1st May 2007 07:01
Imperial Tobacco Group PLC01 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, reflectingthe continued successful execution of our growth strategy. We maintained ourorganic growth momentum of the last two years, increasing our global cigarettevolumes by 5 per cent and making further cigarette market share gains across allour regions. "Our success reflected the continued growth of our key cigarette brandsDavidoff, West and JPS, supported by robust performances from other brands. Wehave focused on accelerating the international development of Davidoff sinceacquiring the worldwide cigarette trademark last year, increasing volumes by 10per cent and launching the brand in several new markets as well as introducingadditional brand variants. "We will continue to develop our brand and product portfolio in order to buildon our cigarette volume growth and strengthen our world leading position inother tobacco products. Further extending our geographic footprint providesadditional growth opportunities and through the completion of the $1.9 billionacquisition of Commonwealth Brands, the fourth largest cigarette manufacturer inthe US, we now have a sizeable presence in this vast and highly profitablemarket. "This, combined with our ongoing commitment to reduce costs and effectivelymanage our cash, means we are well positioned to build on our success anddeliver more value for our shareholders. "I can confirm that the overall anticipated performance of the Group for thefinancial year to 30 September 2007 remains in line with our expectations at thetime of our March trading update." NOTES TO EDITORS Imperial Tobacco Group PLC Imperial Tobacco Group PLC is the world's fourth largest international tobaccocompany. The Group manufactures and sells a comprehensive range of cigarettes,tobaccos, rolling papers, filter tubes and cigars in over 130 countriesworldwide. It has around 14,500 employees and 31 manufacturing sites. ENQUIRIES Alex Parsons, Group Media Relations Manager +44 (0)7967 467 241Simon Evans, Group Media Relations Executive +44 (0)7967 467 684John Nelson-Smith, Investor Relations Manager +44 (0)117 933 7032Garry 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 bettercomparison of business performance and reflects the way in which the business iscontrolled. Accordingly, adjusted measures of profit from operations, netfinance costs, profit before tax, taxation and earnings per share exclude, whereapplicable, restructuring costs, retirement benefits net financing income, fairvalue gains and losses on derivative financial instruments and related taxationeffects. Reconciliations between adjusted and reported profit from operationsare included within note 1 to the interim statements, adjusted and reportedfinance costs in note 3, adjusted and reported taxation in note 4, and adjustedand reported earnings per share in note 6. The term adjusted is not a definedterm under International Financial Reporting Standards and may not be comparablewith similarly titled measures reported by other companies. The exchange rate of US$1.9685 to the £1, the pound sterling noon buying rate on30 March 2007, the last business day prior to 31 March 2007, has been used totranslate this statement. CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT "We have delivered a strong operational and financial performance in the firsthalf of 2007, again demonstrating the effectiveness of our strategy to createsustainable shareholder value." We increased our cigarette volumes driven by excellent growth from our keybrands, with our performance supported by our continued focus on our cost baseand 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 hasdeclared an interim dividend of 21.0 pence (2006: 18.5 pence), an increase of 14per cent. This dividend will be paid on 10 August 2007 to shareholders on theregister at the close of business on 13 July 2007. Performance Highlights Continuing the positive volume trends of the past two years, we furtherdemonstrated our organic growth capability, increasing our cigarette volumes by5 per cent in the first half of 2007. We also improved our cigarette marketshares in our core markets of the UK and Germany, as well as in the majority ofmarkets in our Rest of Western Europe region and further afield, including inAfrica 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 percent and 25 per cent respectively, supported by strong performances from anumber of our other brands. Following the acquisition of the Davidoff cigarette trademark last September, wehave accelerated our investment in the brand. Davidoff was launched in Canada,Mexico, Romania and several African markets and we have also introducedadditional brand variants such as Davidoff Black & White, Davidoff Neon andDavidoff Rich Blue into existing markets. On 2 April 2007 we completed our purchase of Commonwealth Brands, the fourthlargest cigarette manufacturer in the United States, for $1.9 billion. Thisacquisition provides us with a 3.7 per cent share of the US cigarette market,some established brands and, following approval of our Master SettlementAgreement application, an excellent platform from which to launch additionalproducts through Commonwealth's extensive and experienced sales