Imperial Brands suffers from new vaping regulations
But tobacco sales remain strong for the Davidoff, Winston and West cigarette-maker.
Davidoff and JPS cigarette-maker Imperial Brands has revealed that sales of its vape products took a severe hit due to a series of regulator crackdowns on vaping in the US.
Bosses said sales in the Next Generation Products (NGP) division in its Americas market fell 26.5% to £111 million, compared with tobacco revenues of £2.36 billion – up 12.6%.
It comes less than a month after the company unveiled a profit warning.
By comparison, Europeans continued to snap up vapes, including Imperial’s blu and Von Erl, in record numbers, helping NGP sales jump to £131 million from just £32 million a year ago, although this was slower than expected.
Earlier this year, US President Donald Trump said he would crack down on flavoured e-cigarettes and tighten regulations on vaping products.
Any future fruit-flavoured e-cigarettes may need approval from the Food and Drug Administration, in an attempt to make them less attractive to young consumers.
Imperial revealed that the regulatory crackdown was announced just at it was ramping up marketing efforts in the country.
The company said: “The situation was compounded in the USA, where an increasingly volatile regulatory environment coincided with a significant step-up in our retail engagement programmes, brand investment and consumer promotions. Although this activity delivered share gains, overall blu growth was below the level we had planned for.”
Bosses now plan to launch a political offensive to bring in stricter regulations around vaping, as they try to squeeze unscrupulous rivals.
In the UK, there has been criticism by campaigners that advertising and labelling of vape products could be aimed at children and suggestions have been made that packaging could change in the sector.
Overall, Imperial sales hit £31.6 billion, up from £30 billion, and pre-tax profits fell 7% from £1.82 billion to £1.69 billion in the year to September 30.
In the UK and France, the evolution of the vapour category towards closed system devices has been slower than we initially expected, with open system devices and price promotions impacting the development of the category Imperial Brands
Operating profits were down 8.7%, with bosses attributing this to a £525 million hit to its “goodwill” related to selling off its premium cigar division, a £139 million knock from Russian excise tax and a writedown of £129 million on the value of its Von Erl vaping product.
To tackle the heavy hits, the company previously announced that it would reduce investment in NGP categories.
Tobacco volumes fell 4.4%, but revenues grew 2.7% to £7.7 billion and total NGP sales rose 48% to £285 million – although this was below expectations.
On Europe, the company said: “In the UK and France, the evolution of the vapour category towards closed system devices has been slower than we initially expected, with open system devices and price promotions impacting the development of the category.”
Bosses also said their planning for Brexit on October 31 had revealed that a no-deal Brexit would cost the business £100 million in tax restructuring.
Chief executive Alison Cooper, who announced she would be leaving the business, said: “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.
“Our priority going forward is to optimise the profit and cash generation from our tobacco assets, while improving growth in NGP with greater discipline and a more tightly focused business model that will create long-term value for shareholders.”