Imperial Brands PLC · LSE:IMB
Imperial Brands — H1 2018 Earnings Presentation
68 slides from Imperial Brands's earnings presentation, May 9, 2018
Slide 1: Half Year Results 2018
HALF YEAR RESULTS 2018 Imperial Brands PLC 9 May 2018
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: Presenters
Alison Cooper Chief Executive Oliver Tant Chief Finance Officer Matt Phillips Chief Development Officer
Slide 4: Strategy Delivering in Tobacco & NGP
Strategy Delivering in Tobacco & NGP Clear focus on brand and market priorities Volumes ahead of market Growth brands outperforming Continued share gains in priority markets Strengthening price/mix Good progress in rollout of myblu Strategy focus identifies divestment opportunities 4 | Half Year Res
Slide 5: Building Momentum: Growing revenue and profit in H2
Building Momentum Growing revenue and profit in H2 Better 2018 environment Delivering momentum Expect stronger H2 Lapping EUTPD • Volumes outperforming • Growth in tobacco revenues industry – Share driven by Growth Brands Excise Impacts • Growth Brands share gains – Further price/mix benefits France
Slide 6: Summary H1 Financials
Summary H1 Financials % constant £m % change currency Volumes (bn SE) 123.6 -2.1% -2.1% Tobacco net revenue (£m) 3,531 -5.0% -2.1% Adjusted operating profit (£m) 1,624 -6.7% -2.2% Adjusted EPS (pence) 114.3 -6.2% -1.0% Cash conversion* 111% Annualised net debt reduction** (£bn) 0.9 Adjusted operatin
Slide 7: HY18 Tobacco Volume
HY18 Tobacco Volume Growth Brands drive volume outperformance +4.6bn -0.7bn -6.6bn Industry down 5.7% -2.1% 126.3 bn SE +1.6% ex migrations 123.6 bn SE -7.4% ex migrations HY17 volume Growth Brands Specialist Brands Portfolio Brands HY18 volume 7 | Half Year Results | 9 May 2018
Slide 8: HY18 Tobacco Net Revenue
HY18 Tobacco Net Revenue Price/mix improving through H1 Q2 +4% -2.1% -2.1% -2.9% 0% -5.0% £3,716m Price/mix 1% excl £3,639m HY17 NGP IP £3,531m HY17 Tobacco Volume Price/Mix HY18 constant Translation HY18 Tobacco Net Revenue currency FX Net Revenue 8 | Half Year Results | 9 May 2018
Slide 9: HY18 Adjusted Operating Profit
HY18 Adjusted Operating Profit Profit reflects NGP investment and IP -£48m -£13m +£16m -2.2% -4.5% +£7m -6.7% 1,740 Lower IP income (£35m) 1,702 & NGP investment impacts profits in H1 1,624 HY17 AOP Operating Transaction Other gains Logista HY18 Translation FX HY18 AOP income FX constant currency £7
Slide 10: Divisional Performance
Divisional Performance Investments drive quality share growth Growth Net Volume Brand Revenue share • Adverse mix in Saudi & Taiwan Growth +0.5% -6.9% +80 bps • Lower IP income • Volumes up: China JV & Saudi • Winston, Kool & Maverick share up USA -3.7% +7.5% +10 bps • Continued strong MMC performan
Slide 11: Cash & Balance Sheet
Cash & Balance Sheet Capital discipline, strong cash generation Cash Conversion Net Debt • On track to meet FY guidance • £0.9bn reduction HY17 (£1.2bn inc FX) • 95% excluding restructuring • Working capital timing benefits • P&H & restructuring costs • Dividend payout ratio 68% • £0.9bn pa reductio
Slide 12: Outlook
Outlook Growing revenue and profit FY18: In line with medium-term guidance Revenue growth myblu rollout Higher H2 supported by and innovation margin driven by Cash conversion improving pipeline support price/mix and on track: 95% price/mix growth in NGP cost savings 12 | Half Year Results | 9 May 20
Slide 13: Strategy Delivering: NGP Growth
Strategy Delivering Momentum through focused investment NGP Growth Tobacco Maximisation Significant step Innovation Continued share Growth Brands up in NGP – pipeline supports gains in priority gaining share myblu rollout standout markets - Group and growing positive initial consumer volumes volumes