force. In manufacturing, our focus remains on controlling costs, while improvingefficiencies, with productivity up by 7 per cent. Cash Management Effective use of the cash we generate is an essential part of the ImperialTobacco growth story and we have made progress with a number of tax initiativesincluding those associated with the Commonwealth Brands acquisition. Theseinitiatives should reduce our adjusted tax rate from 26.5 per cent in the 2006financial year to around 25 per cent for the years ending September 2007 and2008, with further reductions possible thereafter. In February, we announced a significant value creating opportunity for the Groupwith the acquisition of Commonwealth Brands. We also suspended our share buybackprogramme. Board Changes Our previously announced Board changes became effective from 2 January 2007.Subsequent to this, Colin Day, Non-Executive Director, resigned from the Boardon 16 February 2007, as a consequence of his overall business commitments. Weare in the process of recruiting additional independent Non-Executive Directorsand further reviewing the overall composition of the Board and its Committees. Regulation The regulatory environment continues to be challenging and we believe that weremain well equipped to effectively manage these challenges. We continue to seekconstructive dialogue with governments and regulatory authorities at all levelsin pursuit of reasonable, practical and proportionate regulation of tobaccoproducts. Outlook In the second half of 2007 we expect another strong operational and financialperformance. We believe we are well positioned to grow our strong brand portfolio through ourexpanding geographic footprint. Combined with our focus on costs and theeffective use of the cash we generate, we believe we will continue to createsustainable value for our shareholders. Iain Napier Gareth DavisChairman 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 £3,162mAdjusted profit from operations £663m £618m £1,356mAdjusted 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 233Germany 255 280 117 129Rest of Western Europe 286 298 142 148Rest 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 1,000Germany 9.9 9.3 2,250 3,300Rest of Western Europe 8.4 8.7 6,800 7,450Rest 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 ourAustrian business from 'Germany' to 'Rest of the World' to reflect the way inwhich our operations are managed within the Group. Numbers for the first half of2006 have been restated accordingly. Overview In the half year to 31 March 2007, revenue was £5,851 million compared to £5,583million in the first half of 2006. Revenue less duty was up 1 per cent at £1,514million (2006: £1,496 million). Adjusted profit from operations was £663million, up 7 per cent on the first half of 2006. Our adjusted operating marginwas up at 43.8 per cent (2006: 41.3 per cent). Reported profit from operationswas £658 million (2006: £592 million). Growing volumes combined with price increases, efficiency improvements andcontinued effective cash management delivered 13 per cent growth in adjustedearnings per share to 61.4 pence. Basic earnings per share were 62.4 pencecompared to 56.2 pence in the first half of 2006. United Kingdom-------------- Performance Highlightsin the half year to 31 March 2007 2006 Revenue less duty £442m £395mAdjusted profit from operations £279m £233mImperial Tobacco cigarette volumes 11.7bn 11.4bnImperial Tobacco cigarette market share (1) 46.4% 45.2%Imperial Tobacco fine cut tobacco volumes 1,100t 1,000tImperial Tobacco fine cut market share (1) 64.0% 65.5% Market Dynamics 2007 2006 Total market cigarette volumes (annualised) (1) 48.2bn 48.4bnTotal 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 andfurther growth in our cigarette market share. Market Dynamics We estimate that the annualised UK cigarette market was broadly stable, in thefirst half of the year, averaging 48.2 billion (2006: 48.4 billion). Downtradingcontinued, with strong growth in the economy sector. The fine cut tobacco marketgrew 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 inthe second half of the financial year with downtrading continuing both withincigarette and into fine cut tobacco. We increased our cigarette prices in January 2007 by 10 pence per pack. In theMarch Budget, the Chancellor increased excise duty by 11 pence per pack, whichwas passed on to consumers. Following the introduction of a comprehensive ban on smoking in public places inScotland on 26 March 2006, similar bans were implemented in Wales on 2 April2007 and in Northern Ireland on 30 April 2007. A ban will take effect in Englandon 1 July 2007. Our experience of the smoking bans in Scotland and other marketsconfirms our view; it is clear that smokers will continue to smoke, there may bean 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 adjustedprofit from operations up 20 per cent to £279 million, reflecting growth in ourcigarette market share, the benefits of our price increases and our focus oncosts. We grew our cigarette market share to 46.4 per cent (2006: 45.2 per cent), anexcellent performance. Lambert & Butler increased market share to 16.7 per cent(16.0 per cent) following the reintroduction of the celebration packs and growthin the