Category: Financial

  • China Tobacco’s Overseas Unit Issues Profit Warning

    China Tobacco’s Overseas Unit Issues Profit Warning

    China Tobacco International exports cigarettes and imports tobacco leaf from overseas markets.
    Photo: Taco Tuinstra

    China Tobacco International (CTI) warned its revenue and net profit may slump by 50 percent to 60 percent from a year ago during the first half of this year.
     
    The company attributed the drop to seasonal fluctuation in the import of tobacco leaf products from Brazil. Also, the sales volume of cigarettes in duty-free outlets in China and the relevant regions declined significantly because of the drop in passenger traffic amid the coronavirus pandemic, the company said.
     
    A subsidiary of the China National Tobacco Corp.—the world’s largest cigarette manufacturer—CTI primarily procures leaf tobacco for its parent company, earning revenue mainly from a fixed markup on the sale of leaves to domestic cigarette makers.
     
    The international unit is also the sole exporter of Chinese cigarette brands such as Yuxi and Hongtashan to duty-free outlets. In May 2018, it began exporting heat-not-burn tobacco products made in China.

    In June 2019, shares of CTI started trading on the Hong Kong Stock Exchange.

  • Pyxus to Delist From New York Stock Exchange

    Pyxus to Delist From New York Stock Exchange

    Photo: skeeze from Pixabay

    The New York Stock Exchange (NYSE) has commenced proceedings to delist Pyxus International. Trading in Pyxus’ common stock has been suspended.

    The NYSE determined that Pyxus is no longer suitable for listing under after the company filed for relief under Chapter 11 of the United States bankruptcy code. Pyxus does not intend to appeal the NYSE’s determination.

    Pyxus’ common stock began to be quoted on the OTC Pink marketplace on June 17, 2020, under the symbol PYXSQ. Investors can find quotes for the company’s common stock on. 

    Pyxus does not expect a transition to the OTC Pink marketplace to affect the company’s operations. 

    “The company can provide no assurance that its common stock will continue to trade on this market, whether broker-dealers will continue to provide public quotes of the company’s common stock on this market, whether the trading volume of the company’s common stock will be sufficient to provide for an efficient trading market or whether quotes for the company’s common stock may be blocked by OTC Markets Group in the future,” Pyxus wrote in a statement.

  • Emkon Files for Bankruptcy

    Emkon Files for Bankruptcy

    Photo: Tobacco Reporter archive

    German tobacco equipment manufacturer Emkon Systemtechnik Projektmanagement has filed for bankruptcy, according to a German press release issued by the liquidator company.

    An internationally operating manufacturer of packaging machinery for the tobacco, food and nonfood cosmetics, hygiene and pharmaceutical industries, Emkon was already facing difficulties in 2019. The effects of the Covid-19 pandemic have led to a further slump in sales, which the company couldn’t compensate for anymore.

    Currently, the liquidator is restructuring the company. Emkon will continue operations and its approximately 100 employees will be paid their salaries at least until the end of July.

    The restructuring expert is cautiously optimistic that the insolvency proceedings will rehabilitate the company.

  • Moody’s: Tobacco Has High Social Credit Risk

    Moody’s: Tobacco Has High Social Credit Risk

    Illustration: Moody’s

    With $175 billion of rated debt, the tobacco industry has a high “social credit risk,” according to a new analysis by Moody’s Investors Service analyzing 82 global sectors.
     
    “While combustible tobacco’s health dangers are the main reason for the sector’s high social credit risk, other drivers include customer relations, responsible production and demographic and societal trends,” said Roberto Pozzi, Moody’s senior vice president and author of the report.
     
    Alternative products, he added, may help offset the negative credit impact of social risks.
     
    Last week, Moody’s kicked off its 14-part series on social risks impacting credit in high-risk sectors with a look at the global gaming industry. The series examines the credit impact of social issues in multiple industries with roughly $8 trillion in combined rated debt.

  • Pyxus International Files For Chapter 11

    Pyxus International Files For Chapter 11

    Photo: Darren4155 | Dreamstime.com

    Pyxus International announced today that it and its subsidiaries, Alliance One International, Alliance One North America, Alliance One Specialty Products and GSP Properties, have filed voluntary petitions for relief under Chapter 11 of the U.S. bankruptcy code in the U.S. Bankruptcy Court for the District of Delaware as part of a “prepackaged” Chapter 11 Case.

    In connection with the filing, the company entered into a restructuring support agreement (RSA) with noteholders holding more than 92 percent in principal amount of the company’s first lien notes and more than 67 percent in principal amount of its second lien notes. In addition, the company’s receivables financing lenders and certain key foreign lenders have granted waivers and amendments under their respective facilities, demonstrating significant global financial support for the company.

