Imperial Brands Plc · LSE:IMB
Imperial Brands — H1 2016 Earnings Presentation
76 slides from Imperial Brands's earnings presentation, May 4, 2016
Slide 1: Half Year Results 2016
HALF YEAR RESULTS 2016 IMPERIAL BRANDS PLC y te IMPERIAL 4 May 2016 AK BRANDS
Slide 2: Forward-looking statements
Certain statements in this announcement effects of the plans and events described in This announcement has been prepared constitute or may constitute forward- this announcement. As a result, you are for, and only for the members of the looking statements. Any statement in this cautioned not to place
Slide 3: Alison Cooper, Chief Executive
ALISON COOPER CHIEF EXECUTIVE y fie IMPERIAL Ae BRANDS
Slide 4: Deliver at least 10% increase in dividend
Deliver at least 10% increase in dividend • Further portfolio • Build on Growth Market • Deliver £55m in FY16 • Maintain cash conversion simplification opportunities discipline • Focus on further operating • Build on migration success • Drive profitability in key efficiencies • Further improve capit
Slide 5: Dividend up 10% to 47.0p
Dividend up 10% to 47.0p • Quality of revenue further • Realising opportunities in • Savings programme on track • Cash conversion 105% improved Growth Markets • Reducing portfolio • Adjusted net debt reduced by • Successful brand migrations • Strong results from ITG complexity £1.2bn before FX and U
Slide 6: On track, investment revised, being actioned
On track Investment revised Being actioned Delivering against Economic factors Challenging strategy environment Competitor volume Limited redirection focus Competitor discounting Diminished opportunity Managing profit/share for quality growth equation e.g. USA, Australia & e.g. U
Slide 7: Oliver Tant, Chief Financial Officer
OLIVER TANT CHIEF FINANCIAL OFFICER y, fie IMPERIAL Ae BRANDS
Slide 8: Financial highlights
Foreign Constant Constant £m HY15 Exchange Currency Growth HY16 Actual ∆ Currency ∆ Tobacco net revenue £m 2,945 (42) 496 3,399 +15.4% +16.8% Tobacco operating profit £m 1,295 6 276 1,577 +21.8% +21.3% Tobacco operating margin % 44.0 46.4 +240 bps Logistics operating profit £m 73 (2) (3) 68 -6.8% -4
Slide 9: Group volume bridge
+6.2% -3.2% -0.3% -5.8% -3.1% • Investment decisions e.g. Turkey & Ukraine -2% • Morocco -1% 138.2 bn SE • Russia -1% 133.9 bn SE • Other markets -2% HY15 Acquired Iraq & Syria Market size Other volume HY16 reported volume US brands reported volume 9 | Half Year Results | May 2016
Slide 10: Net revenue bridge
+16.1% -1.8% +2.5% -1.4% +15.4% £3,399m £2,945m HY15 Acquired Iraq & Syria Other revenue Translation HY16 net revenue US brands FX net revenue 10 | Half Year Results | May 2016
Slide 11: Adjusted EPS bridge
+25.8p -3.7p -1.9p -1.2p +20.4% 0.7p +21.2% 112.3p 113.0p 93.3p HY15 Operating Transaction Interest Minorities HY16 constant Translation HY16 adjusted profit FX & tax & JV currency FX adjusted EPS profit adjusted EPS EPS 11 | Half Year Results | May 2016
Slide 12: Growth and Specialist Brands
Specialist • Continued Growth Brand momentum Growth Brands • Volumes +4.7% and net revenue +12.5% Brands 14.4% excluding Iraq & Syria 44.2% • Growth Brand market share up 80 bps to 7.4% • Growth and Specialist Brands 58.6% of reported tobacco net revenue • Specialist Brands benefited from blu, Skruf
Slide 13: Growth Markets
Net Revenue Operating Profit • Net revenue up 9.7% excl. Iraq & Syria • Strong price mix +22.1% • Positive contribution from Fontem; blu and patent +2.1% -6.6% royalty income £707m £192m • Growth Brand % of net revenue diluted by additional Fontem revenue; up in majority of Growth Markets Growth Bra
Slide 14: US Market
