Category: News This Week

STG Changes Financial Reporting Structure

Photo: STG
To increase speed to market and unlock synergies, Scandinavian Tobacco Group on May 19, 2020, announced a new organizational structure with three new commercial divisions. To align financial reporting with the new organizational structure and ensure consistency with internal management reporting, the group has now revised its external reporting structure accordingly.

The three divisions are North America Online & Retail, North America Branded & Rest of World and Europe Branded.

Division North America Online & Retail includes direct-to-consumer sales of all product categories sold via the online, catalogue and retail channel in North America.

Division North America Branded & Rest of World includes sales of all product categories to wholesalers and distributors that supply retail in the United States, Canada, Australia, New Zealand, international sales (Norway, Finland, Switzerland, Israel and Russia), Asia, global travel retail and contract manufacturing for third parties.

Division Europe Branded includes sales of all product categories to wholesalers and distributors that supply retail in Germany, Denmark, Sweden, France, Italy, Belgium, the Netherlands, Luxembourg, Spain, Portugal as well as the United Kingdom and Ireland.
STG recently raised its full-year guidance. The group will announce its 2020 second quarter results Aug. 28, 2020.
August 18, 2020
PMI Pays Fine in Anti-Competition Case

Photo: Taco Tuinstra
Philip Morris International (PMI) has paid a UAH1.18 billion ($66.07 million) fine imposed by the Antimonopoly Committee of Ukraine (AMCU), reports Interfax-Ukraine.
In October 2019, the AMCU imposed a UAH6.5 billion fine on four international tobacco companies and their local distributor, Tedis Ukraine, for alleged anti-competitive behavior. The agency said the country’s leading tobacco companies and their common distributor, TEDIS, had conspired to keep new businesses from entering the market. However, critics said the AMCU helped bring about the current situation by permitting Tedis Ukraine to acquire several key distribution companies.
The companies appealed the decision at the Economic Court in Kiev but lost. Last week, the American Chamber of Commerce (ACC) in Ukraine expressed concern about the fairness of the trial, saying the defendants had not been given full access to the evidence on which the AMCU based its allegations.
The ACC cautioned that the international publicity associated with the case could negatively impact Ukraine’s image among foreign investors.
Since 1994, PMI has invested more than $370 million in the production and distribution of cigarettes and commercialization of reduced-risk products in Ukraine.
In 2016, Ukraine became the seventh market where PMI launched sales of IQOS tobacco-heating systems. The company employs more than 1,300 people in Ukraine.
August 18, 2020
South Africa Lifts Tobacco Ban

Photo: David Carillet – Dreamstime.com
Consumers will be able to legally purchase tobacco products in South Africa again this week, President Cyril Ramaphosa announced on Saturday.

Sales of tobacco products and alcohol have been banned since March 27 as part of a nationwide lockdown to stem spread of the coronavirus. Alcohol sales were prohibited to ease pressure on hospitals, allowing doctors in emergency wards to focus on Covid-19 rather than road accidents and other alcohol-related injuries. Tobacco products were restricted because of the health impacts of smoking as well as the risk of contamination between people sharing cigarettes.

Despite the announcement, the Fair-Trade Independent Tobacco Association (Fita), which represents seven local cigarette makers, said it would continue its legal challenge of the ban. The organization wants to prevent the government from being able to reinstate the tobacco product ban should cases of Covid-19 spike again.

Another reason for Fita to continue the case is cost. The organization’s legal challenge was initially dismissed by the High Court, but on Saturday the Supreme Court of Appeal (SCA) granted Fita permission to appeal that ruling. In its decision, the SCA temporarily set aside the costs order currently against Fita. Should Fita discontinue the case, the costs order would be reinstated, leaving the association liable for millions in legal fees.

South Africa’s tobacco sales ban has been controversial. Tobacco product manufacturers have questioned the science behind the measure, arguing that a short-term ban on a product whose health risks become evident only in the long run makes no sense. They also questioned the rationale of the argument around cigarette sharing. Tobacco shortages and high prices of black market cigarettes would only increase the likelihood of smokers sharing their “stompies,” the tobacco companies said.

A separate challenge mounted by British American Tobacco’s (BATSA) hinges on the ban’s unconstitutionality. Lawyers for the company told the Western Cape High Court that the harm caused by the ban far outweighs the benefits to the public health system. BATSA advocate Alfred Cockrell argued that the ban violates the rights of consumers and the right to free trade. He also questioned the argument that smoking could result in a severe form of Covid-19.

Fita says the ban has devastated South Africa’s tobacco sector. The association is reportedly considering seeking reparations for the millions of rand of income lost by tobacco traders during the lockdown.

