Imperial Brands (LON: IMB) reports ‘good start’ to the year
Imperial Brands (LON: IMB) (IMB.L) has released a pre-close trading update today that shows it is on target to deliver full year results that are in line with previous guidance. It still expects to produce low-mid single digit organic adjusted operating profit growth measured at constant currency for the full year.
In the first half of the year, the company has experienced strong pricing in tobacco. It has also benefitted from growth in Next Generation Products (NGP) revenues, although they were up against a weak comparator from the previous period. As a result, it expects net revenue to grow by at least 1% on an organic constant currency basis for the first half of the year.
First half adjusted organic operating profit growth is expected to be at least mid-single digit at constant currency. Imperial Brands is set to benefit from reduced losses in NGP, as well as increased Logistics profit.
However, operating profit for the firm’s tobacco segment has been negatively impacted by a lower duty windfall in Australia, as the company has previously highlighted. Its tobacco segment has also been affected as it laps the impact of US trade inventories following the higher wholesaler purchases in March 2020 to meet Covid-19 pantry loading demand.
Imperial Brands’ growth strategy
The company stated in today’s update that its tobacco market share growth in the US, UK and Spain has more than fully offset declines in Germany and Australia. As such, it has started to achieve aggregate market share growth in its five priority markets. Its tobacco volumes remain in line with expectations, although the impact of Covid-19 means that buying patterns have been affected across its various channels and markets.
Within NGP, Imperial Brands (LON: IMB) continues to seek to improve its returns and performance. It remains on track to deliver market trials in vapour and heated tobacco later this year, as it seeks to broaden its range of products and appeal to an increasingly wide range of consumers.
Looking ahead, Imperial Brands expects the temporary Logista cash benefits from the 2020 financial year to unwind in the 2021 financial year. As such, it anticipates that operating cash conversion for the full year will be between 75% and 80% on an adjusted basis. Forex is expected to be neutral on first half earnings per share, with a 2% headwind to full year earnings per share.
At the time of writing, the Imperial Brands share price is trading at 1511p. Over the past year it has gained 13%, while the FTSE 100 index (INDEXFTSE: UKX) has produced a 21% rise.
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