes reflect our combined cigarette,
fine cut tobacco, cigar and snus volumes.
-- Change at constant currency removes the effect of exchange
rate movements on the translation of the results of our overseas
operations. References in this document to percentage growth and
increases or decreases in our adjusted results are on a constant
currency basis unless stated otherwise.
-- Market share is presented as a 12 month average (MAT).
Aggregate market share is a weighted average across markets within
our footprint.
Cautionary Statement
Certain statements in this announcement constitute or may
constitute forward-looking statements. Any statement in this
announcement that is not a statement of historical fact including,
without limitation, those regarding the Company's future
expectations, operations, financial performance, financial
condition and business is or may be a forward-looking statement.
Such forward-looking statements are subject to risks and
uncertainties that may cause actual results to differ materially
from those projected or implied in any forward-looking statement.
These risks and uncertainties include, among other factors,
changing economic, financial, business or other market conditions.
These and other factors could adversely affect the outcome and
financial effects of the plans and events described in this
announcement. As a result, you are cautioned not to place any
reliance on such forward-looking statements. The forward-looking
statements reflect knowledge and information available at the date
of this announcement and the Company undertakes no obligation to
update its view of such risks and uncertainties or to update the
forward-looking statements contained herein. Nothing in this
announcement should be construed as a profit forecast or profit
estimate and no statement in this announcement should be
interpreted to mean that the future earnings per share of the
Company for current or future financial years will necessarily
match or exceed the historical or published earnings per share of
the Company. This announcement has been prepared for, and only for
the members of the Company, as a body, and no other persons. The
Company, its Directors, employees, agents or advisers do not accept
or assume responsibility to any other person to whom this
announcement is shown or into whose hands it may come and any such
responsibility or liability is expressly disclaimed.
CHIEF EXECUTIVE'S STATEMENT
We made a promising start to the year as we continued to focus
on delivering against our strategic priorities. This year we are
investing an additional GBP300m in Growth and Specialist Brands in
priority markets to deliver improved revenue growth and early
results are encouraging, with improved share trends in many of
these markets.
Our increased investments support our strategy to generate
quality growth and sustainable shareholder returns and they are
focused on areas where we have a proven track record of generating
quality revenue growth and are funded by further savings from our
cost programme. Investments are aligned with the rollout of our
Market Repeatable Model, which provides an effective and consistent
approach for winning across our geographic footprint. Our
investments are supporting share growth in our Growth Brands in
many of our priority markets or improved share trends in
others.
We remain focused on our four strategic priorities:
strengthening our portfolio, developing our footprint, cost
optimisation and capital discipline. Our footprint exposure has
supported positive currency translation with growth in net revenue,
adjusted operating profit and earnings per share at actual exchange
rates. The additional investment has impacted our first half actual
and constant currency revenue and profitability in line with our
expectations and we expect a stronger second half performance as
the investments gain further traction. Our investment plans are on
track with GBP160m spent against the GBP300m we announced last
year.
Cash conversion remained strong at almost 100% and we increased
the interim dividend by 10% for the ninth consecutive year.
Winning in Market - Market Repeatable Model
Our Market Repeatable Model was developed as part of the review
we undertook last year and builds on the success of our sales
growth drivers. It is based on insights from across the business,
including analysis of markets where we have generated significant
quality growth.
The model provides a simple and consistent operating framework
that is now being deployed throughout our footprint. The six
elements of the model ensure that everywhere we operate we have: a
simple market-focused portfolio, sustained brand investments, a
consistent price strategy, a focus on maximising the availability
of our core range, tailored customer solutions and honest and
accurate learning mechanisms.
The Market Repeatable Model has become an integral component of
our strategy and strengthens our ability to maximise the
performance of our brands and markets.
Strengthening our Portfolio
We delivered excellent results from our Growth Brands, which
outperformed the market with strong growth in volumes and
share.
Growth Brands continue to benefit from brand migrations and we
have also begun a more radical portfolio simplification exercise to
further reduce complexity and improve the on-shelf availability of
our brands. This has now been implemented in several markets
including Russia, France, Germany, Italy, Spain and Australia, and
will be rolled out across other geographies.
We have increased investment in our Growth Brands, focusing
support behind markets and activities with the best growth
potential. This includes a broad range of initiatives such as
consumer activations, new product offerings to meet changing
consumer needs, as well as brand equity building campaigns for JPS,
West, Winston, Davidoff and Gauloises Blondes.
Our Specialist Brands performance included strong revenue
contributions from our Premium Cigar portfolio, Skruf in Norway and
Sweden, Backwoods in the USA and Rizla.
Together, Growth and Specialist Brands accounted for 60.4% of
the Group's tobacco net revenue.
Investing in Consumer Adjacencies
We continue to develop our presence in consumer adjacencies
through our subsidiary, Fontem Ventures. Fontem's current priority
is to capitalise on the rapid growing e-vapour sector by building
sales of blu and licensing a range of patented technologies, as
well as exploring other consumer adjacencies such as caffeine
energy products. E-vapour is the largest part of the fast-growing
next generation product category, offering the broadest consumer
choice with its range of devices, flavours and nicotine strengths
and providing the biggest growth opportunity.
Our Market Repeatable Model provides a framework to drive growth
in e-vapour and can be applied across other consumer adjacencies.
We have a market-focused portfolio centred on blu, a high quality
e-vapour brand with a consistent premium pricing strategy. We
continue to invest in building brand equity and improving
technologies. We have further developed our next generation product
to provide an improved consumer experience and we are undertaking
consumer trials as a prelude to a launch during 2017. We are also
enhancing our distribution in our four priority markets of the USA,
UK, France and Italy as we evaluate opportunities to expand into
new markets. During the period Fontem further enhanced revenues by
licensing its first generation technology to a number of other
e-vapour companies.
Developing our Footprint
In Growth Markets, we further improved our quality of growth and
achieved continued market share gains in Saudi Arabia, Italy and
Japan, while improving our share trajectory in markets such as
Russia. Our Premium Cigars business also made a strong
contribution. We enhanced our presence in China, the world's
largest tobacco market, through a joint venture with China
Tobacco.
Our US business, ITG Brands, continues to perform well as we
invest behind our two focus premium brands, Winston and Kool, which
delivered further market share improvements, helping to offset
Portfolio Brand declines. We have also achieved a significant
improvement in the performance of our mass market cigar
business.
In Returns Markets, we also enhanced our quality of growth as we
focused on Growth Brand share and our investments delivered
increasing year to date share in markets such as the UK, Australia
and Algeria and improving share trends in markets including Germany
and Spain.
Cost Optimisation and Capital Discipline
We have two cost optimisation programmes underway, which will
each deliver GBP300m of cost efficiencies and improved ways of
working. The first programme is on track to deliver GBP300m by
FY18. We announced a second phase last year which is scheduled to
deliver another GBP300m by FY20. We have delivered GBP60m of
savings in the first half and we now expect to deliver GBP130m of
savings this year ahead of the GBP90m announced last November.
Our commitment to capital discipline underpins our focus on cash
generation and the effective management of our working capital.
Cash conversion remained strong at 99.6% and we generated GBP1.2bn
of free cash flow after dividend payments.
We are now in our ninth consecutive year of dividend growth of
10% or more and we remain committed to continuing to grow the
dividend by at least 10% a year over the medium term.
Good Results from Logista
Our European distribution business Logista had a great start to
the year with growth in revenue and operating profit. This has been
driven by the development of its non--tobacco businesses,
particularly convenience products, pharmaceutical, wholesale and
transport, more than offsetting the impact of lower tobacco
volumes. The results also benefited from the sale of an investment
in an Italian business that provides transactional services at
point of sale. Logista profitability continues to benefit from
improved cost management across its operations, with efficiency
gains in its distribution network and warehousing.
Outlook
In November 2016, we announced a significant additional
investment commitment in the current year to enhance our market
position and drive further quality growth. These investments have
already yielded improved trends in the first half and we expect
these positive trends to continue, resulting in a stronger second
half despite a further deterioration in industry volumes, combined
with competitive pricing in a number of geographies.
Through a combination of our additional investment initiatives
and an ongoing focus on cost optimisation, we expect constant
currency earnings to be in line with expectations. Foreign exchange
translation is expected to benefit earnings by around 9% based on
current rates.
Our focus on capital discipline and cash flow management remains
a core element of our strategy. Strong cash-flows will continue to
be used for returns to shareholders, investing behind our business
and paying down debt.
The positive progress we are making in driving our strategic
agenda underpins our commitment to continue to generate value for
our shareholders in 2017 and beyond.
Alison Cooper
Chief Executive
OPERATING REVIEW
We are focused on delivering quality growth with the right
brands in the right markets. This is being reinforced this year by
increased investment aligned to our Market Repeatable Model to
drive improved revenue growth over the medium term. Initial results
are encouraging, with either higher market share or improved share
trends in a number of Growth and Returns Markets supported by
stronger Growth Brand performances.
Brand Performances
We achieved another strong performance with our Growth and
Specialist Brands. These are the most important assets in our
portfolio and together they now account for 60.4% of our tobacco
net revenue, up 200 basis points on last half year. We have
substantially increased our investment behind these brands in the
first half, improving their growth momentum and supporting the
success of our migration and SKU simplification programmes.
Total Group tobacco volumes were 126.3bn stick equivalents
(2016: 133.9bn), with volumes down by 5.7% mainly reflecting
industry volume declines. Against this backdrop our Growth Brands
increased volume and market share by 60 basis points as we continue
to migrate consumers from local, low priority brands. As a result
our Portfolio Brands lost 90 basis points of share as we simplify
and focus on our strongest brand equities. Our priority is to
continue to reshape the portfolio and improve our quality of
growth.
