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Big tobacco’s big profits

Why are tobacco companies’ profits still booming – despite government regulation and declining smoking rates?

http://www.aljazeera.com/programmes/countingthecost/2017/06/big-tobacco-big-profits-170603092904305.html

Smoking kills. So if you’re in an industry where your product is known to be damaging the health of people who buy it, then you should, in theory, go out of business.

But shares in companies listed in the Bloomberg tobacco producers index have risen 351 percent since 2009, making it one of the best investments of the past decade.

Graphic warning labels and taxes seem to have some effect on reducing the number of smokers but less so on industry profits which keep rising. And investors can’t quit buying the stocks because operating profits continue to go up.

Although some pension funds and life insurers have turned their back on the sector, it’s still not enough to hit big tobacco where it hurts.

Different tax regimes around the world mostly account for the difference in price of cigarettes. But governments are not as hooked as the consumers who buy cigarettes.

Consumers cough up for higher prices because they crave the drug in tobacco – nicotine. Without nicotine addiction, there would be no tobacco industry.

The tobacco industry knows this and has diversified to develop other nicotine products like E-cigarettes. The electronic cigarette market has grown from just $50m in 2005 to an estimated $7.5bn last year, according to Euromonitor. It’s all part of the unique economy of addiction.

New evidence suggests the dangers of cigarettes in the United States have increased despite the fall of smoking rates in recent years. A new study has found that so-called “light” cigarettes may be behind a spike in lung cancer cases, as Heidi Zhou-Castro reports.

Jeremias Paul from the World Health Organization joins Counting the Cost from Geneva to discuss the unique dynamics of the nicotine economy.

Paul thinks the tobacco industry should pay more taxes because they’re making a profit out of people’s addiction.

“If they cause death, they should be taxed to death. In the latest global adult tobacco survey, there was a reduction in tobacco use of about 20 percent, which essentially proves increasing taxes regenerates a lot of revenues but at the same time reduces consumption.”

PMI test marketing ‘flat coil’ e-liquid technology

Philip Morris International is test marketing a product employing new technology described by PMI as a mesh patch to heat e-liquids that eliminates manual assembly of wick-and-coil designs that are the industry standard.

http://www.tobaccojournal.com/PMI_test_marketing_%C3%82%E2%80%98flat_coil%C3%82%E2%80%99_e-liquid_technology.54255.0.html

PMI’s technology allows full automation in contrast to nearly all e-cigarette products that require wicks to be hand-threaded through heating coils, the company said in its latest Scientific Update for Smoke-free Products. A flat-coil product has been undergoing test marketing under the MESH brand in Birmingham, UK, since late last year, PMI said.

“The trick was to design a flat alternative to the original coil-and-wick technology that provided a comparable user experience to traditional e-cigarette products,” PMI said. “By designing a flat coil, a machine could place a flat wick on top of it, inject e-liquid into an adjacent cavity, and neatly seal it all in a self-contained cartridge.”

How e-cigarette ads might sway teens to try tobacco products

When non-smoking teens see ads for e-cigarettes, and are curious about the products advertised, perhaps even identifying with a favorite brand, they might also be more susceptible to taking up cigarettes, a new study finds.

http://www.businessinsider.com/r-how-e-cigarette-ads-might-sway-teens-to-try-tobacco-products-2017-5?IR=T

For the study, researchers showed a nationally representative sample of 10,751 U.S. teens advertisements for a wide variety of tobacco products including traditional cigarettes, cigars, chewing tobacco and e-cigarettes. Overall, the teens were more receptive to ads for e-cigarettes than other products and television ads were most likely to prompt brand recall.

“The imagery used by tobacco companies focuses on the aspirations of young people including having fun, being independent, sophisticated, socially accepted, popular, etc.,” said lead study author John Pierce of the University of California, San Diego.

“Those who have an emotive response to these aspirational images are more likely to see use of the product as a way to achieve their aspirations,” Pierce said by email. “It is hypothesized that in adolescents who are committed never smokers, recall of tobacco product advertising will be associated with first movement toward product use within a one-year time frame.”

Big U.S. tobacco companies are all developing e-cigarettes, battery-powered gadgets with a heating element that turns liquid nicotine and flavorings into a cloud of vapor that users inhale.

