REG - Imperial Brands PLC - Final Results <Origin Href="QuoteRef">IMB.L</Origin> - Part 3
07/11/2017 07:01
- Part 3: For the preceding part double click ID:nRSG7546Vb
(12) (7)
Interest on bank loans and other loans 549 531
Adjusted net finance costs 537 524
6. Tax and Reconciliation to Adjusted Tax Charge
Analysis of charge in the year
£ million 2017 2016
Current tax
UK Corporation tax 97 33
Overseas tax 367 467
Total current tax 464 500
Deferred tax movement (50) (262)
Total tax charged to the consolidated income statement 414 238
Reconciliation from reported tax to adjusted tax
The table below shows the taxation impact of the adjustments made to reported
profit before tax in order to arrive at the adjusted measure of earnings
disclosed in note 8.
£ million 2017 2016
Reported tax charge 414 238
Deferred tax on amortisation of acquired intangibles 228 261
Tax on net fair value and exchange movements on financial instruments (14) 80
Tax on post-employment benefits net financing cost 7 7
Tax on restructuring costs 121 79
Tax on unrecognised losses (105) (56)
Adjusted tax charge 651 609
Factors affecting the tax charge for the year
The tax on the Group's profit before tax differs from the theoretical amount
that would arise using the average of the enacted UK corporation tax rates for
the year of 19.5 per cent (2016: 20.0 per cent) as follows:
£ million 2017 2016
Profit before tax 1,861 907
Tax at the UK Corporation tax rate 363 181
Tax effects of:
Differences in effective tax rates on overseas earnings (47) (90)
Movement in provision for uncertain tax positions 22 43
Remeasurement of deferred tax balances 4 (101)
Remeasurement of deferred tax balances arising from changes in tax rates (93) -
Deferred tax on unremitted earnings 42 -
Permanent differences 120 170
Adjustments in respect of prior years 3 35
Total tax charged to the consolidated income statement 414 238
Differences in effective tax rates on overseas earnings represents the impact
of worldwide profits being taxed at rates different from 19.5 per cent. The
effective tax rate benefits from internal financing arrangements between group
subsidiaries in different countries which are subject to differing tax rates
and legislation and the application of double taxation treaties. The movement
between 2016 and 2017 is largely driven by changes in UK legislation enacted
during 2017 which restrict the Group's ability to deduct interest in the UK.
Remeasurement of deferred tax balances of £101 million in 2016 mainly
represented the recognition of deferred tax assets previously not recognised
in relation to the Group's Spanish business, £89 million related to tax
deductible amortisation and the balance of £12 million related to losses and
other deferred tax assets. The Group's assessment of the recoverability of
deferred tax assets is based on a review of underlying performance of
subsidiaries, changes in tax legislation and the interpretation thereof and
changes in the group structure.
Remeasurement of deferred tax balances arising from changes in tax rates of
£93 million (2016: nil) mainly represents the remeasurement of deferred tax
liabilities on French assets following the enactment of a future tax rate
reduction which will be effective for the Group with effect from 1 October
2019.
During the year the Group has provided for deferred tax on unremitted earnings
of £42 million (2016: nil). The tax will arise on the distribution of profits
through the group and on planned group simplification.
Permanent differences include £10 million in respect of non-deductible
exchange losses (2016: £79 million), £29 million (2016: £31 million) in
respect of non-deductible interest expense and £57 million (2016: nil) in
respect of taxable disposal of assets intra group.
Movement on current tax account
£ million 2017 2016
At 1 October (239) (111)
Charged to the consolidated income statement (464) (500)
Credited/(charged) to equity 3 (6)
Cash paid 570 401
Exchange movements 2 (24)
Other movements 5 1
At 30 September (123) (239)
The cash tax paid in the year is £106 million higher (2016: £99 million lower)
than the current tax charge. This arises as a result of timing differences
between the accrual of income taxes and the actual payment of cash and the
movement in the provision for uncertain tax positions.
Uncertain tax positions
On 29 March 2017 the UK notified the European Council in accordance with
Article 50(2) of the Treaty on European Union of the UK's intention to
withdraw from the European Union. As an international business the Group is
monitoring developments but does not currently consider any provision is
required.
