Imperial Brands PLC is down as dividend cuts by a third to accelerate deleveraging
The tobacco company said the pace of deleveraging “has not been as fast as we would have liked in recent years”.
Imperial Brands PLC (LON: IMB) shares fell Tuesday as the company cut its dividend and said deleveraging was its top priority as tobacco sales stagnated and steam sales plummeted in the past half year amid coronavirus (COVID-19) are. Crisis.
The group said its board of directors, awaiting the arrival of a new chief executive officer in July, decided to “convert” the dividend with a 33 percent cut to 41.7 pence for the interim payment “to expedite debt payments while making one progressive “to maintain dividend policy from the rebased level”.
READ: Imperial Brands Rolls Up Selling Cigar Business for £ 1.1 Billion
The move, part of a revised capital allocation policy “to reduce the risk of the business and further strengthen the balance sheet,” implied that the dividend for the full year 2020 will be 137.7 pence per share.
Imperial Brands’ net debt at the end of March 2020 was £ 14.14 billion, down from £ 13.4 billion the previous year due to payments for acquisitions, a deal with Russian tax authorities, dividend payments and lower profits.
Reported profit before tax decreased 23% to £ 785 million as net tobacco revenues remained unchanged at £ 3.5 billion but net revenues from “Next Generation Products” (NGPs) such as e-cigarettes and refractory tobacco products declined 44% to just £ 83 million.
After the last September NGP-related profit warningwhich led to the resignation of chief executive Alison Cooper, the group’s interim management team said the “increased focus on tobacco” for the half-year resulted in market share increasing 40 basis points to 13.6%, with increases in seven out of ten Priorities were achieved markets.
“We have reduced our NGP spending after last year’s poor return on investment, which together with recent weaknesses in the steam category has resulted in lower NGP revenues,” said the group’s joint interim bosses, Dominic Brisby and Joerg Biebernick, in the results explanation.
They added that while the cigarette business continues to have a strong liquidity impact, deleveraging “has not been as rapid as we would have liked in recent years” and “the board believes that a stronger balance sheet will give the business more flexibility in the future “.
“This was not driven by COVID-19, although the current uncertainties caused by COVID-19 as well as the ongoing regulatory focus on tobacco add to the importance of a strong balance sheet to underscore the defensive nature of our business. “
Imperial Brands shares fell 5.5% to 1,563 pence in early morning trading.
Dividend cuts are never pleasant
William Ryder, equity analyst at Hargreaves Lansdown, said, “A dividend cut is never comfortable for investors, but Imperial debt has grown steadily and now seems like an opportune time to cut the payout. The group’s long-time CEO, Alison Cooper, has been replaced by two joint interim CEOs, and if they can now get one way out of the way, a new long-term CEO will have a cleaner board.
“The Group’s first half results were negatively impacted by poor performance from Next Generation Products (NGPs) such as vaping. Regulatory restrictions and headlines about health problems have severely dampened growth expectations and reversed European and American markets. We believe that NGPs will have this. ” a future, but it looks like the impressive growth many have been hoping for is not yet to come. “
He added, “Despite its defensive nature, Imperial believes COVID-19 will detract from profits, mainly because it will lose duty-free sales and customers may choose cheaper brands in a recession. Social distancing measures are also likely to make production less efficient. The group should still be less affected than many other groups, but the dividend cut will still be painful for shareholders. “
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