Imperial Brands Plc · LSE:IMB

Imperial Brands — Imperial Tobacco Group — HY 2014 Earnings Presentation

63 slides from Imperial Brands's earnings presentation, May 7, 2014

  1. Slide 1: Half Year Results 2014

    Half Year Results 2014 Imperial Tobacco Group PLC 7 May 2014

  2. Slide 2: Alison Cooper, Chief Executive

    Alison Cooper Chief Executive

  3. Slide 3: Disclaimer

    Disclaimer 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 performanc

  4. Slide 4: Our Priorities for 2014

    Our Priorities for 2014 a reminder of what we said in November  Strengthening our portfolio  Backing growth with increased investment in  Growth Brands  Growth Markets  Returns Markets  Fontem Ventures  Building resilience  cost optimisation  stock optimisation programme 4

  5. Slide 5: So how are we doing?

    So how are we doing? Sales Growth Business Optimisation and Cash  Growth Brands growing volume +4%  Stock optimisation: significant  Growth Markets tobacco net progress revenue +7%  Cost optimisation: on track  Returns Markets: profits maintained  £60m this year  £300m p.a. by 2018  Market s

  6. Slide 6: Oliver Tant, Chief Financial Officer

    Oliver Tant Chief Financial Officer

  7. Slide 7: Stock Optimisation

    Stock Optimisation reducing trade inventories A number of benefits  Clearer view of market dynamics  Route to market improved  Quicker launch for new initiatives  Fresher product in the market  Improved working capital management 7

  8. Slide 8: Stock Optimisation

    Stock Optimisation an enabler of better in-market performance Iraq Russia Then Now Market conditions Manufactured France Turkey Volume decline -7% Shipping time 2 months + 2 weeks Channels Kiosk ban, modern trade growing Buffer stock 3 months + < 1 month Distributor Efficiency drive, destocking Stoc

  9. Slide 9: Underlying Trends

    Underlying Trends Q1 2014 ∆ HY 2014 ∆ Volume (bn SE) -5% -4% Tobacco net revenue (£m) +1% +2% Growth Brand volume (bn SE) +2% +4% Growth Brand tobacco net revenue +2% +6% Specialist Brand tobacco net revenue +1% +6% Growth Market tobacco net revenue +3% +7% Returns Market tobacco net revenue +1% +0%

  10. Slide 10: Growth Brands

    Growth Brands quality growth HY HY Constant Underlying 2014 2013 Actual ∆ FX ∆ ∆ Volume (bn SE) 60.2 62.2 -3% +4% Market share (%) 5.4 5.3 +10 bps Tobacco net revenue (£m) 1,252 1,273 -2% 0% +6% Growth Brands % of Group volume 43 41 +210 bps Growth Brands % of tobacco net revenue 40 39 +120 bps  Gr

  11. Slide 11: Specialist Brands

    Specialist Brands total tobacco focus HY HY Constant Underlying 2014 2013 Actual ∆ FX ∆ ∆ Tobacco net revenue (£m) 397 395 +1% +2% +6% Specialist Brands % of tobacco net revenue 13 12 +70 bps  Strong performance by  Specialist FMC (Gitanes and Style)  Mass Market Cigars (Backwoods)  Premium Ciga

  12. Slide 12: Growth Markets

    Growth Markets HY HY Constant Underlying 2014 2013 Actual ∆ FX ∆ ∆ Market share (%) 5.7 5.8 -10 bps Tobacco net revenue (£m) 914 988 -7% -4% +7% Adjusted operating profit (£m) 207 247 -16% -11% Growth Brands % tobacco net revenue 37 38 -80 bps +150 bps Growth Brands volume (bn SE)* 25 26 -5% +11% 

