Author: Staff Writer

  • Moody’s: Tobacco Has High Social Credit Risk

    Moody’s: Tobacco Has High Social Credit Risk

    Illustration: Moody’s

    With $175 billion of rated debt, the tobacco industry has a high “social credit risk,” according to a new analysis by Moody’s Investors Service analyzing 82 global sectors.
     
    “While combustible tobacco’s health dangers are the main reason for the sector’s high social credit risk, other drivers include customer relations, responsible production and demographic and societal trends,” said Roberto Pozzi, Moody’s senior vice president and author of the report.
     
    Alternative products, he added, may help offset the negative credit impact of social risks.
     
    Last week, Moody’s kicked off its 14-part series on social risks impacting credit in high-risk sectors with a look at the global gaming industry. The series examines the credit impact of social issues in multiple industries with roughly $8 trillion in combined rated debt.

  • Pyxus International Files For Chapter 11

    Pyxus International Files For Chapter 11

    Photo: Darren4155 | Dreamstime.com

    Pyxus International announced today that it and its subsidiaries, Alliance One International, Alliance One North America, Alliance One Specialty Products and GSP Properties, have filed voluntary petitions for relief under Chapter 11 of the U.S. bankruptcy code in the U.S. Bankruptcy Court for the District of Delaware as part of a “prepackaged” Chapter 11 Case.

    In connection with the filing, the company entered into a restructuring support agreement (RSA) with noteholders holding more than 92 percent in principal amount of the company’s first lien notes and more than 67 percent in principal amount of its second lien notes. In addition, the company’s receivables financing lenders and certain key foreign lenders have granted waivers and amendments under their respective facilities, demonstrating significant global financial support for the company.

    Under the terms of the RSA, Pyxus’ second lien noteholders will convert approximately $635 million of the company’s debt into equity or cash, and its first lien noteholders will, among other things, extend the maturity date of their existing notes by four years. To implement the financial restructuring contemplated under the RSA, the company commenced solicitation of a prepackaged Chapter 11 plan of reorganization and thereafter filed for Chapter 11 to restructure its debt and delever its balance sheet.

    The prepack plan contemplates that all outstanding shares of Pyxus common stock and rights to acquire Pyxus common stock will be cancelled and each holder of outstanding Pyxus common stock will be entitled to receive its ratable share of $1 million in cash provided that such holder does not opt out of the third-party releases contained in the prepack plan or object to the prepack plan.

    The Chapter 11 process does not include the company’s international subsidiaries or affiliates and Pyxus anticipates continuing to operate its worldwide operations in the ordinary course during the proceeding as it restructures its balance sheet. The terms of the restructuring contemplate paying, among others, all vendors and foreign lenders, in full.

    In addition, Pyxus has secured commitments for a $206.7 million debtor-in-possession financing facility (DIP facility) from certain existing noteholders. Proceeds from the DIP facility will be used to refinance the company’s existing asset-based revolver, for working capital and general corporate purposes, and to pay expenses incurred in connection with the Chapter 11 cases. Subject to court approval, the DIP facility, combined with the company’s projected cash flows, are expected to provide liquidity to support its operations during the restructuring process, allowing the company to emerge with a strengthened balance sheet to complement its operations and future growth plans.

    “This agreement with our noteholders represents a significant milestone in the ongoing process to transform our business as we continue to focus on driving long-term, sustainable growth and greater efficiency,” said Pieter Sikkel, Pyxus’ president and CEO. “We will continue to provide our customers with the quality products and services they are accustomed to without interruption and work with our business partners throughout the Court-supervised process. We also expect there will be no impact to vendors. As we look to quickly re-emerge from this process, we expect to be a stronger company, better able to execute on our long-term strategy and positioned for long-term growth and success.”

    Simpson Thacher & Bartlett is serving as legal counsel, and Lazard and RPA Advisors are serving as financial advisors to Pyxus.

