26th Apr 2005 07:02
Imperial Tobacco Group PLC26 April 2005 IMPERIAL TOBACCO GROUP PLC ANNOUNCES ITS INTERIM RESULTS FOR THE SIX MONTHSENDED 31 MARCH 2005 INTERIM HIGHLIGHTS - Strong profit delivery * Adjusted** operating profit of £598m - up 7% * Adjusted** pre-tax profit of £499m - up 10% * Adjusted** earnings per share of 49.8p - up 10% * Interim dividend of 16.5p - up 10% * Continued high cash conversion * Share buyback programme commenced - UK: Market share and profit increases, strengthening number one position * Cigarette market share up to 44.7% * The UK's two leading cigarette brands Lambert & Butler and Richmond have a combined market share of over 30% * Roll your own tobacco market share extended to 66.2% with Golden Virginia, the UK's best-selling roll your own tobacco, averaging 50.8% - Germany: Strong profit performance in a challenging market * Strategy succeeding with benefits of good pricing discipline and further significant improvements in cost base * Cigarette share stable at 19% - success of JPS in the growing fourth price sector compensating for West decline; Davidoff maintaining market share * Other tobacco products share at 23.8% - Singles volumes up 44% with JPS and Fairwind complementing West share - Rest of Western Europe: Further positive progress * Cigarette: Market share gains in Ireland, Spain, Italy and the Netherlands; continued development of Davidoff and West * Roll your own tobacco: Market leading position, selling just under half of the region's volumes; addressing premium sector pressures in the Netherlands - Rest of the World: Good performances in a number of markets including in Asia, Australia, Eastern Europe and the Middle East * Turkey: Launch of Davidoff and Maxim following new factory opening * China: Further co-operation including West distribution extended to Beijing - Manufacturing: Further cost reductions and efficiency improvements * Factory closures in Dublin and Plattsburgh * Productivity up by 14% and cigarette unit costs down by 3% ** Operating profit, pre-tax profit and earnings per share are beforeamortisation and exceptional items Summarising today's announcement, Gareth Davis, Chief Executive, said: "We have delivered another good performance in the first six months of 2005. Ourfinancial success has been driven by strong performances in our core markets ofthe UK and Germany, complemented by positive progress in a number of othermarkets. "We have demonstrated our ability to move profits ahead in mature marketsdespite volume pressures, and have also made some important advances in ourdevelopment markets. This, combined with our continued focus on reducing costsand improving efficiencies, leaves us well placed to deliver further profitablegrowth in the second half. The overall anticipated performance of the Group forthe financial year to 30 September 2005 remains in line with our expectations atthe time of our March trading update." ENQUIRIES Alex Parsons +44 (0)7967 467 241Group Media Relations Manager Nicola Tate +44 (0)117 933 7082Investor Relations Manager John Nelson-Smith +44 (0)117 933 7032Investor Relations Manager Imperial Tobacco's 2005 interim results are available on our website:www.imperial-tobacco.com FINANCIAL HIGHLIGHTSfor the six months ended 31 March 2005 * Adjusted operating profit (1) £598m up 7% (2004: £560m) ($1,130m)* Adjusted pre-tax profit (1) £499m up 10% (2004: £454m) ($943m)* Adjusted profit after tax (1) £364m up 10% (2004: £330m) ($688m)* Adjusted earnings per share (1) 49.8p up 10% (2004: 45.3p) (94.1c)* Interim dividend per share 16.5p up 10% (2004: 15.0p) (31.2c) * Turnover excluding duty £1,464m down 1% (2004: £1,472m) ($2,765m)* Operating profit £479m up 19% (2004: £402m) ($905m)* Pre-tax profit £382m up 27% (2004: £301m) ($722m)* Profit after tax £252m up 32% (2004: £191m) ($476m)* Basic earnings per share 34.3p up 31% (2004: 26.1p) (64.8c)* Diluted earnings per share 34.2p up 32% (2004: 26.0p) (64.6c) (1) Adjusted to exclude amortisation and exceptional items. Management believesthat reporting results before amortisation and exceptional items (adjustedoperating profit, adjusted profit before tax, adjusted profit after tax andadjusted earnings per share) provides a better comparison of underlying businessperformance for the period. The exchange rate of US$ 1.889 to the £1, the pound sterling noon buying rate on31 March 2005, has been used to translate this statement prepared under UK GAAP. CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT Our successful strategy has continued to deliver value for our shareholders witha good performance across the Group in the first half of 2005. We remain focused on building both our core markets and our internationalfootprint, while our broad brand portfolio ensures we are well positioned forfuture growth. Ongoing cost efficiencies and effective management of our cashremain integral to our strategy. It is a combination of these strategies thathas delivered double digit organic earnings per share growth in the first halfof the year. FINANCIAL PERFORMANCE Adjusted operating profit, before amortisation and exceptional items, was £598million in the half year to 31 March 2005, up by 7 per cent and adjusted pre-taxprofit grew by 10 per cent to £499 million. Reported