Imperial Brands Plc · LSE:IMB
Imperial Brands — FY2018 Earnings Presentation
57 slides from Imperial Brands's earnings presentation, Nov 6, 2018
Slide 1: Preliminary Results 2018
PRELIMINARY RESULTS 2018 Imperial Brands PLC 6 November 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: Creating Something Better for the World's Smokers
Creating Something Better for the World’s Smokers BAM Next BELIEVE BUY Strong Generation Cash Products BELONG BUY AGAIN Flow Quality High Right Markets Right Brands Reinvest Growth Margins Tobacco Shareholder Returns Maximisation MRM Creating value for shareholders 3 | Preliminary Results | 6 Novemb
Slide 4: Strategy Delivering Improved Performance
Strategy Delivering Improved Performance Net revenue +2%, EPS +5%, dividend +10% Active Cost & Tobacco Maximisation Next Gen Products Capital Allocation Volumes outperforming market cost savings in +10 £110m FY18 share FY18 Significant portfolio bps expansion in FY18 97% cash conversion +420 Revenue
Slide 5: Delivering Our Strategy
Delivering Our Strategy FY18 Financial Review Oliver Tant Alison Cooper Tobacco Maximisation Dominic Brisby Joerg Biebernick Next Generation Products Alison Cooper Looking Forward Alison Cooper 5 | Preliminary Results | 6 November 2018
Slide 6: Summary Financials FY18
Summary Financials FY18 Successful year of delivery % constant £m % change currency Tobacco net revenue (£m) 7,730 -0.3% +2.1% Tobacco & NGP AOP (£m) 3,557 -1.1% +1.9% Adjusted EPS (pence) 272.2 +1.9% +5.0% Cash conversion 97% Net debt reduction* (£bn) 0.8bn Net debt : EBITDA 2.9x Dividend per share
Slide 7: FY18 Net Revenue
FY18 Net Revenue Tobacco & NGP driving growth in revenue +5.7% +2.1% -2.4% -3.6% -0.3% £7,921m £7,757m £7,730m TobMax +4.6% NGP +1.1% FY17 Volume Price/Mix FY18 constant Translation FY18 Net Revenue currency FX Net Revenue 7 | Preliminary Results | 6 November 2018
Slide 8: Quality Growth in all Divisions
Quality Growth in all Divisions Asset Brands focus supports quality revenue growth Asset Growth Net Revenue Brands Brands Variance % Rev share FY18 H218 74% +5.6% +17.4% Growth +290bps +40bps +0.4% ex NGP +4.6% ex NGP 50% USA +570bps +10bps +6.7% +5.9% H218 North +4.8% 70% Returns +420bps +110bps -1
Slide 9: FY18 Adjusted Operating Profit
FY18 Adjusted Operating Profit Profit growth in tobacco and distribution +£181m -£44m* -£34m -£34m** +£40m -2.8% +2.9% +0.1% 3,870 3,761 +5.9% underlying growth in AOP 3,766 FY17 AOP Operating NGP Transaction Other Distribution FY18 Translation FY18 AOP income investment FX gains constant FX currenc
Slide 10: Strong Capital Discipline
Strong Capital Discipline Funding investments and returns Strong cash performance Net Debt/EBITDA Cash £m FY18 FY17 delivery Net cash flow from 3.4X 2.9X 3,087 3,065 +22 3.3X 3.0X operating activities* Interest (491) (537) +46 FY15 FY16 FY17 FY18 Capex (193) (220) +27 Acquisitions/ Disposals/Other 1
Slide 11: Cost Discipline
Cost Discipline Cost efficiency supports investment in growth Savings in FY18 Total Savings since FY13 • 1st programme completed £300m savings £110m £480m • 2nd programme delivered £180m to date FY19 savings Total planned • Removing fixed costs to increase agility savings by FY20 • Increased tobacco
Slide 12: Segmental Reporting Changes
Segmental Reporting Changes Changes from FY19 onwards Current Future • Divisional to geographic • NGP to be reported within Growth Markets Europe each geography (includes NGP) (includes NGP) • blu moves to Growth Brands • NGP revenues separately Americas disclosed US Market (includes NGP) • Other sm
Slide 13: FY19 Outlook
FY19 Outlook Accelerating revenue growth; growing NGP profitability Tobacco Maximisation NGP • Quality share growth of Asset • Accelerating revenue growth Brands in priority markets • £100m investment H1 weighted • Modest digit revenue growth • Expect to be profit positive as we • Positive margin pr
Slide 14: Strategy Delivering in Tobacco & NGP
Strategy Delivering in Tobacco & NGP Momentum through focused investment Tobacco Maximisation NGP Growth Share gains in Key building priority markets Quality growth Significant step blocks in place supporting through Asset up in NGP, for acceleration growth in net Brand focus myblu rollout in growth
Slide 15: TobMax Strategic Focus; Informed Choices
