TIDM94JX
RNS Number : 5141X
Imperial Brands Finance PLC
20 December 2023
Company Number: 03214426
IMPERIAL BRANDS FINANCE PLC
Annual Report and Financial Statements 2023
STRATEGIC REPORT
For the year ended 30 September 2023
The Directors present their Strategic Report together with the
audited financial statements of Imperial Brands Finance PLC (the
"Company") for the year ended 30 September 2023.
Principal activity and principal risks and uncertainties of the
Company
The principal activity of the Company is to provide treasury
services to Imperial Brands PLC and its subsidiaries (the
"Group").
The Company, as the main financing and financial risk management
company for the Group, undertakes transactions to manage the
Group's financial risks, together with its financing and liquidity
requirements. Financial risks comprise, but are not limited to,
market, credit and liquidity risk. A summary of the Company's
policies in respect of foreign exchange, interest, credit and
liquidity risks is included in note 13.
The Company is a wholly owned indirect subsidiary of Imperial
Brands PLC, which is the ultimate parent company within the Group,
and the Directors of the Group manage operations at a Group level.
Given the nature of the Company's activities and that the overall
management is within the Group framework, the Company's Directors
believe that analysis using key performance indicators for the
Company is not necessary or appropriate for an understanding of the
development, performance or position of the business of the
Company. The development, performance and position of the treasury
operations of the Group, which includes the Company, are discussed
in note 20 of the Imperial Brands PLC Annual Report ("Imperial
Brands Annual Report") which does not form part of this report, but
is available at www.imperialbrandsplc.com. Financial risk
management disclosures can be found in note 13.
Global economic situation
The Company'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 of the Group. The
Directors recognise that the current environment brings uncertainty
due to global economic challenges including those caused by the
situation in Russia and Ukraine, low global economic growth and
inflationary pressure. However, the Group has effectively managed
operations across the world, and has proved it has an established
mechanism to operate efficiently despite the uncertainty
caused.
There is an ongoing risk that failure to maintain cash flows
could impact the Group's and therefore the Company's ability to pay
down debt, impacting covenants, credit ratings, bank, bond, and
investor confidence. In addition, a downgrade in our credit ratings
would raise the cost of our existing committed funding and is
likely to raise the cost of future funding and affect our ability
to raise debt. However, the Group has a strong focus on cash
generation supported by robust governance processes. Cash flows,
financing requirements and key rating agency metrics are regularly
forecasted and updated in line with performance and expectations to
manage future financing needs and optimise cost and availability.
The Company has investment grade credit ratings from the main
credit rating agencies, which supports it to access financing in
the global debt capital markets.
Climate Change
As a subsidiary of the Imperial Brands Group, the Company
adheres to the Group's climate related strategy. The ESG review is
discussed on pages 38 to 43 of the Imperial Brands Annual Report.
Details of the Group's climate-related financial disclosures
consistent with the recommendations and disclosures of the Task
Force on Climate-related Financial Disclosures (TCFD) are discussed
on pages 70 to 81 of the Imperial Brands Annual Report. For this
reason, the Company's Directors consider further detail of the
assessment of climate related risks in this report is not
necessary.
LIBOR
Following the announcement of the discontinuation of GBP LIBOR
at the end of 2021 and US$ LIBOR discontinuation in 2023, the
Company amended its bank facility agreement on 28 September 2021 to
stop referencing GBP and US$ LIBOR and instead reference the daily
risk free rates of SONIA and SOFR respectively. The Company amended
all GBP LIBOR derivatives to reference the daily risk free rate of
SONIA instead of GBP LIBOR and all US$ LIBOR derivatives were
amended to reference the daily risk free rate of SOFR instead of
US$ LIBOR. There are no changes pending for EUR derivatives.
Review of the business
The performance of the Company is dependent on external
borrowings and intragroup loans payable and receivable and interest
thereon, together with fair value gains and losses on derivative
financial instruments. While the Company remains the principal
financing entity for the Imperial Brands Group, another Group
entity, Imperial Brands Financing Netherlands BV, incorporated in
2020, is also involved in Group financing activity.
The profit for the financial year was GBP393 million (2022: loss
of GBP29 million) and is stated after a release of GBP25 million
(2022: charge of GBP116 million) arising on a decrease in the
expected credit loss provision against the carrying value of
certain loans made to entities within the Imperial Brands Group.
The release of GBP25 million was largely due to a corporate
restructure that reduced the loan receivable exposure, offset by
increased exposures due to higher interest rates. The expected loss
provision arises due to the assessment of credit risk associated
with the future repayment of the loans. The decision to exit
operations in Russia during the 2022 fiscal year has impacted the
recoverability of one other intragroup loan, with the other
provision relating to investments entities associated with Next
Generation Products (NGP). The release of the provision is not tax
allowable and therefore there is no associated tax credit.
The Company repaid several bond issuances during the year. On 13
February 2023, $354 million (GBP292 million equivalent) 3.5% notes
were repaid. On 14 August 2023, EUR750 million (GBP646 million
equivalent) 1.125% notes were repaid. Borrowings disclosures can be
found in note 12.
Total equity as at 30 September 2023 was GBP2,677 million (2022:
GBP2,284 million).
The aggregate dividends on the ordinary shares recognised as a
charge to shareholders' funds during the year amount to GBPnil
million (2022: GBPnil million).
UK Companies Act: Section 172 (1) statement
The Company is part of the Imperial Brands Group and is
ultimately owned by Imperial Brands PLC. As set out above the
Company's principal activities comprise undertaking transactions to
manage the Group's financial risks, together with its financing and
liquidity requirements. Under Section 172 (1) of the UK Companies
Act 2006 and as part of the Directors' duty to the Company's
shareholders to act as they consider most likely to promote the
success of the Company, the Directors must have regard to the long
term consequences of decisions and the desirability of maintaining
a reputation for high standards of business conduct. The Directors
must also have regard for business relationships with the Company's
wider stakeholders, and the impact of the Company's operations on
the environment and communities in which it operates. Consideration
of these factors and other relevant matters is embedded into board
decision making and risk assessments throughout the year.
The Company's key stakeholders are financial institutions which
it engages in relation to the Company's financial activities and
those members of the Imperial Brands Group to which it provides
finance-related services. Primary ways in which the Company engages
with financial institutions are through meetings, ongoing dialogue
and relationship management conducted by the Imperial Brands Group
Treasury and Finance teams. There is regular engagement with
Imperial Brands PLC on finance related matters, which is taken into
account in the Company's decision making. Primary ways in which the
Company engages directly or indirectly, as part of the Imperial
Brands Group, with its key stakeholders are summarised at pages 32
to 36 of the Imperial Brands Annual Report. This enables the
Directors to maintain an effective understanding of what matters to
those stakeholders and to draw on these perspectives in Board
decision making. During the decision making process the Directors
are made aware of the impact of decisions on relevant stakeholders
and engagement that has occurred with those stakeholders where
applicable.
In accordance with the Imperial Brands Group's overall
governance and internal control framework and in support of the
Company's purpose as part of the Imperial Brands Group, the Company
applies and the Directors have regard to all applicable Imperial
Brands Group policies and procedures, including the Group Statement
of Delegated Authorities, standards of business conduct, health and
safety and environmental policies. Where authority for decision
making is delegated to management under the Group delegated
authority rules, appropriate regard is given to the likely long
term consequences of decisions, the imperative of maintaining high
standards of business conduct, employees' interests, business
relationships with wider stakeholders, the impact of business
operations on the environment and communities, and other relevant
factors. The Imperial Brands Group Statement of Delegated
Authorities is part of the Imperial Brands Group's governance and
internal control framework through which good corporate governance,
risk management and internal control is promoted within the
Imperial Brands Group and does not derogate from any requirement
for Board review, oversight or approval in relation to the
Company's activities.
