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Imperial shuns concept of heat-not-burn products

| May 7, 2015

Imperial Tobacco is taking a different path to its multinational competitors as the industry searches for the vaping technology with the potential to replace tobacco smoking, according to a story by Martinne Geller.

Imperial is said to have no taste for the heat-not-burn tobacco products that others are embracing along with electronic cigarettes.

“It’s not something we’re interested in,” Matthew Phillips, Imperial’s corporate affairs director, was reported to have told journalists on Wednesday, when his company announced its first half results.

Philip Morris International, British American Tobacco and Japan Tobacco International, have or are due to include heat-not-burn products in their portfolios.

Because they are made from tobacco, Phillips predicts that these products will be viewed and taxed in the same way that cigarettes are.

And marketing them as offering a reduced risk benefit would be “a very, very big ask,” he said.

“There’s no difference really between those products and traditional tobacco products,” Phillips said. “It’s probably better described generically as ‘heat and burn’ rather than ‘heat not burn’.”

Imperial’s tobacco volume down in first half

| May 6, 2015

Imperial Tobacco’s total tobacco volume during the six months to the end of March, at 138.2 billion stick equivalents, was down by one percent on that of the six months to the end of March 2014. On an ‘underlying basis, volume was down by 5 percent.

Stick equivalent volume is said to include cigarette, fine-cut tobacco, cigar and snus volumes. Underlying volume change removes the impact of the company’s stock optimization program.

Meanwhile, Imperial’s ‘Growth Markets’ volume was down by three percent (11 percent underlying), from 49 billion to 48 billion, while Growth Markets market share was down from 5.6 percent to 5.5 percent. And its ‘Returns Markets’ volume was down by 1 percent (1 percent underlying), from 91 billion to 90 billion.

Growth Brand volume was increased by 17 percent (12 percent underlying), from 60.2 billion to 70.5 billion.

‘Our Growth Brands continue to outperform the market, with underlying volumes up 12 percent and underlying net revenues up 15 percent,’ Imperial said in announcing its results. ‘There were particularly strong performances from Davidoff, JPS, West and Parker & Simpson which supported the improved market share of Growth Brands, up 90 basis points to 6.1 per cent, with share up in 12 of our top 15 markets…’

Imperial said that performance highlights had included excellent results from Skruf snus in Scandinavia and growth in premium cigar volumes in the US, Spain, China and Brazil. ‘We also continued to capitalise on our world leadership in fine-cut tobacco, including in the UK where we further strengthened the Golden Virginia brand franchise with gains from the gv variant,’ it said.

Fontem was said to have continued to build its portfolio presence in Europe, widening the availability of the Puritane electronic cigarette brand in the UK through partnerships with additional retailers and launching the e-vapour brand JAI in France and Italy.

‘Other product launches are being evaluated in a number of non-tobacco lifestyle consumer categories and Fontem is also continuing to develop and license a range of patented technologies,’ the company said.

Imperial’s tobacco net revenue during the six months to the end of March, at £2,945 million, was down by four percent on that of the six months to the end of March 2014, £3,054 million.

Tobacco adjusted operating profit increased by two percent to £1,295 million, while logistics adjusted operating profit was unchanged at £73 million, and total adjusted operating profit increased by two percent to £1,367 million.

Adjusted earnings per share increased by four percent to 93.3p, while the interim dividend per share was up by 10 percent to 42.8p.

“This has been a good start to the year, said chief executive, Alison Cooper.

“The progress we’re making with our strategic agenda is improving the consistency and quality of our performance, with our Growth Brands delivering 12 per cent underlying volume growth and further gains from our Specialist Brands.

“We continued to build momentum in our Growth Markets and generated positive results from Returns Markets.

“Cash conversion was up, our debt reduced significantly and we delivered another dividend increase of 10 per cent.

“We are building on these successes in the second half and look forward to completing the US deal and realising the benefits of our enhanced brand equity and scale in this important market.”

Manufacturers unable to comply with pack rules

| May 6, 2015

BAT Kenya’s managing director Chris Burrell said yesterday that no company would be able to comply with new tobacco packaging regulations scheduled to take effect on June 1, according to a Kenya Broadcasting Corporation story relayed by the TMA.