TobMax Strategic Focus; Informed Choices Assets and capabilities aligned to growth opportunities Focus on fewer brands Invest in priority markets • Clear investment choices for growth • Prioritised strongest brands & invested in main demand shifts • Focused on key tobacco profit Consistent market ex
Slide 16: Tobacco Max: Growth Brand Focus
Tobacco Max: Growth Brand Focus Investment delivering share gains Driving sustained share Growing revenue from our gains in Growth Brands strongest equities 9.2% 7.2% Asset Brands Portfolio Brands • Driving quality revenue 5.4% • Share gains in priority 33% 49% 43% markets • Improved tobacco 51% 57%
Slide 17: Asset Brands: Creating Something Better
Asset Brands: Creating Something Better Investing in global demand shifts Consumers seeking modern formats Lower tar ranges gaining Particularly strong share in Europe in Eastern Europe New Davidoff Reach P&S Compact P&S low tar JPS Blue Stream Growing Increasing demand ‘value’ demand for new flavou
Slide 18: Market Performance: USA
Market Performance: USA Strong revenue growth in cigarettes & cigars Market-focused portfolio • Industry volumes down 4.6% • Strong price/mix performance • Strengthened position in deep discount • Higher share in Winston, Kool & Maverick • Backwoods driving MMC revenues • Improving share trajectory;
Slide 19: Market Performance: Russia
Market Performance: Russia Growth in Asset Brands supports ongoing share gains Consumer-led approach driving share • Increase in illicit driving size decline -7.6% P&S share • Strong Growth Brand performance up 100bps • New P&S and Davidoff Queen Size variants • Key Account focus drives increased di
Slide 20: Market Performance: Japan, Saudi, Italy
Market Performance: Japan, Saudi, Italy Investment delivering share growth Zero-nicotine launch Strong share growth • Share up +20bps • Market shift from premium to • Share up +40bps value • Distribution gains driving • Growth Brand focus driving continued growth in West • Excise driven decline in p
Slide 21: Market Performance: UK
Market Performance: UK Continuing share gains & improving price/mix Asset Brand Growth Supports Quality Revenue • Improved market size trend: lapped EUTPD Players crushball • Asset Brand % of revenue up to 75%, supports share gains driven by Players and Gold Leaf • Key account focus; share significa
Slide 22: Market Performance: Germany
Market Performance: Germany Strong financial delivery; focus on key demand shifts Focusing on key demand shifts • H2 c.1% market decline post EUTPD changes • Asset Brands driving revenue growth • Investment in Key Account partnerships • Growth in fine-cut driven by West • Re-focus portfolio around k
Slide 23: Market Performance: France, Australia, Spain
Market Performance: France, Australia, Spain Good progress in challenging markets Fine-cut share +90bps P&S launch in New JPS fine-cut Improving blondes trend low price tier launch • Excise drives market decline • Emergence of lower price tier • Continued improvement in overall share trajectory • Di
Slide 24: Delivered FY18 Step-up
Delivered FY18 Step-up Strong momentum underpins FY19 acceleration Delivered step-up in FY18 Acceleration in FY19 • NGP revenue £0.2bn • Portfolio solving for smoker satisfaction • Annualised FY18 exit rate £0.3bn revenue • Scalable blu adoption model • Building omnichannel • Innovation pipeline – w
Slide 25: Additive Growth Opportunity
Additive Growth Opportunity Growing category with positive economics Global vaping market RSP (£bn) Imperial 14% tobacco share Retail value of with limited 50 vaping market impact 8 30 growing between on our 300% and 500% combustible 2018 2025 2025 revenue… Low High Net revenue per pod versus 20 cig
Slide 26: Momentum in Largest Vapour Markets
Momentum in Largest Vapour Markets Growing pod repurchase platform for FY19 revenue myblu weekly pod sales* Successful market roll-outs 600 500% increase in US & UK 400 200 • Building awareness and distribution • Strong consumer response 0 4 weeks post launch Latest 4 weeks • Further market expansio
Slide 27: Dynamic Innovation Supports Smoker Conversion
Dynamic Innovation Supports Smoker Conversion Further rollouts in FY19 Vapour Nicotine salts Connectivity 3D Flavour Next gen pod Other NGP Tobacco Free Heated Tobacco Snus 27 | Preliminary Results | 6 November 2018
