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Heroic levels of smuggling into Vietnam

| October 27, 2014

The smuggling of cigarettes from Cambodia into Vietnam is on the rise, according to a story in The Cambodia Daily quoting recent Vietnamese media reports.

Last week, VietnamNet, an online news site in Vietnam, quoted Pham Kien Nghiep, the secretary-general of the Vietnam Tobacco Association, as saying that the number of smugglers along the Cambodian-Vietnamese border had risen drastically this year.

“There are too many unemployed people, all too ready to transport illegal cigarettes, despite the risks,” Nghiep was quoted as saying.

According to a report by Oxford Economics and the International Tax and Investment Center released in September, 21.9 billion untaxed and otherwise illicit cigarettes were smuggled into Vietnam last year.

And the Vietnam Tobacco Association estimates that 90 percent, or 19.7 billion, of those cigarettes were made up of two brands: Hero and Jet.

Choeng Vann Thor, head of the General Department of Taxation’s branch office in Phnom Penh’s Chamkar Mon district said Hero cigarettes were not sold in Cambodia.

“As I know, Hero cigarettes are not sold in Cambodia, but exported to Vietnam,” he said.

However, the brand is widely available across Cambodia.

Meanwhile, Long Sreng, deputy director of the Interior Ministry’s anti-economic crime police department, said he was not aware of any cigarette smuggling between Cambodia and Vietnam. “I don’t know about this. I am not the director, but just the deputy director,” he was quoted as saying.

Mighty row brewing in the Philippines

| October 27, 2014

Philip Morris Fortune Tobacco Corp. (PMFTC) wants the Philippines government to take action against Mighty Corp. after the publication of a report by the Senate Tax Study and Research Office (STSRO) alleging ‘evidence of systematic and endemic fraud’ by Mighty, according to a story in The Philippine Star.

In a briefing on Friday, PMFTC president Paul Riley alleged the key findings by the STSRO confirmed suspicions of fraudulent activities by Mighty.

“A great deal of what we have suspected for a long time now is finally out in the open,” Riley was quoted as saying. “The STSRO uncovered several pieces of evidence that shed light on Mighty’s ability to sell all their products below tax and cost for almost 18 months now, while still enabling them to stay afloat.

“This remarkable, and I would contend explosive report, offers what was highlighted by a member of Congress as evidence of systematic and endemic fraud. The evidence may potentially expose Mighty to very serious liabilities as a consequence of the various practices discovered by the STSRO.”

But Mighty’s executive vice-president Oscar P. Barrientos rebutted the findings, which he said were preliminary and still subject to validation by the Congressional oversight committee.

“It is inaccurate and unfounded,” he said. “Let’s just wait for the official records and the truth will set us free. The committee has asked government agencies like the Bureau of Internal Revenue to submit official data to ensure fairness.”

In its report, the STSTRO alleged that Mighty had been undervaluing the cost of tobacco and imported raw materials to evade customs duties and import value added tax.

The STSTRO alleged that Mighty had been using imported materials to make products for export but diverting these products to the domestic market without paying duties and taxes.

SM envisions world without cigarettes

| October 24, 2014

Swedish Match’s new vision is: A world without cigarettes.

In announcing the company’s third quarter results to the end of September, CEO, Lars Dahlgren, said the availability and accessibility of SM’s high quality snus explained the uniquely low cigarette consumption in Sweden.

“In Norway, we are now witnessing a similar trend of migration from cigarettes to snus,” he said.

“With our heritage and deep experience and expertise in developing, producing and marketing quality products, Swedish Match is distinctly positioned to compete in and further develop the growing snus category while contributing significantly to improved public health.

“To further emphasize the company strategy and prospects we have during the quarter reformulated our vision. Our new company vision is ‘A world without cigarettes’.

“We create shareholder value by offering tobacco consumers enjoyable products of superior quality in a responsible way.

“By providing products that are recognized as safer alternatives to cigarettes, we can contribute significantly to improved public health.”

Later in his statement, Dahlgren noted that, on August 25, the US Food and Drug Administration had announced that Swedish Match’s Modified Risk Tobacco Product (MRTP) applications for its General snus line of products sold in the US were ‘complete’ and that they were being made publicly available for comments. SM, he said, had thereby become the first company to have an MRTP application accepted as complete by the FDA.

Turning to the company’s results, Dahlgren said that SM had reported increased sales and operating profit in the third quarter compared to those of the third quarter of 2013.

“The strongest growth came from the product area ‘other tobacco products’, which includes cigars and chewing tobacco.

“We also reported sales and operating profit growth within our snus and moist snuff product area. For snus and moist snuff, the operating profit comparison benefits from the non-recurrence of restructuring costs charged in the prior year’s third quarter.

“Underlying operating profit in local currencies also increased when excluding the effects of last year’s restructuring charges and international snus investments from both years.”

Sales for the third quarter increased by six percent to SEK3,416 million, from SEK3,230 million during the third quarter of 2013. In local currencies, sales increased by three percent.

Operating profit from product areas, which excludes the share of net profit from the Scandinavian Tobacco Group (STG) and larger one-off items, increased by five percent during the third quarter from SEK836 million to SEK874 million, and by two percent in local currencies.

Operating profit from product areas was up by two percent in local currencies also when adjusted for increased costs related to international snus and restructuring charges in 2013.

Operating profit, which includes the share of net profit in STG and larger one-off items, was up by seven percent from SEK924 million to SEK989 million.

