Blog - Tobacco Reporter

KT&G Posts Strong Results in First Quarter

KT&G’s sales and operating profit soared by 11.5 percent and 10 percent, respectively, to reach KRW844.8 billion ($665 million) and KRW272.6 billion in the first quarter of 2022, according to a company earnings release. Performance was driven by KT&G’s flourishing overseas business, with robust sales of its heat-not-burn (HNB) tobacco products.

“Our sales expansion of HNB products in both domestic and overseas markets, along with increasing export volume of our traditional tobacco products, led to the growth of the company’s total revenue,” a KT&G official was quoted as saying by The Korea Times.

KT&G sold about 9.54 billion cigarettes in Korea in the first quarter of this year, 0.9 percent less than in the same period last year. However, its market share increased by 1.2 percentage points to 65.7 percent. In the HNB sector, the company’s products accounted for 45.1 percent of the domestic market.

KT&G’s overseas volume of combustible cigarettes jumped 43.8 percent to 11.5 billion, thanks to strong sales in the Middle East and Asia Pacific regions.

May 14, 2022

Marketing Orders for Vuse Vibe and Vuse Ciro

The U.S. Food and Drug Administration on May 12 gave R.J. Reynolds Vapor Co. (RJRVC) permission to continue marketing the original-flavor varieties of its Vuse Vibe and Vuse Ciro products. In October 2021, the FDA authorized the marketing of Vuse Solo original flavor.

“These authorizations represent the broadest portfolio of market authorizations provided to any company in the U.S for premarket tobacco product applications (PMTA),” said David O’Reilly, director of scientific research at RJRVC’s parent company, BAT, in a statement. “Continued focus on science and innovation has supported the robust submissions, which have enabled FDA to evaluate and authorize the marketing of these products.

“We are proud of the work undertaken by the team to achieve this significant regulatory milestone and are confident in the quality of our applications.”

While approving the original-flavor varieties, the FDA denied RJRVC’s applications for the marketing of Vuse-branded products with other flavors. Those flavored vapor products are not currently marketed or sold in the U.S., according to BAT. The company says it is reviewing the FDA’s decision on those applications to determine next steps.

RJRVC’s application to market menthol-flavored Vuse products remains under FDA review and those products can remain on market pending a decision from the agency.

May 12, 2022

PMTA Deadline Approaching

Manufacturers of nontobacco nicotine (NTN) products on the market as of April 14, 2022, that wish to continue to market their products are required to submit a premarket tobacco product application (PMTA) to the U.S. Food and Drug Administration by May 14, 2022.

The May 14 deadline is only for applicants submitting electronically, as required by the FDA. Applicants can, however, request a waiver from the FDA to submit a PMTA in a different format. An application submitted in hard copy must be received by the FDA no later than 4 p.m. Eastern Daylight Time on Friday, May 13.

The FDA received from the U.S. District Court of Maryland a 14-day extension to file the first PMTA status reports required by the court’s revised remedial order on April 29.

“The extension request is supported by good cause. Compiling the information needed for the status report has required considerable time and effort, and defendants have been working with plaintiffs to resolve any ambiguities about which applications will be covered in the status report,” the motion states.

The new law additionally provides that an NTN product with a tobacco-derived “previous version” that received a negative action on a PMTA from the FDA, such as a refuse-to-file or marketing denial order, may not continue to be marketed after May 14, 2022, without receiving a marketing granted order from the FDA.

Such products must be removed from the market, even if a new PMTA is submitted, until the marketing granted order is received, according to the agency. Products on the market after July 13, 2022, without an FDA marketing granted order are in violation of section 910 of the Food, Drug and Cosmetic Act and may be subject to FDA enforcement.

For products not on the market on April 14, 2022, a PMTA must be submitted to the FDA and marketing authorization must be received before the product can be sold in the United States.

May 12, 2022

Zimbabwe: Decline in New Tobacco Growers

The number of new tobacco growers in Zimbabwe for the 2021–2022 season has declined by 50 percent compared to the previous year, according to a report in The Herald.