Slide 28: Clear Levers to Drive Profitability
Clear Levers to Drive Profitability Contributing to group profit by end FY19 Route to Market Normalisation of Lower COGS Operating Leverage Development Overheads and A&P • Product • E-commerce • Innovation • Scale benefits innovation development driving greater adoption • Steady state • Simplified •
Slide 29: 2018: Building Blocks in Place; Accelerating in FY19
2018: Building Blocks in Place; Accelerating in FY19 Unique set of assets & competencies to deliver growth Delivering to Smokers Delivering to Shareholders Compelling Increasing proposition Profitability for smokers & Returns Compliance & Regulation V 29 | Preliminary Results | 6 November 2018
Slide 30: Creating Something Better for the World's Smokers
Creating Something Better for the World’s Smokers Investor proposition Higher Revenue Cost & Capital Capital Priorities & Profit Growth Discipline $ • Resilient TobMax model • Cost efficiencies • Ongoing debt reduction • Additive NGP growth • Strong cash conversion • Investment in growth opportuniti
Slide 31: Preliminary Results 2018
PRELIMINARY RESULTS 2018 Imperial Brands PLC 6 November 2018
Slide 32: Appendices: Group financials
Appendices Group financials 32 | Preliminary Results | 6 November 2018
Slide 33: Group Adjusted Results
Group Adjusted Results Constant Foreign Currency Constant FY17 Exchange Growth FY18 Actual ∆ Currency ∆ Tobacco & NGP net revenue £m 7,757 (191) 164 7,730 -0.3% +2.1% Tobacco & NGP operating profit £m 3,595 (107) 69 3,557 -1.1% +1.9% Tobacco operating margin % 46.3 46.0 -30 bps 0bps Logistics distri
Slide 34: Group Adjusted Results
Group Adjusted Results FY18 FY17 Adjusted operating profit £m 3,766 3,761 Interest £m (487) (537) Share of profit of JVs £m 42 33 Profit before tax £m 3,321 3,257 Tax rate % 19.5 20.0 Adjusted EPS pence 272.2 267.0 DPS pence 187.8 170.7 Cash conversion % 97 96 Adjusted net debt £m (11,474) (12,147)
Slide 35: FY18 EPS Growth
FY18 EPS Growth Operating profit growth drives earnings +5.3p -1.0p +5.0% -8.2p +9.1p +1.9% 280.4 272.2 267.0 FY17 Adj EPS Operating Profit Interest & Tax Minorities & JV FY18 constant Translation FX FY18 Adj EPS currency 35 | Preliminary Results | 6 November 2018
Slide 36: Reconciliation: Reported to Adjusted
Reconciliation: Reported to Adjusted Fair value Adjusted Amortisation gains on Post Administration Tax on Deferred tax non- £m (unless Reported of acquired financial employment Restructuring of UK unrecognised impact of controlling Adjusted otherwise stated) FY18 intangibles instruments net financin
Slide 37: Income Statement
Income Statement £m (unless otherwise stated) FY18 FY17 Revenue 30,524 30,247 Adjusted operating profit 3,766 3,761 Amortisation and impairment of acquired intangibles (1,053) (1,092) Restructuring costs (196) (391) Administration of UK distributor (110) - Share of profit of investments accounted fo
Slide 38: Balance Sheet
Balance Sheet £m FY18 FY17 Non-current assets: tangible 4,478 4,331 intangible 19,117 19,763 Current assets: inventories 3,692 3,604 other 3,561 3,292 Current liabilities (11,237) (10,878) Non-current liabilities (13,166) (13,886) Net assets 6,445 6,226 38 | Preliminary Results | 6 November 2018
Slide 39: Cash Flow
Cash Flow £m FY18 FY17 Cash flows from operating activities pre tax 3,494 3,635 Tax paid (407) (570) Cash flows from operating activities 3,087 3,065 Net capex (193) (220) Logista Share Sale/Purchase of Shares 193 102 Purchase of IP (75) (31) Employee Share Ownership Trust 2 12 Loans to JV/Third Par
Slide 40: Strengthening Balance Sheet
Strengthening Balance Sheet £0.8bn reduction in Net Debt -£4.0bn -£0.6bn -£0.8bn +£0.2bn +£1.7bn +£0.9bn -£0.2bn +£0.5bn -£0.0bn +£0.2bn £12.1bn £11.3bn £11.5bn FY17 EBITDA Working Net Tax & Acquisitions & Restructuring, Dividends Adjusted Foreign FY18 Closing capital capex interest Disposals pensio
Slide 41: Capital Discipline
Capital Discipline Strong cash conversion; 97% for FY18 -£11m -£241m +£213m -£193m +£114m 97% £3,766m £3,648m Adjusted Working Restructuring Depreciation & CAPEX Pensions/Share Adjusted Operating capital Amortisation Schemes/ Operating Profit Other Cashflow 41 | Preliminary Results | 6 November 2018
Slide 42: 12 Month Cash Conversion