For the past decade, public health experts have debated whether the devices might help with smoking cessation or at least be a safer alternative to smoking traditional combustible cigarettes, or whether they might lure a new generation into nicotine addiction.

Fewer teens smoke today than a generation ago, but declines in traditional cigarette use have stalled and e-cigarettes have become increasingly popular in recent years. As of 2015, an estimated 16 percent of U.S. high school students used e-cigarettes, compared with about 9 percent for traditional cigarettes, according to the U.S. Centers for Disease Control and Prevention.

While television ads for traditional cigarettes have been illegal in the U.S. for decades, e-cigarette ads are currently allowed on TV, researchers note in Pediatrics.

In the study, Pierce and his colleagues examined how receptive or curious non-smoking teens were about different tobacco products and whether they had a favorite image or advertisement. They also looked at how susceptible the adolescents might be to trying tobacco products based on their ability to recall specific brands they saw in the ads.

The researchers showed each study participant a random selection of five ads each for cigarettes, e-cigarettes smokeless tobacco and cigars based on 959 different promotions that had recently been used to advertise these products.

Overall, 41 percent of the younger teens in the study and half of older adolescents were receptive to at least one tobacco advertisement, the study found.

Across each age group, teens were most receptive to ads for e-cigarettes, followed by traditional cigarettes and smokeless tobacco.

E-cigarette ads shown on television had the highest recall.

Compared to teens in the study who were not at all receptive to the ads, youth who had the highest level of engagement with the promotions were more than six times more likely to be susceptible to trying tobacco products, the study found.

The study isn’t a controlled experiment designed to prove whether or how ads may directly influence tobacco use.

Another limitation is that researchers didn’t have data to show whether or not teens actually used tobacco products after viewing these ads, the authors note.

Even so, the findings suggest that non-cigarette ads for tobacco-related products may be damaging for adolescent health, Rebecca Collins of Rand Corporation in Santa Monica, California, writes in an accompanying editorial.

“This study provides some very provocative data suggesting that the marketing of e-cigarettes, which is not regulated, might be leading to cigarette smoking among teens,” Collins said by email.

Big Tobacco Attacks Sensible F.D.A. Rules on Vaping

As smokers turned to electronic cigarettes to reduce the health risks of smoking, big tobacco companies started buying e-cigarette makers and producing and selling their own. Now those companies are lobbying Congress to prevent the Food and Drug Administration from regulating electronic cigarettes and cigars, as it does conventional cigarettes. If they succeed, they will be able to sell and market addictive nicotine products to young people with few restrictions.

https://www.nytimes.com/2017/04/19/opinion/big-tobacco-attacks-sensible-fda-rules-on-vaping.html?_r=1

While promoters of e-cigarettes and e-cigars, which provide nicotine in vapor form, say they can help people quit conventional tobacco products containing harmful tar, there is not a lot of evidence for that claim. In addition, the devices are dangerous to young people because the nicotine they provide “can cause addiction and can harm the developing adolescent brain,” according to a 2016 report by the surgeon general, Vivek Murthy. Health experts also say that the vapor those devices produce can contain carcinogens and metal particles.

Another government report found that 16 percent of high-school students said they had used e-cigarettes in 2015, up from just 1.5 percent in 2011. The industry sells these products in a broad array of flavors, like gummy bear and cotton candy, designed to appeal to young people when they are more susceptible to becoming dependent or addicted to nicotine.

After years of deliberation, the F.D.A. said last May that it would begin regulating the manufacturing, sale, packaging and advertising of e-cigarettes, and all tobacco products, under a 2009 federal law that authorized it to do so. Specifically, the agency said it would begin reviewing the health risks of e-cigarettes introduced since early 2007, and potentially ban specific flavors and products that it deemed harmful. The tobacco lobby wants Republicans to amend a vital appropriations bill to exempt products that were introduced before May 2016 from F.D.A. review.

The push to undermine the F.D.A.’s authority began even before the agency had finished its rule. One Republican lawmaker, Representative Tom Cole of Oklahoma, introduced a bill in 2015 that was identical to a draft circulated by the Altria Group, the country’s biggest tobacco company and a marketer of vaping products. In addition to its legislative effort, the industry has also filed several lawsuits in federal courts challenging the rule.