On behalf of the Board
L J Paravicini
Director
13 December 2023
REPORT OF THE DIRECTORS
For the year ended 30 September 2023
The Directors submit their report together with the Strategic
Report and the audited financial statements of the Company for the
year ended 30 September 2023.
Principal activity and financial risk management
As set out in the Strategic Report, the principal activity of
the Company is to provide treasury services to the Group. The
principal risks and uncertainties facing the Company are outlined
in the Strategic Report, with the management of those risks
discussed in note 13 to the financial statements.
Financial results and dividends
The financial results of the Company for the year are outlined
in the Strategic Report.
The Directors do not recommend the payment of a final dividend
for the year (2022: GBPnil million).
Responsibility statements under the Disclosure and Transparency
Rules
Each of the directors confirm that to the best of their
knowledge:
-- The financial statements, prepared in accordance with
applicable law and United Kingdom Accounting Standards (United
Kingdom Generally Accepted Accounting Practice), including
Financial Reporting Standard 101 'Reduced Disclosure Framework'
("FRS101"), give a true and fair view of the assets, liabilities,
financial position and profit of the company, and
-- The Strategic Report and Report of the Directors report
includes a fair review of the development and performance of the
business and the position of the Company together with a
description of the principal risks and uncertainties that it
faces.
Corporate governance
The Company is a wholly owned indirect subsidiary of Imperial
Brands PLC and the Directors of the Group manage corporate
governance at a Group level. The Group's statement on corporate
governance can be found in the corporate governance report in the
Imperial Brands Annual Report, which does not form part of this
report, but is available at www.imperialbrandsplc.com.
Consideration is given to the risk management policies of the
Company included in note 13 to the financial statements. For this
reason, the Company's Directors consider further detail of
corporate governance in this report not necessary.
Financial reporting
The Company has in place internal control and risk management
systems in relation to the Company's financial reporting process
and the process for the preparation of financial statements. These
systems include clearly defined lines of accountability and
delegation of authority, policies and procedures that cover
financial planning and reporting, preparation of monthly management
accounts, review of the disclosures within the report and accounts
to ensure that the disclosures made appropriately reflect the
developments within the Company in the year and meet the
requirement of being fair, balanced and understandable.
The above disclosures are made in accordance with the United
Kingdom Listing Authority Disclosure and Transparency Rules Section
7.2.5, requiring disclosure of internal control and risk compliance
systems.
Insurance
Imperial Brands PLC has purchased Directors' and Officers'
liability insurance that has been in force throughout the financial
year and is currently in force. The Directors of the Company have
the benefit of this insurance, which is a qualifying third party
indemnity provision as defined by the Companies Act 2006.
Future outlook
The business activity is expected to continue at levels similar
to the current level. The Company will continue to manage the
overall liquidity and financial risk management requirements of the
Group as they change over time. The Company will manage the Group's
financing requirement in combination with other Group entities
where it is beneficial to the Group as a whole.
Board of Directors
The Directors of the Company who were in office during the year
and up to the date of signing the financial statements are:
-- L J Paravicini
-- M E Slade
-- D M Tillekeratne
Going concern
The Company has been issued a support letter from its parent
company, Imperial Brands PLC, confirming ongoing financial support
in meeting liabilities as they fall due from the date of approval
of these financial statements to 31 December 2024. Imperial Brands
PLC has evaluated its ability to continue as a going concern until
31 March 2025. This evaluation is an extension to the previous
assessment that was audited and reported on page 182 of the
Imperial Brands Annual Report for the year ended 30 September 2023.
The Directors are therefore satisfied there are no uncertainties
relating to going concern, and accordingly the Directors considered
it appropriate to rely upon this support in making their going
concern assessment for these financial statements. The Directors
are satisfied that the Company has adequate resources to meet its
operational needs from the date of this report through to 31
December 2024 and, therefore concludes that it is appropriate to
prepare the financial statements on a going concern basis.
Statement of Directors' responsibilities
The Directors are responsible for preparing the Strategic
Report, the Report of the Directors and the financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the directors
have prepared the financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards, comprising FRS 101 "Reduced Disclosure
Framework", and applicable law). Under company law, the Directors
must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that
period.
In preparing these financial statements, the Directors are
required to:
-- select suitable accounting policies in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors and
applying them consistently;
-- make judgements and accounting estimates that are reasonable
and prudent;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in FRS 101 are insufficient to enable users
to understand the impact of particular transactions, other events
and conditions on the Company's financial position and financial
performance;
-- state whether applicable United Kingdom Accounting Standards,
comprising FRS 101, have been followed, subject to any material
departures disclosed and explained in the financial statements;
and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Disclosure of information to Auditors
Each of the Directors in office as of the date of approval of
this report confirms that:
-- so far as they are aware, there is no relevant audit
information of which the Company's Auditors are unaware; and
-- they have each taken all the steps that they ought to have
taken as a Director in order to make themselves aware of any
relevant audit information and to establish that the Company's
Auditors are aware of that information.
On behalf of the Board
L J Paravicini
Director
13 December 2023
FINANCIAL STATEMENTS
For the year ended 30 September 2023
Income Statement
(In GBP million) Notes 2023 2022
------------------------------------- ----- ------- -------
Administrative expenses (4) (3)
Impairment gain/(loss) 10 25 (245)
Other operating income 1 1
===================================== ===== ======= =======
Operating profit/(loss) 4 22 (247)
Investment income 5 2,671 2,888
Finance costs 6 (2,194) (2,618)
===================================== ===== ======= =======
Profit before tax 499 23
Tax on profit 8 (106) (52)
===================================== ===== ======= =======
Profit/(loss) for the financial year 393 (29)
===================================== ===== ======= =======
The Company has no other comprehensive income other than that
included above and, therefore, a separate statement of
comprehensive income has not been presented.
Balance Sheet
As at 30 September 2023
(In GBP million) Notes 2023 2022
--------------------------------- ----- -------- --------
Non-current assets
Other receivables 10 - 44
Derivative financial instruments 14 824 985
824 1,029
================================= ===== ======== ========
Current assets
Other receivables 10 28,624 28,846
Cash and cash equivalents 681 1,161
Derivative financial instruments 14 126 54
================================= ===== ======== ========
29,431 30,061
================================= ===== ======== ========
Total assets 30,255 31,090
================================= ===== ======== ========
Current liabilities
Borrowings 12 (1,450) (985)
Derivative financial instruments 14 (174) (54)
Other payables 11 (17,245) (17,704)
(18,869) (18,743)
================================= ===== ======== ========
Non-current liabilities
Borrowings 12 (6,178) (8,110)
Derivative financial instruments 14 (829) (1,071)
Other payables 11 (1,702) (882)
(8,709) (10,063)
================================= ===== ======== ========
Total liabilities (27,578) (28,806)
================================= ===== ======== ========
Net assets 2,677 2,284
================================= ===== ======== ========
Equity
Share capital 15 2,100 2,100
Retained earnings 577 184
Total equity 2,677 2,284
================================= ===== ======== ========
The financial statements were approved by the Board of Directors
on 13 December 2023 and signed on its behalf by:
L J Paravicini ________________
Director
D M Tillekeratne ________________
Director
Company Number: 03214426
Statement of Changes in Equity
For the year ended 30 September 2023
Share Retained Total
(In GBP million) capital earnings equity
--------------------------------------------- -------- --------- -------
At 1 October 2022 2,100 184 2,284
Total comprehensive income
============================================= ======== ========= =======
Profit for the financial year - 393 393
------------------------------------------------- -------- --------- -------
Total comprehensive income for the year year - 393 393
================================================= ======== ========= =======
At 30 September 2023 2,100 577 2,677
================================================= ======== ========= =======
Share Retained Total
(In GBP million) capital earnings equity
--------------------------------------------- -------- --------- -------
At 1 October 2021 2,100 213 2,313
Total comprehensive income
============================================= ======== ========= =======
Loss for the financial year - (29) (29)
------------------------------------------------- -------- --------- -------
Total comprehensive income for the year - (29) (29)
-
--------------------------------------------- -------- --------- -------
At 30 September 2022 2,100 184 2,284
================================================= ======== ========= =======
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2023
1. Authorisation of financial statements and statement of
compliance with FRS101
The principal activity of the Company is to provide treasury
services to the Group. The Company is a public limited company
incorporated and domiciled in England and Wales. The registered
address is 121 Winterstoke Road, Bristol, BS3 2LL. The Company is
classified as a financial institution as defined by FRS 101.