Growth Brands
Half Year Result Change
================== ===================
Constant
2017 2016 Actual Currency
=========================== ======== ======== ======== =========
Market share % 8.0 7.4 +60 bps
===================== ==== ======== ======== ======== =========
Net revenue GBPm 1,682 1,486 +13.2% -2.5%
===================== ==== ======== ======== ======== =========
Percentage of
Group volumes % 57.8 52.8 +500 bps
===================== ==== ======== ======== ======== =========
Percentage of
tobacco net revenue % 45.3 43.7 +160 bps
===================== ==== ======== ======== ======== =========
Our Growth Brands are Davidoff, Gauloises Blondes, JPS, West,
Fine, News, Winston, Bastos, Lambert & Butler and Parker &
Simpson. These are quality brands with broad consumer appeal that
are generating an increasing amount of our volume and revenue.
Growth Brands outperformed the market in the period, with
volumes growing 3.2% supported by migrations. Net revenue grew
13.2% on a reported basis, although fell 2.5% at constant currency
reflecting targeted price investment. Growth brand investment was
also prioritised behind brand equity building campaigns, additional
consumer activations and new formats to meet changing consumer
demands.
Growth Brands now account for 57.8% of total Group tobacco
volumes, an increase of 500 basis points, and 45.3% of overall
tobacco net revenue, an increase of 160 basis points benefiting
from migrations as well as organic growth.
Brand Chassis Highlights
============= ================================================
JPF Volume and share growth in the chassis
(JPS, Parker was driven by JPS and Parker & Simpson.
& Simpson Players in the UK and Parker & Simpson
and Fine) Queen Size and Crushball variants in Russia
have continued to perform well. Investments
in JPS in Italy have increased share especially
in soft pack variants. The migration of
Route 66 to Parker & Simpson has also
helped volumes.
============= ================================================
West West has grown volumes and share driven
(West, L&B, by Saudi Arabia and Japan, and by the
News migration of Stolichnye in Ukraine. L&B
and Bastos) Blue has performed well with share gains
in recent months helped by key account
investment. News is making good progress
in France as the special edition News
& Co helped drive positive share momentum.
============= ================================================
Winston Winston made further share gains supported
by increased investment through our retailer
programmes coupled with a new pack design,
digital marketing initiatives and improved
point of sale.
============= ================================================
Davidoff Revenue growth in the period was driven
by Saudi Arabia with the benefit of our
new Fresh Box pack and increased consumer
contact points. In Greece, increased consumer
activations have continued to support
increases in market share.
============= ================================================
Gauloises Gauloises gained share in Algeria to consolidate
its market leadership, supported by the
success of Gauloises L'autre. We increased
investment in Germany behind the successful
'Vive le Moment' campaign to address recent
share declines.
============= ================================================
Specialist Brands
Half Year Result Change
================== ==================
Constant
2017 2016 Actual Currency
=========================== ======== ======== ======= =========
Net revenue GBPm 561 499 +12.3% -2.0%
===================== ==== ======== ======== ======= =========
Percentage of
tobacco net revenue % 15.1 14.7 +40 bps
===================== ==== ======== ======== ======= =========
Specialist Brands appeal to specific consumer groups and
include: blu (e-vapour), Style, Gitanes, Kool (cigarettes), Golden
Virginia, Drum, Route 66 (fine cut tobacco), Cohiba, Montecristo,
Romeo Y Julieta (premium cigars), Backwoods (cigars), Skruf (snus)
and Rizla (papers). Our specialist brand Style is being migrated to
Jadé as part of our new Chinese joint venture. Jadé will eventually
replace Style as one of our Specialist Brands as we build scale
behind Jadé for further development outside of China.
We continued to make good progress with our Specialist Brands,
driven by revenue growth in Backwoods, Skruf in Scandinavia,
Premium Cigars and Rizla papers. Specialist Brands now represent a
greater proportion of the business at 15.1% of net revenue, up 40
basis points on last half year.
Portfolio Brands
The rest of the portfolio is comprised of Portfolio Brands. Some
of these are strong local brands that support our volume and
revenue development, while others are delisted or migrated into
Growth Brands as part of our portfolio simplification initiatives
to improve the quality of growth and drive efficiencies.
Portfolio Brand volumes and net revenue fell 17.6% and 10%
respectively, primarily reflecting the effect of further migrations
into Growth Brands and delistings. We achieved price mix gains of
22.4%, as we further optimised the profitability of the brands.
Market Performances
Growth Markets
Half Year Result Change
======================= =========================
Constant
2017 2016 Actual Currency
===================== ================= ==== ============== =========
Net revenue GBPm 859 707 +21.5% +1.7%
==================== ================== ==== ==== ======== =========
Adjusted operating
profit GBPm 211 192 +9.9% -8.9%
==================== ================== ==== ==== ======== =========
Growth Brand %
of net revenue % 47.6 45.1 +250 bps
==================== ================== ==== ==== ======== =========
bn
Growth Brand volume SE 22.3 21.3 +4.7%
==================== ================== ==== ==== ======== =========
Growth Brand market
share % 3.9 3.4 +50 bps
==================== ================== ==== ==== ======== =========
Targeted investment in Growth Brands and the implementation of
our Market Repeatable Model has enabled us to build positive
momentum and deliver improved share trends in our priority
markets.
We have strengthened the quality of growth through further
migrations and more focused investment in our Growth Brands. Growth
Brand volumes grew 4.7% and we increased Growth Brand revenues as a
proportion of the total by 250 basis points. Growth Brand share
gained 50 basis points.
Net revenue and adjusted operating profit grew strongly at
actual rates, driven by the benefit of currency translation. At
constant currency, net revenue grew 1.7% supported by strong
increases in Saudi Arabia, Italy, and Norway, and despite increased
investment in price and mix in Russia.
Our investments have driven continued improved share
performances in Saudi Arabia, Italy and Japan, offset by declines
in Cambodia, Macedonia and Slovenia. The increased investment
impacted adjusted operating profit, which fell 8.9% at constant
currency materially driven by the investments in Russia.
In January, we announced a new joint venture with a subsidiary
of China Tobacco which will develop growth opportunities in China
and international markets. The partnership will promote Davidoff
and West in China and Horizon and Jadé in other markets outside
China.
Country Performance
================= ======================================================================
Russia We increased investment in simplifying the portfolio, maintaining
a consistent price strategy and in key account activities, which
have begun to deliver an improved share trend in a highly competitive
market. Parker & Simpson gained share with the successful launch
of a Queen Size format while Maxim benefited from a new Superkings
variant.
================= ======================================================================
Saudi Arabia Share and revenue increased as we invested in consumer activations
to support West, which achieved strong growth, especially in Lights
and Ultra Lights. Davidoff share is stable in a declining premium
segment, supported by the launches of Fresh Box and Absolute.
================= ======================================================================
Italy JPS performed well in the period, benefiting from additional brand
investment and increased distribution, while Davidoff grew as we
expanded its distribution.
================= ======================================================================
Greece We delivered strong share growth in Davidoff as we continue to
invest in consumer activations.
================= ======================================================================
Sweden and Norway Continued success with Skruf has resulted in share, revenue and
profit gains as we benefit from positive pricing in a growing market.
================= ======================================================================
Japan We continue to deliver share and revenue growth in Japan with West
performing strongly, as we extend our retailer coverage.
================= ======================================================================
Taiwan Davidoff market share remains stable despite a declining high price
segment and Parker & Simpson is growing share supported by the
migration of Boss.
================= ======================================================================
USA Market
Half Year Result Change
======================= ========================
Constant
2017 2016 Actual Currency
===================== ================= ==== ============= =========
Net revenue GBPm 785 711 +10.4% -6.8%
==================== ================== ==== ==== ======= =========
Adjusted operating
profit GBPm 457 384 +19.0% 0.0%
==================== ================== ==== ==== ======= =========
Asset Brand %
of net revenue % 43.1 42.8 +30 bps
==================== ================== ==== ==== ======= =========
bn
Asset Brand volume SE 5.2 5.3 -0.3%
==================== ================== ==== ==== ======= =========
Growth Brand market
share % 2.4 2.3 +10 bps
-------------------- ------------------ ---- ---- ------- ---------
Our priority in the USA is to grow our focus brands, Winston and
Kool, as we reshape the portfolio behind our strongest equities. We
have invested in improved distribution through our retailer
agreements, new packaging, new formats and digital marketing to
build brand awareness.
Net revenue was up 10.4% at actual rates but fell 6.8% at
constant currency as a result of our investments and volume
declines. Industry volumes declined 2.5% year to date following a
strong comparator last year. The percentage of tobacco net revenue
generated by our Asset Brands increased 30 basis points to 43.1%,
as we stepped up our price support for Winston expanding price
repositioning into more territories across the USA. We continue to
invest in our successful US retail programme which is now in
169,000 stores nationwide. As a result, Growth Brand market share
gained 10 basis points. Our Specialist Brand, Kool also grew share
in the fast growing menthol segment as we invested to build brand
awareness.
Our mass market cigar business which includes the Dutch Masters
and Backwoods brands has continued to perform strongly with growth
in volumes, revenue and profit. We restructured the business last
year and changed our route to market which, coupled with new
consumer activation and engagement programmes, have delivered
quality share growth.
Adjusted operating profit grew 19.0% at actual rates and was
flat at constant currency, despite significant uplift in our brand
investments, which have been supported by the realisation of
further cost efficiencies and the benefit of a one-off pension
curtailment gain following the closure of the US defined benefit
pension plan.
Returns Markets
Half Year Result Change
======================== ==========================
Constant
2017 2016 Actual Currency
===================== ================= ===== =============== =========
Net revenue GBPm 2,072 1,981 +4.6% -7.7%
==================== ================== ===== ===== ======== =========
Net revenue per
'000 SE GBP 25.74 23.03 +11.8% -1.3%
==================== ================== ===== ===== ======== =========
Adjusted operating
profit GBPm 999 1,001 -0.2% -11.0%
==================== ================== ===== ===== ======== =========
Growth Brand %
of net revenue % 54.6 52.2 +240 bps
==================== ================== ===== ===== ======== =========
Growth Brand market
share % 15.9 15.1 +80 bps
==================== ================== ===== ===== ======== =========
Investments in key Returns Markets are delivering early
improvements in share trends and we continue to enhance our quality
of growth through our footprint choices and by driving a greater
proportion of revenue from Growth and Specialist Brands.
