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Imperial Tobacco Gp (IMT)

  Print          Annual reports

Wednesday 07 May, 2014

Imperial Tobacco Gp

Half Year Report

RNS Number : 4384G
Imperial Tobacco Group PLC
07 May 2014
 



7 May 2014

 

IMPERIAL TOBACCO GROUP PLC

HALF YEAR RESULTS FOR THE 6 MONTHS ENDED 31 MARCH 2014

 

HALF YEAR RESULTS CONFIRM FULL YEAR TARGETS

 

 

Overview - Adjusted Basis1


Half Year Result


Change




 

2014

 

2013

 

Actual

Constant

Currency1

 

Underlying1

Growth Brand volume

bn SE1

60

62

-3%


+4%

Tobacco net revenue

£m

3,134

3,284

-5%

-2%

+2%

Tobacco adjusted operating profit

£m

1,296

1,359

-5%

-2%


Logistics adjusted operating profit

£m

73

74

-1%

-1%


Total adjusted operating profit

£m

1,367

1,425

-4%

-1%


Adjusted earnings per share

pence

89.6

90.2

-1%

+3%


Interim dividend per share

pence

38.8

35.2

+10%



1 Change at constant currency removes the effect of exchange rate movements on the translation of the results of our overseas operations. Underlying change additionally removes the impact of the stock optimisation programme which is reducing trade inventories in a number of markets. See Basis of Presentation in Other Information. References in this document to percentage growth and increases or decreases in our adjusted results are on a constant currency basis unless stated otherwise.

 

Enhancing quality of growth

·      Growth Brands: underlying1 volumes up 4%, outperforming the market

·      Specialist Brands: underlying1 tobacco net revenue up 6%

·      Growth Markets: underlying1 tobacco net revenue up 7%

·      Returns Markets: maintained profit performance

 

Stock optimisation programme reduced trade inventories

·      Significant stock reductions achieved, impacting volume, revenue and profit

·      Stock optimisation programme will strengthen long-term supply effectiveness

 

Cost optimisation programme on track

·      Cost optimisation programme on track to deliver incremental savings of £60 million for the full year

 

Sustainable shareholder returns

·      Strong interim dividend growth of 10%; quarterly dividend payments to start in 2015

 

Full year outlook unchanged

·      Modest adjusted earnings per share growth at constant currency and further dividend growth of at least 10%

 

Alison Cooper, Chief Executive, said: "We continue to drive our strategy to build the quality and sustainability of the business. Our stock optimisation programme has inevitably impacted some of our numbers but I'm pleased with our underlying performance. Our Growth Brands again outperformed the market, with underlying volumes up 4 per cent. Actively managing our cost base is releasing funds to invest in these brands and their development is being further supported by the stock optimisation programme.

 

"Our second half priority is to build on our growth momentum with a particular focus on strengthening our market shares, which are on an improving trend across many territories. Conditions are still tough in some markets but we continue to demonstrate our resilience and remain on course to deliver our full year targets.''

 

Overview - Reported Basis*


Half Year Result

Change



2014

2013

Actual

Underlying1

Total tobacco volume

bn SE

140

152

-8%

-4%

Revenue

£m

12,717

13,376

-5%


Operating profit

£m

999

1,201

-17%


Basic earnings per share

pence

38.1

62.4

-39%


*Reported results were adversely affected by our stock optimisation programme, but the reduction in profits and EPS is mainly due to increased non-cash amortisation charges and deferred tax charges. 1 See Basis of Presentation in Other Information.

 

BUSINESS REVIEW

 

Overview

The success of our strategy continues to improve the quality of our growth and strengthen our sustainability. We are focused on maximising opportunities for our Growth Brands and Growth Markets, whilst generating strong returns from our Specialist Brands and Returns Markets.

 

In support of our strategy, we are optimising our cost base and implementing a stock optimisation programme.  The stock programme is reducing trade inventories in some markets, most notably in our Growth Markets of Iraq and Russia. This has impacted our volume, revenue and profit performance but is providing long-term benefits to our supply effectiveness.

 

Robust First Half Performance

We delivered a robust first half performance, improving tobacco net revenue by 2 per cent on an underlying basis. Adjusted operating profit declined by 1 per cent, impacted by the stock optimisation programme and investment in our brands, and we grew adjusted earnings per share by 3 per cent.

 

We increased the interim dividend by 10 per cent to 38.8 pence per share, in line with our commitment to grow dividends ahead of adjusted earnings per share and by at least 10 per cent per year over the medium term. With effect from our 2015 financial year we will pay dividends on a quarterly basis in order to give shareholders more regular cash returns.

 

Growth Brands Continue To Outperform

We have 10 high quality Growth Brands: Davidoff, Gauloises Blondes, JPS, West, Fine, News, USA Gold, Bastos, Lambert & Butler and Parker & Simpson.

 

These brands continue to outperform the market, with underlying volumes up 4 per cent and underlying net revenues up 6 per cent.

 

These results reflect the quality of growth we're targeting and were achieved against a backdrop of market declines of 4 per cent. Our Growth Brand performance in Growth Markets was particularly strong, with underlying volumes increasing 11 per cent. The investments we're making to support the development of these brands are focused on initiatives that will build our presence in profitable high growth segments.

 

Growth Brand highlights included the rejuvenation of Davidoff which has supported the brand's growth momentum in Asia, the Middle East and Europe. JPS made further gains in Australia and the EU and we delivered another strong performance from West in Asia, led by the success of slimmer formats. Gauloises Blondes made good progress in the Middle East and we continued to build Parker & Simpson volume with launches in several new markets. Elsewhere, USA Gold improved share in key focus states and we strengthened the Lambert & Butler brand franchise with the launch of a new value variant. We also grew volumes of Bastos in Vietnam, Fine in Africa and News in France.

 

Overall Growth Brands accounted for 43 per cent of total volumes, an increase of 210 basis points, and 40 per cent of tobacco net revenue, an increase of 120 basis points. On an aggregate basis, the market share of our Growth Brands grew to 5.4 per cent.

 

Specialist Brands Growing Revenues

Our Specialist Brands highlight our unique total tobacco strength and consist of: Style, Gitanes (cigarettes), Golden Virginia, Drum, Route 66 (fine cut tobacco), Cohiba, Montecristo, Romeo Y Julieta (premium cigars), Backwoods (cigars), Skruf (snus) and Rizla (papers).

 

These brands provide opportunities for growth across the tobacco spectrum and have a track record of generating strong returns.

 

In cigarette we've focused on building the presence of Gitanes in Iraq and maintaining Style's growth momentum in Eastern Europe. Market declines in Spain undermined our overall fine cut tobacco performance. In Scandinavia Skruf added to its growth record with another excellent performance and we achieved good results in mass market and premium cigars in Growth Markets.

 

Overall we increased Specialist Brand net revenues by 6 per cent on an underlying basis and these brands now account for 12.7 per cent of tobacco net revenue, an increase of 70 basis points.

 

Good Progress in Growth Markets

We made good progress in a broad spread of Growth Markets, increasing underlying net revenue by 7 per cent. Adjusted operating profit was down 11 per cent, reflecting the focus of our stock optimisation programme and investments behind growth.