Net Revenue Operating Profit • ITG Brands continues to perform strongly • Acquired assets contributed 8.6bn SE and £468m net revenue +265.9% +421.4% • Integration largely complete £711m £384m • Successful sell-in of new retail programme • Winston & Kool gaining market share Growth Brand % Market Sha
Slide 15: Returns Markets
Net Revenue Operating Profit • Positive revenue performance in Returns South offset by Returns North • Returns South (+3.0% NR; +6.8% AOP) : -0.5% -0.6% • Strong performances in Algeria & Portugal • Addressing challenges in Morocco £1,981m £1,001m • France & Spain improving Growth Brand % Market Sha
Slide 16: Cost savings programme
• Progress with product cost from £70m manufacturing optimisation, simplification and global procurement £55m • Reduction in overheads • On track to deliver £55m incremental £300m savings in FY16 FY15: £85m • Target of £300m p.a. by 2018 • Expected cash cost remains at £600m FY14: £60m FY13: £30m To
Slide 17: Cash conversion
£509m -£347m -£9m MSA creditor £270m Cash conversion £3,323m £3,475m 105% Headline operating Working capital Restructuring Other Headline operating profit benefit cashflow 17 | Half Year Results | May 2016
Slide 18: Foreign exchange impact
H1 FX FY est. FX Translation FX • Broadly neutral on revenue and profit • Strengthening € and $USD Translation Translation • Expected 2-3% benefit to FY16 earnings +1% +2-3% Transaction FX • Eastern European currency devaluation • Estimated 3% headwind for FY16 Transaction Transaction -4% -3% • Esti
Slide 19: Adjusted net debt movement
£13.7bn £9.1bn £7.9bn HY15 Opening EBITDA Working Net Tax & Restructuring, Dividends Adjusted net Foreign US HY16 Closing adjusted capital capex interest pensions debt exchange acquisition adjusted net debt & other cost net debt 19 | Half Year Results | May 2016
Slide 20: Strong balance sheet supports deleveraging and dividend growth
Strong balance sheet supports deleveraging and dividend growth Footprint Capital Efficiencies bias to discipline Improving programme developed underpins quality of supports markets with consistent growth investment relative cash and margins stability generation 20 | Half Year Results | May 2016
Slide 21: Investor Day and Q3 Trading Statement
Investor Day Q3 Trading Statement • 7-8 June 2016 • No announcement in August • Bristol, UK • September pre-close update • Strategic focus • Plan to cease IMS publication • Quality Growth • Intention to introduce investor seminar • Agility series • Discipline 21 | Half Year Results | May 2016
Slide 22: Alison Cooper, Chief Executive
ALISON COOPER CHIEF EXECUTIVE y fie IMPERIAL Ae BRANDS
Slide 23: Dividend up 10% to 47.0p
Dividend up 10% to 47.0p • Quality of revenue further • Realising opportunities in • • improved Growth Markets • • • Successful migrations • Strong performance from ITG Brands in the US • Growth and Specialist Brands • now 58.6% of Group revenue • Positive progress in Returns Markets • Stronger equi
Slide 24: Brand migrations
Migrations Migrations in • Improving the quality of growth through migrations Complete to Progress Date • Strong success rate of consumer migration • 35 migrations now complete to date; more underway and in the pipeline 35 20 • Next phase of simplification being piloted: ‘growing the head and cuttin
Slide 25: Spanish migration of Brooklyn to West
% Market Share West Brooklyn • Spanish migration of Brooklyn to West • Success rate >100%; consumers both retained and gained 0.1 • Combined share 2.2% pre migration 3.1 • Post migration West share +90bps to 3.1% 2.6 2.1 Dec-13 Dec-14 Dec-15 25 | Half Year Results | May 2016
