REG - Imperial Brands PLC - Half-year Report <Origin Href="QuoteRef">IMB.L</Origin> - Part 2
04/05/2016 07:05
- Part 2: For the preceding part double click ID:nRSD1501Xa
Growth & Specialist Brands as a percentage of Group net revenue 58.6 59.5 -90 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 half year
results of Imperial Brands PLC for the 6 month period ended 31 March 2016.
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 Rules and Transparency Rules 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 2016;
§ 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 half year results have been
prepared in accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the Disclosure
Rules and Transparency Rules 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 half year results, including the interim financial statements, are the
responsibility of, and have been approved by, the Directors. The Directors are
responsible for preparing the half year results in accordance with the
Disclosure Rules and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
Our responsibility is to express a conclusion on the interim financial
statements in the half year 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 Rules and Transparency Rules 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 half year 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
May 2016
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 2016 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 2016 6 months ended 31 March 2015 Year ended 30 September 2015
Revenue 3 12,806 12,129 25,289
Duty and similar items (6,244) (6,091) (12,585)
Other cost of sales (3,730) (3,626) (7,533)
Cost of sales (9,974) (9,717) (20,118)
Gross profit 2,832 2,412 5,171
Distribution, advertising and selling costs (1,007) (897) (1,857)
Acquisition costs - (20) (40)
Amortisation of acquired intangibles (473) (312) (697)
Restructuring costs 4 (162) (76) (328)
Other expenses (188) (148) (261)
Administrative and other expenses (823) (556) (1,326)
Operating profit 3 1,002 959 1,988
Investment income 290 945 948
Finance costs (852) (873) (1,209)
Net finance (costs)/income 5 (562) 72 (261)
Share of profit of investments accounted for using the equity method 12 17 29
Profit before taxation 452 1,048 1,756
Taxation 6 (142) (180) (33)
Profit for the period 310 868 1,723
Attributable to:
Owners of the parent 290 853 1,691
Non-controlling interests 20 15 32
Earnings per ordinary share (pence)
- Basic 8 30.4 89.5 177.4
- Diluted 8 30.4 89.3 176.9
Consolidated Statement of Comprehensive Income
Unaudited Unaudited Audited
£ million 6 months ended 31 March 2016 6 months ended 31 March 2015 Year ended 30 September 2015
Profit for the period 310 868 1,723
Other comprehensive income
Exchange movements 282 (156) (198)
Current taxation on exchange movements - (5) -
Items that may be reclassified to profit and loss 282 (161) (198)
Net actuarial losses on retirement benefits (79) (13) (28)
Deferred taxation relating to net actuarial losses on retirement benefits 25 2 5
Items that will not be reclassified to profit and loss (54) (11) (23)
Other comprehensive income/(expense) for the period, net of taxation 228 (172) (221)
Total comprehensive income for the period 538 696 1,502
Attributable to:
Owners of the parent 490 705 1,489
Non-controlling interests 48 (9) 13
Total comprehensive income for the period 538 696 1,502
Reconciliation from Operating Profit to Adjusted Operating Profit
Unaudited Unaudited Audited
£ million Notes 6 months ended 31 March 2016 6 months ended 31 March 2015 Year ended 30 September 2015
Operating profit 1,002 959 1,988
Acquisition costs - 20 40
Amortisation of acquired intangibles 473 312 697
Restructuring costs 4 162 76 328
Adjusted operating profit 1,637 1,367 3,053
Reconciliation from Net Finance (Costs)/Income to Adjusted Net Finance Costs
Unaudited Unaudited Audited
£ million Notes 6 months ended 31 March 2016 6 months ended 31 March 2015 Year ended 30 September 2015
Net finance (costs)/income (562) 72 (261)
Net fair value and exchange losses/(gains) on financial instruments 5 287 (314) (226)
Post-employment benefits net financing cost 5 9 11 20
Adjusted net finance costs 5 (266) (231) (467)
Consolidated Balance Sheet
Unaudited Unaudited Audited
£ million Notes 31 March 2016 31 March 2015 30 September 2015
Non-current assets
Intangible assets 9 19,415 14,515 18,690
Property, plant and equipment 1,794 1,718 1,768
Investments accounted for using the equity method 651 590 598
Retirement benefit assets 59 134 92
Trade and other receivables 93 72 84
