Imperial Brands Plc · LSE:IMB
Imperial Brands — FY2021 Earnings Presentation
64 slides from Imperial Brands's earnings presentation, Nov 16, 2021
Slide 1: Full Year Results
FULL YEAR RESULTS 1| 16 NOVEMBER 2021
Slide 2: Disclaimer
Disclaimer Certain statements in this announcement conditions. These and other factors could the Company for current or future financial constitute or may constitute forward-looking adversely affect the outcome and financial years will necessarily match or exceed the statements. Any statement in thi
Slide 3: Agenda
Agenda OVERVIEW Stefan Bomhard FINANCIAL UPDATE AND OUTLOOK Lukas Paravicini BUILDING FOUNDATIONS FOR Stefan Bomhard FUTURE GROWTH Stefan Bomhard Q&A Lukas Paravicini 3| Full Year Results | 16 November 2021
Slide 4: 2021 Highlights
2021 Highlights OUR TRANSFORMATION TO DELIVER OUR FULL POTENTIAL WIDER PORTFOLIO Greater focus delivering stronger performance PRIORITY MARKETS NGP Targeted investments to Targeted trials launched in stabilise market share line with plans CONSUMER NEW WAYS OF WORKING New consumer office providing Si
Slide 5: Strengthened Leadership Team
Strengthened Leadership Team EXPERIENCED TEAM COMMITTED TO DELIVERING STRATEGY Stefan Bomhard Lukas Paravicini Joerg Biebernick Kim Reed Paola Pocci Chief Executive Officer Chief Financial Officer President, President and CEO, President, Africa, Asia & Appointed: July 2020 Appointed: May 2021 Europe
Slide 6: Improving Share Trajectory in Priority Markets
Improving Share Trajectory in Priority Markets SHARPER FOCUS BEGINS TO ARREST LONG-TERM SHARE DECLINES PRIORITY MARKET AVERAGE SHARE PERFORMANCE* 12 month share Δ FY16 FY17 FY18 FY19 FY20 FY21 (2)bps +20 bps -50 bps +15bps (15)bps +20 bps (17)bps (22)bps +10 bps (25)bps (66)bps -120 bps * MAT weight
Slide 7: Successful Year of Delivery
Successful Year of Delivery A RESILIENT TOBACCO PERFORMANCE AND STRONG CASH FLOW TOBACCO NET REVENUE* TOBACCO & NGP AOP* ADJUSTED EPS* +1.5% +4.3% +2.8% FREE CASH FLOW NET DEBT TO EBITDA RETURN ON INVESTED CAPITAL £1.5bn -0.5x +130bps to 2.2x (includes 0.1x FX benefit) to 16.5% 7 | Full Year Results
Slide 8: Financial Review
FINANCIAL REVIEW Lukas Paravicini 8|
Slide 9: Initial Observations
Initial Observations A HIGH-QUALITY BUSINESS WITH POTENTIAL OBSERVATIONS AFTER SIX MONTHS • High quality business • Clear strategy to unlock value • Strong cash flows to drive investment and shareholder returns MY PRIORITIES • Sustainable free cash flow generation • Modernise finance ways of working
Slide 10: Successful Year of Delivery
Successful Year of Delivery A RESILIENT TOBACCO PERFORMANCE AND STRONG CASH FLOW TOBACCO NET REVENUE* TOBACCO & NGP AOP* ADJUSTED EPS* +1.5% +4.3% +2.8% FREE CASH FLOW NET DEBT TO EBITDA RETURN ON INVESTED CAPITAL £1.5bn -0.5x +130bps to 2.2x (includes 0.1x FX benefit) to 16.5% 10 | Full Year Result
Slide 11: Net Revenue Growth Driven by Tobacco Pricing
Net Revenue Growth Driven by Tobacco Pricing NGP NET REVENUE STABILISING AS WE RESET OUR FOCUS +1.4% STRONG TOBACCO PERFORMANCE • -2.9% tobacco volumes remain better than historical trend • +1.5% tobacco net revenue excluding Australia excise change; £7,847m ‒ +2.7% tobacco net revenue £7,738m ‒ +5.
