Imperial Brands’ profit lifted by price hikes, demand for tobacco alternatives

Imperial Brands, a prominent British cigarette manufacturer, revealed a surge in first-half operating profit, driven by price increases and heightened demand for tobacco alternatives. This uptick in profits occurs amidst a backdrop of regulatory challenges within the industry.

The impending U.S. ban on menthol cigarettes, following prolonged pressure from anti-smoking advocates, and British Prime Minister Rishi Sunak’s proposal to prohibit individuals aged 15 and under from purchasing cigarettes underscore the regulatory pressures facing tobacco companies.

In response to years of sluggish growth and market share losses, Imperial embarked on a turnaround strategy in 2021, concentrating on its top five markets and ramping up investments in next-generation products (NGP), perceived as less detrimental to health. The company, renowned for brands like Winston cigarettes and Backwoods cigars, has effectively mitigated cigarette volume declines through strategic price adjustments.

In terms of financial performance, adjusted operating profit rose by 2.8% in constant currency, reaching £1.67 billion ($2.10 billion) for the six months ending March 31, surpassing analyst expectations. Sales of Imperial’s NGP brands, encompassing Pulze heated tobacco and blu e-cigarettes, surged by 16.8%, prompting a 4% increase in the interim dividend to 44.90 pence.

Stefan Bomhard, CEO of Imperial Brands, expressed confidence in the company’s ability to meet full-year guidance, citing favorable pricing strategies in the tobacco segment and promising momentum in NGP. Looking ahead, the company anticipates continued growth in adjusted operating profit, supporting a mid-single-digit percentage compound annual growth rate over the final two fiscal years of its turnaround plan.

However, Bomhard cautioned that the implementation of a menthol cigarette ban in the U.S. is still “several years away,” indicating potential future regulatory challenges.