Imperial Brands: Cigarette maker’s volumes dwindles despite rise in vaping

Tobacco giant Imperial Brands saw volumes dwindle and profit fall due to foreign exchange movements, despite an uptick in vaping.

The cigarette manufacturer reported that revenue had fallen 2.3 per cent over the last six months, from £15.4bn to £15.1bn, with volumes decreasing in the US by a staggering 10.3 per cent.

Operating profit fell 2.6 per cent, while earnings per share fell a staggering 18 per cent, though when using adjusted operating profit on a constant currency basis, profit rose 2.8 per cent.

The company reported that its strong power over tobacco pricing had pushed up Imperial Brands’ prices by 8.6 per cent over the six months.

Meanwhile, the group’s ‘next generation product‘ net revenue had climbed 16.8 per cent, due to building scale in market footprint and ‘product innovation’.

Net revenue from next generation products now represents seven per cent of total revenue in Europe, Imperial added.

Overall, the group lost market share in the UK (-0.4 per cent) and Germany (-0.25 per cent), while growing in Spain (0.5 per cent), Australia (0.1 per cent) and the USA (0.05 per cent).

This year, the group delivered a £1.1bn share buyback year, alongside an increased interim dividend, which was up four per cent. Since starting its share buyback in October 2022, it has repurchased nine per cent of share capital

Stefan Bomhard, chief executive of Imperial Brands, said: “Investment in consumer capabilities, more agile ways of working and further progress with our performance culture have made Imperial Brands a stronger business better able to deliver an acceleration in financial delivery.

“This is demonstrated in the first half with the strongest organic top-line growth in more than ten years, amid a challenging external environment.”

Orwa Mohamad, analyst at Third Bridge, said that the “profitability issue” for the company’s vapes has persisted “due to intensifying price competition in the market”.

“Imperial Brands faces a significant risk due to inconsistent innovation, given the rapid influx of new products and market changes in the NGP sector. It took them four years to introduce Blu 2.0 and Pulze 2.0.”

“Our experts expect further flavour regulation in the market, particularly on nicotine pouches which will slow down growth but the category will still have significant growth potential globally.”

Imperial Brands has faced a challenge since Prime Minister Rishi Sunak announced his intention to create a ‘smoke free generation’ with his proposal to raise the legal smoking age continuously so a 14-year old today would be unable to legally buy cigarettes in their lifetime. 

“If we are to do the right thing for our kids, we must try and stop teenagers taking up cigarettes in the first place,” said Sunak last month.

However, only eight per cent of Imperial’s revenue comes from the UK. The group’s stock price is up 4.3 per cent this morning.