Imperial Brands Plc · LSE:IMB
Imperial Brands — FY2017 Earnings Presentation
73 slides from Imperial Brands's earnings presentation, Nov 7, 2017
Slide 1: Preliminary Results 2017
PRELIMINARY RESULTS 2017 Imperial Brands PLC 7 November 2017
Slide 2: Disclaimer
Disclaimer Certain statements in this announcement effects of the plans and events described in This announcement has been prepared for, constitute or may constitute forward-looking this announcement. As a result, you are and only for the members of the Company, statements. Any statement in this cau
Slide 3: Alison Cooper, Chief Executive
Alison Cooper Chief Executive
Slide 4: Clear Strategic Focus
Clear Strategic Focus Maximise sustainable shareholder returns Quality Growth from Tobacco Maximisation and Consumer Adjacencies Strengthen Portfolio Develop Footprint Drive Cost Embed Capital right brands right markets Optimisation Discipline • Radically simplify • Prioritise growth • Simplify oper
Slide 5: Stepping Up Investment in FY17
Stepping Up Investment in FY17 Stronger foundations for quality growth Fewer, stronger brands Profit pool focus • Focused additional investment choices • Supporting stronger, sustainable sales growth Market Repeatable Model Financial framework • Investment impacted financials • Tough trading environ
Slide 6: Strategy Delivering
Strategy Delivering Improving key metrics Growing quality revenue Cigars NR +9% Share growth in Growth Brand Asset Brands Snus NR +8% priority markets share +80bps 63% of revenue China JV 2.3bnSE Improving second half Volume Revenue EPS £130m savings H1: -5.7% H1: -5.5% H1: -5.9% 91% conversion H2:
Slide 7: Significant Opportunity in NGP
Significant Opportunity in NGP FY18: new formats; new markets • Material opportunity in NGP • Great asset portfolio • Strong equity in blu • Enhanced innovation capabilities • Exponential growth mindset • FY18: new products; new markets 7 | Preliminary Results | 7 November 2017
Slide 8: Delivering Our Strategy
Delivering Our Strategy Dominic Brisby Winning in Priority Markets Amal Pramanik Next Generation Products Matthew Phillips Cost and Capital Discipline Oliver Tant Summary Alison Cooper 8 | Preliminary Results | 7 November 2017
Slide 9: Market Repeatable Model
Market Repeatable Model Simple, effective, consistent Portfolio matched to Analyse data, learn, improve consumer needs, reflecting and share market trends Customer collaboration and Invest consistently in equity strong commercial of brands that matter partnerships Optimal portfolio available in Clea
Slide 10: USA Cigarette
USA Cigarette Investments delivering share gains in Winston & Kool Distribution increases Market-focused portfolio MAT share 172,000 8.9% -30bps retailers 20 bps 10 bps Asset Brand Net Rev 44.5% +270bps Price strategy Brand investments 10 | Preliminary Results | 7 November 2017
Slide 11: USA MMC
USA MMC Consumer-led approach driving share Core range in stores SKU reduction MAT share 45% 14.3% +80bps 210 116 2015 2017 90 bps 140 bps +23% shipment volumes Price strategy Brand marketing 11 | Preliminary Results | 7 November 2017
Slide 12: UK
UK Leading in a challenging market Key account focus Focus on fewer SKUs MAT share 31% +200bps 41.9% +80bps share 121 in 83 grocery 2016 2017 453 bps 269 bps +13k outlets 53% more calls Asset Brand Net Rev +61k listings 72% +270bps Distribution increases Disciplined price strategy 12 | Preliminary R
Slide 13: Germany
Germany Investment in brand equity and distribution Learnings Brand investments MAT share • Increased focus on product specifications 22.4% +20bps • EUTPD II impact higher than expected 25 bps 15 bps +11% core-range Asset Brand Net Rev 81% +1bps Distribution increases 13 | Preliminary Results | 7 No