Slide 14: Significant NGP Ambition
Significant NGP Ambition Additive revenue & profit opportunity Standout Increasing Consumer Profitability Experience Science & Regulation 14 | Half Year Results | 9 May 2018
Slide 15: Building blu equity
Building blu equity Powerful, convenient and simple • Pod format key growth segment • Latest open system product • Superior product, competitive price • Most powerful device in portfolio • Expanding international distribution • Superior vaping experience • Launches in new and existing • Focus on fla
Slide 16: Building Growth in Distribution
Building Growth in Distribution myblu rollout on track • Launched in 5 markets • On track for 10 markets in FY18 • Growing distribution & visibility in key accounts • Partnerships with vape wholesalers • Listings with online retailers 16 | Half Year Results | 9 May 2018
Slide 17: blu innovation pipeline
blu innovation pipeline Building differentiated consumer experiences To Now Next come myblu Nicotine blu ACE 3D Flavour Next gen Connectivity salts pod 17 | Half Year Results | 9 May 2018
Slide 18: Strategy Delivering: Tobacco Maximisation
Strategy Delivering Momentum through focused investment NGP Growth Tobacco Maximisation Significant step Innovation Continued share Growth Brands up in NGP – pipeline supports gains in priority gaining share myblu rollout standout markets - Group and growing positive initial consumer volumes volumes
Slide 19: Tobacco Max: Portfolio Focus
Tobacco Max: Portfolio Focus Growth Brands driving quality revenue Growth Brand Growth Brand • Successful simplification of portfolio Volumes Share – Migrations achieving c.95% retention; 69 complete +6.3% +100bps +1.6% ex. migration Up in all divisions • Focused investment driving Asset Brand reven
Slide 20: Tobacco Max: Leverage Market Repeatable Model
Tobacco Max: Leverage Market Repeatable Model Investment delivering share gains Winston, Kool & Maverick up, JPS FMC & fine cut growth +10bps -20bps tail brands down, MMC up Driven by Players & Gold Leaf P&S queen size & crushball +50bps +60bps Temporary price impact; spot West #1 brand in market -1
Slide 21: Tobacco Max: Always On Price Strategy
Tobacco Max: Always On Price Strategy Improving price/mix momentum H1: headwinds as expected H2: normalised price/mix • Carry over of 2017 trading conditions • Lapping excise & regulation impacts • Mix impact of excise & regulation • Improving Q2 exit: price/mix c. +4% • Specific market pressures e.
Slide 22: Strategic Focus: Right Markets, Brands & Products
Strategic Focus: Right Markets, Brands & Products More active capital allocation Strategic Focus More Focus Strategic Benefits • Fewer brands, SKUs • More active portfolio • Enhanced growth focus management • Market prioritisation • Simplification/complexity • Divestments and exits reduction • NGP g
Slide 23: Improving Momentum into H2
Improving Momentum into H2 Platform for FY18 growth Sustained share growth in markets that matter Delivering quality revenue through strongest brand equities Improving price/mix momentum Stepping up NGP; revenue growth in H2 Disciplined capital approach supports 10% dividend growth 23 | Half Year Re
Slide 24: Appendices: Group financials
Appendices Group financials 24 | Half Year Results | 9 May 2018
Slide 25: Group Adjusted Results
Group Adjusted Results Constant Foreign Currency Constant HY17 Exchange Growth HY18 Actual ∆ Currency ∆ Tobacco net revenue £m 3,716 (108) (77) 3,531 -5.0% -2.1% Tobacco operating profit £m 1,667 (80) (54) 1,533 -8.0% -3.2% Tobacco margin % 44.9 43.4 -150 bps Logistics distribution fees £m 442 14 27
Slide 26: Divisional Market Share
