Imperial Brands Plc · LSE:IMB
Imperial Brands — Imperial Tobacco Group — JPMorgan Conference 2003
43 slides from Imperial Brands's conference presentation, May 14, 2003
Slide 1: Imperial Tobacco Group PLC JPMorgan Conference
Imperial Tobacco Group PLC JPMorgan Conference 14th May 2003 John Jones, Group Treasurer 1
Slide 2: The Imperial Strategy
The Imperial Strategy - consistent - “To create sustainable shareholder value by growing our international operations both organically and through acquisitions, while continuing to strengthen our position in our domestic markets of the UK and Germany.” 2
Slide 3: Company Hallmarks
Company Hallmarks High margins Strong cash flow Profitable domestic markets UK & Germany International reach International brand equity Multi product advantage Successful acquisitions Cost/productivity focus Litigation – no US exposure 3
Slide 4: Sustained Profit Growth
Sustained Profit Growth - 1997-2002 EPS doubled - EPS CAGR +15% DPS CAGR +13% 100 800 Operating Profit (£m) 80 (pence per share) 600 EPS/DPS 60 400 40 200 20 0 0 1997 1998 1999 2000 2001 2002 EPS DPS Operating Profit Note: pre-amortisation & exceptionals. Historic EPS & DPS adjusted for bonus elemen
Slide 5: Interim Results Summary
Interim Results Summary Operating profit up 56% to £497m Pre-tax profit up 40% to £377m EPS 21% up at 37.4p Note: Results pre-amortisation & exceptionals; EPS calculated using 725m shares 5
Slide 6: High Margins
High Margins 6
Slide 7: Enlarged Group - segmental analysis
Enlarged Group - segmental analysis - Net Sales Operating Profit Operating Margins £m £m % 2002 2001 2002 2001 2002 2001 UK 764 691 390 353 51.0 51.1 Germany 274 62 67 10 24.5 16.1 RoW.Europe 495 429 217 193 43.8 45.0 RoWorld 686 292 115 63 16.8 21.6 Total 2,219 1,474 789 619 35.6 42.0 Note: pre-amo
Slide 8: Strong Cashflow
Strong Cashflow 8
Slide 9: Operating Cash Flow - rapid balance sheet rebuild
Operating Cash Flow - rapid balance sheet rebuild - £m 2002 1997-2001 Operating profit* 789 2524 Non-cash – depn/provns 29 111 Working capital 6 (77) Operating cash flow 824 2558 Cash flow after net capex 778 2349 % conversion 99% 93% * pre-amortisation & exceptionals. 9
Slide 10: Profitable Domestic Markets - UK & Germany
Profitable Domestic Markets - UK & Germany 10
Slide 11: Annualised Group Volumes
Annualised Group Volumes Cigarette RYO/MYO Total white sticks c. 230bn Germany UK Germany UK 7% 10% 13% 17% Note: 2002 proforma including annualised Reemtsma volumes. 11
Slide 12: UK Market Update
UK Market Update Recent UK market decline (Mar 02: c54bn) Impact of EU travellers allowances April duty increase - 8p Advertising ban and new health warnings 12
Slide 13: Cigarette Market Shares
Cigarette Market Shares % Market Share MAT – Dec 02 45 2001 2002 44 Imperial Imperial 40.6 43.5 43 Gallaher 39.6 38.2 42 41 40 39 Gallaher 38 37 1 2 0 00 01 1 02 2 01 02 -0 -0 -0 -0 -0 p- n- p- n- p- ar ar ec ec ec Se Se Se Ju Ju M M D D D Note: Imperial estimates (excluding PM brands & private labe
Slide 14: Other Tobacco Products
Other Tobacco Products RYO share @ 64.2% Drum growth to 14.9% Papers share c.75% Cigar share increase to 48.8% Pipe share up to 39% Note: Imperial estimates. 14
Slide 15: German Market Update
German Market Update Largest market in Europe (Market reduction to 138bn) private label 22bn (c.15%) growth stable Growth trend in OTP 27% of market in value products Further tax increase of €0.22/19 on 1 Jan 2003 15
Slide 16: Cigarette Market Shares
Cigarette Market Shares % Market Share 45 40 PM MAT – Dec 02 35 2001 2002 Imperial 21.2 20.0 30 PM 36.8 36.9 25 BAT 18.4 18.0 Imperial 20 15 BAT Sep-97 Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 Note: Imperial estimates (excluding brands distributed for other companies). 16
Slide 17: Cigarette Brand Performances
Cigarette Brand Performances West - No.2 brand family 2003 initiatives Davidoff – the market’s fastest growing brand 17
Slide 18: OTP Brand Performances
OTP Brand Performances RYO/MYO combined branded share up @47% West no.1 in OTP and growing Ecosticks c.47% share Papers & tubes strong positions Note: Imperial estimates. 18
Slide 19: International Reach
International Reach - ability to grow & diversify 19
Slide 20: International - scale and depth
International - scale and depth - Europe Pos. UK 1 Ukraine 1 Slovenia 1 Macedonia 1 Germany 2 Ireland 2 Poland 2 Czech Rep. 2 Slovakia 2 Hungary 3 Asia Pos. Belgium 3 Kyrgyzstan 1 New Zealand 2 Australia 3 Taiwan 3 Laos 1 Africa Pos. Madagascar 1 Ivory Coast 1 Senegal 1 Present in more than 100 coun
Slide 21: International Annualised Volumes