operating profit, afteramortisation and exceptional items, was £479 million (2004: £402 million). Thisperformance translates into adjusted earnings per share of 49.8 pence, anincrease of 10 per cent (2004: 45.3 pence). Basic earnings per share were 34.3pence (2004: 26.1 pence). DIVIDEND Your Directors are pleased to declare an increase of 10 per cent in the interimdividend to 16.5 pence. This dividend will be paid on 5 August 2005 toshareholders on the register at the close of business on 8 July 2005. PERFORMANCE OVERVIEW We have seen a continuation of many of the positive trends from last year.However, some challenging trading conditions persist, with tax related cigarettevolume declines in markets in Northern and Central Europe. Our core markets, the UK and Germany, have delivered excellent improvements inprofitability. Our cigarette shares in many markets across Western and EasternEurope, the Middle East and Asia have continued to progress. Our keyinternational cigarette brands West and Davidoff have shown further positivedevelopments in a number of markets. With our market leadership in theprofitable other tobacco products sector, we continue to benefit from thebalance of our brand and product portfolio. Within our manufacturing operations, our strategy of business simplificationcontinues, and we delivered further improvements in both processes and systems.During the first half of the year we closed our cigarette manufacturing facilityin Dublin and our filter tubes factory in Plattsburgh, as part of our ongoinginitiatives to enhance productivity and improve operational efficiencies. Acontinued focus on our cost base is inherent across the entire business. Our share buyback programme commenced in February 2005, with the shares acquiredbeing held in treasury. By 31 March 2005, we had acquired 2.8 million shares. REGULATION We continue to manage the challenges that the fast pace of international tobaccoregulation brings. Our wealth of experience of working in highly regulatedenvironments such as the UK, Australia and Ireland, leaves us well placed tomanage these challenges. We continue to seek constructive dialogue withgovernments and regulatory bodies in pursuit of reasonable and appropriateregulation, which gives adult consumers both the freedom and the choice to enjoyour products. BOARD AND SENIOR MANAGEMENT CHANGES As part of an ongoing review of Board membership, Iain Napier was promoted toJoint Vice Chairman in December 2004. We also welcomed Susan Murray to the Boardas a Non-Executive Director. Bruce Davidson, Sales and Marketing Director, resigned from the Board inFebruary 2005 by mutual consent to pursue other opportunities. Mr Davidson'soperational responsibilities are now managed by Graham Blashill, formerlyRegional Director, Western Europe, who has assumed full responsibility for allthe Group's Sales and Marketing operations. OUTLOOK Looking ahead, we believe that we are well placed to continue our successfultrack record as we build on our brand strengths and geographic spread. Our focuson the profitability of the business continues, ensuring our operations areefficiently structured given changing market dynamics. We will continue topursue value creating acquisition opportunities in line with our strategic andfinancial criteria, with our share buyback programme ensuring an effective useof our current free cash flow. In summary, our strategy remains unchanged and we are on course to continue todeliver sustainable growth for our shareholders. Derek Bonham Gareth DavisChairman Chief Executive FINANCIAL PERFORMANCE In the half year to 31 March 2005, adjusted operating profit, beforeamortisation and exceptional items, was £598 million, up 7 per cent on the firsthalf of 2004. Turnover including duty was £5,342 million compared to £5,453 million last year.Turnover excluding duty was £1,464 million (2004: £1,472 million), with Groupadjusted operating margins up strongly at 40.8 per cent (2004: 38.0 per cent). We estimate that the translation impact of exchange rate movements on Groupprofits in the first half of 2005 was not material. Regional performance highlights Turnover ex. Turnover ex. Operating Operating Duty Duty Profit (1) Profit (1) Half Year Half Year Half Year Half Year 2005 2004 2005 2004 £m £m £m £m UK 392 392 228 209 -------- -------- -------- --------Germany 304 293 139 107 -------- -------- -------- --------Rest ofWestern Europe 285 297 141 151 -------- -------- -------- --------Rest ofthe World 483 490 90 93 -------- -------- -------- --------Total as adjusted 1,464 1,472 598 560 -------- -------- -------- -------- (1) Results before amortisation and exceptional items. In the UK, turnover was stable at £392 million, with operating profit up 9 percent to £228 million. This performance reflects increases in both cigarette androll your own market shares, the benefits of manufacturer's price increases andreduced costs more than offsetting market volume declines. In Germany, despite a reduction in volumes, our turnover increased 4 per cent to£304 million, with operating profit up 30 per cent to £139 million. Successiveduty increases have impacted cigarette market volumes, but this has been morethan offset by price increases, growth in other tobacco products