14th Nov 2023 11:57
(Alliance News) - Imperial Brands PLC on Tuesday revealed modest growth in annual results, as it managed secular decline in combustibles such as cigarettes.
In the financial year that ended September 30, revenue was GBP32.48 billion, edging down 0.2% from GBP32.55 billion the year before. On a net basis, the Bristol-based tobacco company said adjusted revenue rose 2.8% to GBP8.01 billion from GBP7.79 billion, with next-generation products net revenue up 26%.
"Whilst some smokers may be quitting nicotine altogether, one area of the market certainly not in decline is NGP like vapes, heated and oral tobacco," said Derren Nathan, head of equity research at Hargreaves Lansdown.
However, for now, NGP are "a small part of the picture", he said.
Strong tobacco pricing helped to mitigate a volume decline of 10%, driven by its Russian exit and weakness in US mass-market cigars, Imperial said.
"If smoking wasn't banned at the workplace, Imperial's management could be forgiven for handing out the cigars in today's board meeting. Excluding the now-exited Russian operations, tobacco volumes were down by 7.1%. Imperial sees this as a structural decline and it's hard to argue with that in the combustible space. But strong pricing has helped to keep revenues steady," Hargreaves' Nathan said.
Pretax profit rose 22% to GBP3.11 billion in the recent year from GBP2.55 billion the year before.
On the back of the positive results, Imperial Brands raised its dividend per share by 4.0% to 146.82 pence from 141.17p.
Looking ahead to the coming financial year, it expects to deliver low-single-digit percentage revenue growth, with growth in adjusted operating profit close to the middle of a mid-single-digit percentage range - both at constant currency.
"The five year plan seems very much on track and Imperial are expecting another year of modest growth," Nathan said.
Imperial Brands is pressing on with its five-year plan launched back in 2021 under the leadership of Chief Executive Stefan Bomhard.
The key goals include focusing on core markets of the US, Germany, UK, Australia and Spain, which bring in 70% of its combustible products' profit. It also targets cost savings of GBP100 to GBP150 million each year by simplifying its operations. Further, net sales growth of 1-2% a year is targeted through to 2025.
"As long as it's not derailed by a downward lurch in the economy, [the plan] should allow free cash flows to remain sufficient to fund investment in the NGP portfolio, generous returns to shareholders and opportunistic M&A activity," Hargreaves' Nathan concluded.
However, Imperial said it expects performance to be weighted to the second half of the year in financial 2024. This type of forecast "tends to make investors nervous", noted AJ Bell investment director Russ Mould.
"It suggests more than a few things need to drop right toward the back end of the year for forecasts to be met, and this may explain why the shares trade on such a lowly valuation," Mould explained.
Shares in Imperial were down 0.7% at 1,775.50 pence each in London on Tuesday shortly before midday.
By Elizabeth Winter, Alliance News senior markets reporter
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