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RAI to consolidate Vuse manufacturing

| October 1, 2015

circuitReynolds American is consolidating the manufacturing operations for its Vuse digital vapor cigarette. Currently, production is split between R.J. Reynolds Tobacco Co.’s factory in Tobaccoville, North Carolina, USA, and a contractor in Kansas.

Going forward, all production of Vuse will occur at Tobaccoville, pursuant to a services agreement between R.J. Reynolds Tobacco Co. and RJR Vapor Co.

“Vuse is currently the top-selling electronic cigarette in the convenience store channel, and we are very pleased with its success to date,” said Susan M. Cameron, president and CEO of Reynolds American. “As the vapor category continues to develop, we need to make sure our manufacturing operations are efficient and cost-effective in meeting anticipated demand.”

In May of last year, Reynolds American announced a multimillion dollar investment for higher-speed, more efficient e-cigarette manufacturing equipment at R.J. Reynolds Tobacco’s Tobaccoville manufacturing center. The new equipment is now online, enabling the company to consolidate Vuse manufacturing, reducing its manufacturing footprint and generating cost efficiencies.

As a result of the consolidation, in the third quarter Reynolds expects to take asset impairment and exit charges of approximately $100 million on a pretax basis.

India to impose 85 percent warnings on April 1

| September 30, 2015

The Health and Family Welfare Ministry of India said on Monday that tobacco-pack health warnings would be increased in size from April 1, according to a story in the latest issue of the BBM Bommidala Group newsletter.

The warnings, which were said currently to take up 40 percent of the pack surface, are due to be increased to 85 percent, of which 60 percent will comprise graphic images and 25 percent textural messages.

The government decided in 2014 to increase the size of tobacco-pack warnings by April 2015, but in March it deferred implementation of the regulation because a parliamentary panel said it was still reviewing how the industry would be impacted by the requirement for bigger health warnings.

However, the High Court of Rajasthan, hearing a Public Interest Litigation petition, in July directed the federal government to implement the new regulations by September 29.

VAT increase seen as endangering jobs in Indonesia

| September 30, 2015

Indonesia’s Industry Minister has asked the Finance Ministry to review its decision to raise VAT on cigarettes, arguing that the increase would put pressure on cigarette manufacturers to cut jobs, according to a story in The Jakarta Globe.

The Finance Minister said yesterday that VAT on cigarettes would be increased from 8.4 percent to 8.7 percent starting on January 1, as part of efforts to increase state revenue.

“We have received feedback from the tobacco sector and company executives feel that [the increase] is too high,” Industry Minister Saleh Husin said on Tuesday. “Of course, the higher VAT will only add more troubles, especially for small businesses.”

Indonesia’s tobacco industry is dominated by big companies such as Sampoerna and Gudang Garam, with hundreds of small-scale producers catering to niche markets in the regions.

JT’s share price drops as acquisition confirmed

| September 30, 2015

Japan Tobacco Inc.’s share price fell to its lowest level in six months after the company agreed to pay about US$5 billion for the international rights to the Natural American Spirit cigarette brand, according to a story by Monami Yui and Sam Chambers for Bloomberg News.

Under the deal JT will buy from Reynolds American Inc. the international rights to the Natural American Spirit brand name and associated trademarks, along with the international companies that distribute and market the brand outside the US. Natural American Spirit is sold in the US by RAI’s subsidiary, Santa Fe.

JT is offering to pay RAI about 22 times more than the pretax earnings multiple of tobacco deals from the past five years. The shares dropped by 6.7 percent to 3,695 yen by the close of trading in Tokyo, to the lowest level since March 20.

“We think the acquisition price can be viewed as overpriced,” Satoshi Fujiwara, a Tokyo-based analyst at Nomura, wrote in a note to clients Wednesday.

But Fujiwara added that the price “might be able to be justified over the medium term” due to factors such as improved operating margins if in-house production is launched.

The full story is at:

JT buys international rights to Natural American Spirit

| September 29, 2015

The Japan Tobacco Group of companies (JT) has agreed to buy from Reynolds American Inc. (RAI) the international rights to the Natural American Spirit brand name and associated trademarks, along with the international companies that distribute and market the brands outside of the United States, for approximately $5 billion.

Since its launch in the U.S. in 1982 by Santa Fe Natural Tobacco Co., the Natural American Spirit brand has provided a unique product offering and established a special brand positioning as the only truly global “additive-free” premium cigarette, with a marketing theme that is environmentally conscious and socially progressive, according to JT.

The brand has enjoyed strong growth momentum in the U.S., Japan, Germany, Switzerland, Italy, Spain and the U.K., among other countries. Outside of the U.S., Japan accounts for the majority of Natural American Spirit’s sales volume.

“Natural American Spirit, which has a strong and international presence in a premium-priced category, will allow JT to further extend its brand portfolio,” said Mitsuomi Koizumi, president and CEO of JT. “This strong and unique brand equity combined with an energetic and experienced team of people will further strengthen our group’s business foundation.”

“Natural American Spirit has achieved excellent international growth over the past several years,” said Susan M. Cameron, RAI’s president and CEO. “When backed by the strengths of the JT Group’s international distribution, sales force and manufacturing capabilities, we believe that growth trajectory will not only continue, but accelerate,” she said.

Selling the international trademark rights to a company with an established global infrastructure was more advantageous to RAI than investing in an international infrastructure capable of supporting Natural American Spirit’s growth potential, Cameron added.

If approved by regulators, the Santa Fe deal would be JT’s biggest acquisition since its 2007 purchase of the Gallaher Group for $14.7 billion.

The transaction is expected to be completed by early 2016.


New Zealand urged to follow Australian pack

| September 29, 2015

An activist in New Zealand has called on the government to follow Australia’s lead in introducing standardized packaging for cigarettes, according to a New Zealand Herald story relayed by the TMA.

Smokefree Coalition chairperson, Dr. Jan Pearson, says that even though New Zealand’s smoking prevalence is declining; it is not falling as fast as in Australia.

Figures supplied by cigarette manufacturers to the New Zealand Ministry of Health indicate that cigarette consumption in New Zealand has declined by 6.3 percent each year since 2010, equating to a 23 percent overall decline in five years.

But Pearson contends that the introduction of standardized packaging in Australia has resulted in a nearly 20 percent drop in consumption in three years.

“Standardized packs and annual tax increases have provided a powerful double-whammy that’s saving many lives across the ditch,” she said.

Pearson said that New Zealand should stop “playing ‘wait and see’” and require standardized packaging because the evidence was clear that such packaging “stops tobacco companies’ ability to advertise through their clever and attractive branding”. Action on Smoking and Health NZ director Stephanie Erick also called for the introduction of a standardized packaging law.

He said that the adult smoking rate in New Zealand had reduced from 33 percent in 1983 to less than 15 percent today, but that more could be done to become smoke-free.

A standardized packaging requirement and annual tax hikes were among 13 measures that the Smokefree Coalition recommended be included in a National Action Plan to achieve the goal of making the New Zealand smoke-free by 2025.