Derivative financial instruments 11 905 1,059 901
Deferred tax assets 566 233 533
23,483 18,321 22,666
Current assets
Inventories 3,951 3,442 2,842
Trade and other receivables 2,524 2,838 2,454
Current tax assets 123 34 56
Cash and cash equivalents 10 561 633 2,042
Derivative financial instruments 11 40 91 74
7,199 7,038 7,468
Total assets 30,682 25,359 30,134
Current liabilities
Borrowings 10 (2,591) (2,469) (1,957)
Derivative financial instruments 11 (103) (52) (25)
Trade and other payables (7,003) (6,366) (6,795)
Current tax liabilities (247) (105) (167)
Provisions 4 (185) (188) (197)
(10,129) (9,180) (9,141)
Non-current liabilities
Borrowings 10 (11,717) (7,751) (12,250)
Derivative financial instruments 11 (1,124) (774) (735)
Trade and other payables (13) (15) (13)
Deferred tax liabilities (1,123) (1,250) (1,170)
Retirement benefit liabilities (1,040) (868) (909)
Provisions 4 (264) (232) (220)
(15,281) (10,890) (15,297)
Total liabilities (25,410) (20,070) (24,438)
Net assets 5,272 5,289 5,696
Equity
Share capital 104 104 104
Share premium and capital redemption 5,836 5,836 5,836
Retained earnings (1,014) (752) (315)
Exchange translation reserve (44) (256) (298)
Equity attributable to owners of the parent 4,882 4,932 5,327
Non-controlling interests 390 357 369
Total equity 5,272 5,289 5,696
Consolidated Statement of Changes in Equity
Unaudited
£ million Sharecapital Sharepremiumand capitalredemption Retainedearnings Exchangetranslationreserve Equityattributableto ownersof the parent Non-controllinginterests Totalequity
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
At 1 October 2014 104 5,836 (756) (119) 5,065 398 5,463
Profit for the period - - 853 - 853 15 868
Other comprehensive income - - (11) (137) (148) (24) (172)
Total comprehensive income - - 842 (137) 705 (9) 696
Transactions with owners
Cash from employees on maturity/exercise of share schemes - - 1 - 1 - 1
Costs of employees' services compensated by share schemes - - 12 - 12 - 12
Dividends paid - - (851) - (851) (32) (883)
At 31 March 2015 104 5,836 (752) (256) 4,932 357 5,289
Consolidated Cash Flow Statement
Unaudited Unaudited Audited
£ million 6 months ended 31 March 2016 6 months ended 31 March 2015 Year ended 30 September 2015
Cash flows from operating activities
Operating profit 1,002 959 1,988
Dividends received from investments accounted for under the equity method 13 - 24
Depreciation, amortisation and impairment 612 407 940
Loss/(profit) on disposal of property, plant and equipment 1 - (2)
Profit on disposal of intellectual property - - (31)
Loss on disposal of businesses 1 - -
Post-employment benefits (55) (54) (50)
Costs of employees' services compensated by share schemes 14 11 25
Movement in provisions (5) (43) (67)
Operating cash flows before movement in working capital 1,583 1,280 2,827
(Increase)/decrease in inventories (889) (754) 21
Decrease/(increase) in trade and other receivables 76 (162) 218
(Decrease)/increase in trade and other payables (209) (287) 89
Movement in working capital (1,022) (1,203) 328
Taxation paid (251) (235) (408)
Net cash flows generated from/(used in) operating activities 310 (158) 2,747
Cash flows from investing activities
Interest received 4 5 10
Purchase of property, plant and equipment (62) (77) (194)
Proceeds from sale of property, plant and equipment 20 11 39
Proceeds from the sale of intellectual property - - 31
Purchase of intangible assets - software (18) (17) (44)
Purchase of intellectual property rights (7) - -
Internally generated intellectual property rights (7) (4) (16)
Purchase of brands and operations - - (4,613)
Net cash used in investing activities (70) (82) (4,787)
Cash flows from financing activities
Interest paid (368) (343) (459)
Cash from employees on maturity/exercise of share schemes 1 1 7
Purchase of shares by Employee Share Ownership Trusts (6) - -
Increase in borrowings 1,815 914 4,720
Repayment of borrowings (2,212) (322) (380)
Cash flows relating to derivative financial instruments (56) 98 139
Dividends paid to non-controlling interests (27) (32) (42)
Dividends paid to owners of the parent (936) (851) (1,259)
Net cash (used in)/generated from financing activities (1,789) (535) 2,726
Net (decrease)/increase in cash and cash equivalents (1,549) (775) 686
Cash and cash equivalents at the start of period 2,042 1,413 1,413
Effect of foreign exchange rates on cash and cash equivalents 68 (5) (57)
Cash and cash equivalents at the end of period 561 633 2,042
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 2016 and 31 March 2015, together with the audited results for
the year ended 30 September 2015.