Divisional Market Share MAT market share data HY18 HY17 Growth markets 7.3% 6.4% +90 bps USA market 8.8% 9.0% -20 bps Returns North 23.4% 23.6% -20 bps Returns South 28.0% 28.8% -80 bps Total Returns 25.3% 25.8% -50 bps Total Group 14.0% 13.8% +20 bps 26 | Half Year Results | 9 May 2018
Slide 27: Group Adjusted Results
Group Adjusted Results HY18 HY17 Group adjusted operating profit £m 1,624 1,740 Interest £m (244) (272) Share of profit of JVs £m 19 17 Profit before tax £m 1,399 1,485 Tax rate % 19.5 20.0 Adjusted EPS pence 114.3 121.9 DPS pence 56.9 51.7 Cash conversion % 110.8 107.5 Adjusted net debt £m (12,698)
Slide 28: Reconciliation: Reported To Adjusted
Reconciliation: Reported To Adjusted Fair value Post Amortisation gains/(losses) employment Administration Tax on Adjusted non- Deferred tax £m (unless Reported of acquired on financial net financing Restructuring of UK unrecognised controlling impact of US Adjusted otherwise stated) HY18 intangible
Slide 29: Income Statement
Income Statement £m (unless otherwise stated) HY18 HY17 Revenue 14,278 14,298 Adjusted operating profit 1,624 1,740 Amortisation and impairment of acquired intangibles (526) (554) Restructuring costs (105) (284) Share of profit of investments accounted for using the equity method 19 17 Administratio
Slide 30: Balance Sheet
Balance Sheet £m HY18 HY17 Non-current assets: tangible 4,299 4,113 intangible 18,876 20,390 Current assets: inventories 3,486 3,824 other 3,614 3,479 Current liabilities (11,857) (10,757) Non-current liabilities (13,059) (15,403) Net assets 5,359 5,646 30 | Half Year Results | 9 May 2018
Slide 31: Cash Flow
Cash Flow £m HY18 HY17 Cash flows from operating activities pre tax 1,097 837 Tax paid (260) (274) Cash flows from operating activities 837 563 Net capex (90) (90) Purchase of businesses / brands (68) - Repurchase of shares (41) - Employee Share Ownership Trust 1 5 Loan to JV - (10) Dividends paid (
Slide 32: Strengthening Balance Sheet
Strengthening Balance Sheet £3.9bn £1.7bn £0.3bn £0.5bn £1.1bn £0.7bn £0.2bn £0.2bn £13.9bn £13.0bn £12.7bn HY17 EBITDA Working P&H Net Tax & Restructuring, Dividends Adjusted Foreign HY18 Closing capital capex interest pensions net debt exchange & Closing adjusted & other derivatives adjusted net d
Slide 33: 12 Month Cash Conversion
12 Month Cash Conversion £m (unless otherwise stated) HY18 HY17 Net cash flow from operating activities 3,499 3,410 Tax 556 424 Net capex (224) (206) Restructuring cash spend 208 290 Cash flow post capex pre interest and tax 4,039 3,918 Adjusted operating profit 3,645 3,644 Cash conversion (%) 110.8
Slide 34: Net Finance Costs
Net Finance Costs £m HY18 HY17 Net finance costs 252 115 Adjusted for: - interest income on net defined benefit assets 64 54 - interest cost on net defined benefit liabilities (71) (66) - exchange (losses)/gains (1) 169 Adjusted net finance costs 244 272 34 | Half Year Results | 9 May 2018
Slide 35: Net Debt Reconciliation
Net Debt Reconciliation Reported Accrued Fair value of Adjusted £m HY18 interest derivatives HY18 Opening net debt (12,490) 208 135 (12,147) Free cash flow 340 340 Dividends (1,178) (1,178) Accretion of interest 61 (61) - Change in fair values 31 28 59 Exchange movements 228 228 Closing net debt (13
Slide 36: Appendices: Foreign Exchange
Appendices Foreign Exchange 36 | Half Year Results | 9 May 2018
Slide 37: Foreign Exchange
Foreign Exchange Average Closing HY17 HY18 ∆ HY17 HY18 ∆ USD $ 1.240 1.359 -10% 1.250 1.408 -13% EURO € 1.157 1.130 +2% 1.169 1.143 +2% AUD $ 1.645 1.749 -6% 1.634 1.833 -12% Russian Rouble 75.447 78.378 -4% 70.498 81.026 -15% 37 | Half Year Results | 9 May 2018