and costefficiencies both in our manufacturing and trading operations. In the Rest of Western Europe our turnover and profit were down to £285 millionand £141 million respectively. Positive progress in our cigarette shares offsetmarket volume declines, but there was a negative margin mix as the balance ofsales shifted to the southern part of the region. The overall results were alsoimpacted by a decline in our roll your own tobacco share in the Netherlands. In the Rest of the World turnover and operating profit were down slightly to£483 million and £90 million respectively. There were good performances in anumber of markets in Eastern Europe, Asia and the Middle East, offset bydeclines in Central Europe and duty free. The profit decline also reflectsinvestment in Turkey ahead of brand launches. INTEREST The net interest charge decreased to £99 million (2004: £106 million) reflectingreduced debt levels and a lower average all-in cost of debt of 5.5 per cent(2004: 5.7 per cent). This was due to higher levels of floating rate debt whichbenefited from lower euro interest rates. Interest cover before amortisation andexceptional items was 6.0 times (2004: 5.3 times). PROFIT BEFORE TAX Group adjusted profit before tax rose 10 per cent to £499 million. Afteramortisation and exceptional items, reported profit before tax increased by 27per cent to £382 million (2004: £301 million). EXCEPTIONAL ITEMS Reported profit before tax was impacted by exceptional costs of £15 million(2004: £55 million) and profit on the sale of fixed assets of £2 million (2004:£5 million). The 2005 exceptional costs mainly relate to the closure of ourDublin factory announced in December 2004, which is expected to produce annualcost savings of around £4 million. TAXATION The tax charge for the half year was £130 million, representing an effective taxrate of 27.0 per cent on profit before amortisation. EARNINGS AND DIVIDENDS Adjusted earnings per share increased by 10 per cent to 49.8 pence (2004: 45.3pence) and basic earnings per share increased by 31 per cent to 34.3 pence(2004: 26.1 pence). Your Directors are pleased to declare an increase of 10 per cent in the interimdividend to 16.5 pence per share, in line with our adjusted earnings growth. FINANCING AND LIQUIDITY At 31 March 2005, we had reduced our net debt to £3.5 billion (2004: £3.7billion) of which 19 per cent was denominated in sterling, 79 per cent in eurosand 2 per cent in other currencies. Given the recent favourable conditionswithin the bank market, in February we took the opportunity to refinance ourcore bank facility with a new euro 2.25 billion, 5 year facility on improvedterms. In February we commenced a share buyback programme and by 31 March 2005 hadspent £40 million, acquiring 2.8 million shares. We intend to spend up to £200million in total by the end of this financial year and our annual free cash flowthereafter. INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) Excluding the impact of IAS 39 on derivatives, our adjusted results under IFRSfor 2004 would have been marginally different due to pensions accounting, withall other profit impacts currently assessed as being immaterial. The majorimpacts on net assets amount to an uplift of around half a billion pounds at 1October 2004. We intend to restate our 2005 interim and preliminary resultsunder IFRS in November 2005. Compliance with IFRS will make no change to theeconomics of our business and make no difference to our cash earnings. OPERATIONAL PERFORMANCE UNITED KINGDOM A strong performance in the UK has further consolidated our market leadingposition in both cigarette and roll your own tobacco in the first half of theyear. Operating profit rose by 9 per cent to £228 million, reflecting the benefits ofmanufacturer's price increases, our growing market shares and cost basereductions. MARKET DYNAMICS We estimate the overall UK cigarette market declined in the first half of theyear to 51 billion cigarettes (2004: 54 billion), a decline of 6 per cent.Following a period of relative stability during our last financial year, we sawa sharper than normal decline in the UK cigarette market in the first quarterafter the holiday period. In recent months however, the market has resumed amore normal decline pattern of between 3 and 4 per cent. The ultra low pricecigarette sector remains highly competitive and continues to grow. The roll yourown tobacco market was broadly stable and we estimate a market size of 2,900tonnes. In his March Budget, the Chancellor announced an inflation only duty increasefor the fifth successive year, equivalent to just over 8 pence per 20cigarettes. OUR PERFORMANCE Our cigarette market share continued upwards to 44.7 per cent (2004: 44.6 percent). We have been particularly pleased with the ongoing success of Lambert &Butler and Richmond which together hold over 30 per cent of the UK cigarettemarket. Within roll your own tobacco, our market share rose to 66.2 per cent (2004: 65.1per cent), due to the continued strength of Golden Virginia which grew to 50.8per cent (2004: 49.5 per cent). OUTLOOK In the context of a more stable market in the second half of the year we expectanother positive performance in the UK. GERMANY Our focus on profitability has delivered strong results in