TIDMIMB
RNS Number : 9635Y
Imperial Brands PLC
18 May 2021
IMPERIAL BRANDS PLC
Half YEAR results Statement
18 May 2021
Legal Entity Identifier (LEI) No. 549300DFVPOB67JL3A42
SOLID FIRST HALF; ON TRACK TO DELIVER FULL YEAR RESULTS
Report for the six months ended 31 March 2021
Business Highlights
* Positive start in implementing our new strategy to
transform the business
* Organic growth in net revenue and adjusted profit
coupled with strong cash flows
* Performance management focus has begun to stabilise
aggregate market share in five priority markets
* Tobacco net revenue continues to benefit from strong
pricing
* Improved NGP performance against a weak comparator
period
* Market trials for vapour and heated tobacco on
schedule underpinning our commitment to harm
reduction
* Good deleverage progress with net debt reduced by
>GBP3bn on a 12-month basis
* On track to deliver full year results in line with
guidance
Financial Summary
Six months ended Reported Organic adjusted(2)
=========================== ======================================
31 March 2021 Constant
2021 2020 Change 2021 2020 Actual currency(3)
=============================== ======== ======== ======= ========== ======== ====== ============
Revenue/Net revenue(1) GBPm 15,568 14,672 +6.1% 3,571 3,489 +2.4% +3.5%
======================= ====== ======== ======== ======= ========== ======== ====== ============
Operating profit GBPm 1,637 925 +77.0% 1,586 1,460 +8.6% +8.1%
======================= ====== ======== ======== ======= ========== ======== ====== ============
Basic earnings
per share pence 191.2 55.6 +244.0% 107.0 100.0 +7.0% +6.9%
======================= ====== ======== ======== ======= ========== ======== ====== ============
Net debt GBPm (11,003) (14,144) (10,328) (13,476)
======================= ====== ======== ======== ======= ========== ======== ====== ============
Dividend per share pence 42.12 41.70 +1.0% 42.12 41.70 +1.0% +1.0%
======================= ====== ======== ======== ======= ========== ======== ====== ============
(1) Reported revenue includes duty, similar items, distribution
and sale of peripheral products which are excluded from net
revenue; net revenue comprises reported revenue less duty and
similar items, excluding sale of peripheral products and
distribution revenue.
(2) See page 3 for basis of presentation, page 16 and notes 3, 5
and 9 of the financial statements for the reconciliation between
reported and adjusted measures. For comparison purposes, the Group
uses the term "organic" to exclude the contribution of the Premium
Cigar Division, which was divested on 29 October 2020.
(3) Constant currency removes effect of exchange rate movements
on the translation of the results of our overseas operations.
Stefan Bomhard Chief Executive
"We have made a good start in implementing our new strategy to
transform Imperial and remain on track to meet full year
expectations.
"In tobacco, we have put in place a clear market prioritisation
to increase focus on our best opportunities for sustainable profit
delivery. We have begun to stabilise the aggregate market share
performance across our top five priority markets reflecting the
changes we have made to tighten performance management and the good
underlying momentum established over the past year. This is an
encouraging start and one that I look forward to building on over
time as we begin to step up investment in new strategic
initiatives.
"Our NGP performance has improved, albeit against a weak
comparator period. We have focused investment more tightly behind
our NGP market strongholds and are on track to activate market
trials in vapour and heated tobacco later this year. Our aim is to
create a successful NGP business that meets consumer needs and,
over time, can make a meaningful contribution to harm
reduction.
"We have started to change our culture and ways of working,
including developing a new market cluster structure to simplify the
organisation and allocating resources more effectively. I have now
assembled my new Executive Team with key external hires, who have
the necessary skills and expertise to complement Imperial's
existing tobacco experience. This has significantly strengthened
the capabilities we need to support the successful delivery of the
new strategy.
"All of this has been achieved against the background of the
ongoing global pandemic and I would like to thank employees
throughout the business for their hard work and willingness to
embrace change."
Results Overview
Volume and net revenue
-- Organic net revenue up 3.5% driven by tobacco growth of 3.2% and NGP net revenue up 16.0%
-- COVID-19 related changes to consumer buying patterns has
continued to be a net benefit to revenue
-- Tobacco price mix up 6.5% reflecting gross pricing growth of
5.3% (e.g. US, Germany, UK) and favourable product mix of 1.2%
driven by a strong performance in US mass market cigars, while
market mix was neutral
-- Organic tobacco volumes down 3.3% with consumer demand
partially offset by weaker duty free volumes and a reduction in US
inventories following strong wholesaler purchases in March 2020
-- Reported revenue grew 6.1%, higher than organic adjusted net
revenue growth due to increased excise duties
-- Begun to stabilise long-term aggregate market share
performance in our five priority markets with gains in US, UK, and
Spain partially offset by declines in Germany and Australia
-- Priority market aggregate market share up 6 basis points;
Group tobacco share growth of 30 basis points (MHT)
Profit
-- Organic adjusted Group operating profit up 8.1% driven by a
reduction in NGP losses and higher Distribution profit
-- Reported operating profit of GBP1,637 million is higher by
GBP712m, driven primarily by profit on disposal of the Premium
Cigar Division (GBP281m) and a reduction in amortisation and
impairment of acquired intangibles (GBP225m)
-- Organic tobacco profitability is lower by 3.4% (GBP56m) driven by:
o lower US trade inventories (GBP49m) reflecting the phasing of
purchases in March 2020 to support consumer demand
o lower stock profit in Australia (GBP41m) as previously
guided
o a charge to meet US state litigation costs (GBP42m)
o partially offset by the underlying growth in tobacco
profitability, up 4.8%, or GBP76m
-- Charge (GBP42m) for US state litigation settlement in
Minnesota and expected settlement in Texas removes the uncertainty;
and full year guidance remains unchanged despite impact on adjusted
profit
-- NGP losses reduced by 62.5% to GBP83m as we continue to
optimise investment and as the prior year write-downs (GBP95m) were
not repeated to the same extent
-- Distribution adjusted operating profit (including eliminations) up 39.4% with good growth in pharmaceuticals as well as reduced intra-company stock
-- Organic adjusted EPS up 6.9% at constant currency driven by
growth in operating profit, partially offset by an increase in the
tax rate to 23.1%
-- Reported basic EPS up 244% at 191.2p reflecting the higher
reported operating profit, gain on disposal of Premium Cigar
Division and marked to market foreign exchange accounting gains on
financial instruments caused by a 7% weakening in the euro against
sterling
Capital allocation
-- Strong cash conversion of 122% (12-month basis) driven by
working capital improvements and lower capex;
-- Full year cash conversion guidance unchanged at c. 80% due to
the unwind of the temporary Logista working capital benefits in the
second half of last year
-- Adjusted net debt reduced by GBP3.1bn (12-month basis) due to
higher profit, the reduced dividend and the proceeds from the sale
of the Premium Cigar Division and favourable FX; adjusted net debt
to EBITDA was 2.6x (2020: 3.5x)
-- Reported net debt reduced by GBP3.1bn (12-month basis), in
line with reduction in adjusted net debt
-- Interim dividend per share up 1.0%, or GBP4m, in line with our progressive dividend policy
Outlook
We have made a good start to the year. Although the pandemic
continues to affect aspects of our business, our full year guidance
remains unchanged with low-mid single digit organic adjusted
operating profit growth at constant currency.
In the second half we anticipate some of the benefit we have
seen in duty paid market size in certain territories to unwind as
we lap a stronger comparator period and as volume trends start to
normalise. Some second half prior period COVID-related benefits
will not be repeated (e.g. UK stock profit, German VAT benefit) and
the recently announced Australian excise regime will create a
headwind of around GBP50 million.
Despite these factors, and increased investment behind our new
strategy, we expect second half tobacco profitability to grow
modestly against the same period last year. In NGP, our disciplined
investment approach will support market trials in heated tobacco
and vapour, with second half investment at a similar level to the
first half.
At current exchange rates, adverse foreign exchange translation
is expected to be a 2.5% - 3% headwind on full year earnings. As
previously guided, a higher tax rate will have a c. 2% impact on
earnings with organic adjusted earnings per share expected to be
slightly ahead of the prior year at constant currency.
Basis of Presentation
-- To aid understanding of our results, we use 'adjusted'
(non-GAAP) measures as we believe they provide a better comparison
of performance from one period to the next. Reconciliations between
adjusted and reported (GAAP) measures are also included in the
relevant notes. Further definitions of adjusted measures are
provided in Note 1 of these accounts. Change at constant currency
removes the effect of exchange rate movements on the translation of
the results of our overseas operations. References in this document
to percentage growth and increases or decreases in our adjusted
results are on a constant currency basis unless stated otherwise.
These are calculated by translating current year results at prior
year exchange rates.
-- In these results, we also use the term organic to remove the
impact of the divestment of our Premium Cigar Division to show a
like-for-like performance, which is the basis of the performance
commentary. The impact of the divestment is analysed in notes 3, 5
and 9 of the financial statements on adjusted performance
measures.
-- Stick Equivalent (SE) volumes reflect our combined cigarette,
fine cut tobacco, cigar and snus volumes.
-- Market share is presented as a 6-month average (MHT - moving
half-year trend), unless otherwise stated. Aggregate market share
is a weighted average across markets within our footprint.
Other Information
Investor Contacts Media Contacts
Peter Durman +44 (0)7970 328 093 Alex Parsons +44 (0)7967 467 241
James King +44 (0)7581 052 880 Simon Evans +44 (0)7967 467 684
Jennifer Ramsey +44 (0)7974 615 739
Analyst Presentation Webcast
Stefan Bomhard, Chief Executive, and Oliver Tant, Chief
Financial Officer will present the results at 09:00 (BST) on 18 May
2021. It will be followed by a live question and answer session.
The presentation slides will be available on
www.imperialbrandsplc.com from 07.00am (BST).
You can join the webcast via
https://edge.media-server.com/mmc/p/emaaqnxn. Please copy and paste
the link into your browser.
Please either listen to the Q&A session via the webcast
link: https://edge.media-server.com/mmc/p/emaaqnxn or to ask a
question, please use the dial-in details below. Please dial-in at
least 10 minutes prior to the start time to provide sufficient time
to access the event. You will be asked to provide the conference ID
number below.
Conference ID No: 5667098
United Kingdom: 44 (0) 20 7192 8338 or toll free: 0800 279
6619
USA: +1 646 741 3167 or toll free: +1 877 870 9135
Cautionary Statement
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 performance, financial
condition and business is or may be a forward-looking statement.
Such forward-looking statements are subject to risks and
uncertainties that may cause actual results to differ materially
from those projected or implied in any forward-looking statement.
These risks and uncertainties include, among other factors,
changing economic, financial, business or other market conditions.
These and other factors could adversely affect the outcome and
financial effects of the plans and events described in this
announcement. As a result, you are cautioned not to place any
reliance on such forward-looking statements. The forward-looking
statements reflect knowledge and information available at the date
of this announcement and the Company undertakes no obligation to
update its view of such risks and uncertainties or to update the
forward-looking statements contained herein. Nothing in this
announcement should be construed as a profit forecast or profit
estimate and no statement in this announcement should be
interpreted to mean that the future earnings per share of the
Company for current or future financial years will necessarily
match or exceed the historical or published earnings per share of
the Company. This announcement has been prepared for, and only for
the members of the Company, as a body, and no other persons. The
Company, its Directors, employees, agents or advisers do not accept
or assume responsibility to any other person to whom this
announcement is shown or into whose hands it may come, and any such
responsibility or liability is expressly disclaimed
.
CHIEF EXECUTIVE'S STATEMENT
We have a clear strategy to strengthen performance to build a
truly consumer-focused business capable of sustained value creation
in combustible tobacco, while making a meaningful contribution to
harm reduction through stronger NGP operations. Our focus on
consistently delivering against our strategy, coupled with a
disciplined approach to capital allocation, will enhance returns
for our shareholders.
These results reflect the continued benefit of the pricing power
of tobacco, as well as our more disciplined approach to NGP. We
have also begun to stabilise the aggregate market share of our top
five tobacco markets reflecting a greater focus on performance
management . This is encouraging early progress although we have
much more to do as we begin to implement our strategic initiatives.
Our cash conversion has remained strong.
My priorities for the first half of this year have been to make
progress in three key areas:
-- Right strategy - to conclude our strategic review and begin
implementation across the business;
-- Right team - to assemble a new leadership team with the right
skills, capabilities and experience to deliver the strategy;
-- Right performance - to deliver against our expectations while
managing the challenges of the global pandemic.
Right Strategy
We announced our new strategy in January this year by defining
the fundamental building blocks of how we will transform Imperial
to unlock value over the coming years. This was the culmination of
a comprehensive review of all aspects of the business, which began
last summer, shortly after I became Chief Executive. It is a
strategy developed by Imperial for Imperial - ensuring we focus our
investment and resources in the areas that play to our strengths
and meet the needs of our target consumers and other key
stakeholders.
At our capital markets event in January, we set out a clear and
compelling five year plan, centred around three strategic
pillars:
-- A clear focus on our priority combustible markets of US,
Germany, UK, Spain and Australia, where we will increase investment
through clearly defined operational levers to create value.
-- We will drive value from our broader market portfolio by
managing these markets more efficiently, through implementing
global processes and sharing best practice.
-- In NGP, we are investing in heated tobacco in a focused
number of markets in Europe, as well as in vapour in the US, and
selected European markets. Our approach will be more targeted,
disciplined, and informed by local consumer preferences,
underscoring our commitment to harm reduction.
In order to deliver this plan, we are changing our ways of
working and culture through three critical enablers:
-- We will become a truly consumer-centric company, putting the
consumer at the centre of all our decisions, which will always be
based on data and insights. To achieve this we are developing new
capabilities that address consumer needs.
-- We are embedding a performance-based culture, one that holds
our teams to account for common goals and rewards collaboration and
teamwork.
-- We will simplify our operations and ways of working, which
will realise savings to fund our investment plans.
This is a comprehensive plan for change, providing the
opportunity to differentiate our approach from our peers to foster
a challenger mindset. As the number two or three in many markets,
we already have strong retail partnerships where our customers want
us to succeed and provide good competitive tension.
We are embracing our smaller size to become faster, more agile
and more responsive in our decision making. I believe Imperial can
build a consistent and reliable business that will deliver enhanced
and sustainable value creation for all stakeholders.
Within the business we are beginning to build momentum behind
the new strategy and I am very pleased with how our global
workforce is uniting behind the new way ahead. We are investing in
the operational levers in our five priority markets - further
details are in the Operating Review - and alongside this, we have
started work on the critical enablers that support our strategic
ambitions. We are taking action to simplify our ways of working,
ensuring the consumer is at the centre of all our decision making.
We recently announced plans to make our sales and marketing
organisation more agile and efficient by reducing the number of
market clusters from 13 to 10. We are also unifying our NGP
operations under the leadership of our new Chief Consumer Officer,
with a clear category-led structure that is aligned to the new
strategy. These are the first steps towards transforming the
business and unlocking value for our stakeholders.
We remain committed to NGP to make a meaningful contribution to
harm reduction by transitioning more adult smokers to potentially
reduced risk products. Our first priority is to improve returns by
ensuring our investment is appropriately targeted in our existing
markets. As a result, we have decided to exit NGP markets where we
are unable to justify the business case; for example Japan and
Russia. This has been a necessary step while we progress our plans
for pilot trials for refreshed propositions in both heated tobacco
and vapour later this year. We have a clear strategy with a
differentiated approach to provide consumers with greater choice in
established categories. In particular, for heated tobacco, our
focus is on meeting consumer needs in markets where the category is
already established and where we are able to leverage our
established routes to market.
Right Team
Strengthening the leadership team has been a key priority to
ensure we have the right skills, capabilities and experience to
deliver the strategy. My objective has been to blend the strong
knowledge and expertise of tobacco that exists in the business with
fresh ideas and perspectives from some key external hires outside
of tobacco. This has been particularly important for strengthening
our focus on the consumer.
Most recently we have added Lukas Paravicini, who will replace
Oliver Tant as Chief Financial Officer after these interim results,
and Andy Dasgupta as Chief Consumer Officer, a newly created role
that will be instrumental in changing our approach to consumers.
Both joined Imperial in May.
Lukas brings a combination of financial and operational
experience from consumer goods companies, such as Nestle and
Fonterra, as well as expertise in driving transformational change
in global shared services in large international organisations,
which will be critical in the delivery of our strategy.
Andy will lead our focus on consumers by ensuring we have the
right marketing, brand and portfolio management capabilities to
successfully deliver our five-year plan. Andy can draw on his
extensive experience in consumer, brand and innovation, having held
senior roles in significant international consumer goods companies,
including Pepsi, Fonterra and GSK.
Javier Huerta joined us in February as Group Manufacturing and
Supply Chain Director. He replaces Walter Prinz who has retired
following a long and illustrious career with Imperial. Javier has
24 years of manufacturing and supply chain experience, having held
a number of senior roles in this field at Unilever and Nestle in
different geographies, most recently as Executive Vice President
Supply Chain for Foods and Refreshment at Unilever.
These changes are in addition to the external hires I made last
year with Murray McGowan as Group Strategy and Transformation
Director and Alison Clarke as Chief People and Culture Officer.
They all join Divisional Directors Dominic Brisby and Joerg
Biebernick, who both have extensive knowledge of the tobacco
sector.
Right Performance
I believe the changes we are making through the new strategy
will support a collaborative and disciplined approach to
performance management. As part of the actions we have already
taken, we are focusing greater resource on regular performance
reviews for the five priority markets. We assess progress against
our operational priorities and agree actions to improve
performance, making the organisation better able to respond to
changing market and consumer dynamics. This approach has already
helped to stabilise the aggregate market share results in our five
priority markets and will deliver further performance improvements
over time.
Our critical enablers will also drive performance improvements
as we place the consumer at the centre of the business and we
enhance our capabilities and consumer data and insights to support
improved decision making. We have self-help opportunities where we
can embrace new ways of working by adopting many of the tried and
tested operating models that have been deployed successfully in
other businesses - such as global business services. This will be
reinforced by a performance-based culture with greater
accountability and ownership of delivery. I recognise these
cultural changes take time, although our people are already
embracing change and are committed to making Imperial a successful
business again.
