Business & Finance - Tobacco Reporter

Deloitte Fined for Audit of Malawi Leaf Company

The Institute of Chartered Accountants in Malawi (ICAM) has fined Deloitte Malawi after finding the auditing firm guilty in cases involving its audits of Malawi Leaf Company.

ICAM conducted investigations through the Ethics and Investigations Committee and convened disciplinary hearings through the Disciplinary Committee on cases of its members, according to Malawi24.

In one case, ICAM says Deloitte did not give due diligence to the procedures in auditing Malawi Leaf Company (MLC) , a subsidiary of Auction Holdings Limited. Deloitte assured that AHL Group had complied with the applicable International Financial Reporting Standards.

The company was found guilty for this and the ICAM council has imposed on Deloitte a maximum penalty of a severe reprimand and a fine of 1.5 million Kwacha.

Between 2014 and 2016, ICAM says Deloitte did not give due diligence to the procedures in auditing and assured financial statements for the years in question that had errors and misstatements because they included fictitious sales made to Eastern Tobacco Company for $1.2 million.

The company was found guilty for this and the council has imposed on Deloitte a maximum penalty of severe reprimand and a fine of 1.5 million Kwacha.

However, Deloitte was found not guilty on a third charge related to overvaluing stocks in financial statements for 2014, 2015 and 2016.

July 21, 2022

Juul Labs Exploring Options, Including Financing

Juul Labs on Friday said it is in the early stages of exploring several options including financing alternatives, as the company deals with lawsuits and a potential ban on sales of its e-cigarettes by U.S. health regulators.

Bloomberg News earlier reported, citing sources, that Juul’s bankers at Centerview Partners are sounding out investors for a possible $400 million first-lien term loan due August 2023.

The proceeds would help refinance an existing term loan, which has around $394 million outstanding and matures on the same date, the report added.

A spokesperson for Juul told Reuters that the company is looking at options to protect its business and to address the “impact of the FDA’s now stayed order so we can continue offering our products to adult consumers who have or are looking to transition away from traditional cigarettes.”

Bloomberg News in its report said Juul was also considering a new $150 million second-lien term loan, which may have an August 2024 maturity, to help pay down some of the first-lien term loan and to increase liquidity, the report said.

Financing proposals for either loan are due July 21, according to the report.

Last month, the Food and Drug Administration (FDA) blocked sales of Juul e-cigarettes and said the applications “lacked sufficient evidence” to show that sale of the products would be appropriate for public health.

However, Juul appealed the agency’s order and earlier this month FDA put on hold its ban saying it would do an additional review of the company’s marketing application.

July 16, 2022

Activist Investor to Oppose Match’s Sale

Elliot Investment Management is building a stake in Swedish Match and plans to oppose the pending takeover of the Scandinavian tobacco company by Philip Morris International under its current terms, according to Bloomberg.

In May, Swedish Match’s board of directors accepted Philip Morris International’s offer of SEK161.2 billion ($16.14 billion), which is subject to shareholder approval. Financial analysts said a deal has strategic merit for PMI given the Swedish Match’s strength in oral nicotine products and exposure to the lucrative U.S. tobacco market.

It’s unlikely that Elliott will succeed in building a large enough stake in Swedish Match to stop the deal on its own, according to Mads Rosendal, an analyst at Danske Bank.

“Even if they were to be successful in blocking the deal it would not necessarily be bad for Swedish Match spreads, as they were trading tighter than PMI before the deal announcement,” he wrote in a research note Friday.

Earlier this year, Swedish Match shareholder Bronte Capital also opposed the takeover, saying the offer price was “unacceptable,” according to Reuters.

Another shareholder has also said it was not clear whether the long-term value of Swedish Match was reflected in PMI’s offer price.

Some 90 percent of shareholders need to agree to the deal for it proceed under Swedish law.

July 8, 2022

PMI’s Swedish Match Offer Document Now Public

The Swedish Financial Supervisory Authority has approved and registered the document of Philip Morris International’s offer for Swedish Match.

Last month, PMI’s Philip Morris Holland Holdings affiliate offered SEK161.2 billion ($16.14 billion). Swedish Match’s board of directors has advised the company’s shareholders to accept the offer.

The offer document is available on the offer website in English and Swedish and will be available on the Swedish Financial Supervisory Authority’s website in Swedish.

