Imperial Brands sees profits slide by 15% after exiting Russia

Imperial Brands has seen its revenues drop as the tobacco giant was hit hard by its decision to leave Russia following the outbreak of war in Ukraine.

The Bristol-based cigarette maker behind Gauloises, West and Golden Virginia revealed that operating profit fell 14.7 percent year-on-year to £2.68 billion in the 12 months ended September.

Imperial’s departure from Russia cost the group just under £400m in revenue, with a further impact coming from the non-recurrence of profits from sales of its premium cigar business last year.

In March, the FTSE 100 company suspended its operations in Russia, including all production at its Volgograd plant, before handing it over to local investors the following month.

This contributed to total tobacco volumes falling by 8.4 percent in the second half of the period compared to the same period in 2021, and by 4.7 percent for the full year.

Higher prices helped offset the fall in production volumes, but a weaker euro against the US dollar meant total sales still fell by £240m to £32.6bn.

Imperial has achieved this while increasing its market share in four of its five largest combustibles markets, where the company makes most of its operating profits.

In the UK, the company said its market share growth was driven by investments in local “jewel” brands like Embassy, ​​which made gains in underrepresented parts of the country among fine-cut tobacco brands.

Increasing market share in the five largest tobacco regions – UK, US, Germany, Spain and Australia – is part of a five-year strategy led by CEO Stefan Bomhard.

The plan also calls for simplifying operations – in part through cost-cutting measures – and expanding sales of “next-generation products” such as heated tobacco and vaping.

NGPs remain a fraction of Imperial’s total trade, but their popularity is growing as they are launched in more territories and governments heavily tax and regulate cigarette brands.

However, the large investment volume required to introduce brands such as Pulze and Blu 2.0 to new markets led the division to post another £87 million loss during the year.

Bomhard, who took over the company just before the pandemic hit, nevertheless said the Bristol-headquartered company was “well positioned to deliver on the next phase of our five-year strategy.”

He added: “The additional investments and actions we took during the initial two-year strengthening phase have built a stronger foundation as we face a more challenging macroeconomic environment.

“We are well positioned to build on our track record of delivery over the next three years, improve returns and create sustainable growth in shareholder value.”

Imperial also announced today that it is proposing to pay investors a final dividend of £467m in March, on top of a £1bn share buyback plan announced in October.

Imperial Brands Shares were up 0.8 per cent to £20.54 late morning on Tuesday, meaning their value has risen by around 30 per cent over the past 12 months.