1. IMPERIAL TOBACCO GROUP PLC
2014
FINANCIAL ANALYSIS
STUDEND ID: 21242444
Hardik.B.Bendbar

2. 2
Content Page Number
1. Introduction
 Imperial Tobacco Group PLC 3
2. Accounting Ratio
 Performance Ratio 3
 Liquidity Ratio 4
 Gearing Ratio 5
 Investors Ratio 7
 Efficiency Ratio 8
3. Financial Analysis (Market Figures) 12
4. Share Valuation
 NAV, NAVPS 13
 Dividend Valuation Model 14
5. Investment Assessment
 Historic Price Earnings Ratio 16
 Prospective Price Earnings Ratio 17
Conclusion 18
Appendix 20
Bibliography 23

3. 3
IMPERIAL TOBACCO GROUP PLC
INTRODUCTION
Imperial Tobacco Group Plc is a British based multinational tobacco company
headquartered in Bristol, United Kingdom. It is the world’s largest producer of tobacco
papers, cigars and fine-cut tobacco. In terms of market shares, it is ranked among the top
four cigarette company of the world. Imperial Tobacco has 51 plants worldwide and
produces over 320 billion cigarette per year with its products marketed over 160 countries.
Its major brands are Rizla, Davidoff, JPS, Golden Virginia, and Drum. It is listed in London
Stock Exchange with market capitalization of 24.3 billion pounds as of 23 December 2011,
the 19th
largest of any company with primary listing on LSE. (Wikipedia, 2014)
Main Body
Accounting Ratios
1) Performance Ratio
1.1) Return on Capital Employed
ROCE

4. 4
ROCE 2013
(Figures in £’m )
2012
(Figures in £’m )
OPBT X 100%
CE
1958 X 100%
28,418-11,082
1518 X 100%
27,639-9,142
11.29% 8.2%
Interpretation
 ROCE gives the ability to management to make sound investment. It is the only ratio
which measures the performance of the company.
 It is the ratio of profitability which measures the efficiency with which the investment
made by shareholders and creditors is used in Business.
 ROCE of Imperial Tobacco in the year 2012 was 8.2% which can be considered to
be an average performance when it comes to make profit.
 However in 2013, ROCE increased to 11.29% from 8.2% (an increase of 3.09%)
which indicates that the profit making ability increased but it can be still considered
as an average performance.
 The main reason for the increase in ROCE for the year 2013 can be due to operating
profit generated by the Imperial Tobacco was higher then what was in 2012.
 Although there was increase in current liabilities in the year 2013 but there was also
an increase in gaining total assets which resulted into decrease in Capital Employed
in 2013.
2) Liquidity Ratio
2.1) Current Ratio
CR

5. 5
Current Ratio 2013
(Figures in £’m )
2012
(Figures in £’m )
Current Assets
Current Liabilities
28,418
11,082
27,639
9,142
2.56 times 3.02 times
Interpretation
 Current Ratio is the financial ratio which gives the ability to measures that
whether a company can repay its debt or not in its forthcoming business
cycle.
 Current ratio of Imperial Tobacco in 2012 was 3.02 which indicate that its
ability to repay debt was 3.02 times whereas in 2013 it reduced to 2.56 times
which can be still considered as safe liquidity.
 The main reason in the decrease in Current ratio for the year 2013 can be
due to the increase in possession of current assets and current liabilities.
 Although there was a decrease in current ratio in 2013 from 2012, still it can
be said that company’s operating efficiency is stable and capable enough to
pay its obligation.
3) Gearing Ratio
Gearing Ratio

6. 6
Gearing Ratio 2013
(Figures in £’m )
2012
(Figures in £’m )
LT Debt X 100 %
Capital employed
7,858 X 100%
17,336
8,333 X 100%
18,497
45.32% 45.05%
Interpretation
 Gearing Ratio indicates the amount of leverage of the company.
 In 2012 the Gearing ratio was 45.05% which shows that 45.05% of their total
capital has been borrowed.
 Whereas in 2013, the gearing ratio was 45.35% which was almost similar to
the previous year.
 The company is been able to maintain a stable position in keeping its
finances properly regulated.
 Although there was a slight decrease in gearing ratio in 2013 but it can still be
considered as low gearing ratio which as an investor/lender point of view
increases the chances of investing capital as the company is financially
sound.

