Category: Financial

USTC Files for Chapter 11 to Fulfill Contracts

Photo: USTC
U.S. Tobacco Cooperative (USTC) has filed for Chapter 11 protection in federal court to meet short-term contractual obligations to its member growers during the 2021 crop season.
“This filing provides us the best way possible to meet our short-term obligations and plan for the future,” said Oscar J. House, CEO and president of USTC, in a statement.
“In no way does this action reflect on the health of the organization and its ability to continue operations well into the future. In fact, this action is in response to the uncertainty presented by the ongoing class action litigation brought against us in 2005. Rest assured that our obligations to our member growers, employees, suppliers and customers have always been and will continue to be our highest priority and concern.”

This filing provides us the best way possible to meet our short-term obligations and plan for the future. In no way does this action reflect on the health of the organization and its ability to continue operations well into the future.
Oscar J. House, CEO and president, USTC
As a result of this proactive filing, USTC intends to satisfy obligations to its more than 550 member growers and more than 200 employees. The company says suppliers and customers will continue to receive the exceptional service and products the organization is known for across the globe. “This filing will allow USTC to reorganize and restructure to honor commitments to stakeholders and ensure the organization’s sustainable future,” the company stated.
July 7, 2021
Pyxus Releases Full-Year Financial Results

Photo: snowing12
Pyxus International announced results for its quarter and fiscal year ended March 31, 2021.
Combined sales and other operating revenues were $1.33 billion, down 12.8 percent from the prior fiscal year. Combined gross profit as a percent of sales was 12.1 percent, which decreased 2.6 percent from the prior fiscal year.
Combined selling, general and administrative expenses were $197.9 million, which decreased $1.1 million, or 0.6 percent, from the prior fiscal year.
Combined net loss attributable to Pyxus International was $117.7 million, which decreased $147 million, or 55.5 percent, from the prior fiscal year.
Combined adjusted EBITDA was $93.5 million. Total long-term debt was substantially reduced when compared to the prior fiscal year. Year-end uncommitted inventory was the lowest it has been since fiscal 2016.
“In what was an unprecedented and challenging year, our company adapted to constant change as we navigated the Covid-19 pandemic,” said Pieter Sikkel, Pyxus’ president and CEO, in a statement. “During fiscal 2021, we implemented a series of restructurings and process changes that allowed our business to continue to operate through the Covid-19 pandemic while also positioning us for success in fiscal 2022 and beyond. Through these actions, we substantially reduced our debt and costs throughout our supply chain. We also made the strategic decision to exit our cash flow negative Canadian cannabis businesses, which further supports our SG&A cost containment efforts.”

Based on expected first-quarter results, we are optimistic about fiscal 2022.
Pieter Sikkel, president and CEO, Pyxus International
“Although our production facilities continued to operate through the pandemic, certain facilities experienced lower production levels than planned due to smaller crop sizes in Africa and the implementation of social distancing requirements and safety practices to reduce the spread of Covid-19 and protect our employees. In addition, the Covid-19 pandemic-related shipping delays of leaf tobacco for certain customer orders resulted in a shift of between $170 million and $180 million of expected revenue and $30 million and $34 million of expected EBITDA from fiscal 2021 into fiscal 2022. However, the impact of Covid-19 on our business yielded innovative changes that will enable us to be more flexible in the future and accelerate certain activities in the crop cycle. Covid-19 has also pushed the tobacco industry to continue to look for ways to reduce supply chain complexity in a responsible manner.
“For the full year, we are expecting fiscal 2022 sales to be between $1.65 billion and $1.8 billion, SG&A expense to be between $140 million and $145 million (excluding nonrecurring items and potential changes in foreign currency exchange rates) and adjusted EBITDA to be between $150 million and $170 million. Based on expected first-quarter results, we are optimistic about fiscal 2022. Lastly, we are also excited about sharing more information about our enhanced global environmental, social and governance strategy, which supports our ability to deliver on our expected results for fiscal 2022.”
June 30, 2021
TAAT Revenue Triples Over Previous Quarter