    Under the terms of the RSA, Pyxus’ second lien noteholders will convert approximately $635 million of the company’s debt into equity or cash, and its first lien noteholders will, among other things, extend the maturity date of their existing notes by four years. To implement the financial restructuring contemplated under the RSA, the company commenced solicitation of a prepackaged Chapter 11 plan of reorganization and thereafter filed for Chapter 11 to restructure its debt and delever its balance sheet.

    The prepack plan contemplates that all outstanding shares of Pyxus common stock and rights to acquire Pyxus common stock will be cancelled and each holder of outstanding Pyxus common stock will be entitled to receive its ratable share of $1 million in cash provided that such holder does not opt out of the third-party releases contained in the prepack plan or object to the prepack plan.

    The Chapter 11 process does not include the company’s international subsidiaries or affiliates and Pyxus anticipates continuing to operate its worldwide operations in the ordinary course during the proceeding as it restructures its balance sheet. The terms of the restructuring contemplate paying, among others, all vendors and foreign lenders, in full.

    In addition, Pyxus has secured commitments for a $206.7 million debtor-in-possession financing facility (DIP facility) from certain existing noteholders. Proceeds from the DIP facility will be used to refinance the company’s existing asset-based revolver, for working capital and general corporate purposes, and to pay expenses incurred in connection with the Chapter 11 cases. Subject to court approval, the DIP facility, combined with the company’s projected cash flows, are expected to provide liquidity to support its operations during the restructuring process, allowing the company to emerge with a strengthened balance sheet to complement its operations and future growth plans.

    “This agreement with our noteholders represents a significant milestone in the ongoing process to transform our business as we continue to focus on driving long-term, sustainable growth and greater efficiency,” said Pieter Sikkel, Pyxus’ president and CEO. “We will continue to provide our customers with the quality products and services they are accustomed to without interruption and work with our business partners throughout the Court-supervised process. We also expect there will be no impact to vendors. As we look to quickly re-emerge from this process, we expect to be a stronger company, better able to execute on our long-term strategy and positioned for long-term growth and success.”

    Simpson Thacher & Bartlett is serving as legal counsel, and Lazard and RPA Advisors are serving as financial advisors to Pyxus.

  • Reintroduction of Zim Dollar Dampens Cigarette Sales

    Reintroduction of Zim Dollar Dampens Cigarette Sales

    Zimbabwe’s previous currency was rendered worthless by hyperinflation.
    Photo: Taco Tuinstra

    The reintroduction of the Zimbabwean dollar late last year has taken a toll on legal cigarette sales, reports New Zimbabwe.

    Market leader British American Tobacco experienced a 17 percent drop in sales for the fiscal year that ended Dec. 31, 2019. The company attributed the decline to the weakening of the Zimbabwe dollar, which has eroded disposable incomes and forced people to cut down on smoking.

    “It was a challenging year for the business mainly driven by significant changes to the macroeconomic policies and in particular, the introduction of the Zimbabwe dollar that was floated against the U.S. dollar,” said company Chair Lovemore Manatsa.

    Manatsa said the local currency devalued against major trading currencies further impacting consumer disposable incomes, which saw inflation increasing to 521 percent by the end of December 2019.

    Zimbabwe replaced its currency in 2009 with the U.S. dollar to stop hyperinflation. In November 2019, Zimbabwe’s central bank reintroduced the currency to ease a severe cash shortage, but the new Zimbabwe dollar too is quickly losing value.

  • Industry Outlook ‘Stable,’ Says Moody’s

    Industry Outlook ‘Stable,’ Says Moody’s

    Photo: Tobacco Reporter archive

    After declining in 2020, the global tobacco sector’s operating profit will likely rebound in 2021, with growth of between 5 percent and 10 percent next year, according to Moody’s.  

    In a new report, the business and financial services company assesses the outlook for the tobacco industry in an unprecedented business environment. Key findings include:

    • Long-term impact of coronavirus on consumption too early to gauge. Tobacco sales could decline because of reduced demand or because consumers switch to lower priced products. But it could also speed up the move to alternative products, accelerating the industry’s transformation. Regulations may become increasingly restrictive, or regulators might delay developing risk-proportionate regulatory frameworks.
    • Leverage ratios will continue to improve despite high dividend payouts and economic slowdown. Dividends will remain high and absorb most operating cash flow. However, Moody’s analysts expect companies to use free cash flow and available cash balances to repay pending debt maturities.
    • Operating profit to decline in 2020 but rebound in 2021, keeping outlook stable. Despite increased uncertainty caused by the coronavirus pandemic, Moody’s analysts expect demand to remain fairly stable in the next two years. Some moderate risks include volume declines in duty-free sales, slower conversion of adult smokers to alternative products, manufacturing and supply chain disruptions and increased currency volatility.
    • Cigarette sales volumes to keep falling but price rises still offset the impact. Traditional cigarette volumes will decline around 5 percent-6 percent in the U.S. and 2 percent-3 percent in the rest of the world excluding China during the next 12-18 months. But mid-single-digit percent price increases will continue, and this will more than offset volume declines.
    • Alternative products sales growth to continue despite more regulatory scrutiny. Moody’s analysts expect alternative products sales growth to slow this year but gradually resume into 2021. Alternative products’ market share will remain stable near term because tighter regulatory scrutiny of vaping and the temporary closure of IQOS stores during the lockdowns may impact user acquisition. Increasing regulation will create a barrier to entry and entrench incumbents’ market positions.
  • PMI Presents at Deutsche Bank Conference