12 Month Cash Conversion £m (unless otherwise stated) FY18 FY17 Net cash flow from operating activities 3,087 3,065 Administration of UK distributor 110 - Provision in respect of loan to third party (4) - Tax 407 570 Net capex (193) (220) Restructuring cash spend 241 201 Cash flow post capex pre int
Slide 43: Net Finance Costs
Net Finance Costs £m FY18 FY17 Net finance costs 626 450 Adjusted for: - interest income on net defined benefit assets 129 107 - interest cost on net defined benefit liabilities (142) (132) - exchange (losses)/gains (126) 112 Adjusted net finance costs 487 537 43 | Preliminary Results | 6 November 2
Slide 44: Net Debt Reconciliation
Net Debt Reconciliation Reported Accrued Fair value of Adjusted £m FY18 interest derivatives FY18 Opening net debt (12,490) 208 135 (12,147) Free cash flow 2,551 2,551 Dividends (1,747) (1,747) Accretion of interest 10 (11) (1) Change in fair values (71) 93 22 Exchange movements (152) (152) Closing
Slide 45: Foreign Exchange
Foreign Exchange Average Closing FY17 FY18 ∆ FY17 FY18 ∆ USD $ 1.267 1.346 +6% 1.339 1.305 -3% EURO € 1.148 1.130 -2% 1.134 1.127 -1% AUD $ 1.663 1.770 +6% 1.710 1.809 +6% Russian Rouble 75.304 81.682 +8% 77.402 85.813 +6% 45 | Preliminary Results | 6 November 2018
Slide 46: Divisional Market Share
Divisional Market Share MAT market share data FY18 FY17 Growth markets 6.8% 6.5%R +30 bps USA market 8.7% 8.7%R -10bps Returns North 23.3% 23.9% -50 bps Returns South 27.7% 28.0%R -30 bps Total Returns 25.1% 25.6%R -50 bps Total Group 13.9% 13.8%R +10 bps Market Share Calculation Market share is p
Slide 47: Foreign Currency
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% 55% 20% Australian $ & Ukraine Hryvnia €0.01 (1 cent) movement in the € Euro has c. £30m impact on net revenue. R
Slide 48: FY19 Guidance
FY19 Guidance Other financial items Financing & Cost of Debt • Average all-in cost of net debt expected to be similar to this year • Expect lower overall finance charge due to deleverage Tax Rate • Broadly unchanged at around 20% Cash Conversion • Expect to be slightly below 90% Foreign Exchange • T
Slide 49: Appendices: Financing
Appendices Financing 49 | Preliminary Results | 6 November 2018
Slide 50: Financial Profile September 2018
Financial Profile 30 September 2018 Interest Split Currency Split Debt Split 28% 32% 10% Bonds Fixed EUR 25% Bank Floating USD ECP 72% 68% 65% 16,000 14,000 12,000 ECP £m equivalent 10,000 Bank Facilities Bond Issues 8,000 6,000 £4.1bn headroom against facilities 4,000 2,000 - Sep '32 Sep '30 Sep '3
Slide 51: Committed Bank Facilities
Committed Bank Facilities 30 September 2018 Description Maturity date Amount £m equiv. Committed 5-year Revolving Credit Facility B EUR tranche1 15 Jul 2021 €2,835m £2,516m GBP tranche1 15 Jul 2021 £500m £500m Committed 2-year Revolving Credit Facilities EUR 300m2 27 Apr 2020 €300m £266m EUR 285m 30
Slide 52: Bond Issues
Bond Issues 30 September 2018 Amount Issuer Coupon Issue Date Maturity Date £m equiv. Margin £200m Imperial Brands Finance PLC 6.250% Dec-03 Dec-18 £260m1 1.1%1 £500m Imperial Brands Finance PLC 7.750% Jun-09 Jun-19 £566m 3.7%1 €750m Imperial Brands Finance PLC 5.000% Dec-11 Dec-19 £665m 2.6% $1,250
Slide 53: Appendices: Segmental and accounting changes
Appendices Segmental and accounting changes 53 | Preliminary Results | 6 November 2018
Slide 54: Geographic Segments from FY19
Geographic Segments from FY19 Main markets Americas Europe Africa, Asia & Australasia USA Austria Belux Algeria Saudi Arabia Canada Czech Republic Netherlands China Azerbaijan Other Americas France UK Cambodia New Zealand Ireland Germany Iraq Ukraine Italy Hungary Morocco Japan Portugal Poland Tunis
Slide 55: FY18 Impact of Segmental Reporting and Accounting Changes
FY18 Impact of Segmental Reporting and Accounting Changes FY18 FY18 Current Structure Reported IFRS 15 Restated Geographic Structure FY18 H118 H218 Restated Restated Restated Volumes Returns North 86.6 86.6 Volumes Returns South 73.3 73.3 Europe 141.3 67.8 73.5 Returns Markets 159.9 159.9 Americas 2
Slide 56: Brand Classification
Brand Classification 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
Slide 57: FY18 Reporting of Main Markets
FY18 Reporting of Main Markets Classifications as at FY18 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 c