Imperial Brands profits hit by 'tough' NGP trading
By Michele Maatouk
Date: Tuesday 05 Nov 2019
(Sharecast News) - Imperial Brands posted a decline in full-year profit on Tuesday despite a rise in revenue, amid "tough" trading in its next generation products, as it announced the appointment of a new chairman.
In the year to the end of September, reported pre-tax profit fell to £1.69bn from £1.82bn the year before, while operating profit ticked down to £2.07bn from £2.28bn, despite a 5.1% jump in revenue to £31.59bn.
Chief executive Alison Cooper said that 2019 had been "a challenging year" with results below the company's expectations due to "tough" trading in next generation products.
"We are implementing actions to drive a stronger performance in the coming year," she said.
"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."
NGP revenues were up 52.4% during the year to £285m, but Imperial said this was below the level it expected to deliver, as it took a hit from an increasingly competitive environment and regulatory uncertainty in the US.
"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," Cooper said. "We will scale up investment as the visibility on returns and regulatory uncertainties improves."
Tobacco net revenue rose 2.7% to £7.71bn, while earnings per share were down 1.6% at constant currency to 273.3p. Imperial had guided to flat EPS at constant currency.
Imperial had already warned over profits in September, citing a challenging NGP market in the US. It said at the time: "The USA NGP environment has deteriorated considerably over the last quarter with increased regulatory uncertainty, including individual US state actions.
"This has prompted a marked slowdown in the growth of the vapour category in recent weeks, with an increasing number of wholesalers and retailers not ordering or not allowing promotion of vaping products."
Imperial said on Tuesday that it has now taken a more cautious approach to its 2020 outlook, with low single digit revenue and earnings per share growth expected, excluding any impact from the divestment programme.
It said performance would likely be weighted to the second half as the benefit of its NGP reset takes effect through the year.
The company also announced the appointment of Therese Esperdy, currently senior independent director, as chairman with effect from 1 January. She succeeds Mark Williamson, whose departure was announced in February.
At 0920 GMT, the shares were up 1.5% at 1,764.60p.
Russ Mould, investment director at AJ Bell, said: "It's been a terrible year for Imperial Brands as it suffered from intense competition, political backlash, regulatory uncertainty and market concerns about the health risks from vaping.
"Profit has fallen and management are taking a more cautious view of 2020's prospects.
"This is a marked difference between the usual messages from the tobacco company which has for years quietly got on with the job and churned out growth in earnings and dividends.
"Vaping and other 'next generation' products were meant to be the future for Imperial Brands but growth has been slower than expected. That's forced investors to question the future earnings potential of the business.
"Imperial Brands has used the word 'resilient' nine times in its full year results, as if to try and convince the market that its business hasn't fallen over as a result of recent problems.
"Sadly it is going to take a lot more than reassuring words to win back the market's favour. It now pledges to focus investment on next generation products in markets and categories with the best prospects for 'sustainable and scalable growth'. It begs the question why this wasn't the focus in the first place as that seems like the obvious business playbook."
On the plus side, broker Liberum said the appointment of Esperdy was "great news for holders".
"She has significant investment banking experience having held numerous roles at JPM including the Global Chairman of JPM's FIG group and numerous roles spanning Corporate & Investment Banking and Debt Capital Markets," it said.
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