superkings variant. Richmond remained stable at 15.5 per cent and wedeveloped Windsor Blue further in the economy sector, with the brand capturing2.4 per cent market share (2006: 0.6 per cent). In fine cut tobacco, we grew our volumes by 7 per cent, though our market sharedeclined to 64.0 per cent (2006: 65.5 per cent) with Golden Virginia losingmarket share to lower priced brands. However, in rolling papers, we grew volumesof Rizla by 3 per cent. Outlook In the second half of the year, we expect another strong operational performancein the UK. Our broad brand portfolio across all categories combined with ourfocus on sales force excellence leaves us well placed to continue to benefitfrom our market leading position. Germany------- Performance Highlightsin the half year to 31 March 2007 2006(2) Revenue less duty £255m £280mAdjusted profit from operations £117m £129mImperial Tobacco cigarette volumes 9.9bn 9.3bnImperial Tobacco cigarette market share (1) 21.2% 20.5%Imperial Tobacco other tobacco products volumes (as cigarette equivalents) 3.4bn 4.8bnImperial 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 88bnTotal 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 ourAustrian business from "Germany" to "Rest of the World" to reflect the way inwhich our operations are managed within the Group. Numbers for the first halfof 2006 have been restated accordingly. We continued to grow our cigarette market share in Germany, with an excellentperformance from JPS. Market Dynamics Market dynamics in Germany are being driven by consumer migration from the makeyour own Singles product, following the change in taxation of Singles from finecut tobacco to cigarettes in April 2006. We estimate the total annualisedtobacco 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 90billion (2006: 88 billion). Downtrading continued with the low price cigarettesector up at 16.8 per cent of the total cigarette market. In other tobaccoproducts, market volumes were down to 36 billion cigarette equivalents (2006: 47billion), largely as a result of former Singles consumers switching out of thiscategory. Since the final sales of Singles products last autumn, we have been closelymonitoring the situation and have introduced a number of alternative tobaccoproducts for transitioning consumers. Our current estimate is that 20 per centof former Singles consumers have moved into duty paid cigarettes, 55 per centinto other tobacco products and 25 per cent into both legal and illegal crossborder products. In October 2006, in advance of the VAT increase on 1 January 2007, we increasedour prices by 20 euro cents per pack of cigarettes. Our Performance In Germany, our revenue less duty decreased to £255 million, with adjustedprofit from operations down 9 per cent to £117 million. Profits were impacted bythe decline in the total tobacco market, the migration of Singles consumers tolower margin alternative tobacco products and ongoing cigarette downtrading.However, these results benefited from the growing cigarette market and ourcigarette market share gains, our pricing benefits and cost efficiencies. Our cigarette market share progressed further, up to 21.2 per cent (2006: 20.5per cent), with another excellent performance from JPS, almost doubling itsmarket 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 broadlystable 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 sharebeing offset by a decline in our eco cigarillos market share. There have been anumber of positive developments in make your own tobacco. West and JPS SingleTobacco are making good progress and in January 2007 we launched West QuickiesXL 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 themigration of Singles consumers both to cigarette and to our other tobaccoproducts. Rest of Western Europe---------------------- Performance Highlightsin the half year to 31 March 2007 2006 Revenue less duty £286m £298mAdjusted profit from operations £142m £148mImperial Tobacco regional cigarette volumes 8.4bn 8.7bnImperial Tobacco regional fine cut tobacco volumes 6,800t 7,450t Regional Dynamics 2007 2006 Regional market: cigarettes (annualised) (1) 302bn 306bnRegional 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 Restof Western Europe region. Regional Dynamics We estimate that the regional cigarette market was down by 1 per cent, while theregional fine cut tobacco market grew by 2 per cent. Downtrading continues bothwithin cigarette and fine cut tobacco. There are signs that the pricingenvironment is improving, with increases in a number of markets including Greeceand Spain. The regulatory environment continues to be challenging with the introduction offurther smoking restrictions in France, pictorial health warnings in Belgium anda significant duty increase in Ireland. Our Performance Revenue less duty decreased to £286 million and adjusted profit from operationswas down 4 per cent to £142 million. We grew our cigarette market shares in themajority of markets in the region, although our results continue to be impactedby 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 werelower than in the first half of last year as a result of stocking by the tradein advance of a tax change on 1 April 2006. In Belgium, our cigarette marketshare