Imperial Brands Plc · LSE:IMB
Imperial Brands — Imperial Tobacco Group — FY2005 Earnings Presentation
50 slides from Imperial Brands's earnings presentation, Nov 1, 2005
Slide 1: Preliminary Results 1 November 2005
Preliminary Results 1 November 2005 Imperial Tobacco Group PLC
Slide 2: Gareth Davis, Chief Executive; Bob Dyrbus, Finance Director
Gareth Davis Chief Executive Bob Dyrbus Finance Director
Slide 3: Results Summary
Results Summary another record year Turnover (ex duty) up 4% to £3,149m Operating profit up 7% to £1,307m Pre-tax profit up 11% to £1,123m EPS up 11% to 112.8p DPS up 12% to 56p Note: results pre-amortisation & exceptionals 3
Slide 4: Successful Growth Record
Successful Growth Record consistent strategy 120 EPS CAGR +18% 1400 DPS CAGR +18% Adj. Operating Profit (£m) 100 1200 (pence per share) 1000 Adj. EPS/DPS 80 800 60 600 40 400 20 200 0 0 01 02 03 04 05 EPS DPS Operating Profit 4
Slide 5: Bob Dyrbus, Finance Director
Bob Dyrbus Finance Director 5
Slide 6: Group Results
Group Results £m *Adjusted % As reported FY05 FY04 Change FY05 Turnover exc Duty 3,149 3,032 +4 3,149 Operating Profit 1,307 1,218 +7 1,044 Operating Margin % 41.5 40.2 33.2 Pre-tax Profit 1,123 1,014 +11 862 Tax Rate % 27.0 26.9 33.2 EPS 112.8p 101.6p +11 79.0p DPS 56p 50.0p +12 Note: *results pre-
Slide 7: Segmental Analysis
Segmental Analysis Turnover excl. Duty *Operating Profit (£m) (£m) FY05 FY04 FY05 FY04 UK 812 793 477 454 Germany 630 590 295 237 Rest of Western 644 634 326 329 Europe Rest of the World 1,063 1,015 209 198 Total 3,149 3,032 1,307 1,218 Operating margin 41.5% 40.2% Note: *results pre-amortisation &
Slide 8: Regional Results
Regional Results UK Germany - cigarette market down - cigarette market decline - fine cut growth - cigarette share growth - price increases - pricing benefits - reduced costs - Singles volumes up - cost reductions Rest of Western Europe Rest of the World - cigarette share growth - volume and pricing
Slide 9: Exceptional Items
Exceptional Items Exceptional costs £57m - non-cash costs of £13m - factory closures; European restructuring - combined annual savings £17m Sale of fixed assets - net cash proceeds of £27m - £2m profit on disposal 9
Slide 10: Operating Cash Flow
Operating Cash Flow £m FY05 FY04 FY01-05 Adjusted operating profit 1,307 1,218 5,068 Depn/provisions movements 45 (56) 11 Working capital 64* 79 (158) Operating cash flow 1,416 1,241 4,921 Cash flow after net capex 1,353 1,193 4,667 % conversion 104% 98% 92% Note: results pre-amortisation and except
Slide 11: Net Cash Flow
Net Cash Flow Gross capex £90m (FY04: £103m) - Turkey investment: £21m Interest paid similar to charge Tax paid lower than charge - refunds and timing of payments Skruf acquisition: £6m Share buyback spend £200m Reduction in net debt £305m 11
Slide 12: Net Debt & Interest
Net Debt & Interest Closing Net Debt Average level of debt: £3.5bn 4 (FY04: £3.7bn) £3.6bn £3.3bn - free cash flow benefit 3 - share buyback offset Ave. all in cost of debt: 5.3% £bn 2 (FY04: 5.6%) - higher floating rate debt 1 - improved margins Interest down to £184m 0 (FY04: £204m) FY04 FY0
Slide 13: IFRS Update
IFRS Update FY05 results restatement: 24 Nov 05 Minimal impact estimated on FY04 results - excluding IAS39 on derivatives No change to economics of the business No change to cash flow of the business 13
Slide 14: Financial Summary
Financial Summary strong set of results Efficient cost management Effective cash management - investment in organic growth - value creating acquisitions - buybacks Delivering value to shareholders 14