Germany. Operating profit grew by 30 per cent to £139 million (2004: £107 million), dueto the benefits of a manufacturer's price increase and cost savings following anumber of reorganisation initiatives. This profit performance is set againstcontinuing market declines and has demonstrated our ability to adapt to changingtrading conditions. MARKET DYNAMICS The December 2004 tax increase was the second in a year and we estimate that thetotal annualised tobacco market is down by 7 per cent to 140 billion cigaretteequivalents (2004: 151 billion). The cigarette market has decreased by 19 per cent to 101 billion cigarettes,with significant growth in the other tobacco products sector, up by 44 per centcompared to the same period last year. We currently estimate a market of 39billion cigarette equivalents. A low price branded cigarette sector was introduced last March and is now thefastest growing cigarette sector in the West of Germany. OUR PERFORMANCE Our cigarette performance has been encouraging with recent share increaseshelping to stabilise our market share in the first half of the year at 19.0 percent (2004: 19.1 per cent). JPS continued to deliver a strong performance now holding 1.2 per cent marketshare. With continued downtrading, West remained under pressure with a marketshare of 8.6 per cent (2004: 9.1 per cent). Davidoff delivered a robustperformance at the premium end of the market, holding market share at 1.1 percent. In other tobacco products, our volumes grew by 44 per cent in the Singlessegment, but as a result of an increasingly competitive environment andcontinuing downtrading, our other tobacco products market share decreased to23.8 per cent (2004: 28.5 per cent). We have strengthened our portfolio in theSingles segment, with our newly launched value brand Fairwind complementing Westand JPS. In late 2003, the EU Commission referred the German government to the EuropeanCourt of Justice regarding the taxation of Singles. Singles are currently, andwe believe correctly, taxed as fine cut tobacco. The Commission disputes thisand is seeking to have Singles taxed at the same rate as cigarettes. The case isdue to be heard in the coming weeks, although it is likely to be several monthsbefore a decision is made. We believe that taxing Singles as cigarettes willencourage more cross-border trade and deprive the government of further taxrevenues. OUTLOOK Looking ahead, with another tax increase still currently planned in September2005, the market conditions will continue to be challenging. We will continue tofocus on the profitable development of the business. REST OF WESTERN EUROPE In the Rest of Western Europe, we made good progress with some positive brandand cigarette share performances. These performances offset market size declines, however profits were impacted bya shift in the balance of sales from the more profitable northern markets to thesouthern markets and continuing pressures in roll your own tobacco in theNetherlands. Operating profit declined to £141 million (2004: £151 million). REGIONAL DYNAMICS Overall we estimate the annual regional cigarette market was down by 6 per centwith a stable roll your own tobacco market. There were cigarette market declinesmost notably in the Netherlands, Belgium, and France. In Ireland, we estimatethe smoking ban has reduced the total market size by up to 5 per cent. OUR PERFORMANCE In the Netherlands, our cigarette market share grew to 4.3 per cent (2004: 3.1per cent) due to the continuing success of West. In Ireland market share was upto 25.3 per cent (2004: 24.5 per cent), driven by John Player Blue andSuperkings. In Southern Europe, Peter Stuyvesant grew our cigarette share in Italy to 1.6per cent (2004: 0.9 per cent), and in Spain, our cigarette share was up to 4.0per cent (2004: 3.7 per cent), in part due to the success of JPS American. InGreece, a good performance from Davidoff held our cigarette share at 5.8 percent. Within roll your own tobacco we continue to be market leaders, selling justunder half of the volumes sold in the region. We grew volumes of Golden Virginiain Italy and Spain. In the Netherlands, the downtrading trend within the rollyour own sector has persisted, and impacted on our market share which declinedto 50.1 per cent (2004: 55.2 per cent). We launched Zilver in the value segmentin December 2004 to capture this downtrading with encouraging results so far. OUTLOOK Against a background of slowing cigarette market declines, we see opportunitiesto build on our growing cigarette shares and our market leadership in othertobacco products in this region. REST OF THE WORLD In the Rest of the World region, we have delivered some encouraging in-marketperformances. Positive trends have continued in a number of markets including Taiwan, Russiaand Australia, but pressures in Central Europe have persisted. Operating profit was down slightly to £90 million (2004: £93 million) reflectingthese trends and our increased investment in Turkey. REGIONAL DYNAMICS This region has good growth potential given the markets that it encompasses,with our investments focused on sustainable future growth opportunities such asTurkey. OUR PERFORMANCE In Asia, we increased market share in Taiwan to 11.5 per cent (2004: 11.2 percent) with a good