The global pandemic has emphasised the importance of agility in
managing businesses through uncertain times. Since joining Imperial
I have prioritised the health, safety and well-being of our people
during the coronavirus and I have been impressed by how the
organisation has responded to the pandemic.
Managing Our Environmental, Social and Governance
Responsibilities
A priority for the newly formed Executive team is to conduct a
further review of our sustainability strategy and ESG
responsibilities to satisfy ourselves that we are taking the most
appropriate approach . We have developed a broader suite of ESG
KPIs that we will make publicly available to provide greater
transparency on the progress we are making across all of our ESG
priorities. This enhanced disclosure will be in our annual report
and on our corporate website later in the year.
During the half year we conducted Imperial's first ever
diversity and inclusion survey, which provided us with valuable
insights into how inclusive our people feel the business currently
is. The results of this survey show we have work to do and, as a
consequence, we have established workstreams to find solutions to
the issues raised. This is an important part of the work we are
doing to develop a collaborative culture.
Capital allocation
We have set out a clear capital allocation framework. Our first
priority is to invest behind the new strategy to deliver the
targeted organic growth initiatives in combustibles and NGP. Our
second priority is to strengthen the balance sheet by reducing
gearing towards the lower end of our net debt to EBITDA range of
2-2.5 times. We recognise the importance of cash returns: we have a
progressive dividend policy to provide a reliable, consistent cash
return to shareholders and we have announced a 1% increase for the
dividend this year . Our final priority is to return surplus
capital to shareholders as soon as our target leverage has been
achieved. I am pleased to report we reduced adjusted net debt by
GBP3.1 billion on a 12-month basis and our net debt EBITDA gearing
was 2.6 times, down from 3.5 times a year ago.
OPERATING REVIEW
Our results demonstrate the continued resilience in tobacco
pricing across key markets and the benefit of our more focused
approach to NGP. We have begun to stabilise the aggregate market
share results in our five priority markets through a greater focus
on performance management and we will continue to strengthen
performance through the implementation of our new strategy.
Overview
Organic constant currency growth by region
Adjusted
Volumes Total Net Revenue Operating Profit
-------------- -------------------- --------------------
bn SE % GBPm % GBPm %
---------------------------- ------ ------ --------- --------- ------- -----------
Europe (2.7) -4.3% 26 +1.6% 21 +3.0%
Americas (0.4) -4.1% 97 +8.8% 59 +15.1%
Africa, Asia & Australasia (0.7) -1.6% (1) -0.2% 5 +1.9%
---------------------------- ------ ------ --------- --------- ------- -----------
Total (3.8) -3.3% 122 +3.5% 85 +6.2%
Distribution 22 +22.9%
Eliminations 12 +134.4%
---------------------------- ------ ------ --------- --------- ------- -----------
Total Group (3.8) -3.3% 122 +3.5% 119 +8.1%
============================ ====== ====== ========= ========= ======= ===========
Organic performance excludes the contribution from the Premium
Cigar Division from both financial periods following its divestment
on 29 October 2020 to support performance comparison on a
like-for-like basis.
Total Group tobacco volumes decreased by 3.3 per cent, in line
with the overall market, as travel restrictions continued to affect
our global duty free business and as COVID-19 influenced consumer
and wholesaler buying patterns. Most notably this caused inventory
reductions in the US following increased wholesaler purchases in
March 2020 to meet COVID-19 pantry loading demand.
We have begun to stabilise the aggregate market share
performance in our priority markets, with share growth in the US,
UK and Spain, offsetting declines in Germany and Australia. The
share improvements reflect an underlying momentum established over
the course of the past year supported by the changes we are making
to focus greater resource on performance management by the senior
team in these priority markets. We will build on this over time as
we begin to increase our investment in these priority markets - and
it may take some time for these new initiatives to bear fruit,
particularly where they involve longer term brand building
activities.
Tobacco and NGP net revenue grew 3.5 per cent reflecting strong
pricing in tobacco and growth in NGP sales against a weak
comparator.
Total Group tobacco and NGP adjusted operating profit was up 6.2
per cent, benefiting from strong pricing driven by growth in
Americas and reduced losses in our NGP business as last year's
provisions (GBP95 million) were not repeated and we refocused our
investment.
Europe
Half Year Result Change
======================= =============================
2021 2020 Actual Constant Currency
=============================== =========== ========== ========== =================
bn
Tobacco volume SE 60.0 62.7 -4.3%
======================== ====== ========== ========== ========== =================
Total net revenue GBPm 1,670 1,618 +3.2% +1.6%
======================== ====== ========== ========== ========== =================
Tobacco net revenue GBPm 1,615 1,588 +1.7% +0.1%
======================== ====== ========== ========== ========== =================
NGP net revenue GBPm 55 30 +83.3% +78.7%
======================== ====== ========== ========== ========== =================
Adjusted operating
profit GBPm 750 706 +6.2% +3.0%
------------------------ ------ ---------- ---------- ---------- -----------------
Positives Negatives
* Germany and the UK continue to deliver strong * Reduced travel impacts sales in global duty free and
financial performance, with market size benefiting traditional holiday destinations
from reduced travel
* Market share in Germany continues to decline,
* Share gains in Spain and the UK supported by our strategic initiatives will take time to address
focus on local jewel brands
* Travel recovery remains difficult to predict given
* blu share continues to hold up relatively well with a varying levels of COVID-19 across Europe
more targeted approach to investment
Our European results were impacted by a number of different
factors, most notably continued reduced levels of travel impacting
market and channel trends, particularly in our global duty free
business. Financial performance benefited from better market size
trends in Northern Europe, relatively strong tobacco pricing and
reduced losses from our NGP business.
We achieved share gains in Spain and the UK, supported by our
tobacco portfolio work and enhanced strategic focus on local jewel
brands, such as Nobel and Embassy. We have started to take steps to
address share performance in Germany, including investing in sales
force coverage but it will take time to rejuvenate results.
Tobacco volumes decreased by 4.3 per cent, with almost half of
the volume decline driven by lower sales in our global duty free
business as international travel was significantly curtailed.
Excluding duty free, European market volumes were down 1.9 per
cent, with relatively stronger performances in higher margin
Northern Europe markets of the UK, Germany and Norway as consumers
stayed at home, offset by weaker performances in southern European
markets of Spain, Italy and Greece, which have been affected by the
lack of holiday travel.
Total net revenue was up 1.6 per cent at constant currency,
benefiting from increased NGP sales across multiple markets against
a weak comparator last year, which was affected by the action we
had taken to destock the supply chain as well as vapour category
declines. NGP sales of GBP55 million were lower than the GBP68
million reported in the second half of 2020, primarily due to a
reduction in shipments to the Spanish market. Tobacco net revenue
was up 0.1 per cent at constant currency, with positive price mix
of 4.4 per cent led by higher margin markets of Germany and the UK,
partially offset by lower global duty free and travel retail sales
as a result of virus related travel restrictions.
Our blu share in several markets such as the UK, France and
Italy remains relatively stable despite lower levels of investment
and partly supported by market exits by competitors. In heated
tobacco, we continue to prepare ahead of two pilot market launches
later this year. In modern oral nicotine, we have continued to
achieve strong growth in Norway and Austria although our progress
in Germany has slowed following regulation uncertainty.
Adjusted operating profit was up 3.0 per cent at constant
currency, driven by reduced losses in our NGP business as last
year's provisions for write-downs (GBP30 million) were not repeated
to the same extent and as we targeted investment more tightly.
Tobacco profitability was slightly lower due to an increase in
advertising and promotion in our priority markets as well as higher
regulatory costs.
Priority Markets Performance
Tobacco Share
================ ===============================================================
Germany Market size remains strong with less travel and border
20.0% (-40bps) restrictions benefiting duty paid sales in Germany. Addressing
our longer term share decline in Germany will take time
12% of Group as we implement the planned brand initiatives under our
net revenue new strategy. However, we have begun to recruit new sales
people to expand our field force and improve our sales
coverage and distribution in areas of identified weakness.
blu's share of the closed system vapour market continues
to hold up well.
================ ===============================================================
UK Duty paid tobacco market size continues to benefit from
40.8% (+70 reduced travel and lower levels of illicit trade. Our
bps) tobacco share performance has benefited from a focus
on key accounts and the launch of Embassy Signature with
10% of Group share growth in the South. This has partly helped to
net revenue offset share pressure following the characterising flavours
ban in May 2020. Consumer demand for our blu vapour products
remains stable, with investment maintaining brand relevance.
================ ===============================================================
Spain Spain market size continues to be negatively affected
29.2% (+40 by COVID-19-related travel restrictions affecting our
bps) travel retail business, with reduced tourist numbers
and lockdown constraints reducing occasions for domestic
4% of Group social smoking. However, we have continued to gain tobacco
net revenue market share driven by the revival of our local brand
Nobel which has benefited from increased investment and
limited edition formats.
================ ===============================================================
Americas
Half Year Result Change
======================= =============================
2021 2020 Actual Constant Currency
------------------------------- ----------- ---------- ---------- -----------------
bn
Tobacco volume SE 9.4 9.8 -4.1%
======================== ====== ========== ========== ========== =================
Total net revenue GBPm 1,131 1,092 +3.6% +8.8%
======================== ====== ========== ========== ========== =================
Tobacco net revenue GBPm 1,098 1,062 +3.4% +8.6%
======================== ====== ========== ========== ========== =================
NGP net revenue GBPm 33 30 +10.0% +16.0%
======================== ====== ========== ========== ========== =================
Adjusted operating
profit GBPm 426 390 +9.3% +15.1%
------------------------ ------ ---------- ---------- ---------- -----------------
Positives Negatives
* Cigarette share growth up +20 basis points to 9.0 per * Performance affected by prior year timing of
cent. wholesale inventory levels to meet increased retail
demand ahead of lockdowns
* Tobacco pricing remains strong with two market price
rises in the period
* Strong growth from mass market cigars driven by
Backwoods and Dutch Masters
* US state litigation settlement removes uncertainty
and can be managed within full year guidance
The US is our largest single market representing 32 per cent of
Group net revenue. The market remains attractive, with the tobacco
market size broadly flat and strong growth in mass market cigars.
Reported performance was impacted, as expected, by prior year
wholesaler inventory movements to meet accelerated demand last
March as COVID-19 lockdown conditions were enforced. Inventory
movements partly offset continued strong tobacco pricing, with our
financial performance benefiting from two tobacco price rises since
October 2020 and a weak NGP comparator impacted by inventory
write-downs.
We grew our share of the USA cigarette market by 20 basis
points, to 9.0 per cent. Our portfolio strategy continues to offer
consumers brands at each of the key price points, with Winston and
Kool's share of their respective premium categories remaining
stable and share growth driven by Sonoma and Crown's in the growing
deep discount segment. To drive greater sales coverage, we have
started to expand our salesforce to support increased coverage and
visit frequency.
Our divisional tobacco volumes declined by 4.1 per cent.
However, US shipment volumes declined 5.6 per cent driven primarily
by a year-on-year cigarette inventory movement of 0.9 billion
sticks or GBP82 million of net revenue, partly offset by strong
mass market cigar growth, up 62.5 per cent. Excluding the impact of
inventory movements, cigarette volumes grew 0.7 per cent,
benefiting from market share growth of 20 basis points against a
first half market size decline of 1.8 per cent.
Our share performance in mass market cigars grew substantially
against a weak comparator impacted by natural leaf supply
constraints. Sales of Backwoods in the premium natural leaf segment
benefited from enhancements to our manufacturing and supply
processes, as well as increases in activation, including limited
edition launches and online activities. Mass market cigar
performance also benefited from the recent successful launch of a
Dutch Leaf variant in the value segment.
On a constant currency basis, tobacco net revenue increased by
8.8 per cent, primarily reflecting continued strong cigarette
price/mix and the growth of our mass market cigar business.
NGP revenues of GBP33 million were up against last year (2020:
GBP30 million). Our plans are progressing well for an initial pilot
trial later this year with a revised go-to-market strategy for blu.
We also continue to wait for the outcome of the Premarket Tobacco
Product Application (PMTA), under which we submitted an application
last April to continue the marketing of a range of blu vapour
products with various nicotine strengths and flavours.
Adjusted operating profit was 15.1 per cent higher at constant
currency, driven by strong tobacco pricing and the benefit of last
year's GBP48 million NGP write down not being repeated to the same
extent, which more than offset the GBP49 million impact of the
wholesaler inventory movement and a GBP42 million charge for
litigation settlement costs in Minnesota and Texas. These
settlements remove uncertainty and the slightly increased ongoing
costs can be managed within our existing medium-term guidance.
Into the second half of the year, our focus remains on
operational levers; improving sales force coverage and
effectiveness, together with initiatives to enhance brand
equity.
Africa, Asia and Australasia
Half Year Result Change
======================= ======================
*Organic
constant
2021 2020 Actual currency
---------------------------------- ----------- ---------- ---------- ----------
bn
Organic tobacco volume SE 41.3 42.0 -1.6%
=========================== ====== ========== ========== ========== ==========
Total organic net revenue GBPm 770 779 -1.2% -0.2%
=========================== ====== ========== ========== ========== ==========
Organic tobacco net
revenue GBPm 763 756 +0.9% +1.8%
=========================== ====== ========== ========== ========== ==========
NGP net revenue GBPm 7 23 -69.6% -65.7%
=========================== ====== ========== ========== ========== ==========
Organic adjusted operating
profit GBPm 286 278 +2.9% +1.9%
--------------------------- ------ ---------- ---------- ---------- ----------
(*) Organic performance excludes the contribution of the Premium
Cigar Division from both financial reporting periods following its
divestment in October 2020. The Premium Cigar Division contributed
GBP21m to net revenue in 2021 (2020: GBP103m) and GBP3m to adjusted
operating profit (2020: GBP9m). Further details are provided in
notes 3, 5 and 9 of the financial statements.
Positives Negatives
* Refocus on local jewel brands in Africa benefits * Results were impacted by the prior year timing of
market share and financial performance GBP41m of stock profit in Australia
* NGP exits in Japan and Russia announced and underway * Duty paid cigarette market size in higher margined
AAA markets of Australia and Japan remains under
pressure
The Divisional results are affected by the sale of the Premium
Cigar Division in October 2020. The results presented here are on
an organic basis by excluding the contribution from Premium Cigar
Division in both periods to aid comparison of performance on a
like-for-like basis. The impact of the divestment is analysed in
notes 3, 5 and 9 of the financial statements on adjusted
performance measures.
Organic tobacco volumes were 1.6 per cent lower, as volume
declines in the Middle East, Turkey and Australia were partially
offset by volume growth in Russia, Vietnam and the Ivory Coast.
Our divisional share performance benefited from strong share
performances in Russia, the Middle East and our enhanced focus on
local jewels in our African cluster, with strong growth from
Gauloises across North Africa, particularly Morocco. We have also
taken steps to reverse local brand migrations in Madagascar to
strengthen our portfolio.
Organic tobacco net revenue grew 1.8 per cent at constant
currency driven by positive revenue performances in Russia, Saudi
Arabia, Taiwan and Ivory Coast, partially offset by the prior year
timing of a GBP41 million of Australian stock profit, which
benefited last half year.
Australia's results were also impacted by continued declines in
the duty paid market size following accelerated excise increases
over recent years, as well as market share declines driven by
continued growth and price aggression in the lower 'fifth price
tier'. We are taking steps to improve our performance, including
the appointment of a new General Manager in April who has
considerable experience of the Australian tobacco market. Following
the Australian Government's decision to step away from the 12.5 per
cent annual excise increases, we expect a second half headwind from
lower stock profit of around GBP50 million.
Our performance in Russia continued to benefit from improved
pricing and a reduction in discounting in the key account channel.
In Saudi Arabia our volume and financial performance reflected
strong demand for fresh seal formats.
NGP net revenue was down 65.7 per cent at constant currency,
reflecting reduced sales following our decision to exit the vapour
market in Russia and Japan and the heated tobacco market in Japan.
This reflects our more targeted approach to NGP as we have taken
steps to de-focus Japan and Russia, ahead of announced strategic
exits later this year.
Organic adjusted operating profit was up 1.9 per cent at
constant currency with profit growth in Russia and Africa, combined
with lower investment behind NGP, more than offsetting Australia
challenges.
Priority Market Performance
Tobacco Share
================ ========================================================================
Australia Market size declined 4.6% on a six month basis , a relatively improved
30.8% (-240 recent trend although volumes continue to be affected by affordability.
bps) Our share performance has been negatively impacted by price aggression
from competitors discounting post excise increases and continued
5% of Group net growth in the 'fifth price tier'. Whilst Parker & Simpson continues
revenue to grow share at this tier, this has not been enough to offset
declining JPS sales as consumers move down the price ladder.
================ ========================================================================
Distribution
Half Year Result Change
================== ===========================
2021 2020 Actual Constant Currency
-------------------------------- -------- -------- -------- -----------------
Net revenue GBPm 533 488 +9.2% +5.8%
========================== ==== ======== ======== ======== =================
Adjusted operating profit GBPm 121 95 +27.5% +22.9%
========================== ==== ======== ======== ======== =================
Operating margin % 22.7 19.5 +320 bps +320 bps
========================== ==== ======== ======== ======== =================
Eliminations GBPm 3 (9) +136.7% +134.4%
========================== ==== ======== ======== ======== =================
Adjusted operating profit
(inc. eliminations) GBPm 124 86 +44.7% +39.4%
========================== ==== ======== ======== ======== =================
Although COVID-19 continues to restrict movements in many of its
end markets, Logista has continued to distribute products to
customers with almost all the points of sale, products and services
classified as essential by governments.
Net revenue grew 5.8 per cent at constant currency driven by new
contracts in pharmaceutical distribution and by a strong
performance in courier and long-distance transportation businesses,
as well as an increase in tobacco distribution and convenience
products in Italy and France. Adjusted operating profit increased
22.9 per cent at constant currency due to strong cost management
initiatives.