 

In Russia regulation is affecting industry volumes and changing the route to market and we are working with our distributor to reduce stock levels to improve supply efficiencies. Our local brand Maxim is regaining ground as we continue to leverage new formats and target growth in key regions. In the USA our focus on pricing and customer engagement initiatives continues to strengthen our market share and improve profitability. Building further momentum behind our performance in both these markets is a priority for the second half.

 

Elsewhere we made good progress in a broad spread of Growth Markets including Italy, Norway, Sweden, Saudi Arabia, Taiwan, Vietnam and Cambodia.

 

Our overall share position in Growth Markets was slightly down, impacted by conditions in Russia. Excluding Russia our share was up.

 

Resilience in Returns Markets

Dividing our Returns Markets into North and South enables us to better manage these significant profit pools. Trading remains challenging in a number of these markets, particularly in Returns South as a result of difficult economic conditions and illicit trade which are leading to industry volume declines.

 

Against this backdrop we are demonstrating greater resilience in Returns Markets, maintaining profits and improving the quality of our growth through further gains from our Growth Brands. Results in Germany and Australia were particularly strong in Returns North, mitigating the impact of weakness in Morocco, France and Spain in Returns South.

 

Our share across Returns Markets was 26.8 per cent compared to 27.7 per cent last year reflecting industry cigarette volumes declines in large markets like the UK and Spain where we have higher share than in other Returns Markets.

 

We grew net revenue per thousand stick equivalents by 5 per cent. Adjusted operating profit was stable, a robust result given the pressures in Returns South. Growth Brands generated 41.3 per cent of tobacco net revenue in Returns Markets, up by 200 basis points.

 

Fontem Ventures

We're developing opportunities for additional long-term revenue growth through our new standalone subsidiary Fontem Ventures. In February Fontem Ventures entered the rapidly growing e-vapour sector with the UK launch of the Puritane e-cigarette brand. Puritane was developed in association with Hon Lik, the acknowledged inventor of the e-cigarette now working with Fontem Ventures, and is being sold exclusively through the national retailer Boots. We continue to focus on further product launches, whilst further developing patented technologies.

 

Logistics

Our logistics business Logista is one of the largest of its kind in Europe, making more than 35 million deliveries a year to 300,000 outlets across Spain, France, Italy, Portugal and Poland. The business has a long track record of value creation and delivered another good performance in a challenging trading environment.

 

In tobacco logistics cost saving initiatives and distribution fee increases offset lower tobacco volumes. In non-tobacco logistics there were good results in a number of areas including transport, and wholesale.

 

Overall, distribution fees increased by 3 per cent to £430 million and adjusted operating profit declined slightly, by 1 per cent to £73 million.

 

The Logista team continue to focus on managing costs and generating new growth opportunities to drive the profitable development of the business over the long-term. A review in relation to a potential IPO of Logista that was announced in February is ongoing.

 

Cost Optimisation

Efficiently managing cost and cash supports our sustainable growth strategy. Our cost optimisation programme, which will save £300 million per annum from September 2018, remains on track and will deliver further incremental savings of £60 million in 2014.

 

Restructuring projects announced in April to strengthen our competitive position in the UK and France, including the potential closure of cigarette factories in Nottingham and Nantes and the consolidation of French R&D facilities, support the cost programme.

 

Our cost programme is complemented by our stock optimisation programme which is improving our supply efficiency and the effectiveness of our portfolio, innovation, pricing and customer engagement initiatives.

 

Effective Cash Management

Our focus on cash generation and effective management of our working capital enabled us to increase cash conversion to 78 per cent, from 63 per cent over the comparative 12 months.

 

We also spent £237 million in the first half of the year acquiring 10.1 million shares as part of our annualised £500 million share buyback programme.

 

From our 2015 financial year we will begin quarterly dividend payments in order to provide more regular cash returns to shareholders.

 

Outlook

The actions we're taking in transitioning the business are strengthening our brands and market footprint, providing a stronger platform for generating quality sustainable growth. Building further momentum behind our Growth and Specialist Brands and improving our market share positions are key priorities for the second half.

 

The good progress we're making with our cost and stock optimisation programmes supports our growth ambitions. Trading conditions are unlikely to materially improve in the coming months but we're experienced in growing our business in a demanding environment and remain on track to achieve our targets and create further value for shareholders.

 

OPERATIONAL PERFORMANCE

 

Footprint and Portfolio Overview

We manage our markets based on the strategic roles they play, not by geographic location, with markets prioritising Growth or Returns. This drives better resource allocation and greater collaboration between markets, providing a strong platform for generating higher quality growth.

 

Growth Markets include selected markets in the EU, Eastern Europe, Asia, the Middle East and the USA. We typically have shares below 15 per cent in these markets and prioritise driving long-term share and profit growth.

 

Returns Markets are split into North and South and include Australia and markets in the EU, Eastern Europe and Africa, where we tend to have large shares above 15 per cent. In these markets we prioritise profit growth and actively manage our strong share positions.

 

Our portfolio priorities are focused on driving the performance of our Growth Brands and Specialist Brands. These are the most important brands in our portfolio and together they account for more than 50 per cent of our tobacco net revenue. The remainder of our portfolio consists of local and regional brands that fulfil a variety of roles. Some of these brands have the capacity to continue adding to our revenue momentum and others will add greater value by being migrated into Growth Brands.

 

Growth Markets


Half Year Result

Change



 

2014

 

2013

 

Actual

Constant

Currency1

 

Underlying1

Market share (%)

5.7

5.8

-10 bps



Tobacco net revenue (£m)

914

988

-7%

-4%

+7%

Adjusted operating profit (£m)

207

247

-16%

-11%


Growth Brands % tobacco net revenue

37

38

-80 bps

-140 bps

+150 bps

Growth Brand volume (bn SE)

25

26

-5%


+11%

Market share excludes China; 1 See Basis of Presentation in Other Information.

 

We're building good underlying momentum across our Growth Markets. Against a backdrop of industry volume declines of 4 per cent in our Growth Markets we improved underlying net revenue by 7 per cent. Our share was broadly flat, held back by weak industry volumes in Russia. Our Growth Brands performed well in a broad spread of markets, reflecting the quality of growth we're targeting. Our Specialist Brand premium cigars continue to gain ground in a number of territories, with Cohiba, Montecristo and Romeo Y Julieta all increasing volumes.

 

Country

Performance

Greece

Gains from Davidoff supported by JPS enhanced our cigarette market share and we added to our fine cut tobacco presence with the launch of the new fine cut tobacco offering: gV.

Italy

We grew our cigarette share with JPS continuing to drive performance in an increasingly competitive environment.

Sweden & Norway

Our snus business increased share, volume, revenue and profit driven by another excellent performance from Skruf.

Iraq

Our supply agility is improving with the success of our stock optimisation programme. West Gauloises Blondes and Gitanes gained volume and migrating a local brand into Parker & Simpson is further improving our quality of growth.

Saudi Arabia

We increased our cigarette share with a good performance from West, supported by Davidoff, Gauloises Blondes and Gitanes.