Slide 14: Spain, France & Australia
Spain, France & Australia Brand focus, activations & distribution • 29.5% share (-90 bps) • 20.9% share (-60 bps) • Brand investment - POS activations driving Fortuna • Focused portfolio - 35 SKUs growth delisted (40%) • 33.8% share (+50 bps) • Market-focused portfolio – • Significant core range • J
Slide 15: Russia
Russia Share growth in a very challenging market % Vol in Key Accounts Brands rationalised MAT share 64% 7.1% +10bps +600 bps 14 10 5 2015 2016 2017 140 bps 50bps +10% Reps +37% outlets Asset Brand Net Rev +21k POS 52% +870bps Distribution increases P&S investments 15 | Preliminary Results | 7 Novem
Slide 16: Japan, Saudi Arabia & Italy
Japan, Saudi Arabia & Italy All markets growing share • 13.8% share (+250 bps), only • 4.7% share (+60 bps) • West 0.9% share (+22 bps) growing manufacturer. • Brand investments driving • 15.4% volume growth vs 10% • Consumer prices doubled JPS share growth total market decline due to excise • Exten
Slide 17: Matthew Phillips, Chief Development Officer
MATTHEW PHILLIPS Chief Development Officer
Slide 18: Consumer Options
Consumer Options Significant opportunity in next generation products Tobacco Tobacco-free FMC/FCT heated tobacco open closed e-vapour e-vapour cigars snus 18 | Preliminary Results | 7 November 2017
Slide 19: Supportive Regulatory Environment
Supportive Regulatory Environment Growing recognition of a positive role for EVP • “nicotine – while highly addictive – is delivered through products that represent a continuum of risk and is most harmful when delivered through smoke particles” • “The FDA is committed to encouraging innovations that
Slide 20: Non-Combustible Tobacco
Non-Combustible Tobacco Developing new formats Oral Tobacco Heated Tobacco • Successful snus business • Consumer trials in December • Iconic brand - Skruf • Multiple formats under development • Development opportunities • Maintaining optionality 20 | Preliminary Results | 7 November 2017
Slide 21: Realising E-vapour Opportunities
Realising E-vapour Opportunities Driving growth in FY18; £300m investment Building Capabilities Focused Portfolio Develop Footprint • Enhancing consumer • New formats for FY18 • Geographic expansion insights • Improving consumer • >Doubling markets in FY18 • Innovation: Nerudia experience • Enhanced
Slide 22: Building Capabilities
Building Capabilities Additional innovation expertise Supporting Our Growth Ambition • Strong track-record of innovation • Rapid prototyping • Real-time science • Pharmagrade manufacturing facilities 22 | Preliminary Results | 7 November 2017
Slide 23: FY18: Programme of New Launches
FY18: Programme of New Launches New platforms to enhance consumer experience QUITTERS ENJOYERS Replicating a Cigarette World Alternative to Cigarette World Significant Opportunity in Juices – 70% of NSV 23 | Preliminary Results | 7 November 2017
Slide 24: Develop Footprint
Develop Footprint Significant growth opportunity 2017 2018 2019 10+ 20+ markets markets No. of adult smokers (m) 65 125 Average IMB tobacco market share (%) 15 13 Average annual tobacco spend per consumer (£) 1,200 950 24 | Preliminary Results | 7 November 2017
Slide 25: Oliver Tant, Chief Financial Officer
Oliver Tant Chief Financial Officer
Slide 26: Summary Financials
Summary Financials Adjusted EPS up 7.0% % constant £m % change currency Tobacco net revenue (£m) 7,757 +8.2% -2.6% Tobacco Adjusted Operating Profit (£m) 3,595 +7.0% -2.4% Adjusted EPS (pence) 267.0 +7.0% -2.2% Cash conversion 91% Net debt reduction* (£bn) 0.8bn Dividend per share (pence) 170.7 +10.
