REG - Imperial Brands PLC - Half-year Report
16/05/2023 07:00
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RNS Number : 4882Z Imperial Brands PLC 16 May 2023
IMPERIAL BRANDS PLC
Legal Entity Identifier (LEI) No. 549300DFVPOB67JL3A42
Half Year Results Statement
16 May 2023
STRATEGY ON TRACK TO DELIVER ACCELERATING RETURNS
Report for the six months ended 31 March 2023
Business Highlights
o Robust pricing and aggregate market share up 20 basis points across
top-five combustible market portfolio
o Next generation product (NGP) net revenue up 19.8% - acceleration driven
by product launches across categories
o Volumes affected by COVID unwind and Russian exit last year; profitability
impacted by higher NGP investment
o Strong contribution from Logista following recent M&A
o Dividend up 1.5% and on track to complete £1bn share buyback this year
o On course to meet our full-year guidance, with improving returns in line
with five-year strategy
Financial Summary
Six months ended Reported Adjusted(2)
31 March 2023 2023 2022 Change 2023 2022 Actual Constant currency(3) CC ex Russia(4)
Revenue/Net revenue(1) £m 15,411 15,362 0.3% 3,663 3,495 +4.8% -1.0% +0.6%
Operating profit £m 1,534 1,201 27.7% 1,716 1,600 +7.3% +0.8% +1.2%
Earnings per share p 117.0 105.2 11.2% 118.5 113.0 +4.9% -1.7% -1.2%
Net debt £m (10,239) (9,757) (9,799) (9,157) - - -
Dividend per share p 43.18 42.54 1.5% 43.18 42.54 1.5% 1.5% -
(1) Reported revenue includes duty, similar items, Distribution (Logista) and
sale of peripheral products, which are excluded from net revenue; net revenue
comprises reported revenue less duty and similar items, excluding sale of
peripheral products and Distribution (Logista) gross profit.
(2) See page 3 for the basis of presentation and the supplementary section at
the end of the financial statements for the reconciliation between reported
and adjusted measures.
(3) Constant currency removes effect of exchange rate movements on the
translation of the results of our overseas operations.
(4) Constant currency movement excluding the prior year financial contribution
from Russia, following our exit in April 2022.
Stefan Bomhard Chief Executive
"We are now in the third year of our five-year strategy, and this means we are
moving from the initial foundation-building phase to a period of improving
financial delivery. We remain strongly committed to an ongoing programme of
shareholder returns and will complete our initial £1 billion buyback during
the second half.
"Business performance for the first half of fiscal year 2023 was resilient,
despite temporarily increased volume declines against a strong comparator. As
expected, this reflects a return to pre-COVID buying patterns as well as our
decision to exit Russia last year. In tobacco, we have delivered further share
gains in aggregate across our portfolio of top five markets, while also
achieving strong pricing to help mitigate the volume declines. We have now
recorded stable or growing aggregate market share in these markets in each of
the last four six-month periods after many years of sharp declines. In NGP, we
have delivered a step-up in innovation with new product and market launches in
all three categories: vapour, heated tobacco and modern oral.
"This performance is underpinned by targeted investments in capabilities and
people. Earlier this month we opened a new innovation facility in Liverpool,
which brings together consumers, product developers and third-party partners
in a single collaborative space. We are making good progress in our programmes
to modernise legacy systems, and we continue to invest in upskilling our
leaders to drive forward our performance culture.
"We remain on track to deliver the acceleration in adjusted operating profit
growth in the second half in line with our guidance and expectations. I am
confident the actions we have taken are creating a stronger, more resilient
business capable of driving shareholder returns through a growing dividend and
an ongoing share buyback."
Delivering Against our Strategic Priorities
Delivering strong pricing across our portfolio of five priority combustible
markets
· 20 bps aggregate market share gain in top five combustible markets
· Share positions supported by continued investment in brand equity
building and sales force initiatives
· Three out of five markets in share growth: gains in US, Australia
and Spain offset declines in Germany and UK
Accelerating our NGP performance with disciplined execution
· Step-up in innovation across all NGP categories driving NGP net
revenue growth in Europe by 35.1%
· Our heated tobacco offering, Pulze and iD, is now available in seven
European markets
· All-new blu 2.0 now available nationally in eight markets, disposable
blu bar launched in seven markets including UK, France and Spain
· In modern oral, Zone X, and Skruf Super White have grown well in
Norway
Driving value from our broader market portfolio
· Strong pricing in our wider footprint markets more than offset volume
declines
· Leveraging our capabilities in driving growth from portfolios of
smaller markets with transfer of Central and Eastern Europe cluster from
Europe region to Africa, Asia and Australasia (AAA) region
Transforming our ways of working
· On track to deliver annual savings target of £150m by end FY23
· Centralised global business services model beginning to enable
efficient ways of working in key functions
· Initial design stage of five-year digital transformation well advanced
to replace 60 legacy systems with single ERP system
Results Overview*
Tobacco & NGP net revenue growth driven by resilient tobacco pricing
· Strong tobacco pricing across all key markets mitigating volume
declines
· Excluding Russia, tobacco price mix of 6.8%: pricing +9.3% with
adverse mix of -2.5%, driven primarily by adverse product mix in the USA (mass
market cigars and cigarettes)
· Tobacco volumes down 12.7% driven by our exit from Russia and the
unwind of COVID restrictions on buying patterns
· Excluding Russia, tobacco volumes declined 6.8%
· NGP revenue up 19.8% as strong growth in Europe more than offset
declines in USA caused by MDO uncertainty
· Reported revenue increased 0.3%; the decline in tobacco and NGP
revenue was offset by growth in Distribution revenue as a result of
acquisitions at Logista
Delivering improved profitability and increased investment
· Group adjusted operating profit grew +0.8%, driven by growth in
tobacco and at Logista and tobacco; excluding Russia, Group adjusted operating
profit grew +1.2%
· Reported operating profit grew 27.7% because charges relating to our
Russia exit last year were not repeated
· Tobacco adjusted operating profit grew +0.2%, reflecting strong
pricing and cost control; excluding Russia +0.7%
· Tobacco adjusted operating margins increased +80bps despite cost
inflation and investment; ex. Russia +30bps
· NGP adjusted losses increased +33.3% to £56m as expected, with higher
investment in new product and market launches
· Distribution adjusted operating profit up 19.3% reflecting good
underlying growth and the contribution from acquisitions, as we continue to
support Logista's strategic delivery
· Adjusted EPS fell -1.7% driven by higher finance costs, increased
minority interests caused by growth at Logista and a slightly higher tax rate
partially offset by reduced share count; excluding Russia adjusted EPS fell
-1.2%
· Reported EPS grew 11.2% reflecting the higher reported operating
profit
Free cash flow supporting investment and shareholder returns
· Adjusted operating cash conversion of 77% on a 12-month basis,
reflects temporary working capital outflow driven by increased stock
associated with price increases and higher capex, as guided
· Adjusted net debt £9.8bn; adjusted net debt to EBITDA on a 12-month
basis flat at 2.4x
· On track to deliver adjusted net debt to EBITDA of around 2.0 times at
the year end
· Reported net debt £10.2bn
· Interim dividend per share up 1.5% to 43.18p, in line with our
progressive dividend policy
· £500m buyback completed in period; on track to complete £1bn by end
September 2023
* All measures at constant currency unless otherwise stated
Outlook
We remain firmly on track with our five-year strategic plan to transform
Imperial and are on course to deliver against the guidance and expectations
for the current year.
We continue to expect low single-digit constant currency tobacco and NGP net
revenue growth with constant currency adjusted operating profit growth
accelerating to deliver mid-single digit CAGR over the next three years.
As previously guided, for the current year - inclusive of the impact of our
Russian exit - we expect to grow our adjusted Group operating profit at the
lower end of our mid-single digit range at constant currency. This improvement
in adjusted operating profit growth in the second half will be driven by the
strong embedded pricing as a result of actions taken in the first half, the
improving geographic mix driven by our priority market focus, operational
gearing, cost savings and growth at Logista. These tailwinds will be partially
offset by continued cost inflation and increased NGP investment. We expect the
year-on-year effect of consumer buying patterns to normalise in the second
half as we annualise the prior year COVID-related impact.
We expect our year end gearing to be around the lower end of our adjusted net
debt to EBITDA range of 2.0-2.5 times.
Our full year adjusted effective tax rate is expected to be around 22-23%. At
current rates, foreign exchange translation is expected to be a 3-4% tailwind
to full year net revenue, adjusted operating profit and earnings per share.
We remain confident in our ability to navigate current macro-economic
challenges and we are well placed to generate long-term value for shareholders
and all our stakeholders.
Basis of Presentation
· To aid understanding of our results, we use 'adjusted' (non-GAAP)
measures to provide a consistent comparison of performance from one period to
the next. Reconciliations between adjusted and reported (GAAP) measures and
further definitions of adjusted measures are provided in the supplementary
information section. Change at constant currency removes the effect of
exchange rate movements on the translation of the results of our overseas
operations. References in this document to percentage growth and increases or
decreases in our adjusted results are on a constant currency basis unless
stated otherwise. These are calculated by translating current year results at
prior year exchange rates.
· Stick Equivalent (SE) volumes reflect our combined cigarette, fine
cut tobacco, cigar and snus volumes but exclude any NGP volume such as heated
tobacco, modern oral nicotine and vapour.
· Market share is presented as a 6-month average to the end of March
(MHT - moving half-year trend), unless otherwise stated. Aggregate market
share is a weighted average across markets within our footprint.
Other Information
Investor Contacts Media Contacts
Peter Durman +44 (0)7970 328 093 Jonathan Oliver +44 (0)7740 096 018
Jennifer Ramsey +44 (0)7974 615 739 Simon Evans +44 (0)7967 467 684
Henry Dodd +44 (0)7941 648 421
Analyst Presentation Webcast
Imperial Brands PLC will be hosting a live webcast at 09:00 (BST) on 16 May
2023 for investors and investment analysts following the publication of our
interim results at 07:00 (BST). The webcast will be hosted by Stefan Bomhard,
Chief Executive, and Lukas Paravicini, Chief Financial Officer. The
presentation will be followed by a question and answer session. The
presentation slides will be available on www.imperialbrandsplc.com
(http://www.imperialbrandsplc.com) from 07.00 (BST). A webcast recording and
the presentation script will also be available after the live webcast has
concluded.
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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
Delivering on our strategy
During the first six months of the 2023 fiscal year, we continued to make good
progress implementing our strategy to build a more sustainable business able
to grow profitably and consistently.
We are now in the third year of our five-year strategy, and this means we are
moving from the initial foundation-building phase to the period when we
promised to deliver improving returns. In line with our guidance, I can
confirm that we are on track to deliver at the full year with an acceleration
in constant currency adjusted operating profit growth.
During the first half, tobacco volumes were temporarily weaker against a
comparator, which had benefited from COVID-related changes in consumer buying
patterns, and included sales from our Russia business which we exited in April
2022. Excluding Russia, our volumes declined 6.8%. However, we offset these
declines with strong pricing action across our footprint.
We continued to make good progress in our top-five priority combustible
markets with our renewed focus on the consumer enabling more targeted
investment. This portfolio of markets accounts for around 70% of our operating
profit, and we were able to grow our aggregate market share by 20 basis points
while achieving strong pricing gains. This is the fourth consecutive half-year
period when we have achieved our objective to hold stable our weighted
aggregate share. This achievement is despite the highly competitive nature of
these markets and follows several years of continuous aggregate share
declines.
Our next generation products (NGP) business recorded strong growth, driven by
demand for existing products and the roll out of new propositions in new
markets across all categories. Our investment focus in Europe delivered NGP
revenue growth of 35.1% at constant currency, which more than offset declines
in the United States caused by the uncertainty of the marketing denial order.
Overall NGP net revenue grew 19.8% at constant currency.
We are now more rigorous in how we manage our broader portfolio of small and
medium-sized markets, some of which have the potential to become engines of
future growth for the Group. As part of this, we have created a new regional
centre of expertise focusing on Africa, Asia, Australasia and Central &
Eastern Europe (AAACE). We have achieved price increases across our wider
market portfolio, which has driven strong net revenue growth.
We continue to work hard to support and safeguard our 600 Ukrainian
colleagues, who, despite the many challenges of war, delivered a resilient
business performance, even launching a new brand into the market - Imperial
Classic.
Leveraging local jewels
In our combustible portfolio, we have embraced our challenger mindset as the
industry's smallest of the four global players to turn around our smaller
local jewel brands. These are often much-loved national champions, which have
been overlooked in recent years. For example, in Spain having refreshed Nobel
during 2022, the team have now added a super slim format to the Nobel
portfolio with a high-quality pack and product, which is resonating well with
consumers in an underdeveloped category and performing well.
In the UK and Germany, smokers have strong regional preferences and we are
developing geographically targeted approaches to brand building. In the UK,
for example, we reported previously how we had relaunched Embassy to appeal to
smokers in London and the south of England. Now we have relaunched the Regal
brand, to build on our already strong position in the distinctive Scottish
market.
In the US, our brand building initiatives around more carefully targeted brand
platforms for our two biggest US cigarette brands, Winston and Kool, have
supported our share performance in the premium value price segment.
A distinctive approach to next generation products
In NGP, being a challenger is about being an effective and differentiated fast
follower, providing distinctive and responsibly marketed choices in categories
which are already clearly established in markets where we have distribution
strength. Our blu vaping brand is differentiated in the way it is targeted at
"next steppers", more mature consumers who are making a broader lifestyle
shift. Pulze 2.0, our newest heated tobacco device, with its compact
all-in-one design and 25 or more sessions from a single charge, is appealing
to consumers who appreciate the simplicity and convenience of not having to
recharge as often. The footprint of ZoneX is focused on Nordic markets with
their long history of oral nicotine, and here too we are building a
distinctive proposition with innovative flavours designed to attract and
retain consumers migrating from traditional snus tobacco.
The past six months has seen a step change in the pace of our NGP product and
market launches. Our heated tobacco proposition, Pulze and iD, is now
available in seven European markets, which together account for more than 60%
of the total category footprint within the region. In vapour, we have
successfully launched our blu 2.0 product in the UK, Spain, France, Czech
Republic, the Canary Islands, Portugal, Greece and Germany. Zone X, our modern
oral product, continues to perform well, supported by new flavour launches and
marketing initiatives.
Building stronger capabilities
Being a strong challenger is not just about the right mindset, it is about
equipping our people with the capabilities, skills and data to innovate at
pace and move confidently to capture new opportunities. In innovation, we have
opened a new consumer centre in Liverpool, with similar facilities planned for
Hamburg and Greensboro, North Carolina. These facilities will further
accelerate product development by bringing together under the same roof the
entire innovation chain: insights, design, third-party partners and, of
course, the consumers themselves. We have continued to attract new talent with
other crucial consumer skills, including brand marketing, revenue growth
management and sales excellence.
Our performance-based culture is becoming increasingly embedded. Building on
the ambitious programmes initiated in FY22, during the first half of this
year, 300 of our senior leaders began an intensive coaching course, which
included two three-day residential programmes, designed to help them deliver
stronger performances from their teams. Meanwhile we are on track to complete
the design phase by the end of this fiscal year of our five-year programme to
bring together 60 legacy systems into a single enterprise resource planning
platform. This will drive agility and effectiveness in our decision making and
more efficient ways of working.
We continue to develop capabilities in our environmental, social and
governance (ESG) priority areas. Internally this year we launched a new
"Triple Zero" campaign to galvanise colleague commitment around three of our
key objectives: net zero carbon emissions across our value chain by 2040, zero
waste to landfill and our aspiration of zero injuries among our workforce.
Driving value through disciplined capital allocation
Our business is highly cash generative and therefore it is important that we
are structured and transparent in how we prioritise the allocation of surplus
capital.
Our first priority is to invest in our business to support long-term
sustainable growth. Our investment needs are primarily organic through
investment in our brands, sales force and our ways of working. We will also
consider small bolt-on acquisitions, particularly if they accelerate our NGP
delivery.
Our second priority is to maintain a strong and efficient balance sheet with
an investment grade credit rating and leverage around the lower end of our net
debt to EBITDA range of 2-2.5 times.
Our third is our progressive dividend policy where the dividend will grow
annually taking into account underlying business performance. We have
announced a 1.5% increase in our interim dividend.
Our final priority is to return surplus capital to shareholders and I am
pleased that we have already completed £500 million of our initial £1 billon
share buyback announced for this year. At our current valuation, the £1
billion represents more than 5% of the issued share capital and is a
demonstration of our commitment to an ongoing and sustainable buyback.
STEFAN BOMHARD
Chief Executive Officer
OPERATING REVIEW
To provide a greater focus on 'driving value from our broader market
portfolio', which is one of our strategic pillars, we have transferred the
management of our Central and Eastern Europe cluster from our Europe region to
the Africa, Asia and Australasia (AAA) region. Under the leadership of Paola
Pocci, we have been enhancing our capabilities and expertise in managing our
smaller markets, many of which have attractive margins and the potential to
become platforms for future growth in combustible tobacco and NGP. The AAA
region will now be known as AAACE. The affected markets are Poland, Czech
Republic, Ukraine, Slovakia, Hungary, Azerbaijan, Armenia, Georgia, Moldova,
Croatia and Slovenia. The Americas region is unaffected by this change.
EUROPE REGION
Half year result Change
2023 *2022 Actual Constant
currency
Tobacco volume bn SE 42.2 46.2 1. -8.7%
Total tobacco & NGP net revenue £m 1,428 1,370 2. +4.2% +1.2%
Tobacco net revenue £m 1,326 1,296 3. +2.3% -0.8%
NGP net revenue £m 102 74 4. +37.8% +35.1%
Adjusted operating profit £m 611 621 5. -1.6% -5.3%
*2022 figures restated for the transfer of the Central & Eastern Europe
cluster from Europe to AAACE
Headlines
· Strong and early pricing action helped to mitigate temporarily
higher volume declines
· Volumes affected by return to pre-COVID buying patterns,
particularly in the UK and Germany
· Strong NGP net revenue performance with growth across all
categories driven by product innovation and market launches
· New and improved Pulze 2.0 launched in Greece, Italy, Portugal and
Bulgaria
· Successful launch of all-new vapour device blu 2.0 and disposable
blu bar
· Adjusted operating profit decline reflects increased investment
behind NGP product launches and innovation
Our results in Europe are driven by strong combustible pricing offset by
tobacco volumes which were temporarily weaker against a comparator that had
benefited from COVID-related changes in consumer buying patterns. Net revenue
growth benefited from an acceleration in NGP revenue growth as our innovation
pipeline supported new product and market launches alongside growth in
existing markets.
