REG - Imperial Brands PLC - Half-year Report <Origin Href="QuoteRef">IMB.L</Origin> - Part 1
RNS Number : 0055EImperial Brands PLC03 May 2017IMPERIAL BRANDS PLC
HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2017
INVESTING IN QUALITY GROWTH AND DELIVERING SUSTAINABLE RETURNS
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Delivering against our strategy
Results in line with expectations with additional investment programme on track
Investments are strengthening share trends in many priority markets, supporting quality growth
Strong results from Growth and Specialist Brands, which now generate 60.4% of tobacco net revenue
Excellent progress with cost optimisation and reducing business complexity
Focus on capital discipline delivering 99.6% cash conversion and 10% dividend growth
Alison Cooper, Chief Executive, commented
"We're delivering encouraging improvements in share trends in many of our priority markets after significantly stepping up investment behind our strategy and quality growth. The volume and share gains we achieved with our Growth Brands in the period were particularly pleasing. Our performance is underpinned by the rollout of our Market Repeatable Model, which provides an effective and consistent approach for delivering sustainable quality growth in markets. We are deploying this model in e-vapour and believe it can also be successfully applied to drive growth in other consumer adjacencies. As expected, first half revenue and profit were impacted by the considerable increase in investment. In a challenging industry environment, we are delivering against our strategy and remain on track to meet full year earnings expectations at constant currency. Cash conversion remains strong and we are delivering another dividend increase of 10%."
Headline Financials
Overview - Adjusted Basis
Half Year Result
Change
2017
2016
Actual
Constant Currency1
Total tobacco volume
bn SE
126.3
133.9
-5.7%
Growth Brand volume
bn SE
73.0
70.7
+3.2%
Tobacco net revenue
m
3,716
3,399
+9.3%
-5.5%
Tobacco adjusted operating profit
m
1,667
1,577
+5.7%
-8.1%
Logistics adjusted operating profit
m
82
68
+20.6%
+4.4%
Total adjusted operating profit
m
1,740
1,637
+6.3%
-7.6%
Adjusted earnings per share
pence
121.9
113.0
+7.9%
-5.9%
Dividend per share
pence
51.7
47.0
+10.0%
Adjusted net debt
m
(13,927)
(13,710)
Overview - Reported Basis
Half Year Result
Change
2017
2016
Actual
Revenue
m
14,298
12,806
+11.7%
Operating profit
m
902
1,002
-10.0%
Basic earnings per share
pence
70.7
30.4
+132.6%
See page 4 for basis of preparation and page 13 for the reconciliation between reported and adjusted measures.
1 Change at constant currency removes the effect of exchange rate movements on the translation of the results of our overseas operations
Delivering Against Strategic Priorities
We are investing more behind the right brands and the right markets to deliver further quality growth and ongoing returns. Our Market Repeatable Model provides a clear framework for our investment and is supporting Growth Brand performance and improved market share trends in priority markets.
Strengthening our Portfolio
Growth Brand volumes up 3.2% with a 60 bps increase in market share
Growth and Specialist Brands up 200bps to 60.4% of reported tobacco net revenue
Brand migrations and SKU rationalisation realising simplification benefits
Building blu through investment in brand building and technology development
Developing our Footprint
Investment is delivering improved share trends in priority markets; Growth Brand share gains in all divisions
In USA: Winston and Kool share increased; mass market cigars performing well
Growth Markets: increased share in Italy, Japan and Saudi Arabia; and improving trend in Russia
Returns Markets: gaining share with Growth Brands in UK and Australia; other priority markets stabilising
Market Repeatable Model informing investment choices and supporting effective market execution
Cost Optimisation
Cost optimisation expected to deliver 130m of savings in FY17, ahead of the 90m announced in November
Continued focus on reducing business complexity driving effectiveness and efficiency
Savings supporting investment programme
Capital Discipline
Cash conversion of 99.6%
Net debt reduction of 1.2bn before adverse FX of 1.4bn: adjusted net debt of 13.9bn
Interim dividend of 51.7p; up 10%
Highlights show movements based on adjusted numbers at constant currency
Portfolio Strengthened through Growth Brand Performance
Reported volume 126.3bn SE; down 5.7% driven primarily by increased industry volume declines
Industry volumes down 4.3% year to date, following a strong comparator period last year and affected by increased excise and regulatory changes
Growth Brands gaining volume (up 3.2%) and share (up 60 basis points) reflecting improved quality of growth
Rest of portfolio share down 90 basis points as our portfolio transformation focuses on Growth Brands
Specialist Brands volume driven by migration of Route 66 to Growth Brands and market size declines
Portfolio Brands volume affected by multiple migrations to Growth Brands, delistings and market size
VOLUME BRIDGE: -5.7%
HY16 reported volume
133.9 bn SE
Growth Brands
-2.3bn
Specialist Brands
-0.7bn
Portfolio Brands
-9.2bn
HY17 reported volume
126.3 bn SE
-5.7%
Net Revenue Growth of 9.3% at Actual Exchange Rates
Net revenue of 3.7bn; up 9.3% at actual exchange rates; down 5.5% on a constant currency basis
Flat price/mix reflects increased price investment, the phasing of price increases and the impact of termination of PMI contracts in the UK and Morocco
14.8% benefit from foreign exchange on translation
NET REVENUE BRIDGE: +9.3%
HY16 net revenue
3,399m
Volume
-5.7%
Price/mix
+0.2%
Translation FX
+14.8%
HY17 net revenue
3,716m
+9.3%
Adjusted Earnings per Share up 7.9% at Actual Exchange Rates
Adjusted EPS of 121.9p
Constant currency adjusted EPS down 5.9% reflecting impact of increased investment of 160m
Translation FX benefit of 15.6p with 7.8p from US dollar; 3.9p Euro, 2.3p Australian dollar and 1.6p of other currencies
Reported EPS up 132.6% to 70.7p driven primarily by the impact of foreign exchange on the fair value of derivatives
EPS BRIDGE: -5.9% (CC); +7.9% (Reported)
HY16 adjusted EPS
113.0p
Investment
-13.1p
Operating profit ex-investment
+2.7p
Interest, Tax, MI and JV
+3.7p
HY17 constant currency EPS
106.3p
-5.9%
Translation FX
+15.6p
HY17 adjusted EPS
121.9p
+7.9%
OTHER INFORMATION
Investor Contacts
Media Contacts
Peter Durman
+44 (0)7970 328 093
Alex Parsons
+44 (0)7967 467 241
Matt Sharff
+44 (0)7964 110 921
Simon Evans
+44 (0)7967 467 684
Mat Slade
+44 (0)7811 974 438
Webcast and Conference Call
Imperial Brands PLC will be hosting a live webcast for investors and investment analysts with senior management following the publication of our Interim Results on 3 May 2017. The webcast will be hosted by Alison Cooper, Chief Executive, and available on www.imperialbrandsplc.com from 9.00am (GMT). An archive of the webcast and the presentation script and slides will also be available.
The webcast can also be accessed on a listen only basis using the following telephone details:
United Kingdom:+44(0)20 3427 191
USA:+1646 254 3388
Confirmationcode:3011623
A media conference call will be hosted at 7.30am, at which there will be the opportunity for questions.
Dial-in Number: +44 (0)330 336 9412
Participant code: 2618718
A replay of this call will be available for one week. To listen, please dial:
Replay Number: +44 (0)207 984 7568
Access Code: 2618718
Basis of Presentation
To aid understanding of our results, we use 'adjusted' (non-GAAP) measures in accordance with our usual practice. Reconciliations between adjusted and reported (GAAP) measures are also included in the relevant notes. Further definitions of adjusted measures are provided in the 2016 Annual Report and Accounts.
Stick Equivalent (SE) volumes reflect our combined cigarette, fine cut tobacco, cigar and snus volumes.
Change at constant currency removes the effect of exchange rate movements on the translation of the 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.
Market share is presented as a 12 month average (MAT). Aggregate market share is a weighted average across markets within our footprint.
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 made a promising start to the year as we continued to focus on delivering against our strategic priorities. This year we are investing an additional 300m in Growth and Specialist Brands in priority markets to deliver improved revenue growth and early results are encouraging, with improved share trends in many of these markets.
Our increased investments support our strategy to generate quality growth and sustainable shareholder returns and they are focused on areas where we have a proven track record of generating quality revenue growth and are funded by further savings from our cost programme. Investments are aligned with the rollout of our Market Repeatable Model, which provides an effective and consistent approach for winning across our geographic footprint. Our investments are supporting share growth in our Growth Brands in many of our priority markets or improved share trends in others.