Slide 27: Decisive Focus on Costs
Decisive Focus on Costs Funding investment in top-line growth Savings in FY17 Total Savings since FY13 • Ongoing reallocation of spend to sales activities £130m £370m • More agile business; removing fixed costs FY18 savings Total planned • Protecting investments behind MRM savings by FY20 £100m £600
Slide 28: Cash Generation
Cash Generation Robust cash delivery Net Debt /EBITDA Strong cash fundamentals enabled • £310m investment step up • Increasing dividend 3.4X 3.3X Cash conversion at 91% 3.0X • 96% ex. restructuring cash • Inflow from working capital FY15 FY16 FY17 • Effective capital controls £0.8bn debt pay down in
Slide 29: FY17 Adjusted Operating Profit
FY17 Adjusted Operating Profit Investment and non-operating income Total AOP: H1 -7.6% H2 +0.6% +£332m Tobacco AOP: H1 -8.1% H2 +2.6% -£310m +£116m -£32m +£114m 3,761 3,541 Plus estimated industry headwinds of >£200m FY16 AOP Investments Non-operating Performance Logista Translation FX FY17 AOP inco
Slide 30: Capital Discipline: Non-operating income
Capital Discipline Non-operating income Pension scheme £81m • Non-operating income from managing asset base • Mitigates tough trading and protects investment Logista bank shares £15m • Improving visibility to aid transparency US retirement benefits • Continued opportunities as we reshape cost base £
Slide 31: FY18 Outlook
FY18 Outlook Sustaining growth in a volatile environment Strong balance sheet supports investment, deleveraging and dividend growth Capital discipline Maintain focus on Realising cost FY18 plans include supports strong supporting quality opportunities to NGP investment of consistent cash sales growt
Slide 32: Alison Cooper, Chief Executive
Alison Cooper Chief Executive
Slide 33: Strong Foundation for FY18
Strong Foundation for FY18 Clear strategic focus MRM investment: quality share growth in priority markets Building on improved H2 performance Significant NGP opportunity; exciting FY18 pipeline Sustaining investment through cost and capital discipline Dividend growth of 10% for tenth successive year
Slide 34: Preliminary Results 2017
PRELIMINARY RESULTS 2017 Imperial Brands PLC 7 November 2017
Slide 35: Appendices: Group financials
Appendices Group financials 35 | Preliminary Results | 7 November 2017
Slide 36: Tobacco Volume Performance
Tobacco Volume Performance Growth Brands outperforming H1 -5.7% H2 -2.6% +8.3bn -1.0bn -18.6bn -4.1% Migrations Specialist to Growth 0.4bn 276.5 bn SE Portfolio to Growth 6.2bn 265.2 bn SE FY16 volume Growth Brands Specialist Brands Portfolio Brands FY17 volume 36 | Preliminary Results | 7 November
Slide 37: FY17 Tobacco Net Revenue
FY17 Tobacco Net Revenue Positive signs in H2 H1 -5.5% H2 +0.1% +10.8% +8.2% -4.1% +1.5% £7,757m £7,167m FY16 Tobacco Volume Price/Mix Translation FY17 Tobacco Net Revenue FX Net Revenue 37 | Preliminary Results | 7 November 2017
Slide 38: FY17 EPS Growth
FY17 EPS Growth Investment impacting EPS; Stronger H2 H1 -5.9% H2 +0.9% +22.9p +7.0% -26.7p +3.9p -2.2% +17.3p 267.0p 249.6p 244.1p FY16 adjusted Investment Operating profit Interest, tax, FY17 constant Translation FY17 adjusted EPS excl. investment minorities currency FX EPS & JV adjusted EPS 38 |
Slide 39: Capital Discipline
Capital Discipline Strong cash conversion; 91% for FY17 +£67m -£201m +£223m -£220m -£215m 91% £3,761m £3,415m Adjusted Working Restructuring Depreciation & CAPEX Pensions/Share Adjusted Operating capital Amortisation Schemes/ Operating Profit benefit Other Cashflow 39 | Preliminary Results | 7 Novem