Slide 26: Innovation: JPS Triple Flow and Crushball
• JPS Triple Flow launched in UK • Crushball extensions for Growth Brands; West, L&B, Players & JPS 26 | Half Year Results | May 2016
Slide 27: Gauloises L'Autre and West QS Compact+
• Success with • West QS Compact+ Gauloises L’Autre with recessed filter launch in Algeria; performing well post Gauloises now the launch in Kazakhstan #1 brand 27 | Half Year Results | May 2016
Slide 28: Davidoff Fresh Box and Absolute
• Davidoff Fresh Box launched in UAE delivered share gains with +50bps in first 3 months • Davidoff Absolute launched as 100% pure tobacco initiative 28 | Half Year Results | May 2016
Slide 29: blu e-vapour within Fontem Ventures
• Fully integrated blu within Fontem Strong Brand Ventures Equity • blu PLUS+ rollout is underway • Brand holds #2 position in US and UK Footprint Priorities • First generation IP generating royalty income • Further developing the blu brand and Technical e-vapour technology Knowhow • Investment in b
Slide 30: Growth Markets performance
Russia Taiwan Norway • Growth Brand share improving with • Robust revenue growth driven by • Skruf now market leader Parker & Simpson launch/migration Davidoff and leveraging innovation • Maxim share stabilising post price • Success of Davidoff Absolute pipeline disadvantage • West share being addre
Slide 31: Returns Markets performance
UK Australia Algeria • Investing in sub economy share; • Continuing to perform strongly • Gauloises No. 1 brand Players now the biggest brand • JPS equity driving share, revenue • Strong share and revenue • L&B Blue momentum and profit growth growth • JPS & L&B crushball launches • Ongoing competito
Slide 32: Winning with our Sales Growth Drivers
Winning with our Sales Growth Drivers • Embedded learning from Australia Portfolio Pricing • Sales teams educating and engaging customers Management Brand and channel • Tool-kits for field force deployment Simplifying the pricing strategy • Focus on distribution/availability of core SKUs portfolio:
Slide 33: US: performing to plan
Performing to Plan New Retail • New commercial programmes fully operational Agreements • more than 160,000 stores • representing 80% volume coverage • Synergies being re-invested into the brands >160k • Manufacturing transition completing ahead of Stores schedule in June Focus Brands Building Brand
Slide 34: US brand investment
• Retailer programme providing buy-down support and better in-store visibility • Investing in Winston in all states • Selected state approach for other brand investment • Brand equity investment programme in development for Winston: • Packaging, advertising, direct mail, digital • Roll-out over next
Slide 35: US focus brands market share
% Market Share • Focus brands gaining share; +30bps since 2.2 acquisition • Winston share +20bps; responding well to 2.1 investment • Kool gaining share in key states 2.0 • Portfolio Brands declining in line with strategy; total share 9.3% 1.9 Completion Retailer agreements 1.8 Winston 1.7 Kool Oct
Slide 36: Route-to-market strategy
• New ‘route-to-market’ strategy – aligned FMC and MMC sales force • New in-store campaign with activation events underway • Pricing programme through buy downs and special marked packs • More focused approach to innovation • Restructuring is improving profitability • Share is stabilising 36 | Half
Slide 37: Deliver at least 10% increase in dividend
Deliver at least 10% increase in dividend • Further portfolio • Build on Growth Market • Deliver £55m in FY16 • Maintain cash conversion simplification opportunities discipline • Focus on further operating • Build on migration success • Drive profitability in key efficiencies • Further improve capit
