Barclays Back to School Conference - Imperial Brands · Embed Capital Discipline • Enhance brand...
Transcript of Barclays Back to School Conference - Imperial Brands · Embed Capital Discipline • Enhance brand...
Barclays Back to School ConferenceImperial Tobacco Group PLC
Oliver Tant, Chief Financial Officer
10 September 2015
Oliver TantChief Financial Officer
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DisclaimerCertain 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.
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The Strategy
…deliver sustainable, quality growth
supported by effective cost and cash
management, to maximise
shareholder returns…
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Maximise sustainable shareholder returns
Turning Strategy into Actionfour operational priorities; one strategic objective
Strengthen
PortfolioDevelop
Footprint
Drive Cost
Optimisation
Embed Capital
Discipline• Enhance brand equity to
build sustainability
• Build on success of early
migrations
• Investment focused on
primary brands in all markets
• New launches from Fontem
• Building momentum
across Growth Markets
• Continue to optimise
performance in Returns
Markets
• Rapid and efficient
integration of US assets
• Deliver further savings
as part of £300m pa
2018 target
• Continue to refine
ways of working
• Embedding cash
conversion discipline
• Further improvements to
capital deployment
• Continue to manage
structure and level of
debt
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Margins Supporting Strategy
Consistent theme
across all areas of
strategy is operating
margin development
High
Profit
Margins
Sales
Reinvest
Strong
Cash
Flow
Maximising
Shareholder
Returns
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Video – Marginal Gains
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Imperial’s Margin Development
+1.4% improvement between
FY11 – FY14
Reported Operating Margin based on published financials
42.3%
42.7%42.9%
43.7%
FY11 FY12 FY13 FY14 FY15e
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41.7%
44.0%
IMT PMI BAT JTI
HY14 HY15
Imperial’s Marginal Gains
Reported Operating Margin based on published financials for HY14 and HY15
+2.3% improvement between
HY14 – HY15
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Imperial Outperforming the FTSE
28% greater
return
FY09 FY14
90
100
110
120
130
140
150
160
170
180
190
Total Shareholder Return FY09-FY14 indexed to 100
IMT FTSE
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Maximise sustainable shareholder returns
Turning Strategy into ActionStrengthening the portfolio
Strengthen
PortfolioDevelop
Footprint
Drive Cost
Optimisation
Embed Capital
Discipline• Enhance brand equity to
build sustainability
• Build on success of early
migrations
• Investment focused on
primary brands in all markets
• New launches from Fontem
• Building momentum
across Growth Markets
• Continue to optimise
performance in Returns
Markets
• Rapid and efficient
integration of US assets
• Deliver further savings
as part of £300m pa
2018 target
• Continue to refine
ways of working
• Embedding cash
conversion discipline
• Further improvements to
capital deployment
• Continue to manage
structure and level of
debt
12
Strengthening the Portfoliobuilding brand equity to support margins
Increasing Stability and
Reducing Risk
Increasing Margins
Reducing costs
Revenue quality improvement
Simplification
Procurement
Manufacturing
Marketing
Targeted Investment
Supporting Growth Brands
Global campaigns
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Strengthening the Portfoliosuccessful brand migrations
0
20
40
60
80
100
120
1 2 3 4 5 6 7 8 9 10 11 12
Va
lue
Time
Brand migration
Brand with migration
Value Uplift
Brand without migration
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Strengthening the Portfolioinvesting in the strongest brands
Growth Brand percentage increase reflects YTD Q3 2015 performance versus FY14
40.7%
44.5%
IMT PMI BAT JT
FY13 FY14
Growth Brand volume as a percentage of total volume
50.8%
Growth Brands as %
of total Group Volume
+ 630 bps in the YTD Q3 2015
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Video – JPS
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Strengthening the Portfoliomarket share of Growth Brands growing
JPS Market
ShareQ3 2015
12 month
movement
Australia 20.0% 6.1%
UK 15.2% 5.8%
Spain 7.6% 6.1%
Italy 2.1% 0.6%
Germany 9.1% 0.4%
0.0%
0.5%
1.0%
1.5%
2.0%
FY14 P9 FY14 P12 FY15 P3 FY15 P6 FY15 P9
JPS Global Market Share (MAT)
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Maximise sustainable shareholder returns
Turning Strategy into Actiondeveloping footprint
Strengthen
PortfolioDevelop
Footprint
Drive Cost
Optimisation
Embed Capital
Discipline• Enhance brand equity to
build sustainability
• Build on success of early
migrations
• Investment focused on
primary brands in all markets
• New launches from Fontem
• Building momentum
across Growth Markets
• Continue to optimise
performance in Returns
Markets
• Rapid and efficient
integration of US assets
• Deliver further savings
as part of £300m pa
2018 target
• Continue to refine
ways of working
• Embedding cash
conversion discipline
• Further improvements to
capital deployment
• Continue to manage
structure and level of
debt
18
Developing the Footprintincreased presence in stable markets
Reducing Risk
Increasing MarginsTargeted Investment
Growth Market expansion
Sustaining Returns Markets
Focus on stable profitable
markets
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Strengthen
Portfolio
Develop
Footprint
Capital
Discipline
Enhanced brand portfolio, capabilities, scale and influence
Greater market share in a large profitable market
Stable regulatory environment and relative affordability
support long term growth
Diversifying Group revenues and profits
Cost synergies support brand investment
Increased cash flow extends dividend cover and supports
further debt repayment
Cost
Optimisation
Developing the Footprintincreased presence in profitable US market
20
44%
Total TobaccoOperating Margin
FY14
Estimated OperatingMargin for US Business
Developing the Footprinthigher operating margins
> 50%
-10
10
30
50
70
90
110
130
150
170
190
India
Moro
cco
Sou
th A
fric
a
Indo
ne
sia
Tha
iland
Ukra
ine
Vie
tnam
Un
ited
Kin
gdo
m
Turk
ey
Bra
zil
Fra
nce
Austr
alia
Spa
in
Ita
ly
Sw
eden
Sau
di A
rab
ia
Ca
na
da
Ru
ssia
Ge
rman
y
Arg
en
tina
Sw
itze
rla
nd
Ja
pa
n
Taiw
an
US
A
UA
E
Min
ute
s o
f la
bour
at avera
ge r
ate
sto
purc
hase 2
0 c
igare
ttes
USA
21 mins
Affordability gives margin
expansion potential
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Developing the Footprintweighted to stable markets
US grows from less than
10% of Group Revenues to
c.20%
ROW
US
EU
EU
ROW
US
Diversification of revenue
stream
Increased proportion from
stable, profitable market
with growth potential
Reduced exposure to
emerging markets and
associated volatilities e.g.
