(Alliance News) - Imperial Brands PLC on Tuesday reported a weak annual performance, more or less in line with its own revised guidance and with consensus after a difficult year for the tobacco company, as prepares for a change at the top.
Imperial Brands issued a revenue warning back in September, cutting its guidance in large part due to a challenging US market, specifically for its Next Generation Products such as e-cigarette brand Blu, amid concerns about a health crisis blamed on vaping.
According to the US Centers For Disease Control & Prevention website, there had been 1,888 lung injury cases associated with e-cigarette or vaping products reported to the CDC as of October 29 and 37 confirmed deaths in 24 states, leading to outright bans in some states.
The Bristol-based firm cut its forecast for net revenue growth to 2.0% from 2.5% at constant currency in response and said it was expecting earnings per share share to be broadly flat, also at constant currency.
Tobacco & NGP net revenue was in line with consensus at GBP8.00 billion, up 3.9% on an actual basis from GBP7.70 billion in 2018 but just 2.2% higher at constant currency. Consensus figures were compiled by Vuma with a link from the Imperial Brands website.
Adjusted earnings per share was 273.3 pence, 0.4% higher than 272.2p a year ago but down 1.6% at constant currency. The 273.3p figure also was 3.5% behind consensus of 283.2p. Adjusted figures exclude amortisation of intangibles and restructuring costs, as well as other costs and losses.
Adjusted operating profit for the Winston and L&B brand owner was GBP3.75 billion, 3.1% behind consensus of GBP3.87 billion and 0.5% below GBP3.77 billion the year before.
Total tobacco volume marginally exceeded consensus at 244.2 billion volume stick equivalent versus consensus of 243 billion but was 4.4% behind financial 2018's figure of 255.5 billion.
Imperial Brands reported a GBP100 million increase in net debt to GBP12 bilion due to foreign exchange and the fair value of interest rate derivatives.
Liberum analyst Nico von Stackelberg was optimistic on Imperial Brands, especially in light of a probable sale of the company's premium cigar brands. He noted cigar blog Halfweel's report on Monday that Imperial Brands is likely to sell its premium brands to Chinese Firm Huabao.
https://halfwheel.com/huabao-international-expected-to-purchase-imperial-brands-cigar-divisions/367699/
"We believe Imperial's equity story is misunderstood. While the company continues to be light on the details, we understand that the premium cigar sale is imminent. While a lot hinges on the incoming Chair and CEO and their plan, Imperial has considerable scope to recover lost value whole simply by selling geographic regions to motivated buyers," said Stackelberg.
Shares in Imperial Brands were down 0.5% at 1,730.00p in London on Tuesday morning, having been the worst performer when markets opened. The shares traded at between 1,710.00p and 1,776.80p over the course of the morning. The stock is down 27% in the year to date.
Annual pretax profit dropped 7.1% to GBP1.69 billion from GBP1.82 billion. The profit decline followed a rise in distribution, advertising & selling costs to GBP2.30 billion from GBP2.00 billion and an increase in administrative & other expenses to GBP1.75 billion from GBP1.60 billion. This took operating profit down 8.3% to GBP2.20 billion from GBP2.40 billion.
Revenue rose 5.1% to GBP31.59 billion from GBP30.07 billion after growth from both tobacco and NGP sales. NGP revenue alone grew 48% to GBP285 million - in line with the firm's revised 50% NGP growth forecast, though this was a less sharp rise than initially predicted.
The company lifted its annual dividend by 10% in the year to 206.6p per share from 187.8p the year before. This is the eleventh year in which Imperial Brands has delivered 10% dividend growth. However, the firm revised its dividend policy in July and has now enacted a progressive dividend which will rise annually from the current level based on underlying business performance.
Looking ahead, Imperial Brands said it expects "modest revenue growth" from Tobacco, with strong cash flows and high margins. Its NGP business is expected to see more revenue growth, with "strong growth prospects contributing to margins and cash returns over the medium term".
Imperial Brands said it has decided to reduce and reprioritise is investment in NGP and has been more cautious in its outlook, now forecasting "low single-digit revenue and earnings per share growth" for the group as a whole in the new 2020 financial year, second-half weighted, as its "NGP reset takes effect".
Chief Executive Alison Cooper said: "2019 has been a challenging year with results below our expectations due to tough trading in Next Generation Products. 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%, 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."
Imperial Brands announced in early October that Cooper will be stepping down and will depart once a successor is found.
On Tuesday, the company announced the appointment of a new chair as well. Senior Independent Director Therese Esperdy will succeed current chair Mark Williamson with effect from January 1, 2020. She joined the board in May 2019 and also holds roles as a non-executive director at National Grid PLC and Moody's Corp.
"Therese has significant international investment banking experience having held a number of senior roles at JP Morgan including Global Chairman of JP Morgan's Financial Institutions Group, Co-Head of Asia-Pacific Corporate & Investment Banking, Global Head of Debt Capital Markets, and Head of US Debt Capital Markets. She began her banking career at Lehman Brothers and retired from JP Morgan in 2015," Imperial Brands noted.
Williamson's planned departure was announced back in February under the UK's new corporate governance code for chair tenure.
By Anna Farley; annafarley@alliancenews.com
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