Category: Financial

‘U.S. Election a Net Negative for Tobacco’

Photo: Tobacco Reporter archive
The U.S. election will likely be a net negative for tobacco companies with exposure to the U.S. market regardless of the outcome, according to Goldman Sachs.
The investment bank recently took an in-depth look at the key tobacco policy issues potentially at stake, including greater excise taxes, flavor bans, a federal nicotine cap on cigarettes and possibly a push for raising the minimum tobacco purchasing age to 25.
Goldman Sachs says the highest likelihood is for greater excise tax increases, regardless of the election outcome, given the severity of government budget shortfalls in the wake of Covid-19.
The bank also expects more states and local jurisdictions to pursue flavor bans for tobacco and nicotine products, following such actions in five states and the negative public sentiment since the youth e-cigarette crisis of 2018-2019.
At the same time, Goldman Sachs predicts a multi-year and uncertain path for a potential cigarette menthol ban or nicotine cap due to the complexity of the U.S. Food and Drug Administration’s rulemaking process, the risk of significant unintended consequences and prolonged litigation.
Inaction on menthol would be most beneficial to British American Tobacco, which has the greatest exposure to menthol cigarettes in the U.S. among the major tobacco companies.
Altria Group is most at risk from the likely tax increase scenario, considering its market share leadership in combustible cigarettes, according to Goldman Sachs.
For the industry overall, social distance and remote working practices have resulted in more tobacco and nicotine use. Nonetheless, Goldman Sachs expects cigarette volume declines to re-accelerate toward historical declines in 2021.
October 20, 2020
Morgan Stanley: BAT Underappreciated

Photo: BAT
The growth potential of British American Tobacco (BAT) is underappreciated, reports Sharecast, citing Morgan Stanley. The investment bank believes BAT is better able to offset the challenges in the combustible cigarette market than many investors are willing to give it credit for.
The key to its thesis is BAT’s shift from a combustibles business to a nicotine play.
“We see a significant opportunity in BAT’s new model, just as the shares and investor interest hit multi-year lows,” Morgan Stanley wrote in a statement.
BAT’s user base has grown from about 143 million in 2017 to approximately 146 million by 2019 and might reach roughly 155 million by 2030, according to Morgan Stanley.
Management’s ambition, announced in April, is to have 50 million non-combustible users by 2030, up from 11 million at the end of 2019, which would more than compensate for the falling number of smokers.
The broker also highlighted the 50:50 split in BAT’s volumes between emerging and developed markets, strong management and anticipated stable earnings growth of 4 percent to 8 percent over 2020-2-2025.
Its analysts also argued that the dividend payout was “largely secure” as the company refinanced debt.
Furthermore, the company’s improved position in U.S. next-generation-products allows it to capture users migrating to other products if Washington bans menthols, according to Morgan Stanley.
September 3, 2020
Strong Quarter for Scandinavian Tobacco

Photo: STG
Scandinavian Tobacco Group (STG) delivered better-than-expected results with growth in net sales, earnings and free cash flow before acquisitions. The results were driven by increased consumption of handmade cigars and a strong volume growth in the U.S. online business.
Net sales grew organically by 4.6 percent to DKK2.1 billion ($335.7 million). EBITDA before special items was DKK489 million after 19.1 percent organic growth. The EBITDA margin was 23.3 percent. Agio Cigars, which was acquired on January 2, 2020, contributed as planned.
In the first 6 months of 2020, net sales grew 4.9 percent organically to DKK3.8 billion, and EBITDA before special items grew 21 percent organically to DKK815 million.
The negative impact of the Covid-19 pandemic on STG’s business has been less profound than the company anticipated earlier in the year. According to STG, tobacco consumption across markets and categories has displayed significant resilience and increased consumption of handmade cigars brought on by the change in consumer behavior in the U.S. is likely to continue for the rest of the year.
Niels Frederiksen
While visibility around the financial outlook remains lower than normal and financial performance in the quarter was positively impacted by phasing in certain markets, the group raised its 2020 full-year guidance on Aug. 14 based on the year-to-date numbers, a strong performance in the month of July, a successful initial integration of Agio Cigars and assuming no material disruptions to the group’s supply-chain.
“Our strong performance in the quarter is based on an overall increased consumption of handmade cigars in the U.S. as more people work from home and by the skills and hard work of our employees around the world who have been working diligently to mitigate the impacts of the pandemic and keep the business moving forward,” said STG CEO Niels Frederiksen in a press release. “Additionally, a successful initial integration of Agio Cigars and the continued execution of ‘Fueling the Growth’ are also positively affecting our cost efficiency in the quarter.”
August 28, 2020
Smoore Thrives Amid Difficult Environment