According to the Tobacco Industry and Marketing Board (TIMB), 756 of the new registered farmers are from the communal sector, 244 are A1 farmers, 38 are from the small-scale commercial sector and 56 are from the A2 sector.

Meanwell Gudu, TIMB chief executive, attributed the decline in new registrations to viability issues. “The decline witnessed in terms of registration of new tobacco growers can be attributed to viability issues. The cost of production is going up and the growing demand of the U.S. dollar component in the operations,” he said. “Even farm laborers now demand payment in foreign currency. So without development funding, it becomes a challenge for new tobacco farmers to register.”

Meanwhile, average prices for tobacco exports have marginally increased this year.

“There [are] increased exports, which is a clear reflection of the opening up of the economy post-Covid-19 lockdowns, and there are improvements in logistics,” Gudu said.

So far, Zimbabwe has exported tobacco worth $307.8 million this season compared to $222.2 million in the same period last year.

May 12, 2022

PMI Reaches Gender Balance Goal

Philip Morris International has reached its global company-wide target to improve gender balance, ensuring at least 40 percent female representation in managerial roles by 2022, according to a company press release.

Jacek Olczak, CEO at PMI, commented, “I am immensely proud of PMI’s vision, commitment and achievement in ensuring equal opportunities are given to all in the workplace, irrespective of gender. Meeting this target demonstrates that our inclusion and diversity strategy is working. Diverse profiles, backgrounds and perspectives allow us to make better and more considered decisions as well as contribute to better and more sustainable performance. I firmly believe that a culture of fairness, inclusion and diversity [is] crucial to PMI’s progress in achieving a smoke-free future and will continue to benefit the company as we become more reflective of our consumer base.”

“What gets measured really does get done,” said Silke Muenster, chief diversity officer. “This was a whole company effort requiring everyone to take responsibility. I am delighted that we have met our target on time but recognize that we still have a long way to go on our diversity, equity and inclusion journey. With this in mind, we have our next gender representation target: 35 percent of women in senior roles by 2025.

“Having a truly diverse workforce is an essential part of our goal to achieve a smoke-free future. I am very proud of the progress we have made to date, and I am confident about achieving more in the future.”

PMI has also been recertified as a global EQUAL-SALARY organization for the second time since 2019 by the independent EQUAL-SALARY Foundation. The recertification verifies that PMI continues to pay female and male employees equally for equal work in the more than 90 markets where PMI operates.

The EQUAL-SALARY Foundation is an independent, nonprofit organization based in Switzerland. The EQUAL-SALARY certification verifies that organizations have sustainable policies and practices to ensure that they pay their male and female employees equally for equal work.

May 12, 2022

Swedish Match Accepts PMI’s $16 Billion Offer

Swedish Match’s board of directors has accepted Philip Morris International’s offer of SEK161.2 billion ($16.14 billion), according to The Wall Street Journal. The deal is subject to shareholder approval.

PMI hosted a live audio webcast today to discuss the offer. An archived copy of the webcast will be available at www.pmi.com/investors until 5 p.m. ET on June 9, 2022.

“We are pleased to announce this exciting next step in Philip Morris International’s and Swedish Match’s trajectory toward a smoke-free future,” said PMI CEO Jacek Olczak in a statement. “Underpinned by compelling strategic and financial rationale, this combination would create a global smoke-free champion—strengthened by complementary geographic footprints, commercial capabilities and product portfolios—and open up significant platforms for growth in the U.S. and internationally.

“Swedish Match’s dedicated employees and management have steadfastly pursued the company’s vision of a world without cigarettes while delivering very strong results. We look forward to building upon this success and joining forces to accelerate our shared smoke-free mission.”

In 2016, PMI announced its new mission to replace cigarettes with science-based, less harmful alternatives as soon as possible, and the company says it has made considerable progress toward that goal. While in 2015, essentially all of PMI’s net revenues came from cigarettes, last year nearly 30 percent came from smoke-free products. By 2025, PMI aims to be a predominantly smoke-free company, with more than half of its net revenues coming from such products. PMI says it has built world-class scientific assessment capabilities, notably in the areas of preclinical systems toxicology, clinical and behavioral research as well as postmarket studies.