As an international business the Group is exposed to uncertain tax positions
and changes in legislation in the jurisdictions in which it operates. The
Group's uncertain tax positions principally include cross border transfer
pricing, interpretation of new or complex tax legislation and tax arising on
the valuation of assets. The Group is also monitoring developments in relation
to EU State Aid investigations including the EU Commission's announcement on
26 October 2017 that it will be opening a State Aid investigation into the
UK's Controlled Foreign Company regime. The Group does not currently consider
any provision is required in relation to EU State Aid. The assessment of
uncertain tax positions is subjective and significant management judgement is
required. This judgement is based on interpretation of legislation,
management experience and professional advice.
Provisions arising from uncertain tax positions taken in the calculation of
tax assets and liabilities are included within current tax liabilities. At 30
September 2017 the total value of these provisions, including foreign exchange
movements, was £190 million (2016: £165 million). It is possible that
amounts paid will be different from the amounts provided.
Management have assessed the Group's provision for uncertain tax positions and
have concluded that apart from the French matter referred to below, the
provisions in place are not material individually or in aggregate, and that a
reasonably possible change in the next financial year would not have a
material impact to the results of the Group.
In November 2015 the Group received a challenge from the French tax
authorities that could lead to additional tax liabilities of up to £253
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 the shares in October 2012 and the tax consequences flowing from a
potentially higher value that is argued for by the tax authorities. Based on
professional advice, an amount of £42 million (2016: £41 million) is included
in the provision for uncertain tax positions.
7. Dividends
Distributions to ordinary equity holders
£ million 2017 2016 2015
Paid interim of 51.7 pence per share (2016: 101.1p, 2015: 91.9p)
- Paid June 2015 - - 204
- Paid September 2015 - - 204
- Paid December 2015 - - 468
- Paid June 2016 - 225 -
- Paid September 2016 - 225 -
- Paid December 2016 - 517 -
- Paid June 2017 247 - -
- Paid September 2017 247 - -
Interim dividend paid 494 967 876
Proposed interim of 59.51 pence per share (2016: nil, 2015: nil)
- To be paid December 2017 567 - -
Interim dividend proposed 567 - -
Proposed final of 59.51 pence per share (2016: 54.1p, 2015: 49.1p)
- Paid March 2016 - - 468
- Paid March 2017 - 517 -
- To be paid March 2018 567 - -
Final dividend 567 517 468
Total ordinary share dividends of 170.72 pence per share (2016: 155.2p, 2015: 141.0p) 1,628 1,484 1,344
The third interim dividend for the year ended 30 September 2017 of 59.51 pence
per share amounts to a proposed dividend of £567 million, which will be paid
in December 2017.
The proposed final dividend for the year ended 30 September 2017 of 59.51
pence per share amounts to a proposed dividend payment of £567 million in
March 2018 based on the number of shares ranking for dividend at 30 September
2017, and is subject to shareholder approval. If approved, the total dividend
paid in respect of 2017 will be £1,628 million (2016: £1,484 million). The
dividend paid during 2017 is £1,528 million (2016: £1,386 million).
8. Earnings per Share
Basic earnings per share is based on the profit for the year attributable to
the owners of the parent and the weighted average number of ordinary shares in
issue during the year excluding shares held to satisfy the Group's employee
share schemes and shares purchased by the Company and held as treasury shares.
Diluted earnings per share have been calculated by taking into account the
weighted average number of shares that would be issued if rights held under
the employee share schemes were exercised. No instruments have been excluded
from the calculation for any period on the grounds that they are
anti-dilutive.
