Category: Financial

  • ITC Quarterly Profit Up

    ITC Quarterly Profit Up

    Photo: Wirestock

    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, reports Reuters. The company attributed the increase to strong cigarette sales and steady demand for its packaged foods.

    ITC’s overall revenue from operations rose about 3 percent to 172.65 billion rupees, of which more than 40 percent came from its cigarette business.

    Revenue in that business, which includes the Classic and Gold Flake brands, jumped nearly 17 percent to 72.88 billion rupees.

    ITC said its cigarette business “continues to reinforce market standing by fortifying the portfolio through innovation, democratizing premiumization across segments and enhancing product availability backed by superior on-ground execution.”

    It also praised the government’s actions against illegal cigarettes sales. “Stability in taxes on cigarettes, backed by deterrent actions by enforcement agencies, continues to enable volume recovery for the legal cigarette industry from illicit trade leading to higher demand for Indian tobaccos and bolstering revenue to the exchequer from the tobacco sector,” the company wrote in a statement.

    “The company continues to engage with policymakers for a framework of equitable, nondiscriminatory, pragmatic, evidence-based regulations and taxation policies that disincentivize illicit trade in cigarettes, balance the economic imperatives of the country and tobacco control objectives while cognizing for the unique tobacco consumption pattern in India.”

    This week, the government raised the National Calamity Contingent Duty on cigarettes by 16 percent, which some analysts said could mean a “modest” 1.5 percent increase in tax. Others expect ITC to counter with price hikes.

  • Kaival’s Fiscal 2022 Hit by Marketing Denial

    Kaival’s Fiscal 2022 Hit by Marketing Denial

    Photo: Kaival Brands

    Kaival Brands Innovations Group reported revenues of $3 million for the fourth quarter that ended Oct. 31, 2022, compared with revenues of $100,000 million for the prior fourth fiscal quarter. Revenues for the full fiscal year were approximately $12.8 million, down from $58.8 million for fiscal year 2021.

    Kaival attributed the full-year decrease to the U.S. Food and Drug Administration’s marketing denial orders (later overturned), which temporarily prevented the company from selling its products, and to increased competition in general, which Kaival suspects resulted from lax enforcement by federal and state authorities against subpar and low-priced vaping products that continued to enter the market illegally without FDA authorization.

    “Fiscal 2022 was an exceptionally challenging year for us, primarily due to regulatory action by the FDA that was ultimately overturned in August,” said Kaival Brands President and Chief Operating Officer Eric Mosser in a statement.

    “For a portion of fiscal 2022, we were prohibited from selling our flavored Bidi Sticks, and our 2022 revenues reflect the significant extended impact of this. The good news is that this impediment is behind us. Moreover, despite the challenges, we accomplished several important milestones during the year, which we believe has laid the foundation for renewed growth and progress in 2023, including expanding existing sales channel relationships and initiating significant new ones. We expect and hope that the FDA will continue to pull bad actors from the marketplace, paving the way for companies like ours to provide our products to adult smokers deserving of premium e-cigarette product and experience.”

  • Altria Group Reports 2022 Results

    Altria Group Reports 2022 Results

    Photo: Altria Group

    Altria Group reported net revenues of $6.11 billion for the fourth quarter of 2022 and net revenues of $25.1 billion for the full year, down 2.3 percent and 3.5 percent, respectively, from the comparable periods of 2021. Revenues net of excise taxes were down 0.1 percent for the quarter and up 2 percent for the full year, to $5.08 billion and $20.69 billion, respectively.

    “It was an exciting year for Altria as our businesses delivered strong financial performance, and we continued to strategically invest toward our Vision,” said Altria CEO Billy Gifford in a statement. “We generated strong adjusted diluted EPS growth of 5 percent and made meaningful progress in several areas of our smoke-free portfolio.”

    “Our plans for 2023 include a continuation of our strategy to balance earnings growth and shareholder returns with strategic investments toward our Vision. We expect to deliver 2023 full-year adjusted diluted EPS in a range of $4.98 to $5.13, representing a growth rate of 3 percent to 6 percent from a base of $4.84 in 2022.”

    Like other tobacco companies, Altria was impacted by high rates of inflation in 2022, which reduced adult tobacco consumers’ discretionary income and spending. “As a result, our businesses and the industry experienced elevated volume declines, and we observed accelerated share growth in discount cigarettes. Despite these factors, our leading tobacco brands remained resilient and we continued to observe significant brand loyalty in the tobacco space overall,” the company wrote on its website.

    While Marlboro’s retail share of the total U.S. cigarette category dropped 0.4 points to 42.5 percent in 2022, the brand gained 0.5 points in the premium segment, claiming 58.2 percent of that category.

