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Imperial Brands sinks as tobacco volumes lag, US vape category slows

Imperial said regulators were behind a slowdown in the vaping market in the US
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Imperial Brands maintained its full-year revenue and earnings guidance

Imperial Brands PLC (LON:IMB) saw tobacco volumes fall more than the rest of the industry in the first half of its financial year, but hiked the interim dividend 10% as it remained confident about the full year.

Tobacco volumes fell 6.9% in the six months to 31 March, which the company said was due to short-term shipment timings, with industry volumes down 4.5%.

However, the FTSE 100 cigarette maker reiterated full-year guidance as net revenue rose 3.8% to £3.66bn, as price mix improved as the group’s core brands grew faster than the rest and there was a continued uptake of ‘next generation’ products.

NGP sales surged 245% to £148mln as the blu brand expanded in Europe, Japan and the US, although Imperial noted there had been a slowdown in the US "where regulatory statements have tempered growth of the category".

Adjusted operating profits were down 0.2% to £1.62bn, or 2.3% lower if currency swings are excluded, after an additional £94mln gross investment was pumped into NGPs and a £40mln profit was made on a disposal last year.

Group adjusted earnings per share of 115.6p were up 1.1%, or down 1.3% at constant currencies. Reported EPS of 71.2p was up 38% and beat consensus estimates by 2.4%.

Full-year guidance was unchanged, for EPS growth at the low end of the medium-term target of 4-8% on constant currency revenue growth at least at the upper end of its 1-4% range.

Directors proposed a 10% hike to the half-year dividend to 62.56p, with cash conversion of 66% in the period and expected to be just under 90% for the full year. Net debt ended the half at £12.96bn, up from £11.47bn six months before and £12.70bn a year ago.

It was, for chief executive Alison Cooper, a half of “pleasing underlying tobacco performance”, with high-margin sales growth and the core ‘Asset Brands’ now representing two thirds of total revenue.

“We have made significant progress in building our NGP business with investment behind myblu generating awareness and consumer adoption, resulting in leading retail shares in most markets. We are building on this momentum in the second half focused on further omnichannel expansion and new product initiatives."

Analysts at broker Liberum said the results demonstrated “the resilience of the tobacco business with pricing coming through and profits aided by continued cost control”, adding that the EPS beat “should reassure investors” and Imperial the consumer team’s top pick.

Shares in IMB fell 2.4% to 2,271p in early trading on Wednesday, nearing December's long-term lows. 

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