Imperial Brands Plc · LSE:IMB
Imperial Brands — H1 2017 Earnings Presentation
71 slides from Imperial Brands's earnings presentation, May 3, 2017
Slide 1: Half Year Results 2017
HALF YEAR RESULTS 2017 Imperial Brands PLC 3 May 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: Summary
SUMMARY Results in line with expectations Underpinned by success of Market Repeatable Model Investment programme is on track Delivering improved share trends Dividend growth of 10% 4 | Half Year Results | 3 May 2017
Slide 5: Delivering on our priorities in FY17
DELIVERING ON OUR PRIORITIES IN FY17 Track record of consistent delivery 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 • Qua
Slide 6: Oliver Tant, Chief Financial Officer
Oliver Tant Chief Financial Officer
Slide 7: Summary financials
SUMMARY FINANCIALS Investing in quality growth % constant £m % change currency Tobacco net revenue (£m) 3,716 +9.3% -5.5% Adjusted operating profit (£m) 1,740 +6.3% -7.6% Adjusted EPS (pence) 121.9 +7.9% -5.9% Cash conversion 99.6% Annualised net debt reduction* (£m) 1,163 7 | Half Year Results | 3
Slide 8: Volume performance
VOLUME PERFORMANCE Growth Brands outperforming +2.3bn -0.7bn Industry volume -9.2bn decline 4.3% YTD -5.7% 133.9 bn SE 126.3 bn SE HY16 volume Growth Brands Specialist Brands Portfolio Brands HY17 volume 8 | Half Year Results | 3 May 2017
Slide 9: HY17 net revenue
HY17 NET REVENUE Price mix reflects phasing and investment +14.8% +9.3% -5.7% +0.2% £3,716m £3,399m HY16 Volume Price/mix Translation HY17 Net Revenue FX Net Revenue 9 | Half Year Results | 3 May 2017
Slide 10: HY17 EPS growth
HY17 EPS GROWTH Expected decline due to investment phasing £160m of investment +15.6p +7.9% -13.1p +3.7p -5.9% +2.7p 113.0p 106.3 HY16 adjusted Investment Operating profit Interest, tax, HY17 constant Translation HY17 adjusted EPS excl. investment minorities currency FX EPS & JV adjusted EPS 10 | Ha
Slide 11: Divisional performance
DIVISIONAL PERFORMANCE Investments driving quality share growth Asset brands % Growth Net Revenue Margin % of net revenue Brand share £859m 24.6% 70.0% Growth +50 bps +1.7% -260bps +310bps £785m 58.2% 43.1% USA +10 bps -6.8% +420bps +30bps £2,072m 48.2% 62.9% Returns +80 bps -7.7% -230bps +190bps £3
Slide 12: More cost optimisation
MORE COST OPTIMISATION Delivering ahead of plan FY17 Cost Optimisation • Optimisation expected to deliver additional £40m in FY17 • Total savings targets remain unchanged £130m • £300m by FY18; further £300m by £90m FY20 Previous guidance Updated savings 12 | Half Year Results | 3 May 2017
Slide 13: Capital discipline
CAPITAL DISCIPLINE Strong cash conversion; expect c.90% for FY17 +£375m -£281m +£203m -£205m -£108m 99.6% £3,644m £3,628m 12m Adjusted Working Restructuring Depreciation & CAPEX Pensions/Share Adjusted Operating capital Amortisation Schemes/ Operating Profit benefit Other Cashflow 13 | Half Year Res
Slide 14: Foreign exchange
FOREIGN EXCHANGE Strong currency translation benefit in FY17 Translation FX • Sterling weakness drives FX benefits • Expect c.9% benefit to FY17 earnings at current rates +14% +9% HY17 FY17 est. 14 | Half Year Results | 3 May 2017 FY ‘17 est. assumes FY forecast average rates of £:EUR 1.168 and £:US
Slide 15: Strengthening balance sheet
STRENGTHENING BALANCE SHEET £1.2bn reduction at constant currency -£3.8bn +£1.4bn +£1.5bn +£0.9bn +£0.4bn -£0.4bn +£0.2bn £13.7bn £12.5bn £13.9bn HY16 EBITDA Working Net Tax & Restructuring, Dividends Adjusted Foreign HY17 Closing capital capex interest pensions net debt exchange & Closing adjusted
Slide 16: FY17 outlook
FY17 OUTLOOK Quality growth in brands and markets that matter Positive trends and On track to meet full Capital discipline Investment initiatives cost savings support year constant supports strong delivering improving stronger H2 despite currency earnings consistent cash share trends industry pressu
Slide 17: Alison Cooper, Chief Executive
Alison Cooper Chief Executive
Slide 18: Our strategy