    Altria Group also revised the valuation of its stake in Juul Labs, which has faced considerable regulatory and legal challenges. As of Dec. 31, 2022, the investment was worth $250 million, according to Altria.

  • Japan Tobacco Urged to Divest Drug Unit

    Japan Tobacco Urged to Divest Drug Unit

    Photo; Taco Tuinstra

    LIM Advisors called on Japan Tobacco to divest its 53 percent stake in Torii Pharmaceutical Co. to boost shareholder value.

    In a letter reviewed by Reuters, the Hong Kong-based activist fund said JT doesn’t have synergies with the drug unit or the expertise to manage its research and development. LIM plans to bring its proposal to the annual general meeting of shareholders in March.

    The proposal by LIM, which holds less than 1 percent of Japan Tobacco shares, comes as Japanese regulators have frowned on so-called parent-child listings on the grounds that they can infringe on minority shareholder rights.

    JT is one-third owned by the Japanese government.

    LIM is also pushing for corporate charter amendments to improve governance, including a prohibition of Japan Tobacco executives retiring to take jobs at Torii.

    Established in 1995 by investment fund veteran George Long, LIM has launched several governance motions in Japan in recent years.

  • BAT Reports Continued Gains in Noncombustibles

    BAT Reports Continued Gains in Noncombustibles

    Photo: BAT

    BAT gained 3.2 million consumers within its noncombustible business during the first nine months of 2022, thanks in part to new product launches and geographic expansion, CEO Jack Bowles wrote in a trading update.

    The New Category business continues to drive strong volume, revenue and market share growth and has become a significant contributor to group performance, according to BAT.

    The global value share of Vuse vapor cigarettes reached 35.7 percent in key vapor markets by September 2022, up 2.2 percentage points over full-year 2021. In the U.S., the brand extended its leadership position by 6.8 percentage points, achieving a total value share of 39.3 percent.

    BAT’s Glo tobacco-heating product (THP) increased its category volume share by 1.6 percentage points in key THP markets to reach 19.5 percent by September 2022. In Europe, Glo achieved a 20.4 percent volume share in key THP markets, up 4 percentage points. In Japan, Hyper drove Glo’s total nicotine volume share up 50 base points versus 2021 to reach a share of 7.3 percent.

    BAT’s Velo modern oral brand reached a volume market share in Europe of 69.1 percent.

    Meanwhile, BAT reported a flat combustible cigarette value share, with gains in the United States, Asia-Pacific and the Middle East offset by declines in the company’s Americas, Sub-Saharan Africa and Europe regions. In the U.S., BAT begun new sales strategies in the second half to offset “early signs of accelerated downtrading,” according to Bowles.

    BAT reiterated its guidance for mid-single percentage growth in adjusted earnings per share at constant currency this year. Price increases and marketing campaigns should offset higher raw material prices, according to the company.

  • Swedish Match Applies for Delisting

    Swedish Match Applies for Delisting

    Image: Tobacco Reporter archive

    The board of Swedish Match said it will apply for delisting of the company’s shares from Nasdaq Stockholm, according to a press release. The last day of trading in the company’s shares on Nasdaq Stockholm will be announced as soon as the company has received confirmation from the exchange.

    Philip Morris Holland Holdings, an affiliate of Philip Morris International, declared the public offer for Swedish Match unconditional on Nov. 7, 2022. PMHH controls more than 90 percent of the shares in Swedish Match and has initiated squeeze-out proceedings in respect of the remaining shares in the company.

  • Chasing Unicorns

    Chasing Unicorns

    Photo: pimmimemom

    In their quest for cutting-edge innovations, tobacco companies have set up venture capital subsidiaries.

    By Stefanie Rossel

    Incessant innovation is at the heart of tobacco companies’ transformation process. Eager to move their businesses away from combustible cigarettes toward less hazardous alternatives and opportunities beyond nicotine, cigarette manufacturers have invested billions of dollars into innovation and scientific research. They have substantially expanded their research and development teams, recruiting talent from sectors such as consumer electronics while acquiring companies in adjacent business areas, including pharmaceutics.

    To avoid missing out on innovative trends and new technologies, however, tobacco companies in their transformation process need to think out of the box, or rather outside the organization, and keep an eye on the startup scene. For this purpose, the leading players have established platforms to serve windows on future technologies. In addition to using corporate venture capital (CVC), they are  working with incubators, accelerators and universities.