The information shown for the year ended 30 September 2015 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 2015 were approved by
the Board of Directors on 3 November 2015 and filed with the Registrar of
Companies.
This condensed set of financial statements for the six months ended 31 March
2016 has been prepared in accordance with the Disclosure 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 2016 should be read in
conjunction with the annual financial statements for the year ended 30
September 2015 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 2015
which are available on our website www.imperialbrandsplc.com.
New Accounting Standards and Interpretations
Certain changes to IFRS will be applicable to the consolidated financial
statements in future years. Management has yet to fully assess the impact of
IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers
which are both 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 2015.
3. Segment Information
Tobacco
Unaudited Unaudited Audited
£ million unless otherwise indicated 6 months ended 31 March 2016 6 months ended 31 March 2015 Year ended 30 September 2015
Revenue 9,762 9,095 19,011
Net revenue 3,399 2,945 6,251
Operating profit 979 925 1,910
Adjusted operating profit 1,577 1,295 2,895
Adjusted operating margin % 46.4 44.0 46.3
Logistics
Unaudited Unaudited Audited
£ million unless otherwise indicated 6 months ended 31 March 2016 6 months ended 31 March 2015 Year ended 30 September 2015
Revenue 3,408 3,430 7,025
Distribution fees 371 378 749
Operating profit 31 35 74
Adjusted operating profit 68 73 154
Adjusted operating margin % 18.3 19.3 20.6
Revenue
Unaudited Unaudited Audited
6 months ended31 March 2016 6 months ended31 March 2015 Year ended30 September 2015
£ million Totalrevenue Externalrevenue Totalrevenue Externalrevenue Total Revenue External revenue
Tobacco
Growth Markets 1,382 1,361 1,454 1,433 3,019 2,970
USA 1,424 1,424 350 350 1,415 1,415
Returns Markets North 5,851 5,837 6,162 6,162 12,332 12,303
Returns Markets South 1,105 776 1,129 754 2,245 1,576
Total Tobacco 9,762 9,398 9,095 8,699 19,011 18,264
Logistics 3,408 3,408 3,430 3,430 7,025 7,025
Eliminations (364) - (396) - (747) -
Total Group 12,806 12,806 12,129 12,129 25,289 25,289
Tobacco Net Revenue
Unaudited Unaudited Audited
£ million 6 months ended 31 March 2016 6 months ended 31 March 2015 Year ended 30 September 2015
Growth Markets 707 710 1,449
USA 711 185 707
Returns Markets North 1,246 1,320 2,649
Returns Markets South 735 730 1,446
Total Tobacco 3,399 2,945 6,251
Tobacco net revenue excludes revenue from the sale of peripheral and
non-tobacco related products of £119 million (6 months 2015: £59 million).
Adjusted Operating Profit and Reconciliation to Profit before Taxation
Unaudited Unaudited Audited
£ million 6 months ended 31 March 2016 6 months ended 31 March 2015 Year ended 30 September 2015
Tobacco
Growth Markets 192 196 409
USA 384 70 375
Returns Markets North 676 719 1,475
Returns Markets South 325 310 636
Total Tobacco 1,577 1,295 2,895
Logistics 68 73 154
Eliminations (8) (1) 4
Adjusted operating profit 1,637 1,367 3,053
Acquisition costs - Tobacco - (20) (40)
Amortisation of acquired intangibles - Tobacco (436) (274) (617)
Amortisation of acquired intangibles - Logistics (37) (38) (80)
Restructuring costs - Tobacco (162) (76) (328)
Operating profit 1,002 959 1,988
Net finance (costs)/income (562) 72 (261)
Share of profit of investments accounted for using the equity method 12 17 29
Profit before taxation 452 1,048 1,756
4. Restructuring Costs and Provisions
Restructuring Costs
Unaudited Unaudited Audited
£ million 6 months ended 31 March 2016 6 months ended 31 March 2015 Year ended 30 September 2015
Employment related 80 32 100
Asset impairments 49 20 113
Other charges 33 24 115
162 76 328
The charge for the period of £162 million (2015: £76 million) relates to our
cost optimisation programme announced in 2013 (£136 million), which includes
the closure of the Logroño factory announced in January 2016, and integration
costs relating to the businesses acquired in 2015 (£21 million). The balance
of £5 million covers all other restructuring activities across the Group.
The cost optimisation programme is expected to have a cash implementation cost
in the region of £600 million and generate annual savings of £300 million by
2018. In 2016 the cash cost of the programme was £30 million, bringing the
cumulative net cash cost of the programme to £370 million.
