Imperial Brands shares surge despite earnings slump

Imperial Brands profits have plunged after the cigarette-maker opted to exit the Russian market.

But Imperial Brands shares climbed 7.2 per cent to £18.36 in early trading as the owner of the Rizla and Golden Virginia brands declared that it was on track to achieve its full-year guidance.

On a constant currency basis, net revenue is forecast to grow by around 0 to 1 per cent this year, partly because of higher prices, while adjusted operating profit is set to increase by around the 1 per cent mark.

This is despite earnings at the tobacco multinational, which also owns Gauloises and the vaping product blu, slumping by over £800million to £1.04billion in the six months to 31 March.

Around a quarter of the decline in profitability derived from exit charges related to the Bristol-based firm’s departure from Russia following the full-scale invasion of Ukraine in late February.

In early March, it suspended all operations in the country, including all marketing and sales activity and production at its Volgograd factory, before transferring them to local investors four weeks ago.

This action also contributed significantly to the FTSE 100 company’s operating profits shrinking by more than a quarter to £1.2billion.

However, Imperial Brands incurred a much bigger financial hit from the non-recurrence of gains on selling its premium cigar businesses, which included a 50 per cent stake in Cuban cigar manufacturer Habanos, for £1.1billion two years ago.

It was further affected by a slight decline in reported revenue due to lower excise duty in Europe, although net revenue rose modestly because of higher tobacco prices and higher demand for next-generation products (NGPs).

As part of its five-year strategy, the group is placing greater focus on boosting demand for heated, modern oral & vaping goods and growing market share in its five major primary combustible territories.

These territories are the United Kingdom, United States, Australia, Germany and Spain, and are responsible for around 70 per cent of the firm’s operating profit.

During the first half of the financial year, Imperial Brands said its market share weakened in the latter two markets, though this was more than offset by expansion in the UK, USA and Australia.

Alongside this, the group noted positive feedback from trials for its Pulze heated tobacco system in Greece and the Czech Republic, and from vaping brand Blu in North Carolina.

Chief executive Stefan Bomhard said that 18 months after the strategy was launched, he was ‘pleased with the progress we are making.’

He added: ‘Our focus for the remainder of 2022 will be to invest further in our five priority markets and begin the roll-out of our NGP strategy.

‘While these are uncertain times, as we move into 2023, we will have in place the capabilities and culture necessary to support the next phase of our strategy and deliver sustainable growth in shareholder value.’