We remain focused on our four strategic priorities: strengthening our portfolio, developing our footprint, cost optimisation and capital discipline. Our footprint exposure has supported positive currency translation with growth in net revenue, adjusted operating profit and earnings per share at actual exchange rates. The additional investment has impacted our first half actual and constant currency revenue and profitability in line with our expectations and we expect a stronger second half performance as the investments gain further traction. Our investment plans are on track with 160m spent against the 300m we announced last year.
Cash conversion remained strong at almost 100% and we increased the interim dividend by 10% for the ninth consecutive year.
Winning in Market - Market Repeatable Model
Our Market Repeatable Model was developed as part of the review we undertook last year and builds on the success of our sales growth drivers. It is based on insights from across the business, including analysis of markets where we have generated significant quality growth.
The model provides a simple and consistent operating framework that is now being deployed throughout our footprint. The six elements of the model ensure that everywhere we operate we have: a simple market-focused portfolio, sustained brand investments, a consistent price strategy, a focus on maximising the availability of our core range, tailored customer solutions and honest and accurate learning mechanisms.
The Market Repeatable Model has become an integral component of our strategy and strengthens our ability to maximise the performance of our brands and markets.
Strengthening our Portfolio
We delivered excellent results from our Growth Brands, which outperformed the market with strong growth in volumes and share.
Growth Brands continue to benefit from brand migrations and we have also begun a more radical portfolio simplification exercise to further reduce complexity and improve the on-shelf availability of our brands. This has now been implemented in several markets including Russia, France, Germany, Italy, Spain and Australia, and will be rolled out across other geographies.
We have increased investment in our Growth Brands, focusing support behind markets and activities with the best growth potential. This includes a broad range of initiatives such as consumer activations, new product offerings to meet changing consumer needs, as well as brand equity building campaigns for JPS, West, Winston, Davidoff and Gauloises Blondes.
Our Specialist Brands performance included strong revenue contributions from our Premium Cigar portfolio, Skruf in Norway and Sweden, Backwoods in the USA and Rizla.
Together, Growth and Specialist Brands accounted for 60.4% of the Group's tobacco net revenue.
Investing in Consumer Adjacencies
We continue to develop our presence in consumer adjacencies through our subsidiary, Fontem Ventures. Fontem's current priority is to capitalise on the rapid growing e-vapour sector by building sales of blu and licensing a range of patented technologies, as well as exploring other consumer adjacencies such as caffeine energy products. E-vapour is the largest part of the fast-growing next generation product category, offering the broadest consumer choice with its range of devices, flavours and nicotine strengths and providing the biggest growth opportunity.
Our Market Repeatable Model provides a framework to drive growth in e-vapour and can be applied across other consumer adjacencies. We have a market-focused portfolio centred on blu, a high quality e-vapour brand with a consistent premium pricing strategy. We continue to invest in building brand equity and improving technologies. We have further developed our next generation product to provide an improved consumer experience and we are undertaking consumer trials as a prelude to a launch during 2017. We are also enhancing our distribution in our four priority markets of the USA, UK, France and Italy as we evaluate opportunities to expand into new markets. During the period Fontem further enhanced revenues by licensing its first generation technology to a number of other e-vapour companies.
Developing our Footprint
In Growth Markets, we further improved our quality of growth and achieved continued market share gains in Saudi Arabia, Italy and Japan, while improving our share trajectory in markets such as Russia. Our Premium Cigars business also made a strong contribution. We enhanced our presence in China, the world's largest tobacco market, through a joint venture with China Tobacco.
Our US business, ITG Brands, continues to perform well as we invest behind our two focus premium brands, Winston and Kool, which delivered further market share improvements, helping to offset Portfolio Brand declines. We have also achieved a significant improvement in the performance of our mass market cigar business.
In Returns Markets, we also enhanced our quality of growth as we focused on Growth Brand share and our investments delivered increasing year to date share in markets such as the UK, Australia and Algeria and improving share trends in markets including Germany and Spain.
Cost Optimisation and Capital Discipline
We have two cost optimisation programmes underway, which will each deliver 300m of cost efficiencies and improved ways of working. The first programme is on track to deliver 300m by FY18. We announced a second phase last year which is scheduled to deliver another 300m by FY20. We have delivered 60m of savings in the first half and we now expect to deliver 130m of savings this year ahead of the 90m announced last November.
Our commitment to capital discipline underpins our focus on cash generation and the effective management of our working capital. Cash conversion remained strong at 99.6% and we generated 1.2bn of free cash flow after dividend payments.
We are now in our ninth consecutive year of dividend growth of 10% or more and we remain committed to continuing to grow the dividend by at least 10% a year over the medium term.
Good Results from Logista
Our European distribution business Logista had a great start to the year with growth in revenue and operating profit. This has been driven by the development of its nontobacco businesses, particularly convenience products, pharmaceutical, wholesale and transport, more than offsetting the impact of lower tobacco volumes. The results also benefited from the sale of an investment in an Italian business that provides transactional services at point of sale. Logista profitability continues to benefit from improved cost management across its operations, with efficiency gains in its distribution network and warehousing.
Outlook
In November 2016, we announced a significant additional investment commitment in the current year to enhance our market position and drive further quality growth. These investments have already yielded improved trends in the first half and we expect these positive trends to continue, resulting in a stronger second half despite a further deterioration in industry volumes, combined with competitive pricing in a number of geographies.
Through a combination of our additional investment initiatives and an ongoing focus on cost optimisation, we expect constant currency earnings to be in line with expectations. Foreign exchange translation is expected to benefit earnings by around 9% based on current rates.
Our focus on capital discipline and cash flow management remains a core element of our strategy. Strong cash-flows will continue to be used for returns to shareholders, investing behind our business and paying down debt.
The positive progress we are making in driving our strategic agenda underpins our commitment to continue to generate value for our shareholders in 2017 and beyond.
Alison Cooper
Chief Executive
OPERATING REVIEW
We are focused on delivering quality growth with the right brands in the right markets. This is being reinforced this year by increased investment aligned to our Market Repeatable Model to drive improved revenue growth over the medium term. Initial results are encouraging, with either higher market share or improved share trends in a number of Growth and Returns Markets supported by stronger Growth Brand performances.
Brand Performances
We achieved another strong performance with our Growth and Specialist Brands. These are the most important assets in our portfolio and together they now account for 60.4% of our tobacco net revenue, up 200 basis points on last half year. We have substantially increased our investment behind these brands in the first half, improving their growth momentum and supporting the success of our migration and SKU simplification programmes.
Total Group tobacco volumes were 126.3bn stick equivalents (2016: 133.9bn), with volumes down by 5.7% mainly reflecting industry volume declines. Against this backdrop our Growth Brands increased volume and market share by 60 basis points as we continue to migrate consumers from local, low priority brands. As a result our Portfolio Brands lost 90 basis points of share as we simplify and focus on our strongest brand equities. Our priority is to continue to reshape the portfolio and improve our quality of growth.
Growth Brands
Half Year Result
Change
2017
2016
Actual
Constant Currency
Market share
%
8.0
7.4
+60 bps
Net revenue
m
1,682
1,486
+13.2%
-2.5%
Percentage of Group volumes
%
57.8
52.8
+500 bps
Percentage of tobacco net revenue
%
45.3
43.7
+160 bps
Our Growth Brands are Davidoff, Gauloises Blondes, JPS, West, Fine, News, Winston, Bastos, Lambert & Butler and Parker & Simpson. These are quality brands with broad consumer appeal that are generating an increasing amount of our volume and revenue.
Growth Brands outperformed the market in the period, with volumes growing 3.2% supported by migrations. Net revenue grew 13.2% on a reported basis, although fell 2.5% at constant currency reflecting targeted price investment. Growth brand investment was also prioritised behind brand equity building campaigns, additional consumer activations and new formats to meet changing consumer demands.
Growth Brands now account for 57.8% of total Group tobacco volumes, an increase of 500 basis points, and 45.3% of overall tobacco net revenue, an increase of 160 basis points benefiting from migrations as well as organic growth.
Brand Chassis
Highlights
JPF
(JPS, Parker & Simpson and Fine)
Volume and share growth in the chassis was driven by JPS and Parker & Simpson. Players in the UK and Parker & Simpson Queen Size and Crushball variants in Russia have continued to perform well. Investments in JPS in Italy have increased share especially in soft pack variants. The migration of Route 66 to Parker & Simpson has also helped volumes.
West
(West, L&B, News
and Bastos)
West has grown volumes and share driven by Saudi Arabia and Japan, and by the migration of Stolichnye in Ukraine. L&B Blue has performed well with share gains in recent months helped by key account investment. News is making good progress in France as the special edition News & Co helped drive positive share momentum.