Turkey

We grew market share but profit declined due to significant price competition. We enhanced our portfolio with the launches of Davidoff Blue, with a recessed charcoal filter, and West Duo, with a crushball filter.

Japan

We further built our presence with West, supported by a number of customer engagement initiatives.

Taiwan

We achieved strong volume growth with West and improved our cigarette market share following gains from Davidoff.

Russia

Our stock optimisation programme is focused on strengthening our position in difficult market conditions. Maxim performed well against this backdrop, benefitting from new formats including queen size and big boxes, supported by Style and Davidoff.

Kazakhstan

Our market share and volume was significantly higher as we made further excellent progress with West and launched Parker & Simpson.

Vietnam

We continue to build our presence with growth in Bastos underpinning our enhanced volume, share and profit performance.

Cambodia

Fine continued to drive our strong performance with volume and market share gains.

USA

We improved profit and made progress with our cigarette share in key states with USA Gold. We also increased volumes of Backwoods cigars.

 

Returns Markets


Half Year Result

Change



 

2014

 

2013

 

Actual

Constant

Currency1

 

Underlying1

Market share (%)

26.8

27.7

-90 bps



Net revenue per '000 SE (£)

23.82

23.03

+3%

+5%

+7%

Adjusted operating profit (£m)

1,089

1,112

-2%

+0%


Growth Brands % tobacco net revenue

41

39

+200 bps

+160 bps

+170 bps

1 See Basis of Presentation in Other Information.

 

Industry volumes declined by 5 per cent in Returns Markets. The impact of a weak operating environment in Returns South was offset by results in Returns North such that adjusted operating profit across our Returns Markets was flat. Our market share position was impacted by industry volumes declines in markets such as the UK and Spain, where we have higher share than in other Returns Markets. We grew net revenue per thousand stick equivalents by 5 per cent and our market share was 26.8 per cent compared to 27.7 per cent last year. We increased the revenue contribution from our Growth Brands; these brands generated 41 per cent of tobacco net revenue in Returns Markets, 200 basis points higher than last year.

 

Returns Markets North

 


Half Year Result

Change



 

2014

 

2013

 

Actual

Constant

Currency1

 

Underlying1

Market share (%)

25.0

25.8

-80 bps



Net revenue per '000 SE (£)

28.21

26.99

+5%

+7%

+10%

Adjusted operating profit (£m)

728

731

-0%

+3%


Growth Brands % tobacco net revenue

45

43

+190 bps

+130 bps

+170 bps

1 See Basis of Presentation in Other Information.

 

We achieved robust results in Returns Markets North, with net revenue per thousand stick equivalents increasing by 7 per cent and adjusted operating profit increasing by 3 per cent. Our Growth Brands delivered 45 per cent of tobacco net revenue, up from 43 per cent, and our market share was 25.0 per cent, impacted by industry volume declines in the UK.

 

Country

Performance

Australia

Revenue and profit were up and our cigarette and fine cut tobacco shares increased, driven by another strong performance from JPS.

New Zealand

We improved our cigarette and fine cut tobacco shares with growth from JPS.

Benelux

We grew revenue and profit and made further fine cut tobacco volume gains in Belgium with JPS, West, Golden Virginia and News.

Germany

We increased our cigarette share and profit, driven by the strength of our total tobacco portfolio. JPS also made gains in fine cut tobacco.

UK

We focused on portfolio initiatives to reinforce our leadership position in an environment of weak industry volumes, launching JPS Duo in the growing crushball segment and Lambert & Butler Blue, a value variant.

Azerbaijan

Parker & Simpson is building volume following last year's launch and the introduction of a superslims variant has added impetus to West's growth momentum.

Ukraine

We grew revenue and profit in a turbulent environment. West registered strong volume growth and we launched Parker & Simpson.

 

Returns Markets South


Half Year Result

Change



 

2014

 

2013

 

Actual

Constant

Currency1

 

Underlying1

Market share (%)

29.4

30.5

-110 bps



Net revenue per '000 SE (£)

19.06

18.70

+2%

+2%

+2%

Adjusted operating profit (£m)

361

381

-5%

-4%


Growth Brands % tobacco net revenue

35

33

+210 bps

+190 bps

+150 bps

1 See Basis of Presentation in Other Information.

 

Our financial delivery in Returns South, particularly in France, Spain and Morocco, was impacted by the weak operating environment. Our focus on improving the quality of our growth was reflected in the development of our Growth Brands which accounted for 35 per cent of tobacco net revenue, up from 33 per cent last year.

 

Country

Performance

Algeria

Gauloises Blondes and West maintained their growth momentum with both brands gaining volume and share.

Ivory Coast

Further gains from Fine continued to underpin our market leading position.

France

Against a background of weak industry volumes we have particularly focused on capitalising on growth in make your own with Gauloises Blondes and News.

Spain

Marked declines in industry volumes impacted our overall performance but our total tobacco focus generated portfolio gains. We improved our blonde cigarette share and JPS delivered excellent fine cut tobacco volume growth.

Czech Republic

Market share gains were driven by Davidoff, West and Parker & Simpson. We strengthened our presence in the crushball cigarette segment with Parker & Simpson Duo and launched Parker & Simpson make your own tobacco to capitalise on another high growth segment.

Portugal

JPS continued to make progress; our cigarette share increased and we considerably improved our fine cut tobacco share.

Morocco

We have been developing our portfolio to strengthen our position in a challenging market. We have launched a number of new products including MQS, a modern variant of our local brand Marquise, and Gauloises and Marquise fine cut tobacco.

 

FINANCIAL REVIEW

 

When managing the performance of our business we focus on non-GAAP measures which we refer to as adjusted measures. We believe they provide a useful comparison of performance from one period to the next. These adjusted measures are supplementary to, and should not be regarded as a substitute for, GAAP measures, which we refer to as reported measures. The basis of our adjusted measures is explained in our accounting policies accompanying our financial statements, and reconciliations between reported and adjusted measures are included in the appropriate notes to our financial statements. In discussing our results below, percentage growth figures for our 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.

 

Group Results - Constant Currency Analysis

 






 

 

 

£ million unless otherwise indicated

6 months

ended 31

March

2013

 

 

Foreign

Exchange

 

Constant

Currency

growth

6 months

ended 31

March

2014

 

 

 

Change

 

Constant

Currency

change1

Tobacco net revenue

3,284 

(74)

(76)

3,134 

-5%

-2%

Growth Markets net revenue

988 

(35)

(39)

914 

-7%

-4%

Returns Markets North net revenue

1,406 

(36)

(2)

1,368 

-3%

Returns Markets South net revenue

890 

(3)

(35)

852 

-4%

-4%

Tobacco adjusted operating profit

1,359 

(42)

(21)

1,296 

-5%

-2%

Growth Markets adjusted operating profit

247 

(14)

(26)

207 

-16%

-11%

Returns Markets North adjusted operating profit

731 

(24)

21 

728 

+3%

Returns Markets South adjusted operating profit

381 

(4)

(16)

361 

-5%

-4%

Logistics distribution fees

413 

14 

430 

+4%

+3%

Logistics adjusted operating profit

74 

(1)

73 

-1%

-1%

Adjusted operating profit

1,425 

(42)

(16)

1,367 

-4%

-1%

Adjusted net finance costs

(263)

(255)

+3%

+3%

Adjusted EPS

90.2p

(3.2)p

2.6p

89.6p

-1%

+3%

1 See Basis of Presentation in Other Information.

 

We are optimising our cost base and implementing a stock optimisation programme, aligned with our strategy. The stock programme impacted our revenue and profit performance in the period.

