Imperial Brands Plc · LSE:IMB

Imperial Brands — Imperial Tobacco Group — H1 2013 Earnings Presentation

57 slides from Imperial Brands's earnings presentation, Apr 30, 2013

  1. Slide 1: Half Year Results 2013

    Half Year Results 2013 Imperial Tobacco Group PLC 30 April 2013

  2. Slide 2: Disclaimer

    Disclaimer Certain statements in this announcement constitute or may constitute forward-looking statements. Any statement in this announcement that is not a statement of historical fact including, without limitation, those regarding the Company’s future expectations, operations, financial performanc

  3. Slide 3: HY13 Results Context: strategy delivering

    HY13 Results Context strategy delivering  Difficult operating environment  Delivering on our strategy  good performances across Total Tobacco portfolio  EU: good results in UK and Germany  Non-EU: further gains in Asia-Pacific and Africa and Middle East 3

  4. Slide 4: HY13 Results Context: addressing the challenges

    HY13 Results Context addressing the challenges  Weak EU markets Build on robust performance: Total Tobacco portfolio initiatives and cost optimisation  Non-EU: Russia and USA; Russia: portfolio initiatives reduced trade stocks USA: continuing the strategic transition  Investment Investment step-u

  5. Slide 5: HY13 Results Overview

    HY13 Results Overview  Tobacco net revenues -2%; volumes -6%; price/mix +4%  key strategic brands: revenues +5%; volumes +1%  fine cut tobacco: revenues +10%; volumes +9%  Adjusted operating profit -5%  Tobacco adjusted operating margin c.41%  Adjusted earnings per share -2%  Leaf FX c.-£10m

  6. Slide 6: Footprint: EU

    Footprint: EU robust performance  Markets impacted by austerity, unemployment and illicit trade  Focus on balancing profit delivery and share performance  Good performance in Germany: higher profits and share  UK: increased profit driven by strong price/mix  Macro factors impacted performance i

  7. Slide 7: Footprint: Non-EU

    Footprint: Non-EU key strategic brands driving growth  Increased investment across region  USA  focus on continuing the strategic transition  mass market cigar: portfolio initiatives  Eastern Europe  performance held back by Russia  Africa and Middle East  +10% key strategic brand volumes 

  8. Slide 8: Cash Conversion

    Cash Conversion 12 Months to 12 Months to £m March 2013 March 2012 Adjusted operating profit 3,062 3,148 Tobacco working capital (outflow) (379) (328) Logistics working capital (outflow)/inflow (362) 6 Depreciation – Capex (150) (148) Restructuring and other (239) (204) Operating cash flow after Cap

  9. Slide 9: Financing and Logistics

    Financing and Logistics  Adjusted net debt £11.0bn (HY12: £9.9bn)  tax paid £300m higher than HY12  Financing: net interest charge £263m (HY12: £276m)  All in cost of net debt 5.0% (HY12: 5.5%)  Adjusted tax rate: 23.0%  Logistics: good result given environment; adjusted operating profit -1% A

  10. Slide 10: Building Brands – Key Strategic Brands

    Building Brands – Key Strategic Brands  +5% net revenues; +1% volumes This space appears  Davidoff: gains in EU, Russia, Ukraine blank because GG working on slide and Turkey we have removed the images that appear  Gauloises Blondes: growth in Africa & in the presentation. Middle East, Germany Thi

  11. Slide 11: JPS: The Total Tobacco Brand

    JPS: The Total Tobacco Brand  >25bn stick equivalents annually This space appears blank because  No. 5 in EU footprint we have removed the images that appear in the presentation.  Innovation key to success This is because we currently do not feature tobacco product  Further growth opportunities:

  12. Slide 12: Building Brands – Fine Cut Tobacco

    Building Brands – Fine Cut Tobacco  Excellent revenue and volume growth  +10% net revenues This space appears  +9% volumes blank because we have removed the images that appear  Driving strong MYO growth in the presentation.  +91% Spain This is because we currently do not  +20% Germany feature

  13. Slide 13: Building Brands – Premium Cigar

    Building Brands – Premium Cigar  +3% volume growth This space appears blank because  +18% volumes in emerging markets we have removed the images that appear in the presentation.  Strong growth in Africa & Middle East, Eastern Europe and Asia-Pacific This is because we currently do not  building

  14. Slide 14: Building Brands - Smokeless

    Building Brands - Smokeless  Further excellent growth This space appears blank because  +31% net revenues we have removed the images that appear in the presentation.  +30% volumes This is because we currently do not  +28% adjusted operating profit feature tobacco product brand imagery on our web

  15. Slide 15: Maximising Growth Opportunities

    Maximising Growth Opportunities 3 year key brand outperformance 3yr 3yr Key Strategic Brands Other FMC CAGR CAGR -6% +4% -% +9% Fine cut tobacco Snus +6% +37% +10% +28% Premium Cigars Rolling paper +3% +4% +5% +3% Top percentage is volume, bottom is net revenue in constant currency terms 15

