TIDMIMB
RNS Number : 5078S
Imperial Brands PLC
16 November 2021
IMPERIAL BRANDS PLC
Legal Entity Identifier (LEI) No. 549300DFVPOB67JL3A42
Full year results Statement
16 NOVEMBER 2021
A YEAR OF GOOD RESULTS WHILE BUILDING FOUNDATIONS FOR FUTURE
GROWTH
Report for the year ended 30 September 2021
Business Highlights
-- Transformation programme underway to create more
consumer-focused, efficient and performance-driven organisation
-- Operational improvements supporting growth in net revenue, profit and free cash flow
-- Sharper focus on top-five priority markets beginning to arrest long-term share declines
-- NGP pilots in heated tobacco and vapour on track
-- Strong cash flows enabling deleverage progress in line with our plans
Financial Summary
Year ended 30 September Reported Organic adjusted(2)
2021
========================= =====================================
Constant
2021 2020 Change 2021 2020 Actual currency(3)
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Revenue/Net revenue(1) GBPm 32,791 32,562 +0.7% 7,589 7,738 -1.9% +1.4%
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Operating profit GBPm 3,146 2,731 +15.2% 3,570 3,496 +2.1% +4.8%
======================= ====== ======= ======== ====== ========= ======== ====== ============
Basic earnings
per share pence 299.9 158.3 +89.5% 246.5 247.2 -0.3% +2.8%
======================= ====== ======= ======== ====== ========= ======== ====== ============
Free cash flow GBPm 1,524 3,248 -53.1% 1,524 3,248 -53.1%
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Net debt GBPm (9,373) (11,141) (8,615) (10,299)
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Dividend per share pence 139.08 137.7 +1.0% 139.08 137.7 +1.0% +1.0%
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(1) Reported revenue includes duty, similar items, distribution
and sale of peripheral products which are excluded from net
revenue; net revenue comprises reported revenue less duty and
similar items, excluding sale of peripheral products and
distribution revenue.
(2) See page 3 for basis of presentation, page 28 and notes 3, 6
and 10 of the financial statements for the reconciliation between
reported and adjusted measures. For comparison purposes, the Group
uses the term "organic" to exclude the contribution of the Premium
Cigar Division, which was divested on 29 October 2020.
(3) Constant currency removes effect of exchange rate movements
on the translation of the results of our overseas operations.
Stefan Bomhard Chief Executive
"This has been a year of important progress and significant
change, as we begin to deliver on the new, focused strategy we
announced in January 2021. We have substantially refreshed our
leadership team, making new hires to strengthen our consumer-facing
capabilities, while building on our existing deep tobacco
experience. We have changed the way we work, placing the consumer
at the centre of our decision making. We have simplified the
organisation, creating efficiencies for reinvestment. And we have
introduced more rigorous performance management, enabling better
prioritisation of resources.
"This approach is already delivering improved operational and
financial outcomes. In tobacco, our sharper focus and increased
investment in the top-five priority markets have begun to stabilise
the aggregate market share performance. This is encouraging early
progress in addressing the long-term historical declines. We will
build on this foundation in the coming year, with further
investment in brand building and sales execution.
"Through our focused, consumer-led next generation products
strategy, we are committed to making a meaningful contribution to
harm reduction over time by offering adult smokers potentially
reduced risk products. In line with our plans, we launched market
trials for our heated tobacco proposition, Pulze and iD sticks in
the Czech Republic and Greece, as well as a trial of an improved
consumer marketing proposition for our US vapour product, blu. We
will track the consumer data over the coming months to inform our
next steps.
"Our five-year plan to transform Imperial is divided into two
distinct periods. The year ahead will complete the two-year
strengthening phase, with further investment in our five priority
markets and NGP pilots, the embedding of new ways of working and
cost-saving initiatives. This period builds the foundations for the
subsequent three-year phase, which focuses on the acceleration of
returns and sustainable growth in shareholder value."
Delivering Against our Strategic Priorities
Focus on Priority Combustible Markets
-- Stabilising aggregate priority market share performances:
down 2 bps (MAT) vs 17 bps decline last year
-- Share gains in US, UK, and Spain broadly offsetting declines in Germany and Australia
-- Investing behind clear operational levers in line with our
plans for our priority markets, for example:
-- Expanding our sales force and enhancing sales execution, e.g.
adding 200 new sales people in US
-- Leveraging our regional sales coverage, e.g. expanding
coverage in south of UK and in eastern Germany
-- Building brand equity and increasing participation in
subpremium, e.g. JPS in Germany, Winston in US
-- Optimising our approach to the value segment, e.g. Parker & Simpson in Australia
-- Rejuvenating our local jewel brands, e.g. growing Embassy in
the UK, Nobel and Fortuna in Spain
-- Maximising the potential of fine-cut category, e.g. leveraging Riverstone in Australia
Drive Value from our Broader Market Portfolio
-- Strong Africa performance: net revenue up 8%; adjusted
operating profit up 20%; share gains in several markets
-- Group tobacco share growth of 20 bps (MAT) with share gains in all regions
Build a Targeted NGP Business
-- Building foundations for a sustainable NGP business to
underpin our commitment to harm reduction
-- Heated tobacco trials of Pulze and iD in Greece and the Czech Republic progressing well
-- Trial of a new consumer marketing proposition for our vapour
product, blu, in Charlotte, North Carolina
-- Resources prioritised behind the markets and categories with
best sustainable growth prospects
Adopting New Ways of Working
-- Leadership team strengthened with new hires bringing strong consumer goods experience
-- New Group Consumer Office created to place consumer at centre of our thinking
-- Restructured sales and marketing organisation to align with
strategy and drive effectiveness
-- Reshaped our divisions and reduced our market clusters from
13 to 10 to support market prioritisation
-- Culture change underway with a reset of our purpose, vision
and behaviours to support strategic delivery
Results Overview
Net revenue growth driven by resilient tobacco pricing
-- Organic net revenue up 1.4% driven by tobacco growth of 1.5%;
NGP net revenue down 3.9% reflecting market exits
-- Tobacco price mix up 4.4% more than offset tobacco volume declines of 2.9%
-- Excluding Australia stock profit effects, tobacco price mix
up 5.6% and tobacco net revenue up 2.7%
-- Reported revenue grew 0.7%, due to increases in excise duty
Delivering improved profitability
-- Organic adjusted Group operating profit up 4.8% driven by
reduced NGP losses and higher Distribution profit
-- Reported operating profit of GBP3,146m is higher by GBP415m,
driven primarily by gains on disposal of the Premium Cigar Division
(GBP281m) and a reduction in amortisation and impairment of
acquired intangibles (GBP73m)
-- Delivering against profit expectations despite absorbing headwinds of:
o lower stock profit in Australia (GBP88m) as previously
guided
o a charge to meet US state litigation costs (GBP52m), which
removes uncertainty
-- Excluding these factors, underlying adjusted organic tobacco profit grew 2.7% or GBP98m
-- Including these factors, adjusted organic tobacco profit was lower by 1.2% (GBP42m)
-- NGP losses reduced by 56.7% to GBP138m as we optimise investment and begin our market trials
-- Distribution adjusted operating profit (including eliminations ) up 11.3% driven by growth in pharmaceuticals
-- Organic adjusted EPS up 2.8% at constant currency driven by
growth in operating profit, partially offset by an increase in the
tax rate to 22.6%
-- Reported basic EPS up 89.5% at 299.9p reflecting marked to
market foreign exchange accounting gains on financial instruments
and the impact of the Premium Cigar disposal, with intangible write
downs in the prior period and the profit on sale of assets booked
this year
Strong free cash flow supporting investment, deleverage and
progressive dividend
-- Strong cash conversion of 83% in line with expectations
reflecting unwind of prior year Logista working capital
-- Adjusted net debt reduced by GBP1.7bn due to strong free cash
flow of GBP1.5bn, a reduced dividend, proceeds from the sale of the
Premium Cigar Division and FX translation
-- Net debt to EBITDA reduced to 2.2x (2020: 2.7x) or 2.3x at constant exchange rates
-- Reported net debt reduced by GBP1.8bn, broadly in line with reduction in adjusted net debt
-- Annual dividend per share up 1.0% to 139.08 pence per share,
in line with our progressive dividend policy
Outlook
We are making good progress with the implementation of our new
strategy and we remain on track to deliver the five-year plan we
set out in January 2021.
2022 is the second year of our two year strengthening phase,
where we will step up investment behind our growth initiatives in
our priority combustible markets, in our NGP trials and in our new
ways of working. It will be a year of further reorganisation and
change as we strengthen our foundations for the future.
At constant exchange rates, we expect to deliver net revenue
growth at a similar rate to FY21, while adjusted operating profit
is expected to grow slightly slower than net revenue, reflecting
the step up in investment in line with our five-year strategic plan
and after taking into account the non-repeat of the US state
litigation settlement costs (net benefit of c. GBP40m in FY22).
We expect performance will be weighted to the second half
reflecting the phasing of investment and the prior year
comparator.
Some uncertainties remain about how the further lifting of
COVID-19 restrictions will affect consumer buying patterns and the
unwind of the small mix benefit in the past year. There is also
risk of inflationary pressures although we are well placed to
manage them through our purchasing strategy, high margins and
pricing.
A higher effective tax rate of around 24 per cent is expected to
be partly offset by lower interest costs. At current exchange
rates, foreign exchange translation is expected to be broadly
neutral on revenue and earnings per share.
Basis of Presentation
-- To aid understanding of our results, we use 'adjusted'
(non-GAAP) measures to provide a consistent comparison of
performance from one period to the next. Reconciliations between
adjusted and reported (GAAP) measures are also included in the
relevant notes. Further definitions of adjusted measures are
provided in Note 1 of these accounts. Change at constant currency
removes the effect of exchange rate movements on the translation of
the results of our overseas operations. References in this document
to percentage growth and increases or decreases in our adjusted
results are on a constant currency basis unless stated otherwise.
These are calculated by translating current year results at prior
year exchange rates.
-- In these results, we also use the term organic to remove the
impact of the divestment of our Premium Cigar Division to show a
like-for-like performance, which is the basis of the performance
commentary. The impact of the divestment is analysed in notes 3, 6
and 10 of the financial statements on adjusted performance
measures.
-- Stick Equivalent (SE) volumes reflect our combined cigarette,
fine cut tobacco, cigar and snus volumes.
-- Market share is presented as a 12-month average (MAT - moving
annual trend), unless otherwise stated. Aggregate market share is a
weighted average across markets within our footprint.
Other Information
Investor Contacts Media Contacts
Peter Durman +44 (0)7970 328 093 Jonathan Oliver +44 (0)7740 096 018
James King +44 (0)7581 052 880 Simon Evans +44 (0)7967 467 684
Jennifer Ramsey +44 (0)7974 615 739
Analyst Presentation Webcast
Imperial Brands PLC will be hosting a live webcast at 09:00
(GMT) for investors and investment analysts following the
publication of our preliminary results on 16 November 2021. The
webcast will be hosted by Stefan Bomhard, Chief Executive, and
Lukas Paravicini, Chief Financial Officer. The presentation will be
followed by a question and answer session. The presentation slides
will be available on www.imperialbrandsplc.com from 07.00 (GMT). An
archive of the webcast and the presentation script and slides will
also be available.
Please either listen to the Q&A session via the webcast
link: https://edge.media-server.com/mmc/p/uha45788 or to ask a
question, please use the dial-in details below. Please dial-in at
least 10 minutes prior to the start time to provide sufficient time
to access the event. You will be asked to provide the conference ID
number below.
Conference ID No: 5084104
United Kingdom: +44 (0) 20 7192 8338 or toll free: 0800 279
6619
USA: +1 646 741 3167 or toll free: +1 877 870 9135
Cautionary Statement
Certain statements in this announcement constitute or may
constitute forward-looking statements. Any statement in this
announcement that is not a statement of historical fact including,
without limitation, those regarding the Company's future
expectations, operations, financial performance, financial
condition and business is or may be a forward-looking statement.
Such forward-looking statements are subject to risks and
uncertainties that may cause actual results to differ materially
from those projected or implied in any forward-looking statement.
These risks and uncertainties include, among other factors,
changing economic, financial, business or other market conditions.
These and other factors could adversely affect the outcome and
financial effects of the plans and events described in this
announcement. As a result, you are cautioned not to place any
reliance on such forward-looking statements. The forward-looking
statements reflect knowledge and information available at the date
of this announcement and the Company undertakes no obligation to
update its view of such risks and uncertainties or to update the
forward-looking statements contained herein. Nothing in this
announcement should be construed as a profit forecast or profit
estimate and no statement in this announcement should be
interpreted to mean that the future earnings per share of the
Company for current or future financial years will necessarily
match or exceed the historical or published earnings per share of
the Company. This announcement has been prepared for, and only for
the members of the Company, as a body, and no other persons. The
Company, its Directors, employees, agents or advisers do not accept
or assume responsibility to any other person to whom this
announcement is shown or into whose hands it may come, and any such
responsibility or liability is expressly disclaimed.
CHIEF EXECUTIVE'S STATEMENT
The right strategy, purpose and mindset
The strategy of Imperial Brands has three simple priorities. The
first is to create sustained value in the combustible market
through a focus on our priority markets where we can leverage our
strengths. The second is to build a distinctive presence in next
generation products (NGP), which, over time, delivers a material
contribution both to harm reduction, through offering potentially
reduced harm products to consumers, and investor returns. The third
is to drive value from our broader global portfolio.
These priorities are mutually supportive. Scalable success in
NGP requires both consumer focus and the full mobilisation of
Imperial's core strengths in marketing, manufacturing and strong
retail partnerships. At the same time, I believe our responsible,
long-term commitment to improving the wellbeing of consumers
provides a defining mission that energises the entire
organisation.
Delivering on this strategy requires us to put the consumer at
the centre of everything we do, to simplify our operations and to
develop a rigorous performance culture.
As we build the foundations of this new culture, over the past
year we have conducted a range of listening exercises with our
27,700 colleagues. Through this process, we developed a new
statement of purpose: "Forging a path to a healthier future for
moments of relaxation and pleasure".
Alongside the new strategy we have developed a vision statement
which is "To build a strong challenger business powered by
responsibility, focus and choice".
Our challenger mindset is an important and distinctive
attribute. Although our brands have deep heritage, Imperial is, in
important ways, a young company. This year marks our 25th
anniversary as an independent public company and the key
acquisitions that completed our global footprint occurred only in
the past decade. In our recent history, we have been at our best
when we have acted as an ambitious challenger, providing genuine
choice for our customers and consumers, and an additional
responsible industry player for regulators and policymakers.
After just over a year as CEO and having met many hundreds of
colleagues, both virtually and face-to-face, I can confirm that
this business retains that challenger spirit in abundance. However,
as I said at the launch of our new strategy in January 2021, in
order to make a reality of our ambition to put the consumer at the
centre, we need to supplement our core strengths with additional
capabilities in insights, innovation and product development.
I'd like to take this opportunity to thank our colleagues for
their significant contribution, particularly with the challenges of
a global pandemic.
Over the past 12 months we have assembled a diverse, new senior
team and refreshed the way we work. This approach, bringing
together our traditional strengths and future-facing capabilities,
has led to improved operational and financial outcomes in line with
our expectations.
The right team
Driving this new culture is the newly formed Executive
Leadership Team (ELT). During the year, Andy Dasgupta joined in the
newly created role of Chief Consumer Officer and a re-organisation
of our reporting regions led to the appointment of Kim Reed as
President and CEO of our Americas Region and Paola Pocci as
President of Africa, Asia and Australasia (AAA). This new regional
structure enables a sharper focus both on our largest market, the
United States, and the portfolio of emerging markets that have the
potential to become an important future growth engine. Javier
Huerta joined as Chief Supply Chain Officer and Lukas Paravicini as
Chief Financial Officer. A strengthened ELT team, collaborating
closely with our experienced functional and market leaders, means
Imperial now has the right blend of deep expertise of the tobacco
industry and fresh ideas and perspectives from blue chip consumer
goods companies, such as Nestlé, Unilever, P&G and Pepsi.
Placing the consumer at the centre of all our decisions
As Chief Consumer Officer, Andy Dasgupta is leading our focus on
the consumer. Under him, we have adopted a more co-ordinated
approach to how we collect and use consumer and competitor insights
and data, which is leading to better-informed and faster
decision-making. We are now building the right marketing, brand and
portfolio management capabilities to support growth. In addition,
Andy is leading a newly defined innovation programme that sits
across tobacco and NGP to ensure we can meet consumer needs for new
products, formats and experiences.
Embedding a high performance culture
We have taken action to embed a performance-based culture; one
that holds our teams to account and rewards teamwork. For our
top-five priority combustible markets this involved detailed
monthly executive reviews of each market. We have revised incentive
metrics for the Annual Bonus and Long-Term Incentive Plans (LTIP)
to support our strategic objectives. We also have defined the new
behaviours which will support the challenger-minded,
consumer-centric and responsible culture we are creating at
Imperial. In the coming year we will be rolling out a global
programme to help our colleagues understand and embrace how they
can best play a practical role in driving our transformation.
Simplifying our operations
To simplify our operations, we are restructuring the
organisation to reallocate resources to the customer and
consumer-facing areas in our priority markets while simplifying
other aspects of operations. This is realising savings to fund our
investment plans. For example, we have already restructured our
sales and marketing organisation, reducing the number of market
clusters from 13 to 10. In addition, our business services are
implementing modern operating models, which will embed more
effective ways of working.
The right performance
Our results reflect the actions taken to focus our investment
tightly behind our priority markets and to drive a more rigorous
approach to managing performance in tobacco and NGP. In tobacco, we
have begun to stabilise the long-term aggregate market share
declines in our five priority markets through a greater focus on
performance management, brand refreshes and enhancing our sales
footprint in select areas. On a constant currency basis, Group net
revenues grew 1.4 per cent year-on-year reflecting continued strong
pricing dynamics. Reported revenue grew 0.7 per cent at actual
exchange rates. As anticipated, we grew our Group adjusted
operating profit by 4.8 per cent in the year on a constant currency
basis driven by a reduction in our NGP losses and higher
Distribution profit from Logista. Reported operating profit grew
15.2 per cent at actual exchange rates. We delivered solid cash
flow performance, generating GBP1.5 billion of free cash flow.
Focus on priority combustible market portfolio
Aggregate market share in our five priority combustible markets
declined by just two basis points, compared to a 17 basis point
decline last year. Share gains in the US, UK and Spain partially
offset declines in Germany and Australia. This relative improvement
reflects the benefit of the changes we are making to focus greater
resource and more detailed performance management on these priority
markets. We have begun to increase investment in these markets
behind some clear operational levers, such as increased sales force
and key account management, areas which were identified by the
local teams. We are making good progress, although the main
investment increase begins in the coming year. Further details are
provided in the Operating Review.
Build a targeted NGP business
The NGP category remains relatively nascent in the majority of
markets. We have an exciting opportunity to make a meaningful
contribution to harm reduction by building a targeted and
sustainable business in this market, offering potentially reduced
risk products. Our new approach offers consumers greater choice in
markets where they already express a preference for a particular
proposition.
In heated tobacco, two trials in the Czech Republic and Greece
with our Pulze and iD propositions have received a positive
response from our trade partners and consumers. These are
attractive markets because heated tobacco is already a
well-established NGP category and we can leverage our existing
route to market for combustible tobacco products. The valuable
consumer insights we gain from these pilot initiatives will inform
the scale and pace of further market rollouts.
In the United States we have also started trials for a revised
proposition for our vapour product, blu, including more innovative
consumer communication and customer support. We have chosen to do
this in a focused geographic area to best assess the impact of our
new approach.
Modern oral nicotine continues to perform well in Norway and
Austria, markets where consumers have a preference for this type of
proposition.
Deliver value from broader market portfolio
Our detailed strategic review created a clear role for each of
Imperial's markets. The structured approach to market segmentation
will drive our allocation of resources in terms of management time
and investment. Our more focused approach has supported market
share gains across the Group with overall tobacco share up 20 basis
points year-on-year. Highlights include a strong performance from
the African market cluster, which has grown share, net revenue and
profit.
Environmental, social & governance (ESG)
Our approach to ESG supports our new business strategy and
defines our responsibilities as a business. It is aligned with
those UN Sustainable Development Goals which are most relevant to
our Company strategy, namely consumer health, climate and energy,
farmer livelihoods and welfare, human rights, and waste.
Furthermore, we have recently made a commitment to be net zero
by 2040. We already have targets which are consistent with
reductions required to limit climate warming to 2degC, which have
been approved by the Science Based Targets initiative (SBTi). We
intend to re-engage with SBTi to approve revised and more ambitious
goals consistent with climate warming of 1.5degC and our net zero
ambition.
We have strengthened our ESG team with the hiring of Tony
Dunnage as global lead on ESG. Tony brings more than 30 years'
experience in Unilever, directing end-to-end supply chain and
manufacturing sustainability for 250-plus factories and reports
directly to the ELT.
Capital allocation priorities
We have a clear capital allocation framework linked to our
strategy to maximise returns for shareholders, with four clear
capital priorities:
-- Invest behind the new strategy to deliver the growth initiatives.
-- Deleverage to support a strong and efficient balance sheet
with a target leverage towards the lower end of our net debt to
EBITDA range of 2-2.5 times.
-- A progressive dividend policy with dividend growing annually
taking into account underlying business performance.
-- Surplus capital returns to shareholders to be considered once
target leverage has been achieved.
This year we reduced adjusted net debt by GBP1.7 billion, on a
constant currency basis, with net debt to EBITDA gearing reduced by
0.5 times to 2.2 times, at constant currency. At actual exchange
rates, reported net debt reduced by GBP1.8 billion.
In line with our progressive dividend policy, the Board has
decided to increase the dividend by 1.0 per cent, and we remain
committed to providing a reliable, consistent cash return to
shareholders.
Outlook
We remain on track to deliver against our strategy with our
expectations for the coming year in line with the guidance we
provided at our Capital Markets Day in January this year. At
constant exchange rates, we expect to deliver net revenue growth at
a similar rate to the 2021 financial year, while adjusted operating
profit is expected to grow slightly slower than net revenue,
reflecting the increased investment in line with our strategic
plan.
Our five-year strategy to strengthen performance and deliver
growing shareholder returns is divided into two distinct phases.
The year ahead will complete the two-year 'strengthening' phase
with further investment in our five priority markets and NGP
pilots, the embedding of new ways of working and cost-saving
initiatives in line with our plans. This builds the foundations for
the subsequent three-year phase of our plan, in which we will
accelerate returns and deliver sustainable growth in shareholder
value.
Stefan Bomhard
Chief Executive Officer
OPERATING REVIEW
EUROPE REGION
Full year result Change
------------------ -----------------
Constant
2021 2020 Actual currency
-------------------------- ------ -------- -------- ------ ---------
Tobacco volume bn SE 126.7 130.1 -2.6%
-------------------------- ------ -------- -------- ------ ---------
Total net revenue GBPm 3,551 3,569 -0.5% +0.2%
-------------------------- ------ -------- -------- ------ ---------
Tobacco net revenue GBPm 3,425 3,471 -1.3% -0.6%
-------------------------- ------ -------- -------- ------ ---------
NGP net revenue GBPm 126 98 28.8% 28.8%
-------------------------- ------ -------- -------- ------ ---------
Adjusted operating profit GBPm 1,670 1,582 5.6% 5.6%
-------------------------- ------ -------- -------- ------ ---------
Positives Negatives
* Germany and UK continue to deliver strong financial * Reduced travel impacts sales in global duty free and
performances, with market size benefiting from traditional holiday destinations
reduced travel
* German share still declining although with an
* Local jewel brand focus benefits market share gains improving trend
in Spain and the UK
* Travel recovery continues to remain difficult to
* Heated tobacco market trials underway and targeted predict
investment behind blu holding share
due to varying COVID-19 restrictions
across Europe
Europe delivered gains in regional market share and a 5.6 per
cent increase in adjusted operating profit. These results have been
achieved despite COVID-19 restrictions reducing travel and
affecting market and channel trends, particularly the global duty
free channel. Stronger market size trends in Northern Europe,
together with share growth in the UK and Spain and improved NGP
performance, were partly offset by lower sales in our global duty
free business, despite a small second-half recovery, and in
traditional holiday destination markets in Southern Europe.
Share gains in the UK and Spain were driven by our tobacco
portfolio work and a new strategic focus on local jewel brands,
such as Embassy and Nobel. In Germany, investments in enhancing the
effectiveness and coverage of our sales force and distribution have
driven an encouraging improvement in market share trend in recent
months. It will take time though for our brand initiatives and
portfolio investments to rejuvenate our overall share
performance.
Tobacco volumes decreased by 2.6 per cent, driven by relative
market size improvements in the Northern Europe markets of UK,
Germany and Norway from consumers staying at home. A gradual
recovery from COVID-19 led to a modest increase in travel numbers
in the second half and a small improvement to our global duty free
sales and southern European markets. Volume trends in Spain, Italy
and Greece were still down relative to historic levels.
Total net revenue grew 0.2 per cent at constant currency, with
tobacco net revenue down 0.6 per cent at constant currency. This
reflects a price mix increase of 2.0 per cent, which is lower than
recent years, as a result of temporary one-off benefits last year
related to VAT changes in Germany and UK anti-forestalling
arrangements. Excluding these temporary changes, price mix would
have been 3.0 per cent, impacted by lower global duty free and
travel retail sales. NGP revenues were up 28.8 per cent, with sales
growth across a number of markets.
Our blu share in several markets such as the UK, France and
Italy remains relatively stable. In heated tobacco we are on track
with our pilot launches in the Czech Republic and Greece, although
it is too early to draw conclusions until we review repurchase
rates.
Adjusted operating profit was up 5.6 per cent at constant
currency, benefiting from reduced losses in our NGP business and
lower regulatory related costs.
Priority Markets in Europe
GERMANY
13% of Group net revenue
Duty paid sales in Germany continued to remain strong, with
fewer travel and border restrictions benefiting market size. We
increased investment to improve sales coverage and strengthen our
sales execution to address the share declines. We have also begun
to implement the planned brand investments to reposition certain
brands over time. This includes innovation targeted at meeting
consumer preferences for larger pack formats. In NGP, blu vapour
brand share has been maintained with increased pricing and lower
levels of investment improving returns. The modern oral nicotine
category continues to wait for a clear legal definition, resulting
in delays in category development.
UK
9% of Group net revenue
Reduced travel, lower levels of illicit trade and the absence of
a manufacturing price increase benefited duty-paid tobacco market
size, with an improved trend against historic norms. Our tobacco
share performance benefited from an enhanced regional and key
account focus, with growth driven from the launch of Embassy
Signature. Market share was partly impacted by pressure following
the characterising flavours ban in May 2020. Our blu vapour brand
share remains stable, with refinements in our investment levels
supporting improved profitability.
SPAIN
4% of Group net revenue
Reduced tourist numbers as a result of the global pandemic
continue to negatively impact market size in Spain. Despite this,
our domestic performance has benefited from a renewed focus on
leveraging the strong heritage of our local brand portfolio.
Increased investment behind our local brands, Fortuna and Nobel,
combined with limited edition formats have supported market share
growth. We also had success with a super-king variant of our West
brand. blu remains market leader of the vapour category, with
market share holding up well despite lower levels of
investment.
AMERICAS REGION
Full year result Change
-------------------------- ------------------------------
Constant
2021 2020 Actual currency
--------------------------------------------- ------------------------ ------------ ------------ ------------- ---------------
Tobacco volume bn SE 21.5 21.3 1.1%
--------------------------------------------- ------------------------ ------------ ------------ ------------- ---------------
Total net revenue GBPm 2,534 2,480 2.2% 9.6%
--------------------------------------------- ------------------------ ------------ ------------ ------------- ---------------
Tobacco net revenue GBPm 2,478 2,409 2.9% 10.4%
--------------------------------------------- ------------------------ ------------ ------------ ------------- ---------------
NGP net revenue GBPm 56 71 -21.2% -15.5%
--------------------------------------------- ------------------------ ------------ ------------ ------------- ---------------
Adjusted operating profit GBPm 1,037 1,032 0.4% 8.0%
--------------------------------------------- ------------------------ ------------ ------------ ------------- ---------------
Positives Negatives
* Cigarette share growth up 20 basis points to 9.1 per * Results affected by US state litigation settlement
cent charges
* Cigarette pricing remains strong * PMTA outcome still pending, creating lack of clarity
for vapour category development
* Backwoods and Dutch Masters continue to perform
strongly in the mass market cigar segment
We delivered a strong combustible tobacco performance in the US,
which is our largest single market, contributing 33 per cent of
Group net revenue. Market fundamentals remain attractive, with
strong cigarette pricing continuing to offset relatively reduced
rates of tobacco market size decline as well as further growth in
the mass market cigars segment.
We have increased investment behind our strategic priorities,
including the recruitment and training of 200 additional sales
people to enhance our coverage and distribution. We have also
invested in brand initiatives for Winston, which we are trialling
in Texas.
The investment and additional focus on performance management
delivered a third consecutive year of share gains in the US
cigarette market, up 20 basis points, to 9.1 per cent. Share growth
has been driven by Sonoma and Crowns in the deep discount segment,
while we have maintained Winston and Kool's share of their
sub-premium categories and managed the ongoing decline in our
non-focus brands.
Tobacco volumes were up 1.1 per cent, driven by strong mass
market cigar growth, which more than offset the more moderate
cigarette volume declines.
Our mass market cigar portfolio performed well with volumes up
45 per cent and share growth of 500 basis points driven by
Backwoods and the launch of a Dutch Leaf variant in the value
segment. We are now established as the second largest manufacturer
in the US market, having been number four a year ago. Sales in the
premium natural leaf segment have benefited from increased
activations and limited edition launches of Backwoods. Overall mass
market cigar performance also benefited from manufacturing and
investments in improved leaf supply.
On a constant currency basis, tobacco net revenue increased by
10.4 per cent, benefiting from strong cigarette pricing and the
success of our mass market cigar sales in a growing category.
Our NGP revenues were down 15.5 per cent on a constant currency
basis, with second half revenues affected by the increasingly
competitive environment with greater discounting in the category.
In the second half, we launched a pilot to test a new consumer
marketing proposition for blu, with a new packaging and consumer
communication approach.
Adjusted operating profit was 8.0 per cent higher at constant
currency, driven by the strong growth in mass market cigar sales,
tobacco pricing and lower NGP write-offs. Profitability was also
impacted by a GBP52 million charge for litigation settlement costs
in Minnesota and Texas, which removes uncertainty at a reasonable
cost. Excluding these settlement costs, adjusted operating profit
grew by 13.1 per cent at constant currency.
AFRICA, ASIA AND AUSTRALASIA REGION
Full year result Change
------------------ -----------------
*Organic
constant
2021 2020 Actual currency
---------------------------------- ------ -------- -------- ------ ---------
Organic tobacco volume bn SE 83.7 87.4 -4.2%
---------------------------------- ------ -------- -------- ------ ---------
Total organic net revenue GBPm 1,504 1,689 -11.0% -8.2%
---------------------------------- ------ -------- -------- ------ ---------
Organic tobacco net revenue GBPm 1,498 1,657 -9.6% -6.8%
---------------------------------- ------ -------- -------- ------ ---------
NGP net revenue GBPm 6 32 -81.1% -78.3%
---------------------------------- ------ -------- -------- ------ ---------
Organic adjusted operating profit GBPm 598 643 -7.0% -4.7%
---------------------------------- ------ -------- -------- ------ ---------
* Organic performance excludes the contribution of the Premium
Cigar Division from both financial reporting periods following its
divestment in October 2020. The Premium Cigar Division contributed
GBP21m to net revenue in 2021 (2020: GBP247m) and GBP3m to adjusted
operating profit (2020: GBP31m). Further details are provided in
notes 3, 6 and 10 of the financial statements.
Positives Negatives
* Australia share performance improved during the * Financial results affected by changes to Australia
second half in response to investment excise duty regime (GBP88m)
* Africa market share and financial performance * NGP revenues lower due to strategic exits in Japan
benefits from focus on local jewel brands and Russia
Our results were affected by two events: the sale of the Premium
Cigar Division in October 2020 and changes to the Australian excise
regime. Notwithstanding these impacts, our Africa, Middle East and
Asia regions reported solid performances and supported a 30 basis
point improvement in overall regional share.
The results presented here are on an organic basis, excluding
the contribution from the Premium Cigar Division in both periods to
aid comparison of performance on a like-for-like basis. The impact
of the divestment is analysed in notes 3, 6 and 10 of the financial
statements on adjusted performance measures.
Our performance was also affected by changes in the Australian
excise regime, which resulted in an impact on net revenue and
adjusted operating profit of GBP88 million. This has been driven by
the Australian Government's decision to step away from the 12.5 per
cent annual excise duty accelerator and the associated reduction in
inventory levels and the phasing of stock profit. Looking ahead,
there will be a further net headwind of c. GBP10 million to net
revenue and adjusted operating profit in the first half of FY22 as
the lower stock profit is partially offset by favourable inventory
movements.
The Africa region continues to be an attractive portfolio of
markets with opportunities for further value growth. Gauloises
gained share in Morocco by leveraging its international brand
equity, while our focus on local jewel brands delivered share gains
in Burkina Faso and the Côte d'Ivoire.
Our results in the Middle East were driven primarily by Saudi
Arabia, where travel restrictions benefited our domestic sales,
driving a good performance of Davidoff and West with strong demand
for fresh seal formats.
In Asia, we delivered a stable performance in Taiwan driven by
share growth of the Davidoff Absolute range supported by its strong
equity and by West, which has benefited from value seeking
consumers.
Organic tobacco volumes were 4.2 per cent lower, with volume
declines in Turkey and Australia, partially offset by market
share-driven volume gains in Morocco, the Côte d'Ivoire and Saudi
Arabia.
Our organic financial results were affected primarily by the
excise duty changes in Australia. Organic tobacco price mix of -2.6
per cent contributed to the tobacco net revenue decline of 6.8 per
cent at constant currency, primarily reflecting the Australian
excise duty changes. Excluding this impact, organic tobacco price
mix was up 2.7 per cent and tobacco net revenue was down 1.5 per
cent.
NGP net revenues declined 78.3 per cent at constant currency,
reflecting our strategic decision to exit the vapour market in
Russia and Japan and the heated tobacco market in Japan, as we
prioritise investment in other market category combinations in line
with our strategy.
Organic adjusted operating profit was down 4.7 per cent at
constant currency, primarily reflecting the excise duty changes in
Australia.
Priority Market in Africa, Asia and Australasia
AUSTRALIA
4% of Group net revenue
Our share performance has been affected by the timing of our
price increase and competitor discounting, particularly in the
first half of the year. We made changes to our sales force
execution and enhanced our key account management, which delivered
a much improved share trend in the second half. Our results were
also affected by a market size decline of 9% and continued
downtrading to the fifth price tier, which now accounts for more
than a third of the market. Our Parker & Simpson brand
continues to perform well within the 'fifth price tier'.
DISTRIBUTION
Full Year Result Change
---------------------------- -----------------------------
Constant
2021 2020 Actual Currency
--------------------------------------------- ----------------------- ------------- ------------- ------------- --------------
Net revenue GBPm 1,069 1,015 +5.3% +5.8%
--------------------------------------------- ----------------------- ------------- ------------- ------------- --------------
Adjusted operating profit GBPm 258 226 +14.2% + 14.8%
--------------------------------------------- ----------------------- ------------- ------------- ------------- --------------
Adjusted operating profit margin % 24.1 22.3 +180 bps +180 bps
--------------------------------------------- ----------------------- ------------- ------------- ------------- --------------
Eliminations GBPm 7 13 -50.3% -50.0%
--------------------------------------------- ----------------------- ------------- ------------- ------------- --------------
Adjusted operating profit (inc.
eliminations) GBPm 265 239 +10.7% +11.3%
--------------------------------------------- ----------------------- ------------- ------------- ------------- --------------
Positives Negatives
* Continued distribution through COVID-19 as products * Unwind of FY20 COVID-19 duty deferral impacted cash
and services classified as essential flow in the year
* Strong performance in courier and long-distance
transportation businesses
* New contracts in pharmaceutical distribution
* Efficiency improvement initiatives effective
Logista has continued to distribute products to customers with
almost all the points of sale, products and services classified as
essential by governments, even during the periods when COVID-19
still restricted movements in many of its end markets.
Net revenue grew 5.8 per cent at constant currency driven by
growth in all markets and activities except tobacco distribution in
France and Portugal. Pharmaceutical distribution, parcel transport
(Nacex) and the distribution of convenience products in Spain and
Italy recorded double-digit growth. Adjusted operating profit
increased 14.8 per cent at constant currency due to efficiency
improvement initiatives.
The adjusted operating profit contribution to the Group, after
eliminations, increased by 11.3 per cent. This reflects the
positive performance of Logista's adjusted operating profit
delivery as outlined above, the benefit of inventory valuations
following tax and price movements in tobacco products and the
recovery from negative COVID-19 impacts last year.
In line with other Imperial-owned entities, we continue to
benefit from an intercompany cash pooling arrangement with Logista,
which further enhances the Group's liquidity. On a 12-month basis,
the daily average cash balance loaned to the Group by Logista was
GBP2.0 billion, with movements in the cash position during the
12-month period varying from a high of GBP4.0 billion to a low of
GBP1.3 billion, primarily due to the timing of excise duty
payments. At the period end, the loan position was GBP1.8 billion
compared to GBP2.4 billion at 30 September 2020.
FINANCIAL REVIEW
This year's financial results reflect the good start we have
made in implementing our new strategy. Excluding the divestment of
our Premium Cigar Division, net revenues grew 1.4 per cent and
organic Group adjusted operating profit rose 4.8 per cent, both on
an organic constant currency basis.
Reported operating profit rose 15 per cent, mainly due to a
profit of GBP281 million related to the disposal of the Premium
Cigar Division.
Our business remains cash generative, delivering GBP1.5 billion
of free cash flow, and this, together with other actions taken, has
enabled us to reduce reported net debt by GBP1.8 billion to GBP9.4
billion.
Capital discipline remains a key focus and our objective to
delever continues, with net debt/EBITDA reducing from 2.7x in 2020
to 2.2x in 2021. We remain committed to delivering leverage at the
lower end of 2.0x to 2.5x.
In line with our strategic ambition, 2021 was a key transitional
year in our two year strengthening phase during which we are
building the foundations for future growth, underpinned by
investments behind our operational and strategic levers and
significant organisational and cultural change.
SUMMARY INCOME STATEMENT
Reported Adjusted Organic Adjusted
-------------- -------------- ------------------
GBP million (unless otherwise indicated) 2021 2020 2021 2020 2021 2020
----------------------------------------- ------ ------ ------ ------ -------- --------
Operating profit
----------------------------------------- ------ ------ ------ ------ -------- --------
Total Tobacco & NGP 2,991 2,587 3,308 3,288 3,305 3,257
----------------------------------------- ------ ------ ------ ------ -------- --------
Distribution 148 131 258 226 258 226
----------------------------------------- ------ ------ ------ ------ -------- --------
Eliminations 7 13 7 13 7 13
----------------------------------------- ------ ------ ------ ------ -------- --------
Group operating profit 3,146 2,731 3,573 3,527 3,570 3,496
----------------------------------------- ------ ------ ------ ------ -------- --------
Net finance costs 81 (610) (417) (429) (417) (429)
----------------------------------------- ------ ------ ------ ------ -------- --------
Share of profit of investments accounted
for using the equity method 11 45 11 45 7 1
----------------------------------------- ------ ------ ------ ------ -------- --------
Profit before tax 3,238 2,166 3,167 3,143 3,160 3,068
----------------------------------------- ------ ------ ------ ------ -------- --------
Tax (331) (608) (716) (642) (714) (635)
----------------------------------------- ------ ------ ------ ------ -------- --------
Profit for the year 2,907 1,558 2,451 2,501 2,446 2,433
----------------------------------------- ------ ------ ------ ------ -------- --------
Earnings per ordinary share (pence) 299.9 158.3 247.1 254.4 246.5 247.2
----------------------------------------- ------ ------ ------ ------ -------- --------
Dividend per share (pence) 139.08 137.71 139.08 137.71 139.08 137.71
----------------------------------------- ------ ------ ------ ------ -------- --------
Adjusted performance measures
When managing the performance of our business we focus on
non-GAAP measures, which we refer to as adjusted measures.