was broadly stable, while in Ireland we increased our cigarette marketshare to 26.6 per cent. In France and Portugal our cigarette market sharesclimbed to 3.9 per cent and to 4.0 per cent respectively with a good performancefrom JPS. Although West and JPS grew in Spain, our overall market share fell to5.4 per cent (2006: 6.8 per cent) reflecting a reduction in travel retailvolumes. In Greece, Davidoff, West and Maxim all contributed to our overallcigarette 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 Virginiaand Drum, but ongoing downtrading and increased competition in this categoryhave continued to impact our market shares. Our fine cut tobacco volumes havealso been impacted by lower travel retail sales and stocking by the trade in theNetherlands. In recent months we have progressed a number of initiatives with our fine cuttobacco portfolio. In Belgium, our fine cut tobacco growth has been supported bythe introduction of Bastos and JPS. In France, Interval and JPS have beenrepositioned, while in Spain JPS Halfzware has been launched. In theNetherlands, although our fine cut tobacco market share was down to 50.6 percent (2006: 51.3 per cent), Zilver and Evergreen have grown to 4.3 per cent ofthe fine cut tobacco market. Outlook In the second half of 2007, our focus in the Rest of Western Europe is ongrowing our cigarette market shares across the region and building on our finecut tobacco initiatives. Rest of the World----------------- Performance Highlightsin the half year to 31 March 2007 2006(2) Revenue less duty £531m £523mAdjusted profit from operations £125m £108mImperial Tobacco regional cigarette volumes 60.7bn 56.9bnImperial 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 ourAustrian business from "Germany" to "Rest of the World" to reflect the way inwhich our operations are managed within the Group. Numbers for the first halfof 2006 have been restated accordingly. In the Rest of the World our cigarette volumes rose by 7 per cent and our marketshares increased across the region as we leveraged the strength of our brandportfolio 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 usmany opportunities to expand and develop our business. Our Performance In the Rest of the World, revenue less duty was up to £531 million and adjustedprofit from operations was up 16 per cent to £125 million. These results reflectstrong cigarette volume growth and market share gains, supported by ourcontinued investment in the region. Asia We grew our cigarette volumes by 10 per cent in Asia. In our key market ofTaiwan our market share grew to 12.7 per cent (2006: 11.3 per cent), withpositive developments for West. As part of our plans to develop our Asianfootprint, 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 shareswere broadly stable at 17.5 per cent (2006: 17.6 per cent) in Australia, withBrandon performing well, and at 17.1 per cent (2006: 17.2 per cent) in NewZealand. Central Europe Our volumes grew strongly in Central Europe, up by 15 per cent, and we improvedour cigarette share in many markets. In Poland our market share grew to 16.6 percent (2006: 16.5 per cent) with a good performance from West. In Austria, JPSincreased our market share to 7.3 per cent (2006: 4.7 per cent). Growing successwith our value brands such as Moon in the Czech Republic and Golden Gate inSlovakia increased our market shares to 11.9 per cent and 39.9 per centrespectively (2006: 9.2 per cent and 33.8 per cent respectively). We havelaunched Davidoff Neon into several markets including Hungary and Slovenia. Inaddition, we continue to develop our cigarette business in Scandinavia and theBaltics following our investments in Skruf and Tremaco and the acquisition ofGunnar 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 ofincreased 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 anexcellent performance from Classic, while in Turkey growth in our cigarettemarket share to 2.3 per cent (2006: 0.8 per cent) was driven by our Klasikbrand. Americas Our presence in the Americas has significantly expanded with the successfulcompletion in April of the acquisition of Commonwealth Brands, the fourthlargest cigarette manufacturer in the United States. We continue to develop ourplans for additional brand and product launches. We are working with theNational Association of Attorneys General to progress our Master SettlementAgreement application which will cover our tobacco products manufactured outsidethe US but distributed through Commonwealth. We have also been active with Davidoff in this region, launching the brand inMexico in March and in Canada in April. Africa and the Middle East In Africa, we grew our cigarette market shares in many markets across theregion. Brand highlights include Mustang in Burkino Faso and Excellence inSenegal. We have recently agreed on a co-operation with JT International for themanufacture and distribution of their Winston brand in Senegal. In the MiddleEast, Davidoff performed well, with our cigarette market shares rising furtherin Saudi Arabia, UAE and Kuwait. Outlook In the second half of the year we will continue our focus on further extendingour business in this region, both in terms of brand portfolio and marketpresence. The results of Commonwealth