Imperial Brands' vaping efforts overshadow earnings miss

(Recasts; Adds comments from company, analyst, share activity)

By Martinne Geller

LONDON, Nov 7 (Reuters) - Imperial Brands (LSE: IMB.L - news) announced a step-up in its vaping strategy on Tuesday, including tests of tobacco-heating products, as the British tobacco firm tries to keep pace with larger rivals.

News of its expanded efforts sent shares up 2.5 percent by 0910 GMT, as investors shrugged off weaker-than-expected full-year profit, hurt by investments in brand-building.

Imperial said it would begin small-scale trials of products that heat, rather than burn, tobacco, dipping into a market where its larger rivals British American Tobacco (Kuala Lumpur: 4162.KL - news) , Philip Morris International (IOB: 0M8V.IL - news) and Japan Tobacco (Other OTC: JAPAF - news) International already play.

The maker of Gauloises and West cigarettes had so far only developed e-cigarettes, which use nicotine liquid, and said on Tuesday that despite the tests, e-cigarettes would remain its focus.

"It's important to maintain optionality on both oral tobacco and heated tobacco products because there may inevitably be scenarios in which it makes sense to launch one or both, but our focus is on e-vapour," said Imperial Chief Development Officer Matthew Phillips.

Imperial plans to launch three new vapour products, it said, and expand the number of markets from four now, to at least ten in fiscal 2018 and at least 20 in fiscal 2019.

"Planned launches of next-generation products, including heated tobacco trials, have been largely anticipated by the market – but are nevertheless likely to mitigate any disappointment over a 1.5 percent full-year 2017 miss at EPS (earnings per share) and operating profit level," said analysts at Investec Securities.

Net (LSE: 0LN0.L - news) revenue in the company's core tobacco business rose 8.2 percent to 7.76 billion pounds ($10.2 billion) in the year to 30 Sept, helped by the weakness of the British currency. Excluding currency, revenue fell 2.6 percent, as the company sold fewer cigarettes.

The company earned 267 pence per share.

Analysts on average were expecting revenue of 7.7 billion pounds and earnings of 270.8 pence per share, according to a company-supplied consensus.

The number of cigarettes Imperial sold last year fell 4.1 percent, but there was a marked improvement in the second half of the year, which saw a decline of 2.6 percent, better than the 4.5 percent decline seen by the broader industry. Imperial's sales volumes had fallen 5.7 percent in the first half. ($1 = 0.7605 pounds) (Reporting by Martinne Geller, editing by Louise Heavens)