Imperial Brands PLC (LON:IMB) shares were higher as it announced that it would expand its portfolio of vaping products and reported an increase in full year profits despite a decline in tobacco sales.
The company said it is stepping up activity in its programme of next generation products with new e-vapour launches in new and existing markets and consumer trials of heated tobacco products.
READ: Imperial Brands says on track to meet earnings expectations, working on rescue deal for UK tobacco wholesaler
In the year to September 30, net revenue in the tobacco business rose 8.2% to £7.76bn, supported by favourable foreign exchange rates. Excluding currency fluctuations, revenue dropped 2.6% as tobacco volume declined 4.1%.
Total revenue increased 9.5% to £30.2bn on a reported basis. Operating profit grew 2.2% to £2.3bn and earnings per share jumped 123% to 147.6p, both including currency fluctuations.
Cost savings
The group delivered cost savings of £130mln during the year as it streamlined the business, including cutting its stake in European distribution business Logista.
Imperial said it made progress in its two cost optimisation programmes. The first programme will deliver annual savings of £300mln from the end of the 2018 financial year and the second will deliver a further £300mln of savings from the September 2020 financial year.
The company raised its dividend by 10% for the ninth consecutive year to 170.7p. The increase was in line with its policy to increase dividends by 10% over the "medium-term".
“The first thing we do on opening a set of Imperial results is hit “Ctrl+f” and type in 'medium term'. That’s a reflection of the importance of Imperial’s dividend policy to investors, and also a niggling worry that at some point one of the most generous dividend policies in the market has to come to an end," said Nicholas Hyett, equity analyst at Hargreaves Lansdown.
"Imperial has to contend with a seemingly relentless decline in tobacco volumes, despite making progress in key geographies and brands. A recent uptick in investment is helping to slow that decline, but it’s an industry wide problem."
Imperial acknowledged that it "continues to operate in a volatile industry environment" as more consumers quit smoking and turn to vaping. The group added that it remains committed to investing in its tobacco and next generation products businesses.
“In this context, we are targeting delivery of constant currency revenue and earnings per share growth within our medium-term guidance.”
Shares rose 2.63% to 3,166p in morning trading.