Underpinned by compelling strategic and financial rationale, this combination would create a global smoke-free champion.

Jacek Olczak , CEO, PMI

Swedish Match embarked on its smoke-free journey two decades ago, starting with its decision to divest its cigarette business. PMI says it values how Swedish Match has relentlessly pursued tobacco harm reduction through its range of smoke-free products; received authorizations for its products via strict regulatory pathways in the U.S.; and reshaped the public health environment in countries such as Sweden and Norway.

“As PMI continues to evolve its business for the long term, it believes that the two companies would be a perfect pairing of strategic vision, culture and enterprise,” PMI wrote in a press note. “Together, the companies would be able to create a global, science-led smoke-free champion, combining expertise in heated tobacco and oral nicotine—including multiple MRTP [modified-risk tobacco product] authorizations—as well as PMI’s emerging presence in e-vapor products, to switch more adult smokers to better alternatives than the two could achieve as separate companies. Swedish Match would lead the combined company’s oral nicotine business.”

Financial analysts confirmed the deal has strategic merit, citing Swedish Match’s access to the lucrative U.S. market. Cigarette sales have been declining almost unabated for years because of the health hazards and the stigma attached to smoking. Meanwhile, “modern oral” products, such as nicotine pouches and lozenges, are driving growth in the oral tobacco category, which includes traditional chewing tobacco and moist snuff. Swedish Match’s Zyn pouch leads the U.S. modern oral category with a volume market share of 64 percent in 2021.

According to PMI, the combination would immediately enhance PMI’s already strong growth profile and support additional opportunities in the U.S. and internationally over time. It is also expected to be accretive to adjusted diluted earnings per share before any synergies and excluding transaction-related costs as well as the amortization of acquired intangibles. Swedish Match’s operating cash flow comprises meaningful U.S. dollar net income, thereby improving PMI’s currency profile.

From January through March 2022, Swedish Match’s sales and operating profit from product segments increased on the back of continued strong momentum for the U.S. smoke-free business, according to the company’s interim report.

Group sales increased by 10 percent to SEK4.89 billion ($492.05 million). In local currencies, sales increased by 2 percent for the first quarter.

Operating profit from product segments increased to SEK2.12 billion. In local currencies, operating profit from product segments decreased by 7 percent for the first quarter.

Profit after tax amounted to SEK1.49 billion.

PMI says it intends to preserve and develop Swedish Match’s operational presence in Sweden, where much of the company’s skills base is located, as well as in Richmond, Virginia, the site of the head office for Swedish Match’s U.S. Division. PMI has no plans to divest Swedish Match’s Lights business.

May 11, 2022

For the Long Haul

Experts share their views on sustainability during the In Focus webinar.

TR Staff Report

Sustainability: We see and hear the word everywhere. But what does it mean for the tobacco and nicotine sectors? How are sustainable strategies meeting the needs of our businesses and stakeholders today while ensuring that future generations can also thrive?

On May 5, a group of experts convened virtually at the In Focus webinar to explore how tobacco and nicotine are transforming to protect the future of people and the planet. Among other topics, they discussed product stewardship and leadership.

The In Focus event series was launched in 2021 with the focus of the first event on tobacco harm reduction. The new series evolved from the prestigious Global Tobacco and Nicotine Forum and aims to explore vital themes in greater depth.

The May 5 event featured five keynote speakers and two panel discussions and was moderated by Patricia Kovacevic, global legal and regulatory strategist and principal of RegulationStrategy.com.

Pippa Bailey, head of climate change and sustainability practice at Ipsos U.K., a global market research and public opinion specialist, set out the concerns, perceptions and attitudes of people around the world toward climate change and sustainability. According to Ipsos, 83 percent of citizens across the globe believe that the environment is heading toward disaster. This is felt most acutely in South America where the impact of climate change has been greatest. Concerns around waste packaging and single-use plastics rank ahead of climate change, likely because this topic is very visible through dramatic images of polluted oceans and coastlines.

Cigarette butts are the most littered product on the planet, and solving this problem will require both leadership and innovation, according to Bailey.