Slide 15: Gareth Davis, Chief Executive
Gareth Davis Chief Executive 15
Slide 16: 2005 Headlines
2005 Headlines Profit and margin gains in core markets Western Europe cigarette success Rest of World encouraging performance - profit and volume growth H2 strong volumes; FY05 up 1.5% - Davidoff & West momentum Substantial manufacturing efficiencies McTear case success 16
Slide 17: UK Market Dynamics
UK Market Dynamics Cigarette duty paid market -4% to c.51bn Cigarette sector trends continue - premium sector 31% (FY04: 32%) - ultra-low sector 40% (FY04: 37%) Fine cut duty paid market up at c.3,000t MPI in January 2005 Note: Imperial estimates 17
Slide 18: UK Performance
UK Performance 18 Cigarette leadership at 44.5% share 15 14.7% - L&B market leader at 16.0% % market share - 12 Richmond No.2 up to 14.7% Fine 9 cut share growth to 66.3% - Golden Virginia up to 50.8% 6 Strong Rizla performance 3 Philip Morris agreement renegotiated 0 Sep-99 Sep-00 Sep-01 Se
Slide 19: UK Outlook
UK Outlook Highly regulated environment - SIPPs developments Strong brand portfolio in all categories Investment in salesforce and technology Focused on further profit development 19
Slide 20: German Market Dynamics
German Market Dynamics Annual Market Size 160 150 Impact of tax 144 9 140 12 increases bn cigarette equivalents 22 120 31 43 - cigarette vols -15% 20 100 - OTP vols +39% 16 80 December 04 60 99 85 101 increase 40 - tax and MPI 20 0 September 05 FY04 FY05 FMC OTP OTP PL increase FMC PL Branded
Slide 21: German Performance
German Performance Cigarette share up at 19.4% - JPS continued growth to 1.7%; 2.8% in Sept - West impacted by downtrading at 8.5% - Davidoff, Stuyvesant & R1 performed well OTP share at 24.2% - stabilised H2 share; JPS & Fairwind growth - our Singles volumes up 36% Total tobacco share stable
Slide 22: German Low Price Sector
German Low Price Sector main brands and shares 3.5 3.0 Pall Mall % cigarette market share 2.5 JPS 2.0 1.5 1.0 0.5 Next 0.0 Mar Jun Sep Dec Mar Jun Sep 2004 2004 2004 2004 2005 2005 2005 Note: Imperial estimates and definitions; spot rates; excludes solus East German brands 22
Slide 23: Update on Singles
Update on Singles ECJ hearing on 12 May 2005 Advocate General’s opinion on 14 July 2005 - Singles should be taxed as cigarette - ECJ ruling expected on 10 November 2005 22bn consumption potentially moving into: - value brands or private label cigarettes? - other tobacco products? - cross-borde
Slide 24: Germany Outlook
Germany Outlook Singles ruling implications September price rise impact Continued downtrading: cigarette & OTP Flexible approach Leveraging broad product portfolio Cost efficiencies Profitable growth focus 24
Slide 25: Rest of Western Europe market dynamics
Rest of Western Europe market dynamics Cigarette market volumes down 3% - more stable Fine cut market volumes down 2% - increased prices Downtrading: growth in value segments SIPPs development Minimum duty incidence; minimum price setting Note: Imperial estimates 25
Slide 26: Rest of Western Europe cigarette highlights
Rest of Western Europe cigarette highlights Ireland: Superkings gains Netherlands: West success Belgium: improved H2 France: competitive pressures 25.0 Southern Europe progress % market share - Spain/Italy/Greece Travel retail adverse mix 9.4 Volumes up 7% 7.0 5.1 - Davidoff up 11% 3.3
Slide 27: Rest of Western Europe fine cut highlights
