Imperial Brands shares (LON:IMB) fell on Wednesday after the group released a trading statement pointing towards an ever reducing market for their combustible products and no changes to Imperial’s outlook for the year.
The group’s Next Generation Products (NGP) – which are designed to reduce harm when compared to their combustible products – are expected to produce similar sales in the second half as the first half.
Imperial Brands shares were down 1.9% in early trade on Wednesday.
“Imperial’s pressing forward with its strategy to focus on quality rather than quantity when it comes to its global footprint. This is a key part of being a tobacco company these days—with the number of smokers dwindling, the only lever to pull is hiking prices. Having a commanding market share and recognisable brand name is paramount,’ said Laura Hoy, Equity Analyst at Hargreaves Lansdown
Imperial Brands also faced the impact of a great level of travel allowing smokers to purchase their products in cheaper destinations and reduce Imperial’s revenue in their priced locations.
Imperial Brands said they expect their combustibles market shares to decline by 2-3 basis points this year, an improvement on last year’s 17 basis points decline.
“Aside from a shrinking addressable market, Imperial’s combustibles business is battling against loosening travel restrictions which are funnelling some customers away from more expensive product offerings. Add to that declining revenue in Australia and a £50m legal bill in the US, and it’s a recipe for profit declines. On the bright side, improved performance in Next Generation Products (NGP) and Distribution should make up for this, with group underlying profit ultimately expected to rise,” Hoy said.
“Combustibles is still the growth engine for Imperial—but NGPs is ultimately the future. So far it’s had a lukewarm reception, but management’s managed to trim some of the fat by exiting less profitable markets. While the second half will still show the impact of these abandoned markets, a narrowed focus should help the group build out more successful cigarette-alternatives.”
Chief Executive Stefan Bomhard commented:
“We have made good progress in implementing our strategy through a sharper management focus, greater investment behind our priority combustible tobacco markets and new market trials in heated tobacco and vapour. We are building a high-performance culture with the introduction of new more consumer-focused ways of working, and have made a significant number of new hires to enhance our capabilities in key areas. I am pleased to report the business continues to perform well and we remain on track to deliver our full-year results in line with expectations.”