Strategic initiatives in our priority markets supported our combustible
tobacco performance. For example, in the UK, after two years of market share
growth, we raised prices early in the period, which has temporarily caused our
market share to decline as we balanced pricing with share delivery. We remain
confident that our strategic initiatives in the UK, such as our local jewel
brands, Embassy and Regal, have continued to gain traction. We continue to
work on arresting the long-term share declines in Germany as we refine our
investment in brand equity building initiatives, which inevitably take time.
In Spain, we achieved strong price increases, while also gaining market share
as our local jewel brands benefited from new format launches and we refined
our focus on the key sales channels.
Tobacco volumes declined 8.7% with consumer buying patterns increasingly
reverting to pre-COVID channels as expected. This has resulted in increased
volume declines in higher margin Northern European markets such as UK, Germany
and Scandinavia.
Tobacco net revenue was down 0.8% at constant currency, reflecting strong
price mix of 7.9%, which helped to mitigate the volume declines. Price mix was
affected by the timing of price increases and the adverse geographic mix
effects as COVID-19 restrictions were lifted. Price increases taken across the
region in the first half of the year, will support a stronger second half,
together with an anticipated improvement in volume decline rates.
Our NGP portfolio has performed well with net revenue up 35.1% at constant
currency and growth across all three categories. We delivered a step-up in new
product launches as our new consumer-led partnership approach to NGP product
innovation delivered a range of new products in all three categories. Our new
Pulze 2.0 heated tobacco device, has been successfully launched in Greece,
Italy, Portugal, Hungary and Bulgaria, with a positive initial consumer
response. In vapour, our new pod-based vapour proposition, blu 2.0, has now
been launched nationally in the UK, France and Spain, following a successful
trial last year in four French cities, with more recent roll-outs to Germany,
Portugal, Greece and the Canary Islands. We have also had early success in
targeting adult smokers and vapers with blu bar, a disposable vaping product
to expand our blu brand franchise which we have launched in seven markets. In
modern oral nicotine, we are continuing to meet evolving consumer preferences
with flavour launches in Zone X and the launch of Skruf Modern in Norway.
Tobacco and NGP adjusted operating profit for the year declined 5.3% at
constant currency, mainly reflecting the increased investment in our NGP
product and market launches; and the impact of temporarily increased volume
declines in our higher margin Northern European markets.
Priority Market Performance
Tobacco share
Germany Market size declined 2.3% in the year against a prior-year comparator, which
benefited from COVID-19 travel restrictions. Our market share declined and we
· 18.3% (-80bps) have acknowledged it will take time to turn around the share performance after
more than a decade of share losses. However, we remain confident we can
· 13% of Group net revenue stabilise our share through investment in our strategic initiatives to build
brand equity and enhance our sales force effectiveness. Our brand portfolio
remains well positioned across the key price segments to appeal to a range of
consumer needs. Underpinning this is an ongoing refocus of our salesforce
coverage. We expanded our vapour offer with the launch of blu 2.0 in April
this year and more recently with blu bar.
UK We increased prices early in our financial year, as we sought to optimise the
balance between value creation and managing our market share. As expected, our
· 41.1% (-75 bps) share has declined temporarily against a strong comparator (HY22: +105bps),
where peers experienced supply chain shortages. Our strategic investments are
· 7% of Group net revenue continuing to gain traction with jewel brands, such as Embassy and Regal
continuing to perform well. Tobacco market size declined 17.9% year on year,
against a strong comparator period which benefited from COVID-19-related
travel restrictions. Additionally, we expanded our NGP offering in vaping
through innovation, with the launch of blu 2.0 and blu bar in the period.
Spain We raised prices in Spain as we maintained a disciplined approach to pricing
while growing share in the period as we continued to implement our strategic
· 28.3% (+15 bps) initiatives. For example, our focus on local jewel brands with the launch of
new formats such as a new super slim format for Nobel. We also benefited from
· 4% of Group net revenue refocusing our salesforce on key channels. Tobacco market size reduced 0.9%
year on year. The launches of blu 2.0 and blu bar have been well received by
consumers and the trade.
AMERICAS REGION
Half year result Change
2023 2022 Actual Constant
currency
Tobacco volume bn SE 9.4 9.7 -2.8%
Total tobacco & NGP net revenue £m 1,223 1,160 +5.4% -6.4%
Tobacco net revenue £m 1,203 1,136 +5.9% -6.0%
NGP net revenue £m 20 24 -16.7% -25.0%
Adjusted operating profit £m 512 453 +13.0% -1.1%
Headlines
· Cigarette share growth up 95 basis points to 10.8% with gains
across all three of our focus price segments
· Investment in strategic initiatives continue to drive operational
improvements
· Revenue decline reflects strong cigarette pricing offset by adverse
product mix in cigarettes and mass market cigars
· Mass market cigar performance affected by wholesaler destock and
market share pressure
· NGP net revenue declined due to the uncertainty caused by the FDA's
Marketing Denial Orders for myblu
· Adjusted operating profit decline reflects a strong cigarette
performance driven by share gains and robust pricing offset by weaker
performance in mass market cigars
We delivered a strong combustible market share performance in the US whilst
achieving strong pricing across our cigarette portfolio. However, our mass
market cigar volumes declined due to a temporary wholesaler destock after they
increased inventories ahead of Hurricane Ian last September as well as
pressure on our market share performance as peers resolved their supply
shortages. This contributed to adverse product mix which has weighed on our
net revenue performance.
Tobacco volumes declined by 2.8% against an industry volume decline of 9.1% in
cigarettes and a 3.5% fall in industry mass market cigar volumes. The
cigarette outperformance reflects the improvement in our cigarette market
share of 95 basis points to 10.8%, which now follows four consecutive years of
market share growth. Our cigarette volumes also reflect a slight reduction in
wholesaler inventories in the period, which reduced our shipment volumes by c.
0.2%
Our market share performance was driven by three factors: the continued
benefit from our investment in sales execution and brand building, our brand
portfolio positioning to meet consumer needs, particularly as they continue to
trade down, and the annualisation of the benefit from our agile response to
capture share arising from KT&G's exit in December 2021.
On a constant currency basis, tobacco net revenue declined by 6.0%, as strong
pricing of +9% was more than offset by volumes down -3% and adverse mix of
-12%. The adverse mix was driven primarily by the reduction in mass market
cigar volumes, which accounted for 7% of decline. This reflects the relatively
high value, low volume nature of the category - the revenue per stick for
cigars is around 2.6 times that for cigarettes. Adverse cigarette mix
accounted for the remaining 5% adverse mix driven by our market share
performance in the deep discount segment and the successful capture of the
KT&G share following their exit from the market in December 2021.
Our cigarette share performance partly reflects our progress in building brand
equity and strengthening our salesforce capabilities. For example, our brand
investment behind KOOL continues to support share growth in the premium value
segment. We continue to improve our sales execution with our increased sales
force, setting our "perfect store" concept as the standard to achieve across
all stores and working with our key account customers on joint business
planning.
Our mass market cigar portfolio came under pressure driven by a wholesaler
destock, market share losses and overall market size declines. The destock was
following a wholesaler inventory build last September ahead of Hurricane Ian,
which affected Southwest Florida where our cigar warehouse is located in
Tampa. The overall category decreased in the period as sales did not benefit
from the same elevated level of consumption opportunities as in the prior
year. At the same time, lower consumer disposable income drove some
downtrading, leading to market share losses in our premium Backwoods offering,
which was accentuated by the benefit of competitor supply issues in the prior
period, which have now been resolved. However, we continue to be consumer
focused, keeping the brand refreshed and believe we are well positioned with
our portfolio of iconic heritage brands.
Our NGP revenue declined 25.0% on a constant currency basis, reflecting the
continued uncertainty caused by the FDA's Marketing Denial Orders (MDOs)
issued in April 2022 for our myblu products. We were disappointed with the
FDA's decision to issue the MDOs and have filed a challenge to this decision
in the US Circuit Court of Appeals. The case has been argued and we are
awaiting the court's decision. Our products remain in the market during the
appeals process.
Adjusted operating profit declined 1.1% at constant currency as a stronger
cigarette performance and reduced NGP losses were offset by weaker performance
in mass market cigars.
AFRICA, ASIA, AUSTRALASIA AND CENTRAL & EASTERN EUROPE REGION
Half year result Change Change
2023 2022 Actual Constant Excluding Russia
currency
Tobacco volume bn SE 44.4 54.0 -17.8% -5.8%
Total tobacco & NGP net revenue £m 1,012 965 +4.9% +2.5% +8.6%
Tobacco net revenue £m 1,009 962 +4.9% +2.5% +8.6%
NGP net revenue £m 3 3 0% 0% 0%
Adjusted operating profit £m 445 407 +9.3% +6.6% 8.5%
*2022 figures restated for the transfer of the Central & Eastern Europe
cluster from Europe to AAA (now known as AAACE). The change excluding Russia
removes the HY22 contribution from Russia of 6.9bn SE volumes, £54million of
net revenue and £7m of adjusted operating profit. There was £0m of NGP net
revenue in Russia.
Headlines
· Results are affected by our exit from Russia in April 2022
· Region now includes our Central & Eastern Europe cluster;
comparator figures have been restated
· Strong regional financial delivery driven primarily by Australia,
CCE and Middle East
· Pricing discipline supports strong price mix gains and financial
performance
· NGP net revenue flat with investment to fund new product and market
launches in Central and Eastern Europe
· Adjusted operating profit delivery driven by strong tobacco
performance and increased NGP investment
The region delivered a strong operational and financial performance although
the results were affected by our decision to exit the Russian market in April
2022. The contribution from Russia in the prior period is outlined above. In
addition, as we look to drive value from our wider market portfolio, we have
transferred the management of our Central & Eastern European markets from
Europe to this region. Given their similar characteristics, we believe these
markets will benefit from being under the new regional leadership team where
we have been enhancing our capabilities and expertise to manage our portfolio
of smaller markets to unlock value and become platforms for future growth.
Our results benefited from a strong focus on pricing discipline across the
region while optimising our market share. We continued to optimise our brand
portfolio management by leveraging our local jewel brands alongside our
international brands, while maintaining a disciplined and targeted approach to
our investment in sales execution and marketing in line with our strategy to
drive value from our broader market portfolio.
In Australia, we raised prices early in the period while also delivering a
modest improvement in market share against a highly competitive market
backdrop with record levels of illicit trade. We refined our approach to
revenue growth management to optimise value creation from across our portfolio
with a clear brand offering at each of the key price points. This has
supported our decisions on pricing and product innovation, for example we
launched JPS Evolve in the mid-price tier in both cigarette and fine cut
formats. These actions have driven an improvement in financial performance.
In our African markets, strong pricing more than offset weaker volumes as
consumer spending was affected by the rising cost of living and there was an
increase in illicit trade in some countries. We remain focused on increasing
consumer engagement through careful management of selective local jewel and
key international brands, and we have diverse brand portfolios for each
country to meet the differing adult consumer demands.
In the Middle East, markets such as Kuwait benefited from borders reopening
and we exercised strong pricing discipline while managing our share position.
Davidoff performed well in Kuwait. In Asia, the resumption of travel impacted
volumes in Taiwan and the competitive dynamic made pricing gains tougher.
Pricing was stronger across the majority of our Central & Eastern European
markets, which more than offset volume declines to support financial delivery.
Tobacco volumes declined 17.8% driven by our exit from Russia. Excluding
Russia, volumes declined 5.8%. However, strong price mix (+14.4% ex Russia)
more than offset volume declines to grow tobacco net revenue by 8.6% ex Russia
on a constant currency basis.
NGP net revenue was flat reflecting the build-out of distribution in the Czech
Republic last year, where we continued to grow our share. Our successful trial
in the Czech Republic, validated our consumer proposition and we launched
Pulze and iD into two additional markets of Hungary and Poland, although this
occurred later in the period and we are continuing to build our distribution.
We now also launched our upgraded Pulze 2.0 device, across all four markets,
while expanding our iD stick offering with new flavour and limited edition
crushball launches.
Adjusted operating profit grew 6.6% at constant currency driven by a strong
tobacco performance in Australia, Africa and the Middle East, which more than
offset increased NGP investment to fund new product and market launches.
Excluding Russia, adjusted operating profit grew 8.5% at constant currency.
Priority Market Performance
Tobacco share
Australia We achieved pricing gains early in the period through applying revenue growth
management techniques to optimise the value creation across our brand
· 31.6% (+1 bps) portfolio while managing our overall market share delivery. Our performance
also benefited from innovation in our offerings, for example with the launch
· 4% of Group net revenue of JPS Evolve in October 2022 for both cigarettes and fine cut. Market size
declines increased to 12.9% with the pressure on consumer affordability as
well as record levels of illicit trade.
DISTRIBUTION
Half year result Change
2023 2022 Actual Constant currency
Distribution gross profit* £m 731 502 +45.6% +39.9%
Adjusted operating profit £m 150 121 +24.0% +19.0%
Adjusted operating profit margin % 20.5 24.1 -358bps -359bps
Eliminations £m (2) (2) +0% +0%
Adjusted operating profit (inc. eliminations) £m 148 119 +24.4% +19.3%
*Distribution gross profit is Distribution revenue less the cost of
distributing products. This was previously referred to as Distribution net
revenue.
Headlines
· Gross profit includes contributions from recent acquisitions
· Performance of underlying business in line with expectations
· Better than expected adjusted operating profit includes strong
contribution from profit on inventory
Distribution consists of our 50.01% stake in Logista. The results include the
incremental financial contribution from the acquisitions of Transportes El
Mosca (60%) and Carbó Collbatallé S.L. (100%), which were not in the prior
year period, and Speedlink Worldwide Express B.V. (70%), which was included
from February 2022. The acquisitions are in line with Logista's strategy to
accelerate growth in European non-tobacco distribution. Following the 60%
acquisition of Transportes El Mosca (a Spanish-based international
transportation company) in October 2022, Logista is now the second largest
temperature-controlled transportation company in Spain, and brings both
maritime and road transportation assets to the Group. Carbó Collbatallé,
acquired in September 2022, brings specialisation in frozen and refridgerated
transportation in the food sector in Spain and Speedlink, acquired in February
2022, a Dutch express, courier company expands the B2B parcel business.
Gross profit - Gross profit at £731 million was 39.9% higher on a constant
currency basis with strong underlying performance across the three key regions
(Iberia, France and Italy), further enhanced by the contribution from
acquisitions.
In Iberia, growth in gross profit was driven in part by tobacco and related
products, with the former benefitting from manufacturer price increases in
Spain. The transport services recorded a strong growth year-on-year, partly as
a result of the integration of the new acquisitions. In the long-distance
segment, Logista Freight recorded double digit growth including the
integration of Transportes El Mosca (60%). In the industrial parcel segment,
Logista Parcel continued to benefit from improving demand for its services and
has started to integrate with the Carbó Collbatallé network. Growth in
parcel delivery business benefited from the acquisition of Speedlink (70%) and
from single digit growth in Nacex business. Pharmaceutical distribution
continues to expand both its customer base and product offering.
In Italy, gross profit was supported by good performance in tobacco and NGP
volumes together with strong growth in convenience products, driven by
disposable vaping products.
In France, gross profit was impacted by tobacco volume declines, which
continued into the period end following the excise tax increase and subsequent
price increases by the tobacco manufacturers. This was offset by the positive
performance in convenience product distribution, driven by the growth in
disposable vaping products.
Operating profit - Adjusted operating profit margin reduced by 359 basis
points at constant currency as the acquired businesses diluted Logista's
strong pre-acquisition margins. After eliminations, the adjusted operating
profit contribution to the Group increased 19.3% on a constant currency basis,
driven by the acquired businesses and a strong contribution from profit on
inventory in Spain following manufacturers price increases in the period.
Restructuring charges of £6 million were included in adjusted operating
profit. This is in line with our policy on adjusting items where restructuring
charges are now not recognised as an adjusting item after FY22.
Cash - In line with other Imperial-owned entities, we continue to benefit from
an inter-company cash pooling arrangement with Logista, which further enhances
the Group's liquidity. On a 12-month basis, the daily average cash balance
loaned to the Group by Logista was £1.8 billion, with movements in the cash
position during the 12-month period varying from a high of £2.3 billion to a
low of £1.0 billion, primarily due to the timing of excise duty payments. At
31 March 2023, the loan position was £1.7 billion compared to £1.8 billion
at 31 March 2022.
FINANCIAL REVIEW
Strengthening our performance
These results reflect the resilient performance of the business as we move
into the next phase of our strategy to deliver improving returns. In the
period, we have consolidated the strong market share gains achieved last year,
achieved robust tobacco pricing gains and undertaken targeted investments to
support our five-year strategy.
On a constant currency basis, Group net revenue declined 1.0%, reflecting our
exit from Russia in April 2022. Group adjusted operating profit rose 0.8%, on
a constant currency basis. Excluding Russia, group net revenue grew 0.6%. and
Group adjusted operating profit rose 1.2%, on a constant currency basis.
Reported revenue increased +0.3% as the decline in tobacco and NGP revenue,
reflecting of our exit from Russia, was offset by growth in Distribution
revenue. Reported operating profit increased 27.7%, mainly due to the
non-recurrence of exit charges related to the Russian asset disposal (£201
million) taken in the prior period.
Cash generation remains a key focus. The free cash outflow of £0.4 billion
reported in the period reflects temporary working capital outflows and we
remain on track to deliver material inflows at full year. Reported net debt
increased by £0.5 billion to £10,239 million and adjusted net debt/EBITDA
was flat year-on-year at 2.4x.
As previously announced, having reached our target leverage in FY23, we began
an ongoing, multi-year share buyback programme. In the period, we repurchased
£500 million of shares of the £1.0 billion of shares during FY23.