performance from Boss. In Vietnam, Bastos volumes were up by11 per cent. We grew volumes in Laos as a result of expanding distribution inthe north of the country and our improved manufacturing capabilities. Wecontinue to enjoy further co-operation with our strategic alliance partners, theYuxi Hongta Group in China. We have expanded the distribution of West with thebrand introduced in Beijing in March 2005, complementing our existing positionsin Shanghai and Kunming. In Australia, our financial performance again improved. Our cigarette shareremained stable at 17.5 per cent with a good performance from Peter Stuyvesantand Superkings. In the Africa and the Middle East region, we delivered improvements in volumesand profits with Davidoff growing volumes by 16 per cent, offsetting challengesin some of the African markets including the Ivory Coast. In Eastern Europe, good performances from West, Davidoff and Maxim grew ourmarket share in Russia to 5.3 per cent (2004: 5.1 per cent). Following theopening of our new cigarette factory, we are launching into the Turkish domesticmarket with Davidoff in the premium category and Maxim to compete in a growinglow price sector. In Ukraine, we have added to our portfolio with the launch ofClassic cigarettes. In Central Europe, tax-related market size pressures continue across the regionwith ongoing competitor activity in the ultra low price sector. We remainfocused on profitability across the region and have developed our portfolio tocompete effectively in the low price sector, whilst aligning our infrastructurewith current market conditions. In our duty free business, volumes have been impacted by the accession last Mayof ten new countries to the EU. However, we delivered a strong performance in UKduty free, with encouraging trends within the premium sector in key African andEuropean airports. OUTLOOK The geographic spread of our business in this region leaves us well placed forgrowth and we will seek to build on our successes. Underpinning the sustainabledevelopment of the business we will continue to invest in markets such as Turkeyand China. MANUFACTURING Across our global manufacturing operations, productivity was up by 14 per centin the first half of the year. This strong performance was largely due to factory closures in Slovenia,Slovakia and Hungary last year and upgraded facilities in our African factories.In this context, our cigarette unit costs were down 3 per cent, a goodperformance given the overall volume reductions. We continued to make progress in our business simplification programme withfurther reductions in blends and stock keeping units of 5 per cent and 2 percent respectively, with further improvements expected in the second half of theyear. Demonstrating our ongoing commitment to addressing our surplus productioncapacity, we took further steps in right sizing our operations with the closureof our cigarette manufacturing facility in Dublin and our filter tubes factoryin Plattsburgh. Ongoing improvements in processes and systems across our manufacturing baseadded to our cost savings, for example, by optimising stock levels throughgreater transparency in the supply chain. We will continue to focus on our strategy of business simplification with theaim of delivering improvements in quality and cost savings. 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 September2004, filed with the Securities and Exchange Commission on 21 March 2005. INDEPENDENT REVIEW REPORT TO IMPERIAL TOBACCO GROUP PLC Introduction We have been instructed by the Company to review the financial information whichcomprises the consolidated profit and loss account, the consolidated statementof total recognised gains and losses, the consolidated balance sheet, thesummary consolidated cash flow statement, the notes to the interim statement andthe summary of differences between UK and US generally accepted accountingprinciples. We have read the other information contained in the interim reportand considered whether it contains any apparent misstatements or materialinconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the Directors. The Directors areresponsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of Group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with United Kingdom Auditing Standards and thereforeprovides a lower level of assurance than an audit. Accordingly we do not expressan audit opinion on the financial information. This report, including theconclusion, has been prepared for and only for the Company for the purpose ofthe Listing Rules of the Financial Services Authority and for no other purpose.We do not, in producing this report, accept or assume responsibility for anyother purpose or to any other person to whom this report is shown or in to whosehands it may come save where expressly agreed by our prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31 March 2005. PricewaterhouseCoopers LLPChartered AccountantsBristol26 April 2005 Notes: a) The maintenance and integrity of the Imperial Tobacco Group PLC website isthe responsibility of the Company; the work carried out by the auditors does notinvolve consideration of these matters and, accordingly, the auditors accept noresponsibility for any changes that may have occurred to