The adjusted operating profit contribution to the Group, after
eliminations, increased by 39.4 per cent. This reflects the
increase in adjusted operating profit and the movement in
eliminations arising from a reduction in inventory levels held by
Logista following the stock increases in March 2020 to temporarily
reinforce supply contingencies in the context of the COVID-19
pandemic.
In line with other Imperial owned entities, we continue to
benefit from an intercompany cash pooling arrangement with Logista,
which further enhances the Group's liquidity. On a 12-month basis,
the daily average cash balance loaned to the Group by Logista was
GBP2.1 billion, with movements in the cash position during the
12-month period varying from a high of GBP4.0 billion to a low of
GBP0.5 billion, primarily due to the timing of excise duty
payments. At the period end, the loan position was GBP1.7 billion
compared to GBP2.4 billion at 30 September 2020.
FINANCIAL REVIEW
Net revenue growth driven by strong tobacco pricing and NGP
sales
-- Net revenue grew 3.5% at constant currency comprising +3.2% from tobacco and +16.0% from NGP.
-- Tobacco volumes down 3.3%, in line with the market decline
reflecting weaker duty free and travel retail volumes and lower US
inventories following wholesaler demand in March 2020. This is
partly offset by market size in domestic markets such as UK, US,
Germany and the Nordics.
-- Price mix of 6.5% reflects tobacco pricing of 5.3% driven by
our priority markets and positive product mix from increased
Backwoods sales in the US which offsets downtrading across other
geographies.
-- NGP revenue increased 16.0% at constant currency reflecting
the lapping of last year's trade inventory destock
-- Adverse translation FX down 1.1% due to sterling
strengthening against the US dollar, partly offset by sterling
weakening against the euro
NET REVENUE BRIDGE: +3.5% (CC); 2.4% (Actual FX Rate)
HY20 net revenue GBP3,592m
========== ======
Premium Cigars -GBP103m
========== ======
HY20 net revenue excl. divestment GBP3,489m
========== ======
Tobacco volume -3.3%
========== ======
Tobacco price/mix +6.5%
========== ======
NGP net revenue +0.3%
========== ======
HY21 organic constant currency net
revenue GBP3,611m +3.5%
========== ======
Translation FX -1.1%
========== ======
HY21 organic net revenue GBP3,571m +2.4%
========== ======
Organic adjusted operating profit up 8.1% at constant currency;
reported operating profit up 77.0%
-- Organic adjusted operating profit up 8.6% at actual rates
-- Tobacco adjusted operating income down GBP56m (-3.4%) at constant currency driven by:
o lower US trade inventories (GBP49m) reflecting the phasing of
purchases in March 2020 to support consumer demand
o lower stock profit in Australia (GBP41m) as previously
guided
o a charge to meet US state litigation costs (GBP42m)
-- Excluding these impacts, tobacco profitability increased by GBP76m, or 4.8%
-- NGP losses reduced by GBP141m or 62.5% as we continue to
optimise investment and as the prior year write-downs (GBP95m) were
not repeated to the same extent
-- Distribution operating profit up 39.4% reflecting a good
performance in the pharmaceutical sector as well as reduced
intercompany stock
-- Reported operating profit of GBP1,637 million grew 77%,
driven by gains on disposal of the Premium Cigar Division
-- Translation FX reflects sterling weakening against currencies
in higher margin geographies in Europe/Australia
ADJUSTED OPERATING PROFIT BRIDGE: +8.1% (CC); +8.6% (Actual
FX Rate)
HY20 adjusted operating profit GBP1,469m
============== ======
Premium Cigars -GBP9m
============== ======
HY20 adjusted operating profit excl.
divestment GBP1,460m
============== ======
Prior year US consumer pull -GBP49m
============== ======
Prior year Australia stock profit -GBP41m
============== ======
Prior year NGP write-downs +GBP95m
============== ======
US state litigation charge -GBP42m
============== ======
Tobacco operating income +GBP76m
============== ======
NGP operating income +GBP46m
============== ======
Distribution & eliminations +GBP34m
============== ======
HY21 organic constant currency AOP GBP1,579m +8.1%
============== ======
Translation FX +GBP7m
============== ======
HY21 organic adjusted operating profit GBP1,586m +8.6%
============== ======
Organic adjusted earnings per share of 107.0p up 6.9% at
constant currency; reported earnings per share up 135.6p to
191.2p
-- Organic adjusted EPS is 107.0 pence, up 6.9% at constant
currency due to lower NGP losses, partially offset by an increase
in the effective tax rate from 21% to 23.1%
-- Reported EPS up 244% at 191.2 pence materially due to marked
to market foreign exchange accounting gains on financial
instruments caused by a 7% weakening in the euro against sterling
and the impairment of Premium Cigar intangibles in the prior
period
EPS BRIDGE: +6.9% (CC); +7.0% (Actual FX Rate)
HY20 adjusted EPS 103.0p
======= ======
Premium Cigar -3.0p
======= ======
HY20 adjusted EPS excl. divestment 100.0p
======= ======
Operating profit +12.6p
======= ======
Interest & Tax -4.8p
======= ======
Minorities & JV -0.9p
======= ======
HY21 organic adjusted constant currency
EPS 106.9p +6.9%
======= ======
Translation FX +0.1p
======= ======
HY21 organic adjusted EPS 107.0p +7.0%
======= ======
Group Results - Organic Constant Currency Analysis
======================================================================================================================
Constant
GBP million Half Year ended Foreign Constant Half Year ended currency
(unless otherwise indicated) 31 March 2020 exchange currency movement 31 March 2021 Change change
================================== =============== ========= ================== =============== ====== =========
Organic Tobacco &
NGP Net Revenue
================================== =============== ========= ================== =============== ====== =========
Europe 1,618 26 26 1,670 3.2% 1.6%
================================== =============== ========= ================== =============== ====== =========
Americas 1,092 (58) 97 1,131 3.6% 8.8%
================================== =============== ========= ================== =============== ====== =========
Africa, Asia and Australasia 779 (8) (1) 770 -1.2% -0.2%
================================== =============== ========= ================== =============== ====== =========
Total Group 3,489 (40) 122 3,571 2.4% 3.5%
---------------------------------- --------------- --------- ------------------ --------------- ------ ---------
Organic Tobacco & NGP
Adjusted Operating Profit
================================== =============== ========= ================== =============== ====== =========
Europe 706 23 21 750 6.2% 3.0%
================================== =============== ========= ================== =============== ====== =========
Americas 390 (23) 59 426 9.3% 15.1%
================================== =============== ========= ================== =============== ====== =========
Africa, Asia and Australasia 278 3 5 286 2.9% 1.9%
================================== =============== ========= ================== =============== ====== =========
Total Group 1,374 3 85 1,462 6.4% 6.2%
---------------------------------- --------------- --------- ------------------ --------------- ------ ---------
Distribution
================================== =============== ========= ================== =============== ====== =========
Net revenue 488 17 28 533 9.2% 5.8%
================================== =============== ========= ================== =============== ====== =========
Adjusted operating profit 95 4 22 121 27.5% 22.9%
---------------------------------- --------------- --------- ------------------ --------------- ------ ---------
Group Adjusted Results
================================== =============== ========= ================== =============== ====== =========
Organic Adjusted operating profit 1,460 7 119 1,586 8.6% 8.1%
================================== =============== ========= ================== =============== ====== =========
Adjusted net finance costs (210) (6) 10 (206) 1.8% 4.7%
================================== =============== ========= ================== =============== ====== =========
Organic Adjusted EPS (pence) 100.0 0.1 6.9 107.0 7.0% 6.9%
================================== =============== ========= ================== =============== ====== =========
Adjusted Performance Measures
When managing the performance of our business we focus on
non-GAAP measures, which we refer to as adjusted measures. We
believe they provide a better comparison of underlying performance
from one period to the next as GAAP measures can include one-off,
non-recurring items and recurring items that relate to earlier
acquisitions. These adjusted measures are supplementary to, and
should not be regarded as a substitute for, GAAP measures, which we
refer to as reported measures. The basis of our adjusted measures
is explained in our accounting policies accompanying our financial
statements.
Reconciliations between reported and adjusted measures are
included in the appropriate notes to our financial statements.
Percentage growth figures for adjusted results are given on a
constant currency basis, where the effects of exchange rate
movements on the translation of the results of our overseas
operations are removed.
This year we also show organic numbers which remove the sold
operations of our Premium Cigar Division to show a like for like
performance, these measures are termed "organic" and form the basis
of the performance commentary. The impact of these changes can be
seen in our Adjusted Performance Measures note.
In the 2020 Annual Report and Accounts we committed to reviewing
our treatment of restructuring costs as an adjusted measure by the
end of 2020 in line with the completion of the Cost Optimisation
programmes, which were due to conclude that year. However, as
previously announced, the COVID-19 pandemic meant some of these
programme's projects were delayed into 2021 and so we deferred the
review of the treatment of restructuring costs as an adjusted item
until the end of this year.
In January, we announced the outcome of our strategic review,
including an associated and specific time-bound restructuring
programme to deliver new ways of working and efficiencies, which we
refer to as the 2021 Strategic Review Programme. This will result
in one-off costs to reshape the business to support delivery of the
new strategy, and will exclude any costs associated with factory
footprint rationalisation. The restructuring costs for 2021
Strategic Review Programme will be treated as an adjusting item in
2021 and 2022, by which time the activities are expected to have
been actioned. From 2023 onwards, we do not intend for
restructuring costs to be treated as an adjusting item.
Group Earnings Performance
Reported Organic Adjusted
----------------------------------------- ----------------- ------------------
GBP million unless otherwise indicated 2021 2020 2021 2020
----------------------------------------- -------- ------- -------- --------
Operating profit
Tobacco & NGP 1,560 880 1,462 1,374
Distribution 74 54 121 95
Eliminations 3 (9) 3 (9)
----------------------------------------- -------- ------- -------- --------
Group operating profit 1,637 925 1,586 1,460
Net finance costs 414 (160) (206) (210)
Share of profit of investments accounted
for using the equity method 8 20 4 (1)
----------------------------------------- -------- ------- -------- --------
Profit before tax 2,059 785 1,384 1,249
Tax (215) (235) (318) (263)
Non-controlling interest (38) (25) (55) (41)
Profit for the period 1,806 525 1,011 945
----------------------------------------- -------- ------- -------- --------
Earnings per ordinary share (pence) 191.2 55.6 107.0 100.0
----------------------------------------- -------- ------- -------- --------
Reconciliation of Income Statement Adjusted Performance
Measures
Earnings per
Operating profit Net finance costs share (pence)
----------------------------------- ------------------ ------------------- ----------------
GBP million unless otherwise
indicated 2021 2020 2021 2020 2021 2020
----------------------------------- -------- -------- --------- -------- -------- ------
Reported 1,637 925 414 (160) 191.2 55.6
Acquisition and disposal costs - 14 - - - 1.5
Profit on disposal of subsidiaries (281) - - - (30.4) -
Amortisation & impairment of
acquired intangibles 211 436 - - 21.1 44.1
Excise tax provision (1) (23) - - (0.1) (2.4)
Fair value adjustment loan
receivable (17) 23 - - (1.8) 1.7
Net fair value and exchange
movements on derivative financial
instruments - - (619) (53) (74.9) (0.5)
Post-employment benefits net
financing costs - - (1) 3 (0.1) 0.1
Restructuring costs 40 94 - - 3.3 7.4
Tax on unrecognised losses - - - - 1.1 (2.8)
Items above attributable to
non-controlling interests - - - - (1.8) (1.7)
----------------------------------- -------- -------- --------- -------- -------- ------
Adjusted 1,589 1,469 (206) (210) 107.6 103.0
----------------------------------- -------- -------- --------- -------- -------- ------
Of which:
----------------------------------- -------- -------- --------- -------- -------- ------
Organic 1,586 1460 (206) (210) 107.0 100.0
----------------------------------- -------- -------- --------- -------- -------- ------
Premium Cigar divestment 3 9 0 0 0.6 3.0
----------------------------------- -------- -------- --------- -------- -------- ------
Please refer to notes 5 and 12 of the financial statements for a
full reconciliation of adjusted performance measures including cash
and debt.
Tobacco Revenue Momentum and Reduced NGP Losses
Group net revenue grew 3.5 per cent at constant currency driven
by tobacco net revenue up 3.2 per cent and NGP net revenue up 16.0
per cent.
Tobacco volumes fell 3.3 per cent, reflecting continued pressure
in duty free and travel retail markets and reduced inventories in
the US following consumer and wholesaler demand in March 2020.
Market size across a number of our larger markets has continued to
benefit from reduced illicit trade and changes to consumer buying
patterns as COVID-19 restrictions, particularly on travel, have
continued into 2021.
We have begun to stabilise the aggregate market share
performance across our five priority markets, reflecting the
benefit of a greater focus on performance management in these
markets. We also grew market share for the Group as a whole by 30
basis points over the six month period.
Organic tobacco net revenue grew 3.2 per cent driven by price
mix of 6.5 per cent, more than offsetting the volume decline of 3.3
per cent. Tobacco price mix has benefited from continued price
increases in our priority markets as well as strong product mix
performance in the US driven by growth in Backwoods and Dutch
cigars helping to offset underlying adverse product mix elsewhere
in the business.
The tobacco revenue momentum did not translate into improved
profit performance due to two key items: lower stock profit in
Australia than the prior year as previously guided (GBP41 million)
and a charge for US state litigation settlement in Minnesota and
expected settlement in Texas (GBP42 million). Tobacco profit was
further impacted by the timing impacts of higher US trade
inventories in March 2020 (GBP49 million) to meet COVID-19 related
pantry loading demand. Excluding these items totalling GBP132m,
tobacco profit would have been up 4.8 per cent.
NGP revenues rose 16.0 per cent at constant currency. We reduced
our NGP operating loss by 62.5 per cent at constant currency to
GBP(83) million, due to the prior year costs of slow moving stock
provisions (GBP75 million) and the impairment of certain NGP
intangible assets (GBP20 million), as well as the benefit of the
actions we have taken to target our investment more effectively,
reducing costs and resetting trade margins.
Group adjusted operating profit grew 8.1 per cent at constant
currency reflecting the reduced losses in NGP and growth in the
Distribution segment, where adjusted operating profit grew 39.4 per
cent at constant currency.
On a reported basis, Group operating profit increased by 77.0
per cent, materially driven by profit on disposal of the Premium
Cigar Division and the impairment of intangibles for the Premium
Cigar Division in FY20.
The restructuring charge for the half year of GBP40 million
(2020: GBP94 million) relates to both the new 2021 Strategic Review
Programme and our legacy cost optimisation programme. The total
restructuring cash cost in the half year was GBP46 million (2020:
GBP73 million).
Adjusted net finance costs were marginally lower at GBP206
million (2020: GBP210 million). Reported net finance costs showed a
gain of GBP414 million (2020: loss GBP160 million), which primarily
stems from marked to market foreign exchange accounting gains
(GBP534 million) on Euro financial instruments as sterling
strengthened 7 per cent against the Euro at the closing balance
sheet date..
Our all-in cost of debt increased to 3.7 per cent (2020: 3.3 per
cent) reflecting the maturing of lower cost debt instruments in the
year. Our interest cover increased to 9.4 times (2020: 8.7 times).
We remain fully compliant with all our banking covenants and remain
committed to retaining our investment grade ratings.
Our effective adjusted tax rate is 23.1 per cent (2020: 20.7 per
cent) and the effective reported tax rate is 10.4 per cent (2020:
29.9 per cent). The increase in the effective adjusted tax rate was
due to a less favourable profit mix. The adjusted tax rate is
higher than the reported rate due to limited tax arising on the
disposal gain on the Premium Cigar business disposal. We expect our
effective adjusted tax rate for the year ended 30 September 2021 to
be around 23 per cent.
The effective tax rate is sensitive to the geographic mix of
profits, reflecting a combination of higher rates in certain
markets such as Germany and lower rates in other markets such as
the UK. The rate is also sensitive to future legislative changes
affecting international businesses such as changes arising from the
Organisation for Economic Co-operation and Development's (OECD)
Base Erosion Profit Shifting (BEPS) work. Whilst we seek to
mitigate the impact of these changes, we anticipate there will be
further upward pressure on the adjusted and reported tax rate in
the medium term. Our Group Tax Strategy is publicly available and
can be found in the governance section of our corporate
website.
Organic adjusted earnings per share was 107.0 pence (2020: 100.0
pence), up 6.9 per cent at constant currency and up 7.0 per cent at
actual rates, reflecting reduced NGP losses and higher Distribution
profit, partly offset by a higher effective tax rate. Reported
earnings per share were up 244 per cent at 191.2 pence (2020: 55.6
pence), mainly due to positive movements in reported finance costs
and disposal gains on the sale of our Premium Cigar Division.
The foreign exchange impact on profits and earnings per share at
average exchange rates is broadly neutral as sterling weakened
against the Euro (3.2 per cent) and Australian Dollar (6.2 per
cent) but strengthened against the US Dollar (5.1 per cent).
Cost Optimisation and 2021 Strategic Review Programmes
We undertake major cost restructuring programmes to realise
operational efficiencies. We have three restructuring programmes
reflected in these results and details of the programmes are set
out in the table below.
Our first Cost Optimisation Programme was announced in January
2013 and while the activities were concluded in September 2018,
there remain some ongoing cash costs.
The second Cost Optimisation Programme was announced in November
2016 and was expected to have concluded by the end of FY20.
However, some of the programme initiatives have been delayed due to
the COVID-19 pandemic and are expected to now conclude by the end
of FY21, although there will be some ongoing cash costs. The
programme is expected to be completed at a cash restructuring cost
of c.GBP650 million, a GBP100 million reduction against our
original estimates.
Cash restructuring costs at the half year from the first
programme were GBP4 million (2020: GBP9 million) and GBP27 million
(2020: GBP55 million) for the second programme.