SUMMARY INCOME STATEMENT
Half Year Results
Reported Adjusted
£ million (unless otherwise indicated) 2023 2022 2023 2022
Revenue/net revenue/gross profit*
Tobacco & NGP revenue/net revenue 10,209 10,723 3,663 3,495
Distribution revenue/gross profit 5,202 4,639 731 502
Operating profit
Total Tobacco & NGP 1,386 1,124 1,568 1,481
Distribution 150 79 150 121
Eliminations (2) (2) (2) (2)
Group operating profit 1,534 1,201 1,716 1,600
Net finance (cost)/income (94) 75 (199) (165)
Share of profit/(losses) of investments accounted for using the equity method 3 (20) 3 4
Profit before tax 1,443 1,256 1,520 1,439
Tax (277) (221) (340) (316)
Profit for the year 1,166 1,035 1,180 1,123
Minority Interests (72) (40) (72) (54)
Earnings per ordinary share (pence) 117.0 105.2 118.5 113.0
Dividend per share (pence) 43.18 42.54 43.18 42.54
* Reported revenue includes duty, similar items, distribution and sale of
peripheral products, which are excluded from net revenue; net revenue
comprises reported revenue less duty and similar items, excluding sale of
peripheral products and distribution revenue. Distribution gross profit is
Distribution revenue less the cost of distributing products. This was
previously referred to as Distribution net revenue.
Impact of Russia Exit
On 20 April 2022, we announced the transfer of our Russian business to local
investors. This has affected the year-on-year performance comparison in
these results. We provide below the contribution from our Russian business
in HY22 for key metrics in order to facilitate comparison between the two
periods; we have also provided year-on-year comparisons including and
excluding Russia.
HY22 Russia contribution Russia
Tobacco volume bn SE 6.9
Total tobacco & NGP net revenue £m 54
Tobacco net revenue £m 54
NGP net revenue £m -
Adjusted operating profit £m 7
SUMMARY CASH FLOW STATEMENT
Half Year Results
Reported Adjusted
£ million (unless otherwise indicated) 2023 2022 2023 2022
Group operating profit 1,534 1,201 1,716 1,600
Depreciation, amortisation and impairment 315 356 141 125
EBITDA 1,849 1,557 1,857 1,725
Loss/(profit) on disposal of subsidiary 1 16 - -
Other non-cash movements (53) 52 1 (45)
Operating cash flows before movement in working capital 1,797 1,625 1,858 1,680
Working capital (1,626) (652) (1,626) (665)
Tax cash flow (175) (273) (175) (273)
Cash flows from operating activities (4) 700 57 742
Net capex (119) (64) (119) (64)
Restructuring - - (61) (42)
Cash interest (237) (242) (237) (242)
Minority interest dividends (72) (58) (72) (58)
Free cash flow (432) 336 (432) 336
Acquisitions/disposals (119) 44 (119) 44
Shareholder dividends (921) (917) (921) (917)
Purchase of ESOT shares - (1) - (1)
Repurchase of shares (500) - (500) -
Net cash flow (1,972) (538) (1,972) (538)
Alternative performance measures (APM)
When managing the performance of our business we focus on non-GAAP measures,
which we refer to as alternative measures. We believe they provide a useful
comparison of underlying performance from one period to the next, as GAAP
measures can include one-off, non-recurring items and recurring items that
relate to earlier acquisitions. These APMs 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 APMs is explained in the accounting
policies accompanying our financial statements and the APM section within the
supplementary information.
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.
While we believe that APMs can provide helpful information which supplements
reported measures, we are also aware of the need to ensure that an appropriate
balance is maintained between the two sets of reporting metrics, with adjusted
disclosures not being given greater prominence than GAAP measures. In line
with this, we have reduced the number of APMs used this year.
GROUP RESULTS - ADJUSTED CONSTANT CURRENCY ANALYSIS
£ million Half year ended 31 March 2022 Foreign Constant Half year ended Change Constant
(unless otherwise indicated)
exchange
currency movement
31 March 2023
currency
change
Tobacco & NGP net revenue
Europe 1,370 42 16 1,428 4.2% 1.2%
Americas 1,160 137 (74) 1,223 5.4% (6.4%)
Africa, Asia, Australasia and Central & Eastern Europe 965 23 24 1,012 4.9% 2.5%*
Total tobacco & NGP net revenue 3,495 202 (34) 3,663 4.8% (1.0%)**
Tobacco & NGP adjusted operating profit
Europe 621 23 (33) 611 (1.6%) (5.3%)
Americas 453 64 (5) 512 13.0% (1.1)%
Africa, Asia, Australasia and Central & Eastern Europe 407 11 27 445 9.3% 6.6%*
Total tobacco & NGP adjusted operating profit 1,481 98 (11) 1,568 5.9% (0.7%)**
Distribution
Gross profit 502 29 200 731 45.6% 39.9%
Adjusted operating profit including eliminations 119 6 23 148 24.4% 19.3%
Group adjusted results
Adjusted operating profit 1,600 104 12 1,716 7.3% 0.8%**
Adjusted net finance costs (165) (11) (23) (199) (20.6%) (13.9%)
Adjusted eps (pence) 113.0 7.4 (1.9) 118.5 4.9% (1.7%)**
* Africa, Asia, Australasia and Central & Eastern Europe performance has
been impacted by our exit from Russia; at constant currency excluding Russia
tobacco & NGP net revenue grew 8.6% at constant currency and tobacco and
NGP adjusted operating profit grew 8.5%
** Group performance has been impacted by our exit from Russia; at constant
currency excluding Russia tobacco & NGP net revenue grew 0.6%, tobacco and
NGP adjusted operating profit declined 0.3%, Group adjusted operating profit
grew 1.2% and Group adjusted eps declined 1.2%
SALES PERFORMANCE
Reported revenue Tobacco & NGP net revenue
+0.3% -1.0%
· Reported revenue increased +0.3% as the decline in tobacco and NGP
revenue was offset by growth in Distribution revenue as a result of
acquisitions at Logista.
· Tobacco & NGP net revenue declined -1.0% at constant currency
with tobacco -1.6% and NGP +19.8%; excluding Russia, net revenue grew by
+0.6%.
· Tobacco volume was down -12.7%, reflecting volume declines in
Europe and Americas as a result of price and excise increases, continued
COVID-19 restrictions unwind and the exit from Russia in the prior year;
excluding Russia tobacco volumes were down 6.8%.
· Aggregate market share growth in our top-five priority markets of
+20 bps (HY22: +25bps).
· Tobacco price mix was strong at +11.1% due to positive pricing and
market mix from our Russian market exit. Excluding Russia, price mix was up
+6.8%.
· NGP net revenue increased +19.8% at constant currency, led by
product and market launches in Europe and AAACE, offsetting continued declines
in the USA.
· Translation FX was favourable due to sterling weakening against the
dollar but partially offset by strengthening against the euro.
TOBACCO & NGP NET REVENUE BRIDGE EX. RUSSIA: +0.6% (CC); +6.5% (Actual
Exchange Rate)
Incl. Russia Excl. Russia
HY22 tobacco & NGP net revenue £3,495m
Ex Russia -£54m
HY22 tobacco & NGP net revenue (ex Russia) £3,441m
Tobacco volume -£227m
Tobacco price/mix +£227m
NGP net revenue +£20m
HY23 constant currency tobacco & NGP net revenue £3,461m -1.0% +0.6%
Translation FX +£202m
HY23 tobacco & NGP net revenue £3,663m +4.8% +6.5%
OPERATING PROFIT
Reported operating profit Adjusted operating profit
+27.7% +0.8%
· Reported Group operating profit of £1,534m increased +27.7%,
primarily driven by the non-recurrence of exit charges related to the Russian
asset disposal (£201m) taken in the prior period.
· Adjusted Group operating profit increased 0.8% at constant currency
driven by Logista performance and strong tobacco pricing offsetting increased
NGP losses. Excluding Russia, Group adjusted operating profit increased 1.2%.
· Tobacco adjusted operating profit increased by 0.2% at constant
currency reflecting strong pricing offsetting volume declines and our exit
from Russia in the prior period; excluding Russia tobacco adjusted operating
profit rose +0.7% at constant currency.
· NGP losses increased +33.3% as we increased the pace of product and
market launches.
· Translation FX reflects sterling weakening against the dollar,
partially offset by strengthening against the euro.
GROUP ADJUSTED OPERATING PROFIT BRIDGE EX. RUSSIA: +1.2% (CC); +7.7% (Actual
Exchange Rate)
Incl. Russia Excl. Russia
HY22 adjusted operating profit £1,600m
Ex Russia -£8m
HY22 Adjusted operating profit excluding Russia £1,593m
Tobacco performance +£10m
NGP losses -£14m
Distribution (including eliminations) +£23m
HY23 constant currency adjusted operating profit £1,612m +0.8% +1.2%
Translation FX +£104m
HY23 adjusted operating profit £1,716m +7.3% +7.7%
EARNINGS PER SHARE
Reported EPS Adjusted EPS
+11.2% -1.7%
· Reported EPS increased 11.2% to 117.0 pence driven by the higher
operating profit and a reduction in share count
· Adjusted EPS was 118.5 pence, down 1.7% at constant currency due to
increased minority interests, reflecting growth at Logista, and higher
interest and tax costs. Excluding Russia, Group EPS declined 1.2%.
EARNINGS PER SHARE BRIDGE Ex. RUSSIA: -1.6% (CC); +4.8% (Actual Exchange Rate)
Incl. Russia Excl. Russia
HY22 adjusted EPS 113.0p
Operating profit +1.3p
Interest -2.4p
Minorities & JV -1.7p
Tax -0.4p
No. of shares 1.3p
HY23 adjusted constant currency EPS 111.1p -1.7% -1.2%
Translation FX +7.4p
HY23 adjusted EPS 118.5p +4.9% +5.3%
CASH FLOW
Cash outflows from operating activities were £4 million (2022: £700 million
inflow), driven by a higher working capital outflow relative to the prior
year. This was driven by an investment in temporarily increased pre-production
stock levels ahead of price increases and an increase in receivables net of
payables, including the payment of €250 million of deferred consideration
for the PCD disposal in the prior year.
As anticipated, capital expenditure of £119 million was higher than the prior
year (2022: £64 million). For the full year, we anticipate capital
expenditure will be between £300 million and £350 million, as previously
guided. The increased capital expenditure will support projects to drive
simplified and efficient operations in line with our strategic plan.
Adjusted operating cash conversion was 77% (2022: 102%) on a 12-month basis.
Half Year Result
£ million (unless otherwise indicated) 2023 2022
Cash flow from operating activities (4) 700
Free cash flow (432) 336
Net cash flow (1,972) (538)
12-month adjusted operating profit 3,810 3,584
12-month cash flow post capital expenditure pre interest and tax 2,943 3,643
12-month adjusted operating cash conversion 77% 102%
Restructuring cash costs were £61 million (2022: £42 million). We have cash
spend from our three previous restructuring programmes: Cost Optimisation
Programme I of £22 million (2022: £6 million), Cost Optimisation Programme
II of £5 million (2022: £12 million) and the 2021 Strategic Review Programme
of £34 million (2022: £24 million). Together the total cash spend for all
three restructuring programmes is anticipated to be £1,558 million, of which
£1,309 million has been spent to date. The remainder is expected to continue
throughout FY23 and beyond.
Half Year Result
£ million 2023 2022
Restructuring cash cost 61 42
Cumulative to date 1,309 1,209
Anticipated total 1,558 1,558
The year-on-year reduction in free cash flow to £432 million outflow (2022:
£336 million inflow) was driven by increased stock and lower payables due to
the timing of price increases and building stock to realise profits in the
second half of the year.
The net cash flow of £(1,972) million (2022: £(538) million) reduced
year-on-year, reflecting higher acquisition costs compared to the prior year
and share buyback programme. Acquisition costs were £(119) million (2022:
£44 million) and relate to Logista's acquisition of Transportes El Mosca
(60%) and Carbó Collbatallé S.L. (100%), both of which completed in the
period. The share buyback programme commenced in October 2022 and we
repurchased £500 million of shares of the £1.0 billion of shares during the
period.
ADJUSTED NET DEBT/EBITDA
Adjusted net debt increased by £642 million (2022 reduced: £1,171 million)
year on year, driven by an outflow of cash driven by working capital. On a
12-month basis, adjusted net debt/EBITDA remained flat at 2.4x.
Reported net debt increased by £482 million to £10,239 million (2022:
£9,757 million). Excluding accrued interest, lease liabilities and the fair
value of derivative financial instruments providing commercial hedges of
interest risk, Group adjusted net debt was £9,799 million (2022: £9,157
million).
Half Year Result
£ million 2023 2022
Reported net debt (10,239) (9,757)
Accrued interest 76 68
Lease liabilities 355 241
Fair value of interest rate derivatives 9 291
Adjusted net debt (9,799) (9,157)
12-month EBITDA 4,073 3,817
Adjusted net debt/EBITDA 2.4x 2.4x
RECONCILIATION BETWEEN REPORTED AND ADJUSTED PERFORMANCE MEASURES
Half Year Result
£ million unless otherwise indicated Operating profit Net finance (costs)/income Earnings per share (pence)
2023 2022 2023 2022 2023 2022
Reported 1,534 1,201 (94) 75 117.0 105.2
Russian and associated markets exit - 201 - - - 21.3
Acquisition and disposal costs - 5 - - - 0.5
Amortisation & impairment of acquired intangibles 174 182 - - 18.7 18.4
Excise tax provision - (10) - - - (1.1)
Fair value adjustment of financial assets 7 (2) - - 0.7 (0.2)
Loss on disposal of subsidiaries 1 16 - - 0.1 1.0
Restructuring costs - 7 - - - 0.4
Fair value and exchange movements on financial instruments - - (108) (236) (18.7) (25.2)
Post-employment benefits net financing costs - - (7) (4) (0.7) (0.4)
Taxation settlements interest cost - - 10 - 1.1 -
Brand impairment in equity accounted joint venture - - - - - 2.5
Uncertain tax positions - - - - 0.3 (6.0)
Deferred tax on unremitted earnings - - - - - (2.7)
Tax on unrecognised losses - - - - - 0.8
Adjustments above attributable to non-controlling interests - - - - - (1.5)
Adjusted 1,716 1,600 (199) (165) 118.5 113.0
Adjusting items
The main reconciling terms of the Group's adjusted to reported operating
profit are shown above.
In the period to 31 March 2023 adjusting items mainly relate to amortisation
of acquired intangibles of £174 million (2022: £182 million) across
Tobacco & NGP and Distribution.
Adjusting items in the prior period included net charges associated with our
exit and sale of our Russian business and associated markets as well as
restructuring costs which have not been repeated in the current period. We
have not treated restructuring costs as adjusting items in these results
although there has been ongoing cash spend from past restructuring programmes.
Finance costs
Adjusted net finance costs were higher at £199 million (2022: £165 million),
primarily reflecting the increase in EUR, USD and GBP interest rates, which
have impacted the rates achieved on bonds issued within the last year, as well
as those paid in relation to derivatives and the factoring programme. Reported
net finance cost was £94 million (2022: income of £75 million),
incorporating the impact of net fair value and foreign exchange gains on
financial instruments of £108 million (2022: £236 million), post-employment
benefits net financing income of £7 million (2022: £4 million) and
including a £10 million taxation settlements interest cost. The gains on
financial instruments are primarily due to fair value gains of £92 million,
resulting from positive valuation movements of the Group's interest rate
derivatives, with increasing market interest rate expectations in the
short-term offsetting lower longer-term expectations.
Our all-in cost of debt increased to 4.1% (2022: 3.5%) due to interest rate
rises resulting in a need to refinance at a higher cost of debt.
Our interest cover reduced to 9.3x (2022: 10.8x) reflecting the higher
adjusted net finance costs.
Given the rising interest environment, we expect upward pressure on finance
cost going forward, although we have hedging in place for 87% of our expected
debt for the remainder of FY23.
Taxation
Our adjusted effective tax rate is 22.4% (2022: 21.9%) and the reported
effective tax rate is 19.2% (2022: 17.6%). The increase in the adjusted
effective tax rate primarily reflects the expected impact of the increase in
the UK tax rate. The adjusted tax rate is higher than the reported rate due to
limited tax arising on fair value and foreign exchange gains that arise on
consolidation.
We expect our adjusted effective tax rate for the year ended 30 September 2023
to be around 22.0% to 23.0%.
The effective 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 and Profits Shifting
(BEPS) work. Whilst we seek to mitigate the impact of these changes, we
anticipate there will be further upward pressure on the adjusted and reported
tax rate in the medium term.
Our Group tax strategy is publicly available and can be found in the
Governance section of our corporate website.
Exchange rates
Foreign exchange had a positive impact on Group adjusted operating profit and
earnings per share at average exchange rates (6.5% and 6.6%, respectively).
Sterling weakened against the US dollar (11.3%) and weakened against the euro
(3.9%). Other major currencies remained broadly flat compared to the prior
year.
Dividend payments
The Group has paid two dividends in this financial year, the first being 49.31
pence per share in December 2022 and the second being 49.32 pence per share in
March 2023.
The Board has approved an interim dividend of 43.18 pence (HY22: 42.54 pence)
per share which represents an increase of 1.5 % over the prior year and is in
line with the Group's progressive dividend policy. The interim dividend will
be paid in two instalments of 21.59 pence (HY22: 21.27 pence) per share with
the first payment being paid on 30 June 2023 to shareholders registered on 26
May 2023. The second interim dividend payment will be paid on 29 September
2023 to shareholders registered on 18 August 2023.
Funding/Liquidity
During the half year we repaid the US$ 0.35 billion (£292 million) remaining
of our February 2023 US$ 1 billion bond. We issued a €0.6 billion (£533
million) bond in the half year with a coupon of 5.25%, maturing in February
2031. The denomination of our closing adjusted net debt was split
approximately 90% euro and 10% US dollar. As at 31 March 2023, the Group had
committed financing in place of around £12.7 billion, which comprised 24%
bank facilities and 76% raised from capital markets. During the half year the
maturity date of €3,191 million of the Group's existing syndicated
multicurrency facility was extended to 31 March 2026; two tranches totalling
€309 million were not extended and therefore remain at the 30 September 2025
maturity date.
The Group remains fully compliant with all our banking covenants and remains
committed to retaining our investment grade ratings.
Principal Risks and Uncertainties
Risk Management is the responsibility of everyone across the Group. Whilst the
Board remain ultimately accountable for Risk Management, our approach is
designed to enable our people to proactively identify and assess risks on an
ongoing basis and to ensure the effectiveness and appropriateness of related
mitigating actions. The business is supported by subject matter experts in our
second line of defence to ensure the Group's control frameworks align to
achieving our strategic objectives whilst operating within the Board's defined
risk appetite. To further strengthen the risk management framework within the
Group, a continuous improvement programme is underway to further standardise
the application of risk management and controls across the Group.
