REG - Imperial Brands Fin - Half-year Report
26/05/2022 10:15
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RNS Number : 9216M Imperial Brands Finance PLC 26 May 2022
Company Number: 03214426
LEI: 2138008L3B3MCG1DFS50
IMPERIAL BRANDS FINANCE PLC
Interim Financial Statements 2022
INTERIM MANAGEMENT REPORT
For the six months ended 31 March 2022
The Directors present their Interim Management Report together with the
condensed unaudited Interim Financial Statements of Imperial Brands Finance
PLC ("the Company") for the six months ended 31 March 2022.
Business review and performance
The principal activity of the Company is to provide treasury services to
Imperial Brands PLC and its subsidiaries ("the Group"). There have been no
changes in the composition of the Company in the interim period.
The performance of the Company is dependent on external borrowings and
intragroup loans payable and receivable and interest thereon, together with
fair value gains and losses on derivative financial instruments.
The loss for the six months ended 31 March 2022 was £81 million (2021: profit
of £177 million) and is stated after a charge of £168 million (2021: £57
million) arising on an increase in the expected credit loss provision against
the carrying value of certain loans made to entities within the Imperial
Brands Group. The expected loss provision arises due to increases in the
assessment of credit risk associated with the future repayment of the loans.
The Group disposed of its interests in Russia on 27 April 2022. The
transaction included a waiver of two intragroup loans made to Russian
subsidiary companies. The decision to exit operations in Russia has also had
an impact on the recoverability of a number of other intragroup loans.
Intragroup loans to Russian and a number of other Group entities have
subsequently been fully provided for. The charge arising is not tax deductible
and therefore there is no associated tax credit. Total shareholders' funds as
at 31 March 2022 were £2,232 million (2021: £2,435 million).
The directors do not recommend a dividend for the current period. There were
no aggregate dividends on the ordinary shares recognised as a charge to
shareholders' funds during the six months ended 31 March 2022 (2021: £Nil).
Principal risks and uncertainties
The Company is a wholly owned indirect subsidiary of Imperial Brands PLC,
which is the ultimate parent company within the Group, and the Directors of
the Group manage operations at a Group level. The Company, as the main
financing and financial risk management company for the Group, undertakes
transactions to manage the Group's financial risks, together with its
financing and liquidity requirements.
The principal risks and uncertainties of the Company are discussed in note 20
of the Company's Annual Report and Accounts for the year ended 30 September
2021, which does not form part of this report, but is available at
www.imperialbrandsplc.com. These risks and uncertainties remain materially
unchanged as at 31 March 2022.
COVID-19 and Macro-economic environment
Over the past six months the Group, in common with other organisations, has
had to manage the continuing impacts of COVID-19, as well as those arising
from Russia's invasion of Ukraine. The wider socio-economic effects of
COVID-19 and the conflict in Ukraine have started to impact businesses and
consumers across all goods and services and could impact the commercial
environment into the longer-term.
The Directors recognise 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 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. The scenario
planning also considered mitigation actions including reductions to capital
expenditure and dividend payments. There are additional actions that were not
modelled but could be taken including other cost mitigations such as staff
redundancies, retrenchment of leases, and discussions with lenders about
capital structure. Under the worst-case scenario, where the largest envisaged
downside scenarios all take place at the same time the Group would have
sufficient headroom until February 2023. The Group believes this worst-case
scenario to be highly unlikely given the relatively small impact on trading
performance and bad debt levels during the Covid-19 pandemic. In addition, the
Group has a number of mitigating actions available that could be implemented
should such a scenario arise. This means that the Group is confident it
continues to have the ability to pay down debt, maintain covenants, credit
ratings, bank, bond, and investor confidence.
LIBOR
Following the announcement of the discontinuation of GBP LIBOR at the end of
2021 and USD LIBOR discontinuation in 2023, the Company has amended its bank
facility agreement to stop referencing GBP and USD LIBOR and instead reference
the daily risk free rates of SONIA and SOFR respectively. In the first half of
the fiscal year all GBP LIBOR derivatives have been changed to reference SONIA
instead of GBP LIBOR. All USD LIBOR derivatives will be changed to reference
SOFR instead of USD LIBOR during the remainder of calendar year 2022. There
are no changes pending for EUR derivatives.
Outlook
The business activity is expected to continue at levels similar to the current
level. The Company will continue to manage the overall liquidity and financial
risk management requirements of the Group as they change over time. The
Company will manage the Group's financing requirement in combination with
other Group entities where it is beneficial to the Group as a whole.