  16. Slide 16: Maximising Growth Opportunities

    Maximising Growth Opportunities continued key brand outperformance HY13 HY13 Key Strategic Brands Other FMC -12% +1% -9% +5% Fine cut tobacco Snus +9% +30% +10% +31% Premium Cigars Rolling paper +3% +3% +3% -3% Top percentage is volume, bottom is net revenue in constant currency terms 16

  17. Slide 17: Clear Portfolio Priorities

    Clear Portfolio Priorities Key Strategic Brands Focus Brands Portfolio Brands International equity Equity in key markets Scale to fuel investment  Leading international presences  Strong equity with local consumers  No global scope  Strong equity with consumers  Considerable opportunities to gr

  18. Slide 18: Focus Brands

    Focus Brands aggregate growth opportunities 18

  19. Slide 19: Key Strategic and Focus Brands

    Key Strategic and Focus Brands aggregate growth opportunities 19

  20. Slide 20: Key Brand Initiatives

    Key Brand Initiatives This space appears blank because we have removed the images that appear in the presentation. This is because we currently do not feature tobacco product brand imagery on our website. 20

  21. Slide 21: Key Brand Initiatives

    Key Brand Initiatives This space appears blank because we have removed the images that appear in the presentation. This is because we currently do not feature tobacco product brand imagery on our website. 21

  22. Slide 22: Cost Optimisation

    Cost Optimisation aligned with strategic priorities Product Cost Overheads £300m pa savings by September 2018 Investments 22

  23. Slide 23: Cost Optimisation

    Cost Optimisation aligned with strategic priorities Reduced complexity Product Cost Manufacturing capacity c.45% of savings Enhanced best practice Procurement Overheads Operating Model c.55% of savings Supply efficiency Investments optimised 23

  24. Slide 24: 2013 H2 Drivers

    2013 H2 Drivers stronger performance  Initial cost savings of c.£30m  Investment step-up slowing  EU:  no change to environment  total tobacco portfolio initiatives  pricing  cost savings  Non-EU:  build on growth in Africa & Middle East and Asia Pacific  Russia: portfolio initiatives  US

  25. Slide 25: Creating Sustainable Shareholder Value

    Creating Sustainable Shareholder Value Cost Sales Cash Optimisation Growth Utilisation Focused Portfolio and Footprint Tax Optimisation Sales Interest Sustainable 10%+ pa dividend growth for the medium term 25

  26. Slide 26: Half Year Results 2013

    Half Year Results 2013 Imperial Tobacco Group PLC 30 April 2013

  27. Slide 27: Appendices

    Appendices 27

  28. Slide 28: Financial

    Financial 28

  29. Slide 29: Earnings Growth

    Earnings Model Earnings Growth 1-2% 1-2% 2-4% Sales Growth Cost Optimisation Cash Utilisation Acquisition/Share buybacks Currency neutral basis 29

  30. Slide 30: Group Results

    Group Results Constant Constant Foreign Currency Currency HY12 Exchange Growth HY13 Change Change Tobacco net revenue 3,388 (35) (69) 3,284 (3.1%) (2.0%) Logistics distribution fees 439 (8) (18) 413 (5.9%) (4.1%) Tobacco operating profit 1,456 (21) (76) 1,359 (6.7%) (5.2%) Operating margin % 43.0 (0

  31. Slide 31: Income Statement

    Income Statement £m HY13 HY12 Change % Revenue 13,376 13,962 (4) Adjusted operating profit 1,425 1,524 (6) Acquisition accounting adjustments - 10 Amortisation and impairment of acquired (184) (190) intangibles Restructuring costs (40) (14) Net finance costs* (352) (222) Profit before tax 849 1,108

  32. Slide 32: Reconciliation: Reported to Adjusted

    Reconciliation: Reported to Adjusted Net fair value Amortisation of and exchange Post Reported acquired losses on certain employment net Restructuring Adjusted HY13 intangibles instruments financing cost costs HY13 Operating 1,201 184 - - 40 1,425 profit Finance (352) - 87 2 - (263) costs Profit bef

  33. Slide 33: Regional Tobacco Net Revenue

    Regional Tobacco Net Revenue HY13 % Change Foreign Constant Constant £m Actual1 Exchange Currency2 HY12 Currency UK 467 - 467 469 (0.4) Germany 417 (8) 425 410 3.7 Spain 212 (4) 216 239 (9.6) Rest of EU 718 (11) 729 764 (4.6) Total EU 1,814 (23) 1,837 1,882 (2.4) Americas 260 (1) 261 294 (11.2) Rest

