Category: Financial

Revenues up for 22nd Century Group

Image by Steve Buissinne from Pixabay
22nd Century Group saw a net sales revenue increase of 12 percent, or $0.8 million, in the first quarter of 2020 over last year.
The company suffered an operating loss of $4.1 million compared to $5.4 million in 2019.
“We are very pleased with the solid start to 2020, with revenue increasing 12 percent over last year,” said Mike Zercher, president and chief operating officer of 22nd Century. “We believe the company is well positioned to execute on its strategies despite a challenging backdrop due to Covid-19. Our manufacturing facility has remained open and has been able to fulfill orders without any backlog. The improvements we made to our cost structure in 2019 have started to pay off in the first quarter with a 16 percent reduction in operating expenses compared to the same quarter last year.
“Additionally, the U.S. Food and Drug Administration (FDA) recently announced a deadline for public comments on the company’s modified-risk tobacco product (MRTP) application. This moves our MRTP application one step closer to an FDA authorization decision for the company’s proprietary reduced nicotine content tobacco cigarettes. Bringing these products to market is an important and exciting prospect for the company and public health,” Zercher added.
May 7, 2020
Beyond Tobacco

Photos: BAT
British American Tobacco prepares for a radically different future.
By Stefanie Rossel
Less than a year after taking over as British American Tobacco’s (BAT) new CEO, Jack Bowles has already left a distinctive mark on the company. In September, the maker of Lucky Strike and Camel cigarettes unveiled a comprehensive restructuring program that included the layoff of 2,300 of its 55,000 employees. A fifth of the job cuts were senior roles. Savings delivered by the measure were to be reinvested in the company’s new categories, such as vapor, tobacco-heating products and oral tobacco, BAT said. The goal is to make BAT a more efficient and agile company and to facilitate business processes.
On the occasion of its capital markets update in mid-March, the company appeared to have reinvented itself: Gone was the tobacco leaf in its logo, replaced by a double swoosh and accompanied by the slogan, “A better tomorrow.” BAT appears to be redefining itself as a consumer goods company.
“Our strategy puts the consumer first, focusing on understanding adult consumer choice and enjoyment,” explained Kingsley Wheaton, BAT’s chief marketing officer. “We will capture lost consumer moments with a portfolio in tobacco, nicotine and beyond. This will enable sustainable, long-term growth with a clear focus on foresights, innovation, brands, activation, teams and technology. We will become a business that defines itself not by the products it sells but by the consumer needs it meets.”

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“The redesigned logo, replacing one that hadn’t altered since the late 1990s, helps to emphasize that an increasing part of BAT’s future is likely to be in noncombustible nicotine products such as smokeless tobacco, vapes and tobacco-heating [products],” says Jonathan Fell, principal at Ash Park. “With ‘beyond nicotine,’ it is also raising the prospect of going into areas such as caffeine or cannabidiol/tetrahydrocannabinol products once the appropriate legal and regulatory framework is in place and the company’s scientists have fully substantiated their safety and efficacy.”
BAT experienced a 4.7 percent reduction in traditional cigarette volume in 2019, according to its most recent annual report. The company’s revenue growth of 5.7 percent to £25.88 billion ($32.26 billion) in 2019 was driven by pricing across the cigarette portfolio and an increase in revenue from traditional oral tobacco and next-generation products (NGPs).
In light of continuously declining global cigarette sales, tobacco companies have increasingly felt the pressure to adapt their business models to the changing environment. Philip Morris and Japan Tobacco International announced similar restructuring and rationalizing measures in the last quarter of 2019.

Jack Bowles aims to make BAT a more efficient and agile company
Faster and more responsive
Upon taking the helm at BAT, Bowles set out three priorities: driving value from combustibles, improving the performance of new categories and simplifying the business. During the capital markets event, Bowles substantiated forthcoming goals. BAT aims to reduce the health impact of its business by offering a greater choice of better and less risky products with the ambition to have 50 million noncombustible product consumers by 2030. By extending its Quantum project, a business simplification program initiated in 2004, the company aims to generate £1 billion over the next three years—money it intends to utilize to accelerate the revenue growth of its “new category” (NC) business. Next to vapor products, NC includes heated-tobacco products (HTPs) and modern oral products, a category comprising white, tobacco-free nicotine pouches, such as Epok, Lyft and Velo. The company will support its strategy by establishing innovation hubs in London, San Francisco, Shenzhen and Tel Aviv in addition to its R&D centers in Winston-Salem, North Carolina, USA, and Southampton, U.K.
While acknowledging that the coronavirus crisis was likely to make NC growth in the first half of 2020 difficult with the company having postponed product launches, Bowles nevertheless expected to make further progress this year toward BAT’s aim to produce revenues of £5 billion through novel products by 2023–2024.