Going concern
The Directors are satisfied that the Company has adequate resources to meet
its operational needs for the foreseeable future and accordingly they continue
to adopt the going concern basis in preparing these Interim Financial
Statements.
Changes in Directorate
On 1 November 2021 J M Jones resigned as a director. On 18 December 2021 M E
Slade was appointed as a director. On 18 February 2022 M A Wall resigned and D
M Tillekeratne was appointed as a director.
Directors' responsibility statement
The Board of Directors comprising L J Paravicini, M E Slade and D M
Tillekeratne, confirms that:
● the condensed Interim Financial Statements have been prepared in
accordance with applicable accounting standards and give a true and fair view
of the assets, liabilities, financial position and profit or loss of the
Company as required by Rule 4.2.4 of the Disclosure Transparency Rules of the
United Kingdom's Financial Conduct Authority ("the DTRs"); and
● the Interim Management Report includes a fair review of the information
required by Rule 4.2.7 of the DTRs, namely an indication of important events
that have occurred during the six months ended 31 March 2022 and their impact
on the condensed set of Interim Financial Statements, and a description of the
principal risks and uncertainties for the remaining six months of the year.
By order of the Board
M E Slade
D M Tillekeratne
Director
Director
20 May 2022
20 May 2022
INTERIM FINANCIAL STATEMENTS
For the six months ended 31 March 2022
Income Statement
Unaudited Unaudited Audited
(In £ million) Notes 6 months ended 31 March 2022 6 months ended 31 March 2021 Year ended 30
September 2021
Other operating income - - 1
Administrative expenses (1) (2) (1)
Impairment losses (168) (57) (198)
Operating loss (169) (59) (198)
Investment income 2 1,040 1,886 2,034
Finance costs 3 (932) (1,595) (1,721)
(Loss)/profit before taxation (61) 232 115
Tax on profit 4 (20) (55) (60)
(Loss)/profit for the period (81) 177 55
All activities derive from continuing operations.
The Company has no other comprehensive income other than that included above
and, therefore, no separate Statement of Comprehensive Income has been
presented.
Balance Sheet
Unaudited Unaudited Audited
(£ million) Notes 31 March 2022 31 March 2021 30 September 2021
Non-current assets
Other receivables 7 44 198 64
Derivative financial instruments 6 179 480 391
223 678 455
Current assets
Other receivables 7 28,446 32,307 33,731
Cash and cash equivalents 23 170 622
Derivative financial instruments 6 93 104 68
28,562 32,581 34,421
Total assets 28,785 33,259 34,876
Current liabilities
Borrowings (1,669) (1,435) (1,056)
Derivative financial instruments 6 (276) (1,093) (62)
Trade and other payables (16,040) (18,614) (21,745)
(17,985) (21,142) (22,863)
Non-current liabilities
Borrowings (7,139) (8,645) (7,857)
Derivative financial instruments 6 (592) (1,037) (984)
(837) - (859)
(8,568) (9,682) (9,700)
Total liabilities (26,553) (30,824) (32,563)
Net assets 2,232 2,435 2,313
Equity
Share capital 2,100 2,100 2,100
Retained earnings 132 335 213
Total equity 2,232 2,435 2,313
Statement of Changes in Equity (unaudited)
Share Retained Total
capital earnings equity
£ million
At 1 October 2021 2,100 213 2,313
Loss for the period - (81) (81)
Total comprehensive loss - (81) (81)
At 31 March 2022 2,100 132 2,232
Unaudited
Share Retained Total
capital earnings equity
At 1 October 2020 2,100 158 2,258
Profit for the period - 177 177
Total comprehensive income - 177 177
At 31 March 2021 2,100 335 2,435
NOTES TO THE INTERIM FINANCIAL STATEMENTS
For the six months ended 31 March 2022
1. Accounting Policies
These condensed Interim Financial Statements have been prepared on the going
concern basis and in accordance with the United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and applicable law)
including the Companies Act 2006 and FRS 101.
Basis of Preparation
The condensed Interim Financial Statements comprise the unaudited results for
the six months ended 31 March 2022 and 31 March 2021, together with the
audited results for the year ended 30 September 2021.
The information shown for the year ended 30 September 2021 does not constitute
statutory accounts within the meaning of section 434 of the Companies Act
2006, and is an abridged version of the Company's Financial Statements for
that year. The Auditors' Report on those Financial Statements was
unqualified and did not contain any statements under section 498 of the
Companies Act 2006. The Financial Statements for the year ended 30 September
2021 were approved by the Board of Directors on 28 January 2022 and filed with
the Registrar of Companies.