Net revenue and adjusted operating profit were down at constant
currency reflecting the higher investments and the termination of
PMI contracts in the UK and Morocco, although positive currency
translation supported gains at actual exchange rates.
The increased investment in conjunction with our Market
Repeatable Model has delivered improved share trends in many of our
priority markets. We achieved share gains in the UK, Australia,
Algeria and Portugal and delivered some improvements in recent
share trajectories in Spain and Germany as our investments start to
gain traction. We faced some share pressure in Azerbaijan, Belgium,
Poland and Ivory Coast.
Growth Brands generated 54.6% of tobacco net revenue, an
increase of 240 basis points. Growth Brand volumes increased 2.7%
while industry volumes declined 4.1% year to date, following a
strong comparator period last year and reflecting the impact of
excise and regulatory increases. Growth Brand share gained 80 basis
points supported by migrations and strong brand performances
including Players in the UK and JPS in Australia.
Returns Markets North
Half Year Result Change
======================== ==========================
Constant
2017 2016 Actual Currency
===================== ================= ===== =============== =========
Net revenue GBPm 1,301 1,246 +4.4% -6.5%
==================== ================== ===== ===== ======== =========
Net revenue per
'000 SE GBP 30.67 27.33 +12.2% +0.5%
==================== ================== ===== ===== ======== =========
Adjusted operating
profit GBPm 671 676 -0.7% -9.9%
==================== ================== ===== ===== ======== =========
Growth Brand %
of net revenue % 57.9 55.1 +280 bps
==================== ================== ===== ===== ======== =========
Growth Brand market
share % 15.7 14.9 +80 bps
==================== ================== ===== ===== ======== =========
Country Performance
========= =======================================================================
UK We grew share year to date as our increased investment gained traction
although this affected revenue and profit. Our fine cut tobacco
share increased, led by good growth from Gold Leaf and Players.
In cigarette we grew share strongly with Players.
========= =======================================================================
Germany Our investment is supporting share gains in fine cut tobacco in
West and Fairwind and an improving performance from JPS cigarettes.
We are investing in brand equity building and consumer activations
behind Gauloises. Overall share declined but with an improving
recent trend.
========= =======================================================================
Benelux While JPS has gained market share, overall market size and our
share declined following market excise increases.
========= =======================================================================
Australia We delivered another excellent performance focused on JPS and resulting
in further gains in market share, revenue and profit.
========= =======================================================================
Ukraine Our market share has largely recovered following our decision not
to participate in the price war last year although market size
has declined sharply as prices recovered.
========= =======================================================================
Returns Markets South
Half Year Result Change
======================== ==========================
Constant
2017 2016 Actual Currency
===================== ================= ===== =============== =========
Net revenue GBPm 771 735 +4.9% -9.7%
==================== ================== ===== ===== ======== =========
Net revenue per
'000 SE GBP 20.25 18.18 +11.4% -4.1%
==================== ================== ===== ===== ======== =========
Adjusted operating
profit GBPm 328 325 +0.9% -13.2%
==================== ================== ===== ===== ======== =========
Growth Brand %
of net revenue % 49.0 47.4 +160 bps
==================== ================== ===== ===== ======== =========
Growth Brand market
share % 16.3 15.5 +80 bps
==================== ================== ===== ===== ======== =========
Country Performance
======= ========================================================================
Spain Increased investment is supporting an improvement in market share
trend with West performing particularly well.
======= ========================================================================
France News has continued to gain share with increased investment. Industry
volumes declined with the impact of additional taxes and other
regulatory changes while pricing remains highly competitive.
======= ========================================================================
Algeria We have continued to grow share with the success of Gauloises,
the market-leading brand.
======= ========================================================================
Morocco Our value brand Fox has driven overall year to date share gains.
Revenue and profit was affected by the conclusion of the PMI agreement.
======= ========================================================================
FINANCIAL REVIEW
We have continued to build the financial strength of the
business through a relentless focus on our strategic priorities.
Our cost optimisation programme and our strong capital discipline
are providing the resources to invest in growth initiatives,
generate returns for shareholders and pay down debt. We are
increasing our investment by GBP300m this year to drive further
growth in the right brands and right markets.
When managing the performance of our business we focus on
non--GAAP measures, which we refer to as adjusted measures. We
believe they provide a useful comparison of performance from one
period to the next. These adjusted measures are supplementary to,
and should not be regarded as a substitute for, GAAP measures,
which we refer to as reported measures. The basis of our adjusted
measures is explained in our accounting policies accompanying our
financial statements, and reconciliations between reported and
adjusted measures are included in the appropriate notes to our
financial statements*. Percentage growth figures for adjusted
results are given on a constant currency basis, where the effects
of exchange rate movements on the translation of the results of our
overseas operations are removed.
Investing for Growth
The simplification of our brand portfolio combined with our
drive to reduce complexity across the business is supporting our
cost optimisation and capital discipline programmes. As we cut the
number of brands and SKUs, we are able to align our manufacturing
and supply chain to deliver operating efficiencies and optimise our
working capital needs. At the same time, we are adopting new ways
of working and embracing lean principles to reduce overheads and
improve our effectiveness.
This is delivering tangible savings that we are investing in
driving top--line growth. We have established a track record of
increasing operating profit margins and adjusted earnings per share
in each of the past three years. Our capital discipline has driven
high cash conversion which underpins our commitment to grow
dividends, repay debt and invest in the business.
Group Results - Constant Currency Analysis
======================================================================================================================
GBP million Six months Constant Six months
(unless otherwise ended 31 March currency ended 31 March Constant
indicated) 2016 Foreign Exchange movement 2017 Change currency change
================== ================= ================ ================ ================= ====== ================
Tobacco Net
Revenue
================== ================= ================ ================ ================= ====== ================
Growth Markets 707 140 12 859 +21.5% +1.7%
================== ================= ================ ================ ================= ====== ================
USA Market 711 122 (48) 785 +10.4% -6.8%
================== ================= ================ ================ ================= ====== ================
Returns Markets
North 1,246 136 (81) 1,301 +4.4% -6.5%
================== ================= ================ ================ ================= ====== ================
Returns Markets
South 735 107 (71) 771 +4.9% -9.7%
================== ================= ================ ================ ================= ====== ================
Total Group 3,399 505 (188) 3,716 +9.3% -5.5%
------------------ ----------------- ---------------- ---------------- ----------------- ------ ----------------
Tobacco Adjusted
Operating Profit
================== ================= ================ ================ ================= ====== ================
Growth Markets 192 36 (17) 211 +9.9% -8.9%
================== ================= ================ ================ ================= ====== ================
USA Market 384 73 0 457 +19.0% 0.0%
================== ================= ================ ================ ================= ====== ================
Returns Markets
North 676 62 (67) 671 -0.7% -9.9%
================== ================= ================ ================ ================= ====== ================
Returns Markets
South 325 46 (43) 328 +0.9% -13.2%
================== ================= ================ ================ ================= ====== ================
Total Group 1,577 217 (127) 1,667 +5.7% -8.1%
------------------ ----------------- ---------------- ---------------- ----------------- ------ ----------------
Logistics
================== ================= ================ ================ ================= ====== ================
Logistics
distribution fees 371 61 10 442 +19.1% +2.7%
================== ================= ================ ================ ================= ====== ================
Logistics adjusted
operating profit 68 11 3 82 +20.6% +4.4%
------------------ ----------------- ---------------- ---------------- ----------------- ------ ----------------
Group Adjusted
Results
================== ================= ================ ================ ================= ====== ================
Adjusted operating
profit 1,637 227 (124) 1,740 +6.3% -7.6%
================== ================= ================ ================ ================= ====== ================
Adjusted net
finance costs (266) (40) 34 (272) +1.9% -12.8%
================== ================= ================ ================ ================= ====== ================
Adjusted EPS
(pence) 113.0 15.6 (6.7) 121.9 +7.9% -5.9%
================== ================= ================ ================ ================= ====== ================
* For further details please see Page 4 and our September 2016
Annual Report and Accounts
Group Earnings Performance
Adjusted Reported
--------------------------------- ------------------ ----------------
GBP million unless otherwise HY 2017 HY 2016 HY HY 2016
indicated 2017
--------------------------------- -------- -------- ------ --------
Operating profit
Tobacco 1,667 1,577 872 979
Logistics 82 68 39 31
Eliminations (9) (8) (9) (8)
--------------------------------- -------- -------- ------ --------
Group operating profit 1,740 1,637 902 1,002
Net finance costs (272) (266) (115) (562)
Share of profit of investments
accounted for using the equity
method 17 12 17 12
--------------------------------- -------- -------- ------ --------
Profit before tax 1,485 1,383 804 452
Tax (298) (277) (114) (142)
--------------------------------- -------- -------- ------ --------
Profit for the period 1,187 1,106 690 310
--------------------------------- -------- -------- ------ --------
Earnings per ordinary share
(pence) 121.9 113.0 70.7 30.4
--------------------------------- -------- -------- ------ --------
Reconciliation of Adjusted Performance Measures
Operating Net finance Earnings per
profit costs share (pence)
--------------------------- ------------------ ------------------ ------------------
GBP million unless HY 2017 HY 2016 HY 2017 HY 2016 HY 2017 HY 2016
otherwise indicated
--------------------------- -------- -------- -------- -------- -------- --------
Reported 902 1,002 (115) (562) 70.7 30.4
Amortisation of
acquired intangibles 554 473 - - 41.3 40.5
Fair value (gains)/losses
on
derivative financial
instruments - - (169) 287 (13.8) 25.7
Post--employment
benefits net financing
costs - - 12 9 0.9 0.6
Restructuring
costs 284 162 - - 20.5 12.5
Tax on unrecognised
losses - - - - 3.2 4.1
Items above attributable
to non--controlling
interests - - - - (0.9) (0.8)
--------------------------- -------- -------- -------- -------- -------- --------
Adjusted 1,740 1,637 (272) (266) 121.9 113.0
--------------------------- -------- -------- -------- -------- -------- --------
Footprint Supporting Positive Financial Results
Our footprint bias to developed markets has driven the positive
currency translation in the half year. Tobacco net revenue was up
by 9.3% at actual rates. The proportion of Group net revenue from
our Growth and Specialist Brands increased to now represent 60.4%,
improving the quality of our revenue. Tobacco adjusted operating
profit increased 5.7% to GBP1.67bn at actual exchange rates.