 

Tobacco net revenue was down by 2 per cent, as volume declines of 8 per cent more than offset price and mix gains. The proportion of net revenue due to Growth and Specialist brands increased, improving the quality of our revenue and strengthening our sustainability. Logistics distribution fees were 3 per cent higher, a good performance in a challenging environment.

 

Adjusted operating profit declined by 1 per cent. Difficult economic conditions and illicit trade impacted results in Returns Market South, and market weakness continued in Russia following regulatory and excise changes, but these were partly offset by results in Germany and Australia in Returns North. Tobacco adjusted operating profit was down 2 per cent while Logistics adjusted operating profit declined by 1 per cent.

 

Adjusted net finance costs were a little lower at £255 million (2013: £263 million), as average debt remained stable while our cost of debt declined slightly. Reported net finance costs were £351 million (2013: £371 million), reflecting net fair value and exchange losses on financial instruments of £75 million (2013: £87 million) and post-employment benefits net financing costs of £21 million (2013: £21 million).

 

After tax at an effective rate of 22 per cent (2013: 23 per cent), adjusted earnings per share grew by 3 per cent to 89.6 pence.

 

Reported earnings per share were 38.1 pence (2013: 62.4 pence) reflecting non-cash amortisation of £326 million (2013: £184 million) which has increased following revisions to the estimated period of time over which we will amortise certain intangible assets, higher deferred tax charges for intangible assets primarily due to a re-measurement of existing balances following a change in the relevant French tax rate, and restructuring costs of £42 million (2013: £40 million), mainly in respect of our continuing cost optimisation programme. We remain on track to deliver incremental savings of around £60 million in 2014.

 

Cash Flows and Financing

Our reported net debt was £11.4 billion, slightly higher than a year ago, and up from £9.5 billion at 30 September 2013 mainly due to seasonal movements in working capital.

 

Eliminating accrued interest, the fair value of derivatives providing commercial cash flow hedges and finance lease liabilities, our adjusted net debt was £11.1 billion (2013: £11.0 billion).

 

Our cash conversion improved from 63 per cent in the year to 31 March 2013 to 78 per cent in the year to 31 March 2014, mainly due to the relative timing of cash flows in our Logistics business.  We continue to focus on cash generation and effective management of our working capital.

 

During the first half we repaid bonds totalling €1.7 billion in October and November, and in February we issued three new bonds totalling £1.8 billion with maturities ranging from seven to eighteen years.

 

The denomination of our closing adjusted net debt was split approximately 65 per cent euro, 30 per cent sterling and 5 per cent US dollar. As at 31 March 2014 we had committed financing facilities in place of around £15 billion. Some 21 per cent was bank facilities and 9 per cent was commercial paper, with the balance raised through capital markets. Our all in cost of debt was 4.7 per cent (2013: 5.0 per cent) and our interest cover was 5.4 times (2013: 5.4 times). We remain fully compliant with all our banking covenants and remain committed to retaining our investment grade ratings.

 

Share Buyback Programme and Dividends

We continued our share buyback programme, spending £237 million acquiring 10.1 million shares which are held as treasury shares. We intend to maintain the buyback programme at around £500 million per annum.

 

The Board has declared an interim dividend of 38.8 pence per share, up 10 per cent on a year ago in line with our published dividend policy.

 

The interim dividend will be paid on 19 August 2014, with an ex-dividend date of 16 July 2014.

 

With effect from our 2015 financial year we will pay a quarterly dividend in order to give shareholders a more regular cash return. The first two quarterly dividends will be announced with our half year results in May 2015 and paid in June and September.  The third and fourth quarter dividends will be announced with the full year results in November 2015 and paid in December and, subject to AGM approval, in March 2016.

 

Liquidity and Going Concern

The Group's policy is to ensure that we always have sufficient capital markets funding and committed bank facilities in place to meet foreseeable peak borrowing requirements.

 

In reviewing the Group's committed funding and liquidity positions, the Board considered various sensitivity analyses when assessing the forecast funding and headroom requirements of the Group in the context of the maturity profile of the Group's facilities. The Group plans its financing in a structured and proactive manner and remains confident that sources of financing will be available when required.

 

Based on its review, the Board is of the opinion that the Group as a whole and Imperial Tobacco Group PLC have adequate resources to meet their operational needs for the foreseeable future and conclude that it is appropriate to prepare the financial statements on a going concern basis.

 

Principal Risks and Uncertainties

The principal risks and uncertainties to which the Group is exposed and our approach to managing those risks are unchanged from those identified on pages 37 to 41 of our 2013 Annual Report and Accounts and cover the following areas:

 

•           reduction in size of the legitimate tobacco market;

•           market place;

•           financing;

•           legal and regulatory compliance; and

•           delivery of material initiatives.

 

It is the Board's view that the principal risks and uncertainties surrounding the Group in the second half of the financial year remain those set out in the 2013 Annual Report and Accounts.

 

Statement of Director's Responsibilities

The Directors confirm that this condensed consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely: an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and material related party transactions in the first six months of the current financial year and any material changes in the related-party transactions described in the last annual report.

 

A list of current directors is maintained on the Imperial Tobacco Group website: www.imperial-tobacco.com.

 

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

By order of the Board

 

 

Alison Cooper

Chief Executive

Oliver Tant

Chief Financial Officer

 

OTHER INFORMATION

 

Basis of Presentation

To aid understanding of our results, we use 'adjusted' (non-GAAP) measures in accordance with our usual practice. Definitions are included in our accounting policies within the notes to the financial statements.  Reconciliations between adjusted and reported (GAAP) measures are also included in the relevant notes.

Stick Equivalent (SE) volumes reflect our combined cigarette, fine cut tobacco, cigar and snus volumes.

Change at constant currency removes the effect of exchange rate movements on the translation of the results of our overseas operations.  References in this document to percentage growth and increases or decreases in our adjusted results are on a constant currency basis unless stated otherwise.

Underlying change additionally removes the impact of the stock optimisation programme.

 

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.

 

Investor Contacts


Media Contacts


Tom Corran

+44 (0)117 933 7510

Alex Parsons

+44 (0)7967 467 241

Matt Sharff

+44 (0)117 933 7396

Simon Evans

+44 (0)7967 467 684

Jo Brewin

+44 (0)117 933 7549



 

Webcast and Conference Call

A live webcast of a presentation for analysts and investors will be available on www.imperial-tobacco.com from 9.00am (BST). An archive of the webcast and the presentation script and slides will also be made available during the afternoon.

