Author: Taco Tuinstra

  • BAT Writes Down Value of Combustibles

    BAT Writes Down Value of Combustibles

    Photo: BAT

    BAT will write down the value of some of its traditional cigarette brands by £25 billion ($31.5 billion) to reflect the diminishing outlook for combustible tobacco products.

    The company said the charge—one of the biggest corporate write-downs in recent years—mainly relates to U.S. brands it acquired, as it assesses their carrying value and economic usefulness in the years to come. The brands being written down include Newport, Pall Mall, Camel and Natural American Spirit.

    The decline in U.S. cigarette sales has been driven not only by growing health awareness and mounting regulations but also by economic challenges, with consumers downtrading to cheaper brands or illicit products. These trends prompted BAT to adjust the way some of its U.S. brands are treated on its balance sheet, shifting their value to a finite lifetime of 30 years.

    Chief Executive Tadeu Marroco described the move as “accounting catching up with reality.”

    While he does not believe cigarettes will disappear in 30 years, he said it was no longer possible to justify an indefinite value for those brands equating to around $80 billion on BAT’s balance sheet.

    BAT added that it would start amortizing the remaining value of its U.S. combustibles brands in 2024, making it the first of the major cigarette players to acknowledge that its tobacco brands’ value had an expiry date.

    With only 10 percent of the world’s 1 billion smokers currently using ‘new category’ products, the long-term opportunity for growth as we deliver on our transformation is vast.

    While preparing for a future with lower cigarette sales, BAT reported strong volume and revenue growth from its “new category” products, such as e-cigarettes. Vuse’s value market share, for example, increased 100 basis points to 36.8 percent in key markets.

    On Dec. 6, BAT announced a new ambition to generate 50 percent of its revenues from noncombustibles by 2025. “With only 10 percent of the world’s 1 billion smokers currently using ‘new category’ products, the long-term opportunity for growth as we deliver on our transformation is vast,” said Marroco in a statement.

    The company expects its business from such “new categories” to break even in 2023, a year ahead of its current projection.

    BAT expects its full-year revenue growth to be at the lower end of its 3 percent to 5 percent range. It also expects low single-digit growth in revenue and adjusted profit from operations in 2024.

    “We will continue to reward shareholders through our strong cash returns, including our progressive dividend, and, once the middle of our leverage range is reached, we will evaluate all opportunities to return excess cash to our shareholders,” Marroco said.

    “I am confident that the choices we are making today will drive our long-term success and deliver sustainable value for all of our stakeholders.”

  • BAT Took Big Hit on Russian Sale: CEO

    BAT Took Big Hit on Russian Sale: CEO

    Photo: Matvey Salivanchuk

    BAT took a big hit from the sale of its Russian and Belarussian assets, according to CEO Tadeu Marroco, reports Reuters.

    During a Dec. 6  trading update, Marroco said that the proceeds received by BAT represent only a fraction of the Russian and Belarussian businesses’ true value

    In September, BAT sold the assets to a consortium led by its Russian local management team, ending an 18-month long process to exit the world’s fourth-largest cigarette market following Russia’s invasion of Ukraine.

    At the time, BAT did not disclose the sale price or whether the deal included a clause allowing the company to buy back the businesses at a later date.

    Marroco noted that the company was unlikely to exercise the sales contract’s buyback option because Russian authorities restricted this to two years.

    The company had already recognized £629 million pounds ($792.35 million) in impairments and associated costs related to the sale by the time the deal was announced

  • Court Urged to Permit U.S. Graphic Warnings

    Court Urged to Permit U.S. Graphic Warnings

    Image: FDA

    The U.S. Food and Drug Administration urged a federal appeals court to let a regulation requiring graphic health warnings on tobacco packaging and promotions take effect, a year after it was blocked by a lower court, reports Reuters.

    On Dec. 5, FDA representative Lindsey Powell told the 5th U.S. Circuit Court of Appeals that the images on the proposed labels are necessary because text-only warnings failed to deter teenagers from starting to smoke. The labels would include 11 graphic images, such as diseased feet with amputated toes, to illustrate the risks of smoking.