Slide 40: Strengthening Balance Sheet
Strengthening Balance Sheet £0.8bn reduction in Net Debt -£4.0bn +£1.6bn -£0.7bn -£0.1bn -£0.8bn +£1.1bn +£0.3bn -£0.1bn +£0.2bn £12.9bn £12.0bn £12.1bn FY16 EBITDA Working Net Tax & Restructuring, Dividends Adjusted Foreign FY17 Closing capital capex interest pensions net debt exchange & Closing ad
Slide 41: Group Adjusted Results
Group Adjusted Results Constant Foreign Currency Constant FY16 Exchange Growth FY17 Actual ∆ Currency ∆ Tobacco net revenue £m 7,167 766 (186) 7,757 +8.2% -2.6% Tobacco operating profit £m 3,360 315 (80) 3,595 +7.0% -2.4% Tobacco operating margin % 46.9 46.3 -60 bps Logistics distribution fees £m 80
Slide 42: Group Adjusted Results
Group Adjusted Results FY17 FY16 Adjusted operating profit £m 3,761 3,541 Interest £m (537) (524) Share of profit of JVs £m 33 28 Profit before tax £m 3,257 3,045 Tax rate % 20.0 20.0 Adjusted EPS pence 267.0 249.6 DPS pence 170.7 155.2 Cash conversion % 91 95 Adjusted net debt £m (12,147) (12,882)
Slide 43: Reconciliation: Reported to Adjusted
Reconciliation: Reported to Adjusted Amortisation Fair value Post Tax on Adjusted non- £m (unless otherwise Reported of acquired gains on financial employment Restructuring unrecognised controlling Adjusted stated) FY17 intangibles instruments net financing costs losses interests FY17 Operating prof
Slide 44: Income Statement
Income Statement £m (unless otherwise stated) FY17 FY16 Revenue 30,247 27,634 Adjusted operating profit 3,761 3,541 Amortisation and impairment of acquired intangibles (1,092) (1,005) Restructuring costs (391) (307) Share of profit of investments accounted for using the equity method 33 28 Net finan
Slide 45: Balance Sheet
Balance Sheet £m FY17 FY16 Non-current assets: tangible 4,331 4,491 intangible 19,763 20,704 Current assets: inventories 3,604 3,498 other 3,292 4,036 Current liabilities (10,878) (10,125) Non-current liabilities (13,886) (16,862) Net assets 6,226 5,742 45 | Preliminary Results | 7 November 2017
Slide 46: Cash Flow
Cash Flow £m FY17 FY16 Cash flows from operating activities pre tax 3,635 3,558 Tax paid (570) (401) Cash flows from operating activities 3,065 3,157 Net capex (220) (189) Logista Share Sale/Purchase of Shares 102 - Purchase of Brands and Operations (31) - Employee Share Ownership Trust 12 2 Loan to
Slide 47: 12 Month Cash Conversion
12 Month Cash Conversion £m (unless otherwise stated) FY17 FY16 Net cash flow from operating activities 3,065 3,157 Tax 570 401 Net capex (220) (189) Cash flow post capex pre interest and tax 3,415 3,369 Adjusted operating profit 3,761 3,541 Cash conversion (%) 91 95 Working capital inflow 67 138 47
Slide 48: Net Finance Costs
Net Finance Costs £m FY17 FY16 Net finance costs 450 1,350 Adjusted for: - interest income on net defined benefit assets 107 143 - interest cost on net defined benefit liabilities (132) (162) - exchange gains/(losses) 112 (807) Adjusted net finance costs 537 524 48 | Preliminary Results | 7 November
Slide 49: Net Debt Reconciliation
Net Debt Reconciliation Reported Accrued Fair value of Adjusted £m FY17 interest derivatives FY17 Opening net debt (13,319) 221 216 (12,882) Free cash flow 2,344 2,344 Dividends (1,577) (1,577) Accretion of interest 13 (13) - Change in fair values 56 (81) (25) Exchange movements (7) (7) Closing net
Slide 50: Foreign Exchange
