Imperial Brands Plc · LSE:IMB
Imperial Brands — H1 2020 Earnings Presentation
46 slides from Imperial Brands's earnings presentation, May 19, 2020
Slide 1: Interim Results 2020
INTERIM RESULTS 2020 Imperial Brands PLC 19 May 2020
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: Key Focus Areas
Key Focus Areas Protecting the health, safety and well-being of our people Maintaining supply to our customers Driving performance of the tobacco business Right sizing NGP operations & investment Strengthening the balance sheet 3 | Interim Results | 19 May 2020
Slide 4: Managing the Business During Coronavirus
Managing the Business During Coronavirus Manufacturing & Customers & Our People Supply Chain Consumers • Health & wellbeing our priority • Grateful to manufacturing & • H1 stockpiling, expected to • Modified operations to ensure supply chain colleagues reverse in H2 safety & security • Some temporar
Slide 5: Focused on Strengthening Performance
Focused on Strengthening Performance Tobacco focus, NGP resized, balance sheet strengthened Strengthening Balance Prioritising Tobacco Refocusing NGP Sheet Rebalanced focus & Focus on returns - cost Focus on cost & cash resources behind tobacco savings & reduced investment Renewed RCF & further Stro
Slide 6: Progress Against our ESG Priorities
Progress Against our ESG Priorities • Bringing our people safely back to their work environment • On track to deliver against current ESG KPIs • Some specific FY20 initiatives inevitably impacted by the coronavirus • New KPIs being developed for priority ESG issues; implementation in FY21 6 | Interi
Slide 7: Summary Financials
Summary Financials % constant £m % change currency Tobacco volumes (SE) 114.6 -0.5% -0.5% Tobacco net revenue (£m) 3,509 0.0% 0.9% Tobacco & NGP net revenue (£m) 3,592 -1.7% -0.9% Tobacco & NGP AOP (£m) 1,383 -10.1% -8.5% Adjusted EPS (pence) 103.0 -10.9% -9.2% Cash conversion 103% Annualised net de
Slide 8: H1 Earnings versus Guidance
H1 Earnings versus Guidance Trading upside partly COVID driven; additional NGP write-down Year-on-Year EPS % • Guidance was for EPS -10% (cc) HY20 Trading IP write-down Actual • 2% improvement due to better trading performance +2% -1% -10% -9% • With around 1% of this driven by temporary COVID-19 be
Slide 9: HY20 Volumes & Price/Mix
HY20 Volumes & Price/Mix Strong cigarette pricing partly offset by mix Volume Movement Drivers of Price Mix Reflects volume recovery in Middle East & SE Asia, market decline in Australia & private Driven by lower sales of -2.5% US US label sales in Germany Backwoods, growth of Australian 5th price t
Slide 10: HY20 Net Revenue
HY20 Net Revenue Decline in NGP revenue offsets increase in tobacco +1.4% -1.8% -0.5% -0.8% -0.9% -1.7% Tobacco net NGP net revenue revenue +0.9% £3,656m -43% £3,625m £3,592m HY19 Tobacco Tobacco NGP net HY20 Translation HY20 Net Revenue Volume Price/Mix revenue constant FX Net Revenue currency 10 |
Slide 11: HY20 Adjusted Operating Profit
HY20 Adjusted Operating Profit Headwind from NGP write-downs Gross margin growing; decline Lower revenue post predominantly driven by cost profile destock & category decline offsetting lower costs -£12m -£95m +£6m -£23m -£27m £1,620m US flavours £48m Other inventory £28m £1,496m £1,469m Impairment o
Slide 12: Tobacco Operating Profit
Tobacco Operating Profit Gross profit up; profit lower due to cost profile VOLUME -0.5% • A&P H1 weighted, particularly in Europe REVENUE +0.9% • Overheads also proportionally greater in first half of year GROSS PROFIT +1.3% • Under-recovery of factory & supply-chain costs in cigars post temporary c