Tobacco companies complain that the F.D.A.’s rule amounts to “retroactive” regulation because many of the e-cigarettes and e-cigars it will regulate have been on the market for years. But the industry has known for years that government officials were developing this rule. Large bipartisan majorities in Congress voted in 2009 to hand the agency the authority to evaluate and approve new tobacco products introduced on or after Feb. 15, 2007. The F.D.A. is simply doing its job by protecting public health.

When Public Health and Big Tobacco Align

Nobody trusts the tobacco industry, and it’s easy to understand why. For decades, industry executives knew that smoking caused cancer and heart disease yet publicly denied the dangers of cigarettes. It relentlessly attacked its critics. Documents that emerged in the 1990s showed that the industry targeted teenagers, knowing that the earlier someone became addicted to cigarettes, the more likely they would be lifelong smokers. And so on.

https://www.bloomberg.com/view/articles/2017-03-09/when-public-health-and-big-tobacco-align

In the 1980s and 1990s, the public health community went to war with the tobacco industry. Though the war largely ended in 1998 with Big Tobacco agreeing to a multi-billion-dollar settlement with the states, it remains a powerful memory for public health.

To this day, most tobacco-control advocates view the cigarette companies as being every bit as duplicitous and evil as they were in the bad old days. Some years ago, I asked Stanton Glantz, perhaps the leading anti-tobacco scientist in the U.S., what his ultimate goal was. He didn’t say it was to eliminate the scourge of smoking. He said: “To destroy the tobacco industry.”

What brings this to mind is an excellent cover story in the upcoming issue of Bloomberg Businessweek about the efforts of the tobacco industry to devise and market so-called reduced risk products like electronic cigarettes — products that give users their nicotine fix without most of the attendant carcinogens that come with combustible tobacco.

Although the tobacco companies have done decades of R&D on smokeless products, the business was dominated early on by startups like NJOY, which is today the largest independent e-cigarette company in America. From the start NJOY has said that a big part of its mission was “to end smoking-related death and disease.” And from the start, messages like that have been scorned by the public health community.

Ingesting nicotine in some smokeless fashion is vastly safer than smoking a combustible cigarette. (In the words of the late South African tobacco scientist Michael Russell, “People smoke for the nicotine but die from the tar.”) Last year, the Royal College of Medicine issued a report saying that e-cigarettes were some 95 percent safer than cigarettes.

Even so, the public health community in the U.S., led by the Centers for Disease Control and Prevention, has done everything it can to demonize smokeless products. Some of this has been with good reason: to try to keep kids from picking up an addictive habit. But this effort has also helped to create the impression that smokeless products are as dangerous as cigarettes. One result, sadly, is that many long time smokers have refused to try them, even though they could save their lives.

My sense in talking to tobacco-control officials over the years is that too many of them simply don’t believe in a reduced-harm approach. We give heroin addicts methadone not because methadone is good but because it is better than heroin. With cigarettes, however, the public health mindset appears to be all or nothing — that the only “right” thing for smokers to do is to go cold turkey.

But the lingering distrust of the tobacco industry has also had a lot to do with public health’s unwillingness to acknowledge the potential benefits of alternative products. Matt Myers, the president of the Campaign for Tobacco Free Kids, has often complained, for instance, about the marketing of e-cigarettes, saying that companies are using the same tactics to hook teenagers that Big Tobacco once used.

With the e-cigarette market clearly established, the four big tobacco companies — BAT, Reynolds American, Altria (formerly Philip Morris) and Philip Morris International (spun off from Altria) — have proclaimed themselves all in.

Philip Morris International is an especially interesting case: Not only does it have an array of e-cigarettes and other smokeless products, but as the Bloomberg Businessweek story points out, it has publicly proclaimed that its goal is to lead the world into “a smoke-free future.” The home page of its website asks, “How long will the world’s leading cigarette company be in the cigarette business?”

