Imperial Brands (IMB) has reported a 26% rise in operating profit to £3.4 billion for the year ending 30 September 2023 in line with the tobacco firm’s five-year strategic plan.

Net revenue fell 0.2% to £32.47 billion compared to £33.55 in the same year ago period.

Imperial owns several iconic cigarette brands including Davidoff, Gauloises, Winston and British brand Embassy.

However, the real winner for Imperial is its NGP (Next generation products) where net revenue is up 26% with ‘momentum growing in all categories’ according to the tobacco firm, with a particular bright spot in Europe where it is up 40%.

Despite Imperial’s progress with NGP products like heated tobacco, oral nicotine patches and vapes: ‘Imperial is not as well placed in the transition to e-cigarettes or heated tobacco as Philip Morris International (PM) or British American Tobacco (BATS). Indeed, while revenues in next generation products grew, they remain immaterial to the total group,’ said Chris Beckett, head of equity research at Quilter Cheviot.

The tobacco firm’s shares were little changed on the results news at £17.84 in morning trading, however year-to-date the shares have fallen 14%.

SHAREHOLDERS BENEFIT

It was good news for the tobacco firm’s shareholders with the announcement of a 4% dividend increase as well as a 10% increase in share buybacks.

These enhanced shareholder returns comes as no surprise according to Quilter Cheviot’s Beckett who said: 'The business has had a very successful period of cash generation, which has allowed them to reduce net debt and fund an increased dividend and a generous share buyback. Compared to the very low valuation this is a very positive update.

‘Ultimately, for those investors without any ethical criteria, this cashflow generation and high shareholder returns remain the primary reason to hold the stock.’

WHAT NEXT?

The only thing Imperial and other tobacco firms need to worry about in relation to future revenue is the steady government smoking crackdown.

In early October, British prime minister Rishi Sunak announced the UK's plan to phase out the sale of cigarettes which will see the age at which people can buy tobacco products increase by a year each year.

But for now this attempt at a smoking and vaping crackdown hasn't affected Imperial. AJ Bell investment director Russ Mould said: 'Amid strengthening political and regulatory headwinds, one might think the tobacco and vaping industry is struggling. Imperial Brands’ results would suggest otherwise, as profits and dividends are growing 

'While the industry might have over-estimated the speed by which smokers transition to vaping and other next-generation products, when you add up sales across the board companies like Imperial Brands are still making big money.'

LEARN MORE ABOUT IMPERIAL BRANDS

DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Sabuhi Gard) and the editor of the article (Martin Gamble) own shares in AJ Bell. 

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