Slide 12: Delivering Organic Adjusted Profit Growth
Delivering Organic Adjusted Profit Growth STRONG TOBACCO GROWTH AND REDUCED NGP COSTS +4.8% Underlying £3,664m performance FY21 events NGP reduced costs Foundation £3,496m building £138m £(88)m £(52)m £(40)m £124m £60m £26m FY20 AOP Tobacco Australia US state FY21 FY20 NGP Distribution FY21 organic
Slide 13: Operating Profit: Adjusting Items as Guided
Operating Profit: Adjusting Items as Guided MAJOR CHANGE PROGRAMME ON TRACK TO DELIVER STEP-CHANGE Adjustments to reported operating profit FY21 Reported operating profit £3,146m • Organisational change programme on track – Restructuring costs in line with strategy guidance Restructuring costs £257m
Slide 14: EPS Up +2.8% Driven by Higher Operating Profit
EPS Up +2.8% Driven by Higher Operating Profit PROFIT UPSIDE PARTLY OFFSET BY TAX AND EARLY BOND REPAYMENT +2.8% (3.1)% MANAGING INTEREST AND TAX Good deleverage progress (0.3)% • Interest saving from lower debt partly offset by early $1.25bn Jul 22 bond repayment • Benefits gross debt, no impact on
Slide 15: Continued Robust Cash Delivery
Continued Robust Cash Delivery £1.5BN OF FREE CASH FLOW INCLUDES WORKING CAPITAL UNWIND CASH CASH CONVERSION NET DEBT £1.5bn 83% 2.2x Free cash-flow Net debt / EBITDA Includes +1% c. (20)% impact from FY20 £8.6bn Dividend growth working capital Adjusted net debt unwind Where possible IMB operates a
Slide 16: Good Progress Towards Target Leverage
Good Progress Towards Target Leverage 2.2X GEARING; NEARING SUSTAINABLE TARGET RANGE Good Deleverage progress Capital allocation priorities 0.2x Premium Cigar sale 1 Investing in the strategy Cash 0.2x generation 2 Strong and efficient balance sheet 0.1x FX 2.7x Lower end of 2.0-2.5x 3 Progressive d
Slide 17: FY22 Outlook
FY22 Outlook STRENGTHENING OUR FOUNDATIONS Delivery in line with our medium-term plan Net revenue constant currency growth at a similar rate as FY21 Adjusted AOP at constant currency to grow slightly slower than revenue reflecting increased investment Phasing weighted to second half Higher tax rate
Slide 18: Strong Performance in FY21 Creates Momentum
Strong Performance in FY21 Creates Momentum STRENGTHENING THE BUSINESS AHEAD OF PHASE TWO 21 SUMMARY OF FY21 • Building the foundations • Strengthening performance • Rebuilding the balance sheet 18 | Full Year Results | 16 November 2021
Slide 19: Building Foundations for Future Growth
BUILDING FOUNDATIONS FOR FUTURE GROWTH Stefan Bomhard 19 |
Slide 20: A Clear Five-Year Plan With Two Phases
A Clear Five-Year Plan With Two Phases GOOD PROGRESS IMPLEMENTING PHASE ONE OF OUR STRATEGY FY21 TO FY22 FY23 TO FY25 Phase One – Strengthening Phase Two – Improving Returns • Increased investment in operational growth • Investment and operational drivers improvements enhance financial delivery Stra
Slide 21: A Year of Building Connections
A Year of Building Connections BUILDING FOUNDATIONS WITH COLLEAGUES, CUSTOMERS, CONSUMERS 21 | Full Year Results | 16 November 2021
Slide 22: New Purpose and Vision
New Purpose and Vision CREATING A COMMON HIGH-PERFORMANCE CULTURE FOR IMPERIAL BRANDS OUR PURPOSE “Forging a path to a healthier future for moments of relaxation and pleasure” OUR VISION “To build a strong challenger business powered by responsibility, focus and choice” 22 | Full Year Results | 16 N
