Imperial Brands sparks up interim dividend 10pc as investment pays off

Cigarette company Imperial Brands rolled another fat dividend for the first half of the year as earnings came out ahead of expectations despite continued tobacco volumes declines, a major increase in investment and growing debt pile.

While total volumes dropped 5.7% in the six months to 31 March, as they had across the whole of last year, versus an industry decline of 4.3%, tobacco net revenue grew 9.3% to £3.7bn at the reported level, or down 5.5% at constant currencies.

However, a significant increase in investment helped grow volumes in 'growth brands', which includes Davidoff, Gauloises, John Player Special and Winston 3.2% with a 60 basis point increase in market share.

Specialist brands, such as Gitanes, Cohiba cigars, Kool menthols, Drum rolling baccy, Rizla papers and Blu e-cigarettes, grew share as the size of the market declined, and along with the growth brands delivered a 200bps growth to represent 60.4% of group reported tobacco net revenue.

Total adjusted operating profits rose 6.3% to £1.7bn, adjusted profit before tax by 7.4% to £1.5bn and adjusted earnings per share by 7.9% to 121.9p.

On a reported basis, revenue rose 11.7% to £14.3bn and earnings per share by 133% to 70.7p, with the main difference with the adjusted figure being amortisation of acquired intangibles and restructuring costs.

The interim dividend was hiked 10% to 51.7p per share as the focus on capital discipline saw a 99.6% cash conversion rate.

Net debt would have been reduced by £1.2bn but for adverse currency moves of £1.4bn, meaning adjusted net debt rose to £13.9bn from £12.9bn at the last year end.

As well as highlighting "excellent" progress with costs and reducing the complexity of the business, chief executive Alison Cooper said the volume and market share gains achieved with the growth brands in the period were "particularly pleasing".

"Our performance is underpinned by the rollout of our market repeatable model, which provides an effective and consistent approach for delivering sustainable quality growth in markets. We are deploying this model in e-vapour and believe it can also be successfully applied to drive growth in other consumer adjacencies."

Her cost optimisation plan is now expected to deliver £130m of savings in the financial year, ahead of the £90m announced in November, while her investment plans has seen £160m spent so far against the £300m announced last year.

While first half revenue and profit were impacted by the considerable increase in investment, Cooper said the group remained on track to meet full year earnings expectations at constant currency.