Imperial Brands to focus on top five cigarette markets

FILE PHOTO: Packs of Gauloises cigarettes are on display in a tobacco shop in Vienna, Austria
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By Siddharth Cavale

(Reuters) - Imperial Brands on Wednesday laid out a five-year plan under its new chief executive that will focus on the company's top five cigarette markets, invest in more high-growth areas for its next-generation products and build out its sales force.

The announcement is the culmination of a six-month review by Stefan Bomhard, who joined as CEO in July.

The maker of Kool and Winston cigarettes said it would focus its investments on cigarette markets in the United States, Germany, UK, Spain and Australia, which generate about 72% of group profits.

It also said it was resetting its next-generation products (NGP) strategy -- considered the next frontier for tobacco -- pouring money behind heated tobacco products in Europe and e-cigarettes in the United States.

Imperial has scaled down its aspirations for next generation products after missing several sales targets over the past five years. The company wrote down the value of that business by 124 million pounds last year after sales fell 27% in 2020.

"We will be more targeted in our investments," Bomhard said at its capital markets event, adding that growth would be driven by local consumer preferences and market data.

Bomhard has previously blamed underperformance in NGP on rolling out too many products too quickly without consumer insights and data being fully available.

He has since promised to turn around the struggling British company's performance, by bringing in new talent, changing incentive structures and culture and intensifying its focus on its top markets.

Shares of the FTSE-listed company, however, were down 5.2%, even as it kept its forecast for 2021 intact.

"We expect the new plan will deliver a gradually improving trajectory in net revenue over the five years with a compound annual growth rate of 1-2% from FY2020-2025," the company said.

Imperial will increase investments in areas, including sales and marketing, by about 50 million to 60 million pounds annually, which will be funded by cost savings, and therefore will not impact operating profit, at least for the first two years.

Imperial also said it expects to continue to raise its dividend annually and buy back shares after cutting down debt towards the lower end of its net debt to EBITDA target range of 2-2.5 times.

(Reporting by Siddharth Cavale in Bengaluru; Editing by Maju Samuel and Keith Weir)