Imperial Tobacco Group PLC
01 May 2007
IMPERIAL TOBACCO GROUP PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2007
HIGHLIGHTS
* Cigarette volumes 90.7bn up 5% (2006: 86.3bn)
* Revenue (less duty) £1,514m up 1% (2006: £1,496m)
* Profit from operations £658m up 11% (2006: £592m)
* Adjusted** profit from operations £663m up 7% (2006: £618m)
* Basic earnings per share 62.4p up 11% (2006: 56.2p)
* Adjusted** earnings per share 61.4p up 13% (2006: 54.4p)
* Interim dividend 21.0p up 14% (2006: 18.5p)
** Adjusted results are reported, where applicable, before restructuring costs,
retirement benefit net finance income and certain fair value changes on
derivatives.
Summarising today's announcement, Gareth Davis, Chief Executive, said:
'In the first half of 2007 we delivered another strong performance, reflecting
the continued successful execution of our growth strategy. We maintained our
organic growth momentum of the last two years, increasing our global cigarette
volumes by 5 per cent and making further cigarette market share gains across all
our regions.
'Our success reflected the continued growth of our key cigarette brands
Davidoff, West and JPS, supported by robust performances from other brands. We
have focused on accelerating the international development of Davidoff since
acquiring the worldwide cigarette trademark last year, increasing volumes by 10
per cent and launching the brand in several new markets as well as introducing
additional brand variants.
'We will continue to develop our brand and product portfolio in order to build
on our cigarette volume growth and strengthen our world leading position in
other tobacco products. Further extending our geographic footprint provides
additional growth opportunities and through the completion of the $1.9 billion
acquisition of Commonwealth Brands, the fourth largest cigarette manufacturer in
the US, we now have a sizeable presence in this vast and highly profitable
market.
'This, combined with our ongoing commitment to reduce costs and effectively
manage our cash, means we are well positioned to build on our success and
deliver more value for our shareholders.
'I can confirm that the overall anticipated performance of the Group for the
financial year to 30 September 2007 remains in line with our expectations at the
time of our March trading update.'
NOTES TO EDITORS
Imperial Tobacco Group PLC
Imperial Tobacco Group PLC is the world's fourth largest international tobacco
company. The Group manufactures and sells a comprehensive range of cigarettes,
tobaccos, rolling papers, filter tubes and cigars in over 130 countries
worldwide. It has around 14,500 employees and 31 manufacturing sites.
ENQUIRIES
Alex Parsons, Group Media Relations Manager +44 (0)7967 467 241
Simon Evans, Group Media Relations Executive +44 (0)7967 467 684
John Nelson-Smith, Investor Relations Manager +44 (0)117 933 7032
Garry Wilson, Investor Relations Manager +44 (0)117 933 7082
High-resolution photographs are available to the media free of charge at:
www.newscast.co.uk +44 (0)20 7608 1000
Imperial Tobacco's 2007 Interim Results are available at:
www.imperial-tobacco.com
FINANCIAL HIGHLIGHTS
for the six months ended 31 March 2007
6 months 6 months Year
ended ended ended
31 Mar 31 Mar 30 Sept
2007 2006 2006
* Revenue £5,851m up 5% £5,583m £11,676m
($11,518m)
* Revenue less duty £1,514m up 1% £1,496m £3,162m
($2,980m)
* Profit from operations £658m up 11% £592m £1,311m
($1,295m)
* Adjusted profit from operations £663m up 7% £618m £1,356m
($1,305m)
* Profit before tax £566m up 3% £547m £1,168m
($1,114m)
* Adjusted profit before tax £557m up 5% £529m £1,168m
($1,096m)
* Basic earnings per share 62.4p up 11% 56.2p 122.2p
(122.8c)
* Adjusted earnings per share 61.4p up 13% 54.4p 122.2p
(120.9c)
2007 2006
* Interim dividend per share 21.0p up 14% 18.5p
(41.3c)
Management believes that reporting adjusted measures provides a better
comparison of business performance and reflects the way in which the business is
controlled. Accordingly, adjusted measures of profit from operations, net
finance costs, profit before tax, taxation and earnings per share exclude, where
applicable, restructuring costs, retirement benefits net financing income, fair
value gains and losses on derivative financial instruments and related taxation
effects. Reconciliations between adjusted and reported profit from operations
are included within note 1 to the interim statements, adjusted and reported
finance costs in note 3, adjusted and reported taxation in note 4, and adjusted
and reported earnings per share in note 6. The term adjusted is not a defined
term under International Financial Reporting Standards and may not be comparable
with similarly titled measures reported by other companies.
The exchange rate of US$1.9685 to the £1, the pound sterling noon buying rate on
30 March 2007, the last business day prior to 31 March 2007, has been used to
translate this statement.
CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT
'We have delivered a strong operational and financial performance in the first
half of 2007, again demonstrating the effectiveness of our strategy to create
sustainable shareholder value.'
We increased our cigarette volumes driven by excellent growth from our key
brands, with our performance supported by our continued focus on our cost base
and the efficient use of our cash.
As a result, adjusted earnings per share grew by 13 per cent to 61.4 pence.
Basic earnings per share were 62.4 pence (2006: 56.2 pence). The Board has
declared an interim dividend of 21.0 pence (2006: 18.5 pence), an increase of 14
per cent. This dividend will be paid on 10 August 2007 to shareholders on the
register at the close of business on 13 July 2007.
Performance Highlights
Continuing the positive volume trends of the past two years, we further
demonstrated our organic growth capability, increasing our cigarette volumes by
5 per cent in the first half of 2007. We also improved our cigarette market
shares in our core markets of the UK and Germany, as well as in the majority of
markets in our Rest of Western Europe region and further afield, including in
Africa and the Middle East, Asia and Central and Eastern Europe.
Our key cigarette brands of Davidoff, West and JPS grew by 10 per cent, 14 per
cent and 25 per cent respectively, supported by strong performances from a
number of our other brands.
Following the acquisition of the Davidoff cigarette trademark last September, we
have accelerated our investment in the brand. Davidoff was launched in Canada,
Mexico, Romania and several African markets and we have also introduced
additional brand variants such as Davidoff Black & White, Davidoff Neon and
Davidoff Rich Blue into existing markets.