As astonishing as it is that a company with $26 billion in tobacco revenue last year would be calling for the end of cigarettes, I believe Philip Morris is sincere. It has spent around $3 billion in research. Its new flagship product, called IQOS, heats tobacco but doesn’t burn it — which the company believes will be more satisfying to smokers than vaping. IQOS already has 7 percent of the tobacco market in Japan, and is being rolled out in other countries.

Philip Morris recently asked the British government that tobacco products “be taxed according to their risk profile.” In other words, it wants the government to impose higher taxes on cigarettes to encourage smokers to move to reduced-risk products. What tobacco company has ever done that before?

In the U.S., Philip Morris has done something extraordinary: It has made a submission to the Food and Drug Administration to get the right to market IQOS as a reduced risk product. The expensive submission consumed 2.3 million pages and is backed by a great deal of research, including several clinical trials. So far, none of the U.S. e-cigarette companies have attempted to get such a designation, and it is a big problem. How do you sell a reduced risk product when you can’t tell anybody it reduces risk?

The business case for diving into this market is that it’s a product category that’s growing, while the cigarette market is shrinking. Philip Morris doesn’t want to be left behind. But there is no particular need for the company to set out such a transformative agenda, at least not yet. The small smokeless companies are not much of a threat. NJOY filed for bankruptcy last fall. And under a 2009 law, every company in the e-cigarette industry will have to file something called a premarket tobacco application with the FDA by August 2018. The submissions will cost, on average, over $450,000, and the companies will have to show that their products have some public health benefit. There is a legitimate chance that some small companies won’t be able to clear the hurdle.

No, Philip Morris is pushing as hard as it is, I believe, because it wants to get on the right side of the issue, finally — to be viewed as a good corporate citizen. When I spoke to Glantz the other day about the company’s new anti-smoking agenda, he said, “I don’t believe them.” (He added, “If they were serious, they would stop marketing cigarettes right now.”)

No doubt many others in the tobacco-control community feel the same way. They still loathe Big Tobacco, and view Philip Morris’s new strategy as just another deception. But the truth is, if there is ever going to be a serious move from cigarettes to less dangerous products, it will have to come from Big Tobacco. They have the R&D resources, they have the marketing apparatus — and, it appears, they have the will.

Public-health advocates don’t have to trust Philip Morris, or any other tobacco company. They don’t have to believe what I believe in order to arrive at the same conclusion: that the advocates should be rooting for the companies’ innovations — pushing them, double-checking their data, making sure regulations are in place to prevent their products from being marketed to kids. The advocates should also be spreading the word that there is an alternative to cigarettes. Who really cares whether it’s Big Tobacco or some other entity that reduces smoking deaths? What matters is that it happens.

The tobacco wars are long over. Continuing to fight the cigarette companies may bring a certain satisfaction to the veterans on the public-health side. But joining forces is the way to save lives.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Joe Nocera at jnocera3@bloomberg.net

To contact the editor responsible for this story:
Philip Gray at philipgray@bloomberg.net

British American Tobacco chief confident of ecigarette push

Nicandro Durante shrugs off suggestions it is playing catch-up in fast-growing market Read next BAT aims to double size of vaping business Nicandro Durante describes the market share BAT has achieved since the launch of Glo in Japan as ‘fantastic’

https://www.ft.com/content/23b177f8-f8f7-11e6-bd4e-68d53499ed71

Nicandro Durante has big plans for what is set to become the world’s largest listed tobacco company.

During his six years as chief executive, the market value of British American Tobacco has more than doubled and last month it agreed a $50bn deal to buy Reynolds American, marking the company’s return to the US after a decade’s absence.

But the Brazilian is not done yet. Last week he revealed bold plans to expand BAT’s next-generation products division, with the aim of quadrupling the number of markets in which it sells ecigarettes by 2019.

“The rate of growth is exponential,” says Mr Durante. “We’re in 12 markets now, and I want to double this in 2017, and double it again in 2018.”

Nik Oliver, consumer goods analyst at UBS, says BAT’s growth target is “relatively aggressive, but it’s feasible”, adding that the group’s “record has been very good in ecigarettes”.

While BAT is leading the market in vapour, according to Berenberg, some analysts have questioned the efficacy of its heat-not-burn tobacco product Glo.

