Imperial Brands expects alternatives to smoking such as vaping pens and a heated tobacco device to add up to £1.5 billion (€1.7 billion) to its revenues by 2020, the British tobacco company said on Tuesday.
Tobacco companies are increasingly relying on so-called new generation products (NGP) for growth as demand for traditional cigarettes declines.
New Generation Products
Regulators are watching the new products closely, with some viewing them as a healthier alternative to smoking that could help addicts to quit, but others worried about creating a new generation hooked on nicotine.
Imperial, the maker of Gauloises, Kool and Winston cigarettes, made its forecast ahead of an event on Tuesday that it said would focus on its NGP business.
The company, which made net revenues of £7.8 billion (€8.7 billion) in its core tobacco business in 2017, also said it expected full-year results in line with forecasts.
"Our NGP ambitions are reflected in our management incentives to deliver compound annual revenue growth of 35-150% over the three years to FY20", the company said in a statement. It added the NGP business could begin to contribute to total profit by the end of its 2019 financial year.
Imperial's shares were up 1.7% in early trading.
The company has been rolling out new vaping devices as part of its blu e-cigarette brand. It is also unveiling a new device called Pulze, which heats tobacco rather than burning it like traditional cigarettes. That will compete with similar devices from rivals BAT and Philip Morris.
While traditional cigarette sales volumes are declining, Imperial said its tobacco volumes would outperform the industry in the second half of its financial year, though much less than in the first half.
"Imperial is our top pick in tobacco and currently trades on trough multiples as the group nears the end of its multi-year transformation into a focused brand builder," Liberum analysts said in a note, adding the company had the intellectual property, people and brands to take share in the fast-growing vaping market.
Imperial has estimated the e-cigarette market could exceed $30 billion (€25.6 billion) by 2020, up from around $4 billion now. Earlier this summer, Imperial launched a product called myblu, in reaction to the popularity of U.S. upstart Juul.
The company also said its divestment plan was on track and progressing well. In May, Imperial said it planned to sell assets to streamline its business and was targeting proceeds of up to £2 billion (€2.2 billion) within 12 to 24 months.
Imperial said it expected to slightly exceed its cost savings goal of £100 million (€112 million) and that exchange rate moves would dent full-year earnings by about 3%.
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