the interim reportsince it was initially presented on the website. b) Legislation in the United Kingdom governing the preparation and disseminationof financial information may differ from legislation in other jurisdictions. CONSOLIDATED PROFIT AND LOSS ACCOUNTfor the six months ended 31 March 2005 6 months 6 months Year ended ended ended 31 March 31 March 30 Sept 2005 2004 2004 £m £m £m Turnover 5,342 5,453 11,005Duty in turnover (3,878) (3,981) (7,973)Costs and overheads less other income (985) (1,070) (2,147) -------- -------- --------Operating profit 479 402 885 -------- -------- --------Group operating profit before amortisation and exceptional items 598 560 1,218Amortisation (104) (103) (204)Exceptional items (15) (55) (129) -------- -------- --------Profit on disposal of fixed assets 2 5 7 -------- -------- --------Profit on ordinary activities before interest and taxation 481 407 892Net interest (99) (106) (204) -------- -------- --------Profit on ordinary activities before taxation 382 301 688Taxation (130) (110) (238) -------- -------- --------Profit on ordinary activities after taxation 252 191 450Equity minority interests (3) (2) (5)Profit attributable to shareholders -------- -------- -------- 249 189 445Dividends (120) (109) (362) -------- -------- --------Retained profit for the period 129 80 83 -------- -------- --------Earnings per ordinary share: Basic 34.3p 26.1p 61.4p Adjusted 49.8p 45.3p 101.6p (before amortisation and exceptional items) Diluted 34.2p 26.0p 61.2p -------- -------- --------Dividends per ordinary share: Interim 16.5p 15.0p Total for 2004 50.0p -------- -------- --------All activities derive from continuing operations. There is no difference betweenthe profit as shown above and that calculated on an historical cost basis. CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS ANDLOSSESfor the six months ended 31 March 2005 6 months 6 months Year ended ended ended 31 March 31 March 30 Sept 2005 2004 2004 £m £m £m Profit attributable to shareholders 249 189 445Exchange movements on retranslation of net investments and related borrowings 12 (71) (31) -------- -------- --------Total recognised gains for the period 261 118 414 -------- -------- -------- CONSOLIDATED BALANCE SHEETat 31 March 2005 31 March 31 March 30 Sept 2005 2004 2004 £m £m £m Fixed assets Intangible assets 3,453 3,552 3,547 Tangible assets 636 638 651 Investments 6 6 7 -------- -------- -------- 4,095 4,196 4,205 -------- -------- --------Current assets Stocks 1,113 1,113 864 Debtors 982 930 1,021 Investments 47 64 77 Cash 268 333 262 -------- -------- -------- 2,410 2,440 2,224 -------- -------- --------Creditors: amounts falling due within one year (2,527) (2,177) (2,556) -------- -------- ---------Net current (liabilities)/assets (117) 263 (332) -------- -------- --------Total assets less current liabilities 3,978 4,459 3,873Creditors: amounts falling due after more than one year (3,277) (3,866) (3,267)Provisions for liabilities and charges (460) (486) (470) -------- -------- --------Net assets 241 107 136 -------- -------- --------Capital and reserves Called up share capital 73 73 73 Share premium account 964 964 964 Profit and loss account (815) (949) (919) -------- -------- --------Equity shareholders' funds 222 88 118Equity minority interests 19 19 18 -------- -------- -------- 241 107 136 -------- -------- -------- Reconciliation of movements in shareholders' funds 31 March 31 March 30 Sept 2005 2004 2004 £m £m £m Profit attributable to shareholders 249 189 445Dividends (120) (109) (362) ------- ------- --------Retained profit for the period 129 80 83Payments for the purchase of own shares (40) - -Credit in respect of employee share schemes 5 2 9Exchange movements on goodwill previously written off (2) 37 17Other net exchange movements 12 (71) (31) -------- -------- --------Net addition to shareholders' funds 104 48 78Opening shareholders' funds 118 40 40 -------- -------- --------Closing shareholders' funds 222 88 118 -------- -------- -------- SUMMARY CONSOLIDATED CASH FLOW STATEMENTfor the six months ended 31 March 2005 6 months 6 months Year ended ended ended 31 March 31 March 30 Sept 2005 2004 2004 £m £m £mNet cash inflow from operating activities 508 495 1,241 -------- -------- --------Returns on investments and servicing of finance (31) (35) (212) -------- -------- --------Taxation (91) (55) (236) -------- -------- --------Capital expenditure and financial investment (27) 15 (48) -------- -------- --------AcquisitionsPayments to acquire businesses - (12) (27)Deferred consideration in respect of prior year acquisitions - (387) (420) -------- -------- --------Net cash outflow from acquisitions - (399) (447) -------- -------- --------Equity dividends paid (254) (217) (326) -------- -------- --------Net cash inflow/(outflow) before management of liquid resources and financing 105 (196) (28)Management of liquid resources 33 - (8) -------- -------- --------Financing (134) 216 (19) -------- -------- --------Increase/(decrease) in cash in the period 4 20 (55) -------- -------- -------- Reconciliation of net cash flow to movement innet debt 6 months 6 months Year ended ended ended 31 March 31 March 30 Sept 2005 2004 2004 £m £m £mIncrease/(decrease) in cash in the period 4 20 (55)Cash