“If BAT is going to gain any real ground [on rival Philip Morris International] the product needs to be better than IQOS [PMI’s device] in our view,” says Owen Bennett, consumer goods analyst at Jefferies.

“From trying it, we would not say this is the case.”

In addition, analysts point out that BAT’s Glo has launched only in Japan so far, while IQOS is on track to hit 35 markets, including the UK, by the end of this year.

James Bushnell, analyst at Exane BNP Paribas, says that while BAT is focused on the “more competitive” vaping market, its products “aren’t significantly better than what’s out there”.

Meanwhile, he says, it is lagging behind PMI in the tobacco-heating category.

Mr Durante rejects such criticism. He says that while the Reynolds deal will give BAT access to the US group’s reduced-risk portfolio, his group’s products are strong enough to stand alone.

“Philip Morris had a one-and-a-half year head start on us. The market shares we have been experiencing in Japan are fantastic — 5.2 per cent in nine weeks. So I don’t think that we are behind any competing products.”

Indeed, Mr Oliver at UBS describes BAT’s share in Japan as “initially very impressive”.

Mr Durante expects the Japan rollout of Glo to be completed this year and says the company is already developing new versions of the product.

The rapid expansion of IQOS has led PMI chief executive André Calantzopoulos to talk of a “smokeless future”.

But while Mr Durante expects rapid growth, he says such exuberance is premature.

“Those categories now are probably 1 or 2 per cent of the whole industry,” he says. “At the end of the day it’s all about consumer choice. Do I think that you will have a smoke-free world in my generation . . . in the next 20 years? I don’t think so.”

Mr Durante expects to continue to boost sales of traditional cigarettes in several key markets, and points to north Africa and Asia as the fastest-growing areas. “Places like Vietnam, the Philippines, and Indonesia — there are many opportunities out there,” he says.

BAT derives more than 50 per cent of its total revenues from emerging markets, according to UBS.

Mr Durante has indicated he sees further growth in north Africa and Asia, but Mr Oliver at UBS notes that while BAT has “definitely got the strongest EM portfolio of their peers”, the Reynolds deal “would definitely tilt them more towards developed markets given the huge size of the US market”.

In the US, the Reynolds deal will give BAT access to the world’s biggest vapour market.

Analysts have pointed to a further potential upside to the deal, with President Donald Trump vowing to slash corporation tax.

They warn, however, that such a move could lead Reynolds to withdraw its support for the deal on the basis that the bid substantially undervalues it, but Mr Durante is unfazed. “People just see the headline that corporation tax is going to go down,” he says. “But then you have the border tax. [It] can have a huge influence on our business in terms of the downsides,” he adds, noting that Reynolds “imports a lot of raw material”.

Assuming the Reynolds deal completes as planned by the third quarter, it will mark a milestone return to the US for a company that fled the market amid costly litigation battles over safety claims by cigarette manufacturers.

But while the industry is keen to trumpet its shift to reduced-risk products, some problems remain.

BAT has hired lawyers to examine allegations that it bribed African officials and paid a private security company to spy on and disrupt competitors on the continent.

Mr Durante pledges firm action if wrongdoing is found to have taken place. “BAT has very strong policies in this area. If there is any [wrongdoing], we are going to act and we are going to act in a very strong way.

He concedes, however: “We are in 200 countries, so I cannot give a 100 per cent guarantee that everything’s going to go by the book.”

While he refuses to be drawn on whether the lawyer’s report will be made public, insisting it is not up to BAT to decide, he stresses that BAT assures “total anonymity” to whistleblowers.

Although unsure when the report will be concluded, he is keen to see the investigation draw to a close. “As a CEO of the company I would like this to finish as soon as possible because it’s costing me a lot of money.”

Tobacco Companies Taking Over the E-Cigarette Industry

For decades, cigarettes cornered the market on nicotine.

http://www.huffingtonpost.com/entry/tobacco-companies-taking-over-the-e-cigarette-industry_us_58b48e02e4b0658fc20f98d0

People who decided to take up smoking chose the cigarette over any other nicotine delivery system available, including pipes and chewing tobacco.

This trend held true for generations of smokers, but in the past 10 years the cigarette industry has seen a small but significant sea change.