On 2 April 2007 we completed our purchase of Commonwealth Brands, the fourth
largest cigarette manufacturer in the United States, for $1.9 billion. This
acquisition provides us with a 3.7 per cent share of the US cigarette market,
some established brands and, following approval of our Master Settlement
Agreement application, an excellent platform from which to launch additional
products through Commonwealth's extensive and experienced sales force.
In manufacturing, our focus remains on controlling costs, while improving
efficiencies, with productivity up by 7 per cent.
Cash Management
Effective use of the cash we generate is an essential part of the Imperial
Tobacco growth story and we have made progress with a number of tax initiatives
including those associated with the Commonwealth Brands acquisition. These
initiatives should reduce our adjusted tax rate from 26.5 per cent in the 2006
financial year to around 25 per cent for the years ending September 2007 and
2008, with further reductions possible thereafter.
In February, we announced a significant value creating opportunity for the Group
with the acquisition of Commonwealth Brands. We also suspended our share buyback
programme.
Board Changes
Our previously announced Board changes became effective from 2 January 2007.
Subsequent to this, Colin Day, Non-Executive Director, resigned from the Board
on 16 February 2007, as a consequence of his overall business commitments. We
are in the process of recruiting additional independent Non-Executive Directors
and further reviewing the overall composition of the Board and its Committees.
Regulation
The regulatory environment continues to be challenging and we believe that we
remain well equipped to effectively manage these challenges. We continue to seek
constructive dialogue with governments and regulatory authorities at all levels
in pursuit of reasonable, practical and proportionate regulation of tobacco
products.
Outlook
In the second half of 2007 we expect another strong operational and financial
performance.
We believe we are well positioned to grow our strong brand portfolio through our
expanding geographic footprint. Combined with our focus on costs and the
effective use of the cash we generate, we believe we will continue to create
sustainable value for our shareholders.
Iain Napier Gareth Davis
Chairman Chief Executive
GROUP OPERATING PERFORMANCE
6 months 6 months Year
ended ended ended
31 Mar 31 Mar 30 Sept
2007 2006 2006
Revenue less duty £1,514m £1,496m £3,162m
Adjusted profit from operations £663m £618m £1,356m
Adjusted operating margin 43.8% 41.3% 42.9%
Restructuring costs - £(18)m £(45)m
Fair value movements on
derivatives £(5)m £(8)m -
Profit from operations £658m £592m £1,311m
REGIONAL PERFORMANCE
for the 6 months ended 31 March
Revenue Revenue Adjusted Profit Adjusted Profit
less duty less duty from Operations from Operations
2007 2006 2007 2006
£m £m £m £m
UK 442 395 279 233
Germany 255 280 117 129
Rest of
Western Europe 286 298 142 148
Rest of the
World 531 523 125 108
---------- ----------- ---------- -----------
Total 1,514 1,496 663 618
---------- ----------- ---------- -----------
Cigarette Cigarette Fine cut Fine cut
volumes volumes tobacco volumes tobacco volumes
2007 2006 2007 2006
bn bn tonnes tonnes
UK 11.7 11.4 1,100 1,000
Germany 9.9 9.3 2,250 3,300
Rest of
Western Europe 8.4 8.7 6,800 7,450
Rest of the
World 60.7 56.9 1,150 1,000
---------- ----------- ---------- -----------
Total 90.7 86.3 11,300 12,750
---------- ----------- ---------- -----------
With effect from 1 October 2006, we have reclassified the results of our
Austrian business from 'Germany' to 'Rest of the World' to reflect the way in
which our operations are managed within the Group. Numbers for the first half of
2006 have been restated accordingly.
Overview
In the half year to 31 March 2007, revenue was £5,851 million compared to £5,583
million in the first half of 2006. Revenue less duty was up 1 per cent at £1,514
million (2006: £1,496 million). Adjusted profit from operations was £663
million, up 7 per cent on the first half of 2006. Our adjusted operating margin
was up at 43.8 per cent (2006: 41.3 per cent). Reported profit from operations
was £658 million (2006: £592 million).
Growing volumes combined with price increases, efficiency improvements and
continued effective cash management delivered 13 per cent growth in adjusted
earnings per share to 61.4 pence. Basic earnings per share were 62.4 pence
compared to 56.2 pence in the first half of 2006.
United Kingdom
--------------
Performance Highlights
in the half year to 31 March 2007 2006
Revenue less duty £442m £395m
Adjusted profit from operations £279m £233m
Imperial Tobacco cigarette volumes 11.7bn 11.4bn
Imperial Tobacco cigarette market share (1) 46.4% 45.2%
Imperial Tobacco fine cut tobacco volumes 1,100t 1,000t
Imperial Tobacco fine cut market share (1) 64.0% 65.5%
Market Dynamics 2007 2006
Total market cigarette volumes (annualised) (1) 48.2bn 48.4bn
Total market fine cut tobacco volumes (annualised) (1) 3,350t 3,100t
(1) Imperial Tobacco estimates
We delivered an excellent performance in the UK, with improved profits and
further growth in our cigarette market share.
Market Dynamics
We estimate that the annualised UK cigarette market was broadly stable, in the
first half of the year, averaging 48.2 billion (2006: 48.4 billion). Downtrading
continued, with strong growth in the economy sector. The fine cut tobacco market
grew by 8 per cent to 3,350 tonnes (2006: 3,100 tonnes).
We anticipate the cigarette market will assume a more normal rate of decline in
the second half of the financial year with downtrading continuing both within
cigarette and into fine cut tobacco.
We increased our cigarette prices in January 2007 by 10 pence per pack. In the
March Budget, the Chancellor increased excise duty by 11 pence per pack, which
was passed on to consumers.
Following the introduction of a comprehensive ban on smoking in public places in
Scotland on 26 March 2006, similar bans were implemented in Wales on 2 April
2007 and in Northern Ireland on 30 April 2007. A ban will take effect in England
on 1 July 2007. Our experience of the smoking bans in Scotland and other markets
confirms our view; it is clear that smokers will continue to smoke, there may be
an initial dip in consumption, but this diminishes over time.
Our Performance
In the UK, revenue less duty rose 12 per cent to £442 million, with adjusted
profit from operations up 20 per cent to £279 million, reflecting growth in our
cigarette market share, the benefits of our price increases and our focus on
costs.
