Category: Business & Finance

PMI Reaches Gender Balance Goal

Photo: Tobacco Reporter Archive

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

Photo: Swedish Match

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

Photo: SecondSide

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.

Purchasing Swedish Match could accelerate PMI’s smoke-free transition. (Photo: Swedish Match)

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
Fortuna Possible New Owner Imperial’s Russian Business

Photo: ASDF

Fortuna Cigar House (FCH) could become the new owner of Imperial Brands’ Russian business, according to an Interfax report citing the Kommersant newspaper.
Following Russia’s military invasion of Ukraine, several tobacco companies said they would scale back their operations in Russia. On April 20, Imperial Brands announced the transfer of its Russian business to local investors, subject to finalization of the registration of the transaction with local authorities. The company estimates a noncash write-off of around £225 million ($279.86) for this transaction.
Founded in Odessa in 1999, FCH has been operating in Russia since 2011 as a joint venture with the distributor Megapolis, which was previously associated with Russian tobacco mogul Igor Kesaev. The company sells cigars, tobacco, smoking accessories and materials and equipment. It also has its own retail outlet.
According to SPARK-Interfax, 50.01 percent of FCH belongs to Megapolis, and 49.99 percent belongs to BVG Cigar House Fortuna of Cyprus. In 2021, FCH posted revenue of RUR4.09 billion ($67.12 million) and a net profit of RUR404 million.
In March, Imperial Brands said it was suspending operations in Russia, including production at its factory in Volgograd, as well as sales and marketing. The company then began talks with a Russian legal entity on transferring the business.
Imperial Brands operates in Russia through Imperial Tobacco Volga, the production entity, and Imperial Tobacco Sales and Marketing. The company has held around 5.5 percent of the Russian tobacco market, according to business analysts cited by Kommersant.
Tobacco analysts Maxim Korolyov told Kommersant that Imperial Brands’ products will likely continue to be produced in Russia under a temporary license.

April 28, 2022
Match Sets Dividend and Elects Directors

Photo: Swedish Match

Participants in Swedish Match’s annual general meeting on April 27 resolved to pay a dividend of SEK1.86 ($0.19) per share distributed to the shareholders in two equal payments of SEK0.93 per share, the company announced in a press note.
The record date for the right to receive a cash dividend for the first payment is April 29, 2022, and payment through Euroclear Sweden is expected to be made on May 4, 2022. The record date for the second payment is Nov. 14, 2022, and payment through Euroclear Sweden is expected to be made on Nov. 17, 2022.
The board of directors and the CEO were granted discharge for the financial year 2021.
Charles A. Blixt, Jacqueline Hoogerbrugge, Conny Karlsson, Alexander Lacik, Pauline Lindwall and Joakim Westh were reelected as members of Swedish Match’s board of directors. Sanna Suvanto-Harsaae was elected as a new member of the board of directors. Conny Karlsson was reelected as chairman of the board.
The annual general meeting elected Deloitte as auditor until the end of the annual general meeting 2024.
The board of directors’ remuneration report for 2021 was adopted. Furthermore, the annual general meeting approved the board of directors’ proposal that it be authorized to resolve on acquisition of the company’s own shares, on one or several occasions prior to the next annual general meeting, provided the company’s holding does not at any time exceed 10 percent of all shares in the company. The shares shall be acquired on Nasdaq Stockholm at a price within the price interval registered at any given time, i.e., the interval between the highest bid price and the lowest selling price. Swedish Match owns 59,285,810 treasury shares as per April 27, 2022.
In addition, the company’s share capital was reduced by SEK13,559,080.98 by means of withdrawal of 55,000,000 previously repurchased shares held in treasury, with a simultaneous bonus issue, without issuing any new shares, of a corresponding amount to restore the share capital. The shareholders further approved the proposal that the reduction will be allocated to a fund for use pursuant to a resolution adopted by the annual general meeting.
The annual general meeting approved all other proposals made by the board of directors and the nominating committee. The proposals are outlined in the published notice of the annual general meeting.