OUR STRATEGY 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 operating mod
Slide 19: 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 20: Strengthen portfolio: more radical simplification
STRENGTHEN PORTFOLIO More radical simplification Consumer Migrations SKU Rationalisation Efficiency & Revenue Benefits 33% RETAILER • Simpler portfolio Reduction in SKUs since FY13 • Higher stock turn Ukraine – Stolychne to West CONSUMER • Significant further scope; target • Better availability • 50
Slide 21: Strengthen portfolio: more simplification, focus and quality
STRENGTHEN PORTFOLIO More simplification, focus and quality Growth Brand Market Share Asset Brands growing % of Revenue and Volume Asset Brand 51.3% 54.0% 56.9% 60.1% 60.4% % Revenue 8.1% 34% 42% 38% 7.7% 51% 47% 7.2% 5.7% 5.4% 58% 62% 66% 49% 53% 2013 2014 2015 2016 HY17 2013 2014 2015 2016 HY17 As
Slide 22: Parker & Simpson: developing Growth Brands
STRENGTHENING PORTFOLIO Parker & Simpson: developing Growth Brands Poland: • Launched in 2012 Spike • International brand; drawing on British heritage Czech: • Scale through migrations Moon • Growth through retail engagement & consumer initiatives Migrations to build scale Global volume Bns Queen 16
Slide 23: Developing consumer experiences: blu
DEVELOPING CONSUMER EXPERIENCES blu: investing in brand and technology • Optimise investment mix through test & learn • Category education blu Pro blu Go blu Plus & trade engagement Maximising • Key Account e-vapour • Technology: blu Max opportunity consumer trials & launch in 2017 • Brand experienc
Slide 24: USA FMC: investing in equity and price
USA FMC Investing in equity and price • Sustained investment in Winston & Kool • Enhancing distribution; 169,000 retailers New pack design Select blend launch Activations • New Winston select blend launch • New activation initiatives • Price investment optimised Online presence Media campaign Price
Slide 25: USA FMC: continuing positive share momentum
USA FMC Continuing positive share momentum Consistent Growth in Winston & Kool 2.25% 2.29% • Winston & Kool growing retail volume & 2.20% share 2.14% 2.01% • Discount premium segment in growth 1.88% 1.84% 1.82% 1.84% • Address decline in Maverick 1.71% Oct-15 Oct-16 Mar-17 25 | Half Year Results | 3
Slide 26: USA MMC: consumer led approach driving share
USA MMC Consumer led approach driving share Share Development HY16 HY17 14.2 • New route to market benefits 13.3 13.2 12.0 • Investing in Backwoods, Dutch and Phillies 4.2 4.7 4.1 • Increased visibility 2.2 • H1 share up c.100bps Cigar ITG Focus Cigars Brands Total 26 | Half Year Results | 3 May 201
Slide 27: UK: leading in a challenging market
UK Leading in a challenging market L&B Blue : 2x10 pack +13k outlets • EUTPD/PP transition generating churn 30% more calls • Optimal portfolio focus +61k listings • Consistent price strategy Brand solutions New coverage model • Increased retailer coverage and key account share • Player’s fastest gro
Slide 28: Germany: improving share led by FCT
GERMANY Improving share led by FCT • Weaker market size post EUTPD • Large and growing profit pool FCT share gains • Focused portfolio • Investing in JPS Blue Stream and Gauloises • FCT share up almost 200 bps Consumer activation JPS Blue Stream launch 28 | Half Year Results | 3 May 2017
Slide 29: Russia: driving performance in growth segments
RUSSIA Driving performance in growth segments P&S SPOT share • SKU rationalisation complete; improved 1.1% availability 100 78 34 • P&S growth 2015 2016 2017 Feb’16 Mar’17 • Investment in consistent pricing SKU reduction Investment in P&S • Focus on growing distribution KA share of volume +200 Reps
Slide 30: Italy, Saudi, France & Australia
ITALY, SAUDI, FRANCE & AUSTRALIA Distribution, customer focus & Growth Brand strength JPS Share Saudi Share 13.3% 3.3% News No.3 2.0% 10.7% brand Oct’15 Jun’16 Feb’17 Oct’15 Jun’16 Feb’17 • Total share +80bps YTD • West driving share • News share >9% • Learnings for MRM growth • Record JPS share • J