This condensed set of Interim Financial Statements for the six months ended 31
March 2022 has been prepared in accordance with the Disclosure and
Transparency Rules of the Financial Conduct Authority and FRS 104 'Interim
Financial Reporting' ("FRS 104") as adopted by the Financial Reporting Council
("FRC") using the recognition and measurement requirements of FRS 100
'Application of Financial Reporting Requirements' ("FRS 100") and FRS 101
'Reduced Disclosure Framework' ("FRS 101"). The condensed set of Interim
Financial Statements for the six months ended 31 March 2022 should be read in
conjunction with the Annual Report and Financial Statements for the year ended
30 September 2021.
The Company has taken advantage of the following disclosure exemptions under
FRS 101 on the basis that the disclosures are available within the
consolidated financial statements of the ultimate parent company, which is
Imperial Brands PLC:
a) the requirement in paragraph 38 of IAS 1 Presentation of Financial
Statements to present comparative information in respect of paragraph
79(a)(iv) of IAS 1 Presentation of Financial Statements.
b) the requirements of paragraphs 10(d) and 10(f) of IAS 1 Presentation
of Financial Statements.
c) the requirements of IAS 7 Statement of Cash Flows
d) the requirements of paragraph 17 of IAS 24 Related Party Disclosures.
e) the requirements in IAS 24 Related Party Disclosures to disclose
related party transactions entered into between two or more members of a
group, provided that any subsidiary which is a party to the transaction is
wholly owned by such a member.
The Imperial Brands PLC consolidated financial statements may be found in via
the investor relations section of the Imperial Brands PLC website at
www.imperialbrandsplc.com/investors
(http://www.imperialbrandsplc.com/investors) .
The Interim Financial Statements have been prepared on an amortised cost or
fair value basis as described in the accounting policies on derivative
financial instruments below
The Company is a wholly owned indirect subsidiary of Imperial Brands PLC and
is included in the consolidated Financial Statements of Imperial Brands PLC.
Consequently, the Company has taken advantage of the exemption conferred by
FRS 101 paragraph 8(h) and not presented a cash flow statement.
2. Investment income
Unaudited Unaudited Audited
(In £ million) 6 months ended 31 March 2022 6 months ended 31 March 2021 Year ended 30 September 2021
Interest receivable from Group undertakings 252 279 554
Exchange gains on monetary assets and liabilities 100 1,190 997
Fair value gains on external derivative financial instruments 688 417 483
1,040 1,886 2,034
3. Finance costs
Unaudited Unaudited Audited
(In £ million) 6 months ended 31 March 2022 6 months ended 31 March 2021 Year ended 30 September 2021
Interest payable to Group undertakings 55 32 70
Interest on bank loans and other loans 148 182 380
Fair value losses on external derivative financial instruments 616 327 427
Fair value losses on intragroup derivative financial instruments 113 1,054 844
932 1,595 1,721
4. Tax on profit
Analysis of charge in the period:
Unaudited Unaudited Audited
(In £ million) 6 months ended 31 March 2022 6 months ended 31 March 2021 Year ended 30 September
2021
UK Corporation tax on profits for the period 20 55 60
Withholding tax - - 1
Double taxation relief - - (1)
Current tax 20 55 60
Total taxation 20 55 60
5. Fair value of financial assets and liabilities
There are no material differences between the carrying value of the Company's
financial assets and liabilities and their estimated fair value, with the
exception of bonds. The fair value of bonds is estimated to be £7,963
million (2021: £10,837 million) and has been determined by reference to
market prices at the balance sheet date. The carrying value of bonds is
£7,899 million (2021: £10,076 million). The fair value of all other
borrowings is considered to be equal to their carrying amount.
6. Derivative financial instruments
Unaudited Unaudited Audited
(In £ million) 6 months ended 31 March 2022 6 months Year ended 30 September 2021
ended 31
March 2021
Assets
Interest rate swaps 190 542 451
Foreign exchange contracts 21 21 4
Intragroup forward foreign currency contracts 35 17 -
Cross currency swaps 26 4 4
Total carrying value of derivative financial assets 272 584 459
Liabilities
Interest rate swaps (480) (862) (813)
Foreign exchange contracts (16) (3) (4)
Intragroup forward foreign currency contracts (227) (1,051) -
Cross currency swaps (179) (261) (266)
Total carrying value of derivative financial liabilities before collateral (902) (2,177) (1,083)
Collateral 34 47 37
Total carrying value of derivative financial liabilities (868) (2,130) (1,046)
Total carrying value of derivative financial instruments (596) (1,546) (587)
Analysed as:
Interest rate swaps (290) (320) (362)
Foreign exchange contracts 5 18 -
Intragroup forward foreign currency contracts (192) (1,033) -
Cross currency swaps (153) (258) (262)
Collateral 34 47 37
Total carrying value of derivative financial instruments (596) (1,546) (587)
The Company's derivative financial instruments are held at fair value. Fair
values are determined based on observable market data such as yield curves and
foreign exchange rates to calculate the present value of future cash flows
associated with each derivative at the balance sheet date, and are consistent
with those applied for the year ended 30 September 2021.