Slide 13: Cash
Cash Strong cash position H1; possible COVID impact H2 +£238m -£372m +£445m -£197m 103% £3,598m £3,712m Adjusted Operating Working Depreciation & CAPEX Pensions/Share Adjusted Operating Profit capital Amortisation Schemes/Other Cashflow • Cash conversion benefit from timing of working capital inflow
Slide 14: Liquidity
Liquidity Business well capitalised; no necessary funding Sources of Liquidity • Extensive stress testing of business liquidity requirements Strong cash conversion • Specifically addressed uncertainty surrounding COVID-19 > 90% Logista cash-pooling • Strengthened committed financing position with RC
Slide 15: Sale of Premium Cigars Division
Sale of Premium Cigars Division Cash proceeds to reduce debt • Sale of Premium Cigars at multiple equivalent to 11.8x EBITDA • Part of active focus on capital management • Expect proceeds during Q3 of FY20 • Proceeds to accelerate deleverage; 0.2x net debt to EBITDA • Minimal earnings dilution (c.6
Slide 16: Rebalancing Shareholder Returns & De-leverage
Rebalancing Shareholder Returns & De-leverage Dividend rebased by a third to strengthen balance sheet Accelerate deleverage • Prioritise debt reduction; supports resilient balance sheet to low end of 2 - 2.5x range protect investment grade • Rebasing dividend by one third; progressive thereafter cre
Slide 17: Outlook for FY20
Outlook for FY20 Reflecting impact of COVID-19 • Current analyst consensus -2% EPS (constant currency) • COVID-19 factors – estimated low single digit EPS impact – Restrictions to cross-border & international travel – Changing patterns of consumer behaviour e.g. downtrading – Impact of reduced cigar
Slide 18: Americas: Continued tobacco market share growth
Americas: Continued tobacco market share growth Strong pricing offset by cigar mix & NGP write-down Market Tob. Net NGP Net +10bps flat -50.8% Adj. EBIT* -11.8% Share Revenue Revenue excl. NGP write down* +1.4% • Further share growth; focus brands offsetting tail Tobacco • Strong cigarette revenue o
Slide 19: AAA: Share Growth in Priority Markets
AAA: Share Growth in Priority Markets Growing tobacco & NGP revenues Market Tob. Net NGP Net +70bps 2.9% 57.1% Adj. EBIT -7.9% Share Revenue Revenue excl. NGP write down* -5.5% • Market share growth in all priority markets Tobacco Parker & Simpson continuing to gain • P&S growing in Australian sub-v
Slide 20: Priority Market Performance
Priority Market Performance Share gains across the region driven by tobacco portfolio MAT YTD share Δ share Δ Gains in discount segment and improving position +10bps +2bps for Winston & Kool; market size improvement Increasing share of P&S in growing 5th price tier; +40bps +60bps illicit growth driv
Slide 21: Europe: Focus on Tobacco Delivery
Europe: Focus on Tobacco Delivery Underlying tobacco results offset by NGP Market Tob. Net NGP Net -50bps 0.5% -56.2% Adj. EBIT -6.7% Share Revenue Revenue excl. NGP write down* -3.0% West sales have • Improved share positions in several key markets; Tobacco benefited from growth in value UK, Spain
Slide 22: Priority Market Performance
Priority Market Performance Balancing share with financial returns MAT YTD share Δ share Δ Larger value offerings & FMC branded RYO support -160bps -130bps sequential share improvement Continuing to reshape portfolio around demand shifts to -100bps -120bps address share decline Price repositioning o
