Imperial Brands is likely to see benefits from its recently-announced transformation plan, however its high exposure to the traditional combustible tobacco market means it may have to be patient, Moody's has said.
According to Moody's Roberto Pozzi, Imperial's "social and regulatory risks will remain high in the next two years because it will continue to generate the bulk of its revenue and profit through traditional cigarettes and other tobacco products, which face increasingly stringent regulations and declining demand".
Pozzi was commenting following the publication of a new five-year plan at Imperial Brands, with which chief executive Stefan Bomhard and his team are seeking to 'transform' the business and 'create long-term value'.
As part of its initiative, the tobacco giant will focus investment and resources around USA, Germany, UK, Australia and Spain, which represent just under three quarters of the profits in its combustible tobacco business; seek to drive value from its broad market portfolio; 'reset' its next-generation products (NGP) strategy; and improve efficiencies across its operations.
According to Moody's, these organisational and cultural changes will take time but will not require large investment, leaving operating margins at the business stable.
"We forecast Imperial's Moody's adjusted gross debt to EBITDA ratio will decline to around 3.1x at the end of the 2022 fiscal year ending 30 September," said Pozzi. "This will be thanks to lower dividend payouts and limited extra investment in NGPs."
Imperial Brands has not announced any disposals for the next 12 to 18 months, so these are not factored into Moody's expectations, however Pozzi added, "We have identified some non-core assets which it could sell to raise proceeds to fund new product investment, which would be credit positive."
This includes its 50% stake in Compañía de Distribución Integral Logista Holdings SA, a Spain-based logistics firm, as well as its interests in markets which contribute little to group profit, such as Algeria, Marocco, Ivory Coast, Burkina Faso and Madagascar.
Elsewhere, Imperial has made plans to bolster its environmental performance, "with more clearly defined benchmarks to measure its efforts", said Pozzi, while a number of new appointments should also benefit the business.
"The board's composition broadly conforms with generally accepted best practices. Governance has recently been further enhanced with three recent non-executive appointments which have extensive experience in finance, retail & technology and consumer goods & retail. This should help strengthen the company's leadership capabilities and operating performance."
© 2021 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.