Foreign Exchange Average Closing FY16 FY17 ∆ FY16 FY17 ∆ USD $ 1.424 1.267 +12% 1.296 1.339 -3% EURO € 1.283 1.148 +12% 1.161 1.134 +2% AUD $ 1.937 1.663 +17% 1.702 1.710 0% Russian Rouble 96.664 75.304 +28% 81.895 77.402 +6% 50 | Preliminary Results | 7 November 2017
Slide 51: Foreign Currency
Foreign Currency Divisional currency exposure Approximate weight of currency GBP EUR / EUR USD Other in Tobacco Net Revenue £ Linked $ Currencies Other includes Returns Markets NORTH 25% 50% 25% Australian $ & Ukraine Hryvnia €0.01 (1 cent) movement in the € Euro has c. £30m impact on net revenue. R
Slide 52: FY18 Guidance
FY18 Guidance Other financial items Financing & Cost of Debt • Average all-in cost of net debt expected of c.4.3% • Expect lower overall finance charge due to deleverage Tax Rate • Broadly unchanged at around 20% Cash Conversion • Expect to be c. 85% (incl. restructuring) or c. 95% excl. restructuri
Slide 53: Appendices: Portfolio & Divisional financials
Appendices Portfolio & Divisional financials 53 | Preliminary Results | 7 November 2017
Slide 54: Total Tobacco Volume
Total Tobacco Volume bn SE* FY17 FY16 Actual ∆ Growth Markets 74.8 76.3 -2.0% USA Market 23.3 24.9 -6.6% Returns Markets North 89.8 94.4 -4.9% Returns Markets South 77.3 80.9 -4.4% Total Returns Markets 167.1 175.3 -4.7% Total Group 265.2 276.5 -4.1% 54 | Preliminary Results | 7 November 2017 * bn S
Slide 55: Growth Brand Volume
Growth Brand Volume bn SE* FY17 FY16 Actual ∆ Growth Markets 49.9 46.0 +8.3% USA Market 6.2 6.1 +0.7% Returns Markets North 58.3 55.7 +4.7% Returns Markets South 45.3 43.5 +4.1% Total Returns Markets 103.6 99.2 +4.5% Total Group 159.6 151.3 +5.5% 55 | Preliminary Results | 7 November 2017 * bn SE is
Slide 56: Tobacco Net Revenue
Tobacco Net Revenue Constant Foreign Currency Constant £m FY16 Exchange Growth FY17 Currency ∆ Growth Markets 1,568 203 (3) 1,768 -0.2% USA Market 1,477 184 4 1,665 +0.3% Returns Markets North 2,645 222 (112) 2,755 -4.2% Returns Markets South 1,477 167 (75) 1,569 -5.1% Total Returns Markets 4,122 38
Slide 57: Tobacco Adjusted Operating Profit
Tobacco Adjusted Operating Profit Constant Foreign Currency Constant £m FY16 Exchange Growth FY17 Currency ∆ Growth Markets 443 44 (76) 411 -17.2% USA Market 823 107 83 1,013 +10.1% Returns Markets North 1,439 94 (48) 1,485 -3.3% Returns Markets South 655 70 (39) 686 -6.0% Total Returns Markets 2,09
Slide 58: Growth and Specialist Brands
Growth and Specialist Brands Constant Growth Brands FY17 FY16 Actual ∆ Currency ∆ Market share % 8.5 7.7 +80 bps Net revenue £m 3,690 3,265 +13.0% +1.2% Percentage of Group volumes % 60.2 54.7 +550 bps Percentage of net revenue % 47.6 45.6 +200 bps Constant Specialist Brands FY17 FY16 Actual ∆ Curre
Slide 59: Growth Markets
Growth Markets Constant FY17 FY16 Actual ∆ Currency ∆ Net revenue £m 1,768 1,568 +12.8% -0.2% Adjusted operating profit £m 411 443 -7.2% -17.2% Growth Brand % of net revenue % 49.1 47.2 +190 bps Growth Brand volume bn SE 49.9 46.0 +8.5% Growth Brand market share % 4.3 3.7 +60 bps 59 | Preliminary Re
Slide 60: USA Market
USA Market Constant FY17 FY16 Actual ∆ Currency ∆ Net revenue £m 1,665 1,477 +12.7% +0.3% Adjusted operating profit £m 1,013 823 +23.1% +10.1% Asset Brand % of net revenue % 44.5 41.8 +270 bps Asset Brand volume bn SE 11.1 10.9 +1.5% Growth Brand market share % 2.5 2.3 +20 bps 60 | Preliminary Resul
Slide 61: Returns Markets
