GQG Partners is pressuring BAT to move its primary listing to New York, according to the Financial Times. The shareholder reportedly believes it “makes no sense” for the cigarette manufacturer to remain on the U.K. stock market.
A BAT spokesperson said that the company does not comment on engagement with shareholders when contacted by Reuters while GQG did not respond to a request for comment on the report.
RLX Technology’s 2022 financial performance was heavily impacted by new industry regulations and e-cigarette taxes, along with Covid-related disruptions, in China.
The company reported net revenues of RMB340 million ($49.3 million) in the fourth quarter of 2022, down from RMB1.9 billion in the same period of 2021. Its GAAP net loss was RMB225.1 million, compared with GAAP net income of RMB494.4 million in the comparable 2021 quarter.
For the full fiscal year, net revenues declined to RMB5.33 billion in 2022 from RMB8.52 billion in 2021. U.S. GAAP net income was RMB1.41 billion, down from RMB2.03 billion in the prior year.
“2022 was a year full of unprecedented challenges,” said RLX Technology co-founder, chairperson and CEO Ying Wang in a statement. “A combination of Covid-related disruptions and the introduction of a substantial package of industry regulations and policy updates throughout the year impacted the e-vapor sector and our operations.
“We retained our core strategy in this volatile operating environment while proactively adapting our business to the new regulations. In the fourth quarter, we continued to invest in R&D and product innovation and development, offering superior products to adult smokers. We believe our core competencies will enable us to attract continued support from users.
“Looking ahead, given the benefits of the clearer regulatory framework and China’s reopening, we remain confident in the long-term growth of our industry. We are well-positioned to adapt to these shifting market forces and capture new opportunities while further deepening our commitment to honoring our social responsibilities.”
RLX Technology was particularly affected by the vast wave of coronavirus infections as China suddenly relaxed its zero-Covid policy toward the end of 2022. In addition, its gross margin in the fourth quarter suffered as a result of the imposition on Nov. 1, 2022, of a 36 percent excise tax on e-cigarettes in China.
“Despite the headwinds, we strove to improve operational efficiency to mitigate the adverse impact on our business,” said RLX Technology Chief Financial Officer Chao Lu. “As a result, we maintained a healthy level of profitability during 2022. We believe our company’s resilience will enable us to overcome near-term obstacles, and we remain dedicated to creating long-term sustainable value for our stakeholders.”
For the full year of 2022, Scandinavian Tobacco Group delivered a 3.5 percent negative organic EBITDA growth in line with the guidance range of minus-4 percent to 0 percent, free cash flow before acquisitions at DKK1.3 billion ($184.5 million) and an increase in adjusted earnings per share (EPS) of 8 percent. The EBITDA margin before special items was 25.9 percent. For the full year of 2023, net sales and EBITDA margin before special items are expected in the range of DKK9 billion to DKK9.3 billion and 24 percent to 25 percent, respectively.
For the fourth quarter of 2022, organic EBITDA increased by 13 percent with an EBITDA margin before special items at 25.8 percent, and the free cash flow before acquisitions was DKK530 million. These results were driven by a resilient demand for most product categories, including handmade cigars in the U.S., price increases across most product categories and continued cost efficiencies.
Net sales for the fourth quarter were DKK2.19 billion with 1.7 percent organic growth. EBITDA before special items was DKK563 million with 13.3 percent organic growth. The EBITDA margin was 25.8 percent. Adjusted earnings per share were DKK4.4. Return on invested capital was 14.3 percent.
For the full year of 2022, net sales decreased by 0.8 percent organically to DKK8.76 billion, and EBITDA before special items decreased by 3.5 percent organically to DKK2.27 billion with free cash flow before acquisitions at DKK1.26 billion.
“In the current environment, I’m pleased we can deliver a solid performance for the fourth quarter and the full year, which is in line with our financial expectations,” said CEO Niels Frederiksen. “In a challenging year, we have made good progress on our strategy ‘Rolling Toward 2025.’ Our vision is to become the undisputed and sustainable global leader in cigars, and the recent acquisition of the Alec Bradley cigar business brings us one step closer to achieving this. Our ambition of becoming a larger company, to grow our EBITDA margin over time and to generate outstanding cash flow are all important pillars for creating continuous shareholder value. I am confident we will make further progress in 2023 on our long-term strategy.”