Slide 38: Half Year Results 2016
HALF YEAR RESULTS 2016 IMPERIAL BRANDS PLC y te IMPERIAL 4 May 2016 AK BRANDS
Slide 39: 39 | Half Year Results | May 2016
39 | Half Year Results | May 2016
Slide 40: 40 | Half Year Results | May 2016
40 | Half Year Results | May 2016
Slide 41: Group results by segment
Foreign Constant Constant HY15 Exchange Currency Growth HY16 Actual ∆ Currency ∆ Tobacco net revenue £m 2,945 (42) 496 3,399 +15.4% +16.8% Tobacco operating profit £m 1,295 6 276 1,577 +21.8% +21.3% Tobacco margin % 44.0 46.4 +240 bps Logistics distribution fees £m 378 (10) 3 371 -1.8% +0.8% Logisti
Slide 42: Group financial summary
HY16 HY15 Group adjusted operating profit £m 1,637 1,367 Interest £m (266) (231) Share of profit of JVs £m 12 17 Profit before tax £m 1,383 1,153 Tax rate % 20.0 20.9 Adjusted EPS pence 113.0 93.3 DPS pence 47.0 42.8 Cash conversion % 105 102 Adjusted net debt £m (13,710) (9,056) 42 | Half Year Resu
Slide 43: Reported to adjusted reconciliation
Fair value Amortisation gains / losses on Post Tax on Adjusted non- £m (unless otherwise Reported of acquired financial employment Restructuring unrecognised controlling Adjusted stated) HY16 intangibles instruments net financing costs losses interests HY16 Operating profit 1,002 473 162 1,637 Share
Slide 44: Income statement
£m (unless otherwise stated) HY16 HY15 Revenue 12,806 12,129 Adjusted operating profit 1,637 1,367 Amortisation and impairment of acquired intangibles (473) (312) Restructuring costs (162) (76) Acquisition costs - (20) Share of profit of investments accounted for using the equity method 12 17 Net fi
Slide 45: Summary balance sheet
£m HY16 HY15 Non-current assets: tangible 4,068 3,806 intangible 19,415 14,515 Current assets: inventories 3,951 3,442 other 3,248 3,596 Current liabilities (10,129) (9,180) Non-current liabilities (15,281) (10,890) Net assets 5,272 5,289 45 | Half Year Results | May 2016 Basis of Preparation can be
Slide 46: Cash flow statement
£m HY16 HY15 Cash flows from operating activities pre tax 561 77 Tax paid (251) (235) Cash flows from operating activities 310 (158) Net capex (67) (87) Purchase of IP (7) - Employee Share Ownership Trust (5) 1 Dividends paid (inc. minority interests) (963) (883) Net interest paid (364) (338) Net ca
Slide 47: Cash conversion
£m (unless otherwise stated) HY16 HY15 Net cash flow from operating activities 3,215 2,825 Tax 424 460 Net capex (164) (213) Cash flow post capex pre interest and tax 3,475 3,072 Adjusted operating profit 3,323 3,002 Cash conversion (%) 105 102 Working capital inflow 509 439 47 | Half Year Results |
Slide 48: Adjusted net finance costs
£m HY16 HY15 Net finance costs/(income) 562 (72) Adjusted for: - interest income on net defined benefit assets 71 67 - interest cost on net defined benefit liabilities (80) (77) - unwind of discount on redundancy and long term provisions - (1) - exchange (losses)/gains (287) 314 Adjusted net finance
Slide 49: Net debt reconciliation
Reported Accrued Fair value of Adjusted £m HY16 interest derivatives HY16 Opening net debt (11,950) 279 25 (11,646) Free cash flow (133) (133) Dividends (963) (963) Accretion of interest 128 (128) - Change in fair values (532) 143 (389) Exchange movements (579) (579) Closing net debt (14,029) 151 16
Slide 50: Exchange rates
Average Closing HY15 HY16 ∆ HY15 HY16 ∆ USD $ 1.549 1.474 5% 1.479 1.438 3% EURO € 1.307 1.342 -3% 1.375 1.263 8% AUD $ 1.890 2.045 -8% 1.946 1.871 4% Russian Rouble 85.800 103.633 -17% 85.850 96.399 -12% 50 | Half Year Results | May 2016