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Consolidating brand properties
In 2019, BAT increased its NC revenue to £1.3 billion, which represents 37 percent growth compared to the previous year and more than double the revenue from two years ago. BAT sold 226 billion vapor units and 9 billion HTP units in 2019, up 19 percent and 32 percent, respectively, over the previous year. With a plus of 188 percent, modern oral products saw extraordinary growth. The company sold 1,194 million pouches in 2019.
In November, BAT began to streamline its NGP portfolio to further accelerate the growth of its NC business, thereby creating three global brands. Vapor products will be branded as Vuse and HTPs will continue to be branded as Glo whereas modern oral products will be marketed under the Velo brand. The brand consolidation, taking place in phases, is set to be completed by the end of 2020.
BAT’s flagship Vype brand will also be migrated to Vuse, currently a brand manufactured by R.J. Reynolds Vapor Co., a subsidiary of Reynolds American Inc. (RAI), which BAT acquired in 2017. Launched in 2013, Vuse once was the U.S.’ most popular e-cigarette, reaching a market share of 33 percent in 2015 before Juul overtook it in 2017. In 2019, Vuse recovered some of the lost territory, claiming a market share of 14 percent. Growth was driven by the launch of Vuse Alto, a pod-mod type vaporizer. In October 2019, RAI submitted a premarket tobacco product application (PMTA) to the U.S. Food and Drug Administration (FDA) seeking market authorization for a range of Vuse flavors. At the time of writing, the FDA’s court-ordered May 12 PMTA deadline was likely to be extended by 120 days because of the coronavirus pandemic.
Fell is confident that BAT will be able to pursue its growth strategy in the U.S. despite the nationwide restrictions on e-cigarette flavors that took effect in February. The ban applies to mint and fruit flavors that are offered in cartridge-based e-cigarettes, such as the pods sold by Juul Labs. Menthol and tobacco flavors continue to be allowed as well as fruit flavors delivered by disposable vapes, vapor devices with an open-tank system and their respective e-liquids. “BAT has been gaining share of the U.S. vaping market, helped by the success of its Vuse Alto device and also because, relative to major competitors, a smaller proportion of its portfolio has been hit by the flavor ban,” says Fell. “In the short term, the growth of the overall vaping category could be impacted by the challenges and ongoing uncertainty posed by the May 2020 PMTA deadline, which may now be extended due to the Covid-19 outbreak. But in the long term, BAT should be in a very strong position to compete energetically in the U.S. vape market and certainly has the resources to meet the increasing regulatory demands.”

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Jonathan Fell
Pushing forward
BAT’s Glo has been sold in Japan and South Korea—the world’s leading HTP markets—along with Eastern Europe, Russia and Canada, among other markets. To support the expansion of Glo across Europe, the company in 2018 started a €800 million ($875 million) five-year investment program in its Romanian factory.
With around 70 percent of global industry volume, Japan is by far the largest market for HTPs. The segment in that country is currently led by Philip Morris International (PMI), which debuted the category in 2014 with the launch of IQOS and holds a 71.8 percent share. BAT launched Glo in Japan in 2016, and the product held a 20.1 percent category share in 2018, according to Reuters. To narrow the gap with IQOS, BAT in 2019 launched three new Glo variants in Japan: Sens, Pro and Nano. A fourth version was supposed to be introduced around press time.
“I think we will see increased efforts in this category, starting with the launch of Glo Hyper—with larger tobacco sticks and a device which uses induction heating—in April,” says Fell. “Rather than stressing it wants to be a leader in HTP specifically, BAT is very committed to its multi-category approach,” he adds. “It is well ahead of PMI in vaping and smokeless and will offer a choice of modern oral tobacco, vapes or tobacco-heating [products] that [are] relevant to consumer needs in individual markets. Hence, BAT says it wants to go ‘from a distant number two to a very strong number two’ in HTP.”
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.