Management believes that adjusted measures provide an important
comparison of business performance and reflect the way in which the
business is controlled. These adjusted measures are supplementary
to, and should not be regarded as a substitute for GAAP measures,
which we refer to as reported measures. The basis of our adjusted
measures is explained in our accounting policies note, which is
detailed within our financial statements.
Reconciliations between reported and adjusted measures are
included in the appropriate notes to our financial statements and
within this financial review. Percentage growth figures for
adjusted results are given on a constant currency basis, where the
effects of exchange rate movements on the translation of the
results of our overseas operations are removed.
This year we also show organic numbers which exclude the
disposed operations of our Premium Cigar Division from both years
to show a like-for-like performance; these measures are termed
"organic adjusted" and are considered the relevant headline
measures for performance commentary. The impact of these changes
can be seen in our adjusted performance measures note.
SUMMARY CASH FLOW STATEMENT - STATUTORY RECONCILIATION
Reported Adjusted
---------------- ----------------
GBP million (unless otherwise indicated) 2021 2020 2021 2020
------------------------------------------- ------- ------- ------- -------
Group Operating Profit 3,146 2,731 3,573 3,527
------------------------------------------- ------- ------- ------- -------
Depreciation, amortisation and impairments 815 910 269 311
------------------------------------------- ------- ------- ------- -------
EBITDA 3,961 3,641 3,842 3,838
------------------------------------------- ------- ------- ------- -------
Profit on disposal of subsidiary (281) - - -
------------------------------------------- ------- ------- ------- -------
Other non-cash movements (29) (85) (79) (137)
------------------------------------------- ------- ------- ------- -------
Operating Cash Flows before movement in
Working Capital 3,651 3,556 3,763 3,701
------------------------------------------- ------- ------- ------- -------
Working capital (664) 1,042 (664) 1,042
------------------------------------------- ------- ------- ------- -------
Tax cash flow (820) (568) (820) (568)
------------------------------------------- ------- ------- ------- -------
Cash Flows from Operating Activities 2,167 4,030 2,279 4,175
------------------------------------------- ------- ------- ------- -------
Net capex (150) (274) (150) (274)
------------------------------------------- ------- ------- ------- -------
Restructuring - - (112) (145)
------------------------------------------- ------- ------- ------- -------
Cash interest (400) (420) (400) (420)
------------------------------------------- ------- ------- ------- -------
Loan to third parties - (3) - (3)
------------------------------------------- ------- ------- ------- -------
MI dividends (93) (85) (93) (85)
------------------------------------------- ------- ------- ------- -------
Free Cash Flow 1,524 3,248 1,524 3,248
------------------------------------------- ------- ------- ------- -------
Acquisitions / disposals 845 (155) 845 (155)
------------------------------------------- ------- ------- ------- -------
Shareholder dividends (1,305) (1,753) (1,305) (1,753)
------------------------------------------- ------- ------- ------- -------
Net Cash Flow 1,064 1,340 1,064 1,340
------------------------------------------- ------- ------- ------- -------
Cash Flows from Operating Activities (as
above) 2,279 4,175
------------------------------------------- ------- ------- ------- -------
Tax cash flow 820 568
------------------------------------------- ------- ------- ------- -------
Net capex (150) (274)
------------------------------------------- ------- ------- ------- -------
Net Cash Flow from Operating Activities
post Capital Expenditure pre Interest and
Tax 2,949 4,469
------------------------------------------- ------- ------- ------- -------
Cash Conversion 83% 127%
------------------------------------------- ------- ------- ------- -------
GROUP RESULTS - ORGANIC ADJUSTED CONSTANT CURRENCY ANALYSIS
Full year Full year Organic
ended Constant ended constant
GBP million 30 September Foreign currency 30 September currency
(unless otherwise indicated) 2020 exchange movement 2021 Change change
------------------------------- ------------- --------- --------- ------------- ------ ---------
Organic Tobacco & NGP Net
Revenue
------------------------------- ------------- --------- --------- ------------- ------ ---------
Europe 3,569 (27) 9 3,551 -0.5% 0.2%
------------------------------- ------------- --------- --------- ------------- ------ ---------
Americas 2,480 (184) 238 2,534 2.2% 9.6%
------------------------------- ------------- --------- --------- ------------- ------ ---------
Africa, Asia and Australasia 1,689 (47) (138) 1,504 -11.0% -8.2%
------------------------------- ------------- --------- --------- ------------- ------ ---------
Total Group 7,738 (258) 109 7,589 -1.9% 1.4%
------------------------------- ------------- --------- --------- ------------- ------ ---------
Organic Tobacco & NGP Adjusted
Operating Profit
------------------------------- ------------- --------- --------- ------------- ------ ---------
Europe 1,582 (1) 89 1,670 5.6% 5.6%
------------------------------- ------------- --------- --------- ------------- ------ ---------
Americas 1,032 (78) 83 1,037 0.4% 8.0%
------------------------------- ------------- --------- --------- ------------- ------ ---------
Africa, Asia and Australasia 643 (15) (30) 598 -7.0% -4.7%
------------------------------- ------------- --------- --------- ------------- ------ ---------
Total Group 3,257 (94) 142 3,305 1.5% 4.3%
------------------------------- ------------- --------- --------- ------------- ------ ---------
Distribution
------------------------------- ------------- --------- --------- ------------- ------ ---------
Net revenue 1,015 (5) 59 1,069 5.3% 5.8%
------------------------------- ------------- --------- --------- ------------- ------ ---------
Adjusted operating profit
including eliminations 239 0 26 265 10.7% 11.3%
------------------------------- ------------- --------- --------- ------------- ------ ---------
Group Organic Adjusted Results
------------------------------- ------------- --------- --------- ------------- ------ ---------
Organic adjusted operating
profit 3,496 (94) 168 3,570 2.1% 4.8%
------------------------------- ------------- --------- --------- ------------- ------ ---------
Adjusted net finance costs (429) (1) 13 (417) 2.7% 3.1%
------------------------------- ------------- --------- --------- ------------- ------ ---------
Organic adjusted EPS (pence) 247.2 (7.7) 7.0 246.5 -0.3% 2.8%
------------------------------- ------------- --------- --------- ------------- ------ ---------
Financials are Organic and adjusted for the impact the Premium
Cigar Divisions disposal, all of which is in the Africa, Asia and
Australasia segment.
Net Revenue has been deducted GBP247m in 2020 and GBP21m in
2021. Adjusted Operating Profit has been deducted GBP31m in 2020
and GBP3m in 2021.
Organic net revenue Organic adjusted
(actual rate), operating profit,
Volumes bn SE GBPm GBPm
Europe 126.7 3,551 1,670
Americas 21.5 2,534 1,037
Africa, Asia,
Australasia 83.7 1,504 598
Distribution - - 265
SALES PERFORMANCE
Reported revenue Organic adjusted net revenue
+0.7% +1.4%
-- Reported revenue grew 0.7% due to increases in duty and similar items.
-- Organic net revenue grew 1.4% at constant currency comprising
+1.5% from tobacco and -0.1% from NGP.
-- Organic tobacco volumes were down 2.9%, in line with the
market decline reflecting weaker duty free and travel retail
volumes. This was partly offset by stronger market size in domestic
markets such as the UK, Germany and the Nordics.
-- Weighted share in our priority markets declined marginally by
2bps, compared to a 17bps decline in the prior year.
-- Tobacco price mix of 4.4% was below historic levels, as a
result of changes to the Australian excise regime. Excluding this
impact price mix was 5.6% driven by pricing and positive market mix
as a result of significant growth in US mass market cigars and
repatriation of volumes due to travel restrictions.
-- NGP revenue decreased 3.9% at constant currency as we exited
a number of markets and refocused the category in line with the
revised strategy.
-- Translation FX was adverse due to sterling strengthening against the US dollar.
NET REVENUE BRIDGE: +1.4% (CC); -1.9% (Actual Exchange
Rate)
FY20 net revenue GBP7,985m
=========== ======
Premium Cigar Division -GBP247m
=========== ======
FY20 net revenue excl. divestment GBP7,738m
=========== ======
Tobacco volume -2.9%
=========== ======
Tobacco price/mix +4.4%
=========== ======
NGP net revenue -0.1%
=========== ======
FY21 organic constant currency net
revenue GBP7,847m +1.4%
=========== ======
Translation FX -3.3%
=========== ======
FY21 organic net revenue GBP7,589m -1.9%
=========== ======
OPERATING PROFIT
Reported operating profit Organic adjusted operating profit
+15.2% +4.8%
-- Reported Group operating profit of GBP3,146 million grew
15.2%, driven by gains on disposal of the Premium Cigar
Division.
-- Organic adjusted Group operating profit increased 4.8% at constant currency.
-- Tobacco and NGP adjusted operating profit grew GBP142m or 4.3% at constant currency.
-- Tobacco organic adjusted operating profit was down GBP42
million (-1.2%) at constant currency. Strong underlying
performance, led by mass market cigar volumes and pricing, was more
than offset by lower stock profit in Australia (GBP88 million) and
a charge to meet US state litigation (PSS) costs (GBP52
million)
-- NGP losses reduced by GBP184 million or 57% as we optimised
investment and as prior year write-downs (GBP124 million) were not
repeated to the same extent.
-- Distribution profit grew 11.3% reflecting good performance in
pharmaceutical, parcel and convenience distribution.
-- Translation FX was adverse due to sterling strengthening against the US dollar.
ADJUSTED OPERATING PROFIT BRIDGE: +4.8% (CC); +2.1% (Actual
Exchange Rate)
FY20 adjusted operating profit GBP3,527m
============== ======
Premium Cigar Division -GBP31m
============== ======
FY20 adjusted operating profit excl.
divestment GBP3,496m
============== ======
Europe +GBP89m
============== ======
Americas +GBP83m
============== ======
Africa, Asia and Australasia -GBP30m
============== ======
Distribution adjusted operating profit
(including eliminations) +GBP26m
============== ======
FY21 organic constant currency AOP GBP3,664m +4.8%
============== ======
Translation FX -GBP94m
============== ======
FY21 organic adjusted operating profit GBP3,570m +2.1%
============== ======
EARNINGS PER SHARE
Reported EPS Organic adjusted EPS
+89.5% +2.8%
-- Reported EPS increased 89.5% to 299.9 pence driven by marked
to market foreign exchange accounting gains on financial
instruments caused by a 6.0% weakening in the euro against sterling
and the year-on-year impact of the Premium Cigar Division
disposal.
-- Organic adjusted EPS was 246.5 pence, up 2.8% at constant
currency due to lower NGP losses, partially offset by an increase
in the effective tax rate to 22.6%.
-- Adjusted net finance costs are impacted by the buyback of a
$1.25 billion US bond, with corresponding savings expected in
2022.
EARNINGS PER SHARE BRIDGE: +2.8% (CC); -0.3% (Actual Exchange
Rate)
FY20 adjusted EPS 254.4p
======== =======
Premium Cigar Division -7.2p
======== =======
FY20 adjusted EPS excl. divestment 247.2p
======== =======
Operating profit +17.8p
======== =======
Interest +1.4p
======== =======
Minorities & JV -1.6p
======== =======
Tax -10.6p
======== =======
FY21 organic adjusted constant currency
EPS 254.2p +2.8%
======== =======
Translation FX -7.7p
======== =======
FY21 organic adjusted EPS 246.5p -0.3%
======== =======
CASH FLOW
Cash flows from operating activities were GBP2,167 million
(2020: GBP4,030 million), impacted primarily by an expected working
capital outflow driven by changes to duty payment dates that we
announced in 2020.
This also impacted free cash flow, with a GBP1.7 billion
movement in working capital coming largely from our Logista markets
in Western Europe, where governments changed the dates of excise
collection linked to the COVID-19 pandemic.
Net cash flow of GBP1,064 million (2020: GBP1,340 million)
benefited from the proceeds from the sale of the Premium Cigar
Division and the planned rebase of shareholder dividends that
partly offset the working capital outflow.
Capital expenditure was GBP0.2 billion, a reduction of GBP0.1
billion on the prior year. The reduction was due to the suspension
of some projects whilst the strategic review was undertaken
together with COVID-19 related delays on other projects.
Cash conversion was 83%, in line with expectations (2020: 127%
headline / 107% underlying) driven by the previously signalled
working capital outflow.
Active capital discipline remains a key focus for 2021 and
beyond and this year's strong cash flows along with proceeds from
the Premium Cigar Division disposal have supported our reduction in
gearing to 2.2 times (2020: 2.7 times).
Cash conversion (%)
Cash conversion (%)
FY2021 83
FY2020 127
FY2019 95
FY2018 97
GBP million (unless otherwise indicated) 2021 2020
---------------------------------------------- ----- -----
Reported Cash Flows from Operating Activities 2,167 4,030
---------------------------------------------- ----- -----
Reported Free Cash Flow 1,524 3,248
---------------------------------------------- ----- -----
Reported Net Cash Flow 1,064 1,340
---------------------------------------------- ----- -----
Cash Conversion 83% 127%
---------------------------------------------- ----- -----
RETURN ON INVESTED CAPITAL
Return on invested capital (ROIC) increased by 130 basis points,
driven primarily by a reduction in annual average capital.
As part of our FY21-23 LTIP we redefined our return on invested
capital metric to better reflect management influence which
resulted in a new, tightly defined and transparent ROIC
calculation, which can be directly calculated from information
contained within the Annual Report and Accounts.
Based on this new measure, 2021 average annual ROIC was 16.5%
(2020: 15.2%, on equivalent basis).
A strong cash focus led to a GBP1.7 billion reduction in our
annual average capital, driving an improvement in returns, with the
benefit of increased adjusted operating profit offset by a higher
effective tax rate of 22.6% (2020: 20.7%).
Our FY21 invested capital was lower than 2020, benefiting from
the disposal of c. GBP1.0 billion of assets held for sale from the
Premium Cigar Division and a c. GBP1.5 billion reduction in
intangible assets due to a combination of the amortisation of
historic acquisitions and beneficial foreign exchange movements.
This was partly offset by an increase in working capital.
GBPm 2021 2020* 2019
--------------------------------------------- ------- ------- -------
Reported Operating Profit 3,146 2,731
--------------------------------------------- ------- ------- -------
Adjusting Items (see note 6) 427 796
--------------------------------------------- ------- ------- -------
Adjusted Operating Profit 3,573 3,527
--------------------------------------------- ------- ------- -------
Implied Tax (at adjusted effective tax rate) (807) (730)
--------------------------------------------- ------- ------- -------
Net Adjusted Operating Profit after tax 2,766 2,797
--------------------------------------------- ------- ------- -------
Working capital (2,523) (3,467) (2,461)
--------------------------------------------- ------- ------- -------
Intangible assets 16,674 18,160 18,596
--------------------------------------------- ------- ------- -------
Property, plant & equipment 1,723 1,899 1,979
--------------------------------------------- ------- ------- -------
Assets/(Liabilities) held for disposal (3) 1,024 1,111
--------------------------------------------- ------- ------- -------
Invested Capital 15,871 17,616 19,225
--------------------------------------------- ------- ------- -------
Average Annual Invested Capital 16,744 18,421
--------------------------------------------- ------- ------- -------
Average Annual ROIC 16.5% 15.2%
--------------------------------------------- ------- ------- -------
* 2020 calculated on the same basis as 2021.
ADJUSTED NET DEBT/EBITDA
Adjusted net debt/EBITDA reduced to 2.2x in 2021 from 2.7x in
2020. This was driven by a reduction in net debt from our cash flow
generation and proceeeds from the Premium Cigar Division disposal.
The Group also benefited from foreign exchange movements on our net
debt position through the strengthening of sterling against the
euro and US dollar. This lowered the Group's adjusted net debt
based on the year-end balance sheet FX rates when compared to the
prior year.
We remain committed to delivering leverage to the lower end of
2.0x to 2.5x.
Reported net debt reduced by GBP1,768 million to GBP9,373
million (2020: GBP11,141 million). Excluding accrued interest,
lease liabilities and the fair value of derivative financial
instruments providing commercial hedges of interest risk, Group
adjusted net debt was GBP8,615 million (2020: GBP10,299
million).
Adjusted net debt/EBITDA
Net debt/EBITDA
FY2021 2.2x
FY2020 2.7x
FY2019 2.9x
FY2018 2.9x
GBP million 2021 2020
---------------------------------------- ------- --------
Reported net debt (9,373) (11,141)
---------------------------------------- ------- --------
Accrued interest 140 156
---------------------------------------- ------- --------
Lease liabilities 251 299
---------------------------------------- ------- --------
Fair value of interest rate derivatives 367 387
---------------------------------------- ------- --------
Adjusted net debt (8,615) (10,299)
---------------------------------------- ------- --------
RECONCILIATION BETWEEN REPORTED AND ADJUSTED PERFORMANCE
MEASURES
Net finance Earnings per
Operating profit costs share (pence)
------------------------------------- ------------------ ------------- ----------------
GBP million unless otherwise
indicated 2021 2020 2021 2020 2021 2020
------------------------------------- -------- -------- ------ ----- -------- ------
Reported 3,146 2,731 81 (610) 299.9 158.3
------------------------------------- -------- -------- ------ ----- -------- ------
Acquisition and disposal costs 17 26 - - 1.8 2.8
------------------------------------- -------- -------- ------ ----- -------- ------
Amortisation & impairment of
acquired intangibles 450 523 - - 44.3 49.2
------------------------------------- -------- -------- ------ ----- -------- ------
Excise tax provision (1) (20) - - (0.1) (1.7)
------------------------------------- -------- -------- ------ ----- -------- ------
Fair value adjustment of loan
receivable (15) 62 - - (1.6) 6.6
------------------------------------- -------- -------- ------ ----- -------- ------
Profit on disposal of subsidiaries (281) - - - (29.7) -
------------------------------------- -------- -------- ------ ----- -------- ------
Restructuring costs 257 205 - - 19.6 18.4
------------------------------------- -------- -------- ------ ----- -------- ------
Fair value and exchange movements
on derivative financial instruments - - (496) 176 (60.7) 25.3
------------------------------------- -------- -------- ------ ----- -------- ------
Post-employment benefits net
financing costs - - (2) 5 (0.3) 0.4
------------------------------------- -------- -------- ------ ----- -------- ------
Tax on disposal of premium
cigar division - - (1.2) 2.0
------------------------------------- -------- -------- ------ ----- -------- ------
Previously unrecognised tax
credits - - - - (25.3) (7.1)
------------------------------------- -------- -------- ------ ----- -------- ------
Uncertain tax positions - - - - - 8.2
------------------------------------- -------- -------- ------ ----- -------- ------
Tax on unrecognised losses - - - 5.0 (4.3)
------------------------------------- -------- -------- ------ ----- -------- ------
Adjustments above attributable
to non-controlling interests - - - - (4.6) (3.7)
------------------------------------- -------- -------- ------ ----- -------- ------
Adjusted 3,573 3,527 (417) (429) 247.1 254.4
------------------------------------- -------- -------- ------ ----- -------- ------
Premium Cigar Divestment impact (3) (31) - - (0.6) (7.2)
------------------------------------- -------- -------- ------ ----- -------- ------
Adjusted Organic 3,570 3,496 (417) (429) 246.5 247.2
------------------------------------- -------- -------- ------ ----- -------- ------
Adjusting items
In the 2020 Annual Report and Accounts we committed to reviewing
our treatment of restructuring costs as an adjusted measure by the
end of 2020 in line with the completion of the Cost Optimisation
Programmes, which were due to conclude that year. However, as
previously announced, the COVID-19 pandemic meant some of these
programmes' projects were delayed into 2021, therefore we deferred
the review of the treatment of restructuring costs as an adjusted
item until the end of this year.
In January, we announced the outcome of our initial strategic
review, including an associated and specific time-bound
restructuring programme to deliver new ways of working and
efficiencies, which we refer to as the 2021 Strategic Review
Programme. This resulted in one-off costs to reshape the business
to support delivery of the new strategy. The programme excludes any
costs associated with factory footprint rationalisation. The
restructuring costs for the 2021 Strategic Review Programme will be
treated as an adjusting item in 2021 and 2022, by which time the
activities are expected to have been actioned. No further costs
outside of approved restructuring programmes will be charged to
restructuring in 2022.
A reconciliation of the Group's adjusted to reported operating
profit is shown above.
The profit on disposal of GBP281 million relates to the profit
arising on the divestment of our Premium Cigar business that was
recognised at half year 2021.
As part of the strategic review, a charge of GBP118 million was
made in relation to the impairment of NGP intangible assets. Of
this, GBP45 million was recognised as amortisation & impairment
of acquired intangibles, these having previously been acquired as
part of the Nerudia acquisition. The further amount of GBP73
million relates to internally generated intangibles and was
recognised as restructuring costs.
The Auxly loan receivable was revalued as at 30 September 2021,
with a GBP15 million gain recorded due to a positive credit risk
reassessment.
Adjusting items also includes restructuring costs of GBP257
million, with further details available in the restructuring
section below.
Following the announcement of the completion of the Premium
Cigar Division divestment in September 2020, proceeds of EUR1,041
million were received as expected in FY21, with a further EUR88
million received in October 2021.
A further EUR69 million is expected to be received in 2022 in
relation to the transfer of the La Romana factory in the Dominican
Republic.
The 2021 charges in relation to these restructuring programmes
are shown below.
2021
----------------
Income
GBPm Statement Cash
-------------------------------- ---------- ----
COP I 7 12
COP II 16 41
2021 Strategic Review Programme 226 48
Other 8 11
Total 257 112
-------------------------------- ---------- ----
An overview of the three programmes' cumulative charges, cash
spend and annualised savings is shown below.
Restructuring charge & cash spend
Income Statement
Charges Cash Costs Savings
----------------------- ----------------------- ----------
Cumulative Anticipated Cumulative Anticipated Annualised
GBPm to date Total to date Total Savings
-------------------------------- ---------- ----------- ---------- ----------- ----------
COP I (2013) 945 945 571 634 305
-------------------------------- ---------- ----------- ---------- ----------- ----------
COP II (2018) 848 848 548 650 320
-------------------------------- ---------- ----------- ---------- ----------- ----------
2021 Strategic Review Programme 226 375-425 48 275 100-150
-------------------------------- ---------- ----------- ---------- ----------- ----------
Restructuring
There are three restructuring programmes reflected in our 2021
results.
Cost Optimisation I Programme (COP I) announced in 2013 is now
complete with small residual charges around the factory footprint
activity.
Cost Optimisation Programme II (COP II), announced in 2018, is
also now largely complete but did see a small carry over from
activities scheduled for 2020 that were delayed due to the COVID-19
pandemic.
During the course of 2021, the Group announced a third programme
as an output from the strategic review. This restructuring
programme aims to reorganise and simplify the business, unlocking
efficiency savings to enable increased investment in our core
capabilities such as sales and marketing to support the five-year
strategic plan. The majority of activity under this programme is
expected in 2022 and will be treated as an adjusting item.
Since the strategy announcement, we have been working on
detailed plans across a number of different initiatives. Following
our detailed work we expect cash costs to be around GBP275 million,
that will extend into 2023 and beyond with the associated
restructuring costs expected to be in the range of GBP375 - GBP425
million.
The GBP257 million restructuring charge in 2021 comprised GBP226
million for the 2021 Strategic Review Programme, GBP23 million for
COP I and II and GBP8 million of other costs that mainly related to
Logista.
Finance costs
Adjusted net finance costs were lower at GBP417 million (2020:
GBP429 million), reflecting lower adjusted net debt balances during
the year. Reported net finance income was GBP81 million (2020:
costs of GBP610 million), incorporating the impact of net fair
value and exchange gains on financial instruments of GBP496 million
(2020: losses of GBP176 million) and post-employment benefits net
financing income of GBP2 million (2020: costs of GBP5 million). The
gains on financial instruments primarily stem from foreign exchange
accounting gains of GBP445 million as the value of euro financial
instruments increased after sterling strengthened 6.0 per cent
against the euro during the year.
Our all-in cost of debt increased to 4.0 per cent (2020: 3.4 per
cent) as lower cost debt instruments matured in the year.
Our interest cover increased to 9.2 times (2020: 8.9 times)
reflecting the lower adjusted finance costs.
Taxation
Our adjusted effective tax rate is 22.6 per cent (2020: 20.7 per
cent) and the reported effective tax rate is 10.2 per cent (2020:
28.1 per cent). The increase in the adjusted effective tax rate was
due to a less favourable profit mix and remeasurement of UK
deferred tax balances. The adjusted tax rate is higher than the
reported rate due to recognition of tax credits arising on an
internal reorganisation of the Group's Spanish business and limited
tax arising on both foreign exchange gains that arise on
consolidation and on the disposal gain on the Premium Cigar
Division disposal.
During the year a payment of GBP101 million was made to HMRC in
respect of an on-going EU State Aid enquiry. A recoverable of the
same value has also been recorded, as based on advice, we believe
the Group has not received any State Aid. Further details are
provided in Note 8.
We expect our adjusted effective tax rate for the year ended 30
September 2022 to be around 24 per cent. The increase in the rate
in 2022 is due to legislative changes and certain historic tax
losses being fully utilised in 2021.
The effective tax rate is sensitive to the geographic mix of
profits, reflecting a combination of higher rates in certain
markets such as the USA and lower rates in other markets such as
the UK.
The rate is also sensitive to future legislative changes
affecting international businesses such as changes arising from the
OECD's (Organisation for Economic Co-operation and Development)
Base Erosion and Profits Shifting (BEPS) work. Whilst we seek to
mitigate the impact of these changes, we anticipate there will be
further upward pressure on the adjusted and reported tax rate in
the medium term.
Our Group Tax Strategy is publicly available and can be found in
the governance section of our corporate website.
Exchange rates
Foreign exchange had an adverse impact on Group adjusted
operating profit and earnings per share at average exchange rates
(2.7 per cent and 3.1 per cent, respectively) as sterling
strengthened against the US dollar (7.3 per cent). Other major
currencies remained broadly flat compared to the prior year.
Dividend payments
The Group paid two interim dividends of 21.06 pence per share in
June and September 2021.
The Board has approved a further interim dividend of 48.48 pence
per share and will propose a final dividend of 48.48 pence per
share, bringing the total dividend for the year to 139.08
pence.
The third interim dividend will be paid on 31 December 2021 to
shareholders registered on 26 November 2021. Subject to AGM
approval, the proposed final dividend will be paid on 31 March 2022
to shareholders registered on 18 February 2022.
In the year there were GBP1,305 million of shareholder dividend
payments (2020: GBP1,753 million). The 25 per cent reduction
represents the FY21 impact of the one-third rebasing of the
dividend announced in May 2020 as part of the revised capital
allocation policy to accelerate debt reduction.
Funding/Liquidity
During the year we repaid three bonds totalling GBP2.3 billion
equivalent including the early repayment of a bond with a maturity
date of July 2022. This was repaid from excess cash, which has the
benefit of reducing gross debt as well as counterparty exposures.
One bond of EUR1 billion was issued in the year with a maturity
date in 2033. The denomination of our closing adjusted net debt was
split approximately 77 per cent euro and 23 per cent US dollar. As
at 30 September 2021, the Group had committed financing in place of
around GBP12.7 billion, which comprised 24 per cent bank facilities
and 76 per cent raised from capital markets. During the year the
maturity date of our existing revolving credit facility of EUR3.5
billion was extended to September 2024 and bilateral facilities
totalling EUR1.7 billion were cancelled.
The Group remains fully compliant with all our banking covenants
and remains committed to retaining our investment grade
ratings.
Liquidity and going concern statement
The Group's policy is to ensure that we always have sufficient
capital markets funding and committed bank facilities in place to
meet foreseeable peak borrowing requirements.
The Directors recognise that the current environment brings
uncertainty due to the COVID-19 pandemic; however, over the last 18
months, the Group has effectively managed operations across the
world, and has proved it has an established mechanism to operate
efficiently despite the uncertainty. The Directors consider that a
one-off discrete event with immediate cash outflow is of greater
concern to short-term liquidity than any effect from the on-going
COVID-19 pandemic.
The Directors have assessed the principal risks of the business,
including stress testing a range of different scenarios that may
affect the business. These included scenarios which examined the
implications of:
-- A one-off discrete event resulting in immediate cash outflow
such as unexpected duty and tax payments of cGBP900m or non-receipt
of the Premium Cigar Division deferred consideration of
cGBP60m.
-- A rapid and lasting deterioration to the Group's
profitability because markets become closed to tobacco products or
there are sustained failures to our tobacco manufacturing and
supply chains. These assumed a permanent reduction in profitability
of 15 per cent from 1 January 2022.
-- The additional impact of potential bad debt risks arising from a recession of cGBP170m.
-- The withdrawal of facilities that provide receivables factoring of cGBP670m.
The scenario planning also considered mitigation actions
including reductions to capital expenditure and dividend payments.
There are additional actions that were not modelled but could be
taken including other cost mitigations such as staff redundancies,
retrenchment of leases, and discussions with lenders about capital
structure.
Under the worst-case scenario, where the largest envisaged
downside scenarios all take place at the same time, the Group would
have sufficient headroom until February 2022. The Group believes
this worst-case scenario to be highly unlikely given the relatively
small impact on our trading performance and bad debt levels during
the Covid-19 pandemic. In addition, the Group has a number of
mitigating actions available, as described above, that could be
implemented should such a scenario arise.
Based on its review of future cash flows covering the period
through to March 2023, and having assessed the principal risks
facing the Group, the Board is of the opinion that the Group as a
whole and Imperial Brands PLC have adequate resources to meet their
operational needs from the date of this Report through to 31 March
2023 and concludes that it is appropriate to prepare the financial
statements on a going concern basis.
LUKAS PARAVICINI
Chief Financial Officer
FINANCIAL STATEMENTS
The figures and financial information for year ended 30
September 2021 do not constitute the statutory financial statements
for that year. Those financial statements have not yet been
delivered to the Registrar.
The auditors have reported on those accounts and their report
was (i) unqualified, (ii) did not include references to any matters
to which the auditors drew attention by way of emphasis without
qualifying their reports and (iii) did not contain a statement
under section 498(2) or (3) of the Companies Act 2006 in respect of
the accounts. The financial statements have been prepared in
accordance with our accounting policies published in our financial
statements available on our website www.imperialbrandsplc.com.
CONSOLIDATED INCOME STATEMENT
for the year ended 30 September 2021
GBP million unless otherwise indicated Notes 2021 2020
===================================================== ===== ======== ========
Revenue 3 32,791 32,562
===================================================== ===== ======== ========
Duty and similar items (16,229) (15,962)
----------------------------------------------------- ----- -------- --------
Other cost of sales (10,535) (10,420)
===================================================== ===== ========
Cost of sales (26,764) (26,382)
===================================================== ===== ======== ========
Gross profit 6,027 6,180
----------------------------------------------------- ----- -------- --------
Distribution, advertising and selling costs (2,118) (2,329)
===================================================== ===== ======== ========
Acquisition and disposal costs (17) (26)
----------------------------------------------------- ----- -------- --------
Profit on disposal of subsidiaries 11 281 -
----------------------------------------------------- ----- -------- --------
Amortisation and impairment of acquired intangibles 12/15 (450) (523)
----------------------------------------------------- ----- -------- --------
Excise tax provision 8 1 20
----------------------------------------------------- ----- -------- --------
Fair value adjustment of loan receivable 15 (62)
----------------------------------------------------- ----- -------- --------
Restructuring costs 5 (257) (205)
----------------------------------------------------- ----- -------- --------
Other expenses (336) (324)
===================================================== ===== ======== ========
Administrative and other expenses (763) (1,120)
----------------------------------------------------- ----- -------- --------
Operating profit 4 3,146 2,731
===================================================== ===== ======== ========
Investment income 1,060 770
----------------------------------------------------- ----- -------- --------
Finance costs (979) (1,380)
===================================================== ===== ======== ========
Net finance income/(costs) 6 81 (610)
----------------------------------------------------- ----- -------- --------
Share of profit of investments accounted for using
the equity method 15 11 45
===================================================== ===== ======== ========
Profit before tax 4 3,238 2,166
----------------------------------------------------- ----- -------- --------
Tax 8 (331) (608)
===================================================== ===== ======== ========
Profit for the year 2,907 1,558
===================================================== ===== -------- ========
Attributable to:
----------------------------------------------------- ----- -------- --------
Owners of the parent 2,834 1,495
----------------------------------------------------- ----- -------- --------
Non-controlling interests 73 63
===================================================== ===== -------- ========
Earnings per ordinary share (pence)
===================================================== ===== -------- ========
- Basic 10 299.9 158.3
===================================================== ===== ======== ========
- Diluted 10 299.1 158.1
===================================================== ===== -------- ========
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 September 2021
GBP million Notes 2021 2020
=========================================================== ===== ======= =====
Profit for the year 2,907 1,558
------------------------------------------------------------- ----- ------- -----
Other comprehensive income
============================================================ ===== ======= =====
Exchange movements (680) 151
------------------------------------------------------------- ----- ------- -----
Exchange movements recycled to profit and loss
upon disposal of subsidiaries 11 (337) -
------------------------------------------------------------- ----- ------- -----
Current tax on hedge of net investments and quasi-equity
loans (105) (10)
============================================================= ===== ======= =====
Deferred tax on hedge of net investments and quasi-equity
loans (12) (80)
============================================================= ===== ======= =====
Items that may be reclassified to profit and loss (1,134) 61
============================================================ ===== ======= =====
Net actuarial gains on retirement benefits 24 41 277
------------------------------------------------------------ ----- ------- -----
Current tax relating to net actuarial gains on
retirement benefits 2 -
------------------------------------------------------------- ----- ------- -----
Deferred tax relating to net actuarial gains on
retirement benefits (21) (53)
============================================================= ===== ======= =====
Items that will not be reclassified to profit and
loss 22 224
============================================================ ===== ======= =====
Other comprehensive (loss)/income for the year, net
of tax (1,112) 285
============================================================ ===== ======= =====
Total comprehensive income for the year 1,795 1,843
============================================================ ===== ======= =====
Attributable to:
----------------------------------------------------------- ----- ------- -----
Owners of the parent 1,761 1,762
------------------------------------------------------------- ----- ------- -----
Non-controlling interests 34 81
============================================================= ===== ======= =====
Total comprehensive income for the year 1,795 1,843
============================================================ ===== ======= =====
CONSOLIDATED BALANCE SHEET
at 30 September
GBP million Notes 2021 2020
================================================== ===== ======== ========
Non-current assets
-------------------------------------------------- ----- -------- --------
Intangible assets 12 16,674 18,160
--------------------------------------------------- ----- -------- --------
Property, plant and equipment 13 1,715 1,899
--------------------------------------------------- ----- -------- --------
Right of use assets 14 242 293
--------------------------------------------------- ----- -------- --------
Investments accounted for using the equity method 15 88 117
--------------------------------------------------- ----- -------- --------
Retirement benefit assets 24 1,046 940
--------------------------------------------------- ----- -------- --------
Trade and other receivables 17 62 57
--------------------------------------------------- ----- -------- --------
Derivative financial instruments 21/22 391 813
--------------------------------------------------- ----- -------- --------
Deferred tax assets 23 564 381
--------------------------------------------------- ----- -------- --------
State aid tax recoverable 8 101 -
=================================================== ===== ======== ========
20,883 22,660
================================================== ===== ======== ========
Current assets
-------------------------------------------------- ----- -------- --------
Inventories 16 3,834 4,065
--------------------------------------------------- ----- -------- --------
Trade and other receivables 17 2,749 2,638
--------------------------------------------------- ----- -------- --------
Current tax assets 8 234 206
--------------------------------------------------- ----- -------- --------
Cash and cash equivalents 18 1,287 1,626
--------------------------------------------------- ----- -------- --------
Derivative financial instruments 21/22 68 53
--------------------------------------------------- ----- -------- --------
Current assets held for disposal 11 35 1,062
=================================================== ===== ========
8,207 9,650
================================================== ===== ======== ========
Total assets 29,090 32,310
=================================================== ===== ======== ========
Current liabilities
-------------------------------------------------- ----- -------- --------
Borrowings 20 (1,107) (1,442)
--------------------------------------------------- ----- -------- --------
Derivative financial instruments 21/22 (62) (41)
--------------------------------------------------- ----- -------- --------
Lease liabilities 21 (57) (64)
--------------------------------------------------- ----- -------- --------
Trade and other payables 19 (9,106) (10,170)
--------------------------------------------------- ----- -------- --------
Current tax liabilities 8 (253) (350)
--------------------------------------------------- ----- -------- --------
Provisions 25 (188) (220)
--------------------------------------------------- ----- -------- --------
Current liabilities held for disposal 11 (35) (38)
=================================================== ===== ========
(10,808) (12,325)
================================================== ===== ======== ========
Non-current liabilities
-------------------------------------------------- ----- -------- --------
Borrowings 20 (8,715) (10,210)
--------------------------------------------------- ----- -------- --------
Derivative financial instruments 21/22 (984) (1,641)
--------------------------------------------------- ----- -------- --------
Lease liabilities 20/21 (194) (235)
--------------------------------------------------- ----- -------- --------
Trade and other payables 19 (7) (5)
--------------------------------------------------- ----- -------- --------
Deferred tax liabilities 23 (1,037) (924)
--------------------------------------------------- ----- -------- --------
Retirement benefit liabilities 24 (1,199) (1,256)
--------------------------------------------------- ----- -------- --------
Provisions 25 (206) (196)
=================================================== ===== ======== ========
(12,342) (14,467)
================================================== ===== ======== ========
Total liabilities (23,150) (26,792)
=================================================== ===== ======== ========
Net assets 5,940 5,518
=================================================== ===== ======== ========
Equity
-------------------------------------------------- ----- -------- --------
Share capital 26 103 103
--------------------------------------------------- ----- -------- --------
Share premium and capital redemption 5,837 5,837
--------------------------------------------------- ----- -------- --------
Retained earnings (788) (2,364)
--------------------------------------------------- ----- -------- --------
Exchange translation reserve 200 1,295
=================================================== ===== ======== ========
Equity attributable to owners of the parent 5,352 4,871
--------------------------------------------------- ----- -------- --------
Non-controlling interests 588 647
=================================================== ===== ======== ========
Total equity 5,940 5,518
=================================================== ===== ======== ========
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2021
Share Equity
premium attributable
and Exchange to owners Non-
Share capital Retained translation of the controlling Total
GBP million capital redemption earnings reserve parent interests equity
================================ ======== =========== ========= ============ ============= ============ =======
At 1 October 2020 103 5,837 (2,364) 1,295 4,871 647 5,518
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Profit for the year - - 2,834 - 2,834 73 2,907
================================ ======== =========== ========= ============ ============= ============ =======
Exchange movements on
retranslation
of net
assets - - - (1,034) (1,034) (39) (1,073)
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Exchange movements on net
investment
hedges - - - 476 476 - 476
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Exchange movements on
quasi-equity
loans - - - (83) (83) - (83)
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Exchange movements recycled to
profit and
loss upon disposal of
subsidiaries - - - (337) (337) - (337)
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Current tax on hedge of net
investments
and
quasi-equity loans - - - (105) (105) - (105)
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Deferred tax hedge of net
investments
and
quasi-equity loans - - - (12) (12) - (12)
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Net actuarial gains on
retirement
benefits - - 41 - 41 - 41
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Current tax relating to net
actuarial
gains on
retirement benefits - - 2 - 2 - 2
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Deferred tax relating to net
actuarial
gains on
retirement benefits - - (21) - (21) - (21)
================================ ======== =========== ========= ============ ============= ============ =======
Other comprehensive income - - 22 (1,095) (1,073) (39) (1,112)
================================ ======== =========== ========= ============ ============= ============ =======
Total comprehensive income - - 2,856 (1,095) 1,761 34 1,795
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Transactions with owners
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Costs of employees' services
compensated
by share schemes - - 25 - 25 - 25
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Dividends paid - - (1,305) - (1,305) (93) (1,398)
================================ ======== =========== ========= ============ ============= ============ =======
At 30 September 2021 103 5,837 (788) 200 5,352 588 5,940
================================ ======== =========== ========= ============ ============= ============ =======
At 1 October 2019 103 5,837 (2,255) 1,252 4,937 647 5,584
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Profit for the year - - 1,495 - 1,495 63 1,558
================================ ======== =========== ========= ============ ============= ============ =======
Exchange movements on
retranslation
of net
assets - - - (130) (130) 18 (112)
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Exchange movements on net
investment
hedges - - - 12 12 - 12
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Exchange movements on
quasi-equity
loans - - - 251 251 - 251
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Current tax on quasi-equity
loans - - - (10) (10) - (10)
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Deferred tax on quasi-equity
loans - - - (80) (80) - (80)
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Net actuarial gains on
retirement
benefits - - 277 - 277 - 277
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Deferred tax relating to net
actuarial
losses on
retirement benefits - - (53) - (53) - (53)
================================ ======== =========== ========= ============ ============= ============ =======
Other comprehensive income - - 224 43 267 18 285
================================ ======== =========== ========= ============ ============= ============ =======
Total comprehensive income - - 1,719 43 1,762 81 1,843
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Transactions with owners
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Costs of employees' services
compensated
by share schemes - - 20 - 20 - 20
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Current tax on share-based
payments - - 1 - 1 - 1
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Repurchase of shares - - (92) - (92) - (92)
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Changes in non-controlling
interests
(note 12) - - (4) - (4) 4 -
-------------------------------- -------- ----------- --------- ------------ ------------- ------------ -------
Dividends paid - - (1,753) - (1,753) (85) (1,838)
================================ ======== =========== ========= ============ ============= ============ =======
At 30 September 2020 103 5,837 (2,364) 1,295 4,871 647 5,518
================================ ======== =========== ========= ============ ============= ============ =======
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 September 2021
GBP million 2021 2020
============================================================== =======
Cash flows from operating activities
--------------------------------------------------------------- ------- -------
Operating profit 3,146 2,731
---------------------------------------------------------------- ------- -------
Dividends received from investments accounted for under
the equity method 4 43
---------------------------------------------------------------- ------- -------
Depreciation, amortisation and impairment 815 910
--------------------------------------------------------------- ------- -------
Profit on disposal of non-current assets 2 (2)
--------------------------------------------------------------- ------- -------
Profit on disposal of subsidiary (281) -
--------------------------------------------------------------- ------- -------
Post-employment benefits (63) (88)
---------------------------------------------------------------- ------- -------
Costs of employees' services compensated by share schemes 25 20
---------------------------------------------------------------- ------- -------
Fair value adjustment of loan receivable (15) 63
--------------------------------------------------------------- ------- -------
Movement in provisions 18 (121)
================================================================ =======
Operating cash flows before movement in working
capital 3,651 3,556
=============================================================== =======
Decrease in inventories 70 67
---------------------------------------------------------------- ------- -------
(Increase)/decrease in trade and other receivables (201) 241
--------------------------------------------------------------- ------- -------
(Decrease)/increase in trade and other payables (533) 734
=============================================================== ======= =======
Movement in working capital (664) 1,042
---------------------------------------------------------------- ------- -------
Tax paid (820) (568)
================================================================ ======= =======
Net cash flows generated from operating activities 2,167 4,030
=============================================================== ======= =======
Cash flows from investing activities
--------------------------------------------------------------- ------- -------
Interest received 15 9
---------------------------------------------------------------- ------- -------
Loan to third parties - (3)
---------------------------------------------------------------- ------- -------
Proceeds from the sale of non-current assets 50 28
--------------------------------------------------------------- ------- -------
Net proceeds from sale of subsidiaries (note 11) 845 -
--------------------------------------------------------------- ------- -------
Deposit received from sale of asset held for sale - 83
--------------------------------------------------------------- ------- -------
Purchase of non-current assets (200) (302)
--------------------------------------------------------------- ------- -------
Purchase of brands and operations (note 12) - (146)
=============================================================== ======= =======
Net cash used in investing activities 710 (331)
=============================================================== ======= =======
Cash flows from financing activities
--------------------------------------------------------------- ------- -------
Interest paid (415) (429)
---------------------------------------------------------------- ------- -------
Lease liabilities paid (69) (72)
---------------------------------------------------------------- ------- -------
Increase in borrowings 858 1,240
---------------------------------------------------------------- ------- -------
Repayment of borrowings (2,224) (3,096)
---------------------------------------------------------------- ------- -------
Cash flows relating to derivative financial instruments 41 (23)
--------------------------------------------------------------- ------- -------
Repurchase of shares - (92)
---------------------------------------------------------------- ------- -------
Dividends paid to non-controlling interests (93) (85)
--------------------------------------------------------------- ------- -------
Dividends paid to owners of the parent (1,305) (1,753)
=============================================================== ======= =======
Net cash used in financing activities (3,207) (4,310)
=============================================================== ======= =======
Net decrease in cash and cash equivalents (330) (611)
--------------------------------------------------------------- ------- -------
Cash and cash equivalents at start of year 1,626 2,286
--------------------------------------------------------------- ------- -------
Effect of foreign exchange rates on cash and cash equivalents (9) 13
---------------------------------------------------------------- ------- -------
Transferred to held for disposal (note 11) - (62)
=============================================================== ======= =======
Cash and cash equivalents at end of year 1,287 1,626
=============================================================== ======= =======
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
BASIS OF PREPARATION
The consolidated financial statements have been prepared in
accordance with International Accounting Standards in conformity
with the requirements of the Companies Act 2006 and International
Financial Reporting Standards adopted pursuant to Regulation (EC)
No.1606/2002 as it applies in the European Union.
