Imperial Brands on track to meet FY expectations

Group net revenue is expected to grow by around 1% on an organic, constant currency basis, driven by continued strong pricing in tobacco. Meanwhile, adjusted organic operating profit is set to be in line with company guidance of low to mid-single digit constant currency growth. This reflects "significantly" reduced losses in NGPs and increased profit in distribution.

Imperial said the tobacco business has performed well, although adjusted operating profit will be slightly lower than last year, as previously guided, due to planned increased investment to support its strategic plan, and lower stock revenue/profit in Australia and US state litigation settlement costs.

In the combustibles segment, greater focus on the company's five priority markets is beginning to stabilise the long-term aggregate market share performances.

Overall tobacco volumes are in line with expectations and total group cigarette market share is expected to grow by around 20 basis points, it said.

"The net effect of the Covid-19 travel restrictions and changes in consumer buying patterns has been a small mix benefit, although this is beginning to reduce as restrictions are lifted and is likely to unwind further in FY22," the company said.

As far NGPs are concerned, Imperial said second-half revenue is expected to be at a similar level to the first half, reflecting the impact of market exits as it focuses on the categories and markets "with the best potential for sustainable growth".

Chief Executive Stefan Bomhard said: "We have made good progress in implementing our strategy through a sharper management focus, greater investment behind our priority combustible tobacco markets and new market trials in heated tobacco and vapour.

"We are building a high-performance culture with the introduction of new more consumer-focused ways of working, and have made a significant number of new hires to enhance our capabilities in key areas. I am pleased to report the business continues to perform well and we remain on track to deliver our full-year results in line with expectations."

At 0915 BST, the shares were down 2% at 1,522p.

Laura Hoy, equity analyst at Hargreaves Lansdown, said: "Imperial’s pressing forward with its strategy to focus on quality rather than quantity when it comes to its global footprint. This is a key part of being a tobacco company these days - with the number of smokers dwindling, the only lever to pull is hiking prices. Having a commanding market share and recognisable brand name is paramount.

"Aside from a shrinking addressable market, Imperial’s combustibles business is battling against loosening travel restrictions which are funnelling some customers away from more expensive product offerings. Add to that declining revenue in Australia and a £50m legal bill in the US, and it’s a recipe for profit declines.

"On the bright side, improved performance in Next Generation Products (NGP) and Distribution should make up for this, with group underlying profit ultimately expected to rise.

"Combustibles is still the growth engine for Imperial - but NGPs is ultimately the future. So far it’s had a lukewarm reception, but management’s managed to trim some of the fat by exiting less profitable markets. While the second half will still show the impact of these abandoned markets, a narrowed focus should help the group build out more successful cigarette-alternatives."