Ipsos research shows that global citizens feel that they have given governments and businesses a mandate to address the environment. Sixty-two percent of citizens believe the Covid-19 pandemic was caused in part by people’s misuse of the environment

Social and environmental concerns are becoming increasingly linked, and Bailey advised companies to avoid operating in environmental, social and governance (ESG) silos. Consumers do not think that way, she noted—so neither should companies. Instead, their approach should be more holistic.

One challenge in achieving sustainability goals is the “say-do” gap, according to Bailey. While most citizens say that they care about the environment, their actions don’t always reflect their ambitions. Ipsos found that people tend to overestimate the impact of the actions they take. Businesses and governments, she says, need to make it easier for people to understand what more they could do to effect change.

Behavioral change is a big part of getting consumers to recycle, according to Bailey. Citizens are not willing to pay extra to achieve that, however. They are willing to make the sustainable choice, but the financial and social benefits must be equal in their eyes.

Examining sustainability from a financial perspective, Erik Bloomquist, a global nicotine and tobacco investment consultant, noted that the main priority for investors is tobacco companies’ transition to harm reduction products that can drive returns in the future.

In anticipation of the Foundation for a Smoke Free World’s 2022 Tobacco Transformation Index, Bloomquist presented data from 2020 to examine how much progress individual companies have made in shifting their business from combustible cigarettes to less harmful nicotine-delivery products. Product sales, capital allocation and expenditure are key criteria to assess that transformation, according to Bloomquist.

He also presented data from the index showing how the companies’ price/earnings ratios compare with their Tobacco Transformation Index rating. Swedish Match, Philip Morris International and BAT topped the list.

Bloomquist insisted that engagement, not exclusion, is key to progress and that investors support this.

The first In Focus panel discussion, moderated by Adrian Payne, a consultant on corporate social responsibility and tobacco harm reduction, focused on leadership in a sustainable world.

Sarah Bostwick, head of sustainability stakeholder engagement at PMI, described her company’s ambition to phase out cigarettes and build new businesses in healthcare and wellness. She said the company aims to generate substantial revenues from these segments.

In the company’s 2019 sustainability materiality report, PMI set out how it accounts for internal developments and stays abreast of external trends. The company found that it could make the biggest difference by reducing the health impact of its products and addressing climate change. While the fist finding was expected given the health toll of smoking, the second was somewhat surprising considering that PMI’s operations have a relatively small environmental footprint.

Bostwick also stressed PMI’s openness to stakeholders’ scrutiny and engagement.

Ronald Ngwira, managing director of Pyxus Agriculture Malawi (PAM), detailed his company’s efforts to help meet global ESG targets. Working closely with the likes of Imperial Brands and PMI, PAM has reduced water usage by 60 percent. He said that building sustainability into the farmer base has been critical. From 2004–2010, Pyxus provided farmers with seedlings to help reverse deforestation caused in part by tobacco curing but with limited success. To make greater headway, the company decided to create its own tree plantations. Since 1991, Pyxus has planted more than 250 million trees worldwide, and in Malawi, PAM plants approximately 8 million trees each year.

Ngwira said that Pyxus’ sustainability initiatives also cover actions to eliminate child labor and forced labor, with the company investing in education and product traceability, for example.

Pyxus is leveraging its strong agricultural expertise to advance progress on key issues. In Malawi, the company has not only become one of the country’s largest sustainable timber producers, but it has also invested in alternative crops, such as groundnuts, thus helping farmers diversify their income streams.

Karen Hall, director of sustainability at Universal Leaf Tobacco Co., spoke about the challenge of growing tobacco as climate and social expectations change and are becoming more complex. In the face of global change, Universal Leaf is currently reviewing the resilience of its origins, setting ambitious but achievable goals, creating data-driven action to meet those goals efficiently and effectively, and preparing to adjust strategies as new information becomes available, she said.

Liem Khe Fung, innovation director at cigarette paper manufacturer BMJ, pointed out that 99.9 percent of paper production relies on water and detailed his company’s plans to minimize water consumption without compromising product quality at a time when water is becoming scarce.