The financial statements have been prepared under the historical
cost convention except where fair value measurement is required
under IFRS as described below in the accounting policies on
financial instruments, and on a going concern basis.
BASIS FOR GOING CONCERN
The financial statements have been prepared under the historical
cost convention except where fair value measurement is required
under IFRS as described below in the accounting policies on
financial instruments, and on a going concern basis. The Group's
policy is to ensure that we always have sufficient capital markets
funding and committed bank facilities in place to meet foreseeable
peak borrowing requirements.
The Directors recognise that the current environment brings
uncertainty due to the COVID-19 pandemic; however, over the last 18
months, the Group has effectively managed operations across the
world, and has proved it has an established mechanism to operate
efficiently despite the uncertainty. The Directors consider that a
one-off discrete event with immediate cash outflow is of greater
concern to short term liquidity than any effect from the on-going
COVID-19 pandemic.
The Directors have assessed the principal risks of the business,
including stress testing a range of different scenarios that may
affect the business. These included scenarios which examined the
implications of:
-- A one-off discrete event resulting in immediate cash outflow
such as accelerated duty and tax payments of circa GBP900 million
or non-receipt of the Premium Cigar Division (PCD) deferred
consideration of circa GBP60 million.
-- A rapid and lasting deterioration to the Group's
profitability because markets become closed to tobacco products or
there are sustained failures to our tobacco manufacturing and
supply chains. These assumed a permanent reduction in profitability
of 15 per cent from 1 January 2022.
-- The additional impact of potential bad debt risks arising
from a recession of circa GBP170 million.
-- The withdrawal of facilities that provide receivables factoring of circa GBP670 million.
The scenario planning also considered mitigating actions
including reductions to capital expenditure and dividend payments.
There are additional actions that were not modelled but could be
taken including other cost mitigations such as staff redundancies,
retrenchment of leases, and discussions with lenders about capital
structure.
Under a worst-case scenario, where the largest envisaged
downside scenarios all take place at the same time the Group would
have sufficient headroom until February 2022. The Group believes
this worst-case scenario to be highly unlikely given the relatively
small impact on our trading performance and bad debt levels during
the Covid-19 pandemic. In addition, the group has a number of
additional mitigating actions available that could be implemented
should such a scenario arise.
Based on the review of future cash flows covering the period
through to March 2023, and having assessed the principal risks
facing the Group, the Board is of the opinion that the Group as a
whole and Imperial Brands PLC have adequate resources to meet their
operational needs from the date of this Report through to 31 March
2023 and concludes that it is appropriate to prepare the financial
statements on a going concern basis.
The preparation of the consolidated financial statements
requires management to make estimates and assumptions that affect
the reported amounts of revenues and expenses during the period and
of assets, liabilities and contingent liabilities at the balance
sheet date. The key estimates and assumptions are set out in note 2
Critical Accounting Estimates and Judgements. Such estimates and
assumptions are based on historical experience and various other
factors that are believed to be reasonable in the circumstances and
constitute management's best judgement at the date of the financial
statements. In the future, actual experience may deviate from these
estimates and judgements. This could affect future financial
statements as the original estimates and judgements are modified,
as appropriate, in the year in which the circumstances change.
Imperial Brands PLC (the Company) provides guarantees to a
number of subsidiaries under section 479A of the Companies Act
2006, whereby the subsidiaries, incorporated in the UK and Ireland,
are exempt from the requirements of the Act relating to the audit
of individual accounts for the financial year ending 30 September
2021. See note VII Guarantees of the Imperial Brands Plc financial
statements for further details.
The principal accounting policies, which have been applied
consistently other than where new policies (detailed below) have
been adopted, are set out below.
BASIS OF CONSOLIDATION
The consolidated financial statements comprise the results of
the Company, a public company limited by shares, incorporated in
England and Wales, and its subsidiary undertakings, together with
the Group's share of the results of its associates and joint
arrangements. The Company's registered number is 3236483 and its
registered address is 121 Winterstoke Road, Bristol, BS3 2LL.
Subsidiaries are those entities controlled by the Group. Control
exists when the Group is exposed to, or has the rights to, variable
returns from its involvement with the entity and has the ability to
affect those returns through its power over the entity. The
financial statements of subsidiaries are included in the
consolidated financial statements from the date that control
commences until the date that control ceases. Where necessary,
accounting policies of subsidiaries are changed to ensure
consistency with the policies adopted by the Group.
The acquisition method of accounting is used to account for the
purchase of subsidiaries. The excess of the value transferred to
the seller in return for control of the acquired business together
with the fair value of any previously held equity interest in that
business over the Group's share of the fair value of the
identifiable net assets is recorded as goodwill.
Intragroup transactions, balances and unrealised gains on
transactions between Group companies are eliminated. Unrealised
losses are also eliminated unless costs cannot be recovered.
JOINT VENTURES
The Group applies IFRS 11 to all joint arrangements. Under IFRS
11 investments in joint arrangements are classified as either joint
operations or joint ventures depending on the contractual rights
and obligations of each investor. The Group has assessed the nature
of its joint arrangements and determined them to be joint ventures.
The financial statements of joint ventures are included in the
Group financial statements using the equity accounting method, with
the Group's share of net assets included as a single line item
entitled 'Investments accounted for using the equity method'. In
the same way, the Group's share of earnings is presented in the
consolidated income statement below operating profit entitled
'Share of profit of investments accounted for using the equity
method'.
FOREIGN CURRENCY
Items included in the financial statements of each Group company
are measured using the currency of the primary economic environment
in which the company operates (the functional currency).
The income and cash flow statements of Group companies using
non-sterling functional currencies are translated to sterling (the
Group's presentational currency) at average rates of exchange in
each period. Assets and liabilities of these companies are
translated at rates of exchange ruling at the balance sheet date.
The differences between retained profits and losses translated at
average and closing rates are taken to reserves, as are differences
arising on the retranslation of the net assets at the beginning of
the year.
Transactions in currencies other than a company's functional
currency are initially recorded at the exchange rate ruling at the
date of the transaction. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the
translation at exchange rates ruling at the balance sheet date of
monetary assets and liabilities denominated in foreign currencies
are recognised in the consolidated income statement with exchange
differences arising on trading transactions being reported in
operating profit, and those arising on financing transactions being
reported in net finance costs unless as a result of net investment
hedging they are reported in other comprehensive income.
The Group designates as net investment hedges certain external
borrowings and derivatives up to the value of the net assets of
Group companies that use non-sterling functional currencies after
deducting permanent intercompany loans. Gains or losses on these
hedges that are regarded as highly effective are transferred to
other comprehensive income, where they offset gains or losses on
translation of the net investments that are recorded in equity, in
the exchange translation reserve.
The Group's financial results are principally exposed to euro
and US dollar exchange rates, which are detailed in the table
below.
2021 2020
============ ======= ======= =======
Average Closing Average
Foreign exchange rate versus GBP Closing rate rate rate rate
================================= =============
Euro 1.1621 1.1451 1.0960 1.1393
---------------------------------- ------------ ------- ------- -------
US Dollar 1.3456 1.3690 1.2832 1.2753
================================== ============ ======= ======= =======
REVENUE RECOGNITION
For the Tobacco & Next Generation Products (Tobacco &
NGP) business, Revenue comprises the invoiced value for the sale of
goods net of sales taxes, rebates and discounts. Revenue is based
on the completion of performance obligations that constitute the
delivery of goods. The performance obligation is recognised as
complete at the point in time when a Group company has delivered
products to the customer, the customer has accepted the products
and collectability of the related receivables is reasonably
assured. The distribution business also recognises revenue
associated with logistics services, recognised on the basis of the
invoiced value for the provision of these services net of sales
taxes, rebates and discounts. The performance obligations
associated with distribution services, which include fees for
distributing certain third party products, are linked to the
successful distribution of products for customers.
The Group recognises income arising from the licensing of
intellectual property, occurring in the ordinary course of
business, which is treated as revenue. Licensing revenue will be
recognised over the period of the licence. The licences granted are
distinct from other promises in the contract.
For the Distribution business, revenue comprises the invoiced
value for the sale of goods and services net of sales taxes,
rebates and discounts when goods have been delivered or
distribution services have been provided. The Distribution business
only recognises commission revenue on purchase and sale
transactions in which it acts as a commission agent. Distribution
and marketing commissions are included in revenue. Revenue is
recognised on products on consignment when these are sold by the
consignee.
Payments are made to both direct and indirect customers for
rebates, discounts and other promotional activities. Direct
customers are those to which the Group supplies goods or services.
Indirect customers are other entities within the supply chain to
the end consumer. Rebates and discounts are deducted from Revenue.
Where the contract with customers has an entitlement to variable
consideration due to the existence of retrospective rebates and
discounts, revenue is estimated based on the amount of
consideration expected to be received. This estimation is a
determination of the most likely amount to be received using all
known factors including historic experience. Typically there is a
high degree of certainty over the amount of retrospective
rebates/discounts paid due to relatively low year on year
variations in the volume and pattern of product sales. As the
provision of distribution services typically involves product
delivery tasks undertaken in a short period of time, revenue and
any associated rebates and discounts relating to these services do
not normally span an accounting year end.
Payments for promotional activities will also be deducted from
Revenue where the payments relate to goods or service that are
closely related to or indistinct from associated sales of goods or
services to that customer. The calculated costs are accrued and
accounted for as incurred and matched as a deduction from the
associated revenues (i.e. excluded from revenues reported in the
Group's consolidated income statement).
DUTY AND SIMILAR ITEMS
Duty and similar items includes duty and levies having the
characteristics of duty. In countries where duty is a production
tax, duty is included in Revenue and in Cost of sales in the
consolidated income statement. Duty is regarded as a sales tax and
excluded from revenue where:
-- duty becomes payable to the tax authority when the goods are sold;
-- there is an obligation to change the sales price when a
change in the rate of duty is imposed; and
-- there is a requirement to identify the duty separately on sales information such as invoices.
Payments made in the USA under the Master Settlement Agreement
are recognised in other cost of sales, for further disclosure see
note 30 contingent liabilities.
TAXES
Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantively enacted at
the balance sheet date, and any adjustments to tax payable in
respect of previous years.
Uncertain tax positions are assessed and measured on an issue by
issue basis within the jurisdictions that we operate using
management's estimate of the most likely outcome. Where management
determines that a greater than 50% probability exists that the tax
authorities would accept the position taken in the tax return,
amounts are recognised in the consolidated financial statements on
that basis. Where the amount of tax payable or recoverable is
uncertain, the Group recognises a liability or asset based on
either: management's judgement of the most likely outcome; or, when
there is a wide range of possible outcomes, a probability weighted
average approach. The Group recognises interest on late paid taxes
as part of financing costs. The Group recognises penalties, if
applicable, as part of administrative and other expenses.
Deferred tax is provided in full on temporary differences
between the carrying amount of assets and liabilities in the
financial statements and the tax base, except if it arises from the
initial recognition of an asset or liability in a transaction,
other than a business combination, that at the time of the
transaction affects neither accounting nor taxable profit or loss.
Deferred tax is provided on temporary differences arising on
investments in subsidiaries, except where the timing of the
reversal of the temporary difference is controlled by the Group and
it is probable that the temporary difference will not reverse in
the foreseeable future. Deferred tax assets are recognised only to
the extent that it is probable that future taxable profits will be
available against which the assets can be realised. Deferred tax is
determined using the tax rates that have been enacted or
substantively enacted at the balance sheet date, and are expected
to apply when the deferred tax liability is settled or the deferred
tax asset is realised.
DIVIDS
Final dividends are recognised as a liability in the period in
which the dividends are approved by shareholders, whereas interim
dividends are recognised in the period in which the dividends are
paid.
INTANGIBLE ASSETS - GOODWILL
Goodwill represents the excess of value transferred to the
seller in return for control of the acquired business together with
the fair value of any previously held equity interest in that
business over the Group's share of the fair value of the
identifiable net assets.
Goodwill is tested at least annually for impairment and carried
at cost less accumulated impairment losses. Any impairment is
recognised immediately in the consolidated income statement and
cannot be subsequently reversed. If any negative goodwill arises
this is recognised immediately in the income statement. For the
purpose of impairment testing, goodwill is allocated to groups of
cash-generating units that are expected to benefit from the
business combination in which the goodwill arose.
INTANGIBLE ASSETS - OTHER
Other intangible assets are initially recognised in the
consolidated balance sheet at historical cost unless they are
acquired as part of a business combination, in which case they are
initially recognised at fair value. They are shown in the balance
sheet at historical cost less accumulated amortisation and
impairment. The Group does not operate a revaluation model and
therefore assets are not subject to ongoing revaluations.
These assets consist mainly of acquired trademarks, intellectual
property, product development, concessions and rights, acquired
customer relationships and computer software. The Davidoff
cigarette trademark and some premium cigar trademarks are
considered by the Directors to have indefinite lives based on the
fact that they are established international brands with global
potential. Trademarks with indefinite lives are not amortised but
are reviewed annually for impairment. The carrying value of
Davidoff is subject to an annual impairment review under the
requirements of IAS 36 as the Group does not currently foresee a
limit to the period over which the asset is expected to generate
net cash inflows. The most recent assessment indicates that the
carrying value is not impaired.
Intellectual property (including trademarks), product
development, supply agreements (including customer relationships)
and computer software are amortised over their estimated useful
lives as follows:
Intellectual property 5 - 30 years straight line
Supply agreements 3 - 15 years straight line
Software 3 - 10 years straight line
Product development 3 - 10 years straight line
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recognised in the consolidated
balance sheet at historical cost or at their initial fair value
where they are acquired as part of an acquisition, subject to
depreciation or impairment. The Group does not operate a
revaluation model and therefore assets are not subject to ongoing
revaluations.
Land is not depreciated. Depreciation is provided on other
property, plant and equipment so as to write down the initial cost
of each asset to its residual value over its estimated useful life
as follows:
Property up to 50 years straight line
straight line/reducing
Plant and equipment 2 - 20 years balance
Fixtures and motor vehicles 2 - 15 years straight line
The assets' residual values and useful lives are reviewed and,
if appropriate, adjusted at each balance sheet date.
FINANCIAL INSTRUMENTS AND HEDGING
Receivables held under a hold to collect business model are
stated at amortised cost. Receivables held under a hold to sell
business model, which are expected to be sold via a non-recourse
factoring arrangement are separately classified as fair value
through profit or loss, within trade and other receivables.
The calculation of impairment provisions is subject to an
expected credit loss model, involving a prediction of future credit
losses based on past loss patterns. The revised approach involves
the recognition of provisions relating to potential future
impairments, in addition to impairments that have already occurred.
The expected credit loss approach involves modelling of historic
loss rates, and consideration of the level of future credit risk.
Expected loss rates are then applied to the gross receivables
balance to calculate the impairment provision.
Cash and cash equivalents include cash in hand and deposits held
on call, together with other short-term highly liquid
investments.
The Group transacts derivative financial instruments to manage
the underlying exposure to foreign exchange and interest rate
risks. The Group does not transact derivative financial instruments
for trading purposes. Derivative financial instruments are
initially recorded at fair value plus any directly attributable
transaction costs. Derivative financial assets and liabilities are
included in the consolidated balance sheet at fair value, and
include accrued interest receivable and payable where relevant.
However, as the Group has decided (as permitted under IFRS 9) not
to cash flow or fair value hedge account for its derivative
financial instruments, changes in fair values are recognised in the
consolidated income statement in the period in which they arise
unless the derivative qualifies and has been designated as a net
investment hedging instrument in which case the changes in fair
values, attributable to foreign exchange, are recognised in other
comprehensive income.
Collateral transferred under the terms and conditions of
collateral appendix documents in respect of certain derivatives are
netted off the carrying value of those derivatives in the
consolidated balance sheet.
RIGHT OF USE ASSETS
The Group has lease contracts relating to property and other
assets (which predominantly relates to motor vehicles).
The Group recognises right of use assets, at the commencement
date of the lease (i.e. the date the underlying asset is available
for use). Right of use assets are measured at cost, less any
accumulated depreciation and impairment losses, and adjusted for
any remeasurement of lease liabilities. The cost of right of use
assets includes the amount of lease liabilities recognised, initial
direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. Unless the
Group is reasonably certain to obtain ownership of the leased asset
at the end of the lease term, the recognised right of use assets
are depreciated on a straight-line basis over the shorter of its
estimated useful life and the lease term. Right of use assets are
subject to impairment.
LEASE LIABILITIES
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments less any lease incentives receivable, variable lease
payments which depend on an index or a rate, and amounts expected
to be paid under residual value guarantees. Lease payments include
the exercise of purchase options if determined reasonably certain
to be exercised and termination payments if the lease term reflects
the exercise of an option to terminate.
In calculating the present value of lease payments, the Group
uses the incremental borrowing rate, defined as the rate of
interest that a lessee would have to pay to borrow over a similar
term, and with a similar security, the funds necessary to obtain an
asset of a similar value to the right of use asset in a similar
economic environment, at the lease commencement date if the
interest rate implicit in the lease is not readily determinable.
After the commencement date, the amount of lease liabilities is
increased to reflect the accumulation of interest and reduced for
the lease payments made. In addition, the carrying amount of lease
liabilities is remeasured if there is a modification, a change in
the lease term, a change in the in-substance fixed lease payments
or a change in the assessment to purchase the underlying asset.
Lease payments on short-term leases and leases of low value
assets are recognised as expense on a straight line basis over the
lease term in cost of sales or distribution, advertising and
selling costs.
SHORT TERM LEASES, LEASES OF LOW VALUE ASSETS AND PRACTICAL
EXPEDIENTS APPLIED
The Group has applied a number of practical expedients permitted
by IFRS 16. These include;
-- the exclusion of leases where the lease term ends within 12
months of the commencement of the lease or date of initial
application; and
-- the exclusion of leases of low value assets, defined as those of less than US$5,000.
IFRS 16 was applied using the modified retrospective method, to
contracts that were previously identified as operating leases in
accordance with IAS 17 and IFRIC 4. The Group has elected to;
-- apply hindsight in determining the lease term if the contract
contains options to extend or terminate the lease;
-- exclude initial direct costs from the measurement of the right of use asset; and
-- use a single discount rate to a portfolio of leases with reasonably similar characteristics
These elections were only applied on transition to IFRS 16 and
have not been applied to new leases following adoption of the
standard.
INVENTORIES
Inventories are stated at the lower of cost and net realisable
value. Cost is determined using the first in first out (FIFO)
method. The cost of finished goods and work in progress comprises
raw materials, direct labour, other direct costs and related
production overheads (based on normal operating capacity). Net
realisable value is the estimated selling price in the ordinary
course of business, less the estimated costs of completion and
selling expenses. Inventory is considered for obsolescence or other
impairment issues and an associated provision is booked where
necessary.
Leaf tobacco inventory which has an operating cycle that exceeds
12 months is classified as a current asset, consistent with
recognised industry practice.
PROVISIONS
A provision is recognised in the consolidated balance sheet when
the Group has a legal or constructive obligation as a result of a
past event, it is more likely than not that an outflow of resources
will be required to settle that obligation, and a reliable estimate
of the amount can be made.
A provision for restructuring is recognised when the Group has
approved a detailed formal restructuring plan, and the
restructuring has either commenced or has been publicly announced,
and it is more likely than not that the plan will be implemented,
and the amount required to settle any obligations arising can be
reliably estimated. Future operating losses are not provided
for.
Where there are a number of similar obligations, the likelihood
that an outflow will be required in settlement is determined by
considering the class of obligations as a whole. A provision is
recognised even if the likelihood of an outflow with respect to any
one item included in the same class of obligations may be
small.
ASSETS HELD FOR SALE
Assets held for sale arise once a disposal process has advanced
sufficiently to meet the requirements of IFRS 5. Assets identified
as held for sale are considered for impairment of their carrying
value against expected proceeds. The assets and liabilities are
presented separately on the balance sheet as assets held for
disposal and liabilities held for disposal.
CONTINGENT LIABILITIES
Contingent liabilities are possible obligations that arise from
past events and whose existence will be confirmed only by the
occurrence or non-occurrence of one or more uncertain future
events, not wholly within the control of the Group. Contingent
liabilities are not recognised, only disclosed, unless the
possibility of a future outflow of resources is considered remote,
or where a disclosure would seriously prejudice the position of the
Group.
RETIREMENT BENEFIT SCHEMES
For defined benefit schemes, the amount recognised in the
consolidated balance sheet is the difference between the present
value of the defined benefit obligation at the balance sheet date
and the fair value of the scheme assets to the extent that they are
demonstrably recoverable either by refund or a reduction in future
contributions. The defined benefit obligation is calculated
annually by independent actuaries using the projected unit credit
method. The present value of the defined benefit obligation is
determined by discounting the estimated future cash flows using
interest rates of high quality corporate bonds that are denominated
in the currency in which the benefits will be paid, and that have
terms to maturity approximating to the terms of the related pension
obligation.
The service cost of providing retirement benefits to employees
during the year is charged to operating profit. Past service costs
are recognised immediately in operating profit, unless the changes
to the pension plan are conditional on the employees remaining in
service for a specified period of time.
All actuarial gains and losses, including differences between
actual and expected returns on assets and differences that arise as
a result of changes in actuarial assumptions, are recognised
immediately in full in the statement of comprehensive income for
the period in which they arise. An interest charge is made in the
income statement by applying the rate used to discount the defined
benefit obligations to the net defined benefit liability of the
schemes.
For defined contribution schemes, contributions are recognised
as an employee benefit expense when they are due.
SHARE-BASED PAYMENTS
The Group applies the requirements of IFRS 2 Share-Based Payment
Transactions to both equity-settled and cash-settled share-based
employee compensation schemes. The majority of the Group's schemes
are equity-settled.
Equity-settled share-based payments are measured at fair value
at the date of grant and are expensed over the vesting period,
based on the number of instruments that are expected to vest. For
plans where vesting conditions are based on total shareholder
returns, the fair value at the date of grant reflects these
conditions. Earnings per share and net revenue vesting conditions
are reflected in the estimate of awards that will eventually vest.
For cash-settled share-based payments, a liability equal to the
portion of the services received is recognised at its current fair
value at each balance sheet date. Where applicable the Group
recognises the impact of revisions to original estimates in the
consolidated income statement, with a corresponding adjustment to
equity for equity-settled schemes and current liabilities for
cash-settled schemes. Fair values are measured using appropriate
valuation models, taking into account the terms and conditions of
the awards.
The Group funds the purchase of shares to satisfy rights to
shares arising under share-based employee compensation schemes.
Shares acquired to satisfy those rights are held in Employee Share
Ownership Trusts. On consolidation, these shares are accounted for
as a deduction from equity attributable to owners of the parent.
When the rights are exercised, equity is increased by the amount of
any proceeds received by the Employee Share Ownership Trusts.
TREASURY SHARES
When the Company purchases its own equity share capital
(treasury shares), the consideration paid, including any directly
attributable incremental costs (net of income taxes), is deducted
on consolidation from equity attributable to owners of the parent
until the shares are reissued or disposed of. When such shares are
subsequently sold or reissued, any consideration received, net of
any directly attributable incremental transaction costs and the
related income tax effects, increases equity attributable to owners
of the parent. When such shares are cancelled they are transferred
to the capital redemption reserve.
Where the group enters into a contract with a third party that
contains an obligation to re-purchase its own shares for cash or
another financial asset; a financial liability is recognised for
the present value of the redemption amount. One example is an
obligation under a forward contract to re-purchase shares in
Imperial Brands PLC for cash. The financial liability is recognised
initially at the present value of the redemption amount, and is
reclassified from equity. Subsequently, the financial liability is
measured in accordance with IFRS 9, and is revalued at subsequent
reporting points as appropriate. If the contract expires without
delivery, the carrying amount of the financial liability is
reclassified to equity.
USE OF ADJUSTED PERFORMANCE MEASURES
Management believes that non-GAAP or adjusted performance
measures provide an important comparison of business performance
and reflect the way in which the business is controlled. The
adjusted performance measures seek to remove the distorting effects
of a number of significant gains or losses arising from
transactions which are not directly related to the ongoing
underlying performance of the business and may be non-recurring
events or not directly within the control of management.
Accordingly, adjusted performance measures of operating profit,
net finance costs, profit before tax, tax, attributable earnings
and earnings per share exclude, where applicable, acquisition and
disposal costs, amortisation and impairment of acquired
intangibles, restructuring costs, post-employment benefits net
financing cost, fair value and exchange gains and losses on
financial instruments, and related tax effects and tax matters.
Reconciliations between adjusted and reported operating profit are
included within note 6 to the financial statements, adjusted and
reported net finance costs in note 6, adjusted and reported tax in
note 8, and adjusted and reported earnings per share in note 10.
There are also other adjusted reported measures which are defined
below.
The adjusted performance measures in this report are not defined
terms under IFRS and may not be comparable with similarly titled
measures reported by other companies.
The items excluded from adjusted performance results are those
which are one-off in nature or items which arose due to
acquisitions and are not influenced by the day to day operations of
the Group, and the movements in the fair value of financial
instruments which are marked to market and not naturally offset.
Adjusted net finance costs also excludes all post-employment
benefit net finance cost since pension assets and liabilities and
redundancy and social plan provisions do not form part of adjusted
net debt. This allows comparison of the Group's cost of debt with
adjusted net debt. The adjusted performance measures are used by
management to assess the Group's financial performance and aid
comparability of results year on year.
ADJUSTED OPERATING PROFIT
Adjusted operating profit is calculated as operating profit
amended for a number of adjustments, the principal changes are
detailed below. This measure is separately calculated and disclosed
for Tobacco, NGP and Distribution where appropriate. In addition,
adjustments have been made to present this measure on an organic
basis to allow year on year comparability (see organic adjustments
below). A reconciliation can be found in note 6.
Acquisition AND DISPOSAL COSTS / PROFIT ON DISPOSAL OF
SUBSIDIARIES
Adjusted performance measures exclude costs and profits or
losses associated with major acquisitions and disposals as they do
not relate to the day to day operational performance of the Group.
Acquisition costs and profits or losses on disposal can be
significant in size and are one-off in nature. Exclusion of these
items allows a clearer presentation of the day to day underlying
income and costs of the business. Where applicable and not reported
separately, this includes changes in contingent or deferred
consideration.
AMORTISATION AND IMPAIRMENT OF ACQUIRED INTANGIBLES
Acquired intangibles are amortised over their estimated useful
economic lives where these are considered to be finite. Acquired
intangibles considered to have an indefinite life are not
amortised. Any negative goodwill arising is recognised immediately
in the income statement. We exclude from our adjusted performance
measures the amortisation and impairment of acquired intangibles,
other than software and internally generated intangibles, and the
deferred tax associated with amortisation of acquired intangibles.
Gains and losses on the sale of intellectual property are removed
from adjusted operating profit.
It is recognised that there may be some correlation between the
amortisation charges derived from the acquisition value of acquired
intangibles, and the subsequent future profit streams arising from
sales of associated branded products. However, the amortisation of
intangibles is not directly related to the operating performance of
the business. Conversely, the level of profitability of branded
products is directly influenced by day to day commercial actions,
with variations in the level of profit derived from branded product
sales acting as a clear indicator of performance. Given this, the
Group's view is that amortisation and impairment charges do not
clearly correlate to the ongoing variations in the commercial
results of the business and are therefore excluded to allow a
clearer view of the underlying performance of the organisation. The
deferred tax is excluded on the basis that it will only crystallise
upon disposal of the intangibles and goodwill. The related current
cash tax benefit is retained in the adjusted measure to reflect the
ongoing tax benefit to the Group.
PRESENTATION OF AUXLY CANNABIS GROUP INC.
As the movement in the fair value of loan receivables associated
with the Auxly Cannabis Group Inc. investment has the potential to
be significant the Group has disclosed a fair value movement
separately on the face of the income statement.
RESTRUCTURING COSTS
Significant one-off costs incurred in integrating acquired
businesses and in major rationalisation and optimisation
initiatives together with their related tax effects are excluded
from our adjusted earnings measures. These include restructuring
costs incurred as part of fundamental multi-year transformational
change projects but do not include costs related to ongoing cost
reduction activity. These costs are all Board approved, and include
impairment of property, plant and equipment which are surplus to
requirements due to restructuring activity. These costs are
required in order to address structural issues associated with
operating within the Tobacco sector that have required action to
both modernise and right-size the organisation, ultimately
delivering an operating model suitable for the future of the
business. The Group's view is that as these costs are both
significant and one-off in nature, excluding them allows a clearer
presentation of the underlying costs of the business.
Adjusted net Finance COSTS
Adjusted net finance costs excludes the movements in the fair
value of financial instruments which are marked to market and not
naturally offset. This measure also excludes all post-employment
benefit net finance costs since pension assets and liabilities and
redundancy and social plan provisions do not form part of adjusted
net debt. This allows comparison of the Group's cost of debt with
adjusted net debt. A reconciliation can be found in note 6. The
detail of these adjustments is given below.
FAIR VALUE GAINS AND LOSSES ON DERIVATIVE FINANCIAL INSTRUMENTS
AND EXCHANGE GAINS AND LOSSES ON BORROWINGS
IFRS 9 requires that all derivative financial instruments are
recognised in the consolidated balance sheet at fair value, with
changes in the fair value being recognised in the consolidated
income statement unless the instrument satisfies the hedge
accounting rules under IFRS and the Group chooses to designate the
derivative financial instrument as a hedge.
The Group hedges underlying exposures in an efficient,
commercial and structured manner. However, the strict hedging
requirements of IFRS 9 may lead to some commercially effective
hedge positions not qualifying for hedge accounting. As a result,
and as permitted under IFRS 9, the Group has decided not to apply
cash flow or fair value hedge accounting for its derivative
financial instruments. However, the Group does apply net investment
hedging, designating certain borrowings and derivatives as hedges
of the net investment in the Group's foreign operations, as
permitted by IFRS 9, in order to reduce income statement
volatility.
We exclude fair value gains and losses on derivative financial
instruments and exchange gains and losses on borrowings from
adjusted net finance costs. Fair value gains and losses on the
interest element of derivative financial instruments are excluded
as there is no direct natural offset between the movements on
derivatives and the interest charge on debt in any one period, as
the derivatives and debt instruments may be contracted over
different periods, although they will reverse over time or are
matched in future periods by interest charges. The fair value gains
on derivatives are excluded as they can introduce volatility in the
finance charge for any given period.
Fair value gains and losses on the currency element of
derivative financial instruments and exchange gains and losses on
borrowings are excluded as the relevant foreign exchange gains and
losses on the instruments in a net investment hedging relationship
are accumulated as a separate component of other comprehensive
income in accordance with the Group's policy on foreign
currency.
Fair value movements arising from the revaluation of contingent
consideration liabilities are adjusted out where they represent
one-off acquisition costs that are not linked to the current period
underlying performance of the business. Fair value adjustments on
loans receivable measured at fair value are excluded as they arise
due to counterparty credit risk changes that are not directly
related to the underlying commercial performance of the
business..
POST-EMPLOYMENT BENEFITS NET FINANCING COST
The net interest on defined benefit assets or liabilities,
together with the unwind of discount on redundancy, social plans
and other long-term provisions are reported within net finance
costs. These items together with their related tax effects are
excluded from our adjusted earnings measures, as they primarily
represent charges associated with historic employee benefit
commitments, rather than the ongoing current period costs of
operating the business.
ADJUSTED TAX CHARGE
The adjusted tax charge is calculated by amending the reported
tax charge for significant one-off tax charges or credits arising
from:
-- prior period tax items (including re-measurement of deferred
tax balances on a change in tax rates); or
-- a provision for uncertain tax items not arising in the normal course of business; or
-- newly enacted taxes in the year; or
-- tax items that are closely related to previously recognised
tax matters, and are excluded from our adjusted tax charge to aid
comparability and understanding of the Group's performance.
The recognition and utilisation of deferred tax assets relating
to losses not historically generated in the normal course of
business are excluded on the same basis.
A reconciliation can be found in note 8.
The adjusted tax rate is calculated as the adjusted tax charge
divided by the adjusted profit before tax.
ADJUSTED EARNINGS
Adjusted earnings is calculated by amending the reported basic
earnings for all of the adjustments recognised in the calculation
of the adjusted operating profit, adjusted finance costs and
adjusted tax charge metrics as detailed above. In addition,
adjustments have been made to present this measure on an organic
basis to allow year on year comparability (see organic
adjustments). Adjusted earnings per share and organic earnings per
share are calculated by providing adjusted earnings and organic
earnings by the weighted average number of shares. A reconciliation
is provided in note 10.
OTHER NON-GAAP MEASURES USED BY MANAGEMENT
NET REVENUE
Tobacco & Next Generation Products (NGP) net revenue
comprises associated revenue less duty and similar items, excluding
peripheral products. Management considers this an important measure
in assessing the performance of Tobacco & NGP operations.
The Group recognises revenue on sales to Logista, a Group
company, within its reported Tobacco & NGP revenue figure. As
the revenue calculation includes sales made to Logista from other
Group companies but excludes Logista's external sales, this metric
differs from revenue calculated under IFRS accounting standards.
For the purposes of Adjusted Performance Measures on Net Revenue we
treat Logista as an arms length distributor on the basis that
contractual rights are in line with other Third Party suppliers to
Logista. Variations in the amount of inventory held by Logista
results in a different level of revenue compared to that which is
included within the income statement. For tobacco product sales,
inventory level variations are normally not significant. A
reconciliation can be found in note 3.
DISTRIBUTION NET REVENUE
Distribution net revenue comprises the Distribution segment
revenue less the cost of distributed products. Management considers
this an important measure in assessing the performance of
Distribution operations. The eliminations in note 3 all relate to
sales to Distribution. A reconciliation can be found in note 3.
ADJUSTED OPERATING CASH
Adjusted operating cash conversion is calculated as cash flow
from operations pre-restructuring and before interest and tax
payments less net capital expenditure relating to property, plant
and equipment, software and intellectual property rights as a
percentage of adjusted operating profit.
ADJUSTED NET DEBT
Management monitors the Group's borrowing levels using adjusted
net debt which excludes interest accruals, lease commitments and
the fair value of derivative financial instruments providing
commercial hedges of interest rate risk. The adjusted net debt
metric is used in monitoring performance against various debt
management obligations including covenant compliance. A
reconciliation can be found in note 31.
ORGANIC
To aid comparison of performance between years, the Group uses
the term 'organic' in all years reported to exclude the impact of
the Premium Cigar divestment, which completed on 29 October 2020.
The organic performance comparison excludes the contribution of the
Premium Cigar divestment in all years reported.