  • Reintroduction of Zim Dollar Dampens Cigarette Sales

    Reintroduction of Zim Dollar Dampens Cigarette Sales

    Zimbabwe’s previous currency was rendered worthless by hyperinflation.
    Photo: Taco Tuinstra

    The reintroduction of the Zimbabwean dollar late last year has taken a toll on legal cigarette sales, reports New Zimbabwe.

    Market leader British American Tobacco experienced a 17 percent drop in sales for the fiscal year that ended Dec. 31, 2019. The company attributed the decline to the weakening of the Zimbabwe dollar, which has eroded disposable incomes and forced people to cut down on smoking.

    “It was a challenging year for the business mainly driven by significant changes to the macroeconomic policies and in particular, the introduction of the Zimbabwe dollar that was floated against the U.S. dollar,” said company Chair Lovemore Manatsa.

    Manatsa said the local currency devalued against major trading currencies further impacting consumer disposable incomes, which saw inflation increasing to 521 percent by the end of December 2019.

    Zimbabwe replaced its currency in 2009 with the U.S. dollar to stop hyperinflation. In November 2019, Zimbabwe’s central bank reintroduced the currency to ease a severe cash shortage, but the new Zimbabwe dollar too is quickly losing value.

  • Australian Regulator Rejects Tobacco Heating Products

    Australian Regulator Rejects Tobacco Heating Products

    Photo: PMI

    Australia’s Therapeutic Goods Administration (TGA) on June 10 in an interim decision rejected a request by Philip Morris Australia to adjust nicotine regulations in a manner that would allow the company’s heat-not-burn product (HTP) reach store shelves.

    Currently, only combustible tobacco products such as cigarettes and cigars are permitted to be sold in Australia.

    Philip Morris (PM) spokesperson Simon Breheny called the decision disappointing. “It puts Australia at odds with many other countries who have decided to regulate heated-tobacco and smoke-free alternatives,” he said.

    “The right decision was made,” said Becky Freeman, a researcher from Sydney University’s School of Public Health. “They [HNB products] are not some miracle product that reduces smoking.”

    While Breheny noted that PM will not challenge the interim decision, he maintained that a regulatory mechanism is the appropriate way forward. “People who are looking for these alternatives will continue to make the case for why they are important,” he said.

    The TGA is scheduled to release its full final decision in August.

  • Industry Outlook ‘Stable,’ Says Moody’s

    Industry Outlook ‘Stable,’ Says Moody’s

    Photo: Tobacco Reporter archive

    After declining in 2020, the global tobacco sector’s operating profit will likely rebound in 2021, with growth of between 5 percent and 10 percent next year, according to Moody’s.  

    In a new report, the business and financial services company assesses the outlook for the tobacco industry in an unprecedented business environment. Key findings include:

    • Long-term impact of coronavirus on consumption too early to gauge. Tobacco sales could decline because of reduced demand or because consumers switch to lower priced products. But it could also speed up the move to alternative products, accelerating the industry’s transformation. Regulations may become increasingly restrictive, or regulators might delay developing risk-proportionate regulatory frameworks.
    • Leverage ratios will continue to improve despite high dividend payouts and economic slowdown. Dividends will remain high and absorb most operating cash flow. However, Moody’s analysts expect companies to use free cash flow and available cash balances to repay pending debt maturities.
    • Operating profit to decline in 2020 but rebound in 2021, keeping outlook stable. Despite increased uncertainty caused by the coronavirus pandemic, Moody’s analysts expect demand to remain fairly stable in the next two years. Some moderate risks include volume declines in duty-free sales, slower conversion of adult smokers to alternative products, manufacturing and supply chain disruptions and increased currency volatility.
    • Cigarette sales volumes to keep falling but price rises still offset the impact. Traditional cigarette volumes will decline around 5 percent-6 percent in the U.S. and 2 percent-3 percent in the rest of the world excluding China during the next 12-18 months. But mid-single-digit percent price increases will continue, and this will more than offset volume declines.
    • Alternative products sales growth to continue despite more regulatory scrutiny. Moody’s analysts expect alternative products sales growth to slow this year but gradually resume into 2021. Alternative products’ market share will remain stable near term because tighter regulatory scrutiny of vaping and the temporary closure of IQOS stores during the lockdowns may impact user acquisition. Increasing regulation will create a barrier to entry and entrench incumbents’ market positions.
  • Stanton to Chair Imperial Brands’ Audit Committee