    PMI Presents at Deutsche Bank Conference

    Jacek Olczak | Photo: PMI

    Philip Morris International (PMI) says it is on-track to deliver second quarter reported diluted earnings per share toward the upper end of its previously communicated range of $1 to $1.10. The forecast includes an unfavorable currency impact, at prevailing exchange rates, of approximately $0.07 per share compared to an unfavorable impact of approximately $0.12 per share communicated previously.

    The forecast assumes a currency-neutral net revenue decline—wholly attributable to Covid-19-related factors—around the high end of the company’s previously communicated decline range of 8 percent to 12 percent.

    According to PMI, this primarily reflects industry cigarette volume declines at the high end of the company’s initial estimates due to stricter or longer lockdowns in certain Latin America and EU markets during April and May. PMI has observed, however, better-than-anticipated IQOS performance and, in recent weeks, signs of recovery for combustible products.

    The forecast also assumes no disruption in the company’s ability to supply its customers based on its current operations and inventory levels.

    PMI Chief Operating Officer Jacek Olczak and Chief Financial Officer Emmanuel Babeau address investors today at the Deutsche Bank Global Consumer Conference. An archived copy of the call will be available at http://www.pmi.com/2020deutschebank until 5 p.m. Eastern time on July 10, 2020.

    The company will issue its 2020 second-quarter results on July 21.

  • BAT Shares Down on Lower Growth Projections

    BAT Shares Down on Lower Growth Projections

    Photo: BAT

    Shares in British American Tobacco (BAT) fell almost 4 percent after it lowered revenue and profit growth estimates for this year by a couple of percentage points each.

    In adjusting its guidance, BAT pointed to a worsening outlook for an industry that had previously reported little impact from the coronavirus pandemic on sales and operations.

    The company also pushed back its target for reaching £5 billion ($6.3 billion) in sales from next-generation products like e-cigarettes to 2025 from 2023–2024.

    At the start of the pandemic, BAT insisted the coronavirus disruption was having little impact on consumer demand. During a recent conference call, however, CEO Jack Bowles said that earlier numbers had covered periods when many of its markets were still in the early stages of lockdowns.

    BAT now expects adjusted revenue growth of 1–3 percent this year instead of 3–5 percent while earnings per share are anticipated to be up by a mid-single digit rather than a high-single digit percentage.

    Nonetheless, the company will continue its dividend policy of paying out 65 percent of profit.

    “All things considered, British American Tobacco has been doing relatively well against a very difficult backdrop,” said Russ Mould, investment director at AJ Bell.

  • Trading Update: BAT’s Business ‘Resilient and Growing’

    Trading Update: BAT’s Business ‘Resilient and Growing’

    Photo: British American Tobacco

    British American Tobacco’s (BAT) business is performing well in a challenging and volatile trading environment, the company announced in a trading update today.

    BAT said it continues to see good pricing and strong volume and value share growth across its combustibles business, together with good share growth across all three of its new categories—vapor, tobacco heating and modern oral.

    Results in developed markets—which account for approximately 75 percent of the group’s revenue—are strong, with continued good pricing, little evidence of accelerated downtrading to date and a particularly strong performance from its business in the U.S., which has been highly resilient throughout the Covid-19 crisis.

    The impact of Covid-19 in emerging markets, including Bangladesh, Vietnam and Malaysia, has been more pronounced, according to BAT. In addition, closures and other lockdown measures in certain countries, in particular South Africa, Mexico and Argentina, have persisted longer than anticipated.

    “We have made a good start to the year, with strong volume and value share growth in combustibles underpinning the sustainability of the business,” said BAT CEO Jack Bowles.

    “Our focus on becoming a faster, simpler, more agile business through Project Quantum has positioned us well for continued delivery in the current environment and these efforts have ensured we are a highly resilient company.”

    Bowles also referenced the work of its Kentucky Bioprocessing subsidiary, which is developing a potential vaccine for Covid-19. The vaccine candidate has demonstrated its ability to generate an immune response in pre-clinical testing and is poised to move to clinical trials.