Slide 31: Investment driving quality share growth
INVESTMENT DRIVING QUALITY SHARE GROWTH Positive share trends Volume Share Trend Volume Share Trend Continued growth in Winston, Kool Growing share of convenience channel Fine Cut driving share; FMC improving Cambodia health warnings impact market & Fine share Investment around MRM supports share gr
Slide 32: Our priorities for FY17
Our Priorities for FY17 On track to deliver Maximise sustainable shareholder returns – 10% dividend Quality Growth from Tobacco Maximisation and Consumer Adjacencies Strengthen Portfolio Develop Footprint Drive Cost Embed Capital right brands right markets Optimisation Discipline • More portfolio si
Slide 33: Half Year Results 2017
HALF YEAR RESULTS 2017 Imperial Brands PLC 3 May 2017
Slide 34: Appendices: Group financials
APPENDICES Group financials 34 | Half Year Results | 3 May 2017
Slide 35: Group adjusted results
GROUP ADJUSTED RESULTS Constant Foreign Currency Constant HY16 Exchange Growth HY17 Actual ∆ Currency ∆ Tobacco net revenue £m 3,399 505 (188) 3,716 +9.3% -5.5% Tobacco operating profit £m 1,577 217 (127) 1,667 +5.7% -8.1% Tobacco margin % 46.4 44.9 -150 bps Logistics distribution fees £m 371 61 10
Slide 36: Group adjusted results
GROUP ADJUSTED RESULTS HY17 HY16 Group adjusted operating profit £m 1,740 1,637 Interest £m (272) (266) Share of profit of JVs £m 17 12 Profit before tax £m 1,485 1,383 Tax rate % 20.0 20.0 Adjusted EPS pence 121.9 113.0 DPS pence 51.7 47.0 Cash conversion % 100 105 Adjusted net debt £m 13,927 (13,7
Slide 37: Reconciliation: reported to adjusted
RECONCILIATION: REPORTED TO ADJUSTED Fair value Amortisation gains on Post Tax on Adjusted non- £m (unless otherwise Reported of acquired financial employment Restructuring unrecognised controlling Adjusted stated) HY17 intangibles instruments net financing costs losses interests HY17 Operating prof
Slide 38: Income statement
INCOME STATEMENT £m (unless otherwise stated) HY17 HY16 Revenue 14,298 12,806 Adjusted operating profit 1,740 1,637 Amortisation and impairment of acquired intangibles (554) (473) Restructuring costs (284) (162) Share of profit of investments accounted for using the equity method 17 12 Net finance c
Slide 39: Balance sheet
BALANCE SHEET £m HY17 HY16 Non-current assets: tangible 4,113 4,068 intangible 20,390 19,415 Current assets: inventories 3,824 3,951 other 3,479 3,248 Current liabilities (10,757) (10,129) Non-current liabilities (15,403) (15,281) Net assets 5,646 5,272 39 | Half Year Results | 3 May 2017
Slide 40: Cash flow
CASH FLOW £m HY17 HY16 Cash flows from operating activities pre tax 837 561 Tax paid (274) (251) Cash flows from operating activities 563 310 Net capex (90) (67) Purchase of IP - (7) Employee Share Ownership Trust 5 (5) Loan to JV (10) - Dividends paid (inc. minority interests) (1,062) (963) Net int
Slide 41: 12 month cash conversion
12 MONTH CASH CONVERSION £m (unless otherwise stated) HY17 HY16 Net cash flow from operating activities 3,410 3,215 Tax 424 424 Net capex (206) (164) Cash flow post capex pre interest and tax 3,628 3,475 Adjusted operating profit 3,644 3,323 Cash conversion (%) 100 105 Working capital inflow 375 509
Slide 42: Net finance costs
NET FINANCE COSTS £m HY17 HY16 Net finance costs 115 562 Adjusted for: - interest income on net defined benefit assets 54 71 - interest cost on net defined benefit liabilities (66) (80) - exchange gains/(losses) 169 (287) Adjusted net finance costs 272 266 42 | Half Year Results | 3 May 2017
Slide 43: Net debt reconciliation
NET DEBT RECONCILIATION Reported Accrued Fair value of Adjusted £m HY17 interest derivatives HY17 Opening net debt (13,319) 221 216 (12,882) Free cash flow 136 136 Dividends (1,062) (1,062) Accretion of interest 69 (69) - Change in fair values 191 (103) 88 Exchange movements (207) (207) Closing net
Slide 44: Foreign exchange
