Imperial Brands Talks 2020 Outlook and Premium Cigar Divestment

Imperial Brands 2020 Outlook

Imperial Brands Plc. released an update on various parts of its business, including next generation products, vapor and the latest on the search for a buyer of its premium cigar division.

According to the company, current tobacco trading is inline with expectations. Due to the U.S. Food and Drug Administration (FDA)’s ban on some flavored e-cigarette pods and weakening consumer demand for vapor products, Imperial Brands Plc. now expects constant currency full year group net revenue to be at a similar level to 2019’s numbers and adjusted earnings per share to be slightly lower in 2020. Imperial Brand’s first half adjusted earnings per share is expected to be down 10 percent at constant currency due to the phasing of inventory write-downs that are mostly related to the e-cigarette and vapor flavor ban in the U.S.

When it comes to next generation products, Imperial Brands stated that due to regulatory uncertainty in the U.S. and Europe, demand for these products could result in significantly lower year-on-year NGP net revenue as well as increased provisions for slow-moving stock.

“We are implementing a further cost savings program to mitigate some of these short-term headwinds, which will result in a full year net impact on adjusted operating profit of c. £40m,” the company revealed in its report.

The flavor ban imposed on some flavored e-cigarette products in the U.S. that goes into effect on Feb. 6, 2020 [read more here] has already begun to have an impact on Imperial Brands’ business and bottom line. The company reports that it has written-down its flavored inventory with a first half adjusted operating profit impact of c. £45m, which is in line with the company’s previous estimates.

“We believe that NGP [next generation products] provides consumers with potentially less harmful alternatives to combustible tobacco and offers a significant growth opportunity over the medium term to complement our tobacco business. We support regulation that enforces higher product and marketing standards, which are critical for creating a stable and orderly vapor market that we can invest behind,” the company stated in its press release.

In terms of Imperial Brands’ tobacco business, it reports that this part of the company has had a good start in the first three months of the year and has seen a market share growth across the majority of its priority markets. The European division has benefited from price/mix gains, which have largely offset weaker volume trends. In the U.S., the company’s tobacco division remains strong, though its financial delivery has been temporarily affected by wholesaler restock following a year-end price increase. In Africa, Asia and Australia, the company’s tobacco division is experiencing revenue growth that reflects a strong volume performance and sell-through of the Australian duty paid inventory. In terms of its potential divestment of its premium cigar division including Altadis U.S.A., JR Cigar and its stake in Habanos S.A., negotiations are ongoing [read more here]. The company also reports that it is also continuing to consider the potential divestment of other non-core operations.

Imperial Brands’ effective adjusted tax rate for the year is expected to be around 21 percent–in 2019, it was 19.1 percent. At current exchange rates, the company expects a currency translation headwind on net revenue and adjusted earnings per share of c. 1 percent at the half year and c. 3 percent at the full year. As previously guided, free cash-flow in the 2020 fiscal year will be affected by some one-off cash outflows in relation to Russian excise tax liabilities (c. £100m) and the final deferred consideration for the Von Erl acquisition (c. £120m).

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