Slide 38: 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 25% 50% 25% Australian $ & Polish Zloty €0.01 (1 cent) movement in the € Euro has c. £30m impact on net revenue. Retu
Slide 39: Appendices: Guidance
Appendices Guidance 39 | Half Year Results | 9 May 2018
Slide 40: Guidance: Other financial items
Guidance Other financial items Financing & Cost of Debt Other Gains included in Adjusted Operating Profit • Average all-in cost of net debt expected of c.3.70% • Expected to be £50-£100m (as previously guided) • Debt reduction lower due to: • £40m booked in H1 re US OTP sale • £160m P&H, • £200m inc
Slide 41: Appendices: Financing
Appendices Financing 41 | Half Year Results | 9 May 2018
Slide 42: Financial profile March 2018
Financial profile 31 March 2018 Interest Split Currency Split Debt Split Fixed 30% 12% Euro€ Bonds 37% 18% Floating USD$ Bank ECP 63% 70% 70% 18,000 16,000 14,000 £m equivalent 12,000 ECP 10,000 Bank Facilities 8,000 Bond Issues 6,000 4,000 2,000 - Mar '30 Mar '31 Mar '32 Mar '33 Mar '18 Mar '19 Mar
Slide 43: Committed bank facilities March 2018
Committed bank facilities 31 March 2018 Description Maturity date Amount £m equiv. Committed 5 Year Revolving Credit Facility Jul-21 EUR tranche €2,835m £2,480m GBP tranche £500m £500m Total £2,980m 43 | Half Year Results | 9 May 2018
Slide 44: Bond issues March 2018
Bond issues 31 March 2018 Amount Issuer Coupon Issue Date Maturity Date £m equiv. Margin €850m Imperial Brands Finance PLC 4.500% Jul-11 Jul-18 £744m 1.7% $500m Imperial Brands Finance PLC 2.050% Jul-15 Jul-18 £355m 1.0% £200m Imperial Brands Finance PLC 6.250% Dec-03 Dec-18 £256m1 1.1%1 £500m Imper
Slide 45: Appendices: NGP content from recent blu event
Appendices NGP: content from recent blu event 45 | Half Year Results | 9 May 2018
Slide 46: New Product Launches: Powerful, convenient and simple
New Product Launches Powerful, convenient and simple QUALITY SUPERIOR VAPOUR Engineered by the trusted Superior vapour production and category pioneer satisfying throat hit SIMPLICITY POWERFUL Sleek, convenient design, with 1 High performance, all day battery, that step click & go pre-filled pods ch
Slide 47: New Product Launches: Superior performance
New Product Launches Superior performance MYBLU IS A WINNING PROPOSITION Longer lasting Charge Time ~20 minutes 1 hour More flavours Battery Life 1 day (350mAh) ½ day (200mAh) Simpler to Flavor Range 12 total of which 5 nicotine salts 5 total, only in nicotine salts use Pod Capacity 1.5ml 0.7ml
Slide 48: New Product Launches: Focus on flavours
New Product Launches Focus on flavours US strength nicotine salts Broad range of flavours and nicotine Selection of strengths UK 0.8% Half Year Results | 9 May 2018
Slide 49: Nicotine Delivery: Nicotine salts
Nicotine Delivery Nicotine salts WHAT E-VAPOUR PRODUCTS NEED: SPEED Plasma nicotine level (ng/ml) Cigarette Replicating the experience of a combustible cigarette 20 Nicotine Salt requires the nicotine to get to the brain Typical E-Vapour Products Gum 10 Patch FAST Replicate the pharmacokinetics to g
Slide 50: Nicotine Delivery: Nicotine salts
Nicotine Delivery Nicotine salts R AT E O F N I C O T I N E E VA P O R AT I O N K E Y Nicotine Traditional formulation Nicotine Nicotine Nicotine evaporates rapidly from droplets leading to: 1. Harsh throat hit with higher nicotine concentrations Nicotine Nicotine 2. Slow absorption into the blood N
Slide 51: Innovation to Come
Innovation to Come The next generation myblu POD CURRENT TO NEXT GEN VAPOUR CHIMNEY SINGLE POLYMER PIECE SEAL COIL & WICK GASKET COIL HOUSING CONNECTOR PINS Half Year Results | 9 May 2018
Slide 52: Innovation to Come
Innovation to Come The next generation myblu POD Heat E-liquid Airflow Half Year Results | 9 May 2018