A copy of the offer document and a preprinted acceptance form will be sent to shareholders of Swedish Match whose shares were directly registered with Euroclear Sweden as of June 29, 2022.

The acceptance period ends on Sept. 30, 2022.

June 29, 2022

Swedish Billionaire Invests in Sting Free

Erik Selin (Photo courtesy of Sting Free)

Swedish billionaire Erik Selin has invested SEK4.4 million ($434,247) in the Swedish nicotine pouch innovation company Sting Free. He has thus become the second largest shareholder in the company, which is now valued at just under SEK31 million. Sting Free’s other shareholders include Curt Enzell, inventor of the original snus pouch and Meg Tivéus, a former board member of Swedish Match.

Sting Free has developed and patented a pouch for modern oral nicotine products and snus, where one side has an integrated protective shield for the gums ((also see “Patching the Pouch,” Tobacco Reporter, July 2017). The shield effectively reduces the burning sensation and gum irritation that is normally caused by these products.

This is the third time Selin has invested in companies in the snus industry. He is already the largest Swedish shareholder in the snus giant Swedish Match and is also a major shareholder in Haypp Group, which is the largest e-trader of snus and modern oral nicotine pouches in Europe.

“We welcome Erik with open arms and could not have found a better partner,” said Sting Free founder and Chairman Bengt Wiberg.

“We are a tobacco harm reduction company whose technology has already received much media attention and an international award for removing the stinging sensation. The stinging sensation is often considered as being a deterrent for smokers and other nicotine users who have never tried smokefree oral nicotine products,” said Wiberg.

Sting Free AB recently conducted a survey with more than 1,000 snus and nicotine pouch using men and women in Sweden. The results show that the patented technology is in demand, especially among women and those who have, or are concerned about, oral health problems linked to their use of these types of products. The survey results shows that 59 percent of users dislike the familiar burning sensation and 56 percent have worried about their oral health in connection with their use of the products presently on the market.

The market for snus and tobacco-free nicotine pouches is presently worth approximately SEK9 billion per year in Scandinavia alone.

Before the end of 2022, Sting Free AB will launch its first tobacco-free nicotine pouch with the unique integrated Stingfree shield. “In the future our goal is to license the technology and thereby create a new standard in the industry that is as familiar to consumers as light products are for soft drinks or Gore-Tex is for clothes and shoes,” says Sting Free CEO Daniel Wiberg.

June 24, 2022

22nd Century Begins Integration of GVB

22nd Century Group has begun integration of GVB Biopharma, which it acquired on May 13, 2022, according to a company press release. As a contract development and manufacturing organization (CDMO), GVB is a market share leader in hemp-derived active ingredients for the nutraceuticals, pharmaceutical and consumer goods industries. 22nd Century has posted a presentation, which includes an overview of GVB’s business operations, the strategic benefits of the acquisition, and strengths of the combined companies, on the “Investors” section of its website.

“We are excited to welcome the GVB team into the 22nd Century family,” said James A. Mish, 22nd Century’s CEO. “Together, we believe 22nd Century now provides the most complete hemp/cannabis solution in the world, from receptor science and transformative plant genetics to finished ingredients and CDMO formulated products that meet the most exacting standards required by global consumer products and pharmaceutical companies. We can now offer complete, vertically integrated cannabinoid manufacturing technologies, creating industry-leading scale and cost efficiency alongside our proprietary hemp/cannabis plants designed to bring the commercially desirable traits and stable genetics critical to realizing the full potential of this exciting market.”

May 19, 2022

PMI Reaches Gender Balance Goal

Philip Morris International has reached its global company-wide target to improve gender balance, ensuring at least 40 percent female representation in managerial roles by 2022, according to a company press release.

Jacek Olczak, CEO at PMI, commented, “I am immensely proud of PMI’s vision, commitment and achievement in ensuring equal opportunities are given to all in the workplace, irrespective of gender. Meeting this target demonstrates that our inclusion and diversity strategy is working. Diverse profiles, backgrounds and perspectives allow us to make better and more considered decisions as well as contribute to better and more sustainable performance. I firmly believe that a culture of fairness, inclusion and diversity [is] crucial to PMI’s progress in achieving a smoke-free future and will continue to benefit the company as we become more reflective of our consumer base.”