The financial statements of the Company for the year ended 30
September 2023 were authorised for issue by the Board of Directors
on 13 December 2023, and the balance sheet was signed on the
Board's behalf by L J Paravicini and D M Tillekeratne.
These financial statements have been prepared on the going
concern basis and in accordance with the United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting Standards
and applicable law) including the Companies Act 2006 and FRS 101.
The Company has been issued a support letter from its parent
company, Imperial Brands PLC, confirming ongoing financial support
in meeting liabilities as they fall due from the date of approval
of these financial statements to 31 December 2024. Imperial Brands
PLC has evaluated its ability to continue as a going concern until
31 March 2025. This evaluation is an extension to the previous
assessment that was audited and reported on page 182 of the
Imperial Brands Annual Report for the year ended 30 September 2023.
The Directors are therefore satisfied there are no uncertainties
relating to going concern, and accordingly the Directors considered
it appropriate to rely upon this support in making their going
concern assessment for these financial statements. The Directors
are satisfied that the Company has adequate resources to meet its
operational needs from the date of this report through to 31
December 2024 and, therefore concludes that it is appropriate to
prepare the financial statements on a going concern basis.
The Company's financial statements are presented in pounds
sterling, its functional currency, and all values are rounded to
the nearest million pounds (GBP million) except when otherwise
indicated.
The principal accounting policies adopted by the Company are set
out in note 2.
2. Accounting policies
Basis of preparation of financial statements
The preparation of financial statements in conformity with FRS
101 requires the use of certain critical accounting estimates and
judgements in applying the Company's accounting policies. The areas
involving a higher degree of judgement or complexity, or areas
where assumptions and estimates are significant to the financial
statements are disclosed in note 3.
The Company has taken advantage of the following disclosure
exemptions under FRS 101 on the basis that the disclosures are
available within the consolidated financial statements of the
ultimate parent company, which is Imperial Brands Plc. The
disclosures may be found via the investor relations section of the
Imperial Brands PLC website at www.imperialbrandsplc.com/investors
.
a) the requirement in paragraph 38 of IAS 1 Presentation of
Financial Statements to present comparative information in respect
of paragraph 79(a)(iv) of IAS 1 Presentation of Financial
Statements.
b) the requirements of paragraphs 10(d) and 10(f) of IAS 1 Presentation of Financial Statements.
c) the requirements of IAS 7 Statement of Cash Flows.
d) the requirements of paragraph 17 of IAS 24 Related Party Disclosures.
e) the requirements in IAS 24 Related Party Disclosures to
disclose related party transactions entered into between two or
more members of a group, provided that any subsidiary which is a
party to the transaction is wholly owned by such a member.
The financial statements have been prepared on an amortised cost
or fair value basis as described in the accounting policies on
financial instruments below.
New accounting standards and interpretations
From 1 October 2021, as a result of the UK leaving the European
Union, the Company has been required to prepare financial
statements in line with FRS 101 applying 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'.
Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest rate
benchmark reform (phase 2) effective from 1 October 2021. Following
the announcement of the discontinuation of GBP LIBOR at the end of
2021 and US$ LIBOR discontinuation in 2023, the Company amended its
bank facility agreement on 28 September 2021 to stop referencing
GBP and US$ LIBOR and instead reference the daily risk free rates
of SONIA and SOFR respectively. The Company amended all GBP LIBOR
derivatives to reference the daily risk free rate of SONIA instead
of GBP LIBOR and all US$ LIBOR derivatives were amended to
reference the daily risk free rate of SOFR instead of US$ LIBOR.
There are no changes pending for EUR derivatives. There has been no
material impact on the Company's results for the year as a result
of these changes.
Accounting standards and interpretations not yet in issue
Amendment to IAS 1 - Non-current liabilities with covenants:
Under the amendments to IAS 1 Presentation of Financial Statements
the classification of certain liabilities as current or non-current
may change. This is not expected to impact the Company's results
and will only require additional disclosures for liabilities
subject to covenants. The amendments will be effective for
accounting periods beginning on or after 1 January 2024.
There are a number of other amendments and clarifications to
IFRS, effective in future years. None of which are expected to
significantly impact the Company's results or financial
position.
Interest
Interest payable and receivable is recognised in the income
statement using the effective interest method.
The principal activity of the Company is to provide treasury
services to the Group. However, the Company has chosen to present
interest receivable and payable below operating profit, including
foreign exchange gains and losses on financing activities, in order
to have a consistent treatment with the format of the consolidated
financial statements of the Group. This is considered appropriate
since the Company undertakes transactions on behalf of the
Group.
Foreign currencies
Monetary assets and liabilities denominated in foreign
currencies are translated into pound sterling at the rates of
exchange ruling at the balance sheet date.
Transactions in currencies other than pound sterling 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 are taken to the income
statement.
Taxes
The tax expense for the period comprises current and deferred
tax. Tax is recognised in the income statement, except to the
extent that it relates to items recognised in other comprehensive
income or directly in shareholders' funds. In this case, the tax is
also recognised in other comprehensive income or directly in the
shareholders' funds, respectively.
Current tax is the expected tax payable on the taxable income
for the period, using tax rates enacted or substantively enacted at
the balance sheet date, and any adjustments to tax payable in
respect of previous periods.
Deferred tax is recognised in respect of all timing differences
that have originated but not reversed at the balance sheet date,
where transactions or events that result in an obligation to pay
more tax in the future or a right to pay less tax in the future
have occurred at the balance sheet date.
A net deferred tax asset is recognised only to the extent that
it is probable that future taxable profit will be available against
which the asset can be utilised.
Deferred tax is determined using tax rates that have been
enacted or substantively enacted by the balance sheet date and are
expected to apply when the related deferred tax asset is realised
or the deferred tax liability is settled. Deferred tax is measured
on a non-discounted basis.
Dividends
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.
Financial instruments
Receivables held under a hold to collect business model are
stated at amortised cost.
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 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
(where applicable) 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.
Financial assets and financial liabilities are recognised when
the Company becomes a party to the contractual provisions of the
relevant instrument. Financial assets are de-recognised when the
rights to receive benefits have expired or been transferred, and
the Company has transferred substantially all risks and rewards of
ownership. Financial liabilities are de-recognised when the
obligation is extinguished.
Non-derivative financial liabilities are initially recognised at
fair value and are subsequently stated at amortised cost using the
effective interest method under a hold to collect business model.
For borrowings, the carrying value includes accrued interest
payable, as well as unamortised transaction costs. Cash and cash
equivalents include cash in hand and deposits held on call,
together with other short-term highly liquid investments.
The Company transacts both intragroup and external derivative
financial instruments to manage the Company's and the Group's
underlying exposure to foreign exchange and interest rate risks.
The Company does not transact derivative financial instruments for
trading purposes. Derivative financial instruments are initially
recorded at fair value. Derivative financial assets and liabilities
are included in the balance sheet at fair value, and include
accrued interest receivable and payable where relevant. The Company
has decided (as permitted under FRS 101) not to hedge account for
its derivative financial instruments and so changes in fair values
are recognised in the income statement in the period in which they
arise.
