(Alliance News) - Imperial Brands PLC on Tuesday said it underperformed in its recent financial year after a tough trading period for its Next Generation Products and announced the appointment of a new chair.
Shares in Imperial Brands were down 0.2% at 1,734.24 pence in London in morning trade.
For its year ended September 30, the tobacco company's 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 includes products such as Imperial Brands' Blu e-cigarette.
The company lifted its annual dividend by 10% in the year to 206.6p per share from 187.8p the year before.
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".
The company is focused on dealing with the challenges around NGP, especially in the US amid concerns about a health crisis caused by 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.
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 after a tough trading period for the company, 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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Imperial Brands (IMB)