  13. Slide 13: Returns Markets

    Returns Markets HY HY Constant Underlying 2014 2013 Actual ∆ FX ∆ ∆ Market share (%) 26.8 27.7 -90 bps Tobacco net revenue per ‘000 SE (£) 23.82 23.03 +3% +5% +7% Adjusted operating profit (£m) 1,089 1,112 -2% +0% Growth Brands % tobacco net revenue 41 39 +200 bps +170 bps  Operating profit maintai

  14. Slide 14: Logistics

    Logistics robust performance HY HY Constant 2014 2013 Actual ∆ FX ∆ Distribution fees (£m) 430 413 +4% +3% Adjusted operating profit (£m) 73 74 -1% -1% Margin (%) ∆ 17.0 17.9 -90 bps  Strong performance in tough environment  Tobacco: lower volumes offset by higher distribution fees and cost saving

  15. Slide 15: Cost Optimisation Programme

    Cost Optimisation Programme to fund investment in growth Progress in HY 2014  Restructuring projects announced  Global procurement function up and running  Migrations and de-listings continue to simplify portfolio of brands  On track to deliver £60m saving in FY 2014 £300m p.a. by 2018 15

  16. Slide 16: HY 2014 Adjusted Net Debt

    HY 2014 Adjusted Net Debt £1.0bn £0.2bn £0.6bn £0.1bn £1.5bn £1.5bn £0.1bn £9.1bn £11.1bn Opening EBITDA Working Net Tax and Restructuring Dividends FX and Closing net debt capital capex interest and share other net debt buy-back 16

  17. Slide 17: Cash Conversion

    Cash Conversion my focus for financial improvement Cash conversion  HY 2014 78% (MAT)  improved on HY 2013 63%  Opportunity to get closer to best in class  Project team in place Working capital  Room for improvement versus best in class  Programme to improve parameters 17

  18. Slide 18: Foreign Exchange

    Foreign Exchange HY 2013 HY 2014 Spot ∆ YTD ∆ Spot US $ 1.579 1.637 1.69 -4% -6% EURO € 1.207 1.199 1.21 +1% -0% AUD $ 1.520 1.796 1.80 -15% -16% Russia Rouble 48.54 55.39 60.00 -12% -24%  HY impact negative 3% on adjusted operating profit, 4% on adjusted earnings per share  All translation (i.e.

  19. Slide 19: Quarterly Dividend

    Quarterly Dividend  Moving to quarterly dividend payments in FY 2015  shareholders get more regular cash return; same cash but paid earlier  better match to company’s cash flows  no change in schedule in FY 2014  FY 2015  1 announced May, paid June  2 announced May, paid September  3 announc

  20. Slide 20: Alison Cooper, Chief Executive

    Alison Cooper Chief Executive

  21. Slide 21: Brand Portfolio

    Brand Portfolio Mice: 250 brats 25+ agencies = ROYALE =, Soxoma 21

  22. Slide 22: Clear Brand Portfolio Strategy

    Clear Brand Portfolio Strategy Growth Specialist Portfolio FMC Unique Propositions Migrations Fine Cut Specialist Premium De-listings Cigar Mass Market Cigar Cash Snus Papers 22

  23. Slide 23: JPF Chassis

    JPF Chassis continued growth in volume and share Glide Tec Additive Free Duo (Crushball) RYO / MYO Fine P&S launches 10 markets +3 markets 7 markets 17 markets Cambodia 20 markets Volume +13% Volume doubled Volume +13% Share Strong 23

  24. Slide 24: West Chassis

    West Chassis rapid growth in Asia West Slimmer Formats West Crushball News MYO Bastos Vietnam Central Asia volume Volume doubled Volume Volume +15% +14% +20% 24

  25. Slide 25: Gauloises

    Gauloises queen size success Gauloises FCT Gauloises Generation QS Gauloises Connecting Gauloises Elements Growing share in Doubled share where Range France Morocco France launched 25

  26. Slide 26: Davidoff

    Davidoff expanded range Davidoff GPC Davidoff B&W QS volume Davidoff +19% in launched markets Recessed Filter 26