Brands will be consolidated from Apriland, subject to approval of our Master Settlement Agreement application, weintend to launch our brands into the United States. Manufacturing------------- Our strategy of simplification and standardisation has continued to deliverperformance improvements and we have identified further cost savings across ourmanufacturing 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 tobaccounit 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 torespond effectively and quickly to changing market dynamics. The closures of ourfactories in Liverpool in the UK and Lahr in Germany were completed on scheduleby 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 endof 2008. When operational the factory will have a primary capacity of around 15billion cigarettes per annum, with initial production expected to be around 6billion, in line with our current market share in Taiwan. The factory willproduce our international brands including Davidoff, Boss and West and by 2010we expect to generate annual benefits of around £20 million from a reduction inoverall 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 reducingcomplexity. We have announced that we are targeting further cost savings of around £30million per annum in the next few years across our manufacturing footprint froma variety of initiatives including ongoing business simplification and continuedcost management. Financial Performance--------------------- Revenue was £5,851 million in the half year to 31 March 2007 compared to £5,583million in the first half of 2006. Revenue less duty was up 1 per cent at £1,514million (2006: £1,496 million). Adjusted profit from operations was £663million, up 7 per cent on the first half of 2006. Our adjusted operating marginwas up at 43.8 per cent (2006: 41.3 per cent). Reported profit from operationswas £658 million (2006: £592 million). Restructuring Costs The 2006 restructuring costs of £18 million related to the restructuring of ourLahr 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). Thisincrease 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 ratedebt. Adjusted interest cover was 6.3 times (2006: 6.9 times). Reported netfinance costs of £92 million (2006: £45 million) included retirement benefit netfinance income of £27 million (2006: £23 million) and fair value losses oninterest 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 of2006. 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 percent) 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: 54.4pence) 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 interimdividend to 21.0 pence per share (2006: 18.5 pence) payable on 10 August 2007 tothose 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 andaccrued 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 wasprimarily due to the acquisition of the Davidoff cigarette trademark inSeptember 2006. In the six months to 31 March 2007, we spent a further £105 million, includingtransaction 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 thetime of our announcement of the Commonwealth Brands acquisition, we had spent acumulative £862 million, including transaction costs, buying back 51.7 millionshares representing 7.1 per cent of issued share capital. Our cash conversion was 54 per cent (2006: 72 per cent) reflecting the workingcapital outflow during the period resulting from inventory building in advanceof duty increases. We expect our full year cash conversion rate to be in linewith 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 ofCBHC Inc, which trades as Commonwealth Brands, from Houchens Industries Inc fora 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 acquireda controlling interest in Tremaco, a tobacco and tobacco related productsdistribution business based in Estonia. FINANCIAL REPORTING The financial information comprises the unaudited results for the six monthsended 31 March 2007 and 31 March 2006, together with the audited results for theyear ended 30 September 2006. The financial information has been prepared inaccordance with the Listing Rules of the Financial Services Authority. TheGroup's principal accounting policies used in preparing this information are asstated in the financial statements for the year ended 30 September 2006, whichare available on our website www.imperial-tobacco.com. The Group has chosen not to adopt early IAS 34 "Interim Financial Statements" inpreparing its 2007 interim statement. The information shown for the year ended 30 September 2006 does not constitutestatutory accounts within the meaning of section 240 of the Companies Act 1985,and is an abridged version of the Group's published financial statements forthat year which have been filed with the Registrar of Companies. The auditors'report on those statements was unqualified and did not contain any statementsunder 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 section21E of the Securities Exchange Act 1934, as amended. For a discussion ofimportant factors that could cause actual results to differ materially fromthose discussed in such forward-looking statements please refer to ImperialTobacco's annual report on Form 20-F for the fiscal year ended 30 September2006, filed with the United States Securities