6th Nov 2018 13:42
LONDON (Alliance News) - Imperial Brands PLC, the owner of Winston and Davidoff cigarette brands, on Tuesday said increased investment in its blu e-cigarette brand will result in reduced profit for the first half of 2019 financial year.
Shares in Imperial Brands are down 1.7% at 2,598.44p in afternoon trade in London, having risen 2.6% at the start of trading.
Blu is expected to start contributing to Imperial Brands profit after 2019 financial year. To achieve this, the company has planned to invest further GBP100 million investment in the first half of 2019 financial year.
The move is, therefore, likely to lower group adjusted operating profit in that period. In the first half of 2018 financial year, the company recorded total adjusted operating profit of GBP1.62 billion.
Imperial Brands expects the drop to be "more than offset" in the second half of its financial 2019.
Imperial Brands said its "portfolio is focused on blu", with the aim of transitioning smokers onto blu and minimising the change of them reverting back to tobacco.
In its financial year ended September 30, Imperial expanded its blu e-cigarette brand to nine markets from four. The expansion resulted in the blu brand generating annualised exit run-rate of around GBP300 million of net revenue.
The tobacco company posted a pretax profit of GBP1.82 billion for 2018 financial year, largely unchanged from its GBP1.86 billion profit the year before.
The company experienced a one-off GBP110 million hit from its UK distributor, Palmer & Harvey, going into administration in November 2017, but it was largely able to offset this by cutting administrative expenses to GBP1.60 billion from GBP1.72 billion.
Imperial Brands increased its annual dividend payment by 10% to 187.8 pence from 170.7p paid a year ago.
Revenue for financial 2018 increased to GBP30.52 billion from GBP30.25 billion the prior year, with modest increases in all of its divisions.
The Tobacco & Next Generation Products division, which includes e-cigarettes, posted total revenue for the year of GBP22.89 billion, up from GBP22.79 billion the year before. Next Generation Products, or NGP, contributed GBP200 million, or 2.6%, to the division.
The Distribution unit saw revenue grow to GBP8.38 billion from GBP8.27 billion.
In its new 2019 financial year, the tobacco company expects to deliver constant currency revenue growth at, or over, the upper end of its 1% to 4% estimate.
Medium-term guidance for constant currency earnings per share growth of between 4% and 8% remains unchanged.
Imperial Brands Chief Executive Alison Cooper said the main focus of the company's Next Generation Products business is on "transitioning smokers to blu", with an international rollout of the myblu brand putting it "in a strong position to further invest and accelerate sales growth" in Imperial Brands' financial 2019 year.
"We have the strategy, assets and capabilities to realise the significant opportunities presented by a changing environment and to generate growing returns for our shareholders," said Cooper.
On a constant currency and adjusted basis, Imperial Brands recorded GBP7.73 billion net revenue for the Tobacco & NGP business.
According to Liberum Capital Ltd, this placed it 1.4% ahead of consensus. The broker also drew attention to the fact that Tobacco & NGP volume declines were worse than consensus at 3.7% versus the 2.9% expected.
Overall, the company recorded adjusted operating profit of GBP3.56 billion, ahead of the GBP3.53 billion consensus, on the back of a GBP80 million gain from business and property disposals.
"We have confidence that Imperial's shares are deeply discounted as we still get 18% upside despite our base case that assumes the [US Food & Drug Administration] enacts a nicotine standard by 2023," said Liberum analysts.
Liberum reiterated its Buy rating on Imperial Brands' stock and its 3,100p target price.
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