We signalled our plans for increased investment this year to
drive revenue growth over the medium term. This increased
investment has been prioritised behind our Growth and Specialist
Brands and in priority markets that offer the best opportunities
for quality growth. Our investment in additional advertising and
promotion, overheads such as larger sales teams, and targeted price
investment has affected our actual and constant currency results in
line with our year end guidance. Tobacco net revenue fell 5.5%
reflecting volumes down 5.7% and price/mix up 0.2% at constant
currency. Volumes have been affected primarily by a decline in
market size following a strong performance last year and increases
in excise and regulation. Price/mix reflects our increased
investment in our price strategies in our Growth Brands in priority
markets. Adjusted tobacco operating profit fell 8.1% on a constant
currency basis as a result of the increased investment.
Logista again delivered an encouraging performance in a
challenging environment with adjusted operating profit of GBP82m
compared with GBP68m in 2016, partly as a result of foreign
exchange movements; on a constant currency basis adjusted operating
profit grew 4.4%. The improvement was driven by the development of
its non--tobacco business, particularly pharmaceutical, wholesale
and transport, as well as the benefit of continued cost controls,
and benefiting from the sale of an investment.
Adjusted net finance costs were higher at GBP272m (2016:
GBP266m) reflecting the weakening of Sterling against the US dollar
and the euro, partially offset by a lower all in cost of debt after
refinancing at lower rates.
Reported net finance costs were GBP115m (2016: GBP562m),
incorporating the impact of the net fair value and exchange gains
on financial instruments of GBP169m (2016: losses of GBP287m) and
post--employment benefits net financing costs of GBP12m (2016:
costs of GBP9m).
After tax at an effective adjusted rate of 20.0% (2016: 20.0%),
adjusted earnings per share grew by 7.9% to 121.9 pence. The
effective reported tax rate is 14.2% (2016: 31.4%).
The tax rate is sensitive to the geographic mix of profits,
reflecting a combination of higher rates in certain markets, such
as the USA, and lower rates in other markets, such as the UK. The
rate is also sensitive to future legislative changes affecting
international businesses, such as changes arising from the OECD's
(Organisation for Economic Co-operation and Development) Base
Erosion Profit Shifting (BEPS) work.
Reported earnings per share were 70.7 pence (2016: 30.4 pence)
reflecting non--cash amortisation of GBP554m (2016: GBP473m) and
restructuring costs of GBP284m (2016: GBP162m), as well as the
effects of fair value and exchange gains in finance costs mentioned
above. The difference between reported (70.7 pence) and adjusted
earnings per share (121.9 pence) is materially due to the same
three items.
The weakening of sterling versus the US dollar and euro
positively impacted reported and adjusted measures. On a constant
currency basis, adjusted earnings per share fell 5.9% principally
due to the investment programme we have undertaken.
The restructuring charge for the period of GBP284m (2016:
GBP162m) relates mainly to our two cost optimisation programmes
(GBP275m) announced in 2013 and 2016. The balance of GBP9m covers
all other restructuring activities across the Group.
Cost Optimisation
Our simplification agenda and the implementation of new ways of
working is core to our third strategic priority of cost
optimisation. There are two phases underway. The first phase of our
cost optimisation programme is on track to deliver savings of
GBP300m per annum from September 2018, with a cash implementation
cost of around GBP600m.
We have identified further opportunities to extend this
programme and announced a second phase of cost optimisation that is
expected to drive a further GBP300m of annual savings from
September 2020, at a cash cost in the region of GBP750m.
We delivered GBP60m of savings in the first half and we now
expect to deliver a total of GBP130m of savings this year, ahead of
the GBP90m announced last November.
Capital Discipline
Our continued focus on capital discipline is driving free cash
flow that has enabled a further GBP1.2bn of debt reduction at
constant currency over the last 12 months.
The increase in adjusted net debt over the last 12 months of
GBP0.2bn represents a GBP1.2bn debt reduction from our continued
focus on capital discipline before taking into account a GBP1.4bn
adverse impact of foreign exchange and fair value of derivatives.
Reported net debt over the last 12 months also increased by
GBP0.2bn.
Free cash flow generation through the period allowed us to repay
$0.9bn and EUR350m of bank facilities, meaning we have now fully
repaid the acquisition facilities through which we funded our 2015
USA acquisition.
Our all--in cost of debt reduced 20 basis points to 3.9% (2016:
4.1%) as older debt matured and was replaced with cheaper
financing. Our interest cover was 7.3 times (2016: 6.3 times). We
remain fully compliant with all our banking covenants and remain
committed to retaining our investment grade ratings.
All of our capital allocation decisions are subject to relevant
commercial analysis and hurdle rates to ensure they deliver
appropriate levels of return, and potential acquisitions are judged
on strict financial and commercial criteria including the ability
to enhance the Group's return on invested capital (ROIC).
Typically, we seek an overall internal rate of return in excess of
13% across the investments we make in our existing business. This
disciplined approach is supporting our investment choices and
underpins returns for shareholders.
Dividends
We have declared an interim dividend of 51.7 pence per share, an
increase of 10%. This dividend will be paid as two payments of
25.85 pence per share on 30 June 2017 and 29 September 2017, with
an ex-dividend date of 18 May and 17 August respectively.
The third interim and final dividends will be announced with our
full year results in November 2017 and paid in December 2017 and
March 2018 respectively, subject to AGM approval. We expect to
deliver another year of 10% dividend growth, in line with our
commitment to growing shareholder returns.
Liquidity and 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.
In reviewing the Group's committed funding and liquidity
positions, the Board considered various sensitivity analyses when
assessing the forecast funding and headroom requirements of the
Group in the context of the maturity profile of the Group's
facilities. The Group plans its financing in a structured and
proactive manner and remains confident that sources of financing
will be available when required.
Based on its review, 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
operational needs for a period of at least 12 months from the date
of this report and conclude that it is appropriate to prepare the
financial statements on a going concern basis.
Principal Risks and Uncertainties
The principal risks and uncertainties to which the Group is
exposed and our approach to managing those risks are unchanged from
those identified on pages 26 to 32 of our 2016 Annual Report and
Accounts and cover the following areas:
-- reduction in the size of the legitimate tobacco market;
-- optimising market share;
-- access to funding;
-- cost optimisation and strategic changes initiatives; and
-- compliance with legal and regulatory requirements.
The Group's Risk Management approach enables ongoing
identification and assessment of risks and development of related
mitigations. For example, in the period we have considered risks
relating to the wider potential impacts arising from the result of
the United Kingdom European Union membership referendum and any
associated regulatory, tax or foreign exchange risks. In this
context, it is the Board's view that the principal risks and
uncertainties surrounding the Group in the second half of the
financial year remain those set out in the 2016 Annual Report and
Accounts.
Statement of Directors' Responsibilities
The Directors confirm that this condensed consolidated interim
financial information has been prepared in accordance with IAS 34
as adopted by the European Union and that the interim management
report includes a fair review of the information required by DTR
4.2.7 and DTR 4.2.8, namely: an indication of important events that
have occurred during the first six months of the financial year and
their impact on the condensed set of financial statements, and a
description of the principal risks and uncertainties for the
remaining six months of the financial year; and material related
party transactions in the first six months of the current financial
year and any material changes in the related-party transactions
described in the last annual report.
A list of current directors is maintained on the Imperial Brands
PLC website: www.imperialbrandsplc.com.