  34. Slide 34: Regional Tobacco Operating Profit

    Regional Tobacco Operating Profit HY13 % Change Foreign Constant Constant £m Actual1 Exchange Currency2 HY12 Currency UK 325 (1) 326 307 6.2 Germany 214 (6) 220 216 1.9 Spain 87 (3) 90 106 (15.1) Rest of EU 284 (8) 292 321 (9.0) Total EU 910 (18) 928 950 (2.3) Americas 58 - 58 84 (31.0) Rest of Worl

  35. Slide 35: Logistics

    Logistics HY13 % Change Foreign Constant Constant £m Actual1 Exchange Currency2 HY12 Currency Distribution fees 413 (8) 421 439 (4.1) Operating profit 74 (1) 75 76 (1.3) Distribution margin 17.9 17.8 17.3 % 1Based on average exchange rates for six months ended 31 March 2013; 2assumes that average ex

  36. Slide 36: Foreign Currencies

    Foreign Currencies Average Closing £1 = HY13 HY12 HY13 HY12 Euro 1.207 1.183 1.183 1.199 US dollar 1.579 1.572 1.514 1.602 36

  37. Slide 37: Balance Sheet

    Balance Sheet £m HY13 HY12 Non-current assets: tangible 2,919 2,767 intangible 18,508 19,692 Current assets: inventories 3,844 3,810 other 4,431 4,246 Current liabilities (10,438) (10,900) Non-current liabilities (13,014) (12,320) Net assets 6,250 7,295 37

  38. Slide 38: Cash Flow

    Cash Flow £m HY13 HY12 Cash flows from operating activities pre tax 140 448 Tax paid (467) (194) Cash flows from operating activities (327) 254 Net capex (includes software) (170) (152) Employee Share Ownership Trusts (2) - Share buy backs (295) (321) Dividends paid (inc. minority interests) (727) (

  39. Slide 39: 12 Month Cash Conversion

    12 Month Cash Conversion 12 months 12 months 6 months to March to March to March £m 2013 2012 2013 Net cash flow from operating activities 1,538 2,326 (327) Tax 715 473 467 Net capex (321) (323) (170) Cash flow post capex pre interest and tax 1,932 2,476 (30) Adjusted operating profit 3,062 3,148 1,

  40. Slide 40: Net Finance Costs

    Net Finance Costs £m HY13 HY12 Net finance costs 352 222 Adjusted for: - expected return on retirement benefit assets 83 84 - interest on retirement benefit liabilities (84) (94) - unwind of discount on redundancy and social plans (1) (4) - net fair value and exchange (losses)/gains on certain (87)

  41. Slide 41: HY13 Adjusted Net Debt

    HY13 Adjusted Net Debt £0.3bn £0.3bn £0.7bn £0.8bn £1.4bn £0.2bn £1.3bn £8.8bn £11.0bn Opening Adjusted Working Net capex Tax and Dividends Share FX & Closing adjusted operating capital interest buybacks other adjusted net debt profit net debt Opening adjusted net debt is as at 1 October 2012. Adjus

  42. Slide 42: Net Debt Reconciliation

    Net Debt Reconciliation Reported Accrued Fair value of Finance lease Adjusted £m HY13 interest derivatives creditors HY13 Opening net debt (8,965) 287 (94) 20 (8,752) Free cash flow (870) 21 (20) (869) Share buy backs (295) (295) Dividends (727) (727) Accretion of interest 106 (106) - Change in fair

  43. Slide 43: Volumes and Market Shares

    ] / Imperial ! Tobacco Volumes and Market Shares 43

  44. Slide 44: Stick Equivalent Volumes

    Stick Equivalent Volumes Billion stick equivalents HY13 HY12 UK (exc PMI(1)) 11.1 13.2 Germany 15.5 14.9 Spain 9.9 10.7 Rest of European Union 33.4 36.2 Total EU 69.9 75.0 Americas 4.1 4.7 Asia-Pacific 11.5 11.7 Eastern Europe 25.6 30.6 Africa & Middle East 36.2 34.7 Duty Free 2.4 2.4 Total Rest of

  45. Slide 45: Cigarette Volumes

    Cigarette Volumes Billion sticks HY13 HY12 UK (exc PMI1) 8.0 9.7 Germany 10.7 10.7 Spain 7.6 9.3 Rest of European Union 22.7 26.1 Total EU 49.0 55.8 Americas 3.9 4.4 Asia-Pacific 10.5 10.9 Eastern Europe 25.5 30.5 Africa & Middle East 36.1 34.6 Duty Free 2.1 2.1 Total Rest of the World 74.2 78.1 Tot

