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Imperial Tobacco has posted a rise in annual sales and profits despite a collapse in duty-free travel sales as coronavirus lockdowns have boosted at home tobacco consumption.

Group net revenues were up 0.8% to £8bn in the year to 30 September as the fall in tobacco volumes slowed to 2.1% to reflect better market size and share trends in several markets.

Tobacco net revenues were up 1.8% offsetting a decline in Next Generation Products of 27%.

Reported operating profit increased 24.3% to £2.7bn, albeit this was driven primarily by the prior year goodwill impairment charge for the Premium Cigar Division.

Adjusted operating profit was down 4.8%, with Europe down 5.9%, the Americas down 3.4% and its Africa Asia and Australasia division down 8.7%.

Imperial said the coronavirus lockdowns, the restrictions on travel and the benefit of fiscal stimulus measures in many markets have resulted in slightly better market size trends for the group overall.

It said smokers have chosen to allocate more of their discretionary spend towards tobacco as more time spent at home has resulted in consumers reducing expenditure in certain areas, such as holidays or going out.

Meanwhile, fiscal stimulus measures in several markets have increased consumer discretionary spend, while markets in areas such as Northern Europe have benefited from consumers having to stay at home, leading to a temporary switch in volumes from traditional holiday destinations.

Additionally, border and other restrictions have reduced the level of illicit trade in certain markets such as the UK, resulting in better volumes in the duty paid market.

These trends offset the closure of certain retail channels, such as duty free and hospitality outlets and travel restrictions which have led to significantly lower demand in traditional holiday destinations, such as Spain and the Canary Islands.

Imperial said that changes in consumer behaviour will be temporary and will reverse once COVID-19 restrictions are relaxed. However, given the rising number of COVID-19 cases in many markets and the greater uncertainty, it has increased provisions, mainly in respect of stock and debtor positions, which has impacted profit delivery.

CEO Stefan Bomhard commented: “Although this has been a difficult year, the resilience of our tobacco business and the measures we have taken to improve our NGP operations reinforce my confidence in the future potential of the business. With a more disciplined focus and better execution we can realise significant value for our stakeholders over time.

“My first months have been focused on engaging with employees, consumers and customers and leading the strategic review of the business… I believe there is scope to enhance returns from our tobacco business and opportunities to strengthen our NGP delivery over time. I firmly believe we can make a meaningful contribution to harm reduction within a more disciplined, returns-focused framework and we have already taken steps to stem the NGP losses.”

Imperial saw 50bps of tobacco share growth during the year, but this was largely in markets representing lower value to the group both in terms of net revenue and profit. Whilst it grew tobacco market share in three of the top five markets, the growth was principally in brand families with lower net revenue per stick and accordingly less profitable.

During 2020, it pulled back significantly on investment in the NGP category as the group sought to improve returns and reflect on how to prioritise future investments in this segment. Towards the end of 2019, Imperial said it became clear our investments were significantly underperforming, due to US regulatory intervention in the vapour market, competitor behaviour, uncertainty on the part of retailers and a lower than expected take-up of products by consumers.

As a consequence, it has curtailed investment, which significantly reduced the run-rate of operating losses in the second half.

However, it said there are a number of areas where it can improve future performance. For example, by seeking to develop products that are sufficiently differentiated and tested with consumers in launch markets and to be more disciplined in how we invest to scale the business over time.

Imperial shares are up 2.7% so far this morning to 1,440p on the news.

Morning update

Naked Wines has appointed Shawn Tabak as chief financial officer, to join the group on 7 December.

The appointment follows the move of current CFO James Crawford to become MD of the Naked Wines’ UK business.

Crawford will hand over his duties as CFO to Tabak during December and step down from the board on 31 December 2020, at which point Tabak will be appointed to the board.

Tabak was previously vice president of finance at Upwork, the world’s largest work marketplace that connects businesses freelancers and temporary workers, vice president of investor relations and treasury at Shutterfly and CFO at Clean Power Finance, a venture-backed company.

Nick Devlin, Group CEO, commented: “Shawn’s deep understanding of driving growth through a focus on customer economics and cohorts makes him ideally suited to the role at Naked.

“Additionally, his understanding of the US market will be highly valuable and recruiting this role in the USA, our largest market, is another key step in our transition from British start-up to a US-led global pureplay.”

