Imperial Brands Plc · LSE:IMB
Imperial Brands — Imperial Tobacco Group — FY2014 Earnings Presentation
71 slides from Imperial Brands's earnings presentation, Nov 4, 2014
Slide 1: Preliminary Results 2014
Preliminary Results 2014 Imperial Tobacco Group PLC 4 November 2014
Slide 2: Alison Cooper, Chief Executive
Alison Cooper Chief Executive
Slide 3: 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
Slide 4: A Reminder of our Strategy
A Reminder of our Strategy four operational priorities; one strategic objective Maximise sustainable shareholder returns Strengthen Develop Drive Cost Embed Capital Portfolio Footprint Optimisation Discipline Simplify portfolio Focus on opportunities Optimised Target cash conversion Invest
Slide 5: FY14: Driving strategy forward
FY14: Driving strategy forward a strong foundation for growth 10% increase in full year dividend to 128.1p Strengthen Develop Cost Capital Portfolio Footprint Optimisation Discipline More revenue from Resilient in Returns More than £60m Cash conversion brands with strongest Markets: profit +
Slide 6: Oliver Tant, Chief Financial Officer
Oliver Tant Chief Financial Officer
Slide 7: Group Results
Group Results Constant Constant Foreign Currency Currency FY13 Exchange Growth FY14 ∆ ∆ Tobacco net revenue (£m) 7,007 (355) (76) 6,576 -6% -1% Tobacco operating profit (£m) 3,003 (153) - 2,850 -5% - Operating margin % 42.9 43.3 +40 bps +50 bps Logistics operating profit (£m) 176 (4) (6) 166 -6% -3%
Slide 8: Stock Optimisation
Stock Optimisation improving supply efficiency Circa 9bn SE reduction in trade inventories Key markets – Russia, Iraq, other Middle East, Taiwan Programme now completed Drives benefits by supporting: Clearer view of market dynamics Route to market improved Improved speed to market for
Slide 9: Underlying Performance
Underlying Performance HY 14 ∆ FY 14 ∆ Volume (bn SE) -4% -4% Tobacco net revenue (£m) +2% +2% Growth Brand volume (bn SE) +4% +7% Growth Brand tobacco net revenue (£m) +6% +9% Specialist Brand tobacco net revenue (£m) +6% +2% Growth Market tobacco net revenue (£m) +7% +7% Returns Market tobacco net
Slide 10: Growth Brands
Growth Brands strengthening our portfolio Constant Underlying FY 14 FY13 Actual ∆ FX ∆ ∆ Volume (bn SE) 131 129 +2% +7% Market share (%) 5.7 5.4 +30 bps Tobacco net revenue (£m) 2,737 2,729 +0% +4% +9% Growth Brands % of group volume 44.5 40.7 +380 bps +460 bps Growth Brands % of tobacco net revenue
Slide 11: Specialist Brands
Specialist Brands strengthening our portfolio Constant Underlying FY14 FY13 Actual ∆ FX ∆ ∆ Tobacco net revenue (£m) 811 866 -6% -2% +2% Specialist Brands % of tobacco net revenue 12.3 12.4 -10 bps -10 bps - Specialist Brands growing tobacco net revenue 2% Supply constraints impacted Cuban cigar
Slide 12: Growth Markets
Growth Markets Constant Underlying FY14 FY13 Actual ∆ FX ∆ ∆ Market share (%) 5.8 5.7 +10 bps Tobacco net revenue (£m) 2,113 2,254 -6% 0% +7% Adjusted operating profit (£m) 597 668 -11% -2% Growth Brands % tobacco net revenue 38.3 36.8 +150 bps +90 bps +330 bps Growth Brands volume (bn SE) 53 53 0%
Slide 13: Returns Markets
Returns Markets Constant Underlying FY 14 FY 13 Actual ∆ FX ∆ ∆ Market share (%) 26.7 27.3 -60bps Tobacco net revenue (£m) 4,463 4,753 -6% -2% -1% Tobacco net revenue per ‘000 SE (£) 23.1 23.4 -1% +3% +4% Adjusted operating profit (£m) 2,253 2,335 -4% +1% Growth Brands % tobacco net revenue 43.2 40.