    Japan Tobacco International has chosen the latter approach. In March 2019, it teamed up with Silicon Valley-based Plug and Play Tech Center, a technology incubator, to run Vapetech, a program aimed at bringing together innovators and data experts to develop technology that improves the user experience and health benefits of vaping. Each year, Plug and Play selects about 20 startups that will develop ideas and solutions for a more enhanced vaping experience, JTI said in a statement. Startups with new devices or technology applicable to the Internet of Things (IoT), biometrics, data and lifestyle will enter a three-month program to develop their products and services and have access to investment and corporate partnerships.

    “We need new innovative products coming on in future years, so the Vapetech process will be really instrumental,” explains Suzanne Wise, senior vice president of corporate affairs and communications at JTI. “We surround startups with the right ecosystem and provide them with all they need. It’s a process where you get people completely from outside the industry, with different mindsets, who are looking at what we are facing as challenges, and they just come up with stuff that we say, gee, why not us?”

    Wanted: Extraordinary Solutions

    With PM Equity Partner (PMEP), Philip Morris International was the first tobacco company to set up a CVC division in 2016. CVC is a variant of venture capital where the required capital comes from a corporation outside of the financial sector. In contrast to risk financing, which primarily aims to generate a return for the venture capitalist, CVC also pursues strategic goals.

    Established companies use their CVC arms to develop new technologies or new business models, to explore other markets or for diversification. Staying ahead of competitors in a specific market is another motivation for CVC. In turn, startups benefit not only from the funding but also from getting access to technological know-how, distribution channels and cooperation partners.

    PMEP invests in early stage and growth-stage companies with technology-based business models and proven commercial traction, such as existing revenue or contracts, that fit into the focus it shares with its parent company: the ambition to replace cigarettes with smoke-free alternatives and explore new markets beyond nicotine.

    Candidate companies should be able to make a positive, significant and sustainable contribution to PMI’s core business and science-centric, technology-driven smoke-free vision, and they should operate in one of the four investment corridors defined by PMEP: life sciences, industrial technologies, consumer engagement and product technologies. Aspirants could, for example, offer innovations in inhaled therapeutics and computational research methodologies, industrial robotics and automation, or technology-based process optimization. Or they could bring in their solutions for bioauthentication, user identification or innovative customer care.

    “The startup should have developed an innovation in one of these areas that substantially differs from other technologies currently used in its respective market segment,” explains Alexander Stoeckel, head of PMEP. “Furthermore, it should have left the startup phase behind and ideally have customer relations or a testable prototype because usually we test the startup’s innovation together with PMI’s respective departments and decide on an investment after we have understood which contribution this technology could contribute to our success as PMI.”

    Strong Funding Basis

    Being the CVC arm of a well-known company such as PMI helps generate business, according to Stoeckel. The fact that PMEP’s parent company is a tobacco corporation hasn’t been any hindrance yet, he says. “Founders are regularly surprised to find out how professional and broadly positioned PMI is.”

    The CVC team is in constant communication with PMI’s division heads to identify their challenges, suggestions, problems and innovation requirements in order to find startups that develop or already market matching solutions. In return, the investee companies will be able to make use of PMI’s extensive R&D capabilities, operational and marketing excellence, and deep involvement in supply chain. PMPE says it provides its entrepreneurs with long-term support not only in financing but also for mutual benefits at strategic and commercial levels. More precisely, it helps entrepreneurs strategize, steer partnerships, help with negotiations and raise and utilize capital.

    In October 2021, PMI allocated a further $200 million to the CVC’s initial $150 million investment. According to the company, ideal investments are between $2 million and $10 million in Series A stage companies, with flexibility to also consider investments in seed or late-growth companies. (Series A funding is the first round after the seed stage; companies need to have a strong plan for developing a business model that will generate long-term profit.)

    To date, PMEP has invested in 13 companies, according to Pitchbook.com. Among the companies still in PMEP’s portfolio is BOW Group, a startup specializing in wearables, connected vehicles and smart home products. The company is supporting PMI to deliver on its commitment of a consumer-centric ecosystem. Another investee company, Biognysis, enables PMI with its disruptive technology to identify biomarkers and understand the biological impact of switching to PMI’s IQOS heated-tobacco product.

    Driving the Change

    BAT created BTomorrow Ventures (BTV) in 2019 and established a £150 million ($176.33 million) fund to help accelerate BAT’s transformation. As BTV’s managing director, Lisa Smith, pointed out during the recent GTNF in Washington, D.C., “Transformation requires innovation, and BTV has set up a number of innovation ecosystems. It’s a highly competitive market, and finding the best innovators out there is difficult. Our role is to be the outward-looking ‘handshake’ to the outside world to show that we are the preferred partner of choice.” BTV’s job, she said, was to channel these innovators to the right part of its business. “There are many tasks in transformation, such as to quickly move the environmental, social and governance (ESG) agenda and to build the science and credibility to be able to operate in the beyond-nicotine world.”