    The tobacco companies that challenged the regulation have argued that the graphic labels violate their right to free speech under the First Amendment of the U.S. Constitution by compelling them to make emotionally charged, controversial statements rather than mere facts like existing written labels stating that smoking can cause cancer.

    The Family Smoking Prevention and Tobacco Control Act of 2009 instructs the FDA to create visual health warnings, but the D.C. Circuit in 2012 blocked the agency’s first attempt, saying that regulators had not convincingly demonstrated that the warnings would actually reduce smoking.

    In March 2020, the FDA released the final rule requiring new graphic warnings for cigarettes that feature some of the lesser known but still serious health risks of smoking, such as diabetes, on the top half of the front and back of cigarette packages and at least 20 percent of the area on the top of cigarette advertisements.

    R.J. Reynolds Tobacco Co., ITG Brands and Liggett Group filed a First Amendment challenge in April 2020. The rule was set to take effect in November 2023 after it was repeatedly pushed back by court.

    In a lengthy opinion issued Dec. 7, 2022, U.S. District Judge J. Campbell Barker of the U.S. District Court for the Eastern District of Texas vacated the FDA’s rule after finding that the required label statements and graphic images are not narrowly tailored to the agency’s interest in promoting public awareness of the health risks of smoking.

  • Adult Vapers Rely on Flavors: Research

    Adult Vapers Rely on Flavors: Research

    Photo: Atlas

    New industry figures, collected by online vape retailers representing around 43 percent of the U.K. market, have revealed that significant numbers of older adults are users of disposable and flavored vapes, which are the focus of a government consultation to address the issue of youth vaping that will close on Dec. 6.

    The industry warns that any moves to ban single use vapes and flavors, which have been key drivers in the decline of smoking to record low levels in the U.K. over the last two years, will have catastrophic consequences for the nation’s public health and will effectively end any chance of creating a smokefree generation in the near future.

    The data collected from the last quarter sales by four of the country’s leading online retailers, representing nearly a quarter of the U.K. market, revealed that:

    • The most popular flavor category amongst middle-aged adults (35-44 and year olds) was “fruit” flavors, followed “treats and desserts”
    • Highest proportion of tobacco flavor use is in the over-55 age category
    • Menthol flavors and tobacco flavors are significantly less popular amongst middle-aged adults
    • The average age of adult disposable users is 39

    The latest adult vaping statistics follow a survey conducted by One Poll earlier this year, which revealed that 83 percent of vapers said that flavors helped them quit smoking, with one in three saying that a ban on them would lead them back to conventional cigarettes, which would represent around 1.5 million former smokers.

    Why should 4.5 million adults who have spent years trying to kick a habit that kills some 250 people a day, and have managed to do so through vaping, be at risk of having their lifeline taken away?”

    “These statistics show what we in the industry already know—that the very flavors and single use vapes that are now under scrutiny by the government as it looks to tackle youth vaping are a lifeline for former adult smokers,” said Dan Marchant, co-owner of online retailer Vape Club, which contributed to the demographic sales data.

    “The legitimate vaping industry completely recognizes the need to deal with youth vaping but it shouldn’t involve any wholesale bans, as this will affect the adults who depend on them. There is already a ban on vapes for under 18 year olds as it is illegal for retailers to sell devices to minors. That’s why the industry is calling for greater enforcement of the existing law, on-the-spot fines of up to £10,000 ($12,631) per offence and the introduction of a retail licensing scheme to weed out the rogue traders.”

    “Why should 4.5 million adults who have spent years trying to kick a habit that kills some 250 people a day, and have managed to do so through vaping, be at risk of having their lifeline taken away?” asked UKVIA’s Director General John Dunne.

    “If the government goes down the path of banning single use vapes and/or flavors a return to smoking amongst current vapers will be very much on the cards, bringing with it catastrophic consequences for the public health of the nation and wrecking any chances of the government’s smoke free ambition.  The only winners from any potential bans on the vaping industry are the tobacco industry and illicit markets, something that no one in their right mind wants to see.”

     

  • Poll: Adults Should be Allowed to Buy Tobacco

    Poll: Adults Should be Allowed to Buy Tobacco

    Image: auremar

    Almost three-fifths of people in Britain say that when people are 18 and legally an adult, they should be allowed to purchase cigarettes and other tobacco products, a new poll conducted on behalf of the smokers’ lobby group Forest has found.