The Group is exposed to geopolitical and economic conditions of the countries
and regions in which it operates, which could impact its largest markets and
may affect continuity of supply. Any adverse geopolitical or economic
developments in, or affecting, the Group's key countries and regions,
including, but not limited to, the outbreak of war or conflict, pandemics,
inflation, rising interest rates and recessionary conditions could impact the
Group and its operations.
The wider socio-economic effects of the conflict in Ukraine have continued to
impact businesses and consumers through the impact on energy prices and energy
supply in Europe, which is largely dependent on Russian natural gas and crude
oil, with further impacts on the cost of raw materials and commodity prices.
The impact of inflation is being considered as part of a number of risks.
Inflationary pressures increase input costs and commodity prices, with
further pressure placed upon consumer disposable income from increases in fuel
and food prices potentially creating affordability concerns. This, in turn,
could result in reduced consumption, consumer downtrading or increased
consumption of illicit products. These pressures could adversely impact the
size of the legitimate nicotine market with additional impacts from regulatory
change, excise tax or increases in other product taxes. Compared to other
consumer goods companies, however, the Group has a high gross margin with the
low cost of goods sold. The long stockholding for tobacco leaf gives the Group
visibility of upcoming inflationary pressures and this, combined with the
Group's resilient business model, enables the Group to pass on cost inflation
through product pricing, which mitigates the Group's inflationary risk.
Whilst some pressures on the supply chain have eased due to relaxation of
COVID-19 lockdown restrictions in China, the risk of further supply chain
disruptions continues to be actively considered across all regions. The Group
is exposed to the geopolitical and economic conditions of the countries and
regions in which it operates, which could impact the supply chain as a result
of energy or labour shortages, sanctions or physical disruption to
infrastructure and supply routes. Additionally, the impacts on global supply
chains, financial markets, and businesses in commercial distress are being
actively considered and mitigating actions taken across the business.
Regulatory change aimed at further de-normalising the consumption of tobacco
and nicotine products adversely impacts the Group. As well as changing
regulation for combustible tobacco, increasing regulatory maturity and
complexity is being seen within NGP categories as the market for alternatives
to smoking grows.
We are impacted by excise and regulatory risks across other regions and
appropriate mitigations continue to be applied to manage the impact of both
current and future regulatory change.
The Group continuously evaluates the risk posed by cyber criminals combined
with current geopolitical tensions and will continue to monitor the
effectiveness of our security controls.
The Board continues to monitor the principal risks and uncertainties to which
the Group is exposed. The risks and the approach to managing the risks remains
consistent with that identified on pages 82-93 of our 2022 Annual Report and
Accounts, and covers the following areas:
· Pricing, excise, or other product tax outcomes not in line with
business plan assumptions or expectations
· Failure to influence the direction of material regulatory change
and/or manage the impacts of regulatory change in relation to products/markets
operated in
· Product supply fails to meet market demands (stock issues in
market) or increasing cost
· Major incident resulting from cyber or similar technology risk
· Failure to identify or respond to changes in consumer behaviour
and/or market environment
· Product portfolio and/or interaction approach not aligned to
consumer preferences
· Delivery of ESG strategy not aligned to stakeholder expectations
· Failure to develop a sustainable Harm Reduction category
· Adverse judgement or impact in litigation case
· Failure to manage direct/indirect tax positions/reporting
· People and organisation
Climate risks are specifically considered across the business in relation to
their impact on existing risks, rather than as a risk in itself. This ensures
that all risk owners consider the impacts of climate change, notably within
our supply chain, on both a current and forward-looking basis. Expert second
line assistance is provided by our ESG Team along with independent external
advice to best understand impacts on our global footprint.
We assess geopolitical risks on the same basis as climate above. As a
multinational we are exposed to a wide variety of operating environments and
cultures, and so local assessment of risks and impacts form a key input to our
ongoing management of geopolitical risks, with support available from second
line centres of expertise. This approach ensures responsibility for
identification, assessment, and mitigation of risks is consistently understood
and applied across the business.
The Group continues to successfully progress with its organisational change
initiatives. Failure to manage both the potential short and long-term adverse
impacts of organisational change could result in material adverse effects on
the Group, from both the crystallisation of risks and the failure to seize
opportunities in an increasingly dynamic marketplace. Appropriate frameworks
and governance continue to be applied to our change programmes to best ensure
achievement of intended positive commercial and strategic outcomes.
Liquidity and going concern statement
The Group's policy is to ensure that we always have sufficient capital markets
funding and committed bank facilities in place to meet foreseeable peak
borrowing requirements.
The Group recognises the uncertainty of the external environment. During the
period of the Covid-19 pandemic as well as during the ongoing period of
political uncertainty with regard to Ukraine and Russia, the Group effectively
managed operations across the world, and has proved it has an established
mechanism to operate efficiently despite uncertainty. The Directors consider
that a one-off discrete event with immediate cash outflow is of greatest
concern to the short-term liquidity of the Group.
The Directors have assessed the principal risks of the business, including
stress testing a range of different scenarios that may affect the business.
These included scenarios which examined the implications of:
· A one-off discrete event resulting in immediate cash outflow such
as unexpected duty and tax payments; and/or other legal and regulatory risks
materialising; of c£1,000m.
· A rapid and lasting deterioration to the Group's profitability
because markets become closed to tobacco products or there are sustained
failures to our tobacco manufacturing and supply chains. These assumed a
permanent reduction in profitability of 15 per cent from 1 April 2023.
· The additional impact of potential bad debt risks arising from a
recession of c£220m.
· The withdrawal of facilities that provide receivables factoring of
c£660m.
The scenario planning also considered mitigation actions including reductions
to capital expenditure, dividend payments and share buyback programme. There
are additional actions that were not modelled but could be taken including
other cost mitigations such as staff redundancies, retrenchment of leases, and
discussions with lenders about capital structure.
Under the worst-case scenario, where the largest envisaged downside scenarios
all take place at the same time the Group would have sufficient headroom until
April 2024. The Group believes this worst-case scenario to be highly unlikely
given the relatively small impact on our trading performance and bad debt
levels during the Covid-19 pandemic, as well as form current situation in
Ukraine. In this scenario Group would implement a number of mitigating actions
including revoking the uncommitted dividend, pausing share buyback and
reducing discretionary spend such as capex.
Based on its review of future cashflows covering the period through to
September 2024, 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 their operational needs from the date of this
Report through to 30 September 2024 and concludes that it is appropriate to
prepare the financial statements on a going concern basis.
Statement of Directors' Responsibilities
The Directors confirm that this condensed consolidated interim financial
information has been prepared in accordance with UK-adopted IAS 34 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.
LUKAS PARAVICINI
Chief Financial Officer
INDEPENDENT REVIEW REPORT TO IMPERIAL BRANDS PLC
Conclusion
We have been engaged by the Company to review the condensed consolidated
interim financial statements in the Half Year Results Statement of Imperial
Brands PLC for the six months ended 31 March 2023 which comprises the
consolidated income statement, consolidated statement of comprehensive income,
consolidated balance sheet, consolidated statement of changes in equity,
consolidated cash flow statements and the notes to the financial statements,
including the supplementary information. We have read the other information
contained in the Half Year Results Statement and considered whether it
contains any apparent misstatements or material inconsistencies with the
information in the condensed consolidated interim financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed consolidated interim financial statements in the
Half Year Results Statement for the six months ended 31 March 2023 is not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34 and the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" (ISRE) issued by the Financial
Reporting Council. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with UK adopted international accounting standards. The
condensed consolidated interim financial statements included in this Half Year
Results Statement has been prepared in accordance with UK adopted
International Accounting Standard 34, "Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the Half Year Results Statement in
accordance with the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
In preparing the Half Year Results Statement, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the Half Year Results Statement, we are responsible for
expressing to the Company a conclusion on the condensed consolidated interim
financial statements in the half-yearly financial report. Our conclusion,
including our Conclusions Relating to Going Concern, are based on procedures
that are less extensive than audit procedures, as described in the Basis for
Conclusion paragraph of this report.
Use of our report
This report is made solely to the company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London
16 May 2023
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
Unaudited Unaudited Audited
£ million unless otherwise indicated Notes 6 months ended 31 March 2023 6 months ended 31 March 2022 Year ended 30
September 2022
Revenue 3 15,411 15,362 32,551
Duty and similar items (6,899) (7,539) (15,644)
Other cost of sales (5,427) (5,087) (10,869)
Cost of sales (12,326) (12,626) (26,513)
Gross profit 3,085 2,736 6,038
Distribution, advertising and selling costs (1,216) (968) (2,021)
Administrative and other expenses (335) (567) (1,334)
Operating profit 3 1,534 1,201 2,683
Investment income 473 908 1,600
Finance costs (567) (833) (1,717)
Net finance (costs) / income (94) 75 (117)
Share of profit / (loss) of investments accounted for using the equity method 3 (20) (15)
Profit before tax 1,443 1,256 2,551
Tax (277) (221) (886)
Profit for the period 1,166 1,035 1,665
Attributable to:
Owners of the parent 1,094 995 1,570
Non-controlling interests 72 40 95
Earnings per ordinary share (pence)
- Basic 10 117.0 105.2 165.9
- Diluted 10 116.1 104.8 164.7
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
£ million 6 months ended 31 March 2023 6 months ended 31 March 2022 Year ended 30
September 2022
Profit for the period 1,166 1,035 1,665
Other comprehensive income
Exchange movements (536) (96) 841
Exchange movements recycled to profit and loss upon disposal of subsidiaries - - 190
Hyperinflation adjustment in the period 4 - 11
Current tax on hedge of net investments and quasi-equity loans (82) (9) 148
Items that may be reclassified to profit and loss (614) (105) 1,190
Net actuarial (losses) / gains on retirement benefits (376) (12) 76
Current tax relating to net actuarial (losses) / gains on retirement benefits 5 10 10
Deferred tax relating to net actuarial losses / gains on retirement benefits / 94 (14) (52)
(gains)
Items that will not be reclassified to profit and loss (277) (16) 34
Other comprehensive (loss) / income for the period, net of tax (891) (121) 1,224
Total comprehensive income for the period 275 914 2,889
Attributable to:
Owners of the parent 206 885 2,778
Non-controlling interests 69 29 111
Total comprehensive income for the period 275 914 2,889
CONSOLIDATED BALANCE SHEET
Unaudited Unaudited Audited
£ million Notes 31 March 2023 31 March 2022 30 September 2022
Non-current assets
Intangible assets 17,006 16,431 17,777
Property, plant and equipment 1,622 1,609 1,659
Right of use assets 330 232 228
Investments accounted for using the equity method 62 67 56
Retirement benefit assets 6 474 1,048 826
Trade and other receivables 63 74 67
Derivative financial instruments 12/13 694 179 985
Deferred tax assets 420 503 439
State aid tax recoverable - 101 -
20,671 20,244 22,037
Current assets
Inventories 5,025 4,445 4,140
Trade and other receivables 2,669 2,284 2,543
Current tax assets 179 261 334
Cash and cash equivalents 13 596 588 1,850
Derivative financial instruments 12/13 72 58 54
Current assets held for disposal - 231 -
8,541 7,867 8,921
Total assets 29,212 28,111 30,958
Current liabilities
Borrowings 12 (1,873) (1,721) (1,011)
Derivative financial instruments 12/13 (166) (49) (54)
Lease liabilities 13 (82) (55) (58)
Trade and other payables (8,924) (8,746) (9,506)
Current tax liabilities (313) (213) (307)
Provisions 5 (165) (159) (203)
Current liabilities held for disposal - (215) -
(11,523) (11,158) (11,139)
Non-current liabilities
Borrowings 12 (8,376) (7,979) (8,996)
Derivative financial instruments 12/13 (831) (592) (1,072)
Lease liabilities 13 (273) (186) (190)
Trade and other payables (68) (8) (10)
Deferred tax liabilities (844) (961) (961)
Retirement benefit liabilities 6 (886) (1,139) (894)
Provisions 5 (189) (195) (223)
(11,467) (11,060) (12,346)
Total liabilities (22,990) (22,218) (23,485)
Net assets 6,222 5,893 7,473
Equity
Share capital 7 100 103 103
Share premium and capital redemption 5,840 5,837 5,837
Retained earnings (1,076) (712) (443)
Exchange translation reserve 748 106 1,363
Equity attributable to owners of the parent 5,612 5,334 6,860
Non-controlling interests 610 559 613
Total equity 6,222 5,893 7,473
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited
Share Share Retained Exchange Equity Non- Total
capital premium earnings translation attributable controlling equity
and capital reserve to owners interests
£ million redemption of the parent
At 1 October 2022 103 5,837 (443) 1,363 6,860 613 7,473
Profit for the period - - 1,094 - 1,094 72 1,166
Exchange movements on retranslation of assets - - - (892) (892) (3) (895)
Exchange movements on net investment hedges - - - 356 356 - 356
Exchange movements on quasi-equity loans - - - 3 3 - 3
Hyperinflation adjustment in the period - - 4 - 4 - 4
Current tax on hedge of net investments and quasi-equity loans - - - (82) (82) - (82)
Net actuarial losses on retirement benefits - - (376) - (376) - (376)
Current tax relating to net actuarial loss on retirement benefits - - 5 - 5 - 5
Deferred tax relating to net actuarial loss on retirement benefits - - 94 - 94 - 94
Other comprehensive expense - - (273) (615) (888) (3) (891)
Total comprehensive income/(expense) - - 821 (615) 206 69 275
Transactions with owners
Costs of employees' services compensated by share schemes - - 11 - 11 - 11
Registration of put / call option - - (41) - (41) - (41)
Repurchase of shares (3) 3 (503) - (503) - (503)
Dividends paid - - (921) - (921) (72) (993)
At 31 March 2023 100 5,840 (1,076) 748 5,612 610 6,222
At 1 October 2021 103 5,837 (788) 200 5352 588 5,940
Profit for the period - - 995 - 995 40 1,035
Exchange movements on assets - - - (77) (77) (11) (88)
Exchange movements on net investment hedges - - - 28 28 - 28
Exchange movements on quasi- equity loans - - - (36) (36) - (36)
Current tax on hedge of net investments and quasi-equity loans - - - (9) (9) - (9)
Net actuarial losses on retirement benefits - - (12) - (12) - (12)
Current tax relating to net actuarial losses on retirement benefits - - 10 - 10 - 10
Deferred tax relating to net actuarial losses on retirement benefits - - (14) - (14) - (14)
Other comprehensive expense - - (16) (94) (110) (11) (121)
Total comprehensive income/(expense) - - 979 (94) 885 29 914
Transactions with owners
Costs of employees' services compensated by share schemes - - 14 - 14 - 14
Dividends paid - - (917) - (917) (58) (975)
At 31 March 2022 103 5,837 (712) 106 5,334 559 5,893
CONSOLIDATED CASHFLOW STATEMENT
Unaudited Unaudited Audited
£ million 6 months ended 31 March 2023 6 months ended 31 March 2022 Year ended 30
September 2022
Cash flows from operating activities
Operating profit 1,534 1,201 2,683
Dividends received from investments accounted for under the equity method - - 7
Depreciation, amortisation and impairment 315 356 660
(Profit) / loss on disposal of non-current assets (1) 2 -
Loss on disposal of subsidiary 1 16 428
Post-employment benefits (16) (24) (56)
Costs of employees' services compensated by share schemes 14 14 29
Fair value adjustment of financial assets 7 (2) 37
Movement in provisions (57) 62 39
Operating cash flows before movement in working capital 1,797 1,625 3,827
Increase in inventories (1,009) (689) (195)
(Increase) / decrease increase in trade and other receivables (113) 240 89
(Decrease) / increase in trade and other payables (504) (203) 146
Movement in working capital (1,626) (652) 40
Tax paid (175) (273) (681)
Net cash flows (used in) / generated from operating activities (4) 700 3,186
Cash flows from investing activities
Interest received 5 2 8
Proceeds from the sale of non-current assets 7 23 53
Proceeds from sale of subsidiaries, net of cash disposed of - 57 27
Purchase of non-current assets (126) (87) (230)
Purchase of brands and operations (119) (13) (13)
Net cash (used in)/generated from investing activities (233) (18) (155)
Cash flows from financing activities
Interest paid (242) (244) (366)
Purchase of shares by Employee Share Ownership Trusts - (1) (1)
Lease liabilities paid (43) (34) (68)
Increase in borrowings 1,119 891 1,710
Repayment of borrowings (295) (1,004) (2,476)
Cash flows relating to derivative financial instruments (56) 40 94
Repurchase of shares (500) - -
Dividends paid to non-controlling interests (72) (58) (89)
Dividends paid to owners of the parent (921) (917) (1,320)
Net cash used in financing activities (1,010) (1,327) (2,516)
Net (decrease) / increase in cash and cash equivalents (1,247) (645) 515
Cash and cash equivalents at the start of period 1,850 1,287 1,287
Effect of foreign exchange rates on cash and cash equivalents (7) (12) 48
Transferred to held for disposal - (42) -
Cash and cash equivalents at the end of period 596 588 1,850
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
BASIS OF PREPARATION
The consolidated financial statements comprise the results of the Company, a
public company limited by shares, incorporated in England and Wales, and its
subsidiary undertakings, together with the Group's share of the results of its
associates and joint arrangements. The Company's registered number is 3236483
and its registered address is 121 Winterstoke Road, Bristol, BS3 2LL. The
financial information comprises the unaudited results for the six months ended
31 March 2023 and 31 March 2022, together with the audited results for the
year ended 30 September 2022.
The comparative information shown for the year ended 30 September 2022 does
not constitute statutory accounts within the meaning of section 434 of the
Companies Act 2006, and does not reflect all of the information contained in
the Group's published financial statements for that year. The Auditors' Report
on those statements was unqualified with no reference to matters to which the
auditor drew attention by way of emphasis and did not contain any statements
under section 498 of the Companies Act 2006. The financial statements for the
year ended 30 September 2022 were approved by the Board of Directors on 15
November 2022 and have been filed with the Registrar of Companies.
