Imperial Brands warned that sales of vapes and similar products dropped in the past year, offsetting slight growth in tobacco revenue as smokers spent more on cigarettes during the pandemic.
The UK-based tobacco group said sales of its Blu vaping device and other “reduced harm” products fell 28 per cent to £201m in the year to September.
Imperial blamed the fall on the ban of some flavoured vapes in the US and concern around the health impact following several deaths associated with people inhaling unregulated cannabis liquids.
Oliver Tant, finance officer, said Imperial had entered the year expecting vaping sales to increase and had sold “quite a lot of stock to retailers”.
“That demand didn’t really materialise,” Mr Tant added. The company had failed to sell more stock to oversupplied retailers and some had been forced to return flavoured products, which the US government banned this year in a bid to discourage widespread use among teenagers.
Falling demand for vaping eased in the second half of the year. However it still offset a boost to cigarette sales, which have been helped by consumers spending less money in restaurants and bars during the pandemic.
Adjusted total net revenues remained largely flat at £7.99bn, while adjusted operating profit fell 5 per cent to £3.5bn in the period.
Imperial has struggled to keep up with rivals as focus in the tobacco industry shifts from traditional cigarettes to alternatives such as vapes and e-cigarettes. The company wrote down the value of its so-called new generation product portfolio twice this year, by a total of £124m.
Imperial’s new chief executive Stefan Bomhard, who took over the reins of the company four months ago, said a full strategy update on vaping and tobacco was planned for January.
Adam Spielman, analyst at Citigroup, said Mr Bomhard’s first observations on the company had “skewed more to improving operations than changing and simplifying the shape of the business”, which he said might “disappoint those investors who want a narrative of disposals followed by buybacks”.
Imperial’s share price, which has fallen by nearly a third since a peak in January, was up more than 2 per cent as markets opened.
Mr Bomhard called the company’s recent results “disappointing” but said it was positive that “consumer demand on the tobacco side has been quite resilient” in the wake of the pandemic.
The company said it expected low to mid-single digit adjusted operating profit growth in 2021, excluding the recent sale of its premium cigar business.
But the company, which this year cut its dividend for the first time since listing 24 years ago, was cautious on the future. It warned that “benefit from the pandemic” was expected to unwind next year as consumers, many of whom had so far been shielded by massive government subsidies, were likely to be hit by “recessionary effects”.