Category: Financial

  • PMI Reports Results

    PMI Reports Results

    Andre Calantzopoulos

    Philip Morris International (PMI) reported net revenues of $7.64 billion in the third quarter of 2019, up 1.8 percent over those reported in the 2018 third quarter. Operating income was $2.79 billion, down 11.7 percent from that in the comparable 2018 quarter.

    PMI shipped 199.5 billion cigarettes and heated tobacco units (HTUs) in the third quarter, compared with 203.72 billion in the 2018 quarter.

    The number of shipped cigarettes declined to 183.52 billion in the 2019 third quarter from 195.07 billion in the 2018 third quarter.

    The number of shipped HTUs increased to 15.99 billion from 8.65 billion from quarter to quarter.

    “Our third quarter results continued to reflect strong underlying business performance and include the better-than-anticipated timing of pricing and costs compared to our previously communicated assumptions for the quarter,” said PMI CEO Andre Calantzopoulos.

    “The exciting global growth of our heated tobacco products drove our resilient total shipment performance, despite certain timing issues related to our combustible portfolio. The quality of our execution across the business drove growth against each of the key metrics of net revenues, operating income, margin, as well as earnings per share—both in the quarter and year-to-date—on a currency-neutral, adjusted like-for-like basis.

    “Importantly, IQOS was introduced in the U.S. this quarter, where it is currently the only FDA-authorized heat-not-burn product.”

    The third quarter results also reflected charge of approximately $0.20 per share related to an excise tax and value added tax audit in Russia.

    “As we expected, Q3 results were well ahead of consensus,” said Bonnie Herzog of Wells Fargo Securities. “HTU shipments were stronger than we expected, up 84.8 percent led by Italy, Russia, Ukraine and Japan.”

    Pamela Kaufman of Morgan Stanley expected investors to react favorably to PMI’s third-quarter results, which she said reaffirmed IQOS’ positive momentum and PMI’s solid underlying fundamentals.

  • Tobacco top earner

    Tobacco top earner

    Despite declining cigarette sales, tobacco is the third most profitable business in the United States, according to a ranking compiled by Comparisun.

    With an average profit margin of 31.42 percent, tobacco is outranked only by transportation (railroads), with an average profit margin of 50.93 percent, and real estate (41.23 percent).

    Remarkably, the booming electronics and software industries rank among the least profitable businesses in the U.S, with average profit margins of -4.07 percent and 1.88 percent respectively.

  • Scaling back

    Scaling back

    Demonstrating the potential business impact of the Trump administration’s proposed ban on flavored vapor products in the U.S., industry pioneer NJoy Holdings has changed plans for its upcoming funding round, reports The New York Times.

    The company had previously been in talks to raise between $200 million and $400 million in equity. Now it is reportedly in talks to raise convertible debt on a yet to be determined amount. Convertible debt is generally easier to raise because it is considered a less risky investment.

    Accounting for 11.6 percent of U.S. e-cigarette sales in August, NJoy generates more than 90 percent of its sales from nontobacco flavors.

    NJoy expects its revenue to drop 15 percent to 20 percent after the ban takes effect.

    Nonetheless, company officials believe the crackdown could be good for NJoy in the long term because it would eliminate competition from unregulated products.

    NJoy plans to file applications for all of its products early next year.

  • BAT beats estimates

    BAT beats estimates

    British American Tobacco’s (BAT) first-half profit beat analysts’ estimates as smoking alternatives cushioned the continuing decline in cigarette sales, according to a Bloomberg report.

    Adjusted operating profit rose 5.9 percent at constant rates to £5.21 billion ($6.32 billion). Analysts expected £5.14 billion.

    Revenue from alternatives such as heated tobacco and vaping rose 27 percent. The company said it’s still on track to meet the midpoint of its full-year guidance of a 30 percent to 50 percent increase, excluding the impact of foreign-exchange rates.

    BAT has a daunting task competing with Philip Morris’s IQOS and Juul, which have the most traction with consumers, according to Piper Jaffray analyst Michael S. Lavery. Product launches in the second half of the year are expected to accelerate growth, the company said.