Collateral transferred under the terms and conditions of a
credit support annex document under an International Swaps and
Derivatives Association ("ISDA") agreement in respect of one
derivative is net settled and is, therefore, netted off the
carrying value of the derivative in the balance sheet.
3. Critical accounting estimates and assumptions
The Company makes estimates and assumptions concerning the
future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. The estimates and
assumptions that have significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year are addressed below. There were no critical
judgements involved in the preparation of these financial
statements.
Expected credit loss on other receivables
An expected credit loss provision has been recognised against
the carrying value of certain trade and other receivables. The
provision is a reduction in the carrying value of the asset
involved reflecting an assessment of the level of risk that future
repayment may default. The loans receivable involved are all loans
made to entities within the Imperial Brands Group. The provision
has been calculated based on the size of the loan, the probability
of default (measured through credit default rates or expected
future cashflows) and the loss estimated to arise if a default
occurred (considered with regard to the value of the realisable
assets of the counterparty). The probability of default rates used
vary from 1% up to 100% (2022: 1% up to 100%). The loss given
default rates ranged from nil up to 100% (2022: nil up to 100%) for
certain entities where the counterparty has insufficient assets
that could be realised to repay the loan. All intergroup loans
continue to perform at present, are not in default and operate
within their loan limits.
There may be circumstances where intragroup guarantees are in
place where a Group company accepts the credit risk associated with
an intergroup loan between the Company and a further third Group
entity. These guarantees are evaluated in terms of their effect on
the level of credit risk retained by the Company and therefore the
total amount of the expected credit loss provision. Further
information as to the sensitivity of expected credit loss risk is
disclosed in note 13, B) credit risk.
Derivatives
The fair value of derivatives 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.
Those techniques are significantly affected by the assumptions
used, including discount rates, estimates of future cash flows,
exchange rates and interest rates. The valuation of derivatives is
subject to changes in the underlying assumptions used by financial
markets in valuing financial instruments. The impact of changes in
these assumptions can be significant resulting in volatility in
valuations. Further information as to the sensitivity of valuations
is disclosed in note 13.
The categorisation within the fair value hierarchy (i.e. level
1, 2 or 3) of the inputs to the fair value measurements of
derivatives carried at fair value is set out in note 13.
4. Operating profit
The operating profit includes a release of an expected credit
loss provision on loans receivable of GBP25 million (2022: charge
of GBP116 million). The operating loss in the previous financial
year included a loan waiver of GBP129 million on disposal of the
Group's Russian business. There was no such charge in the financial
year ended 30 September 2023. It is stated after charging auditors'
fees of GBP194,913 (2022: GBP170,798) which were met by Imperial
Tobacco Limited ("ITL"), a wholly owned indirect subsidiary of
Imperial Brands PLC. There were non-audit fees of GBP29,000 paid
during the year (2022: GBP50,000). The Company has also been
recharged office rental costs from another Group company of
GBP30,960 (2022: GBP30,960).
5. Investment income
(In GBP million) 2023 2022
----------------------------------------------------------------- ------ ------
Interest receivable from Group undertakings 1,328 487
Interest on bank deposits 6 3
Exchange gains on monetary assets and liabilities 630 -
Fair value gains on external derivative financial instruments 707 1,483
Fair value gains on intragroup derivative financial instruments - 915
2,671 2,888
================================================================= ====== ======
6. Finance costs
(In GBP million) 2023 2022
------------------------------------------------------------------ ------ ------
Interest payable to Group undertakings 607 125
Interest on bank loans and other loans 349 297
Exchange losses on monetary assets and liabilities - 983
Fair value losses on external derivative financial instruments 568 1,213
Fair value losses on intragroup derivative financial instruments 670 -
2,194 2,618
================================================================== ====== ======
7. Directors' emoluments and pensions
Employment costs
Employment costs, which do not include pension costs, are paid
by ITL and subsequently recharged to the Company.
The total salary costs recharged in the year of GBP766,603
(2022: GBP896,196) and social security costs of GBP77,059 (2022:
GBP96,012) are recognised within administrative expenses in the
income statement. The average monthly number of employees during
the year was 11 (2022: 10).
The emoluments of the Directors are paid by ITL. The Directors'
services to the Company and to a number of fellow subsidiaries
below the ultimate parent company are of a non-executive nature and
their emoluments and retirement benefits are deemed to be wholly
attributable to their services to ITL and the Group. Services
directly attributable to the Company are a negligible proportion of
those provided to the Group, accordingly no emoluments or
retirement benefits are disclosed in these financial
statements.
8. Tax on profit
Analysis of charge in the year:
(In GBP million) 2023 2022
------------------------------------------- ----- -----
UK Corporation tax on profit for the year 106 51
Withholding tax 1 1
Double taxation relief (2) (1)
Adjustments in respect of prior years 1 1
============================================ ===== =====
Current tax 106 52
-------------------------------------------- ----- -----
Total tax charge 106 52
============================================ ===== =====
Tax for the year is higher than (2022: higher than) the standard
rate of corporation tax in the UK for the year of 22% (2022:
19%).
The differences are explained as follows:
(In GBP million) 2023 2022
------------------------------------------------------------------- ----- -----
Profit before taxation 499 23
==================================================================== ===== =====
Profit before taxation multiplied by standard rate of corporation
tax in the UK of 22% (2022: 19%) 110 4
Effects of:
Non-deductible expected credit loss provision (credit)/charge (6) 47
Adjustments to tax charge in respect of prior years (current tax) 1 1
Transfer pricing adjustment 1 -
Total tax charge 106 52
==================================================================== ===== =====
The corporation tax charge has not been adjusted (2022: has not
been adjusted) as the Company paid consideration of GBP53 million
for group relief claimed (2022: GBP52 million) from other Imperial
Brands PLC group subsidiaries.
Movement on current tax account
(In GBP million) 2023 2022
------------------------------------------------ ------ -----
At 1 October 111 93
Charged to the income statement - current year 106 52
Cash paid (112) (34)
At 30 September 105 111
================================================= ====== =====
Factors that may affect future tax charges
The current year tax rate of 22% arises from profits being taxed
at 22% for the year to 30 September 2023.
The Finance Act 2021 received Royal Assent on 10th June 2021,
which confirmed that the main rate for UK corporation tax rate will
increase to 25% with effect from 1st April 2023.
9. Dividends
No dividend is proposed for the current year (2022: nil).
10. Other receivables
2023 2023 2022 2022
(In GBP million) Current Non-Current Current Non-Current
------------------------------------ -------- ------------ -------- ------------
Amounts owed by Group undertakings 28,610 - 28,840 44
Other receivables and prepayments 14 - 6 -
==================================== ======== ============ ======== ============
28,624 - 28,846 44
==================================== ======== ============ ======== ============
Amounts owed by Group undertakings are unsecured, both interest
bearing and non-interest bearing and can be either repayable on a
future date to be mutually agreed between the Company and the
counterparty borrower or have fixed repayment dates. At 30
September 2023 GBP25,450 million (2022: GBP25,619 million) of the
amounts owed by Group undertakings were repayable on a mutually
agreed future date (treated as a current receivable) and GBP3,160
million (2022: GBP3,221 million) were term loans treated as current
receivables and GBPnil million (2022: GBP44 million) were term
loans treated as non-current receivables. There were GBP28,584
million (2022: GBP28,192 million) of interest bearing loans and
GBP26 million (2022: GBP692 million) of non-interest bearing loans.
Where loans were subject to interest the rates charged varied from
0.53% to 10.335% (2022: 0.125% to 7.5%).