CASH CONVERSION
The Group uses cash conversion as a key metric for assessing
underlying cash performance. Cash Conversion is calculated as cash
flow from operations pre-restructuring and before interest and tax
payments, less net capital expenditure relating to property, plant
and equipment, software and intellectual property rights as a
percentage of adjusted operating profit. A reconciliation can be
found in note 6.
ADJUSTED OPERATING PROFIT MARGIN
Adjusted operating profit margin is adjusted operating profit
divided by net revenue expressed as a percentage. This measure is
separately calculated and disclosed for Tobacco, NGP and
Distribution where appropriate. In addition, adjustments have been
made to present this measure on an organic basis to allow year on
year comparability (see organic adjustments). A reconciliation of
adjusted operating profit can be found in note 6 and a
reconciliation of net revenue can be found in note 3.
FREE CASH FLOW
Free cash flow is adjusted operating profit (as defined above)
adjusted for certain cash and non cash items. The principal
adjustments are depreciation, working capital movements, net capex,
restructuring cash flows, tax cash flows, cash interest and
minority interest dividends.
RETURN ON INVESTED CAPITAL
Return on invested capital measures the effectiveness of capital
allocation and is calculated by dividing adjusted operating profit
after tax by the annual average of: intangible assets, property,
plant and equipment, net assets held for sale, inventories, trade
and other receivables and trade payables and other current
liabilities.
The annual average is defined as the average of the opening and
closing balance sheet values.
NET DEBT TO EBITDA (MULTIPLE)
This is defined as adjusted net debt divided by adjusted EBITDA.
Adjusted net debt is measured at balance sheet foreign exchange
rates, with a full reconciliation shown in note 30. Adjusted EBITDA
is calculated as adjusted operating profit plus amortisation,
depreciation and impairments. A reconciliation of adjusted net debt
can be found in note 31.
ALL IN COST OF DEBT
This is defined as adjusted net finance costs (defined above)
divided by the average net debt in the year (note 31). A
reconciliation of adjusted net finance costs can be found in note
6.
CONSTANT CURRENCY
Constant currency removes the effect of exchange rate movements
on the translation of the results of our overseas operations. We
translate current year results at prior year foreign exchange
rates.
NEW ACCOUNTING STANDARDS
For the year ended 30 September 2021 the Group continued to
apply international accounting standards in conformity with the
requirements of the Companies Act 2006 and IFRS, issued by the
International Accounting Standards Board (IASB) and adopted
pursuant to Regulation (EC) No. 1606/2002 as it applies in the
European Union. From 1 October 2021, as a result of the UK leaving
the European Union, the Group will prepare the consolidated
financial statements in accordance with applicable international
accounting standards, issued by the IASB or International Financial
Reporting Interpretations Committee (IFRIC) and endorsed for use in
the UK, referred to as 'UK-adopted IFRS'.
The following amendments to the accounting standards, issued by
the IASB or IFRIC, have been adopted by the Group from 1 October
2020 with no impact on the group's consolidated results, financial
position or disclosures:
-- Amendments to References to the Conceptual Framework in IFRS
-- Amendments to IFRS 3 - Definition of a Business
-- Amendments to IAS 1 and IAS 8 - Definition of Material
-- Amendments to IFRS 16 - Covid-19 - Related Rent Concessions
-- Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest rate benchmark reform (phase 1)
Derivatives with a notional value of EUR3,233 million designated
in net investment hedges will be impacted by the impending reforms
to the calculation of the Interbank Offered Rates (IBOR). However,
as discussed in Note 21 Financial Risk Management, only the
undiscounted foreign currency spot exposures of these instruments
are designated in the hedging relationship and therefore there will
be no change to the effectiveness of the hedges due to the reform.
Changes in the fair value of these derivatives attributable to
changes in interest rates and the effect of discounting are
recognised directly in profit or loss within the Finance costs
line.
NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET IN
ISSUE
The following standard and amendment, issued by the IASB has not
been adopted by the Group:
-- Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest rate
benchmark reform (phase 2) (effective in the year ending 30
September 2022)
Following the announcement of the discontinuation of GBP LIBOR
at the end of 2021 and USD LIBOR discontinuation in 2023, the
Company has amended its bank facility agreement to stop referencing
GBP and USD LIBOR and instead reference the daily risk free rates
of SONIA and SOFR respectively. All current GBP LIBOR derivatives
will be changed to reference SONIA instead of GBP LIBOR by the end
of 2021, then all USD LIBOR derivatives will be changed to
reference SOFR instead of USD LIBOR during the remainder of fiscal
year 2022. There are no changes pending for EUR derivatives.
There are also a number of other amendments and clarifications
to IFRS, effective in future years. None of which are expected to
significantly impact the group's consolidated results or financial
position.
2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The Group makes estimates and judgements associated with
accounting entries which will be affected by future events.
Estimates and judgements are continually evaluated based on
historical experience, and other factors, including current
information that helps form a forward-looking view of expected
future outcomes.
Estimates involve the determination of the quantum of accounting
balances to be recognised. Judgements typically involve decisions
such as whether to recognise an asset or liability.
The actual amounts recognised in the future may deviate from
these estimates and judgements. The estimates and judgements that
have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next
financial year are discussed below.
DETERMINATION OF USEFUL ECONOMIC LIFE OF INTANGIBLE ASSETS
For non-goodwill intangible assets, there are critical
judgements required in determining whether the asset has an
indefinite useful economic life, or not. The Davidoff trademark has
a significant market share and positive cash flow growth
expectations. There are no regulatory or contractual restrictions
on the use of this trademark, and there are no plans to
significantly redirect resources elsewhere which would reduce the
value of this asset. Consequently, in the view of management, the
Davidoff trademark does not have a foreseeable and definite end to
its ability to generate future cash flows and hence it is not
amortised. The carrying value of Davidoff is subject to an annual
impairment review under the requirements of IAS 36 as Group does
not currently foresee a limit to the period over which the asset is
expected to generate net cash inflows. The most recent assessment
indicates that the carrying value is not impaired.
AMORTISATION AND IMPAIRMENT OF INTANGIBLE ASSETS
For non-indefinite life assets, which are amortised, the useful
economic life and recoverable amounts are estimated based upon the
expectation of the amount and time period during which an
intangible asset will support future cash flows. Due to estimation
uncertainties the useful economic lives and associated amortisation
rates have to be reviewed and revised where necessary. In addition,
where there are indications that the current carrying value of an
intangible asset is greater than its recoverable amount, impairment
in the carrying value of the asset may be required. Factors
considered important that could trigger an impairment review of
intangible assets include the following:
-- significant underperformance relative to historical or projected future operating results;
-- significant changes in the manner of the use of the acquired
assets or the strategy for the overall business; and
-- significant negative industry or economic trends.
The complexity of the estimation process and issues related to
the assumptions, risks and uncertainties inherent in the
application of the Group's accounting estimates in relation to
intangible assets affect the amounts reported in the financial
statements, especially the estimates of the expected useful
economic lives and the carrying values of those assets. If business
conditions materially change it is likely that materially different
amounts could be reported in the Group's financial statements.
Indefinite life intangible assets, including goodwill, are subject
to annual impairment testing where an assessment of the carrying
value of the asset against its recoverable amount is undertaken.
There are long term uncertainties associated with estimating the
valuation of the recoverable amount, particularly with regard to
long term cash flow growth rates which are influenced by the future
size and shape of the tobacco sector. While long term growth rates
currently used in impairment assessments are based on current best
estimates of future performance, there may be changes in these
assumptions when conducting impairment tests in subsequent years.
Details of goodwill and intangible asset impairment assessments are
included in note 12.
INCOME TAXES
Judgement is involved in determining whether the Group is
subject to a tax liability or not in line with tax law. Where
liabilities exist, estimation is often required to determine the
potential future tax payments. The Group is subject to income tax
in numerous jurisdictions and significant judgement is required in
determining the provision for tax. There are many transactions and
calculations for which the ultimate tax determination is uncertain.
The Group recognises provisions for tax based on estimates of the
taxes that are likely to become due. Where the final tax outcome is
different from the amounts that were initially recorded, such
differences will impact the current income tax and deferred tax
provisions in the period in which such determination is made.
Consideration of the judgements surrounding certain tax positions
are applicable to the Group and consideration of the valuation
estimates related to tax provisions are given in note 8 to these
financial statements.
LEGAL PROCEEDINGS AND DISPUTES
The Group reviews outstanding legal cases following developments
in the legal proceedings at each balance sheet date, considering
the nature of the litigation, claim or assessment; the legal
processes and potential level of damages in the jurisdiction in
which the litigation, claim or assessment has been brought; the
progress of the case (including progress after the date of the
financial statements but before those statements are issued); the
opinions or views of legal counsel and other advisers; experience
of similar cases; and any decision of the Group's management as to
how it will respond to the litigation, claim or assessment.
Judgement is required as to whether a liability exists. Where a
liability is determined there can be a degree of estimation of the
potential level of damages expected. Key areas of judgement include
consideration as to whether certain claims associated with the
acquisition of certain brands and the likely outcome of a number of
product liability claims. More detail as to the considered position
on these claims is given in both note 30 of the financial
statements and within the Directors' Report - update on Tobacco and
e-vapour related litigation. To the extent that the Group's
assessments at any time do not reflect subsequent developments or
the eventual outcome of any claim, its future financial statements
may be materially affected, with a favourable or adverse impact
upon the Group's operating profit, financial position and
liquidity.
PROVISIONS
Provision accounting involves judgement as to whether a
liability should be recognised and requires estimates of the
quantum of any such liability. The Group holds provisions where
appropriate in respect of estimated future economic outflows,
principally for restructuring activity and excise tax, which arise
due to past events. Estimates are based on management judgement and
information available at the balance sheet date. Actual outflows
may not occur as anticipated, and estimates may prove to be
incorrect, leading to further charges or releases of provisions as
circumstances dictate. The main area of estimation risk relates to
the estimation of restructuring provisions associated with various
plans to transform the business. These include the cost of factory
closures, scaling down of capacity and other structural changes to
the business. These programmes are run as discrete projects with
controls over the expected costs and the associated accounting
impacts. The calculation of restructuring provisions includes
estimation challenges relating to asset remediation costs, the
valuation of disposals and termination costs. More details relating
to the estimates associated with these restructuring programmes can
be found in notes 5 and 25.
CONTROL OF LOGISTA
A key judgement relates to whether the Group has effective
control of Logista sufficient that the Group can consolidate this
entity within its Group accounts in line with the requirements of
IFRS 10 Consolidated Financial Statements. The Group holds 50.01
per cent of the voting shares. The Group has reviewed its control
of Logista and that it is appropriate to consolidate this entity in
line with the requirements of IFRS 10 Consolidated Financial
Statements. The Group continues to have Director presence on the
Board of Logista, representing 4 out of 10 Directors. The Group has
powers to control as set out in the Relationship Framework
Agreement which specifies certain areas of operation reserved for
shareholder approval and through these measures the Group is able
to exercise control of Logista. The Group has therefore concluded
that it continues to be appropriate to recognise Logista as a fully
consolidated subsidiary.
3. SEGMENT INFORMATION
Imperial Brands comprises two distinct businesses - Tobacco
& NGP and Distribution. The Tobacco & NGP business
comprises the manufacture, marketing and sale of Tobacco & NGP
and Tobacco & NGP-related products, including sales to (but not
by) the Distribution business. The Distribution business comprises
the distribution of Tobacco & NGP products for Tobacco &
NGP product manufacturers, including Imperial Brands, as well as a
wide range of non-Tobacco & NGP products and services. The
Distribution business is run on an operationally neutral basis
ensuring all customers are treated equally, and consequently
transactions between the Tobacco & NGP and Distribution
businesses are undertaken on an arm's length basis reflecting
market prices for comparable goods and services.
The function of Chief Operating Decision Maker (defined in IFRS
8), which is to review performance and allocate resources, is
performed by the Board and the Chief Executive, who are regularly
provided with information on our segments. This information is used
as the basis of the segment revenue and profit disclosures provided
below. The main profit measure used by the Board and the Chief
Executive is adjusted operating profit. Segment balance sheet
information is not provided to the Board or the Chief
Executive.
Our reportable segments are Europe, Americas, Africa, Asia &
Australasia (AAA) and Distribution. Operating segments are
comprised of geographical groupings of business markets. The main
Tobacco & NGP business markets within the Europe, Americas and
AAA reportable segments are:
Europe - United Kingdom, Germany, Spain, France, Italy, Greece,
Sweden, Norway, Belgium, Netherlands, Ukraine and Poland.
Americas - United States
AAA - Australia, Japan, Russia, Saudi Arabia, Taiwan and our
African markets including Algeria and Morocco.
TOBACCO & NGP
GBP million unless otherwise indicated 2021 2020
======================================= ====== ======
Revenue 23,863 23,973
--------------------------------------- ------ ------
Net revenue 7,610 7,985
--------------------------------------- ------ ------
Operating profit 2,991 2,587
--------------------------------------- ------ ------
Adjusted operating profit 3,308 3,288
--------------------------------------- ------ ------
Adjusted operating margin % 43.5 41.2
======================================= ====== ======
RECONCILIATION FROM OPERATING PROFIT TO ADJUSTED OPERATING
PROFIT
GBP million 2021 2020
========================================= ===== =====
Adjusted operating profit 3,308 3,288
----------------------------------------- ----- -----
Acquisition and disposal costs - (26)
----------------------------------------- ----- -----
Profit on disposal of subsidiaries 281 -
----------------------------------------- ----- -----
Amortisation of acquired intangibles (365) (438)
----------------------------------------- ----- -----
Excise tax provision 1 20
----------------------------------------- ----- -----
Fair value adjustment of loan receivable 15 (62)
----------------------------------------- ----- -----
Restructuring costs (249) (195)
========================================= ===== =====
Operating profit 2,991 2,587
========================================= ===== =====
DISTRIBUTION
GBP million unless otherwise indicated 2021 2020
======================================= ===== =====
Revenue 9,589 9,268
--------------------------------------- ----- -----
Distribution net revenue 1,069 1,015
--------------------------------------- ----- -----
Operating profit 148 131
--------------------------------------- ----- -----
Adjusted operating profit 258 226
--------------------------------------- ----- -----
Adjusted operating margin % 24.1 22.3
======================================= ===== =====
RECONCILIATION FROM OPERATING PROFIT TO ADJUSTED OPERATING
PROFIT
GBP million 2021 2020
===================================== ==== ====
Adjusted operating profit 258 226
------------------------------------- ---- ----
Acquisition and disposal costs (17) -
------------------------------------- ---- ----
Amortisation of acquired intangibles (85) (85)
------------------------------------- ---- ----
Restructuring costs (8) (10)
===================================== ==== ====
Operating profit 148 131
===================================== ==== ====
REVENUE
2021 2020
================== ==================
Total External Total External
GBP million revenue revenue revenue revenue
=========================== ======== ======== ======== ========
Tobacco & NGP
--------------------------- -------- -------- -------- --------
Europe 14,720 14,059 14,395 13,716
--------------------------- -------- -------- -------- --------
Americas 3,393 3,393 3,371 3,371
--------------------------- -------- -------- -------- --------
Africa, Asia & Australasia 5,750 5,750 6,207 6,207
=========================== ======== ======== ======== ========
Total Tobacco & NGP 23,863 23,202 23,973 23,294
--------------------------- -------- -------- -------- --------
Distribution 9,589 9,589 9,268 9,268
--------------------------- -------- -------- -------- --------
Eliminations (661) - (679) -
=========================== ======== ======== ======== ========
Total Group 32,791 32,791 32,562 32,562
=========================== ======== ======== ======== ========
RECONCILIATION FROM TOBACCO & NGP REVENUE TO TOBACCO &
NGP NET REVENUE
2021 2020
======== ==== ======== ======== ==== ========
GBP million Tobacco NGP Total Tobacco NGP Total
============================ ======== ==== ======== ======== ==== ========
Revenue 23,664 199 23,863 23,757 216 23,973
---------------------------- -------- ---- -------- -------- ---- --------
Duty and similar items (16,218) (11) (16,229) (15,947) (15) (15,962)
---------------------------- -------- ---- -------- -------- ---- --------
Sale of peripheral products (24) - (24) (26) - (26)
============================ ======== ==== ======== ======== ==== ========
Net Revenue 7,422 188 7,610 7,784 201 7,985
============================ ======== ==== ======== ======== ==== ========
TOBACCO & NGP NET REVENUE
2021 2020
======= === ===== ======= === =====
GBP million Tobacco NGP Total Tobacco NGP Total
=========================== ======= === ===== ======= === =====
Europe 3,425 126 3,551 3,471 98 3,569
--------------------------- ------- --- ----- ------- --- -----
Americas 2,478 56 2,534 2,409 71 2,480
--------------------------- ------- --- ----- ------- --- -----
Africa, Asia & Australasia 1,519 6 1,525 1,904 32 1,936
=========================== ======= === ===== ======= === =====
Total Tobacco & NGP 7,422 188 7,610 7,784 201 7,985
=========================== ======= === ===== ======= === =====
PREMIUM CIGAR DIVESTMENT & ORGANIC NET REVENUE
GBP million 2021 2020
===================================== ===== =====
Organic Net Revenue 7,589 7,738
-------------------------------------- ----- -----
Premium Cigar Divestment Net Revenue 21 247
====================================== ===== =====
Total Tobacco & NGP 7,610 7,985
====================================== ===== =====
RECONCILIATION FROM DISTRIBUTION REVENUE TO DISTRIBUTION NET
REVENUE
GBP million 2021 2020
============================= ======= =======
Revenue 9,589 9,268
------------------------------ ------- -------
Cost of sales - Distribution (8,520) (8,253)
============================== ======= =======
Distribution Net Revenue 1,069 1,015
============================== ======= =======
ADJUSTED OPERATING PROFIT AND RECONCILIATION TO PROFIT BEFORE
TAX
GBP million 2021 2020
======================================================= ===== =====
Tobacco & NGP
------------------------------------------------------- ----- -----
Europe 1,670 1,582
--------------------------------------------------------- ----- -----
Americas 1,037 1,032
--------------------------------------------------------- ----- -----
Africa, Asia & Australasia 601 674
========================================================= ===== =====
Total Tobacco & NGP 3,308 3,288
--------------------------------------------------------- ----- -----
Distribution 258 226
--------------------------------------------------------- ----- -----
Eliminations 7 13
========================================================= ===== =====
Adjusted operating profit 3,573 3,527
--------------------------------------------------------- ----- -----
Acquisition and disposal costs - Tobacco & NGP - (26)
-------------------------------------------------------- ----- -----
Acquisition and disposal costs - Distribution (17) -
-------------------------------------------------------- ----- -----
Profit on disposal of subsidiaries - Tobacco & NGP 281 -
-------------------------------------------------------- ----- -----
Amortisation and impairment of acquired intangibles -
Tobacco & NGP (365) (438)
--------------------------------------------------------- ----- -----
Amortisation of acquired intangibles - Distribution (85) (85)
-------------------------------------------------------- ----- -----
Excise tax provision - Tobacco & NGP 1 20
-------------------------------------------------------- ----- -----
Fair value adjustment of loan receivable - Tobacco
& NGP 15 (62)
-------------------------------------------------------- ----- -----
Restructuring costs - Tobacco & NGP (249) (195)
--------------------------------------------------------- ----- -----
Restructuring costs - Distribution (8) (10)
========================================================= ===== =====
Operating profit 3,146 2,731
--------------------------------------------------------- ----- -----
Net finance income/(costs) 81 (610)
--------------------------------------------------------- ----- -----
Share of profit of investments accounted for using the
equity method 11 45
========================================================= ===== =====
Profit before tax 3,238 2,166
========================================================= ===== =====
See note 8 for details of the Excise tax provision. See note 12
for details on amortisation and impairment, note 11 for details of
acquisition and disposal costs, and note 5 for details of
restructuring costs.
OTHER INFORMATION
2021 2020
============================= =============================
Additions Additions
to property, Depreciation to property, Depreciation
plant and software plant and software
GBP million and equipment amortisation and equipment amortisation
=========================== ============== ============= ============== =============
Tobacco & NGP
--------------------------- -------------- ------------- -------------- -------------
Europe 87 99 77 101
--------------------------- -------------- ------------- -------------- -------------
Americas 26 28 30 31
--------------------------- -------------- ------------- -------------- -------------
Africa, Asia & Australasia 20 27 46 34
=========================== ============== ============= ============== =============
Total Tobacco & NGP 133 154 153 166
--------------------------- -------------- ------------- -------------- -------------
Distribution 32 40 21 36
=========================== ============== ============= ============== =============
Total Group 165 194 174 202
=========================== ============== ============= ============== =============
ADDITONAL GEOGRAPHIC ANALYSIS
External revenue and non-current assets are presented for the UK
and for individually significant countries. The geographical
analysis is based on country of origin. The Group's products are
sold in over 120 countries.
2021 2020
===================== =====================
External Non-current External Non-current
GBP million revenue assets revenue assets
============ ======== =========== ======== ===========
UK 4,558 102 4,498 104
------------ -------- ----------- -------- -----------
Germany 4,566 3,246 4,637 3,465
------------ -------- ----------- -------- -----------
France 3,537 2,336 3,772 2,564
------------ -------- ----------- -------- -----------
USA 3,405 5,486 3,575 6,143
------------ -------- ----------- -------- -----------
Other 16,725 7,307 16,080 7,900
============ ======== =========== ======== ===========
Total Group 32,791 18,477 32,562 20,176
============ ======== =========== ======== ===========
Non-current assets comprise intangible assets, property, plant
and equipment and investments accounted for using the equity
method.
4. PROFIT BEFORE TAX
Profit before tax is stated after charging/(crediting):
GBP million 2021 2020
========================================================= =====
Raw materials and consumables used 947 947
---------------------------------------------------------- ----- -----
Changes in inventories of finished goods - Tobacco & NGP 2,700 2,781
---------------------------------------------------------- ----- -----
Changes in inventories of finished goods - Distribution 7,009 6,798
---------------------------------------------------------- ----- -----
Depreciation and impairment of fixed assets 170 205
---------------------------------------------------------- ----- -----
Amortisation and impairment of intangible assets 575 628
---------------------------------------------------------- ----- -----
Acquisition and disposal costs 17 26
---------------------------------------------------------- ----- -----
Expenses relating to short-term leases 4 4
---------------------------------------------------------- ----- -----
Expenses relating to low value asset leases 2 2
---------------------------------------------------------- ----- -----
Depreciation of Right of use assets 66 72
---------------------------------------------------------- ----- -----
Net foreign exchange (gains)/losses (442) 258
---------------------------------------------------------- ----- -----
Write down of inventories 117 126
---------------------------------------------------------- ----- -----
Loss/(profit) on disposal of non-current assets 2 (2)
---------------------------------------------------------- ----- -----
(Write back)/impairment of trade receivables (10) 44
========================================================== ===== =====
ANALYSIS OF FEES PAYABLES TO ERNST AND YOUNG LLP AND ITS
ASSOCIATES
GBP million 2021 2020
===================================================== ==== ====
Parent Company and consolidated financial statements 2.0 1.9
------------------------------------------------------ ---- ----
The Company's subsidiaries 5.1 4.7
------------------------------------------------------ ---- ----
Audit related assurance services 0.4 0.4
====================================================== ==== ====
Total audit related fees 7.5 7.0
------------------------------------------------------ ---- ----
Other assurance services 0.4 0.2
====================================================== ==== ====
Total non-audit fees 0.4 0.2
====================================================== ==== ====
Total auditor's remuneration 7.9 7.2
------------------------------------------------------ ---- ----
Ernst & Young LLP was appointed the Group's auditor for the
year ended 30 September 2020.
PwC (the Group's previous auditor) provided services to Logista
relating to preparation of their consolidation financial statements
amounting to GBPnil (2020: GBP0.2m).
5. RESTRUCTURING COSTS
GBP million 2021 2020
=================== ==== ====
Employment related 145 103
------------------- ---- ----
Asset impairments 92 58
------------------- ---- ----
Other charges 20 44
=================== ==== ====
257 205
=================== ==== ====
Restructuring costs analysed by workstream:
GBP million 2021 2020
================================ ==== ====
2021 Strategic review programme 226 -
--------------------------------- ---- ----
Cost optimisation programmes 23 187
--------------------------------- ---- ----
Other 8 18
================================= ==== ====
257 205
================================ ==== ====
The charge for the year of GBP257 million (2020: GBP205 million)
predominantly relates to our 2021 Strategic review programme and
Cost optimisation programmes.
Restructuring costs are included within administrative and other
expenses in the consolidated income statement. All restructuring
costs are treated as adjusting items.
These projects differ from everyday initiatives that are
undertaken to improve the efficiency and effectiveness of the
ongoing operations business. These costs are required in order to
address structural issues involved in operating within the Tobacco
sector that require action to both modernise and right-size the
organisation, ultimately delivering an operating model suitable for
the future of the business.
2021 strategic review programme
In January 2021, the Group announced the results of a Strategic
Review Programme including an associated and specific time-bound
restructuring programme. The Group expects the majority of the
associated restructuring costs to have been incurred by September
2022. Total restructuring costs in respect of the programme are
expected to be in the range of GBP375 million - GBP425 million.
Restructuring costs of GBP226 million (2020: GBPnil) related to
the 2021 Strategic Review Programme have been incurred in the year,
representing GBP153 million costs in respect of the change
programme itself and GBP73 million of impairments associated with
NGP assets.
2021 Strategic Review Programme cash spend for the year was
GBP48 million (2020 GBPnil).
Cost optimisation programmes
The cost optimisation programmes (Phase I announced in 2013 and
Phase II announced in November 2016) was part of the Group strategy
to optimise costs and drive operational efficiencies. The
programmes were time bound projects which, given their scale, were
delivered over a number of years. Phase I was concluded at the end
of 2018 and Phase II was concluded at the end of 2021. Whilst both
programmes are concluded there remain some ongoing cash costs.
Phase II of the programme focused on reducing product costs and
overheads. Phase II cash spend for the year was GBP41 million
(2020: GBP107 million), bringing the cumulative cash cost of the
programme to GBP548 million as at September 2021. Phase II is
currently delivering savings of c. GBP320 million per annum as at
September 2021.
Phase I cash spend for the year was GBP12 million (2020: GBP16
million), bringing the cumulative cash cost of the programme to
GBP571 million as at September 2021. Phase I has delivered savings
of c. GBP305 million per annum from September 2018.
Restructuring costs of GBP23 million (2020: GBP187 million)
related to the Cost optimisation programmes includes GBP19 million
of impairments associated with tangible assets.
Other restructuring activities
In the year GBP8 million (2020: GBP10 million) of restructuring
costs related to Logista.
There are GBPnil (2020: GBP8 million) Other restructuring costs
that do not relate to Logista.
In the year other restructuring cash spend was GBP11
million.
6. ALTERNATIVE PERFORMANCE MEASURES
RECONCILIATION FROM OPERATING PROFIT TO ADJUSTED OPERATING
PROFIT
GBP million Notes 2021 2020
==================================================== ===== ===== =====
Operating profit 3,146 2,731
----------------------------------------------------- ----- ----- -----
Acquisition and disposal costs 11 17 26
----------------------------------------------------- ----- ----- -----
Amortisation and impairment of acquired intangibles 12/15 450 523
----------------------------------------------------- ----- ----- -----
Excise tax provision (1) (20)
----------------------------------------------------- ----- ----- -----
Fair value adjustment of loan receivable 21 (15) 62
----------------------------------------------------- ----- ----- -----
Profit on disposal of subsidiaries (281) -
----------------------------------------------------- ----- ----- -----
Restructuring costs 5 257 205
===================================================== ===== ===== =====
Adjusted operating profit 3,573 3,527
===================================================== ===== ===== =====
Organic adjusted operating profit 3,570 3,496
----------------------------------------------------- ----- ----- -----
Premium cigar divestment adjusted operating profit 3 31
===================================================== ===== ===== =====
Adjusted operating profit 3,573 3,527
===================================================== ===== ===== =====
Amortisation and impairment of acquired intangibles, acquisition
and disposal costs and restructuring costs are discussed in further
detail in the above referenced notes.
RECONCILIATION FROM REPORTED NET FINANCE COSTS TO ADJUSTED NET
FINANCE COSTS
GBP million 2021 2020
============================================================ ===== =====
Reported net finance (income)/costs (81) 610
============================================================= ===== =====
Fair value gains on derivative financial instruments 508 661
------------------------------------------------------------- ----- -----
Fair value losses on derivative financial instruments (457) (581)
------------------------------------------------------------- ----- -----
Exchange (gains)/losses on financing activities 445 (256)
============================================================= ===== =====
Net fair value and exchange losses on financial instruments 496 (176)
============================================================= ===== =====
Interest income on net defined benefit assets 89 99
------------------------------------------------------------- ----- -----
Interest cost on net defined benefit liabilities (87) (104)
============================================================= ===== =====
Post-employment benefits net financing cost 2 (5)
============================================================= ===== =====
Adjusted net finance costs 417 429
============================================================= ===== =====
Comprising
------------------------------------------------------------ ----- -----
Interest income on bank deposits (18) (10)
------------------------------------------------------------- ----- -----
Interest cost on lease liabilities 7 7
------------------------------------------------------------- ----- -----
Interest cost on bank and other loans 428 432
============================================================= ===== =====
Adjusted net finance costs 417 429
============================================================= ===== =====
CASH CONVERSION CALCULATION
GBP million unless otherwise indicated 2021 2020
======================================================== ===== =====
Net cash flow from operating activities 2,167 4,030
========================================================= ===== =====
Tax 820 568
--------------------------------------------------------- ----- -----
Net capital expenditure (150) (274)
--------------------------------------------------------- ----- -----
Restructuring spend 112 145
========================================================= ===== =====
Cash flow post capital expenditure pre interest and tax 2,949 4,469
========================================================= ===== =====
Adjusted operating profit 3,573 3,527
========================================================= ===== =====
Cash Conversion % 83% 127%
========================================================= ===== =====
7. DIRECTORS AND EMPLOYEES
EMPLOYMENT COSTS
GBP million 2021 2020
=============================== ===== =====
Wages and salaries 775 812
-------------------------------- ----- -----
Social security costs 177 184
-------------------------------- ----- -----
Other pension costs (note 24) 75 68
-------------------------------- ----- -----
Share-based payments (note 27) 25 20
================================ ===== =====
1,052 1,084
=============================== ===== =====
OPERATING EXECUTIVE (EXCLUDING EXECUTIVE DIRECTORS)
GBP million 2021 2020
========================== ==== ====
Base salary 3.0 2.0
-------------------------- ---- ----
Benefits 0.7 -
-------------------------- ---- ----
Pension salary supplement 0.3 -
-------------------------- ---- ----
Bonus 2.9 1.6
-------------------------- ---- ----
Termination payments - -
-------------------------- ---- ----
LTIP annual vesting(1) 0.8 -
-------------------------- ---- ----
SMS annual vesting(1) - 0.1
========================== ==== ====
7.7 3.7
========================== ==== ====
1. Share plans vesting represent the value of SMS and LTIP
awards where the performance periods ends in the year. The SMS has
no performance conditions and is valued at the time of vesting
being 15 February at a share price of GBP15.0657
Note: aggregate remuneration paid to or receivable by Executive
directors, Non-Executive Directors and members of the Operating
Executive for qualifying services in accordance with IAS 24, which
includes National Insurance and similar charges was GBP16,422,230
(2020: GBP9,239,049).
KEY MANAGEMENT COMPENSATION (1)
GBP million 2021 2020
================================================= ==== ====
Short term employee benefits 12.7 9.2
-------------------------------------------------- ---- ----
Post-employment benefits 0.5 2.0
-------------------------------------------------- ---- ----
Other long-term benefits - -
------------------------------------------------- ---- ----
Termination payments - -
------------------------------------------------- ---- ----
Share based payments (in accordance with IAS 24) 0.9 0.2
================================================== ==== ====
14.1 11.4
================================================= ==== ====
1. Key management includes Directors, members of the Executive
Committee and the Company Secretary
Details of Directors' emoluments and interests, and of key
management compensation which represent related party transactions
requiring disclosure under IAS 24, are provided within the
Directors' Remuneration Report.
NUMBER OF PEOPLE EMPLOYED BY THE GROUP DURING THE YEAR
2021 2020
=================== ===================
At 30 At 30
September Average September Average
============== ========== ======= ========== =======
Tobacco & NGP 24,100 24,000 26,300 25,900
-------------- ---------- ------- ---------- -------
Distribution 6,200 6,200 6,200 6,200
============== ========== ======= ========== =======
30,300 30,200 32,500 32,100
============== ========== ======= ========== =======
NUMBER OF PEOPLE EMPLOYED BY THE GROUP BY LOCATION DURING THE
YEAR
2021 2020
=================== ===================
At 30 At 30
September Average September Average
====================== ========== ======= ========== =======
UK and European Union 14,600 14,700 14,900 15,100
---------------------- ---------- ------- ---------- -------
Americas 8,300 8,000 8,900 8,400
---------------------- ---------- ------- ---------- -------
Rest of the World 7,400 7,500 8,700 8,600
====================== ========== ======= ========== =======
30,300 30,200 32,500 32,100
====================== ========== ======= ========== =======
The average number of employees includes 2,500 La Romana
employees that are expected to leave the Group in 2022 as part of
the final part of the Premium Cigar Division disposal. Excluding
these employees, the average number of employees was 27,700 on a
pro-forma basis.
8. TAX
The major components of income tax expense for the years ended
30 September 2021 and 2020 are:
GBP million 2021 2020
========================================================= ==== ====
UK Current tax
========================================================= ==== ====
Current year charged to the consolidated
income statement 21 97
========================================================== ==== ====
Current year charged to consolidated other comprehensive
income 105 10
=========================================================== ==== ====
Total current year UK current tax 126 107
========================================================== ==== ====
Adjustments in respect of prior years charged to the
consolidated income statement (38) 26
============================================================ ==== ====
Total UK current tax 88 133
============================================================ ==== ====
Overseas current tax
========================================================= ==== ====
Current year charged to the consolidated
income statement 458 458
---------------------------------------------------------- ---- ----
Current year charged to consolidated other comprehensive
income (2) -
=========================================================== ==== ====
Total current year overseas current tax 456 458
========================================================== ==== ====
Adjustments in respect of prior years charged to the
consolidated income statement 46 12
============================================================ ==== ====
Total overseas current tax 502 470
============================================================ ==== ====
Total current tax charged to the consolidated statement
of other comprehensive income 590 603
============================================================ ==== ====
GBP million 2021 2020
============================================================== ===== ====
UK Current tax
============================================================== ===== ====
Current year 21 97
=============================================================== ===== ====
Adjustments in respect of prior years (38) 26
=============================================================== ===== ====
Overseas current tax
============================================================== ===== ====
Current year 458 458
=============================================================== ===== ====
Adjustments in respect of prior years 46 12
=============================================================== ===== ====
Total current tax 487 593
=============================================================== ===== ====
Deferred tax
-------------------------------------------------------------- ----- ----
Relating to origination and reversal of temporary differences (156) 15
=============================================================== ===== ====
Total tax charged to the consolidated income statement 331 608
=============================================================== ===== ====
GBP million 2021 2020
====================================================== ==== ====
Tax related to items recognised in consolidated other
comprehensive income during the year:
--------------------------------------------------------- ---- ----
Current tax on hedge of net investment 105 10
------------------------------------------------------- ---- ----
Current tax on actuarial gains and losses (2) -
======================================================= ==== ====
Total current tax 103 10
========================================================= ==== ====
Deferred tax on hedge of net investment 12 80
------------------------------------------------------- ---- ----
Deferred tax on actuarial gains and losses 21 53
======================================================= ==== ====
Total deferred tax 33 133
========================================================= ==== ====
Total tax charged to consolidated other comprehensive
income 136 143
======================================================== ==== ====
RECONCILIATION FROM REPORTED TAX TO ADJUSTED TAX
The table below shows the tax impact of the adjustments made to
reported profit before tax in order to arrive at the adjusted
measure of earnings disclosed in note 10.
GBP million 2021 2020
===================================================== ==== ====
Reported tax 331 608
------------------------------------------------------- ---- ----
Deferred tax on amortisation of acquired intangibles 31 57
------------------------------------------------------ ---- ----
Current tax on excise tax provision - (4)
------------------------------------------------------- ---- ----
Tax on net foreign exchange and fair value gains and
losses on financial instruments 78 (63)
------------------------------------------------------- ---- ----
Tax on post-employment benefits net financing cost 1 1
------------------------------------------------------ ---- ----
Tax on restructuring costs 72 31
------------------------------------------------------- ---- ----
Tax on disposal of premium cigar division 11 (19)
------------------------------------------------------ ---- ----
Recognition of tax credits 239 67
------------------------------------------------------ ---- ----
Uncertain tax positions - (77)
------------------------------------------------------- ---- ----
Tax on unrecognised losses (47) 41
======================================================= ==== ====
Adjusted tax charge 716 642
======================================================= ==== ====
The use of adjusted performance measures is explained in note 1,
Accounting Policies (Use of Adjusted Performance Measures).
FACTORS AFFECTING THE TAX CHARGE FOR THE YEAR
The tax on the Group's profit before tax differs from the
theoretical amount that would arise using the average UK
corporation tax rate of 19.0 per cent (2020: 19.0 per cent) as
follows:
GBP million 2021 2020
============================================================ ===== =====
Profit before tax 3,238 2,166
============================================================== ===== =====
Tax at the UK corporation tax rate of 19.0% (2020:
19.0%) 615 411
-------------------------------------------------------------- ----- -----
Tax effects of:
------------------------------------------------------------ ----- -----
Differences in effective tax rates on overseas
earnings 107 100
------------------------------------------------------------- ----- -----
Movement in provision for uncertain tax positions 49 61
------------------------------------------------------------- ----- -----
Remeasurement of deferred tax balances arising from changes
in tax rates 15 9
-------------------------------------------------------------- ----- -----
Recognition of deferred tax assets for tax credits (239) -
------------------------------------------------------------- ----- -----
Remeasurement of previously recognised deferred
tax assets (5) (81)
------------------------------------------------------------- ----- -----
Increase in unrecognised deferred tax assets 12 30
------------------------------------------------------------- ----- -----
Deferred tax on unremitted earnings (4) (19)
-------------------------------------------------------------- ----- -----
Share of profit of investments accounted for using the
equity method (2) (8)
-------------------------------------------------------------- ----- -----
Non-deductible expenses/(non-taxable income) 35 (4)
-------------------------------------------------------------- ----- -----
(Non-taxable gains)/non-deductible losses on net
foreign exchange on financial instruments (169) 80
------------------------------------------------------------- ----- -----
Non-taxable gain on Premium Cigar Division disposal (81) -
------------------------------------------------------------- ----- -----
Adjustments in respect of prior years (2) 29
============================================================= ===== =====
Total tax charged to the consolidated income statement 331 608
============================================================= ===== =====
Differences in effective tax rates on overseas earnings
represents the impact of worldwide profits being taxed at rates
different from 19.0 per cent. The effective tax rate benefits from
internal financing arrangements between group subsidiaries in
different countries which are subject to differing tax rates and
legislation and the application of double taxation treaties.
Recognition of deferred tax assets for credits includes GBP239
million (2020: GBPnil) in the Group's Spanish business arising from
an internal reorganisation during the year.
Remeasurement of previously recognised deferred tax assets
includes GBP8 million recognition (2020: GBP18 million) in relation
to deferred tax assets for tax losses in the Group's Dutch
business, GBPnil recognition (2020:GBP15 million) in relation to
deferred tax assets for tax credits and losses in the Group's
Spanish business and GBPnil recognition (2020: GBP45 million) in
relation to deferred tax assets for tax losses in the Group's US
business. The Group's assessment of the recoverability of deferred
tax assets is based on a review of underlying performance of
subsidiaries, changes in tax legislation and the interpretation
thereof and changes in the group structure.
The remeasurement of deferred tax balances arising from changes
in tax rates for the year is GBP15 million (2020: GBP9
million).
During the year the Group has decreased the provision for
deferred tax on unremitted earnings by GBP4 million (2020: GBP19
million decrease). The tax will arise on the distribution of
profits through the group and on planned group simplification.