“What gets measured really does get done,” said Silke Muenster, chief diversity officer. “This was a whole company effort requiring everyone to take responsibility. I am delighted that we have met our target on time but recognize that we still have a long way to go on our diversity, equity and inclusion journey. With this in mind, we have our next gender representation target: 35 percent of women in senior roles by 2025.

“Having a truly diverse workforce is an essential part of our goal to achieve a smoke-free future. I am very proud of the progress we have made to date, and I am confident about achieving more in the future.”

PMI has also been recertified as a global EQUAL-SALARY organization for the second time since 2019 by the independent EQUAL-SALARY Foundation. The recertification verifies that PMI continues to pay female and male employees equally for equal work in the more than 90 markets where PMI operates.

The EQUAL-SALARY Foundation is an independent, nonprofit organization based in Switzerland. The EQUAL-SALARY certification verifies that organizations have sustainable policies and practices to ensure that they pay their male and female employees equally for equal work.

May 12, 2022

Swedish Match Accepts PMI’s $16 Billion Offer

Swedish Match’s board of directors has accepted Philip Morris International’s offer of SEK161.2 billion ($16.14 billion), according to The Wall Street Journal. The deal is subject to shareholder approval.

PMI hosted a live audio webcast today to discuss the offer. An archived copy of the webcast will be available at www.pmi.com/investors until 5 p.m. ET on June 9, 2022.

“We are pleased to announce this exciting next step in Philip Morris International’s and Swedish Match’s trajectory toward a smoke-free future,” said PMI CEO Jacek Olczak in a statement. “Underpinned by compelling strategic and financial rationale, this combination would create a global smoke-free champion—strengthened by complementary geographic footprints, commercial capabilities and product portfolios—and open up significant platforms for growth in the U.S. and internationally.

“Swedish Match’s dedicated employees and management have steadfastly pursued the company’s vision of a world without cigarettes while delivering very strong results. We look forward to building upon this success and joining forces to accelerate our shared smoke-free mission.”

In 2016, PMI announced its new mission to replace cigarettes with science-based, less harmful alternatives as soon as possible, and the company says it has made considerable progress toward that goal. While in 2015, essentially all of PMI’s net revenues came from cigarettes, last year nearly 30 percent came from smoke-free products. By 2025, PMI aims to be a predominantly smoke-free company, with more than half of its net revenues coming from such products. PMI says it has built world-class scientific assessment capabilities, notably in the areas of preclinical systems toxicology, clinical and behavioral research as well as postmarket studies.

Underpinned by compelling strategic and financial rationale, this combination would create a global smoke-free champion.

Jacek Olczak , CEO, PMI

Swedish Match embarked on its smoke-free journey two decades ago, starting with its decision to divest its cigarette business. PMI says it values how Swedish Match has relentlessly pursued tobacco harm reduction through its range of smoke-free products; received authorizations for its products via strict regulatory pathways in the U.S.; and reshaped the public health environment in countries such as Sweden and Norway.

“As PMI continues to evolve its business for the long term, it believes that the two companies would be a perfect pairing of strategic vision, culture and enterprise,” PMI wrote in a press note. “Together, the companies would be able to create a global, science-led smoke-free champion, combining expertise in heated tobacco and oral nicotine—including multiple MRTP [modified-risk tobacco product] authorizations—as well as PMI’s emerging presence in e-vapor products, to switch more adult smokers to better alternatives than the two could achieve as separate companies. Swedish Match would lead the combined company’s oral nicotine business.”

Financial analysts confirmed the deal has strategic merit, citing Swedish Match’s access to the lucrative U.S. market. Cigarette sales have been declining almost unabated for years because of the health hazards and the stigma attached to smoking. Meanwhile, “modern oral” products, such as nicotine pouches and lozenges, are driving growth in the oral tobacco category, which includes traditional chewing tobacco and moist snuff. Swedish Match’s Zyn pouch leads the U.S. modern oral category with a volume market share of 64 percent in 2021.

According to PMI, the combination would immediately enhance PMI’s already strong growth profile and support additional opportunities in the U.S. and internationally over time. It is also expected to be accretive to adjusted diluted earnings per share before any synergies and excluding transaction-related costs as well as the amortization of acquired intangibles. Swedish Match’s operating cash flow comprises meaningful U.S. dollar net income, thereby improving PMI’s currency profile.

From January through March 2022, Swedish Match’s sales and operating profit from product segments increased on the back of continued strong momentum for the U.S. smoke-free business, according to the company’s interim report.