The Directors have assessed the extent to which amounts owed by
the Group companies are impaired. For those balances that are
neither overdue nor impaired the Directors have concluded that the
expected credit losses (ECL) that are possible from default events
over the next twelve months are immaterial and consequently no
allowance for impairment has been recognised. For those balances
assessed to be impaired, an expected credit loss adjustment of
GBP583 million (2022: GBP608 million) has been recognised to
reflect the credit risk inherent within a number of the current
intercompany loans receivable, as follows:
2023
------------- -------------- ------------
Gross amount ECL allowance Net balance
Loan receivable balances that are not impaired 28,401 - 28,401
Loan receivable balances that are impaired 792 583 209
================================================= ============= ============== ============
29,193 583 28,610
================================================ ============= ============== ============
2022
------------- -------------- ------------
Gross amount ECL allowance Net balance
Loan receivable balances that are not impaired 28,586 - 28,586
Loan receivable balances that are impaired 906 608 298
================================================= ============= ============== ============
29,492 608 28,884
================================================ ============= ============== ============
11. Other payables
2023 2022
------------------------------------ ---------------------- ----------------------
(In GBP million) Current Non-current Current Non-current
------------------------------------ -------- ------------ -------- ------------
Amounts owed to Group undertakings 17,140 1,702 17,593 882
Corporation tax payable 105 - 111 -
------------------------------------- -------- ------------ -------- ------------
17,245 1,702 17,704 882
------------------------------------ -------- ------------ -------- ------------
Amounts owed to Group undertakings are unsecured, both interest
bearing and non-interest bearing and repayable on a future date to
be mutually agreed between the Company and the counterparty lender
(treated as a current liability). There were GBP18,841 million
(2022: GBP16,744 million) of interest bearing loans and GBP1
million (2022: GBP1,731 million) of non-interest bearing loans.
Where loans were subject to interest the rates charged varied from
0.245% to 13.750% (2022: 0.245% to 13.750%).
Amounts owed to Group undertakings are not included in the
borrowings analysis in note 12 of the financial statements which
only includes borrowings with external counterparties.
12. Borrowings
The Company's borrowings are held at amortised cost as
follows:
(In GBP million) 2023 2022
------------------------------------------ ------ ------
Current borrowings
Bank loans and overdrafts - -
Capital market issuance:
$354m 3.5% notes due February 2023 - 322
EUR750m 1.25% notes due August 2023 - 663
GBP600m 8.125% notes due March 2024 627 -
$1,000m 3.125% notes due July 2024 823 -
Total current borrowings 1,450 985
=========================================== ====== ======
Non-current borrowings
Bank loans 8 5
Capital market issuance:
GBP600m 8.125% notes due March 2024 - 626
$1,000m 3.125% notes due July 2024 - 910
EUR500m 1.375% notes due January 2025 437 445
$1,500m 4.25% notes due July 2025 1,236 1,366
EUR650m 3.375% notes due February 2026 574 584
$750m 3.5% notes due July 2026 617 682
GBP500m 5.5% notes due September 2026 500 500
EUR750m 2.125% notes due February 2027 657 670
$1,000m 6.125% notes due July 2027 822 908
$1,000m 3.875% notes due July 2029 822 909
GBP500m 4.875% notes due June 2032 505 505
------------------------------------------- ------ ------
Total non-current borrowings 6,178 8,110
=========================================== ====== ======
Total borrowings 7,628 9,095
=========================================== ====== ======
Analysed as:
Capital market issuance 7,620 9,090
Bank loans and overdrafts 8 5
=========================================== ====== ======
Current and non-current borrowings include interest payable of
GBP31 million (2022: GBP3 million) and GBP61 million (2022: GBP96
million) respectively as at 30 September 2023.
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. All capital market issuances are
listed on the London Stock Exchange.
On 13 February 2023, $354 million (GBP292 million equivalent)
3.5% notes were repaid. On 14 August 2023, EUR750 million (GBP646
million equivalent) 1.125% notes were repaid.
All borrowings are unsecured and the Company has not defaulted
on any during the year (2022: no defaults).
Non-current financial liabilities
The maturity profile of non-current financial liabilities
outstanding as at 30 September 2023 (including the impact of
derivative financial instruments detailed in note 14) is as
follows:
2023 2022
------------------ ------------------ -------- ------------------ ----------------- --------
Net derivative Net derivative
financial financial
Borrowings and (assets)/ Borrowings and (assets) /
(In GBP million) overdrafts liabilities Total overdrafts liabilities Total
------------------- ------------------ ------------------ -------- ------------------ ----------------- --------
Amounts expiring:
Between one and
two years 1,672 (38) 1,634 1,533 18 1,551
Between two and
five years 3,171 126 3,297 5,156 147 5,303
In five years or
more 1,335 (83) 1,252 1,421 (79) 1,342
=================== ================== ================== ======== ================== ================= ========
6,178 5 6,183 8,110 86 8,196
=================== ================== ================== ======== ================== ================= ========
Fair value of borrowings
The fair value of borrowings as at 30 September 2023 is
estimated to be GBP7,203 million (2022: GBP8,419 million). GBP7,194
million (2022: GBP8,414 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.
2023 2022
---------------------------------- ----------------------------------
(In GBP million) Balance sheet amount Fair value Balance sheet amount Fair value
------------------ --------------------- ----------- --------------------- -----------
GBP 1,632 1,524 1,631 1,457
EUR 1,668 1,573 2,363 2,189
USD 4,320 4,097 5,096 4,768
================== ===================== =========== ===================== ===========
Total bonds 7,620 7,194 9,090 8,414
================== ===================== =========== ===================== ===========
Undrawn borrowing facilities
At 30 September the Company had the following undrawn committed
facilities:
(In GBP million) 2023 2022
---------------------------- ------ ------
Amounts expiring:
In less than one year 550 -
Between one and two years 159 -
Between two and five years 2,866 3,091
3,575 3,091
============================ ====== ======
During the year the maturity of EUR3,125 million of the Group's
syndicated multicurrency facility of EUR3,493 million (2022
EUR3,500 million) was extended to 30 September 2026. One syndicate
member opted not to extend their participation of EUR184 million
which has a maturity date of 30 September 2025. One syndicate
member opted not to extend their participation of EUR184 million
which has a maturity date of 30 March 2026. One syndicate member
sold their participation of EUR125 million and one syndicate member
sold their participation of EUR184 million. Two syndicate members
increased their participations from EUR125 million to EUR184
million and a new syndicate member joined with a participation of
EUR184 million.
During the year three new bilateral facilities for a total
GBP550 million, all maturing in September 2024, were arranged.
13. Financial risk management
Overview
The Company, as the main financing and financial risk management
company for the Group, undertakes transactions to manage the
Group's financial risks, together with its financing and liquidity
requirements. As a result, the Company is exposed to risks
including, but not limited to, market, credit and liquidity risk.
This note explains the Company'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's treasury activities are overseen by the Treasury
Committee, which meets four times a year and comprises the Chief
Financial Officer, the Director of Treasury, the Group Finance
Director, the Chief Legal and Corporate Affairs Officer, the Chief
Strategy and Development Officer and three Group Regional Finance
Directors. The Treasury Committee operates in accordance with the
terms of reference set out by the Board and a policy (the Treasury
Operations policy) which sets out the expectations and boundaries
to assist in the effective oversight of treasury activities.
The Board of Directors of Imperial Brands PLC reviews and
approves all major Treasury decisions. The treasury function does
not operate as a profit centre, nor does it enter into speculative
transactions.
The Company's management of financial risks cover the
following:
(a) Market risk
Price risk
The Company is not exposed to equity securities price risk.
Foreign exchange risk
The Company is exposed to movements in foreign exchange rates
due to the translation of balance sheet items held in
non-functional currencies. The Company's financial results are
principally exposed to fluctuations in euro and US dollar exchange
rates.