We grew our cigarette market share to 46.4 per cent (2006: 45.2 per cent), an
excellent performance. Lambert & Butler increased market share to 16.7 per cent
(16.0 per cent) following the reintroduction of the celebration packs and growth
in the superkings variant. Richmond remained stable at 15.5 per cent and we
developed Windsor Blue further in the economy sector, with the brand capturing
2.4 per cent market share (2006: 0.6 per cent).
In fine cut tobacco, we grew our volumes by 7 per cent, though our market share
declined to 64.0 per cent (2006: 65.5 per cent) with Golden Virginia losing
market share to lower priced brands. However, in rolling papers, we grew volumes
of Rizla by 3 per cent.
Outlook
In the second half of the year, we expect another strong operational performance
in the UK. Our broad brand portfolio across all categories combined with our
focus on sales force excellence leaves us well placed to continue to benefit
from our market leading position.
Germany
-------
Performance Highlights
in the half year to 31 March 2007 2006(2)
Revenue less duty £255m £280m
Adjusted profit from operations £117m £129m
Imperial Tobacco cigarette volumes 9.9bn 9.3bn
Imperial Tobacco cigarette market share (1) 21.2% 20.5%
Imperial Tobacco other tobacco products volumes
(as cigarette equivalents) 3.4bn 4.8bn
Imperial Tobacco other tobacco products market
share (as cigarette equivalents)(1) 18.9% 20.6%
Market Dynamics 2007 2006
Total market cigarette volumes (annualised) (1) 90bn 88bn
Total market other tobacco product volumes (annualised) (1) 36bn 47bn
(1) Imperial Tobacco estimates
(2) With effect from 1 October 2006, we have reclassified the results of our
Austrian business from 'Germany' to 'Rest of the World' to reflect the way in
which our operations are managed within the Group. Numbers for the first half
of 2006 have been restated accordingly.
We continued to grow our cigarette market share in Germany, with an excellent
performance from JPS.
Market Dynamics
Market dynamics in Germany are being driven by consumer migration from the make
your own Singles product, following the change in taxation of Singles from fine
cut tobacco to cigarettes in April 2006. We estimate the total annualised
tobacco market was down by 7 per cent to 126 billion cigarette equivalents
(2006: 135 billion) with the annualised cigarette market up 2 per cent to 90
billion (2006: 88 billion). Downtrading continued with the low price cigarette
sector up at 16.8 per cent of the total cigarette market. In other tobacco
products, market volumes were down to 36 billion cigarette equivalents (2006: 47
billion), largely as a result of former Singles consumers switching out of this
category.
Since the final sales of Singles products last autumn, we have been closely
monitoring the situation and have introduced a number of alternative tobacco
products for transitioning consumers. Our current estimate is that 20 per cent
of former Singles consumers have moved into duty paid cigarettes, 55 per cent
into other tobacco products and 25 per cent into both legal and illegal cross
border products.
In October 2006, in advance of the VAT increase on 1 January 2007, we increased
our prices by 20 euro cents per pack of cigarettes.
Our Performance
In Germany, our revenue less duty decreased to £255 million, with adjusted
profit from operations down 9 per cent to £117 million. Profits were impacted by
the decline in the total tobacco market, the migration of Singles consumers to
lower margin alternative tobacco products and ongoing cigarette downtrading.
However, these results benefited from the growing cigarette market and our
cigarette market share gains, our pricing benefits and cost efficiencies.
Our cigarette market share progressed further, up to 21.2 per cent (2006: 20.5
per cent), with another excellent performance from JPS, almost doubling its
market share to 6.0 per cent (2006: 3.2 per cent). As a result of downtrading,
West declined to 7.4 per cent (2006: 8.3 per cent), while Davidoff was broadly
stable in the premium segment at 1.0 per cent (2006: 1.1 per cent).
In other tobacco products, our market share was down to 18.9 per cent (2006:
20.6 per cent), with growth in our traditional fine cut tobacco market share
being offset by a decline in our eco cigarillos market share. There have been a
number of positive developments in make your own tobacco. West and JPS Single
Tobacco are making good progress and in January 2007 we launched West Quickies
XL with encouraging early results, with JPS Quickies XL to be introduced in May.
Outlook
In the second half of the year, we remain focused on capitalising on the
migration of Singles consumers both to cigarette and to our other tobacco
products.
Rest of Western Europe
----------------------
Performance Highlights
in the half year to 31 March 2007 2006
Revenue less duty £286m £298m
Adjusted profit from operations £142m £148m
Imperial Tobacco regional cigarette volumes 8.4bn 8.7bn
Imperial Tobacco regional fine cut tobacco volumes 6,800t 7,450t
Regional Dynamics 2007 2006
Regional market: cigarettes (annualised) (1) 302bn 306bn
Regional market: fine cut tobacco (annualised) (1) 29,850t 29,350t
Imperial Tobacco Market Shares (1)
Cigarettes (1) Fine Cut Tobacco (1)
2007 2006 2007 2006
Belgium 10.1% 10.2% 10.8% 10.5%
France 3.9% 3.4% 27.0% 29.0%
Greece 8.2% 7.0% 39.0% 43.2%
Ireland 26.6% 25.8% 66.7% 67.0%
Netherlands 10.5% 8.2% 50.6% 51.3%
Portugal 4.0% 3.0% - -
Spain 5.4% 6.8% 56.5% 61.8%
(1) Imperial Tobacco estimates
We grew our cigarette market shares in the majority of our markets in the Rest
of Western Europe region.
Regional Dynamics
We estimate that the regional cigarette market was down by 1 per cent, while the
regional fine cut tobacco market grew by 2 per cent. Downtrading continues both
within cigarette and fine cut tobacco. There are signs that the pricing
environment is improving, with increases in a number of markets including Greece
and Spain.
The regulatory environment continues to be challenging with the introduction of
further smoking restrictions in France, pictorial health warnings in Belgium and
a significant duty increase in Ireland.
Our Performance
Revenue less duty decreased to £286 million and adjusted profit from operations
was down 4 per cent to £142 million. We grew our cigarette market shares in the
majority of markets in the region, although our results continue to be impacted
by lower travel retail sales.