All financial assets and liabilities are carried on the balance sheet at
amortised cost, other than derivative financial instruments 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 £17 million (2021: £21 million)
and would have been a £33 million (2021: £46 million) reduction without
considering the early termination options. There were no changes to the
valuation methods or transfers between hierarchies during the period. With
the exception of capital market issuance, the fair value of all financial
assets and financial liabilities is considered to approximate to their
carrying amount.
7. Other receivables
Unaudited Unaudited Audited
6 months ended 31 March 2022 6 months ended 31 March 2021 Year ended 30 September
2021
(In £ million) Current Non-Current Current Non-current Current Non-Current
Amounts owed by Group undertakings 28,442 44 32,305 198 33,724 64
Other receivables and prepayments 4 - 2 - 7 -
28,446 44 32,307 198 33,731 64
Amounts owed by Group undertakings are unsecured, both interest bearing and
non-interest bearing and can be either repayable on a future date to be
mutually agreed between the Company and the counterparty borrower or have
fixed repayment dates. At 31 March 2022 £25,322 million (2021: £29,254
million) of the amounts owed by Group undertakings is repayable on a mutually
agreed future date (treated as a current receivable) and £3,164 million
(2021: £3,249 million) were term loans. There were £27,847 million (2021:
£31,869 million) of interest bearing loans and £639 million (2021: £634
million) of non-interest bearing loans. Where loans were subject to interest
the rates charged varied from 0.125% to 20.000% (2021: 0.125% to 5.750%).
The Directors have assessed the extent to which amounts owed by the Group
companies are impaired. For those balances that are neither overdue nor
impaired the Directors have concluded that the expected credit losses (ECL)
that are possible from default events over the next twelve months are
immaterial and consequently no allowance for impairment has been recognised.
For those balances assessed to be impaired, an expected credit loss adjustment
of £660 million (2021: £351 million) has been recognised to reflect the
credit risk inherent within a number of the current intragroup loans
receivable, as follows:
31 March 2022
Gross amount ECL allowance Net balance
Group undertaking loan receivable balances that are not impaired 28,207 - 28,207
Group undertaking loan receivable balances that are impaired 939 (660) 279
29,146 (660) 28,486
31 March 2021
Gross amount ECL allowance Net balance
Group undertaking loan receivable balances that are not impaired 31,908 - 31,908
Group undertaking loan receivable balances that are impaired 946 (351) 595
32,854 (351) 32,503
30 September 2021
Gross amount ECL allowance Net balance
Group undertaking loan receivable balances that are not impaired 33,513 - 33,513
Group undertaking loan receivable balances that are impaired 767 (492) 275
34,280 (492) 33,788
The charge in the period was £168 million (2021: £57 million). There were
loan receivables totalling £131 million included in the ECL provision of
£660 million that have subsequently been waived after the interim reporting
date as a result of the disposal of the Group's Russian operations.
8. Related party transactions
The Company has taken advantage of the Group dispensation permitted under FRS
101 for 100% owned Group subsidiaries, not to disclose intragroup transactions
undertaken during the period.
During the period the Company charged interest and other expenses to
Compañía de Distribución Integral Logista S.A.U. to the value of €1
million (2021: €1million). At 31 March 2022, the Company had an
outstanding balance receivable due from Compañía de Distribucion Integral
Logista SAU totalling €442 million (2021: €625 million).
During the period the Company was charged interest to the value of €5
million by Logista France SAS (2021: €5 million). At 31 March 2022, the
Company had an outstanding balance payable to Logista France SAS totalling
€1,419 million (2021: €1,343 million).
During the period the Company was charged interest to the value of €4
million by Logista Italia SpA (2021: €4 million). At 31 March 2022, the
Company had an outstanding balance payable to Logista Italia SpA totalling
€1,124 million (2021: €945 million).
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