The Directors are responsible for the maintenance and integrity
of the Company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
By order of the Board
Alison Cooper Oliver Tant
Chief Executive Chief Financial Officer
SUMMARY OF KEY FOOTPRINT FINANCIALS & METRICS
Half Year Result Change
================== ==================
FOOTPRINT Constant
2017 2016 Actual Currency
======================== ======== ======== ======= =========
Volume
================== ==== ======== ======== ======= =========
bn
Growth Markets SE 34.5 35.6 -3.1%
================== ==== ======== ======== ======= =========
bn
US Market SE 11.3 12.3 -8.3%
================== ==== ======== ======== ======= =========
Returns Markets bn
North SE 42.4 45.6 -7.0%
================== ==== ======== ======== ======= =========
Returns Markets bn
South SE 38.1 40.4 -5.8%
================== ==== ======== ======== ======= =========
Returns Markets bn
Total SE 80.5 86.0 -6.4%
================== ==== ======== ======== ======= =========
bn
Total Group SE 126.3 133.9 -5.7%
================== ==== ======== ======== ======= =========
Tobacco Net
Revenue
================== ==== ======== ======== ======= =========
Growth Markets GBPm 859 707 +21.5% +1.7%
================== ==== ======== ======== ======= =========
US Market GBPm 785 711 +10.4% -6.8%
================== ==== ======== ======== ======= =========
Returns Markets
North GBPm 1,301 1,246 +4.4% -6.5%
================== ==== ======== ======== ======= =========
Returns Markets
South GBPm 771 735 +4.9% -9.7%
================== ==== ======== ======== ======= =========
Returns Markets
Total GBPm 2,072 1,981 +4.6% -7.7%
================== ==== ======== ======== ======= =========
Total Group GBPm 3,716 3,399 +9.3% -5.5%
================== ==== ======== ======== ======= =========
Net Revenue
per '000 SE
================== ==== ======== ======== ======= =========
Growth Markets GBP 24.89 19.84 +25.4% +5.0%
================== ==== ======== ======== ======= =========
US Market GBP 69.74 57.89 +20.5% +1.7%
================== ==== ======== ======== ======= =========
Returns Markets
North GBP 30.67 27.33 +12.2% +0.5%
================== ==== ======== ======== ======= =========
Returns Markets
South GBP 20.25 18.18 +11.4% -4.1%
================== ==== ======== ======== ======= =========
Returns Markets
Total GBP 25.74 23.03 +11.8% -1.3%
================== ==== ======== ======== ======= =========
Total Group GBP 29.43 25.38 +16.0% +0.2%
================== ==== ======== ======== ======= =========
Price/Mix
================== ==== ======== ======== ======= =========
Growth Markets % +24.6% +4.8%
================== ==== ======== ======== ======= =========
US Market % +18.7% +1.5%
================== ==== ======== ======== ======= =========
Returns Markets
North % +11.4% +0.5%
================== ==== ======== ======== ======= =========
Returns Markets
South % +10.7% -3.9%
================== ==== ======== ======== ======= =========
Returns Markets
Total % +11.0% -1.3%
================== ==== ======== ======== ======= =========
Total Group % +15.0% +0.2%
================== ==== ======== ======== ======= =========
Adjusted Tobacco Operating
Profit
================================== ======== ======= =========
Growth Markets GBPm 211 192 +9.9% -8.9%
================== ==== ======== ======== ======= =========
US Market GBPm 457 384 +19.0% 0.0%
================== ==== ======== ======== ======= =========
Returns Markets
North GBPm 671 676 -0.7% -9.9%
================== ==== ======== ======== ======= =========
Returns Markets
South GBPm 328 325 +0.9% -13.2%
================== ==== ======== ======== ======= =========
Returns Markets
Total GBPm 999 1,001 -0.2% -11.0%
================== ==== ======== ======== ======= =========
Total Group GBPm 1,667 1,577 +5.7% -8.1%
================== ==== ======== ======== ======= =========
Logistics
================== ==== ======== ======== ======= =========
Logistics
Distribution
Fees GBPm 442 371 +19.1% +2.7%
================== ==== ======== ======== ======= =========
Logistics
Operating
Profit GBPm 82 68 +20.6% +4.4%
================== ==== ======== ======== ======= =========
Logistics
Operating
Margin % 18.6 18.3 +30 bps +30 bps
================== ==== ======== ======== ======= =========
SUMMARY OF KEY PORTFOLIO FINANCIALS & METRICS
Half Year Result Change
================== ===================
PORTFOLIO Constant
2017 2016 Actual Currency
========================== ======== ======== ======== =========
Growth Brand
Volume
==================== ==== ======== ======== ======== =========
bn
Growth Markets SE 22.3 21.3 +4.7%
==================== ==== ======== ======== ======== =========
bn
US Market SE 2.9 2.9 +0.4%
==================== ==== ======== ======== ======== =========
Returns Markets bn
North SE 27.1 25.5 +6.2%
==================== ==== ======== ======== ======== =========
Returns Markets bn
South SE 20.6 21.0 -1.6%
==================== ==== ======== ======== ======== =========
Returns Markets bn
Total SE 47.7 46.5 +2.7%
==================== ==== ======== ======== ======== =========
bn
Total Group SE 73.0 70.7 +3.2%
==================== ==== ======== ======== ======== =========
Growth Brands as % of Volume
===================================================================
Growth Markets % 64.6 59.7 +490 bps
==================== ==== ======== ======== ======== =========
US Market % 26.1 23.8 +230 bps
==================== ==== ======== ======== ======== =========
Returns Markets
North % 63.9 56.0 +790 bps
==================== ==== ======== ======== ======== =========
Returns Markets
South % 54.2 51.8 +240 bps
==================== ==== ======== ======== ======== =========
Returns Markets
Total % 59.3 54.0 +530 bps
==================== ==== ======== ======== ======== =========
Total Group % 57.8 52.8 +500 bps
==================== ==== ======== ======== ======== =========
Growth Brand Market Share
===================================================================
Growth Markets % 3.9 3.4 +50 bps
==================== ==== ======== ======== ======== =========
US Market % 2.4 2.3 +10 bps
==================== ==== ======== ======== ======== =========
Returns Markets
North % 15.7 14.9 +80 bps
==================== ==== ======== ======== ======== =========
Returns Markets
South % 16.3 15.5 +80 bps
==================== ==== ======== ======== ======== =========
Returns Markets
Total % 15.9 15.1 +80 bps
==================== ==== ======== ======== ======== =========
Total Group % 8.0 7.4 +60 bps
==================== ==== ======== ======== ======== =========
Growth Brand Tobacco Net Revenue
===================================================================
Growth Markets GBPm 409 319 +28.2% +6.9%
==================== ==== ======== ======== ======== =========
US Market GBPm 142 133 +7.3% -9.7%
==================== ==== ======== ======== ======== =========
Returns Markets
North GBPm 753 686 +9.7% -3.3%
==================== ==== ======== ======== ======== =========
Returns Markets
South GBPm 378 348 +8.5% -6.5%
==================== ==== ======== ======== ======== =========
Returns Markets
Total GBPm 1,131 1,034 +9.3% -4.4%
==================== ==== ======== ======== ======== =========
Total Group GBPm 1,682 1,486 +13.2% -2.5%
==================== ==== ======== ======== ======== =========
Growth Brands as % of
Tobacco Net Revenue
==================================== ======== ======== =========
Growth Markets % 47.6 45.1 +250 bps
==================== ==== ======== ======== ======== =========
US Market % 18.1 18.6 -50 bps
==================== ==== ======== ======== ======== =========
Returns Markets
North % 57.9 55.1 +280 bps
==================== ==== ======== ======== ======== =========
Returns Markets
South % 49.0 47.4 +160 bps
==================== ==== ======== ======== ======== =========
Returns Markets
Total % 54.6 52.2 +240 bps
==================== ==== ======== ======== ======== =========
Total Group % 45.3 43.7 +160 bps
==================== ==== ======== ======== ======== =========
Specialist Brand
Net Revenue
========================== ======== ======== ======== =========
Total Group GBPm 561 499 +12.3% -2.0%
==================== ==== ======== ======== ======== =========
Specialist Brands as % of Tobacco Net Revenue
===================================================================
Total Group % 15.1 14.7 +40 bps
==================== ==== ======== ======== ======== =========
Growth & Specialist
Brands as a percentage
of Group Net
Revenue 60.4 58.4 +200 bps
========================== ======== ======== ======== =========
INDEPENT REVIEW REPORT TO IMPERIAL BRANDS PLC
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed Imperial Brands PLC's condensed consolidated
interim financial statements (the "interim financial statements")
in the Interim Results of Imperial Brands PLC for the 6 month
period ended 31 March 2017. Based on our review, nothing has come
to our attention that causes us to believe that the interim
financial statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the Consolidated Balance Sheet as at 31 March 2017;
-- the Consolidated Income Statement and Consolidated Statement
of Comprehensive Income for the period then ended;
-- the Consolidated Cash Flow Statement for the period then
ended;
-- the Consolidated Statement of Changes in Equity for the
period then ended; and
-- the explanatory notes to the interim financial
statements.
The interim financial statements included in the Interim Results
have been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the Directors
The Interim Results, including the interim financial statements,
are the responsibility of, and have been approved by, the
Directors. The Directors are responsible for preparing the Interim
Results in accordance with the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Results based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK and
Ireland) and, consequently, does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the Interim
Results and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Bristol
3 May 2017
a) The maintenance and integrity of the Imperial Brands PLC
website is the responsibility of the Directors; the work carried
out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the interim financial statements
since they were initially presented on the website.
b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
The figures and financial information for 6 months ended 31
March 2017 do not constitute the statutory financial statements for
that year. Those financial statements have not yet been delivered
to the Registrar, nor have the Auditors yet reported on them. The
financial statements have been prepared in accordance with our
accounting policies published in our financial statements available
on our website www.imperialbrandsplc.com.