£ million 2017 2016
Earnings: basic and diluted - attributable to owners of the Parent Company 1,409 631
Millions of shares
Weighted average number of shares:
Shares for basic earnings per share 954.6 954.0
Potentially dilutive share options 2.3 2.7
Shares for diluted earnings per share 956.9 956.7
Pence
Basic earnings per share 147.6 66.1
Diluted earnings per share 147.2 66.0
Reconciliation from reported to adjusted earnings and earnings per share
2017 2016
£ million unless otherwise indicated Earnings per share (pence) Earnings Earnings per share (pence) Earnings
Reported basic 147.6 1,409 66.1 631
Amortisation of acquired intangibles 90.5 864 78.0 744
Net fair value and exchange movements on financial instruments (10.3) (98) 76.2 727
Post-employment benefits net financing cost 1.9 18 1.3 12
Restructuring costs 28.3 270 23.9 228
Tax on unrecognised losses 11.0 105 5.9 56
Adjustments attributable to non-controlling interests (2.0) (19) (1.8) (17)
Adjusted 267.0 2,549 249.6 2,381
Adjusted diluted 266.4 2,549 248.9 2,381
9. Net Debt
The movements in cash and cash equivalents, borrowings, and derivative
financial instruments in the year were as follows:
£ million Cash and cashequivalents Currentborrowings Non-currentborrowings Derivativefinancialinstruments Total
At 1 October 2016 1,274 (1,544) (12,394) (655) (13,319)
Reallocation of current borrowings from non-current borrowings - (2,324) 2,324 - -
Cash flow (601) 1,465 (134) 37 767
Accretion of interest - 22 (6) (3) 13
Change in fair values - - - 56 56
Exchange movements (49) 28 14 - (7)
As at 30 September 2017 624 (2,353) (10,196) (565) (12,490)
Adjusted net debt
Management monitors the Group's borrowing levels using adjusted net debt which
excludes interest accruals and the fair value of derivative financial
instruments providing commercial cash flow hedges.
£ million 2017 2016
Reported net debt (12,490) (13,319)
Accrued interest 208 221
Fair value of derivatives providing commercial hedges 135 216
Adjusted net debt (12,147) (12,882)
10. Derivative Financial Instruments
2017 2016
£ million Assets Liabilities Net Fair Value Assets Liabilities Net Fair Value
Current derivative financial instruments
Interest rate swaps 47 (33) 14 32 (60) (28)
Foreign exchange contracts 12 (9) 3 9 (11) (2)
Cross-currency swaps 1 - 1 5 (121) (116)
Total current derivatives 60 (42) 18 46 (192) (146)
Collateral - - - - 74 74
60 (42) 18 46 (118) (72)
Non-current derivative financial instruments
Interest rate swaps 583 (734) (151) 1,063 (1,279) (216)
Cross-currency swaps - (507) (507) - (427) (427)
Total non-current derivatives 583 (1,241) (658) 1,063 (1,706) (643)
Collateral - 75 75 - 60 60
583 (1,166) (583) 1,063 (1,646) (583)
Total carrying value of derivative financial instruments 643 (1,208) (565) 1,109 (1,764) (655)
Analysed as
Interest rate swaps 630 (767) (137) 1,095 (1,339) (244)
Foreign exchange contracts 12 (9) 3 9 (11) (2)
Cross-currency swaps 1 (507) (506) 5 (548) (543)
Collateral - 75 75 - 134 134
Total carrying value of derivative financial instruments 643 (1,208) (565) 1,109 (1,764) (655)
The Groups' derivative financial instruments are held at fair value. Fair
values are determined based on observable market data (Level 2 classification
hierarchy) and are consistent with those applied during the year ended 30
September 2016.
11. Changes in Non-Controlling Interests
In September 2017 the Group reduced its holding in its Logistics business,
Compañía de Distribución Integral Logista Holdings SA. This increased
non-controlling interests by £111 million. Sales proceeds were E252 million.
Net proceeds after fees and costs were £221 million. A net gain of £110
million was recognised in equity attributable to owners of the parent.
12. Post Balance Sheet Events
On 23 October 2017, the Group acquired 100% of the share capital of Nerudia
Limited for a total cash consideration of £106.5 million including contingent
consideration of up to £42.6 million. Nerudia Limited is a nicotine products
and services group with a strong track-record of developing innovative
e-vapour and nicotine products. The acquisition further strengthens our
portfolio of intellectual property assets and our research and development
capabilities.
This information is provided by RNS
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