In January, we announced the 2021 Strategic Review Programme to
support delivery of our five year strategic plan. A cash cost of
GBP7 million had been incurred as at March 2021, primarily relating
to initial concept and design work. GBP20 million of non-cash
impairments have also been allocated relating to market costs as we
refine our NGP approach, as well as digital and e-commerce
assets.
GBPm Charges Cash costs Annualised savings
------------------- ------------ ------------------------- ------------------------
Restructuring Cumulative Anticipated Cumulative Anticipated Delivered
Programme recognised Total to date to date
------------------- ------------ ------------ ----------- ------------ ----------
Cost Optimisation
Programme 1
(2013) 945 632 563 305 305
Cost Optimisation
Programme 2
(2016) 834 650 534 320 310
2021 Strategic
Review Programme 27 245-275 7 100-150 -
Cash Flow and Net Debt
In the six months to 31 March 2021, the net cash outflow was
GBP0.8 billion, with a GBP1.3 billion working capital outflow, GBP1
billion of dividend payments, and cash tax & interest payments
of GBP0.7 billion offsetting inflows from EBITDA of GBP1.7 billion
and disposal proceeds of GBP0.6 billion. The increase in cash tax
and interest has been driven primarily by tax paid in respect of EU
State Aid of GBP0.1 billion. Cash conversion for the six months to
31 March 2021 was 16 per cent (2020: 20 per cent).
On a 12-month basis, cash conversion remained strong at 122 per
cent driven by a net working capital inflow of GBP0.7 billion. Net
cash flow over this period increased by GBP2.4 billion to GBP2.5
billion year-on-year, benefiting from improved operating cash flow,
the reduced dividend and the proceeds from the sale of Premium
Cigar Division. We anticipate cash conversion to remain at c. 80
per cent as we lose the benefit of the duty deferrals in Logista,
which benefited our FY20 results.
As expected, in the half year there was a significant working
capital outflow of GBP1.3 billion materially due to movements in
Logista where the duty deferral benefit held at the year-end
unwound, changes to working capital in Germany where we had
different production scheduling compared to year end and higher
stock levels across some of our European markets due to the timing
of various duty and pricing decisions.
Proceeds of GBP626 million were received in relation to the
disposal of our Premium Cigar Division, which completed in October
2020. A further tranche of deferred proceeds and interest of EUR256
million was received on 29 April 2021 and further deferred proceeds
of EUR157 million are due over the next 12 months. Dividends of
GBP1.0 billion were GBP0.4 billion lower than in the same period
last year reflecting the impact of rebasing the dividend by one
third as announced in May 2020.
Adjusted net debt remained flat from 30 September 2020 at
GBP10.3 billion at actual rates. Reported debt is GBP0.7 billion
higher than adjusted net debt due to the inclusion of lease
liabilities (GBP0.3 billion), the fair value of interest rate
derivatives (GBP0.3 billion) and accrued interest (GBP0.1 billion).
Reported net debt decreased by GBP0.1 billion since 30 September
2020 to GBP11.0 billion, with a cash outflow of GBP0.8 billion
offset by positive foreign exchange movements of GBP0.8 billion and
GBP0.1 billion benefit to accrued interest and changes in fair
values of derivatives.
During the half year we repaid a bond of EUR1 billion and issued
a new 12-year EUR1 billion bond. The denomination of our closing
adjusted net debt was split approximately 67 per cent euro and 33
per cent US dollar. During the half year bilateral facilities
totalling EUR0.9 billion were cancelled. As at 31 March 2021, the
Group had committed financing in place of GBP14.5 billion, which
comprised 25 per cent bank facilities and 75 per cent raised from
capital markets.
Dividends
The Group has paid two dividends of 48.00 pence and 48.01 pence
per share in December 2020 and March 2021 respectively, in line
with our quarterly dividend payment policy to give shareholders a
more regular cash return.
The Board has declared an interim dividend of 42.12 pence per
share which will be paid in two payments of 21.06 pence per share
on 30 June 2021 and 30 September 2021, with ex-dividend dates of 27
May 2021 and 19 August respectively. This interim dividend is an
increase of 1%, or GBP4 million, in line with the Group's
progressive dividend policy.
Principal Risks and Uncertainties
The Group's Risk Management approach is designed to enable
people across our business to proactively identify and assess risks
on an ongoing basis, and to ensure the effectiveness of the
mitigating actions in place. The business is supported by subject
matter experts in our second line functions to best ensure the
appropriateness of the Group's control frameworks, and related
monitoring and reporting.
As part of the approach the Group Crisis Committee has had
operational oversight of the resilience of the business for the
past 12 months and continues to inform the Board of the potential
and actual impacts of COVID-19 on the business. During the pandemic
the impacts of COVID-19 have been well managed to ensure continuity
of operations, with new working practices having evolved and
significant effort provided by our teams across the globe, along
with those of our customers, suppliers, and other stakeholders.
The wider socio-economic effects of COVID-19 could impact the
commercial environment into the longer-term, and could result in
the size of the legitimate nicotine market being negatively
impacted by regulatory change, excise tax or increases in other
product taxes, and affordability concerns resulting in consumer
downtrading or increased consumption of illicit product.
Additionally, the impacts on global supply chains, financial
markets, and businesses in commercial distress are being actively
considered and mitigating actions taken across the business. Given
the unprecedented nature of the pandemic and the related
variability of outcomes our ability to accurately predict and
quantify these risks may be reduced in comparison to pre-pandemic
periods.
The Board continues to monitor the principal risks and
uncertainties to which the Group is exposed. The risks and the
approach to managing the risks remains consistent with that
identified on pages 42-61 of our 2020 Annual Report and Accounts,
and covers the following areas:
-- Market Environment
-- Consumer Focus
-- Legal and Regulatory compliance
-- Product Supply
-- People and Organisation
-- Financial Management
-- Market Execution
-- Innovation
-- Financial and other reporting
-- Capital allocation
-- Delivery of transformation projects
-- Litigation
The design and implementation of the operating model to support
delivery of the new Group strategy, as well as the onboarding of
new senior management team members potentially increases the
short-term impact of related risks, but does not change the
principal risks themselves. This also applies to risks to our
product portfolio and market environment resulting from specific
direct and indirect regulatory change or proposed change (e.g.
restrictions on flavoured products or nicotine levels). The risks
and opportunities arising from regulatory change continue to be
assessed and managed on an ongoing basis.
Failure to appropriately consider and mitigate the potential
outcomes of the risks affecting both organisational change and the
wider business could result in material adverse effects on the
Group, from both the crystallisation of risks, and the failure to
seize opportunities in an increasingly dynamic marketplace.
Liquidity and Going Concern
The Group's policy is to ensure that we always have sufficient
capital markets funding and committed bank facilities in place to
meet foreseeable peak borrowing requirements. Financing decisions
are taken after consideration of the Group's operating cash flows,
capital investment programmes, asset/business disposals and
dividend payments.
The Directors recognise that the current environment brings
uncertainty due to the COVID-19 pandemic; however, over the last
year, the Group has effectively managed operations across the
world, and has an established mechanism to operate efficiently
despite the uncertainty, with little impact to date. Consumer sales
have proved to be resilient, and it can be seen that governments
are supportive of ongoing distribution. The Directors consider that
a one-off discrete event with immediate cash outflow is of greater
concern to short term liquidity than any effect from the on-going
COVID-19 pandemic. Scenario testing has focused on modelling a
number of potential one-off discrete events such as the impact of
governments accelerating duty payments. In addition, scenarios of a
combination of concurrent events have also been reviewed including
reduction of 15 per cent or 30 per cent of ongoing EBITDA (as a
result of reduced access to markets or sustained closure of
manufacturing or supply chain), an additional level of bad debts
and the loss of Imperial's factoring facilities.
The scenario testing also considered mitigating actions
including reductions to capital expenditure and dividend payments.
There are additional actions that were not modelled but could be
taken including other cost mitigations such as staff redundancies,
retrenchment of leases, and discussions with lenders about capital
structure.
Under a worst-case scenario, where the largest envisaged
downside scenarios all take place at the same time and taking full
use of the capital expenditure and dividend payment reduction
mitigating actions as described above, the Group would have
sufficient headroom throughout the period under review to November
2022. The Group believes this worst-case scenario to be highly
unlikely and has a number of mitigating actions available that
could be implemented should such a scenario arise.
Based on the review of future cashflows covering the period
through to November 2022, and having assessed the principal risks
facing the Group, the Board is of the opinion that the Group as a
whole, and Imperial Brands PLC, have adequate resources to meet
operational needs from the date of this Report through to November
2022 and concludes that it is appropriate to prepare the financial
statements on a going concern basis.
Statement of Directors' Responsibilities
The Directors confirm that this condensed consolidated interim
financial information has been prepared in accordance with IAS 34
as adopted by the European Union and that the interim management
report includes a fair review of the information required by DTR
4.2.7 and DTR 4.2.8, namely: an indication of important events that
have occurred during the first six months of the financial year and
their impact on the condensed set of financial statements, and a
description of the principal risks and uncertainties for the
remaining six months of the financial year; and material related
party transactions in the first six months of the current financial
year and any material changes in the related-party transactions
described in the last annual report.
A list of current directors is maintained on the Imperial Brands
PLC website: www.imperialbrandsplc.com.
The Directors are responsible for the maintenance and integrity
of the Company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Oliver Tant
Chief Financial Officer
SUMMARY OF KEY FOOTPRINT FINANCIALS & METRICS
Half Year Result Change
================== ===================
FOOTPRINT Constant
2021 2020 Actual Currency
============================= ======== ======== ======== =========
Volume
====================== ===== ======== ======== ======== =========
bn
Europe SE 60.0 62.7 -4.3%
====================== ===== ======== ======== ======== =========
bn
Americas SE 9.4 9.8 -4.1%
====================== ===== ======== ======== ======== =========
Africa, Asia and bn
Australasia SE 41.3 42.0 -1.6%
====================== ===== ======== ======== ======== =========
bn
Total Group SE 110.7 114.5 -3.3%
====================== ===== ======== ======== ======== =========
Tobacco Net Revenue
====================== ===== ======== ======== ======== =========
Europe GBPm 1,615 1,588 1.7% 0.1%
====================== ===== ======== ======== ======== =========
Americas GBPm 1,098 1,062 3.4% 8.6%
====================== ===== ======== ======== ======== =========
Africa, Asia and
Australasia GBPm 763 756 0.9% 1.8%
====================== ===== ======== ======== ======== =========
Total Group GBPm 3,476 3,406 2.1% 3.2%
====================== ===== ======== ======== ======== =========
Tobacco Net Revenue
per '000 SE
====================== ===== ======== ======== ======== =========
Europe GBP 26.94 25.34 6.3% 4.6%
====================== ===== ======== ======== ======== =========
Americas GBP 117.14 108.70 7.8% 13.3%
====================== ===== ======== ======== ======== =========
Africa, Asia and
Australasia GBP 18.46 17.99 2.6% 3.5%
====================== ===== ======== ======== ======== =========
Total Group GBP 31.41 29.76 5.5% 6. 7%
====================== ===== ======== ======== ======== =========
Tobacco Price/Mix
====================== ===== ======== ======== ======== =========
Europe % 6.0% 4.4%
====================== ===== ======== ======== ======== =========
Americas % 7.5% 12.7%
====================== ===== ======== ======== ======== =========
Africa, Asia and
Australasia % 2.5% 3.4%
====================== ===== ======== ======== ======== =========
Total Group % 5.4% 6.5%
====================== ===== ======== ======== ======== =========
NGP Net Revenue
====================== ===== ======== ======== ======== =========
Europe GBPm 55 30 83.3% 78.7%
====================== ===== ======== ======== ======== =========
Americas GBPm 33 30 10.7% 16.0%
====================== ===== ======== ======== ======== =========
Africa, Asia and
Australasia GBPm 7 23 -70.0% -65.7%
====================== ===== ======== ======== ======== =========
Total Group GBPm 95 83 14.7% 16.0%
====================== ===== ======== ======== ======== =========
Adjusted Tobacco & NGP Operating
Profit
======================================= ======== ======== =========
Europe GBPm 750 706 6.2% 3.0%
====================== ===== ======== ======== ======== =========
Americas GBPm 426 390 9.3% 15.1%
====================== ===== ======== ======== ======== =========
Africa, Asia and
Australasia GBPm 286 278 2.9% 1.9%
====================== ===== ======== ======== ======== =========
Total Group GBPm 1,462 1,374 6.4% 6.2%
====================== ===== ======== ======== ======== =========
Distribution
====================== ===== ======== ======== ======== =========
Net revenue GBPm 533 488 9.2% 5.8%
====================== ===== ======== ======== ======== =========
Operating Profit GBPm 121 95 27.5% 22.9%
====================== ===== ======== ======== ======== =========
Operating Margin % 22.7 19.5 +320 bps +320 bps
====================== ===== ======== ======== ======== =========
INDEPENT REVIEW REPORT TO IMPERIAL BRANDS PLC
Introduction
We have been engaged by the Company to review the condensed
consolidated set of financial statements in the Interim Results of
Imperial Brands PLC for the six months ended 31 March 2021 which
comprises the consolidated income statement, consolidated statement
of comprehensive income, consolidated balance sheet, consolidated
statement of changes in equity, consolidated cash flow statement
and the related explanatory notes. We have read the other
information contained in the Interim Results and considered whether
it contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial
statements.
