Rizla-maker Imperial Brands eyes steady growth as vape investment weighs

Imperial Brands’ sales fell in the first half as the cigarette maker behind brands such as Gauloises and Rizla saw price growth offset a volume decline.

The Rizla maker’s adjusted operating profit rose 3.8 percent on a constant exchange rate basis to £3.89 billion in the year ended September, thanks to an 11 percent rise in tobacco prices.

Profits were also boosted by Spanish distribution company Logista, which completed acquisitions that helped expand its reach in Europe’s non-tobacco transportation sector.

Meanwhile, reported operating profit rose by more than a quarter to £3.4 billion, thanks to no repeat of exit charges on the sale of its Russian operations to local investors.

Still, Imperial’s overall sales fell 0.2 percent to £32.5 billion, even as higher cigarette prices helped offset volume declines caused by its departure from Russia and by wholesalers temporarily reducing stocks of mass-market cigars .

Demand for ‘next generation products’ also increased significantly following multiple product and market launches from brands such as Pulze 2.0.

As part of a five-year strategy, the Bristol-based group is seeking to reduce its reliance on tobacco in favor of non-combustible products such as vapes, heated tobacco and nicotine pouches.

Due to investments in its NGP brands, Imperial warned that its performance in the coming financial year would be weighted towards the second half.

Revenues are expected to rise at “low single digits” levels, while adjusted corporate earnings growth is expected to be “close to the middle of our mid-single digit range.”

Stefan Bomhard, CEO of Imperial, said: ‘Looking ahead, we expect the continued benefits of our transformation to enable further acceleration of our adjusted operating profit growth in the final two years of our five-year strategy.’

Following the result, the FTSE 100 group has announced a 4 percent increase in its dividend to 146.8p per share.

This is in addition to a £1.1 billion share buyback program announced last month.

Adam Vettese, an analyst at investment platform eToro, noted: “If there is any concern on the horizon for the company as it continues its strategic product shift, it poses political risks.”

He pointed to the British government’s plan to phase out legal smoking in Britain, a move that will effectively punish anyone born after 2009 from selling tobacco products.

The proposal mirrors one introduced late last year by New Zealand, which has some of the strictest tobacco laws in the world.

Vettese added: “While these restrictions will not necessarily destroy the company’s market, they will make it more difficult to operate within it.”

Imperial Brands shares were 0.5 per cent, or 9p, lower at £17.79 on Tuesday afternoon, meaning they are down around 15 per cent since the start of the year.