     

     

  • Altria shares slide

    Altria shares slide

    Altria shares slid 5 percent on July 30 as the company warned that cigarette sales declines are accelerating and it’s “too soon” to judge Juul’s international expansion, a key piece of Altria’s $12.8 billion investment last year.

    According to a CNBC report, critics have worried that Altria paid too much for too little of Juul. Those concerns were raised again as analysts pressed Altria executives on a call reviewing the company’s second-quarter earnings results.

    Altria expects cigarette volumes in the U.S. to decline by 5 to 6 percent this year, which the company attributes to cigarette smokers switching to e-cigarettes. Altria has now revised the estimate twice this year. The company initially forecast volumes to fall by 3.5 to 5 percent.

    “There is still a bit of investment spending mode, both domestically and overseas, and I think it’s simply too soon to make a judgment on the progress they’re making overseas,” said Altria CEO Howard Willard about Juul’s growth. “That’s more of early days there.”

    Wells Fargo Securities analysts say that Altria’s second quarter results confirm the company’s profit model is working.

    “In our view, MO (Altria) has wisely diversified its exposure to multiple on-trend, non-combustible/reduced risk segments to offset increasing headwinds, while protecting (and growing) its rich margins and driving faster l.t. EPS growth,” an analyst said.

  • JT reports results

    JT reports results

    Japan Tobacco has posted its second quarter 2019 results.

    Highlights include:

    • First half adjusted operating profit at constant FX increased 5.9 percent year-on-year, mainly driven by pricing gains in both the international and Japanese domestic tobacco businesses. On a reported basis, adjusted operating profit decreased 9.4 percent due to unfavorable currency movements.
    • Operating profit and profit attributable to owners of the parent increased driven by a one-time compensation gain in the pharmaceutical business.
    • JTI announced the interim dividend of ¥77 per share as stated in the “Business Plan 2019.”

    “Our solid first half results were driven by additional market share gains and pricing benefits across many markets in conventional tobacco products,” said Masamichi Terabatake, President and CEO of JTI. “This reconfirms our conviction that these products will continue to be the platform of JT Group’s profitability and remain the major category of the industry.”

  • Taxing balancing act

    Taxing balancing act

    Indonesia is to follow a policy of foreshadowing cigarette excise increases in such a way as to limit smoking while lessening the impact of any cigarette-sales reduction on tobacco-industry jobs, according to a story at en.tempo.co.

    Finance Minister Sri Mulyani Indrawati said the Government had to address two concerns before issuing a regulation on cigarette excise: its impacts on health and the industry.

    Sri Mulyani said that the use of tobacco by smokers, especially children, would badly affect their health in the future; so the Government imposed excise on tobacco products in a bid to lessen its consumption.

    However, on the other side of the coin, the tobacco industry employed a large number of workers, including tobacco and clove farmers.

    Speaking before millennials at a Youth Engagement event at Balai Sarbini, Jakarta, Sri Mulyani implied that, given these circumstances, it was difficult for the Government to decide whether to prioritize individual physical health or economic health.

    Therefore, she said, the Government planned to gradually increase taxes based on the roadmap of tobacco excise, which would provide “a signal to the tobacco industry and regional administrations”.

    At the same time, Sri Mulyani said, the Finance Ministry, through the Customs and Excise Directorate General, would strive to reduce the illegal trade in cigarettes.

    In 2017, the illegal trade was said to have accounted for 10.9 percent of the cigarette market, a figure that fell in 2018 to 7.03 percent.

  • Cigarette revenue increased

    Cigarette revenue increased

    Japan Tobacco Inc.’s domestic cigarette sales volume during February, at 5.7 billion, was down by 7.2 percent on that of February 2018, 6.2 billion, according to preliminary figures issued by the company today. The February 2018 figure was down by 16.2 percent on that of February 2017.

    Volume during January-February, at 11.6 billion, was down by 5.5 percent on that of January-February 2018, 12.3 billion. The January-February 2018 volume was down by 15.3 percent on that of January-February 2017.

    JT’s market share stood at 61.7 percent during February, at 61.4 percent during January-February, and at 61.8 percent during January-December 2018.