Management of the Company's foreign exchange translation risk is
addressed below.
Translation risk
The Company has translation risk on cash, borrowings,
derivatives and intragroup loans held in non-functional currencies.
The Company enters into intragroup derivative contracts to manage
some of the Company's exposure to exchange rate movements.
The Company 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.
Foreign exchange sensitivity analysis
The Company's sensitivity to foreign exchange rate movements,
which impacts the translation of monetary items held by the Company
in currencies other than its functional currency, is illustrated on
an indicative basis below. The sensitivity analysis has been
prepared on the basis that the proportion of cash, borrowings,
derivatives and intragroup loans held in non-functional currencies
remains constant.
The Company manages its sensitivity to foreign exchange rates
through the use of intragroup derivative contracts to reduce
foreign exchange gains or losses on the translation of financial
instruments. The sensitivity analysis does not reflect any change
to 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.
2023 2022
--------------------- --------------------
(Decrease)/
(In GBP million) (Decrease) in income increase in income
---------------------------------------------------------------------- --------------------- --------------------
Income Statement impact on non-functional currency foreign exchange
exposures:
10% appreciation of Sterling against Euro (2022: 10%) (14) (33)
10% appreciation of Sterling against US dollar (2022: 10%) (15) 40
----------------------------------------------------------------------- --------------------- --------------------
An equivalent depreciation of Sterling against the above
currencies would cause an increase in income of GBP18 million and
GBP19 million for euro and US dollar exchange rates respectively
(2022: decrease of GBP40 million and GBP48 million
respectively).
There is no direct net impact on equity (2022: GBPnil).
Interest rate risk
The Company'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 Company to cash flow interest rate
risk. Borrowings at fixed rates expose the Company to fair value
interest rate risk.
The Company 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
Operations Policy and Treasury Committee decisions.
As at 30 September 2023, after adjusting for the effect of
derivative financial instruments detailed in note 14, approximately
107% (2022: 97%) of the Company's borrowings were at fixed rates of
interest. This ratio is a result of a high level of fixed rate debt
exposures combined with substantial financial assets such as cash
which earn interest at floating rates.
Interest rate sensitivity analysis
The Company'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 Company's Income Statement reflects the effect on
net finance costs in respect of the Company's net debt and the
fixed to floating rate debt ratio prevailing at 30 September 2023,
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 direct net impact on equity (2022: GBPnil).
The movement in interest rates is considered reasonable for the
purposes of this analysis and the estimated effect assumes a lower
limit of zero for interest rates where relevant.
(In GBP million) 2023 2022
----------------- -----------------
Change in income Change in income
-------------------------------------------------------- ----------------- -----------------
Income Statement impact of interest rate movements:
+/- 1% increase in euro interest rates (2022: 1%) 12 9
+/- 1% increase in US dollar interest rates (2022: 1%) (9) (4)
--------------------------------------------------------- ----------------- -----------------
(b) Credit risk
IFRS 9 requires an expected credit loss (ECL) model to be
applied to financial assets. The ECL model requires the Company 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 Company is exposed to credit risk
arising from loans to entities within the Imperial Brands Group,
cash deposits, derivatives and other amounts due from external
financial counterparties arising on other financial instruments.
The maximum credit risk relating to intergroup loans was GBP28,610
million (2022: GBP28,884 million). The maximum aggregate credit
risk to parties external to the Imperial Brands Group was
considered to be GBP1,631 million at 30 September 2023 (2022:
GBP2,200 million). Intragroup counterparty credit risk may be
mitigated where there is control of a counterparty within the
Group, allowing the Group to facilitate repayment through realising
counterparty assets or through refinancing. At 30 September 2023 an
ECL provision of GBP583 million was recognised relating to the risk
of intergroup loans not being repaid (2022: GBP608 million).
As discussed in the accounting policies note the calculation of
the expected credit loss provision is based on management's
assessment of the probability of default (PoD) and the percentage
loss expected to arise in the event of default (LGD), multiplied by
the current size of the loan receivable. The PoD and LGD rates are
estimated on a loan by loan basis. Most of the intragroup loan
receivables have very low PoD and LGD due to their low credit risk
and do not contribute significantly to the overall ECL provision.
However, there are a small group of intragroup loan with higher
credit risk that contribute most towards the ECL provision and
these loans have an average PoD of 75% and LGD of 100%. Management
estimates of these rates is judgemental and any changes in
estimates would change the amount of ECL recognised. For the higher
credit risk loans a 1% increase in the PoD would increase the ECL
by approximately GBP8 million (2022: approximately GBP8 million).
In regards to the LGD estimate a 1% reduction would reduce the ECL
by approximately GBP6 million (2022: approximately GBP6 million).
It is not possible to increase the LGD and therefore there is no
risk of the ECL increasing due to this factor.
Trade and other receivables
Policies are in place to manage the risk associated with the
extension of credit to third parties, including companies within
the Group, to ensure that commercial intent is balanced effectively
with credit risk management. Credit is extended with consideration
to financial risk and creditworthiness. Analysis of trade and other
receivables is provided in note 10.
Financial instruments
In order to manage its credit risk to any one counterparty, the
Company 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
Operations Policy. 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. During the year the Group terminated one
collateralised trade held under an ISDA Credit Support Annex and as
at 30 September 2023 had placed collateral of GBPnil (2022: GBP12
million) with a third party in order to manage their counterparty
risk on the Group under derivative financial instruments.
The table below summarises the Company's largest exposures to
financial counterparties as at 30 September 2023. At the balance
sheet date management does not expect these counterparties to
default on their current obligations.
2023 2022
-------------------------------- --------------------------------
Maximum exposure to credit risk Maximum exposure to credit risk
Counterparty Exposure GBP million GBP million
----------------------- -------------------------------- --------------------------------
Highest 311 136
2(nd) highest 104 135
3(rd) highest 84 128
4(th) highest 83 127
5(th) highest 80 114
======================= ================================ ================================
These exposures are held with counterparties with investment
grade credit ratings or in money market funds with a AAA
rating.
(c) Liquidity risk
The Company is exposed to liquidity risk, which represents the
risk of having insufficient funds to meet its financing needs. To
manage this risk the Company has a policy of actively maintaining a
mixture of short, medium and long-term committed facilities that
are structured to ensure that the Company 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 bilateral agreements,
bank revolving credit facilities and European commercial paper.
Certain of these borrowings contain cross default provisions and
negative pledges. The core committed bank facilities are subject to
two financial covenants, these being minimum interest cover ratio
of four times and maximum gearing of four times (per the definition
within the agreement) and are subject to pari passu ranking and
negative pledge covenants. Any non-compliance with covenants
underlying the Company's financing arrangements could, if not
waived, constitute an event of default with respect to any such
arrangements, and any non-compliance with covenants may, in
particular circumstances, lead to an acceleration of maturity on
certain borrowings and the inability to access committed
facilities.
We remain fully compliant with all our banking covenants (2022:
fully compliant).
The Group primarily borrows centrally in order to meet forecast
funding requirements, and the treasury function is in regular
dialogue with subsidiaries in the Group to ensure their liquidity
needs are met. Subsidiaries in the Group 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 in the Group where possible in order to minimise
external borrowing requirements and interest costs. Treasury
invests surplus cash in bank deposits and money market funds and
uses foreign exchange contracts to manage short term liquidity
requirements in line with short term cash flow forecasts. As at 30
September 2023, the Company held liquid assets of GBP681 million
(2022: GBP1,161 million).
The table below summarises the Company's non derivative
financial liabilities by maturity based on their remaining
contractual cash flows as at 30 September 2023. 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 Company's derivative
financial instruments are detailed in note 14.