Winston
Winston made further share gains supported by increased investment through our retailer programmes coupled with a new pack design, digital marketing initiatives and improved point of sale.
Davidoff
Revenue growth in the period was driven by Saudi Arabia with the benefit of our new Fresh Box pack and increased consumer contact points. In Greece, increased consumer activations have continued to support increases in market share.
Gauloises
Gauloises gained share in Algeria to consolidate its market leadership, supported by the success of Gauloises L'autre. We increased investment in Germany behind the successful 'Vive le Moment' campaign to address recent share declines.
Specialist Brands
Half Year Result
Change
2017
2016
Actual
Constant Currency
Net revenue
m
561
499
+12.3%
-2.0%
Percentage of tobacco net revenue
%
15.1
14.7
+40 bps
Specialist Brands appeal to specific consumer groups and include: blu (e-vapour), Style, Gitanes, Kool (cigarettes), Golden Virginia, Drum, Route 66 (fine cut tobacco), Cohiba, Montecristo, Romeo Y Julieta (premium cigars), Backwoods (cigars), Skruf (snus) and Rizla (papers). Our specialist brand Style is being migrated to Jad as part of our new Chinese joint venture. Jad will eventually replace Style as one of our Specialist Brands as we build scale behind Jad for further development outside of China.
We continued to make good progress with our Specialist Brands, driven by revenue growth in Backwoods, Skruf in Scandinavia, Premium Cigars and Rizla papers. Specialist Brands now represent a greater proportion of the business at 15.1% of net revenue, up 40 basis points on last half year.
Portfolio Brands
The rest of the portfolio is comprised of Portfolio Brands. Some of these are strong local brands that support our volume and revenue development, while others are delisted or migrated into Growth Brands as part of our portfolio simplification initiatives to improve the quality of growth and drive efficiencies.
Portfolio Brand volumes and net revenue fell 17.6% and 10% respectively, primarily reflecting the effect of further migrations into Growth Brands and delistings. We achieved price mix gains of 22.4%, as we further optimised the profitability of the brands.
Market Performances
Growth Markets
Half Year Result
Change
2017
2016
Actual
Constant Currency
Net revenue
m
859
707
+21.5%
+1.7%
Adjusted operating profit
m
211
192
+9.9%
-8.9%
Growth Brand % of net revenue
%
47.6
45.1
+250 bps
Growth Brand volume
bn SE
22.3
21.3
+4.7%
Growth Brand market share
%
3.9
3.4
+50 bps
Targeted investment in Growth Brands and the implementation of our Market Repeatable Model has enabled us to build positive momentum and deliver improved share trends in our priority markets.
We have strengthened the quality of growth through further migrations and more focused investment in our Growth Brands. Growth Brand volumes grew 4.7% and we increased Growth Brand revenues as a proportion of the total by 250 basis points. Growth Brand share gained 50 basis points.
Net revenue and adjusted operating profit grew strongly at actual rates, driven by the benefit of currency translation. At constant currency, net revenue grew 1.7% supported by strong increases in Saudi Arabia, Italy, and Norway, and despite increased investment in price and mix in Russia.
Our investments have driven continued improved share performances in Saudi Arabia, Italy and Japan, offset by declines in Cambodia, Macedonia and Slovenia. The increased investment impacted adjusted operating profit, which fell 8.9% at constant currency materially driven by the investments in Russia.
In January, we announced a new joint venture with a subsidiary of China Tobacco which will develop growth opportunities in China and international markets. The partnership will promote Davidoff and West in China and Horizon and Jad in other markets outside China.
Country
Performance
Russia
We increased investment in simplifying the portfolio, maintaining a consistent price strategy and in key account activities, which have begun to deliver an improved share trend in a highly competitive market. Parker & Simpson gained share with the successful launch of a Queen Size format while Maxim benefited from a new Superkings variant.
Saudi Arabia
Share and revenue increased as we invested in consumer activations to support West, which achieved strong growth, especially in Lights and Ultra Lights. Davidoff share is stable in a declining premium segment, supported by the launches of Fresh Box and Absolute.
Italy
JPS performed well in the period, benefiting from additional brand investment and increased distribution, while Davidoff grew as we expanded its distribution.
Greece
We delivered strong share growth in Davidoff as we continue to invest in consumer activations.
Sweden and Norway
Continued success with Skruf has resulted in share, revenue and profit gains as we benefit from positive pricing in a growing market.
Japan
We continue to deliver share and revenue growth in Japan with West performing strongly, as we extend our retailer coverage.
Taiwan
Davidoff market share remains stable despite a declining high price segment and Parker & Simpson is growing share supported by the migration of Boss.
USA Market
Half Year Result
Change
2017
2016
Actual
Constant Currency
Net revenue
m
785
711
+10.4%
-6.8%
Adjusted operating profit
m
457
384
+19.0%
0.0%
Asset Brand % of net revenue
%
43.1
42.8
+30 bps
Asset Brand volume
bn SE
5.2
5.3
-0.3%
Growth Brand market share
%
2.4
2.3
+10 bps
Our priority in the USA is to grow our focus brands, Winston and Kool, as we reshape the portfolio behind our strongest equities. We have invested in improved distribution through our retailer agreements, new packaging, new formats and digital marketing to build brand awareness.
Net revenue was up 10.4% at actual rates but fell 6.8% at constant currency as a result of our investments and volume declines. Industry volumes declined 2.5% year to date following a strong comparator last year. The percentage of tobacco net revenue generated by our Asset Brands increased 30 basis points to 43.1%, as we stepped up our price support for Winston expanding price repositioning into more territories across the USA. We continue to invest in our successful US retail programme which is now in 169,000 stores nationwide. As a result, Growth Brand market share gained 10 basis points. Our Specialist Brand, Kool also grew share in the fast growing menthol segment as we invested to build brand awareness.
Our mass market cigar business which includes the Dutch Masters and Backwoods brands has continued to perform strongly with growth in volumes, revenue and profit. We restructured the business last year and changed our route to market which, coupled with new consumer activation and engagement programmes, have delivered quality share growth.
Adjusted operating profit grew 19.0% at actual rates and was flat at constant currency, despite significant uplift in our brand investments, which have been supported by the realisation of further cost efficiencies and the benefit of a one-off pension curtailment gain following the closure of the US defined benefit pension plan.
Returns Markets
Half Year Result
Change
2017
2016
Actual
Constant Currency
Net revenue
m
2,072
1,981
+4.6%
-7.7%
Net revenue per '000 SE
25.74
23.03
+11.8%
-1.3%
Adjusted operating profit
m
999
1,001
-0.2%
-11.0%
Growth Brand % of net revenue
%
54.6
52.2
+240 bps
Growth Brand market share
%
15.9
15.1
+80 bps
Investments in key Returns Markets are delivering early improvements in share trends and we continue to enhance our quality of growth through our footprint choices and by driving a greater proportion of revenue from Growth and Specialist Brands.
Net revenue and adjusted operating profit were down at constant currency reflecting the higher investments and the termination of PMI contracts in the UK and Morocco, although positive currency translation supported gains at actual exchange rates.
The increased investment in conjunction with our Market Repeatable Model has delivered improved share trends in many of our priority markets. We achieved share gains in the UK, Australia, Algeria and Portugal and delivered some improvements in recent share trajectories in Spain and Germany as our investments start to gain traction. We faced some share pressure in Azerbaijan, Belgium, Poland and Ivory Coast.
Growth Brands generated 54.6% of tobacco net revenue, an increase of 240 basis points. Growth Brand volumes increased 2.7% while industry volumes declined 4.1% year to date, following a strong comparator period last year and reflecting the impact of excise and regulatory increases. Growth Brand share gained 80 basis points supported by migrations and strong brand performances including Players in the UK and JPS in Australia.
Returns Markets North
Half Year Result
Change
2017
2016
Actual
Constant Currency
Net revenue
m
1,301
1,246
+4.4%
-6.5%
Net revenue per '000 SE
30.67
27.33
+12.2%
+0.5%
Adjusted operating profit
m
671
676
-0.7%
-9.9%
Growth Brand % of net revenue
%
57.9
55.1
+280 bps
Growth Brand market share
%
15.7
14.9
+80 bps
Country
Performance
UK
We grew share year to date as our increased investment gained traction although this affected revenue and profit. Our fine cut tobacco share increased, led by good growth from Gold Leaf and Players. In cigarette we grew share strongly with Players.
Germany
Our investment is supporting share gains in fine cut tobacco in West and Fairwind and an improving performance from JPS cigarettes. We are investing in brand equity building and consumer activations behind Gauloises. Overall share declined but with an improving recent trend.
Benelux
While JPS has gained market share, overall market size and our share declined following market excise increases.