Photo: Taat Global Alternatives
Taat Global Alternatives reported revenue of CAD691,484 ($558,692) for the three months that ended on April 30. The figure was up more than 300 percent over the previous quarter, reflecting a faster-than-anticipated rollout and strong uptake of the company’s products at both the distributor and end customer levels.
The company said it made several key accomplishments during the period, which was the first full quarter in which Taat was sold at retail. Highlights of the quarter included the launch of e-commerce to complement retail sales, the upgrade of its common shares to the OTCQX Best Market and the landing of its first major sporting event sponsorship.
The company was also featured in Forbes during the quarter.
Taat is now sold by more than 300 Ohio retailers, with new store placements in both Illinois and Georgia. The company also has international distribution relationships in the United Kingdom and Ireland.
“I am pleased to say that the rollout of Taat is ahead of schedule as reflected in our second-quarter financial and operating performance,” said Setti Coscarella, Taat CEO, in a statement. “We generated outstanding quarter-over-quarter revenue growth, and we expect that the trend will remain highly positive in the quarters to come as customer awareness and demand steadily increase.”
June 30, 2021
Kaival Brands Reports Second-Quarter Results
Kaival Brands Innovations Group reported revenue of $18.1 million for its fiscal second quarter, which ended April 30, 2021.
The company also received two significant Bidi Stick orders with a combined value of $41.6 million. According to Kaival Brands CEO Niraj Patel, these orders represent some of the largest individual orders since the company started business. “We believe [they] are indicative of our robust pipeline for the innovative Bidi Stick and our shift to large wholesalers and distributors versus smaller retailers,” he said in a statement.
“This shift in strategy also helps us remain an industry leader in our effort to continually exceed Prevent All Cigarette Trafficking (PACT) Act compliance requirements. The Bidi Stick experience is unrivalled as evidenced by our leading market share within the ENDS category,” said Patel.
While the potential contract values of additional national retailers are significantly higher than those of smaller retailers and wholesalers, the process to navigate these contracts is more onerous and time consuming, according to Kaival Brands. However, Patel believes such contracts are worth the investment because the company expects more large orders to follow.
Kaival Brands recently received approval to market and sell Bidi Vapor products in 11 countries. Despite Covid-19 related delays in building its international infrastructure, the company is confident it soon will be able to launch the Bidi Stick in the U.K. as well.
Kaival Brands is also enthusiastic regarding the opportunity for its Bidi Pouch, which has been developed without Swedish Match intellectual property.
June 22, 2021
PMI to Repurchase up to $7 Billion in Shares

Photo: PMI
The board of directors of Philip Morris International (PMI) has authorized a new share repurchase program of up to $7 billion, with target spending of $5 billion to $7 billion over a three-year period expected to commence after the company’s second-quarter 2021 earnings call.
The board also declared a regular quarterly dividend of $1.20 per common share payable on July 12, 2021, to shareholders of record as of June 25, 2021. The ex-dividend date is June 24, 2021.
“Since our spinoff in March 2008, we have returned, on a cumulative basis, approximately $115 billion to our shareholders through dividends and share repurchases,” said PMI CEO Jacek Olczak in a statement.
“Our announcements today are further testament to our steadfast commitment to generously reward our shareholders as we transform into a smoke-free company.”
June 15, 2021
BAT: Sales of Noncombustibles Up

Photo: BAT
BAT added more than 1.4 million noncombustible product consumers in the first quarter of 2021 to reach a total of 14.9 million, CEO Jack Bowles announced in a trading update.
“We are investing and building strong, fast-growing international brands in each segment, rapidly accelerating our reach and consumer acquisition, thanks to our digitalization and our multi-category consumer-centric approach, supported by the right resources and products and our agile organization,” said Bowles.
“Our portfolio of noncombustible products is tailored to meet the needs of adult consumers. We are growing New Categories at pace, encouraging more smokers to switch to scientifically substantiated reduced-risk alternatives.”
The company’s New Category products are now sold in 74 markets across 53 countries. Its Vuse/Vype vapor devices have been gaining value share in all Top 5 markets. Vuse is even approaching global leadership in vapor, reaching 31.4 percent category value share in the Top 5 vapor markets year-to-date in April, according to Bowles.