Provisions
Unaudited
6 months ended 31 March 2016
£ million Restructuring Other Total
At 1 October 2015 278 139 417
Additional provisions charged to the consolidated income statement 66 22 88
Amounts used (69) (8) (77)
Unused amounts reversed (3) (2) (5)
Exchange movements 16 10 26
At 30 March 2016 288 161 449
Analysed as:
Unaudited Unaudited Audited
£ million 6 months ended 31 March 2016 6 months ended 31 March 2015 Year ended 30 September 2015
Current 185 188 197
Non-current 264 232 220
449 420 417
5. Net Finance Costs/(Income) and Reconciliation to Adjusted Net Finance
Costs
Reconciliation from Reported Net Finance Costs/(Income) to Adjusted Net Finance Costs
Unaudited Unaudited Audited
£ million 6 months ended 31 March 2016 6 months ended 31 March 2015 Year ended 30 September 2015
Reported net finance costs/(income) 562 (72) 261
Fair value gains on derivative financial instruments 216 699 691
Fair value losses on derivative financial instruments (429) (561) (578)
Exchange (losses)/gains on financing activities (74) 176 113
Net fair value and exchange (losses)/gains on financial instruments (287) 314 226
Interest income on net defined benefit assets 71 67 138
Interest cost on net defined benefit liabilities (80) (77) (157)
Unwind of discount on redundancy and other long-term provisions - (1) (1)
Post-employment benefits net financing cost (9) (11) (20)
Adjusted net finance costs 266 231 467
Comprising
Interest on bank deposits (3) (3) (6)
Interest on bank loans and other loans 269 234 473
Adjusted net finance costs 266 231 467
6. Taxation and Reconciliation to Adjusted Taxation Charge
Reconciliation from Reported Taxation to Adjusted Taxation
The table below shows the taxation impact of the adjustments made to reported
profit before taxation in order to arrive at the adjusted measure of earnings
disclosed in note 8.
Unaudited Unaudited Audited
£ million 6 months ended 31 March 2016 6 months ended 31 March 2015 Year ended 30 September 2015
Reported taxation charge 142 180 33
Taxation on acquisition costs - 4 -
Deferred taxation on amortisation of acquired intangibles 86 69 149
Taxation on net fair value and exchange losses on financial instruments 42 (21) (11)
Taxation on post-employment benefits net financing cost 3 3 6
Taxation on restructuring costs 43 19 91
Taxation on unrecognised losses (39) (13) 273
Adjusted taxation charge 277 241 541
In November 2015 we received a challenge from the French tax authorities that
could lead to additional tax liabilities of up to £230 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. There are strong grounds on
which to defend the Group against this challenge, and we are supported in this
view by the opinions of our professional advisers. As such we have not made
any provision against this risk in the period.
7. Dividends
Distributions to Ordinary Equity Holders
Unaudited Unaudited Audited
£ million 2016 2015 2014
Paid interim of nil pence per share (2015: 91.9p, 2014: 38.8p)
- Paid August 2014 - - 370
- Paid June 2015 - 204 -
- Paid September 2015 - 204 -
- Paid December 2015 - 468 -
Interim dividend paid - 876 370
Proposed interim dividends of 47.0 pence per share (2015: nil, 2014: nil)
- To be paid June 2016 (23.5 pence per share) 224 - -
- To be paid September 2016 (23.5 pence per share) 224 - -
Interim dividend proposed 448 - -
Paid final of nil pence per share (2015: 49.1p, 2014: 89.3p)
- Paid February 2015 - - 851
- Paid March 2016 - 468 -
Final dividend - 468 851
Total ordinary share dividends of 47.0 pence per share (2015: 141.0p, 2014: 128.1p) 448 1,344 1,221
The declared interim dividend for 2016 amounts to a total dividend of £448
million based on the number of shares ranking for dividend at 31 March 2016.
This will be paid in two stages, one in June 2016 and one in September 2016.
The dividend paid during the half year to 31 March 2016 is £936 million (2015:
£851 million).
8. Earnings per Share
Unaudited Unaudited Audited
£ million unless otherwise indicated 6 months ended 31 March 2016 6 months ended 31 March 2015 Year ended 30 September 2015
Earnings: basic and diluted - attributable to owners of the Parent Company 290 853 1,691
Millions of shares
Weighted average number of shares:
Shares for basic earnings per share 953.7 953.1 953.4
Potentially dilutive share options 1.8 2.0 2.5
Shares for diluted earnings per share 955.5 955.1 955.9
Pence
Basic earnings per share 30.4 89.5 177.4
Diluted earnings per share 30.4 89.3
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