  46. Slide 46: Fine Cut Tobacco Volumes

    Fine Cut Tobacco Volumes Billion stick equivalents HY13 HY12 UK 3.1 3.5 Germany 4.8 4.2 Spain 2.3 1.4 Rest of European Union 10.7 10.1 Total EU 20.9 19.2 Americas 0.2 0.3 Asia-Pacific 1.0 0.8 Eastern Europe 0.1 0.1 Africa & Middle East 0.1 0.1 Duty Free 0.3 0.3 Total Rest of the World 1.5 1.3 Total

  47. Slide 47: EU SE Market Volumes

    EU SE1 Market Volumes Billion stick equivalents Cigarette FCT Total UK 18.1 7.0 25.1 -10% 1% -7% Germany 39.6 20.2 59.8 -2% 3% -1% Spain 23.4 5.1 28.5 -12% +55% -4% Rest of EU 148.9 28.5 177.4 -7% +3% -6% Total EU2 230.0 60.8 290.8 -7% +7% -5% Imperial estimates for 6 months to March 2013 with perce

  48. Slide 48: Cigarette Market Shares: European Union

    Cigarette Market Shares European Union Cigarette (%) HY13 HY12 UK value brand share increases 45.1 45.1 Germany Gauloises Blondes and JPS gains 26.2 25.6 Spain1 temporary price disadvantaged following MPI; improving trend 27.2 28.4 France1 improving trend: Gauloises and News initiatives 21.9 22.2 Gr

  49. Slide 49: FCT Market Shares

    FCT Market Shares European Union Fine cut tobacco (%) HY13 HY121 UK premium brands impacted by downtrading; value brand gains 45.7 47.6 Germany JPS and Fairwind growth 23.3 21.1 Spain MYO volumes up over 90%; travel retail declines 37.1 43.0 France News gains 21.0 21.5 Belgium Route 66, News and Wes

  50. Slide 50: Cigarette Market Shares: Americas and Rest of the World

    Cigarette Market Shares Americas and Rest of the World Cigarette (%) HY13 HY12 Algeria Gauloises Blondes and West growth 17.2 13.5 Australia JPS gains 19.6 19.31 Morocco Marquise impacted by ban on 10s 79.2 81.8 Russia Balkan Star and Maxim declines due to excise increases 8.0 9.11 Taiwan West growt

  51. Slide 51: Non-Duty Paid Volumes

    Non-Duty Paid Volumes Annual NDP % Annual NDP % 2012 NDP % 2011 2012 Q4 France 22.7 24.6 29.6 Germany 21.8 20.7 Italy 7.1 11.6 11.4 Netherlands 19.6 21.4 25.5 Poland 14.4 14.5 Spain 8.9 10.3 11.7 UK 16.6 21.5 26.4 Source: Industry Empty Pack Surveys; Full year 2012 figures include preliminary Q4 201

  52. Slide 52: Financing

    Financing 52

  53. Slide 53: Senior Bank Facilities

    Senior Bank Facilities Description Maturity date Amount £m equiv. Margin EUR Committed 2 Year Revolving Credit Facility Nov-14 €300m* £254m 0.700% Committed 5 Year Revolving Credit Facility Dec-15 £2,526m 1.000%** USD tranche $632m £417m GBP tranche £600m £600m EUR tranche €1,785m £1,509m Total Faci

  54. Slide 54: Bond Issues

    Bond Issues Amount Issuer Coupon Issue Date Maturity Date £ equiv. Margin BONDS SWAPPED INTO FLOATING INTEREST RATE: €500m Altadis Finance BV 5.13% Oct-03 Oct-13 £423m 0.8% €1,200m Imperial Tobacco Finance PLC 4.38% Nov-06 Nov-13 £1,015m 0.6% €750m Imperial Tobacco Finance PLC 7.25% Sep-08 Sep-14 £6

  55. Slide 55: Core Financing maturity profile at March 2013

    Core Financing maturity profile at 31 March 2013 14,000 12,000 ECP Bank Facilities Bond Issues £m equivalent 10,000 8,000 6,000 4,000 2,000 - Mar '13 Mar '14 Mar '15 Mar '16 Mar '17 Mar '18 Mar '19 Mar '20 Mar '21 Mar '22 Mar '23 Mar '24 Mar '25 Mar '26  Facilities in place as at 31 March c.£14.0bn

  56. Slide 56: Basis of Results Presentation

    Basis of Results Presentation Use of Adjusted Measures Management believes that non-GAAP or adjusted measures provide a useful comparison of business performance and reflect the way in which the business is controlled. Accordingly, adjusted measures of operating profit, net finance costs, profit bef

  57. Slide 57: Contacts

    Contacts Investor Relations department Gerry Gallagher Director of Investor Communications gerry.gallagher@uk.imptob.com Tel: +44 (0) 117 933 7014 John Nelson-Smith Grant Edmunds Investor Relations Manager Investor Relations Manager john.nelson-smith@uk.imptob.com grant.edmunds@uk.imptob.com Tel: +4

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