    JT’s domestic cigarette revenue during February, at ¥36.9 billion, was down by 0.1 percent on its February 2018 revenue, also shown as ¥36.9 billion, which was down by 15.3 percent on its revenue of February 2017.

    Revenue during January-February, at ¥74.8 billion, was increased by 1.7 percent on that of January-February 2018, ¥73.5 billion, which was down by 14.7 percent on its revenue of January-February 2017.

  • Seeking a grand settlement

    Seeking a grand settlement

    British American Tobacco’s Canadian subsidiary, Imperial Tobacco Canada (ITCAN) has obtained an Initial Order from the Ontario Superior Court of Justice granting it protection under the Companies’ Creditors Arrangement Act (CCAA). This has the effect of staying all current tobacco litigation in Canada against ITCAN and other Group companies.

    ‘ITCAN’s decision to file for protection under the CCAA follows the Quebec Court of Appeal judgment holding the industry jointly and severally liable for a maximum of C$13.6 billion, and the recent decision by one of the other Canadian tobacco companies, JTI-Macdonald, to seek, and subsequently obtain, CCAA protection,’ BAT said in a note posted on its website yesterday. ‘If ITCAN had not also obtained court protection, it could have been required to pay for all or part of JTI-Macdonald’s share of the Quebec judgment, in addition to its own.’

    ITCAN’s share of the judgment was said by BAT to be a ‘maximum of approximately C$9.2 billion.

    Meanwhile, BAT said that, across Canada, other tobacco plaintiffs and provincial governments were collectively seeking significant damages that substantially exceeded ITCAN’s assets. ‘In seeking protection under the CCAA, ITCAN will look to resolve not only the Quebec case but also all other tobacco litigation in Canada under an efficient and court supervised process, while continuing to trade in the normal course,’ BAT said.

    ‘It will remain business as usual for ITCAN, its employees, customers and suppliers, and during the CCAA process, ITCAN’s management will continue to focus on growing its current cigarette and potentially reduced risk products business.

    ‘The Group will continue to consolidate the results of ITCAN, in line with IFRS 10 “Consolidated Financial Statements”, and ITCAN’s CCAA filing will not negatively affect the Group’s adjusted net debt to adjusted EBITDA ratio.

    ‘The £2.3 billion of goodwill relating to ITCAN on the Group’s balance sheet at 31 December 2018 will continue to be reviewed on a regular basis. Any future impairment charge would result in a non-cash charge to the income statement that will be treated as an adjusting item.

    ‘Since 2014 the Group has received no dividends from ITCAN and expects that this situation will continue whilst ITCAN remains under CCAA protection.  Notwithstanding this, there will be no impact on the BAT Group’s dividend payments or policy.’

    A BAT spokesperson was quoted as saying that ITCAN disagreed with the Court’s judgment. “However, we understand that CCAA protection will provide Imperial Tobacco Canada an opportunity to settle all of its outstanding tobacco litigation under an efficient and court supervised process whilst continuing to run its business in the normal course,” the spokesperson said.

  • The ban didn’t work. Why?

    The ban didn’t work. Why?

    After numerous failed attempts to enforce a ban on tobacco smoking and chewing in public places, the city of Kathmandu, Nepal, is to have another try, according to a story in The Kathmandu Post.

    Deputy mayor Hari Prabha Khadgi, who also leads a five-member inspection committee, said she was holding consultations with representatives of the 32 wards of Kathmandu to make the drive a success.

    “I’m in consultation with the ward representatives and stakeholders,” Khadgi was quoted as saying. “We have decided to run awareness programs at schools and reach every nook and corner of the city with anti-tobacco visuals and street performances.”

    On February 25, 2018, Mayor Bidya Sundar Shakya announced an 18-month action plan to make Kathmandu a healthy city. However, the action plan was not followed.

    Although the ban on tobacco smoking and chewing was enforced initially, the effort did not last.

    The World Health Organization’s Tobacco Free Initiative had provided Rs10 million to assist Kathmandu conduct the ‘Healthy City’ campaign, and the city authorities plan to follow through on the campaign this time around.

    The Tobacco Product (Control and Regulatory) Act-2011 bans smoking in public places. Anyone breaching the law is liable to a fine of Rs100 to Rs100,000, depending on the nature of the offense.