Group sales increased by 10 percent to SEK4.89 billion ($492.05 million). In local currencies, sales increased by 2 percent for the first quarter.

Operating profit from product segments increased to SEK2.12 billion. In local currencies, operating profit from product segments decreased by 7 percent for the first quarter.

Profit after tax amounted to SEK1.49 billion.

PMI says it intends to preserve and develop Swedish Match’s operational presence in Sweden, where much of the company’s skills base is located, as well as in Richmond, Virginia, the site of the head office for Swedish Match’s U.S. Division. PMI has no plans to divest Swedish Match’s Lights business.

May 11, 2022

PMI Mulls Offer for Swedish Match

Philip Morris International and Swedish Match confirmed that they are talking about a possible offer by PMI for Swedish Match.

“The discussions are in progress, and it is uncertain whether an offer will be made,” PMI wrote in a statement. “PMI intends to make no further comment regarding the discussions unless and until it is appropriate to do so.”

“There can be no certainty that an offer will be made,” Swedish Match wrote in a press note.

The statements were made in response to market speculation, first reported in The Wall Street Journal, about a possible deal.

Swedish Match has a market capitalization of SKR120.92 billion ($11.99 billion), and Philip Morris is valued at about $154 billion.

Financial analysts said a deal has strategic merit for PMI given the attractive U.S. market. The U.S. is the world’s most lucrative nicotine market, with strong and highly predictable cash flows.

Morgan Stanley said that purchasing Swedish Match could accelerate PMI’s smoke-free transition. “Swedish Match is one of the few larger scale tobacco assets with a meaningful smoke-free business and attractive growth profile,” the investment bank wrote in a note to investors. Morgan Stanley believes Swedish Match could increase PMI’s smoke-free revenue from 29 percent in 2021 to 44 percent by 2025.

PMI aims to generate about 50 percent of its revenue from smoke-free product by 2025.

Goldman Sachs, too, was enthusiastic about the opportunities presented by a possible tie-up. A deal would provide PMI access to the fast-growing and high-margin U.S. oral nicotine pouch category, in which Swedish Match’s Zyn is the market leader, with a volume share of 64 percent in fiscal 2021. Goldman Sachs expects the U.S. nicotine pouch category to reach $4 billion retail sales value by 2025.

What’s more, buying Swedish Match would provide PMI with a platform to bring its Veev vapor product to the U.S. once approved by the Food and Drug Administration. This would be beneficial because PMI’s current partner, Altria Group, is unable to distribute Veev in the U.S. due to its stake in Juul Labs.

Purchasing Swedish Match would also provide PMI with potential distribution for IQOS in the U.S. and allow it to capture the product’s full revenue and margins in the event that Altria loses the right to distribute IQOS, according to Goldman Sachs. Altria’s IQOS distribution deal expires in April 2024, but PMI and Altria currently disagree about whether Altria has thus far met the milestones to earn the renewal option for an additional five-year deal.

The U.S. currently bans IQOS imports following an intellectual property dispute with BAT.

Acquiring Swedish Match would also provide PMI with a move diversified geographic exposure, reducing the impact of swings in currency exchange rates.

While considering a potential deal positive for PMI, Goldman Sachs says it could be potentially negative for Altria as PMI could evolve from a partner to a formidable competitor on Altria’s home turf. Morgan Stanley said it would also make the long-mulled recombination of PMI and Altria less likely.

May 10, 2022

JT Considers Sale of Russian Operations

Japan Tobacco on Thursday announced it was considering selling its Russian operations after suspending investment and marketing activities in the country last month following Moscow’s invasion of Ukraine.

The statement by JT, market leader in Russia, came after it said in March it would continue manufacturing in the country, where it has four factories and 4,000 employees.

That announcement drew criticism after many global brands pulled out over the invasion of Ukraine and governments, including Japan, levied heavy sanctions against Moscow. Russia calls its action in Ukraine a “special operation,” according to Reuters.

Japan Tobacco’s move to explore a sale of its Russia operations makes it the last major international cigarette-maker to speak publicly about potentially leaving Russia, the world’s fourth-biggest cigarette market.

Marlboro owner Philip Morris, the No.2 biggest player in the country, said last month that it plans to scale down manufacturing operations in Russia and that it is working on options to exit the market.

April 29, 2022

Category: Business & Finance