Cigarette Performance
In the Netherlands, we grew our cigarette market share to 10.5 per cent (2006:
8.2 per cent) with an excellent performance from JPS, however, our volumes were
lower than in the first half of last year as a result of stocking by the trade
in advance of a tax change on 1 April 2006. In Belgium, our cigarette market
share was broadly stable, while in Ireland we increased our cigarette market
share to 26.6 per cent. In France and Portugal our cigarette market shares
climbed to 3.9 per cent and to 4.0 per cent respectively with a good performance
from JPS. Although West and JPS grew in Spain, our overall market share fell to
5.4 per cent (2006: 6.8 per cent) reflecting a reduction in travel retail
volumes. In Greece, Davidoff, West and Maxim all contributed to our overall
cigarette market share growth to 8.2 per cent (2006: 7.0 per cent).
Fine Cut Tobacco Performance
We remain world leaders in fine cut tobacco with our key brands Golden Virginia
and Drum, but ongoing downtrading and increased competition in this category
have continued to impact our market shares. Our fine cut tobacco volumes have
also been impacted by lower travel retail sales and stocking by the trade in the
Netherlands.
In recent months we have progressed a number of initiatives with our fine cut
tobacco portfolio. In Belgium, our fine cut tobacco growth has been supported by
the introduction of Bastos and JPS. In France, Interval and JPS have been
repositioned, while in Spain JPS Halfzware has been launched. In the
Netherlands, although our fine cut tobacco market share was down to 50.6 per
cent (2006: 51.3 per cent), Zilver and Evergreen have grown to 4.3 per cent of
the fine cut tobacco market.
Outlook
In the second half of 2007, our focus in the Rest of Western Europe is on
growing our cigarette market shares across the region and building on our fine
cut tobacco initiatives.
Rest of the World
-----------------
Performance Highlights
in the half year to 31 March 2007 2006(2)
Revenue less duty £531m £523m
Adjusted profit from operations £125m £108m
Imperial Tobacco regional cigarette volumes 60.7bn 56.9bn
Imperial Tobacco fine cut tobacco volumes 1,150t 1,000t
Imperial Tobacco Cigarette Market Shares (1) 2007 2006
Australia 17.5% 17.6%
Poland 16.6% 16.5%
Russia 5.6% 5.5%
Taiwan 12.7% 11.3%
Ukraine 20.3% 18.9%
(1) Imperial Tobacco estimates
(2) With effect from 1 October 2006, we have reclassified the results of our
Austrian business from 'Germany' to 'Rest of the World' to reflect the way in
which our operations are managed within the Group. Numbers for the first half
of 2006 have been restated accordingly.
In the Rest of the World our cigarette volumes rose by 7 per cent and our market
shares increased across the region as we leveraged the strength of our brand
portfolio in new and existing markets.
Regional Overview
Our Rest of the World region, which spans Central and Eastern Europe, Asia,
Australasia, the Americas, Africa and the Middle East, continues to offer us
many opportunities to expand and develop our business.
Our Performance
In the Rest of the World, revenue less duty was up to £531 million and adjusted
profit from operations was up 16 per cent to £125 million. These results reflect
strong cigarette volume growth and market share gains, supported by our
continued investment in the region.
Asia
We grew our cigarette volumes by 10 per cent in Asia. In our key market of
Taiwan our market share grew to 12.7 per cent (2006: 11.3 per cent), with
positive developments for West. As part of our plans to develop our Asian
footprint, we recently finalised negotiations to build a new factory in Taiwan.
In Vietnam, Bastos continued to push our market share higher to 10.7 per cent
(2006: 9.5 per cent) and in Laos we grew our volumes by 20 per cent.
Australasia
In the mature markets of Australia and New Zealand our cigarette market shares
were broadly stable at 17.5 per cent (2006: 17.6 per cent) in Australia, with
Brandon performing well, and at 17.1 per cent (2006: 17.2 per cent) in New
Zealand.
Central Europe
Our volumes grew strongly in Central Europe, up by 15 per cent, and we improved
our cigarette share in many markets. In Poland our market share grew to 16.6 per
cent (2006: 16.5 per cent) with a good performance from West. In Austria, JPS
increased our market share to 7.3 per cent (2006: 4.7 per cent). Growing success
with our value brands such as Moon in the Czech Republic and Golden Gate in
Slovakia increased our market shares to 11.9 per cent and 39.9 per cent
respectively (2006: 9.2 per cent and 33.8 per cent respectively). We have
launched Davidoff Neon into several markets including Hungary and Slovenia. In
addition, we continue to develop our cigarette business in Scandinavia and the
Baltics following our investments in Skruf and Tremaco and the acquisition of
Gunnar Stenberg.
Eastern Europe
In Eastern Europe we also delivered good volume growth of 8 per cent. In Russia,
our market share was up at 5.6 per cent (2006: 5.5 per cent), as a result of
increased distribution of Maxim and the launch of new Davidoff brand variants.
In Ukraine, we grew market share to 20.3 per cent (2006: 18.9 per cent) with an
excellent performance from Classic, while in Turkey growth in our cigarette
market share to 2.3 per cent (2006: 0.8 per cent) was driven by our Klasik
brand.
Americas
Our presence in the Americas has significantly expanded with the successful
completion in April of the acquisition of Commonwealth Brands, the fourth
largest cigarette manufacturer in the United States. We continue to develop our
plans for additional brand and product launches. We are working with the
National Association of Attorneys General to progress our Master Settlement
Agreement application which will cover our tobacco products manufactured outside
the US but distributed through Commonwealth.
We have also been active with Davidoff in this region, launching the brand in
Mexico in March and in Canada in April.
Africa and the Middle East
In Africa, we grew our cigarette market shares in many markets across the
region. Brand highlights include Mustang in Burkino Faso and Excellence in
Senegal. We have recently agreed on a co-operation with JT International for the
manufacture and distribution of their Winston brand in Senegal. In the Middle
East, Davidoff performed well, with our cigarette market shares rising further
in Saudi Arabia, UAE and Kuwait.
Outlook
In the second half of the year we will continue our focus on further extending
our business in this region, both in terms of brand portfolio and market
presence. The results of Commonwealth Brands will be consolidated from April
and, subject to approval of our Master Settlement Agreement application, we
intend to launch our brands into the United States.
Manufacturing
-------------
Our strategy of simplification and standardisation has continued to deliver
performance improvements and we have identified further cost savings across our
manufacturing footprint.
Our Performance
Productivity was up by 7 per cent, benefiting from our continued volume growth,
and we reduced our cigarette unit costs by 4 per cent and our fine cut tobacco
unit costs by 11 per cent. We made further progress on simplification of blends,
ingredients and stock keeping units.