Following the panel discussion, Nathan Eaton, executive director at NGIS, spoke about the potential of data and technology—particularly geospatial capabilities—to help address ESG challenges and commitments.

While significant advances have been made in the fight against child labor, progress has recently slowed for the first time in 20 years. What’s more, it has been uneven across regions, sectors and age groups. Further progress will require new approaches and insights, according to Eaton

Eaton described a collaboration with BAT to bring disparate data sources together. Showing a Google Map of southern Brazil—a major tobacco producing area—he demonstrated the ability to display variables such as distance to schools, access to safe drinking water and housing conditions—factors that may help identify at-risk communities and drive further progress in the fight against child labor.

Juliette Le Roux Audren, environmental health safety product stewardship and sustainability manager for EMEA at Amphenol, argued that waste reduction requires a combination of regulation and innovation. Minerals such as tin, gold and cobalt are becoming scarcer, she noted, and the risk of scarcity is often underestimated. By redesigning and re-engineering products, the world can avoid scarcity. This will require companies to pivot from linear production cycles to circular production cycles. Le Roux Audren argued that companies need to navigate between risks and opportunities and that agile product stewardship will help them make more of their talents.

The second In Focus panel, moderated by Edward Butt, group head of environment, social and government at BAT, centered on sustainable products and stewardship.

Jodie Clarke, vice president of procurement and corporate security at Altria Client Services, explained that Altria is addressing societal and environmental concerns by engaging with all stakeholders. The company aims to create value not only for shareholders but also for society by driving responsibility through the value chain—for example, by reducing the harm to health associated with tobacco consumption; sourcing and distributing responsibly; striving for supplier diversity; supporting agricultural sustainability; promoting human rights; and ensuring ethics and compliance.

Gianmarco Guiduzzi, head of sales and aftersales for Cerulean, detailed how Cerulean is putting sustainability at the heart of its equipment. He urged the industry to avoid working in silos and stressed that success requires the participation of people both upstream and downstream in the production process.

For Guiduzzi, the challenge is how to replace existing raw materials for products such as cigarette filters with environmentally less harmful alternatives. For example, cellulose acetate—a critical component of cigarette filters—often ends up as litter on land and in water. Finding an alternative material with the same filtering characteristics is a challenge. Guiduzzi also challenged the industry to find an environmentally friendly replacement for polypropylene film in cigarette packs.

One potential problem, according to Guiduzzi, is that each tobacco manufacturer is developing its own solution to these issues, and each will try to protect the associated intellectual property. While it is tempting for the larger multinationals to retain the fruits of their research and development, Guiduzzi said that, in order to create a level playing field and maximize the benefits, these solutions should trickle down to the wider sector.

Guiduzzi also noted the rapidly growing popularity of nicotine pouches, which he said will present their own sustainability opportunities and challenges.

Kevin Peng, advanced technology scientist at ALD Group, presented eco-friendly solutions developed by ALD, which are made from Poly (1,4-butylene succinate) (PBS), which is a biodegradable, semi-crystalline thermoplastic polyester synthesized through polycondensation of succinic acid and 1-4-butanediol, and another thermoplastic polyester, Polylactic Acid (PLA).

Peng claimed ALD’s solution will reduce emissions as well as avoid/reduce waste. The device features a biodegradable shell and a long-life battery, and the lifecycle of the product is integrated into a holistic recycling system.

Kate Rebernak, founder and CEO of FrameworkESG, urged nicotine companies to practice “radical transparency” in their operations, arguing that without such radicalism, revenues will decline, share prices will slide and investors will turn away.

She pointed to the historical trust deficit suffered by the tobacco industry and urged companies to close the “say-do gap” by making sure that their actions match their words. As an illustration of how not to go about this, she cited U.S. companies publicly articulating their support for LGBTQ+ rights while at the same time financially supporting politicians who oppose such rights. She also gave the example of HSBC, which was recently reprimanded by the U.K. Advertising Standards Authority for advertising action against climate change while continuing to invest in fossil fuels.