Slide 14: Logistics
Logistics continued robust performance FY FY Constant 2014 2013 Actual ∆ FX ∆ Distribution fees (£m) 848 850 0% +2% Adjusted operating profit (£m) 166 176 -6% -3% Margin (%) ∆ 19.6% 20.7% -110 bps -120 bps Overall distribution fees grew by 2% Cost efficiency programmes helping mitigate impact of
Slide 15: Cost Optimisation
Cost Optimisation funding investment in growth Over £60m savings in FY14 Product Cost Overheads Savings driven by: Increasingly global procurement £300m savings pa by 2018 Operational excellence programme Manufacturing savings Cost optimisation savings £85m in FY15 More than £90m Further
Slide 16: Clear Objectives for Cash
Clear Objectives for Cash Sources of Free Cash Uses of Free Cash Cash flow from operations Investment to drive returns Brands and markets Operational improvements Cost optimisation Free Cash Flow Dividend growth at least 10% Capital discipline Generation Cash conversion Working Capital Bal
Slide 17: Cash Conversion
Cash Conversion driving improvement, embedding process 500 bps improvement on FY13 91% 86% Driven by; 82% Reduction in leaf inventory Improved creditor balance Net capex reduction Targeting sustained improvement across the Group Average 2011-13 2013 2014 17
Slide 18: FY14 Adjusted Net Debt
FY14 Adjusted Net Debt 11% or £1bn reduction in net debt £3.2bn £0.3bn £0.4bn £1.2bn £0.3bn £0.3bn £1.0bn £0.1bn £0.2bn £9.1bn £8.1bn £0.1bn inflow Net capex versus 2011-13 reduced by average £0.2bn c.£50m outflow Opening EBITDA Working Net Tax & Restructuring Dividends Share Buy Logista FX Closing
Slide 19: FY15 – Logista, Finance, Tax & FX
FY15 – Logista, Finance, Tax & FX FY pro forma minority interest £42m – 4.4p impact to adjusted EPS Average cost of debt c.4.9% in FY14: expect to maintain in FY15 New facilities currently not drawn – revisit overall finance post US completion FY14 reported rate benefits from deferred tax cr
Slide 20: A Reminder of our Strategy
A Reminder of our Strategy four operational levers; one strategic objective Maximise sustainable shareholder returns Drive Cost Embed Capital Optimisation Discipline Optimised Target cash conversion manufacturing Working capital Reduced brand tail efficiency Global procurement Focus on ‘
Slide 21: Alison Cooper, Chief Executive
Alison Cooper Chief Executive
Slide 22: A Reminder of our Strategy
A Reminder of our Strategy four operational levers; one strategic objective Maximise sustainable shareholder returns Strengthen Develop Portfolio Footprint Simplify portfolio Focus on opportunities Invest in global brands to grow share in Growth Drumbeat of initiatives Markets Fontem Ventu
Slide 23: Strengthening our Portfolio
Strengthening our Portfolio
Slide 24: Strengthening our Portfolio: Gauloises
Strengthening our Portfolio building equity: Gauloises 0.8% of French FCT after 5 months New Generation range capturing demand for ‘Retro’ New Global campaign Queensize now 4% and pack Revamp SoM in Iraq Additive Free and Biodegradable Filter 24
Slide 25: Strengthening our Portfolio: JPF chassis
Strengthening our Portfolio building equity: JPF chassis * JPS driving growth in RYO/MYO now in 16 Continued growth Parker & Simpson Australia – share up markets with volume driving share in now in 27 countries c. 600bps growth of 12% Cambodia * Trade communication 25
Slide 26: Strengthening our Portfolio: West chassis
Strengthening our Portfolio building equity: West chassis Introduction of Blue variant growing News MYO volumes +29% Growing market share in Taiwan share of L&B to 10% Leading our offer in Japan 26
Slide 27: Strengthening our Portfolio: Davidoff
Strengthening our Portfolio building brand equity: Davidoff Global pack change rolled Glidetec launched Flagship store Boudoir Superfine out to 59 markets in Russia opened in Dubai wins innovation award 27
Slide 28: Migration Process
