Imperial Brands sees weaker first half growth amid heavy spend in vaping arm
Imperial Brands said its 2023-24 performance would be weighted towards the second half due to pricing actions and investment in smoking alternatives.
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Your support makes all the difference.Tobacco giant Imperial Brands has said it expects earnings to edge higher in the next financial year but will be held back in the first six months due to pricing action and investment in cigarette alternatives.
The maker of Winston and John Player Special cigarettes said it expects to grow underlying operating profits by “close to the middle of our mid-single digit range” in 2024 on revenues up by a low single digit.
Price hikes helped drive underlying earnings higher in the year to September 30, up 3.8% on a constant currency basis to £3.9 billion.
Sales fell 0.2% to £32.5 billion, with net revenues 0.7% higher on an underlying and constant currency basis to £8 billion.
But sales were boosted by an 11% hike in tobacco prices, which offset falling revenues by volume across all its key markets.
On a bottom line basis, pre-tax profits lifted to £3.1 billion in 2022-23 from £2.6 billion the previous year.
Imperial Brands said its performance in the new financial year would be weighted towards the second half, “driven by the phasing of our pricing in the prior year and investments in NGP (next generation products)”.
“As a result, first-half operating profit is expected to grow at low single digits,” it added.
It has been spending heavily on smoking alternatives, such as vapes, which helped drive revenues in the division 26.4% higher over 2022-23, but underlying losses in the division widened by more than 48% to £135 million due to the investment in new products and market launches.
The five-year plan seems very much on track and Imperial are expecting another year of modest growth
It is hoping this investment will start to pay off in the second half of next year, boosting earnings.
The sector has been under pressure recently in the UK as political risks are building, with the Government looking to launch an escalating smoking age limit and bigger restrictions on vaping products.
But the market for smoking alternatives is growing quickly and is looking set to become a major growth area for traditional cigarette firms.
Derren Nathan, head of equity research at Hargreaves Lansdown, said: “Whilst some smokers may be quitting nicotine altogether, one area of the market certainly not in decline is next generation products (NGP) like vapes, heated and oral tobacco, where Imperial grew revenue by 26.4% with an especially impressive showing in Europe.
“For now though it’s still a small part of the picture.
“The five-year plan seems very much on track and Imperial are expecting another year of modest growth.”