ii view: currencies and CEO exit tip Imperial Brands lower

First-half results to 31 March

• Currency adjusted net revenue up 3.2% to £3.66 billion
• Currency adjusted operating profit up 1.8% to £1.65 billion
• Net debt down 1% to £10.47 billion
• Quarterly dividend of 40.08p per share

Guidance:

• Continues to expect growth in full year 2025 currency adjusted net revenue growth of low percentage single digit
• Continues to expect growth in full year 2025 currency adjusted operating profit of mid-single digit percentage
• On track for share buybacks of £1.25 billion over FY 2025, up 13.6% from 2024

Chief executive Stefan Bomhard said:

"We have delivered another six months of broad-based constant currency growth across all regions, demonstrating the strength of our distinctive challenger approach and the benefit of long-term investments in our consumer capabilities, sales execution and performance culture.

"Despite the uncertain global economic environment, we are on track to deliver our full-year results in line with our guidance, supported by tobacco pricing already taken in the first half and continued momentum in NGP.”

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ii round-up:

Imperial Brands (LSE:IMB) today detailed profits that were marginally shy of City forecasts, with the maker of cigarettes maintaining expectations for annual sales and profit, but predicting a bigger impact from currency headwinds. The company also announced that chief executive Stefan Bomhard is retiring after five years in the job. He’ll hand over to current finance director Lukas Paravicini on 1 October.

Currency adjusted sales for the first half to late March rose 3.2% to £3.66 billion, driving currency adjusted profit up 1.8% to £1.65 billion. Analysts had expected profit growth of 2.1%. The Bristol headquartered company continues to expect growth in annual currency adjusted profit in the mid-single digit percentage region but with currency headwinds now of up to 4.5% compared with previous forecasts of 1-2%. 

Shares in the FTSE 100 company fell 6% in UK trading having come into these latest results up by just over a tenth year-to-date. That’s comfortably ahead of a near 4% gain for the FTSE 100 over that time. Shares in rival British American Tobacco (LSE:BATS) are up around 5% in 2025.  

Imperial makes cigarettes including JPS and Winston as well as Next Generation Products (NGP) or vapes under brands such as blu, Pulze and Zone X.

An interim dividend of 80.16p will be paid in two equal payments of 40.08p during late June and late September to eligible shareholders as the company switches to quarterly dividend payments. That’s an effective 4.5% increase from the prior year. 

Product price increases during the half-year more than offset declines in volume, with Imperial gaining cigarette share across its core markets of the US, Germany and Australia and losing share in the UK and Spain. 

Increased market share and a 15% increase in net revenues for its vape (NGP categories) helped reduce losses for the business by 14% year-over-year to $43 million. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results, flagging a fair value estimate at £30 per share. 

ii view:

Started in 1901, Imperial today employs over 25,000 people, with competitors including Philip Morris International Inc (NYSE:PM) and Altria Group Inc (NYSE:MO). Europe generated most operating profit in 2024 at 39%, followed by the Americas at 32%, Africa, Asia, Australasia, and Central Eastern Europe (AAACE) 21% and group distribution the balance of 8%. 

Goals being pursued as part of a five-year strategic plan which started in early 2021 include increasing its focus on its top five tobacco markets including the UK, Germany, and USA, as well as simplifying the organisation and targeting cost savings. 

For investors, a move by the UK government to implement a phased banning of combustible sales in what is a core group market cannot be overlooked. Potential for similar moves in other markets appear likely. Fears about the long-term health impact of NGP products persists, while the NGP business continues to generate losses. A change of chief executive is also a risk.

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More favourably, high cash generation continues to underpin shareholder returns, with cumulative capital returns from fiscal year 2021 to fiscal year 2025 on track to hit £10 billion. A five-year performance improvement programme is ongoing. NGP revenues rose 15% during this latest period, while group net debt reduced 1% to £10.47 billion. Concerns about a switch at the top may also be misplaced given incoming CEO Lukas Paravicini has been Imperial's finance boss for the past four years. 

In all, ethical issues will continue to leave Imperial and the wider industry off limits for many investors. That said, potential global moves by governments to effectively ban combustibles in the future could drive another round of industry consolidation, while a forecast dividend yield of about 5.7% is likely to keep income investors interested.

Positives

• Five-year strategic plan being pursued
• Attractive dividend yield (not guaranteed)

Negatives

• Health concerns for NGP products
• Ethical concerns leave many funds unable to invest

The average rating of stock market analysts:

Buy