Migration Process improving growth trajectories Taiwan: Kane to Parker & Simpson 1.19 1.20 1.14 1.10 1.07 1.03 1.03 1.01 0.99 0.99 0.93 Oct’13 Nov’13 Dec’13 Jan’14 Feb’14 Mar’14 Apr’14 May’14 Jun'14 Jul'14 Aug'14 Market Share % 28
Slide 29: Migration Process
Migration Process good early results – more to come 2015 22 started in FY14 (5 complete) Market by market approach Czech Moon to Parker & Simpson More migrations in FY15 Mid term target c.80% net revenue from Growth and Specialist Brands Spain Brooklyn to West Building a stronger portfolio
Slide 30: Developing our Footprint
Imperial Tobacco Developing our Footprint
Slide 31: Market Decline has Eased Slightly
Market Decline has Eased Slightly encouraged but remain cautious UK Germany Australia Ukraine Spain France Morocco Russia Italy USA Returns Growth Total 0% -2% -4% +1.3% -6% +1.0% +0.3% +4.1% +1.5% (0.1%) +0.4% -8% +0.8% +0.5% +1.1% +0.6% -10% -12% +4.2% HY MAT -14% FY MAT +3.5% Rate of market dec
Slide 32: Growth Markets
Imperial Tobacco Growth Markets
Slide 33: Developing our Footprint: Growth Markets
Developing our Footprint investing in Growth Markets Egypt Japan Significant market c.80bn SE Large consumer and profit pool Partnership with leading distributor Focus on convenience (c.60% of market) Sales Gauloises & Davidoff – focus on equity build West now listed in all key accounts
Slide 34: Developing our Footprint: Norway and Italy
Developing our Footprint strengthening our position in Growth Markets Norway Italy 38% 36.0% 3.6% 4% 36% 3.1% 34% 32.0% 3% 32% 30% 2% 2013 2014 2013 2014 SKRUF now No.1 brand in Norway JPS driving growth Sales Slim Fresh biggest SKU Activity to build distribution &Growth equity Growing and
Slide 35: Iraq and Russia
Iraq and Russia protecting our position in changing markets Iraq Russia Royale Club migration progressed well Not yet seen full impact of tax and Political/security situation worsened regulatory changes on market Sales activity focused on main cities Expect market decline to continue and s
Slide 36: USA
USA continuing to build equity and grow share USA Gold growing share in our 19 focus states H2 equity and awareness campaign USA Gold GlideTec pack now widely distributed Business continuing to grow profit 36
Slide 37: Acquisition of USA assets
Acquisition of USA assets investing in key Growth Market Acquisition consistent with strategy to develop in Growth Markets Enhanced portfolio grows presence and retail influence Under invested but well recognised brands present growth opportunity Large attractive market with growing profit p
Slide 38: Returns Markets
Imperial Tobacco Returns Markets
Slide 39: Spain, Morocco and France
Spain, Morocco and France economy and affordability remain key drivers Spain Morocco France Early signs of lessening Market decline driven by Structural decline of dark market decline excise and illicit tobacco segment continues Stabilisation in illicit Market share decline has to impact p
Slide 40: UK
UK continued resilient performance GV Smooth Appealing to modern smoker and rejuvenating GV brand - Share now 8% Trading environment competitive Downtrading still prevalent Portfolio approach Focus on distribution and availability yielding benefits Gold Leaf Lambert & Butler Latest share >10
Slide 41: Germany
Germany large, resilient and profitable market Market overall remains solid FMC share stable driven by performance of Growth Brands JPS, Gauloises and Davidoff performing strongly Growth in profit continuing 41
Slide 42: Australia
Australia growing market share and profit * Joined up planning and execution Focused brand approach fundamental JPS driving share growth Customer engagement has been key Excise increases influence consumer behaviour Growth of JPS key to share growth of 440 bps during 2014 * Trade communica
Slide 43: Fontem Ventures