7. 7
4) Investor’s Ratios
4.1) Interest Cover
Interest Cover
Interest cover 2013
(Figures in £’m )
2012
(Figures in £’m )
Operating Profit
Interest Payable
1958
697
1518
437
2.80 times 3.47 times
Interpretation
 Interest Cover Ratio is used to determine the company’s ability to pay its interest
expenses on its outstanding debt. (Managementstudyguide.com, 2013)
 Imperial Tobacco’s interest cover for the year 2012 was 3.47 which show that it can
cover its interest 3.47 times in its present business cycle. This also indicates that the
firm is financially stable and can take a chance of increasing its borrowings in order
to expand its business.
 In 2013, there was a drop in Interest Cover from 3.47 to 2.80 which indicates that
company’s interest covering/paying capability has been decreased by 0.67.
 The main factors contributing for drop of interest cover can be due to increase in the
financial expenses incurred during the year 2013; however there was stable increase
in operating profit too.
 Although having a considerable drop in Interest Cover , 2.80 can be still considered
as good interest cover ratio and thus making this company more solvent.

8. 8
4.2) Price Earnings Ratio
Price Earnings Ratio
(in pence)
Price Earnings Ratio 2013
(Figures in £’m )
2012
(Figures in £’m )
Share Price
Earnings per share
2487
96.2
2576
68.1
25.85 times 37.83 times
Interpretation
 Price Earnings Ratio gives the idea to its investors that whether the
company’s share has growth potentials or not.
 The price earnings ratio in 2012 was 37.83 which considerably decreased to
25.85 in 2013.
 The main reason for the drop can be due to two factors firstly, decrease in
share price and secondly, increase in EPS.
 The ratios for both the years are very high which indicates that it’s not risky
to invest but it will take long time to yield profits.

9. 9
4.3) Dividend Yield Ratio
Dividend Yield Ratio
Dividend Yield Ratio 2013
(Figures in £’m )
2012
(Figures in £’m )
Annual Dividend x 100 %
Current Value of the Share
109.10 x 100 %
2487.00
98.70 x 100%
2576.00
4.38% 3.83%
Interpretation
 Dividend Yield gives the information of how much the company is paying its
dividend every year with respect to its market share price.
 In 2012, the dividend yield was 3.83% which increased to 4.38% in 2013.
 A yield of 4.38% can be considered to be high; indicating that share price of
Imperial Tobacco will be on low side.
 A yield of 3.83% in 2012 is relatively low compared to 2013’s yield of 4.38%,
thus indicating that the market share price would be relatively on higher side
than that in 2013.

10. 10
5) Efficiency Ratios
5.1) Equity Turnover Ratio
Equity Turnover
Equity Turnover Ratio 2013
(Figures in £’m )
2012
(Figures in £’m )
Net sales
Average Total Equity
28,269
5,648
28,574
6,084
5% 4.69%
(Investopedia, 2009)
Interpretation
 Equity Turnover Ratio helps to calculate rate of return on common equity while at the
same time measures that how well a company is using its stakeholder’s equity for
generating its revenues.
 There has been slight increase in the ratio from year 2012 which was 4.69% to
2013 which was 5%.
 Thus the Equity Turnover Ratio can be considered to be high for 2013 which
indicates that the company is efficiently using its capital than its previous year
2012.
6) Employee Ratio

11. 11
6.1) Sales per Employee
Sales per Employee
Sales Per Employee 2013 2012
Total Revenue/sales
No of Employee
28,269£’m
35,300
28,574£’m
37200
800821.53 £ 768118.28 £
(Imperial Tobacco Group Social Performance Data 2013, 2014, p. 1)
Interpretation
 It is a ratio which shows the company’s sales with respect to number of employees.
(Mcclure, 2009)
 SPE in 2012 was 768118.28 £ which increased to 800821.53 £ in 2013, which
shows that company is generating higher sales.
 Thus the company’s overhead cost can be lowered and therefore increasing the
credibility of the workforce which in-turn will result in generating healthy Profits.
 Thus the company has become less expensive to run then 2012.