International Annualised Volumes Cigarette RYO/MYO Total white sticks c. 165bn Africa/M. East W.Europe W.Europe 14% 15% 80% DF/Other 3% Aus/Asia 11% 57% 7% 13% CEE Aus/Asia CEE/DF/ Other Note: 2002 proforma including annualised Reemtsma volumes, excl UK and Germany. 21
Slide 22: Rest of Western Europe - volume analysis
Rest of Western Europe - volume analysis - Cigarette RYO/MYO Total white sticks c. 40bn France Ireland S.Europe 11% 12% 14% MRO Ireland 42% 5% Benelux 22% 46% 30% 7% S.Europe 11% Benelux MRO France Note: 2002 proforma including annualised Reemtsma volumes, excl UK and Germany. 22
Slide 23: Rest of Western Europe - highlights
Rest of Western Europe - highlights - France – RYO leader – leveraging cigarette growth Southern Europe – target for growth Netherlands – RYO profitability Ireland and Belux – good profit contributors MRO: sector leader Brand opportunities Davidoff/NYC/Route 66/West 23
Slide 24: Australasia and Asia - highlights
Australasia and Asia - highlights - Australia & New Zealand share growth and margin improvements Taiwan volume trend improving brand extensions trade marketing focus Indo-China initiatives continued Vietnam volume growth Laos upgrade commenced China: ongoing co-operation 24
Slide 25: Africa & Middle East - highlights
Africa & Middle East - highlights - Africa: growth opportunities despite “normal” volatility Middle East: volumes rising Davidoff/Superkings rapid growth 25
Slide 26: Central & Eastern Europe - highlights
Central & Eastern Europe - highlights - Top 3 positions in 7 countries Strategic brand growth Substitution of low margin volumes OTP opportunities EU accession management 26
Slide 27: International Brand Equity
International Brand Equity 27
Slide 28: Cigarette Brand Volume Analysis
Cigarette Brand Volume Analysis International Potential International Strategic 11% 20% 29% 40% Regional & Others Local Strategic 28
Slide 29: Multi-Product Advantage
Multi-Product Advantage 29
Slide 30: World Leadership in OTP
World Leadership in OTP Golden Drum Interval Virginia No. 1 JPS West Rizla Rizla Sticks Cigarette tubes No. 1 30
Slide 31: Successful Acquisitions
Successful Acquisitions 31
Slide 32: Acquisition Track Record
Acquisition Track Record - consistently successful - £1.2bn invested prior to 2002 1997: Rizla 1998: Van Nelle 1999: Australia/NZ 2000: EFKA/Baelen/Mayfair 2001: Tobaccor Proven integration record Targeted synergies consistently achieved or exceeded Returns exceeded WACC in first full year 32
Slide 33: Imperial + Reemtsma - an excellent fit
Imperial + Reemtsma - an excellent fit - £3.0 bn invested May 2002 Complementary businesses strategy management products brands geography Substantial synergies and cost savings £140m on target in FY03 with £45m delivered in HY03 at least £170m in FY04 Enhanced potential for profitable growth 33
Slide 34: Integration Initiatives - significant progress
Integration Initiatives - significant progress - 18 September plans actioned UK Park Lane integrated distribution regained in France Western Europe mergers completed Asian operations merged China offices rationalised old ITG C&EE infrastructure eliminated central marketing downsized works council ne
Slide 35: Cost/Productivity Focus
Cost/ Productivity Focus 35
Slide 36: Manufacturing Initiatives
Manufacturing Initiatives Reduced leaf & blend costs Materials savings – increased purchasing leverage Complexity reduction Streamlined organisation Logistics rationalisation 36
Slide 37: Cigarette Productivity - Imperial + Reemtsma
Cigarette Productivity - Imperial + Reemtsma - Cigarette 40 Equivalents/Employee + 15% 26.1 22.6 20 0 2001 2002 Note: initial estimates. 37
Slide 38: Litigation - no US exposure
Litigation - no US exposure 38
Slide 39: UK v US Legal System
UK v US Legal System Independent judge alone Loser pays winner’s costs No contingent fees No US style punitive damages No class actions Demonstrably strong defences 39
Slide 40: Imperial - Litigation Profile
Imperial – Litigation Profile No US exposure to: Master Settlement Agreement individual claims class actions Department of Justice action Non US claims low risk strong defences 40
Slide 41: Company Hallmarks
Company Hallmarks High margins Strong cash flow Profitable domestic markets UK & Germany International reach International brand equity Multi product advantage Successful acquisitions Cost/productivity focus Litigation – no US exposure 41
Slide 42: Looking forward
Looking forward Value creation focus continues but with… better brand equity stronger geographic base more cost opportunities 42
Slide 43: rT, Imperial
rT, Imperial Tobacco