This condensed set of financial statements for the six months ended 31 March
2023 has been prepared in accordance with the Disclosure Guidance and
Transparency Rules of the Financial Conduct Authority and with UK-adopted IAS
34 Interim Financial Reporting. The condensed set of financial statements for
the six months ended 31 March 2023 should be read in conjunction with the
annual financial statements for the year ended 30 September 2022 which have
been prepared in accordance with UK-adopted International Accounting Standards
("UK-adopted IAS").
Except for the adoption of the new standards and interpretations effective as
of 1 October 2022, the Group's principal accounting policies and methods of
computation used in preparing this information are the same as those applied
in the financial statements for the year ended 30 September 2022, which are
available on our website www.imperialbrandsplc.com.
The financial statements have been prepared under the historical cost
convention except where fair value measurement is required under IFRS as
described below in the accounting policies on financial instruments, and on a
going concern basis. The consolidated financial statements are presented in
pounds sterling, the presentation currency of the Group, and the functional
currency of the Company. All values are rounded to the nearest one million
(£1 million) except where otherwise indicated.
ALTERNATIVE PERFORMANCE MEASURES
In 2022 the Group conducted a review of Alternative Performance Measure (APM)
metrics within the Annual Report and Accounts and decided to present
information on APMs within a Supplementary Information section of the annual
accounts. A similar approach has been applied in this document. As part of the
changes, key adjusting items within administration costs which were previously
shown on the face of the Consolidated Income Statement are now set out within
the APM disclosures section.
BASIS FOR GOING CONCERN
The financial statements have been prepared under the historical cost
convention except where fair value measurement is required under IFRS as
described below in the accounting policies on financial instruments, and on a
going concern basis. The Group's policy is to ensure that we always have
sufficient capital markets funding and committed bank facilities in place to
meet foreseeable peak borrowing requirements.
The Group recognises that the current political situation in Ukraine and
Russia brings uncertainty. During the period of the Covid-19 pandemic, the
Group effectively managed operations across the world, and has proved it has
an established mechanism to operate efficiently despite uncertainty. The
Directors consider that a one-off discrete event with immediate cash outflow
is of greatest concern to short term liquidity of the Group.
The Directors have assessed the principal risks of the business, including
stress testing a range of different scenarios that may affect the business.
These included scenarios which examined the implications of:
• A one-off discrete event resulting in immediate cash outflow such as
unexpected duty and tax payments; and/or other legal and regulatory risks
materialising; of c. £1,000 million.
• A rapid and lasting deterioration to the Group's profitability because
markets become closed to tobacco products or there are sustained failures to
our tobacco manufacturing and supply chains. These assumed a permanent
reduction in profitability of 15% from 1 April 2023.
• The additional impact of potential bad debt risks arising from a recession
of c. £220 million.
• The withdrawal of facilities that provide receivables factoring of c.
£660 million.
The scenario planning also considered mitigation actions including reductions
to capital expenditure, dividend payments and share buyback programme. There
are additional actions that were not modelled but could be taken including
other cost mitigations such as staff redundancies, retrenchment of leases, and
discussions with lenders about capital structure.
Under the worst-case scenario, where the largest envisaged downside scenarios
all take place at the same time the Group would have sufficient headroom until
April 2024. The Group believes this worst-case scenario to be highly unlikely
given the relatively small impact on our trading performance and bad debt
levels during the Covid-19 pandemic, as well as from the current situation in
Ukraine. In this scenario Group would implement a number of mitigating actions
including revoking the uncommitted dividend, pausing share buyback and
reducing discretionary spend such as capex.
Based on its review of future cashflows covering the period through to
September 2024, 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 their operational needs from the date of this
Report through to 30 September 2024 and concludes that it is appropriate to
prepare the financial statements on a going concern basis.
The preparation of the consolidated financial statements requires management
to make estimates and assumptions that affect the reported amounts of revenues
and expenses during the period and of assets, liabilities and contingent
liabilities at the balance sheet date. The key estimates and assumptions are
set out in note 2 Critical Accounting Estimates and Judgements. Such estimates
and assumptions are based on historical experience and various other factors
that are believed to be reasonable in the circumstances and constitute
management's best judgement at the date of the financial statements. In the
future, actual experience may deviate from these estimates and judgements.
This could affect future financial statements as the original estimates and
judgements are modified, as appropriate, in the year in which the
circumstances change.
NEW ACCOUNTING STANDARDS ADOPTED IN THE PERIOD
There have been no other amendments or clarifications to IFRS which have
significantly impacted the Group's consolidated results or financial position.
2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The Group makes estimates and judgements associated with accounting entries
which will be affected by future events. Estimates and judgements are
continually evaluated based on historical experience, and other factors,
including current information that helps form a forward-looking view of
expected future outcomes.
Estimates involve the determination of the quantum of accounting balances to
be recognised. Judgements typically involve decisions such as whether to
recognise an asset or liability.
The actual amounts recognised in the future may deviate from these estimates
and judgements.
ESTIMATES
SIGNIFICANT ESTIMATES
Companies are required to state whether estimates have a significant risk of a
material adjustment to the carrying amounts of assets and liabilities within
the next financial year. We have reviewed the items below where estimation
uncertainty exists. While a number of these areas do involve estimation of the
carrying value of assets or liabilities that are potentially significant
within the context of the financial statements the Group considers the
probability of a significant risk of material adjustment to be low. None of
these estimates are expected to present a material adjustment to the carrying
amount of assets and liabilities in the next financial year. Therefore, no
significant estimates are required to be disclosed.
OTHER ESTIMATES
Other estimates involve other uncertainties, such as those carrying lower
risk, which have a smaller potential impact or would be expected to
crystallise over a longer timeframe than a significant estimate.
The other estimates relevant to the period and the remaining 6 months of the
year include:
• Determination of the useful life of intangible assets
• Amortisation and impairment of intangible assets
• Current and deferred taxes
• Legal proceedings and disputes
• Provisions
JUDGEMENTS
Paragraph 122 of IAS 1 requires disclosure of judgements made by management in
applying an entity's accounting policies, other than those relating to
estimation uncertainty. Paragraph 125 of IAS 1 requires more wide-ranging
disclosures of judgements that depend on management assumptions about the
future, and other major sources of estimation uncertainty ('Significant
Judgements'). The following significant judgement is disclosed in relation to
these interim financial statements;
CONTROL OF LOGISTA
A key judgement relates to whether the Group has effective control of Logista
sufficient that the Group can consolidate this entity within its Group
accounts in line with the requirements of IFRS 10 Consolidated Financial
Statements. The Group holds 50.01% of the voting shares. The Group has
reviewed its control of Logista and that it is appropriate to consolidate this
entity in line with the requirements of IFRS 10 Consolidated Financial
Statements. The Group continues to have Director presence on the Board of
Logista, representing 5 out of 12 Directors. The Group has powers to control
as set out in the Relationship Framework Agreement which specifies certain
areas of operation reserved for shareholder approval and through these
measures the Group is able to exercise control of Logista. The Group has
therefore concluded that it continues to be appropriate to recognise Logista
as a fully consolidated subsidiary.
The other judgements relevant to the period and the remaining 6 months of the
year include:
• Corporate income taxes
• Deferred taxes
• Legal proceedings and disputes
• Climate change
3. SEGMENT INFORMATION
Imperial Brands comprises two distinct businesses - Tobacco & NGP and
Distribution. The Tobacco & NGP business comprises the manufacture,
marketing and sale of Tobacco & NGP and Tobacco & NGP-related
products, including sales to (but not by) the Distribution business. The
Distribution business comprises the distribution of Tobacco & NGP products
for Tobacco & NGP product manufacturers, including Imperial Brands, as
well as a wide range of non-Tobacco & NGP products and services. The
Distribution business is run on an operationally neutral basis ensuring all
customers are treated equally, and consequently transactions between the
Tobacco & NGP and Distribution businesses are undertaken on an arm's
length basis reflecting market prices for comparable goods and services.
On 1 October 2022 the group reorganised the structure of the Europe and AAA
divisions. The Central and Eastern Europe cluster which includes operations in
Poland, Czech Republic, Ukraine, Slovakia, Hungary and Slovenia, moved from
the Europe division to the AAA division. The AAA division has been re-named
AAACE. The managerial and internal reporting structures of the divisions have
been revised to reflect the new structure. Following the introduction of these
changes we have revised our segmental reporting as required under IFRS 8. The
comparative figures below have been restated accordingly.
The function of Chief Operating Decision Maker (defined in IFRS 8), which is
to review performance and allocate resources, is performed by the Board and
the Chief Executive, who are regularly provided with information on our
segments. This information is used as the basis of the segment revenue and
profit disclosures provided below. The main profit measure used by the Board
and the Chief Executive is adjusted operating profit. Segment balance sheet
information is not provided to the Board or the Chief Executive.
Our reportable segments are Europe, Americas, AAACE and Distribution.
Operating segments are comprised of geographical groupings of business
markets. The main Tobacco & NGP business markets within the Europe,
Americas and AAACE reportable segments are:
Europe - United Kingdom, Germany, Spain, France, Italy, Greece, Sweden,
Norway, Belgium and Netherlands.
Americas - United States.
AAACE - Australia, Saudi Arabia, Taiwan, Poland, Czech Republic, Ukraine,
Slovakia, Hungary, Slovenia and our African markets including Algeria and
Morocco.
TOBACCO & NGP
Unaudited Unaudited
6 months ended 6 months ended
31 March 2023 31 March 2022
£ million unless otherwise indicated Tobacco NGP Tobacco & NGP Tobacco NGP Tobacco & NGP
Revenue 10,424 139 10,563 10,937 107 11,044
Net revenue 3,538 125 3,663 3,394 101 3,495
Operating profit 1,386 1,124
Adjusted operating profit 1,568 1,481
Adjusted operating margin % 42.8 42.4
Audited
Year ended
30 September 2022
£ million unless otherwise indicated Tobacco NGP Tobacco & NGP
Revenue 23,232 224 23,456
Net revenue 7,585 208 7,793
Operating profit 2,472
Adjusted operating profit 3,441
Adjusted operating margin % 44.2
DISTRIBUTION
Unaudited Unaudited Audited
£ million unless otherwise indicated 6 months ended 31 March 2023 6 months ended 31 March 2022 Year ended 30
September 2022
Revenue 5,202 4,639 9,756
Distribution gross profit 731 502 1,046
Operating profit 150 79 212
Adjusted operating profit 150 121 254
Adjusted distribution margin % 20.5 24.1 24.3
REVENUE
Unaudited Unaudited Unaudited
Restated Restated
6 months ended 6 months ended Year ended
31 March 2023 31 March 2022 30 September 2022
£ million Total External Total External Total External revenue
revenue revenue revenue revenue Revenue
Tobacco & NGP
Europe 5,330 4,976 5,591 5,270 12,052 11,391
Americas 1,657 1,657 1,550 1,550 3,756 3,756
AAACE 3,576 3,576 3,903 3,903 7,648 7,648
Total Tobacco & NGP 10,563 10,209 11,044 10,723 23,456 22,795
Distribution 5,202 5,202 4,639 4,639 9,756 9,756
Eliminations (354) - (321) - (661) -
Total Group 15,411 15,411 15,362 15,362 32,551 32,551
TOBACCO & NGP NET REVENUE
Unaudited Unaudited
6 months ended Restated
31 March 2023 6 months ended
31 March 2021
£ million Tobacco NGP Total Tobacco NGP Total
Europe 1,326 102 1,428 1,296 74 1,370
Americas 1,203 20 1,223 1,136 24 1,160
AAACE 1,009 3 1,012 962 3 965
Total Tobacco & NGP 3,538 125 3,663 3,394 101 3,495
Unaudited
Rest
ated
Year
ende
d
30
Sept
embe
r
2022
£ million Tobacco NGP Total
Europe 2,883 156 3,039
Americas 2,784 42 2,826
AAACE 1,918 10 1,928
Total Tobacco & NGP 7,585 208 7,793
ADJUSTED OPERATING PROFIT AND RECONCILIATION TO PROFIT BEFORE TAX
Unaudited Unaudited Unaudited
£ million 6 months ended 31 March 2023 6 months ended 31 March 2022 Year ended 30
September 2022
Tobacco & NGP
Europe 611 621 1,447
Americas 512 453 1,179
AAACE 445 407 815
Total Tobacco & NGP 1,568 1,481 3,441
Distribution 150 121 254
Eliminations (2) (2) (1)
Adjusted operating profit 1,716 1,600 3,694
Russian and associated markets exit - Tobacco & NGP - (201) (399)
Amortisation and impairment of acquired intangibles - Tobacco & NGP (174) (156) (323)
Amortisation of acquired intangibles - Distribution - (26) (26)
Restructuring costs - Tobacco & NGP - (7) (197)
Fair value adjustment to financial assets - Tobacco & NGP (7) 2 (37)
Buy-out of liabilities on Irish pension scheme - Tobacco & NGP - - (4)
Loss on disposal of subsidiaries - Tobacco & NGP (1) - (13)
Loss on disposal of subsidiaries - Distribution - (16) (16)
Acquisition and disposal costs - Tobacco & NGP - (5) (5)
Excise tax provision - Tobacco & NGP - 10 9
Operating profit 1,534 1,201 2,683
Net finance (costs) / income (94) 75 (117)
Share of profit of investments accounted for using the equity method 3 (20) (15)
Profit before tax 1,443 1,256 2,551
4. ACQUISITIONS
ACQUISITION OF SPEEDLINK WORLDWIDE EXPRESS B.V.
On 16 February 2022, the Group's subsidiary Logista acquired 70% of the share
capital of Speedlink Worldwide Express B.V. for a purchase consideration of
€17 million (£15 million) comprised of €15 million (£13 million) which
has been paid in cash and €2 million (£2 million) of contingent
consideration which is payable upon achievement of certain business
objectives, the maximum contingent consideration payable is €3 million (£3
million). There is an intention to purchase the remaining 30% of share capital
over the next 3 years. As effective control has been achieved through this
acquisition, Speedlink Worldwide Express B.V. has been consolidated as a
subsidiary within the Group with a 65% minority interest. Goodwill of €11
million (£10 million), intangible assets of €15 million (£13 million) and
deferred tax liability of €4 million (£3 million) were recognised on
acquisition.
ACQUISITION OF HERINVEMOL, S.L. (TRANSPORTES EL MOSCA)
On 17 June 2022, the Group's subsidiary Logista announced the acquisition of
60% of the shares of Herinvemol S.L. (Transportes El Mosca), a transport and
logistics company. Herinvemol S.L. is the parent company of a group of
companies over which it holds control, trading as 'Transportes El Mosca'. This
acquisition completed on 28 October 2022.
Transportes El Mosca offers national and international intermodal transport
services by road, sea and air, as well as refrigerated, frozen or refrigerated
transport. The main destination markets for the international road transport
activity are the United Kingdom, Germany, Portugal, France, the Netherlands,
and Italy, and its clients are mainly producers and large distribution chains
in the food sector.
The total purchase consideration for the 60% initial shareholdings is €98
million (£85 million) which could vary subject to subsequent adjustments
depending on the fulfilment of certain objectives, although these adjustments
are not expected to be significant. At 31 March 2023 provisional goodwill of
€70 million (£62 million) has been recognised relating to this acquisition.
Logista also has a purchase option for the remaining 40%, which is recorded at
fair value as a liability for an amount of €65 million (£57 million), with
a corresponding adjustment taken to equity reserves. The equity movement is
€47 million (£41 million) being the difference between the option value and
the minority interest that arises from this transaction of €18 million (£15
million).
The revenue and net profit that were contributed to the consolidated income
statement for the six-month period ended 31 March 2023 totalled €126 million
(£110 million) and €3 million (£3 million), respectively.
The ordinary income and net profit that would have contributed to the
consolidated income statement if Transportes El Mosca had been acquired on 1
October 2022 is not significantly different from the figures indicated in the
previous paragraph.
The provisional amounts of the assets and liabilities arising from the
acquisition are as follows:
£ million Fair value (provisional)
Property, plant and equipment 67
Other intangible assets 1
Trade receivables and other accounts receivable 78
Cash and other equivalent liquid assets 11
Other current assets 3
Trade payables and other accounts payable (56)
Other current financial liabilities (20)
Other non-current financial liabilities (45)
Deferred tax charge (1)
Total net assets 38
Less minority interests (15)
Net assets acquired by the group 23
Consideration for the acquisition 85
Provisional goodwill 62
ACQUISITION OF CARBÓ COLLBATALLÉ S.L.
In April 2022, the Group reached an agreement for the acquisition of 100% of
the shares of Carbó Collbatallé S.L., a company that offers transport and
logistics services for refrigerated and frozen foods, which carries out its
commercial activity mainly in the Spanish market. This acquisition was
completed in October 2022. The total consideration for the shares acquired was
€51 million (£45 million) which was paid in cash at the time of the
purchase. At 31 March 2023 provisional goodwill of €45 million (£40
million) has been recognised relating to this acquisition.
The revenue and net profit that were contributed to the consolidated income
statement for the six-month period ended 31 March 2023 totalled €30 million
(£26 million) and €2 million (£2 million) respectively.
The provisional amounts of the assets and liabilities arising from the
acquisition are as follows:
£ million Fair value (provisional)
Property, plant and equipment 28
Trade receivables and other accounts receivable 10
Cash and other equivalent liquid assets 3
Other current assets 3
Trade payables and other accounts payable (11)
Other current financial liabilities (4)
Other non-current financial liabilities (24)
Net assets acquired by the group 5
Consideration for the acquisition 45
Provisional goodwill 40
Calculations related to business combinations are provisional and subject to
adjustment up to one year after the acquisition date. The Group, considering
the dates of the transaction, is currently performing the price allocation
analysis for the acquired assets and liabilities, which is expected to be
completed before the end of the current year.
5. RESTRUCTURING COSTS AND PROVISIONS
RESTRUCTURING COSTS
Unaudited Unaudited Audited
£ million 6 months ended 31 March 2023 6 months ended 31 March 2022 Year ended 30
September 2022
Employment related - 3 103
Asset impairments - - 70
Other charges - 4 24
- 7 197
2021 STRATEGIC REVIEW PROGRAMME
2021 Strategic Review Programme cash spend for the period was £34 million (6
months to 2022: £24 million).