MOVEMENT ON THE CURRENT TAX ACCOUNT
GBP million 2021 2020
================================================= ===== =====
At 1 October (144) (118)
------------------------------------------------- ----- -----
Charged to the consolidated income statement (487) (593)
------------------------------------------------- ----- -----
(Charged)/credited to other comprehensive income (103) 10
------------------------------------------------- ----- -----
Credited to equity - 1
------------------------------------------------- ----- -----
Cash paid 820 568
------------------------------------------------- ----- -----
Exchange movements 3 (13)
------------------------------------------------- ----- -----
Other movements (7) 1
================================================= ===== =====
At 30 September 82 (144)
================================================= ===== =====
The cash tax paid in the year is GBP333 million higher than the
current tax charge (2020: GBP25 million lower). This arises as a
result of timing differences between the accrual of income taxes
and the actual payment of cash and the movement in the provision
for uncertain tax positions.
Analysis of current tax account
GBP million 2021 2020
========================== ===== =====
State aid tax recoverable 101 -
-------------------------- ----- -----
Current tax assets 234 206
-------------------------- ----- -----
Current tax liabilities (253) (350)
========================== ===== =====
82 (144)
========================== ===== =====
UNCERTAIN TAX POSITIONS
As an international business the Group is exposed to uncertain
tax positions and changes in legislation in the jurisdictions in
which it operates. The Group's uncertain tax positions principally
include cross border transfer pricing, interpretation of new or
complex tax legislation and tax arising on the valuation of
assets.
Provisions arising from uncertain tax positions taken in the
calculation of tax assets and liabilities are included within
current tax liabilities. At 30 September 2021 the total value of
these provisions, including foreign exchange movements, was GBP306
million (2020: GBP273 million). The assessment of uncertain tax
positions is subjective and significant management judgement is
required. This judgement is based on current interpretation of
legislation, management experience and professional advice. Until
matters are finally concluded it is possible that amounts
ultimately paid will be different from the amounts provided.
Management have assessed the Group's provision for uncertain tax
positions and have concluded that apart from the matters referred
to below the provisions in place are not material individually or
in aggregate, and that a reasonably possible change in the next
financial year would not have a material impact to the results of
the Group.
French Tax Litigation
In November 2015 the Group received a challenge from the French
tax authorities that could lead to additional tax liabilities of up
to GBP234 million. The challenge concerns the valuation placed on
the shares of Altadis Distribution France (now known as Logista
France) following an intragroup transfer of shares in October 2012
and the tax consequences flowing from a potentially higher value
that is argued for by the tax authorities. In October 2018 the
Commission Nationale, an independent adjudication body, whose
decision is advisory only, issued a report supportive of the
Group's arguments for no adjustment. In December 2018 the French
tax authorities issued their final assessments seeking the full
amount of additional tax assessed of GBP234 million (2020: GBP248
million). In January 2019 the Group appealed against the
assessment. In August 2020, the French tax authorities rejected the
Group's appeal and the matter will now proceed to litigation. As of
September 2021, all submissions have been made to the court and we
await a hearing date. The Group believes it is appropriate to
maintain a GBP41 million (2020: GBP44 million) provision for
uncertain tax positions in respect of this matter.
State Aid UK CFC
The Group continues to monitor developments in relation to EU
State Aid investigations. On 25 April 2019, the EU Commission's
final decision regarding its investigation into the UK's Controlled
Foreign Company regime was published. It concludes that the
legislation up until December 2018 does partially represent State
Aid. The UK Government has appealed to the European Court seeking
annulment of the EU Commission's decision. The Group, along with a
number of UK corporates, has made a similar application to the
European Court. The UK Government is obliged to collect any State
Aid granted pending the outcome of the European Court process.
Based on advice, the Group's position remains that no State Aid
has been received, but following HMRC guidance an assessment of
potential State Aid was submitted to HMRC in July 2020. In February
2021 a charging notice for GBP101 million, in line with the Group's
assessment, was issued to the Group by HMRC and has since been
paid. Advice to date is that our appeal and that of the UK
government against the Commission's decision should ultimately be
successful so a current tax receivable of GBP101 million has been
recognised as a non-current asset.
Based upon current advice the Group does not consider any
provision is required in relation to any other EU State Aid
investigation.
Transfer Pricing
The Group has tax audits in progress, relating to transfer
pricing matters in a number of jurisdictions, principally UK,
France and Germany. The Group estimates the potential gross level
of exposure relating to transfer pricing issues is approximately
GBP900 million (2020: GBP800 million). The Group holds a provision
of GBP260 million (2020: GBP207 million) in respect of these
items.
In August 2020 the Group notified HMRC of a potential Diverted
Profits Tax (DPT) issue relating to brand rewards. In September
2020, HMRC issued a preliminary notice under the DPT regime in
respect of the year ended 30 September 2016 indicating a potential
liability of c. GBP6 million. Collaborative discussions on the
issue continue and it is the Group's belief the issue is a transfer
pricing one, and will be resolved as such. In November 2020, HMRC
issued a final DPT notice, which has now been paid. In September
2021, further preliminary DPT notices were received in respect of
the year ended 30 September 2017 indicating a potential liability
of c. GBP4 million. Based on advice, the Group continues to believe
this is a transfer pricing matter, but if a settlement is not
reached before December 2021 the c. GBP4 million DPT notice will be
payable. On conclusion of the transfer pricing discussions, an
appropriate refund is anticipated for all DPT payments.
The Group believe the transfer pricing provision held above
appropriately provides for this and other transfer pricing
issues.
9. DIVIDS
DISTRIBUTIONS TO ORDINARY EQUITY HOLDERS
GBP million 2021 2020 2019
=================================================== ===== ===== =====
Paid interim of 42.12 pence per share (2020: 41.70
pence, 2019: 62.56 pence)
------------------------------------------------------- ----- ----- -----
- Paid June 2019 - - 298
------------------------------------------------------- ----- ----- -----
- Paid September 2019 - - 298
------------------------------------------------------- ----- ----- -----
- Paid December 2019 - - 679
------------------------------------------------------- ----- ----- -----
- Paid June 2020 - 197 -
------------------------------------------------------- ----- ----- -----
- Paid September 2020 - 197 -
------------------------------------------------------- ----- ----- -----
- Paid December 2020 - 453 -
------------------------------------------------------- ----- ----- -----
- Paid June 2021 199 - -
------------------------------------------------------- ----- ----- -----
- Paid September 2021 199 - -
======================================================= ===== ===== =====
Interim dividend paid 398 847 1,275
======================================================= ===== ===== =====
Proposed interim of 48.48 pence per share (2020:
48.00 pence, 2019: 72.00 pence)
------------------------------------------------------- ----- ----- -----
- To be paid December 2021 458 - -
======================================================= ===== ===== =====
Interim dividend proposed 458 - -
======================================================= ===== ===== =====
Proposed final of 48.48 pence per share (2020:
48.01 pence, 2019: 72.01 pence)
------------------------------------------------------ ----- ----- -----
- Paid March 2020 - - 680
------------------------------------------------------- ----- ----- -----
- Paid March 2021 - 454 -
------------------------------------------------------- ----- ----- -----
- To be paid March 2022 458 - -
======================================================= ===== ===== =====
Final dividend 458 454 680
======================================================= ===== ===== =====
Total ordinary share dividends of 139.08 pence per
share (2020: 137.71 pence, 2019: 206.57 pence) 1,314 1,301 1,955
======================================================= ===== ===== =====
The third interim dividend for the year ended 30 September 2021
of 48.48 pence per share amounts to a proposed dividend of GBP458
million, which will be paid in December 2021.
The proposed final dividend for the year ended 30 September 2021
of 48.48 pence per share amounts to a proposed dividend payment of
GBP458 million in March 2022 based on the number of shares ranking
for dividend at 30 September 2021, and is subject to shareholder
approval. If approved, the total dividend paid in respect of 2021
will be GBP1,314 million (2020: GBP1,301 million). The dividend
paid during 2021 is GBP1,305 million (2020: GBP1,753 million).
10. EARNINGS PER ORDINARY SHARE
Basic earnings per share is based on the profit for the period
attributable to the owners of the parent and the weighted average
number of ordinary shares in issue during the period excluding
shares held to satisfy the Group's employee share schemes and
shares purchased by the Company and held as treasury shares.
Diluted earnings per share have been calculated by taking into
account the weighted average number of shares that would be issued
if rights held under the employee share schemes were exercised. No
instruments have been excluded from the calculation for any period
on the grounds that they are anti-dilutive.
GBP million 2021 2020
======================================================== ===== =====
Earnings: basic and diluted - attributable to owners of
the Parent Company 2,834 1,495
========================================================== ===== =====
Millions of shares 2021 2020
======================================================== ===== =====
Weighted average number of shares:
--------------------------------------------------------- ----- -----
Shares for basic earnings per share 945.0 944.4
--------------------------------------------------------- ----- -----
Potentially dilutive share options 2.5 1.4
========================================================= ===== =====
Shares for diluted earnings per share 947.5 945.8
========================================================= ===== =====
Pence 2021 2020
======================================================== ===== =====
Basic earnings per share 299.9 158.3
---------------------------------------------------------- ----- -----
Diluted earnings per share 299.1 158.1
========================================================== ===== =====
RECONCILIATION FROM REPORTED TO ADJUSTED EARNINGS AND EARNINGS
PER SHARE
2021 2020
==================== ====================
Earnings Earnings
GBP million unless otherwise per share per share
indicated (pence) Earnings (pence) Earnings
=================================================== ========== ======== ========== ========
Reported basic 299.9 2,834 158.3 1,495
------------------------------------------------------ ---------- -------- ---------- --------
Acquisition and disposal costs 1.8 17 2.8 26
---------------------------------------------------- ---------- -------- ---------- --------
Amortisation and impairment of
acquired intangibles 44.3 419 49.2 466
---------------------------------------------------- ---------- -------- ---------- --------
Profit on disposal of subsidiaries (29.7) (281) - -
---------------------------------------------------- ---------- -------- ---------- --------
Excise tax provision (0.1) (1) (1.7) (16)
------------------------------------------------------ ---------- -------- ---------- --------
Fair value adjustment of loan
receivable (1.6) (15) 6.6 62
---------------------------------------------------- ---------- -------- ---------- --------
Net fair value and exchange movements on financial
instruments (60.7) (574) 25.3 239
------------------------------------------------------ ---------- -------- ---------- --------
Post-employment benefits net financing cost (0.3) (3) 0.4 4
------------------------------------------------------ ---------- -------- ---------- --------
Restructuring costs 19.6 185 18.4 174
------------------------------------------------------ ---------- -------- ---------- --------
Tax on disposal of premium cigar
division (1.2) (11) 2.0 19
---------------------------------------------------- ---------- -------- ---------- --------
Recognition of tax credits (25.3) (239) (7.1) (67)
---------------------------------------------------- ---------- -------- ---------- --------
Uncertain tax positions - - 8.2 77
------------------------------------------------------ ---------- -------- ---------- --------
Tax on unrecognised losses 5.0 47 (4.3) (41)
------------------------------------------------------ ---------- -------- ---------- --------
Adjustments above attributable
to non-controlling interests (4.6) (43) (3.7) (35)
==================================================== ========== ======== ========== ========
Adjusted 247.1 2,335 254.4 2,403
====================================================== ========== ======== ========== ========
Adjusted diluted 246.4 2,335 254.1 2,403
====================================================== ========== ======== ========== ========
Organic adjusted 246.5 2,330 247.2 2,335
------------------------------------------------------ ---------- -------- ---------- --------
Premium Cigar divestment adjusted 0.6 5 7.2 68
==================================================== ========== ======== ========== ========
Adjusted 247.1 2,335 254.4 2,403
====================================================== ========== ======== ========== ========
Organic adjusted diluted 245.8 2,330 246.9 2,335
------------------------------------------------------ ---------- -------- ---------- --------
Premium Cigar divestment adjusted
diluted 0.6 5 7.2 68
==================================================== ========== ======== ========== ========
Adjusted diluted 246.4 2,335 254.1 2,403
====================================================== ========== ======== ========== ========
11. DISPOSAL OF SUBSIDIARIES
On 27 April 2020 the Group announced that it had agreed the sale
of the Premium Cigar Division ("the Division"). The total cash
receipts expected for the transaction are EUR1,198 million
(including the La Romana disposal - see below). The share sale
element of the sale of the Division completed on 29 October 2020
and to date EUR1,041 million (GBP845 million) of consideration has
been received. A further EUR88 million of deferred consideration
relating to the share sale was received on 26 October 2021.
The profit arising on disposal of the Division was GBP281
million and includes GBP337 million of foreign exchange gains that
had previously been recognised in the foreign exchange reserve and
that were recycled to the income statement on completion of the
transaction.
The sale of the La Romana factory in the Dominican Republic is
due to complete during the Group's 2022 financial year when it is
expected that EUR69 million of sales consideration will be received
subject to a true up in respect of inventory values. The carrying
value of the net assets of the La Romana factory total $64 million.
This sale of the La Romana factory does not meet the recognition
criteria for an asset held for sale as there is ongoing work to
separate the factory for disposal.
On 18 June 2021 a letter of intent to sell Supergroup S.A.S. was
agreed. At 30 September 2021, the Group has assessed the IFRS 5
criteria for presentation of the business as held for disposal.
Given the progress made on the sale the Group considers the IFRS 5
criteria to have been met and therefore it is highly probable that
a disposal will be completed. The Group has therefore presented the
net assets of Supergroup S.A.S. as current assets and liabilities
held for sale. A fair value adjustment of GBP3 million and a
reclassification of an associated provision of GBP9 million has
resulted in the non-current assets being written down to nil.
In addition to the above, certain assets within the Distribution
business have also been reclassified to assets held for sale due to
the existence of purchase offers from third parties. The value of
these assets on 30 September 2021 was GBP8 million.
The assets and liabilities classified as held for disposal are
as follows:
GBP million 2021 2020
================================================== ==== =====
Non-current assets
-------------------------------------------------- ---- -----
Intangible assets - 101
--------------------------------------------------- ---- -----
Property, plant and equipment 8 17
--------------------------------------------------- ---- -----
Investments accounted for using the equity method - 584
--------------------------------------------------- ---- -----
Trade and other receivables - 35
--------------------------------------------------- ---- -----
Right of use leased assets - 7
--------------------------------------------------- ---- -----
Deferred tax assets - 10
=================================================== ==== =====
8 754
================================================== ==== =====
Current assets
-------------------------------------------------- ---- -----
Inventories 9 166
--------------------------------------------------- ---- -----
Trade and other receivables 18 67
--------------------------------------------------- ---- -----
Cash and cash equivalents - 75
=================================================== ==== =====
27 308
================================================== ==== =====
Total assets 35 1,062
=================================================== ==== =====
Current liabilities
-------------------------------------------------- ---- -----
Trade and other payables (13) (35)
--------------------------------------------------- ---- -----
Tax liabilities (4) -
-------------------------------------------------- ---- -----
Provisions (18) (3)
=================================================== ==== =====
(35) (38)
================================================== ==== =====
Total liabilities (35) (38)
=================================================== ==== =====
Net assets - 1,024
=================================================== ==== =====
12. INTANGIBLE ASSETS
2021
======================================================
Intellectual
property
and product Supply
GBP million Goodwill development agreements Software Total
================================= ======== ============ =========== ======== =======
Cost
--------------------------------- -------- ------------ ----------- -------- -------
At 1 October 2020 14,435 12,994 1,463 465 29,357
---------------------------------- -------- ------------ ----------- -------- -------
Additions - 9 - 28 37
---------------------------------- -------- ------------ ----------- -------- -------
Disposals (260) 5 (2) (22) (279)
---------------------------------- -------- ------------ ----------- -------- -------
Exchange movements (758) (649) (74) (20) (1,501)
================================== ======== ============ =========== ======== =======
At 30 September 2021 13,417 12,359 1,387 451 27,614
================================== ======== ============ =========== ======== =======
Amortisation and impairment
--------------------------------- -------- ------------ ----------- -------- -------
At 1 October 2020 1,895 7,663 1,341 298 11,197
---------------------------------- -------- ------------ ----------- -------- -------
Amortisation charge for the year - 333 85 37 455
---------------------------------- -------- ------------ ----------- -------- -------
Impairment - 118 - 2 120
---------------------------------- -------- ------------ ----------- -------- -------
Disposals (260) - (1) (15) (276)
---------------------------------- -------- ------------ ----------- -------- -------
Exchange movements (93) (379) (70) (14) (556)
================================== ======== ============ =========== ======== =======
Accumulated amortisation - 7,196 1,355 304 8,855
---------------------------------- -------- ------------ ----------- -------- -------
Accumulated impairment 1,542 539 - 4 2,085
================================== ======== ============ =========== ======== =======
At 30 September 2021 1,542 7,735 1,355 308 10,940
================================== ======== ============ =========== ======== =======
Net book value
================================= ======== ============ =========== ======== =======
At 30 September 2021 11,875 4,624 32 143 16,674
================================== ======== ============ =========== ======== =======
2020
=====================================================
Intellectual
property
and product Supply
GBP million Goodwill development agreements Software Total
======================================= ======== ============ =========== ======== ======
Cost
--------------------------------------- -------- ------------ ----------- -------- ------
At 1 October 2019 14,232 13,021 1,423 421 29,097
---------------------------------------- -------- ------------ ----------- -------- ------
Additions - 74 - 38 112
---------------------------------------- -------- ------------ ----------- -------- ------
Disposals - (1) - (7) (8)
---------------------------------------- -------- ------------ ----------- -------- ------
Reclassifications (1) - - 7 6
---------------------------------------- -------- ------------ ----------- -------- ------
Transferred to held for disposal (note
11) - 7 2 - 9
---------------------------------------- -------- ------------ ----------- -------- ------
Exchange movements 204 (107) 38 6 141
======================================== ======== ============ =========== ======== ======
At 30 September 2020 14,435 12,994 1,463 465 29,357
======================================== ======== ============ =========== ======== ======
Amortisation and impairment
--------------------------------------- -------- ------------ ----------- -------- ------
At 1 October 2019 1,847 7,169 1,220 265 10,501
---------------------------------------- -------- ------------ ----------- -------- ------
Amortisation charge for the year - 466 85 33 584
---------------------------------------- -------- ------------ ----------- -------- ------
Impairment 12 29 - 2 43
---------------------------------------- -------- ------------ ----------- -------- ------
Disposals - - - (6) (6)
---------------------------------------- -------- ------------ ----------- -------- ------
Reclassifications (1) - - - (1)
---------------------------------------- -------- ------------ ----------- -------- ------
Exchange movements 37 (1) 36 4 76
======================================== ======== ============ =========== ======== ======
Accumulated amortisation - 7,242 1,341 296 8,879
---------------------------------------- -------- ------------ ----------- -------- ------
Accumulated impairment 1,895 421 - 2 2,318
======================================== ======== ============ =========== ======== ======
At 30 September 2020 1,895 7,663 1,341 298 11,197
======================================== ======== ============ =========== ======== ======
Net book value
======================================= ======== ============ =========== ======== ======
At 30 September 2020 12,540 5,331 122 167 18,160
======================================== ======== ============ =========== ======== ======
Amortisation and impairment of acquired intangibles excluded
from adjusted operating profit amounted to GBP450 million (2020:
GBP523 million), this comprises amortisation on intellectual
property of GBP320 million (2020: GBP466 million), impairment on
intellectual property of GBP45 million (2020: GBP14 million) and
amortisation on supply agreements of GBP85 million (2020: GBP85
million).
A further GBP73 million (2020: GBPnil) impairment of
intellectual property and product development assets has also been
recognised in restructuring costs and therefore excluded from
adjusted operating profits.
Intellectual property mainly comprises brands acquired in the
USA in 2015 and through the purchases of Altadis in 2008 and
Commonwealth Brands in 2007.
Supply agreements include Distribution customer relationships.
All were acquired as part of the Altadis purchase.
Intangible amortisation and impairment are included within
administrative and other expenses in the consolidated income
statement.
Amortisation and impairment in respect of intangible assets
other than software and internally generated intellectual property
are treated as reconciling items between reported operating profit
and adjusted operating profit, except to the extent these have been
treated as restructuring costs.
ACQUISITIONS
NERUDIA
On 23 October 2017, the Group acquired 100 per cent of the share
capital of Nerudia Limited. As previously disclosed, a portion of
the consideration remained contingent and was tied to certain
contractual pre-conditions. The matter is expected to conclude in
the near future.
GOODWILL AND INTANGIBLE ASSET IMPAIRMENT REVIEW
Goodwill is allocated to groups of cash-generating units (CGUs)
that are expected to benefit from the business combination in which
the goodwill arose. For the Tobacco & NGP business CGUs are
based on the markets where the business operates and are grouped in
line with the divisional structure in operation during the year.
The groupings represent the lowest level at which goodwill is
monitored for internal management purposes. A summary of the
carrying value of goodwill and intangible assets with indefinite
lives is set out below.
2021 2020
========================== ==========================
Intangible Intangible
assets assets
with indefinite with indefinite
GBP million Goodwill lives Goodwill lives
=========================== ======== ================ ======== ================
Europe 4,402 334 4,645 353
--------------------------- -------- ---------------- -------- ----------------
Americas 4,042 - 4,265 -
--------------------------- -------- ---------------- -------- ----------------
Africa, Asia & Australasia 1,740 132 1,836 140
=========================== ======== ================ ======== ================
Tobacco & NGP 10,184 466 10,746 493
--------------------------- -------- ---------------- -------- ----------------
Distribution 1,691 - 1,794 -
=========================== ======== ================ ======== ================
11,875 466 12,540 493
=========================== ======== ================ ======== ================
Goodwill has arisen principally on the acquisitions of Reemtsma
in 2002 (all CGU groupings), Commonwealth Brands in 2007 (USA),
Altadis in 2008 (all CGU groupings) and ITG Brands in 2015 (USA).
Intangible assets with indefinite lives relate to the tobacco
trademark, Davidoff, which was purchased as part of the acquisition
of Reemtsma in 2002.
The Group tests goodwill and intangible assets with indefinite
lives for impairment annually, or more frequently if there are any
indications that impairment may have arisen. The value of a Cash
Generating Unit Grouping (CGUG) is based on value-in-use
calculations. These calculations use cash flow projections derived
from financial plans of our Tobacco business which are based on
detailed bottom-up market-by-market forecasts of projected sales
volumes for each product line. These forecasts reflect, on an
individual market basis, numerous assumptions and estimates
regarding anticipated changes in market size, prices and duty
regimes, consumer uptrading and downtrading, consumer preferences
and other changes in product mix, based on long-term market trends,
market data, anticipated regulatory developments, and management
experience and expectations. We consider that pricing, market size,
market shares and cost inflation are the key assumptions used in
our plans.
GROWTH RATES AND DISCOUNT RATES USED
The compound annual growth rates implicit in these value-in-use
calculations are shown below.
2021 2020
========= ======= ========= ========= ======= =========
Pre-tax Initial Long-term Pre-tax Initial Long-term
discount growth growth discount growth growth
% rate rate rate rate rate rate
=========================== ========= ======= ========= ========= ======= =========
Europe 9.9 2.7 0.1 9.6 2.6 1.0
--------------------------- --------- ------- --------- --------- ------- ---------
Americas 9.8 5.7 1.6 8.8 1.3 1.9
--------------------------- --------- ------- --------- --------- ------- ---------
Africa, Asia & Australasia 12.1 1.7 0.3 12.9 0.4 2.1
--------------------------- --------- ------- --------- --------- ------- ---------
Distribution 11.2 1.5 1.4 13.0 0.8 1.6
=========================== ========= ======= ========= ========= ======= =========
Cash flows from the business plan period are used for year one,
two and three, then extrapolated out to year five using the
implicit growth rate, shown in the table above as the initial
growth rate. In certain markets, the extrapolated growth rate can
exceed the long term growth rate based on the business plan being a
better reflection of the anticipated initial growth. Estimated long
term weighted average compound growth rates are used beyond year
five.
Long term growth rates are determined as the lower of:
-- the nominal GDP growth rates for the country of operation; and
-- the extrapolation of the initial growth rates as estimated by management for years one to five
Long-term growth rates are based on management's long-term
expectations, taking account of industry specific factors such as
the nature of our products, the role of excise in government fiscal
policy, and relatively stable and predictable long-term macro
trends in the Tobacco industry. Year on year variations in initial
growth rates may result in consequential changes to estimated long
term rates.
Discount rates used are based on the Group's weighted average
cost of capital adjusted for the different risk profiles of the
CGUs. Our impairment projections are prepared under the basis set
out in IAS 36 which can differ from our internal plans.
Europe's initial growth rate is broadly consistent with the
prior year, and the long term growth rate has reduced reflecting
the alignment of outer year rates to reductions in initial growth
rates for certain markets.
Americas shows an increased initial growth rate driven by the
mass market cigar growth (improved sales and benefits from
manufacturing and investment in leaf supply), reduced one-off costs
for NGP & litigation settlements. The reduction in the long
term growth rates is based on changes in the macroeconomic
outlook.
Africa, Asia & Australasia (AAA) increases in the initial
growth rates are driven by improved medium term forecasts, which
are heavily influenced by changes in the Australian market. The
long term growth rate reduction reflects changes in certain
assumptions associated with the extrapolation of the initial growth
rate for a number of individual markets.
The Distribution discount rate reflects reductions in the
country risk premium driven by macroeconomic factors. The initial
growth rates reflects improved medium term forecasts.
Our impairment testing confirms there are sufficient cash flows
to support the current carrying values of the goodwill held at 30
September 2021. Any reasonable movement in the assumptions used in
the impairment tests would not result in an impairment. The
complexity of the estimation process and issues related to the
assumptions, risks and uncertainties inherent in the application of
the Group's accounting estimates in relation to intangible assets
affect the amounts reported in the financial statements, especially
the estimates of the expected useful economic lives and the
carrying values of those assets. If business conditions materially
change it is likely that materially different amounts could be
reported in the Group's financial statements. There are
uncertainties associated with estimating the valuation of the
recoverable amount.
At the present time the recoverable amount is significantly in
excess of the carrying value of goodwill and other intangible
assets. However, given the uncertainties mentioned above this could
change in the future.
Consideration of the impact of climate change
In terms of the possible impacts of climate change, the two key
metrics that could be sensitive to this are the initial and the
long-term growth rate. If climate change has a negative impact on
product sales revenues and/or the operating costs of the Group
there could be a potential impact on the discounted cash flow
growth rates used within the valuation model. Lower future growth
rates would reduce the level of the discounted cash flow valuation
and hence the amount of headroom available to the Group above an
impairment trigger. At present, the material short to medium term
risks presented by possible climate change impacts will be factored
into the initial growth rates where they are known and can be
quantified. For example, government regulatory changes which impact
operating costs will be recognised where they are known.
However, the current level of headroom for goodwill is
substantial for the Group. Using the current growth rate
assumptions, on a CGUG basis, the total value of assets will be
recovered via the discounted cash flows within a maximum of 9
years. Therefore, at present, changes in the long-term growth rates
beyond this period due to the impact of climate change would not be
expected to trigger an impairment.
OTHER INTANGIBLE ASSETS
Other intangible assets are considered for impairment risk. The
carrying values of brand intangibles are reviewed against expected
future cash flows of associated products. Impairment will only be
recognised where there is evidence that the carrying value of the
brand cannot be recovered through those cash flows. No impairments
have been recognised for brand intangibles.
Intellectual property and product development intangible assets
have also been reviewed to identify potential impairment triggers.
The impact of the 2021 strategic review programme, which was
announced in the current financial year, has been identified as an
impairment trigger. The change in commercial plans has resulted in
the exit of NGP product offerings in certain markets and the
implementation of a different approach to future product
development, which focuses on achieving the best potential for
sustainable growth and is being led by consumer needs. The change
in strategy has meant that certain previously acquired intangible
assets and internally generated development assets are now no
longer required to support the business. As a result of this, these
assets have been determined to have a nil residual value. This has
resulted in an impairment of GBP118 million relating to NGP
intangible assets (intellectual property and product development)
in the year (2020: GBP29 million). Of this impairment charge GBP73
million related to internally generated intangible assets and has
been taken as a restructuring cost and the remaining GBP45 million
has been recognised as an impairment charge within amortisation and
impairment of acquired intangible assets, both of which are
excluded from adjusted operating profit. The impairment of GBP118
million is split between Europe (GBP96 million) and Americas (GBP22
million) operating segments.
A further GBP2 million (2020: GBP2 million) impairment charge
was incurred in the year relating to software.
13. PROPERTY, PLANT AND EQUIPMENT
2021
===========================================
Fixtures
Plant and motor
GBP million Property and equipment vehicles Total
============================================= ======== ============== ========== =====
Cost
--------------------------------------------- -------- -------------- ---------- -----
At 1 October 2020 905 2,216 438 3,559
----------------------------------------------- -------- -------------- ---------- -----
Additions 13 99 53 165
----------------------------------------------- -------- -------------- ---------- -----
Disposals (78) (114) (43) (235)
----------------------------------------------- -------- -------------- ---------- -----
Reclassifications 4 1 (4) 1
----------------------------------------------- -------- -------------- ---------- -----
Transfer to current assets held for disposal (8) - (12) (20)
----------------------------------------------- -------- -------------- ---------- -----
Exchange movements (39) (116) (21) (176)
=============================================== ======== ============== ========== =====
At 30 September 2021 797 2,086 411 3,294
=============================================== ======== ============== ========== =====
Depreciation and impairment
--------------------------------------------- -------- -------------- ---------- -----
At 1 October 2020 188 1,190 282 1,660
----------------------------------------------- -------- -------------- ---------- -----
Depreciation charge for the year 20 104 33 157
---------------------------------------------- -------- -------------- ---------- -----
Impairment 2 11 - 13
----------------------------------------------- -------- -------------- ---------- -----
Disposals (40) (93) (30) (163)
----------------------------------------------- -------- -------------- ---------- -----
Reclassifications 4 (6) (2) (4)
----------------------------------------------- -------- -------------- ---------- -----
Exchange movements (12) (60) (12) (84)
=============================================== ======== ============== ========== =====
At 30 September 2021 162 1,146 271 1,579
=============================================== ======== ============== ========== =====
Net book value
============================================= ======== ============== ========== =====
At 30 September 2021 635 940 140 1,715
=============================================== ======== ============== ========== =====
2020
===========================================
Fixtures
Plant and motor
GBP million Property and equipment vehicles Total
=================================== ======== ============== ========== =====
Cost
----------------------------------- -------- -------------- ---------- -----
At 1 October 2019 909 2,193 440 3,542
------------------------------------ -------- -------------- ---------- -----
Additions 11 122 41 174
------------------------------------ -------- -------------- ---------- -----
Disposals (16) (65) (30) (111)
------------------------------------ -------- -------------- ---------- -----
Reclassifications 3 1 (13) (9)
------------------------------------ -------- -------------- ---------- -----
Exchange movements (2) (35) - (37)
==================================== ======== ============== ========== =====
At 30 September 2020 905 2,216 438 3,559
==================================== ======== ============== ========== =====
Depreciation and impairment
----------------------------------- -------- -------------- ---------- -----
At 1 October 2019 181 1,104 278 1,563
------------------------------------ -------- -------------- ---------- -----
Depreciation charge for the year 18 117 34 169
------------------------------------ -------- -------------- ---------- -----
(Impairment write back)/impairment (2) 38 - 36
------------------------------------ -------- -------------- ---------- -----
Disposals (6) (49) (28) (83)
------------------------------------ -------- -------------- ---------- -----
Reclassifications (1) (2) (2) (5)
------------------------------------ -------- -------------- ---------- -----
Exchange movements (2) (18) - (20)
==================================== ======== ============== ========== =====
At 30 September 2020 188 1,190 282 1,660
==================================== ======== ============== ========== =====
Net book value
=================================== ======== ============== ========== =====
At 30 September 2020 717 1,026 156 1,899
==================================== ======== ============== ========== =====
14. RIGHT OF USE ASSETS AND LEASE LIABILITY
The movements in Right of Use Assets in the year were as
follows:
2021
======== ============== ========== =====
Fixtures
Plant and motor
GBP million Property and equipment vehicles Total
============================= ======== ============== ========== =====
Net book value
----------------------------- -------- -------------- ---------- -----
At 1 October 2020 254 8 31 293
----------------------------- -------- -------------- ---------- -----
Additions 29 2 22 53
----------------------------- -------- -------------- ---------- -----
Terminations & modifications (21) (2) (3) (26)
----------------------------- -------- -------------- ---------- -----
Depreciation (49) (2) (15) (66)
----------------------------- -------- -------------- ---------- -----
Exchange movements (11) - (1) (12)
============================= ======== ============== ========== =====
At 30 September 2021 202 6 34 242
----------------------------- -------- -------------- ---------- -----
The movements in lease liabilities in the year were as
follows:
Lease
GBP million Liabilities
========================================= ============
At 1 October 2020 299
------------------------------------------ ------------
Cash flow (69)
------------------------------------------ ------------
Accretion of interest 7
------------------------------------------ ------------
New leases, terminations & modifications 26
------------------------------------------ ------------
Exchange movements (12)
============
At 30 September 2021 251
------------------------------------------ ------------
The maturity profile of the carrying amount of the Group's lease
liabilities and the contractual cash flows as at 30 September 2021
is as follows:
2021
============ ============ ===========
Effect
Lease of Contractual
GBP million liabilities discounting cash flows
=========================== ============ ============ ===========
Amounts maturing:
--------------------------- ------------ ------------ -----------
Within one year 57 7 64
--------------------------- ------------ ------------ -----------
Between one and five years 124 17 141
--------------------------- ------------ ------------ -----------
In five years or more 70 8 78
=========================== ============ ============ ===========
251 32 283
=========================== ============ ============ ===========
Future minimum lease payments liabilities are analysed as
below:
2021
======== ============== ========== =====
Fixtures
Plant and motor
Property and equipment vehicles Total
============================================ ======== ============== ========== =====
Due in less than one year 47 2 15 64
--------------------------------------------- -------- -------------- ---------- -----
Due between one and five years 116 3 22 141
--------------------------------------------- -------- -------------- ---------- -----
Due in more than five years 78 - - 78
======== ============== ========== =====
Total future minimum lease payments payable 241 5 37 283
============================================= ======== ============== ========== =====
Effect of discounting (32)
--------------------------------------------- -------- -------------- ---------- -----
Lease liability 251
============================================= ======== ============== ========== =====
The following are the amounts recognised in the Consolidated
Income statement:
2021 2020
============================================ ==== ====
Expenses relating to short-term leases 4 4
--------------------------------------------- ---- ----
Expenses relating to low value asset leases 2 2
---------------------------------------------- ---- ----
Depreciation expense of Right of Use Assets 66 72
--------------------------------------------- ---- ----
Interest on lease liabilities 7 7
============================================== ==== ====
The movements in Right of Use Assets in the year ending 30
September 2020 were as follows:
2020
======== ============== ========== =====
Fixtures
Plant and motor
GBP million Property and equipment vehicles Total
============================= ======== ============== ========== =====
Net book value
----------------------------- -------- -------------- ---------- -----
At 1 October 2019 279 7 41 327
----------------------------- -------- -------------- ---------- -----
Additions 24 4 11 39
----------------------------- -------- -------------- ---------- -----
Terminations & modifications (2) - (4) (6)
----------------------------- -------- -------------- ---------- -----
Depreciation (52) (3) (17) (72)
----------------------------- -------- -------------- ---------- -----
Exchange movements 5 - - 5
============================= ======== ============== ========== =====
At 30 September 2020 254 8 31 293
============================= ======== ============== ========== =====
The movements in lease liabilities in the year ending 30
September 2020 were as follows:
Lease
GBP million Liabilities
========================================= ============
At 1 October 2019 326
------------------------------------------ ------------
Cash flow (72)
------------------------------------------ ------------
Accretion of interest 7
------------------------------------------ ------------
New leases, terminations & modifications 32
------------------------------------------ ------------
Exchange movements 6
At 30 September 2020 299
------------------------------------------ ------------
The maturity profile of the carrying amount of the Group's lease
liabilities and the contractual cash flows as at 30 September 2020
is as follows:
2020
============ =============== ===========
Lease Effect Contractual
GBP million liabilities of discounting cash flows
=========================== ============ =============== ===========
Amounts maturing:
--------------------------- ------------ --------------- -----------
Within one year 64 6 70
--------------------------- ------------ --------------- -----------
Between one and five years 160 15 175
--------------------------- ------------ --------------- -----------
In five years or more 75 12 87
=========================== ============ =============== ===========
299 33 332
=========================== ============ =============== ===========
Future minimum lease payments liabilities as at 30 September
2020 are analysed as below:
2020
======== ============== ========== =====
Fixtures
Plant and motor
Property and equipment vehicles Total
============================================ ======== ============== ========== =====
Due in less than one year 53 3 14 70
--------------------------------------------- -------- -------------- ---------- -----
Due between one and five years 151 5 19 175
--------------------------------------------- -------- -------------- ---------- -----
Due in more than five years 87 - - 87
============================================= ======== ============== ========== =====
Total future minimum lease payments payable 291 8 33 332
============================================= ======== ============== ========== =====
Effect of discounting (33)
--------------------------------------------- -------- -------------- ---------- -----
Lease liability 299
============================================= ======== ============== ========== =====
15. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
The principal joint ventures during the year were Corporación
Habanos SA, Cuba, Altabana SL, Spain and Global Horizon Ventures
Limited. Corporación Habanos SA, Cuba and Altabana SL, Spain were
disposed of on 29 October 2020 as part of the Premium Cigar
Division. Summarised financial information for the Group's joint
ventures, which are accounted for under the equity method, is shown
below:
2021
================ ======== ========= ====== =====
Global
Corporación Horizon
GBP million Habanos Altabana Ventures Others Total
======================== ================ ======== ========= ====== =====
Revenue 15 30 18 27 90
------------------------ ---------------- -------- --------- ------ -----
Profit after tax 5 5 13 5 28
======================== ================ ======== ========= ====== =====
Non-current assets - - 24 3 27
------------------------ ---------------- -------- --------- ------ -----
Current assets - - 47 49 96
======================== ================ ======== ========= ====== =====
Total assets - - 71 52 123
======================== ================ ======== ========= ====== =====
Current liabilities - - (3) (43) (46)
------------------------ ---------------- -------- --------- ------ -----
Non-current liabilities - - - (9) (9)
======================== ================ ======== ========= ====== =====
Total liabilities - - (3) (52) (55)
======================== ================ ======== ========= ====== =====
Net assets - - 68 - 68
======================== ================ ======== ========= ====== =====
2020
====================================================
Global
Corporación Horizon
GBP million Habanos Altabana Ventures Others Total
======================== ================ ======== ========= ====== =====
Revenue 188 322 10 61 581
------------------------ ---------------- -------- --------- ------ -----
Profit after tax 43 52 1 10 106
======================== ================ ======== ========= ====== =====
Non-current assets 458 27 - 11 496
------------------------ ---------------- -------- --------- ------ -----
Current assets 99 233 41 82 455
======================== ================ ======== ========= ====== =====
Total assets 557 260 41 93 951
======================== ================ ======== ========= ====== =====
Current liabilities (147) (40) (2) (16) (205)
------------------------ ---------------- -------- --------- ------ -----
Non-current liabilities (28) (5) - (45) (78)
======================== ================ ======== ========= ====== =====
Total liabilities (175) (45) (2) (61) (283)
======================== ================ ======== ========= ====== =====
Net assets 382 215 39 32 668
======================== ================ ======== ========= ====== =====
TRANSACTIONS AND BALANCES WITH JOINT VENTURES
GBP million 2021 2020
========================= ==== ====
Sales to 6 163
------------------------- ---- ----
Purchases from 19 111
------------------------- ---- ----
Accounts receivable from - -
------------------------- ---- ----
Accounts payable to (3) (24)
========================= ==== ====
MOVEMENT ON INVESTMENTS ACCOUNTED FOR USING THE EQUITY
METHOD
GBP million 2021 2020
================================================================ ==== ====
At 1 October 117 81
----------------------------------------------------------------- ---- ----
Share of profit for the year from joint ventures and associates 11 45
----------------------------------------------------------------- ---- ----
Increase in investment in associates 3 5
----------------------------------------------------------------- ---- ----
Impairment of investment in joint ventures - (1)
----------------------------------------------------------------- ---- ----
Dividends (9) (27)
----------------------------------------------------------------- ---- ----
Classification (to)/from held for disposal and disposals
of business (32) 50
----------------------------------------------------------------- ---- ----
Foreign exchange losses (2) (36)
================================================================= ==== ====
At 30 September 88 117
================================================================= ==== ====
16. INVENTORIES
GBP million 2021 2020
===================== ===== =====
Raw materials 839 1,001
--------------------- ----- -----
Work in progress 58 74
--------------------- ----- -----
Finished inventories 2,765 2,781
--------------------- ----- -----
Other inventories 172 209
===================== ===== =====
3,834 4,065
===================== ===== =====
Other inventories mainly comprise duty-paid tax stamps.
