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Proposed U.S. FDA regulations on “other” tobacco products generally welcomed

| April 25, 2014

Lorillard, the owner of blu eCigs, has applauded the U.S. Food and Drug Administration (FDA), which yesterday published proposed regulations in respect of e-cigarettes.

“Lorillard applauds the agency’s initial efforts to establish a reasonable regulatory framework for the electronic cigarette category,” the company said in a note posted on its website. “Lorillard has long supported reasonable, science-based regulation of electronic cigarettes, such as establishing minimum age-of-purchase requirements, setting product quality and safety standards, and listing of ingredients and other relevant consumer information. In fact, while waiting for FDA guidance, blu eCigs has implemented meaningful measures to limit access of individuals under age 18 to blu eCigs’ advertising and promotional activities and to prevent minors from purchasing blu eCigs’ products.”

Murray S. Kessler, chairman, president and CEO, added that it seemed that the FDA was taking a science-based approach. “Despite what I am sure will be a robust give-and-take process over the comings months, we remain committed to our belief that electronic cigarettes represent a major opportunity to align the interests of business and public health. We look forward to working collaboratively with the FDA through the notice-and-comment rulemaking process to devise a reasonable, scientifically-based regulatory framework covering e-cigarettes.”

The FDA, which already regulates cigarettes, cigarette tobacco and smokeless tobacco, yesterday issued so-called deeming regulations covering also other “tobacco” products not yet covered by its regulations, including cigars, pipe tobacco, hookahs, nicotine gels and certain dissolvables that are not regarded as smokeless tobacco.

Most industry comments broadly welcomed the FDA’s proposals, said that the FDA seemed to be basing its decisions on science and acknowledged the huge task that the agency had taken on, given the distinctive nature and consumption cultures surrounding some of these non-mainstream products.

Public comments on the proposed regulations will be accepted for 75 days beginning April 25 and, as Bonnie Herzog, managing director, beverage, tobacco and convenience store research at Wells Fargo Securities, pointed out in a “quick take” on the FDA’s announcement, the regulatory process could take years.

JT’s domestic volume up over 12 months

| April 24, 2014

Japan Tobacco Inc.’s domestic cigarette volume sales during the 12 months to the end of March, at 120.1 billion, were 3.3 percent up on those of the 12 months to the end of March 2013.

JT reported that the volume increase was down to a steady growth in market share and a one-off increase in demand ahead of a VAT hike.

And the company said that its Mevius brand had remained the main driving force in a 1.4 percentage point market share gain to 61 percent. “For the 12-month period since its rebranding in February 2013, total sales volume improved for the first time since 1998 (with the exception of the temporary impact of the March 2011 earthquake),” JT said. “The release of new products Mevius Premium Menthol Option and Mevius Premium Menthol Spread contributed to the company’s stronger presence in the growing menthol segment.”

The domestic cigarette business’ core revenue during the 12 months to the end of March, at ¥676.2 billion, was up by 3.4 percent on that of the previous 12 months, and adjusted EBITDA was up by 7.4 percent to ¥302.1 billion.

Meanwhile, Japan Tobacco International’s shipment volume during the 12 months to the end of December 2013, at 416.4 billion, was down by 4.6 percent on that of the previous year, 436.5 billion.

JT said that JTI’s volume had decreased by 4.6 percent primarily due to significant industry contraction and trade inventory adjustments in a number of markets. “Despite GFB [global focus brands] shipment volume growth in Austria, the Caucasus markets, Czech Republic, Germany, Hungary, Kazakhstan, Middle East and African markets, Romania, Southeast Asia markets, Sweden, Taiwan and Turkey, GFB shipment volume declined 0.8 percent [from 268.8 billion to 266.6 billion],” it said. “Year-on-year market share increased in France, Italy, Spain, Taiwan, Turkey and the U.K. In Russia total share of value and GFB share of market continued to grow.”

JTI’s core revenue increased by 27.3 percent to ¥1,200.7 billion, while adjusted EBITDA increased by 31.6 percent to ¥451.6 billion. Core revenue and adjusted EBITDA in U.S. dollars at constant foreign exchange increased by 6.1 percent and 11.3 percent, respectively: increases that had been driven by a strong price/mix and that had more than offset the 4.6 percent overall volume decline.

JT’s revenue during the 12 months to the end of March, at ¥2,399.8 billion, was up by 13.2 percent on that of the previous 12 months, while adjusted EBITDA was up by 20.9 percent to ¥751.7 billion, and operating profit was increased by 21.8 percent to ¥648.3 billion.

“Our international tobacco business reached double-digit EBITDA growth at constant currency against a backdrop of an increasingly challenging environment, once again demonstrating the strength of our business fundamentals,” said JT’s president and CEO, Hiroshi Kimura, in announcing the consolidated results.

“Domestically, Mevius has shown steady market share gains, establishing a solid market presence in the growing menthol segment.

“This year we continued to take a number of strategic initiatives to expand product and geographic portfolios and consolidate our core business, as shown by the successful completion of the global rebranding of Mevius, the acquisition of a stake in Russia’s leading tobacco distributor, and the introduction of the unique tobacco vaporizer Ploom in several markets.

“The 4S model is the source of our competitive advantage and uniqueness, enabling us to achieve sustainable growth. Adaptability to the changing operating environment is another key for continuous success. Guided by these principles, we will continue to place a top priority on business investments, while creating additional value for our products and operations and aiming to exceed the expectations of all our stakeholders.”

