Imperial Brands: H1 2023 Results

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Top-line & Bottom-line results1

Adjusted: at constant currencies, excluding Russia

– Volume: -6.8% (including the Russia exit, -12.7%)

– Robust combustible pricing: +9.3% (partially offset by -2.5% in product mix, driven primarily by adverse product mix in the USA; total price/mix: +6.8%)

– Revenue: +0.6% (NGP revenue: +19.8%, driven by launches across categories in the EU)

– Operating Profit: +1.2%

– EPS: -1.2% (higher finance costs, increased minority interests caused by growth at Logista and a slightly higher tax rate partially offset by the reduced share count)

Key Highlights

– Volumes have been affected by COVID unwind and cost of living pressures; expects return to historical declines of 3-4% per annum (note: Ex-China & the US, PMI’s total industry volume decline estimate for cigarettes & heated tobacco is 1-2%. BAT’s global tobacco industry volume decline estimate is 2%)

– Aggregate SoM for top-5 combustible markets up +20bps (note: larger competitors are largely funneling their investment to RRP/NGPs)

– 95bps SoM gain in US combustibles; focus on the value/discount segments (premium value, traditional discount, deep discount) & increased salesforce investment

– 15bps SoM gain in Spain; 1bps SoM gain in Australia vs. 75bps SoM loss in the UK; 80bps SoM loss in Germany

– NGP revenue: £125Mn (3.5% of the total; up from 2.5% in FY22)

– Revenue growth in Europe: +35.1% (off-setting myblu decline in the US)

– blu 2.0, Pulze 2.0 & Zone X: launches & flavor extensions in Europe

– HnB:”Encouraging initial share gains” (as always!)

– NGP losses increased +33.3% to £56Mn, with higher investment in new product and market launches


– On track with 5-year transformation plan

– On track to meet the FY guidance: low single-digit revenue growth

– Operating profit growth to accelerate to mid-single digit over the next 3 years

– Operating profit growth at the lower-end of mid-single digit range in FY23

– Net Debt / EBITDA: 2.0-2.5

– 3-4% FX tailwind to revenue, operating profit and EPS in FY23

Our takeaway

Imperial is a typical “deep value” stock based on cheap valuation metrics and rich dividend yield. However, it is a laggard in transformation to NGP/RRPs (alongside with JT and Altria) and the long-term business sustainability is a major question mark as

– the (Imperial’s) key markets are reaching a tipping point in terms of cigarette volume decline and transformation to NGP/RRPs (i.e. mainly, operating in markets where smoking is “dying out”)      

– the camps are being formed in the industry to weather the transformation (PMI & Swedish Match, Altria & Japan Tobacco, BAT/Reynolds) and Imperial is  left out as a small player (i.e. lacks the scale and skills demanded by the Transformation)

– the Management’s focus is to stabilize (better manage) the combustible business and deliver the 5-year transformation plan targets (- limiting their ability to make brave Transformation investments).

No change in our assessment. We believe Imperial Brands is unlikely to survive the transformation of the Industry and will cease to exist in its current form & scale by the end of this decade.


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