Returns Markets Constant FY17 FY16 Actual ∆ Currency ∆ Net revenue £m 4,324 4,122 +4.9% -4.5% Net revenue per ‘000 SE £ 25.88 23.51 +10.1% +0.2% Adjusted operating profit £m 2,171 2,094 +3.7% -4.2% Growth Brand % of net revenue % 58.0 54.6 +340 bps Growth Brand market share % 16.7 15.5 +120 bps 61 |
Slide 62: Returns Markets North
Returns Markets North Constant FY17 FY16 Actual ∆ Currency ∆ Net revenue £m 2,755 2,645 +4.2% -4.2% Net revenue per ‘000 SE £ 30.69 28.01 +9.6% +0.7% Adjusted operating profit £m 1,485 1,439 +3.2% -3.3% Growth Brand % of net revenue % 60.2 57.2 +300 bps Growth Brand market share % 16.6 15.0 +160 bps
Slide 63: Returns Markets South
Returns Markets South Constant FY17 FY16 Actual ∆ Currency ∆ Net revenue £m 1,569 1,477 +6.2% -5.1% Net revenue per ‘000 SE £ 20.29 18.27 +11.1% -0.7% Adjusted operating profit £m 686 655 +4.7% -6.0% Growth Brand % of net revenue % 54.2 50.0 +420 bps Growth Brand market share % 16.9 16.2 +70 bps 63
Slide 64: Logistics
Logistics Constant FY17 FY16 Actual ∆ Currency ∆ Distribution fees £m 914 809 +13.0% +1.2% Adjusted operating profit £m 181 176 +2.8% -8.0% Margin % 19.8 21.8 -200 bps 64 | Preliminary Results | 7 November 2017
Slide 65: Divisional Market Share
Divisional Market Share MAT market share data FY17 FY16 Growth markets 6.6% 6.4% +20 bps USA market 8.9% 9.2% -30 bps Returns North 23.9% 23.9% 0 bps Returns South 28.2% 29.1% -90 bps Total Returns 25.7% 26.0% -30 bps Total Group 13.9% 13.9% 0 bps 65 | Preliminary Results | 7 November 2017
Slide 66: Appendices: Financing
APPENDICES Financing 66 | Preliminary Results | 7 November 2017
Slide 67: Financial Profile September 2017
FINANCIAL PROFILE 30 September 2017 Interest Split Currency Split Debt Split 25% Fixed Euro 21% 43% Bonds Floating € Bank 75% 57% 79% 16,000 14,000 £3bn headroom against facilities 12,000 £m equivalent 10,000 8,000 ECP 6,000 Bank Facilities Bond Issues 4,000 2,000 - Sep Sep Sep Sep Sep Sep Sep Sep S
Slide 68: Committed Bank Facilities
COMMITTED BANK FACILITIES 30 September 2017 Description Maturity date Amount £m equiv. Committed 5 Year Revolving Credit Facility B1 Jul-21 EUR tranche €2,835m £2,500m GBP tranche £500m £500m Committed 3 Year Term Loan Facility Jun-18 $300m £224m Total £3,224m 1 5 year facility with two 1 year exten
Slide 69: Bond Issues
BOND ISSUES 30 September 2017 Amount Issuer Coupon Issue Date Maturity Date £m equiv. Margin $1,250m Imperial Brands Finance PLC 2.050% Feb-13 Feb-18 £934m 1.1% €850m Imperial Brands Finance PLC 4.500% Jul-11 Jul-18 £750m 1.7% $500m Imperial Brands Finance PLC 2.050% Jul-15 Jul-18 £373m 1.0% £200m I
Slide 70: Appendices: Other information
APPENDICES Other information 70 | Preliminary Results | 7 November 2017
Slide 71: Glossary
GLOSSARY SE 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 Constant Currency results of our overseas operations. Total Tobacco Total Tobacco in
Slide 72: Glossary: Growth, Specialist & Portfolio Brands
GLOSSARY Growth, Specialist & Portfolio Brands Growth Brands Specialist Brands Portfolio Brands These high-quality brands have These have strong The remainder of our portfolio consists of local strong consumer appeal and positions in their own and regional brands. These Portfolio Brands generally we
Slide 73: Glossary: Main market classifications
GLOSSARY Main market classifications Growth Markets US Market Returns Markets Growth Markets are characterised by large We manage the US as a We have relatively large shares in Returns profit and/or volume pools. We typically have standalone Growth Markets, mostly above 15 per cent. We focus shares