Basic earnings per share increased by 11 percent from SEK3.15 to SEK3.50.

Reynolds to introduce no-smoking policy

| October 24, 2014

From next year, Reynolds American and its subsidiaries will launch a no-smoking policy within its facilities, outside of designated smoking areas, according to a story by Richard Craver for the Winston-Salem Journal.

Reynolds designated its downtown Winston-Salem headquarters smoke-free on May 8, the day of its annual shareholder meeting, following requests from attendees. And smoke-free policies already applied to the company’s manufacturing floor, cafeterias and fitness rooms.

Employees were told of the new restrictions on Wednesday.

These mean no more smoking of traditional cigarettes, cigars and pipes at desks, in conference rooms, elevators and in hallways, spokesman David Howard said. The policy applied to all employees, he added.

From January 1, what will remain permissible in most indoor areas will be the consumption of electronic cigarettes; heat-or-burn cigarettes, such as Reynolds’ Eclipse brand; moist snuff; and snus.

“We will restrict traditional smoking to the designated areas as they are put together in 2015 and 2016,” Howard was quoted as saying.

“The bottom line is that we believe it is the right thing to do, updating our tobacco usage policies, at the right time to do it. The policy change will better accommodate non-smokers and visitors to our facilities.”

Lorillard shipments down in 3Q

| October 24, 2014

Lorillard’s domestic wholesale cigarette shipment volume during the third quarter of this year, at 10,073 million, was down by 1.9 per cent on that of the third quarter of 2013.

Full price cigarette volume, at 8,645 million, was down by 1.5 percent, with Newport’s volume down by 1.4 percent to 8,575 million, True’s volume down by 14.3 percent to 37 million and Kent’s volume down by 13.3 percent to 34 million.

Price/value volume, at 1,428 million, was down by 4.3 percent, with Maverick sales down by 4.0 percent to 1,322 million and Old Gold volume down by 8.2 percent to 105 million.

Non-domestic (Puerto Rico and US Possessions) volume was down by 15.4 percent to 131 million; so Lorillard’s overall volume was down by 2.1 per cent to 10,204 million.

Lorillard’s domestic market share during the third quarter, at 15.1 percent, was said to have been up by 0.3 of a percentage point from that of the third quarter of 2013, while its share of the menthol segment of the market, at 40.2 percent was unchanged.

The industry-wide menthol share of the overall domestic market was up by 0.2 of a percentage point to 31.6 percent.

Newport’s share of the domestic market, at 12.8 per cent, was up by 0.3 of a percentage point, but its share of the menthol segment was down by 0.1 of a percentage point to 36.9 percent.

Meanwhile, net cigarette sales during the third quarter, at $1,831 million, were increased by 0.2 percent on those of the third quarter of 2013, $1,827 million. Net sales of traditional cigarettes were up by 1.6 percent from $1,764 million to $1,793 million, but net sales of electronic cigarettes dropped 39.7 percent from $63 million to $38 million.

The decline in sales of blu eCigs in the US was said to have reflected a decrease in unit volume, which, in turn, was attributed to two factors. ‘First, an unfavorable comparison to the year ago period that included significant pipeline inventory as the brand was in its initial phase of national expansion’ the Lorillard report said. ‘And second, the brand was negatively impacted by competitors’ new national product launches which were supported by aggressive introductory “free trial” promotional programs.

‘Notably, the third quarter launch of blu eCigs cherry disposable products helped contribute a sequential increase in US net sales of $4 million to $37 million for the brand.’

Lorillard’s net sales during the third quarter, at $1.831 billion, were increased by 0.2 percent on those of the third quarter of 2013.

Its reported operating income was increased by 12.9 percent to $517 million, while its adjusted operating income increased by 5.4 percent to $570 million.

Its reported net income was increased by 12.0 percent to $289 million and its adjusted net income was up by 5.2 percent to $326 million.

And its reported diluted earnings per share increased by 15.9 percent to $0.80, while its adjusted diluted earnings per share increased by 8.4 percent to $0.90.

“Lorillard delivered strong third quarter financial and operating results including robust cigarettes segment adjusted operating profit and profit margin growth, continued cigarette market share gains as well as a sequential increase in blu eCigs domestic net sales despite heavy competitive e-cig discounting,” said chairman, president and CEO, Murray S. Kessler.

“Overall, we are very pleased that the company’s continued industry-leading fundamental performance has resulted in adjusted EPS growth of over eight percent during the quarter, consistent with our commitment to deliver a double digit total shareholder return as measured by EPS growth and the dividend yield over the long-term.

“Also in the third quarter, the company continued to work toward shareholder and regulatory approval pursuant to our merger agreement with Reynolds American and we view those activities as proceeding smoothly. We are very excited about completing the combination with Reynolds, which we expect to occur in the first half of 2015, as it delivers significant and immediate value to our shareholders, as well as a meaningful ownership stake in the combined company that will enjoy multiple flagship tobacco brands well-positioned for continued long-term success.”

Vector to host results conference call

| October 24, 2014

The Vector Group is due to host a conference call and webcast to discuss its third quarter 2014 results starting at 09.00 Eastern Time on October 30.

Investors will be able to access the free call on 800-859-8150 by entering the identification number 24115224.

Registration and the conference call will be available also at www.investorcalendar.com.

A replay of the call will be available shortly after the call ends for one year at the same Internet address and through November 13 on 877-656-8905; identification number 24115224.

Vector Group is a holding company that indirectly owns Liggett Group, Vector Tobacco and other companies.

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