Rest of Western Europe fine cut highlights Strong share positions across the region Shares under pressure - growth in value brands and private label Netherlands share at 50.3% - launches of Zilver and Evergreen France: market leader at 29.0% - Interval growth to 15% - Drum Silver and JPS MYO
Slide 28: Rest of Western Europe Outlook
Rest of Western Europe Outlook More stable markets? Continued downtrading - cigarette and fine cut Opportunities for our brand portfolio - addressing fine cut shares - build on cigarette progress Investment for growth 28
Slide 29: Rest of the World: Asia and Australia
Rest of the World Asia and Australia Asia: volumes up 9% Taiwan share progress to 11.4% - Boss growth Strong performances in Vietnam and Laos Ongoing development in China Australia: record results Relatively stable market with high regulation Robust brand performances - cigarette share hel
Slide 30: Rest of the World: Central and Eastern Europe
Rest of the World Central and Eastern Europe Central Europe: balancing profit and volume Ongoing challenges Successful portfolio expansion Good share improvements in H2 Eastern Europe: volumes up 12% Russia share up to 5.3%; Maxim growth - investment in route to market Ukraine portfolio su
Slide 31: Rest of the World: Africa, Middle East, Duty Free
Rest of the World Africa & Middle East, Duty Free Africa: volume and profit progress Positive share developments Excellence growth in Senegal and Ivory Coast Middle East: Davidoff volumes up 27% Saudi Arabia, Lebanon & Kuwait Duty Free Davidoff and West rejuvenation EU accession impact Not
Slide 32: Rest of the World developments
Rest of the World developments Turkey: early progress Maxim success; Davidoff encouraging Average share 0.4% West launch in September 05 Scandinavia: enhanced opportunities Skruf acquisition - snus addition - distribution of Davidoff, Paramount and Rizla 32
Slide 33: Rest of the World Outlook
Rest of the World Outlook Challenges and opportunities Strategic investments - Asia, Russia, Turkey, Scandinavia Further investment opportunities - markets and brands Balancing profit and volume - short and long term 33
Slide 34: Manufacturing highlights
Manufacturing highlights Significant progress across all regions - productivity up 15% - cigarette unit costs down by 6% Further simplification and standardisation - blends down 10% Factory closures: - Dublin, Montreal, Plattsburgh Ongoing supply chain optimisation - reduction in stock level
Slide 35: Manufacturing Outlook
Manufacturing Outlook Driving more efficiencies - focused on costs and flexibility Further restructuring initiatives - Berlin production relocation - closure of Treforest papers factory Enhancing productivity Reducing costs 35
Slide 36: Outlook
Outlook Continuing regulatory developments Positive momentum across the business Effective cash utilisation - value creating acquisitions - organic investment - buybacks Clear and consistent strategy Continuing to build on our successes 36
Slide 37: Building on Our Successes
Building on Our Successes Cash Sales growth Cost focus management Portfolio opportunities Capacity optimisation Working capital focus Pricing Infrastructure savings Tax efficiency Infrastructure leverage Productivity Interest reduction Effective cash allocation Acquisitions Investments Dividends Buy
Slide 38: Preliminary Results November 2005
Preliminary Results 1 November 2005 www.imperial-tobacco.com
Slide 39: Appendices
Appendices 39
Slide 40: 2005 Profit & Loss Account
