Imperial Brands sees profits slide by 15% after exiting Russia

Imperial Brands profits slide 15% after Golden Virginia-maker’s Russia exit but tobacco group continues to build market share

  • Imperial’s departure from Russia cost the group just under £400m in earnings 
  • The exit contributed to tobacco volumes dropping by 8.4% in the second half
  • Revenues fell despite higher prices offsetting the drop in tobacco volumes

Imperial Brands earnings slumped as the tobacco giant took a significant hit from its decision to exit Russia after the onset of the Ukraine war.

The Bristol-headquartered cigarette maker behind Gauloises, West and Golden Virginia revealed operating profits declined by 14.7 per cent year-on-year to £2.68billion in the 12 months ending September.

Imperial’s departure from Russia cost the group just under £400million in earnings, while a further impact came from the non-recurrence of gains on selling its premium cigar businesses the previous year.

Earnings: Imperial Brands, the owner of cigarette brands Gauloises, West and Golden Virginia, revealed operating profits declined by 14.7 per cent year-on-year to £2.68billion

In March, the FTSE 100 company suspended operations in Russia, including all production at its Volgograd factory, before transferring the business to local investors the following month.

This contributed to total tobacco volumes dropping by 8.4 per cent in the second half of the period against the same time in 2021, and 4.7 per cent throughout the whole year.

Higher prices helped offset the drop in production volumes, but a weaker euro against the US dollar meant total revenue still fell by £240million to £32.6billion.

Imperial achieved this while boosting market share across four of its five biggest combustible markets, where the company earns most of its operating profits.

In the UK, the firm said market share growth was driven by investment in local ‘jewel’ brands like Embassy, which made gains in under-represented areas of the country among fine cut tobacco brands.

Raising market share in its five largest tobacco territories – UK, USA, Germany, Spain and Australia – forms part of a five-year strategy spearheaded by chief executive Stefan Bomhard.

The plan also calls for simplifying operations – partly through cost-cutting measures – and expanding sales of ‘next-generation products’ like heated tobacco and vaping.

NGPs remain a fraction of Imperial’s overall trade, but their popularity is growing as they are launched into more territories and governments heavily tax and regulate cigarette brands.

However, the high volume of investment involved in introducing brands like Pulze and Blu 2.0 to new markets caused the division to post another loss of £87million during the year. 

Bomhard, who took over the business just before the pandemic started, nonetheless said the Bristol-headquartered company was ‘well positioned to deliver against the next phase of our five-year strategy’.

He added: ‘The additional investment and the actions we have taken during the initial two-year strengthening phase have built stronger foundations as we face into a more challenging macro-economic environment.

‘We are well placed to build on our track record of delivery over the next three years, improving returns and creating sustainable growth in shareholder value.’

Imperial also announced today that it was proposing to hand investors £467million in final dividends next March, which comes on top of a £1billion share buyback scheme declared in October.

Imperial Brands shares were up 0.8 per cent to £20.54 during the late morning on Tuesday, meaning their value has risen by around 30 per cent in the past 12 months.