Electronic cigarettes are catching fire with an entirely new generation of smokers.

And tobacco companies have taken notice.

“It’s the most disruptive change in the tobacco market,” Jeff Drope, PhD, vice president of economic and health policy research for the American Cancer Society (ACS), told Healthline. “There is no parallel.”

A smoking hot market

Electronic nicotine delivery systems are not new.

The devices have been around in some form or another for nearly 30 years.

This current iteration of e-cigarettes made its way to the United States market by way of China.

However, the recent explosion of e-cigarette popularity caught the attention of tobacco companies a few years ago.

What was once a market populated by small independent manufacturers has given way to Big Tobacco.

And this move has anti-smoking organizations concerned.

“This is part of an ongoing strategy in the Big Tobacco playbook,” Erika Sward, assistant vice president of national advocacy for the American Lung Association (ALA), told Healthline.

The popular brand VUSE, is owned by R.J. Reynolds Vapor Company, a subsidiary of the tobacco giant Reynolds America.

British American Tobacco (BAT), the largest tobacco company in the Europe, launched Vype around four years ago.

Altria (formerly Phillip Morris) owns MarkTen.

Lorillard paid $135 million for Blu, but when R.J. Reynolds bought that tobacco company in 2015, its e-cigarette brand was sold to Imperial Tobacco, a company in the United Kingdom.

Today, global e-cigarette sales amount to around $5 billion a year.

That compares to the $92 million cigarette market, but the e-cigarette industry is expected to grow 24 percent per year through 2018.

“Big Tobacco is now dominating in dollars in sales,” Drope said.

Firms funding e-cigarette research

The tobacco industry appears so confident in the technology that they are now funding research that looks at the health effects of e-cigarettes vs. regular cigarettes.

A recent study, funded by British American Tobacco used 3-D modeling to compare the inflammation in the lungs from e-cigarettes and regular cigarettes.

The study, published in Applied In Vitro Toxicology, showed a dramatic drop in lung inflammation with e-cigarettes.

“Researchers reported changes in the expression levels of 123 genes when reconstituted lung tissue was exposed to cigarette smoke, compared to only two genes that could be confirmed following exposure to e-cigarette aerosols,” according to a press release.

These finding are similar to what initial research has uncovered about e-cigarettes. A small batch of studies do suggest that they pose less of a health threat than regular cigarettes.

“From a cancer perspective, the levels of carcinogens are lower,” Drope said.

BAT did not provide comment for this story. R.J. Reynolds also declined to be interviewed, but did provide a statement:

“We believe that vapor products and other noncombustible tobacco products may present less risk to adult tobacco consumers than smoking cigarettes. Although these products have not been used by consumers for a sufficient period of time to develop definitive scientific conclusions about their level of risk reduction, there is a growing body of scientific evidence that these products may present less risk than smoking. While some studies report that there may be health risks associated with these products, those risks appear to be lower than the risks of smoking cigarettes.”

Health concerns abound

There are many unknowns about the health hazards of e-cigarettes, and that’s what has groups such as the ALA and ACS concerned.

“Being less deadly than regular cigarettes does not make your product less safe to use,” Sward said.

First up is the use of aerosol in e-cigarettes and the impact on the body’s pulmonary and cardiovascular systems.

“We don’t know the long-term effects,” Drope said.

Aside from the health issues, the biggest concern about e-cigarettes are the users themselves.

The U.S. Surgeon General said in a report that, “among young adults 18-24 years of age, e-cigarette use more than doubled from 2013 to 2014. As of 2014, more than one-third of young adults had tried e-cigarettes.”

Sward said the trend is troubling for a number of reasons.

“There is a strong association between e-cigs, cigarettes, and other burned tobacco products by young people,” she said “There is not a safe level of nicotine use for kids until the age of 24.”

In December 2016, the FDA did establish some rules governing the sale and distribution of e-cigarettes. They can’t be sold to anyone under 18. Buyers need to show proof of identification. E-cigarettes also can’t be sold in vending machines (unless in an adult-only facility), and they can’t be distributed for free.

Both the ALA and ACS would like the FDA to impose even stricter rules, such as warning labels and an advertising ban in magazines and billboards.