Slide 23: Focused on Strengthening Performance
Focused on Strengthening Performance Disappointing results; progress towards stronger business Continuing to deliver while protecting our people Tobacco share growth at group level and in 7/10 priority markets Right-sized NGP to enhance returns; PMTA submissions for myblu Rebased dividend; supports
Slide 24: Interim Results 2020
INTERIM RESULTS 2020 Imperial Brands PLC 19 May 2020
Slide 25: Appendices: Group financials
Appendices Group financials 25 | Interim Results | 19 May 2020
Slide 26: Group Adjusted Results
Group Adjusted Results Constant Foreign Currency Constant HY19 Exchange Growth HY20 Actual ∆ Currency ∆ Tobacco net revenue £m 3,508 (32) 33 3,509 0.0% 0.9% NGP net revenue £m 148 (1) (64) 83 -43.9% -43.2% Tobacco & NGP Operating profit £m 1,538 (25) (130) 1,383 -10.1% -8.5% Tobacco & NGP Profit Mar
Slide 27: Group Adjusted Results
Group Adjusted Results HY20 HY19 Group adjusted operating profit £m 1,469 1,620 Adjusted net finance costs £m (210) (220) Share of profit of JVs £m 20 24 Adjusted profit before tax £m 1,279 1,424 Adjusted tax rate % 20.7 19.5 Adjusted EPS pence 103.0 115.6 DPS pence 41.7 62.6 Cash conversion % 103 6
Slide 28: Reconciliation: Reported To Adjusted
Reconciliation: Reported To Adjusted Adjustments Acquisition Fair value Fair value Post attributable Amortisation and Excise adjustment (gains)/losses employment Tax on to non- £m (unless Reported of acquired Restructuring disposal tax of loan on financial net financing unrecognised controlling Adju
Slide 29: Income Statement
Income Statement £m (unless otherwise stated) HY20 HY19 Revenue 14,672 14,390 Adjusted operating profit 1,469 1,620 Acquisition and disposal costs (14) - Amortisation and impairment of acquired intangibles (436) (297) Restructuring costs (94) (54) Excise tax provision 23 - Fair value adjustment of a
Slide 30: Balance Sheet
Balance Sheet £m HY20 HY19 Non-current assets: tangible 4,911 4,360 intangible 18,246 18,428 Current assets: inventories 5,101 4,071 other 4,984 3,703 Current liabilities (13,364) (11,433) Non-current liabilities (14,986) (13,603) Net assets 4,892 5,526 30 | Interim Results | 19 May 2020
Slide 31: Cash Flow
Cash Flow £m HY20 HY19 Cash flows from operating activities pre tax 381 196 Tax paid (254) (248) Cash flows from operating activities 127 (52) Net capex (165) (145) Purchase of businesses / brands (146) - Repurchase of shares (92) - Lease liabilities paid (37) - Loan to JV - 4 Dividends paid (inc. m
Slide 32: Net Debt Movement
Net Debt Movement 12 months: HY19 to HY20 +£0.6bn -£3.8bn +£2.0bn +£1.0bn +£0.3bn +£0.4bn +£0.4bn -£0.4bn £13.0bn £12.9bn £13.5bn HY19 EBITDA Purchase of Working Net Tax & Restructuring, Dividends Adjusted Foreign HY20 Closing business / capital capex interest pensions net debt exchange & Closing ad
Slide 33: Net Debt Reconciliation
Net Debt Reconciliation Reported Accrued Fair value of Adoption of Adjusted £m HY20 interest derivatives IFRS16 HY20 Opening net debt (11,970) 162 432 - (11,376) Free cash flow (588) - - - (588) Dividends (1,418) - - - (1,418) Lease liabilities paid (37) - - - (37) Accretion of interest 109 (109) -
Slide 34: Cash Conversion
Cash Conversion 12 months: HY19 to HY20 +£238m -£372m +£445m -£197m 103% £3,598m £3,712m Adjusted Operating Working Depreciation & CAPEX Pensions/Share Adjusted Operating Profit capital Amortisation Schemes/ Cashflow Other 34 | Interim Results | 19 May 2020
Slide 35: 12 Month Cash Conversion
