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Price hikes result in KT&G profit surge

| April 24, 2015

KT&G’s first-quarter operating profits and revenue have increased significantly compared to the same period last year, due to price hikes and improvements in its affiliates’ performances, according to a story in the Korea JoongAng Daily.

South Korea’s No. 1 cigarette and ginseng company’s operating profit increased by nearly 65 percent year-on-year to krw428.5 billion ($395 million). The company’s net profit increased by 55 percent to krw308.8 trillion.

Although the company’s sales increased by value to 18 percent from one year ago—to krw1.14 trillion by volume—because of the increased prices of cigarettes, sales have actually decreased. KT&G sold 7.1 billion cigarettes in this year’s first quarter, a 41.4 percent decrease from the first quarter of last year, during which the company sold 12.2 billion cigarettes. The price hike has allowed KT&G to earn krw1,768 in profit on inventory cigarettes per packet.

The company plans to spend the krw330 billion it earned in profits on the price change by giving back to the community.

ITG Brands appoints executive team

| April 24, 2015

ITG Brands, the U.S. division of Imperial Tobacco Group, has announced the appointment of members to serve on its executive team. The team will be led by David H. Taylor, who currently is executive vice president and chief financial officer for Lorillard but was recently named president and CEO of ITG Brands.

The executive team will include Adam Britner—who is currently head of business development for Imperial Tobacco Group—as executive vice president of finance and planning and chief financial officer; Charles E. “Ned” Hennighausen—who is currently executive vice president of production operations for Lorillard—as executive vice president of production operations; Ronald S. Milstein—who is currently executive vice president of legal and external affairs, general counsel and secretary for Lorillard—as executive vice president for external affairs; Randy B. Spell—who is currently executive vice president of marketing and sales for Lorillard—as executive vice president of marketing and sales; Robert D. Wilkey—who is currently general counsel, vice president of legal and corporate affairs for Commonwealth-Altadis—as executive vice president general counsel; William G. Crum—who is currently senior vice president of human resources for Lorillard—as senior vice president of human resources; Kathleen A. Sparrow—who is currently senior vice president of sales for Lorillard—as senior vice president of sales; William R. True—who is currently senior vice president of research and development for Lorillard—as senior vice president of research and development; and Neil L. Wilcox—who is currently senior vice president chief compliance officer for Lorillard—as senior vice president chief compliance officer.

“I’m very pleased to announce the appointment of ITG Brands’ new team of leaders,” said Taylor. “This group represents a wealth of experience across all functional areas and will allow ITG Brands to establish itself as a major competitive player in the U.S. tobacco market.”

The executive team members will immediately assume their new roles upon closing.

Invitation to join China e-cig regulation group

| April 24, 2015

The law firm Keller and Heckman LLP, through its Shanghai office, is inviting stakeholders to join a new working group dedicated to the development of appropriate e-cigarette product standards and regulations in China.

In China, there are currently no laws or regulations targeting e-cigarettes. However, this may soon change. Recently, during the 16th World Conference on Tobacco or Health in Abu Dhabi, UAE, a representative of the Chinese National Health and Family Planning Commission made it clear that Chinese authorities are planning to develop e-cigarette regulations, given the huge potential of the Chinese e-cigarette market and the various public-health and safety issues related to the use of e-cigarettes.

When authorities start to consider the regulation of e-cigarettes, they will likely solicit input from industry stakeholders. Thus, Keller and Heckman believes now is the best time to create a working group of e-cigarette and e-liquid companies and other interested stakeholders who want to engage in the regulatory process.

Those interested in learning more and joining the working group can do so on the Keller and Heckman website.  If you have any questions, please contact David Ettinger (ettinger@khlaw.com) or Azim Chowdhury (chowdhury@khlaw.com).

 

Egypt to construct tobacco-processing factories 

| April 23, 2015

The Egyptian government plans to construct two tobacco-processing factories in Malawi to support the country’s tobacco industry, according to the Malawi News Agency.

The Egyptian Ambassador to Malawi, Maher El-Adawy, said the construction of these factories will help spur economic growth because the crop is regarded as the country’s main forex earner.

“We have always been in a good relationship with Malawi, and we are happy to support it, especially in the tobacco industry because we know that tobacco is the main forex earner, and by doing so we will help the country’s economy to grow,” El-Adawy said.

El-Adawy also indicated that construction of the two factories will not only spark economic growth, but also aid in job creation.

“We believe the construction of the two factories will also create employment for some quarters of the Malawian society thereby helping them to improve their lives,” he said.

According to the World Bank, 90 percent of Malawi’s tobacco is exported to other countries for processing due to the country’s currently limited tobacco-processing capabilities.

“Much of our tobacco is exported for processing because we do not have the capacity to do so,” said Malawi’s minister of information, tourism and culture, Kondwani Nankhumwa. “So by having these two tobacco processing factories, Malawi will start processing the tobacco on its own and sell the products on our own for a profit.”

One factory will be built in Lilongwe; the location for the second factory is still being decided by the government. Construction of both factories is expected to begin soon, according to El-Adawy.

Malawi is one of the top 10 producers of tobacco in the world, with the crop accounting for the majority of the country’s agricultural export earnings.

Closures expected in Indonesian tobacco industry

| April 23, 2015

As much as 15 percent of the workforce at tobacco-related companies in East Java, Indonesia—or more than 23,000 workers—are at risk of being laid off this year, according to a story in the The Jakarta Post.

Based on 2014 data, the number of people working in East Java’s tobacco and tobacco products industrial (IHT) sector was 159,117, according to East Java Chamber of Commerce and Industry (Kadin) vice chairman Dedi Suhajadi. The sector’s workforce also decreased by 21,300 workers in 2014 from 180,466 workers in 2013.

“Many IHT entrepreneurs are affected,” Dedi said. “This is attributable to the annual increase in tobacco tax, government regulations and groups that interfere with the concentration of IHT entrepreneurs in meeting tax obligations.”

The government raised the IHT tax target to IDR141.7 trillion in 2015 from IDR111.21 trillion in 2014. Over the past five years, the average increase in IHT tax was 16.09 percent.

Data from the East Java Manpower and Transmigration Office indicated that 790 IHT companies were still operating in 2014, however, only about 200 were producing on a regular basis. In 2011, there were about 1,100 cigarette factories, according to Dedi.

“Those that have gone out of business are small- and medium-scale factories. Only the large-scale companies are surviving,” said Dedi.

Between 2009 and 2013, approximately 4,900 cigarette factories closed their doors.

South Korea considers stricter e-cigarette regulations

| April 23, 2015

The government of South Korea plans to push for tougher legal restrictions on the sale of e-cigarettes, the finance ministry announced April 22. Finance Minister Choi Kyung-hwan, who also serves as deputy prime minister, told lawmakers in the National Assembly that he would soon “come up with a comprehensive proposal” on e-cigarettes that would ban explicit advertisement of the products, according to a story in The Korea Herald.

According to the country’s health and welfare laws, tobacco product advertising is only allowed inside authorized stores, however, many local e-cigarette dealers explicitly display advertisements and fliers for the products—which are officially classified as cigarette products—on the streets.

“We will see to a comprehensive measure in cooperation with other related ministries,” Choi said.