“Kids are very much reacting to the advertising,” Drope said.

Sward said the flavors are another big draw to kids and the FDA hasn’t done anything to regulate those.

Both say it’s hard to tell what will happen around e-cigarettes, now that there is a new administration in the White House. Drope believes a lot depends on where the e-cigarette market industry expects to be in the next few years.

“I can imagine them being a niche market. I can see them being just another product,” he said. “If tobacco industry decides to throw their might behind it, I could really see them taking off.”

By Carolyn Abate

British American Tobacco sets sight on dominance in alternative products

Cigarette giant British American Tobacco has said its vapour business is now the largest in the world outside the US thanks to the expansion of its Vype brand.

The Dunhill and Lucky Strike owner, which is reporting its results for the year to December 31, said its vapour business had now been extended to 10 markets.

In the UK, it’s share of the vapour market is now 40pc, according to independent data from AC Nielsen, thanks to its Vype brand and acquisition of Ten Motives.

The move towards a greater reliance on alternative products – the company also launched its tobacco heating product glo in Japan in December – is becoming even more important as the growth in the consumption of conventional cigarettes stalls.

British American did manage to halt the decline in cigarette volumes it saw in 2015 but only registered a marginal 0.2pc volume rise to 665bn in 2016.

There was, however, a 0.8pc drop on an organic basis but this was better than the average 3pc decline for the industry, British American said.

The weakness of sterling benefited the company, with revenue up 12.6pc if currency movements are factored in. This is because sales in dollars translate handsomely into the now weaker pound. Sales still rose an impressive 6.9pc on a constant currency basis.

But the currency markets weren’t entirely beneficial for the group. On a constant currency basis, adjusted operating profit rose 4.1pc – a figure which would have been 10pc were it not for the “significant ongoing effect of adverse foreign exchange movements on our cost base during 2016″.

This meant underlying operating margins actually fell 0.9pc to 37.2pc if currency movements are included. Underlying operating margins rose 1.6pc excluding transactional foreign exchange and acquisitions.

Management said the proposed deal to buy the 57.8pc of Reynolds American it does not already own would give it a “world class portfolio of tobacco and Next Generation Products”, and that it would enhance earnings at the enlarged group. The transaction is expected to close during the third quarter subject to shareholder and regulatory approvals being sought. If the deal goes ahead, the company would become the world’s largest listed tobacco company by sales.

How Much Of Big Tobacco’s Sales Come From Vape Products?

https://www.benzinga.com/news/17/01/8912943/how-much-of-big-tobaccos-sales-come-from-vape-products

The $49 billion purchase by British American Tobacco PLC (ADR) BTI 1.62% of the remaining stake available in Reynolds American, Inc. RAI 0.83% comes in a tobacco market that’s a lot less hazy than before, with leading manufacturers investing in alternatives to the traditional cigarette.

Tobacco industry sales as a whole may have contracted by 2.5 percent in 2016, Wells Fargo analyst Bonnie Herzog was quoted as saying last week in the Winston-Salem Journal — and Herzog is forecasting a 3.4 percent decline for 2017.

At the same time, Herzog forecasts $400 million in growth in the e-cig and vaporizer sectors in 2017.

Growing Smokeless Revenue

Reynolds has its own electronic cigarette brand, Vuse, and holds about one-third of the American e-cigarette market. The Winston-Salem Journal reported in 2015 that while Reynolds’ e-cigarette revenue isn’t separately reported, but rather included in an “all other” revenue category. That category had $386 million in sales in fiscal 2015, according to Reynolds’ annual report — a 39.9 percent leap from $263 million in 2014.

The e-cigarette venture remains a fraction of Reynolds’ traditional tobacco business, which saw $8.6 billion in net sales in 2015 (24 percent of the U.S. market), according to the Motley Fool. Reynolds acquired Lorillard LLC (previously traded NYSELO for $25 billion in 2015, taking over the Newport cigarette brand in the process.

Reynolds is developing products such as e-cigarettes and nicotine gum under the umbrella of RAI Innovations Co., CEO Susan M. Cameron wrote in a letter to shareholders last year.