Slide 51: Financing, tax rate, cash conversion and FX
Financing & Cost of Debt • Average all-in cost of net debt broadly similar to prior year of 4.3% • Net interest charge £266m in H1; good proxy for FY Tax Rate • 20%; expect to maintain for FY Cash Conversion • FY expect to be 90-95% Foreign Exchange • Translation FX expected 2-3% benefit to FY16 ear
Slide 52: 52 | Half Year Results | May 2016
52 | Half Year Results | May 2016
Slide 53: Total tobacco volume by market
bn SE* HY16 HY15 Actual ∆ Growth Markets 35.6 44.6 -20.0% US Market 12.3 3.6 +241.7% Returns Markets North 45.6 49.2 -7.4% Returns Markets South 40.4 40.8 -0.9% Total Returns Markets 86.0 90.0 -4.5% Total Group 133.9 138.2 -3.1% 53 | Half Year Results | May 2016 * bn SE is billion stick equivalent;
Slide 54: Growth and Specialist Brand volume
bn SE* HY16 HY15 Actual ∆ Growth Markets 21.3 24.2 -12.3% US Market 2.9 1.4 +110.8% Returns Markets North 25.5 25.5 +0.1% Returns Markets South 21.0 19.4 +8.2% Total Returns Markets 46.5 44.9 +3.6% Total Group 70.7 70.5 +0.2% 54 | Half Year Results | May 2016 * bn SE is billion stick equivalent
Slide 55: Tobacco net revenue by market
Constant Foreign Currency Constant £m HY15 Exchange Growth HY16 Currency ∆ Growth Markets 710 (18) 15 707 +2.1% US Market 185 34 492 711 +265.9% Returns Markets North 1,320 (41) (33) 1,246 -2.5% Returns Markets South 730 (17) 22 735 +3.0% Total Returns Markets 2,050 (58) (11) 1,981 -0.5% Total Group
Slide 56: Tobacco operating profit by market
Constant Foreign Currency Constant £m HY15 Exchange Growth HY16 Currency ∆ Growth Markets 196 9 (13) 192 -6.6% US Market 70 19 295 384 +421.4% Returns Markets North 719 (16) (27) 676 -3.8% Returns Markets South 310 (6) 21 325 +6.8% Total Returns Markets 1,029 (22) (6) 1,001 -0.6% Total Group 1,295 6
Slide 57: Growth Brands
Constant HY16 HY15 Actual ∆ Currency ∆ Market share % 7.4 6.6R +80 bps Net revenue £m 1,502 1,406 +6.9% +10.1% Percentage of Group volumes % 52.8 51.0 +180 bps Percentage of tobacco net revenue % 44.2 47.7 -350 bps R Restatement as per slide 74 57 | Half Year Results | May 2016
Slide 58: Specialist Brands
Constant HY16 HY15 Actual ∆ Currency ∆ Net revenue £m 490 347 +41.3% +43.0% Percentage of tobacco net revenue % 14.4 11.8 +260 bps 58 | Half Year Results | May 2016
Slide 59: Growth Markets
Constant HY16 HY15 Actual ∆ Currency ∆ Market share % 6.7 7.2R -50 bps Net revenue £m 707 710 -0.4% +2.1% Adjusted operating profit £m 192 196 -2.0% -6.6% Growth Brand proportion of net revenue % 45.1 50.3 -520 bps Growth Brand volume bn SE 21.3 24.3 -12.3% 59 | Half Year Results | May 2016
Slide 60: US Market
Constant HY16 HY15 Actual ∆ Currency ∆ Market share % 9.3 Net revenue £m 711 185 +284.3% +265.9% Adjusted operating profit £m 384 70 +448.6% +421.4% Growth Brand % of net revenue % 20.9 20.0 +90 bps Growth Brand volume bn SE 2.9 1.4 +110.8% 60 | Half Year Results | May 2016
Slide 61: Returns Markets
Constant HY16 HY15 Actual ∆ Currency ∆ Market share % 26.6 27.4R -80 bps Net revenue £m 1,981 2,050 -3.4% -0.5% Net revenue per ‘000 SE £ 23.03 22.77 +1.1% +4.1% Adjusted operating profit £m 1,001 1,029 -2.7% -0.6% Growth Brand % of net revenue % 52.2 49.4 +280 bps R Restatement as per slide 74 61 |
Slide 62: Returns North
Constant HY16 HY15 Actual ∆ Currency ∆ Market share % 25.1 25.8R -70 bps Tobacco net revenue £m 1,246 1,320 -5.6% -2.5% Net revenue per ‘000 SE £ 27.33 26.81 +1.9% +5.3% Adjusted operating profit £m 676 719 -6.0% -3.8% Growth Brand proportion of net revenue % 55.1 52.2 +290 bps R Restatement as per
Slide 63: Returns South