Meanwhile, reporting separately, JTI said that its shipments during the first three months of 2014, at 87.7 billion, were down by 5.4 percent, while GFB shipments, at 55.3 billion, were down by 5.5 percent.

Its core revenue was up by 1.2 percent to US$2,761 million, and its adjusted operating profit was up by 4.8 percent to US$1,023 million.

Reynolds’ first-quarter volume down

| April 24, 2014

R.J. Reynolds’ domestic-market cigarette volume during the first quarter to the end of March, at 14.3 billion, was down by 3.8 percent on that of the first quarter of last year, 14.9 billion.

Total growth brands volume was up by 1.2 percent from 9.6 billion to 9.7 billion, driven by a 2.5 percent increase to 4.9 billion in sales of Camel. Sales of Pall Mall, the other growth brand, were down by 0.1 percent to 4.8 billion.

Other brand sales were down by 12.9 percent from 5.3 billion to 4.6 billion.

Reynolds’ share of the U.S. retail market, at 26.7 percent was up by 0.1 of a percentage point. The share of its growth brands was said to have been increased by 0.7 of a percentage point to 19.4 percent, while the share of its other brands was down by 0.6 of a percentage point to 7.2 percent.

Reynolds’ cigarette market performance was reported yesterday by Reynolds American Inc., which also reported Santa Fe and American Snuff figures.

Santa Fe’s domestic-market cigarette (Natural American Spirit) volume during the first quarter to the end of March, at 0.8 billion, was up by 10.7 percent on that of the first quarter of 2013.

And Natural American Spirit’s market share rose by 0.2 of a percentage point to 1.5 percent.

Sales of American’s moist snuff cans during the first quarter of 2014, at 116.9 million cans, were increased by 10.7 percent on those of the first quarter of last year.

Sales of Grizzly were up by 12.1 percent to 106.4 million, while sales of other brands were down by 1.6 percent to 10.5 million.

American’s share of the U.S. market, at 34.6 percent, was up by 0.8 of a percentage point. Grizzly’s market share was up by 1.1 percentage points to 31.5 percent, while the share of the company’s other brands was down by 0.2 of a percentage point to 3.1 percent.

RAI’s reported operating income during the first quarter of 2014, at $590 million, was down by 33.5 percent on that of the first quarter of last year, $887 million. Adjusted operating income was down by 3.6 percent to $665 million.

Reported net income was down by 28.5 percent to $363 million, and adjusted net income decreased by 3 percent to $386 million.

Reported net income per diluted share was down by 27.2 percent to $0.67, while adjusted net income per diluted share was unchanged at $0.72.

“Reynolds American’s reportable business segments continued to make excellent progress in the first quarter, with strong market-share gains on all their key brands,” said Daniel M. Delen, president and CEO of RAI.

“As we previously noted, R.J. Reynolds Vapor Company is investing heavily in the expansion of its highly differentiated Vuse Digital Vapor Cigarette this year, and this spending impacted RAI’s first-quarter earnings and margin as expected.”

Delen said that first-quarter performance reflected three key strengths of RAI’s operating companies: excellence in innovation, superior engagement with adult tobacco consumers and efficient execution. “These strategies are not just effective for success in a transformative environment; they also form the core of our companies’ competitive advantage,” he said.

Meeting to discuss leaf’s carbon imprint

| April 24, 2014

One of the two focuses of this year’s meeting of the European Association on Tobacco Research and Experimentation (AERET) will be the carbon imprint of leaf tobacco production. The other will be biodiversity.

AERET’s annual meeting is due to be held in Kraków, Poland, June 10–12.

June 10 and 11 will be dedicated to technical debates, including those on continuing tobacco-crop protection projects, tobacco varieties, experimentation programs, integrated pest management and blue mold.

June 12 will be dedicated to the statutory requirements of the organization.

Mugabe threatens tobacco growing ban

| April 23, 2014

President Robert Mugabe has warned farmers that tobacco production will be banned in Zimbabwe if they continue to cut down trees to provide fuel for curing their crops, according to a story on NewZimbabwe.com.

In his Independence Day speech on the weekend, Mugabe said tobacco growers were causing desertification.

“Our people are growing tobacco and want to make money out of it, but on the downside we have seen massive deforestation leading to desertification in some areas,” he said.

“We are saying to them, ‘use coal or we will stop tobacco production.’”

The land reform program promoted by Mugabe has seen a big increase in the number of tobacco growers, but they are generally poorly resourced and have had to turn to the forests for curing fuel.

“We would rather have no tobacco than have deserts and no trees,” said Mugabe.

Disagreement over regulation timing

| April 23, 2014

If Denmark’s health minister, Nick Hækkerup, has his way, parliament will “soon” be taking action to curb the increasing use of e-cigarettes in the country, according to a Copenhagen Post story.

“It concerns me that children are using strawberry- and licorice-flavored e-cigarettes,” Hækkerup wrote in a statement to parliament’s committee on health.

“It doesn’t matter whether or not they contain nicotine; it is still a concern.”

Hækkerup called on parliament to begin discussing possible regulation of the use of e-cigarettes.

Social Democrats’ health spokesperson Flemming Møller Mortensen said that it was too soon to sound the alarm.

“It is hard to regulate when we know as little as we do now,” he was quoted as saying.

But Niels Them Kjær, spokesperson for the cancer society, welcomed Hækkerup’s suggestion.

“It has been a grey area for a while, so it is a positive sign that the minister is looking to regulate it in some way,” Kjær said.

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