CONSOLIDATED INCOME STATEMENT
Unaudited Unaudited Audited
============================ ============================ ===============
GBP million unless otherwise Year ended 30
indicated Notes 6 months ended 31 March 2017 6 months ended 31 March 2016 September 2016
================================== ===== ============================ ============================ ===============
Revenue 3 14,298 12,806 27,634
================================== ===== ============================ ============================ ===============
Duty and similar items (7,035) (6,244) (13,535)
Other cost of sales (4,173) (3,730) (8,143)
================================== ===== ============================ ============================ ===============
Cost of sales (11,208) (9,974) (21,678)
================================== ===== ============================ ============================ ===============
Gross profit 3,090 2,832 5,956
Distribution, advertising and
selling costs (1,210) (1,007) (2,070)
================================== ===== ============================ ============================ ===============
Amortisation of acquired
intangibles (554) (473) (1,005)
Restructuring costs 4 (284) (162) (307)
Other expenses (140) (188) (345)
================================== ===== ============================ ============================ ===============
Administrative and other expenses (978) (823) (1,657)
================================== ===== ============================ ============================ ===============
Operating profit 3 902 1,002 2,229
================================== ===== ============================ ============================ ===============
Investment income 730 290 634
Finance costs (845) (852) (1,984)
================================== ===== ============================ ============================ ===============
Net finance costs 5 (115) (562) (1,350)
Share of profit of investments
accounted for using the equity
method 17 12 28
================================== ===== ============================ ============================ ===============
Profit before tax 804 452 907
Tax 6 (114) (142) (238)
================================== ===== ============================ ============================ ===============
Profit for the period 690 310 669
================================== ===== ============================ ============================ ===============
Attributable to:
Owners of the parent 675 290 631
Non-controlling interests 15 20 38
================================== ===== ============================ ============================ ===============
Earnings per ordinary share
(pence)
- Basic 8 70.7 30.4 66.1
- Diluted 8 70.6 30.4 66.0
================================== ===== ============================ ============================ ===============
CONSOLIDATED STATEMENT ON COMPREHENSIVE INCOME
Unaudited Unaudited Audited
============================ ============================ ===============
Year ended 30
GBP million 6 months ended 31 March 2017 6 months ended 31 March 2016 September 2016
================================== ===== ============================ ============================ ===============
Profit for the period 690 310 669
Other comprehensive income
================================== ===== ============================ ============================ ===============
Exchange movements 137 282 1,260
================================== ===== ============================ ============================ ===============
Items that may be reclassified to
profit and loss 137 282 1,260
================================== ===== ============================ ============================ ===============
Net actuarial gains/(losses) on
retirement benefits 155 (79) (604)
Deferred tax relating to net
actuarial gains/(losses) on
retirement benefits (32) 25 115
================================== ===== ============================ ============================ ===============
Items that will not be
reclassified to profit and loss 123 (54) (489)
================================== ===== ============================ ============================ ===============
Other comprehensive income for the
period, net of tax 260 228 771
================================== ===== ============================ ============================ ===============
Total comprehensive income for the
period 950 538 1,440
================================== ===== ============================ ============================ ===============
Attributable to:
Owners of the parent 939 490 1,336
Non-controlling interests 11 48 104
================================== ===== ============================ ============================ ===============
Total comprehensive income for the
period 950 538 1,440
================================== ===== ============================ ============================ ===============
RECONCILIATION FROM OPERATING PROFIT TO ADJUSTED OPERATING PROFIT
Unaudited Unaudited Audited
============================ ============================ ===============
Year ended 30
GBP million Notes 6 months ended 31 March 2017 6 months ended 31 March 2016 September 2016
================================== ===== ============================ ============================ ===============
Operating profit 902 1,002 2,229
Amortisation of acquired
intangibles 554 473 1,005
Restructuring costs 4 284 162 307
================================== ===== ============================ ============================ ===============
Adjusted operating profit 1,740 1,637 3,541
================================== ===== ============================ ============================
RECONCILIATION FROM NET FINANCE COSTS TO ADJUSTED NET FINANCE COSTS
Unaudited Unaudited Audited
============================ ============================ ===============
Year ended 30
GBP million Notes 6 months ended 31 March 2017 6 months ended 31 March 2016 September 2016
================================== ===== ============================ ============================ ===============
Net finance costs (115) (562) (1,350)
Net fair value and exchange
(gains)/losses on financial
instruments 5 (169) 287 807
Post-employment benefits net
financing cost 5 12 9 19
================================== ===== ============================ ============================ ===============
Adjusted net finance costs 5 (272) (266) (524)
================================== ===== ============================ ============================ ===============
CONSOLIDATED BALANCE SHEET
Unaudited Unaudited Audited
============= ============= =================
GBP million Notes 31 March 2017 31 March 2016 30 September 2016
================================================== ===== ============= ============= =================
Non-current assets
Intangible assets 9 20,390 19,415 20,704
Property, plant and equipment 1,955 1,794 1,959
Investments accounted for using the equity method 793 651 744
Retirement benefit assets 11 59 5
Trade and other receivables 94 93 89
Derivative financial instruments 11 703 905 1,063
Deferred tax assets 557 566 631
================================================== ===== ============= ============= =================
24,503 23,483 25,195
================================================== ===== ============= ============= =================
Current assets
Inventories 3,824 3,951 3,498
Trade and other receivables 2,745 2,524 2,671
Current tax assets 46 123 45
Cash and cash equivalents 10 653 561 1,274
Derivative financial instruments 11 35 40 46
================================================== ===== ============= ============= =================
7,303 7,199 7,534
================================================== ===== ============= ============= =================
Total assets 31,806 30,682 32,729
================================================== ===== ============= ============= =================
Current liabilities
Borrowings 10 (2,760) (2,591) (1,544)
Derivative financial instruments 11 (59) (103) (118)
Trade and other payables (7,563) (7,003) (7,991)
Current tax liabilities (169) (247) (284)
Provisions 4 (206) (185) (188)
================================================== ===== ============= ============= =================
(10,757) (10,129) (10,125)
================================================== ===== ============= ============= =================
Non-current liabilities
Borrowings 10 (11,694) (11,717) (12,394)
Derivative financial instruments 11 (1,070) (1,124) (1,646)
Trade and other payables (20) (13) (17)
Deferred tax liabilities (946) (1,123) (1,034)
Retirement benefit liabilities (1,271) (1,040) (1,484)
Provisions 4 (402) (264) (287)
================================================== ===== ============= ============= =================
(15,403) (15,281) (16,862)
================================================== ===== ============= ============= =================
Total liabilities (26,160) (25,410) (26,987)
================================================== ===== ============= ============= =================
Net assets 5,646 5,272 5,742
================================================== ===== ============= ============= =================
Equity
Share capital 104 104 104
Share premium and capital redemption 5,836 5,836 5,836
Retained earnings (1,745) (1,014) (1,525)
Exchange translation reserve 1,037 (44) 896
================================================== ===== ============= ============= =================
Equity attributable to owners of the parent 5,232 4,882 5,311
Non-controlling interests 414 390 431
================================================== ===== ============= ============= =================
Total equity 5,646 5,272 5,742
================================================== ===== ============= ============= =================
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited
======================================================================================
Share Equity
premium Exchange attributable Non-
Share and capital Retained translation to owners controlling Total
GBP million capital redemption earnings reserve of the parent interests equity
============================== ======== ============ ========= ============ ============== ============ =======
At 1 October 2016 104 5,836 (1,525) 896 5,311 431 5,742
Profit for the period - - 675 - 675 15 690
Other comprehensive income - - 123 141 264 (4) 260
============================== ======== ============ ========= ============ ============== ============ =======
Total comprehensive income - - 798 141 939 11 950
Transactions with owners
Cash from employees on
maturity/exercise of share
schemes - - 6 - 6 - 6
Purchase of shares by Employee
Share Ownership Trusts - - (1) - (1) - (1)
Costs of employees' services
compensated by share schemes - - 11 - 11 - 11
Dividends paid - - (1,034) - (1,034) (28) (1,062)
============================== ======== ============ ========= ============ ============== ============ =======
At 31 March 2017 104 5,836 (1,745) 1,037 5,232 414 5,646
============================== ======== ============ ========= ============ ============== ============ =======
At 1 October 2015 104 5,836 (315) (298) 5,327 369 5,696
Profit for the period - - 290 - 290 20 310
Other comprehensive income - - (54) 254 200 28 228
============================== ======== ============ ========= ============ ============== ============ =======
Total comprehensive income - - 236 254 490 48 538
Transactions with owners
Cash from employees on
maturity/exercise of share
schemes - - 1 - 1 - 1
Purchase of shares by Employee
Share Ownership Trusts - - (12) - (12) - (12)
Costs of employees' services
compensated by share schemes - - 12 - 12 - 12
Dividends paid - - (936) - (936) (27) (963)
============================== ======== ============ ========= ============ ============== ============ =======
At 31 March 2016 104 5,836 (1,014) (44) 4,882 390 5,272
============================== ======== ============ ========= ============ ============== ============ =======
CONSOLIDATED CASH FLOW STATEMENT
Unaudited Unaudited Audited
============================ ============================ ===============
Year ended 30
GBP million 6 months ended 31 March 2017 6 months ended 31 March 2016 September 2016
========================================= ============================ ============================ ===============
Cash flows from operating activities
Operating profit 902 1,002 2,229
Dividends received from investments
accounted for under the equity method 9 13 19
Depreciation, amortisation and impairment 656 612 1,244
Loss on disposal of property, plant and
equipment and software - 1 6
Loss on disposal of businesses - 1 -
Post-employment benefits (90) (55) (111)
Costs of employees' services compensated
by share schemes 11 14 29
Movement in provisions 134 (5) 4
========================================= ============================ ============================ ===============
Operating cash flows before movement in
working capital 1,622 1,583 3,420
========================================= ============================ ============================ ===============
Increase in inventories (293) (889) (149)
(Increase)/decrease in trade and other
receivables (59) 76 171
(Decrease)/increase in trade and other
payables (433) (209) 116
========================================= ============================ ============================ ===============
Movement in working capital (785) (1,022) 138
Tax paid (274) (251) (401)
========================================= ============================ ============================ ===============
Net cash flows generated from operating
activities 563 310 3,157
========================================= ============================ ============================ ===============
Cash flows from investing activities
Interest received 4 4 7
Loan to joint ventures (10) - (9)
Purchase of property, plant and equipment (77) (62) (164)
Proceeds from sale of property, plant and
equipment 13 20 42
Purchase of intangible assets - software (21) (18) (51)
Purchase of intangibles assets -
intellectual property rights (1) (7) (14)
Internally generated intellectual
property rights (4) (7) (2)
========================================= ============================ ============================ ===============
Net cash used in investing activities (96) (70) (191)
========================================= ============================ ============================ ===============
Cash flows from financing activities
Interest paid (336) (368) (547)
Cash from employees on maturity/exercise
of share schemes 6 1 9
Purchase of shares by Employee Share
Ownership Trusts (1) (6) (7)
Increase in borrowings 2,995 1,815 897
Repayment of borrowings (2,612) (2,212) (2,637)
Cash flows relating to derivative
financial instruments (75) (56) (209)
Dividends paid to non-controlling
interests (28) (27) (42)
Dividends paid to owners of the parent (1,034) (936) (1,386)
========================================= ============================ ============================ ===============
Net cash used in financing activities (1,085) (1,789) (3,922)
========================================= ============================ ============================ ===============
Net decrease in cash and cash equivalents (618) (1,549) (956)
Cash and cash equivalents at the start of
period 1,274 2,042 2,042
Effect of foreign exchange rates on cash
and cash equivalents (3) 68 188
========================================= ============================ ============================ ===============
Cash and cash equivalents at the end of
period 653 561 1,274
========================================= ============================ ============================ ===============
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
BASIS OF PREPARATION
The financial information comprises the unaudited results for
the six months ended 31 March 2017 and 31 March 2016, together with
the audited results for the year ended 30 September 2016.
The information shown for the year ended 30 September 2016 does
not constitute statutory accounts within the meaning of section 434
of the Companies Act 2006, and is an abridged version of the
Group's published financial statements for that year. The Auditors'
Report on those statements was unqualified and did not contain any
statements under section 498 of the Companies Act 2006. The
financial statements for the year ended 30 September 2016 were
approved by the Board of Directors on 8 November 2016 and filed
with the Registrar of Companies.