We aim to ensure flexibility across our manufacturing footprint, enabling us to
respond effectively and quickly to changing market dynamics. The closures of our
factories in Liverpool in the UK and Lahr in Germany were completed on schedule
by the end of March 2007.
Construction of our new factory in Taiwan will start in the next few months.
This facility will cost around £45 million and is due to be completed by the end
of 2008. When operational the factory will have a primary capacity of around 15
billion cigarettes per annum, with initial production expected to be around 6
billion, in line with our current market share in Taiwan. The factory will
produce our international brands including Davidoff, Boss and West and by 2010
we expect to generate annual benefits of around £20 million from a reduction in
overall supply chain costs and other operational efficiencies.
Outlook
Across all our manufacturing operations, we continue to focus on quality,
optimising our cost base and further improving our performance by reducing
complexity.
We have announced that we are targeting further cost savings of around £30
million per annum in the next few years across our manufacturing footprint from
a variety of initiatives including ongoing business simplification and continued
cost management.
Financial Performance
---------------------
Revenue was £5,851 million in the half year to 31 March 2007 compared to £5,583
million in the first half of 2006. Revenue less duty was up 1 per cent at £1,514
million (2006: £1,496 million). Adjusted profit from operations was £663
million, up 7 per cent on the first half of 2006. Our adjusted operating margin
was up at 43.8 per cent (2006: 41.3 per cent). Reported profit from operations
was £658 million (2006: £592 million).
Restructuring Costs
The 2006 restructuring costs of £18 million related to the restructuring of our
Lahr factory following the cessation of Singles production from 1 April 2006.
There were no restructuring costs in the first half of 2007.
Net Finance Costs
Adjusted net finance costs increased to £106 million (2006: £89 million). This
increase was due to higher average adjusted net debt of £3.9 billion (2006:
£3.4 billion) and a marginally higher average all in cost of debt of 5.4 per cent
(2006: 5.3 per cent) reflecting higher euro interest rates on our floating rate
debt. Adjusted interest cover was 6.3 times (2006: 6.9 times). Reported net
finance costs of £92 million (2006: £45 million) included retirement benefit net
finance income of £27 million (2006: £23 million) and fair value losses on
interest rate derivatives of £13 million (2006: gains of £21 million).
Profit Before Tax
Adjusted profit before tax was £557 million, up 5 per cent on the first half of
2006. Reported profit before tax increased to £566 million (2006: £547 million).
Taxation
The adjusted tax charge for the half year was £139 million (2006: £142 million),
representing an adjusted effective tax rate of 25.0 per cent (2006: 26.8 per
cent) reflecting our estimated adjusted tax rate for the full financial year.
The reported tax charge was £141 million (2006: £147 million).
Earnings and Dividends
Adjusted earnings per share increased by 13 per cent to 61.4 pence (2006: 54.4
pence) and basic earnings per share increased by 11 per cent to 62.4 pence
(2006: 56.2 pence). We have declared an increase of 14 per cent in the interim
dividend to 21.0 pence per share (2006: 18.5 pence) payable on 10 August 2007 to
those shareholders on the register at close of business on 13 July 2007.
Net Debt and Cash
At 31 March 2007, our reported net debt had increased to £4.2 billion (2006:
£3.8 billion). Eliminating the fair value of interest rate derivatives and
accrued interest of £0.1 billion (2006: £0.1 billion), our adjusted net debt was
£4.1 billion (2006: £3.7 billion). The increase in adjusted net debt was
primarily due to the acquisition of the Davidoff cigarette trademark in
September 2006.
In the six months to 31 March 2007, we spent a further £105 million, including
transaction costs, acquiring 5.7 million shares at an average market price of
£18.31 per share. Prior to the suspension of our share buyback programme, at the
time of our announcement of the Commonwealth Brands acquisition, we had spent a
cumulative £862 million, including transaction costs, buying back 51.7 million
shares representing 7.1 per cent of issued share capital.
Our cash conversion was 54 per cent (2006: 72 per cent) reflecting the working
capital outflow during the period resulting from inventory building in advance
of duty increases. We expect our full year cash conversion rate to be in line
with our target rate of 90 to 100 per cent.
Acquisitions
On 8 February 2007, we announced that we had agreed to acquire 100 per cent of
CBHC Inc, which trades as Commonwealth Brands, from Houchens Industries Inc for
a total consideration of US$1.9 billion (£974 million) including assumed debt.
The acquisition was completed on 2 April 2007. In January 2007, we also acquired
a controlling interest in Tremaco, a tobacco and tobacco related products
distribution business based in Estonia.
FINANCIAL REPORTING
The financial information comprises the unaudited results for the six months
ended 31 March 2007 and 31 March 2006, together with the audited results for the
year ended 30 September 2006. The financial information has been prepared in
accordance with the Listing Rules of the Financial Services Authority. The
Group's principal accounting policies used in preparing this information are as
stated in the financial statements for the year ended 30 September 2006, which
are available on our website www.imperial-tobacco.com.
The Group has chosen not to adopt early IAS 34 'Interim Financial Statements' in
preparing its 2007 interim statement.
The information shown for the year ended 30 September 2006 does not constitute
statutory accounts within the meaning of section 240 of the Companies Act 1985,
and is an abridged version of the Group's published financial statements for
that year which have been filed with the Registrar of Companies. The auditors'
report on those statements was unqualified and did not contain any statements
under section 237(2) or (3) of the Companies Act 1985.
CAUTIONARY STATEMENT
All statements, other than statements of historical fact, included herein, are,
or may be deemed to be, forward-looking statements within the meaning of section
21E of the Securities Exchange Act 1934, as amended. For a discussion of
important factors that could cause actual results to differ materially from
those discussed in such forward-looking statements please refer to Imperial
Tobacco's annual report on Form 20-F for the fiscal year ended 30 September
2006, filed with the United States Securities and Exchange Commission on 2
February 2007.