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The Interim Results are the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the half-yearly financial report in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in the Interim Results has been prepared in accordance with
International Accounting Standard 34, "Interim Financial
Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the Interim Results
based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated set of
financial statements in the Interim Results for the six months
ended 31 March 2021 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
18 May 2021
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
Unaudited Unaudited Audited
============================ ============================ ===============
GBP million unless otherwise Year ended 30
indicated Notes 6 months ended 31 March 2021 6 months ended 31 March 2020 September 2020
================================== ===== ============================ ============================ ===============
Revenue 3 15,568 14,672 32,562
================================== ===== ============================ ============================ ===============
Duty and similar items (7,640) (7,107) (15,962)
Other cost of sales (5,068) (4,797) (10,420)
================================== ===== ============================ ============================ ===============
Cost of sales (12,708) (11,904) (26,382)
================================== ===== ============================ ============================ ===============
Gross profit 2,860 2,768 6,180
Distribution, advertising and
selling costs (1,097) (1,152) (2,329)
================================== ===== ============================ ============================ ===============
Acquisition and disposal costs - (14) (26)
Profit on disposal of subsidiaries 10 281 - -
Amortisation and impairment of
acquired intangibles 11 (211) (436) (523)
Excise tax provision 1 23 20
Fair value adjustment of loan
receivable 13 17 (23) (62)
Restructuring costs 4 (40) (94) (205)
Other expenses (174) (147) (324)
================================== ===== ============================ ============================ ===============
Administrative and other expenses (126) (691) (1,120)
================================== ===== ============================ ============================ ===============
Operating profit 3/5 1,637 925 2,731
================================== ===== ============================ ============================ ===============
Investment income 1,071 624 770
Finance costs (657) (784) (1,380)
================================== ===== ============================ ============================ ===============
Net finance income/(costs) 5 414 (160) (610)
Share of profit of investments
accounted for using the equity
method 8 20 45
================================== ===== ============================ ============================ ===============
Profit before tax 2,059 785 2,166
Tax 7 (215) (235) (608)
================================== ===== ============================ ============================ ===============
Profit for the period 1,844 550 1,558
---------------------------------- ----- ---------------------------- ---------------------------- ---------------
Attributable to:
Owners of the parent 1,806 525 1,495
Non-controlling interests 38 25 63
---------------------------------- ----- ---------------------------- ---------------------------- ---------------
Earnings per ordinary share
(pence)
- Basic 9 191.2 55.6 158.3
- Diluted 9 190.9 55.5 158.1
---------------------------------- ----- ---------------------------- ---------------------------- ---------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
============================ ============================ ===============
Year ended 30
GBP million 6 months ended 31 March 2021 6 months ended 31 March 2020 September 2020
====================================== ============================ ============================ ===============
Profit for the period 1,844 550 1,558
Other comprehensive income
====================================== ============================ ============================ ===============
Exchange movements (917) (140) 151
Exchange movements recycled to profit
and loss upon disposal of
subsidiaries (337) - -
Current tax on hedge of net
investments and quasi-equity loans (130) - (10)
Deferred tax on hedge of net
investments and quasi-equity loans 2 - (80)
====================================== ============================ ============================ ===============
Items that may be reclassified to
profit and loss (1,382) (140) 61
====================================== ============================ ============================ ===============
Net actuarial gains on retirement
benefits 6 6 533 277
Current tax relating to net actuarial
gains on retirement benefits 14 - -
Deferred tax relating to net actuarial
gains on retirement benefits (12) (135) (53)
====================================== ============================ ============================ ===============
Items that will not be reclassified to
profit and loss 8 398 224
====================================== ============================ ============================ ===============
Other comprehensive (expense)/income
for the period, net of tax (1,374) 258 285
====================================== ============================ ============================ ===============
Total comprehensive income for the
period 470 808 1,843
-------------------------------------- ---------------------------- ---------------------------- ---------------
Attributable to:
Owners of the parent 476 784 1,762
Non-controlling interests (6) 24 81
====================================== ============================ ============================ ===============
Total comprehensive income for the
period 470 808 1,843
-------------------------------------- ---------------------------- ---------------------------- ---------------
CONSOLIDATED BALANCE SHEET
Reclassified
Unaudited Unaudited Audited
============= ============= =================
GBP million Notes 31 March 2021 31 March 2020 30 September 2020
================================================== ===== ============= ============= =================
Non-current assets
Intangible assets 11 16,753 18,246 18,160
Property, plant and equipment 1,714 1,937 1,899
Right of use assets 263 300 293
Investments accounted for using the equity method 88 85 117
Retirement benefit assets 6 942 1,065 940
Trade and other receivables 63 101 57
Derivative financial instruments 12/13 480 816 813
Deferred tax assets 303 382 381
State aid tax recoverable 101 - -
================================================== ===== ============= ============= =================
20,707 22,932 22,660
================================================== ===== ============= ============= =================
Current assets
Inventories 4,575 5,101 4,065
Trade and other receivables 2,780 2,697 2,638
Current tax assets 219 95 206
Cash and cash equivalents 12 765 773 1,626
Derivative financial instruments 12/13 86 186 53
Current assets held for disposal 10 - 1,125 1,062
================================================== ===== ============= ============= =================
8,425 9,977 9,650
================================================== ===== ============= ============= =================
Total assets 29,132 32,909 32,310
================================================== ===== ============= ============= =================
Current liabilities
Borrowings 12 (1,498) (3,418) (1,442)
Derivative financial instruments 12/13 (42) (51) (41)
Lease liabilities 12 (60) (61) (64)
Trade and other payables (9,012) (9,131) (10,170)
Current tax liabilities (323) (250) (350)
Provisions 4 (153) (156) (220)
Current liabilities held for disposal 10 - (189) (38)
================================================== ===== ============= ============= =================
(11,088) (13,256) (12,325)
================================================== ===== ============= ============= =================
Non-current liabilities
Borrowings 12 (9,488) (10,719) (10,210)
Derivative financial instruments 12/13 (1,037) (1,429) (1,641)
Lease liabilities 12 (209) (241) (235)
Trade and other payables (5) (7) (5)
Deferred tax liabilities (911) (1,020) (924)
Retirement benefit liabilities 6 (1,179) (1,103) (1,256)
Provisions 4 (187) (242) (196)
================================================== ===== ============= ============= =================
(13,016) (14,761) (14,467)
================================================== ===== ============= ============= =================
Total liabilities (24,104) (28,017) (26,792)
================================================== ===== ============= ============= =================
Net assets 5,028 4,892 5,518
-------------------------------------------------- ----- ------------- ------------- -----------------
Equity
Share capital 103 103 103
Share premium and capital redemption 5,837 5,837 5,837
Retained earnings (1,447) (2,779) (2,364)
Exchange translation reserve (43) 1,113 1,295
================================================== ===== ============= ============= =================
Equity attributable to owners of the parent 4,450 4,274 4,871
Non-controlling interests 578 618 647
================================================== ===== ============= ============= =================
Total equity 5,028 4,892 5,518
-------------------------------------------------- ----- ------------- ------------- -----------------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited
======================================================================================
Share Equity
premium Exchange attributable Non-
Share and capital Retained translation to owners controlling Total
GBP million capital redemption earnings reserve of the parent interests equity
============================== ======== ============ ========= ============ ============== ============ =======
At 1 October 2020 103 5,837 (2,364) 1,295 4,871 647 5,518
Profit for the period - - 1,806 - 1,806 38 1,844
============================== ======== ============ ========= ============ ============== ============ =======
Exchange movements on assets - - - (1,316) (1,316) (44) (1,360)
Exchange movements on net
investment hedges - - - 600 600 - 600
Exchange movements on quasi
equity loans - - - (157) (157) - (157)
Exchange movements recycled to
profit and loss upon disposal
of subsidiaries - - - (337) (337) - (337)
Current tax on hedge of net
investments and quasi-equity
loans - - - (130) (130) - (130)
Deferred tax on hedge of net
investments and quasi-equity
loans - - - 2 2 - 2
Net actuarial gains on
retirement benefits - - 6 - 6 - 6
Current tax relating to net
actuarial gains on retirement
benefits - - 14 - 14 - 14
Deferred tax relating to net
actuarial gains on retirement
benefits - - (12) - (12) - (12)
============================== ======== ============ ========= ============ ============== ============ =======
Other comprehensive
income/(expense) - - 8 (1,338) (1,330) (44) (1,374)
============================== ======== ============ ========= ============ ============== ============ =======
Total comprehensive
income/(expense) - - 1,814 (1,338) 476 (6) 470
Transactions with owners
Costs of employees' services
compensated by share schemes - - 9 - 9 - 9
Dividends paid - - (906) - (906) (63) (969)
============================== ======== ============ ========= ============ ============== ============ =======
At 31 March 2021 103 5,837 (1,447) (43) 4,450 578 5,028
------------------------------ -------- ------------ --------- ------------ -------------- ------------ -------
At 1 October 2019 103 5,837 (2,255) 1,252 4,937 647 5,584
Profit for the period - - 525 - 525 25 550
============================== ======== ============ ========= ============ ============== ============ =======
Exchange movements - - - (139) (139) (1) (140)
Net actuarial gains on
retirement benefits - - 533 - 533 - 533
Deferred tax relating to net
actuarial gains on retirement
benefits - - (135) - (135) - (135)
============================== ======== ============ ========= ============ ============== ============ =======
Other comprehensive
income/(expense) - - 398 (139) 259 (1) 258
============================== ======== ============ ========= ============ ============== ============ =======
Total comprehensive
income/(expense) - - 923 (139) 784 24 808
Transactions with owners
Costs of employees' services
compensated by share schemes - - 9 - 9 - 9
Changes in non-controlling
interests - - (5) - (5) 5 -
Current tax on share-based
payments - - 1 - 1 - 1
Repurchase of shares - - (92) - (92) - (92)
Dividends paid - - (1,360) - (1,360) (58) (1,418)
============================== ======== ============ ========= ============ ============== ============ =======
At 31 March 2020 103 5,837 (2,779) 1,113 4,274 618 4,892
------------------------------ -------- ------------ --------- ------------ -------------- ------------ -------
CONSOLIDATED CASHFLOW STATEMENT
Unaudited Unaudited Audited
============================ ============================ ===============
Year ended 30
GBP million 6 months ended 31 March 2021 6 months ended 31 March 2020 September 2020
========================================= ============================ ============================ ===============
Cash flows from operating activities
Operating profit 1,637 925 2,731
Dividends received from investments
accounted for under the equity method 4 23 43
Depreciation, amortisation and impairment 372 592 910
Profit on disposal of non-current assets 2 - (2)
Profit on disposal of subsidiary (281) - -
Post-employment benefits (73) (88) (88)
Costs of employees' services compensated
by share schemes 11 9 20
Fair value adjustment of loan receivable (17) 23 63
Movement in provisions (52) (129) (121)
========================================= ============================ ============================ ===============
Operating cash flows before movement in
working capital 1,603 1,355 3,556
========================================= ============================ ============================ ===============
(Increase)/decrease in inventories (720) (1,108) 67
(Increase)/decrease in trade and other
receivables (28) 264 241
(Decrease)/increase in trade and other
payables (583) (130) 734
========================================= ============================ ============================ ===============
Movement in working capital (1,331) (974) 1,042
Tax paid (431) (254) (568)
========================================= ============================ ============================ ===============
Net cash flows (used in)/generated from
operating activities (159) 127 4,030
========================================= ============================ ============================ ===============
Cash flows from investing activities
Interest received - 6 9
Loan to third parties - - (3)
Proceeds from the sale of non-current
assets 30 6 28
Net proceeds from sale of subsidiaries 626 - -
Deposit received from sale of asset held
for sale - - 83
Purchase of non-current assets (91) (171) (302)
Purchases of shares - (3) -
Purchase of brands and operations - (143) (146)
========================================= ============================ ============================ ===============
Net cash generated from/(used in)
investing activities 565 (305) (331)
========================================= ============================ ============================ ===============
Cash flows from financing activities
Interest paid (255) (318) (429)
Lease liabilities paid (38) (37) (72)
Increase in borrowings 856 1,239 1,240
Repayment of borrowings (899) (639) (3,096)
Cash flows relating to derivative
financial instruments 14 38 (23)
Repurchase of shares - (92) (92)
Dividends paid to non-controlling
interests (63) (58) (85)
Dividends paid to owners of the parent (906) (1,360) (1,753)
========================================= ============================ ============================ ===============
Net cash used in financing activities (1,291) (1,227) (4,310)
========================================= ============================ ============================ ===============
Net decrease in cash and cash equivalents (885) (1,405) (611)
Cash and cash equivalents at the start of
period 1,626 2,286 2,286
Effect of foreign exchange rates on cash
and cash equivalents 24 (75) 13
Transferred to held for disposal - (33) (62)
========================================= ============================ ============================ ===============
Cash and cash equivalents at the end of
period 765 773 1,626
----------------------------------------- ---------------------------- ---------------------------- ---------------
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
BASIS OF PREPARATION
The financial information comprises the unaudited results for
the six months ended 31 March 2021 and 31 March 2020, together with
the audited results for the year ended 30 September 2020.
The comparative information shown for the year ended 30
September 2020 does not constitute statutory accounts within the
meaning of section 434 of the Companies Act 2006, and does not
reflect all of the information contained in the Group's published
financial statements for that year. The Auditors' Report on those
statements was unqualified and did not contain any statements under
section 498 of the Companies Act 2006. The financial statements for
the year ended 30 September 2020 were approved by the Board of
Directors on 17 November 2020 and have been filed with the
Registrar of Companies.
This condensed set of financial statements for the six months
ended 31 March 2021 has been prepared in accordance with the
Disclosure Guidance and Transparency Rules of the Financial Conduct
Authority and with IAS 34 Interim Financial Reporting as adopted by
the European Union. The condensed set of financial statements for
the six months ended 31 March 2021 should be read in conjunction
with the annual financial statements for the year ended 30
September 2020 which have been prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union.
The Group's principal accounting policies and methods of
computation used in preparing this information are the same as
those applied in the financial statements for the year ended 30
September 2020, which are available on our website
www.imperialbrandsplc.com.
BASIS FOR GOING CONCERN
The financial statements have been prepared under the historical
cost convention except where fair value measurement is required
under IFRS as described below in the accounting policies on
financial instruments, and on a going concern basis. The Group's
policy is to ensure that we always have sufficient capital markets
funding and committed bank facilities in place to meet foreseeable
peak borrowing requirements.
The Directors have assessed the principal risks of the business,
including stress testing a range of different scenarios that may
affect the business. The Directors recognise that the current
environment brings uncertainty due to the COVID-19 pandemic;
however, over the last year, the Group has effectively managed
operations across the world, and has an established mechanism to
operate efficiently despite the uncertainty, with little impact to
date. The Directors consider that a one-off discrete event with
immediate cash outflow is of greater concern to short term
liquidity than any effect from the on-going COVID-19 pandemic. The
scenario testing also considered mitigating actions including
reductions to capital expenditure and dividend payments. There are
additional actions that were not modelled but could be taken
including other cost mitigations such as staff redundancies,
retrenchment of leases, and discussions with lenders about capital
structure. Under a worst-case scenario, where the largest envisaged
downside scenarios all take place at the same time and taking full
use of the capital expenditure and dividend payment reduction
mitigating actions as described above, the Group would have
sufficient headroom throughout the period under review to November
2022. The Group believes this worst-case scenario to be highly
unlikely and has a number of mitigating actions available that
could be implemented should such a scenario arise.
Based on the review of future cashflows covering the period
through to November 2022, and having assessed the principal risks
facing the Group, the Board is of the opinion that the Group as a
whole and Imperial Brands PLC have adequate resources to meet
operational needs from the date of this Report through to November
2022 and concludes that it is appropriate to prepare the financial
statements on a going concern basis.
NEW ACCOUNTING STANDARDS ADOPTED IN THE PERIOD
For the six months ended 31 March 2021 and the year ended 30
September 2021, the Group will continue to apply international
accounting standards in conformity with the requirements of the
Companies Act 2006 and IFRS, issued by the IASB and adopted
pursuant to Regulation (EC) No. 1606/2002 as it applies in the
European Union. From 1 October 2021, as a result of the UK leaving
the European Union, the Group will prepare the consolidated
financial statements in accordance with applicable international
accounting standards, issued by the IASB or IFRIC and endorsed by
for use in the UK, referred to as 'UK-adopted IFRS'.
The following amendments to the accounting standards, issued by
the IASB or International Financial Reporting Interpretations
Committee (IFRIC), have been adopted by the Group from 1 October
2020 with no impact on the group's consolidated results, financial
position or disclosures:
-- Amendments to References to the Conceptual Framework in
IFRS
-- Amendments to IFRS 3 - Definition of a Business
-- Amendments to IAS 1 and IAS 8 - Definition of Material
-- Amendments to IFRS 16 - Covid-19 - Related Rent
Concessions
-- Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest rate
benchmark reform (phase 1)
A number of the current net investment hedges held by the group
are potentially impacted by the impending reforms to the
calculation of the Interbank Offered Rates (IBOR). The amendments
to IFRS 9, IAS 39 and IAS 7 - Interest Rate Benchmark reform,
effective for the year commencing 1 October 2020, give relief which
will allow these hedges to continue to be treated as effective,
with no changes to the hedged positions.
RECLASSIFICATION
In the financial statements for the year ended 30 September
2020, the Group reclassified certain current and deferred tax
assets and liabilities on the balance sheet which were previously
stated gross, but which in line with IAS 12 'Income Taxes' shall be
stated net where there is a legally enforceable right of offset.
Comparatives for the 6 months ended 31 March 2020 have been
restated accordingly. The effect of the reclassification as at 31
March 2020 is a decrease in deferred tax assets and liabilities by
GBP225m and a decrease in current tax assets and liabilities by
GBP108m.
USE OF ADJUSTED MEASURES
Management believes that non-GAAP or adjusted measures provide
an important comparison of business performance and reflect the way
in which the business is controlled. The adjusted measures seek to
remove the distorting effects of a number of significant gains or
losses arising from transactions which are not directly related to
the ongoing underlying performance of the business and may be
non-recurring events or not directly within the control of
management.
Accordingly, adjusted measures of operating profit, net finance
costs, profit before tax, tax, attributable earnings and earnings
per share exclude, where applicable, acquisition and disposal
costs, amortisation and impairment of acquired intangibles,
restructuring costs, post-employment benefits net financing cost,
profit on disposal of subsidiaries, fair value and exchange gains
and losses on financial instruments, and related tax effects and
tax matters. Reconciliations between adjusted and reported
operating profit are included within note 3, adjusted and reported
net finance costs in note 5, adjusted and reported tax in note 7,
and adjusted and reported earnings per share in note 9 to the
financial statements.
The adjusted measures in this report are not defined terms under
IFRS and may not be comparable with similarly titled measures
reported by other companies.
The items excluded from adjusted results are those which are
one-off in nature or items which arose due to acquisitions and are
not influenced by the day to day operations of the Group, and the
movements in the fair value of financial instruments which are
marked to market and not naturally offset. Adjusted net finance
costs also excludes all post-employment benefit net finance cost
since pension assets and liabilities and redundancy and social plan
provisions do not form part of adjusted net debt. This allows
comparison of the Group's cost of debt with adjusted net debt. The
adjusted measures are used by management to assess the Group's
financial performance and aid comparability of results year on
year.
The principal adjustments made to reported profits are as
follows:
ACQUISITION AND DISPOSAL COSTS / PROFIT ON DISPOSAL OF
SUBSIDIARIES
Adjusted measures exclude costs and profits or losses associated
with major acquisitions and disposals as they do not relate to the
day to day operational performance of the Group. Acquisition costs
and profits or losses on disposal can be significant in size and
are one-off in nature. Exclusion of these items allows a clearer
presentation of the day to day underlying income and costs of the
business. Where applicable and not reported separately, this
includes changes in contingent or deferred consideration.
AMORTISATION AND IMPAIRMENT OF ACQUIRED INTANGIBLES
Acquired intangibles are amortised over their estimated useful
economic lives where these are considered to be finite. Acquired
intangibles considered to have an indefinite life are not
amortised. Any negative goodwill arising is recognised immediately
in the income statement. We exclude from our adjusted measures the
amortisation and impairment of acquired intangibles, other than
software and internally generated intangibles, and the deferred tax
associated with amortisation of acquired intangibles. Gains and
losses on the sale of intellectual property are removed from
adjusted operating profit.
It is recognised that there may be some correlation between the
amortisation charges derived from the acquisition value of acquired
intangibles, and the subsequent future profit streams arising from
sales of associated branded products. However, the amortisation of
intangibles is not directly related to the operating performance of
the business. Conversely, the level of profitability of branded
products is directly influenced by day to day commercial actions,
with variations in the level of profit derived from branded product
sales acting as a clear indicator of performance. Given this, the
Group's view is that amortisation and impairment charges do not
clearly correlate to the ongoing variations in the commercial
results of the business and are therefore excluded to allow a
clearer view of the underlying performance of the organisation. The
deferred tax is excluded on the basis that it will only crystallise
upon disposal of the intangibles and goodwill. The related current
cash tax benefit is retained in the adjusted measure to reflect the
ongoing tax benefit to the Group.
FAIR VALUE GAINS AND LOSSES ON DERIVATIVE FINANCIAL INSTRUMENTS
AND EXCHANGE GAINS AND LOSSES ON BORRROWINGS
IFRS 9 requires that all derivative financial instruments are
recognised in the consolidated balance sheet at fair value, with
changes in the fair value being recognised in the consolidated
income statement unless the instrument satisfies the hedge
accounting rules under IFRS and the Group chooses to designate the
derivative financial instrument as a hedge.
The Group hedges underlying exposures in an efficient,
commercial and structured manner. However, the strict hedging
requirements of IFRS 9 may lead to some commercially effective
hedge positions not qualifying for hedge accounting. As a result,
and as permitted under IFRS 9, the Group has decided not to apply
cash flow or fair value hedge accounting for its derivative
financial instruments. However, the Group does apply net investment
hedging, designating certain borrowings and derivatives as hedges
of the net investment in the Group's foreign operations, as
permitted by IFRS 9, in order to reduce income statement
volatility.
We exclude fair value gains and losses on derivative financial
instruments and exchange gains and losses on borrowings from
adjusted net finance costs. Fair value gains and losses on the
interest element of derivative financial instruments are excluded
as there is no direct natural offset between the movements on
derivatives and the interest charge on debt in any one period, as
the derivatives and debt instruments may be contracted over
different periods, although they will reverse over time or are
matched in future periods by interest charges. The fair value gains
on derivatives are excluded as they can introduce volatility in the
finance charge for any given period.