    Conducted by Yonder Consulting, the survey found that 58 percent of respondents think that if a person can vote, drive a car, buy alcohol or possess a credit card at 18, they should also be allowed to purchase tobacco.

    Fewer than a third (32 percent) said they should not be allowed to purchase tobacco products when they are legally an adult at 18, while 10 percent said, “don’t know.”

    Excluding “don’t knows,” almost two-thirds (65 percent) think that when people are 18 and legally an adult they should be allowed to purchase cigarettes and other tobacco products.

    The poll comes on the final day for submissions to the government consultation on banning the sale of tobacco to future generations of adults born after 2008.

    The consultation ends Dec. 6 and Forest is urging the government not to introduce a generational ban on the sale of tobacco but to follow the example of the new center-right government in New Zealand which has announced that it will repeal a similar generational sales ban introduced by that country’s previous Labour government.

    Banning the sale of tobacco to future generations of adults is gesture politics by a prime minister who has run out of ideas and is desperate to leave a legacy.

    “As soon as you are legally an adult you should be treated like one and allowed to buy tobacco, if that’s your choice,” said Simon Clark, director of Forest.

    “We can’t have a two-tier society in which some adults are permitted to buy cigarettes, and others are denied the same opportunity.

    “Banning the sale of tobacco to future generations of adults is gesture politics by a prime minister who has run out of ideas and is desperate to leave a legacy.

    “It ignores the consequences for law-abiding retailers, who will have to enforce this absurd policy, and drives a stake into the heart of traditional Conservative values such as freedom of choice and personal responsibility.”

    The government consultation has also invited responses to proposals for further regulations on vaping products. Forest is urging the government to not ban disposable vapes, make vapes subject to excise duty, or restrict the promotion and display of vapes in shops.

    According to Clark, vaping has been a free-market success story. “Millions of smokers who want to quit have done so by switching voluntarily to e-cigarettes and other reduced risk products, including heated tobacco and nicotine pouches,” he said.

    “The issue of children vaping should be addressed not by imposing further restrictions on vapes but by enforcing existing age restrictions and punishing retailers who sell vapes illegally to children.”

  • U.S. Menthol Ban Could Be Pushed to Late 2024

    U.S. Menthol Ban Could Be Pushed to Late 2024

    Image: zatevakhin

    The expected ban on menthol cigarettes in the U.S. may be pushed to 2024, reports NBC.

    The delay could be announced by the Biden administration soon, according to officials from two national public health groups working to remove the products. The groups requested anonymity.

    The officials worry that the ban may be pushed as far as after the 2024 November presidential election. One official was “deeply concerned” that the ban wouldn’t be put into effect before the election.

    “Everything gets harder to do in an election year because people are distracted and bandwidth is stretched,” the official said.

    The White House has not commented on the potential delay.

    “The American Lung Association expects the White House to honor President Biden’s commitment to end cancer as we know it through the Cancer Moonshot,” said Erika Sward, assistant vice president for national advocacy at the American Lung Association. Sward said it can’t be achieved until the White House finalizes rules banning menthol products.

    “Removing these products from the market is backed by strong scientific evidence and hundreds of thousands of public comments from the public health community nationwide,” said Nancy Brown, chief executive officer for the American Heart Association. “The administration should not delay further in putting these rules into effect.”

    The Food and Drug Administration stated that finalizing the rules to ban menthol “remains a top priority.”

    “Final rules such as these go through an extensive rulemaking process, including agency review and consideration of public comments, development of the final rule and subsequent review by the Department of Health and Human Services and the White House Office of Management and Budget,” an FDA spokesperson said. The Office of Management and Budget has posted the final rules, which is considered the last step before the bans are finalized, according to NBC.

    “People are dying,” one official said. “This will save lives. We have the science and data to prove it. It is long past time to take these products off the market.”

    The Biden administration has been holding meetings with the tobacco industry and public health groups to discuss the issue.

  • Smoore Drops ‘Youth-Friendly’ Brands

    Smoore Drops ‘Youth-Friendly’ Brands

    Photo: Smoore

    Smoore will no longer partner with brands that use flavor names, packaging or product designs that are attractive to youth, the company wrote in a statement.