    Stanton to Chair Imperial Brands’ Audit Committee

    Jon Stanton | Photo: Imperial Brands
    Karen Witts

    Karen Witts has decided to step down as chair of the audit committee and as a non-executive director of Imperial Brands effective June 15, 2020.

    Jon Stanton, who has been a member of the audit committee since May 2019 and has the required relevant financial experience, will succeed Witts as chair of the audit committee.

    “I would like to thank Karen for her significant contribution to the board and its committees over the past six and a half years and wish her well in the future,” said Imperial Brands’ Chair Therese Esperdy.

  • Massachusetts Flavor Ban Boosts Out-of-State Sales

    Massachusetts Flavor Ban Boosts Out-of-State Sales

    Photo: Borgwaldt Flavor

    Tobacco sales in Massachusetts convenience stores are down less than a week after the state’s ban on flavored tobacco took effect, reports CSP Magazine. However, tobacco sellers in neighboring states are reporting an uptick in business.

    On June 1, Massachusetts restricted the sale of flavored combustible cigarettes and other tobacco products—including menthol cigarettes and flavored chewing tobacco—to licensed smoking bars where they can be sold for on-site consumption.

    “We’re down double digits in menthol cigarettes,” said Leo Vercollone, CEO of VERC Enterprises, a retail convenience store/gasoline and carwash group operating in Massachusetts and southern New Hampshire.

    Cigarette and other tobacco product sales were down about 12 percent at his Massachusetts stores compared to last year, Vercollone said. However, in the first few days of June, tobacco sales at two of his stores on the New Hampshire border were up about 40 percent, he said.

    Tobacco sales make up about 15 percent to 30 percent of in-store revenue for c-stores, and menthol sales typically make up about 34 percent of tobacco sales—and more in minority communities and cities, said Jonathan Shaer, executive director of the New England Convenience Store & Energy Marketers Association.

    The effects of the ban, coupled with the devastating effects of Covid-19 on the economy, could mean 800 or more c-stores will permanently close within months, Shaer estimates.

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  • Marc Firestone to Retire; PMI Appoints Successor

    Marc Firestone to Retire; PMI Appoints Successor

    Marc Firestone | Photo: PMI
    Suzanne Rich Folsom
    Photo: Manatt, Phelps & Phillips

    Philip Morris International (PMI) has appointed Suzanne Rich Folsom to the position of senior vice president and general counsel, leading legal, ethics and compliance, effective July 1, 2020. She succeeds Marc Firestone, who will retire later this year. Since January 2018, Firestone has held a dual role at PMI: president, external affairs and general counsel. He will continue to lead the company’s external affairs function until a successor is appointed.

    Folsom comes to PMI from Manatt, Phelps & Phillips, where she co-chaired the investigations, compliance, and strategic response group and was a member of the government & regulatory and cyber & privacy groups. Before that, she was the general counsel, chief compliance officer, and senior vice president, government affairs and global public policy at United States Steel Corp. Previously, she held leadership positions with a number of global entities, including AIG, ACADEMI and the World Bank, and served in key roles for several heads of state and their families. Folsom holds degrees from Georgetown University Law Center and Duke University.

    In her new position based in Lausanne, Switzerland, Folsom will report to PMI CEO Andre Calantzopoulos. Leading the legal, ethics and compliance teams, she will be an ambassador for the company across legal and regulatory environments; influence conversations aimed at creating a climate of change for better consumer choice as the company drives forward with its smoke-free transition; serve as counselor to PMI’s executive leadership team, board of directors, and other leaders; and build support for appropriate, risk-proportionate regulatory frameworks, among other functions.