outflow/(inflow) from decrease/ (increase) in debt 95 (218) 19Cash (inflow)/outflow from (decrease) /increase in liquid resources (33) - 8 -------- -------- --------Change in net debt resulting from cash flows 66 (198) (28)Currency and other movements - 160 90Deferred consideration - 385 418 -------- -------- --------Movement in net debt in the period 66 347 480Opening net debt (3,588) (4,068) (4,068) -------- -------- --------Closing net debt (3,522) (3,721) (3,588) -------- -------- --------NOTES TO THE INTERIM STATEMENT 1. Basis of preparation of the accounts The results for the six months ended 31 March 2005 and 31 March 2004 areunaudited. The figures for the year ended 30 September 2004 are taken from thestatutory accounts of Imperial Tobacco Group PLC, which have been delivered tothe Registrar of Companies and upon which an unqualified audit report was given.The accounting policies are as stated in the Annual Report and Accounts for theyear ended 30 September 2004. 2. Segmental information (by destination) The geographical analysis of turnover, duty in turnover, turnover excluding dutyand operating profit was as follows: 6 months 6 months Year ended ended ended 31 March 31 March 30 Sept 2005 2004 2004 £m £m £m Turnover UK 2,298 2,368 4,776 Germany 1,258 1,248 2,478Rest of Western Europe 712 760 1,556Rest of the World 1,074 1,077 2,195 -------- -------- --------International 3,044 3,085 6,229 -------- -------- -------- 5,342 5,453 11,005 -------- -------- --------Duty in turnover UK 1,906 1,976 3,983 Germany 954 955 1,888Rest of Western Europe 427 463 922Rest of the World 591 587 1,180 -------- -------- --------International 1,972 2,005 3,990 -------- -------- -------- 3,878 3,981 7,973 -------- -------- --------Turnover excluding duty UK 392 392 793 Germany 304 293 590Rest of Western Europe 285 297 634Rest of the World 483 490 1,015 -------- -------- --------International 1,072 1,080 2,239 -------- -------- -------- 1,464 1,472 3,032 -------- -------- --------Operating profit UK 228 209 454 Germany 139 107 237Rest of Western Europe 141 151 329Rest of the World 90 93 198 -------- -------- --------International 370 351 764 -------- -------- --------Trading operations 598 560 1,218Amortisation (104) (103) (204)Exceptional items (15) (55) (129) -------- -------- -------- 479 402 885 -------- -------- -------- 3. Exceptional items The profit on disposal of fixed assets relates to the sale of land and buildingsno longer required by the business. Exceptional operating costs of £15m are in respect of the closure of our Dublinand Plattsburgh factories and relate primarily to termination of employment andfixed asset write-downs. 4. Taxation Taxation has been calculated on the basis of an estimated pre-amortisationeffective tax rate of 27.0% for the full year. This compares with an effectivepre-amortisation tax rate of 27.1% for the 2004 half year and 26.9% for the yearended 30 September 2004. 5. Earnings per share 6 months 6 months Year ended ended ended 31 March 31 March 30 Sept 2005 2004 2004Earnings per share:Basic 34.3p 26.1p 61.4pAdjustment for amortisation and exceptional items 15.5p 19.2p 40.2p -------- -------- --------Adjusted 49.8p 45.3p 101.6pDiluted 34.2p 26.0p 61.2p -------- -------- --------Earnings (£m):Basic 249 189 445Adjustment for amortisation and exceptional items 112 139 291 -------- -------- --------Adjusted 361 328 736 -------- -------- -------- Basic earnings per share are calculated using the weighted average number ofordinary shares outstanding during the period. Adjusted earnings per share are calculated before tax-effected exceptional itemsof £9m, tax-effected amortisation of intangibles of £3m, and goodwill amortisation of £100m, since the Directors consider that this provides a better comparison of underlying business performance 6 months 6 months Year ended ended ended 31 March 31 March 30 Sept 2005 2004 2004 Number Number NumberWeighted average number of shares outstanding during the period:Basic 725,165,927 724,066,990 724,263,415Effect of share options 3,533,169 3,319,217 3,328,630 --------------- --------------- --------------- Diluted 728,699,096 727,386,207 727,592,045 --------------- --------------- --------------- 6. Reconciliation of operating profit to net cash flow from operatingactivities 6 months 6 months Year ended ended ended 31 March 31 March 30 Sept 2005 2004 2004 £m £m £m Operating profit 479 402 885Depreciation and amortisation 151 139 310(Decrease)/increase in provisions for liabilities and charges (10) 23 (33)(Increase)/decrease in stocks (246) (147) 121Increase in debtors (16) (4) (18)Increase/(decrease) in creditors 150 82 (24) -------- -------- --------Working capital cash (outflow)/inflow (112) (69) 79 -------- -------- --------Net cash inflow from operating activities 508 495 1,241 -------- -------- -------- 7. Analysis of net debt Loans Loans Current due due asset within after invest- one one Cash ments year year Total £m £m £m £m £m As at 30 September 2004 262 77 (719) (3,208) (3,588)Cash flow 4 (33) 156 (61) 66Exchange movements 2 3 - (5) - ------- -------- -------- -------- --------As at 31 March 2005 268 47 (563) (3,274) (3,522) ------- -------- -------- -------- -------- 8. Profit and loss account During the period the