Australia
We delivered another excellent performance focused on JPS and resulting in further gains in market share, revenue and profit.
Ukraine
Our market share has largely recovered following our decision not to participate in the price war last year although market size has declined sharply as prices recovered.
Returns Markets South
Half Year Result
Change
2017
2016
Actual
Constant Currency
Net revenue
m
771
735
+4.9%
-9.7%
Net revenue per '000 SE
20.25
18.18
+11.4%
-4.1%
Adjusted operating profit
m
328
325
+0.9%
-13.2%
Growth Brand % of net revenue
%
49.0
47.4
+160 bps
Growth Brand market share
%
16.3
15.5
+80 bps
Country
Performance
Spain
Increased investment is supporting an improvement in market share trend with West performing particularly well.
France
News has continued to gain share with increased investment. Industry volumes declined with the impact of additional taxes and other regulatory changes while pricing remains highly competitive.
Algeria
We have continued to grow share with the success of Gauloises, the market-leading brand.
Morocco
Our value brand Fox has driven overall year to date share gains. Revenue and profit was affected by the conclusion of the PMI agreement.
FINANCIAL REVIEW
We have continued to build the financial strength of the business through a relentless focus on our strategic priorities. Our cost optimisation programme and our strong capital discipline are providing the resources to invest in growth initiatives, generate returns for shareholders and pay down debt. We are increasing our investment by 300m this year to drive further growth in the right brands and right markets.
When managing the performance of our business we focus on nonGAAP measures, which we refer to as adjusted measures. We believe they provide a useful comparison of performance from one period to the next. 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, and 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.
Investing for Growth
The simplification of our brand portfolio combined with our drive to reduce complexity across the business is supporting our cost optimisation and capital discipline programmes. As we cut the number of brands and SKUs, we are able to align our manufacturing and supply chain to deliver operating efficiencies and optimise our working capital needs. At the same time, we are adopting new ways of working and embracing lean principles to reduce overheads and improve our effectiveness.
This is delivering tangible savings that we are investing in driving topline growth. We have established a track record of increasing operating profit margins and adjusted earnings per share in each of the past three years. Our capital discipline has driven high cash conversion which underpins our commitment to grow dividends, repay debt and invest in the business.
Group Results - Constant Currency Analysis
million
(unless otherwise indicated)
Six months
ended 31 March 2016Foreign Exchange
Constant currency movement
Six months
ended 31 March 2017Change
Constant currency change
Tobacco Net Revenue
Growth Markets
707
140
12
859
+21.5%
+1.7%
USA Market
711
122
(48)
785
+10.4%
-6.8%
Returns Markets North
1,246
136
(81)
1,301
+4.4%
-6.5%
Returns Markets South
735
107
(71)
771
+4.9%
-9.7%
Total Group
3,399
505
(188)
3,716
+9.3%
-5.5%
Tobacco Adjusted Operating Profit
Growth Markets
192
36
(17)
211
+9.9%
-8.9%
USA Market
384
73
0
457
+19.0%
0.0%
Returns Markets North
676
62
(67)
671
-0.7%
-9.9%
Returns Markets South
325
46
(43)
328
+0.9%
-13.2%
Total Group
1,577
217
(127)
1,667
+5.7%
-8.1%
Logistics
Logistics distribution fees
371
61
10
442
+19.1%
+2.7%
Logistics adjusted operating profit
68
11
3
82
+20.6%
+4.4%
Group Adjusted Results
Adjusted operating profit
1,637
227
(124)
1,740
+6.3%
-7.6%
Adjusted net finance costs
(266)
(40)
34
(272)
+1.9%
-12.8%
Adjusted EPS (pence)
113.0
15.6
(6.7)
121.9
+7.9%
-5.9%
* For further details please see Page 4 and our September 2016 Annual Report and Accounts
Group Earnings Performance
million unless otherwise indicated
Adjusted
Reported
HY 2017
HY 2016
HY 2017
HY 2016
Operating profit
Tobacco
1,667
1,577
872
979
Logistics
82
68
39
31
Eliminations
(9)
(8)
(9)
(8)
Group operating profit
1,740
1,637
902
1,002
Net finance costs
(272)
(266)
(115)
(562)
Share of profit of investments accounted for using the equity method
17
12
17
12
Profit before tax
1,485
1,383
804
452
Tax
(298)
(277)
(114)
(142)
Profit for the period
1,187
1,106
690
310
Earnings per ordinary share (pence)
121.9
113.0
70.7
30.4
Reconciliation of Adjusted Performance Measures
million unless otherwise indicated
Operating profit
Net finance costs
Earnings per share (pence)
HY 2017
HY 2016
HY 2017
HY 2016
HY 2017
HY 2016
Reported
902
1,002
(115)
(562)
70.7
30.4
Amortisation of acquired intangibles
554
473
-
-
41.3
40.5
Fair value (gains)/losses on
derivative financial instruments-
-
(169)
287
(13.8)
25.7
Postemployment benefits net financing costs
-
-
12
9
0.9
0.6
Restructuring costs
284
162
-
-
20.5
12.5
Tax on unrecognised losses
-
-
-
-
3.2
4.1
Items above attributable to noncontrolling interests
-
-
-
-
(0.9)
(0.8)
Adjusted
1,740
1,637
(272)
(266)
121.9
113.0
Footprint Supporting Positive Financial Results
Our footprint bias to developed markets has driven the positive currency translation in the half year. Tobacco net revenue was up by 9.3% at actual rates. The proportion of Group net revenue from our Growth and Specialist Brands increased to now represent 60.4%, improving the quality of our revenue. Tobacco adjusted operating profit increased 5.7% to 1.67bn at actual exchange rates.
We signalled our plans for increased investment this year to drive revenue growth over the medium term. This increased investment has been prioritised behind our Growth and Specialist Brands and in priority markets that offer the best opportunities for quality growth. Our investment in additional advertising and promotion, overheads such as larger sales teams, and targeted price investment has affected our actual and constant currency results in line with our year end guidance. Tobacco net revenue fell 5.5% reflecting volumes down 5.7% and price/mix up 0.2% at constant currency. Volumes have been affected primarily by a decline in market size following a strong performance last year and increases in excise and regulation. Price/mix reflects our increased investment in our price strategies in our Growth Brands in priority markets. Adjusted tobacco operating profit fell 8.1% on a constant currency basis as a result of the increased investment.
Logista again delivered an encouraging performance in a challenging environment with adjusted operating profit of 82m compared with 68m in 2016, partly as a result of foreign exchange movements; on a constant currency basis adjusted operating profit grew 4.4%. The improvement was driven by the development of its nontobacco business, particularly pharmaceutical, wholesale and transport, as well as the benefit of continued cost controls, and benefiting from the sale of an investment.
Adjusted net finance costs were higher at 272m (2016: 266m) reflecting the weakening of Sterling against the US dollar and the euro, partially offset by a lower all in cost of debt after refinancing at lower rates.
Reported net finance costs were 115m (2016: 562m), incorporating the impact of the net fair value and exchange gains on financial instruments of 169m (2016: losses of 287m) and postemployment benefits net financing costs of 12m (2016: costs of 9m).
After tax at an effective adjusted rate of 20.0% (2016: 20.0%), adjusted earnings per share grew by 7.9% to121.9pence. The effective reported tax rate is 14.2% (2016: 31.4%).
The tax rate is sensitive to the geographic mix of profits, reflecting a combination of higher rates in certain markets, such as the USA, 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 OECD's (Organisation for Economic Co-operation and Development) Base Erosion Profit Shifting (BEPS) work.
Reported earnings per share were 70.7 pence (2016: 30.4 pence) reflecting noncash amortisation of 554m (2016: 473m) and restructuring costs of 284m (2016: 162m), as well as the effects of fair value and exchange gains in finance costs mentioned above. The difference between reported (70.7 pence) and adjusted earnings per share (121.9 pence) is materially due to the same three items.
The weakening of sterling versus the US dollar and euro positively impacted reported and adjusted measures. On a constant currency basis, adjusted earnings per share fell 5.9% principally due to the investment programme we have undertaken.
The restructuring charge for the period of 284m (2016: 162m) relates mainly to our two cost optimisation programmes (275m) announced in 2013 and 2016. The balance of 9m covers all other restructuring activities across the Group.
Cost Optimisation
Our simplification agenda and the implementation of new ways of working is core to our third strategic priority of cost optimisation. There are two phases underway. The first phase of our cost optimisation programme is on track to deliver savings of 300m per annum from September 2018, with a cash implementation cost of around 600m.
We have identified further opportunities to extend this programme and announced a second phase of cost optimisation that is expected to drive a further 300m of annual savings from September 2020, at a cash cost in the region of 750m.