CONSOLIDATED INCOME STATEMENT
for the six months ended 31 March 2007
6 months 6 months Year
ended ended ended
31 March 2007 31 March 2006 30 Sept 2006
£m £m £m
Revenue 5,851 5,583 11,676
Duty (4,337) (4,087) (8,514)
Raw materials and consumables used (302) (324) (641)
Changes in inventories of finished
goods and work in progress (3) 23 (9)
Employment costs (224) (234) (468)
Depreciation and amortisation (48) (45) (103)
Other operating charges (279) (324) (630)
----------- ----------- -----------
Profit from operations 658 592 1,311
----------- ----------- -----------
Adjusted profit from operations 663 618 1,356
Restructuring costs - (18) (45)
Fair value gains and losses on derivative
financial instruments (5) (8) -
---------- ---------- ----------
Investment income 160 162 283
Finance costs (252) (207) (426)
----------- ----------- -----------
Net finance costs (92) (45) (143)
----------- ----------- -----------
Adjusted net finance costs (106) (89) (188)
Retirement benefits net financing income 27 23 46
Fair value gains and losses on
derivative financial instruments (13) 21 (1)
----------- ----------- -----------
Profit before taxation 566 547 1,168
Taxation (141) (147) (310)
----------- ----------- -----------
Profit for the period 425 400 858
----------- ----------- -----------
Attributable to:
Equity holders of the Company 421 397 851
Minority interests 4 3 7
---------- ----------- -----------
Earnings per ordinary share - Basic 62.4p 56.2p 122.2p
- Diluted 62.1p 55.9p 121.6p
---------- ----------- -----------
All activities derive from continuing operations.
CONSOLIDATED BALANCE SHEET
AT 31 MARCH 2007
31 March 2007 31 March 2006 30 Sept 2006
£m £m £m
Non-current assets
Intangible assets 3,908 3,620 3,910
Property, plant and equipment 580 629 580
Investments in associates 5 5 5
Retirement benefit assets 618 447 397
Trade and other receivables 20 2 19
Deferred tax assets 74 41 71
----------- ----------- -----------
5,205 4,744 4,982
----------- ----------- -----------
Current assets
Inventories 1,080 1,431 789
Trade and other receivables 1,243 1,096 1,067
Current tax assets 13 51 13
Cash and cash equivalents 266 215 263
Derivative financial instruments 36 53 29
----------- ----------- -----------
2,638 2,846 2,161
----------- ----------- -----------
Total assets 7,843 7,590 7,143
----------- ----------- -----------
Current liabilities
Borrowings (1,188) (848) (1,122)
Derivative financial instruments (160) (112) (119)
Trade and other payables (1,620) (1,881) (1,433)
Current tax liabilities (251) (301) (272)
Provisions (34) (50) (56)
----------- ----------- -----------
(3,253) (3,192) (3,002)
----------- ------------ -----------
Non-current liabilities
Borrowings (3,168) (3,086) (2,930)
Trade and other payables (4) (14) (5)
Deferred tax liabilities (199) (140) (135)
Retirement benefit liabilities (415) (426) (434)
Provisions (33) (54) (39)
----------- ----------- -----------
(3,819) (3,720) (3,543)
----------- ----------- -----------
Total liabilities (7,072) (6,912) (6,545)
----------- ----------- -----------
Net assets 771 678 598
----------- ----------- -----------
Equity
Share capital 73 73 73
Share premium account 964 964 964
Retained earnings (260) (432) (423)
Exchange translation reserve (26) 54 (35)
----------- ----------- -----------
Equity attributable to equity holders
of the Company 751 659 579
Minority interests 20 19 19
----------- ----------- -----------
Total equity 771 678 598
----------- ----------- -----------
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
For the six months ended 31 March 2007
6 months 6 months Year
ended ended ended
31 March 2007 31 March 2006 30 Sept 2006
£m £m £m
Exchange movements 9 36 (54)
Actuarial gains on retirement
benefits 209 186 100
Deferred tax relating to actuarial
gains on retirement benefits (54) (60) (24)
Deferred tax on other items taken
directly to or transferred
from equity - (1) 7
----------- ----------- -----------
Net income recognised directly in
equity 164 161 29
Profit for the period 425 400 858
----------- ----------- -----------
Total recognised income and
expense for the period 589 561 887
----------- ----------- -----------
Attributable to:
Equity holders of the Company 585 558 880
Minority interests 4 3 7
----------- ----------- -----------
Total recognised income and
expense for the period 589 561 887
----------- ----------- -----------
Adoption of IAS 39 attributable to:
Equity holders of the Company - 6 6
Minority interests - - -
----------- ------------ -----------
- 6 6
----------- ----------- -----------
CONSOLIDATED CASH FLOW STATEMENT
For the six months ended 31 March 2007
6 months 6 months Year
ended ended ended
31 March 2007 31 March 2006 30 Sept 2006
£m £m £m
Cash flows from operating activities 253 358 1,155
---------- ----------- -----------
Cash flows from investing activities
Interest received 6 5 13
Purchase of property, plant and
equipment (44) (34) (75)
Proceeds from sale of property, plant
and equipment 1 12 15
Purchase of intangible assets -
trademarks - - (368)
Purchase of intangible assets -
software (3) - (7)
Purchase of subsidiary undertakings - (67) (68)
------------ ----------- -----------
Net cash used in investing activities (40) (84) (490)
------------ ----------- -----------
Cash flows from financing activities
Interest paid (52) (38) (199)
Purchase of treasury shares (105) (296) (556)
Proceeds from sale of shares held under
Employee Share Ownership Trusts 1 - 7
Purchase of shares held by Employee
Share Ownership Trusts (25) (14) (55)
Increase in borrowings 1,586 425 1,356
Repayment of borrowings (1,318) (113) (795)
Dividends paid to minority interests (3) (3) (7)
Dividends paid to shareholders (293) (279) (406)
------------ ----------- ------------
Net cash used in financing activities (209) (318) (655)
------------ ----------- ------------
Net increase/(decrease) in cash and
cash equivalents 4 (44) 10
Cash and cash equivalents at start
of period 263 256 256
Effect of foreign exchange rates (1) 2 (4)
Adjustments relating to adoption of
IAS 39 from 1 October 2005 - 1 1
------------ ---------- -----------
Cash and cash equivalents at end of
period 266 215 263
------------ ----------- -----------
Notes to the interim statement
------------------------------
1. Segmental information
The principal activity of the Group is the manufacture, marketing and sale of
tobacco and tobacco-related products. The management structure is based on
geographical regions. These geographical regions of UK, Germany, Rest of Western
Europe and Rest of the World have been used as the primary reporting segments.