Slide 23: ESG: Foundations for a Responsible Business
ESG: Foundations for a Responsible Business OUR PURPOSE AND VISION DEFINE OUR ESG PRIORITIES Consumer health Climate & 21 22 ESG PRIORITIES PROGRESS PRIORITIES energy • Launched NGP heated tobacco and • Conclude refresh of ESG strategy Human vapour trials and priorities rights • Commitment to net ze
Slide 24: Priority Markets: Clear Levers to Improve Performance
Priority Markets: Clear Levers to Improve Performance >25 GROWTH INITIATIVES IN OUR FIVE PRIORITY MARKETS SIX OPERATIONAL LEVERS IN OUR FIVE PRIORITY MARKETS Cigarettes 1 Increase participation in sub-premium 2 Drive and rejuvenate local jewel brands 3 Optimise our approach to the value segment Fine
Slide 25: USA: Delivering Share Growth and Strong Financials
USA: Delivering Share Growth and Strong Financials INVESTMENT STRENGTHENING PERFORMANCE CIGARETTE MARKET SHARE +20bps to 9.1% STRONG DELIVERY INVESTING IN GROWTH MASS MARKET CIGAR DRIVERS • 3rd year of market share growth +500bps • Winston and Kool share held in • Expanding coverage and sub-premium
Slide 26: USA: Mass Market Cigar Significant Growth
USA: Mass Market Cigar Significant Growth GAINING SHARE WITHIN A GROWING CATEGORY CONSUMER-FOCUSED PORTFOLIO FOCUS ON OPERATIONAL LEVERS DRIVES PERFORMANCE • Leveraging our iconic heritage brands • Engaging through point of sale, events and special edition flavours +500bps #2 +45% • Meeting demand i
Slide 27: Germany: Investing to Arrest Long-Term Declines
Germany: Investing to Arrest Long-Term Declines IMPROVING SHARE TREND IN RECENT MONTHS FOCUS ON BRAND EQUITY AND SALES EXCELLENCE • Investing to improve sales coverage and distribution • Improved channel, regional and key account focus • Operational changes to improve effectiveness and efficiency •
Slide 28: Australia: Actions Are Improving Performance
Australia: Actions Are Improving Performance IMPROVED SHARE TRAJECTORY IN RECENT MONTHS GROWTH INITIATIVES TO IMPROVE SHARE • Improved performance over recent months • Initiatives have strengthened trade advocacy • Continued success with P&S • Launch of crushball formats and focus on new pack size v
Slide 29: UK & Spain: Targeted Brand Strategy Drives Growth
UK & Spain: Targeted Brand Strategy Drives Growth IMPROVED SHARE PERFORMANCE FROM BRAND INITIATIVES +20BPS COMBUSTIBLE +10BPS COMBUSTIBLE SHARE GROWTH SHARE GROWTH • Share gain driven by Embassy brand • Strong domestic share performance • Successful launch of new Embassy Signature • Share growth acr
Slide 30: Driving Value From Our Broader Market Portfolio
Driving Value From Our Broader Market Portfolio HIGH MARGINS AND CASH FLOWS MAKE VALUABLE CONTRIBUTION GROWING SHARE IN WIDER PORTFOLIO • Group tobacco share up 20 bps SPOTLIGHT ON OUR AFRICAN PORTFOLIO • Strong set of results: +5% volume growth; +20% operating profit growth • Brand portfolio strate
Slide 31: Our New NGP Approach Plays To Our Strengths
Our New NGP Approach Plays To Our Strengths WE ARE TAKING A VERY DIFFERENT CONSUMER-LED APPROACH We are building the foundations for a meaningful NGP business Market Focus Product Approach Marketing-led Investment Need Prioritising markets Differentiated Investment focused Cost effective with an est
Slide 32: Heated Tobacco Trials: Czech Republic and Greece
