ii view: Imperial Brands on track to return £6bn to shareholders

First-half results to 31 March

• Revenue down 2.3% to £15.06 billion
• Currency adjusted net revenue (minus exercise duties) up 2.8% to £3.63 billion
• Currency adjusted operating profit up 2.8% to £1.67 billion
• Net debt up 3.4% to £10.56 billion
• On track to complete £1.1 billion share buyback
• Interim dividend up 4% to 44.9p per share

Guidance:

• Continues to expect full-year low single digit currency adjusted net revenue growth 
• Continues to expect full-year mid-single digit currency adjusted operating profit 

Chief executive Stefan Bomhard said:

"Investment in consumer capabilities, more agile ways of working and further progress with our performance culture have made Imperial Brands a stronger business better able to deliver an acceleration in financial delivery. This is demonstrated in the first half with the strongest organic top-line growth in more than ten years, amid a challenging external environment.

"Pricing actions in tobacco taken in the first half and good momentum in Next Generation Products (NGP) gives us confidence in our ability to deliver full-year results in line with our guidance."

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ii round-up:

Imperial Brands (LSE:IMB) is a UK, Bristol headquartered tobacco manufacturer operating globally and employing over 25,000 people. 

Its cigarette or combustible brands include JPS, West, Winston, Davidoff and Kool. 

Its portfolio of potentially less harmful Next Generation Products (NGP) spans the three categories of vapour, heated tobacco, and oral nicotine with blu, Pulze and Zone X three of its brands.

For a round-up of these latest results announced on the 15 May, please click here.

ii view:

Separated out of conglomerate Hanson in 1996, Imperial today competes against rivals including British American Tobacco (LSE:BATS), Philip Morris International Inc (NYSE:PM), and Altria Group Inc (NYSE:MO). Europe generated its biggest slug of product related sales in the 2023 financial year at 40%, followed by the Americas at 35% and the rest of the world the balance of 25%. NGP sales accounted for 3.3% of product related sales, up from 2.7% in 2022. 

Goals now being pursued under a five-year strategic plan begun in early 2021 include an increasing focus on its top five tobacco markets of the UK, Germany, Spain, the US, and Australia, as well as simplifying the organisation and making cost savings. 

For investors, a UK government plan for a phased ban of combustible sales in what is a core group market is not to be ignored. Fears about the long-term impact of NGP products on users’ health persists, group net debt increased 3.4% year-over-year to £10.56 billion, while NGP sales of under 4% of total revenue contrasts with more than 15% at rival BAT.  

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To the upside, high cash generation continues to underpin shareholder returns, with cumulative three-year returns, which includes share buybacks and dividends, on track to hit £6 billion. A five-year performance improvement programme is ongoing, net debt remains within management’s comfort range, while NGP revenue rose 16.8% during this latest period, with related adjusted losses down by 9%. 

In all, ethical issues will continue to deter many investors, while there's significant scope to increase NGP sales. That said, moves by governments to effectively ban combustibles could see players in the industry pursue consolidation opportunities, while a forecast dividend yield of around 8% will likely 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