We are growing New Categories at pace, encouraging more smokers to switch to scientifically substantiated reduced-risk alternatives.
Jack Bowles, CEO, BAT
BAT’s Glo tobacco-heating product (THP) recorded positive volume share momentum in many markets, including Japan. The device achieved 16.2 percent category volume share in the Top 9 THP markets year-to-date in April.
According to Bowles, BAT has also been consolidating its international volume share leadership in Modern Oral, with strong Velo volume share growth in the U.S. The company’s category share of Modern Oral in the Top 5 markets reached 40.2 percent year-to-date in April.
BAT’s combustibles segment was characterized by strong pricing and robust volume, the company said. Group value and volume share were both up 10 base points year-to-date, with full-year industry volume expected to be down about 3 percent.
For 2021, BAT now anticipates constant currency revenue growth of above 5 percent, ahead of its 3 percent to 5 percent guidance.
June 8, 2021
India: ITC Shares Fall With Covid Restrictions

Photo: Seemanta Dutta | Dreamstime.com
Shares of ITC fell nearly 3 percent after the company warned that lockdown restrictions could cause supply chain disruptions soon, according to Reuters.
ITC’s statement came as its cigarette business barely staged a recovery from last year’s lockdown, according to Reuters. March quarter revenue rose 14 percent to INR58.50 billion ($799.1 million). Cigarette volumes were short of pre-Covid-19 levels toward the end of the year.
“ITC’s cigarette division posted a strong outperformance versus peers during the year, indicating market share gains. However, fresh restrictions in urban and rural markets may delay cigarette volume recovery going ahead,” the Reuters article states.
Limited lockdowns were reintroduced following surges in Covid-19 infections in April and May. Analysts at Prabhudas Lilladher stated that the lockdowns are only “temporary hiccups,” according to Reuters, and they expect the first quarter to pick up.
June 3, 2021
RLX Technology Reports ‘Solid’ First Quarter

Photo: RLX Technology
RLX Technology today announced its unaudited financial results for the first quarter ended March 31, 2021. Net revenues were RMB2.4 billion ($366.1 million), up 48.2 percent from RMB1.62 billion in the fourth quarter of 2020. Gross margin was 46 percent compared to 42.9 percent in the fourth quarter of 2020. GAAP net loss was RMB267 million compared with RMB236.7 million in the 2020 fourth quarter. Non-GAAP net income was RMB610.5 million, representing an increase of 45.6 percent from RMB419.3 million in the fourth quarter of 2020.
“2021 began on a solid note, with strong growth in key performance metrics of our business,” said Ying (“Kate”) Wang, co-founder, chair of the board of directors and CEO of RLX Technology, in a press note. “Specifically, our expansion in distribution network fueled a strong sequential growth, further demonstrating sustained user demand for our e-vapor product portfolio.”
“As the go-to brand of e-vapor products in China, we remain dedicated to investing in deepening our scientific research, improving our technology and product development, expanding our distribution network and retail outlets as well as enhancing supply chain and production capabilities.
“In the first quarter, we opened our Quality Lab to further strengthen our quality assurance and control capabilities and started developing our second and third exclusive production plants to enhance our production capabilities. We believe we are well positioned to further capture the growth potential in the e-vapor industry in China,” Wang concluded.
We remain dedicated to investing in deepening our scientific research, improving our technology and product development, expanding our distribution network and retail outlets as well as enhancing supply chain and production capabilities.
Kate Wang, CEO, RLX
“Our robust results in the first quarter of 2021 exemplify our strong capabilities in meeting user demands for reliable, innovative and trustworthy products,” said Chao Lu, chief financial officer who joined the company in February. “Building on rapid revenue growth and continued efforts in improving operating leverage, our gross margin and non-GAAP net margin have remained steady in the first quarter. We will continue to pursue user value creation by enhancing our suite of product offerings and strengthening our brand leadership in the market.”
For the second quarter of 2021, RLX Technology expects net revenues to exceed RMB2.85 billion and expects non-GAAP net income to exceed RMB720 million. The company’s expected GAAP net income will include share-based compensation expenses, which depend on the company’s share price. The company currently also expects gross margin to remain steady.
June 2, 2021
A Solid Foundation