Heated Tobacco Trials: Czech Republic and Greece LEVERAGING OUR ROUTE TO MARKET CAPABILITIES CZECH REPUBLIC GREECE HT category HT category launched 2017 9% launched 2016 12% FY21 HT sticks +13% FY21 HT sticks +32% market size market size v FY20 v FY20 IMB tobacco IMB tobacco 88% market share 15% 91%
Slide 33: Delivering our Heated Tobacco Trials
Delivering our Heated Tobacco Trials CONSUMER INSIGHT WILL INFORM SCALE AND PACE OF NEXT STEPS • Encouraging initial progress • Achieved target distribution on trials • Good response from trade partners and consumers • Will be informed by consumer feedback and repurchase rates 33 | Full Year Results
Slide 34: US Consumer Trial of Refreshed blu Offer Underway
US Consumer Trial of Refreshed blu Offer Underway TESTING NEW CONSUMER MARKETING PROPOSITION Out-of-home advertising • Building distribution in focus trial area – Charlotte, North Carolina • New consumer marketing approach includes: Outdoor PoS Indoor PoS – Refreshed packaging – New marketing campai
Slide 35: 2022 Will Enhance Our Investment Case
2022 Will Enhance Our Investment Case CLEAR ACTIONS TO IMPROVE PERFORMANCE AND RETURNS FY22 PRIORITIES INVESTMENT CASE Increased investment in priority Revitalised tobacco business driving strong cash markets returns A disciplined NGP business providing options for NGP targeted trials potential harm
Slide 36: Full Year Results
FULL YEAR RESULTS 36 | 16 NOVEMBER 2021
Slide 37: Appendices: Group Financials
APPENDICES GROUP FINANCIALS 37 | FULL YEAR RESULTS | 16 NOVEMBER 2021
Slide 38: COVID-19 Has Affected Market Dynamics
COVID-19 Has Affected Market Dynamics VOLUME MARKET SIZE TRENDS YET TO REVERT TO HISTORICAL NORMS POSITIVE NEGATIVE IMPACT ON MARKET SIZE TREND IMPACT ON MARKET SIZE TREND USA FY19 Germany FY20 FY21 UK FY19 Spain FY20 FY21 Global duty free FY19 FY20 FY21 FY19 FY20 FY21 FY19 FY20 FY21 FY19 FY20 FY21
Slide 39: Net Revenue
Net Revenue -2.9% +4.4% -0.1% +1.4% -3.3% -1.9% -£247m £7,985m £7,847m -3.9% £7,738m NGP net £7,589m +1.5% revenue Tobacco net revenue FY20 Net Premium FY20 Net Tobacco Tobacco NGP Net FY21 Organic Translation FX FY21 Organic Revenue Cigar Division Revenue excl. Volume Price/Mix Revenue Constant Net
Slide 40: Adjusted Operating Profit
Adjusted Operating Profit +4.8% -£30m £26m £83m -£94m £3,664m £89m £3,570m -£31m £3,527m £3,496m Tobacco & NGP Adjusted Operating Profit FY20 AOP Premium FY20 AOP Europe Americas Africa, Asia Distribution FY21 Translation FY21 Cigar Division excl. and AOP Organic AOP FX Organic AOP divestment Austra
Slide 41: Adjusted Earnings Per Share
Adjusted Earnings Per Share +2.8% 1.4p 1.6p 10.6p 17.8p 7.2p 7.7p 254.4p 254.2p 247.2p 246.5p FY20 Premium FY20 Operating Interest Minorities Tax FY21 Organic Translation FY21 Organic Adjusted EPS Cigar Division Adjusted Profit & JV Adjusted FX Adjusted EPS EPS excl. Constant divestment Currency EPS
Slide 42: Group Organic Adjusted Results
Group Organic Adjusted Results Constant Constant Premium FY20 excl. Foreign Currency FY21 excl. Currency FY20 Cigars divestment Exchange Growth divestment Actual ∆ ∆ Tobacco net revenue £m 7,784 (247) 7,537 (253) 117 7,401 -1.8% +1.5% NGP net revenue £m 201 - 201 (5) (8) 188 -6.4% -3.9% Tobacco & NG
Slide 43: Group Organic Adjusted Results
Group Organic Adjusted Results FY21* FY20* Group adjusted operating profit £m 3,570 3,496 Adjusted net finance costs £m (417) (429) Share of profit of JVs £m 7 1 Adjusted profit before tax £m 3,160 3,068 Adjusted tax rate % 22.6% 20.7% Adjusted EPS pence 246.5 247.2 Dividend per share pence 139.08 1