  27. Slide 27: Brand Migrations

    Brand Migrations Iraq example: Royale Club to P&S  So far migrating with 100% volume retained 12 Migrations in FY 2014 27

  28. Slide 28: So how are we delivering in market?

    So how are we delivering in market? The Sales Growth Drivers 28

  29. Slide 29: Growth Markets: growing market share

    Growth Markets growing market share 3.5% Italy 3.3% 5.6% Turkey 5.5% 3.0% Total JPS 5.4% 2.5% 5.2% 2.0% 2.0% 5.0% 1.7% 1.5% 4.8% 4.7% 1.0% 4.6% 0.5% 4.4% 0.0% 4.2% Apr 13 Feb 14 Apr 13 Feb 14 29

  30. Slide 30: Growth Markets continued

    Growth Markets continued growing market share 13.5% Taiwan 9.0% Kazakhstan 8% 13% 8.0% 13.0% 7.0% 12.5% 6% 6.0% 12% 12.0% 5.0% 11.5% 4.0% Apr 13 Feb 14 Apr 13 Feb 14 30

  31. Slide 31: Growth Markets continued

    Growth Markets continued growing market share 40% Cambodia 38% Norway - Snus 36% 36% 35% 35% 34% 33% 30% 32% 27% 25% 30% Apr 13 Feb 14 Apr 13 Feb 14 31

  32. Slide 32: Australia: succeeding in a plain packaging environment

    Australia succeeding in a plain packaging environment  Leadership of value segment  Consumer offers to build equity  Equity investment ahead of pack changes  Focused coverage builds engagement +3% share +10% volume +12% net revenue +20% profit Net revenue and adjusted operating profit growth at

  33. Slide 33: UK: strengthening our market share

    UK strengthening our market share  Portfolio – focus on JPS and Lambert & Butler  Lambert & Butler Blue  Players 19s and Players Gold Leaf from JPS  Customer Engagement  “tobacco supplier of the year” The Grocer 33

  34. Slide 34: Returns Markets South

    Returns Markets South Spain  Bringing the trade to us to build advocacy Morocco  Developing our portfolio through innovation 34

  35. Slide 35: Fontem Ventures

    Fontem Ventures  Puritane Launched February 2014  healthcare channel brand  launched at 2400 Boots stores  marketing campaign starts late April  opportunities to expand in UK and internationally  One more launch before year end  Our strategy remains measured:  regulation is developing  work

  36. Slide 36: Full Year Outlook

    Full Year Outlook a reminder of what we said in November  Strengthening our portfolio   Backing growth with increased investment in  Growth Brands   Growth Markets   Returns Markets   Fontem Ventures   Building resilience  cost optimisation   stock optimisation programme   Stronger

  37. Slide 37: Half Year Results 2014

    Half Year Results 2014 Imperial Tobacco Group PLC 7 May 2014

  38. Slide 38: Appendices

    Appendices

  39. Slide 39: Group Results

    Group Results Constant Constant Foreign Currency Currency £m HY 2013 Exchange Growth HY 2014 ∆ ∆ Tobacco net revenue 3,284 (74) (76) 3,134 -5% -2% Tobacco operating profit 1,359 (42) (21) 1,296 -5% -2% Operating margin (%) 41.4 0.3 (0.3) 41.4 Logistics operating profit 74 73 -1% -1% Operating profit

  40. Slide 40: Returns Markets North

    Returns Markets North UK, Germany, Australia, Netherlands, Poland, Ukraine etc Constant HY 2014 HY 2013 Actual ∆ FX ∆ Market share (%) 25.0 25.8 -80 bps Net revenue per ‘000 SE (£) 28.21 26.99 +5% +7% Adjusted operating profit (£m) 728 731 -0% +3% Growth brands % tobacco net revenue 45 43 +190 bps +

