Imperial Brands cuts dividend by one third as it anticipates coronavirus hit
Imperial Brands has cut its dividend by a third as it seeks to save cash during the coronavirus pandemic.
The cigarette maker reported lower-than-expected revenue for the first half of the year, and said it anticipates the impact from the coronavirus would be more pronounced in the second half of the year.
The figures
Reported operating profit plunged 19.6 per cent from £1.15bn to £925m, reflecting lower adjusted operating profit and a goodwill impairment and associated costs of its premium cigar division.
Net revenue from its “next generation products” dropped 43.9 per cent to £83m. It follows on from its profit warning in February after the US banned certain flavours of vapes. Net revenue from tobacco was unchanged at £3.5bn.
Why it’s interesting
Imperial Brands agreed the sale of its premium cigar business for €1.2bn which it says will “simplify the business and reduce debt”. It added that as deleveraging remains a key priority, the board has decided to cut the dividend by one-third, to 41.7p, to accelerate debt repayment.
The tobacco brand said it had reduce its NGP spend – the amount spent on “next generation” items like vapes – following the “poor returns on investment last year”.
Imperial said the coronavirus pandemic had so far only had a small impact on trading but anticipates it to be more pronounced in the second half of the year. This is due to “continued pressures on our duty free and travel retail business, changes in consumption patterns including downtrading and a reversal of some first half inventory build.”
The maker of Gauloises cigarettes said it estimates Covid-19 related factors “will have a low single digit impact on earnings per share”.
Shares are down seven per cent.
What Imperial Brands said
Joint interim chief executives Dominic Brisby and Joerg Biebernick said:
“While we delivered against our revised expectations, we are disappointed with these results, and we remain fully focused on all opportunities to strengthen performance.
“Our enhanced focus on tobacco has driven stronger in-market execution and an improved share performance, with gains in most of our priority markets. We have reduced our NGP spend following the poor returns on investment last year and this, together with recent weaknesses in the vapour category, has resulted in lower NGP revenue…
“Agreeing the sale of our premium cigar business for €1.2 billion in the current climate was a major achievement and will further simplify the business and reduce debt. Deleveraging remains a key priority, such that the Board has decided to rebase the dividend by one-third to accelerate debt repayment, while retaining a progressive dividend policy, growing annually from the rebased level. This will strengthen the balance sheet and support a more flexible approach to capital allocation in the future.”