The manufacture, marketing and sale of tobacco and tobacco-related products is a
single integrated business and as a consequence, the Group has only one business
segment and no secondary segment disclosure has been made. The central costs are
allocated to segments on the basis of revenue less duty.
With effect from 1 October 2006, we have reclassified the results of our
Austrian business from 'Germany' to 'Rest of the World' to reflect the way in
which our operations are managed within the Group. Numbers for 2006 first half
and full year have been restated accordingly.
Geographical consolidated income statement by destination of sales and
reconciliation of profit from operations to adjusted profit from operations
6 months ended 31 March 2007
Revenue
less
Revenue Duty duty
£m £m £m
UK 2,436 1,994 442
Germany 1,271 1,016 255
Rest of Western Europe 815 529 286
Rest of the World 1,329 798 531
------------ ------------ ------------
International 3,415 2,343 1,072
------------ ------------ ------------
5,851 4,337 1,514
------------ ------------ ------------
Fair value
changes on
Restruc- derivative Adjusted
Profit from turing financial profit from
operations costs instruments operations
£m £m £m £m
UK 276 - 3 279
Germany 116 - 1 117
Rest of Western
Europe 142 - - 142
Rest of the
World 124 - 1 125
------------ ------------ ------------ -----------
International 382 - 2 384
------------ ------------ ------------ -----------
658 - 5 663
------------ ------------- ------------ -----------
6 months ended 31 March 2006
Revenue
less
Revenue Duty duty
£m £m £m
UK 2,282 1,887 395
Germany 1,287 1,007 280
Rest of Western Europe 811 513 298
Rest of the World 1,203 680 523
------------ ------------ ------------
International 3,301 2,200 1,101
------------ ------------ ------------
5,583 4,087 1,496
------------ ------------ ------------
Fair value
changes on
Restruc- derivative Adjusted
Profit from turing financial profit from
operations costs instruments operations
£m £m £m £m
UK 230 - 3 233
Germany 109 18 2 129
Rest of Western
Europe 147 - 1 148
Rest of the
World 106 - 2 108
------------ ------------ ------------ -----------
International 362 18 5 385
------------ ------------ ------------ -----------
592 18 8 618
------------ ------------- ------------ -----------
Year ended 30 September 2006
Revenue
less
Revenue Duty duty
£m £m £
UK 4,762 3,927 835
Germany 2,698 2,123 575
Rest of Western Europe 1,647 1,010 637
Rest of the World 2,569 1,454 1,115
------------ ------------ ------------
International 6,914 4,587 2,327
------------ ------------ ------------
11,676 8,514 3,162
------------ ------------ ------------
Fair value
changes on
Restruc- derivative Adjusted
Profit from turing financial profit from
operations costs instruments operations
£m £m £m £m
UK 496 10 - 506
Germany 239 31 - 270
Rest of Western
Europe 321 3 - 324
Rest of the
World 255 1 - 256
------------ ------------ ------------ -----------
International 815 35 - 850
------------ ------------ ------------ -----------
1,311 45 - 1,356
------------ ------------- ------------ -----------
2. Restructuring costs
There were no restructuring costs in the half year to 31 March 2007.
In the six months ended 31 March 2006, restructuring costs of £18m were incurred
in respect of the cessation of Singles production at our Lahr factory. These
costs related primarily to termination of employment and fixed asset
write-downs.
In the year ended 30 September 2006 restructuring costs of £45m were primarily
in respect of the closure of our factories in Liverpool and Lahr, and were
largely related to termination of employment and fixed asset write-downs.
3. Net finance costs
6 months 6 months Year
ended ended ended
31 March 31 March 30 Sept
2007 2006 2006
£m £m £m
Interest on bank deposits (6) (7) (13)
Expected return on retirement
benefit assets (102) (88) (188)
Fair value gains on derivative
financial instruments (52) (67) (82)
------------ ----------- -----------
Investment income (160) (162) (283)
------------ ----------- -----------
Interest on bank and other loans 112 96 201
Interest on retirement benefit
liabilities 75 65 142
Fair value losses on derivative
financial instruments 65 46 83
----------- ----------- -----------
Finance costs 252 207 426
----------- ----------- -----------
Net finance costs 92 45 143
----------- ----------- -----------
Reconciliation of net finance costs to adjusted net finance costs
6 months 6 months Year
ended ended ended
31 March 31 March 30 Sept
2007 2006 2006
£m £m £m
Reported net finance costs 92 45 143
Expected return on retirement
benefit assets 102 88 188
Interest on retirement benefit
liabilities (75) (65) (142)
Fair value gains on derivative
financial instruments 52 67 82
Fair value losses on derivative
financial instruments (65) (46) (83)
----------- ----------- -----------
Adjusted net finance costs 106 89 188
----------- ----------- -----------
4. Taxation
Taxation for the six months ended 31 March 2007 has been calculated on the basis
of an estimated adjusted effective tax rate of 25.0% for the year ending 30
September 2007. This compares with an adjusted effective tax rate of 26.8% for
the six months ended 31 March 2006 and 26.5% for the year ended 30 September
2006.
6 months 6 months Year
ended ended ended
31 March 31 March 30 Sept
2007 2006 2006
£m £m £m
Current taxation
UK corporation taxation at 30%
(2006: 30%) 59 52 148
Overseas taxation 75 95 164
----------- ----------- -----------
Total current taxation 134 147 312
----------- ----------- -----------
Deferred taxation
Origination and reversal of
temporary differences 7 - (2)
----------- ----------- -----------
Total taxation charge 141 147 310
----------- ----------- -----------
Adjusted taxation
The table below shows the tax impact of the adjustments made to reported profit
before tax in order to arrive at the adjusted measure of earnings disclosed in
note 6.
6 months 6 months Year
ended ended ended
31 March 31 March 30 Sept
2007 2006 2006
£m £m £m
Reported taxation 141 147 310
Tax on restructuring costs - 5 16
Tax on retirement benefits net
financing income (7) (6) (16)
Tax on fair value gains and losses
on derivative financial
instruments 5 (4) -
----------- ----------- -----------
Adjusted taxation 139 142 310
----------- ----------- -----------
5. Dividends
Amounts recognised as distributions to ordinary shareholders in the period:
6 months 6 months Year
ended ended ended
31 March 31 March 30 Sept
2007 2006 2006
£m £m £m
Final dividend for the year ended
30 Sept 2006 of 43.5p per share
(2005: 39.5p) 293 279 279
Interim dividend for the year ended
30 Sept 2006 of 18.5p per share - - 127
----------- ----------- -----------
293 279 406
----------- ----------- -----------
The Directors have declared an interim dividend for 2007 of 21.0p per share.