12 Month Cash Conversion £m (unless otherwise stated) HY20 HY19 Net cash flow from operating activities 3,415 2,144 Tax 528 395 Net capex (372) (248) Restructuring cash spend 141 178 Cash flow post capex pre interest and tax 3,712 2,469 Adjusted operating profit 3,598 3,762 Cash conversion (%) 103 6
Slide 36: Net Finance Costs
Net Finance Costs £m HY20 HY19 Net finance costs 160 156 Adjusted for: - interest income on net defined benefit assets 49 70 - interest cost on net defined benefit liabilities (52) (73) - fair value & exchange gains on financial instruments 53 67 Adjusted net finance costs 210 220 36 | Interim Resul
Slide 37: Foreign Exchange
Foreign Exchange Average Closing HY19 HY20 ∆ HY19 HY20 ∆ USD $ 1.294 1.284 -1% 1.309 1.236 -6% EURO € 1.137 1.162 2% 1.165 1.128 -3% AUD $ 1.811 1.915 6% 1.843 2.027 10% Russian Rouble 85.769 83.689 -2% 84.885 96.964 14% 37 | Interim Results | 19 May 2020
Slide 38: Foreign Currency: Divisional currency exposure
Foreign Currency Divisional currency exposure Approximate weight of currency in Tobacco Net GBP EUR / EUR USD AUD Other Revenue £ Linked $ $ Currencies Other includes Europe 15% 70% 15% Polish Zloty €0.01 (1 cent) movement in the € Euro has c. £24m impact on net revenue. Americas 100% $0.01 (1 cent)
Slide 39: Guidance FY20: Other financial items
Guidance FY20 Other financial items Financing & Cost of Debt Cost Optimisation • Average all-in net P&L finance charge broadly • FY20 savings expected c.£60m similar to last year • Cash costs of restructuring expected of c.£0.2bn Tax Rate Foreign Exchange • c.21% expected for FY20 • Translation FX e
Slide 40: Financial profile March 2020
Financial profile 31 March 2020 Interest Split Currency Split Debt Split 27% 8% 40% Fixed Bonds EUR 18% Floating Bank USD ECP 60% 73% 74% 18,000 16,000 14,000 ECP £m equivalent 12,000 Bank Facilities 10,000 8,000 6,000 £3.1bn headroom against facilities 4,000 2,000 - Mar '32 Mar '30 Mar '31 Mar '22
Slide 41: Committed bank facilities March 2020
Committed bank facilities 31 March 2020 Description Maturity date Amount £m equiv. Committed 3-year Revolving Credit Facility EUR tranche 30 Mar 2023 €3,500m £3,102m Committed revolving credit facility 31 Oct 2021 €300m £266m Committed revolving credit facility 31 Oct 2021 €300m £266m Total £3,634m
Slide 42: Bond issues March 2020
Bond issues 31 March 2020 Amount Issuer Coupon Issue Date Maturity Date £m equiv. Margin $1,250m Imperial Brands Finance PLC 2.950% Jul-15 Jul-20 £1,011m 1.4% €1,000m Imperial Brands Finance PLC 2.250% Feb-14 Feb-21 £886m 1.1% €500m Imperial Brands Finance PLC 0.500% Jan-17 Jul-21 £443m 0.7% £1,000m
Slide 43: Divisional Market Share
Divisional Market Share MAT market share data HY20 HY19 Europe 19.3% 19.8%R -50bps Americas 8.8% 8.7% +10bps AAA 10.2% 9.6%R +60bps Total Group 13.5% 13.3%R +20bps Market Share Calculation Market share is presented as a 12 month average (MAT). Aggregate market share is a weighted average across ma
Slide 44: 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. Tobacco Total Tobacco includes
Slide 45: Asset Brands
Asset Brands Asset Brands Asset Brands* We continue to reshape our brand portfolio, prioritising our high- quality Asset Brands to drive growth. Portfolio Brands The remainder of our portfolio consists of local and regional brands. * Asset Brands have been amended to reflect • the reclassification o
Slide 46: Half Year Results 2020
HALF YEAR RESULTS 2020 Imperial Brands PLC 19 May 2020