and Exchange Commission on 2February 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 11,676Duty (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 1,356Restructuring costs - (18) (45)Fair value gains and losses on derivative financial instruments (5) (8) - ---------- ---------- ----------Investment income 160 162 283Finance costs (252) (207) (426) ----------- ----------- -----------Net finance costs (92) (45) (143) ----------- ----------- -----------Adjusted net finance costs (106) (89) (188)Retirement benefits net financing income 27 23 46Fair value gains and losses on derivative financial instruments (13) 21 (1) ----------- ----------- -----------Profit before taxation 566 547 1,168Taxation (141) (147) (310) ----------- ----------- -----------Profit for the period 425 400 858 ----------- ----------- -----------Attributable to:Equity holders of the Company 421 397 851Minority 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 SHEETAT 31 MARCH 2007 31 March 2007 31 March 2006 30 Sept 2006 £m £m £mNon-current assetsIntangible assets 3,908 3,620 3,910Property, plant and equipment 580 629 580Investments in associates 5 5 5Retirement benefit assets 618 447 397Trade and other receivables 20 2 19Deferred tax assets 74 41 71 ----------- ----------- ----------- 5,205 4,744 4,982 ----------- ----------- -----------Current assetsInventories 1,080 1,431 789Trade and other receivables 1,243 1,096 1,067Current tax assets 13 51 13Cash and cash equivalents 266 215 263Derivative financial instruments 36 53 29 ----------- ----------- ----------- 2,638 2,846 2,161 ----------- ----------- -----------Total assets 7,843 7,590 7,143 ----------- ----------- -----------Current liabilitiesBorrowings (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 liabilitiesBorrowings (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 ----------- ----------- ----------- EquityShare capital 73 73 73Share premium account 964 964 964Retained earnings (260) (432) (423)Exchange translation reserve (26) 54 (35) ----------- ----------- -----------Equity attributable to equity holders of the Company 751 659 579Minority interests 20 19 19 ----------- ----------- -----------Total equity 771 678 598 ----------- ----------- ----------- CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFor 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 100Deferred 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 29Profit 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 880Minority 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 6Minority interests - - - ----------- ------------ ----------- - 6 6 ----------- ----------- ----------- CONSOLIDATED CASH FLOW STATEMENTFor 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 activitiesInterest received 6 5 13Purchase of property, plant and equipment (44) (34) (75)Proceeds from sale of property, plant and equipment 1 12 15Purchase 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 activitiesInterest paid (52) (38) (199)Purchase of treasury shares (105) (296) (556)Proceeds from sale of shares held under Employee Share Ownership Trusts 1 - 7Purchase of shares held by Employee Share Ownership Trusts (25) (14) (55)Increase in borrowings 1,586 425 1,356Repayment 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 256Effect 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 oftobacco and tobacco-related products. The management structure is based ongeographical regions. These geographical regions of UK, Germany, Rest of WesternEurope 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 asingle integrated business and as a consequence, the Group has only one businesssegment and no secondary segment disclosure has been made. The central costs areallocated to segments on the basis of revenue less duty. With effect from 1 October 2006, we have reclassified the results of ourAustrian business from 'Germany' to 'Rest of the World' to reflect the way inwhich our operations are managed within the Group. Numbers for 2006 first halfand full year have been restated accordingly. Geographical consolidated income statement by destination of sales andreconciliation 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 255Rest of Western Europe 815 529 286Rest 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 117Rest of Western Europe 142 - - 142Rest 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 280Rest of Western Europe 811 513 298Rest 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 129Rest of Western Europe 147 - 1 148Rest 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 575Rest of Western Europe 1,647 1,010 637Rest 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 - 270Rest of Western Europe 321 3 - 324Rest 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 incurredin respect of the cessation of Singles production at our Lahr factory. Thesecosts related primarily to termination of employment and fixed assetwrite-downs. In the year ended 30 September 2006 restructuring costs of £45m were primarilyin respect of the closure of our factories in Liverpool and Lahr, and werelargely 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 201Interest on retirement benefit liabilities 75 65 142Fair 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 143Expected return on retirement benefit assets 102 88 188Interest on retirement benefit liabilities (75) (65) (142)Fair value gains on derivative financial instruments 52 67 82Fair 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 basisof an estimated adjusted effective tax rate of 25.0% for the year ending 30September 2007. This compares with an adjusted effective tax rate of 26.8% forthe six months ended 31 March 2006 and 26.5% for the year ended 30 September2006. 