Rebernak suggested three ways for the tobacco industry to become radically transparent:

Public-private engagement. She emphasized that a company cannot bring about change if it “isn’t in the room.” While acknowledging the hurdle presented by the Framework Convention for Tobacco Control’s Article 5.3, which aims to protect tobacco control policies from the commercial and other vested interests of the tobacco industry, Rebernak said the industry could attempt to overcome this hurdle by being radically transparent on its progress in tobacco harm reduction.
Sharing business models, investments in R&D and marketing. The Foundation for a Smoke-Free World’s Tobacco Transformation Index, for example, calls for greater disclosure on each of the companies’ policy positions.
Consumer behavior. Companies would be more successful at moving smokers away from combustibles to reduced-risk products if they were radically transparent about the risks versus the benefits. Crucially, she insisted, they should stop marketing products to children.

The In Focus event also included a “fireside chat” on sustainability between Chris Greer, the president and CEO of Tobacco Reporter’s parent company, TMA, and Vincent Li of Hengfeng Paper, which celebrates its 70th anniversary this year. With 21 paper production lines and an annual production capacity of 230,000 tons, Hengfeng is one of China’s leading paper suppliers. For the cigarette industry, the company manufactures cigarette paper, plug wrap tipping base paper and paper for next-generation tobacco products.

Papermaking has a considerable environmental impact due to the raw materials used (wood and water) and its energy requirements. In 2021, Hengfeng paper declared corporate carbon emissions of 3,139,297,000 tons. Following China’s national strategy to achieve peak carbon dioxide emissions by 2030 and carbon neutrality by 2060, Hengfeng aims to slash its CO2 emissions by more than a third in eight years.

Because power generation and acquisition account for the lion’s share of Hengfeng’s global warming potential, it makes sense to focus mitigating measures there. The company plans to replace some of the coal it currently uses to generate power with energy sources that lead to less pollution. Among other initiatives, it intends to electrify parts of the papermaking process and build a 10 MW photovoltaic power station.

Product design, too, offers opportunities to improve sustainability. By designing stiffer plug wrap papers, for example, Hengfeng enables cigarette manufacturers to use less acetate tow in their filters, thus reducing the proportion of a material that does not readily degrade in the environment.

May 10, 2022

Habanos Reports Record Turnover

Habanos reported a turnover of $568 million in 2021, up 15 percent growth over the previous year.

“The 2021 results confirm the solid path we are on, despite the crisis caused by Covid-19. Last year we surpassed the $500 million mark for premium cigar sales worldwide, an all-time record for the category and a testament to the enormous potential of our business,” Habanos wrote in a statement attributed to its co-presidents, Inocente Núñez Blanco and Luis Sánchez-Harguindey Pardo de Vera.

“We are very proud to lead the premium cigar category and to continue to grow despite the situations experienced over the past two years,”

In terms of volume, Habanos, top markets were Spain, China, Germany, France and Switzerland. Europe remains Habanos’ main regional market, with 59 percent of global sales volume, followed by Asia Pacific (16 percent), America (14 percent) and Africa and the Middle East (11 percent).

“At Habanos, we maintain our commitment to offer the best experience to our aficionados, exclusive products and novelties, all in keeping with the quality, tradition and unique origin that make our Habanos a luxury product appreciated all over the world,” Commercial Vice President Leopoldo Cintra González and Vice-President of Development José María López Inchaurbe wrote in a press note.

“Our aficionados have remained loyal to Habanos and their tastes and, in many cases over the past year, they have incorporated into their domestic consumption vitolas and brands that used to be part of a more social consumption.”

According to Habanos, the Covid-19 pandemic has changed consumer habits. However, working with its distributors, the company said it was able to keep alive smokers’ passion for Habanos with a combination of product launches, virtual events and—when possible—face-to-face events.

While strong demand, in combination with the pandemic, has delayed the supply of some of Habanos’ bestselling vitolas, the company managed to export 38 new products in 2021. Habanos says it the supply situation has gradually improved after the first quarter of 2022.

Following the pandemic-related cancelation of the Habanos Festival in 2021 and 2022, the company presented several new products, including : Cohiba Ambar Cohiba Ideales and Cohiba Edición Limitada 2021, at is virtual Habanos World Days.