 

Interviews with Alison Cooper, Chief Executive and Oliver Tant, Chief Financial Officer, are available in video, audio and text formats at: www.imperial-tobacco.com and www.cantos.com

 

High-resolution photographs are available to the media free of charge at: www.newscast.co.uk

 

Alison Cooper will host a media conference call at 7.30am, at which there will be the opportunity for questions.

Dial in Number: +44(0)20 3427 1918 / Participant code: 2231550

A replay of this call will be available for one week. To listen, please dial:

Replay Number: +44 (0)20 3427 0598 / Access Code: 2231550

 

FINANCIAL STATEMENTS

 

Independent Review Report to Imperial Tobacco Group PLC

 

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the interim management report for the six months ended 31 March 2014, which comprises the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated Cash Flow Statement and related notes. We have read the other information contained in the interim management report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

Directors' Responsibilities

The interim management report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim management report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 1 Accounting Policies, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this interim management report has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union.

 

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim management report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Conduct Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410,  'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim management report for the six months ended 31 March 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

PricewaterhouseCoopers LLP

Chartered Accountants

Bristol

7 May 2014

 

Notes

a.The maintenance and integrity of the Imperial Tobacco Group PLC website is the responsibility of the Directors; the work carried out by the Auditors does not involve consideration of these matters and, accordingly, the Auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

b.Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

 

Consolidated Income Statement

 

 

 

 

£ million unless otherwise indicated

 

 

 

 

Notes

6 months

ended

31 March

2014

6 months

ended

31 March

2013

Year

ended 30

September

2013

Revenue

3

12,717 

13,376 

28,269 

Duty and similar items


(6,094)

(6,505)

(13,681)

Other cost of sales


(4,127)

(4,283)

(9,059)

Cost of sales


(10,221)

(10,788)

(22,740)

Gross profit

2,496 

2,588 

5,529 

Distribution, advertising and selling costs


(974)

(1,016)

(2,053)

Impairment of acquired intangibles


(580)

Other expenses


(523)

(371)

(938)

Administrative and other expenses


(523)

(371)

(1,518)

Operating profit

3

999 

1,201 

1,958 

Investment income

266 

454 

724 

Finance costs

5

(617)

(825)

(1,463)

Net finance costs


(351)

(371)

(739)

Profit before taxation


648 

830 

1,219 

Taxation

6

(271)

(208)

(290)

Profit for the period


377 

622 

929 

Attributable to:





Owners of the parent

366 

611 

905 

Non-controlling interests


11 

11 

24 






Earnings per ordinary share (pence)




Basic

38.1 

62.4 

92.9 

Diluted

8

38.0 

62.2 

92.7 

 

Results and financial positions for prior periods have been restated on adoption of IAS 19 (Revised) - see note 1.

 

Consolidated Statement of Comprehensive Income

 

 

 

 

£ million

6 months

ended

31 March

2014

6 months

ended

31 March

2013

Year

ended 30

September

2013

Profit for the period

377 

622 

929 

Other comprehensive income




Exchange movements

(259)

593 

164 

Current tax on exchange movements

(3)

40 

Items that may be reclassified to profit or loss

(262)

593 

204 

Net actuarial gains/(losses) on retirement benefits

72 

(55)

(43)

Deferred tax relating to net actuarial (gains)/losses





on retirement benefits

(16)

28 

(42)

Items that will not be reclassified to profit or loss

56 

(27)

Other comprehensive income for the period, net





of tax

(206)

566 

205 

Total comprehensive income for the period

171 

1,188 

1,134 





Attributable to:




Owners of the parent

161 

1,175 

1,108 

Non-controlling interests

10 

13 

26 

Total comprehensive income for the period

171 

1,188 

1,134 

 

Reconciliation from operating profit to adjusted operating profit

 

 

 

 

£ million

 

 

 

 

Notes

6 months

ended

31 March

2014

6 months

ended

31 March

2013

Year

ended 30

September

2013

Operating profit


999 

1,201 

1,958 

Amortisation of acquired intangibles

9

326 

184 

372 

Impairment of acquired intangibles


580 

Restructuring costs

4

42 

40 

270 

Adjusted operating profit


1,367 

1,425 

3,180 

 

Reconciliation from net finance costs to adjusted net finance costs

 

 

 

 

£ million

 

 

 

 

Notes

6 months

ended

31 March

2014

6 months

ended

31 March

2013

Year

ended 30

September

2013

Net finance costs


(351)

(371)

(739)

Net fair value and exchange losses on financial






instruments providing commercial hedges

5

75 

87 

156 

Post-employment benefits net financing cost

5

21 

21 

51 

Adjusted net finance costs


(255)

(263)

(532)

 

 

Consolidated Balance Sheet

 

 

£ million

 

Notes

31 March

2014

31 March

2013

30 Sept

2013

Non-current assets





Intangible assets

9

16,877 

18,508 

17,382 

Property, plant and equipment


2,011 

2,220 

2,080 

Investments in associates


17 

17 

17 

Retirement benefit assets


Trade and other receivables


80 

88 

85 

Derivative financial instruments

11

287 

513 

312 

Deferred tax assets


191 

81 

153 



19,468 

21,427 

20,034 

Current assets





Inventories


4,003 

3,844 

3,296 

Trade and other receivables


3,077 

3,307 

2,966 

Current tax assets


61 

101 

72 

Cash and cash equivalents

10

631 

649 

1,809 

Derivative financial instruments

11

298 

374 

245 



8,070 

8,275 

8,388 

Total assets


27,538 

29,702 

28,422 

Current liabilities





Borrowings

10

(2,300)

(2,919)

(3,276)

Derivative financial instruments

11

(191)

(294)

(219)

Trade and other payables


(6,732)

(6,960)

(7,354)

Current tax liabilities


(158)

(169)

(141)

Provisions

4

(92)

(96)

(92)



(9,473)

(10,438)

(11,082)

Non-current liabilities





Borrowings

10

(9,545)

(8,779)

(7,858)

Derivative financial instruments

11

(589)

(773)

(531)

Trade and other payables


(22)

(17)

(17)

Deferred tax liabilities


(1,866)

(1,909)

(1,820)

Retirement benefit liabilities


(946)

(1,136)

(1,055)

Provisions

4

(294)

(396)

(407)



(13,262)

(13,010)

(11,688)

Total liabilities


(22,735)

(23,448)

(22,770)

Net assets


4,803 

6,254 

5,652 






Equity





Share capital


104 

107 

107 

Share premium


5,833 

5,833 

5,833 

Capital redemption


Retained earnings


(1,377)

(581)

(791)

Exchange translation reserve


186 

836 

447 

Equity attributable to owners of the parent


4,749 

6,195 

5,596 

Non-controlling interests


54 

59 

56 

Total equity


4,803 

6,254 

5,652 

 

 

Consolidated Statement of Changes in Equity

 

 

 

 

 

 

 

£ million

 

 

 

 

 

Share

capital

 

Share

premium

and

capital

redemp-

tion

 

 

 

 

 

Retained

earnings

 

 

 

Exchange

trans-

lation

 reserve

Equity

attrib-

utable

to

owners

of the

parent

 

 

 

Non-

control-

ling

interest

 

 

 

 

 

Total

equity

At 1 October 2013

107 

5,833 

(791)