Slide 44: Reconciliation: Reported to Adjusted
Reconciliation: Reported to Adjusted Fair value Adj. (gains) / Post attributable to Tax on £m Amort. of Profit on Fair value losses on employment Tax on non- disposal of Previously Acquisition (unless otherwise Reported acquired Rest. disposal of Excise tax adj. of loan financial net financing unrec
Slide 45: Income Statement
Income Statement £m (unless otherwise stated) FY21 FY20 Revenue 32,791 32,562 Adjusted operating profit 3,573 3,527 Acquisition and disposal costs (17) (26) Amortisation and impairment of acquired intangibles (450) (523) Restructuring costs (257) (205) Excise tax provision 1 20 Profit on disposal of
Slide 46: Balance Sheet
Balance Sheet FY20 £m FY21 Reclassified Non-current assets: tangible 4,209 4,500 intangible 16,674 18,160 Current assets: inventories 3,834 4,065 other 4,373 5,585 Current liabilities (10,808) (12,325) Non-current liabilities (12,342) (14,467) Net assets 5,940 5,518 46 | Full Year Results | 16 Novem
Slide 47: Cash flow
Cash flow £m FY21 FY20 Cash flows from operating activities pre tax 2,987 4,598 Tax paid (820) (568) Cash flows from operating activities 2,167 4,030 Purchase of non-current assets (200) (302) Purchase of brands and operations - (146) Repurchase of shares - (92) Proceeds from sale of non-current ass
Slide 48: Net Debt
Net Debt -£1.1bn -£1.7bn -£0.8bn £1.4bn -£0.6bn £0.2bn -£3.8bn £10.3bn £1.2bn £9.2bn £0.2bn 8.615 £8.6bn £0.7bn FY20 closing EBITDA Working capital Net capex Tax & interest Restructuring, Dividends Divestment Adjusted net Foreign FY21 closing adjusted net pension, other proceeds debt exchange & adju
Slide 49: Cash Conversion
Cash Conversion 83% -£0.7bn -£0.2bn £0.3bn £3.6bn -£0.1bn £2.9bn FY21 Organic Working capital Depreciation & Capex Pension/share Adjusted operating Adjusted Operating amortisation scheme/other cashflow Profit 49 | Full Year Results | 16 November 2021
Slide 50: 12-month Cash Conversion
12-month Cash Conversion £m (unless otherwise stated) FY21 FY20 Net cash flow from operating activities 2,167 4,030 Tax 820 568 Net capex (150) (274) Restructuring cash spend 112 145 Cash flow post capex pre interest and tax 2,949 4,469 Adjusted operating profit 3,573 3,527 Cash conversion (%) 83% 1
Slide 51: Net Finance Costs
Net Finance Costs £m FY21 FY20 Net finance income/(costs) 81 (610) Adjusted for: - interest income on net defined benefit assets (89) (99) - interest cost on net defined benefit liabilities 87 104 - fair value & exchange (losses)/gains on financial instruments (496) 176 Adjusted net finance costs (4
Slide 52: Net Debt Reconciliation
Net Debt Reconciliation Reported Accrued Fair value of Lease Adjusted £m FY21 interest derivatives Liabilities FY21 Opening net debt (11,141) 156 387 299 (10,299) Free cash flow 1,524 1,524 Dividends (1,305) (1,305) Net proceeds from sale of subsidiaries 845 845 Accretion of interest 8 (16) (8) New
Slide 53: Foreign Exchange
Foreign Exchange Average Closing FY20 FY21 ∆ FY20 FY21 ∆ USD $ 1.275 1.369 +7.3% 1.283 1.346 +4.9% EURO € 1.139 1.145 +0.5% 1.096 1.162 +6.0% AUD $ 1.882 1.821 -3.3% 1.802 1.870 +3.8% Russian Rouble 88.152 102.069 +15.8% 100.588 98.012 -2.6% 53 | Full Year Results | 16 November 2021