Fair value gains and losses on the currency element of
derivative financial instruments and exchange gains and losses on
borrowings are excluded as the relevant foreign exchange gains and
losses on the instruments in a net investment hedging relationship
are accumulated as a separate component of other comprehensive
income in accordance with the Group's policy on foreign
currency.
Fair value movements arising from the revaluation of contingent
consideration liabilities are adjusted out where they represent
one-off acquisition costs that are not linked to the current period
underlying performance of the business. Fair value adjustments on
loans receivable measured at fair value are excluded as they arise
due to counterparty credit risk changes that are not directly
related to the underlying commercial performance of the
business.
PRESENTATION OF AUXLY
In view of the increasing significance of the movement in the
fair value of loan receivables associated with the Auxly investment
the Group discloses the fair value movement separately on the face
of the income statement.
RESTRUCTURING COSTS
Significant one-off costs incurred in integrating acquired
businesses and in major rationalisation and optimisation
initiatives together with their related tax effects are excluded
from our adjusted earnings measures. These include restructuring
costs incurred as part of fundamental multi-year transformational
change projects but do not include costs related to ongoing cost
reduction activity. These costs are all Board approved, and include
impairment of property, plant and equipment which are surplus to
requirements due to restructuring activity. These costs are
required in order to address structural issues associated with
operating within the Tobacco sector that have required action to
both modernise and right-size the organisation, ultimately
delivering an operating model suitable for the future of the
business. The Group's view is that as these costs are both
significant and one-off in nature, excluding them allows a clearer
presentation of the underlying costs of the business.
POST-EMPLOYMENT BENEFITS NET FINANCE COST
The net interest on defined benefit assets or liabilities,
together with the unwind of discount on redundancy, social plans
and other long-term provisions are reported within net finance
costs. These items together with their related tax effects are
excluded from our adjusted earnings measures, as they primarily
represent charges associated with historic employee benefit
commitments, rather than the ongoing current period costs of
operating the business.
TAX MATTERS
Tax matters are significant one-off tax charges or credits
arising from:
-- prior period tax items (including re-measurement of deferred
tax balances on a change in tax rates); or
-- a provision for uncertain tax items not arising in the normal
course of business; or
-- newly enacted taxes in the year; or
-- tax items that are closely related to previously recognised
tax matters, and are excluded from our adjusted tax charge to aid
comparability and understanding of the Group's performance.
The recognition and utilisation of deferred tax assets relating
to losses not historically generated in the normal course of
business are excluded on the same basis.
OTHER NON-GAAP MEASURES USED BY MANAGEMENT
NET REVENUE
Tobacco & Next Generation Products (NGP) net revenue
comprises associated revenue less duty and similar items, excluding
peripheral products. Management considers this an important measure
in assessing the performance of Tobacco & NGP operations.
The Group recognises revenue on sales to Logista, a Group
company, within its reported Tobacco & NGP revenue figure. As
the revenue calculation includes sales made to Logista from other
Group companies but excludes Logista's external sales, this metric
differs from revenue calculated under IFRS accounting standards.
For the purposes of Adjusted Performance Measures on Net Revenue we
treat Logista as an arm's length distributor on the basis that
contractual rights are in line with other Third Party suppliers to
Logista. Variations in the amount of inventory held by Logista
results in a different level of revenue compared to that which is
included within the income statement. For tobacco product sales,
inventory level variations are normally not significant.
DISTRIBUTION NET REVENUE
Distribution net revenue comprises the Distribution segment
revenue less the cost of distributed products. Management considers
this an important measure in assessing the performance of
Distribution operations. The eliminations in note 3 all relate to
sales to Distribution.
ADJUSTED OPERATING CASH
Adjusted operating cash conversion is calculated as cash flow
from operations pre-restructuring and before interest and tax
payments less net capital expenditure relating to property, plant
and equipment, software and intellectual property rights as a
percentage of adjusted operating profit.
ADJUSTED NET DEBT
Management monitors the Group's borrowing levels using adjusted
net debt which excludes interest accruals, lease commitments and
the fair value of derivative financial instruments providing
commercial hedges of interest rate risk. The adjusted net debt
metric is used in monitoring performance against various debt
management obligations including covenant compliance.
ORGANIC
To aid comparison of performance between periods, the Group uses
the term 'organic' in all periods reported to exclude the impact of
the Premium Cigar divestment, which completed on 29 October 2020.
The organic performance comparison excludes the contribution of the
Premium Cigar divestment in all periods reported. The splits
between organic and Premium Cigar divestment measures for the year
ended 30 September 2020, presented in Notes 3, 5 and 9, are
unaudited.
CASH CONVERSION
The Group uses cash conversion as a key metric for assessing
underlying cash performance. Cash Conversion is calculated as cash
flow from operations pre-restructuring and before interest and tax
payments, less net capital expenditure relating to property, plant
and equipment, software and intellectual property rights as a
percentage of adjusted operating profit.
2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The Group makes estimates and judgements associated with
accounting entries which will be affected by future events.
Estimates and judgements are continually evaluated based on
historical experience, and other factors, including current
information that helps form a forward-looking view of expected
future outcomes.
Estimates involve the determination of the quantum of accounting
balances to be recognised. Judgements typically involve decisions
such as whether to recognise an asset or liability. The actual
amounts recognised in the future may deviate from these estimates
and judgements.
The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the current financial year are discussed in note
2 of the financial statements for the year ended 30 September
2020.
Those risks particularly relevant to the current period and the
remaining 6 months of the year include:
-- Determination of the useful life of intangible assets
-- Amortisation and impairment of intangible assets
-- Income taxes
-- Legal proceedings and disputes
-- Provisions
-- Inventory provisions in NGP
-- Assets held for sale
CONTROL OF LOGISTA
The Group continues to determine that it has effective control
of Logista, principally by virtue of its holding 50.01% of the
voting shares and the powers set out in the Relationship Framework
Agreement; and that it is appropriate to consolidate this entity in
line with the requirements of IFRS 10 Consolidated Financial
Statements.
3. SEGMENT INFORMATION
Imperial Brands comprises two distinct businesses - Tobacco
& NGP and Distribution. The Tobacco & NGP business
comprises the manufacture, marketing and sale of Tobacco & NGP
and Tobacco & NGP-related products, including sales to (but not
by) the Distribution business. The Distribution business comprises
the distribution of Tobacco & NGP products for Tobacco &
NGP product manufacturers, including Imperial Brands, as well as a
wide range of non-Tobacco & NGP products and services. The
Distribution business is run on an operationally neutral basis
ensuring all customers are treated equally, and consequently
transactions between the Tobacco & NGP and Distribution
businesses are undertaken on an arm's length basis reflecting
market prices for comparable goods and services.
The function of Chief Operating Decision Maker (defined in IFRS
8), which is to review performance and allocate resources, is
performed by the Board and the Chief Executive, who are regularly
provided with information on our segments. This information is used
as the basis of the segment revenue and profit disclosures provided
below. The main profit measure used by the Board and the Chief
Executive is adjusted operating profit. Segment balance sheet
information is not provided to the Board or the Chief
Executive.
The Group's operating segments are Europe, Americas, Africa,
Asia & Australasia (AAA) and Distribution. Operating segments
are comprised of geographical groupings of business markets. The
main Tobacco & NGP business markets within the Europe, Americas
and AAA operating segments are:
Europe - United Kingdom, Germany, Spain, France, Italy, Greece,
Sweden, Norway, Belgium, Netherlands, Ukraine and Poland.
Americas - United States and Canada.
AAA - Australia, Japan, Russia, Saudi Arabia, Taiwan and our
African markets including Algeria and Morocco (also includes
premium cigar, which is run as a separate business within AAA.
Premium cigar primarily manufactures within the AAA geography but
does make sales in countries outside of this area).
REVENUE
Unaudited Unaudited Audited
---------------------- -------------------------------------
6 months ended 6 months ended Year ended
31 March 2021 31 March 2020 30 September 2020
---------------------- ---------------------- -------------------------------------
Total External Total External Total
GBP million revenue revenue revenue revenue Revenue External revenue
=============================== ========= =========== ========= =========== =========== ========================
Tobacco & NGP
Europe 6,873 6,543 6,390 6,044 14,395 13,716
Americas 1,512 1,512 1,486 1,486 3,371 3,371
Africa, Asia & Australasia 2,859 2,859 2,836 2,836 6,207 6,207
=============================== ========= =========== ========= =========== =========== ========================
Total Tobacco & NGP 11,244 10,914 10,712 10,366 23,973 23,294
Distribution 4,654 4,654 4,306 4,306 9,268 9,268
Eliminations (330) - (346) - (679) -
=============================== ========= =========== ========= =========== =========== ========================
Total Group 15,568 15,568 14,672 14,672 32,562 32,562
------------------------------- --------- ----------- --------- ----------- ----------- ------------------------
TOBACCO & NGP
Unaudited Unaudited Audited
============================= ============================= ================
GBP million unless otherwise Year ended 30
indicated 6 months ended 31 March 2021 6 months ended 31 March 2020 September 2020
====================================== ============================= ============================= ================
Revenue 11,244 10,712 23,973
Net revenue 3,592 3,592 7,985
Operating profit 1,560 880 2,587
Adjusted operating profit 1,465 1,383 3,288
Adjusted operating margin % 40.8 38.5 41.2
====================================== ============================= ============================= ================
DISTRIBUTION
Unaudited Unaudited Audited
============================= ============================= ================
GBP million unless otherwise Year ended 30
indicated 6 months ended 31 March 2021 6 months ended 31 March 2020 September 2020
====================================== ============================= ============================= ================
Revenue 4,654 4,306 9,268
Distribution net revenue 533 488 1,015
Operating profit 74 54 131
Adjusted operating profit 121 95 226
Adjusted distribution margin % 22.7 19.5 22.3
-------------------------------------- ----------------------------- ----------------------------- ----------------
RECONCILIATION FROM TOBACCO & NGP REVENUE TO TOBACCO & NGP NET REVENUE
Unaudited Unaudited Audited
============================= ============================= ================
Year ended 30
GBP million 6 months ended 31 March 2021 6 months ended 31 March 2020 September 2020
----------------------------- ----------------------------- ----------------------------- ----------------
Revenue 11,244 10,712 23,973
Duty and similar items (7,640) (7,107) (15,962)
Sale of peripheral products (12) (13) (26)
============================= ============================= ============================= ================
Net revenue 3,592 3,592 7,985
----------------------------- ----------------------------- ----------------------------- ----------------
TOBACCO & NGP NET REVENUE
Unaudited Unaudited Audited
----------------------------- ----------------------------- ----------------
Year ended 30
GBP million 6 months ended 31 March 2021 6 months ended 31 March 2020 September 2020
============================ ============================= ============================= ================
Europe 1,670 1,619 3,569
Americas 1,131 1,091 2,480
Africa, Asia & Australasia 791 882 1,936
============================ ============================= ============================= ================
Total Tobacco & NGP 3,592 3,592 7,985
---------------------------- ----------------------------- ----------------------------- ----------------
PREMIUM CIGAR DIVESTMENT & ORGANIC TOBACCO & NGP NET REVENUE
Unaudited Unaudited Audited
============================= ============================= ================
Year ended 30
GBP million 6 months ended 31 March 2021 6 months ended 31 March 2020 September 2020
====================================== ============================= ============================= ================
Organic Tobacco & NGP Net Revenue 3,571 3,489 7,738
Premium Cigar divestment Net Revenue 21 103 247
====================================== ============================= ============================= ================
Total Tobacco & NGP 3,592 3,592 7,985
-------------------------------------- ----------------------------- ----------------------------- ----------------
ADJUSTED OPERATING PROFIT AND RECONCILIATION TO PROFIT BEFORE TAX
Unaudited Unaudited Audited
============================= ============================= ================
Year ended 30
GBP million 6 months ended 31 March 2021 6 months ended 31 March 2020 September 2020
====================================== ============================= ============================= ================
Tobacco & NGP
Europe 750 706 1,582
Americas 426 390 1,032
Africa, Asia & Australasia 289 287 674
====================================== ============================= ============================= ================
Total Tobacco & NGP 1,465 1,383 3,288
Distribution 121 95 226
Eliminations 3 (9) 13
====================================== ============================= ============================= ================
Adjusted operating profit 1,589 1,469 3,527
Acquisition and disposal costs -
Tobacco & NGP - (14) (26)
Profit on disposal of subsidiaries -
Tobacco & NGP 281 - -
Amortisation and impairment of
acquired intangibles - Tobacco & NGP (168) (395) (438)
Amortisation of acquired intangibles
- Distribution (43) (41) (85)
Excise tax provision - Tobacco & NGP 1 23 20
Fair value adjustment of loan
receivable - Tobacco & NGP 17 (23) (62)
Restructuring costs (40) (94) (205)
====================================== ============================= ============================= ================
Operating profit 1,637 925 2,731
Net finance costs 414 (160) (610)
Share of profit of investments
accounted for using the equity
method 8 20 45
====================================== ============================= ============================= ================
Profit before tax 2,059 785 2,166
-------------------------------------- ----------------------------- ----------------------------- ----------------
4. RESTRUCTURING COSTS AND PROVISIONS
RESTRUCTURING COSTS
Unaudited Unaudited Audited
============================= ============================= ================
Year ended 30
GBP million 6 months ended 31 March 2021 6 months ended 31 March 2020 September 2020
===================== ============================= ============================= ================
Employment related 5 70 103
Asset impairments 24 7 58
Other charges 11 17 44
===================== ============================= ============================= ================
40 94 205
--------------------- ----------------------------- ----------------------------- ----------------
Restructuring costs analysed by workstream:
Unaudited Unaudited Audited
============================= ============================= ================
Year ended 30
GBP million 6 months ended 31 March 2021 6 months ended 31 March 2020 September 2020
================================= ============================= ============================= ================
Cost optimisation programme 8 87 187
2021 strategic review programme 27 - -
Other restructuring activities 5 7 18
================================= ============================= ============================= ================
40 94 205
--------------------------------- ----------------------------- ----------------------------- ----------------
Restructuring costs are included within administrative and other
expenses in the consolidated income statement.
Cost optimisation programme
The cost optimisation programme (Phase I announced in 2013 and
Phase II announced in November 2016) is part of the Group's change
in strategic direction to achieve a unique, non-recurring and
fundamental transformation of the business. The costs of factory
closures and implementation of a standardised operating model are
considered to be one off as they are a permanent scaling down of
capacity and a once in a generation transformational change
respectively. The cost optimisation programme is a discrete, time
bound project which, given its scale, will be delivered over a
number of years and once delivered the associated restructuring
costs will cease.
In the 6 months to 31 March 2021 the cash cost of the cost
optimisation programme phase I was GBP4 million (2020: GBP9
million) and of phase II was GBP27 million (2020: GBP55
million).
Phase I was concluded at the end of 2018 and has delivered
savings of GBP305 million per annum from September 2018.
Phase II has had a cash implementation cost to date of GBP534
million, and has delivered savings of GBP310 million per annum.
These projects differ from everyday initiatives that are
undertaken to improve the efficiency and effectiveness of the
ongoing operations business. These costs are required in order to
address structural issues involved within operating within the
Tobacco sector that require action to both modernise and right-size
the organisation, ultimately delivering an operating model suitable
for the future of the business.
2021 strategic review programme
In January 2021, the Group announced the results of a strategic
review programme including an associated and specific time-bound
restructuring programme. Restructuring costs in the period related
to the 2021 strategic review programme include the impairment of
GBP20 million of intangible assets associated with the exit from
NGP activities in a number of markets. Further restructuring costs
may arise as the 2021 strategic review programme progresses and is
implemented. In the 6 months to 31 March 2021 the cash cost of the
2021 strategic review programme was GBP7 million.
Other restructuring activities
In the 6 months to 31 March 2021 non-cost optimisation cash cost
was GBP8 million.
PROVISIONS
Unaudited
================================================
31 March 2021
================================================
GBP million Restructuring Other Total
==================================================================== ============== ============== ================
At 1 October 2020 253 163 416
Additional provisions charged to the consolidated income statement 4 34 38
Amounts used (41) (27) (68)
Unused amounts reversed (18) (6) (24)
Exchange movements (13) (9) (22)
==================================================================== ============== ============== ================
At 31 March 2021 185 155 340
-------------------------------------------------------------------- -------------- -------------- ----------------
Current 90 63 153
Non-current 95 92 187
==================================================================== ============== ============== ================
185 155 340
-------------------------------------------------------------------- -------------- -------------- ----------------
Analysed as:
Unaudited Unaudited Audited
-------------- -------------- ----------------
30
GBP million 31 March 2021 31 March 2020 September 2020
-------------------------------------------------------------------- -------------- -------------- ----------------
Current 153 156 220
Non-current 187 242 196
==================================================================== ============== ============== ================
340 398 416
-------------------------------------------------------------------- -------------- -------------- ----------------
Restructuring provisions relate mainly to our cost optimisation
programme. The restructuring provision is split between Cost
Optimisation Programme II of GBP104 million, Cost Optimisation
Programme I of GBP70 million and other restructuring programmes of
GBP11 million. Within the Cost Optimisation Programme provisions
there is GBP13 million related to costs of consolidating the
manufacturing capacity within the Group and GBP93 million relating
to site specific factory closures. It is expected that the
restructuring provisions will be predominantly utilised over the
next 2 years.
Other provisions include GBP46 million relating to local
employment requirements including holiday pay and GBP26 million to
various local tax or duty requirements. The provisions are spread
throughout the Group and payment will be dependent on local
statutory requirements. Most provisions will be utilised within the
next two years, though certain employee related provisions may be
required to be held for a period of up to 10 years.
