Imperial's cigarette sales slide, but the tobacco giant says it could develop a tobacco heating product if needed

Courtney Goldsmith
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Imperial has not invested in a tobacco heating product like other tobacco giants (Source: Getty)

A decline in tobacco sales and increased investment hit Imperial Brands' half-year results today, but the company assured analysts it will not fall behind other cigarette makers in developing a tobacco heating product.

The figures

Imperial's total tobacco volume fell 5.7 per cent in the first half of 2017 due to a slowdown seen across the industry.

The group said net revenue of its tobacco business was £3.72bn, up 9.3 per cent and in line with forecasts. However, revenue fell 5.5 per cent excluding the impact of exchange rates. Total adjusted operating profit was up 6.3 per cent to £1.74bn but down 7.6 per cent on a constant currency basis.

Imperial increased its dividend by 10 per cent to 51.7p per share.

Shares in the FTSE 100 group were down 0.39 per cent at 3,748.5p at the time of publishing.

Why it's interesting

Imperial, the maker of Winston, Kool and Gauloises cigarettes, has resisted the move into heated tobacco products which Philip Morris, British American Tobacco and Japan Tobacco International are pursuing, but today a senior executive said the company could quickly develop a tobacco heating product within months if it needs to.

"Our belief is that the opportunity in e-vapour remains bigger than the opportunity in heated tobacco," said Matthew Phillips, Imperial's chief development officer.

"I'm yet to see the kind of traction outside Japan that would make me change that view and start following a heated tobacco strategy more proactively," Phillips said on a conference call with analysts.

"If we have to change our mind because it did start getting traction, we would be able to follow with an offering within a number of months."

The tobacco giant has spent £160m of the £300m it plans to use to improve long-term results by simplifying its portfolio, improving distribution and boosting marketing.

What Imperial said

Chief executive Alison Cooper said:

"Our performance is underpinned by the rollout of our market repeatable model, which provides an effective and consistent approach for delivering sustainable quality growth in markets. We are deploying this model in e-vapour and believe it can also be successfully applied to drive growth in other consumer adjacencies.

"As expected, first half revenue and profit were impacted by the considerable increase in investment. In a challenging industry environment, we are delivering against our strategy and remain on track to meet full year earnings expectations at constant currency."

What analysts said

Steve Clayton, manager of the £274m Hargreaves Lansdown Select UK Income Shares fund, said:

“Imperial continues to do what it does best – grind out consistent dividend growth by maximising the value of its brand portfolio. Challenges include ever-tighter regulations and the inexorable decline in cigarette volumes. So far, the shift to new generation, reduced harm products is playing out well, but new technologies are emerging and Imperial cannot afford to rest on their laurels.”

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