Imperial Brands is fast becoming a group focused on tobacco-free products as smoking rates fall, but the group is still managing to carve out revenue growth in its combustibles division.
The firm has issued a trading update confirming it remains on track to deliver its full-year targets, with the tobacco group pointing to robust pricing, next-generation product (NGP) growth and continued progress on its 2030 transformation strategy.
The company expects low-single-digit growth in tobacco and NGP net revenue for the first half, with tobacco performance underpinned by pricing and only modest volume decline in combustibles. The strength of the combustibles is notable given the rise of vaping, especially in developed countries.
NGP net revenue is growing at a mid-to-high single-digit rate, rising to double digits in both Europe and the AAACE regions, driven by heated tobacco gains with Pulze 3.0 in Italy and Greece, continued traction for the blu vape range, and new product launches in modern oral brands Skruf and Zone across the Nordics and UK.
Group adjusted operating profit is expected to be slightly ahead year-on-year in the first half, with a stronger second half to come. The company reiterated full-year guidance for low-single-digit tobacco and double-digit NGP net revenue growth, three to five per cent adjusted operating profit growth and at least high-single-digit earnings per share growth, all at constant currency. Free cash flow guidance of at least £2.2 billion for the year was also maintained.
In the US, the Zone modern oral brand is holding volume share, though NGP net revenue is expected to be lower in the first half due to heightened promotional activity. Imperial expects US performance to accelerate in the second half, supported by combustible price increases, the March launch of its new Malibu cigarette brand and recent flavour launches for Zone.
“The smoking habit faces increasing pressure from tightening consumer spending, rising taxation, and social change, and the long-term fate of the cigarette seems irreversible,” said Freetrade’s Duncan Ferris.
“The question for investors is how Imperial can continue to manage declining demand for its key product.
“In the face of this challenge, the company’s plan appears threefold. Extracting maximum value from cigarette markets, wooing investors with share buybacks and dividends, and ramping up plans for the future with its Next Generation Products.
“Today’s reiteration of full-year guidance demonstrates the company’s ability to deliver on the first of these goals, with tobacco price increases driving steady revenue growth despite volume decline.
“A caveat is mixed market-share performance as Imperial admitted some reductions across key markets due to focus on profitability and its long-term value-focused approach.”
The group has completed £0.7 billion of its £1.45 billion share buyback programme for the year, representing around 3.2 per cent of issued share capital, as part of its ongoing “evergreen” return programme running to 2030.