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BAT’s volume down but share up in ‘key markets’

| February 26, 2015

British American Tobacco’s cigarette volumes during 2014, at 667 billion, were down by about 1.4 percent on those of 2013, 676 billion.

Volumes were increased in the company’s EEMEA (Eastern Europe, Middle East and Africa) region from 226 billion to 227 billion; they were unchanged in its Asia Pacific region at 197 billion; they were down in the Americas from 134 billion to 131 billion; and they were down in Western Europe from 119 billion to 112 billion.

BAT’s tobacco volumes during 2014, at 694 billion, were down by about 1.3 percent. Tobacco volumes include, as well as cigarettes, other tobacco products whose volumes are stated in cigarette stick equivalents.

The company said the fall in its cigarette volumes was down to industry declines that drove lower volumes in Russia, Vietnam, Brazil, Denmark and Poland, partially offset by higher volumes in Bangladesh, Iran, Venezuela, Turkey, Ukraine and Pakistan.

The group was said to have increased its market share by 10 basis points in its key markets.

BAT’s five Global Drive Brands (GDB) increased their volume by 5.8 percent, with a share growth of 90 basis points. Dunhill’s volume increased by 2.9 percent, driven mainly by its performance in Indonesia and Brazil, but offset by lower volumes in Malaysia, South Korea and the GCC.

Kent’s volume was 2.8 percent down as a result of market contraction in Russia and Romania, which offset strong performances in Iran, Uzbekistan, Japan and Turkey.

Lucky Strike’s volume was up by 0.8 percent, driven by growth in Mexico and Spain offset by lower volume in Chile and Poland.

Pall Mall’s volume grew by 5.6 percent due to strong performances in Pakistan, South Africa, Mexico and Chile that more than offset lower volumes in Italy, Russia and the UK.

And Rothmans’ volume grew by 39.8 percent driven by its performances in Russia, Italy, Ukraine, the UK, Kazakhstan, Australia and South Africa. Last year was the second year in which Rothmans was been included as a GDB.

The volume of BAT’s other international brands declined by 3.0 percent as growth in State Express 555 and Shuang Xi was more than offset by market declines that led to lower volumes of Craven A, Peter Stuyvesant and Viceroy.

BAT’s revenue, at £13,971 million, was down by 8.4 percent on that of 2013, £15,260 million, though it was up by 2.8 percent at constant rates of exchange.

Adjusted profit from operations was down by 7.2 percent to £5,403 million, but up by 4.4 percent at constant rates of exchange.

Reported profit from operations was down by 17.7 per cent to £4,546 million, and down by 7.1 percent at constant rates of exchange.

Adjusted diluted earnings per share were down by 3.9 percent to 208.1p, but up by 7.9 percent at constant rate of exchange, while basic earnings per share were down by 18.6 percent to 167.1p.

Dividends per share were up by 4.0 percent to 148.1p.

“I am delighted with the excellent progress we have made in the four years since I became chief executive, during which we have enhanced our strategy with a sharpened focus on the consumer,” said Nicandro Durante.

“We have increased our share of the global cigarette market in this period by 70 basis points and grown our Global Drive Brands and share of key segments at an even faster rate, improving the underlying quality of our portfolio.

“We are meeting consumer needs with differentiated products, including innovations which now make up nearly 50 percent of our GDB volume.”

US tobacco firms settle 400 Engle progeny cases

| February 26, 2015

The three biggest US tobacco companies have tentatively agreed to pay $100 million to resolve 400 Engle progeny lawsuits pending against them in the Florida federal court. Final approval of the deal is subject to an agreement to participate by all the plaintiffs.

Under the terms of the agreement, Philip Morris USA and R.J. Reynolds Tobacco Co will each pay $42.5 million and Lorillard will pay $15.0 million.

“This agreement presented a unique opportunity to essentially close out the federal docket, and we are pleased to put the federal Engle litigation behind us,” said Jeff Raborn, vice president and assistant general counsel for R.J. Reynolds. “With respect to the cases pending in state court, we will continue to defend them vigorously, which includes appealing adverse verdicts.”

PM USA and Lorillard said that they too would continue to defend Engle progeny cases not covered by the agreement and appeal adverse verdicts.

In announcing the tentative agreement in a note on the Altria website, Philip Morris USA said the Engle case, which was originally filed in 1994, had attempted to certify a national class action of smokers. ‘The class was subsequently limited to Florida residents and ultimately decertified in 2006 by the Florida Supreme Court,’ explained PM USA. ‘In doing so, the Florida Supreme Court also ruled that former class members could file their own lawsuits and use certain general findings from the class action trial. The court gave former class members until January 2008 to file their lawsuits, which are commonly referred to as Engle progeny cases. Plaintiffs filed their suits in U.S. District Court and various state courts throughout Florida.’

A Fitch Ratings report said that the cases subject to the tentative agreement involved only those cases pending in federal court, which totaled about 700 at the end of 2014, but did not address the state actions that collectively numbered more than 3,000 cases.

‘Significant litigation risk, which includes product liability, consumer fraud and health recovery cases totaling in the thousands, will weigh on the industry for years to come, the Fitch report said. ‘Fitch sees the highest litigation risk for the industry stemming from the Engle Progeny legal actions in Florida, which currently consist of nearly 3,900 state and federal cases.