We delivered 60m of savings in the first half and we now expect to deliver a total of 130m of savings this year, ahead of the 90m announced last November.
Capital Discipline
Our continued focus on capital discipline is driving free cash flow that has enabled a further 1.2bn of debt reduction at constant currency over the last 12 months.
The increase in adjusted net debt over the last 12 months of 0.2bn represents a 1.2bn debt reduction from our continued focus on capital discipline before taking into account a 1.4bn adverse impact of foreign exchange and fair value of derivatives. Reported net debt over the last 12 months also increased by 0.2bn.
Free cash flow generation through the period allowed us to repay $0.9bn and 350m of bank facilities, meaning we have now fully repaid the acquisition facilities through which we funded our 2015 USA acquisition.
Our allin cost of debt reduced 20 basis points to 3.9% (2016: 4.1%) as older debt matured and was replaced with cheaper financing. Our interest cover was 7.3 times (2016: 6.3 times). We remain fully compliant with all our banking covenants and remain committed to retaining our investment grade ratings.
All of our capital allocation decisions are subject to relevant commercial analysis and hurdle rates to ensure they deliver appropriate levels of return, and potential acquisitions are judged on strict financial and commercial criteria including the ability to enhance the Group's return on invested capital (ROIC). Typically, we seek an overall internal rate of return in excess of 13% across the investments we make in our existing business. This disciplined approach is supporting our investment choices and underpins returns for shareholders.
Dividends
We have declared an interim dividend of 51.7 pence per share, an increase of 10%. This dividend will be paid as two payments of 25.85 pence per share on 30 June 2017 and 29 September 2017, with an ex-dividend date of 18 May and 17 August respectively.
The third interim and final dividends will be announced with our full year results in November 2017 and paid in December 2017 and March 2018 respectively, subject to AGM approval. We expect to deliver another year of 10% dividend growth, in line with our commitment to growing shareholder returns.
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.
In reviewing the Group's committed funding and liquidity positions, the Board considered various sensitivity analyses when assessing the forecast funding and headroom requirements of the Group in the context of the maturity profile of the Group's facilities. The Group plans its financing in a structured and proactive manner and remains confident that sources of financing will be available when required.
Based on its review, 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 for a period of at least 12 months from the date of this report and conclude that it is appropriate to prepare the financial statements on a going concern basis.
Principal Risks and Uncertainties
The principal risks and uncertainties to which the Group is exposed and our approach to managing those risks are unchanged from those identified on pages 26 to 32 of our 2016 Annual Report and Accounts and cover the following areas:
reduction in the size of the legitimate tobacco market;
optimising market share;
access to funding;
cost optimisation and strategic changes initiatives; and
compliance with legal and regulatory requirements.
The Group's Risk Management approach enables ongoing identification and assessment of risks and development of related mitigations. For example, in the period we have considered risks relating to the wider potential impacts arising from the result of the United Kingdom European Union membership referendum and any associated regulatory, tax or foreign exchange risks. In this context, it is the Board's view that the principal risks and uncertainties surrounding the Group in the second half of the financial year remain those set out in the 2016 Annual Report and Accounts.
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.
By order of the Board
Alison Cooper
Oliver Tant
Chief Executive
Chief Financial Officer
SUMMARY OF KEY FOOTPRINT FINANCIALS & METRICS
Half Year Result
Change
FOOTPRINT
2017
2016
Actual
Constant
Currency
Volume
Growth Markets
bn SE
34.5
35.6
-3.1%
US Market
bn SE
11.3
12.3
-8.3%
Returns Markets North
bn SE
42.4
45.6
-7.0%
Returns Markets South
bn SE
38.1
40.4
-5.8%
Returns Markets Total
bn SE
80.5
86.0
-6.4%
Total Group
bn SE
126.3
133.9
-5.7%
Tobacco Net Revenue
Growth Markets
m
859
707
+21.5%
+1.7%
US Market
m
785
711
+10.4%
-6.8%
Returns Markets North
m
1,301
1,246
+4.4%
-6.5%
Returns Markets South
m
771
735
+4.9%
-9.7%
Returns Markets Total
m
2,072
1,981
+4.6%
-7.7%
Total Group
m
3,716
3,399
+9.3%
-5.5%
Net Revenue per '000 SE
Growth Markets
24.89
19.84
+25.4%
+5.0%
US Market
69.74
57.89
+20.5%
+1.7%
Returns Markets North
30.67
27.33
+12.2%
+0.5%
Returns Markets South
20.25
18.18
+11.4%
-4.1%
Returns Markets Total
25.74
23.03
+11.8%
-1.3%
Total Group
29.43
25.38
+16.0%
+0.2%
Price/Mix
Growth Markets
%
+24.6%
+4.8%
US Market
%
+18.7%
+1.5%
Returns Markets North
%
+11.4%
+0.5%
Returns Markets South
%
+10.7%
-3.9%
Returns Markets Total
%
+11.0%
-1.3%
Total Group
%
+15.0%
+0.2%
Adjusted Tobacco Operating Profit
Growth Markets
m
211
192
+9.9%
-8.9%
US Market
m
457
384
+19.0%
0.0%
Returns Markets North
m
671
676
-0.7%
-9.9%
Returns Markets South
m
328
325
+0.9%
-13.2%
Returns Markets Total
m
999
1,001
-0.2%
-11.0%
Total Group
m
1,667
1,577
+5.7%
-8.1%
Logistics
Logistics Distribution Fees
m
442
371
+19.1%
+2.7%
Logistics Operating Profit
m
82
68
+20.6%
+4.4%
Logistics Operating Margin
%
18.6
18.3
+30 bps
+30 bps
SUMMARY OF KEY PORTFOLIO FINANCIALS & METRICS
Half Year Result
Change
PORTFOLIO
2017
2016
Actual
Constant
Currency
Growth Brand Volume
Growth Markets
bn SE
22.3
21.3
+4.7%
US Market
bn SE
2.9
2.9
+0.4%
Returns Markets North
bn SE
27.1
25.5
+6.2%
Returns Markets South
bn SE
20.6
21.0
-1.6%
Returns Markets Total
bn SE
47.7
46.5
+2.7%
Total Group
bn SE
73.0
70.7
+3.2%
Growth Brands as % of Volume
Growth Markets
%
64.6
59.7
+490 bps
US Market
%
26.1
23.8
+230 bps
Returns Markets North
%
63.9
56.0
+790 bps
Returns Markets South
%
54.2
51.8
+240 bps
Returns Markets Total
%
59.3
54.0
+530 bps
Total Group
%
57.8
52.8
+500 bps
Growth Brand Market Share
Growth Markets
%
3.9
3.4
+50 bps
US Market
%
2.4
2.3
+10 bps
Returns Markets North
%
15.7
14.9
+80 bps
Returns Markets South
%
16.3
15.5
+80 bps
Returns Markets Total
%
15.9
15.1
+80 bps
Total Group
%
8.0
7.4
+60 bps
Growth Brand Tobacco Net Revenue
Growth Markets
m
409
319
+28.2%
+6.9%
US Market
m
142
133
+7.3%
-9.7%
Returns Markets North
m
753
686
+9.7%
-3.3%
Returns Markets South
m
378
348
+8.5%
-6.5%
Returns Markets Total
m
1,131
1,034
+9.3%
-4.4%
Total Group
m
1,682
1,486
+13.2%
-2.5%
Growth Brands as % of Tobacco Net Revenue
Growth Markets
%
47.6
45.1
+250 bps
US Market
%
18.1
18.6
-50 bps
Returns Markets North
%
57.9
55.1
+280 bps
Returns Markets South
%
49.0
47.4
+160 bps
Returns Markets Total
%
54.6
52.2
+240 bps
Total Group
%
45.3
43.7
+160 bps
Specialist Brand Net Revenue
Total Group
m
561
499
+12.3%
-2.0%
Specialist Brands as % of Tobacco Net Revenue
Total Group
%
15.1
14.7
+40 bps
Growth & Specialist Brands as a percentage of Group Net Revenue
60.4
58.4
+200 bps
INDEPENDENT REVIEW REPORT TO IMPERIAL BRANDS PLC
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Imperial Brands PLC's condensed consolidated interim financial statements (the "interim financial statements") in the Interim Results of Imperial Brands PLC for the 6 month period ended 31 March 2017. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
the Consolidated Balance Sheet as at 31 March 2017;
the Consolidated Income Statement and Consolidated Statement of Comprehensive Income for the period then ended;
the Consolidated Cash Flow Statement for the period then ended;
the Consolidated Statement of Changes in Equity for the period then ended; and
the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Results have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the Directors
The Interim Results, including the interim financial statements, are the responsibility of, and have been approved by, the Directors. The Directors are responsible for preparing the Interim Results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the Interim Results based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
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 Ireland) 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.