    The announcement comes ahead of the Dec. 6 closure of the U.K. government’s consultation on e-cigarettes.

    Smoore says it wants to help end the use of flavor names such as Cotton Candy, Gummy Bear, Watermelon Bubblegum and Blueberry Popsicle. Additionally, the company would like to see an end to the manufacturing and sales of “stealth products,” which are vaping products designed to mimic school supplies, toys, soft drinks or cartoon characters.

    Smoore has created a list of flavors that it considers youth-friendly and is also creating a vapor flavor detection squad to monitor the market for new flavors that could be considered appealing to youth.

    There is absolutely no place for any vaping product to look like a child’s toy, be shaped like a much-loved cartoon character or iconic children’s game or be filled with liquid called ‘Gummy Bear, Cotton Candy, Strawberry Milkshake or Starry Violet.

    “The vape industry represents the best chance the world has ever seen to eradicate deadly cigarettes, and we cannot allow this opportunity to be squandered,” Rex Zhang, Smoore’s strategy director, said. “Vaping was invented for this very purpose, and we need to ensure that it is focused on the adult smoking market.

    “There is absolutely no place for any vaping product to look like a child’s toy, be shaped like a much-loved cartoon character or iconic children’s game or be filled with liquid called ‘Gummy Bear, Cotton Candy, Strawberry Milkshake or Starry Violet.’”

    Every company under Smoore’s umbrella has been ordered to undertake a root and branch review to ensure that none of its products or customers on the OEM and ODM side of its business could be seen as producing youth-appealing products.

    The list of flavors so far includes Skittles, Rainbow, Cotton Candy, Donut, Gummy Bear, Bubblegum, Slushy, Starburst, Pink Pop, Ice Cream, Milkshake, Popsicle, Starry Violet, Reindeer, Snow, Christmas, Fruit Smash, Dr. Reptile, Sour Patch, Oreo and Jolly.

    If the company finds brand owners with products that Smoore deems to be child-friendly, Smoore will work with the company to take immediate corrective action; however, if no action is taken, Smoore could ultimately discontinue all cooperation with the brand.

    Smoore also suggests creating a “no-fly list” to be used by retail and distribution companies around the globe that lists the manufacturers of child-friendly products to prevent their products from being sold.

    Smoore is also urging more standardization of product sizes and shapes. The company believes standardization will help create faster “disassembly at waste treatment sites, helping to increase recycling rates of vapes.”

    The company is calling for every batch of disposable vapes and pre-filled pods to be randomly sampled for product compliance, with whole batches being rejected if any number of noncompliant products are identified.

  • Haypp Group Confirms Guidance

    Haypp Group Confirms Guidance

    Photo: Andrii

    The Haypp Group, a Swedish online retailer selling reduced-risk products (primarily nicotine pouches and snus in Scandinavia, Europe and the United States), confirmed guidance above consensus during its capital markets day on Nov. 28. The company’s stock was up 12 percent on the day.

    The Haypp Group, which has a market capitalization of approximately $140 million, expects to reach net sales of SEK5 billion ($478.54 million) by 2025 in its existing business through organic growth only. Expansion into adjacent categories and new markets will be “on top,” according to the firm.

    While Haypp Group will continue to prioritize top-line growth, it expects to reach a high single digit adjusted EBIT margin in the current core and growth markets business in 2025.

    To take advantage of its substantial revenue growth opportunities, and after its successful nicotine vaping pilot in the U.K., the Haypp Group plans to enter adjacent markets and reduced-risk product categories in Europe, reinvesting approximately 1 percentage point to 2 percentage points of adjusted EBIT margin through 2025.

    As the board and management team look beyond 2025 and the substantial cash generation, Haypp insists it will maintain its prudent custodianship of the group’s resources and return excess cash to shareholders.

    “We always put the consumer first,” said Haypp Group CEO Gavin O’Dowd in a statement. “We engage with them every day to understand their needs and desires, and we know them like no other actor in the industry. Our vision to ‘Inspire healthier enjoyment for millions’ motivates our team to provide attractive, materially lower risk nicotine options for consumers whilst simultaneously increasing our global presence.”

