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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Imperial Brands Plc | LSE:IMB | London | Ordinary Share | GB0004544929 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -2.00 | -0.11% | 1,802.50 | 1,802.50 | 1,803.50 | 1,807.00 | 1,796.50 | 1,805.00 | 105,039 | 09:48:50 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Cigarettes | 32.48B | 2.33B | 2.6392 | 6.84 | 15.93B |
From Apr 2019 to Apr 2024
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
To view a PDF version of the half year results please paste the following URL into the address bar of your browser:
http://www.rns-pdf.londonstockexchange.com/rns/0055E_1-2017-5-3.pdf
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
Hot Features
Premium
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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May 03, 2017 02:00 ET (06:00 GMT)
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