Within finished inventories of GBP2,765 million (2020: GBP2,781
million) there is excise duty of GBP1,282 million (2020: GBP1,312
million).
It is generally recognised industry practice to classify leaf
tobacco inventory as a current asset, although part of such
inventory, because of the duration of the processing cycle
ordinarily would not be consumed within one year. We estimate that
around GBP115 million (2020: GBP179 million) of leaf tobacco held
within raw materials will not be utilised within a year of the
balance sheet date.
17. TRADE AND OTHER RECEIVABLES
2021 2020
==================== ====================
GBP million Current Non-current Current Non-current
====================== ======= =========== ======= ===========
Trade receivables 2,431 3 2,410 4
---------------------- ------- ----------- ------- -----------
Less: loss allowance (68) (3) (112) (4)
====================== ======= =========== ======= ===========
Net trade receivables 2,363 - 2,298 -
---------------------- ------- ----------- ------- -----------
Other receivables 227 58 178 48
---------------------- ------- ----------- ------- -----------
Prepayments 159 4 162 9
====================== ======= =========== ======= ===========
2,749 62 2,638 57
====================== ======= =========== ======= ===========
Trade receivables may be analysed as follows:
2021 2020
==================== ====================
GBP million Current Non-current Current Non-current
=============================== ======= =========== ======= ===========
Within credit terms 2,271 - 2,138 -
-------------------------------- ------- ----------- ------- -----------
Past due by less than 3 months 85 - 77 -
-------------------------------- ------- ----------- ------- -----------
Past due by more than 3 months 7 - 83 -
-------------------------------- ------- ----------- ------- -----------
Amounts that are impaired 68 3 112 4
================================ ======= =========== ======= ===========
2,431 3 2,410 4
=============================== ======= =========== ======= ===========
The movements in the total loss allowance for receivables can
analysed as follows:
GBP million 2021 2020
======================================= ==== ====
At 1 October 116 77
---------------------------------------- ---- ----
Net (decrease) / increase in provision (45) 39
======================================== ==== ====
At 30 September 71 116
======================================== ==== ====
Trade receivables are reviewed by their risk profiles and loss
patterns to assess credit risk. Historical and forward-looking
information is considered to determine the appropriate expected
credit loss allowance. Provision levels are calculated on the
residual credit risk after consideration of any credit protection
which is used by the Group. Expected credit losses (ECLs) are
applied to net trade receivables which are measured reflecting
lifetime ECLs using the simplified approach. Trade receivables are
all repayable within 12 months and therefore the ECL provision
represents all expected losses within this term.
18. CASH AND CASH EQUIVALENTS
GBP million 2021 2020
============================================ ===== =====
Cash at bank and in hand 673 791
--------------------------------------------- ----- -----
Short-term deposits and other liquid assets 614 835
============================================= ===== =====
1,287 1,626
============================================ ===== =====
GBP152 million (2020: GBP154 million) of total cash and cash
equivalents is held in countries in which prior approval is
required to transfer the funds abroad. Nevertheless, if the Group
complies with these requirements, such liquid funds are at its
disposition within a reasonable period of time which in all cases
is 3 months or less from the date the transfer is requested.
19. TRADE AND OTHER PAYABLES
2021 2020
==================== ====================
GBP million Current Non-current Current Non-current
============================================== ======= =========== ======= ===========
Trade payables 1,018 - 1,191 -
----------------------------------------------- ------- ----------- ------- -----------
Duties payable 5,507 - 6,129 -
----------------------------------------------- ------- ----------- ------- -----------
Other taxes and social security contributions 1,399 - 1,603 -
----------------------------------------------- ------- ----------- ------- -----------
Other payables 449 - 464 -
----------------------------------------------- ------- ----------- ------- -----------
Accruals 733 7 783 5
=============================================== ======= =========== ======= ===========
9,106 7 10,170 5
============================================== ======= =========== ======= ===========
20. BORROWINGS
The Group's borrowings held at amortised cost, are as
follows:
GBP million 2021 2020
======================================== ===== ======
Current borrowings
----------------------------------------- ----- ------
Bank loans and overdrafts 51 61
----------------------------------------- ----- ------
Capital market issuance:
---------------------------------------- ----- ------
EUR1,000m 2.25% notes due February 2021 - 925
----------------------------------------- ----- ------
EUR500m 0.5% notes due July 2021 - 456
----------------------------------------- ----- ------
GBP1,000m 9.0% notes due February 2022 1,056 -
=====
Total current borrowings 1,107 1,442
========================================= ===== ======
Non-current borrowings
----------------------------------------- ----- ------
Bank loans 1 1
----------------------------------------- ----- ------
Capital market issuance:
---------------------------------------- ----- ------
GBP1,000m 9.0% notes due February 2022 - 1,056
----------------------------------------- ----- ------
$1,250m 3.75% notes due July 2022 - 980
----------------------------------------- ----- ------
$1,000m 3.5% notes due February 2023 746 782
----------------------------------------- ----- ------
EUR750m 1.25% notes due August 2023 646 684
----------------------------------------- ----- ------
GBP600m 8.125% notes due March 2024 626 626
----------------------------------------- ----- ------
$1,000m 3.125% notes due July 2024 745 782
----------------------------------------- ----- ------
EUR500m 1.375% notes due January 2025 434 460
----------------------------------------- ----- ------
$1,500m 4.25% notes due July 2025 1,119 1,172
----------------------------------------- ----- ------
EUR650m 3.375% notes due February 2026 570 604
----------------------------------------- ----- ------
$750m 3.5% notes due July 2026 559 586
----------------------------------------- ----- ------
GBP500m 5.5% notes due September 2026 500 500
----------------------------------------- ----- ------
EUR750m 2.125% notes due February 2027 653 692
----------------------------------------- ----- ------
$1,000m 3.875% notes due July 2029 745 781
----------------------------------------- ----- ------
GBP500m 4.875% notes due June 2032 505 504
----------------------------------------- ----- ------
EUR1,000m 1.75% notes due March 2033 866 -
========================================= ===== ======
Total non-current borrowings 8,715 10,210
========================================= ===== ======
Total borrowings 9,822 11,652
========================================= ===== ======
Analysed as:
---------------------------------------- ----- ------
Capital market issuance 9,770 11,590
----------------------------------------- ----- ------
Bank loans and overdrafts 52 62
========================================= ===== ======
Current and non-current borrowings include interest payable of
GBP56 million (2020: GBP13 million) and GBP93 million (2020: GBP151
million) respectively as at the balance sheet date.
Interest payable on capital market issuances are at fixed rates
of interest and interest payable on bank loans and overdrafts are
at floating rates of interest.
On 30 November 2020, EUR1,000 million 2.25 per cent notes were
repaid. On 18 March 2021, EUR1,000 million 1.75 per cent notes due
March 2033 were issued. On 27 April 2021, EUR500 million 0.5 per
cent notes were repaid. On 29 September 2021, $1,250 million 3.75
per cent notes were repaid.
All borrowings are unsecured and the Group has not defaulted on
any borrowings during the year (2020: no defaults).
NON-CURRENT FINANCIAL LIABILITIES
The maturity profile of the carrying amount of the Group's
non-current liabilities as at 30 September 2021 (including lease
liabilities detailed in note 14 and net derivative financial
instruments detailed in note 22) is as follows:
2021
========== ============ ============== ======
Net derivative
financial
Lease liabilities/
GBP million Borrowings liabilities (assets) Total
=========================== ========== ============ ============== ======
Amounts maturing:
--------------------------- ---------- ------------ -------------- ------
Between one and two years 1,393 49 (6) 1,436
--------------------------- ---------- ------------ -------------- ------
Between two and five years 4,553 75 (9) 4,619
--------------------------- ---------- ------------ -------------- ------
In five years or more 2,769 70 608 3,447
=========================== ========== ============ ============== ======
8,715 194 593 9,502
=========================== ========== ============ ============== ======
2020
========== ============ ============== =======
Net derivative
financial
Lease liabilities/
GBP million Borrowings liabilities (assets) Total
=========================== ========== ============ ============== =======
Amounts maturing:
--------------------------- ---------- ------------ -------------- -------
Between one and two years 2,037 54 17 2,108
--------------------------- ---------- ------------ -------------- -------
Between two and five years 4,506 106 (37) 4,575
--------------------------- ---------- ------------ -------------- -------
In five years or more 3,667 75 848 4,590
=========================== ========== ============ ============== =======
10,210 235 828 11,273
=========================== ========== ============ ============== =======
FAIR VALUE OF BORROWINGS
The fair value of borrowings as at 30 September 2021 is
estimated to be GBP10,386 million (2020: GBP12,496 million).
GBP10,334 million (2020: GBP12,434 million) relates to capital
market issuance and has been determined by reference to market
prices as at the balance sheet date. A comparison of the carrying
amount and fair value of capital market issuance by currency is
provided below. The fair value of all other borrowings is
considered to equal their carrying amount.
2021 2020
=================== ======= ==========
Balance Balance
sheet sheet
GBP million amount Fair value amount Fair value
=============================== ======= ========== ======= ==========
GBP 2,686 2,894 2,686 3,054
------------------------------- ------- ---------- ------- ----------
EUR 3,168 3,278 3,821 3,943
------------------------------- ------- ---------- ------- ----------
USD 3,916 4,162 5,083 5,437
Total capital market issuance 9,770 10,334 11,590 12,434
=============================== ======= ========== ======= ==========
UNDRAWN REVOLVING CREDIT FACILITIES
At 30 September the Group had the following undrawn committed
facilities:
GBP million 2021 2020
=========================== ===== =====
Amounts maturing:
--------------------------- ----- -----
Between one and two years - 1,551
--------------------------- ----- -----
Between two and five years 3,012 3,193
=========================== ===== =====
3,012 4,744
=========================== ===== =====
During the year the maturity date of the Group's existing
syndicated multicurrency facility for EUR3,500 was extended to
30 September 2024.
During the year six bilateral facilities for a total of EUR1,700
million were cancelled.
21. FINANCIAL RISK FACTORS
FINANCIAL RISK MANAGEMENT
OVERVIEW
In the normal course of business, the Group is exposed to
financial risks including, but not limited to, market, credit and
liquidity risk. This note explains the Group's exposure to these
risks, how they are measured and assessed, and summarises the
policies and processes used to manage them, including those related
to the management of capital.
The Group operates a centralised treasury function which is
responsible for the management of the financial risks of the Group,
together with its financing and liquidity requirements. Financial
risks comprise, but are not limited to, exposures to funding and
liquidity, interest rate, foreign exchange and counterparty credit
risk. The treasury function is also responsible for the financial
risk management of the Group's global defined benefit pension
schemes and management of Group wide insurance programs. The
treasury function does not operate as a profit centre, nor does it
enter into speculative transactions.
The Group's treasury activities are overseen by the Treasury
Committee, which meets when required and comprises the Chief
Financial Officer, the Company Secretary, and the Director of
Treasury. The Treasury Committee operates in accordance with the
terms of reference set out by the Board and a framework (the
Treasury Committee framework) which sets out the expectations and
boundaries to assist in the effective oversight of treasury
activities. The Director of Treasury reports on a regular basis to
the Treasury Committee.
The Board reviews and approves all major treasury decisions.
The Group's management of financial risks cover the
following:
(A) MARKET RISK
PRICE RISK
The Group is not exposed to equity securities price risk other
than assets held by its pension funds disclosed in note 24 and the
investment in convertible debentures issued by Auxly Cannabis Group
Inc. The Group is exposed to commodity price risk in that there may
be fluctuations in the price of tobacco leaf. As with other
agricultural commodities, the price of tobacco leaf tends to be
cyclical as supply and demand considerations influence tobacco
plantings in those countries where tobacco is grown. Also,
different regions may experience variations in weather patterns
that may affect crop quality or supply and so lead to changes in
price. The Group seeks to reduce this price risk by sourcing
tobacco leaf from a number of different countries and
counterparties and by varying the levels of tobacco leaf held.
Currently, these techniques reduce the expected exposure to this
risk over the short to medium term to levels considered not
material and accordingly, no sensitivity analysis has been
presented.
FOREIGN EXCHANGE RISK
The Group is exposed to movements in foreign exchange rates due
to its commercial trading transactions and profits denominated in
foreign currencies, as well as the translation of cash, borrowings
and derivatives held in non-functional currencies.
The Group's financial results are principally exposed to
fluctuations in Euro and US dollar exchange rates. Management of
the Group's foreign exchange transaction and translation risk is
addressed below.
TRANSACTION RISK
The Group's material transaction exposures arise on costs
denominated in currencies other than the functional currencies of
subsidiaries, including the purchase of tobacco leaf, which is
sourced from various countries but purchased principally in US
dollars, and packaging materials which are sourced from various
countries and purchased in a number of currencies. The Group is
also exposed to transaction foreign exchange risk on the conversion
of foreign subsidiary earnings into sterling to fund the external
dividends to shareholders. This is managed by selling Euros and US
dollars monthly throughout the year. Other foreign currency flows
are matched where possible and remaining foreign currency
transaction exposures are not hedged.
TRANSLATION RISK
The Group seeks to broadly match the currency of borrowings to
the currency of its underlying investments in overseas
subsidiaries, which are primarily Euros and US dollars. The Group
issues debt in the most appropriate market or markets at the time
of raising new finance and has a policy of using derivative
financial instruments, cross-currency swaps, to change the currency
of debt as required. Borrowings denominated in, or swapped into
foreign currencies to match the Group's investments in overseas
subsidiaries are treated as a hedge against the net investment
where appropriate.
FOREIGN EXCHANGE SENSITIVITY ANALYSIS
The Group's sensitivity to foreign exchange rate movements,
which impacts the translation of monetary items held by subsidiary
companies in currencies other than their functional currencies, is
illustrated on an indicative basis below. The sensitivity analysis
has been prepared on the basis that net debt and the proportion of
financial instruments in foreign currencies remain constant, and
that there is no change to the net investment hedge designations in
place at 30 September 2021. The sensitivity analysis does not
reflect any change to revenue or non-finance costs that may result
from changing exchange rates, and ignores any taxation implications
and offsetting effects of movements in the fair value of derivative
financial instruments.
2021 2020
========== ==========
Increase Increase
GBP million in income in income
============================================================== ========== ==========
Income statement impact of non-functional currency foreign
exchange exposures:
-------------------------------------------------------------- ---------- ----------
10% appreciation of Sterling against Euro
(2020: 10%) 378 544
------------------------------------------------------------ ---------- ----------
10% appreciation of Sterling against US dollar
(2020: 10%) 7 8
============================================================ ========== ==========
An equivalent depreciation of Sterling against the above
currencies would cause a decrease in income of GBP462 million and
GBP9 million for Euro and US dollar exchange rates respectively
(2020: GBP665 million and GBP10 million).
Movements in equity in the table below relate to intercompany
loans treated as quasi-equity under IAS 21 and hedging instruments
designated as net investment hedges of the Group's Euro and US
Dollar denominated assets.
2021 2020
========== =======
Change
Change in
GBP million in equity equity
============================================================ ========== =======
Equity impact of non-functional currency foreign exchange
exposures:
------------------------------------------------------------ ---------- -------
10% appreciation of Sterling against Euro (2020:
10%) 264 405
----------------------------------------------------------- ---------- -------
10% appreciation of Sterling against US dollar (2020:
10%) 270 (134)
=========================================================== ========== =======
An equivalent depreciation of Sterling against the above
currencies would result in a change in equity of GBP(323) million
and GBP(330) million for euro and US dollar exchange rates
respectively (2020: GBP(494) million and GBP163 million).
At 30 September 2021, after the effect of derivative financial
instruments, approximately 78 per cent of the Group's net debt was
denominated in Euro and non US Dollar currencies (2020: 70 per
cent), 22 per cent in US dollars (2020: 30 per cent).
INTEREST RATE RISK
The Group's interest rate risk arises from its borrowings net of
cash and cash equivalents, with the primary exposures arising from
fluctuations in Euro and US dollar interest rates. Borrowings at
variable rates expose the Group to cash flow interest rate risk.
Borrowings at fixed rates expose the Group to fair value interest
rate risk.
The Group manages its exposure to interest rate risk on its
borrowings by entering into derivative financial instruments,
interest rate swaps, to achieve an appropriate mix of fixed and
floating interest rate debt in accordance with the Treasury
Committee framework and Treasury Committee discussions.
As at 30 September 2021, after adjusting for the effect of
derivative financial instruments detailed in note 22, approximately
68 per cent (2020: 71 per cent) of net debt was at fixed rates of
interest and 32 per cent (2020: 29 per cent) was at floating rates
of interest.
INTEREST RATE SENSITIVITY ANALYSIS
The Group's sensitivity to interest rates on its Euro and US
dollar monetary items which are primarily external borrowings, cash
and cash equivalents, is illustrated on an indicative basis below.
The impact in the Group's Income Statement reflects the effect on
net finance costs in respect of the Group's net debt and the fixed
to floating rate debt ratio prevailing at 30 September 2021,
ignoring any taxation implications and offsetting effects of
movements in the fair value of derivative financial
instruments.
The sensitivity analysis has been prepared on the basis that net
debt and the derivatives portfolio remain constant and that there
is no net impact on other comprehensive income (2020: GBPnil).
2021 2020
========== ==========
Change Change
GBP million in income in income
======================================================== ========== ==========
Income statement impact of interest rate movements:
-------------------------------------------------------- ---------- ----------
+/- 1% increase in Euro interest rates (2020: 1%) 28 28
-------------------------------------------------------- ---------- ----------
+/- 1% increase in US dollar interest rates (2020: 1%) 6 8
======================================================== ========== ==========
(B) CREDIT RISK
IFRS 9 requires an expected credit loss (ECL) model to be
applied to financial assets. The expected credit loss model
requires the Group to account for expected losses as a result of
credit risk on initial recognition of financial assets and to
recognise changes in those expected credit losses at each reporting
date. Allowances are measured at an amount equal to the lifetime
expected credit losses where the credit risk on the receivables
increases significantly after initial recognition. The Group is
primarily exposed to credit risk arising from the extension of
credit to its customers, on cash deposits and derivatives. The
maximum aggregate credit risk to these sources was GBP4,177 million
at 30 September 2021 (2020: GBP4,902 million).
TRADE AND OTHER RECEIVABLES
Policies are in place to manage the risk associated with the
extension of credit to third parties to ensure that commercial
intent is balanced effectively with credit risk management.
Subsidiaries have policies in place that require appropriate credit
checks on customers and credit is extended with consideration to
financial risk and creditworthiness. If a customer requires credit
beyond an acceptable limit, security may be put in place to
minimise the financial impact in the event of a payment default.
Instruments that may typically be used as security include
non-recourse receivables factoring and bank guarantees. At 30
September 2021 the level of trade receivables that were sold to a
financial institution under a non-recourse factoring arrangement
totalled GBP627 million (2020: GBP686 million). The total value of
trade receivables reclassified as fair value was GBP69 million at
30 September 2021 (2020: GBP22 million). There was no valuation
difference between amortised cost and fair value. Analysis of trade
and other receivables is provided in note 17.
FINANCIAL INSTRUMENTS
In order to manage its credit risk to any one counterparty, the
Group places cash deposits and enters into derivative financial
instruments with a diversified group of financial institutions
carrying suitable credit ratings in line with the Treasury
Committee framework. Utilisation of counterparty credit limits is
regularly monitored by treasury and ISDA agreements are in place to
permit the net settlement of assets and liabilities in certain
circumstances. In connection with one ISDA Credit Support Annex the
Group had placed GBP37 million as at 30 September 2021 (2020: GBP47
million) as collateral with a third party in order to manage their
counterparty risk on the Group under derivative financial
instruments.
The table below summarises the Group's largest exposures to
financial counterparties as at 30 September 2021. At the balance
sheet date management does not expect these counterparties to
default on their current obligations.
2021 2020
================================================ ========================
Maximum
Maximum exposure
exposure to
to credit credit
S&P credit risk S&P credit risk
Counterparty exposure rating GBP million rating GBP million
====================== =========== ============ ========== ============
Highest A+ 35 A+ 14
---------------------- ----------- ------------ ---------- ------------
2nd highest - - A 11
---------------------- ----------- ------------ ---------- ------------
3rd highest - - A+ 5
---------------------- ----------- ------------ ---------- ------------
4th highest - - A+ 2
---------------------- ----------- ------------ ---------- ------------
5th highest - - - -
====================== =========== ============ ========== ============
(C) LIQUIDITY RISK
The Group is exposed to liquidity risk, which represents the
risk of having insufficient funds to meet its financing needs in
any particular location when needed. To manage this risk the Group
has a policy of actively maintaining a mixture of short, medium and
long-term committed facilities that are structured to ensure that
the Group has sufficient available funds to meet the forecast
requirements of the Group over the short to medium term. To prevent
over-reliance on individual sources of liquidity, funding is
provided across a range of instruments including debt capital
market issuance, bank term loans, bank revolving credit facilities
and European commercial paper.
The Group primarily borrows centrally in order to meet forecast
funding requirements, and the treasury function is in regular
dialogue with subsidiary companies to ensure their liquidity needs
are met. Subsidiary companies are funded by a combination of share
capital and retained earnings, intercompany loans, and in very
limited cases through external local borrowings. Cash pooling
processes are used to centralise surplus cash held by subsidiaries
where possible in order to minimise external borrowing requirements
and interest costs. Treasury invests surplus cash in bank deposits
and uses foreign exchange contracts to manage short term liquidity
requirements in line with short term cash flow forecasts. As at 30
September 2021, the Group held liquid assets of GBP1,287 million
(2020: GBP1,626 million).
The table below summarises the Group's non derivative financial
liabilities by maturity based on their contractual cash flows as at
30 September 2021. The amounts disclosed are undiscounted cash
flows calculated using spot rates of exchange prevailing at the
relevant balance sheet date. Contractual cash flows in respect of
the Group's derivative financial instruments are detailed in note
22.
2021
============================================================
Balance Contractual Between Between
sheet cash flows 1 and 2 and
GBP million amount total <1 year 2 years 5 years > 5 years
====================================== ======= =========== ======= ======== ======== =========
Non-derivative financial liabilities:
--------------------------------------- ------- ----------- ------- -------- -------- ---------
Bank loans 52 52 51 1 - -
--------------------------------------- ------- ----------- ------- -------- -------- ---------
Capital market issuance 9,770 11,158 1,341 1,678 5,068 3,071
--------------------------------------- ------- ----------- ------- -------- -------- ---------
Trade payables 1,018 1,018 1,018 - - -
--------------------------------------- ------- ----------- ------- -------- -------- ---------
Lease liabilities 251 283 64 55 86 78
======= =========== ======= ======== ======== =========
Total non-derivative financial
liabilities 11,091 12,511 2,474 1,734 5,154 3,149
======================================= ======= =========== ======= ======== ======== =========
2020
============================================================
Balance Contractual Between Between
sheet cash flows 1 and 2 and
GBP million amount total <1 year 2 years 5 years > 5 years
======================================= ======= =========== ======= ======== ======== =========
Non-derivative financial liabilities:
--------------------------------------- ------- ----------- ------- -------- -------- ---------
Bank loans 62 62 61 1 - -
--------------------------------------- ------- ----------- ------- -------- -------- ---------
Capital market issuance 11,590 13,302 1,806 2,339 5,165 3,992
--------------------------------------- ------- ----------- ------- -------- -------- ---------
Trade payables 1,191 1,191 1,191 - - -
--------------------------------------- ------- ----------- ------- -------- -------- ---------
Lease liabilities 299 332 70 65 110 87
======================================= ======= =========== ======= ======== ======== =========
Total non-derivative financial
liabilities 13,142 14,887 3,128 2,405 5,275 4,079
======================================= ======= =========== ======= ======== ======== =========
CAPITAL MANAGEMENT
The Group defines capital as adjusted net debt and equity and
manages its capital structure through an appropriate balance of
debt and equity in order to drive an efficient mix for the Group.
Besides the minimum capitalisation rules that may apply to
subsidiaries in certain countries, the Group's only externally
imposed capital requirements are interest cover and gearing
covenants contained within its core external bank debt facilities,
with which the Group was fully compliant during the current and
prior periods and expects to be so going forward.
The Group continues to manage its capital structure to maintain
investment grade credit rating which it monitors by reference to a
number of key financial ratios, including ongoing consideration of
the return of capital to shareholders via regular dividend payments
and in on-going discussions with the relevant rating agencies.
As at 30 September 2021 the Group was rated Baa3/stable outlook
by Moody's Investor Service Ltd, BBB/A-2/stable outlook by Standard
and Poor's Credit Market Services Europe Limited and BBB/F3/stable
outlook by Fitch Ratings Limited.
The Group regards its total capital as follows:
GBP million 2021 2020
================================================= ====== ======
Adjusted net debt (note 31) 8,615 10,299
------------------------------------------------- ------ ------
Equity attributable to the owners of the parent 5,352 4,871
================================================= ====== ======
Total capital 13,967 15,170
================================================= ====== ======
HEDGE ACCOUNTING
The Group has investments in foreign operations which are
consolidated in its financial statements and whose functional
currencies are Euros or US dollars. Where it is practicable and
cost effective to do so, the foreign exchange rate exposures
arising from these investments are hedged through the use of cross
currency swaps and foreign currency denominated debt.
The Group only designates the undiscounted spot element of the
cross currency swaps and foreign currency debt as hedging
instruments. Changes in the fair value of the cross currency swaps
attributable to changes in interest rates and the effect of
discounting are recognised directly in profit or loss within the
"Finance Costs" line - These amounts are, therefore, not included
in the hedge effectiveness assessment.
Net investment gains and losses are reported in exchange
movements within other comprehensive income and the hedging
instrument foreign currency gains deferred to the foreign currency
revaluation reserve are detailed in the statement of changes in
equity.
The Group establishes the hedging ratio by matching the notional
balance of the hedging instruments with an equal notional balance
of the net assets of the foreign operation. Given that only the
undiscounted spot element of hedging instruments is designated in
the hedging relationship, no ineffectiveness is expected unless the
notional balance of the designated hedging instruments exceeds the
total balance of the foreign operation's net assets during the
reporting period. The foreign currency risk component is determined
as the change in the carrying amount of designated net assets of
the foreign operation arising solely from changes in spot foreign
currency exchange rates.
All net investment hedges were fully effective at 30 September
2021.
The following table sets out the maturity profile of the hedging
instruments used in the Group's net investment hedging
strategies:
2021
=================================================
Maturity
======================================
Total Between Between
notional 1 and 2 and
GBP million balance <1 year 2 years 5 years > 5 years
===================== ========= ======= ======== ======== =========
Bonds (5,253) - (1,389) (3,219) (645)
--------------------- --------- ------- -------- -------- ---------
Cross-currency swaps (2,782) (1,026) - (1,218) (538)
===================== ========= ======= ======== ======== =========
(8,035) (1,026) (1,389) (4,437) (1,183)
===================== ========= ======= ======== ======== =========
2020
=================================================
Maturity
======================================
Total Between Between
notional 1 and 2 and
GBP million balance <1 year 2 years 5 years > 5 years
===================== ========= ======= ======== ======== =========
Bonds (6,709) (1,369) (974) (3,089) (1,277)
--------------------- --------- ------- -------- -------- ---------
Cross-currency swaps (2,950) - (1,088) (704) (1,158)
===================== ========= ======= ======== ======== =========
(9,659) (1,369) (2,062) (3,793) (2,435)
===================== ========= ======= ======== ======== =========
The following table contains details of the hedging instruments
and hedged items used in the Group's net investment hedging
strategies:
2021
======== ============================================================
Carrying amount
======== =================== =================
Changes
in fair
value
used for
calculating
Notional Balance sheet hedge
GBP million balance Assets Liabilities line item in effectiveness
================================== ======== ====== =========== ==================== =================
Hedging instrument:
---------------------------------- -------- ------ ----------- -------------------- -----------------
Bonds 5,253 - 5,286 Borrowings 308
----------------------------------- -------- ------ ----------- -------------------- -----------------
Derivative financial
Cross-currency swaps 2,782 - 214 instruments 168
=================================== ======== ====== =========== ==================== =================
Hedged item:
================================== ======== ====== =========== ==================== =================
Investment in a foreign operation n/a 8,035 476
=================================== ======== ====== =========== ==================== =================
2020
======== ============================================================
Carrying amount
======== =================== =================
Changes
in fair
value
used for
calculating
Notional Balance sheet hedge
GBP million balance Assets Liabilities line item in effectiveness
================================== ======== ====== =========== ==================== =================
Hedging instrument:
---------------------------------- -------- ------ ----------- -------------------- -----------------
Bonds 6,709 - 6,755 Borrowings 75
----------------------------------- -------- ------ ----------- -------------------- -----------------
Derivative financial
Cross-currency swaps 2,950 - 410 instruments (86)
=================================== ======== ====== =========== ==================== =================
Hedged item:
---------------------------------- -------- ------ ----------- -------------------- -----------------
Investment in a foreign operation n/a 9,659 (11)
=================================== ======== ====== =========== ==================== =================
Reconciliation of changes in the value of net investment
hedges:
2021
========== ========== =================== ============= =========
At the
beginning At the
of the Income Other Comprehensive Repayments/ end of
GBP million year Statement Income (Borrowings) the year
===================================== ========== ========== =================== ============= =========
Derivatives in net investment hedges
of foreign operations (410) 28 168 - (214)
-------------------------------------- ---------- ---------- ------------------- ------------- ---------
Bonds in net investment hedges
of foreign operations (6,755) 13 308 1,148 (5,286)
====================================== ========== ========== =================== ============= =========
Total (7,165) 41 476 1,148 (5,500)
====================================== ========== ========== =================== ============= =========
2020
========== ========== =================== ============= =========
At the
beginning At the
of Income Other Comprehensive Repayments/ end of
GBP million the year Statement Income (Borrowings) the year
================================== ====== ========== ========== =================== ============= =========
Derivatives in net investment
hedges of foreign operations (341) 17 (86) - (410)
---------------------------------- ------ ---------- ---------- ------------------- ------------- ---------
Bonds in net investment hedges
of foreign operations (8,482) 87 17 1,623 (6,755)
================================== ====== ========== ========== =================== ============= =========
Total (8,823) 104 (69) 1,623 (7,165)
========================================== ========== ========== =================== ============= =========
The Group also treats certain permanent intragroup loans that
meet relevant qualifying criteria under IAS 21 as part of its net
investment in foreign operations where appropriate. Intragroup
loans with a notional value of EUR2,506 million (2020 EUR2,506
million) and US dollar loans with a notional value of $nil (2020:
$5,636 million) were treated as part of the Group's net investment
in foreign operations at the balance sheet date.
FAIR VALUE ESTIMATION AND HIERARCHY
All financial assets and liabilities are carried on the balance
sheet at amortised cost, other than derivative financial
instruments and the investment in Auxly Cannabis Group Inc. which
are carried at fair value. Derivative fair values are determined
based on observable market data such as yield curves, foreign
exchange rates and credit default swap prices to calculate the
present value of future cash flows associated with each derivative
at the balance sheet date (Level 2 classification hierarchy per
IFRS 7). Market data is sourced through Bloomberg and valuations
are validated by reference to counterparty valuations where
appropriate. Some of the Group's derivative financial instruments
contain early termination options and these have been considered
when assessing the element of the fair value related to credit
risk. On this basis the reduction in reported net derivative
liabilities due to credit risk is GBP19 million (2020: GBP27
million) and would have been a GBP49 million (2020: GBP75 million)
reduction without considering the early termination options. There
were no changes to the valuation methods or transfers between
hierarchies during the year. With the exception of capital market
issuance and the Auxly investment, the fair value of all financial
assets and financial liabilities is considered approximate to their
carrying amount as outlined in note 20.
AUXLY CANNABIS GROUP INC.
The Group has invested CAD 123 million into Auxly Cannabis Group
Inc. by way of a debenture convertible into 19.9 per cent ownership
at a conversion price of $0.81 per share. Repayment of the
debenture was due on 25 September 2022, but on 19 April 2021 the
debenture agreement was varied and it is now repayable on 25
September 2024. The debenture is valued as a loan receivable
measured on the basis of discounting future cash flows at a rate of
14 per cent (2020: 14 per cent) plus the application of an expected
credit loss provision. At 30 September 2021 the loan was held at a
fair value of GBP37 million (30 September 2020: GBP22 million), net
of an expected credit loss provision of GBP16 million (30 September
2020: GBP36 million).
NETTING ARRANGEMENTS OF FINANCIAL INSTRUMENTS
The following tables set out the Group's financial assets and
financial liabilities that are subject to netting and set-off
arrangements. Financial assets and liabilities that are subject to
set-off arrangements and disclosed on a net basis in the Group's
Balance Sheet primarily relate to collateral in respect of one
derivative financial instrument under an ISDA Credit Support
Annex.
2021
==============================================================
Related
Gross Net financial amounts
Gross collateral assets/ not set-off
financial assets/ liabilities in the
assets/ liabilities per balance balance
GBP million liabilities set-off sheet sheet Net
================================== ============ ============ ============= ============ =====
Assets
--------------------------------- ------------ ------------ ------------- ------------ -----
Derivative financial instruments 496 (37) 459 (435) 24
---------------------------------- ------------ ------------ ------------- ------------ -----
Liabilities
--------------------------------- ------------ ------------ ------------- ------------ -----
Derivative financial instruments (1,083) 37 (1,046) 435 (611)
================================== ============ ============ ============= ============ =====
2020
==============================================================
Related
Gross Net financial amounts
Gross collateral assets/ not set-off
financial assets/ liabilities in the
assets/ liabilities per balance balance
GBP million liabilities set-off sheet sheet Net
================================== ============ ============ ============= ============ =====
Assets
--------------------------------- ------------ ------------ ------------- ------------ -----
Derivative financial instruments 913 (47) 866 (858) 8
---------------------------------- ------------ ------------ ------------- ------------ -----
Liabilities
================================= ============ ============ ============= ============ =====
Derivative financial instruments (1,729) 47 (1,682) 858 (824)
================================== ============ ============ ============= ============ =====
The table below sets out the Group's accounting classification
of each class of financial assets and liabilities:
2021
============================================================================
Fair value Fair value Assets
through through other and liabilities
income comprehensive at amortised
GBP million statement income cost Total Current Non-Current
================================== ========== ============== ================ ======== ======= ===========
Trade and other receivables 37 - 2,611 2,648 2,590 58
---------------------------------- ---------- -------------- ---------------- -------- ------- -----------
Cash and cash equivalents - - 1,287 1,287 1,287 -
---------------------------------- ---------- -------------- ---------------- -------- ------- -----------
Derivatives 459 - - 459 68 391
================================== ========== ============== ================ ======== ======= ===========
Total financial assets 496 - 3,898 4,394 3,945 449
================================== ========== ============== ================ ======== ======= ===========
Borrowings - - (9,822) (9,822) (1,107) (8,715)
---------------------------------- ---------- -------------- ---------------- -------- ------- -----------
Trade and other payables - - (8,373) (8,373) (8,373) -
---------------------------------- ---------- -------------- ---------------- -------- ------- -----------
Derivatives (832) (214) - (1,046) (62) (984)
---------------------------------- ---------- -------------- ---------------- -------- ------- -----------
Lease liabilities - - (251) (251) (57) (194)
================================== ========== ============== ================ ======== ======= ===========
Total financial liabilities (832) (214) (18,446) (19,492) (9,599) (9,893)
================================== ========== ============== ================ ======== ======= ===========
Total net financial (liabilities) (336) (214) (14,548) (15,098) (5,654) (9,444)
================================== ========== ============== ================ ======== ======= ===========
2020
=============================================================================
Fair value Fair value Assets
through through other and liabilities
income comprehensive at amortised
GBP million statement income cost Total Current Non-Current
================================== ========== ============== ================ ======== ======== ===========
Trade and other receivables 22 - 2,502 2,524 2,476 48
---------------------------------- ---------- -------------- ---------------- -------- -------- -----------
Cash and cash equivalents - - 1,626 1,626 1,626 -
---------------------------------- ---------- -------------- ---------------- -------- -------- -----------
Derivatives 866 - - 866 53 813
================================== ========== ============== ================ ======== ======== ===========
Total financial assets 888 - 4,128 5,016 4,155 861
================================== ========== ============== ================ ======== ======== ===========
Borrowings - - (11,652) (11,652) (1,442) (10,210)
---------------------------------- ---------- -------------- ---------------- -------- -------- -----------
Trade and other payables - - (9,387) (9,387) (9,387) -
---------------------------------- ---------- -------------- ---------------- -------- -------- -----------
Derivatives (1,272) (410) - (1,682) (41) (1,641)
---------------------------------- ---------- -------------- ---------------- -------- -------- -----------
Lease liabilities - - (299) (299) (64) (235)
================================== ========== ============== ================ ======== ======== ===========
Total financial liabilities (1,272) (410) (21,338) (23,020) (10,934) (12,086)
================================== ========== ============== ================ ======== ======== ===========
Total net financial (liabilities) (384) (410) (17,210) (18,004) (6,779) (11,225)
================================== ========== ============== ================ ======== ======== ===========
Derivatives classified as fair value through other comprehensive
income relate to cross currency swaps designated as hedges of
foreign currency denominated net investments. The Group only
designates the undiscounted foreign exchange spot element of the
cross currency swaps and the changes in fair value related to this
element are posted to other comprehensive income. Changes in the
fair value of the cross currency swaps attributable to changes in
interest rates and the effect of discounting are recognised in the
income statement. The Group also designates certain bonds as hedges
of foreign currency denominated net investments and the foreign
exchange revaluation of those bonds is recognised in other
comprehensive income. The carrying value at 30 September 2021 of
those bonds included in the above table is GBP5,286 million (2020:
GBP6,755 million). All of the Group's net investment hedges remain
effective.
22. DERIVATIVE FINANCIAL INSTRUMENTS
The Group's derivative financial instruments held at fair value,
are as follows:
2021 2020
================================ =============================
Net Fair Net Fair
GBP million Assets Liabilities Value Assets Liabilities Value
==================================== ======= ============ ========= ====== =========== ========
Current derivative financial
instruments
------------------------------------ ------- ------------ --------- ------ ----------- --------
Interest rate swaps 60 (33) 27 41 (31) 10
------------------------------------ ------- ------------ --------- ------ ----------- --------
Foreign exchange contracts 4 (4) - 9 (10) (1)
------------------------------------ ------- ------------ --------- ------ ----------- --------
Cross-currency swaps 4 (25) (21) 3 - 3
==================================== ======= ============ ========= ====== =========== ========
Total current derivatives 68 (62) 6 53 (41) 12
------------------------------------ ------- ------------ --------- ------ ----------- --------
Collateral(1) - - - - - -
==================================== ======= ============ ========= ====== =========== ========
68 (62) 6 53 (41) 12
=================================== ======= ============ ========= ====== =========== ========
Non-current derivative financial
instruments
------------------------------------ ------- ------------ --------- ------ ----------- --------
Interest rate swaps 391 (780) (389) 813 (1,204) (391)
------------------------------------ ------- ------------ --------- ------ ----------- --------
Cross-currency swaps - (241) (241) - (484) (484)
==================================== ======= ============ ========= ====== =========== ========
Total non-current derivatives 391 (1,021) (630) 813 (1,688) (875)
------------------------------------ ------- ------------ --------- ------ ----------- --------
Collateral(1) - 37 37 - 47 47
==================================== ======= ============ ========= ====== =========== ========
391 (984) (593) 813 (1,641) (828)
=================================== ======= ============ ========= ====== =========== ========
Total carrying value of derivative
financial instruments 459 (1,046) (587) 866 (1,682) (816)
==================================== ------- ------------ --------- ====== =========== ========
Analysed as:
------------------------------------ ------- ------------ --------- ------ ----------- --------
Interest rate swaps 451 (813) (362) 854 (1,235) (381)
------------------------------------ ------- ------------ --------- ------ ----------- --------
Foreign exchange contracts 4 (4) - 9 (10) (1)
------------------------------------ ------- ------------ --------- ------ ----------- --------
Cross-currency swaps 4 (266) (262) 3 (484) (481)
------------------------------------ ------- ------------ --------- ------ ----------- --------
Collateral(1) - 37 37 - 47 47
==================================== ======= ============ ========= ====== =========== ========
Total carrying value of derivative
financial instruments 459 (1,046) (587) 866 (1,682) (816)
==================================== ======= ============ ========= ====== =========== ========
2. Collateral deposited against derivative financial liabilities
under the terms and conditions of collateral appendices.