Photo: Timothy Donahue
Smoore International Holdings, the world’s biggest maker of e-cigarettes, posted a 40 percent year-on-year jump in underlying net profit for the first half of 2020, to CNY1.3 billion ($188.8 million), reports The South China Morning Post. Revenue rose 18.5 percent to CNY3.88 billion.
The increase comes despite the challenges of the coronavirus, the U.S.-China trade war and tougher regulations.
Smoore, which recently listed in Hong Kong, held a 16.5 percent share of the $763 billion global vapor devices market last year, up from 10 percent in 2018, said Wang.
While only half its production capacity was used in the first six months, the company plans to double capacity by next year. Additional expansion will boost production by a further two-thirds by 2023.
Global e-cigarette sales are projected to see compound annual growth of 25 percent between last year and 2024 compared to 5.2 percent for traditional cigarettes, according to Frost & Sullivan.
China produces 90 percent of the world’s e-cigarettes, of which 90 percent are exported, according to Smoore’s listing prospectus. The industry is concentrated in Shenzhen, the country’s technology hub, which hosts more than 600 e-cigarette manufacturers.
The U.S. accounted for around half of Smoore’s sales, while 18.6 percent came from mainland China and 12.5 percent came from Japan and Europe each.
Since 2018, its U.S. customers have had to pay a 25 percent additional import tariff as part of the fallout from the trade spat between Washington and Beijing. The firm said the tariff has not stopped U.S. demand from growing since its products are “technologically superior.”
August 27, 2020
Pyxus Emerges From Chapter 11

Pieter Sikkel
Photo: Pyxus International
Pyxus International has successfully completed its financial restructuring and emerged from Chapter 11 with its debt reduced by more than $400 million and maturities extended. The company announced that the Amended Joint Prepackaged Chapter 11 Plan of Reorganization of Pyxus International and its Affiliated Debtors confirmed by the U.S. Bankruptcy Court for the District of Delaware on Aug. 21, 2020, has become effective.
“Over the last two months, we have been keenly focused on enhancing the company’s financial flexibility, and the completion of our financial restructuring process is a significant step forward,” said Pieter Sikkel, Pyxus’ president and CEO. “We are now a stronger and more competitive company with a foundation that bolsters our position in targeted markets and enables us to drive long-term value for all of our stakeholders. I want to thank our exceptional team at Pyxus for their commitment and continued focus through this process. We are also grateful for the support of our vendors, suppliers, customers and partners, and we look forward to working together for years to come.”
Under the terms of the plan, Pyxus has completed a comprehensive balance sheet restructuring that includes but is not limited to extending the maturity of its existing first lien debt, eliminating $635 million in principal amount of existing second lien debt, while adding a $213 million exit term loan, which replaced the debtor-in-possession financing incurred in connection with the Chapter 11 cases, and a $75 million exit asset based revolving facility. The elimination of the second lien debt and access to new working capital lines of credit, including foreign credit facilities, substantially strengthens the company’s balance sheet.
A series of corporate transactions resulted in the company being a new corporation renamed Pyxus International, which through its subsidiaries continues to operate the company’s businesses, while the corporation formerly known as Pyxus International has changed its name to Old Holdco All outstanding shares of Old Holdco were canceled.
August 25, 2020
STG Changes Financial Reporting Structure

Photo: STG
To increase speed to market and unlock synergies, Scandinavian Tobacco Group on May 19, 2020, announced a new organizational structure with three new commercial divisions. To align financial reporting with the new organizational structure and ensure consistency with internal management reporting, the group has now revised its external reporting structure accordingly.

The three divisions are North America Online & Retail, North America Branded & Rest of World and Europe Branded.

Division North America Online & Retail includes direct-to-consumer sales of all product categories sold via the online, catalogue and retail channel in North America.