PROVISIONS
Unaudited
31 March 2023
£ million Restructuring Other Total
At 1 October 2022 286 140 426
Additional provisions charged to the consolidated income statement - 16 16
Amounts used (56) (11) (67)
Unused amounts reversed (3) (11) (14)
Exchange movements (3) (4) (7)
At 31 March 2023 224 130 354
Current 86 79 165
Non-current 138 51 189
224 130 354
Analysed as:
Unaudited Unaudited Audited
£ million 31 March 2023 31 March 2022 30
September 2022
Current 165 159 203
Non-current 189 195 223
354 354 426
Restructuring provisions relate mainly to our 2021 Strategic Review Programme
and Cost optimisation programmes.
The restructuring provision is split between 2021 Strategic review programme
of £122 million, Cost Optimisation Programmes of £92 million and other
programmes of £10 million.
Other provisions include £36 million relating to local employment
requirements including holiday pay, £37 million to various local tax or duty
requirements, £27 million of distribution requirements relating to employment
and duty, and £18 million market exit provisions. The provisions are spread
throughout the Group and payment will be dependent on local statutory
requirements.
6. RETIREMENT BENEFIT SCHEMES
The Group operates a number of retirement benefit schemes for its employees,
including both defined benefit and defined contribution schemes. The Group's
three principal schemes are defined benefit schemes and are operated by
Imperial Tobacco Limited (ITL) in the UK, Reemtsma Cigarettenfabriken GmbH in
Germany and ITG Brands in the USA.
The Imperial Tobacco Pension Fund (ITPF) hold a pensioner bulk annuity buy-in
covering around 60% of the pensioner obligations. The Company and Trustee of
the ITPF are in the process of concluding the 31 March 2022 triennial
valuation with regulatory submissions to be completed before 30 June 2023.
Imperial Brands Finance PLC provided a temporary loan facility of £320
million to the Imperial Tobacco Pension Fund which £200 million had been
drawn down during the first half of October 2022 to support ongoing liquidity
requirements within the Fund's Liability Driven Investment holdings during a
period of volatility in the UK Government Bond market. The £200 million drawn
down has been repaid by 31 March 2023.
DEFINED BENEFIT PLAN ASSETS AND LIABILITIES RECOGNISED IN THE CONSOLIDATED
BALANCE SHEET
Unaudited Unaudited Audited
31 March 2023 31 March 2022 30 September 2022
Retirement benefit assets 474 1,048 826
Retirement benefit liabilities (886) (1,139) (894)
Net retirement benefit liabilities (412) (91) (68)
The movement in the net retirement benefit is mainly from actuarial gains and
losses on the Group's pension assets and liabilities. The actuarial gains
and losses were from the changes in principal actuarial assumptions on the
Group schemes and asset losses in the ITPF over the period.
KEY FIGURES AND ASSUMPTIONS USED FOR MAJOR PLANS
Unaudited Unaudited
6 months ended 6 months ended
31 March 2023 31 March 2022
£ million unless otherwise stated ITPF RCPP ITGBH ITPF RCPP ITGBH
Defined benefit obligation (DBO) 2,322 554 338 3,122 723 364
Fair value of scheme assets (2,714) - (363) (4,080) - (391)
Net defined benefit (asset) / liability (392) 554 (25) (958) 723 (27)
Principal actuarial assumptions used (% per annum)
Discount rate 4.9 3.6 4.9 2.8 1.8 3.7
Future salary increases 3.3 3.7 n/a 3.6 3.8 n/a
Future pension increases 3.4 2.6 n/a 3.6 2.7 n/a
Inflation 3.3 2.6 2.3 3.6 2.7 2.3
Audited
Year ended
30 September 2022
£ million unless otherwise stated ITPF RCPP ITGBH
Defined benefit obligation (DBO) 2,229 538 365
Fair value of scheme assets (2,958) - (405)
Net defined benefit (asset) / liability (729) 538 (40)
Principal actuarial assumptions used (% per annum)
Discount rate 5.3 3.7 5.4
Future salary increases 3.7 3.7 n/a
Future pension increases 3.7 2.5 n/a
Inflation 3.7 2.5 2.3
7. SHARE CAPITAL
Unaudited Unaudited Audited
£ million 31 March 2023 31 March 2022 30
September 2022
Authorised, issued and fully paid 100 103 103
996,323,140 ordinary shares of 10p each
(31 March 2022: 1,020,697,238, 30 September 2022: 1,020,697,238)
During the period a share buy back scheme was initiated and 24,374,098 10p
shares were repurchased for a cost of £500 million. The fees charged for the
share repurchase was £3 million.
8. TAX
UNCERTAIN TAX POSITIONS
As an international business the Group is exposed to uncertain tax positions
and changes in legislation in the jurisdictions in which it operates. The
Group's uncertain tax positions principally include cross border transfer
pricing, interpretation of new or complex tax legislation and tax arising on
the valuation of assets. The assessment of uncertain tax positions is
subjective and significant management judgement is required. This judgement is
based on current interpretation of legislation, management experience and
professional advice. Until matters are finally concluded it is possible that
amounts ultimately paid will be different from the amounts provided.
Management have assessed the Group's provision for uncertain tax positions and
have concluded that apart from the matters referred to below, the provisions
in place are not material individually or in aggregate, and that a reasonably
possible change in the next financial year would not have a material impact to
the results of the Group.
FRENCH TAX LITIGATION
In November 2015 the Group received a challenge from the French tax
authorities that could lead to additional tax liabilities of up to £239
million. The challenge concerns the valuation placed on the shares of Altadis
Distribution France (now known as Logista France) following an intragroup
transfer of shares in October 2012 and the tax consequences flowing from a
potentially higher value that is argued for by the tax authorities. In October
2018 the Commission Nationale, an independent adjudication body, whose
decision is advisory only, issued a report supportive of the Group's arguments
for no adjustment. In December 2018 the French tax authorities issued their
final assessments seeking the full amount of additional tax assessed of £239
million (2022: £240 million). In January 2019 the Group appealed against the
assessment. In August 2020, the French tax authorities rejected the Group's
appeal and the matter will now proceed to litigation. All submissions have
been made to the court and we await the outcome of the court process. The
Group believes it is appropriate to maintain a £42 million (2022: £42
million) provision for uncertain tax positions in respect of this matter.
STATE AID UK CFC
The Group continues to monitor developments in relation to EU State Aid
investigations. On 25 April 2019, the EU Commission's final decision regarding
its investigation into the UK's Controlled Foreign Company regime was
published. It concludes that the legislation up until December 2018 does
partially represent State Aid. The UK Government has appealed to the European
Court seeking annulment of the EU Commission's decision. The Group, along with
a number of UK corporates, has made a similar application to the European
Court. The UK Government is obliged to collect any State Aid granted pending
the outcome of the European Court process.
Based on the Commission's decision and despite the appeals, the UK government
was obliged to recover State Aid received. Whilst the Group's position remains
no State Aid has been received, in February 2021 a recovery charging notice
for £101 million was issued to the Group by HMRC, and has since been paid.
In June 2022 the European General Court rejected the appeals. Whilst this
decision has been appealed to the Court of Justice of the European Union
(CJEU) and the appeal may possibly be successful. During 2022, in the light of
the European General Court's decision we reassessed recoverability of the
£101 million which was previously recorded as a receivable and determined it
was appropriate to provide in full.
TRANSFER PRICING
The Group has tax audits relating to transfer pricing matters in a number of
jurisdictions, principally UK, France and Germany. The Group estimates the
potential gross level of exposure relating to transfer pricing issues is
approximately £200 million (2022: £200 million). The Group holds a provision
of £5 million (2022: £54 million) in respect of these items.
In December 2021 the Group concluded a transfer pricing audit with the French
tax authorities. In September 2022 the Group concluded transfer pricing audits
with the UK and German tax authorities. Settlements of the French and UK
audits were made during 2022. Settlement of the German audit is expected to be
made during 2023.
The Group believe the transfer pricing provision held above appropriately
provides for this and other transfer pricing issues.
FRENCH BRANCH TAX
In December 2021 the Group received assessments from the French tax
authorities which could lead to additional liabilities of £169 million. The
challenge concerns the intragroup financing of the French branch of Imperial
Tobacco Limited. In February 2022 the Group appealed against the assessment.
In September 2022 the French tax authorities opened a further tax audit into
this matter. Following discussions with the French tax authorities a
settlement proposal covering all years has been made for £48 million
including interest. The Group holds a provision of £48 million (2022: £48
million) in respect of this matter.
8. DIVIDENDS
DISTRIBUTIONS TO ORDINARY EQUITY HOLDERS
Unaudited Audited Audited
£ million 2023 2022 2021
Paid interim of nil pence per share (2022: 85.08 pence, 2021: 90.60 pence)
- Paid June 2021 - - 199
- Paid September 2021 - - 199
- Paid December 2021 - - 458
- Paid June 2022 - 202 -
- Paid September 2022 - 202 -
- Paid December 2022 - 464 -
Interim dividend paid - 868 856
Proposed interim of 43.18 pence per share (2022: nil, 2021: nil)
- To be paid June 2023 199 - -
- To be paid September 2023 199 - -
Interim dividend proposed 398 - -
Paid final of nil pence per share (2022: 49.32 pence, 2021: 48.49 pence)
- Paid March 2021 - - 458
- Paid March 2022 - 457 -
Final dividend - 457 458
Total ordinary share dividends of 143.29 pence per share (2022: 141.17 pence, 398 1,325 1,314
2020: 139.08 pence)
The declared interim dividend for 2023 amounts to a total dividend of £398
million based on the number of shares ranking for dividend at 31 March 2023.
This will be paid in two stages, one in June 2023 and one in September 2023.
The dividend paid during the half year to 31 March 2023 is £921 million
(2022: £917 million).
10. EARNINGS PER SHARE
Unaudited Unaudited Audited
£ million 6 months ended 31 March 2023 6 months ended 31 March 2022 Year ended 30
September 2022
Earnings: basic and diluted - attributable to owners of the 1,094 995 1,570
Parent Company
Millions of shares
Weighted average number of shares:
Shares for basic earnings per share 934.9 945.7 946.2
Potentially dilutive share options 7.6 4.1 6.8
Shares for diluted earnings per share 942.5 949.8 953.0
Pence
Basic earnings per share 117.0 105.2 165.9
Diluted earnings per share 116.1 104.8 164.7
11. INTANGIBLE ASSETS
On 1 October 2022 the group reorganised the Tobacco & NGP business
changing our geographic footprint with the markets comprising our Central and
Eastern Europe cluster moving from our Europe Division into the Africa, Asia
& Australasia (AAA) division to form the newly constituted AAACE division.
The managerial and internal reporting structures of the business have been
revised to reflect the new structure. Following the introduction of these
changes we have revised our segmental reporting as required under IFRS 8. As
the Group's Cash Generating Unit Groupings (CGUG) that are used for annual
goodwill impairment testing are aligned to the division-based segments, where
appropriate, Goodwill and other indefinite life intangible assets has been
reapportioned across the new CGUG structure on a relative value in use basis
to reflect the segmental changes. The change in CGUG would not have triggered
any goodwill or indefinite life impairments at 30 September 2022.
Our reportable segments have been updated to Americas, Europe, AAACE and
Distribution. The Tobacco & NGP operating segments continue to be
comprised of geographical groupings of business markets. The main Tobacco
& NGP business markets that have moved segments as part of this
restructuring are Poland, Czech Republic, Slovakia, Hungary, Slovenia,
Croatia, Ukraine, Georgia and Moldova.
12. NET DEBT
The movements in cash and cash equivalents, borrowings, lease liabilities and
derivative financial instruments in the period were as follows:
Unaudited
Derivative Liabilities Cash
Current Lease Non-current financial from financing and cash
£ million borrowings liabilities borrowings instruments activities equivalents Total
At 1 October 2022 (1,011) (248) (8,996) (87) (10,342) 1,850 (8,492)
Reallocation of current borrowings from non-current borrowings (627) - 627 - - - -
Cash flow (290) 43 (534) 56 (725) (1247) (1,927)
Change in accrued interest 23 (5) 2 4 24 - 24
Change in fair values - - - 72 72 - 72
New leases, terminations and modifications - (148) - - (148) - (148)
Exchange movements 32 3 525 (296) 264 (7) 257
At 31 March 2023 (1,873) (355) (8,376) (231) (10,835) 596 (10,239)
Unaudited
Derivative Liabilities Cash
Current Lease Non-current financial from financing and cash
£ million borrowings liabilities borrowings instruments activities equivalents Total
At 1 October 2021 (1,107) (251) (8,715) (587) (10,660) 1,287 (9,373)
Reallocation of current borrowings from non-current borrowings (746) - 746 - - - -
Cash flow 113 34 - (40) 107 (645) (538)
Change in accrued interest 55 (3) 21 (4) 69 - 69
Change in fair values - - - 72 72 - 72
New leases, terminations and modifications - (26) - - (26) - (26)
Exchange movements (36) 3 (31) 155 91 (12) 79
Transferred to asset held for disposal - 2 - - 2 (42) (40)
At 31 March 2022 (1,721) (241) (7,979) (404) (10,345) 588 (9,757)
Average reported net debt during the period was £10,265 million (2022:
£10,027 million).
13. FINANCIAL INSTRUMENTS
The table below sets out the Group's accounting classification of each class
of financial assets and liabilities:
Unaudited
31 March 2023
Fair value Fair value Assets and
through through liabilities at
income comprehensive amortised
£ million statement income cost Total Current Non-current
Trade and other receivables 9 - 2,271 2,280 2,256 24
Cash and cash equivalents - - 596 596 596 -
Derivatives 766 - - 766 72 694
Total financial assets 775 - 2,867 3,642 2,924 718
Borrowings - - (10,249) (10,249) (1,873) (8,376)
Trade and other payables - - (8,223) (8,223) (8,223) -
Derivatives (717) (280) - (997) (166) (831)
Lease liabilities - - (355) (355) (82) (273)
Total financial liabilities (717) (280) (18,827) (19,824) (10,344) (9,480)
Total net financial assets / (liabilities) 58 (280) (15,960) (16,182) (7,420) (8,762)
Unaudited
31 March 2022
Fair value Fair value Assets and
through through liabilities at
income comprehensive amortised
£ million statement income cost Total Current Non-current
Trade and other receivables 43 - 2,151 2,194 2,138 56
Cash and cash equivalents - - 588 588 588 -
Derivatives 237 - - 237 58 179
Total financial assets 280 - 2,739 3,019 2,784 235
Borrowings - - (9,700) (9,700) (1,721) (7,979)
Trade and other payables - - (8,133) (8,133) (8,133) -
Derivatives (471) (170) - (641) (49) (592)
Lease liabilities - - (241) (241) (55) (186)
Total financial liabilities (471) (170) (18,074) (18,715) (9,958) (8,757)
Total net financial liabilities (191) (170) (15,335) (15,696) (7,174) (8,522)
Audited
30 September 2022
Fair value Fair value Assets and
through through liabilities at
income comprehensive amortised
£ million statement income cost Total Current Non-current
Trade and other receivables 17 - 2,406 2,423 2,386 37
Cash and cash equivalents - - 1,850 1,850 1,850 -
Derivatives 1,039 - - 1,039 54 985
Total financial assets 1,056 - 4,256 5,312 4,290 1,022
Borrowings - - (10,007) (10,007) (1,011) (8,996)
Trade and other payables - - (8,710) (8,710) (8,710) -
Derivatives (788) (338) - (1,126) (54) (1,072)
Lease liabilities - - (248) (248) (58) (190)
Total financial liabilities (788) (338) (18,965) (20,091) (9,833) (10,258)
Total net financial assets / (liabilities) 268 (338) (14,709) (14,779) (5,543) (9,236)
Trade and other receivables excludes prepayments and Trade and other payables
excludes accruals.
The Group's derivative financial instruments which are held at fair value, are
as follows:
Unaudited Unaudited Audited
£ million 31 March 2023 31 March 2022 30
September 2022
Assets
Interest rate swaps 604 190 686
Forward foreign currency contracts 10 21 31
Cross-currency swaps 152 26 322
Total carrying value of derivative financial assets 766 237 1,039
Liabilities
Interest rate swaps (621) (480) (782)
Forward foreign currency contracts (29) (16) (13)
Cross-currency swaps (347) (179) (343)
Carrying value of derivative financial liabilities before collateral (997) (675) (1,138)
Collateral (1) - 34 12
Total carrying value of derivative financial liabilities (997) (641) (1,126)
Total carrying value of derivative financial instruments (231) (404) (87)
Analysed as:
Interest rate swaps (17) (290) (96)
Forward foreign currency contracts (19) 5 18
Cross-currency swaps (195) (153) (21)
Collateral (1) - 34 12
Total carrying value of derivative financial instruments (231) (404) (87)
¹ Collateral deposited against derivative financial liabilities under the
terms and conditions of an ISDA Credit Support Annex
All financial assets and liabilities are carried on the balance sheet at
amortised cost, other than derivative financial instruments and the investment
in Auxly Cannabis Group which are carried at fair value. Derivative fair
values are determined based on observable market data such as yield curves,
foreign exchange rates and credit default swap prices to calculate the present
value of future cash flows associated with each derivative at the balance
sheet date (Level 2 classification hierarchy per IFRS 7). Market data is
sourced through Bloomberg and valuations are validated by reference to
counterparty valuations where appropriate. Some of the Group's derivative
financial instruments contain early termination options and these have been
considered when assessing the element of the fair value related to credit
risk. On this basis the reduction in reported net derivative liabilities due
to credit risk is £10 million (2022: £17 million) and would have been a £20
million (2022: £33 million) reduction without considering the early
termination options. There were no changes to the valuation methods or
transfers between hierarchies during the year. With the exception of capital
market issuance and the Auxly investment, the fair value of all financial
assets and financial liabilities is considered approximate to their carrying
amount.
14. CONTINGENT LIABILITIES
The following summary includes updates to matters that have developed since
the publication of the 2022 Annual Report and Accounts.
USA STATE SETTLEMENT AGREEMENTS
In November 1998, the major United States cigarette manufacturers, including
Reynolds and Philip Morris, entered into the Master Settlement Agreement
("MSA") with 52 US states and territories and possessions. These cigarette
manufacturers previously settled four other cases, brought by Mississippi,
Florida, Texas and Minnesota, by separate agreements with each state
(collectively with the MSA, the "State Settlement Agreements", with
Mississippi, Florida, Texas and Minnesota known collectively as the
"Previously Settled States"). ITG Brands (ITGB) is a party to the MSA and to
the Mississippi, Minnesota, and Texas State Settlement Agreements.