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 interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Bristol
3 May 2017
a) The maintenance and integrity of the Imperial Brands PLC website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial statements since they were initially presented on the website.
b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
The figures and financial information for 6 months ended 31 March 2017 do not constitute the statutory financial statements for that year. Those financial statements have not yet been delivered to the Registrar, nor have the Auditors yet reported on them. The financial statements have been prepared in accordance with our accounting policies published in our financial statements available on our website www.imperialbrandsplc.com.
CONSOLIDATED INCOME STATEMENT
Unaudited
Unaudited
Audited
million unless otherwise indicated
Notes
6 months ended 31 March 2017
6 months ended 31 March 2016
Year ended 30
September 2016
Revenue
3
14,298
12,806
27,634
Duty and similar items
(7,035)
(6,244)
(13,535)
Other cost of sales
(4,173)
(3,730)
(8,143)
Cost of sales
(11,208)
(9,974)
(21,678)
Gross profit
3,090
2,832
5,956
Distribution, advertising and selling costs
(1,210)
(1,007)
(2,070)
Amortisation of acquired intangibles
(554)
(473)
(1,005)
Restructuring costs
4
(284)
(162)
(307)
Other expenses
(140)
(188)
(345)
Administrative and other expenses
(978)
(823)
(1,657)
Operating profit
3
902
1,002
2,229
Investment income
730
290
634
Finance costs
(845)
(852)
(1,984)
Net finance costs
5
(115)
(562)
(1,350)
Share of profit of investments accounted for using the equity method
17
12
28
Profit before tax
804
452
907
Tax
6
(114)
(142)
(238)
Profit for the period
690
310
669
Attributable to:
Owners of the parent
675
290
631
Non-controlling interests
15
20
38
Earnings per ordinary share (pence)
- Basic
8
70.7
30.4
66.1
- Diluted
8
70.6
30.4
66.0
CONSOLIDATED STATEMENT ON COMPREHENSIVE INCOME
Unaudited
Unaudited
Audited
million
6 months ended 31 March 2017
6 months ended 31 March 2016
Year ended 30
September 2016
Profit for the period
690
310
669
Other comprehensive income
Exchange movements
137
282
1,260
Items that may be reclassified to profit and loss
137
282
1,260
Net actuarial gains/(losses) on retirement benefits
155
(79)
(604)
Deferred tax relating to net actuarial gains/(losses) on retirement benefits
(32)
25
115
Items that will not be reclassified to profit and loss
123
(54)
(489)
Other comprehensive income for the period, net of tax
260
228
771
Total comprehensive income for the period
950
538
1,440
Attributable to:
Owners of the parent
939
490
1,336
Non-controlling interests
11
48
104
Total comprehensive income for the period
950
538
1,440
RECONCILIATION FROM OPERATING PROFIT TO ADJUSTED OPERATING PROFIT
Unaudited
Unaudited
Audited
million
Notes
6 months ended 31 March 2017
6 months ended 31 March 2016
Year ended 30
September 2016
Operating profit
902
1,002
2,229
Amortisation of acquired intangibles
554
473
1,005
Restructuring costs
4
284
162
307
Adjusted operating profit
1,740
1,637
3,541
RECONCILIATION FROM NET FINANCE COSTS TO ADJUSTED NET FINANCE COSTS
Unaudited
Unaudited
Audited
million
Notes
6 months ended 31 March 2017
6 months ended 31 March 2016
Year ended 30
September 2016
Net finance costs
(115)
(562)
(1,350)
Net fair value and exchange (gains)/losses on financial instruments
5
(169)
287
807
Post-employment benefits net financing cost
5
12
9
19
Adjusted net finance costs
5
(272)
(266)
(524)
CONSOLIDATED BALANCE SHEET
Unaudited
Unaudited
Audited
million
Notes
31 March 2017
31 March 2016
30 September 2016
Non-current assets
Intangible assets
9
20,390
19,415
20,704
Property, plant and equipment
1,955
1,794
1,959
Investments accounted for using the equity method
793
651
744
Retirement benefit assets
11
59
5
Trade and other receivables
94
93
89
Derivative financial instruments
11
703
905
1,063
Deferred tax assets
557
566
631
24,503
23,483
25,195
Current assets
Inventories
3,824
3,951
3,498
Trade and other receivables
2,745
2,524
2,671
Current tax assets
46
123
45
Cash and cash equivalents
10
653
561
1,274
Derivative financial instruments
11
35
40
46
7,303
7,199
7,534
Total assets
31,806
30,682
32,729
Current liabilities
Borrowings
10
(2,760)
(2,591)
(1,544)
Derivative financial instruments
11
(59)
(103)
(118)
Trade and other payables
(7,563)
(7,003)
(7,991)
Current tax liabilities
(169)
(247)
(284)
Provisions
4
(206)
(185)
(188)
(10,757)
(10,129)
(10,125)
Non-current liabilities
Borrowings
10
(11,694)
(11,717)
(12,394)
Derivative financial instruments
11
(1,070)
(1,124)
(1,646)
Trade and other payables
(20)
(13)
(17)
Deferred tax liabilities
(946)
(1,123)
(1,034)
Retirement benefit liabilities
(1,271)
(1,040)
(1,484)
Provisions
4
(402)
(264)
(287)
(15,403)
(15,281)
(16,862)
Total liabilities
(26,160)
(25,410)
(26,987)
Net assets
5,646
5,272
5,742
Equity
Share capital
104
104
104
Share premium and capital redemption
5,836
5,836
5,836
Retained earnings
(1,745)
(1,014)
(1,525)
Exchange translation reserve
1,037
(44)
896
Equity attributable to owners of the parent
5,232
4,882
5,311
Non-controlling interests
414
390
431
Total equity
5,646
5,272
5,742
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited
million
Share
capital
Share
premium
and capital
redemption
Retained
earnings
Exchange
translation
reserve
Equity
attributable
to owners
of the parent
Non-
controlling
interests
Total
equity
At 1 October 2016
104
5,836
(1,525)
896
5,311
431
5,742
Profit for the period
-
-
675
-
675
15
690
Other comprehensive income
-
-
123
141
264
(4)
260
Total comprehensive income
-
-
798
141
939
11
950
Transactions with owners
Cash from employees on maturity/exercise of share schemes
-
-
6
-
6
-
6
Purchase of shares by Employee Share Ownership Trusts
-
-
(1)
-
(1)
-
(1)
Costs of employees' services compensated by share schemes
-
-
11
-
11
-
11
Dividends paid
-
-
(1,034)
-
(1,034)
(28)
(1,062)
At 31 March 2017
104
5,836
(1,745)
1,037
5,232
414
5,646
At 1 October 2015
104
5,836
(315)
(298)
5,327
369
5,696
Profit for the period
-
-
290
-
290
20
310
Other comprehensive income
-
-
(54)
254
200
28
228
Total comprehensive income
-
-
236
254
490
48
538
Transactions with owners
Cash from employees on maturity/exercise of share schemes
-
-
1
-
1
-
1
Purchase of shares by Employee Share Ownership Trusts
-
-
(12)
-
(12)
-
(12)
Costs of employees' services compensated by share schemes
-
-
12
-
12
-
12
Dividends paid
-
-
(936)
-
(936)
(27)
(963)
At 31 March 2016
104
5,836
(1,014)
(44)
4,882
390
5,272
CONSOLIDATED CASH FLOW STATEMENT
Unaudited
Unaudited
Audited
million
6 months ended 31 March 2017
6 months ended 31 March 2016
Year ended 30
September 2016
Cash flows from operating activities
Operating profit
902
1,002
2,229
Dividends received from investments accounted for under the equity method
9
13
19
Depreciation, amortisation and impairment
656
612
1,244
Loss on disposal of property, plant and equipment and software
-
1
6
Loss on disposal of businesses
-
1
-
Post-employment benefits
(90)
(55)
(111)
Costs of employees' services compensated by share schemes
11
14
29
Movement in provisions
134
(5)
4
Operating cash flows before movement in working capital
1,622
1,583
3,420
Increase in inventories
(293)
(889)
(149)
(Increase)/decrease in trade and other receivables
(59)
76
171
(Decrease)/increase in trade and other payables
(433)
(209)
116
Movement in working capital
(785)
(1,022)
138
Tax paid
(274)
(251)
(401)
Net cash flows generated from operating activities
563
310
3,157
Cash flows from investing activities
Interest received
4
4
7
Loan to joint ventures
(10)
-
(9)
Purchase of property, plant and equipment
(77)
(62)
(164)
Proceeds from sale of property, plant and equipment
13
20
42
Purchase of intangible assets - software
(21)
(18)
(51)
Purchase of intangibles assets - intellectual property rights
(1)
(7)
(14)
Internally generated intellectual property rights
(4)
(7)
(2)
Net cash used in investing activities
(96)
(70)
(191)
Cash flows from financing activities
Interest paid
(336)
(368)
(547)
Cash from employees on maturity/exercise of share schemes
6
1
9
Purchase of shares by Employee Share Ownership Trusts
(1)
(6)
(7)
Increase in borrowings
2,995
1,815
897
Repayment of borrowings
(2,612)
(2,212)
(2,637)
Cash flows relating to derivative financial instruments
(75)
(56)
(209)
Dividends paid to non-controlling interests
(28)
(27)
(42)
Dividends paid to owners of the parent
(1,034)
(936)
(1,386)
Net cash used in financing activities
(1,085)
(1,789)
(3,922)
Net decrease in cash and cash equivalents
(618)
(1,549)
(956)
Cash and cash equivalents at the start of period
1,274
2,042
2,042
Effect of foreign exchange rates on cash and cash equivalents
(3)
68
188
Cash and cash equivalents at the end of period
653
561
1,274
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 2017 and 31 March 2016, together with the audited results for the year ended 30 September 2016.
