Tuesday 05 November 2019 8:25 am

Up in smoke: Imperial Brands profit shrinks as regulators knock vaping

Imperial Brands blamed “tough trading” in its vaping division after full-year profits slipped and shareholders saw earnings per share fall by a quarter.

The figures

Operating profit fell 8.7 per cent to £2.2bn in the 12 months to the end of September.

That came despite a 5.1 per cent rise in revenue to £31.59bn. Earnings per share sank 26.2 per cent to 106p, down from 2018’s 143.6p.

Its NGP line revenue posted growth of 52.4 per cent to £285m, while tobacco net revenue rose 2.7 per cent to £7.7bn.

Meanwhile net debt ticked up by £71m year on year to £11.97bn.

Why it’s interesting

Imperial Brands’ shareholders have put up with losses of around 35 per cent this past year, following September’s profit warning over US vaping fears.

That prompted chief executive Alison Cooper to say she will step down after 20 years with the tobacco giant, nine of those as boss.

Today Cooper called 2019 a “challenging” year and said “tough trading” in Imperial Brands’ vaping products was to blame for results falling below expectations.

Instead Imperial Brands will now look to reset its NGP strategy for 2020, targeting markets with the best chances of growth.

Vaping is under heavy regulatory pressure in the US, where President Donald Trump has called it a “problem”.

The shift comes as the tobacco giant said senior director Therese Esperdy would take over as chairman from Mark Williamson at the start of next year.

“[Esperdy’s] international executive experience and the acute understanding she has of the business, the sector we operate in and the concerns of investors, many of whom were consulted during the recruitment process, is invaluable,” Imperial Brands’ board said. “Today’s announcement provides stability through the chief executive officer recruitment process, which is a key priority.”

Liberum welcomed the move and stuck to a target price of 2,900p for the tobacco giant as net revenue grew 2.2 per cent, beating expectations of two per cent.

“The company importantly announced a new chair and we see material progress towards the premium cigar sale in light of disclosure and cigar industry publications late last night,” the broker added.

The firm’s share price remained steady in early trading at 1,735.6p.

Last week US tobacco company Altria reported a $4.5bn (£3.5bn) loss in the third quarter of 2019, driven by its 35 per cent stake in Juul, as the e-cigarette maker’s products were banned in several cities and states.

What Imperial Brands said

Outgoing CEO Alison Cooper said:

2019 has been a challenging year with results below our expectations due to tough trading in NGP. We are implementing actions to drive a stronger performance in the coming year.
Our resilient tobacco value creation model continues to produce high margin sales growth and is well-placed to deliver sustained profitable growth in the years ahead.
Although we grew NGP revenues by around 50 per cent, this was below the level we expected to deliver. Our delivery was also impacted by an increasingly competitive environment and regulatory uncertainty in the USA.
Growth in Europe was also slower, despite achieving leading retail shares in several markets. We have taken the learnings from this year to reset our NGP investment plans for 2020, prioritising the markets and categories with the highest potential for sustainable, profitable growth. We will scale up investment as the visibility on returns and regulatory uncertainties improves.
Our priority going forward is to optimise the profit and cash generation from our tobacco assets, while improving growth in NGP with greater discipline and a more tightly focused business model that will create long-term value for shareholders.