foreign exchange
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Maximise sustainable shareholder returns
Turning Strategy into Actioneffectively managing cost
Strengthen
PortfolioDevelop
Footprint
Drive Cost
Optimisation
Embed Capital
Discipline• Enhance brand equity to
build sustainability
• Build on success of early
migrations
• Investment focused on
primary brands in all markets
• New launches from Fontem
• Building momentum
across Growth Markets
• Continue to optimise
performance in Returns
Markets
• Rapid and efficient
integration of US assets
• Deliver further savings
as part of £300m pa
2018 target
• Continue to refine
ways of working
• Embedding cash
conversion discipline
• Further improvements to
capital deployment
• Continue to manage
structure and level of
debt
23
Effectively Managing Costfunding investment and expanding margins
Manufacturing
optimisation
De-Complexing
Local marketing
overhead
Salesforce
optimisation
Back offices & HQ
Global
procurement
OverheadsProduct Cost
Funding Investment
Increasing Margins
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Global Procurement
Global procurement introduced 2 years ago to drive
better value from our spend
Delivering a fit for future supplier base; reduced by
10% in FY15 - reduces business risk, leverages scale
& drives collaboration
Simplified & aligned supplier terms – c.£12m working
capital benefit FY15
£1.5m annual saving (12% reduction) in facilities
management cost
E-procurement tools implemented to provide
transparency & governance; eAuctions started in FY15
lower risk, lower cost, better performance
Procurement Process
Optimisation
Contract
ManagementStrategic Sourcing
Value
Realised
SavingsEfficiency
Sustainability
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Salesforce Optimisation
Differentiating through excellence in customer engagement
Field force teams re-structured - removes complexity, clarifies
purpose & builds capability
Bespoke CRM technology – reduce administration and increase
value add
50% less time collecting data, live competitor insight, live outlet
profiling
Globally consistent approach to customer interaction and service
More effective delivery drives revenue opportunities
More efficient delivery drives material savings; c. £50m p.a. by
2018
more efficient & effective delivery to customer
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Maximise sustainable shareholder returns
Turning Strategy into Actionembedding capital discipline
Strengthen
PortfolioDevelop
Footprint
Drive Cost
Optimisation
Embed Capital
Discipline• Enhance brand equity to
build sustainability
• Build on success of early
migrations
• Investment focused on
primary brands in all markets
• New launches from Fontem
• Building momentum
across Growth Markets
• Continue to optimise
performance in Returns
Markets
• Rapid and efficient
integration of US assets
• Deliver further savings
as part of £300m pa
2018 target
• Continue to refine
ways of working
• Embedding cash
conversion discipline
• Further improvements to
capital deployment
• Continue to manage
structure and level of
debt
27
Greater Capital Disciplineimproved cash generation
Increasing Investment
Repaying Debt
Increased Dividend
Improving Cash Conversion
Effective Asset Management
Working Capital Efficiency
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Greater Capital Disciplineimproving cash conversion
82%
86%
91%
Average 2011-13 2013 2014
Divestment of non core assets and
business e.g. Logista
Disciplined approach to fixed asset
purchases
Review of tail end brands for
disposal
Effective working capital
management e.g. leaf procurement
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Improving and Strengthening
We have already made significant changes to our model since our change
of strategy in 2010
From Mergers & acquisitions To Sustainability
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Journey is in Progress
Global
ProcurementField Force
TransformationSales Growth
Drivers
Regions to
Divisions
Chassis &
MigrationsUS Asset
Acquisition
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Video – Davidoff
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Hunting Margins
High
Profit
Margins
Maximising
Shareholder
Returns
Barclays Back to School ConferenceImperial Tobacco Group PLC
Oliver Tant, Chief Financial Officer
10 September 2015