  41. Slide 41: Returns Markets South

    Returns Markets South France, Spain, Morocco, Algeria, Central Europe, C. Africa etc Constant HY 2014 HY 2013 Actual ∆ FX ∆ Market share (%) 29.4 30.5 -110 bps Net revenue per ‘000 SE (£) 19.06 18.70 +2% +2% Adjusted operating profit (£m) 361 381 -5% -4% Growth brands % tobacco net revenue 35 33 +21

  42. Slide 42: Financials

    Financials

  43. Slide 43: Group Adjusted Results

    Group Adjusted Results £m HY 2014 HY 2013 Tobacco net revenue 3,134 3,284 Logistics distribution fees 430 413 Tobacco operating profit 1,296 1,359 Operating margin % 41.4 41.4 Logistics operating profit 73 74 Distribution margin % 17.0 17.9 Eliminations (2) (8) Operating profit 1,367 1,425 Interest

  44. Slide 44: Income Statement

    Income Statement £m HY 2014 HY 2013 Revenue 12,717 13,376 Adjusted operating profit 1,367 1,425 Amortisation of acquired intangibles (326) (184) Restructuring costs (42) (40) R Net finance costs* (351) (371) Profit before tax 648 830 Tax (271) (208) Profit after tax 377 622 Minority interests (11) (

  45. Slide 45: Reconciliation: Reported to Adjusted

    Reconciliation: Reported to Adjusted Fair value Amortisation gains / losses Post Reported of acquired on financial employment Restructuring Adjusted £m HY 2014 intangibles instruments net financing costs HY 2014 Operating profit 999 326 - - 42 1,367 Finance costs (351) - 75 21 - (255) Profit before

  46. Slide 46: Tobacco Net Revenue

    Tobacco Net Revenue HY 2014 % Change Foreign Constant Constant £m Actual1 Exchange Currency2 HY 2013 Currency Growth Markets 914 (35) 949 988 (3.9) Returns Markets North 1,368 (36) 1,404 1,406 (0.1) Returns Markets South 852 (3) 855 890 (3.9) Total Returns Markets 2,220 (39) 2,259 2,296 (1.6) Total

  47. Slide 47: Tobacco Operating Profit

    Tobacco Operating Profit HY 2014 % Change Foreign Constant Constant £m Actual1 Exchange Currency2 HY 2013 Currency Growth Markets 207 (14) 221 247 (10.5) Returns Markets North 728 (24) 752 731 2.9 Returns Markets South 361 (4) 365 381 (4.2) Total Returns Markets 1,089 (28) 1,117 1,112 0.4 Total Toba

  48. Slide 48: Foreign Currencies

    Foreign Currencies Average Closing £1 = HY 2014 HY 2013 HY 2014 HY 2013 Euro 1.199 1.207 1.207 1.183 US dollar 1.637 1.579 1.665 1.514 48

  49. Slide 49: Balance Sheet

    Balance Sheet £m HY 2014 HY 2013 Non-current assets: tangible 2,591 2,919 intangible 16,877 18,508 Current assets: inventories 4,003 3,844 other 4,067 4,431 Current liabilities (9,473) (10,438) R Non-current liabilities (13,262) (13,010) Net assets 4,803 6,254 R – Restated for IAS 19 (Revised) 49

  50. Slide 50: Cash Flow

    Cash Flow £m HY 2014 HY 2013 Cash flows from operating activities pre tax (240) 140 Tax paid (230) (467) Cash flows from operating activities (470) (327) Net capex (141) (170) Employee Share Ownership Trust (1) (2) Share buy backs (237) (295) Dividends paid (inc. minority interests) (791) (727) Net

  51. Slide 51: 12 Month Cash Conversion

    12 Month Cash Conversion 12 months to 12 months to £m March 2014 March 2013 Net cash flow from operating activities 2,209 1,538 Tax 449 715 Net capex (216) (321) Cash flow post capex pre interest and tax 2,442 1,932 Adjusted operating profit 3,122 3,062 Cash conversion (%) 78 63 Working capital (out