Photo: Auremar
The transition to less harmful nicotine products will succeed only if investors buy into the concept.
By George Gay
It is probably reasonable to suggest that in a fully rational world, it would not be difficult to raise investment funding for companies trying to reduce the incidence of tobacco smoking around the world. After all, smoking, we are told, is extremely harmful to the health of smokers and those around them. Therefore, if you reduce the incidence of smoking, you reduce the harm done to smokers while reaping wider societal benefits.
But we don’t live in a fully rational world. Reviewing in the London Review of Books in 2019, Philosopher of the Heart: The Restless Life of Soren Kierkegaard, by Clare Carlisle, Terry Eagleton made the point that while Kierkegaard and a number of other thinkers would have accepted the idea that without reason we perish, they believed there was something more fundamental than reason shaping the way we think: power, desire, emotional bonds …
Raising money, even for good causes, has never been a simple matter.
One company with skin in this game is London-based Idwala Research, which offers research and advisory services aimed at promoting global tobacco transformation and harm reduction. In an email exchange in April, Managing Director Pieter Vorster told Tobacco Reporter that part of Idwala’s offering comprised advising companies on their capital-raising activities. “Before approaching potential investors, it is critical to develop a clear investment thesis, which requires a deep understanding of its business model and how it is positioned or likely to be positioned within the tobacco harm reduction product (THRP) universe and the evolving regulatory framework,” he said.
Idwala’s clients are typically smaller businesses and startups since large corporations, tobacco companies in particular, generate strong cash flows and finance their own THRP activities. On the other side of the equation, meanwhile, Idwala focuses its search for potential investors based on where the company seeking funding is in its development life cycle and on the amount of capital it is looking to raise. Potential investors include high-net-worth individuals, venture capital funds and private equity funds.

ESG considerations are generally only applied once risk/return criteria are met.
Pieter Vorster, managing director, Idwala Research
Seeking returns
So what are these potential investors looking for? Are they interested mainly, perhaps entirely, in the level of return they might expect, or do they take, in part or in whole, an “ethical” view: either being repulsed by the presence of “tobacco” in the acronym THRP or drawn to its “harm reduction?”
“Ultimately,” said Vorster, “funds flow to where investors perceive the best returns for a given level of risk. ESG [environmental, social and governance] considerations are generally only applied once risk/return criteria are met, which means that whilst companies may be excluded from a portfolio on ethical grounds, they are unlikely to be included unless they also offer attractive returns.”
It is true, however, that some potential investors object to investing in anything related to tobacco and nicotine regardless. “To some extent, this is understandable,” said Vorster, “given the abstinence-based rhetoric evangelized by the likes of the Bloomberg Foundation and the Campaign for Tobacco-Free Kids. Still, it results in a golden opportunity to accelerate both tobacco industry transformation and global harm reduction potentially being missed.”
And in answer to another question, Vorster added that, by making nicotine, rather than smoking, the enemy, organizations such as the World Health Organization were actively denying millions of smokers access to safer alternatives and, in doing so, perpetuating entirely avoidable smoking-related deaths. “This, sadly, also filters through to how many investors approach the sector,” he said.
Active engagement
But it is not all doom and gloom, and Vorster pointed out that last year’s launch of the Tobacco Transformation Index by the Foundation for a Smoke-Free World had marked a key development in the process of industry transformation by encouraging investors to engage actively with publicly traded tobacco companies about change.
According to a note on the Idwala website, the biennial Index ranks the top 15 global tobacco companies on their relative progress toward harm reduction. “It aims to accelerate tobacco harm reduction by encouraging industry participants to speed up the implementation of measures that will improve their relative ranking,” the note says. “In addition, it seeks to provide investors with an objective tool for engagement with the industry.
“For the Index to have its desired effect, tobacco companies would need to perceive value from improving their index ranking, and, for investors, it needs to provide the tools that enable them to engage more effectively with the industry to bring about change. In time, we believe both could be achieved…”
Theoretical projections are all very well, but potential investors are likely to be convinced about the value of a new project also if similar projects have provided reasonable returns in the past. So the questions arise as to how past THRP developments have been funded and whether they have produced returns good enough to allow past performances to be used to convince potential investors?
“The tobacco industry—PMI and BAT in particular—has invested heavily in these products, which has all been financed from internal resources,” said Vorster. “There is a strong positive correlation between the contribution from reduced-risk products to sales and the valuation multiples tobacco companies trade on, principally because these revenues are growing much faster.
“Financing of nontobacco industry investment has come from a mixture of entrepreneurs’ own capital, friends and family, venture capital as well as private equity. There have been some notable successes, especially for early investors in some of these ventures. When Juul sold 35 percent to Altria, it valued the business at $37 billion, and Smoore International, which listed in Hong Kong last year, is currently also valued at $37 billion. Even RLX, whose share price has declined significantly since it listed in the U.S. in January, is still valued at $14 billion.”