447 

5,596 

56 

5,652 

Profit for the period

366 

366 

11 

377 

Other comprehensive income

56 

(261)

(205)

(1)

(206)

Total comprehensive income

422 

(261)

161 

10 

171 

Transactions with owners








Cash from employees on maturity/









exercise of share schemes

Purchase of shares by Employee









Share Ownership Trusts

(2)

(2)

(2)

Costs of employees' services









compensated by share schemes

Increase in own shares held as









treasury shares

(237)

(237)

(237)

Cancellation of own shares held as









treasury shares

(3)

Dividends paid

(779)

(779)

(12)

(791)

At 31 March 2014

104 

5,836 

(1,377)

186 

4,749 

54 

4,803 









At 1 October 2012

107 

5,833 

(150)

245 

6,035 

49 

6,084 

Profit for the period

611 

611 

11 

622 

Other comprehensive income

(27)

591 

564 

566 

Total comprehensive income

584 

591 

1,175 

13 

1,188 

Transactions with owners








Cash from employees on maturity/









exercise of share schemes

Costs of employees' services









compensated by share schemes

Purchase of shares by Employee









Share Ownership Trusts

(4)

(4)

(4)

Increase in own shares held as









treasury shares

(295)

(295)

(295)

Dividends paid

(724)

(724)

(3)

(727)

At 31 March 2013

107 

5,833 

(581)

836 

6,195 

59 

6,254 

 

 

Consolidated Cash Flow Statement

 

 

 

 

£ million

6 months

ended

31 March

2014

6 months

ended

31 March

2013

Year

ended 30

September

2013

Cash flows from operating activities




Operating profit

999 

1,201 

1,958 

Share of post-tax losses of associates

Depreciation, amortisation and impairment

431 

276 

1,215 

Loss/(profit) on disposal of property, plant and





equipment

(5)

(5)

Loss on disposal of software

Loss on disposal of businesses

13 

Post-employment benefits

(51)

(36)

(34)

Costs of employees' services compensated by share





schemes

11 

18 

Movement in provisions

(109)

(52)

(47)

Operating cash flows before movement in working





capital

1,288 

1,394 

3,120 

Increase in inventories

(806)

(499)

(93)

(Increase)/decrease in trade and other receivables

(166)

(114)

151 

Decrease in trade and other payables

(556)

(641)

(140)

Movement in working capital

(1,528)

(1,254)

(82)

Taxation paid

(230)

(467)

(686)

Net cash flows (used in)/generated by operating





activities

(470)

(327)

2,352 

Cash flows from investing activities




Interest received

Purchase of property, plant and equipment

(114)

(167)

(269)

Proceeds from sale of property, plant and equipment

26 

14 

Purchase of intangible assets - software

(16)

(11)

(27)

Purchase of intangible assets - intellectual property





rights

(37)

(9)

Purchase of businesses - net of cash acquired

(35)

Proceeds from sale of businesses - net of cash





disposed

Net cash used in investing activities

(137)

(165)

(316)

Cash flows from financing activities




Interest paid

(401)

(376)

(522)

Cash from employees on maturity/exercise of share





schemes

Purchase of shares by Employee Share Ownership





Trusts

(2)

(3)

(6)

Increase in borrowings

3,055 

1,801 

4,884 

Repayment of borrowings

(2,166)

(3,443)

Cash flows relating to derivative financial





instruments

68 

(28)

Finance lease payments

(20)

(20)

Purchase of treasury shares

(237)

(295)

(500)

Dividends paid to non-controlling interests

(12)

(3)

(19)

Dividends paid to owners of the parent

(779)

(724)

(1,065)

Net cash (used in)/generated by financing





activities

(541)

449 

(713)

Net (decrease)/increase in cash and cash





equivalents

(1,148)

(43)

1,323 

Cash and cash equivalents at start of period

1,809 

631 

631 

Effect of foreign exchange rates on cash and cash





equivalents

(30)

61 

(145)

Cash and cash equivalents at end of period

631 

649 

1,809 

 

 

Notes to the Financial Statements

 

1  Accounting Policies

 

Basis of Preparation

 

The financial information comprises the unaudited results for the six months ended 31 March 2014 and 31 March 2013, together with the audited results for the year ended 30 September 2013.

 

The information shown for the year ended 30 September 2013 does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006, and is an abridged version of the Group's published financial statements for that year. The Auditors' Report on those statements was unqualified and did not contain any statements under section 498 of the Companies Act 2006. The financial statements for the year ended 30 September 2013 were approved by the Board of Directors on 5 November 2013 and filed with the Registrar of Companies.

 

This condensed set of financial statements for the six months ended 31 March 2014 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34 Interim Financial Reporting as adopted by the European Union. The condensed set of financial statements for the six months ended 31 March 2014 should be read in conjunction with the annual financial statements for the year ended 30 September 2013 which have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

 

The Group's principal accounting policies used in preparing this information are as stated in the financial statements for the year ended 30 September 2013, which are available on our website www.imperial-tobacco.com

 

New Accounting Standards and Interpretations

 

IAS 19 (Revised)

Under IAS 19 (Revised), which became mandatory for the Group in its 2014 accounts, the interest charge on retirement benefit liabilities and the expected return on pension plan assets have been replaced by a net interest income or expense on net defined benefit assets or liabilities based on high quality corporate bond rates.  The impact on the Group's results and net assets is as follows:

 


6 months ended

31 March 2013

Year ended

30 September 2013

£ million

Previously

reported

 

Adjustment

 

Restated

Previously

reported

 

Adjustment

 

Restated

Investment income

473 

(19)

454 

766 

(42)

724 

Finance costs

(825)

(825)

(1,463)

(1,463)

Net finance costs

(352)

(19)

(371)

(697)

(42)

(739)

Profit before taxation

849 

(19)

830 

1,261 

(42)

1,219 

Taxation

(213)

(208)

(300)

10 

(290)

Profit for the period

636 

(14)

622 

961 

(32)

929 

EPS basic (pence)

63.8 

(1.4)

62.4 

96.2 

(3.3)

92.9 

EPS diluted (pence)

63.6 

(1.4)

62.2 

96.0 

(3.3)

92.7 








Retirement benefit assets

Retirement benefit liabilities

(1,140)

(1,136)

(1,055)

(1,055)

Net assets

6,250 

6,254 

5,648 

5,652 

 

The effect in the six months ended 31 March 2014 has been to reduce reported investment income by £20 million and profit for the period by £16 million.

 

Valuation of Derivative Financial Instruments

IFRS 13 Fair Value Measurement, which is mandatory for this financial year, has clarified the measurement criteria for Derivative Financial Instruments.  The impact has not had a material effect on the results or net assets of the Group.

 

Other new standards

IFRS 11 will become mandatory for the Group in its 2015 accounts and will require the Group to equity account for its joint ventures which are currently proportionately consolidated.  It is not expected to have a material effect on the results or net assets of the Group.

 

Other standards and interpretations issued, but not yet effective, are not expected to have a material effect on the Group's net assets or results.