Competitor Altria Group Inc (NYSE: MO), which markets the MarkTen e-cigarette, has “single-digit shares” in the e-cigarette sector, according to the Motley Fool.

British American’s equivalent e-cigarette device, Vype, is sold overseas

Traditional cigarette sales remain on decline in December

http://www.journalnow.com/business/business_news/local/traditional-cigarette-sales-remain-on-decline-in-december/article_58d80fb5-09f0-571c-8495-f306118d437e.html

R.J. Reynolds Tobacco Co.’s gain in Newport sales and increased pricing were not enough to help the company defy an overall industry sales decline during December.

Reynolds experienced a 2.4 percent drop-off during a four-week period that ended Dec. 31, slightly above the industry’s 1.9 percent decrease, according to Nielsen data released this week.

The Big Three U.S. manufacturers — Reynolds, Philip Morris USA and ITG Brands LLC — all raised their list prices in November by 8 cents a pack. The list price is what wholesalers pay manufacturers for their products. The increases typically are passed on to customers.

Newport, the top-selling menthol cigarette and No. 2 cigarette overall, had a 0.2 percent drop during the period. Sales are up 0.8 percent year over year.

Reynolds spent $29.25 billion in June 2015 to buy Greensboro rival Lorillard Inc., essentially to acquire Newport.

Since the completion of the deal, Reynolds has increased sharply the amount of marketing for Newport. By comparison, Lorillard was content with a status-quo market share of about 12 percent.

Wells Fargo Securities analyst Bonnie Herzog projects Newport increasing its market share to at least 15 percent.

Herzog said she projected overall industry sales to have declined by 2.5 percent during 2016. Her forecast for 2017 is a decline of 3.4 percent.

Sales of Top 10 super-premium cigarette Natural American Spirit were up 12.1 percent over the four-week period.

By comparison, Camel, the No. 3 traditional cigarette brand, was down 4.2 percent. Pall Mall, the No. 4 brand, fell by 9.6 percent, as more smokers have more disposable income to spend on higher-priced options.

Marlboro, the top-selling traditional cigarette brand, was off 2.4 percent. Its market share is at 46.8 percent.

Herzog said ITG Brands’ cigarette sales have stabilized in recent months, down 1.1 percent over the four-week period.

ITG’s market share was 7.5 percent, down from 10 percent in June 2015 when it acquired three Reynolds brands (Kool, Salem, Winston) and one Lorillard brand (Maverick) brand as part of parent company Imperial Brands Plc’s $7.1 billion purchase from Reynolds.

“Overall, Imperial continues to underperform the industry,” Herzog said.

Turning to sales of electronic cigarettes, Herzog said e-cig and vaporizer sales exceeded $4 billion in 2016. She is projecting growth of another $400 million in 2017.

Nielsen data tracks the e-cig mass channel and convenience store marketplace. Vaporizers, which typically are lower in price, are sold mostly in tobacco and vapor shops where Nielsen has limited tracking.

Tobacco products introduced into the marketplace after Feb. 15, 2007 — including almost every e-cig and vaporizer — have to retroactively go through additional Food and Drug Administration requirements to prove they don’t cause public harm. That includes providing more detail on liquid nicotine ingredients and manufacturing details.

Some smaller e-cig manufacturers have either gone out of business since the FDA regulations debuted Aug. 8, or are selling off inventory in anticipation of shutting down.

“Our outlook for 2017 is more cautious for the total vapor category given stifled innovation due to FDA regulations, as well as expected increased competition from iQOS given its superior heat-not-burn technology,” Herzog said.

In December, Philip Morris International has entered the FDA regulatory gauntlet to have its electronically heated cigarette, branded as Marlboro HeatStick, reviewed as a potential reduced-risk product.

“We continue to expect iQOS to be commercialized in the second half of 2017,” Herzog said. Reynolds recently completed a test market in Japan for Core, its latest heat-not-burn version.

Herzog said the top market share of R.J. Reynolds Vapor Co.’s Vuse brand dropped from 35.7 percent to 33.6 percent.

Blu eCigs, sold by ITG Brands, remained second at 17.4 percent, while the MarkTen XL product of Altria Group Inc. was third at 15.7 percent.