At the annual general meeting on April 13, 2023, the board of directors will propose an increase in the ordinary dividend of 10 percent to DKK8.25 per share.
For the financial year 2023, guidance metric for the group will be changed. In the financial statements going forward, the group will report on and publish expectations for reported net sales and EBITDA margin before special items instead of organic EBITDA growth. The new guidance metrics will better reflect the group’s operational performance and will increase transparency from divisional performance to group level.
A conference call will be held on March 9, 2023, at 10:00 CEST. Dial-in information and an accompanying presentation will be available at investor.st-group.com/investor around 09:00 CEST.
22nd Century Group reported net revenues of $19.2 million in the fourth quarter of 2022, up 141 percent from the comparable 2021 quarter. Revenue from tobacco-related products increased 25.7 percent to $10 million, primarily driven by volume increases in contract manufacturing and initial sales of the company’s VLN brands as part of an early rollout in Illinois and Colorado.
“The fourth quarter and 2022 were transformative for 22nd Century as we launched an aggressive commercial rollout of our FDA-authorized VLN reduced nicotine content cigarettes and accelerated revenue and margin growth opportunities with our hemp/cannabis business unit,” said 22nd Century Group CEO James A. Mish in a statement.
“Following our exceptional pilot results indicating our ability to initially capture a 1 percent share of market, several of the largest convenience store chains in the U.S. are seeking to carry our VLN products on a regional or multi-state basis.”
Looking forward, 22nd Century says it is poised to benefit from growing regulatory appetite to reduce nicotine content and ban mentholated tobacco products. The company’s VLN cigarette is currently the only Food and Drug Administration-authorized combustible cigarette able to meet the reduced nicotine content product standard under the FDA’s Comprehensive Plan requiring that all cigarettes be made “minimally or non-addictive.”
Meanwhile, the FDA’s proposed menthol cigarette ban, which is currently in final rules status, would leave VLN Menthol King as the only combustible menthol cigarette on the market. The company expects its low-nicotine leaf tobacco business to benefit from New Zealand law that will permit only reduced nicotine content cigarettes to be sold starting in early 2025.
22nd Century planted the largest ever VLN tobacco crop in 2022, including the second-generation VLN 2.0 reduced nicotine tobacco plants, which have demonstrated approximately 30 percent higher yields, enhanced quality leaf, improved disease resistance, reduction in nutrient requirements and increased stability across various environments and geographies.
Altria Group has entered into an agreement to acquire NJOY Holdings for approximately $2.75 billion in cash. The transaction terms include additional $500 million in cash payments that are contingent upon regulatory outcomes with respect to certain NJOY products.
“We believe we can responsibly accelerate U.S. adult smoker and competitive adult vaper adoption of NJOY Ace in ways that NJOY could not as a standalone company,” said Altria CEO Billy Gifford in a statement. “We believe the strengths of our commercial resources can benefit adult tobacco consumers and expand competition. We are also excited to welcome NJOY’s talented employees to Altria at closing.”
“As a result of this transaction, Altria’s enhanced smoke-free portfolio will include full global ownership of products and technologies across the three largest smoke-free categories and a joint venture with JT Group for the U.S. commercialization of heated tobacco stick products.”
“We are excited to add NJOY’s e-vapor intellectual property as a new platform that we believe we can build on to help more adult smokers transition to smoke-free alternatives,” said Olivier Houpert, Altria’s new chief innovation and product officer.
Altria will hold a conference call at 9 a.m. Eastern Time on March 6, 2023. Access to the live webcast is available at. A replay of the webcast and a transcript will be available on the same website following the event.
In 2022, the U.S. vapor category comprised nearly 14 million U.S. adult tobacco consumers, including 9.5 million exclusive adult vapers, according to Altria. The segment generated approximately $7 billion in U.S. retail sales and represented approximately 15 percent of total estimated equivalized U.S. tobacco volumes and more than 50 percent of total estimated equivalized smoke-free tobacco volumes.
To date, the U.S. Food and Drug Administration has approved the marketing of 23 vapor products and devices. In 2022, NJOY received marketing granted orders for the NJOY Ace device, along with several tobacco-flavored pods. The regulatory agency is still reviewing NJOY’s premarket tobacco product applications for several NJOY menthol-flavored e-vapor products.