Cooperative Governance and Traditional Affairs Minister Nkosazana Dlamini-Zuma accused the cigarette industry players of being motivated purely by its financial interests.
August 17, 2020
Beyond Tobacco Batch Sells Out in 72 Hours

Photo: Taat Lifestyle and Wellness
A test market batch of Beyond Tobacco cigarettes sold out within 72 hours after the selected stores began selling the products, according to its manufacturer, Taat Lifestyle and Wellness.

In July 2020, Taat undertook a test production run for Beyond Tobacco cigarettes with its manufacturing partner. An allocation of the batch from this test production run was reserved for market research purposes, with the balance to be offered to select retail stores in Nevada, USA.

Less than 72 hours after the selected stores began selling Beyond Tobacco cigarettes, their inventories had sold out at price points aligned with the company’s planned pricing strategy. According to Taat, purchasers provided positive feedback about Beyond Tobacco cigarettes and expressed enthusiasm about the planned product launch in the fourth quarter of 2020.

“One advantage we have is that Beyond Tobacco cigarettes are a completely intuitive product for anybody who smokes tobacco. There’s nothing to learn and nothing to adapt to—it’s something you use exactly the same way you would use a tobacco cigarette,” said Taat CEO Setti Coscarella.

“The product essentially sells itself because of this, which I believe is precisely why the Nevada retailers who participated in the second iteration of retail market testing managed to sell out of Beyond Tobacco cigarettes in less than 72 hours despite being a new product with no advertising or promotion done to date.”
August 17, 2020
Spain Restricts Smoking in Pandemic Fight

Photo: javier alamo from Pixabay
Facing a new wave of Covid-19 infections, Spanish authorities have prohibited smoking outdoors in cases where social distancing cannot be guaranteed.

The new standards would allow people to continue smoking outdoors if they can maintain two meters of distance between people. “The best thing is never to smoke neither in the public space nor at home,” said Health Minister Salvador Illa.

Earlier last week, Galicia and the Canary Islands already imposed coronavirus-related curbs on smoking after experts recommended the measure to the regional government.

The move is supported by health ministry research outlining the link between smoking and the increased spread of coronavirus. It said the risk was heightened because people project droplets—and potentially Covid-19—when they exhale smoke.

It also said smokers risked infection in other ways, such as by touching their cigarettes before bringing them to their mouths and by handling face masks when taking them on and off.

Spain faces the worst infection rate in western Europe. Daily cases have risen from fewer than 150 in June to more than 1,500 throughout August. It recorded 1,690 new cases in the latest daily count on Wednesday, bringing the country’s total to almost 330,000.
August 17, 2020
Industry Accused of Profiting from Ban

Photo: Tobacco Reporter archive
Tobacco companies have profited handsomely from South Africa’s ban on tobacco sales imposed by the government in response to the Covid-19 pandemic, according to a prominent academic.
“The behavior of the tobacco industry during the lockdown has been nothing short of disgraceful … the fact is that tobacco companies have been actively selling in the illicit market,” said Corne van Walbeek, director of the Research Unit on the Economics of Excisable Products at the University of Cape Town.

He said 90 percent of cigarettes sold since March 27, when the ban took effect, were of brands produced locally, giving the lie to the claim by industry groups that the black market was flooded with counterfeit products.

The government in May allowed cigarette companies to resume export production, and trade experts have said this gave them cover to circumvent the sales ban by exporting excess volumes that were then smuggled into the South African black market.

Van Walbeek said the Fair-Trade Independent Tobacco Association (Fita), the first tobacco group to challenge the ban in court, had increased its market share to around 60 percent during the 140-day-old ban.

“The fact that Fita instituted the court case is especially ironic in that their members have been the main beneficiaries of the sales ban,” said Van Walbeek. “Fita members have greatly increased their market share and have increased the price of their product by nearly 500 percent on average.”