This condensed set of financial statements for the six months
ended 31 March 2017 has been prepared in accordance with the
Disclosure Guidance and Transparency Rules of the Financial Conduct
Authority and with IAS 34 Interim Financial Reporting as adopted by
the European Union. The condensed set of financial statements for
the six months ended 31 March 2017 should be read in conjunction
with the annual financial statements for the year ended 30
September 2016 which have been prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union.
The Group's principal accounting policies used in preparing this
information are as stated in the financial statements for the year
ended 30 September 2016, which are available on our website
www.imperialbrandsplc.com.
NEW ACCOUNTING STANDARDS AND INTERPRETATIONS
There have been no new standards or amendments which became
effective for the current reporting period, that have had a
material effect on the Group.
Certain changes to IFRS will be applicable to the consolidated
financial statements in future years. IFRS 15 Revenue from
Contracts with Customers which is effective for the Group for its
2019 financial statements will result in some items currently
classified as costs being netted against revenue. It is not
expected to have material effect on the Group's net asset or
results. Management has yet to fully assess the impact of IFRS 9
Financial Instruments which is also effective for the Group for its
2019 financial statements. Our initial assessment of IFRS 16
Leases, effective for the Group for its 2020 financial statements,
is that it will not have a material effect on the Group's net
assets or results. There are no other standards or interpretations
that are expected to have a material effect on the Group's net
assets or results.
2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The Group makes estimates and assumptions regarding the future.
Estimates and judgements are continually evaluated based on
historical experience, and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances.
In the future, actual experience may deviate from these
estimates and assumptions. The estimates and assumptions that have
a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the current financial year
are discussed in the financial statements for the year ended 30
September 2016, with the exception of the impairment analysis
disclosed in note 9.
Actuarial valuations for the Group's retirement benefit plans
are updated annually as at 30 September. An interim update is
carried out at 31 March for the main plans. As part of this interim
update, the most material plan assets are revalued based on market
data at the period end and the liabilities for the most significant
schemes are recalculated to reflect key changes in membership data
and revised actuarial assumptions.
3. SEGMENT INFORMATION
TOBACCO
Unaudited Unaudited Audited
============================= ============================= ================
GBP million unless otherwise Year ended 30
indicated 6 months ended 31 March 2017 6 months ended 31 March 2016 September 2016
====================================== ============================= ============================= ================
Revenue 10,783 9,762 20,890
Net revenue 3,716 3,399 7,167
Operating profit 872 979 2,126
Adjusted operating profit 1,667 1,577 3,360
Adjusted operating margin % 44.9 46.4 46.9
====================================== ============================= ============================= ================
LOGISTICS
Unaudited Unaudited Audited
============================= ============================= ================
GBP million unless otherwise Year ended 30
indicated 6 months ended 31 March 2017 6 months ended 31 March 2016 September 2016
====================================== ============================= ============================= ================
Revenue 3,912 3,408 7,505
Distribution fees 442 371 809
Operating profit 39 31 98
Adjusted operating profit 82 68 176
Adjusted operating margin % 18.6 18.3 21.8
====================================== ============================= ============================= ================
REVENUE
Unaudited Unaudited Audited
========================== ========================== ==================================
6 months ended 6 months ended Year ended
31 March 2017 31 March 2016 30 September 2016
========================== ========================== ==================================
Total External Total External Total External
GBP million revenue revenue revenue revenue Revenue revenue
================== =============== ========= =============== ========= ================ ================
Tobacco
Growth Markets 1,694 1,663 1,382 1,361 3,137 3,085
USA 1,513 1,513 1,424 1,424 2,942 2,942
Returns Markets
North 6,396 6,382 5,851 5,837 12,537 12,504
Returns Markets
South 1,180 828 1,105 776 2,274 1,598
================== =============== ========= =============== ========= ================ ================
Total Tobacco 10,783 10,386 9,762 9,398 20,890 20,129
Logistics 3,912 3,912 3,408 3,408 7,505 7,505
Eliminations (397) - (364) - (761) -
================== =============== ========= =============== ========= ================ ================
Total Group 14,298 14,298 12,806 12,806 27,634 27,634
================== =============== ========= =============== ========= ================ ================
TOBACCO NET REVENUE
Unaudited Unaudited Audited
============================= ============================= ================
Year ended 30
GBP million 6 months ended 31 March 2017 6 months ended 31 March 2016 September 2016
======================= ============================= ============================= ================
Growth Markets 859 707 1,568
USA 785 711 1,477
Returns Markets North 1,301 1,246 2,645
Returns Markets South 771 735 1,477
======================= ============================= ============================= ================
Total Tobacco 3,716 3,399 7,167
======================= ============================= ============================= ================
Tobacco net revenue excludes revenue from the sale of peripheral
products of GBP32 million (6 months 2016: GBP119 million).
ADJUSTED OPERATING PROFIT AND RECONCILIATION TO PROFIT BEFORE TAX
Unaudited Unaudited Audited
============================= ============================= ================
Year ended 30
GBP million 6 months ended 31 March 2017 6 months ended 31 March 2016 September 2016
====================================== ============================= ============================= ================
Tobacco
Growth Markets 211 192 443
USA 457 384 823
Returns Markets North 671 676 1,439
Returns Markets South 328 325 655
====================================== ============================= ============================= ================
Total Tobacco 1,667 1,577 3,360
Logistics 82 68 176
Eliminations (9) (8) 5
====================================== ============================= ============================= ================
Adjusted operating profit 1,740 1,637 3,541
Amortisation of acquired intangibles
- Tobacco (511) (436) (927)
Amortisation of acquired intangibles
- Logistics (43) (37) (78)
Restructuring costs - Tobacco (284) (162) (307)
Operating profit 902 1,002 2,229
Net finance costs (115) (562) (1,350)
Share of profit of investments
accounted for using the equity
method 17 12 28
====================================== ============================= ============================= ================
Profit before tax 804 452 907
====================================== ============================= ============================= ================
4. RESTRUCTURING COSTS AND PROVISIONS
RESTRUCTURING COSTS
Unaudited Unaudited Audited
============================= ============================= ================
Year ended 30
GBP million 6 months ended 31 March 2017 6 months ended 31 March 2016 September 2016
===================== ============================= ============================= ================
Employment related 198 80 144
Asset impairments 64 49 51
Other charges 22 33 112
===================== ============================= ============================= ================
284 162 307
===================== ============================= ============================= ================
The charge for the period of GBP284 million (6 months 2016:
GBP162 million) relates mainly to our two cost optimisation
programmes (GBP275 million) announced in 2013 and 2016. The balance
of GBP9 million covers all other restructuring activities across
the Group.
In the 6 months to 31 March 2017 the cash cost of the programmes
was GBP107 million (6 months 2016: GBP30 million) bringing the
cumulative cash costs of Phase I to GBP460 million and Phase II to
GBP67 million. The cost optimisation programmes Phase I and Phase
II are expected to have a cash implementation cost in the region of
GBP600 million and GBP750 million, respectively. Phase I is
expected to generate savings of GBP300 million by 2018 and Phase II
to deliver a further GBP300 million of savings by 2020.
PROVISIONS
Unaudited
==============================================================================
6 months ended 31 March 2017
==============================================================================
GBP million Restructuring Other Total
====================================== ============================= ============================= ================
At 1 October 2016 304 171 475
Additional provisions charged to the
consolidated income statement 220 16 236
Amounts used (71) (9) (80)
Unused amounts reversed (2) (20) (22)
Exchange movements (1) - (1)
At 31 March 2017 450 158 608
====================================== ============================= ============================= ================
Analysed as:
Unaudited Unaudited Audited
============================= ============================= ================
Year ended 30
GBP million 6 months ended 31 March 2017 6 months ended 31 March 2016 September 2016
Current 206 185 188
Non-current 402 264 287
====================================== ============================= ============================= ================
608 449 475
====================================== ============================= ============================= ================
5. NET FINANCE COSTS AND RECONCILIATION TO ADJUSTED NET FINANCE
COSTS
RECONCILIATION FROM REPORTED NET FINANCE COSTS TO ADJUSTED NET FINANCE COSTS
Unaudited Unaudited Audited
============================= ============================= ================
Year ended 30
GBP million 6 months ended 31 March 2017 6 months ended 31 March 2016 September 2016
====================================== ============================= ============================= ================
Reported net finance costs 115 562 1,350
====================================== ============================= ============================= ================
Fair value gains on derivative
financial instruments 670 216 484
Fair value losses on derivative
financial instruments (503) (429) (825)
Exchange gains/(losses) on financing
activities 2 (74) (466)
====================================== ============================= ============================= ================
Net fair value and exchange
gains/(losses) on financial
instruments 169 (287) (807)
====================================== ============================= ============================= ================
Interest income on net defined
benefit assets 54 71 143
Interest cost on net defined benefit
liabilities (66) (80) (162)
====================================== ============================= ============================= ================
Post-employment benefits net
financing cost (12) (9) (19)
====================================== ============================= ============================= ================
Adjusted net finance costs 272 266 524
====================================== ============================= ============================= ================
Comprising:
Interest on bank deposits (4) (3) (7)
Interest on bank loans and other
loans 276 269 531
====================================== ============================= ============================= ================
Adjusted net finance costs 272 266 524
====================================== ============================= ============================= ================
6. TAXATION
RECONCILIATION FROM REPORTED TAX TO ADJUSTED TAX
Reported tax for the six months ended 31 March 2017 has been
calculated on the basis of an estimated effective rate for the year
ended 30 September 2017. The table below shows the taxation impact
of the adjustments made to reported profit before tax in order to
arrive at the adjusted measure of earnings disclosed in note 8.
Unaudited Unaudited Audited
============================= ============================= ================
Year ended 30
GBP million 6 months ended 31 March 2017 6 months ended 31 March 2016 September 2016
====================================== ============================= ============================= ================
Reported tax 114 142 238
Deferred tax on amortisation of
acquired intangibles 160 86 261
Tax on net fair value and exchange
movements on financial instruments (36) 42 80
Tax on post-employment benefits net
financing cost 3 3 7
Tax on restructuring costs 88 43 79
Tax on unrecognised losses (31) (39) (56)
====================================== ============================= ============================= ================
Adjusted tax charge 298 277 609
====================================== ============================= ============================= ================
UNCERTAIN TAX POSITIONS
On 29 March 2017 the UK notified the European Council in
accordance with Article 50(2) of the Treaty on European Union of
the UK's intention to withdraw from the European Union. As an
international business the Group is monitoring developments but
does not currently consider any provision is required.