The information shown for the year ended 30 September 2016 does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006, and is an abridged version of 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 2016 were approved by the Board of Directors on 8 November 2016 and filed with the Registrar of Companies.
This condensed set of financial statements for the six months ended 31 March 2017 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 2017 should be read in conjunction with the annual financial statements for the year ended 30 September 2016 which have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.
The Group's principal accounting policies used in preparing this information are as stated in the financial statements for the year ended 30 September 2016, which are available on our website www.imperialbrandsplc.com.
NEW ACCOUNTING STANDARDS AND INTERPRETATIONS
There have been no new standards or amendments which became effective for the current reporting period, that have had a material effect on the Group.
Certain changes to IFRS will be applicable to the consolidated financial statements in future years. IFRS 15 Revenue from Contracts with Customers which is effective for the Group for its 2019 financial statements will result in some items currently classified as costs being netted against revenue. It is not expected to have material effect on the Group's net asset or results. Management has yet to fully assess the impact of IFRS 9 Financial Instruments which is also effective for the Group for its 2019 financial statements. Our initial assessment of IFRS 16 Leases, effective for the Group for its 2020 financial statements, is that it will not have a material effect on the Group's net assets or results. There are no other standards or interpretations that are expected to have a material effect on the Group's net assets or results.
2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The Group makes estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience, and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
In the future, actual experience may deviate from these estimates and assumptions. 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 the financial statements for the year ended 30 September 2016, with the exception of the impairment analysis disclosed in note 9.
Actuarial valuations for the Group's retirement benefit plans are updated annually as at 30 September. An interim update is carried out at 31 March for the main plans. As part of this interim update, the most material plan assets are revalued based on market data at the period end and the liabilities for the most significant schemes are recalculated to reflect key changes in membership data and revised actuarial assumptions.
3. SEGMENT INFORMATION
TOBACCO
Unaudited
Unaudited
Audited
million unless otherwise indicated
6 months ended 31 March 2017
6 months ended 31 March 2016
Year ended 30
September 2016
Revenue
10,783
9,762
20,890
Net revenue
3,716
3,399
7,167
Operating profit
872
979
2,126
Adjusted operating profit
1,667
1,577
3,360
Adjusted operating margin %
44.9
46.4
46.9
LOGISTICS
Unaudited
Unaudited
Audited
million unless otherwise indicated
6 months ended 31 March 2017
6 months ended 31 March 2016
Year ended 30
September 2016
Revenue
3,912
3,408
7,505
Distribution fees
442
371
809
Operating profit
39
31
98
Adjusted operating profit
82
68
176
Adjusted operating margin %
18.6
18.3
21.8
REVENUE
Unaudited
Unaudited
Audited
6 months ended
31 March 2017
6 months ended
31 March 2016
Year ended
30 September 2016
million
Total
revenue
External
revenue
Total
revenue
External
revenue
Total
Revenue
External revenue
Tobacco
Growth Markets
1,694
1,663
1,382
1,361
3,137
3,085
USA
1,513
1,513
1,424
1,424
2,942
2,942
Returns Markets North
6,396
6,382
5,851
5,837
12,537
12,504
Returns Markets South
1,180
828
1,105
776
2,274
1,598
Total Tobacco
10,783
10,386
9,762
9,398
20,890
20,129
Logistics
3,912
3,912
3,408
3,408
7,505
7,505
Eliminations
(397)
-
(364)
-
(761)
-
Total Group
14,298
14,298
12,806
12,806
27,634
27,634
TOBACCO NET REVENUE
Unaudited
Unaudited
Audited
million
6 months ended 31 March 2017
6 months ended 31 March 2016
Year ended 30
September 2016
Growth Markets
859
707
1,568
USA
785
711
1,477
Returns Markets North
1,301
1,246
2,645
Returns Markets South
771
735
1,477
Total Tobacco
3,716
3,399
7,167
Tobacco net revenue excludes revenue from the sale of peripheral products of 32 million (6 months 2016: 119 million).
ADJUSTED OPERATING PROFIT AND RECONCILIATION TO PROFIT BEFORE TAX
Unaudited
Unaudited
Audited
million
6 months ended 31 March 2017
6 months ended 31 March 2016
Year ended 30
September 2016
Tobacco
Growth Markets
211
192
443
USA
457
384
823
Returns Markets North
671
676
1,439
Returns Markets South
328
325
655
Total Tobacco
1,667
1,577
3,360
Logistics
82
68
176
Eliminations
(9)
(8)
5
Adjusted operating profit
1,740
1,637
3,541
Amortisation of acquired intangibles - Tobacco
(511)
(436)
(927)
Amortisation of acquired intangibles - Logistics
(43)
(37)
(78)
Restructuring costs - Tobacco
(284)
(162)
(307)
Operating profit
902
1,002
2,229
Net finance costs
(115)
(562)
(1,350)
Share of profit of investments accounted for using the equity method
17
12
28
Profit before tax
804
452
907
4. RESTRUCTURING COSTS AND PROVISIONS
RESTRUCTURING COSTS
Unaudited
Unaudited
Audited
million
6 months ended 31 March 2017
6 months ended 31 March 2016
Year ended 30
September 2016
Employment related
198
80
144
Asset impairments
64
49
51
Other charges
22
33
112
284
162
307
The charge for the period of 284 million (6 months 2016: 162 million) relates mainly to our two cost optimisation programmes (275 million) announced in 2013 and 2016. The balance of 9 million covers all other restructuring activities across the Group.
In the 6 months to 31 March 2017 the cash cost of the programmes was 107 million (6 months 2016: 30 million) bringing the cumulative cash costs of Phase I to 460 million and Phase II to 67 million. The cost optimisation programmes Phase I and Phase II are expected to have a cash implementation cost in the region of 600 million and 750 million, respectively. Phase I is expected to generate savings of 300 million by 2018 and Phase II to deliver a further 300 million of savings by 2020.
PROVISIONS
Unaudited
6 months ended 31 March 2017
million
Restructuring
Other
Total
At 1 October 2016
304
171
475
Additional provisions charged to the consolidated income statement
220
16
236
Amounts used
(71)
(9)
(80)
Unused amounts reversed
(2)
(20)
(22)
Exchange movements
(1)
-
(1)
At 31 March 2017
450
158
608
Analysed as:
Unaudited
Unaudited
Audited
million
6 months ended 31 March 2017
6 months ended 31 March 2016
Year ended 30
September 2016
Current
206
185
188
Non-current
402
264
287
608
449
475
5. NET FINANCE COSTS AND RECONCILIATION TO ADJUSTED NET FINANCE COSTS
RECONCILIATION FROM REPORTED NET FINANCE COSTS TO ADJUSTED NET FINANCE COSTS
Unaudited
Unaudited
Audited
million
6 months ended 31 March 2017
6 months ended 31 March 2016
Year ended 30
September 2016
Reported net finance costs
115
562
1,350
Fair value gains on derivative financial instruments
670
216
484
Fair value losses on derivative financial instruments
(503)
(429)
(825)
Exchange gains/(losses) on financing activities
2
(74)
(466)
Net fair value and exchange gains/(losses) on financial instruments
169
(287)
(807)
Interest income on net defined benefit assets
54
71
143
Interest cost on net defined benefit liabilities
(66)
(80)
(162)
Post-employment benefits net financing cost
(12)
(9)
(19)
Adjusted net finance costs
272
266
524
Comprising:
Interest on bank deposits
(4)
(3)
(7)
Interest on bank loans and other loans
276
269
531
Adjusted net finance costs
272
266
524
6. TAXATION
RECONCILIATION FROM REPORTED TAX TO ADJUSTED TAX
Reported tax for the six months ended 31 March 2017 has been calculated on the basis of an estimated effective rate for the year ended 30 September 2017. 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.