 

2  Critical Accounting Estimates and Judgements

 

The Group makes estimates and judgements regarding the future. Estimates and judgements are continually evaluated based on historical experience, and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

 

In the future, actual experience may deviate from these estimates and judgements. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the current financial year are discussed in the financial statements for the year ended 30 September 2013.

 

With effect from 1 October 2013 we have revised the estimated useful lives over which certain brands, trademarks and supply agreements in the Tobacco business will be amortised. In line with our strategy to focus on Growth and Specialist brands, we have reduced the estimated remaining useful lives for all other brands to a maximum of five years. The effect of this change in estimate has been to increase the charge for amortisation of acquired intangibles by £150 million to £326 million for the six months ended 31 March 2014.

 

3  Segment Information

 

Tobacco

 

 

 

£ million unless otherwise indicated

6 months

ended

31 March

2014

6 months

ended

31 March

2013

Year

ended 30

September

2013

Revenue

9,317 

9,886 

20,881 

Net revenue

3,134 

3,284 

7,007 

Operating profit

969 

1,185 

1,888 

Adjusted operating profit

1,296 

1,359 

3,003 

Adjusted operating margin %

41.4 

41.4 

42.9 

 

Logistics

 

 

 

£ million unless otherwise indicated

6 months

ended

31 March

2014

6 months

ended

31 March

2013

Year

ended 30

September

2013

Revenue

3,822 

3,928 

8,288 

Distribution fees

430 

413 

850 

Operating profit

32 

24 

69 

Adjusted operating profit

73 

74 

176 

Adjusted distribution margin %

17.0 

17.9 

20.7 

 

Revenue

 


6 months ended

31 March 2014

6 months ended

31 March 2013

Year ended

30 September 2013

 

£ million

Total

revenue

External

revenue

Total

revenue

External

revenue

Total

revenue

External

revenue

Tobacco







Growth markets

1,686 

1,662 

1,889 

1,867 

4,303 

4,253 

Returns markets north

6,202 

6,202 

6,531 

6,530 

13,527 

13,506 

Returns markets south

1,429 

1,031 

1,466 

1,051 

3,051 

2,222 

Total Tobacco

9,317 

8,895 

9,886 

9,448 

20,881 

19,981 

Logistics

3,822 

3,822 

3,928 

3,928 

8,288 

8,288 

Eliminations

(422)

(438)

(900)

Total Group

12,717 

12,717 

13,376 

13,376 

28,269 

28,269 

 

Tobacco net revenue

 

 

 

 

£ million

6 months

ended

31 March

2014

6 months

ended

31 March

2013

Year

ended 30

September

2013

Growth markets

914 

988 

2,254 

Returns markets north

1,368 

1,406 

2,929 

Returns markets south

852 

890 

1,824 

Total Tobacco

3,134 

3,284 

7,007 

 

Tobacco net revenue excludes revenue from the sale of peripheral and non-tobacco related products of £89 million (2013 6 months: £97 million).

 

Adjusted operating profit and reconciliation to profit before tax

 

 

 

 

£ million

6 months

ended

31 March

2014

6 months

ended

31 March

2013

Year

ended 30

September

2013

Tobacco




Growth markets

207 

247 

668 

Returns markets north

728 

731 

1,543 

Returns markets south

361 

381 

792 

Total Tobacco

1,296 

1,359 

3,003 

Logistics

73 

74 

176 

Eliminations

(2)

(8)

Adjusted operating profit

1,367 

1,425 

3,180 

Amortisation of acquired intangibles - Tobacco

(285)

(143)

(288)

Amortisation of acquired intangibles - Logistics

(41)

(41)

(84)

Impairment of acquired intangibles - Tobacco

(580)

Restructuring costs - Tobacco

(42)

(31)

(247)

Restructuring costs - Logistics

(9)

(23)

Operating profit

999 

1,201 

1,958 

Net finance costs

(351)

(371)

(739)

Profit before tax

648 

830 

1,219 

 

4  Restructuring Costs and Provisions

 

Restructuring costs

 

 

 

 

£ million

6 months

ended

31 March

2014

6 months

ended

31 March

2013

Year

ended 30

September

2013

Employment related

16 

25 

107  

Asset impairment

83  

Other charges

26 

15 

80  


42 

40 

270  

 

The restructuring charge in the six months ended 31 March 2014 was £42 million, of which £30 million was in respect of the cost optimisation programme and £12 million related to legacy projects.  The charge comprised £10 million of additional provisions and £32 million charged directly to the consolidated income statement as incurred.

 

No provision has been made at the balance sheet date for the European restructuring projects announced on 15 April 2014. Provisions will be recognised in the second half of the year to the extent that provisioning criteria are met by 30 September 2014.

 

Provisions

 

£ million

Restructuring

Other

Total

At 1 October 2013

222 

277 

499 

Additional provisions charged to the consolidated income statement

10 

26 

36 

Unwind of discount on redundancy and other long-term provisions

Amounts used

(37)

(62)

(99)

Unused amounts reversed

(46)

(46)

Exchange movements

(2)

(4)

(6)

At 31 March 2014

194 

192 

386 

 

Analysed as:

£ million

 

2014

 

2013

Current

92 

92 

Non-current

294 

407 


386 

499 

 

5  Net finance costs and reconciliation to adjusted net finance costs

 

 

 

 

£ million

6 months

ended

31 March

2014

6 months

ended

31 March

2013

Year

ended 30

September

2013

Reported net finance costs per consolidated income





statement

351 

371 

739 

Fair value gains on derivative financial instruments

193 

386 

590 

Fair value losses on derivative financial instruments

(169)

(343)

(688)

Exchange losses on financing activities

(99)

(130)

(58)

Net fair value and exchange losses on financial





instruments providing commercial hedges

(75)

(87)

(156)

Interest income on net defined benefit assets

69 

64 

126 

Interest cost on defined benefit liabilities

(88)

(84)

(168)

Unwind of discount on redundancy and other long term





provisions

(2)

(1)

(9)

Post-employment benefit net financing cost

(21)

(21)

(51)

Adjusted net finance costs

255 

263 

532 

Comprising




Interest on bank deposits

(4)

(4)

(8)

Interest on bank loans and other loans

259 

267 

540 

Adjusted net finance costs

255 

263 

532 

 

6  Taxation and reconciliation to adjusted tax charge

 

Reported tax for the six months ended 31 March 2014 has been calculated on the basis of an estimated effective tax rate for the year ended 30 September 2014.

 

 

 

 

£ million

6 months

ended

31 March

2014

6 months

ended

31 March

2013

Year

ended 30

September

2013

Reported taxation per consolidated income statement

271 

208 

290 

Deferred tax on amortisation of acquired intangibles

(67)

36 

72 

Deferred tax on impairment of acquired intangibles

107 

Tax on net fair value and exchange losses on financial





instruments providing commercial hedges

17 

Tax on post-employment benefits net financing cost

15 

Tax on restructuring costs

13 

12 

79 

Adjusted tax charge

240 

267 

572 

 

The change in the UK Corporation Tax rate to 21 per cent from 1 April 2014 does not have a material impact on the Group's tax position.