In connection with its 12 June 2015 acquisition of four cigarette brands
(Winston, Salem, Kool and Maverick, referred to as the "Acquired Brands") from
Reynolds and Lorillard, ITGB has been involved in litigation and other
disputes with the Previously Settled States, Philip Morris, and Reynolds in
their state courts.
DELAWARE
ITGB is involved in litigation with Reynolds in the Delaware court that has
jurisdiction over disputes under the Asset Purchase Agreement (APA) for the
Acquired Brands. The current case in progress involves Reynolds' claim to
indemnity for Florida settlement payments. The issue in this case is whether
ITGB has satisfied its obligations to use "reasonable best efforts" to join
the settlement with Florida under the APA and whether regardless of that
"reasonable best efforts" requirement whether ITGB is required to indemnify
Reynolds for amounts the Florida court may require Reynolds to pay.
On 30 September 2022, the trial court granted summary judgment to Reynolds and
denied summary judgment to ITGB. It held that the Florida court's
determination that ITGB did not assume payments under the Florida settlement
unless it agreed to do so was not binding on the Delaware courts under
principles of issue preclusion. It further held that as a matter of law the
contract provisions were unambiguous and no evidence was required, and that
ITGB had assumed and was required to indemnify Reynolds for Florida settlement
payments. The court did not determine the amount of Reynolds' damages but left
that question open for further proceedings. The parties submitted an agreed
schedule to the court to address the issue of damages.
On 23 February 2023 the initial motions on the amount of indemnity due were
argued with the Court having 90 days to issue its decision.
Reynolds' claim for indemnification in Delaware is limited at most to the
amounts it has been required to pay under the Florida determination described
above, plus interest and attorney's fees. ITGB continues to deny that
indemnity is appropriate and intends to appeal that determination. ITGB
further contends that Reynolds' damages should be substantially reduced by the
amount by which Reynolds' settlement payments have been reduced through
operation of the "profit adjustment" by reason of ITGB not becoming a party to
the Florida settlement as well as by reason of Reynolds' and third-parties'
conduct.
Amounts at issue range to US$ 212 million through 2022, plus interest and
attorney's fees, and US$ 19 million to US$ 31 million annually going forward.
Based on the current facts and circumstances we consider it improbable that
this potential liability will crystallise and therefore no provision has been
recognised.
PRODUCT LIABILITY INVESTIGATIONS
The Group is currently involved in a number of legal cases in which claimants
are seeking damages for alleged smoking and health related effects. In the
opinion of the Group's lawyers, the Group has meritorious defences to these
actions, all of which are being vigorously contested. Although it is not
possible to predict the outcome of the pending litigation, the Directors
believe that the pending actions will not have a material adverse effect upon
the results of the operations, cash flow or financial condition of the Group.
This assessment of the probability of economic outflows at the year-end is a
judgement which has been taken by management. Consequently, the Group has not
provided for any amounts in respect of these cases in the financial
statements. There have been no material updates to matters in any product
liability investigations in the period since the 2022 Annual Report and
Accounts.
OTHER LITIGATION
US HELMS-BURTON LITIGATION
Imperial Brands Plc has been named as a defendant in a civil action in federal
court in Miami, Florida under Title III of the Cuban Liberty and Democratic
Solidarity Act of 1996 ("Helms-Burton") filed on 6 August 2020. Title III
provides United States nationals with a cause of action and a claim for treble
damages against persons who have "trafficked" in property expropriated by the
Cuban government. Treble damages are automatically available under
Helms-Burton. Although the filed claim is for unquantified damages, we
understand the claim could potentially reach approximately US$ 365 million,
based on the claimants' claim to own 90% of the property, which they value at
US$ 135 million (and then treble). The claim is based on allegations that
Imperial, through Corporación Habanos S.A. (a joint venture between one of
Imperial's now former subsidiaries and the Cuban government), has "trafficked"
in a factory in Havana, Cuba that the Cuban government confiscated from the
claimants' ancestor in the early 1960s, by using the factory to manufacture,
market, sell, and distribute Habanos cigars.
At the time the claim was filed against Imperial and up until the conclusion
of the Brexit "transition period" on 31 December 2020, Imperial was subject to
an EU law known as the EU Blocking Statute (Regulation (EC) No. 2271/96),
which conflicts with HelmsBurton, protected Imperial against the impact of
Title III, and impacted how Imperial might respond to the threatened
litigation. The EU Blocking Statute has been transposed into domestic law with
only minimal changes. Accordingly, on 10 January 2021, Imperial submitted an
application to the UK Department for International Trade for authorisation
from the Secretary of State for International Trade to defend the action or,
at a minimum, to file and litigate a motion to dismiss the action.
On 8 February 2021, the United Kingdom Secretary of State for International
Trade authorised Imperial to file and litigate a motion to dismiss the action.
A hearing on the motion to dismiss took place on 26 July 2022 before a
magistrate judge. On 2 November 2022 the magistrate judge recommended that the
action be dismissed, without prejudice to re-filing in a proper venue.
On 31 March 2023 the judge issued an order addressing the magistrate's
recommended ruling. In respect of Habanos, the Motion to Dismiss was granted,
without objection from the claimants, on the basis that Florida was an
"improper venue" (wrong court). The judge sent the Motion to Dismiss back to
the same magistrate for a further report and recommendation on whether the
ruling regarding Habanos means that the Imperial Motion to Dismiss should also
be granted. The magistrate is also permitted to address "other issues if
warranted". The magistrate's report and recommendation will not be binding on
the parties. A hearing has been scheduled for 25 July 2023.
No provision has been made for potential liabilities related to this claim.
MOROCCO
A number of cases have been raised against Société Marocaine des Tabacs SA
(SMT) disputing a reduction to retirees' pensions. These cases have been in
the courts for several years and SMT has successfully defended many of them in
the lower courts. A total of 216 cases have been reviewed by the Cour de
Cassation (Supreme Court) in Morocco, and it is understood that they have been
decided against SMT and in favour of retirees. SMT has filed retractions
proceedings and raised legal arguments in pending and new claims before the
lower courts.
The written reasoned judgment of the Cour de Cassation in claims found against
SMT has not been received by SMT at the time of signing these accounts.
Furthermore, the judgments in favour of the retirees reportedly relate to
unquantified claims. Because of this, it is not possible to assess the impact
of the decided cases on the remaining cases within the Moroccan courts. SMT
continues to defend its position.
15. POST BALANCE SHEET EVENTS
On 3 April 2023 a broker was contracted to execute a further share buyback of
up to £500 million to be completed by 29 September 2023.
The Group was advised on 11 May 2023 by the Administrative Court of Montreuil
that it had lost its case against a challenge raised by the French tax
authorities. The case concerned the valuation placed on the shares of Altadis
Distribution France (now known as Logista France) following an intragroup
transfer of shares in October 2012 and the subsequent tax consequences
resulting from a potentially higher valuation argued by the French tax
authorities. The Group intends to appeal the decision to the Administrative
Court of Appeal of Paris. At this time, the Group considers that the
Administrative Court of Montreuil's decision does not affect its provisioning
for uncertain tax positions and consequently no amendment has been made in
these financial statements.
16. RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note. No related party transactions have taken place in the 6 months ended 31
March 2023 (6 months to 2022: none) that have materially affected the
financial position or performance of the group during that period.
SUPPLEMENTARY INFORMATION
ALTERNATIVE PERFORMANCE MEASURES
USE OF ALTERNATIVE PERFORMANCE MEASURES
Management believes that non-GAAP or alternative performance measures provide
an important comparison of business performance and reflect the way in which
the business is controlled. The alternative performance measures seek to
remove the distorting effects of a number of significant gains or losses
arising from transactions which are not directly related to the ongoing
underlying performance of the business and may be non-recurring events or not
directly within the control of management.
Accordingly, alternative performance measures exclude, where applicable,
amortisation and impairment of acquired intangibles, profit/loss on disposal
of subsidiaries, Russian and associated markets exit, restructuring costs,
acquisition and disposal costs, fair value and exchange gains and losses on
financial instruments, post-employment benefits net financing cost, and
related tax effects and tax matters. Other significant gains or losses which
are not representative of the underlying business may also be treated as
adjusting items where there is appropriate justification. The alternative
performance measures in this report are not defined terms under IFRS and may
not be comparable with similarly titled measures reported by other companies.
The alternative performance measures that are used by the Group are defined
and reconciled back to the associated IFRS metrics as detailed below.
SUMMARY OF KEY ADJUSTING ITEMS
The items excluded from adjusted performance results are those which are
one-off in nature or items which arose due to acquisitions and are not
influenced by the day to day operations of the Group, and the movements in the
fair value of financial instruments which are marked to market and not
naturally offset. Adjusted net finance costs also excludes all post-employment
benefit net finance cost since pension assets and liabilities and redundancy
and social plan provisions do not form part of adjusted net debt. This allows
comparison of the Group's cost of debt with adjusted net debt. The adjusted
performance measures are used by management to assess the Group's financial
performance and aid comparability of results year on year.
CONSOLIDATED INCOME STATEMENT ADJUSTING ITEMS
The following tables summarise the key items recognised within the
consolidated income statement that have been treated as adjusting items:
Adjusting items recognised within administrative and other expenses
Unaudited Unaudited Audited
£ million Notes 6 months ended 31 March 2023 6 months ended March 2022 Year ended 30 September 2022
Russian and associated markets exit - (201) (399)
Amortisation and impairment of acquired intangibles (174) (182) (349)
Restructuring costs 5 - (7) (197)
Fair value adjustment of loan receivable (7) 2 (37)
Loss on disposal of subsidiaries (1) (16) (29)
Acquisition and disposal costs - (5) (5)
Excise tax provision - 10 9
Buy out of liabilities on Irish pension scheme - - (4)
Total adjusting administrative and other expenses (182) (399) (1,011)
Total non-adjusting administrative and other expenses (153) (168) (323)
Administrative and other expenses (335) (567) (1,334)
AMORTISATION AND IMPAIRMENT OF ACQUIRED INTANGIBLES
Acquired intangibles are amortised over their estimated useful economic lives
where these are considered to be finite. Acquired intangibles considered to
have an indefinite life are not amortised. Any negative goodwill arising is
recognised immediately in the income statement. The Group exclude from our
adjusted performance measures the amortisation and impairment of acquired
intangibles, other than software and internally generated intangibles, and the
deferred tax associated with amortisation of acquired intangibles. Gains and
losses on the sale of intellectual property are removed from adjusted
operating profit.
It is recognised that there may be some correlation between the amortisation
charges derived from the acquisition value of acquired intangibles, and the
subsequent future profit streams arising from sales of associated branded
products. However, the amortisation of intangibles is not directly related to
the operating performance of the business. Conversely, the level of
profitability of branded products is directly influenced by day to day
commercial actions, with variations in the level of profit derived from
branded product sales acting as a clear indicator of performance. Given this,
the Group's view is that amortisation and impairment charges do not clearly
correlate to the ongoing variations in the commercial results of the business
and are therefore excluded to allow a clearer view of the underlying
performance of the organisation. The deferred tax is excluded on the basis
that it will only crystallise upon disposal of the intangibles and goodwill.
The related current cash tax benefit is retained in the adjusted measure to
reflect the ongoing tax benefit to the Group.
Total amortisation and impairment for the period is £197 million (2022 half
year: £206 million, 2022 full year: £394 million) of which £174 million
(2022 half year: £182 million, 2022 full year: £349 million) relates to
acquired intangibles and is adjusting and £23 million (2022 half year: £24
million, 2022 full year: £45 million) relates to internally generated
intangibles and is non adjusting. In the period to 31 March 2023 adjusting
items all relate to amortisation £174 million (2022 half year: £156 million,
2022 full year: £323 million) is attributable to Tobacco & NGP and £nil
million (2022 half year: £26 million, 2022 full year: £26 million) is
attributable to distribution.
ACQUISITION AND DISPOSAL COSTS / PROFIT ON DISPOSAL OF SUBSIDIARIES
Adjusted performance measures exclude costs and profits or losses associated
with major acquisitions and disposals as they do not relate to the day to day
operational performance of the Group. Acquisition costs and profits or losses
on disposal can be significant in size and are one-off in nature. Exclusion of
these items allows a clearer presentation of the day to day underlying income
and costs of the business. Where applicable and not reported separately, this
includes changes in contingent or deferred consideration.
FAIR VALUE ADJUSTMENT TO FINANCIAL ASSETS
As the movement in the fair value of loan receivables associated with the
investment in Auxly Cannabis Group Inc. and the movement in the investment in
associate Oxford Cannabinoid Technologies Holdings plc has the potential to be
significant, and do not relate to the day to day operational performance of
the group, the Group has excluded these fair value movements from adjusted
operating profit.
RESTRUCTURING COSTS
Significant one-off costs incurred in integrating acquired businesses and in
major rationalisation and optimisation initiatives together with their related
tax effects are excluded from our adjusted earnings measures. These include
restructuring costs incurred as part of fundamental multi-year
transformational change projects but do not include costs related to ongoing
cost reduction activity. These costs are all Board approved, and include
impairment of property, plant and equipment which are surplus to requirements
due to restructuring activity. These costs are required in order to address
structural issues associated with operating within the Tobacco sector that
have required action to both modernise and right-size the organisation,
ultimately delivering an operating model suitable for the future of the
business. The Group's view is that as these costs are both significant and
one-off in nature, excluding them allows a clearer presentation of the
underlying costs of the business.
RUSSIAN AND ASSOCIATED MARKETS EXIT
In the comparative period the portion of the loss on exit of the Russian and
associated markets adjusted out of operating profit was £399 million
comprising a loss on transfer of Russian operations of £364 million and
impairment of assets and exit costs of the associated markets of £35 million.
Adjusting items recognised within share of profit/(loss) of investments
accounted for using the equity method
Unaudited Unaudited Audited
£ million 6 months ended 31 March 2023 6 months ended 31 March 2022 Year ended 30 September 2022
Impairment of intangible assets held by Global Horizon joint venture - - (24)
Other profits / (losses) from investments accounted for using the equity 3 (20) 9
method
Share of profit / (losses) of investments accounted for using the equity 3 (20) (15)
method
Adjusting items recognised within tax
Unaudited Unaudited Audited
£ million 6 months ended 31 6 months ended 31 March 2023 Year ended 30 September 2022
March 2023
Deferred tax on amortisation of acquired intangibles (1) 8 15
Tax on net foreign exchange and fair value gains and losses on financial 67 2 (183)
instruments
Tax on restructuring costs - 3 49
Tax on disposal of subsidiaries - 7 8
Provision for state aid tax recoverable - - (101)
Uncertain tax positions (3) 57 63
Deferred tax on unremitted earnings - 26 26
Tax on unrecognised losses - (8) (8)
Other non-adjusting taxation charges (340) (316) (755)
Reported tax (277) (221) (886)
TAX ADJUSTMENTS RELATED TO OTHER PRE TAX ADJUSTING ITEMS
The adjusted tax charge has been calculated to include the tax effects of a
number of pre tax adjusting items including the amortisation of acquired
intangibles, net foreign exchange gains and losses, fair value movements on
financial instruments, restructuring costs and post-employment benefits net
financing cost. The tax effect of the result of the disposal of subsidiaries
has also been adjusted.
SIGNFICANT ONE OFF TAX CHARGES OR CREDITS
The adjusted tax charge also excludes significant one-off tax charges or
credits arising from:
• prior period tax items (including re-measurement of deferred tax balances
on a change in tax rates); or
• a provision for uncertain tax items not arising in the normal course of
business; or
• newly enacted taxes in the year; or
• tax items that are closely related to previously recognised tax matters,
and are excluded from our adjusted tax charge to aid comparability and
understanding of the Group's performance.
The recognition and utilisation of deferred tax assets relating to tax losses
and tax credits not historically generated in the normal course of business
are excluded on the same basis.
UNCERTAIN TAX POSITIONS
Significant one-off tax charges or credits arising from a provision for
uncertain tax items not arising in the normal course of business are excluded
from the adjusted tax charge.
PROVISION FOR STATE AID RECOVERABLE
Significant one-off tax charges or credits arising from prior period items
are excluded from the adjusted tax charge. The provision against the state aid
tax recoverable is excluded from the adjusted tax charge on this basis.
DEFERRED TAX ON UNREMITTED EARNINGS
Significant one-off tax charges or credits arising from prior period items
are excluded from the adjusted tax charge. The tax effect of the release of a
provision for deferred tax on unremitted earnings is excluded from the
adjusted tax charge on this basis.
TAX ON UNRECOGNISED LOSSES
The recognition and utilisation of deferred tax assets relating to losses not
historically generated in the normal course of business are excluded from the
adjusted tax charge.
DEFINITIONS AND RECONCILIATIONS OF ADJUSTED MEASURES
A) NET REVENUE TOBACCO & NGP
Tobacco & Next Generation Products (NGP) net revenue comprises associated
revenue less duty and similar items, excluding peripheral products. Management
considers this an important measure in assessing the performance of Tobacco
& NGP operations.
The Group recognises revenue on sales to Logista, a Group company, within its
reported Tobacco & NGP revenue figure. As the revenue calculation includes
sales made to Logista from other Group companies but excludes Logista's
external sales, this metric differs from revenue calculated under IFRS
accounting standards. For the purposes of Adjusted Performance Measures on Net
Revenue the Group treat Logista as an arm's length distributor on the basis
that contractual rights are in line with other Third Party suppliers to
Logista. Variations in the amount of inventory held by Logista results in a
different level of revenue compared to that which is included within the
income statement. For tobacco product sales, inventory level variations are
normally not significant. For the purpose of showing comparable year on year
metrics we have included a Net Revenue Tobacco & NGP measure excluding the
results of the Russia business in the comparative figures, following the
disposal of that operation in April 2022.