May 1, 2020
BAT Resilient in Uncertain Times

Photo: British American Tobacco
British American Tobacco (BAT) has achieved all its 2019 financial targets, according to a company press release.
The company has consistently delivered on its high single-figure constant currency earnings growth target and continues to maintain this guidance for 2020, BAT wrote in its statement.
The beginning of 2020 has seen continued volume and value share growth of 40 basis points and 20 basis points, respectively; positive volume growth; and strong price mix with pricing in line with the company’s plan.
Despite the coronavirus outbreak, most BAT factories are open and operating at full capacity. The company has built up an average stock of about two months of finished goods with further stock throughout its wholesale and retail footprint. About 75 percent of BAT’s global revenue is in developed markets where distribution and availability are largely unchanged.
In a small number of markets where mandated by governments, the company’s combustibles manufacturing facilities have faced limited periods of shutdown. To date, though, BAT has seen limited impact on consumer demand, pricing or consumers’ ability to access products. Sales in global travel retail have been significantly impacted, although this represents less than 1 percent of the company’s sales. Only a few governments have restricted the sale of cigarettes in their countries.
BAT is anticipating a reduction in trade and consumer stocks and some effect on industry volume and revenue growth in the second quarter of 2020. This, together with some delayed launches in new categories, means results are expected to be weighted to the second half.
The company expects constant currency adjusted revenue growth around the low end of the 3 percent to 5 percent range in fiscal 2020 and continued progress toward the company’s 2023–2024 ambition of £5 billion ($6.2 billion) in revenue in new categories.
April 30, 2020
Revenue Up, Operating Profit Down at JT

Photo: Taco Tuinstra
Japan Tobacco’s revenue increased by 2.8 percent to ¥519.6 billion ($4.9 billion) in the first quarter of 2020 compared to the same quarter in 2019.
Operating profit decreased by 29.4 percent to ¥129 billion.
“Our consolidated first quarter results were strong, driven by robust growth in the international tobacco business, which had a strong first quarter and significant favorable pricing gains compared to the previous year,” said Masamichi Terabatake, president and CEO of the JT Group. “As of the first quarter, there was limited impact to our business following the Covid-19 outbreak.
“We are not revising the 2020 forecast. Given that the global impacts of Covid-19 are becoming prevalent from April onwards, we will continue to closely monitor how the pandemic and the currency headwinds impact our business and financials.”

April 30, 2020
Altria Withdraws Full Year Guidance

Photo: Altria
Altria Group announced strong performance from its core tobacco segments in the first quarter of 2020, even as it withdrew its full year 2020 adjusted diluted EPS guidance and 2020–2022 adjusted diluted EPS growth objective due to Covid-19 uncertainty.
The company’s net revenue was up by 13 percent in the first quarter of 2020 over the same period last year.
“The first quarter brought out the best in Altria’s employees as we navigated the dynamic tobacco environment and the unprecedented effects of the Covid-19 pandemic,” said Billy Gifford, Altria’s CEO. “We’ve approached these challenges together by focusing on the health and welfare of our employees, maintaining business continuity and supporting our communities.”
“We had an excellent start to the year, growing our first quarter adjusted diluted EPS by 18.5 percent, driven by the strength of our smokeable and oral tobacco products segments. Due to the uncertainties related to the impact of the Covid-19 pandemic on our diverse business model and economic recovery scenarios, we’re withdrawing our full-year 2020 adjusted diluted EPS guidance and, as a result, we’re also withdrawing our compounded annual adjusted diluted EPS growth objective. We’re continuing to assess the Covid-19 situation and intend to reestablish guidance at the appropriate time.”
“Our dividend is important to our investors and it remains a top priority for us. Our objective continues to be a dividend payout ratio target of approximately 80 percent of adjusted diluted EPS. For 2020, we expect to recommend a quarterly dividend rate to our board that reflects, among other things, our strong cash generation and the strength of our balance sheet.”
April 30, 2020
TPB Reports Robust Demand in Hard Times

Image by Steve Buissinne from Pixabay
Turning Point Brands (TPB) announced its first quarter results for 2020.
Net sales decreased 1 percent to $90.7 million while gross profit increased 2.4 percent to $41.4 million. Net income decreased to $3.3 million, reflecting inclusion of premarket tobacco product application costs.
“Our results this quarter reflect the robust demand for our products even during challenging times,” said Larry Wexler, president and CEO of TPB. “Sales performance was driven by mid-teens growth in our core smokeless and smoking segments partially aided by trade load-in as a response to strong customer demand and the uncertain environment. We estimate trade load-in impacted sales in our core tobacco segments by $2 million. Our NewGen segment also delivered better than expected results after we reorganized the business last quarter.”
“As a result of the extraordinary situation we are facing [the Covid-19 outbreak], our focus during the quarter was on the safety and well-being of our colleagues and the communities and customers we serve. This focus serves as the basis for decisions we make as a company and how we react going forward,” said Wexler.
In response to Covid-19, TPB has implemented safety precautions, including split shifts in warehouses and manufacturing facilities, temperature scans, additional contactless hand sanitizing stations, protective equipment, social distancing guidelines, increased cleaning and sanitation, the suspension of unnecessary travel, the implementation of telecommuting where possible, videoconferencing, and tele-selling initiatives. Some of these changes are likely to remain in place even after the pandemic crisis is over, leading to ongoing cost savings.
April 29, 2020
Swedish Match Reports Record Quarter