At 30 September
2023
Contractual
Balance sheet cash flows Between 1 and 2 Between 2 and 5
(In GBP million) amount Total < 1 year years years > 5 years
------------------ ----------------- ---------------- ----------- ---------------- ---------------- ------------
Non-derivative
financial
liabilities
Bank loans 8 - - - - -
Capital market
issuance 7,620 10,663 1,766 1,951 3,651 3,294
Amounts owed to
group
undertakings 18,842 18,030 17,147 - - 883
================== ================= ================ =========== ================ ================ ============
Total
non-derivative
financial
liabilities 26,470 28,693 18,913 1,951 3,651 4,177
================== ================= ================ =========== ================ ================ ============
At 30 September
2022
Contractual
Balance sheet cash flows Between 1 and 2 Between 2 and 5
(In GBP million) amount Total < 1 year years years > 5 years
------------------ ----------------- ---------------- ----------- ---------------- ---------------- ------------
Non-derivative
financial
liabilities
Bank loans 5 - - - - -
Capital market
issuance 9,090 11,440 1,349 1,830 5,710 2,551
Amounts owed to
group
undertakings 18,475 18,462 17,601 - - 861
================== ================= ================ =========== ================ ================ ============
Total
non-derivative
financial
liabilities 27,570 29,902 18,950 1,830 5,710 3,412
================== ================= ================ =========== ================ ================ ============
Amounts owed to the Company by Group undertakings of GBP28,610
million (2022: GBP28,884 million) are excluded from the above
tables, as disclosure of contractual cash flows is only required
for liabilities.
Capital management
The management of the Company's capital structure forms part of
the Group's capital risk management, details of which can be found
in note 20 of the Imperial Brands Annual Report which does not form
part of this report, but is available at www.imperialbrandsplc.com
.
Fair value estimation and hierarchy
All financial assets and liabilities are carried on the balance
sheet at amortised cost, other than derivative financial
instruments which are carried at fair value. Derivative financial
instruments are valued using techniques based significantly on
observable market data such as yield curves, foreign exchange rates
and credit default swap prices for the Imperial Brands PLC Group as
at the balance sheet date (Level 2 classification hierarchy per
IFRS 7) as detailed in note 14. There were no changes to the
valuation methods or transfers between hierarchies during the year.
With the exception of capital market issuance, the fair value of
all financial assets and financial liabilities is considered
approximate to their carrying amount as outlined in note 14.
Netting arrangements of financial instruments
The following tables set out the Company'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 Company's
balance sheet primarily relate to collateral in respect of one
derivative financial instrument under an ISDA credit support annex.
Amounts which do not meet the criteria for offsetting on the
balance sheet but could be settled net in certain circumstances
principally relate to derivative transactions executed under ISDA
agreements where each party has the option to settle amounts on a
net basis in the event of default of the other party.
2023
==============================================================================================
Gross financial Gross financial Net financial Related amounts not Net
assets / assets / assets /liabilities set off in the
(In GBP million) liabilities liabilities set off per balance sheet balance sheet
---------------------- -------------------- -------------------- -------------------- -------------------- ------
Assets
Derivative financial
instruments 950 - 950 (817) 133
950 - 950 (817) 133
====================== ==================== ==================== ==================== ==================== ======
Liabilities
Derivative financial
instruments (1,003) - (1,003) 817 (186)
====================== ==================== ==================== ==================== ==================== ======
(1,003) - (1,003) 817 (186)
====================== ==================== ==================== ==================== ==================== ======
2022
==============================================================================================
Gross financial Gross financial Net financial Related amounts not Net
assets / assets / assets /liabilities set off in the
(In GBP million) liabilities liabilities set off per balance sheet balance sheet
---------------------- -------------------- -------------------- -------------------- -------------------- ------
Assets
Derivative financial
instruments 1,051 (12) 1,039 (948) 91
1,051 (12) 1,039 (948) 91
====================== ==================== ==================== ==================== ==================== ======
Liabilities
Derivative financial
instruments (1,138) 12 (1,126) 948 (178)
====================== ==================== ==================== ==================== ==================== ======
(1,138) 12 (1,126) 948 (178)
====================== ==================== ==================== ==================== ==================== ======
Classification of financial instruments
The following table sets out the Company's accounting
classification of each class of financial assets and
liabilities:
2023
--------------------------- -------------------------- ------------------------- --------- --------- ------------
Fair value through income Assets and liabilities Total Current Non-current
statement at amortised cost
--------------------------- -------------------------- ------------------------- --------- --------- ------------
Other receivables - 28,624 28,624 28,624 -
Cash and cash equivalents - 681 681 681 -
Derivatives 950 - 950 126 824
Total financial assets 950 29,305 30,255 29,431 824
=========================== ========================== ========================= ========= ========= ============
Borrowings - (7,628) (7,628) (1,450) (6,178)
Other payables - (18,947) (18,947) (17,245) (1,702)
Derivatives (1,003) - (1,003) (174) (829)
Total financial
liabilities (1,003) (26,575) (27,578) (18,869) (8,709)
=========================== ========================== ========================= ========= ========= ============
Net financial
(liabilities)/assets (53) 2,730 2,677 10,562 (7,885)
=========================== ========================== ========================= ========= ========= ============
2022
--------------------------- -------------------------- ------------------------- --------- --------- ------------
Fair value through income Assets and liabilities Total Current Non-current
statement at amortised cost
--------------------------- -------------------------- ------------------------- --------- --------- ------------
Other receivables - 28,890 28,890 28,846 44
Cash and cash equivalents - 1,161 1,161 1,161 -
Derivatives 1,039 - 1,039 54 985
Total financial assets 1,039 30,051 31,090 30,061 1,029
=========================== ========================== ========================= ========= ========= ============
Borrowings - (9,095) (9,095) (985) (8,110)
Other payables - (18,586) (18,586) (17,704) (882)
Derivatives (1,125) - (1,125) (54) (1,071)
Total financial
liabilities (1,125) (27,681) (28,806) (18,743) (10,063)
=========================== ========================== ========================= ========= ========= ============
Net financial
(liabilities)/assets (86) 2,370 2,284 11,317 (9,034)
=========================== ========================== ========================= ========= ========= ============
14. Derivative financial instruments
The Company has the following derivative financial instruments
measured at fair value through profit and loss:
Current derivative financial instruments 2023 2022
---------------------------------------------------------- --------------------- ---------------------
(In GBP million) Assets Liabilities Assets Liabilities
---------------------------------------------------------- ------- ------------ ------- ------------
Interest rate swaps 30 (66) 6 (36)
Foreign exchange contracts 12 (5) 31 (13)
Cross currency swaps 84 (103) 17 (5)
Total current derivatives 126 (174) 54 (54)
========================================================== ======= ============ ======= ============
Non-current derivative financial instruments
---------------------------------------------------------- ------- ------------ ------- ------------
(In GBP million) Assets Liabilities Assets Liabilities
---------------------------------------------------------- ------- ------------ ------- ------------
Interest rate swaps 745 (652) 680 (746)
Cross currency swaps 79 (177) 305 (337)
Collateral(1) - - - 12
Total non-current derivatives 824 (829) 985 (1,071)
========================================================== ======= ============ ======= ============
Total carrying value of derivative financial instruments 950 (1,003) 1,039 (1,125)
========================================================== ======= ============ ======= ============
Net liability (53) (86)
========================================================== ======= ============ ======= ============
Analysed as:
---------------------------------------------------------- ------- ------------ ------- ------------
Interest rate swaps 775 (718) 686 (782)
Foreign exchange contracts 12 (5) 31 (13)
Cross currency swaps 163 (280) 322 (342)
Collateral(1) - - - 12
========================================================== ======= ============ ======= ============
Total carrying value of derivative financial instruments 950 (1,003) 1,039 (1,125)
========================================================== ======= ============ ======= ============
Net liability (53) (86)
========================================================== ======= ============ ======= ============
(1) Collateral deposited against derivative financial
liabilities under the terms and conditions of an ISDA credit
support annex.
