Shares in tobacco manufacturer Imperial Brands (IMB) increased by 3.2% to £14.48 after the West, Winston and Davidoff brands owner forecast improved profits for 2021, drawing confidence from expected improvements in its loss-making next generation products (NGP) business including vaping and e-cigarettes.
The guidance accompanied news of a rise in annual revenue at Imperial Brands, with consumer demand for tobacco proving resilient during the pandemic and smokers choosing to allocate more of their discretionary spend towards tobacco during lockdowns.
NGP AND EXTRA COSTS DRAG
For the year to September 2020, Imperial Brands’ revenue rose 3.1% to £32.6 billion amid gains in three of its top five markets.
Unfortunately, Bristol-headquartered Imperial posted lower adjusted earnings after write-downs in its loss-making NGP business and with profitability in the traditional tobacco business pressured by extra Covid-19-related and regulatory costs.
There was also an adverse sales mix in traditional tobacco, with volumes proving stronger in lower value markets and products. Imperial Brands’ annual adjusted operating profit softened 5.7% to £3.53 billion.
Strong cash conversion enabled the firm to pay a rebased dividend of 137.7p per share, a third lower than last year
STRONGER YEAR AHEAD?
Yet following a difficult 2020, Imperial Brands expect to deliver a stronger financial performance in 2021. Constant currency earnings per share is expected to be slightly ahead of last year.
‘Despite the ongoing uncertainties from the global pandemic, we currently expect to deliver low to mid-single digit growth in organic adjusted operating profit at constant currency, excluding the impact of the Premium Cigar sale,’ said the company.
NGP losses were reduced significantly during the second half of the year thanks to cost cutting and a ‘sharper focus on investment returns’ and Imperial Brands expects this ‘moderated level of loss to continue in 2021’.
‘Although this has been a difficult year, the resilience of our tobacco business and the measures we have taken to improve our NGP operations reinforce my confidence in the future potential of the business,’ enthused new chief executive Stefan Bomhard.
Russ Mould, investment director at AJ Bell, says Bomhard has to come up with a strategy that investors can believe in, adding: '‘The first task has been to stem the losses in its next generation products business.
‘He will need to come up with a detailed and credible plan for the future at the scheduled investor event in January 2021.
‘The dividend has already been rebased this year - making it difficult for Bomhard to go further - though he may wish he had a freer hand given the dividend came at a cost of $1.7 billion in the financial year just gone, funds which could be used to reshape the business.’