Slide 54: Foreign Currency
Foreign Currency DIVISIONAL CURRENCY EXPOSURE Approximate weight of EUR / currency in EUR Other • €0.01 (1 cent) movement in the € Tobacco Net Revenue GBP £ Linked USD $ AUD $ Currencies Other includes Euro has c. £20m impact on net Polish Zloty, Norwegian revenue. Europe 20% 65% 0% 0% 15% Krone Ame
Slide 55: Divisional Market Share
Divisional Market Share MAT MARKET SHARE DATA FY21 FY20 Europe 19.5% 19.4% +10bps Americas 9.1% 8.9% +20bps AAA 11.0% 10.7% +30bps Total Group 14.0% 13.8% +20bps Market Share Calculation Market share is presented as a 12 month average (MAT). Aggregate market share is a weighted average across mark
Slide 56: FY20 Results Pro-Forma
FY20 Results Pro-Forma REMOVING THE IMPACT OF THE PREMIUM CIGAR DIVESTMENT FY20 Premium FY20 Reported Cigars Restated Volume (Bn SE) 239.1 (0.3) 238.8 Tobacco net revenue (£m) 7,784 (247) 7,537 Group Adjusted operating profit (£m) 3,527 (31) 3,496 Share of JV profits (£m) 45 (44) 1 Adjusted Profit b
Slide 57: FY21 Results Pro-Forma
FY21 Results Pro-Forma REMOVING THE IMPACT OF THE PREMIUM CIGAR DIVESTMENT FY21 Premium FY21 Reported Cigars Restated Volume (Bn SE) 231.9 - 231.9 Tobacco net revenue (£m) 7,422 (21) 7,401 Group Adjusted operating profit (£m) 3,573 (3) 3,570 Share of JV profits (£m) 11 (4) 7 Adjusted Profit before t
Slide 58: Settlement Schedule
Settlement Schedule PREMIUM CIGAR DIVESTMENT PROCEEDS Settlement schedule EUR (m) 24th September 2020 91.7 7th October 2020 85.7 28th October 2020 640.6 29th April 2021 250.0 29th October 2021 88.0 To be confirmed on transfer of Dominican Republic facility 69.0 Total consideration 1,225.0 58 | Full
Slide 59: FY22 Guidance
FY22 Guidance OTHER FINANCIAL ITEMS Impact of premium cigar divestment • EPS dilution of 0.6p on FY21 (see slide 18 for full pro-forma) Financing & Cost of Debt • Finance charge for FY22 expected to be c.£360m Tax Rate • Expected to be c. 24% Capex • Expect net capex to be c. £300m Cash Conversion •
Slide 60: Appendices: Financing
APPENDICES FINANCING 60 | FULL YEAR RESULTS | 16 NOVEMBER 2021
Slide 61: Committed Financing Outstanding (£m)
Financial Profile 30 SEPTEMBER 2021 Interest Split Currency Split (adjusted) Committed Funding Split 32% 23% 23% Fixed EUR Bonds Floating USD Bank 68% 77% 77% Committed Financing Outstanding (£m) 14,000 12,000 10,000 Bond Issues 8,000 Bank Facilities 6,000 4,000 £3.6bn headroom against facilities 2,
Slide 62: Committed Bank Facilities
Committed Bank Facilities 30 SEPTEMBER 2021 Amount Description Maturity date (EUR m) £m equiv. Committed 3-year Revolving Credit Facility 30 September 2024 3,500 3,012 Total 3,012 62 | Full Year Results | 16 November 2021
Slide 63: Bond Issues
Bond Issues 30 SEPTEMBER 2021 Currency Amount Issue Maturity of issue (ccy m) Issuer Coupon Date Date £m equiv. Margin* GBP 1,000 Imperial Brands Finance PLC 9.00% Feb-09 Feb-22 1,026 4.83% USD 1,250** Imperial Brands Finance PLC 3.75% Jul-15 Jul-22 - - USD 1,000 Imperial Brands Finance PLC 3.50% Fe
Slide 64: Glossary
Glossary Stick Equivalent (SE) volumes reflect our combined cigarette, fine cut tobacco, cigar and snus SE volumes. Change at constant currency removes the effect of exchange rate movements on the translation of the Constant Currency results of our overseas operations. Tobacco Total Tobacco includes