12. 12
Market Figures for Imperial Tobacco Group Plc
7) Dividend for Last 5 years
Years 2014 2013 2012 2011 2010
Dividend 81.2 109.1 98.7 88.10 76.30
(Dividendinvestor.co.uk, 2014)
8) Market Capitalisation Figure
(Uk.reuters.com, 2014)

13. 13
 Current Share Price: 2487.00 GBp
 Equity Beta Value: 0.41
 Market Cap (Mil): £ 24,001.23
9) Shares Valuation
9.1) Net Asset Value (NAV)
NAV
NAV 2013
(Figures in £’m )
2012
(Figures in £’m )
TA-TL 28,418-22,770 27,639-21,555
5648 6084
Net Asset Value per Share
NAVPS
NAVPS 2013 2012
NAV
No of Shares
5648
965.1
6084
931.72
5.85 £ 6.54 £

14. 14
Interpretation
 It is an expression which indicates the value of each share for a fund or a
company.
 The value of each share has been decreased from 6.54 £ (2012) to 5.85 £
(2013) which indicates that value of each share has been dropped by 0.69 £.
 It is more advisable to use NAVPS for long tern changes in stock rather than
fund as funds periodically distribute the capital gains among the shareholders.
9.2) Dividend Valuation Model (DVM)
Dividend Growth Model:
Where P0 = Current Price of the Share
d0 = Last Dividend Paid
g = Growth Rate
KE = Rate of Return
Before calculating P0, we need to calculate g and KE.

15. 15
Given data:
Risk free Return (Rf) = 2.5%
The Market Return (Rp) = 4%
= 0.41
KE =?
g=?
Formulae for Return on Equity (KE)
KE = Rf + Rp
= 2.5% + (0.41) 4%
=2.5 + 1.64
=4.14% or 0.0414
Thus KE = 0.0414
Gordon Model for Growth Rate (g)
g =
Where n = number of steps or years- 1
d last = last dividend paid (2014)
d first = first dividend paid (2010)
g = – 1
= 1.01
= 0.01
Thus g = 0.01

16. 16
 Now putting the values of ‘g’ and ‘KE’ in the Dividend Growth Model
Pence
Interpretation
 Current market price of Imperial Tobacco Group Plc is 2487.00 pence and the value
obtain by DVM is 2611.84 pence, which indicates the following possibilities.
a) Current Market price of IMT is under-valued at present and has a chance of
appreciation in future time.
b) As a shareholder point of view it is advisable to hold the shares at present or
can purchase more shares which can yield to profitability in future.
c) Although the current share price is undervalued but it can’t be assured that the
share price would go up in future time as DVM doesn’t include economic and
market fluctuation.
9.3) Historic Price Earnings Ratio
Historic PER

17. 17
Interpretation
 The historic P/E ratio of IMT 36.52 is very high as compared to its major competitor
British American Tobacco Industry whose historic P/E ratio is 16.34.
 Which indicates that the company is not risky but as a investor point of view, this
company will take long time to yield profits from their investment.
 Whereas BATI is slightly risky but can yield short term profits, if invested in it.
9.4) Prospective Price Earnings Ratio
=
Where d1 = Last dividend paid
E1 = Earnings per share