  52. Slide 52: Net Finance Costs

    Net Finance Costs £m HY 2014 HY 2013 Net finance costs 351 371R Adjusted for: - interest income on net defined benefit assets 69 64R - interest cost on net defined benefit liabilities (88) (84) - unwind of discount on redundancy and long term provisions (2) (1) - net fair value and exchange losses o

  53. Slide 53: Net Debt Reconciliation

    Net Debt Reconciliation Reported Accrued Fair value of Adjusted £m HY 2014 interest derivatives HY 2014 Opening net debt (9,518) 321 99 (9,098) Free cash flow (1,009) - - (1,009) Share buy backs (237) - - (237) Dividends (791) - - (791) Accretion of interest 146 (146) - - Change in fair values (2) -

  54. Slide 54: Volume

    Volume

  55. Slide 55: Total Tobacco SE Volume

    Total Tobacco SE Volume bn SE* H1 2014 H1 2013 Growth Markets 46.9 52.5 Returns Markets North 48.5 52.1 Returns Markets South 44.7 47.6 Total Returns Markets 93.2 99.7 Total Group 140.1 152.2 * bn SE is billion stick equivalent; Total Tobacco includes cigarettes, fine cut tobacco, cigar, snus and ot

  56. Slide 56: Financing

    Financing 56

  57. Slide 57: Committed Bank Facilities

    Committed Bank Facilities 31 March 2014 Description Maturity date Amount £m equiv. Margin GBP Committed 1.5 Year Revolving Credit Facility Apr-15 £200m £200m 0.700% GBP Committed 1.5 Year Term Loan Facility Jun-15 £150m £150m 0.800% EUR Committed 2 Year Revolving Credit Facility Nov-15 €300m1 £248m

  58. Slide 58: Bond Issues

    Bond Issues 31 March 2014 Amount Issuer Coupon Issue Date Maturity Date £m equiv. Margin €750m Imperial Tobacco Finance PLC 7.250% Sep-08 Sep-14 £621m 2.7% €500m Altadis Emisiones Financieras SAU 4.000% Dec-05 Dec-15 £414m 1.1% €1,500m Imperial Tobacco Finance PLC 8.375% Feb-09 Feb-16 £1,242m 5.0% £

  59. Slide 59: Core Financing maturity profile

    Core Financing maturity profile at 31 March 2014 16,000  Facilities in place as at 31 March c.£14.7bn 14,000  70% bond issues, 21% bank facilities, 9% ECP 12,000  Headroom as at 31 March c.£3.0bn 10,000 £m equivalent 8,000 6,000 ECP 4,000 Bank Facilities Bond Issues1 2,000 - Mar Mar Mar Mar Mar M

  60. Slide 60: Main Market Classifications

    Main Market Classifications

  61. Slide 61: Main Market Classifications

    Main Market Classifications Growth Markets Returns Markets North Returns Markets South Cambodia Australia Algeria China Azerbaijan Austria Iraq Belux Czech Republic Italy Germany France Japan Ireland Hungary Russia Netherlands Morocco Saudi Arabia New Zealand Portugal Taiwan Poland Slovenia Turkey U

  62. Slide 62: Basis of Results Presentation

    Basis of Results Presentation The financial information comprises the unaudited results for the six months ended 31 March 2014 and 31 March 2013, together with the audited results for the year ended 30 September 2013. The information shown for the year ended 30 September 2013 does not constitute sta

  63. Slide 63: Contacts

    Contacts Investor Relations Tom Corran Matt Sharff Director of Investor Communications Investor Relations Manager [email protected] [email protected] Tel: +44 (0) 117 933 7510 Tel: +44 (0) 117 933 7396 Jo Brewin Investor Relations Manager [email protected] Tel: +44 (0) 117 933 7

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