Constant HY16 HY15 Actual ∆ Currency ∆ Market share % 28.8 29.7R -90 bps Net revenue £m 735 730 +0.7% +3.0% Net revenue per ‘000 SE £ 18.18 17.89 +1.6% +3.9% Adjusted operating profit £m 325 310 +4.8% +6.8% Growth Brand proportion of net revenue % 47.4 44.3 +310 bps R Restatement as per slide 74 63
Slide 64: Logistics
Constant HY16 HY15 Actual ∆ Currency ∆ Distribution fees £m 371 378 -1.8% +0.8% Adjusted operating profit £m 68 73 -6.8% -4.1% Margin % 18.3 19.3 -100 bps -90bps 64 | Half Year Results | May 2016
Slide 65: 65 | Half Year Results | May 2016
65 | Half Year Results | May 2016
Slide 66: £3.8bn headroom against facilities
Interest Split Currency Split Debt Split 11% 32% Fixed Euro€ Bonds 41% 26% Bank Floating USD$ ECP 68% 59% 63% 18,000 16,000 ECP 14,000 12,000 Bank Facilities 10,000 Bond Issues 8,000 6,000 4,000 £3.8bn headroom against facilities 2,000 - Mar '16 Mar '17 Mar '18 Mar '19 Mar '20 Mar '21 Mar '22 Mar '2
Slide 67: Committed bank facilities
Description Maturity date Amount £m equiv. USD Committed 3 Year B Term Loan Acquisition Facility1 Jun-18 $1,200m £834m Committed 3 Year Revolving Credit Facility A2 Jul-17 €1,000m £791m Committed 5 Year Revolving Credit Facility B Jul-20 EUR tranche €2,835m £2,244m GBP tranche £500m £500m Committed
Slide 68: Bond issues
Amount Issuer Coupon Issue Date Maturity Date £m equiv. Margin £450m Imperial Brands Finance PLC 5.500% Nov-06 Nov-16 £530m1 0.6%1 $1,250m Imperial Brands Finance PLC 2.050% Feb-13 Feb-18 £869m 1.1% €850m Imperial Brands Finance PLC 4.500% Jul-11 Jul-18 £672m 1.7% $500m Imperial Brands Finance PLC 2
Slide 69: 69 | Half Year Results | May 2016
69 | Half Year Results | May 2016
Slide 70: Definitions
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. Organic change removes (at constant cur
Slide 71: Brand categories
Growth Brands Specialist Brands Portfolio Brands These high-quality brands have These have strong The remainder of our portfolio consists of strong consumer appeal and positions in their own local and regional brands. These Portfolio generally well-established categories, appealing to Brands either
Slide 72: Market categories
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 standalone Growth Markets, mostly above 15 per cent. We focus have shares below 15 per cent and see real Market
Slide 73: Basis of Preparation
Basis of Preparation The financial information comprises the unaudited results for the six months ended 31 March 2016 and 31 March 2015, together with the audited results for the year ended 30 September 2015. The information shown for the year ended 30 September 2015 does not constitute statutory ac
Slide 74: Market share calculation and brand classification
Market Share Calculation Market share is presented as a 12 month average (MAT). Aggregate market share is a weighted average across markets within our footprint. The list of markets used to compile the aggregate market share calculation has been changed for FY16 and prior periods have been restated
Slide 75: Cigarette affordability by country
Minutes of labour at average rates to purchase 20 cigarettes 20 100 0 40 120 60 80 160 180 140 India Morocco South Africa 75 | Imperial Brands PLC | March 2016 Indonesia Thailand Ukraine Vietnam UK Turkey Brazil France Australia Spain Italy Sweden Saudi Arabia Canada Russia Germany Argentina Switzer
Slide 76: Investor Relations contacts
PETER DURMAN Director of Investor Relations Direct line: +44 (0)117 933 7395 [email protected] MATT SHARFF IMPERIAL BRANDS PLC London Stock Exchange ticker IMB Investor Relations Manager 121 Winterstoke Road OTCQX ticker IMBBY Direct line: +44 (0)117 933 7396 Bristol BS3 2LL, UK matt.sharff