Fair values are determined based on observable market data such
as yield curves, foreign exchange rates and credit default swap
prices to calculate the present value of future cash flows
associated with each derivative at the balance sheet date. Market
data is sourced from a well known financial data company and
valuations are validated by reference to counterparty valuations
where appropriate. Some of the Group's derivative financial
instruments contain early termination options and these have been
considered when assessing the element of the fair value related to
credit risk. On this basis the reduction in reported net derivative
liabilities due to credit risk is GBP19 million (2020: GBP27
million) and would have been a GBP49 million (2020: GBP75 million)
reduction without considering the early termination options. The
classification of these derivative assets and liabilities under the
IFRS 7 fair value hierarchy is provided in note 21.
MATURITY OF OBLIGATIONS UNDER DERIVATIVE FINANCIAL
INSTRUMENTS
Derivative financial instruments have been classified in the
balance sheet as current or non-current on an undiscounted
contractual basis based on spot rates as at the balance sheet date.
For the purposes of the above and following analysis, maturity
dates have been based on the likelihood of any early termination
options being exercised with consideration to counterparty
expectations and market conditions prevailing as at 30 September
2021. Any collateral transferred to counterparties in respect of
derivative financial liabilities has been classified consistently
with the related underlying derivative.
The table below summarises the Group's derivative financial
instruments by maturity based on their remaining contractual cash
flows as at 30 September 2021. The amounts disclosed are the
undiscounted cash flows calculated using spot rates of exchange
prevailing at the relevant balance sheet date. Contractual cash
flows in respect of the Group's non derivative financial
instruments are detailed in note 21.
2021
===========================================================
Balance Contractual Between Between
sheet cash flows 1 and 2 and
GBP million amount total <1 year 2 years 5 years >5 years
========================== ======= =========== ======= ======== ======== ========
Net settled derivatives (325) (480) 16 (1) (157) (338)
-------------------------- ------- ----------- ------- -------- -------- --------
Gross settled derivatives (262) - - - - -
-------------------------- ------- ----------- ------- -------- -------- --------
- receipts - 5,667 2,516 66 2,522 563
-------------------------- ------- ----------- ------- -------- -------- --------
- payments - (5,818) (2,521) (48) (2,661) (588)
========================== ======= =========== ======= ======== ======== ========
(587) (631) 11 17 (296) (363)
========================== ======= =========== ======= ======== ======== ========
2020
===========================================================
Balance Contractual Between Between
sheet cash flows 1 and 2 and
GBP million amount total <1 year 2 years 5 years >5 years
========================== ======= =========== ======= ======== ======== ========
Net settled derivatives (335) (479) 62 19 (104) (456)
-------------------------- ------- ----------- ------- -------- -------- --------
Gross settled derivatives (481) - - - - -
-------------------------- ------- ----------- ------- -------- -------- --------
- receipts - 6,530 2,240 1,084 1,528 1,678
-------------------------- ------- ----------- ------- -------- -------- --------
- payments - (6,858) (2,221) (1,153) (1,633) (1,851)
========================== ======= =========== ======= ======== ======== ========
(816) (807) 81 (50) (209) (629)
========================== ======= =========== ======= ======== ======== ========
DERIVATIVES AS HEDGING INSTRUMENTS
As outlined in note 21, the Group hedges its underlying interest
rate exposure and foreign currency translation exposures in an
efficient, commercial and structured manner, primarily using
interest rate swaps and cross currency swaps. Foreign exchange
contracts are used to manage the Group's short term liquidity
requirements in line with short term cash flow forecasts as
appropriate.
The Group does not apply cash flow or fair value hedge
accounting, as permitted under IFRS9, which results in fair value
gains and losses attributable to derivative financial instruments
being recognised in net finance costs unless they are designated as
hedges of a net investment in foreign operations, in which case
they are recognised in other comprehensive income.
The group has considered the impending requirements to re-base
LIBOR based interest rates to new risk-free based rates. The group
is currently undertaking an exercise to re-base to risk-free rates
all its affected interest rate derivative contracts that mature
after the end of September 2021. GBP LIBOR contracts will be
rebased to SONIA in the last quarter of the 2021 calendar year with
USD LIBOR contracts to be rebased later in the 2022 fiscal year. At
present, it is not anticipated that these changes will impact the
Group's commercial hedging strategy, nor should they have a
material financial impact.
INTEREST RATE SWAPS
To manage interest rate risk on its borrowings, the Group issues
debt in the market or markets that are most appropriate at the time
of raising new finance with regard to currency, interest
denomination or duration, and then uses interest rate swaps to
re-base the debt into the appropriate proportions of fixed and
floating interest rates. Interest rate swaps are also transacted to
manage and re-profile the Group's interest rate risk over the
short, medium and long term in accordance with the Treasury
Committee framework and Treasury Committee discussions. Fair value
movements are recognised in net finance costs in the relevant
reporting period.
As at 30 September 2021, the notional amount of interest rate
swaps outstanding that were entered into to convert fixed rate
borrowings into floating rates of interest at the time of raising
new finance were GBP10,775 million equivalent (2020: GBP11,656
million equivalent) with a fair value of GBP425 million asset
(2020: GBP854 million asset). The fixed interest rates vary from
1.1 per cent to 8.7 per cent (2020: 0.5 per cent to 8.7 per cent),
and the floating rates are EURIBOR, GBP LIBOR and USD LIBOR.
As at 30 September 2021, the notional amount of interest rate
swaps outstanding that were entered into to convert the Group's
debt into the appropriate proportion of fixed and floating rates to
manage and re-profile the Group's interest rate risk were GBP8,806
million equivalent (2020: GBP10,311 million equivalent) with a fair
value of GBP750 million liability (2020: GBP1,189 million
liability). The fixed interest rates vary from 0.5 per cent to 4.4
per cent (2020: 0.5 per cent to 4.4 per cent), and the floating
rates are EURIBOR, GBP LIBOR and USD LIBOR. This includes forward
starting interest rate swaps with a total notional amount of
GBP1,531 million equivalent (2020: GBP2,519 million equivalent)
with tenors between 3.5 and 6 years, starting between May 2022 and
October 2024.
All of the Group's GBP and USD interest rate swaps will be
impacted by the changes to the use of LIBOR interest rates.
However, the impact of the changes is not expected to be
material.
CROSS-CURRENCY SWAPS
The Group enters into cross currency swaps to convert the
currency of debt into the appropriate currency with consideration
to the underlying assets of the Group as appropriate. Fair value
movements are recognised in net finance costs in the relevant
reporting period unless the swaps are designated as hedges of a net
investment in foreign operations, in which case the fair value
movement attributable to changes in foreign exchange rates are
recognised in other comprehensive income.
As at 30 September 2021, the notional amount of cross currency
swaps entered into to convert floating rate sterling debt into the
desired currency at floating rates of interest was GBP2,600 million
(2020: GBP2,600 million) and the fair value of these swaps was
GBP214 million net liability (2020: GBP409 million net liability);
the notional amount of cross currency swaps entered into to convert
floating rate US dollar debt into the desired currency at floating
rates of interest was $1,750 million (2020: $1,750 million) and the
fair value of these swaps was GBP48 million net liability (2020:
GBP71 million net liability).
HEDGES OF NET INVESTMENTS IN FOREIGN OPERATIONS
As at 30 September 2021, cross currency swaps with a notional
amount of EUR3,233 million (2020: EUR3,233 million) were designated
as hedges of net investments in foreign operations. During the
year, foreign exchange translation gains amounting to GBP168
million (2020: GBP87 million losses) were recognised within
exchange movements in other comprehensive income in respect of
cross currency swaps that had been designated as hedges of a net
investment in foreign operations. No hedging ineffectiveness
occurred during the year (2020: GBPnil).
The movements in Other Comprehensive Income due to net
investment hedging in the period were as follows:
GBP million 2021 2020
============================================================ ===== =====
Foreign exchange gains/(losses) on borrowings 308 (75)
------------------------------------------------------------ ----- -----
Foreign exchange gains on derivative financial instruments 168 87
------------------------------------------------------------ ----- -----
Reclassification to the Income Statement 117 -
============================================================ ===== =====
593 12
=========================================================== ===== =====
All of the Group's cross currency swaps will be impacted by the
changes to the use of LIBOR interest rates. However, this will not
impact the effectiveness of the contracts in their net investment
hedge relationship and the calculation of the amounts recognised in
other comprehensive income will be unaffected.
FOREIGN EXCHANGE CONTRACTS
The Group enters into foreign exchange contracts to manage short
term liquidity requirements in line with cash flow forecasts. As at
30 September 2021, the notional amount of these contracts was
GBP1,430 million equivalent (2020: GBP2,126 million equivalent) and
the fair value of these contracts was a net liability of GBP0.6
million (2020: GBP0.7 million net liability).
23. DEFERRED TAX ASSETS AND LIABILITIES
DEFERRED TAX ASSETS
Consolidated Consolidated Consolidated Consolidated
income income balance balance
statement statement sheet sheet
GBP million 2021 2020 2021 2020
========================================== ============ ============ ============ ============
Accelerated depreciation and amortisation (7) 34 (864) (871)
------------------------------------------- ------------ ------------ ------------ ------------
Retirement benefits (38) (17) (23) 88
------------------------------------------- ------------ ------------ ------------ ------------
Other temporary differences 201 (32) 414 240
=========================================== ============ ============ ============ ============
Deferred tax expense 156 (15)
=========================================== ============ ============ ============ ============
Net deferred tax liabilities (473) (543)
=========================================== ============ ============ ============ ============
REFLECTED IN THE CONSOLIDATED BALANCE SHEET AS FOLLOWS
GBP million 2021 2020
========================= ======= =====
Deferred tax assets 564 381
------------------------- ------- -----
Deferred tax liabilities (1,037) (924)
========================= ======= =====
(473) (543)
========================= ======= =====
RECONCILIATION OF NET DEFERRED TAX LIABILITIES
GBP million 2021 2020
================================================= ===== =====
As at 1 October (543) (561)
-------------------------------------------------- ----- -----
Charged to the income statement 156 (15)
-------------------------------------------------- ----- -----
(Charged)/credited to other comprehensive income (33) 27
-------------------------------------------------- ----- -----
Transferred to held for disposal - 1
-------------------------------------------------- ----- -----
Exchange movements (55) 10
-------------------------------------------------- ----- -----
Other movements 2 (5)
================================================== ===== =====
As at 30 September (473) (543)
================================================== ===== =====
Included within net deferred tax liabilities are deferred tax
assets recognised of GBP267million (2020: GBP42 million) for tax
credits arising in the Group's Spanish business. The majority
(GBP239 million) of these tax credits were recognised in the
current year following an internal reorganisation of the Spanish
business. These tax credits have no time expiry. Utilisation of
these tax credits is restricted to 50% of the Spanish business'
taxable profits arising in any given year; those tax law
restrictions extend the period over which the deferred tax assets
would otherwise be recovered. The Group considers there to be
forecast future taxable profits which support the recognition of
these long term deferred tax assets. The period over which these
deferred tax assets are utilised is sensitive to forecasting
assumptions about future growth rates (which may be influenced by
the future effects of climate change) and regulatory changes. Any
material effects of climate change in the long term could extend
the period over which the deferred tax asset will be recovered but
as the tax credits do not expire, the Group considers there is
positive evidence that sufficient future taxable profits would
still be available. Based on a range of forecast scenarios
modelling sensitivities these deferred tax assets are expected to
be utilised over a period of 20-25 years. Deferred tax assets of
GBP57 million (2020: GBP63 million) for tax credits have not been
recognised due to the potential uncertainty of the utilisation of
the credits. Of these unrecognised deferred tax assets GBP57
million (2020: GBP63 million) are expected to expire between 2022
and 2027.
Included within net deferred tax liabilities are deferred tax
assets recognised for retirement benefits of GBP157 million (2020:
GBP176 million) arising in the Group's German business. These
deferred tax assets are expected to be recovered both by way of
utilisation against the reversal of deferred tax liabilities of
GBP33 million (2020: GBP7 million) arising in the Group's German
business and by way of utilisation against future taxable profits.
The Group considers there to be forecast future taxable profits
which support the recognition of these long term deferred tax
assets. These deferred tax assets are expected to be recovered over
a period of 20-40 years corresponding to the life of the pension
scheme.
Within Other temporary differences, deferred tax assets of GBP25
million (2020: GBP84 million) are recognised for tax losses carried
forward to the extent that the realisation of the related tax
benefit through future taxable profits is probable.
As at the balance sheet date, deferred tax assets of GBP130
million (2020: GBP152 million) for tax losses, and GBP13 million
(2020: GBP17 million) for other temporary differences, have not
been recognised due to the potential uncertainty of the utilisation
of the tax losses and other temporary differences in certain
jurisdictions. Of these unrecognised deferred tax assets for tax
losses GBP1 million (2020: GBP30 million) are expected to expire
within 1 year and GBP8 million (2020: GBP9 million) are expected to
expire within 5 years and the remaining GBP121 million (2020:
GBP113 million) has no time expiry. The deferred tax assets for
other temporary differences of GBP13 million (2020: GBP17 million)
have no time expiry.
We have reviewed the recoverability of deferred tax assets in
overseas territories in the light of forecast business performance.
In 2021 we recognised deferred tax assets of GBP8 million that were
previously unrecognised (2020: derecognised deferred tax assets of
GBP51 million that were previously recognised) on the basis that it
is more likely than not that these are recoverable (2020:
irrecoverable).
A deferred tax liability of GBP101 million (2020: GBP111
million) is recognised in respect of taxation expected to arise on
the future distribution of unremitted earnings totalling GBP5
billion (2020: GBP7 billion).
The temporary differences associated with investments in the
Group's subsidiaries, associates and joint ventures for which a
deferred tax liability has not been recognised in the periods
presented, aggregate to GBP29 million (2020: GBP16 million). No
liability has been recognised because the Group is in a position to
control the timing of the reversal of those temporary differences
and it is probable that such differences will not reverse in the
foreseeable future.
The UK government announced in its budget on 3 March 2021 that
it would increase the main rate of corporation tax by 6% to 25%
with effect from 1 April 2023. This change was substantively
enacted on 24 May 2021 and, as a result, the effect has been
reflected in the closing deferred tax position included in these
financial statements.
24. RETIREMENT BENEFIT SCHEMES
The Group operates a number of retirement benefit schemes for
its employees, including both defined benefit and defined
contribution schemes. The Group's three principal schemes are
defined benefit schemes and are operated by Imperial Tobacco
Limited (ITL) in the UK, Reemtsma Cigarettenfabriken GmbH in
Germany and ITG Brands in the USA; these schemes represent 64 per
cent, 14 per cent and 8 per cent of the Group's total defined
benefit obligations and 35 per cent, 33 per cent and 7 per cent of
the current service cost respectively.
IMPERIAL TOBACCO PENSION FUND
The UK scheme, the Imperial Tobacco Pension Fund (or 'ITPF' or
'Fund'), is a voluntary final salary pension scheme with a normal
retirement age of 60 for most members. The ITPF was offered to
employees who joined the company before 1 October 2010 and has a
weighted average maturity of 17 years. Effective from 1 September
2017, members' pensionable pay was capped at the higher of
GBP75,000 or their pensionable pay at 1 September 2017. By number,
the population as at the most recent funding valuation comprises 72
per cent in respect of pensioners and dependants, 26 per cent in
respect of deferred members and 2 per cent in respect of current
employees. New employees in the UK are now offered a defined
contribution scheme. In certain circumstances, surplus funds in the
defined benefit section, may be used to finance defined
contribution section contributions on ITL's behalf with company
contributions reduced accordingly.
The ITPF operates under trust law and is managed and
administered by the Trustees on behalf of the members in accordance
with the terms of the Trust Deed and Rules and relevant
legislation. The ITPF's assets are held by the trust.
The main risk for the Group in respect of the ITPF is that
additional contributions are required if the assets are not
expected to be sufficient to pay for the benefits. The investment
portfolio is subject to a range of risks typical of the asset
classes held, such as credit risk on bonds, and exposure to the
property market.
Annual increases in benefits in payment are dependent on
inflation so the main uncertainties affecting the level of benefits
payable under the ITPF are future inflation levels (including the
impact of inflation on future salary increases below the
pensionable pay cap) and the actual longevity of the
membership.
The contributions paid to the ITPF are set by the ITPF Scheme
Actuary every three years. The Scheme Actuary is an external
consultant, appointed by the Trustees. Principal factors that the
Scheme Actuary will have regard to include the covenant offered by
the Group, the level of risk in the ITPF, the expected returns on
the ITPF's assets, the results of the funding assessment on an
ongoing basis and the expected cost of securing benefits if the
Fund were to be wound up.
The latest valuation of the ITPF was carried out as at 31 March
2019 when the market value of the invested assets was GBP4,137
million. Based on the ongoing funding target the total assets were
sufficient to cover 110 per cent of the benefits that had accrued
to members for past service, after allowing for expected future pay
increases. The total assets were sufficient to cover 106 per cent
of the total benefits that had accrued to members for past service
and future service benefits for current members. In compliance with
the Pensions Act 2004, ITL and the Trustee agreed a scheme-specific
funding target, a statement of funding principles and a schedule of
contributions accordingly.
Following the valuation, a dynamic contribution schedule has
been agreed such that ITL's annual contributions will reduce or
increase depending on the Fund's valuation going forward. The level
of the ITL's annual contribution to the Fund is GBP65 million per
year for the year to 31 March 2022. Further contributions were
agreed to be paid by ITL in the event of a downgrade of the Group's
credit rating to non-investment grade by either Standard &
Poor's or Moody's. In addition, surety guarantees that were
provided with a total value of GBP600 million have been reduced to
GBP225 million following the latest valuation and a parental
guarantee from Imperial Brands PLC remains in place.
The IAS 19 liability measurement of the defined benefit
obligation (DBO) and the current service cost are sensitive to the
assumptions made about future inflation and salary growth levels,
as well as the assumptions made about life expectancy. They are
also sensitive to the discount rate, which depends on market yields
on sterling denominated AA corporate bonds. The main differences
between the funding and IAS 19 assumptions are a more prudent
longevity assumption for funding and a different approach to
setting the discount rate. A consequence of the ITPF's investment
strategy, with a proportion of the assets invested in
return-seeking assets, is that the difference between the market
value of the assets and the IAS 19 liabilities may be relatively
volatile.
The ITPF has a pension surplus on the IAS 19 measure, in line
with IFRIC 14, recognition of the net asset on the fund is only
appropriate where it can be recovered. The ITPF trust deed gives
the Group an ability to receive a refund of surplus assets assuming
the full settlement of plan liabilities in the event of a plan
wind-up. Furthermore, in the ordinary course of business the
Trustee has no rights to unilaterally wind up the Fund or otherwise
augment the benefits due to the Fund's members. Based on these
circumstances, any net surplus in this scheme is recognised in
full.
THE REEMTSMA CIGARETTENFABRIKEN PENSION PLAN
"The German scheme, the Reemtsma Cigarettenfabriken Pension Plan
(RCPP), is primarily a career average pension plan, though a small
group of members has final salary benefits. It has a weighted
average maturity of 19 years. The scheme population comprises 51
per cent in respect of pensioners, 19 per cent in respect of
deferred members and 30 per cent in respect of current employees.
It was closed to new members from 1 January 2020, but existing
active members at that date continue to accrue benefits in the
plan.
The plan is unfunded and the company pays benefits as they
arise. The plan's obligations arise under a works council agreement
and are subject to standard German legal requirements around such
matters as the benefits to be provided to employees who leave
service, and pension increases in payment. Over the next year
Reemtsma Cigarettenfabriken GmbH expects to pay GBP23 million in
respect of benefits.
Annual increases in benefits in payment are dependent on
inflation so the main uncertainties affecting the level of benefits
payable under the plan are future inflation levels and the actual
longevity of the membership.
The IAS 19 liability measurement of the DBO and the current
service cost are sensitive to the assumptions made about the above
variables, as well as the discount rate, which depends on market
yields on euro denominated AA corporate bonds.
ITG SCHEME
The main USA pension scheme, held by ITG Brands is the ITG
Scheme, is a defined benefit pension plan that is closed to new
entrants. It has a weighted average maturity of 11 years. The
population comprises 77 per cent in respect of pensioners, 10 per
cent in respect of deferred members and 13 per cent in respect of
current employees.
The plan is funded and benefits are paid from the plan assets.
Contributions to the plan are determined based on US regulatory
requirements and ITG Brands is not expected to make any
contributions in the next year.
Annual benefits in payment are assumed not to increase from
current levels. The main uncertainty affecting the level of
benefits payable under the plan is the actual longevity of the
membership. Other key uncertainties impacting the plan include
investment risk and potential past service benefit changes from
future negotiations.
The IAS 19 liability measurement of the DBO and the service cost
are sensitive to the assumptions made about the above variables, as
well as the discount rate, which depends on market yields on US
dollar denominated AA corporate bonds.
OTHER PLANS
Other plans of the Group include various pension plans, other
post-employment and long-term employee benefit plans in several
countries of operation. Many of the plans are funded, with assets
backing the obligations held in separate legal vehicles such as
trusts, others are operated on an unfunded basis. The benefits
provided, the approach to funding and the legal basis of the plans
reflect their local territories. IAS 19 requires that the discount
rate for calculating the DBO and service cost is set according to
the level of relevant market yields on corporate bonds where the
market is considered ""deep"", or government bonds where it is
not.
For the year ended 30 September 2021 the group included four new
schemes associated with operations in the Dominican Republic,
Poland and Australia in the IAS19 position following a review of
the pension schemes in the group.
The results of the most recent available actuarial valuations
for the various plans have been updated to 30 September 2021 in
order to determine the amounts to be included in the Group's
consolidated financial statements. The aggregate IAS 19 position is
as follows:
DEFINED BENEFIT PLANS
2021 2020
====================== ======================
GBP million DBO Assets Total DBO Assets Total
========================================== ======= ====== ===== ======= ====== =====
At 1 October (5,498) 5,182 (316) (5,877) 5,223 (654)
------------------------------------------- ------- ------ ----- ------- ------ -----
Consolidated income statement
expense
------------------------------------------- ------- ------ ----- ------- ------ -----
Current service cost (47) - (47) (49) - (49)
------------------------------------------- ------- ------ ----- ------- ------ -----
Settlements gains/(losses) 13 (13) - - - -
------------------------------------------- ------- ------ ----- ------- ------ -----
Past service costs 9 - 9 - - -
------------------------------------------- ------- ------ ----- ------- ------ -----
Cost of termination benefits (18) - (18) (2) - (2)
------------------------------------------- ------- ------ ----- ------- ------ -----
Net interest (expense)/income
on net defined benefit (liability)/asset (87) 89 2 (104) 99 (5)
------------------------------------------- ------- ------ ----- ------- ------ -----
Administration costs paid from
plan assets - (5) (5) - (6) (6)
=========================================== ======= ====== ===== ======= ====== =====
Cost recognised in the income
statement (59) (62)
=========================================== ======= ====== ===== ======= ====== =====
Remeasurements
------------------------------------------ ------- ------ ----- ------- ------ -----
Actuarial gain due to liability
experience 64 - 64 36 - 36
------------------------------------------- ------- ------ ----- ------- ------ -----
Actuarial (loss)/gain due to
financial assumption changes (114) - (114) 22 - 22
------------------------------------------- ------- ------ ----- ------- ------ -----
Actuarial gain/(loss) due to
demographic assumption changes 4 - 4 228 - 228
------------------------------------------- ------- ------ ----- ------- ------ -----
Return on plan assets excluding
amounts included in net interest
income/(expense) above - 87 87 - (9) (9)
=========================================== ======= ====== ===== ======= ====== =====
Remeasurement effects recognised
in other comprehensive income 41 277
=========================================== ======= ====== ===== ======= ====== =====
Cash
------------------------------------------ ------- ------ ----- ------- ------ -----
Employer contributions - 126 126 - 145 145
------------------------------------------- ------- ------ ----- ------- ------ -----
Employee contributions (1) 1 - (1) 1 -
------------------------------------------- ------- ------ ----- ------- ------ -----
Benefits paid directly by the
company 264 (264) - 266 (266) -
=========================================== ======= ====== ===== ======= ====== =====
Net cash 126 145
=========================================== ======= ====== ===== ======= ====== =====
Schemes brought into scope of
IAS19 (13) - (13) - - -
------------------------------------------- ------- ------ ----- ------- ------ -----
Exchange movements 105 (37) 68 (17) (5) (22)
=========================================== ======= ====== ===== ======= ====== =====
Total other 55 (22)
=========================================== ======= ====== ===== ======= ====== =====
At 30 September (5,319) 5,166 (153) (5,498) 5,182 (316)
=========================================== ======= ====== ===== ======= ====== =====
The cost of termination benefits in the year ended 30 September
2021 and 30 September 2020 mainly relate to restructuring activity
in Germany.
RETIREMENT BENEFIT SCHEME COSTS CHARGED TO OPERATING PROFIT
GBP million 2021 2020
========================================================= ==== ====
Defined benefit expense in operating profit 61 57
---------------------------------------------------------- ---- ----
Defined contribution expense in operating profit 19 17
========================================================== ==== ====
Total retirement benefit scheme cost in operating profit 80 74
========================================================== ==== ====
Split as follows in the consolidated income statement:
GBP million 2021 2020
========================================================== ==== ====
Cost of sales 26 24
----------------------------------------------------------- ---- ----
Distribution, advertising and selling costs 33 31
----------------------------------------------------------- ---- ----
Administrative and other expenses 21 19
=========================================================== ==== ====
Total retirement benefit scheme costs in operating profit 80 74
=========================================================== ==== ====
ASSETS AND LIABILITIES RECOGNISED IN THE CONSOLIDATED BALANCE
SHEET
GBP million 2021 2020
================================= ======= =======
Retirement benefit assets 1,046 940
--------------------------------- ------- -------
Retirement benefit liabilities (1,199) (1,256)
================================= ======= =======
Net retirement benefit liability (153) (316)
================================= ======= =======
KEY FIGURES AND ASSUMPTIONS USED FOR MAJOR PLANS
2021 2020
==================== ======= ==== =====
GBP million unless otherwise
indicated ITPF RCPP ITGBH ITPF RCPP ITGBH
====================================== ======= ==== ===== ======= ==== =====
Defined benefit obligation (DBO) 3,404 765 403 3,516 764 434
--------------------------------------- ------- ---- ----- ------- ---- -----
Fair value of scheme assets (4,386) - (396) (4,395) - (398)
======================================= ======= ==== ===== ======= ==== =====
Net defined benefit (asset)/liability (982) 765 7 (879) 764 36
--------------------------------------- ------- ---- ----- ------- ---- -----
Current service cost 17 15 3 18 16 4
--------------------------------------- ------- ---- ----- ------- ---- -----
Employer contributions 65 - - 85 - -
======================================= ------- ---- ----- ======= ==== =====
Principal actuarial assumptions
used (% per annum)
--------------------------------------- ------- ---- ----- ------- ---- -----
Discount rate 2.1 1.1 2.7 1.7 0.9 2.8
--------------------------------------- ------- ---- ----- ------- ---- -----
Future salary increases 3.4 3.1 n/a 2.9 2.4 n/a
--------------------------------------- ------- ---- ----- ------- ---- -----
Future pension increases 3.4 2.0 n/a 2.9 1.3 n/a
--------------------------------------- ------- ---- ----- ------- ---- -----
Inflation 3.4 2.0 2.3 2.9 1.3 2.5
======================================= ======= ==== ===== ======= ==== =====
2021
========================================
ITPF RCPP ITGBH
============ ============ ============
Male Female Male Female Male Female
================================= ==== ====== ==== ====== ==== ======
Life expectancy at age 65 years:
---------------------------------- ---- ------ ---- ------ ---- ------
Member currently aged 65 21.1 22.7 20.5 23.9 19.7 21.7
---------------------------------- ---- ------ ---- ------ ---- ------
Member currently aged 50 22.1 23.9 22.6 25.6 20.9 22.9
================================== ==== ====== ==== ====== ==== ======
2020
==== ====== ==== ====== ==== ======
ITPF RCPP ITGBH
============ ============ ============
Male Female Male Female Male Female
================================= ==== ====== ==== ====== ==== ======
Life expectancy at age 65 years:
---------------------------------- ---- ------ ---- ------ ---- ------
Member currently aged 65 21.1 22.7 20.3 23.8 19.7 21.7
---------------------------------- ---- ------ ---- ------ ---- ------
Member currently aged 50 22.0 23.8 22.4 25.5 20.9 22.9
================================== ==== ====== ==== ====== ==== ======
Assumptions regarding future mortality experience are set based
on advice that uses published statistics and experience in each
territory. In particular for the ITPF, SAPS S3 (2020: SAPS S3)
tables are used with various adjustments for different groups of
members, reflecting observed experience. The largest group of
members uses the SAPS S3 All Pensioner Male Amounts table with a
101 per cent multiplier. An allowance for improvements in longevity
is made using the 2018 (2021: 2018) CMI improvement rates with a
long-term trend of 1.25 per cent per annum.
SENSITIVITY ANALYSIS FOR KEY ASSUMPTIONS AT THE OF THE YEAR
Sensitivity analysis is illustrative only and is provided to
demonstrate the degree of sensitivity of results to key
assumptions. Generally, estimates are made by re-performing
calculations with one assumption modified and all others held
constant.
2021 2020
================= =================
% increase in DBO ITPF RCPP ITGBH ITPF RCPP ITGBH
================================= ==== ==== ===== ==== ==== =====
Discount rate: 0.5% decrease 8.6 10.8 5.8 8.7 10.3 6.0
---------------------------------- ---- ---- ----- ---- ---- -----
Rate of inflation: 0.5% decrease 6.9 7.0 n/a 7.0 6.7 n/a
---------------------------------- ---- ---- ----- ---- ---- -----
One year increase in longevity
for a member currently age 65,
corresponding changes at other
ages 5.1 5.1 5.1 4.9 4.8 5.0
================================== ==== ==== ===== ==== ==== =====
The sensitivity to the inflation assumption change includes
corresponding changes to the future salary increases and future
pension increases assumptions, but is assumed to be independent of
any change to discount rate.
We estimate that a 0.5 per cent decrease in the discount rate at
the start of the year would have increased the consolidated income
statement pension expense by approximately GBP14 million.
An approximate split of the major categories of ITPF scheme
assets is as follows:
2021 2020
====================== ======================
Percentage Percentage
of ITPF of ITPF
scheme scheme
GBP million unless otherwise indicated Fair value assets Fair value assets
=========================================== ========== ========== ========== ==========
Equities - - 1 -
-------------------------------------------- ---------- ---------- ---------- ----------
Bonds - index linked government 2,115 48 2,344 53
-------------------------------------------- ---------- ---------- ---------- ----------
Bonds - corporate and other 815 19 693 16
-------------------------------------------- ---------- ---------- ---------- ----------
Property 592 14 533 12
-------------------------------------------- ---------- ---------- ---------- ----------
Absolute return 849 19 809 18
-------------------------------------------- ---------- ---------- ---------- ----------
Other - including derivatives, commodities
and cash 15 - 15 1
============================================ ========== ========== ========== ==========
4,386 100 4,395 100
=========================================== ========== ========== ========== ==========
The primary investment objective is to invest the ITPF's assets
in an appropriate and secure manner such that members' benefit
entitlements can be paid as they fall due. Specifically the ITPF
targets an expected return in excess of the growth in the
liabilities, which in conjunction with the contributions paid is
consistent to achieve and maintain an ongoing funding level of at
least 100 per cent on a buy-out basis by 2028.
The majority of the assets are quoted. The ITPF holds GBPnil of
self-invested assets (2020: GBPnil). As in previous years, the
value of ground leases have been allocated to the property asset
class.
An approximate split of the major categories of ITGBH scheme
assets is as follows:
2021 2020
====================== ======================
Percentage Percentage
of ITGBH of ITGBH
scheme scheme
GBP million unless otherwise indicated Fair value assets Fair value assets
=========================================== ========== ========== ========== ==========
Investment funds 279 70 224 56
-------------------------------------------- ---------- ---------- ---------- ----------
Bonds - fixed government 20 5 45 11
-------------------------------------------- ---------- ---------- ---------- ----------
Bonds - corporate and other 63 16 121 31
-------------------------------------------- ---------- ---------- ---------- ----------
Other - including derivatives, commodities
and cash 34 9 8 2
============================================ ========== ========== ========== ==========
396 100 398 100
=========================================== ========== ========== ========== ==========
The majority of the assets are non-quoted.
25. PROVISIONS
2021
===========================
GBP million Restructuring Other Total
================================================== ============= ===== =====
At 1 October 2020 253 163 416
---------------------------------------------------- ------------- ----- -----
Additional provisions charged to the consolidated
income statement 141 50 191
---------------------------------------------------- ------------- ----- -----
Amounts used (63) (39) (102)
---------------------------------------------------- ------------- ----- -----
Unused amounts reversed (66) (24) (90)
---------------------------------------------------- ------------- ----- -----
Exchange movements (14) (7) (21)
==================================================== ============= ===== =====
At 30 September 2021 251 143 394
==================================================== ============= ===== =====
Analysed as:
GBP million 2021 2020
============ ==== ====
Current 188 220
------------ ---- ----
Non-current 206 196
============ ==== ====
394 416
============ ==== ====
Restructuring provisions relate mainly to our 2021 Strategic
Review Programme and Cost optimisation programmes (see note 5).
The restructuring provision is split between 2021 Strategic
Review Programme of GBP86 million, Cost Optimisation Programmes of
GBP155 million and other programmes of GBP10 million.
Within the Cost optimisation programme provisions there is GBP73
million related to costs of consolidating the manufacturing
capacity within the Group. It is expected that the Cost
optimisation programmes restructuring provisions will be
predominantly utilised over the next 2 years.
Other provisions include GBP41 million relating to local
employment requirements including holiday pay, GBP58 million
relating to various local tax or duty requirements and GBP23
million of employment and duty provisions associated with
distribution. The provisions are spread throughout the Group and
payment will be dependent on local statutory requirements.
26. SHARE CAPITAL
GBP million 2021 2020
================================================================ ==== ====
Authorised, issued and fully paid
----------------------------------------------------------------- ---- ----
1,020,697,238 ordinary shares of 10p each (2020: 1,020,697,238) 103 103
================================================================== ==== ====
During the year nil shares (2020: 5,098,508 shares) were
repurchased and immediately cancelled, increasing the Capital
Redemption reserve.
On 6 March 2014, 31,942,881 shares held in Treasury were
cancelled creating the Capital Redemption reserve, and between
September 2017 and December 2017, 4,973,916 shares were cancelled
increasing this reserve.
27. SHARE SCHEMES
The Group operates four types of share-based incentive
programmes, designed to incentivise staff and to encourage them to
build a stake in the Group.
SHARE MATCHING SCHEME
Awards are made to eligible employees who are invited to invest
a proportion of their eligible bonus in shares for a period of
three years, after which matching shares are awarded on a 1:1
ratio, plus dividend equivalents.
LONG TERM INCENTIVE PLAN (LTIP)
Awards of shares under the LTIP are made to the Executive
Directors and senior executives at the discretion of the
Remuneration Committee. They vest three years after grant and are
subject to performance criteria. Dividend equivalents accrue on
vested shares.
SHARESAVE PLAN
Options are granted to eligible employees who participate in a
designated savings scheme for a three year period. Historically
they were also granted for a five year period.
DISCRETIONARY SHARE AWARDS PLAN (DSAP)
Under the DSAP, one-off conditional awards are made to
individuals to recognise exceptional contributions within the
business. Awards, which are not subject to performance conditions
and under which vested shares do not attract dividend roll-up, will
normally vest on the third anniversary of the date of grant subject
to the participant's continued employment. The limit of an award
under the DSAP is capped at 25 per cent of the participant's salary
at the date of grant. Shares used to settle awards under the DSAP
will be market purchased.
Further details of the schemes including additional criteria
applying to Directors and some senior executives are set out in the
Directors' Remuneration Report.
ANALYSIS OF CHARGE TO THE CONSOLIDATED INCOME STATEMENT
GBP million 2021 2020
================================ ==== ====
Share Matching Scheme 3 4
--------------------------------- ---- ----
Long Term Incentive Plan 20 13
--------------------------------- ---- ----
Sharesave Plan 1 2
--------------------------------- ---- ----
Discretionary Share Awards Plan 1 1
================================= ==== ====
25 20
================================ ==== ====
The awards are predominantly equity settled. The balance sheet
liability in respect of cash settled schemes at 30 September 2021
was GBP1.8 million (2020 GBP1.2 million).
RECONCILIATION OF MOVEMENTS IN AWARDS/OPTIONS
2021
=====================================================
Sharesave
weighted
Share average
matching exercise
Thousands of shares unless otherwise scheme LTIP Sharesave price
indicated awards awards options DSAP awards GBP
====================================== ========= ======= ========= =========== =========
Outstanding at 1 October 2020 461 6,595 2,006 70 15.31
-------------------------------------- --------- ------- --------- ----------- ---------
Granted 253 3,763 371 17 13.09
--------------------------------------- --------- ------- --------- ----------- ---------
Lapsed/cancelled (25) (2,003) (323) (3) 21.74
--------------------------------------- --------- ------- --------- ----------- ---------
Exercised (207) (943) (1) (24) 5.45
======================================= ========= ======= ========= =========== =========
Outstanding at 30 September 2021 482 7,412 2,053 60 13.89
====================================== ========= ======= ========= =========== =========
Exercisable at 30 September 2021 - - 170 - 22.24
====================================== ========= ======= ========= =========== =========
2020
=====================================================
Sharesave
weighted
Share average
matching exercise
Thousands of shares unless otherwise scheme LTIP Sharesave price
indicated awards awards options DSAP awards GBP
====================================== ========= ======= ========= =========== =========
Outstanding at 1 October 2019 783 4,313 1,559 94 21.21
-------------------------------------- --------- ------- --------- ----------- ---------
Granted 297 3,187 1,386 2 12.39
--------------------------------------- --------- ------- --------- ----------- ---------
Lapsed/cancelled (19) (782) (939) (5) 20.81
--------------------------------------- --------- ------- --------- ----------- ---------
Exercised (600) (123) - (21) 25.01
======================================= ========= ======= ========= =========== =========
Outstanding at 30 September 2020 461 6,595 2,006 70 15.31
====================================== ========= ======= ========= =========== =========
Exercisable at 30 September 2020 - - 147 - 29.62
====================================== ========= ======= ========= =========== =========
The weighted average Imperial Brands PLC share price at the date
of exercise of awards and options was GBP14.96 (2020: GBP19.34).
The weighted average fair value of Sharesave options granted during
the year was GBP2.35 (2020: GBP2.37).