August 17, 2020
Scandinavian Tobacco Raises its Guidance

Photo: STG
Scandinavian Tobacco Group (STG) has raised its full year guidance. According to STG, the negative impact of the Covid-19 pandemic on the company’s business has been less profound than anticipated earlier in the year as tobacco consumption across markets and categories has displayed significant resilience.
“The current change in consumer behavior in the U.S. as more people work from home has resulted in a likely overall increased consumption of handmade cigars and a strong growth in the online business,” the company wrote in a statement.
“Combined with a stronger-than-anticipated resilience in sales volumes of machine-made cigars and smoking tobacco—and a continued strong internal cost focus—Scandinavian Tobacco Group can for the first six months of 2020 present 4.9 percent organic growth in net sales, 21 percent organic growth in EBITDA and a free cash flow before acquisitions of DKK547 million ($86.76 million).”
According to STG, financial performance also remains positively impacted by phasing in certain markets, which will affect the results in the second half of the year. “While visibility around the financial outlook remains lower than normal it is expected that the change in consumer behavior in the U.S. will continue for the rest of the year,” STG stated.
Based on the year-to-date numbers including a strong performance in the month of July, a successful initial integration of Agio Cigars and assuming no material disruptions to our supply-chain, the group has revised its full-year guidance as follows: EBITDA organic growth of more than 9 percent (previously: 2 percent-plus); and free cash flow before acquisitions: more than DKK1 billion (previously: about DKK850 million)
STG will announce its second-quarter results on Aug. 28, 2020.
August 14, 2020
U.S. Speaks up for Tobacco Investors

Photo: Taco Tuinstra
The American Chamber of Commerce (ACC) in Ukraine is concerned about the treatment of foreign investors in Ukraine in a dispute involving tobacco companies.
Recently, the Antimonopoly Committee of Ukraine (AMCU) fined British American Tobacco Ukraine, JTI Ukraine, Imperial Tobacco Ukraine, Philip Morris Ukraine and their distributors for alleged anticompetitive behavior.
The tobacco firms are currently appealing the decision in court but have expressed concern about the trial because they did not have full access to the evidence on which the AMCU based its allegations.
Two international tobacco companies have already submitted notifications to Ukraine to defend their rights as foreign investors in arbitration. Another two companies are considering submitting such notifications soon.
In the absence of a prompt solution to this issue through negotiations with Ukraine’s state authorities, these disputes will be considered by international bodies for resolving investment disputes, and the party to the dispute will no longer be the AMCU, but Ukraine, according to the ACC.
The ACC has cautioned that such disputes usually gain international publicity and can have a negative impact on Ukraine’s image among foreign investors.
“The American Chamber of Commerce in Ukraine urges Ukraine’s government to respond appropriately to the notice of the investment dispute with the state of Ukraine initiated by international investors from the USA, Great Britain, Switzerland and the Netherlands regarding the AMCU decision and to impartially consider the issue in compliance with Ukrainian legislation and international agreements,” the ACC wrote in a statement.
“A quick, transparent, and fair resolution of the situation will help to maintain business relations between strategic investors and the state, not to damage Ukraine’s image and investment climate, and avoid losses to the state budget.”
August 14, 2020
Illegal Factory Raided in Phnom Penh

Photo: noah4ever from Pixabay
Cambodian Police raided an illegal cigarette factory in Phnom Penh on Aug. 11 and arrested 20 staff, reports Phnom Penh Post.

Officers confiscated many popular Chinese cigarette brands, including Furong Wang, Nanjing and Shuang Xi.

Based in the capital’s Por Sen Chey district, the factory had been operating illegally for two years and employed more than 100 workers, according to a representative of the Ministry of Interior’s counter counterfeit committee.

“B.P.A Bopea Asia Co. Ltd produces many brands of cigarette for China, but we do not know which fake logos were meant for which markets,” he said.

Staff arrested for questioning included 14 Chinese, three Vietnamese and a Cambodian translator.

Cambodia Movement for Health Executive Director Mom Kong said he supported the effort to shut down the factory. He called on police to search for other illegal ones.

“We want to see law enforcement in inspecting tobacco products to enhance public health in Cambodia,” he said.
August 13, 2020
Pandemic Takes Toll on Malawi Leaf Earnings

Photo: Taco Tuinstra
Malawi has earned $160.2 million from leaf tobacco sales to date, down 17.5 percent from the $194.3 million it realized during the same period last year.

During the period under review, the country sold 105 million kg of all types of tobacco compared to 131.1 kg sold by end of week 16 last year, according to AHL Group.

Kaisi Sadala, CEO of the Tobacco Commission, attributed the decrease in revenue and volume to the Covid-19 pandemic and a decrease in output this season. The country also suffered from a U.S. ban on Malawi leaf imports following suspicions that some tobacco was produced by forced labor.

U.S. Customs and Border Protection recently cleared leaf from Universal Corp. and Alliance One International for entry, allowing those traders to import leaf from Malawi again.

Despite the challenges, Tobacco Association of Malawi Trust CEO Nixon Lita described the market as “fairly good.”

“We were expecting about 155 million kg, but I do not think we will reach that. We also noted that the auction market had a higher rejection rate, and this was a big concern to the farmers,” Lita said.

Meanwhile, the Tobacco Commission has announced that Lilongwe and Mzuzu markets would close on Aug. 28.
August 13, 2020