Fontem Ventures developing new consumer experiences Focused mainly on e-Vapour solutions First product Puritane launched this year Application for MHRA licence progressing Expect new Fontem products during 2015 Continue measured approach 43
Slide 44: FY15 Outlook
FY15 Outlook focused and disciplined Long standing target of at least 10% increase in dividend Strengthen Develop Cost Capital Portfolio Footprint Optimisation Discipline Enhance brand equity Building momentum Deliver further savings Embedding cash to build sustainability across Growth as pa
Slide 45: Preliminary Results 2014
Preliminary Results 2014 Imperial Tobacco Group PLC 4 November 2014
Slide 46: Appendices
Imperial Tobacco Appendices
Slide 47: Returns Markets North
Returns Markets North Constant Underlying FY 2014 FY 2013 Actual ∆ FX ∆ ∆ Market share (%) 24.8 25.5 -70 bps Net revenue per ‘000 SE (£) 27.0 27.0 - +5% +6% Adjusted operating profit (£m) 1,511 1,543 -2% +2% Growth Brands % tobacco net revenue 46.7 43.9 +280 bps +210 bps +220 bps 47
Slide 48: Returns Markets South
Returns Markets South Constant Underlying FY 2014 FY 2013 Actual ∆ FX ∆ ∆ Market share (%) 29.4 29.9 -50 bps Net revenue per ‘000 SE (£) 18.6 19.3 -4% - +1% Adjusted operating profit (£m) 742 792 -6% -2% Growth Brands % of tobacco net revenue 37.3 33.7 +360 bps +350 bps +310 bps 48
Slide 49: Financials
Imperial Tobacco Financials
Slide 50: Group Adjusted Results
Group Adjusted Results £m FY 2014 FY 2013 Tobacco net revenue 6,576 7,007 Logistics distribution fees 848 850 Tobacco operating profit 2,850 3,003 Operating margin % 43.3 42.9 Logistics operating profit 166 176 Distribution margin % 19.6 20.7 Eliminations 10 1 Adjusted operating profit 3,026 3,180 I
Slide 51: Income Statement
Income Statement £m FY 2014 FY 2013 Revenue 26,625 28,269 Adjusted operating profit 3,026 3,180 Amortisation and impairment of acquired intangibles (644) (952) Restructuring costs (305) (270) R Net finance costs* (544) (739) Profit before tax 1,520 1,219 Tax (69) (290) Profit after tax 1,451 929 Min
Slide 52: Reconciliation: Reported to Adjusted
Reconciliation: Reported to Adjusted Fair value Adjusted Amortisation gains / losses on Post Re- Tax on un- non- Reported Acquisition of acquired financial employment structuring recognised controlling Adjusted £m FY 2014 costs intangibles instruments net financing costs losses interests FY 2014 Ope
Slide 53: Tobacco Net Revenue
Tobacco Net Revenue FY 2014 % Change Foreign Constant Constant % Change £m Actual1 Exchange Currency2 FY 2013 Currency Underlying Growth Markets 2,113 (152) 11 2,254 0% +7% Returns Markets North 2,801 (142) 14 2,929 0% +1% Returns Markets South 1,662 (61) (101) 1,824 -6% -4% Total Returns Markets 4,
Slide 54: Tobacco Operating Profit
Tobacco Operating Profit FY 2014 % Change Foreign Constant Constant £m Actual1 Exchange Currency2 FY 2013 Currency Growth Markets 597 (57) (14) 668 -2% Returns Markets North 1,511 (63) 31 1,543 +2% Returns Markets South 742 (33) (17) 792 -2% Total Returns Markets 2,253 (96) 14 2,335 +1% Total Tobacc
Slide 55: Foreign Exchange
Foreign Exchange Average Closing FY 2013 FY 2014 Change FY 2013 FY 2014 Change US $ 1.5612 1.6567 -6% 1.6153 1.6188 0% EURO € 1.1900 1.2213 -3% 1.1961 1.2865 -7% AUD $ 1.5716 1.8003 -13% 1.7327 1.8580 -7% Russian Rouble 49.1494 57.5509 -15% 52.4179 64.023 -18% 55
Slide 56: Balance Sheet
Balance Sheet £m FY 2014 FY 2013 Non-current assets: tangible 2,844 2,652 intangible 15,859 17,382 Current assets: inventories 2,935 3,296 other 4,371 5,092 Current liabilities (7,809) (11,082) Non-current liabilities (12,719) (11,688)R Net assets 5,481 5,652 R – Restated for IAS 19 (Revised) 56
Slide 57: Cash Flow
Cash Flow £m FY 2014 FY 2013 Cash flows from operating activities pre tax 3,005 3,038 Tax paid (457) (686) Cash flows from operating activities 2,548 2,352 Net capex (238) (291) Logista IPO 395 - Dragonite IP (46) - Employee Share Ownership Trust 4 - Share buy backs (341) (500) Dividends paid (inc.