FOREIGN EXCHANGE Average Closing HY16 HY17 ∆ HY16 HY17 ∆ USD $ 1.474 1.240 19% 1.438 1.250 15% EURO € 1.342 1.157 16% 1.263 1.169 8% AUD $ 2.045 1.645 24% 1.871 1.634 15% Russian Rouble 103.633 75.447 37% 96.399 70.498 37% 44 | Half Year Results | 3 May 2017
Slide 45: Foreign currency: divisional currency exposure
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 30% 50% 20% Australian $ & Ukraine Hryvnia €0.01 (1 cent) movement in the € Euro has c. £25m impact on net revenue. R
Slide 46: Guidance: other financial items
GUIDANCE Other financial items Financing & Cost of Debt • Average all-in cost of net debt expected of c.3.90% • Debt reduction benefit offset by FX impact Tax Rate • 20%; expect to maintain Cash Conversion • Expect to be c. 90% for FY17 Foreign Exchange • Translation FX expected 9% benefit to FY17 e
Slide 47: Appendices: Portfolio & Divisional financials
APPENDICES Portfolio & Divisional financials 47 | Half Year Results | 3 May 2017
Slide 48: Total tobacco volume
TOTAL TOBACCO VOLUME bn SE* HY17 HY16 Actual ∆ Growth Markets 34.5 35.6 -3.1% USA Market 11.3 12.3 -8.3% Returns Markets North 42.4 45.6 -7.0% Returns Markets South 38.1 40.4 -5.8% Total Returns Markets 80.5 86.0 -6.4% Total Group 126.3 133.9 -5.7% 48 | Half Year Results | 3 May 2017 * bn SE is bill
Slide 49: Growth brand volume
GROWTH BRAND VOLUME bn SE* HY17 HY16 Actual ∆ Growth Markets 22.3 21.3 +4.7% USA Market 2.9 2.9 +0.4% Returns Markets North 27.1 25.5 +6.2% Returns Markets South 20.6 21.0 -1.6% Total Returns Markets 47.7 46.5 +2.7% Total Group 73.0 70.7 +3.2% 49 | Half Year Results | 3 May 2017 * bn SE is billion s
Slide 50: Tobacco net revenue
TOBACCO NET REVENUE Constant Foreign Currency Constant £m HY16 Exchange Growth HY17 Currency ∆ Growth Markets 707 140 12 859 +1.7% USA Market 711 122 (48) 785 -6.8% Returns Markets North 1,246 136 (81) 1,301 -6.5% Returns Markets South 735 107 (71) 771 -9.7% Total Returns Markets 1,981 243 (152) 2,0
Slide 51: Tobacco adjusted operating profit
TOBACCO ADJUSTED OPERATING PROFIT Constant Foreign Currency Constant £m HY16 Exchange Growth HY17 Currency ∆ Growth Markets 192 36 (17) 211 -8.9% USA Market 384 73 - 457 - Returns Markets North 676 62 (67) 671 -9.9% Returns Markets South 325 46 (43) 328 -13.2% Total Returns Markets 1,001 108 (110) 9
Slide 52: Growth Brands
GROWTH BRANDS Constant HY17 HY16 Actual ∆ Currency ∆ Market share % 8.0 7.4 +60 bps Net revenue £m 1,682 1,486R +13.2% -2.5% Percentage of Group volumes % 57.8 52.8 +500 bps Percentage of tobacco net revenue % 45.3 43.7R +160 bps 52 | Half Year Results | 3 May 2017 R Restated – see slide 66 in appen
Slide 53: Specialist Brands
SPECIALIST BRANDS Constant HY17 HY16 Actual ∆ Currency ∆ Net revenue £m 561 499 +12.3% -2.0% Percentage of tobacco net revenue % 15.1 14.7R +40 bps 53 | Half Year Results | 3 May 2017 R Restated – see slide 66 in appendices
Slide 54: Growth Markets
GROWTH MARKETS Constant HY17 HY16 Actual ∆ Currency ∆ Net revenue £m 859 707 +21.5% +1.7% Adjusted operating profit £m 211 192 +9.9% -8.9% Growth Brand % of net revenue % 47.6 45.1 +250 bps Growth Brand volume bn SE 22.3 21.3 +4.7% Growth Brand market share % 3.9 3.4 +50 bps 54 | Half Year Results |
Slide 55: USA Market
USA MARKET Constant HY17 HY16 Actual ∆ Currency ∆ Net revenue £m 785 711 +10.4% -6.8% Adjusted operating profit £m 457 384 +19.0% - Asset Brand % of net revenue % 43.1 42.8R +30 bps Asset Brand volume bn SE 5.2 5.3 -0.3% Growth Brand market share % 2.4 2.3 +10 bps 55 | Half Year Results | 3 May 2017
Slide 56: Returns Markets
RETURNS MARKETS Constant HY17 HY16 Actual ∆ Currency ∆ Net revenue £m 2,072 1,981 +4.6% -7.7% Net revenue per ‘000 SE £ 25.74 23.03 +11.8% -1.3% Adjusted operating profit £m 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 56 | H
Slide 57: Returns Markets North
RETURNS MARKETS NORTH Constant HY17 HY16 Actual ∆ Currency ∆ Tobacco net revenue £m 1,301 1,246 +4.4% -6.5% Net revenue per ‘000 SE £ 30.67 27.33 +12.2% +0.5% Adjusted operating profit £m 671 676 -0.7% -9.9% Growth Brand % of net revenue % 57.9 55.1 +280 bps Growth Brand % of market share % 15.7 14.