There is a strong positive correlation between the contribution from reduced-risk products to sales and the valuation multiples tobacco companies trade on.
Pieter Vorster, managing director, Idwala Research
One apparent problem with the transition to THRPs is that it moves from one environmental concern—cigarette butts—to another—batteries, and the question arises whether this is a negative issue as far as some investors were concerned.
“It is bound to become an issue as sales of these products grow, and it is not only batteries that would be of concern,” said Vorster. “Disposable pods and nicotine liquid bottles are all nonrecyclable and are becoming a growing litter challenge. Furthermore, heated-tobacco products typically use filters similar to those found in filter cigarettes.”
At the same time, could it be the case that potential investors might be wary of the latent success of at least some THRPs because they possibly provide a route for smokers to transition through these products to abstinence and, therefore, are part of an endgame for both combustible cigarettes and THRPs?
“Potentially, yes,” said Vorster, “but there is no evidence to suggest that this is happening. Global nicotine use is rising, even though smoking is declining. In part, this is down to consumers having more opportunities to use these products than they do smoking cigarettes. It is also plausible to suggest that lower health risks would attract consumers to the category who would otherwise have avoided smoking.”
In offering the services it does, Idwala has nailed its colors to the THRP mast, and it seems fair to ask whether it has similarly strong views about the range of current THRPs. Does it believe, for instance, that vapes are more efficacious and less controversial than HnB products containing tobacco? Or does it believe tobacco harm reduction should be taken in the direction of oral pouches using synthetic nicotine?
“I believe all these products, and ones we don’t yet know about, have a role to play if they help consumers avoid the harm caused by smoking,” said Vorster. “What works for one doesn’t for another. The closer a product is to a cigarette, the more likely a smoker will initially switch to it. Over time, these same users may choose to distance themselves from tobacco whilst others may want to do so from the start. Synthetic nicotine is still nicotine and, currently, significantly more expensive to manufacture.”
From vision to reality
Idwala envisions an environment where persistent and broad-based tobacco harm reduction becomes a reality in both developed and emerging markets. “A prerequisite for this is an acceleration in the transformation of the mainstream tobacco industry combined with the continued growth of new enterprises adept at driving innovation,” the company’s website says. “This needs to be underpinned by sensible regulatory and tax regimes …
“Broad availability of reduced-risk products that appeal to smokers, and those who otherwise would have smoked, will require sustained and substantial investment.
“Ultimately, the pace of transformation and harm reduction will be a function of the quantum of investment into these products. In turn, this will depend on the potential risks and returns associated with these investments…”
This all sounds very plausible, but how confident is Idwala that enough potential investors will be found to finance within a reasonable time all the future developments necessary to push forward significant levels of tobacco harm reduction, and what part would Idwala play in uncovering that funding?
“On the assumption that the regulatory environment is conducive to the expansion of THR, which is by no means a minor assumption, funding will be available for opportunities that offer investors attractive risk-adjusted returns,” said Vorster. “With annual retail sales of combustible tobacco products exceeding $800 billion, there is no question of the potential market being big enough.
“How successful a given product is will firstly depend on how satisfying it is to consumers. The closer the sensorial experience and nicotine delivery to a cigarette, the more likely smokers will switch. But it also needs to be widely available at a price that doesn’t result in consumer resistance whilst delivering margins that generate the returns required by investors. Does the product have a competitive advantage over others, is this a sustainable advantage, and is its IP protected and defendable? These are all important additional factors that drive potential returns.
“Regulatory risk is a fact of life in tobacco and also tobacco harm reduction. As an emerging category, reduced-harm products are arguably subject to more regulatory uncertainty, and many investors find this hard to navigate. For those who are adept at understanding and pricing regulatory risk, extra-normal returns are obtainable.”
Finally, Vorster said that Idwala would play as big a part as the market allowed it to do. “Finding funding is the culmination of first identifying opportunities that we view as attractive, advising these businesses on strategy, regulatory developments and the competitive landscape as they evolve and helping them develop their investment proposition,” he said. “We furthermore aim to support the development of THR by contributing to the debate through our blog, conference appearances and research projects and by providing a financial markets’ perspective to THR activists and organizations.”
George Gay is Tobacco Reporter’s European editor, but his territory spans the globe. Based in London, George has covered the tobacco industry since 1982, initially for a U.K.-based publication and since 2004 for Tobacco Reporter. George’s understanding of industry issues, combined with his keen sense of observation and dry wit, have earned him a loyal following among Tobacco Reporter’s readers.