Unaudited
Unaudited
Audited
million
6 months ended 31 March 2017
6 months ended 31 March 2016
Year ended 30
September 2016
Reported tax
114
142
238
Deferred tax on amortisation of acquired intangibles
160
86
261
Tax on net fair value and exchange movements on financial instruments
(36)
42
80
Tax on post-employment benefits net financing cost
3
3
7
Tax on restructuring costs
88
43
79
Tax on unrecognised losses
(31)
(39)
(56)
Adjusted tax charge
298
277
609
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.
In November 2015 the Group received a challenge from the French tax authorities that could lead to additional tax liabilities of up to 246 million (31 March 2016: 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 41 million (31 March 2016: 41 million) is included in the provision for uncertain tax positions.
7. DIVIDENDS
DISTRIBUTIONS TO ORDINARY EQUITY HOLDERS
Unaudited
Audited
Audited
million
2017
2016
2015
Paid interim of nil pence per share (2016: 101.1 pence, 2015: 91.9 pence)
- Paid June 2015
-
-
204
- Paid September 2015
-
-
204
- Paid December 2015
-
-
468
- Paid June 2016
-
225
-
- Paid September 2016
-
225
-
- Paid December 2016
-
517
-
Interim dividend paid
-
967
876
Proposed interim of 51.7 pence per share (2016: nil, 2015: nil)
- To be paid June 2017
247
-
-
- To be paid September 2017
247
-
-
Interim dividend proposed
494
-
-
Paid final of nil pence per share (2016: 54.1 pence, 2015: 49.1 pence)
- Paid March 2016
-
-
468
- Paid March 2017
-
517
-
Final dividend
-
517
468
Total ordinary share dividends of 51.7 pence per share (2016: 155.2 pence, 2015: 141.0 pence)
494
1,484
1,344
The declared interim dividend for 2017 amounts to a total dividend of 494 million based on the number of shares ranking for dividend at 31 March 2017. This will be paid in two stages, one in June 2017 and one in September 2017.
The dividend paid during the half year to 31 March 2017 is 1,034 million (2016: 936 million).
8. EARNINGS PER SHARE
Unaudited
Unaudited
Audited
million
6 months ended 31 March 2017
6 months ended 31 March 2016
Year ended 30
September 2016
Earnings: basic and diluted - attributable to owners of the
Parent Company
675
290
631
Millions of shares
Weighted average number of shares:
Shares for basic earnings per share
954.3
953.7
954.0
Potentially dilutive share options
2.2
1.8
2.7
Shares for diluted earnings per share
956.5
955.5
956.7
Pence
Basic earnings per share
70.7
30.4
66.1
Diluted earnings per share
70.6
30.4
66.0
RECONCILIATION FROM REPORTED TO ADJUSTED EARNINGS AND EARNINGS PER SHARE
Unaudited
Unaudited
Audited
6 months ended
31 March 2017
6 months ended
31 March 2016
Year ended
30 September 2016
million unless otherwise indicated
Earnings per share (pence)
Earnings
net of tax
Earnings per share (pence)
Earnings
net of tax
Earnings per share (pence)
Earnings net of tax
Reported basic
70.7
675
30.4
290
66.1
631
Amortisation of acquired intangibles
41.3
394
40.5
387
78.0
744
Net fair value and exchange gains
on financial instruments
(13.8)
(133)
25.7
245
76.2
727
Post-employment benefits
net financing cost
0.9
9
0.6
6
1.3
12
Restructuring costs
20.5
196
12.5
119
23.9
228
Taxation on unrecognised losses
3.2
31
4.1
39
5.9
56
Adjustments attributable to
non-controlling interests
(0.9)
(9)
(0.8)
(8)
(1.8)
(17)
Adjusted
121.9
1,163
113.0
1,078
249.6
2,381
Adjusted diluted
121.6
1,163
112.8
1,078
248.9
2,381
9. INTANGIBLE ASSETS
At the 2016 year end the impairment test for the Drive Growth CGU grouping that includes our markets in Russia, Italy and Japan indicated headroom of 210 million and that an impairment would result in the event of relatively small changes in an individual assumption or assumptions.
During the period a strategic investment programme was initiated in the Russia CGU, in order to grow our business footprint. This investment included initiatives to build long-term improvement in our market share and support a consistent pricing strategy. The actions involved in this programme reflect our confidence in the ongoing opportunity for growth offered by the Russian market despite it being a very competitive market. The consequence of these actions is expected to reduce net cash flows in both the current and subsequent period, but deliver significantly higher growth and profitability in future years. We have consequently tested the goodwill and intangible assets for impairment.
The assumptions used in our impairment testing remain consistent with the assessment conducted at 30 September 2016 with the exception of the initial cash flow growth rate for the Russia CGU, which has increased from 5% to 34%. The increase in the Russia CGU cash flow growth rate is primarily explained by the short term impact of our investment strategy in the Russian market preceding a return to historical levels of profitability as revenues steadily grow.
Our impairment test for this CGU grouping indicated headroom had reduced to 203 million. A reduction in the initial growth rate for these markets of 6% or a 1.75% increase in the discount rate would cause the carrying value to fall below the recoverable amount. The assessment confirms that there are sufficient future cash flows to support the current carrying values. Taking account of all of these factors, we have concluded that the carrying value for the Drive Growth CGU grouping included in our 31 March 2017 balance sheet is appropriate, but remains highly sensitive to adverse movements in any individual assumption or assumptions.
10. NET DEBT
The movements in cash and cash equivalents, borrowings, and derivative financial instruments in the period were as follows:
Unaudited
million
Cash and cash
equivalents
Current
borrowings
Non-current
borrowings
Derivative
financial
instruments
Total
At 1 October 2016
1,274
(1,544)
(12,394)
(655)
(13,319)
Reallocation of current borrowings from non-current borrowings
-
(966)
966
-
-
Cash flow
(618)
(248)
(134)
74
(926)
Accretion of interest
-
24
46
(1)
69
Change in fair values
-
-
-
191
191
Exchange movements
(3)
(26)
(178)
-
(207)
As at 31 March 2017
653
(2,760)
(11,694)
(391)
(14,192)
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.
Unaudited
Unaudited
Audited
million
6 months ended 31 March 2017
6 months ended 31 March 2016
Year ended 30
September 2016
Reported net debt
(14,192)
(14,029)
(13,319)
Accrued interest
152
151
221
Fair value of derivatives providing commercial hedges
113
168
216
Adjusted net debt
(13,927)
(13,710)
(12,882)
The fair value of bonds is estimated to be 13,621 million (2016 6 months: 12,338 million) and has been determined by reference to market prices at the balance sheet date. The carrying value of bonds is 12,456 million (2016 6 months: 11,134 million). The fair value of all other borrowings is considered to be equal to their carrying amount.
11. DERIVATIVE FINANCIAL INSTRUMENTS
The Group's derivative financial instruments are held at fair value, are as follows.
Unaudited
Unaudited
Audited
million
6 months ended 31 March 2017
6 months ended 31 March 2016
Year ended 30
September 2016
Assets
Interest rate swaps
732
885
1,095
Forward foreign currency contracts
4
6
9
Cross-currency swaps
2
54
5
Total carrying value of derivative financial assets
738
945
1,109
Liabilities
Interest rate swaps
(846)
(1,088)
(1,339)
Forward foreign currency contracts
(18)
(11)
(11)
Cross-currency swaps
(331)
(174)
(548)
Carrying value of derivative financial liabilities before collateral
(1,195)
(1,273)
(1,898)
Collateral 1
66
46
134
Total carrying value of derivative financial liabilities
(1,129)
(1,227)
(1,764)
Total carrying value of derivative financial instruments
(391)
(282)
(655)
Analysed as:
Interest rate swaps
(114)
(203)
(244)
Forward foreign currency contracts
(14)
(5)
(2)
Cross-currency swaps
(329)
(120)
(543)
Collateral 1
66
46
134
Total carrying value of derivative financial instruments
(391)
(282)
(655)
Collateral deposited against derivative financial liabilities under the terms and conditions of an ISDA Credit Support Annex
Fair values are determined based on observable market data such as yield curves and foreign exchange rates to calculate the present value of future cash flows associated with each derivative at the balance sheet date, and are consistent with those applied during the year ended 30 September 2016.
This information is provided by RNSThe company news service from the London Stock ExchangeENDIR EXLBBDEFFBBE
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