The new regulations were said to ban cigarette manufacturers, importers and distributors ‘from selling products with brand names or trademarks on their packaging’.

They required, too, new health warnings on the front and back of the packs.

Burrell said it would not be possible to comply with the regulations because no manufacturer in Kenya had received technical specifications concerning the law’s implementation.

BAT Kenya is asking the government to allow negotiations on some of the rules.

It will seek legal action if the government does not amend ‘the flaws in the regulations’, Burrell was quoted as saying.

Study casts doubt on claims about plain packs

| May 6, 2015

A study published by Tobacco Control provides evidence that the introduction of standardized tobacco packaging in Australia has not increased significantly the consumption of illicit tobacco products.

The study, which was carried out by researchers at the Centre for Behavioural Research in Cancer (CBRC), Cancer Council Victoria, seems to paint a different picture to that painted by a report prepared by KPMG for Philip Morris, British American Tobacco Australia and Imperial Tobacco Australia. That report indicated illicit tobacco products represented a record 14.5 percent of total consumption in 2014.

A story on the KPMG report by Roman Kennedy for The Australian quoted Phillip Morris managing director John Gledhill as saying that the growth in illicit tobacco consumption came during a period that saw two 12.5 percent tobacco excise increases and the implementation of standardized tobacco packaging in December 2012.

The CBRC researchers, led by Dr. Michelle Scollo, set out to assess whether following standardization of tobacco packaging in Australia, smokers were, as predicted by the tobacco industry, more likely to use illicit tobacco.

They carried out cross-sectional telephone surveys continuously from April 2012 (six months before the implementation of standardized packaging [SP]) to March 2014 (15 months after) and used responses from current cigarette smokers. Changes between pre-SP, the transition to SP and SP phases were examined using logistic regression models.

Among those whose factory-made cigarettes were purchased in Australia; compared with pre-SP, there were said to be no significant increases in the SP phase in the use of: ‘cheap whites’, international brands purchased for 20 percent or more below the recommended retail price, or packs purchased from informal sellers.

The prevalence of any use of unbranded illicit tobacco was said to have remained at about 3 percent.

The researchers concluded that while they were unable to quantify the total extent of the use of illicit manufactured cigarettes; they found, in what they described as their large national survey, no evidence of increased use of two categories of manufactured cigarettes likely to be contraband, no increase in purchases from informal sellers and no increased use of unbranded illicit ‘chop-chop’ tobacco.

PMI to webcast conference presentation

| May 6, 2015

Philip Morris International is due to host a live audio webcast – at ww.pmi.com/webcasts – of the company’s remarks and question-and-answer session by CEO André Calantzopoulos and CFO Jacek Olczak at the Goldman Sachs Global Staples Forum starting about 09.30 Eastern Time on May 12.

The webcast, which will be in listen-only mode, will provide live audio of the entire PMI session.

The audio webcast may be accessed also on iOS or Android devices by downloading PMI’s free Investor Relations Mobile Application at www.pmi.com/irapp.

An archived copy of the webcast will be available at www.pmi.com/webcasts until 17.00 on June 10.

Remarks and slides will be available at www.pmi.com/presentations.

Excise and plain packs blamed for illegal trade rise

| May 5, 2015

A record level of illicit tobacco consumption last year has caused the Australian government to suffer an estimated tax ‘loss’ of $1.35 billion, according to a story by Roman Kennedy for The Australian, citing a report by KPMG.

The report, prepared for Philip Morris, British American Tobacco Australia and Imperial Tobacco Australia, indicated that illicit tobacco products represented 14.5 percent of total consumption in 2014.

KPMG estimates that if this quantity of tobacco products had been consumed instead in the form of licit products, the government would have earned an additional A$1.35 billion.

Phillip Morris managing director John Gledhill was quoted as saying that the growth in illicit tobacco consumption came during a period that saw two 12.5 percent tobacco excise increases and the implementation of standardized tobacco packaging in December 2012.

Two further 12.5 percent tobacco tax increases are planned for this year and next.

The story said that most of the illicit cigarettes consumed in Australia came from China and South Korea.

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