Division North America Branded & Rest of World includes sales of all product categories to wholesalers and distributors that supply retail in the United States, Canada, Australia, New Zealand, international sales (Norway, Finland, Switzerland, Israel and Russia), Asia, global travel retail and contract manufacturing for third parties.

Division Europe Branded includes sales of all product categories to wholesalers and distributors that supply retail in Germany, Denmark, Sweden, France, Italy, Belgium, the Netherlands, Luxembourg, Spain, Portugal as well as the United Kingdom and Ireland.
STG recently raised its full-year guidance. The group will announce its 2020 second quarter results Aug. 28, 2020.
August 18, 2020
Universal Reports ‘Respectable’ Quarter

George C. Freeman III
Universal Corp. reported net income of $7.3 million for the first quarter of fiscal year 2021, which ended on June 30, 2020. Those results were up from $2.1 million in the first quarter of fiscal year 2020.

Excluding certain nonrecurring items, net income declined by $4.3 million for the quarter ended June 30, 2020, compared to the quarter ended June 30, 2019. Operating income of $8.5 million for the quarter increased by $1 million over the previous year’s quarter.

Segment operating income was $4.3 million for the first quarter of fiscal year 2021, down $3.2 million compared to the same period last fiscal year, mainly because of earnings declines in Universal’s Other Regions and Other Tobacco Operations segments.
“Our fiscal year 2021 is off to a slow but respectable start as nearly all of our origins continue to make good progress moving through their various tobacco growing and processing activities. The first fiscal quarter is generally the weakest of our fiscal year given seasonal timing,” said George C. Freeman III, chairman, president and CEO of Universal.

“This fiscal year, as a result of the Covid-19 pandemic, we are also experiencing later openings of the tobacco buying seasons and slower processing due to social distancing and other local government safety requirements,” Freeman added. “We have also had some slower receipts of customer shipping instructions and orders. However, to date, we have not seen a material impact to our supply chain or seasonal planting or harvesting requirements.”

August 6, 2020
JT Requests Permission to Raise Prices

Photo: Colleen Williams
Japan Tobacco (JT) has applied to the Ministry of Finance for approval to amend the retail prices of its tobacco products in Japan in conjunction with the planned excise tax increase on Oct. 1, 2020, and the increase of excise tax on tobacco vapor products.
The company has applied for the retail price amendment for a total of 224 products, including 136 cigarette products, 16 cigarillo products, three pipe tobacco products, three cut tobacco products, 18 snuff tobacco products and 48 tobacco vapor products.
The proposed retail prices will take effect on Oct. 1, 2020, subject to approval from the Ministry of Finance.
August 3, 2020
BAT Uganda ‘Resilient’ in Difficult Environment

Photo: Taco Tuinstra
British American Tobacco Uganda (BATU) reported first-half 2020 results with gross revenue down by 12 percent to UGX76 billion ($20.6 million) and pre-tax profits at UGX9.9 billion.
“I am pleased to report that BAT Uganda’s business continues to show resilience despite the difficult operating environment in the country,” said BATU Managing Director Mathu Kiunjuri.
“With rising unemployment and a significant increase in the cost of various basic consumer goods, the [Covid-19] pandemic has left many consumers more cash stretched than ever. Additionally, the closure of retail outlets led to constrained consumer access to our products. Despite these challenges, our business continues to be resilient due to prudent cost management measures undertaken to mitigate the decline in revenue.”
July 31, 2020
BAT: Higher Profits on Lower Volumes

Photo: BAT
British American Tobacco (BAT) reported its 2020 second-quarter results on July 31, with profits up 3.3 percent to £5.37 billion ($6.92 billion) and revenues up 1.1 percent to £12.27 billion.
BAT reported cigarette volume down 6.3 percent for the quarter, which it attributed to international travel restrictions, although a greater proportion of higher priced cigarette sales contributed to the higher revenue figure.
BAT highlighted its “new categories” revenue growth of 14.7 percent, which includes 9.1 percent growth for heat-not-burn tobacco products, 41 percent growth in vapor products and 67 percent growth in “modern oral” products.
BAT’s Kentucky BioProcessing division continues to work on a Covid-19 vaccine with its clinical trial awaiting approval from the U.S. Food and Drug Administration
July 31, 2020