5. ALTERNATIVE PERFORMANCE MEASURES
RECONCILIATION FROM OPERATING PROFIT TO ADJUSTED OPERATING PROFIT
Unaudited Unaudited Audited
============================ ============================ ===============
Year ended 30
GBP million Notes 6 months ended 31 March 2021 6 months ended 31 March 2020 September 2020
================================== ===== ============================ ============================ ===============
Operating profit 1,637 925 2,731
Acquisition and disposal costs - 14 26
Profit on disposal of subsidiaries (281) - -
Amortisation and impairment of
acquired intangibles 211 436 523
Excise tax provision (1) (23) (20)
Fair value adjustment of loan
receivable (17) 23 62
Restructuring costs 4 40 94 205
================================== ===== ============================ ============================ ===============
Adjusted operating profit 1,589 1,469 3,527
---------------------------------- ----- ---------------------------- ---------------------------- ---------------
Organic adjusted operating profit 1,586 1,460 3,496
Premium Cigar divestment adjusted operating profit 3 9 31
==================================================== ===== ===== =====
Adjusted operating profit 1,589 1,469 3,527
---------------------------------------------------- ----- ----- -----
Amortisation and impairment of acquired intangibles, profit on
disposal of subsidiaries, acquisition and disposal costs and
restructuring costs are discussed in further detail in note 1.
RECONCILIATION FROM REPORTED NET FINANCE COSTS TO ADJUSTED NET FINANCE COSTS
Unaudited Unaudited Audited
============================ ============================ ===============
Year ended 30
GBP million Notes 6 months ended 31 March 2021 6 months ended 31 March 2020 September 2020
================================= ====== ============================ ============================ ===============
Reported net finance income/(costs) 414 (160) (610)
========================================= ============================ ============================ ===============
Fair value gains on derivative financial
instruments (487) (569) (661)
Fair value losses on derivative financial
instruments 402 438 581
Exchange (gains)/losses on financing
activities (534) 78 256
========================================= ============================ ============================ ===============
Net fair value and exchange
(gains)/losses on financial instruments (619) (53) 176
========================================= ============================ ============================ ===============
Interest income on net defined benefit
assets (45) (49) (99)
Interest cost on net defined benefit
liabilities 44 52 104
========================================= ============================ ============================ ===============
Post-employment benefits net financing
cost (1) 3 5
========================================= ============================ ============================ ===============
Adjusted net finance costs (206) (210) (429)
----------------------------------------- ---------------------------- ---------------------------- ---------------
Comprising
Interest on bank deposits 5 6 10
Interest on lease liabilities (4) - (7)
Interest on bank and other loans (207) (216) (432)
========================================= ============================ ============================ ===============
Adjusted net finance costs (206) (210) (429)
----------------------------------------- ---------------------------- ---------------------------- ---------------
CASH CONVERSION CALCULATION
Unaudited Unaudited Audited
============================ ============================ ===============
Year ended 30
GBP million Notes 6 months ended 31 March 2021 6 months ended 31 March 2020 September 2020
================================= ====== ============================ ============================ ===============
Net cash flow from operating activities (159) 127 4,030
========================================= ============================ ============================ ===============
Tax 431 254 568
Net capital expenditure (61) (165) (274)
Restructuring spend 46 73 145
========================================= ============================ ============================ ===============
Cash flow post capital expenditure pre
interest and tax 257 289 4,469
========================================= ============================ ============================ ===============
Adjusted operating profit 1,589 1,469 3,527
========================================= ============================ ============================ ===============
Cash Conversion 16 % 20 % 127 %
----------------------------------------- ---------------------------- ---------------------------- ---------------
6. RETIREMENT BENEFIT SCHEMES
The Group operates a number of retirement benefit schemes for
its employees, including both defined benefit and defined
contribution schemes. The Group's three principal schemes are
defined benefit schemes and are operated by Imperial Tobacco
Limited (ITL) in the UK, Reemtsma Cigarettenfabriken GmbH in
Germany and ITG Brands in the USA.
DEFINED BENEFIT PLAN ASSETS AND LIABILITIES RECOGNISED IN THE
CONSOLIDATED BALANCE SHEET
Unaudited Unaudited Audited
============= ============= ===============
30
31 March 2021 31 March 2020 September 2020
=================================== ============= ============= ===============
Retirement benefit assets 942 1,065 940
Retirement benefit liabilities (1,179) (1,103) (1,256)
==================================== ============= ============= ===============
Net retirement benefit liabilities (237) (38) (316)
------------------------------------ ------------- ------------- ---------------
The movement in the net retirement benefit is mainly from
actuarial gains and losses on the Group's pension assets and
liabilities. The actuarial gains and losses were from the changes
in principal actuarial assumptions on the Group schemes.
KEY FIGURES AND ASSUMPTIONS USED FOR MAJOR PLANS
Unaudited Unaudited
31 March 2021 31 March 2020
GBP million unless otherwise stated ITPF RCPP ITGBH ITPF RCPP ITGBH
==================================================== ======== ===== ======= ======== ======== ======
Defined benefit obligation (DBO) 3,303 743 387 3,135 618 439
Fair value of scheme assets (4,188) - (370) (4,142) - (397)
==================================================== ======== ===== ======= ======== ======== ======
Net defined benefit (asset)/liability (885) 743 17 (1,007) 618 42
Principal actuarial assumptions used (% per annum)
Discount rate 2.1 1.0 3.0 2.5 1.8 3.3
Future salary increases 3.1 2.8 n/a 2.5 2.3 n/a
Future pension increases 3.1 1.7 n/a 2.5 1.2 n/a
Inflation 3.1 1.7 2.5 2.5 1.2 2.5
---------------------------------------------------- -------- ----- ------- -------- -------- ------
Audited
======== ===== ================
30
September 2020
GBP million unless otherwise stated ITPF RCPP ITGBH
==================================================== ======== ===== ================
Defined benefit obligation (DBO) 3,516 764 434
Fair value of scheme assets (4,395) - (398)
==================================================== ======== ===== ================
Net defined benefit (asset)/liability (879) 764 36
Principal actuarial assumptions used (% per annum)
Discount rate 1.7 0.9 2.8
Future salary increases 2.9 2.4 n/a
Future pension increases 2.9 1.3 n/a
Inflation 2.9 1.3 2.5
---------------------------------------------------- -------- ----- ----------------
7. TAX
RECONCILIATION FROM REPORTED TAX TO ADJUSTED TAX
Reported tax for the six months ended 31 March 2021 has been
calculated on the basis of a forecast effective rate for the year
ended 30 September 2021.
Unaudited Unaudited Audited
================== ============================= ================
6 months ended 31 Year ended 30
GBP million March 2021 6 months ended 31 March 2020 September 2020
================================================= ================== ============================= ================
Reported tax 215 235 608
Deferred tax on amortisation and impairment of
acquired intangibles 12 19 57
Current tax on excise tax provision - - (4)
Tax on net fair value and exchange movements on
financial instruments 88 (48) (63)
Tax on post-employment benefits net financing
cost - 2 1
Tax on restructuring costs 9 24 31
Tax on revaluation of investment - 7 -
Tax on disposal of subsidiaries 6 - (19)
Previously unrecognised tax credits - - 67
Uncertain tax positions - - (77)
Tax on unrecognised losses (10) 26 41
================================================= ================== ============================= ================
Adjusted tax charge 320 265 642
------------------------------------------------- ------------------ ----------------------------- ----------------
FRENCH TAX LITIGATION
In November 2015 the Group received a challenge from the French
tax authorities that could lead to additional tax liabilities of up
to GBP231 million. The challenge concerns the valuation placed on
the shares of Altadis Distribution France (now known as Logista
France) following an intra-group transfer of shares in October 2012
and the tax Consequences flowing from a potentially higher value
that is argued for by the tax authorities. In October 2018 the
Commission Nationale, an independent adjudication body, whose
decision is advisory only, issued a report supportive of the
Group's arguments for no adjustment. In December 2018 the French
tax authorities issued their final assessments seeking the full
amount of additional tax assessed of GBP231 million (2020: GBP248
million). In January 2019 the Group appealed against the
assessment. In August 2020, the French tax authorities rejected the
Group's appeal and the matter will now proceed to litigation. Given
there are no substantive developments in the case it is appropriate
to maintain a GBP41 million (2020: GBP44 million) provision for
uncertain tax positions in respect of this matter.
STATE AID UK CFC
The Group continues to monitor developments in relation to EU
State Aid investigations. On 25 April 2019, the EU Commission's
final decision regarding its investigation into the UK's Controlled
Foreign Company regime was published. It concludes that the
legislation up until December 2018 does partially represent State
Aid. The UK Government has appealed to the European Court seeking
annulment of the EU Commission's decision. The Group, along with a
number of UK corporates, has made a similar application to the
European Court. The UK Government is obliged to collect any State
Aid granted pending the outcome of the European Court process.
Although based on advice received the Group believes that it has no
liability in respect of this issue, under a range of different
interpretations of the EU Commission's decision the Group has
previously disclosed that preliminary calculations indicated a
range of potential liabilities depending on the basis of
calculation of up to GBP300 million.
In December 2019 HMRC issued guidance on the quantification of
any potential State Aid, and subsequently requested the Group, in
line with other corporates, submit an assessment of potential State
Aid. Whilst the Group's position remains that no State Aid has been
received, based on its submission to HMRC a potential liability of
GBP101 million was reported. In February 2021 a charging notice for
GBP101 million was issued to the Group by HMRC and has now been
paid. Based on discussions with HMRC, the Group does not expect to
receive any further charging notices, although HMRC has yet to
issue a formal communication in that respect. Advice to date is
that our appeal and that of the UK government against the
Commission's decision should ultimately be successful so a current
tax receivable of GBP101 million has been recognised as a
non-current asset.
Based upon current advice the Group does not consider any
provision is required in relation to any other EU State Aid
investigation.
TRANSFER PRICING
The Group has tax audits in progress, relating to transfer
pricing matters in a number of jurisdictions, principally UK,
France and Germany. The Group estimates the potential gross level
of exposure relating to transfer pricing issues is approximately
GBP850 million (2020: GBP800 million). The Group holds a provision
of GBP295 million (2020: GBP273 million) in respect of these
items.
In August 2020 the Group notified HMRC of a potential Diverted
Profits Tax (DPT) issue relating to brand rewards. In September
2020, HMRC issued a preliminary notice under the DPT regime in
respect of the year ended 30 September 2016 indicating a potential
liability of circa GBP6 million. Collaborative discussions on the
issue continue and it is the Group's belief the issue is a transfer
pricing one, and will be resolved as such. In November 2020, HMRC
issued a final DPT notice, which has now been paid. On conclusion
of the transfer pricing discussions, an appropriate refund is
anticipated. Whilst the issues discussed affects all subsequent
periods, no further DPT notices are anticipated.
The Group believe the transfer pricing provision held above
appropriately provides for this and other transfer pricing
issues.
8. DIVIDS
DISTRIBUTIONS TO ORDINARY EQUITY HOLDERS
Unaudited Audited Audited
========== ======== ========
GBP million 2021 2020 2019
====================================================================================== ========== ======== ========
Paid interim of nil pence per share (2020: 89.70 pence, 2019: 134.56 pence)
- Paid June 2019 - - 298
- Paid September 2019 - - 298
- Paid December 2019 - - 680
- Paid June 2020 - 197 -
- Paid September 2020 - 197 -
- Paid December 2020 - 453 -
====================================================================================== ========== ======== ========
Interim dividend paid - 847 1,276
====================================================================================== ========== ======== ========
Proposed interim of 42.12 pence per share (2020: nil, 2019: nil)
- To be paid June 2021 199 - -
- To be paid September 2021 199 - -
====================================================================================== ========== ======== ========
Interim dividend proposed 398 - -
====================================================================================== ========== ======== ========
Paid final of nil pence per share (2020: 48.01 pence, 2019: 72.01 pence)
- Paid March 2020 - - 679
- Paid March 2021 - 453 -
====================================================================================== ========== ======== ========
Final dividend - 453 679
====================================================================================== ========== ======== ========
Total ordinary share dividends of 42.12 pence per share (2020: 137.71 pence, 2019:
206.57
pence) 398 1,300 1,955
-------------------------------------------------------------------------------------- ---------- -------- --------
The declared interim dividend for 2021 amounts to a total
dividend of GBP398 million based on the number of shares ranking
for dividend at 31 March 2021. This will be paid in two stages, one
in June 2021 and one in September 2021.
The dividend paid during the half year to 31 March 2021 is
GBP906 million (2020: GBP1,360 million).
9. EARNINGS PER SHARE
Unaudited Unaudited Audited
============================= ============================= ================
Year ended 30
GBP million 6 months ended 31 March 2021 6 months ended 31 March 2020 September 2020
====================================== ============================= ============================= ================
Earnings: basic and diluted -
attributable to owners of the
Parent Company 1,806 525 1,495
====================================== ============================= ============================= ================
Millions of shares
====================================== ============================= ============================= ================
Weighted average number of shares:
Shares for basic earnings per share 944.6 944.6 944.4
Potentially dilutive share options 1.4 1.8 1.4
====================================== ============================= ============================= ================
Shares for diluted earnings per share 946.0 946.4 945.8
-------------------------------------- ----------------------------- ----------------------------- ----------------
Pence
====================================== ============================= ============================= ================
Basic earnings per share 191.2 55.6 158.3
Diluted earnings per share 190.9 55.5 158.1
-------------------------------------- ----------------------------- ----------------------------- ----------------
RECONCILIATION FROM REPORTED TO ADJUSTED EARNINGS AND EARNINGS PER SHARE
Unaudited Unaudited Audited
-------------------------- ------------------------- ---------------------------
6 months ended 6 months ended Year ended
31 March 2021 31 March 2020 30 September 2020
-------------------------- ------------------------- ---------------------------
Earnings Earnings per Earnings Earnings
GBP million unless otherwise Earnings per net of share net of per share Earnings net
indicated share (pence) tax (pence) tax (pence) of tax
================================ ============== ========== ============= ========== ========== ===============
Reported basic 191.2 1,806 55.6 525 158.3 1,495
Acquisition and disposal costs - - 1.5 14 2.8 26
Profit on disposal of
subsidiaries (30.4) (287) - - 2.0 19
Amortisation and impairment of
acquired intangibles 21.1 199 44.1 417 49.2 466
Excise tax provision (0.1) (1) (2.4) (23) (1.7) (16)
Fair value adjustment loan
receivable (1.8) (17) 1.7 16 6.6 62
Net fair value and exchange
movements on financial
instruments (74.9) (707) (0.5) (5) 25.3 239
Post-employment benefits
net financing cost (0.1) (1) 0.1 1 0.4 4
Restructuring costs 3.3 31 7.4 70 18.4 174
Previously unrecognised tax
credits - - - - (7.1) (67)
Uncertain tax positions - - - - 8.2 77
Tax on unrecognised losses 1.1 10 (2.8) (26) (4.3) (41)
Adjustments above attributable
to
non-controlling interests (1.8) (17) (1.7) (16) (3.7) (35)
================================ ============== ========== ============= ========== ========== ===============
Adjusted 107.6 1,016 103.0 973 254.4 2,403
-------------------------------- -------------- ---------- ------------- ---------- ---------- ---------------
Adjusted diluted 107.5 1,016 102.8 973 254.1 2,403
-------------------------------- -------------- ---------- ------------- ---------- ---------- ---------------
Organic adjusted 107.0 1,011 100.0 945 247.2 2,335
Premium Cigar divestment adjusted 0.6 5 3.0 28 7.2 68
=================================== ====== ====== ====== ==== ====== ======
Adjusted 107.6 1,016 103.0 973 254.4 2,403
=================================== ====== ====== ====== ==== ====== ======
Organic adjusted diluted 106.9 1,011 99.8 945 246.9 2,335
Premium Cigar divestment adjusted diluted 0.6 5 3.0 28 7.2 68
=========================================== ====== ====== ====== ==== ====== ======
Adjusted diluted 107.5 1,016 102.8 973 254.1 2,403
------------------------------------------- ------ ------ ------ ---- ------ ------
10. DISPOSAL OF PREMIUM CIGAR DIVISION
On 27 April 2020 the Group announced that it had agreed the sale
of the Premium Cigar Division ("the Division"). The total cash
receipts expected for the transaction are EUR1,198 million
(including the La Romana disposal - see below). A non-refundable
deposit of EUR92 million was received on 28 September 2020 and a
further non-refundable deposit of EUR86 million was receipted on 6
October 2020. The share sale element of the sale of the Division
completed on 29 October 2020 and EUR607 million of sales
consideration was received on that date including settlement in
respect of a true up of cross perimeter inter-company loan
balances. A further EUR256 million was received on 29 April 2021
and EUR88 million is due to be received on 29 October 2021.
The profit arising on disposal of the Division was GBP281
million and includes GBP337 million of foreign exchange gains that
had previously been recognised in the foreign exchange reserve and
that were recycled to the income statement on completion of the
transaction.
The sale of the La Romana factory in the Dominican Republic is
due to complete in the first half of the Group's 2022 financial
year when it is expected that EUR69 million of sales consideration
will be received subject to a true up in respect of inventory
values. The carrying value of the net assets of the La Romana
factory total GBP39 million. This sale of the La Romana factory
does not yet meet the recognition criteria for an asset held for
sale as there is ongoing work to separate the factory for disposal.
The work is expected to complete by the forecast sale date. On
completion the factory will be reclassified as an asset held for
sale.