Company initiated a share buyback programme purchasing2,820,000 ordinary shares in Imperial Tobacco Group PLC for a total cost of£40m. The shares, representing 0.4% of issued share capital, have not beencancelled but are held in a treasury shares reserve within the profit and lossaccount reserve and represent a deduction from equity shareholders' funds. SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLYACCEPTED ACCOUNTING PRINCIPLES ("GAAP") The accompanying consolidated financial information has been prepared inaccordance with accounting principles generally accepted in the United Kingdom("UK GAAP"). Such principles differ in certain respects from generally acceptedaccounting principles in the United States ("US GAAP"). A summary of principaldifferences and additional disclosures applicable to the Group is set out below. Explanation 6 months 6 months Year Reference ended ended ended 31 March 31 March 30 Sept 2005 2004 2004 £m £m £mProfit attributable to shareholders under UK GAAP 249 189 445US GAAP adjustments:Pensions (i) (2) 2 3Amortisation of goodwill (ii) 100 100 196Amortisation of brands/trade marks/licences (ii) (50) (50) (99)Deferred taxation (iii) 38 4 57Mark to market adjustments due to non designation of hedge accounting per SFAS 133 (iv) (40) (28) (50)Employee share schemes charge to the profit and loss account (vi) (3) (1) (9) -------- -------- --------Net income under US GAAP 292 216 543 -------- -------- -------- Explanation 6 months 6 months Year Reference ended ended ended 31 March 31 March 30 Sept 2005 2004 2004Amounts in accordance with US GAAP:Basic net income per ordinary share (vii) 40.3p 29.8p 75.0pBasic net income per ADS (vii) 80.6p 59.6p 150.0pDiluted net income per ordinary share (vii) 40.1p 29.7p 74.6pDiluted net income per ADS (vii) 80.2p 59.4p 149.2p Explanation 31 March 31 March 30 Sept Reference 2005 2004 2004 £m £m £mEquity shareholders' funds under UK GAAP 222 88 118US GAAP adjustments:Pensions (i) 344 346 343Goodwill, less accumulated amortisation of £(486)m (2004: £(290)m) (ii) (741) (911) (839)Brands/trade marks/licences, less accumulated amortisation of £311m (2004: £212m) (ii) 2,717 2,740 2,762Deferred taxation (iii) (896) (961) (932)Mark to market adjustments due to non designation of hedge accounting per SFAS 133 (iv) (77) (15) (37)Proposed dividend (v) 118 109 253Employee share schemes (vi) (12) (2) (9) -------- -------- --------Shareholders' funds under US GAAP 1,675 1,394 1,659 -------- -------- -------- (i) Pensions Under UK GAAP, pension costs are accounted for under the rules set out inStatement of Standard Accounting Practice No. 24 (SSAP 24). Its objectives andprinciples are broadly in line with those set out in the US accounting standardfor pensions, Statement of Financial Accounting Standard No. 87, "Employers'Accounting for Pensions" (SFAS 87). However, SSAP 24 is less prescriptive in theapplication of the actuarial method and assumptions to be applied in thecalculation of pension costs. Under US GAAP, the annual pension cost comprises the estimated cost of benefitsaccruing in the period as determined in accordance with SFAS 87. Under SFAS 87,a pension asset representing the excess of pension scheme assets over benefitobligations has been recognised in the balance sheet. (ii) Business combinations Both UK and US GAAP require the purchase consideration relating to a businesscombination to be allocated to the net assets acquired at their fair value onthe date of acquisition. Intangible assets Under UK GAAP fair values are assigned to identifiable intangible assets only ifthe identifiable intangibles are capable of being disposed of or settledseparately, without disposing of a business of the entity. Under US GAAP, identifiable intangible assets are separately valued andamortised over their useful lives. The separately identifiable intangible assetsincluded in the US GAAP balance sheet are principally comprised of brand rights,which are being amortised over periods between 25 to 30 years. Goodwill amortisation Under UK GAAP, goodwill arising and separately identifiable and separableintangible assets acquired on acquisitions made on or after 27 September 1998are capitalised and amortised over their useful life, not exceeding a period of20 years. Prior to 27 September 1998, all goodwill and separately identifiableand separable intangible assets were written off to reserves on acquisition. The Company adopted SFAS No. 142 "Goodwill and Other Intangible Assets" (SFAS142) with effect from 1 July 2001 and accordingly goodwill arising onacquisitions after this date are not amortised. For purchase transactions priorto 1 July 2001, goodwill was capitalised and amortised over its useful life.From 29 September 2002, in accordance with SFAS 142, the Company no longeramortises goodwill but rather tests such assets for impairment on an annualbasis or where there is an indicator of impairment. The Company completed an annual impairment review under SFAS 142 at 30 September2004 and no impairment of goodwill was indicated. For the purposes of the annualimpairment review, goodwill has been allocated to the following reporting unitsof the Group: Manufacturing, UK Sales and Marketing and International Sales andMarketing.Related Shares:
Imperial Brands