Habanos will commemorate the 55th anniversary of its prestigious Cohiba brand on Sept. 9 in Havana.

May 10, 2022

PMI Mulls Offer for Swedish Match

Philip Morris International and Swedish Match confirmed that they are talking about a possible offer by PMI for Swedish Match.

“The discussions are in progress, and it is uncertain whether an offer will be made,” PMI wrote in a statement. “PMI intends to make no further comment regarding the discussions unless and until it is appropriate to do so.”

“There can be no certainty that an offer will be made,” Swedish Match wrote in a press note.

The statements were made in response to market speculation, first reported in The Wall Street Journal, about a possible deal.

Swedish Match has a market capitalization of SKR120.92 billion ($11.99 billion), and Philip Morris is valued at about $154 billion.

Financial analysts said a deal has strategic merit for PMI given the attractive U.S. market. The U.S. is the world’s most lucrative nicotine market, with strong and highly predictable cash flows.

Morgan Stanley said that purchasing Swedish Match could accelerate PMI’s smoke-free transition. “Swedish Match is one of the few larger scale tobacco assets with a meaningful smoke-free business and attractive growth profile,” the investment bank wrote in a note to investors. Morgan Stanley believes Swedish Match could increase PMI’s smoke-free revenue from 29 percent in 2021 to 44 percent by 2025.

PMI aims to generate about 50 percent of its revenue from smoke-free product by 2025.

Goldman Sachs, too, was enthusiastic about the opportunities presented by a possible tie-up. A deal would provide PMI access to the fast-growing and high-margin U.S. oral nicotine pouch category, in which Swedish Match’s Zyn is the market leader, with a volume share of 64 percent in fiscal 2021. Goldman Sachs expects the U.S. nicotine pouch category to reach $4 billion retail sales value by 2025.

What’s more, buying Swedish Match would provide PMI with a platform to bring its Veev vapor product to the U.S. once approved by the Food and Drug Administration. This would be beneficial because PMI’s current partner, Altria Group, is unable to distribute Veev in the U.S. due to its stake in Juul Labs.

Purchasing Swedish Match would also provide PMI with potential distribution for IQOS in the U.S. and allow it to capture the product’s full revenue and margins in the event that Altria loses the right to distribute IQOS, according to Goldman Sachs. Altria’s IQOS distribution deal expires in April 2024, but PMI and Altria currently disagree about whether Altria has thus far met the milestones to earn the renewal option for an additional five-year deal.

The U.S. currently bans IQOS imports following an intellectual property dispute with BAT.

Acquiring Swedish Match would also provide PMI with a move diversified geographic exposure, reducing the impact of swings in currency exchange rates.

While considering a potential deal positive for PMI, Goldman Sachs says it could be potentially negative for Altria as PMI could evolve from a partner to a formidable competitor on Altria’s home turf. Morgan Stanley said it would also make the long-mulled recombination of PMI and Altria less likely.

May 10, 2022

Vector Announces First-Quarter Results

Vector Group released its first-quarter 2022 results for the quarter ended March 31, 2022.

Consolidated revenues were $312 million, an increase of 15.1 percent compared to the prior year period. Tobacco Segment revenues were $309 million, an increase of 15.1 percent compared to the prior year period.

Reported net income attributed to Vector Group was $32.5 million compared to $32 million in the previous year. Adjusted net income from continuing operations was $26.6 million compared to $34.9 million in the prior year period. Reported operating income was $75.1 million, a decline of $0.8 million compared to the prior year.

Tobacco segment operating income was $77.6 million, a decline of 4.9 percent compared to the prior year, attributable to the investment in Montego’s significant volume and market share growth.

“Vector Group delivered strong tobacco business revenue performance in the first quarter as we capitalized on favorable market opportunities to substantially increase value and market share,” said Howard M. Lorber, president and CEO of Vector Group, in a statement.

“Our timely investments in expanding our price-fighting Montego brand further demonstrate our proven long-term strategy of optimizing long-term profit through the effective management of volume, pricing and market share growth.”

May 10, 2022