Slide 58: Cash Conversion
Cash Conversion £m FY 2014 FY 2013 Net cash flow from operating activities 2,548 2,352 Tax 457 686 Net capex (238) (291) Cash flow post capex pre interest and tax 2,767 2,747 Adjusted operating profit 3,026 3,180 Cash conversion (%) 91.4 86.4 Working capital inflow/(outflow) 130 (82) 58
Slide 59: Net Finance Costs
Net Finance Costs £m FY 2014 FY 2013 Net finance costs 544 739R Adjusted for: - interest income on net defined benefit assets 138 126 - interest cost on net defined benefit liabilities (174) (168) - unwind of discount on redundancy and long term provisions (4) (9) - net fair value and exchange gains
Slide 60: Net Debt Reconciliation
Net Debt Reconciliation Reported Accrued Fair value of Adjusted £m FY 2014 interest derivatives FY 2014 Opening net debt (9,518) 321 99 (9,098) Free cash flow 1,774 (49) 1,725 Share buy backs (341) (341) Dividends (1,170) (1,170) Logista IPO 395 395 Dragonite (46) (46) Accretion of interest (8) 8 -
Slide 61: Volume
Imperial Tobacco Volume
Slide 62: Total Tobacco Volume
Total Tobacco Volume Actual Underlying bn SE* FY 2014 FY 2013 ∆ ∆ Growth Markets 101 114 -11% -2% Returns Markets North 104 109 -4% -5% Returns Markets South 89 94 -5% -5% Total Returns Markets 193 203 -5% -5% Total Group 294 317 -7% -4% * bn SE is billion stick equivalent; Total Tobacco includes ci
Slide 63: Total Growth Brand Volume
Total Growth Brand Volume Actual Underlying bn SE* FY 2014 FY 2013 ∆ ∆ Growth Markets 53 53 -1% +11% Returns Markets North 46 44 +4% +4% Returns Markets South 32 31 +5% +6% Total Returns Markets 78 75 +4% +5% Total Group 131 129 +2% +7% * bn SE is billion stick equivalent; Total Tobacco includes cig
Slide 64: Financing
Ce Financing 64
Slide 65: Committed Bank Facilities
Committed Bank Facilities 30 September 2014 Description Maturity date Amount £m equiv. USD Committed 2 Year A Term Loan Acquisition Facility1,2 Jul-17 $4,100m £2,533m USD Committed 3 Year B Term Loan Acquisition Facility1 Jul-18 $1,500m £927m USD Committed 5 Year C Term Loan Acquisition Facility1 Ju
Slide 66: Bond Issues
Bond Issues 30 September 2014 Amount Issuer Coupon Issue Date Maturity Date £m equiv. Margin €500m Altadis Emisiones Financieras SAU 4.000% Dec-05 Dec-15 £389m 1.1% €1,500m Imperial Tobacco Finance PLC 8.375% Feb-09 Feb-16 £1,166m 5.0% £450m Imperial Tobacco Finance PLC 5.500% Nov-06 Nov-16 £521m1 0
Slide 67: Core Financing maturity profile at September 2014
Core Financing maturity profile at 30 September 2014 14,000 Facilities in place as at 30 September c.£13.0bn1 12,000 71% bond issues, 27% bank facilities, 2% ECP 10,000 Headroom as at 30 September c.£4.4bn 8,000 £m equivalent 6,000 ECP Bank Facilities 4,000 Bond Issues2 2,000 - Sep Sep Sep Sep
Slide 68: Main Market Classifications
Main Market Classifications
Slide 69: Main Market Classifications
Main Market Classifications Growth Markets Returns Markets North Returns Markets South Cambodia Australia Algeria China Azerbaijan Austria Iraq Belux Czech Republic Italy Germany France Japan Ireland Hungary Russia Netherlands Morocco Saudi Arabia New Zealand Portugal Taiwan Poland Slovenia Turkey U
Slide 70: 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
Slide 71: Contacts
Contacts Investor Relations Matt Sharff Jo Brewin Investor Relations Manager Investor Relations Manager matt.sharff@uk.imptob.com jo.brewin@uk.imptob.com Tel: +44 (0) 117 933 7396 Tel: +44 (0) 117 933 7549 71
Imperial Tobacco Group — FY2014 Earnings Presentation on 6ix