2005 Profit & Loss Account £m FY05 FY04 % Change Turnover inc Duty 11,255 11,005 +2 Turnover exc Duty 3,149 3,032 +4 Adjusted Operating Profit 1,307 1,218 +7 Amortisation (206) (204) Profit on Disposals 2 7 Exceptional Items (57) (129) Interest (184) (204) Pre-Tax Profit 862 688 +25 Tax (286) (238)
Slide 41: Balance Sheet
Balance Sheet 30 September 2005 FY05 FY04 £m Fixed Assets: tangible 632 651 intangible 3,345 3,547 Other Investments 5 7 Current Assets: stocks 878 864 debtors 1,142 1,021 Current Liabilities (2,041) (1,837) Other Creditors (538) (529) Net Assets excluding Funding 3,423 3,724 Net Debt (3,283) (3,588
Slide 42: 2005 Cash Flow
2005 Cash Flow £m FY05 FY04 Operating Cash Flow 1,416 1,241 Exceptional Item: Cash Adjustment (46) - Net Capex (63) (48) ESOP (5) - Dividends(inc. Minority Interests) (377) (329) Acquisitions (6) (29) Share Buybacks (201) - Net Interest Paid (196) (209) Taxation (239) (236) Net Cash Inflow 283 390 E
Slide 43: Cigarette Market Shares
Cigarette Market Shares UK and Germany UK MAT Germany MAT % % FY05 FY04 FY05 FY04 Lambert & Butler 16.0 16.2 West 8.5 9.0 Richmond 14.7 13.2 Peter Stuyvesant 2.1 2.1 Superkings 5.0 5.5 R1 1.8 1.7 Regal 3.8 4.1 Cabinet 1.3 1.5 Embassy 3.5 3.7 JPS 1.7 0.2 JPS 1.2 1.3 Davidoff 1.1 1.1 Note: Imperial es
Slide 44: Rest of Western Europe market shares
Rest of Western Europe market shares Cigarette Share % FY05 FY05 RYO Share % FY05 FY04 MAT MAT Netherlands 4.9 3.3 Netherlands 50.3 54.3 France 3.3 3.5 France 29.0 29.5 Greece 7.0 6.8 Greece 46.2 49.6 Spain 5.1 4.5 Spain 64.4 65.3 Italy 1.6 1.1 Italy 57.4 57.4 Ireland 25.0 24.8 Note: Imperial estima
Slide 45: Market Share Comparatives
Market Share Comparatives for numbers used in presentation MAT % FY05 FY04 MAT % FY05 FY04 UK Rest of World Cigarette 44.5 44.6 Taiwan 11.4 11.3 RYO share 66.3 65.6 Russia 5.3 5.2 Golden Virginia 50.8 50.0 Germany Total tobacco 20.8 20.8 Cigarette 19.4 18.9 OTP 24.2 28.0 P/Label cigarette 15.9 16.8
Slide 46: 2005 Cigarette Volumes
2005 Cigarette Volumes Billion Sticks FY05 FY04 UK (exc PM)* 23.9 25.2 Germany 20.9 23.9 Southern Europe 10.7 9.1 RMO 0.4 0.4 Benelux 3.0 3.3 France 1.8 1.9 Ireland 1.8 1.8 Total Rest of Western Europe 17.7 16.5 Asia & Australia 19.6 18.5 Central & Eastern Europe 71.1 67.7 Africa & Middle East 17.6
Slide 47: 2005 RYO/MYO Volumes
2005 RYO/MYO Volumes 000’s tonnes FY05 FY04 UK 2.1 2.0 Germany 7.1 6.3 Netherlands 5.7 6.5 Belux 4.1 4.8 France 2.2 2.2 Southern Europe 3.2 2.6 RMO/Other 0.4 0.5 Total Rest of Western Europe 15.6 16.6 Total Rest of the World 1.8 1.8 Total Group 26.6 26.7 47
Slide 48: UK Cigarette Sector Trends
UK Cigarette Sector Trends Imperial Sector Shares (MAT) 2005 2004 40 Ultra Low 38% 37% market sector shares % 30 Premium 24% 25% 20 79% 79% Low 10 Mid 61% 60% 0 Sep-02 Sep-03 Sep-04 Sep-05 Note: Imperial estimates (excluding PM brands & private label) 48
Slide 49: Pensions Position
Pensions Position 30 September 2005 Balance sheet £m FY05 FRS17 asset not recognised (off balance sheet) 158 Net liability in net assets (233) FRS17 net pension liability ( 75) Profit and loss account £m FY05 FRS17 additional credit not recognised 15 Charged to profits in year (33) FRS17 charge
Slide 50: Investor Relations Department
Investor Relations Department Nicola Tate Investor Relations Manager (Mon/Tue/Wed) [email protected] Tel: +44 (0) 117 933 7082 John Nelson-Smith Investor Relations Manager [email protected] Tel: +44 (0) 117 933 7032 www.imperial-tobacco.com 50
Imperial Tobacco Group — FY2005 Earnings Presentation on 6ix