Altria said it had multiple sources of funding for the deal, including cash from a $2.7 billion agreement with Philip Morris International last year for the IQOS Tobacco Heating System.
The NJOY deal follows an announcement by Altria that it would exchange its entire minority investment in embattled Juul Labs for a nonexclusive global license for certain of Juul’s heated tobacco intellectual property.
22nd Century Group announced a new $21 million senior secured debenture financing to support increased working capital needs related to the significant growth outlook in both its VLN and GVB business lines. The new three-year financing was issued at a 5 percent original issuance discount, will bear cash interest at a rate of 7 percent per year and commence principal amortization in the second year at a rate of 2 percent of the original balance per month. The company has the option to redeem the facility early starting in the second year.
“We anticipate significant revenue growth in both of our core business lines and believe this financing will provide the appropriate working capital for the year ahead,” said Hugh Kinsman, chief financial officer, in a statement. “New retail partners already in talks to launch VLN in additional states as part of our national-scale distribution capabilities are expected to increase our manufacturing and inventory requirements. Additionally, the continued growth in customer demand at GVB has increased our capital needs for bulk ingredients and inventory going forward.”
In conjunction with the new credit facility, 22nd Century has also extended the maturity of $2.7 million in legacy seller notes assumed with its acquisition of GVB Biopharma to mid-2024. The company will file a Form 8-K with the Securities and Exchange Commission with complete details of the new debt facility and the terms of the refinanced legacy seller notes.
Altria Group has exchanged its entire investment in Juul Labs for a non-exclusive, irrevocable global license to certain of Juul’s heated tobacco intellectual property.
“We believe exchanging our Juul ownership for intellectual property rights is the appropriate path forward for our business,” said Altria CEO Billy Gifford in a statement. “Juul faces significant regulatory and legal challenges and uncertainties, many of which could exist for many years. We are continuing to explore all options for how we can best compete in the e-vapor category.”
As of Dec. 31, 2022, the carrying value and estimated fair value of Altria’s Juul investment was $250 million. Altria will record the financial impact of the agreement in the first quarter of 2023 and intends to treat any such amounts as a special item and exclude it from its adjusted diluted earnings per share.
“The return of Altria’s equity stake and termination of underlying agreements affords us full strategic freedom—we are no longer limited by the terms of those agreements to pursue other strategic opportunities and partnerships,” wrote Juul in a statement. “We are free to take advantage of a range of options to maximize the value of our company while we continue to advance our leading product technology and innovation pipeline.”
In late 2018, Altria paid nearly $13 billion for a 35 percent stake in Juul. “We have long said that providing adult smokers with superior, satisfying products with the potential to reduce harm is the best way to achieve tobacco harm reduction,” said Altria’s then-CEO Howard Willard at the time. “Through Juul, we are making the biggest investment in our history toward that goal. We strongly believe that working with Juul to accelerate its mission will have long-term benefits for adult smokers and our shareholders.”
Over the years that followed, however, regulatory scrutiny and litigation relating to Juul’s marketing practices severely eroded Juul’s valuation. On June 23, 2022, the U.S. Food and Drug Administration ordered Juul Labs to pull its e-cigarettes from U.S. store shelves, saying the e-cigarette manufacturer had submitted insufficient evidence that they were “appropriate for the protection of the public health.” After Juul challenged the marketing denial order (MDO), the FDA agreed to take another look at the company’s pre-market tobacco product application.
The agency said it had determined that there are scientific issues unique to the Juul application that warrant additional review.
In early September, Juul Labs agreed to pay nearly $440 million to settle a two-year investigation by 33 U.S. states into the marketing of its vaping products, which critics have blamed for sparking a surge in underage vaping.
On Sept. 30, Altria announced it was ending its noncompete agreement with Juul. The tobacco giant is reportedly in talks to buy Njoy Holdings for at least $2.75 billion. Njoy has a roughly 2 percent of the U.S. vape market by volume, according to Jefferies. Juul, by contrast, accounts for around a quarter of American vapor product sales. Unlike Juul, however, Njoy has FDA permission to sell its products in the U.S.
“While our appeal of FDA’s now-stayed MDO remains pending, we remain as confident in our science and evidence to support the continued marketing of Juul products,” Juul wrote after Altria announced the exchange of its investment for a license. “We also continue to pursue future applications for new products to accelerate our mission and progress for the adult smoker, public health, and an end to combustible cigarettes.”