Photo: Swedish Match
Swedish Match had a record quarter from product segments driven by U.S. businesses.
In local currencies, sales from product segments increased by 21 percent for the first quarter. Reported sales increased by 24 percent to SEK4.03 billion ($401.68 million)
In local currencies, operating profit from product segments increased by 30 percent for the first quarter. Reported operating profit from product segments increased by 34 percent to SEK1.65 billion.
Operating profit amounted to SEK1.59 billion for the first quarter. Profit after tax amounted to SEK1.16 billion for the first quarter. Earnings per share increased by 38 percent to SEK7.14 for the first quarter.
Net effect on revenue and results from Covid-19 impacts were positive in the first quarter but are expected to become negative in the second quarter.
Swedish Match nicotine pouch product ZYN is now available in approximately 80,000 stores in the U.S., and average sales per store continue to increase.
April 27, 2020
PMI: Strong Quarter Amid Uncertainty

Philip Morris International (PMI) reported net revenues of $7.15 billion in the first quarter of 2020, up from $6.75 billion in the 2019 first quarter. Operating income was $2.79 billion in the 2020 quarter compared to $2.05 billion in the comparable 2019 period.
PMI sold 173.75 billion cigarettes and heated-tobacco units during the 2020 first quarter, down from 175.8 billion during the 2019 first quarter. The number of cigarettes shipped declined from 164.3 billion sticks in the first quarter of 2019 to 157.02 billion sticks in the first quarter of 2020. The number of heated-tobacco units, by contrast, increased from 11.5 billion units to 16.73 billion units between the two quarters.
“We started the year with a very strong first quarter, reflecting continued structural growth momentum driven by our smoke-free portfolio and favorable combustible tobacco pricing,” said Andre Calantzopoulos, chief executive officer. “We experienced a limited impact on our performance from the early stages of the Covid-19 pandemic as the onset of government restrictions related to social distancing and travel were generally only implemented in our key markets over the course of March.
“We expect that the pandemic will have adverse impacts on our full-year 2020 business results. Those already observable relate to a severe reduction of our duty-free sales, slower IQOS user acquisition and delayed minimum price enforcement in Indonesia. We also have to assume that, in certain markets, unemployment and related reductions in disposable income will have a temporary impact on market dynamics or the ability of certain small retailers to operate.”
PMI indicated that it maintains enough inventory of inputs and finished goods and does not expect to see a disruption to its supply. Most of PMI’s manufacturing facilities are operational, including all heated-tobacco unit facilities, but manufacturing facilities representing 20 percent of its cigarette production are closed. However, PMI has over two months’ supply of heated-tobacco units, three months’ supply of IQOS devices and 1.5 months’ supply of cigarettes.

April 21, 2020
Controversy About BAT CEO Pay Hike

Photo: BAT
Institutional Shareholder Services (ISS) is recommending that investors oppose British American Tobacco’s (BAT) remuneration report at its annual meeting later this month.
The proxy advisory firm says support for BAT’s pay report is unjustified because of the increase in CEO Jack Bowles’ salary from £1.18 million ($1.45 million) to £1.29 million. Many leaders at FTSE peers have taken temporary pay cuts because of the Covid-19 outbreak, according to ISS.
BAT defended the pay increase. “Jack Bowles was appointed on a package that was 21 percent lower than that of his predecessor,” a company spokesman said on Friday.
“Following the 9.5 percent pay increase for Jack following a very strong first year in role, his total fixed remuneration is still 15 percent lower than his predecessor.”
The company also noted that its remuneration report had won the backing of Glass Lewis, another proxy adviser.
BAT has a market value of nearly £68 billion.
April 21, 2020
Imperial Brands Delays Release of its Half-Year Earnings

Photo: moneycortex | PixaBay
Imperial Brands will delay the release of its half-year earnings for fiscal year 2020 by two weeks due to the coronavirus outbreak. The company will now release its report on May 19 instead of May 5.
The two-week delay is intended to give auditors more time to prepare and review statements. “With an already tight reporting timetable and with newly appointed auditors, we have therefore agreed with Ernst & Young that the steps both businesses are taking in relation to Covid‐19 mean it will take longer to prepare and review Imperial Brands’ interim financial results,” the company said in a statement.
April 20, 2020