Slide 58: Returns Markets South
RETURNS MARKETS SOUTH Constant HY17 HY16 Actual ∆ Currency ∆ Net revenue £m 771 735 +4.9% -9.7% Net revenue per ‘000 SE £ 20.25 18.18 +11.4% -4.1% Adjusted operating profit £m 328 325 +0.9% -13.2% Growth Brand % of net revenue % 49.0 47.4 +160 bps Growth Brand % of market share % 16.3 15.5 +80 bps 5
Slide 59: Logistics
LOGISTICS Constant HY17 HY16 Actual ∆ Currency ∆ Distribution fees £m 442 371 +19.1% +2.7% Adjusted operating profit £m 82 68 +20.6% +4.4% Margin % 18.6 18.3 +30 bps 59 | Half Year Results | 3 May 2017
Slide 60: Divisional market share
DIVISIONAL MARKET SHARE MAT market share data HY17 HY16 Growth markets 6.4% 6.7% -30 bps USA market 9.0% 9.3% -30 bps Returns North 23.6% 25.1% -150 bps Returns South 28.8% 28.7% +10 bps Total Returns 25.8% 26.6% -80 bps Total Group 13.8% 14.1% -30 bps 60 | Half Year Results | 3 May 2017
Slide 61: Appendices: Financing
APPENDICES Financing 61 | Half Year Results | 3 May 2017
Slide 62: Financial profile March 2017
FINANCIAL PROFILE 30 March 2017 Interest Split Currency Split Debt Split 10% 29% Fixed 39% Euro€ Bonds 18% Floating USD$ Bank ECP 71% 61% 72% 18,000 16,000 14,000 ECP £m equivalent 12,000 Bank Facilities 10,000 8,000 Bond Issues 6,000 £2.9bn headroom against facilities 4,000 2,000 - Mar '17 Mar '19
Slide 63: Committed bank facilities
COMMITTED BANK FACILITIES 30 March 2017 Description Maturity date Amount £m equiv. Committed 5 Year Revolving Credit Facility B1 Jul-21 EUR tranche €2,835m £2,425m GBP tranche £500m £500m Committed 3 Year Term Loan Facility Jun-18 $300m £240m Total £3,165m 1 5 year facility with two 1 year extension
Slide 64: Bond issues
BOND ISSUES 30 March 2017 Amount Issuer Coupon Issue Date Maturity Date £m equiv. Margin $1,250m Imperial Brands Finance PLC 2.050% Feb-13 Feb-18 £1,000m 1.1% €850m Imperial Brands Finance PLC 4.500% Jul-11 Jul-18 £727m 1.7% $500m Imperial Brands Finance PLC 2.050% Jul-15 Jul-18 £400m 1.0% £200m Imp
Slide 65: Appendices: Other information
APPENDICES Other information 65 | Half Year Results | 3 May 2017
Slide 66: Restatement of prior periods
RESTATEMENT OF PRIOR PERIODS H1 Growth & Specialist Brands HY16 HY16 Restated An incorrect apportionment of Growth Brand Net Revenue promotional spend at HY16 meant that Growth and USA Market £m 149 133 Specialist Brand net revenue Total Group £m 1,502 1,486 in the USA was incorrectly Specialist Bra
Slide 67: 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. Organic change removes (at con
Slide 68: 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 69: 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
Slide 70: Where to invest: market affordability supports future growth
WHERE TO INVEST Market affordability supports future growth Australia USA UK Germany • Around two thirds IMB profit from top Japan Saudi 10 global markets Arabia Stick Profitability • Fastest growing tobacco markets; Brazil USA, Indonesia, Russia, Germany, Turkey Saudi Indonesia Russia Argentina • S
Slide 71: Half Year Results 2017
HALF YEAR RESULTS 2017 Imperial Brands PLC 3 May 2017