Slide 53: 3d Flavour
3d Flavour™ Innovating the flavour experience flavour is a key consumer driver Vapers are looking for true flavour THE MARKET TODAY: Only 10% of flavour is delivered to the mouth Flavour quality diminished through heating Flavour experienced as scent, not taste Half Year Results | 9 May 2018
Slide 54: 3d Flavour: Particle Science
3d Flavour™ Particle Science CURRENT E-VAPOUR 3D FLAVOUR™ VAPOUR & NICOTINE VAPOUR & NICOTINE FLAVOUR FLAVOUR 100 100 Cumulative Cumulative Volume(%) Volume(%) 0 0 0.5 μm Particle size 30 μm 0.5 μm Particle size 30 μm (0.005mm) (0.03mm) (0.005mm) (0.03mm) Half Year Results | 9 May 2018
Slide 55: New Product Launches: Innovating in open systems
New Product Launches Innovating in open systems K E Y F E AT U R E S Leak-free Airflow Mouthpiece Control Ring 0.6 sub-ohm Stainless steel Built-in Coil Liquid tank Led blu 1500 mah Triangle BATTERY Button Charge All-in-one Anywhere Stainless With micro usb Steel housing Half Year Results | 9 May 20
Slide 56: New Product Launches: Innovating in open systems
New Product Launches Innovating in open systems SUPERIOR PRODUCTPERFORMANCE More Puffs per Charge Superior Vapour Production Richer Flavours – Sub-OHM Built-in 2ml Liquid Tank Leak-Free Capacity 1500 mAh 1000 mAh 650 mAh Power 20 watts 14 watts 7-9 watts Resistance 0.6 ohm 1.5 ohm 1.9 ohm
Slide 57: Developing Omnichannel: blu digital strategy
Developing Omnichannel blu digital strategy Digital at the heart of blu’s consumer strategy Driving value by eCom Retail personalized experiences 100% DIGITAL ENABLED Digital as a Vape competitive Stores advantage Half Year Results | 9 May 2018
Slide 58: Developing Omnichannel: The connectivity opportunity
Developing Omnichannel The connectivity opportunity ALWAYS ON, THE BASICS FIRST TO ALWAYS CLOSE BY ARE THERE CATEGORY IDEAS E-vapour devices are We already have a battery Unique ideas combined always ready and live with and sensors which are with a fully integrated phones, keys & wallets required fo
Slide 59: Growing Profitability
Growing Profitability Scaling gross and operating margins Operating A&P Channel Mix Lower COGS Leverage Normalisation Digital route to Product innovation Market expansion Scale benefits market Simplified Enhanced product Steady state P&L E-commerce manufacturing pipeline development Increased automa
Slide 60: Appendices: Other information
Appendices Other information 60 | Half Year Results | 9 May 2018
Slide 61: Portfolio Simplification
Portfolio Simplification Improving quality of revenue through focus on Asset Brands Growth Brand Share Asset Brands % of Revenue No. of brands* 249 9.0% 200 8.5% 40% 37% 35% 7.7% 49% 46% 43% 161 7.2% 125 5.7% 54% 57% 60% 63% 65% 35% 5.4 51% 2013 2014 2015 2016 2017H1 '18 2013 2014 2015 2016 2017 H1'
Slide 62: Global Factory Footprint
Global Factory Footprint Papers Raw • 23 closed/sold since start Factories FMC OTP Snus Cigar of FY10 & Tubes materials Total 37 23 1 1 6 2 4 • Africa contains several small sites with making and Europe 10 4 1 1 1 2 1 packing capabilities with no primary processing to Eastern Europe 4 4 ensure suppl
Slide 63: Cash Conversion
Cash Conversion 97% 95% 91% 91% 86% 82% Average 2013 2014 2015 2016 2017 2011-13 63 | Half Year Results | 9 May 2018
Slide 64: Free cash-flow
Free cash-flow £3.0bn £2.8bn £2.6bn £2.3bn £2.1bn £1.8bn 2012 2013 2014 2015 2016 2017 64 | Half Year Results | 9 May 2018
Slide 65: 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 66: 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 67: 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 68: Half Year Results 2018
HALF YEAR RESULTS 2018 Imperial Brands PLC 9 May 2018