In November 2015 the Group received a challenge from the French
tax authorities that could lead to additional tax liabilities of up
to GBP246 million (31 March 2016: GBP253 million). The challenge
concerns the valuation placed on the shares of Altadis Distribution
France (now known as Logista France) following an intra group
transfer of the shares in October 2012 and the tax consequences
flowing from a potentially higher value that is argued for by the
tax authorities. Based on professional advice, an amount of GBP41
million (31 March 2016: GBP41 million) is included in the provision
for uncertain tax positions.
7. DIVIDS
DISTRIBUTIONS TO ORDINARY EQUITY HOLDERS
Unaudited Audited Audited
========== ======== ========
GBP million 2017 2016 2015
====================================================================================== ========== ======== ========
Paid interim of nil pence per share (2016: 101.1 pence, 2015: 91.9 pence)
- Paid June 2015 - - 204
- Paid September 2015 - - 204
- Paid December 2015 - - 468
- Paid June 2016 - 225 -
- Paid September 2016 - 225 -
- Paid December 2016 - 517 -
====================================================================================== ========== ======== ========
Interim dividend paid - 967 876
====================================================================================== ========== ======== ========
Proposed interim of 51.7 pence per share (2016: nil, 2015: nil)
- To be paid June 2017 247 - -
- To be paid September 2017 247 - -
====================================================================================== ========== ======== ========
Interim dividend proposed 494 - -
====================================================================================== ========== ======== ========
Paid final of nil pence per share (2016: 54.1 pence, 2015: 49.1 pence)
- Paid March 2016 - - 468
- Paid March 2017 - 517 -
====================================================================================== ========== ======== ========
Final dividend - 517 468
====================================================================================== ========== ======== ========
Total ordinary share dividends of 51.7 pence per share (2016: 155.2 pence, 2015:
141.0 pence) 494 1,484 1,344
====================================================================================== ========== ======== ========
The declared interim dividend for 2017 amounts to a total
dividend of GBP494 million based on the number of shares ranking
for dividend at 31 March 2017. This will be paid in two stages, one
in June 2017 and one in September 2017.
The dividend paid during the half year to 31 March 2017 is
GBP1,034 million (2016: GBP936 million).
8. EARNINGS PER SHARE
Unaudited Unaudited Audited
============================= ============================= ================
Year ended 30
GBP million 6 months ended 31 March 2017 6 months ended 31 March 2016 September 2016
====================================== ============================= ============================= ================
Earnings: basic and diluted -
attributable to owners of the
Parent Company 675 290 631
====================================== ============================= ============================= ================
Millions of shares
====================================== ============================= ============================= ================
Weighted average number of shares:
Shares for basic earnings per share 954.3 953.7 954.0
Potentially dilutive share options 2.2 1.8 2.7
====================================== ============================= ============================= ================
Shares for diluted earnings per share 956.5 955.5 956.7
====================================== ============================= ============================= ================
Pence
====================================== ============================= ============================= ================
Basic earnings per share 70.7 30.4 66.1
Diluted earnings per share 70.6 30.4 66.0
====================================== ============================= ============================= ================
RECONCILIATION FROM REPORTED TO ADJUSTED EARNINGS AND EARNINGS PER SHARE
Unaudited Unaudited Audited
============================= ============================== ==================================
6 months ended 6 months ended Year ended
31 March 2017 31 March 2016 30 September 2016
============================= ============================== ==================================
GBP million
unless otherwise Earnings per Earnings Earnings per Earnings Earnings per Earnings net of
indicated share (pence) net of tax share (pence) net of tax share (pence) tax
================= =============== ============ ================ ============ ================ ================
Reported basic 70.7 675 30.4 290 66.1 631
Amortisation of
acquired
intangibles 41.3 394 40.5 387 78.0 744
Net fair value
and exchange
gains
on financial
instruments (13.8) (133) 25.7 245 76.2 727
Post-employment
benefits
net financing
cost 0.9 9 0.6 6 1.3 12
Restructuring
costs 20.5 196 12.5 119 23.9 228
Taxation on
unrecognised
losses 3.2 31 4.1 39 5.9 56
Adjustments
attributable to
non-controlling
interests (0.9) (9) (0.8) (8) (1.8) (17)
================= =============== ============ ================ ============ ================ ================
Adjusted 121.9 1,163 113.0 1,078 249.6 2,381
================= =============== ============ ================ ============ ================ ================
Adjusted diluted 121.6 1,163 112.8 1,078 248.9 2,381
================= =============== ============ ================ ============ ================ ================
9. INTANGIBLE ASSETS
At the 2016 year end the impairment test for the Drive Growth
CGU grouping that includes our markets in Russia, Italy and Japan
indicated headroom of GBP210 million and that an impairment would
result in the event of relatively small changes in an individual
assumption or assumptions.
During the period a strategic investment programme was initiated
in the Russia CGU, in order to grow our business footprint. This
investment included initiatives to build long-term improvement in
our market share and support a consistent pricing strategy. The
actions involved in this programme reflect our confidence in the
ongoing opportunity for growth offered by the Russian market
despite it being a very competitive market. The consequence of
these actions is expected to reduce net cash flows in both the
current and subsequent period, but deliver significantly higher
growth and profitability in future years. We have consequently
tested the goodwill and intangible assets for impairment.
The assumptions used in our impairment testing remain consistent
with the assessment conducted at 30 September 2016 with the
exception of the initial cash flow growth rate for the Russia CGU,
which has increased from 5% to 34%. The increase in the Russia CGU
cash flow growth rate is primarily explained by the short term
impact of our investment strategy in the Russian market preceding a
return to historical levels of profitability as revenues steadily
grow.
Our impairment test for this CGU grouping indicated headroom had
reduced to GBP203 million. A reduction in the initial growth rate
for these markets of 6% or a 1.75% increase in the discount rate
would cause the carrying value to fall below the recoverable
amount. The assessment confirms that there are sufficient future
cash flows to support the current carrying values. Taking account
of all of these factors, we have concluded that the carrying value
for the Drive Growth CGU grouping included in our 31 March 2017
balance sheet is appropriate, but remains highly sensitive to
adverse movements in any individual assumption or assumptions.
10. NET DEBT
The movements in cash and cash equivalents, borrowings, and
derivative financial instruments in the period were as follows:
Unaudited
====================================================================
Derivative
Cash and cash Current Non-current financial
GBP million equivalents borrowings borrowings instruments Total
================================================ ============== ============ ============ ============= =========
At 1 October 2016 1,274 (1,544) (12,394) (655) (13,319)
Reallocation of current borrowings from
non-current borrowings - (966) 966 - -
Cash flow (618) (248) (134) 74 (926)
Accretion of interest - 24 46 (1) 69
Change in fair values - - - 191 191
Exchange movements (3) (26) (178) - (207)
================================================ ============== ============ ============ ============= =========
As at 31 March 2017 653 (2,760) (11,694) (391) (14,192)
================================================ ============== ============ ============ ============= =========
ADJUSTED NET DEBT
Management monitors the Group's borrowing levels using adjusted
net debt which excludes interest accruals and the fair value of
derivative financial instruments providing commercial cash flow
hedges.
Unaudited Unaudited Audited
============================= ============================= ================
Year ended 30
GBP million 6 months ended 31 March 2017 6 months ended 31 March 2016 September 2016
====================================== ============================= ============================= ================
Reported net debt (14,192) (14,029) (13,319)
Accrued interest 152 151 221
Fair value of derivatives providing
commercial hedges 113 168 216
====================================== ============================= ============================= ================
Adjusted net debt (13,927) (13,710) (12,882)
====================================== ============================= ============================= ================
The fair value of bonds is estimated to be GBP13,621 million
(2016 6 months: GBP12,338 million) and has been determined by
reference to market prices at the balance sheet date. The carrying
value of bonds is GBP12,456 million (2016 6 months: GBP11,134
million). The fair value of all other borrowings is considered to
be equal to their carrying amount.
11. DERIVATIVE FINANCIAL INSTRUMENTS
The Group's derivative financial instruments are held at fair
value, are as follows.
Unaudited Unaudited Audited
============================= ============================= ================
Year ended 30
GBP million 6 months ended 31 March 2017 6 months ended 31 March 2016 September 2016
====================================== ============================= ============================= ================
Assets
Interest rate swaps 732 885 1,095
Forward foreign currency contracts 4 6 9
Cross-currency swaps 2 54 5
====================================== ============================= ============================= ================
Total carrying value of derivative
financial assets 738 945 1,109
====================================== ============================= ============================= ================
Liabilities
Interest rate swaps (846) (1,088) (1,339)
Forward foreign currency contracts (18) (11) (11)
Cross-currency swaps (331) (174) (548)
====================================== ============================= ============================= ================
Carrying value of derivative
financial liabilities before
collateral (1,195) (1,273) (1,898)
Collateral (1) 66 46 134
====================================== ============================= ============================= ================
Total carrying value of derivative
financial liabilities (1,129) (1,227) (1,764)
====================================== ============================= ============================= ================
Total carrying value of derivative
financial instruments (391) (282) (655)
====================================== ============================= ============================= ================
Analysed as:
Interest rate swaps (114) (203) (244)
Forward foreign currency contracts (14) (5) (2)
Cross-currency swaps (329) (120) (543)
Collateral (1) 66 46 134
====================================== ============================= ============================= ================
Total carrying value of derivative
financial instruments (391) (282) (655)
====================================== ============================= ============================= ================
(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 and foreign exchange rates to calculate the present
value of future cash flows associated with each derivative at the
balance sheet date, and are consistent with those applied during
the year ended 30 September 2016.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR EXLBBDEFFBBE
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