April 27, 2022
Bank Policies Threaten Egypt’s Leaf Imports

Photo: Taco Tuinstra

The reluctance of banks to open the documentary credits required to import leaf tobacco is endangering the operations of Egypt’s tobacco factories, reports Egypt Independent, citing the Tobacco Division of the Federation of Egyptian Industries ((FEI).
FEI Division Head Ibrahim al-Embabi warned that more than 23 factories will close following the Eid al-Fitr holiday, after which they will have used their entire stock of raw tobacco. Due to a ban on tobacco cultivation in Egypt, the country’s tobacco industry is entirely dependent on leaf imports.
Earlier this year, Egypt’s Central Bank of Egypt stopped collecting documents upon import, requiring importers to cover the entire value of the shipment before importing. The decisions forced many factories, including tobacco manufacturing plants, to suspend their imports of raw materials.
Al-Embabi said that stopping the import of raw materials and the consequent disruption of production will lead to the displacement of nearly 30,000 direct workers in the sector, and threaten the state’s intake of taxes and fees paid by cigarette and tobacco companies, which exceed EGP79 billion ($4.27 billion) annually.
Tobacco factories import raw materials worth about $500 million each year while exports reach $120 million annually.
The remaining percentage is used to satisfy the needs of the local market. Despite its high consumption of imported raw materials, the tobacco sector is the state treasury’s most important source of revenue, according to al-Embabi.

April 27, 2022
Russian Tobacco Mogul Faces Scrutiny

Photo: GAlexS

Metro published a profile of Russian tobacco mogul Igor Kesaev, who has been sanctioned by the EU and the U.K. for aiding Russia’s invasion of Ukraine.
Listed by Forbes as Russia’s 35th-richest person last year, Kesaev’s holdings have included a major stake in the V.A. Degtyarev factory, which makes machine guns, anti-tank and anti-aircraft weapons, some of which have been used in Ukraine, according to sources.
Until recently, Kesaev was also the board chairman of Russia’s leading tobacco distributor, TC Megapolis. Kesaev resigned from the board on April 11, 2022, according to a Russian-language press release, which stressed that Megapolis was not subject to EU sanctions and Kesaev did not influence the company’s business.
Kesaev’s involvement in tobacco dates to the early 1990s. As the Soviet Union broke up into its constituent republics, he started an importing business that worked with international tobacco companies eager to get their products into the Russian market, according to a 2014 profile of the magnate published on Forbes’ Russian website.
Russia was—and continues to be—an attractive market for international tobacco companies, with its large population of around 145 million people and one of the highest smoking rates in the world. More than 40 percent of men there light up, according to the World Health Organization.
According to the Forbes profile, Kesaev graduated from Russia’s prestigious Moscow State Institute of International Relations. In the 1990s, he lived in Switzerland, where he developed personal connections with executives at Philip Morris International’s regional headquarters in Lausanne.
Over time, Kesaev built the largest tobacco distributor in Russia through acquisitions of regional competitors, according to Forbes’ Russian website. Today, Megapolis delivers to 160,000 retailers across the country, according to the firm’s website. In 2013, PMI and Japan Tobacco International both purchased 20 percent stakes in Megapolis’ holding company for $750 million each.
Kesaev has also been involved with the tobacco business in Ukraine. Following the toppling of Ukraine’s pro-Russian president, Viktor Yanukovych, in 2014 and Russia’s subsequent annexation of Crimea, Ukrainian officials began scrutinizing the role of Russian companies in various sectors of its economy.
At the time, Trading Company Megapolis-Ukraine controlled 99 percent of Ukraine’s tobacco distribution market, according to research from the Anti-Monopoly Committee of Ukraine.
Kyiv sanctioned Kesaev in 2016 for unspecified actions that it said threatened Ukraine’s national security. A top Ukrainian prosecutor later accused Kesaev of supporting “terrorist organizations” by supplying arms to Russian-backed separatist groups that have been fighting for nearly a decade to carve out two independent states—Donetsk and Luhansk—in eastern Ukraine.