    The full presentation/webcast is here.

  • RLX Buys ‘Market Leaders’

    RLX Buys ‘Market Leaders’

    Photo: RLX Technology

    RLX Technology entered into two share purchase agreements with two target companies and their respective shareholders with a total consideration of approximately $25 million. The entry of the share purchase agreements for business acquisitions and the transactions contemplated thereunder have been approved by the company’s board of directors and audit committee.

    Each of the two target companies is a market leader in the vapor industry in their home countries, located in Southeast Asia and North Asia, respectively, RLX wrote on its website. The transactions contemplated under the share purchase agreements for business acquisitions are expected to facilitate the company’s international expansion in Southeast Asia and North Asia. The company also plans to continue its overseas expansion in the future.

  • A Mixed Reception

    A Mixed Reception

    Photos courtesy of Vladislav Vorotnikov

    E-cigarettes enjoy booming popularity in the CIS region—but not among lawmakers.

    By Vladislav Vorotnikov

    A meteoric rise in the popularity of vapes in Russia, Belarus, Ukraine and Kazakhstan is pushing the governments to act. Severe measures up to a complete ban are on the table in many markets, but the looming risks of black market expansion prevent the authorities from hustling moves.

    As of March 1, 2024, selling flavored vapes will be illegal in Russia, according to a draft government decree.

    Among the additives due to be banned are vanilla, spices, ginger, cinnamon and sweeteners along with caffeine, guarana and taurine, which increase energy and mental and physical performance.

    No matter whether the measure will come into force, the end of the anti-vape campaign in Russia is nowhere in sight. In October 2023, a bill altogether banning selling vapes in the country was tabled in the Russian Parliament. 

    The bill was originally prepared two years ago and has recently been resubmitted by lawmakers, Yaroslav Nilov, a member of State Duma, the lower chamber of the Russian Parliament, stated.

    “We realize that the ban means certain lost revenues, but the health of citizens is more important, so we will strive to make the ban real,” Nilov commented.

    Restrictive measures against selling vapes are easily being circumvented by unscrupulous sellers in Russia, the lawmakers said in an explanatory note to the bill, referring to the law prohibiting selling vapes and e-cigarettes to customers below 18 years, which came into force earlier in 2023.

    In addition, the Russian government now struggles to ban selling vapes through the internet. In November 2023, it was disclosed that a Russian regulator seeks to close 250 online stores selling such products. These efforts have gained little traction so far. 

    Russian authorities are not alone in the CIS region in their vaping crackdown. In July 2023, the idea of banning all forms of e-cigarettes was put forward by the Youth Parliament of Belarus, a public organization designed to raise future lawmakers.

    In July 2023, a Kazakhstan government commission hammered out a recommendation to prohibit selling e-cigarettes, liquids and vape flavors, though no concrete timeframe for the measure to come into force has been disclosed yet.

    Again, potential harm to the health of the citizens has been cited as the primary rationale behind the initiative.

    “The harm of vaping is undeniable,” Nurgul Tau, deputy of the Kazakh Majilis, the lower chamber of the Kazakh Parliament, said, emphasizing that the Health Ministry had been advocating the prohibition on selling vapes since 2021.

    Ukraine is the only country in the CIS region where a ban on selling vapes and e-cigarettes has already been put into place.

    The idea of banning vapes has been brewing in the Ukrainian Verkhovna Rada, the national Parliament, for the past few years. Retailers and tobacco companies urged the authorities to consider alternative options, including partial restrictions, but the legislators appeared to be adamant about banning vapes.

    A Booming Market

    Public discussions about banning vapes in the post-Soviet area have been spurred by a skyrocketing rise in sales in the past few years.

    In 2022, the Russian market of single-use vapes has nearly tripled, NielsenIQ, an international consultancy, estimated without providing concrete figures. Companies operating in this segment saw their revenues rise by about 350 percent.

    Between 2018 and 2021, the Russian vaping market expanded by a factor of 50, estimated an alliance of participants of the electronic nicotine-delivery systems market. Last year, the sales were nearly RUR250 billion ($2.5 billion).

