It says the “next generation” alternatives to cigarettes are expected to start contributing to profits by the end of the 2019 financial year, the Financial Times has reported.
The British brand, which manufactures Davidoff and Golden Virginia cigarettes, said total revenue was up in the year to September 30 by just 0.9% to £30.5 billion, compared with the previous 12 months, but gross profit was down 2% to £1.8 billion.
The year, though, saw total tobacco volumes fall 3.6%, despite the company's “growth brands”, including Lambert & Butler, West and Davidoff, rising by 2.1%.
Significantly, sales in the brand’s Next Generation Product (NGP) division – e-cigarettes and heated tobacco products – grew to £200m, representing 2.6% of all tobacco and NGP revenue. Sales were predominantly driven by 'blu', an electronic cigarette selling in the US, UK, France and Italy.
The company believes traditional tobacco products will “continue to deliver modest revenue growth, high margins and strong cash flows”, but added that its NGP business had “stronger growth prospects”.
Imperial, along with other major tobacco brands, has heavily invested in innovative products as sales of traditional cigarettes fall in developed markets, driven predominantly by consumer concerns over health. For example, it has poured an additional £100m into its blu range, and while this will bring down profits in the first half of next year, it claims that will be “more than offset in the second half to deliver full year profit growth”.
But, while the use of e-cigarettes is widely seen as a far healthier alternative to cigarette smoking, it is not without controversy. Some critics say the growing popularity of vaping among teenagers is a worrying trend, attracting the attention of campaigners and calls for increased regulation.
However, manufacturers continue to maintain that their aim is to both deter young people and people who do not already smoke cigarettes from using their e-products.
As WARC reported, Juul Labs, which boasts 70% of the US e-cigarette market, took flak for buying ad space in Vice magazine – among others – and featuring young users.
Juul said in a statement at the time, “Our growth is not the result of marketing but rather a superior product disrupting an archaic industry.
“When adult smokers find an effective alternative to cigarettes, they tell other adult smokers.”
Sourced from Financial Times; additional content by WARC staff