 

On 30 December 2013 the effective rate applicable to French profits increased to 38 per cent.  This rate change resulted in an additional deferred tax charge of £142 million in respect of acquired intangibles being recognised in the consolidated income statement for the six months ended 31 March 2014.  This has been excluded from our adjusted tax charge in line with our existing policy regarding the treatment of deferred tax on acquired intangibles.

 

7  Dividends

 

Dividend per share in respect of financial year

 

Pence

2014

2013

2012

Interim

38.8

35.2

31.7

Final

-

81.2

73.9

Total

38.8

116.4

105.6

 

Amounts recognised as distributions to ordinary equity holders in the period

 

 

 

 

£ million

6 months

ended

31 March

2014

6 months

ended

31 March

2013

Year

ended 30

September

2013

Final dividend paid in the period in respect of previous





financial year

779 

724 

724

Interim dividend

341


779 

724 

1,065

 

The declared interim dividend for 2014 amounts to a total dividend of £371 million based on the number of shares ranking for dividend at 31 March 2014.

 

8  Earnings Per Share

 

 

 

 

£ million

6 months

ended

31 March

2014

6 months

ended

31 March

2013

Year

ended 30

September

2013

Earnings: basic and diluted

366 

611 

905 

 

Millions of shares




Weighted average number of shares:




Shares for basic earnings per share

961.4 

979.6 

973.9 

Potentially dilutive share options

2.0 

2.5 

2.6 

Shares for diluted earnings per share

963.4 

982.1 

976.5 

 

Pence




Basic earnings per share

38.1 

62.4 

92.9 

Diluted earnings per share

38.0 

62.2 

92.7 

 

Reconciliation from reported to adjusted earnings and earnings per share

 


6 months ended

31 March 2014

6 months ended

31 March 2013

Year ended

30 September 2013

 

 

 

£ million unless otherwise indicated

Earnings

per

share

(pence)

 

 

 

Earnings

Earnings

per

share

(pence)

 

 

 

Earnings

Earnings

per

share

(pence)

 

 

 

Earnings

Reported basic

38.1 

366 

62.4 

611 

92.9 

905 

Amortisation of acquired intangibles

40.9 

393 

15.1 

148 

30.8 

300 

Impairment of acquired intangibles

48.6 

473 

Net fair value and exchange








losses on financial instruments








providing commercial hedges

6.0 

58 

8.4 

82 

15.1 

147 

Post-employment benefits net








financing cost

1.6 

15 

1.5 

15 

3.7 

36 

Restructuring costs

3.0 

29 

2.8 

28 

19.6 

191 

Adjusted

89.6 

861 

90.2 

884 

210.7 

2,052 

Adjusted diluted

89.4 

861 

90.0 

884 

210.1 

2,052 

 

9  Intangible Assets

 

In November 2013, the Group acquired e-vapour intellectual property rights from the Hong Kong based company Dragonite for £46 million.

 

With effect from 1 October 2013 we have revised the estimated useful lives over which certain brands, trademarks and supply agreements in the Tobacco business will be amortised. In line with our strategy to focus on Growth and Specialist brands, we have reduced the estimated remaining useful lives for all other brands to a maximum of five years. The effect of this change in estimate has been to increase the charge for amortisation of acquired intangibles by £150 million to £326 million for the six months ended 31 March 2014.

 

10  Net Debt

 

The movements in cash and cash equivalents, borrowings and derivative financial instruments in the period were as follows:

 

 

 

£ million

Cash

and cash

equivalents

 

Current

borrowings

 

Non-current

borrowings

Derivative

financial

instruments

 

 

Total

At 1 October 2013

1,809 

(3,276)

(7,858)

(193)

(9,518)

Cash flow

(1,148)

949 

(1,838)

(2,037)

Accretion of interest

17 

129 

146 

Change in fair values

(2)

(2)

Exchange movements

(30)

10 

22 

At 31 March 2014

631 

(2,300)

(9,545)

(195)

(11,409)

 

During the period we repaid €500 million 5.125 per cent notes in October 2013 and €1,200 million 4.375 per cent notes in November 2013.

 

On 25 February 2014, we raised £1.8 billion through the capital markets by issuance of three bonds: €1,000 million 2.25 per cent notes due February 2021, €650 million 3.375 per cent notes due February 2026 and £500 million 4.875 per cent notes due February 2032.

 

Adjusted net debt

Management monitors the Group's borrowing levels using adjusted net debt which excludes interest accruals, the fair value of derivative financial instruments providing commercial cash flow hedges and finance lease liabilities.

 

 

£ million

31 March

2014

31 March

2013

30 September

2013

Reported net debt

(11,409)

(11,229)

(9,518)

Accrued interest

175 

181 

321 

Fair value of derivatives providing commercial hedges

176 

51 

99 

Adjusted net debt

(11,058)

(10,997)

(9,098)

 

The fair value of bonds is estimated to be £11,210 million (2013 6 months: £11,044 million) and has been determined using quoted market prices or discounted cash flow analysis.  The carrying value of bonds is £10,189 million (2013 6 months: £10,062 million). The value of other assets and liabilities held at amortised cost are not materially different to their fair values.

 

11  Derivative Financial Instruments

 

 

£ million

31 March

2014

31 March

2013

30 September

2013

Interest rate swaps and options

505 

764 

515 

Forward foreign currency contracts

11 

Cross currency swaps

69 

50 

39 

Collateral

65 

Assets

585 

887 

557 





Interest rate swaps and option

(705)

(802)

(628)

Forward foreign currency contracts

(6)

(39)

(50)

Cross currency swaps

(179)

(226)

(182)

Collateral

110 

110 

Liabilities

(780)

(1,067)

(750)


(195)

(180)

(193)

 

The valuation techniques used are based on observable market data (level 2) and are consistent with those applied during the year ended 30 September 2013.

 

12  Retirement Benefit Schemes

 

Actuarial valuations for the Group's retirement benefit plans are updated annually as at 30 September. An interim update is carried out at 31 March for the main plans. As part of this interim update, the most material plan assets are revalued based on market data at the period end and the liabilities for the most significant schemes are recalculated to reflect key changes in membership data and revised actuarial assumptions.

 

As part of the triennial valuation of the Imperial Tobacco Pension Fund (the main UK Group scheme) as at 31 March 2013, the level of employer's contribution to this scheme has increased from £31 million per annum to an initial payment of £48 million on 31 March 2014, expected to be followed by payments of £53 million and £58 million in March 2015 and 2016 respectively, and then followed by payments of £65 million in March each year until 2028. These contributions have been proposed by the scheme actuary, and will be reviewed again when the next triennial valuation is undertaken as at 31 March 2016, at which time contributions may be increased or decreased.

 

13  Share Capital and Treasury Shares

 

During the six months ended 31 March 2014 the Group purchased 10,141,000 shares (2013: 12,346,000 shares) at a cost of £237 million (2013: £295 million). Shares purchased under the Group's buyback programme are normally retained in issue and represent a deduction from equity attributable to owners of the parent. However, during the six months ended 31 March 2014, 31,943,000 shares were cancelled and 2,000,000 shares (2013: nil shares) were gifted to the Group's Employee Share Ownership Trusts.


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