April 26, 2022
Egypt Legalizes E-Cigs

Photo: Dzmitry

The vapor industry has welcomed Egypt’s decision to allow the import and commercialization of e-cigarette product.
“The lifting of the ban highlights the Egyptian authorities’ progressive approach to e-cigarettes and sets the stage for the creation of a regulated market rich with business opportunities, through serving the demand for easily accessible, quality products by legal age (adult) consumers across the country,” wrote RELX International, a leading player in the segment, in a statement dated April 24.
With its recent decision, Egypt joins global and regional markets, such as Kuwait, Saudi Arabia and the United Arab Emirates, which have legalized and commercialized the consumption of e-cigarettes. As regulators around the world become more accepting of e-cigarettes, the market is expected to continue its steady growth in the coming years.
As of March 2022 global e-cigarette market revenues were $22.95 billion, and the market is expected to expand annually at a compound annual growth rate of 4.19 percent until 2027, according to Statista.
“The decision by Egyptian authorities reflects its commitment to support legal businesses in the country while cracking down on the illicit trade of those products, in line with what we are seeing in an increasing number of markets around the globe,” said Robert Naouss, REXL International’s external affairs director for the Middle East, Northern Africa and Europe
“The business and investment environment in the country will significantly benefit from this decision, as will adult consumers who can now conveniently, and legally, purchase better alternatives to combustible cigarettes. We look forward to working with our partners to grow and protect their income via our portfolio of quality products”
By lifting the ban on e-cigarette products, Egyptian authorities have opened the door to a plethora of business and investment options, according to RELX International. “Authorized e-cigarette products are traditionally retailed by small- and medium-sized businesses, so the move will bolster existing businesses that sell such products, and will attract entrepreneurs wishing to set up new retail points across the country. It will likewise draw investment into the country from e-cigarette brands who wish to set up shop in the country and address the market,” the company wrote in its statement.
“Adult consumers stand to benefit from the move, as they now have legal access to e-cigarettes whether they wish to switch to a better alternative to traditional cigarettes. Several health authorities and regulators including the U.K.’s NHS and the Ministry of Health of New Zealand have positively clarified their position on vaping as a way for people to move away from smoking combustible cigarettes.
“In addition, the decision will contribute to the country’s economic recovery post-pandemic via the collection of tax revenues from legally imported products. Simultaneously, it will allow Egyptian authorities to clamp down on tax evasion issues associated with illegal market players. In a similar vein, the move and balanced regulation of the market offers authorities and e-cigarette vendors a path to stem the spread of inferior and dangerous black-market products that do not meet the standards and regulations outlined by Egyptian and international authorities. In doing so, adult consumers can rest assured the products they do find on sale are indeed a reliable alternative to traditional cigarettes.”

April 25, 2022
Imperial to Transfer its Russian Business

Photo: GerMann

Imperial Brands today announced the transfer of its Russian business to investors based in Russia, subject to finalization of the registration of the transaction with local authorities, which is expected to take place shortly.
The transaction aligns with the company’s desire to divest its entire Russian operation as a going concern in order to provide the best outcome for its 1,000 Russian employees.
Imperial Brands’ Russian operations include a sales and marketing business, and a factory in Volgograd.
“We continue to support our Ukrainian colleagues and their families, including with transport and accommodation to enable them to escape the areas most heavily affected by war, and resettlement assistance for those who have left Ukraine,” the company wrote in an update.
Imperial Brands said its previous guidance on the financial impact of its exit from Russia and suspension of our Ukraine operations remains unchanged.
In fiscal year 2021, Russia and Ukraine represented in total around 2 percent of Imperial Brands’ net revenues and 0.5 percent of adjusted operating profit. The company anticipates a non-cash write off of around £225 million ($293.78 million) for this transaction, which it expects to be treated as an adjusting item.

April 21, 2022