RECONCILIATION FROM TOBACCO & NGP REVENUE TO TOBACCO & NGP NET REVENUE
AND NET REVENUE EXCLUDING RUSSIA
Unaudited Unaudited
6 months ended 6 months ended
31 March 2023 31 March 2022
£ million Tobacco NGP Total Tobacco NGP Total
Revenue 10,424 139 10,563 10,937 107 11,044
Duty and similar items (6,884) (14) (6,898) (7,533) (6) (7,539)
Sale of peripheral products (2) - (2) (10) - (10)
Net Revenue 3,538 125 3,663 3,394 101 3,495
Russian net revenue - - - (54) - (54)
Net revenue excluding Russia 3,538 125 3,663 3,340 101 3,441
Audited
Year
ende
d
30
Sept
embe
r
2022
£ million Tobacco NGP Total
Revenue 23,232 224 23,456
Duty and similar items (15,628) (16) (15,644)
Sale of peripheral products (19) - (19)
Net Revenue 7,585 208 7,793
Russian net revenue (56) - (56)
Net revenue excluding Russia 7,529 208 7,737
B) DISTRIBUTION GROSS PROFIT
Distribution gross profit comprises the Distribution segment revenue less the
cost of distributed products. Management considers this an important measure
in assessing the performance of Distribution operations. Distribution gross
profit was previously described as Distribution net revenue. There has been no
change in calculation of this metric.
Unaudited Unaudited Audited
£ million 6 months ended 31 March 2023 6 months ended 31 March 2022 Year ended 30
September 2022
Revenue 5,202 4,639 9,756
Distribution cost of sales (4,471) (4,137) (8,710)
Distribution Gross Profit 731 502 1,046
C) ADJUSTED OPERATING PROFIT
Adjusted operating profit is calculated as operating profit amended for a
number of adjustments, the principal changes are detailed below. This measure
is separately calculated and disclosed for Tobacco, NGP and Distribution where
appropriate. For the purpose of showing comparable year on year metrics we
have included an Adjusted Operating Profit measure excluding the results of
the Russia business in the comparative figures, following the disposal of that
operation in April 2022.
RECONCILIATION FROM PROFIT BEFORE TAX TO ADJUSTED OPERATING PROIFT AND
ADJUSTED OPERATING PROFIT EXCLUDING RUSSIA
Unaudited Unaudited Audited
£ million 6 months ended 31 March 2023 6 months ended 31 March 2022 Year ended 30
September 2022
Profit before tax 1,443 1,256 2,551
Net finance costs / (income) 94 (75) 117
Share of loss / (profit) of investments accounted for using the equity method (3) 20 15
Operating profit 1,534 1,201 2,683
Russian and associated markets exit costs - 201 399
Amortisation and impairment of acquired intangibles 174 182 349
Restructuring costs - 7 197
Fair value adjustment to financial assets 7 (2) 37
Loss on disposal of subsidiaries 1 16 29
Acquisition and disposal costs - 5 5
Excise tax provision - (10) (9)
Buy-out of liabilities on Irish pension scheme - - 4
Adjusted operating profit 1,716 1,600 3,694
Russian operating profit - 8 5
Adjusted operating profit excluding Russia 1,716 1,592 3689
RECONCILIATION FROM TOBACO & NGP OPERATING OPERATING PROFIT TO ADJUSTED
OPERATING PROFIT
Unaudited Unaudited Audited
£ million 6 months ended 31 March 2023 6 months ended 31 March 2022 Year ended 30
September 2022
Operating profit 1,386 1,124 2,472
Russian and associated markets exit costs - 201 399
Amortisation and impairment of acquired intangibles 174 156 323
Restructuring costs - 7 197
Loss on disposal of subsidiaries 1 - 13
Fair value adjustment to financial assets 7 (2) 37
Acquisition and disposal costs - 5 5
Excise tax provision - (10) (9)
Buy out of liabilities on Irish pension scheme - - 4
Adjusted operating profit 1,568 1,481 3,441
RECONCILIATION FROM DISTRIBUTION REVENUE TO DISTRIBUTION NET REVENUE
Unaudited Unaudited Audited
£ million 6 months ended 31 March 2023 6 months ended 31 March 2022 Year ended 30
September 2022
Operating profit 150 79 212
Loss on disposal of subsidiaries - 16 16
Amortisation of acquired intangibles - 26 26
Adjusted operating profit 150 121 254
See note 11 for details on amortisation and impairment, note 4 for details of
acquisition and disposal costs, and note 5 for details of restructuring costs.
D) ADJUSTED OPERATING PROFIT MARGIN
Adjusted operating profit margin is adjusted operating profit divided by net
revenue expressed as a percentage. This measure is separately calculated and
disclosed for Tobacco, NGP and Distribution businesses where appropriate.
There is no reconciliation required for this metric.
E) ADJUSTED NET FINANCE COSTS
Adjusted net finance costs excludes the movements in the fair value of
financial instruments which are marked to market and not naturally offset.
This measure also excludes all post-employment benefit net finance costs since
pension assets and liabilities and redundancy and social plan provisions do
not form part of adjusted net debt. This allows comparison of the Group's cost
of debt with adjusted net debt.
IFRS 9 requires that all derivative financial instruments are recognised in
the consolidated balance sheet at fair value, with changes in the fair value
being recognised in the consolidated income statement unless the instrument
satisfies the hedge accounting rules under IFRS and the Group chooses to
designate the derivative financial instrument as a hedge.
The Group hedges underlying exposures in an efficient, commercial and
structured manner. However, the strict hedging requirements of IFRS 9 may lead
to some commercially effective hedge positions not qualifying for hedge
accounting. As a result, and as permitted under IFRS 9, the Group has decided
not to apply cash flow or fair value hedge accounting for its derivative
financial instruments. However, the Group does apply net investment hedging,
designating certain borrowings and derivatives as hedges of the net investment
in the Group's foreign operations, as permitted by IFRS 9, in order to reduce
income statement volatility.
The Group excludes fair value gains and losses on derivative financial
instruments and exchange gains and losses on borrowings from adjusted net
finance costs. Fair value gains and losses on the interest element of
derivative financial instruments are excluded as there is no direct natural
offset between the movements on derivatives and the interest charge on debt in
any one period, as the derivatives and debt instruments may be contracted over
different periods, although they will reverse over time or are matched in
future periods by interest charges. The fair value gains on derivatives are
excluded as they can introduce volatility in the finance charge for any given
period.
Fair value gains and losses on the currency element of derivative financial
instruments and exchange gains and losses on borrowings are excluded as the
relevant foreign exchange gains and losses on the instruments in a net
investment hedging relationship are accumulated as a separate component of
other comprehensive income in accordance with the Group's policy on foreign
currency.
Fair value movements arising from the revaluation of contingent consideration
liabilities are adjusted out where they represent one-off acquisition costs
that are not linked to the current period underlying performance of the
business. Fair value adjustments on loans receivable measured at fair value
are excluded as they arise due to counterparty credit risk changes that are
not directly related to the underlying commercial performance of the business.
The net interest on defined benefit assets or liabilities, together with the
unwind of discount on redundancy, social plans and other long-term provisions
are reported within net finance costs. These items together with their related
tax effects are excluded from our adjusted earnings measures, as they
primarily represent charges associated with historic employee benefit
commitments, rather than the ongoing current period costs of operating the
business.
RECONCILIATION FROM REPORTED NET FINANCE COSTS TO ADJUSTED NET FINANCE COSTS
Unaudited Unaudited Audited
£ million 6 months ended 31 March 2023 6 months ended 31 March 2022 Year ended 30
September 2022
Reported net finance costs / (income) 94 (75) 117
Fair value gains on derivative financial instruments 365 688 1,483
Fair value losses on derivative financial instruments (273) (616) (1,213)
Exchange gains / (losses) on financing activities 16 164 (69)
Net fair value and exchange gains on financial instruments 108 236 201
Interest income on net defined benefit assets 87 53 107
Interest cost on net defined benefit liabilities (80) (49) (99)
Post-employment benefits net financing income 7 4 8
Taxation settlement interest cost (10) - -
Adjusted net finance costs 199 165 326
Comprising
Interest income on bank deposits (5) (3) (9)
Interest cost on lease liabilities 5 4 6
Interest cost on bank and other loans 199 164 329
Adjusted net finance costs 199 165 326
F) ADJUSTED TAX CHARGE
The adjusted tax charge is calculated by amending the reported tax charge for
significant one-off tax charges or credits arising from:
• prior period tax items (including re-measurement of deferred tax balances
on a change in tax rates); or
• a provision for uncertain tax items not arising in the normal course of
business; or
• newly enacted taxes in the year; or
• tax items that are closely related to previously recognised tax matters,
and are excluded from our adjusted tax charge to aid comparability and
understanding of the Group's performance.
The recognition and utilisation of deferred tax assets relating to losses not
historically generated in the normal course of business are excluded on the
same basis.
The adjusted tax rate is calculated as the adjusted tax charge divided by the
adjusted profit before tax.
RECONCILIATION FROM REPORTED TAX TO ADJUSTED TAX
Reported tax for the six months ended 31 March 2023 has been calculated on the
basis of a forecast effective rate for the year ended 30 September 2023.
Unaudited Unaudited Audited
£ million 6 months ended 31 6 months ended 31 March 2022 Year ended 30
March 2023 September 2022
Reported tax 277 221 886
Deferred tax on amortisation and impairment of acquired intangibles (1) 8 15
Tax on net foreign exchange and fair value gains and losses on financial 67 2 (183)
instruments
Tax on restructuring costs - 3 49
Tax on disposals - 7 8
Recognition of tax credits - - -
Provision for state aid recoverable - - (101)
Uncertain tax positions (3) - 63
Deferred tax on unremitted earnings - 57 26
Tax on unrecognised losses - 26 (8)
Adjusted tax charge 340 316 755
G) ADJUSTED EARNINGS PER SHARE
Adjusted earnings is calculated by amending the reported basic earnings for
all of the adjustments recognised in the calculation of the adjusted operating
profit, adjusted finance costs and adjusted tax charge metrics as detailed
above. Adjusted earnings per share is calculated by dividing adjusted earnings
by the weighted average number of shares. For the purpose of showing
comparable year on year metrics we have included an Adjusted Earnings Per
Share measure excluding the results of the Russia business in the comparative
figures, following the disposal of that operation in April 2022.
RECONCILIATION FROM REPORTED TO ADJUSTED EARNINGS AND EARNINGS PER SHARE
Unaudited Unaudited Audited
6 months ended 6 months ended Year ended
31 March 2023 31 March 2022 30 September 2022
£ million unless otherwise indicated Earnings per share (pence) Earnings Earnings per share (pence) Earnings Earnings per share (pence) Earnings net of tax
net of tax net of tax
Reported basic 117.0 1,094 105.2 995 165.9 1,570
Russian and associated markets exit costs - - 21.3 201 42.2 399
Amortisation and impairment of acquired intangibles 18.7 175 18.4 174 35.4 334
Restructuring costs - - 0.4 4 15.6 148
Fair value adjustment to financial assets 0.7 7 (0.2) (2) 3.9 37
Loss on disposal of subsidiaries 0.1 1 1.0 9 2.2 21
Acquisition and disposal costs - - 0.5 5 0.5 5
Excise tax provision - - (1.1) (10) (1.0) (9)
Buy-out of liabilities on Irish pension scheme - - - - 0.4 4
Net fair value and exchange movements on financial instruments (18.7) (175) (25.2) (238) (1.9) (18)
Post-employment benefits net financing cost (0.7) (7) (0.4) (4) (0.8) (8)
Brand impairment in equity accounted joint venture - - 2.5 24 2.5 24
Provision for state aid recoverable - - - - 10.7 101
Uncertain tax positions 0.3 3 (6.0) (57) (6.7) (63)
Deferred tax on unremitted earnings - - (2.7) (26) (2.7) (26)
Tax on unrecognised losses - - 0.8 8 0.8 8
Tax settlement interest cost 1.1 10 - - - -
Adjustments above attributable to non-controlling interests - - (1.5) (14) (1.8) (18)
Adjusted 118.5 1,108 113.0 1,069 265.2 2,509
Adjusted diluted 117.6 1,108 112.6 1,069 263.3 2,509
Russia earnings per share - - 0.5 5 0.4 4
Adjusted excluding Russia 118.5 1,108 112.5 1,064 264.8 2,505
Adjusted diluted excluding Russia 117.6 1,108 112.1 1,064 262.9 2,505
H) CONSTANT CURRENCY
Constant currency removes the effect of exchange rate movements on the
translation of the results of our overseas operations. The Group translate
current year results at prior year foreign exchange rates. An analysis of all
key metrics can be found in the Financial Summary section of the half year
results statement.
I) ADJUSTED NET DEBT
Management monitors the Group's borrowing levels using adjusted net debt which
excludes interest accruals, lease commitments and the fair value of derivative
financial instruments providing commercial hedges of interest rate risk. The
adjusted net debt metric is used in monitoring performance against various
debt management obligations including covenant compliance.
ADJUSTED NET DEBT CALCULATION
Management monitors the Group's borrowing levels using adjusted net debt which
excludes lease liabilities, interest accruals and the fair value of derivative
financial instruments. Adjusted net debt is used for the purpose of debt
monitoring as it excludes non-cash accounting adjustments and therefore better
tracks operational debt management performance.
Unaudited Unaudited Audited
£ million 6 months ended 6 months ended Year ended 30
31 March 2023 31 March 2022 September 2022
Reported net debt (10,239) (9,757) (8,492)
Accrued interest 76 68 105
Lease liabilities 355 241 248
Fair value of interest rate derivatives 9 291 85
Adjusted net debt (9,799) (9,157) (8,054)
J) ADJUSTED NET DEBT TO EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION AND
AMORTISATION (EBITDA) MULTIPLE
This is defined as adjusted net debt divided by EBITDA. Adjusted net debt is
measured at balance sheet foreign exchange rates, with a full reconciliation
shown in section I above. EBITDA is calculated as adjusted operating profit
plus amortisation, depreciation and impairments. The reconciliation from
adjusted operating profit to EBITDA is shown below.
Unaudited Unaudited Audited
£ million 6 months ended 6 months ended Year ended 30
31 March 2023 31 March 2022 September 2022
Adjusted operating profit (see section C above) 1,716 1,600 3,694
Depreciation, amortisation and impairment 141 125 244
EBITDA 1,857 1,725 3,938
K) ADJUSTED OPERATING CASH CONVERSION
Adjusted operating cash conversion is calculated as cash flow from operations
pre-restructuring and before interest and tax payments less net capital
expenditure relating to property, plant and equipment, software and
intellectual property rights as a percentage of adjusted operating profit.
ADJUSTED OPERATING CASH CONVERSION CALCULATION
Unaudited Unaudited Audited
£ million unless otherwise stated 6 months ended 31 March 2023 6 months ended 31 March 2022 Year ended 30
September 2022
Net cash generated (used in) / from operating activities (4) 700 3,186
Tax 175 273 681
Net capital expenditure (119) (64) (177)
Restructuring cash spend 61 42 91
Adjusted operating cash flow 113 951 3,781
Adjusted operating profit 1,716 1,600 3,694
Cash Conversion % 7 59 102
L) FREE CASH FLOW
Free cash flow is adjusted operating profit adjusted for certain cash and non
cash items. The principal adjustments are depreciation, working capital
movements, net capex, restructuring cash flows, tax cash flows, cash interest
and minority interest dividends.
RECONCILIATION FROM NET CASH FLOW FROM OPERATING ACTIVITIES TO FREE CASH FLOW
Unaudited Unaudited Audited
£ million 6 months ended 31 March 2023 6 months ended 31 March 2023 Year ended 30
September 2022
Net cash generated from operating activities (4) 700 3,186
Net capital expenditure (119) (64) (177)
Cash interest (237) (242) (358)
Minority interest dividends (72) (58) (89)
Free cash flow (432) 336 2,562
GLOSSARY
Financial terms
Adjusted earnings per share This is an adjusted performance measure which is defined within section G of
the supplementary information.
Adjusted net debt This is an adjusted performance measure which is defined within section I of
the supplementary information.
Adjusted net debt to EBITDA multiple This is an adjusted performance measure. Adjusted net debt is defined within
section I of the supplementary information. EBITDA is defined within section J
of the supplementary information.
Adjusted EBITDA Adjusted EBITDA is calculated as adjusted operating profit plus amortisation,
depreciation and impairments.
Adjusted net finance costs This is an adjusted performance measure which is defined within section E of
the supplementary information.
Adjusted operating cash conversion This is an adjusted performance measure which is defined within section K of
the supplementary information.
Adjusted operating profit This is an adjusted performance measure which is defined within section C of
the supplementary information.
Adjusted operating profit margin Adjusted operating profit margin is calculated as adjusted operating profit
divided by net revenue.
Adjusted (Non-GAAP) Non-GAAP measures provide a useful comparison of performance from one period
to the next.
Adjusted tax charge This is an adjusted performance measure which is defined within section F of
the supplementary information.
All in cost of debt Adjusted net finance costs divided by the average net debt in the period.
Constant currency Removes the effect of exchange rate movements on the translation of the
results of our overseas operations. The Group translate current year results
at prior year foreign exchange rates.
Dividend per share Dividend per share represents the total annual dividends, being the sum of the
paid interim dividend and the proposed final dividend for the financial year.
GAAP Generally accepted accounting principles.
EBITDA Earnings before interest, taxation, depreciation and amortisation.
Market share/ Aggregate Market share Market share is presented as a 6-month average to the end of March (MHT -
moving half-year trend), unless otherwise stated. Aggregate market share is a
weighted average across markets within our footprint.
Net debt to EBITDA Adjusted closing net debt divided by adjusted EBITDA.
Reported (GAAP) Reported (GAAP) Complies with International Financial Reporting Standards
and the relevant legislation.
Stick equivalent volumes Stick equivalent volumes reflect our combined cigarette, fine cut tobacco,
cigar and snus
volumes but exclude any NGP volume such as heated tobacco, modern oral
nicotine and vapour.
Tobacco & NGP Net revenue/ Distribution Gross Profit These are adjusted performance measures which are defined within sections A
and B of the supplementary information.
Total shareholder return Total shareholder return is the total investment gain to shareholders
resulting from the movement in the share price and assuming dividends are
immediately reinvested in shares.
AAACE This is a region within Imperial Brands plc focusing on Africa, Asia,
Australasia and Central & Eastern Europe.
Distribution Logistics segment.
ESG Environmental, social and governance.
NGP Next Generation Products.
NTM Non-tobacco materials.
Priority markets Top 5 combustible markets USA, Germany, UK, Spain and Australia.
SE Stick Equivalent (SE) volumes reflect our combined cigarette, fine cut
tobacco, cigar and snus volumes.
Tobacco & NGP Tobacco & Next Generation Products.
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