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 reputable financial data provider and
valuations are validated by comparison 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 GBP2 million (2022: GBP3 million)
and would have been a GBP5 million (2022: GBP8 million) reduction
without considering the early termination options. All derivative
assets and liabilities are classified under the FRS 101 fair value
hierarchy as being level 2.
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
2023. As at 30 September 2022 collateral transferred to
counterparties in respect of derivative financial liabilities was
classified consistently with the related underlying derivative. No
collateralised trades are outstanding as at 30 September 2023.
The table below summarises the Company's derivative financial
instruments by maturity based on their remaining contractual cash
flows as at 30 September 2023. 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 Company's non derivative financial
instruments are detailed in note 13.
At 30 September
2023
Contractual
Balance sheet cash flows Between 1 and 2 Between 2 and 5
(In GBP million) amount Total < 1 year years years > 5 years
------------------ ----------------- ---------------- ----------- ---------------- ---------------- ------------
Net settled
derivatives 57 200 (3) 34 143 26
Gross settled (110) - - - -
derivatives -
Receipts - 17,822 5,429 4,010 5,283 3,100
Payments - (17,675) (5,374) (3,941) (5,247) (3,113)
================== ================= ================ =========== ================ ================ ============
(53) 347 52 103 179 13
================== ================= ================ =========== ================ ================ ============
At 30 September
2022
Contractual
Balance sheet cash flows Between 1 and 2 Between 2 and 5
(In GBP million) amount Total < 1 year years years > 5 years
------------------ ----------------- ---------------- ----------- ---------------- ---------------- ------------
Net settled
derivatives (84) (321) (71) (64) (101) (85)
Gross settled (3) - - - -
derivatives -
Receipts - 9,890 1,934 3,293 4,059 604
Payments - (9,635) (1,851) (3,201) (3,944) (639)
================== ================= ================ =========== ================ ================ ============
(87) (66) 12 28 14 (120)
================== ================= ================ =========== ================ ================ ============
Derivatives as hedging instruments
As outlined in note 13, the Company hedges its underlying
interest rate exposure and foreign currency translation exposure in
an efficient, commercial and structured manner, primarily using
interest rate swaps and cross currency swaps. Foreign exchange
contracts are used to manage the Company's short term liquidity
requirements in line with short term cash flow forecasts as
appropriate. The Company does not apply cash flow or fair value
hedge accounting as permitted under IFRS 9, which results in fair
value gains and losses attributable to derivative financial
instruments being recognised in net finance costs.
As a result of the discontinuation of GBP LIBOR in December 2021
and US$ LIBOR discontinuation in June 2023, the Company amended all
GBP LIBOR derivatives to reference the daily risk free rate of
SONIA instead of GBP LIBOR and all US$ LIBOR derivatives were
amended to reference the daily risk free rate of SOFR instead of
US$ LIBOR. There are no changes pending for EUR derivatives. These
changes did not impact the Group's commercial hedging strategy and
they did not have a material financial impact.
Interest rate swaps
To manage interest rate risk on its borrowings, the Company
issues debt in the market or markets that are most appropriate at
the time of raising new finance with regard to currency, interest
denomination and duration, and then uses interest rate swaps and/or
cross currency swaps to re-base the debt into the appropriate
proportions of fixed and floating interest rates where necessary.
Interest rate swaps are also transacted to manage and re-profile
the Company's interest rate risk over the short, medium and long
term in accordance with the Treasury Operations Policy and Treasury
Committee decisions. Fair value movements are recognised in
investment income and finance costs in the relevant reporting
period.
As at 30 September 2023, 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 GBP8,111 million (2022: GBP9,578 million) with a
fair value of GBP714 million liability (2022: GBP755 million
liability). The fixed interest rates vary from 1.3% to 7.9% (2022:
1.1% to 7.9%), and the floating rates are EURIBOR, SONIA and
SOFR.
As at 30 September 2023, 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 GBP11,622
million (2022: GBP11,548 million) with a fair value of GBP771
million asset (2022: GBP670 million asset). The fixed interest
rates vary from 3.1% receivable to 4.0% payable (2022: 0.5% payable
to 4.0% payable), and the floating rates are EURIBOR and SOFR. This
includes forward starting interest rate swaps with a total notional
amount of GBP4,055 million equivalent (2022: GBP3,353 million
equivalent) with tenors between 1 and 10 years, starting between
October 2023 and May 2032.
Cross currency swaps
The Company enters into cross currency swaps to covert 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 investment income and finance costs in
the relevant reporting period.
As at 30 September 2023, 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 GBP1,600 million
(2022: GBP1,600 million) and the fair value of these swaps was
GBP111 million net liability (2022: GBP232 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 $5,250 million (2022: $2,250 million) and the
fair value of these swaps was GBP6 million net liability (2022:
GBP211 million net asset).
Foreign exchange contracts
The Company enters into foreign exchange contracts to manage
short term liquidity requirements in line with cash flow forecasts.
As at 30 September 2023, the notional amount of these contracts was
GBP2,020 million (2022: GBP1,662 million) and the fair value of
these contracts was a net asset of GBP7 million (2022: GBP19
million net asset).
15. Share capital
(In GBP million) 2023 2022
------------------------------------------------------------------ ------ ------
Issued and fully paid
2,100,000,000 ordinary shares of GBP1 each (2022: 2,100,000,000) 2,100 2,100
------------------------------------------------------------------- ------ ------
16. Related party transactions
The Company has taken advantage of the Group exemption under the
terms of FRS 101 from disclosing related party transactions with
entities that are part of the Group since the Company is a wholly
owned indirect subsidiary of Imperial Brands PLC and is included in
the consolidated financial statements of the Group, which are
publicly available.
17. Guarantees
The Company is party to a cross guarantee of its bank accounts
held at HSBC Bank plc against accounts of Imperial Brands PLC and
some of its subsidiary companies. At 30 September 2023, the amount
drawn under this cross guarantee was GBPnil million (2022: GBP1
million). Together with other Group undertakings, the Company
guarantees various borrowings and liabilities of other subsidiary
companies under this arrangement with HSBC Bank plc.
The Company is party to three counter-indemnity deeds, each
dated April 2023, made on substantially the same terms under which
certain insurance companies have made available to Imperial Brands
PLC, Imperial Tobacco Limited and the Company, a surety bond. In
each case issued on a standalone basis but in aggregate forming an
amount of GBP120 million, until December 2028. These surety bonds
provide support to the Imperial Tobacco Pension Trustees Ltd, the
main UK pension scheme. The Directors have assessed the fair value
of the above guarantees and do not consider them to be material.
They have, therefore, not been recognised on the balance sheet.
At 30 September 2023, the contingent liability totalled GBPnil
million (2022: GBP1 million).
18. Number of employees
The average monthly number of employees during the year was 11
(2022: 10).
19. Immediate and ultimate parent undertakings
The ultimate parent undertaking and controlling party of the
Company at 30 September 2023 was Imperial Brands PLC, a company
incorporated in Great Britain and registered in England and Wales.
The smallest and largest group in which the results of the Company
are consolidated is that headed by Imperial Brands PLC, whose
consolidated financial statements may be obtained from The Company
Secretary, Imperial Brands PLC, 121 Winterstoke Road, Bristol, BS3
2LL and are also available in the investors section of the Group
website at www.imperialbrandsplc.com .
The immediate parent undertaking of the Company at 30 September
2023 was Imperial Tobacco Holdings Limited, a company incorporated
in Great Britain and registered in England and Wales.
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END
ACSNKKBQPBDDKBB
(END) Dow Jones Newswires
December 20, 2023 10:43 ET (15:43 GMT)
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