While welcoming the agreement, Bonnie Herzog, managing director Beverage, Tobacco & Convenience Store Research at Wells Fargo Securities, said there was a low probability that a similar agreement could be reached in respect of the outstanding 3,000 plus state cases.

Nevertheless, she said this was a favorable conclusion for all three companies to a substantial outstanding legal battle.

‘While no individual Engle case posed any significant financial risk to any of the three manufacturers, we do believe the elimination of the aggregate financial risk from all federal cases and the headline risk of any individual case will be viewed favorably by the market,’ she added.

Revised TPD the most lobbied EU dossier

| February 25, 2015

The tobacco industry deployed ‘massive’ third party lobbying to subvert revisions to the EU Tobacco Products Directive (TPD), according to a BMJ piece citing research published online by Tobacco Control (TC).

TC was said to have found also that regulatory reforms seemed to have made it easier for corporate interests to influence public health legislation.

The 2014 TPD, which becomes national law next year, is a revised version of the 2001 directive. It provides for an increase in the size of graphic health warnings, a ban on certain flavourings, restrictions on the size and shape of cigarette packs, and regulation of e-cigarettes.

‘But it is weaker than the original proposals,’ said the BMJ.

‘The process for revision also took over five years, and was beset by controversy, amid claims of tobacco industry interference and the forced resignation of the Health Commissioner John Dalli.

‘The Directive has been described as “the most lobbied dossier in the history of EU institutions”.’

The BMJ piece is at: http://www.bmj.com/company/wp-content/uploads/2015/02/toba-lobb.pdf

The TC study is at: http://tobaccocontrol.bmj.com/content/early/2015/02/06/tobaccocontrol-2014-051919.full.

Greece agrees to crack down on tobacco smuggling

| February 25, 2015

One of the reform measures conceded by the Greek government before Tuesday’s agreement on the extension of the country’s bailout for four months was a crack down on tobacco smuggling, according to a story by Jim Yardley for the New York Times.

Euro zone finance ministers and other creditors agreed to extend the Greek bailout program for another four months, with caveats, after signing off on a reform plan hurriedly put forward by the Greek government, Yardley wrote.

But he added that the accord would probably not last long: the fact that both sides were claiming victory underscored the fuzziness and fragility of the new agreement.

‘Tuesday’s accord does not resolve Greece’s dire economic situation and pushes many of the major problems down the road,’ Yardley wrote. ‘Nor has this latest Greek crisis forced Europe’s leaders to address the fundamental problems of the economic and political structure of the euro zone.’

The reform measures, submitted to Brussels by the Greek finance minister, Yanis Varoufakis, included plans to crack down on the smuggling of fuel and tobacco, which is said to cost the Greek economy billions of euro a year in unrecovered tax revenue; modernize the pension system; and confront nonperforming bank loans.

“The most important challenge, a make-it-or-break-it thing, is their ability to deliver on tax evasion, corruption and smuggling of tobacco and oil,” Yardley quoted George Pagoulatos, a political analyst and professor at Athens University, as saying. “If they manage to make a difference on that, they will be able to raise the revenues that will allow them to fund their social programs and also be financially sound at the same time.”

The New York Times story is at: http://www.nytimes.com/2015/02/25/world/europe/in-greek-crisis-rare-moment-of-consensus.html?emc=edit_tnt_20150224&nlid=60534081&tntemail0=y&_r=0.

Indian government asked to spread tax burden

| February 25, 2015

Ahead of the 2015 budget, the Tobacco Institute of India has been calling on the country’s government to widen the tax base to include all tobacco products, according to a story in the latest issue of the BBM Bommidala Group newsletter.

The budget is due to be presented to the Indian parliament by the Finance Minister Arun Jaitely on February 28.

The Institute said that licit cigarettes accounted for only 12 percent of the tobacco products consumed in India.

And it said that levying excessive taxes on cigarettes had led to a double digit drop in licit cigarette volumes between July-December 2013 and July-December 2014.

Including other tobacco products in the tax net would help the government tap into new revenue sources.

It would also assist with the government’s tobacco control objectives.

Sporting role for Thailand’s smokers

| February 25, 2015

Thai smokers, who already contribute to the Thai Health Promotion Foundation and the Thai Public Broadcasting Services, will soon be providing money to help the country’s sporting efforts, according to a story in the Bangkok Post.

Retail prices for cigarettes and alcoholic drinks are said to be likely to go up by several baht next month as producers pass on a new two percent sports tax.

The Sports Act passed by the National Legislative Assembly in January and pending publication in the Royal Gazette will require manufacturers and distributors of tobacco products and alcoholic beverages to contribute to a new sports fund at a rate equivalent to two percent of the excise taxes they pay the Finance Ministry each year.

The ministry will collect the money and give it to the sports fund.

The Thailand Tobacco Monopoly, which earns about six billion baht annually in net profit, apparently told the media that its contribution to the sports fund would be about 2.8 billion baht annually.

The monopoly currently contributes 1.6 billion baht to the Thai Health Promotion Foundation and Thai Public Broadcasting Services.

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