18. 18
Interpretation
 Prospective P/E ratio is more realistic and acceptable than historic P/E ratio as it
focuses on future growth of the company.
 The assessment shows that IMT’s shareholders will expect higher earnings from the
shares they have invested in but it will take sufficiently longer time.
 Prospective P/E ratio is more forward looking ratio and by the ratio we obtained
27.22 can be consider as high ratio which allows IMT to projects itself to high
position. This is very important for a company as forward projection helps in stock
pricing consideration.
Conclusion
Based on the research carried on financial aspects of Imperial Tobacco Group Plc through
various accounting ratios and models, we can conclude that
 Performance of the company has been improved than compared to 2012’s
performance.
 IMT is capable enough to pay its obligation and has safe liquidity.
 The borrowing of the company is well maintained which makes it more financially
sound.
 The efficiency of IMT to pay back or cover its interest has been decreased
considerable, but it can still be considered as solvent company.
 It has high P/E ratio which indicates that investment in its share would be less risky
but would be taking longer time to yield profits from it.
 As the dividend yield is high, the share price of IMT will tend to be on lower side.
 The company has become less expensive as the sale per employee has increased
which in turn can result into high profits.
 There has been considerable drop in the value of each share of IMT.

19. 19
 The shares are undervalued at present but can be a good option for the investors to
invest by keeping in mind that the profits won’t be obtained in shorter period of time.
“Thus if the investors are willing to take chance in investing for a longer period
of time than it can be recommended to invest in the shares of IMT, while
keeping in mind that price per share won’t yield that much profit.”

20. 20
Appendix 1
(Annual Report 2013, 2013, p. 87, 89, 91)

21. 21
Appendix 2
(Annual Report 2013, 2013, p. 87, 89, 91)

22. 22
Appendix 3
Historic P/E ratio for British American Tobacco Plc

23. 23
Bibliography
Annual Report 2013. 2013. [e-book] p. 87,89,91. Available through: www.imperial-
tobacco.com https://www.imperial-
tobacco.com/files/financial/reports/ar2013/files/pdf/annual_report_2013.pdf [Accessed:
12 Mar 2014].
British American Tobacco News Release. 2014. [e-book] p. 11. Available through:
www.bat.com
http://www.bat.com/group/sites/uk__9d9kcy.nsf/vwPagesWebLive/DO72TJQU/$FILE/
medMD9GQEME.pdf?openelement [Accessed: 15 Mar 2014].
Dividendinvestor.co.uk. 2014. Historical. [online] Available at:
http://www.dividendinvestor.co.uk/historical.php?exg=GB&symbol=IMT [Accessed:
17 Mar 2014].
Imperial Tobacco Group Social Performance Data 2013. 2014. [e-book] p. 1. Available
through: www.imperial-tobacco.co.uk http://www.imperial-
tobacco.co.uk/assets/files/cms/2013_Social_performance_data.pdf [Accessed: 14 Mar
2014].
Investopedia. 2009. Operating Efficiency Ratios - CFA Level 1 | Investopedia. [online]
Available at: http://www.investopedia.com/exam-guide/cfa-level-1/financial-
ratios/operating-efficiency-ratios.asp [Accessed: 17 Mar 2014].
Managementstudyguide.com. 2013. Interest Coverage Ratio - Meaning, Assumptions and
Interpretation. [online] Available at: http://managementstudyguide.com/interest-
coverage-ratio.htm [Accessed: 11 Mar 2014].
Mcclure, B. 2009. Doing More With Less: The Sales-Per-Employee Ratio. [online] Available
at: http://www.investopedia.com/articles/stocks/04/110304.asp [Accessed: 15 Mar
2014].
Uk.finance.yahoo.com. 2014. IMT.L Historical Prices | IMPERIAL TOBACCO Stock -
Yahoo! UK & Ireland Finance. [online] Available at:
http://uk.finance.yahoo.com/q/hp?s=IMT.L&b=1&a=02&c=2012&e=16&d=02&f=201
2&g=d [Accessed: 13 Mar 2014].

24. 24
Uk.reuters.com. 2014. Stocks. [online] Available at:
http://uk.reuters.com/business/quotes/overview?symbol=IMT.L [Accessed: 12 Mar
2014]. Viewed at 3.29pm Gmt
Wikipedia. 2014. Imperial Tobacco. [online] Available at:
http://en.wikipedia.org/wiki/Imperial_Tobacco [Accessed: 12 Mar 2014].