    The scale of the market boom can be seen with the naked eye. While in 2021, only 7 percent of tobacco stores sold vapes, by May of 2022, this figure reached 35 percent, NielsenIQ said. Another study indicated that at the beginning of 2023, the number of stores selling vapes in Russia was equal to that of conventional tobacco products.

    The picture is similar on the neighboring markets. Since 2020, sales of vapes in Kazakhstan jumped by a factor of 300 times, the Kazakh finance ministry estimated.

    In Ukraine, the state budget collected UAH2 billion ($55.6 million) from the companies selling vapes, calculated Yuri Suptel, head of the Ukrainian Vaping Association. In 2023, this figure was projected to reach UAH5 billion, but the actual figure will be much lower due to the ban that came into force in July.

    Over the past few years, nearly 1 million Ukrainian smokers “migrated” to vapes, so the restrictions will be quite painful for a large number of customers, Suptel estimated.

    Time for the Black Market

    Ukrainian retailers have largely ignored the government ban on vapes imposed in July, local press reported, showing numerous pictures of tobacco stores selling vapes after the restrictions were enacted.

    Since August 2023, the black market of vapes has been flourishing in Ukraine, Suptel said, estimating that smugglers illegally delivering vapes to Ukraine from neighboring countries earn around UAH500 million per month.

    “In the shadow market, it is impossible to ensure compliance with the laws that regulate the sales of cigarettes, electronic devices and other tobacco products. For example, the access of minors to nicotine products is not limited. The National Police of Ukraine must fight this phenomenon. But unfortunately, they simply do not have enough resources,” Suptel admitted.

    “We hope that the government and members of the parliament will think about the absurdity of the ban and make the right decision,” Suptel added.

    The risk that the ban will push the entire vape market underground is believed to be one of the key reasons why Kazakhstan is not rushing to implement the restrictions.

    “I’m sure that our deputies, due to their naivety or bias, will ban vapes eventually. In a year or two, we will come to the point where this ban will have to be lifted,” commented Dmitry Zhukov, executive director of the QazSpirits Ale, a local vaping company.

    It is one thing to ban a product that is difficult to import into the country and challenging to make and entirely another to ban vapes, which “any schoolchild can assemble on his knee,” Zhukov said.

    Currently, Kazakhstan companies selling vapes have no plans to curtail their activities, even if the ban gets a green light. They explained that the demand on the market is not likely to be affected. On the other hand, when the entire market moves underground, there will no longer be a need to pay excise fees, according to Zhukov.

    Russia would lose RUR38 billion per year in tax revenue from a ban on vapes while the black market is going to flourish, reaching RUR500 billion to RUR600 billion in annual sales, calculated Dmitry Vladimirov, head of the Union of Enterprises of the Industry of Nicotine-Containing Products.

    “Significant losses of the Russian budget in such a difficult geopolitical situation, the growth of the black market, and the rising number of deaths due to the use of counterfeit products are just the tip of the iceberg [Russia will face],” Vladimirov stated.

    In the countries that opted to ban e-cigarettes, their illegal sales skyrocketed by a factor of 200 to 300, Vladimirov estimated.

    Russia analysts also pointed out that the black market of vapes will find itself on fertile ground as illegal sales of conventional tobacco products still exist in the country, especially in the provinces remote from Moscow. This business is doing well and even growing despite the government’s efforts to take it down, and there are reasons to believe that the ban will only buttress it.

    Production Perks Up Despite Uncertainty

    While all countries in the region are primarily importing vapes, there are signs that local production is also on the rise.

    “The industry could develop under the balanced control of the state; some operators, for example, planned to start producing such products on the territory of Ukraine, contribute to the economy through exports, help GDP growth [and] create jobs,” Suptel said.

    However, even if the ban is removed now, it will take time for the market players to reconsider their plans, owing to high uncertainty about the legal status of this business, according to him.

    Some capacities for producing e-cigarettes are being established in Russia, though the lion’s share of the sold products still comes from China.

    One local publication wrote about an entrepreneur who managed to earn RUR90 million in one year, investing a relatively small amount of money into the production of vapes. On the other hand, most vape manufacturers prefer to keep a low profile. One possible reason is that some plan to continue operations when the ban is enforced.