    The CVC therefore invests in specialist categories, including consumer brands, digital transformation, new technologies, future sciences and sustainability. BTV has also established an accelerator and growth platform called BTV Labs and divided them it three categories: Consumer Delight Lab (focusing on consumer brands), Futures Lab (focusing on science, technology and digital) and an ESG Lab. In its portfolio are businesses from the functional food and beverage, electronic equipment and instruments, and cannabinoid sectors. To date, BTV has invested in 22 companies. Unicorn-nest.com estimates that the average round size was $3 million. With building a community a core part of BTV’s value proposition, the corporate venture unit stages “Binspired” events, a collaborative forum for CEOs or founders, investment partners and senior executives. In addition, it runs the “Battle of Minds” in partnership with BAT, which is a “business pitch” competition for students, graduates and early stage startups from around the globe.

    Lexy Prosszer, BTV’s investment principal who previously worked in BAT’s merger and acquisitions department, says that BTV was established to accommodate a different type of deal. “M&A was not set up to deliver on that in terms of speed, scale and credibility to get these entrepreneurs at the table to want a conversation with us and believe that BAT has got the right intentions to change and transform. With BTV, we’re meeting a real need that the corporate [sphere] has.”

    According to Prosszer, collaborating and engaging with startups has contributed to shift in mindset among BAT employees, encouraging them to do things faster. “They’re excited, engaged and love working with the entrepreneurs. Much has been achieved. It’s been a cultural shift to being open to how an entrepreneur might do things and how that can be leveraged to us to get our result faster.”

    Through BTV, observes BAT Finance and Transformation Director Tadeu Marroco, the company suddenly has access to understanding better products that otherwise would take ages to develop internally. “We can be closer to them and see how they perform in the markets. For entrepreneurs, it means that they can leverage on the massive strengths that BAT has as a multinational company with massive distribution capabilities.”

    Stefanie Rossel is Tobacco Reporter’s editorial contributor. An experienced trade journalist, she combines sharp reporting skills with in-depth knowledge of the tobacco and vapor industries. Prior to joining Tobacco Reporter, Stefanie was editor-in-chief at Tobacco Journal International, where she worked for a decade. Fluent in English, German and French, Stefanie covers tobacco news around the world. She is based in Germany.
  • Framtiden Tenders its Swedish Match Shares

    Framtiden Tenders its Swedish Match Shares

    Photo: Swedish Match

    Framtiden Management Co. has tendered its Swedish Match shares to Philip Morris International despite reservations about the takeover.

    “As a Swedish Match shareholder since 2003, I believe that this deal does not make sense for long-term shareholders,” said the Framtiden Partnerships managing member Dan Juran in a statement. “Through a press release and white paper, my partner Chris Anderson and I shared our view in the hope other shareholders would see the merits of our position. Philip Morris has since acquired nearly 86 percent of shares.

    “Failing our preferred outcome, an independent public company, our intention was to continue on the Swedish Match journey as a minority shareholder of a majority-owned public company. Unfortunately, during the current offer ending Nov. 25, or soon thereafter, we believe the odds are high Philip Morris will attain the 90 percent threshold necessary to delist the shares and commence a compulsory offer. Given a likely choice between tendering now or owning private shares for a short period before a compulsory offer, we have regretfully tendered our shares.”

    In May, PMI bid about $16 billion for Swedish Match. Swedish Match’s board of directors recommended shareholders accept the offer, but some investors, including Elliott Management Corp. and Framtiden, objected, saying the bid undervalues their firm.

    In October, PMI increased the price of its bid to SEK116 per share from the SEK106 per share offered in May. Swedish Match’s board of directors advised shareholders to accept PMI’s revised offer.

    Elliot Management Corp. then accepted the sweetened bid, contributing to PMI’s 86 percent shareholding.

    Under Swedish law, PMI needs 90 percent of shareholders to agree to the deal in order to get full control over the company.

    The Framtiden Partnerships owned over 14.5 million Swedish Match shares, representing about 1 percent of outstanding shares.

  • Sales Down, Margins Up for RLX Technology

    Sales Down, Margins Up for RLX Technology

    Photo: Tobacco Reporter archive

    RLX Technology reported net revenues of RMB1.04 billion ($146.8 million) in the third quarter of 2022, down from RMB1.68 billion in the same period of 2021. The decrease was due primarily to the suspension of store expansions and the discontinuation of older products during the transition to the new national standards, according to the Chinese vapor product manufacturer.