This amounts to £141m based on the number of shares ranking for dividend at 31
March 2007.
6. Earnings per share
Basic earnings per share is based on the profit for the period attributable to
the equity holders of the Company and the weighted average number of ordinary
shares in issue during the period excluding shares held to satisfy the Group's
employee share schemes and shares purchased by the Company and held as treasury
shares. Diluted earnings per share is calculated by taking into account the
weighted average number of shares that would be issued on conversion into
ordinary shares of rights held under the employee share schemes.
6 months 6 months Year
ended ended ended
31 March 31 March 30 Sept
2007 2006 2006
£m £m £m
Earnings: basic and diluted 421 397 851
----------- ----------- -----------
Numbers Numbers Numbers
in in in
millions millions millions
Weighted average number of shares:
Shares for basic earnings per share 674.6 706.3 696.3
Potentially dilutive share options 3.1 3.6 3.3
----------- ----------- -----------
Shares for diluted earnings per share 677.7 709.9 699.6
----------- ----------- -----------
Basic earnings per share 62.4p 56.2p 122.2p
Diluted earnings per share 62.1p 55.9p 121.6p
----------- ----------- -----------
A reconciliation from reported earnings per share to adjusted earnings per
share, and the earnings figures (net of tax) used in calculating them is as
follows:
6 months 6 months Year
6 months ended 6 months ended Year ended
ended 31 March ended 31 March ended 30 Sept
31 March 2007 31 March 2006 30 Sept 2006
2007 Earnings 2006 Earnings 2006 Earnings
EPS £m EPS £m EPS £m
Reported basic 62.4p 421 56.2p 397 122.2p 851
Restructuring
costs - - 1.9p 13 4.2p 29
Retirement
benefits net
financing
income (3.0)p (20) (2.4)p (17) (4.3)p (30)
Fair value gains
and losses
on derivative
financial
instruments 2.0p 13 (1.3)p (9) 0.1p 1
--------- --------- -------- --------- --------- ---------
Adjusted 61.4p 414 54.4p 384 122.2p 851
--------- --------- -------- --------- --------- ---------
7. Reconciliation of cash flow from operating activities
6 months 6 months Year
ended ended ended
31 March 31 March 30 Sept
2007 2006 2006
£m £m £m
Profit for the period 425 400 858
Adjustments for:
Taxation 141 147 310
Finance costs 252 207 426
Investment income (160) (162) (283)
Depreciation, amortisation and impairment 48 45 120
Net retirement benefits (8) 2 5
Share schemes 12 10 16
Movement in provisions (28) (3) (11)
----------- ----------- -----------
Operating cash flows before movements in
working capital 682 646 1,441
----------- ----------- -----------
(Increase)/decrease in inventories (283) (557) 59
Increase in trade and other receivables (186) (61) (99)
Increase/(decrease) in trade and other
payables 191 440 (10)
----------- ----------- -----------
Movement in working capital (278) (178) (50)
----------- ----------- -----------
Taxation paid (151) (110) (236)
----------- ----------- -----------
Net cash flow from operating activities 253 358 1,155
----------- ----------- -----------
8. Analysis of net debt
The movements in cash and cash equivalents, borrowings and derivative financial
instruments in the period were as follows:
Cash and Derivative
cash Current Non-current financial
equivalents borrowings borrowings instruments Total
£m £m £m £m £m
As at 1 Oct 2006 263 (1,122) (2,930) (90) (3,879)
Cash flow 4 (40) (228) - (264)
Accretion of
interest - (31) (26) - (57)
Change in fair
values - - - (34) (34)
Currency
translation
differences (1) 5 16 - 20
----------- ----------- ----------- ----------- -----------
As at 31 March
2007 266 (1,188) (3,168) (124) (4,214)
----------- ----------- ----------- ----------- -----------
Adjusted net debt
Management monitors the Group's borrowing levels using adjusted net debt which
excludes the fair value of interest rate derivative financial instruments and
interest accruals.
6 months 6 months Year
ended ended ended
31 March 31 March 30 Sept
2007 2006 2006
£m £m £m
Reported net debt (4,214) (3,778) (3,879)
Accrued interest 98 17 41
Fair value of interest rate
derivatives 31 14 16
----------- ----------- ----------
Adjusted net debt (4,085) (3,747) (3,822)
----------- ----------- ----------
9. Purchase of treasury shares
During the period the Company continued its share buyback programme purchasing
5,713,000 ordinary shares in Imperial Tobacco Group PLC for a total cost of
£105m including expenses. The shares purchased to date, representing 7.1% of
issued share capital, have not been cancelled but are held in a treasury shares
reserve and represent a deduction from equity attributable to the equity holders
of the Company. The share buyback programme was suspended on 8 February 2007
following the announcement of the agreement to acquire Commonwealth Brands (note
11).
10. Retirement benefits
Actuarial valuations of 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 plan assets are revalued
based on market data at the period end and the scheme liabilities are
recalculated to reflect key changes in membership data and revised actuarial
assumptions.
11. Acquisitions
On 8 February 2007 the Group announced that it had agreed to acquire 100% of
CBHC Inc, which trades as Commonwealth Brands, from Houchens Industries Inc for
a total consideration of US$1.9 billion (£974m) including assumed debt. The
acquisition completed on 2 April 2007.
During the first half of the year we also acquired interests in a number of
small businesses including in January 2007 a controlling interest in Tremaco, a
tobacco and tobacco-related products distribution business based in Estonia. The
consideration for these acquisitions was not material.
12. Reclassification of employment costs
Subsequent to releasing our results for the six months ended 31 March 2006 we
have reclassified certain retirement benefit and share scheme costs for that
period from 'Other operating charges' to 'Employment costs' within the
Consolidated income statement to ensure consistency with the classification in
our full year results. This reclassification has no impact on the reported or
adjusted profit.
FINANCIAL CALENDAR
Ex-dividend date for interim dividend 11 July 2007
Interim dividend record date 13 July 2007
Interim dividend payable 10 August 2007
This information is provided by RNS
The company news service from the London Stock Exchange