June 1, 2021
Universal Corp. Reports Strong Fiscal 2021

Photo: Universal Corp.
Universal Corp. reported sales and other operating revenue of $1.98 billion in the fiscal year that ended March 31, 2021, up 4 percent over the amount reported in the previous year. Operating income was up 17 percent to $147.8 million while adjusted operating income increased 22 percent to $172.9 million. Gross profit margin improved 80 base points to 19.5 percent.
Tobacco operations sales and other operating revenues were $1.84 billion in fiscal year 2021 compared with $1.89 billion in 2020. Tobacco operations operating income grew 15 percent to $168.8 million.
“I am pleased to report that our net income and diluted earnings per share, and our non-GAAP adjusted operating income for fiscal year 2021, are all up over 20 percent compared to fiscal year 2020,” said George C. Freeman III, chairman, president and CEO of Universal, in a statement.
“Strong leaf tobacco shipments in the second half of fiscal year 2021, the addition of our plant-based ingredients acquisitions and favorable foreign currency comparisons all contributed to this improvement in our results.

I am especially proud that we were able to deliver these results in the midst of the Covid-19 pandemic.
George C. Freeman III, chairman, president and CEO, Universal
“I am especially proud that we were able to deliver these results in the midst of the Covid-19 pandemic and would like to thank our employees, growers, customers and other partners for their support, adaptability and hard work that made this a successful year.”
Leaf tobacco shipments, which started slowly in fiscal year 2021, accelerated in the second half of the fiscal year, according to Freeman. The company ended the year with leaf tobacco volumes that were just slightly below those in fiscal year 2020, in part due to some tobacco shipments that were delayed and will ship in fiscal year 2022.
“As we move into fiscal year 2022, we currently expect global supply for flue-cured leaf tobacco to be in line with anticipated demand and for burley leaf tobacco to be in a slight undersupply position,” said Freeman. “We are continuing to monitor freight costs as the Covid-19 pandemic disrupted shipping patterns, which has resulted in cost increases due to limited container availability.”
May 27, 2021