6 months 6 months Year ended ended ended 31 March 31 March 30 Sept 2007 2006 2006 £m £m £mCurrent taxationUK corporation taxation at 30% (2006: 30%) 59 52 148Overseas taxation 75 95 164 ----------- ----------- -----------Total current taxation 134 147 312 ----------- ----------- ----------- Deferred taxationOrigination 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 profitbefore tax in order to arrive at the adjusted measure of earnings disclosed innote 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 310Tax on restructuring costs - 5 16Tax 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 £mFinal dividend for the year ended 30 Sept 2006 of 43.5p per share (2005: 39.5p) 293 279 279Interim 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 31March 2007. 6. Earnings per share Basic earnings per share is based on the profit for the period attributable tothe equity holders of the Company and the weighted average number of ordinaryshares in issue during the period excluding shares held to satisfy the Group'semployee share schemes and shares purchased by the Company and held as treasuryshares. Diluted earnings per share is calculated by taking into account theweighted average number of shares that would be issued on conversion intoordinary 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 millionsWeighted average number of shares:Shares for basic earnings per share 674.6 706.3 696.3Potentially 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 122.2pDiluted earnings per share 62.1p 55.9p 121.6p ----------- ----------- ----------- A reconciliation from reported earnings per share to adjusted earnings pershare, and the earnings figures (net of tax) used in calculating them is asfollows: 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 851Restructuring costs - - 1.9p 13 4.2p 29Retirement 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 858Adjustments for:Taxation 141 147 310Finance costs 252 207 426Investment income (160) (162) (283)Depreciation, amortisation and impairment 48 45 120Net retirement benefits (8) 2 5Share schemes 12 10 16Movement in provisions (28) (3) (11) ----------- ----------- -----------Operating cash flows before movements in working capital 682 646 1,441 ----------- ----------- -----------(Increase)/decrease in inventories (283) (557) 59Increase 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 financialinstruments 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 whichexcludes the fair value of interest rate derivative financial instruments andinterest 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 41Fair 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 purchasing5,713,000 ordinary shares in Imperial Tobacco Group PLC for a total cost of£105m including expenses. The shares purchased to date, representing 7.1% ofissued share capital, have not been cancelled but are held in a treasury sharesreserve and represent a deduction from equity attributable to the equity holdersof the Company. The share buyback programme was suspended on 8 February 2007following the announcement of the agreement to acquire Commonwealth Brands (note11). 10. Retirement benefits Actuarial valuations of the Group's retirement benefit plans are updatedannually as at 30 September. An interim update is carried out at 31 March forthe main plans. As part of this interim update, the plan assets are revaluedbased on market data at the period end and the scheme liabilities arerecalculated to reflect key changes in membership data and revised actuarialassumptions. 11. Acquisitions On 8 February 2007 the Group announced that it had agreed to acquire 100% ofCBHC Inc, which trades as Commonwealth Brands, from Houchens Industries Inc fora total consideration of US$1.9 billion (£974m) including assumed debt. Theacquisition completed on 2 April 2007. During the first half of the year we also acquired interests in a number ofsmall businesses including in January 2007 a controlling interest in Tremaco, atobacco and tobacco-related products distribution business based in Estonia. Theconsideration for these acquisitions was not material. 12. Reclassification of employment costs Subsequent to releasing our results for the six months ended 31 March 2006 wehave reclassified certain retirement benefit and share scheme costs for thatperiod from 'Other operating charges' to 'Employment costs' within theConsolidated income statement to ensure consistency with the classification inour full year results. This reclassification has no impact on the reported oradjusted profit. FINANCIAL CALENDAR Ex-dividend date for interim dividend 11 July 2007Interim dividend record date 13 July 2007Interim dividend payable 10 August 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Imperial Brands