“I’m also delighted to be working with James in his new role and given his history with Naked he will hit the ground running. James has guided the business through many challenges as a start-up and through its growth story and he will now continue to grow our UK operations in his new role as UK MD.”

Tabak added: “I’m delighted to join the team at Naked Wines, a company that’s disrupting the wine industry for the benefit of consumers and independent winemakers. This is an exciting time as the company’s differentiated business delivers superior value to wine consumers in a large and growing online wine market, and I look forward to working with this strong team to create value for customers, employees, and shareholders.”

Elsewhere, retail tech firm Eagle Eye Solutions has issued a trading statement ahead of its AGM later this morning.

It said it has made a positive start to its new financial year, with highlights including the launch of the Pret a Manger coffee subscription service and winning the recently announced five-year contract with Woolworths Group, the largest retailer in Australia, underlining the enterprise capabilities of the AIR platform and underpinning the Group’s continued growth.

While COVID-19 has continued to impact revenue growth, the group nonetheless delivered revenue growth for Q1 of 11% on the prior year. The ongoing strategic management of the cost base and investment in line with revenue has resulted in a substantial increase in adjusted EBITDA profit for Q1 2021, comfortably in line with management expectations.

It said it continues to make positive progress in the US, with the planned expansion of the Southeastern Grocers implementation going well. The group is “encouraged by the increasing number of sales opportunities entering our pipeline”, both through direct marketing activities and via partners in the US.

Following the lifting of lockdown in the UK earlier this year, the group saw a partial recovery in food & beverage, non-grocery retail and brand revenues, which accounted for 10% of group revenue prior to COVID-19.

However, with new lockdown restrictions recently introduced, this segment of the customer base and revenue will continue to be impacted for some time.

While COVID-19 is likely to continue to impact on the Group’s F&B and Non-Grocery customer segment and new business discussions in the short-term, Eagle Eye said the global pandemic has prompted the acceleration of digital transformation in the retail sector and never has digital engagement with consumers been of more relevance.

“The news of a potential vaccine is extremely encouraging, for all of us on many levels, however, the Board will continue to ensure the business and Eagle Eye team are well protected until a more normalised environment returns,” the stated.

It said new customers and its foothold in the US and Asia Pacific are expected to drive accelerated growth in the remainder of the year, in line with management expectations.

On the markets this morning, the FTSE 100 has edged back 0.4% to 6,396.3pts following yesterday’s gains.

Early risers include Applegreen, up 12.7% to 338p, Ocado, up 3.2% to 2,260p and Premier Foods, up 2.5% to 93.4p.

Fallers include many of yesterday’s risers, including SSP Group, down 6.2% to 345.8p, WH Smith, down 5.6% to 1,400.5p and Nichols, down 5.1% to 1,153p. 

Yesterday in the City

The FTSE 100 started the week up 1.7% to 6,421.3pts as more encouraging news on a second coronavirus vaccine boosted global markets.

Those stocks worst hit during the crisis were amongst the biggest risers yesterday on hopes of a speedier than expected return to normality.

Travel food specialist SSP Group jumped 11.8% to 368.8p, WH Smith was up 9.7% to 1,484p, beer and wine producer and distributor C&C Group was up 9.4% to 205.5p, while fellow alcohol players Naked Wines and Diageo were up 5.9% to 482.5p and 4.6% to 3,037.5p respectively.

Fresh prepared foods players Bakkavor and Greencore were up 6.8% to 78.8p and 6% to 127.2p respectively.

Other risers included DS Smith, up 4.4% to 341p, Associated British Foods, up 4% to 2,058p, FeverTree, up 3.4% to 2,374p, Imperial Brands, up 3.4% to 1,402.5p, Britvic, up 3.3% to 867p and Compass Group, up 3.1% to 1,416p.

The day’s fallers included some of those boosted by the changed market dynamics during the coronavirus period, including Premier Foods, down 4.6% to 91.1p, Ocado, down 4.1% to 2,189p and Just Eat, down 3.3% to 8,134p.

Other fallers included Applegreen, down 6.3% to 300p, Hotel Chocolat, down 2,7% to 355p, Unilever, down 2.3% to 4,642p and Reckitt Benckiser, down 2.1% to 6,832p.