Imperial Brands’ first half profits to drop 10%

Tobacco group Imperial Brands warned it would not generate any profit growth this year after tighter regulation in the United States, the world’s biggest vaping market, sapped demand.

The profit forecast adds to the challenges for new CEO Stefan Bomhard – head of car dealership company Inchcape – whose appointment was announced on Monday with a start date yet to be disclosed.

The warning from Imperial, which makes blu e-cigarette, reflects a tough environment for tobacco companies.

With sales of traditional cigarettes in decline, players including Imperial Brands, have invested billions of dollars in alternatives that it calls “next generation” products (NGP) such as e-cigarettes and heat-not-burn products.

However, a string of vaping-related deaths, coupled with increased bans following a surge in teenage vaping, has curbed demand.

With the global vaping market under pressure, Imperial said on Wednesday the “adverse news flow continues to affect demand in the U.S. and Europe”.

Imperial controls an estimated 5.9% of the market in the United States for e-cigarettes. Juul, partly owned by Altria is the market leader with a 57% share.

Juul has also seen a significant drop in its valuation following the regulatory crackdowns.

Imperial forecast net revenue would be flat and adjusted earnings per share would be slightly lower than last year. It had previously expected low-single digits revenue and profit growth for the year ending September.

First-half adjusted earnings per share in constant currency are estimated to fall 10%, as the company writes down inventories following the U.S. government’s ban on selling certain flavours for pod-based e-cigarettes, which goes into force on Thursday.

Imperial said it expects lower year-on-year revenue from NGP products and increased provisions for slow-moving stock.

The U.S. ban has led to a write-down of flavoured products inventory resulting in a £45 million  impact on its first-half adjusted operating profit. Imperial said.

To mitigate these impacts, Imperial said it would undertake a cost-savings programme, which would have an impact of £40 million on its full-year adjusted profit.

It has already been seeking to sell its Cohiba and Montecristo premium cigar business for nearly a year. On Wednesday, it said the discussions were ongoing.