Imperial Brands Prepares Strategy to Deal With Investors

(Bloomberg) -- Even before Imperial Brands Plc’s profit warning, the tobacco company was discussing a confidential report that criticizes its presentation of financial information following investor complaints.

The company has become a target of shareholder ire after losing more than half its value since a 2016 peak. Investors and analysts have voiced concerns about Imperial’s earnings calculations and its strategy, including its commitment to small, local brands such as West and Gauloises at a time when many smokers are shifting away from cigarettes.

The report, by financial communications adviser Tulchan, argues for more financial transparency. A spokesman for the tobacco company confirmed the existence of the report and said its recommendations will be taken into account when Imperial reports full-year results Nov. 5.

“Tulchan’s stakeholder audit was welcomed by the board,” he said. Tulchan declined to comment.

Imperial is not alone in feeling the effect of a U.S. crackdown on vaping following a mystery illness, but the company suffered a particularly hard blow with its profit warning. The 13% drop in its share price Thursday, which wiped out almost 2.6 billion pounds ($3.2 billion) of market value, heaps more pressure on Chief Executive Officer Allison Cooper.

On Friday the shares fell a further 2.4% in early London trading.

Owen Bennett, an analyst at Jefferies, said it’s difficult to get investors interested in buying the stock.

“In our previous conversations when expressing our optimism about Imperial, the pushback a number of times has been, ‘Yes, but I can’t get involved as Imperial finds a way to let you down every time,”’ he said in a note.

Chairman’s Departure

Chairman Mark Williamson in February announced plans to step down after 18% of shareholders opposed his re-election at the company’s annual general meeting. Earnings growth has ground to a halt as the company has struggled to keep up with rivals expanding in vaping and now faces the backlash from regulators and consumers over new alternatives to cigarettes.

In June, Liberum analyst Nico von Stackelberg slammed Imperial’s earnings calculations, saying the company includes non-operational factors such as gains from asset sales and uses profit as a factor in setting executive bonuses.

Von Stackelberg also expressed concerns about Imperial’s limited development in next-generation products and investors’ demands for clearer financial reporting. The analyst said Imperial is one of the most attractive investment opportunities in consumer staples if only it would revamp its strategy.

Imperial also faces competition as it seeks a new chairman to succeed Williamson, as larger rival British American Tobacco Plc is also planning to replace Chairman Richard Burrows.

--With assistance from Lisa Pham.

To contact the reporter on this story: David Hellier in London at dhellier@bloomberg.net

To contact the editors responsible for this story: Aaron Kirchfeld at akirchfeld@bloomberg.net, Eric Pfanner

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