    “Suzanne Rich Folsom comes to us with a reputation as one of the most highly regarded and experienced general counsels and compliance and corporate governance specialists, having operated in very complex business environments,” said Calantzopoulos.

    “Together with the board and our senior leadership, I extend enormous gratitude to Marc Firestone for all he has done for PMI,” he added. “A diplomatic statesman beyond compare, Marc has been the external face of PMI, serving as the embodiment of our ethical values and liaising with governments and regulators to inject common sense into the debate around tobacco.”

  • Turning Point Buys Assets From Durfort and Blunt Wrap

    Turning Point Buys Assets From Durfort and Blunt Wrap

    Photo: Pete Linforth from Pixabay

    Turning Point Brands (TPB), a provider of “other tobacco products” and adult consumer alternatives, has acquired tobacco assets and distribution rights from Durfort Holdings and Blunt Wrap USA for $46 million.

    Durfort is the long-time supplier of TPB’s make-your-own cigar wrap products. The transaction combines Durfort’s and Blunt Wrap USA’s intellectual property and manufacturing know-how with TPB’s Zig-Zag MYO cigar wraps brand and national distribution.

    “We are pleased to enter into this transaction with our business partner,” said Larry Wexler, TPB president and CEO. “In addition to the immediately accretive financial benefits, the transaction secures long-term control of our Zig-Zag MYO cigar wrap products and provides us access to a deep portfolio of tobacco products with significant immediate and future strategic value. This solidifies our current market position and provides a base for accelerated expansion with novel and leading-edge products.”

    Through this transaction, TPB acquires co-ownership in the intellectual property rights of all Durfort’s and Blunt Wrap’s homogenized tobacco leaf cigar wraps and cones. The acquisition eliminates current royalty-related expenses on HTL cigar wraps and cones, providing for expanded margins. TPB will also enter into an exclusive master distribution agreement to market and sell the original Blunt Wrap cigar wraps brand in the USA. The master distribution agreement is expected to be effective in the next 120 days, adding complementary access to difficult-to-reach alternative channels.

    “This partnership between Durfort and Turning Point Brands has been highly successful in introducing innovative products to the other tobacco products space,” said Danny Sinclair, founder of Durfort and Blunt Wrap USA. “Durfort looks forward to continuing to work with TPB in bringing exciting new alternative products to adult consumers and in expanding distribution of the Blunt Wrap brand through TPB’s nationwide distribution network.”

  • PMI Presents at Deutsche Bank Conference

    PMI Presents at Deutsche Bank Conference

    Jacek Olczak | Photo: PMI

    Philip Morris International (PMI) says it is on-track to deliver second quarter reported diluted earnings per share toward the upper end of its previously communicated range of $1 to $1.10. The forecast includes an unfavorable currency impact, at prevailing exchange rates, of approximately $0.07 per share compared to an unfavorable impact of approximately $0.12 per share communicated previously.

    The forecast assumes a currency-neutral net revenue decline—wholly attributable to Covid-19-related factors—around the high end of the company’s previously communicated decline range of 8 percent to 12 percent.

    According to PMI, this primarily reflects industry cigarette volume declines at the high end of the company’s initial estimates due to stricter or longer lockdowns in certain Latin America and EU markets during April and May. PMI has observed, however, better-than-anticipated IQOS performance and, in recent weeks, signs of recovery for combustible products.

    The forecast also assumes no disruption in the company’s ability to supply its customers based on its current operations and inventory levels.

    PMI Chief Operating Officer Jacek Olczak and Chief Financial Officer Emmanuel Babeau address investors today at the Deutsche Bank Global Consumer Conference. An archived copy of the call will be available at http://www.pmi.com/2020deutschebank until 5 p.m. Eastern time on July 10, 2020.

    The company will issue its 2020 second-quarter results on July 21.