SUMMARY OF AWARDS/OPTIONS OUTSTANDING AT 30 SEPTEMBER 2021
Exercise
Number Vesting price
of awards/ period of options
options remaining outstanding
Thousands of shares unless otherwise indicated outstanding in months GBP
================================================ ============ ========== ============
Share Matching Scheme
----------------------------------------------- ------------ ---------- ------------
2019 114 5 n/a
------------------------------------------------ ------------ ---------- ------------
2020 156 17 n/a
------------------------------------------------ ------------ ---------- ------------
2021 212 29 n/a
================================================ ============ ========== ============
Total awards outstanding 482
================================================ ============ ========== ============
Long Term Incentive Plan
----------------------------------------------- ------------ ---------- ------------
2019 1,512 5 n/a
------------------------------------------------ ------------ ---------- ------------
2020 2,526 18 n/a
------------------------------------------------ ------------ ---------- ------------
2021 3,374 30 n/a
================================================ ============ ========== ============
Total awards outstanding 7,412
================================================ ============ ========== ============
Sharesave Plan
----------------------------------------------- ------------ ---------- ------------
2018 170 - 22.24
------------------------------------------------ ------------ ---------- ------------
2019 231 11 17.45
------------------------------------------------ ------------ ---------- ------------
2020 1,279 23 12.37
------------------------------------------------ ------------ ---------- ------------
2021 373 35 13.09
================================================ ============ ========== ============
Total options outstanding 2,053
================================================ ============ ========== ============
Discretionary Share Awards Plan
------------------------------------------------ ------------ ---------- ------------
2018 - - n/a
----------------------------------------------- ------------ ---------- ------------
2019 42 5 n/a
------------------------------------------------ ------------ ---------- ------------
2020 - - n/a
----------------------------------------------- ------------ ---------- ------------
2021 18 29 n/a
================================================ ============ ========== ============
Total options outstanding 60
================================================ ============ ========== ============
The vesting period is the period between the grant of awards or
options and the earliest date on which they are exercisable. The
vesting period remaining and the exercise price of options
outstanding are weighted averages. Participants in the Sharesave
Plan have six months from the maturity date to exercise their
option. Participants in the LTIP generally have seven years from
the end of the vesting period to exercise their option. The
exercise price of the options is fixed over the life of each
option.
PRICING
For the purposes of valuing options to calculate the share-based
payment charge, the Black-Scholes option pricing model has been
used for the Share Matching Scheme, Sharesave Plan, Discretionary
Shares Awards Plan and one Long Term Incentive Plan with no market
conditions. A summary of the assumptions used in the Black-Scholes
model for 2021 and 2020 is as follows:
2021
========= =====
Share
matching Sharesave DSAP
================================================= ========= ========= =====
Risk-free interest rate % 0.7 0.2-(0.4) 0.7
-------------------------------------------------- --------- --------- -----
Volatility (based on 3 or 5 year history) % 36.0 33.9-33.9 26.3
-------------------------------------------------- --------- --------- -----
Expected lives of options granted years 3.00 3.00 3.00
-------------------------------------------------- --------- --------- -----
Dividend yield % 8.85 8.86 6.7
-------------------------------------------------- --------- --------- -----
Fair value GBP 12.37 2.31-2.56 12.86
-------------------------------------------------- --------- --------- -----
Share price used to determine exercise price GBP 16.00 16 15.27
-------------------------------------------------- --------- --------- -----
Exercise price GBP n/a 13.09 n/a
================================================== ========= ========= =====
2020
========= ===========
Share
matching Sharesave
================================================= ========= ===========
Risk-free interest rate % 0.7 0.2-(0.4)
------------------------------------------------- --------- -----------
Volatility (based on 3 or 5 year history) % 29.0 33.8-33.9
--------------------------------------------------- --------- -----------
Expected lives of options granted years 3.00 3.00
--------------------------------------------------- --------- -----------
Dividend yield % 8.85 8.84
--------------------------------------------------- --------- -----------
Fair value GBP 14.00 2.39-2.45
--------------------------------------------------- --------- -----------
Share price used to determine exercise price GBP 18.25 15.20-15.26
--------------------------------------------------- --------- -----------
Exercise price GBP n/a 12.37
=================================================== ========= ===========
Market conditions were incorporated into the Monte Carlo method
used in determining the fair value of LTIP awards at grant date.
Assumptions in 2021 and 2020 are given in the following table:
% 2021 2020
========================================================= ========= =========
Future Imperial Brands share price volatility 31.2 20.0
---------------------------------------------------------- --------- ---------
Future Imperial Brands dividend yield - -
---------------------------------------------------------- --------- ---------
Share price volatility of the tobacco and alcohol
comparator group 17.4-40.9 14.7-28.3
----------------------------------------------------------- --------- ---------
Correlation between Imperial Tobacco and the alcohol and
tobacco comparator group 26.7 22.1
============================================================ ========= =========
EMPLOYEE SHARE OWNERSHIP TRUSTS
The Imperial Tobacco Group PLC Employee and Executive Benefit
Trust and the Imperial Tobacco Group PLC 2001 Employee Benefit
Trust (the Trusts) have been established to acquire ordinary shares
in the Company to satisfy rights to shares arising on the exercise
and vesting of options and awards. The purchase of shares by the
Trusts has been financed by a gift of GBP19.2 million and an
interest free loan of GBP147.5 million. In addition the Group has
gifted treasury shares to the Trusts. None of the Trusts' shares
has been allocated to employees or Executive Directors as at 30
September 2021. All finance costs and administration expenses
connected with the Trusts are charged to the consolidated income
statement as they accrue. The Trusts have waived their rights to
dividends and the shares held by the Trusts are excluded from the
calculation of basic earnings per share.
SHARES HELD BY EMPLOYEE SHARE OWNERSHIP TRUSTS
Millions of shares 2021 2020
======================================================== ===== =====
At 1 October 2.1 2.8
---------------------------------------------------------- ----- -----
Gift of shares from Treasury - -
-------------------------------------------------------- ----- -----
Distribution of shares held by Employee Share Ownership
Trusts (1.2) (0.7)
========================================================== ===== =====
At 30 September 0.9 2.1
========================================================== ===== =====
The shares in the Trusts are accounted for on a first in first
out basis and comprise nil shares acquired in the open market
(2020: nil) and 0.9 million (2020: 2.1 million) treasury shares
gifted to the Trusts by the Group. There were nil (2020: nil)
shares gifted in the financial year 2021.
28. TREASURY SHARES
Shares purchased under the Group's buyback programme represent a
deduction from equity shareholders' funds, and are only cancelled
if the number of treasury shares approaches 10 percent of issued
share capital. During the year the Group purchased nil shares at a
cost of GBPnil million (2020: 5,098,508 shares at a cost of GBP92
million) which were immediately cancelled. Shares held in treasury
do not qualify for dividends.
2021 2020
========== ===== ========== =====
Millions Millions
of shares of shares
GBP million unless otherwise indicated (number) Value (number) Value
======================================= ========== ===== ========== =====
At 1 October 74.3 2,183 74.3 2,183
---------------------------------------- ---------- ----- ---------- -----
Purchase of shares - - 5.1 92
---------------------------------------- ---------- ----- ---------- -----
Cancellation of shares - - (5.1) (92)
---------------------------------------- ---------- ----- ---------- -----
Gifted to Employee Share Ownership
Trusts - - - -
======================================= ========== ===== ========== =====
At 30 September 74.3 2,183 74.3 2,183
======================================== ---------- ----- ========== =====
Percentage of issued share capital 7.3 n/a 7.3 n/a
======================================== ========== ===== ========== =====
29. COMMITMENTS
CAPITAL COMMITMENTS
GBP million 2021 2020
=========================================== ==== ====
Contracted but not provided for:
-------------------------------------------- ---- ----
Property, plant and equipment and software 86 187
============================================ ==== ====
30. CONTINGENT LIABILITIES
Where contingent liabilities are disclosed and not quantified
this is because it is not practicable to do so.
USA STATE SETTLEMENT AGREEMENTS
In November 1998, the major US cigarette manufacturers,
including Reynolds and Philip Morris, entered into the Master
Settlement Agreement (MSA) with 52 US states and territories and
possessions. These cigarette manufacturers previously settled four
other cases, brought by Mississippi, Florida, Texas and Minnesota,
by separate agreements with each state (collectively with the MSA,
the State Settlement Agreements). These State Settlement Agreements
settled all health care cost recovery actions brought by, or on
behalf of, the settling jurisdictions against the defendants (the
major US cigarette manufacturers); released the defendants from
various additional present and potential future claims; imposed
future payment obligations based on market share in the US; and
significantly restricted their ability to market and sell
cigarettes.
ITG Brands (ITGB) and its affiliates were not defendants in the
litigations that led to the State Settlement Agreements. However,
the MSA contained a provision allowing manufacturers that were not
defendants to become parties. Under that provision ITGB and certain
affiliates (including its US affiliate Commonwealth Brands, Inc.)
became parties to the MSA. They make substantial annual MSA
payments based on market share in the US and other factors, and are
subject to the MSA's restrictions on their ability to market and
sell cigarettes.
On 12 June 2015, ITGB acquired four cigarette brands (Winston,
Salem, Kool and Maverick, referred to as the Acquired Brands) from
Reynolds and Lorillard Tobacco, in connection with Reynolds'
parent's acquisition of the stock of Lorillard Tobacco's parent.
Because the MSA requires a purchaser of a brand to assume
settlement liability, the Asset Purchase Agreement (APA) between
Reynolds and ITGB required ITGB to assume MSA settlement payments
on the Acquired Brands. There is no similar mechanism permitting
companies that were not defendants to join the settlements with the
four states that are not parties to the MSA (Florida, Minnesota,
Mississippi, and Texas, collectively called the Previously Settled
States or PSS). For those settlements, the APA required ITGB to use
reasonable best efforts, with the assistance and cooperation of
Reynolds and Lorillard Tobacco, to reach agreement with the PSS to
make settlement payments on the Acquired Brands on certain terms
and conditions.
Effective 12 June 2015, the date of closing of the transaction,
ITGB became a party to the Mississippi settlement as to the
Acquired Brands. ITGB had not become a party to the settlements
with Florida, Minnesota, or Texas by the date of closing. Two of
those states, Minnesota, and Texas, have statutes imposing fees on
distributors' sales of products manufactured by companies that are
not parties to the settlements, and post-closing fees were paid on
sales of ITGB and affiliates' products in those states under those
statutes from and after 12 June 2015.
Claims have been made against ITGB in connection with the
acquisition of the Acquired Brands:
FLORIDA
On 18 January 2017 Florida and Philip Morris filed motions with
the Florida court with jurisdiction over the settlement claiming
that Reynolds and/or ITGB must make payments on the Acquired Brands
under the Florida settlement. Florida and Philip Morris alleged
that ITGB was a "successor" or "assign" to Reynolds' settlement
obligations. On 27 December 2017 the court ruled that Reynolds was
liable for settlement payments on the Acquired Brands, but ITGB was
not because it was not a "successor" or "assign" to Reynolds. On 29
July 2020 the intermediate Florida appellate court affirmed.
Reynolds asked that court for reconsideration and for permission to
appeal to the Florida Supreme Court. On 18 September 2020, the
intermediate appellate court denied that motion. On 18 October
2020, Reynolds asked the Florida Supreme Court directly to permit
it to appeal. On 18 December 2020, the Florida Supreme Court denied
Reynolds' petition for a further appeal.
Florida sought settlement payments on the Acquired Brands of
approximately $127 million plus interest, plus future annual
payments based on market share of approximately $26 million. The
Florida court's decision that Reynolds, not ITGB, must make these
settlement payments to Florida is now final and unappealable and
Reynold is making the payments. Reynolds has asked the Delaware
court to order the Group to indemnify it for those obligations, in
the proceeding described below .
MINNESOTA
On 23 March 2018 Minnesota filed a complaint and motion and
Philip Morris filed a motion with the Minnesota state court with
jurisdiction over the settlement claiming that Reynolds and/or ITGB
must make payments on the Acquired Brands under the Minnesota
settlement. Minnesota and Philip Morris alleged that ITGB was a
"successor" or "assign" to Reynolds' settlement obligations. On 24
September 2019 the court ruled that Reynolds was liable for
settlement payments on the Acquired Brands. The court held that
whether ITGB was a "successor" or "assign" under the Minnesota
settlement would be determined by whether ITGB had breached its
duty under the APA with Reynolds to use reasonable best efforts to
reach agreement with Minnesota to join that settlement. On 19
February 2020 the Minnesota court denied ITGB's motion seeking an
immediate interlocutory appeal. The Minnesota court held a trial on
whether ITG used its reasonable best efforts to reach agreement
with Minnesota to join the settlement on 31 August and 1-2 and 9
September 2020. Post-trial briefing and proposed findings of fact
and conclusions of law were submitted on 13 November 2020, but the
case was resolved before any decision was entered.
The parties have resolved the litigation in Minnesota, with the
Court ordering dismissal of the claims with prejudice on 17 March
2021. Minnesota sought settlement payments on the Acquired Brands
of approximately $58 million plus interest from 12 June 2015
forward, plus future annual payments of approximately $13 million,
and Philip Morris sought additional amounts related to a portion of
the payment calculation affecting Philip Morris. In the settlement,
ITG paid $28 million (GBP22 million) with respect to the claims
from 12 June 2015 forward, and Reynolds paid $52 million. ITG will
pay an estimated $13 million on 31 December 2021 and each year
thereafter.
TEXAS
On 28 January 2019 Texas and Philip Morris filed motions with
the Texas court with jurisdiction over the settlement claiming that
Reynolds and/or ITGB must make payments with respect to the
Acquired Brands under the Texas settlement. Texas and Philip Morris
alleged that ITGB was a "successor" or "assign" to Reynolds'
obligations under the settlement. On 25 February 2020 the court
determined that Reynolds was liable for settlement payments on the
Acquired Brands. The court held that ITGB was as "assign" under the
settlement but was not directly liable for settlement payments as a
successor or assign, and referred further questions regarding
ITGB's liability to Reynolds or Texas to the Delaware litigation
described below.
On 5 May 2020, the court entered a judgment. The judgment
further held that Reynolds' settlement payments on the Acquired
Brands would be reduced by an offset for statutory fees under TEX.
HEALTH & SAFETY CODE -- 161.601, et seq. paid by or for ITGB.
The statutory fee had been collected from ITGB's distributors since
June 2015 when ITGB acquired the Brands, with ITGB reimbursing
distributors for most of the fees paid. Effective 1 April 2019,
Texas increased the fee amount from the lower rate paid for brands
sold by Subsequent Participating Manufacturers to the MSA to the
higher rate paid on other brands. Texas further demanded payment of
the fee at the higher rate for the period between June 2015 and
April 2019 plus penalties and interest, in the total amount of $173
million.
Both Texas and ITGB asked the court to remove the portion of its
judgment reducing Reynolds' settlement payments by the statutory
payments. The court denied those motions on 14 August 2020. The
court further held that the judgment regarding Reynolds was final
and appealable, but that the holding regarding ITGB's liability was
not yet final until further actions from the Delaware and/or Texas
courts. Reynolds appealed the judgment against it. ITGB and Texas
both also appealed, noting disagreement with the offset for
statutory fees. On 5 October 2020, Reynolds moved to dismiss ITGB's
appeal (but not Texas') on the basis that the judgment is not final
as to ITGB and does not injure it. ITGB opposed the motion on 15
October 2020. On 22 December 2020, the Court ordered the motion
"carried with the case" to be decided along with the merits.
Initial briefs on the merits were filed on 2 November 2020.
The Texas case was resolved in May 2021 and the state and Philip
Morris' claims have been dismissed, while a separate claim brought
by ITGB regarding the equity tax rate is awaiting dismissal. Texas
sought settlement payments on the Acquired Brands from and after 12
June 2015 of approximately $167 million plus interest, plus future
annual payments based on market share of approximately $36 million,
and alternatively sought approximately $173 million (including
penalties and interest) in statutory fees. In the settlement, ITG
paid $13.5m in settlement payments (net of amounts accrued and
statutory fees already paid) for 12 June 2015 and thereafter and
Reynolds paid $190m, and ITG will pay about $3m in addition to
amounts already accrued on 31 December 2021 and each year
thereafter.
DELAWARE
ITGB and Reynolds are also engaged in litigation in the Delaware
court with respect to whether ITGB has satisfied its obligations to
use "reasonable best efforts" to join the settlements with Florida,
Minnesota and Texas under the APA through which ITGB purchased the
Acquired Brands and whether ITGB is required to indemnify Reynolds
for amounts other courts may require Reynolds to pay. On 30
November 2017, on cross-motions by Reynolds and ITGB, the Delaware
court held that the "reasonable best efforts" provision did not
automatically terminate due to the transaction closing, but
determined further that the duty of reasonable best efforts was not
perpetual and that whether ITGB complied with that obligation is a
question of fact that the court has not decided. On 23 September
2019, the Delaware court denied a motion by Reynolds to hold ITGB
liable under other indemnity provisions of the APA for Reynolds'
liability under the Florida decision irrespective of whether ITGB
breached a duty of reasonable best efforts, finding a fact question
on that argument, and granted Reynolds' motion that one of the
conditions to reaching agreement on joinder related to equity taxes
did not apply in Florida. On 31 October 2019, the trial court
denied ITGB's motion for immediate appeal, with the Delaware
Supreme Court denying the same motion on 7 November 2019. At
present the parties are engaged
in discovery. On 1 October 2021, Reynolds filed a motion to set
a case schedule. On 15 October 2021, ITGB opposed the motion and
proposed an alternative schedule. No schedule has yet been
entered.
Reynolds originally sought indemnification for all amounts it
might be required to pay in settlement for the Acquired Brands in
the Florida, Minnesota, and Texas litigations, described above. The
portions of the Delaware dispute that related to Minnesota and
Texas have been settled and dismissed, however, so Reynolds' claim
for indemnification in Delaware is now limited to the amounts it
has been required to pay under the Florida determination described
above, plus interest and attorney's fees. ITGB denies that
indemnity is appropriate, and further contends that if Reynolds
were to be granted indemnity, any amounts due to it should be
substantially reduced by the amount by which Reynolds' settlement
payments have been reduced through operation of the "profit
adjustment" by reason of ITG not becoming a party to the Florida
settlement.
MISSISSIPPI
Effective 12 June 2015, ITGB joined the Mississippi settlement
with respect to the Acquired Brands. On 18 June 2015, the
Mississippi court administering the settlement approved the
joinder. On 2 July 2015, Philip Morris filed a motion to vacate the
joinder, but the trial court denied that motion on 4 December 2015.
Philip Morris appealed, but then dismissed its appeal under a
settlement with Mississippi on 2 June 2017. On 26 December 2018,
Philip Morris filed a new motion in Mississippi, challenging the
basis on which Reynolds and ITGB had allocated the "base year"
profit for the Acquired Brands between them on the basis that it
adversely affects Philip Morris. The base year affects a
calculation for a downward "profit adjustment" to payments under
the Mississippi (and other) State Settlements. Philip Morris claims
that adjustment of the base year should lower its payments under
the profit adjustment and increase Reynolds' payments. A trial was
set for 3-6 May 2021. ITGB is indemnified by Reynolds for profit
adjustment payments to the extent that its annual profits do not
exceed a specified amount. In June 2021, the parties resolved the
Mississippi litigation with an agreement to set the base year
amount at $860 million (plus inflation), and the Court dismissed
Philip Morris' motion on 11 June 2021. ITG also received
agreed-upon attorney's fees from Reynolds as part of the
settlement.
MSA PREVIOUSLY SETTLED STATES REDUCTION
The MSA contains a downward adjustment, called the Previously
Settled States Reduction, which reduces aggregate payments made by
Philip Morris, Reynolds, and ITGB by a specified percentage each
year. The State of California, later joined by the remainder of the
MSA states and by Philip Morris, challenged the application of that
Reduction to ITGB for every year from 2016 forward, claiming that
it cannot apply to ITGB since it is not making settlement payments
to Florida, Minnesota, or Texas under their settlements. The
Independent Auditor to the MSA, which initially addresses disputes
related to payments, has rejected that challenge every year. It is
possible that one of the parties making the challenge may seek to
arbitrate the claim under the MSA. The PSS Reduction provides
annual MSA payment reductions of about $65 million.
The parties have resolved Philip Morris' related claim under the
MSA, challenging ITG's right to receive a "Previously Settled
States Reduction" worth about $65 million a year, as such claim
relates to Minnesota and Texas.
OVERALL SUMMARY OF LIABILITY POSITION ASSOCIATED WITH USA STATE
SETTLEMENT AGREEMENTS
The Group's legal advice is that it has a strong position on
pending claims related to the Acquired Brands and the Group
therefore considers that no provision is required for these
matters.
PRODUCT LIABILITY INVESTIGATIONS
The Group is currently involved in a number of legal cases in
which claimants are seeking damages for alleged smoking and health
related effects. In the opinion of the Group's lawyers, the Group
has meritorious defences to these actions, all of which are being
vigorously contested. Although it is not possible to predict the
outcome of the pending litigation, the Directors believe that the
pending actions will not have a material adverse effect upon the
results of the operations, cash flow or financial condition of the
Group. This assessment of the probability of economic outflows at
the year-end is a judgement which has been taken by management.
Consequently, the Group has not provided for any amounts in respect
of these cases in the financial statements. Details of these cases
are given below.
ARGENTINA
Our subsidiary, Société Nationale d'Exploitation Industrielle
des Tabacs et Allumettes SAS (SEITA), has been notified of a claim
filed in the Court of Buenos Aires against Nobleza Piccardo, a
subsidiary of British American Tobacco (BAT) by an individual
smoker. SEITA is not a party to the court claim. BAT has denied
liability. Historically, BAT manufactured and distributed two
brands of cigarettes owned by SEITA in Argentina under the terms of
a Licence Agreement. BAT has sought to invoke an indemnity
contained in the Licence Agreement, pursuant to which SEITA is
responsible for any product liability to third parties. The amount
claimed is AR$8,980,200.
An adverse first instance judgment was received in December
2020. Both parties appealed the first instance judgment and the
Court of Appeal decision is currently pending.
FRANCE
On 16 January 2018, the French National Committee against
Tobacco (the CNCT) filed a criminal complaint against the four main
tobacco manufacturers, including a French subsidiary of the Company
named Imperial Brand Finance France (the Subsidiary), on grounds of
'reckless life endangerment'. Neither the Subsidiary nor any of its
employees or managers have been charged or placed under formal
investigation in any ongoing proceedings, as a result of such a
complaint. The Group strongly denies the allegations made by the
CNCT and is monitoring developments.
UNITED STATES
ITG Brands
A number of smoking and health-related claims have been brought
against ITGB in the state courts of Massachusetts. ITGB has the
benefit of an indemnity from another manufacturer in respect of
each of these claims. As a result, ITGB either has been dismissed,
or is expected to be dismissed, without prejudice from each of the
claims. To date, no action has been successful or settled in favour
of any individual claimant in any tobacco-related litigation
against the Company or any of its subsidiaries.
Fontem US
Fontem US is named as a defendant in a case filed in the
Superior Court of the State of California for the County of Los
Angeles, Central District. The original and amended complaints in
this case name 17 defendants, in addition to Fontem US. The
claimants seek recovery of money damages, including punitive
damages, against all defendants based on the claim that the
principal claimant developed a lung condition as a result of her
use of e-cigarette and other vaping devices, including those
manufactured by Fontem US. The original complaint asserted claims
against all defendants styled as eight causes of action as follows:
(1) negligence; (2) strict liability-failure to warn; (3) strict
liability-design defect; (4) fraudulent concealment; (5)
intentional misrepresentation; (6) negligent misrepresentation; (7)
breach of implied warranties; and (8) loss of consortium (asserted
on behalf of the claimants spouse).
Fontem US has agreed to provide representation and indemnity to
defendant Costco Wholesale Corporation ("Costco"), the retailer
from which the claimant allegedly purchased blu products. Costco
has also filed an answer to the second amended complaint. The Court
set a trial date of 1 November 2021.
A mediation took place on 7 December, 2020 but did not resolve
the matter. Since the mediation, Fontem US and other defendants
continued to conduct fact discovery in anticipation of trial, while
also continuing to negotiate with the claimants to resolve the
matter prior to trial. In August, these continued negotiations
resulted in an agreement by Fontem US and the claimants to settle
this matter (which will include dismissal of the claims against
Costco). The terms of the settlement agreement will be
confidential. At a status conference before the Court on 15 October
2021 the claimants informed the Court that all remaining defendants
have settled and later that day filed a conditional Notice of
Settlement of Entire Case contingent upon the final execution of
the pending settlement documents.
COMPETITION AUTHORITY INVESTIGATIONS
BELGIUM
On 29 May 2017, the National Competition Authority in Belgium
(the BCA) conducted raids at the premises of several manufacturers
and wholesalers of tobacco products. On 1 October 2021 the BCA
announced that it had issued a Proposal for Decision which alleges
the existence of anticompetitive practices in the tobacco industry
that lasted for several years and consisted in repeated indirect
exchanges of information on manufacturers' prices through
wholesalers. The BCA states that such conduct may be contrary to
Article IV.1 CEL and Article 101 TFEU. This case will now be
examined by the Competition College, before which the parties will
have the opportunity to defend themselves against these
allegations. The parties will be able to submit written comments to
the Competition College and will be heard at a hearing. The
Competition College will either state that there exists an
infringement of competition or make a finding of no
infringement.
SPAIN
On 12 April 2019 the Spanish National Commission on Markets and
Competition (CNMC) announced penalties against Philip Morris Spain,
Altadis, JT International Iberia and Logista. Altadis and Logista
received fines of EUR11.4 million and EUR20.9 million,
respectively, from the CNMC. According to the decision, Altadis and
Logista are alleged to have infringed competition law by
participating in an exchange of sales volume data between 2008 and
February 2017. CNMC considers that this conduct had the effect of
restricting competition in the Spanish tobacco market. Both
companies believe that the arguments made by CNMC that define this
conduct as anti-competitive are flawed. In June 2019, both Altadis
and Logista commenced appeals to the CNMC's Decision and the fines
imposed in the Spanish High Court where they believe they will be
successful, a decision supported by external legal counsel. In
September 2019 Altadis and, separately, Logista arranged bank
guarantees for the full amount of the fines with the result that
payment of the fines had been suspended pending the outcome of the
appeals. Therefore, provision for these amounts is not considered
appropriate. In the Altadis appeal, both parties have concluded
their submissions to the Court and a judgment is awaited. A
judgment is unlikely to be received before the end of 2021.
In the Logista appeal, Logista submitted their pleadings before
the High Spanish Court in February 2021. A judgment is also
unlikely to be received before the end of 2021.
OTHER LITIGATION
US HELMS-BURTON LITIGATION
Imperial has been named as a defendant in a civil action in
federal court in Miami, Florida under Title III of the Cuban
Liberty and Democratic Solidarity Act of 1996 ("Helms-Burton")
filed on 6 August 2020. Title III provides US nationals with a
cause of action and a claim for treble damages against persons who
have "trafficked" in property expropriated by the Cuban government.
Title III is largely untested because it did not come into effect
until May 2019. Treble damages are automatically available under
Helms Burton. Although the filed claim is for unquantified damages,
we understand the claim could potentially reach approximately $365
million, based on the claimants' claim to own 90% of the property,
which they value at $135 million (and then treble). The claim is
based on allegations that Imperial, through Corporación Habanos
S.A. (a joint venture between one of Imperial's now former
subsidiaries and the Cuban government), has "trafficked" in a
factory in Havana, Cuba that the Cuban government confiscated from
the claimants' ancestor in the early 1960s, by using the factory to
manufacture, market, sell, and distribute Habanos cigars.
At the time the claim was filed against Imperial and up until
the conclusion of the Brexit "transition period" on 31 December
2020, Imperial was subject to an EU law known as the EU Blocking
Statute (Regulation (EC) No. 2271/96), which conflicts with
Helms-Burton, protected Imperial against the impact of Title III,
and impacted how Imperial might respond to the threatened
litigation. On 23 September 2020 the US court granted Imperial's
motion for a stay of the action until 9 February 2021 or until
further order of the court, while Imperial awaited the European
Commission's response to its request for authorisation to defend
the action or, at a minimum, to file and litigate a motion to
dismiss the action.
On 31 December 2020, the Brexit "transition period" concluded
without action from the European Commission on Imperial's request
for authorization. As of 1 January 2021, the EU Blocking Statute
has been transposed into domestic law with only minimal changes.
Accordingly, on 10 January 2021, Imperial submitted an application
to the UK Department for International Trade for authorisation from
the Secretary of State for International Trade to defend the action
or, at a minimum, to file and litigate a motion to dismiss the
action. On 8 February 2021, the UK Secretary of State for
International Trade authorized Imperial to file and litigate a
motion to dismiss the action.
On 26 February 2021, Imperial filed a motion to dismiss the
action. In response, on 22 March 2021, the claimants amended their
claim. On 28 April 2021, Imperial filed a motion to dismiss the
amended action. Briefing on the motion to dismiss was completed on
20 July 2021. In August 2021, the parties filed supplemental briefs
addressing the impact of a decision in another Helms-Burton case. A
hearing on the motion to dismiss is scheduled for 15 December
2021.
Separately, two other groups of prospective claimants have
indicated that they intend to file a lawsuit against Imperial in
federal court in Miami, Florida. Neither claim has been filed. The
threatened claims relate to other properties in Cuba, which the
prospective claimants claim were confiscated from their ancestors
by the Cuban government in the 1960s and which they claim are now
used by Corporación Habanos S.A for commercial activities. The
prospective claimants claim to be entitled to treble damages from
Imperial.
No provision has been made for potential liabilities related to
Helms-Burton claims.
UK
In June 2020, the Group responded to a claimant law firm's
allegations of human rights issues in the Malawian tobacco supply
chain, which included allegations relating to child and forced
labour. In December 2020, a claim was filed in the UK High Court
against Imperial Brands plc, Imperial Tobacco Limited and four of
its subsidiaries (the Imperial Defendants) and two entities in the
BAT group by a group of tobacco farm workers. The Imperial
Defendents have acknowledged service and confirmed to the claimants
that they intend to defend the claim in full. The Imperial
Defendants have not yet been required to file their Defence. A
procedural hearing has been scheduled for November/December 2021.
The claim is unquantified, and given the early stage of the
litigation a provision would not be appropriate.
MOROCCO
A number of cases have been raised against Société Marocaine des
Tabacs SA (SMT) disputing a reduction to retirees' pensions. These
cases have been in the courts for several years and SMT has
successfully defended many of them in the lower courts. During the
year 36 cases have been reviewed by the Cour de Cassation (Supreme
Court) in Morocco, and it is understood that they have been decided
against SMT and in favour of retirees.
The written reasoned judgment of the Cour de Cassation has not
been received by SMT at the time of signing these accounts.
Furthermore, the judgments in favour of the retirees reportedly
relate to unquantified claims. Because of this it is not possible
to assess the impact of the decided cases on the remaining cases
within the Moroccan courts. SMT continues to rigorously defend its
position.
The Company has reassessed its previously disclosed estimate of
exposure to the potential liability following improved clarity of
the legal position. Considering the number of cases currently filed
by retirees, and allowing for the uncertainty in the calculation of
the amount of any future payment, it now considers any outflow, if
required, to be significantly lower than that previously
disclosed.
31. NET DEBT
The movements in cash and cash equivalents, borrowings, and
derivative financial instruments in the year were as follows:
Liabilities
Derivative from
Current Lease Non-current financial financing Cash and
GBP million borrowings liabilities borrowings instruments activities cash equivalents Total
=================== =========== ============ =========== ============ =========== ================= ========
At 1 October 2020 (1,442) (299) (10,210) (816) (12,767) 1,626 (11,141)
-------------------- ----------- ------------ ----------- ------------ ----------- ----------------- --------
Reallocation of
current
borrowings from
non-current
borrowings (1,055) - 1,055 - - - -
-------------------- ----------- ------------ ----------- ------------ ----------- ----------------- --------
Cash flow 1,294 69 72 (41) 1,394 (330) 1,064
-------------------- ----------- ------------ ----------- ------------ ----------- ----------------- --------
Accretion of
interest 13 (7) 1 1 8 - 8
-------------------- ----------- ------------ ----------- ------------ ----------- ----------------- --------
Change in fair
values - - - 51 51 - 51
-------------------- ----------- ------------ ----------- ------------ ----------- ----------------- --------
New leases,
terminations
& modifications - (26) - - (26) - (26)
-------------------- ----------- ------------ ----------- ------------ ----------- ----------------- --------
Exchange movements 83 12 367 218 680 (9) 671
=========== ============ =========== ============ =================
At 30 September 2021 (1,107) (251) (8,715) (587) (10,660) 1,287 (9,373)
-------------------- ----------- ------------ ----------- ------------ ----------- ----------------- --------
Liabilities Cash
Derivative from and
Current Lease Non-current financial financing cash
GBP million borrowings liabilities borrowings instruments activities equivalents Total
======================== =========== ============ =========== ============ =========== ============ ========
At 1 October 2019 (1,937) (326) (11,697) (622) (14,582) 2,286 (12,296)
------------------------- ----------- ------------ ----------- ------------ ----------- ------------ --------
Reallocation of current
borrowings from
non-current
borrowings (1,340) - 1,340 - - - -
------------------------- ----------- ------------ ----------- ------------ ----------- ------------ --------
Cash flow 1,857 72 (1) 23 1,951 (611) 1,340
------------------------- ----------- ------------ ----------- ------------ ----------- ------------ --------
Accretion of interest 32 (7) - (28) (3) - (3)
------------------------- ----------- ------------ ----------- ------------ ----------- ------------ --------
Change in fair values - - - 80 80 - 80
------------------------- ----------- ------------ ----------- ------------ ----------- ------------ --------
New leases, terminations
&
modifications - (32) - - (32) - (32)
------------------------- ----------- ------------ ----------- ------------ ----------- ------------ --------
Exchange movements (54) (6) 148 (269) (181) 13 (168)
------------------------- ----------- ------------ ----------- ------------ ----------- ------------ --------
Transferred to held for
disposal
(note 11) - - - - - (62) (62)
========================= =========== ============ =========== ============ =========== ============ ========
At 30 September 2020 (1,442) (299) (10,210) (816) (12,767) 1,626 (11,141)
------------------------- ----------- ------------ ----------- ------------ ----------- ------------ --------
ANALYSIS BY DENOMINATION CURRENCY
2021
=========================================
GBP million GBP EUR USD Other Total
================================= ======= ======= ======= ===== =======
Cash and cash equivalents 190 188 505 404 1,287
----------------------------------- ------- ------- ------- ----- -------
Total borrowings (2,696) (3,179) (3,917) (30) (9,822)
=================================== ======= ======= ======= ===== =======
(2,506) (2,991) (3,412) 374 (8,535)
---------------------------------- ------- ------- ------- ----- -------
Effect of cross currency swaps 2,580 (4,147) 1,305 - (262)
================================== ======= ======= ======= ===== =======
74 (7,138) (2,107) 374 (8,797)
--------------------------------- ------- ------- ------- ----- -------
Lease liabilities (37) (153) (23) (38) (251)
----------------------------------- ------- ------- ------- ----- -------
Derivative financial instruments (325)
================================== ======= ======= ======= ===== =======
Net debt (9,373)
=================================== ======= ======= ======= ===== =======
Average reported net debt during the year was GBP11,148 million
(2020: GBP13,564 million).
2020
==========================================
GBP million GBP EUR USD Other Total
================================= ======= ======= ======= ===== ========
Cash and cash equivalents 412 556 407 251 1,626
----------------------------------- ------- ------- ------- ----- --------
Total borrowings (2,694) (3,852) (5,083) (23) (11,652)
=================================== ======= ======= ======= ===== ========
(2,282) (3,296) (4,676) 228 (10,026)
---------------------------------- ------- ------- ------- ----- --------
Effect of cross currency swaps 2,666 (4,515) 1,368 - (481)
=================================== ======= ======= ======= ===== ========
384 (7,811) (3,308) 228 (10,507)
--------------------------------- ------- ------- ------- ----- --------
Lease liabilities (39) (190) (27) (43) (299)
----------------------------------- ------- ------- ------- ----- --------
Derivative financial instruments (335)
================================== ======= ======= ======= ===== ========
Net debt (11,141)
=================================== ======= ======= ======= ===== ========
ADJUSTED NET DEBT
Management monitors the Group's borrowing levels using adjusted
net debt which excludes interest accruals, the fair value of
derivative financial instruments providing commercial cash flow
hedges and lease liabilities.
GBP million 2021 2020
======================================== ======= ========
Reported net debt (9,373) (11,141)
----------------------------------------- ------- --------
Accrued interest 140 156
----------------------------------------- ------- --------
Lease liabilities 251 299
----------------------------------------- ------- --------
Fair value of interest rate derivatives 367 387
========================================= ======= ========
Adjusted net debt (8,615) (10,299)
========================================= ======= ========
Average adjusted net debt during the year was GBP10,361 million
(2020: GBP12,765 million).
32. RECONCILIATION OF CASH FLOW TO MOVEMENT IN NET DEBT
GBP million 2021 2020
============================================================= ======== ========
Decrease in cash and cash equivalents (330) (611)
-------------------------------------------------------------- -------- --------
Cash flows relating to derivative financial
instruments (41) 23
-------------------------------------------------------------- -------- --------
Repayment of lease liabilities 69 72
---------------------------------------------------------------- -------- --------
Increase in borrowings (858) (1,240)
---------------------------------------------------------------- -------- --------
Repayment of borrowings 2,224 3,096
================================================================ ======== ========
Change in net debt resulting from cash flows 1,064 1,340
-------------------------------------------------------------- -------- --------
Other non-cash movements including revaluation of derivative
financial instruments 59 77
---------------------------------------------------------------- -------- --------
Transferred to held for disposal (note 11) - (62)
-------------------------------------------------------------- -------- --------
Lease liabilities (26) (358)
---------------------------------------------------------------- -------- --------
Exchange movements 671 (168)
================================================================ ======== ========
Movement in net debt during the year 1,768 829
-------------------------------------------------------------- -------- --------
Opening net debt (11,141) (11,970)
================================================================ ======== ========
Closing net debt (9,373) (11,141)
================================================================ ======== ========
The increase in borrowings and repayment of borrowings reflect
the cash flow movements relating to borrowings outstanding at the
start and at the end of each financial year; cash flows relating to
short term borrowings drawn down and repaid within the year are not
included in this analysis.
33. NON-CONTROLLING INTERESTS
MATERIAL NON-CONTROLLING INTERESTS
Detailed below is the summarised financial information of
Logista, being a subsidiary where the non-controlling interest of
49.99 per cent is considered material to the Group.
SUMMARISED BALANCE SHEET
at 30 September
Euro million 2021 2020
======================== ======= =======
Current assets 5,958 6,106
------------------------ ------- -------
Current liabilities (6,687) (6,909)
======================== ======= =======
Current net assets (729) (803)
======================== ======= =======
Non-current assets 1,630 1,740
------------------------ ------- -------
Non-current liabilities (376) (421)
======================== ======= =======
Non-current net assets 1,254 1,319
======================== ======= =======
Net assets 525 516
======================== ======= =======
SUMMARISED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 September
Euro million 2021 2020
=========================== ====== ======
Revenue 10,817 10,559
============================ ====== ======
Profit for the year 174 157
---------------------------- ------ ------
Other comprehensive income - 1
============================ ====== ======
Total comprehensive income 174 158
============================ ====== ======
SUMMARISED CASH FLOW STATEMENT
for the year ended 30 September
Euro million 2021 2020
========================================== ===== =====
Cash flows from operating activities (302) 830
------------------------------------------- ----- -----
Cash flows from investing activities 505 (640)
------------------------------------------- ----- -----
Cash flows from financing activities (194) (188)
=========================================== ===== =====
Net increase in cash and cash equivalents 9 2
=========================================== ===== =====
34. POST BALANCE SHEET EVENTS
Sale of the Premium Cigar Division
On 26 October 2021 deferred consideration of EUR88 million was
received in relation to the sale of the Premium Cigar Division.
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END
FR DKABDABDKFDD
(END) Dow Jones Newswires
November 16, 2021 02:00 ET (07:00 GMT)
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