    Gross profit was RMB522 million for the quarter compared with RMB656 million in the same period of 2021. Gross margin was 50 percent compared with 39.1 percent in the prior year period. RLX Technology attributed the improvement to a favorable change in channel mix. Because the company gradually terminated partnerships with distributors who did not obtain wholesale licenses during the transition period, its sales contribution from retail stores increased as RLX began to directly provide products to these retail stores. The company benefited also from a decrease in direct cost related to promotional activities.

    “During the third quarter of 2022, we remained dedicated to preparing for a smooth transition to the new national standards, which came into full effect on Oct. 1, 2022. Specifically, we wound down shipments of our older products and gradually switched to the National Transaction Platform on a regional basis. We have now achieved full geographical coverage nationwide,” said Ying Wang, co-founder, chairperson of the board of directors and CEO of RLX Technology, in a statement.

    “In addition to our efforts to proactively adapt to the new standards, we have focused on fulfilling our social responsibilities, which we see as one of our core competitive advantages. We recently published our annual corporate social responsibility report, summarizing our endeavors with respect to market responsibility, R&D investment, environmental protection, employee career development and corporate governance. I am proud to share that our latest S&P CSA ESG score ranked ahead of 67 percent of our global peers, representing a powerful commendation of our commitment to sustainability and ESG best practices.”

    “We delivered net revenues of approximately RMB1 billion in the third quarter, recording a sequential decrease mainly due to the discontinuation of older products during the transition to the new national standards as well as the second quarter’s high comparison basis mainly attributable to frontloading of sales in anticipation of the discontinuation of older products. We remain confident that our diversified portfolio will continue to satisfy adult smokers’ needs and that our sales will gradually recover,” said Chao Lu, chief financial officer of RLX Technology.

    “Meanwhile, our continuous efforts to improve operational efficiency are proving effective, evidenced by a 30.9 percent quarter-over-quarter decrease in non-GAAP operating expenses. However, our profitability in the coming quarters will be adversely affected by the application of 36 percent consumption tax to e-cigarettes manufacturers since Nov. 1, 2022. Cost control measures will remain at the forefront of our strategic initiatives as we navigate the evolving regulatory environment while maintaining our sustainable long-term growth.”

  • Bomhard: Imperial Gaining Traction

    Bomhard: Imperial Gaining Traction

    Imperial Brands reported net revenue of £32.55 billion ($38.93 billion) for its fiscal year 2022, which ended Sept. 30. The figure was down 0.7 percent from 2021. Operating profit declined 14.7 percent to £2.68 billion. On an adjusted basis, net revenue was up 2.7 percent to £7.79 billion while operating profit increased 3.5 percent to £3.69 billion.

    Imperial Brands insisted its five-year strategy is on track and delivering improved operational performance. The company’s aggregate market share in its top-five combustible markets was up 35 base points, reflecting Imperial’s first annual share gain in more than five years. Net revenue from next-generation products was up 11 percent driven by market launches in all categories. The company also reported increased shareholder returns with 1.5 percent growth in dividend enhanced by an ongoing £1 billion share buyback.

    “In line with our five-year strategy, increased investment and a more consumer-centric approach have improved delivery in both our priority combustible markets and our next-generation product operations,” said Imperial Brands CEO Stefan Bomhard in a statement. “At the same time, disciplined capital allocation has strengthened our balance sheet to reach our target leverage. This has enabled us to enhance shareholder returns through an ongoing share buyback program alongside a progressive dividend.

    “In tobacco, a sharper focus on brand building and sales execution has supported aggregate market share gains in our top five priority markets. Price mix improved in the second half, helping to offset the anticipated acceleration in volume declines, which occurred as borders reopened, prompting a return to pre-Covid buying patterns.

    “In NGP, successful consumer trials have validated our approach, and we are now stepping up investment in new product and market launches across all three product categories. Our heated-tobacco proposition, Pulze and iD, continued to perform well in our pilot markets of Czech Republic and Greece, and we have recently launched in Portugal, Hungary and Italy, the largest European market for this category. Following the successful French trial of our new vapor device, Blu 2.0, we have now launched in the U.K. In modern oral, we expanded our range of flavors for Zone X in key markets and successfully introduced the Zone X format into Norway.

    “Looking ahead, we are well positioned to deliver against the next phase of our five-year strategy. The additional investment and the actions we have taken during the initial two-year strengthening phase have built stronger foundations as we face into a more challenging macroeconomic environment. We are well placed to build on our track record of delivery over the next three years, improving returns and creating sustainable growth in shareholder value.”