ASSET HELD FOR SALE
The assets and liabilities classified as held for disposal are
as follows:
Unaudited Unaudited Audited
=============== ============== ===============
GBP million 31 March 2021 31 March 2020 September 2020
=================================================== =============== ============== ===============
Non-current assets
Intangible assets - 89 101
Property, plant and equipment - 15 17
Investments accounted for using the equity method - 533 584
Trade and other receivables - 29 35
Right of use leased assets - 7 7
Deferred tax assets - 7 10
=================================================== =============== ============== ===============
- 680 754
=================================================================== ============== ===============
Current assets
Inventories - 194 166
Trade and other receivables - 204 67
Cash and cash equivalents - 47 75
=================================================== =============== ============== ===============
- 445 308
=================================================================== ============== ===============
Total Assets - 1,125 1,062
=================================================== =============== ============== ===============
Current liabilities
Trade and other payables - (174) (35)
Provisions - (4) (3)
Lease liabilities - (1) -
=================================================== =============== ============== ===============
- (189) (38)
=================================================================== ============== ===============
Total liabilities - (189) (38)
=================================================== =============== ============== ===============
Net assets - 936 1,024
--------------------------------------------------- --------------- -------------- ---------------
11. INTANGIBLE ASSETS
The Group tests goodwill and intangible assets with indefinite
lives for impairment annually, or more frequently if there are any
indicators that impairment may have arisen. Goodwill is allocated
to groups of cash-generating units (CGUs) and is monitored at a
Cash Generating Unit Grouping (CGUG) level. The last goodwill
impairment test was conducted as at 30 September 2020. At present
there is a significant level of headroom for the recoverability of
goodwill within each CGUG. The next goodwill impairment review will
take place on or before the 30 September 2021. We have reviewed
goodwill and indefinite life intangible assets for indicators of
impairment as required by IAS 36. Following a review of the
recoverable values of other intangible assets not currently subject
to amortisation, certain intangible assets with a carrying value of
GBP20 million (2020: GBP19 million) were identified as not being
recoverable. An impairment charge for their full carrying value was
therefore recognised. We have not identified any other indicators
and therefore there is no requirement to undertake a full
impairment test at this stage.
12. NET DEBT
The movements in cash and cash equivalents, borrowings, and
derivative financial instruments in the period were as follows:
Unaudited
========== ========= =========== =========== ============== =========== =========
Derivative Liabilities Cash
Current Lease Non-current financial from financing and cash
GBP million borrowings creditors borrowings instruments activities equivalents Total
============================= ========== ========= =========== =========== ============== =========== =========
At 1 October 2020 (1,442) (299) (10,210) (816) (12,767) 1,626 (11,141)
Reallocation of current
borrowings from non-current
borrowings (1,055) - 1,055 - - - -
Cash flow 899 38 (856) (14) 67 (885) (818)
Change in accrued interest 56 (4) 17 2 71 - 71
Change in fair values - - - 85 85 - 85
New leases and modifications - (20) - - (20) - (20)
Exchange movements 44 16 506 230 796 24 820
============================= ========== ========= =========== =========== ============== =========== =========
At 31 March 2021 (1,498) (269) (9,488) (513) (11,768) 765 (11,003)
----------------------------- ---------- --------- ----------- ----------- -------------- ----------- ---------
Unaudited
========== ========= =========== =========== ============== =========== =========
Derivative Liabilities Cash
Current Lease Non-current financial from financing and cash
GBP million borrowings creditors borrowings instruments activities equivalents Total
============================= ========== ========= =========== =========== ============== =========== =========
At 1 October 2019 (1,937) - (11,697) (622) (14,256) 2,286 (11,970)
On adoption of IFRS 16 - (326) - - (326) - (326)
Reallocation of current
borrowings from non-current
borrowings (897) - 897 - - - -
Cash flow (598) 37 (2) (38) (601) (1,405) (2,006)
Change in accrued interest 37 (5) 58 14 104 - 104
Change in fair values - - - 131 131 - 131
New leases and modifications - (11) - - (11) - (11)
Exchange movements (23) 3 25 37 42 (75) (33)
Transferred to asset held for
disposal (note 10) - - - - - (33) (33)
============================= ========== ========= =========== =========== ============== =========== =========
At 31 March 2020 (3,418) (302) (10,719) (478) (14,917) 773 (14,144)
----------------------------- ---------- --------- ----------- ----------- -------------- ----------- ---------
ADJUSTED NET DEBT
Management monitors the Group's borrowing levels using adjusted
net debt which excludes lease liabilities, interest accruals and
the fair value of derivative financial instruments. Adjusted net
debt is used for the purpose of debt monitoring as it excludes
non-cash accounting adjustments and therefore better tracks
operational debt management performance.
Unaudited Unaudited Audited
============== ============== ================
30
GBP million 31 March 2021 31 March 2020 September 2020
========================================= ============== ============== ================
Reported net debt (11,003) (14,144) (11,141)
Accrued interest 81 53 156
Lease liabilities 269 302 299
Fair value of interest rate derivatives 325 313 387
========================================= ============== ============== ================
Adjusted net debt (10,328) (13,476) (10,299)
----------------------------------------- -------------- -------------- ----------------
The fair value of bonds is estimated to be GBP11,668 million
(2020 6 months: GBP12,701 million) and has been determined by
reference to market prices at the balance sheet date. The carrying
value of bonds is GBP10,926 million (2020 6 months: GBP12,621
million). The fair value of all other borrowings is considered to
be equal to their carrying amount.
13. FINANCIAL INSTRUMENTS
The table below sets out the Group's accounting classification
of each class of financial assets and liabilities:
Unaudited
-------------
31 March 2021
---------- ------------- -------------- -------- ------- -------------
Fair value Fair value Assets and
through through liabilities at
income comprehensive amortised
GBP million statement income cost Total Current Non-current
================================ ========== ============= ============== ======== ======= =============
Trade and other receivables 38 - 2,648 2,686 2,628 58
Cash and cash equivalents - - 765 765 765 -
Derivatives 566 - - 566 86 480
================================ ========== ============= ============== ======== ======= =============
Total financial assets 604 - 3,413 4,017 3,479 538
================================ ========== ============= ============== ======== ======= =============
Borrowings - - (10,986) (10,986) (1,498) (9,488)
Trade and other payables - - (8,319) (8,319) (8,319) -
Derivatives (886) (193) - (1,079) (42) (1,037)
Lease liabilities - - (269) (269) (60) (209)
================================ ========== ============= ============== ======== ======= =============
Total financial liabilities (886) (193) (19,574) (20,653) (9,919) (10,734)
================================ ========== ============= ============== ======== ======= =============
Total net financial liabilities (282) (193) (16,161) (16,636) (6,440) (10,196)
-------------------------------- ---------- ------------- -------------- -------- ------- -------------
Unaudited
=============
31 March 2020
========== ============= ============== ======== ======== =============
Fair value Fair value Assets and
through through liabilities at
income comprehensive amortised
GBP million statement income cost Total Current Non-current
================================ ========== ============= ============== ======== ======== =============
Trade and other receivables 14 - 2,495 2,509 2,428 81
Cash and cash equivalents - - 773 773 773 -
Derivatives 1,002 - - 1,002 186 816
================================ ========== ============= ============== ======== ======== =============
Total financial assets 1,016 - 3,268 4,284 3,387 897
================================ ========== ============= ============== ======== ======== =============
Borrowings - - (14,137) (14,137) (3,418) (10,719)
Trade and other payables - - (8,284) (8,284) (8,284) -
Derivatives (1,142) (338) - (1,480) (51) (1,429)
Lease liabilities - - (302) (302) (61) (241)
================================ ========== ============= ============== ======== ======== =============
Total financial liabilities (1,142) (338) (22,723) (24,203) (11,814) (12,389)
================================ ========== ============= ============== ======== ======== =============
Total net financial liabilities (126) (338) (19,455) (19,919) (8,427) (11,492)
-------------------------------- ---------- ------------- -------------- -------- -------- -------------
Audited
===============
30
September 2020
========== ============= ============== ======== ======== ===============
Fair value Fair value Assets and
through through liabilities at
income comprehensive amortised
GBP million statement income cost Total Current Non-current
================================== ========== ============= ============== ======== ======== ===============
Trade and other receivables 22 - 2,502 2,524 2,476 48
Cash and cash equivalents - - 1,626 1,626 1,626 -
Derivatives 866 - - 866 53 813
================================== ========== ============= ============== ======== ======== ===============
Total financial assets 888 - 4,128 5,016 4,155 861
================================== ========== ============= ============== ======== ======== ===============
Borrowings - - (11,652) (11,652) (1,442) (10,210)
Trade and other payables - - (9,387) (9,387) (9,387) -
Derivatives (1,272) (410) - (1,682) (41) (1,641)
Lease liabilities - - (299) (299) (64) (235)
================================== ========== ============= ============== ======== ======== ===============
Total financial liabilities (1,272) (410) (21,338) (23,020) (10,934) (12,086)
================================== ========== ============= ============== ======== ======== ===============
Total net financial (liabilities) (384) (410) (17,210) (18,004) (6,779) (11,225)
---------------------------------- ---------- ------------- -------------- -------- -------- ---------------
Trade and other receivables excludes prepayments and Trade and
other payables excludes accruals.
The Group's derivative financial instruments which are held at
fair value, are as follows.
Unaudited Unaudited Audited
============== ============== ================
30
GBP million 31 March 2021 31 March 2020 September 2020
==================================================================== ============== ============== ================
Assets
Interest rate swaps 541 833 854
Forward foreign currency contracts 21 150 9
Cross-currency swaps 4 19 3
==================================================================== ============== ============== ================
Total carrying value of derivative financial assets 566 1,002 866
==================================================================== ============== ============== ================
Liabilities
Interest rate swaps (862) (1,151) (1,235)
Forward foreign currency contracts (3) (25) (10)
Cross-currency swaps (261) (341) (484)
==================================================================== ============== ============== ================
Carrying value of derivative financial liabilities before
collateral (1,126) (1,517) (1,729)
Collateral (1) 47 37 47
==================================================================== ============== ============== ================
Total carrying value of derivative financial liabilities (1,079) (1,480) (1,682)
==================================================================== ============== ============== ================
Total carrying value of derivative financial instruments (513) (478) (816)
-------------------------------------------------------------------- -------------- -------------- ----------------
Analysed as:
Interest rate swaps (321) (318) (381)
Forward foreign currency contracts 18 125 (1)
Cross-currency swaps (257) (322) (481)
Collateral (1) 47 37 47
==================================================================== ============== ============== ================
Total carrying value of derivative financial instruments (513) (478) (816)
==================================================================== ============== ============== ================
(1) Collateral deposited against derivative financial
liabilities under the terms and conditions of an ISDA Credit
Support Annex
All financial assets and liabilities are carried on the balance
sheet at amortised cost, other than derivative financial
instruments and the investment in Auxly Cannabis Group which are
carried at fair value. Derivative fair values are determined based
on observable market data such as yield curves, foreign exchange
rates and credit default swap prices to calculate the present value
of future cash flows associated with each derivative at the balance
sheet date (Level 2 classification hierarchy per IFRS 7). Market
data is sourced through Bloomberg and valuations are validated by
reference to counterparty valuations where appropriate. Some of the
Group's derivative financial instruments contain early termination
options and these have been considered when assessing the element
of the fair value related to credit risk. On this basis the
reduction in reported net derivative liabilities due to credit risk
is GBP21 million and would have been a GBP46 million reduction
without considering the early termination options. There were no
changes to the valuation methods or transfers between hierarchies
during the year. With the exception of capital market issuance and
the Auxly investment, the fair value of all financial assets and
financial liabilities is considered approximate to their carrying
amount.
AUXLY CANNABIS GROUP INC.
The Group has invested CAD 123 million into Auxly Cannabis Group
Inc. by way of a debenture convertible into 19.9 per cent ownership
at a conversion price of $0.81 per share. Repayment of the
debenture was due on 25 September 2022, but on 19 April 2021 the
debenture agreement was varied and it is now repayable on 25
September 2024. The debenture is valued as a loan receivable
measured on the basis of discounting future cash flows at a rate of
14 per cent plus the application of an expected credit loss
provision. At 31 March 2021 the loan was held at a fair value of
GBP38 million (30 September 2020: GBP22 million), net of an
expected credit loss provision of GBP24 million (30 September 2020:
GBP36 million). The reduction in the expected credit loss provision
reflects improvements in the counterparty credit risk position
although there continues to be a level of future credit risk
exposure against this financial asset.
14. SHARE BUYBACKS
Shares purchased under the Group's buyback programme represent a
deduction from equity shareholders' funds, and are only cancelled
if the number of treasury shares approaches 10 per cent of issued
share capital. During the period the Group purchased nil shares at
a cost of GBPnil (6 months 2020: 5,098,508 shares at a cost of
GBP92 million which were immediately cancelled, increasing the
capital redemption reserve).
15. CONTINGENT LIABILITIES
The following summary includes updates to matters that have
developed since the 2020 Annual Report and Accounts.
USA STATE SETTLEMENT AGREEMENTS
In November 1998, the major US cigarette manufacturers,
including Reynolds and Philip Morris, entered into the Master
Settlement Agreement ("MSA") with 52 US states and territories and
possessions. These cigarette manufacturers previously settled four
other cases, brought by Mississippi, Florida, Texas and Minnesota,
by separate agreements with each state (collectively with the MSA,
the "State Settlement Agreements", with Mississippi, Florida, Texas
and Minnesota known collectively as the "Previously Settled
States"). ITG is a party to the MSA and to the Mississippi, and
Minnesota State Settlement Agreements.
In connection with its 12 June 2015 acquisition of four
cigarette brands (Winston, Salem, Kool and Maverick, referred to as
the "Acquired Brands") from Reynolds and Lorillard, ITG has been
involved in litigation and other disputes with the Previously
Settled States, Philip Morris, and Reynolds in their state courts.
ITG has also been involved in litigation with Reynolds in the
Delaware court that has jurisdiction over disputes under the
acquisition agreement for the Acquired Brands.
There have been substantial developments in several of these
litigations:
-- The parties have resolved the litigation in Minnesota, with
the Court ordering dismissal of the claims with prejudice on 17
March 2021. Minnesota sought settlement payments on the Acquired
Brands of approximately $58 million plus interest, plus future
annual payments of approximately $13 million, and Philip Morris
sought additional amounts related to a portion of the payment
calculation affecting Philip Morris. In the settlement, ITG paid
$28 million (GBP22 million) and Reynolds paid $52 million. ITG will
pay an estimated $13 million on 31 December 2021 and each year
thereafter.
-- The parties are discussing a settlement with Texas similar to
the Minnesota resolution. The Group has accrued $27 million (GBP20
million) in the half year related to this.
-- The Florida court's decision that Reynolds, not ITGB, owes
$127 million in back payments and an estimated $26 million annually
under that settlement is now final and unappealable, with the
Florida Supreme Court denying Reynolds' petition for a further
appeal. Reynolds has asked the Delaware court to order ITG to
indemnify it for those obligations.
-- The portions of the Delaware dispute that related to
Minnesota have been settled and dismissed as well.
-- The parties have also resolved Philip Morris' related claim
under the MSA, challenging ITG's right to receive a "Previously
Settled States Reduction" worth about $65 million a year, as such
claim relates to Minnesota.
The Group's legal advice is that it has a strong position on the
remaining pending claims related to the Acquired Brands and the
Group therefore considers that no provision is required for these
matters.
COMPETITION AUTHORITY INVESTIGATIONS
SPAIN
On 12 April 2019 the Spanish National Commission on Markets and
Competition (CNMC) announced penalties against Philip Morris Spain,
Altadis, JT International Iberia and Logista. Altadis and Logista
received fines of EUR11.4 million and EUR20.9 million,
respectively, from the CNMC. According to the decision, Altadis and
Logista are alleged to have infringed competition law by
participating in an exchange of sales volume data between 2008 and
February 2017. CNMC considers that this conduct had the effect of
restricting competition in the Spanish tobacco market. Both
companies believe that the arguments made by CNMC that define this
conduct as anti-competitive are flawed. In June 2019, both Altadis
and Logista commenced appeals to the CNMC's Decision and the fines
imposed in the Spanish High Court where they believe they will be
successful, a decision supported by external legal counsel. In
September 2019 Altadis and, separately, Logista arranged bank
guarantees for the full amount of the fines with the result that
payment of the fines had been suspended pending the outcome of the
appeals. Therefore, provision for these amounts is not considered
appropriate. In the Altadis appeal, both parties have concluded
their submissions to the Court and a judgment is awaited. A
judgment is unlikely to be received before the end of 2021.
In the Logista appeal, Logista submitted their pleadings before
the High Spanish Court in February 2021. A judgment is also
unlikely to be received before the end of 2021.
BELGIUM
On 29 May 2017, the National Competition Authority in Belgium
(the BCA) conducted raids at the premises of several manufacturers
and wholesalers of tobacco products. The BCA investigation
continues. No decision has been taken and no fine has been imposed.
There are multiple stages remaining in the ongoing procedure before
a final regulatory decision is issued meaning that the finding of
an infringement remains uncertain and therefore a provision for a
fine would not be appropriate.
OTHER LITIGATION
UK
In June 2020, the Group responded to a claimant law firm's
allegations of human rights issues in the Malawian tobacco supply
chain, which included allegations relating to child and forced
labour. In December 2020, a claim was filed in the UK High Court
against Imperial Brands plc, Imperial Tobacco Limited and four of
its subsidiaries by a group of tobacco farm workers. Imperial
Brands plc and its relevant subsidiaries have acknowledged service
and confirmed to the claimants that they intend to defend the claim
in full. The claim is unquantified, and given the early stage of
the litigation a provision would not be appropriate.
MOROCCO - FORMER RETIREES
A large number of cases have been raised by individual
pensioners against Société Marocaine des Tabacs SA (SMT) disputing
a reduction to retirees' pensions. These cases have been in the
courts for a number of years and SMT has successfully defended many
of them in the lower courts. Six cases have been reviewed by the
Cour de Cassation (Supreme Court) in Morocco, and it is understood
that they have been decided against SMT although no reasoned
judgment has been issued by the court at the time of signing these
accounts. An assessment is currently being made as to procedural
options available to SMT. As there remain areas of uncertainty in
relation to the basis of the judgments and the likely financial
impact for the six reportedly decided cases and the wider group of
claims, a provision is not currently appropriate. There is a
possible outcome that SMT may owe retirees up to GBP100 million in
the event that all claims were found against SMT.
16. POST BALANCE SHEET EVENTS
SALE OF THE PREMIUM CIGAR DIVISION
On 29 April 2021 the group received payment of EUR256 million in
settlement of part of the deferred consideration on the sale of the
Premium Cigar Division. See note 10 for more details.
17. RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note. No related party transactions have taken
place in the 6 months ended 31 March 2021 (6 months 2020: none)
that have materially affected the financial position or performance
of the group during that period.
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END
IR EVLBFFELLBBZ
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