Scandinavian Tobacco Group has completed its share buyback program, which was initiated on March 9, 2022, and which was increased on May 19, 2022, to an aggregated value of up to DKK1 billion ($143.08 million). As of Feb. 28, 2023, Scandinavian Tobacco Group has purchased a total of 6,114,093 shares with an aggregated transaction value of DKK775 million.
The purpose of the program has been to adjust the company’s capital structure and meet obligations relating to the group’s share-based incentive program. At the annual general meeting on April 13, 2023, the board of directors intends to propose a reduction of the company’s share capital as result of the share buyback.
In related news, Scandinavian Tobacco Group completed the acquisition of substantially all assets of Alec Bradley Cigar Distributors and associated companies.
By Marissa Dean
Each month, the U.S. Alcohol and Tobacco Tax and Trade Bureau (TTB) publishes excise tax statistical reports for tobacco products. In November 2022, the TTB announced that it would be changing the way in which it releases and reports this data—changes that significantly affect the quality of the data for its previous users.
The reporting changes are attributed to the decrease in market players; the TTB stated that with so few remaining players, the data, as it had been published, made it easy to identify specific companies and their production and sales levels. This made for an unfair market, with some manufacturers privy to information that may affect product pricing and create unfair marketing practices.
While at face value, the changes may not seem relevant, especially to those not adept at interpreting tax data, they are actually quite substantial. The TTB’s changes have led to shifts in the categories listed (categories now consist of cigarettes and a smaller number of other tobacco products) and the aggregation of tax-exempt data from all product categories; additionally, some months are missing data points. Tobacco products that are greatly affected include large cigars, little cigars, chewing tobacco, pipe tobacco and roll-your-own tobacco. As vapor products are not subject to a federal excise tax, the TTB does not, and did not previously, release any data regarding electronic cigarettes, e-liquid or other novel tobacco products.
The trade association TMA uses the TTB’s tobacco tax data to create reports dissecting the information to discuss the U.S. tobacco product markets and trends. With the TTB’s changes, this information is now less useful than before. Overall, cigarette data hasn’t changed significantly outside of the lack of specific tax-exempt information; however, the other tobacco products are lacking much information that was previously available, making it impossible to get a complete picture of the market.
When the TTB implemented its changes, it implemented them retroactively, meaning all of its previous excise tax statistical reports were removed from its website. The TTB also does not plan on notating which figures have been changed in revised reports to accommodate the new aggregation system, according to a source familiar with the matter.
This poses a problem for TTB data users. Now, there are likely to be more discrepancies in data because one source may be using the “new” data while another may be using the previously published data. There are likely to be more gaps in information as well because many categories are missing information due to the aggregation—data comparisons are more difficult to obtain if missing data points become more common. Sources are less likely to be able to effectively discuss market outlooks and comparisons as well due to the gaps in data and the fact that categories have been combined. At best, they would be estimations and educated guesses based on historical data and trends.
The aggregated information now provided by the TTB is useful in small part to give a snapshot of the market, but with gaps in data and large category aggregation, there is no way to dissect the market and understand possible trends in any comprehensive manner. Unless more players enter the game, it is unlikely that the TTB will revert to the way in which it originally reported the statistical data, creating a roadblock for those trying to discern potential market changes.
Shares in tobacco manufacturer ITC have increased more than 75 percent as investors seek stability in the Indian stock market, which has been churning with concerns about corporate governance following Hindenburg Research’s allegations against the Adani Group.
“ITC’s stable cash flow and dividends have won hearts of investors in this volatile environment amid Adani’s troubles and inflation,” Sameer Kalra, founder of Target Investing in Mumbai, told Bloomberg. “The company is also expected to unlock value of its noncigarette businesses.”
ITC not only offers attractive dividend yields and returns on equity, but it also ranks top in a Bloomberg Economics analysis of governance, liquidity and leverage at Indian conglomerates.
ITC has gotten a further boost from stronger-than-expected third-quarter earnings. In early February, ITC reported a profit of INR50.31 billion ($614.52 billion) in the October–December quarter, up from INR40.56 billion in the comparable 2021 period. The company attributed the increase to strong cigarette sales and steady demand for its packaged foods.