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Imperial stubs out plans for Supreme Court battle on tobacco packaging rules

Big Tobacco’s battle against the Government’s crackdown on cigarette packaging has taken a blow after a second company stubbed out plans to take its case to the Supreme Court.

http://www.telegraph.co.uk/business/2016/12/17/imperial-stubs-plans-supreme-court-battle-tobacco-packaging/

The decision by Imperial, the ­maker of Gauloises and Lambert & Butler cigarettes, leaves just two of the big four tobacco companies still considering whether to take the Government to the Supreme Court over the rules, which came into force in May.

Since then, cigarette firms have been required to manufacture products in standardised “plain” khaki packaging sporting prominent health warnings. All tobacco products sold in the UK from next May must comply with the rules.

Imperial joins Philip Morris International in reluctantly accepting the tobacco branding crackdown after a failed court challenge in May lead to an unsuccessful legal appeal last month.

A spokesman for Imperial told the Sunday Telegraph: “We maintain our firmly held view that plain packaging is not an effective tobacco control policy but we have chosen not to seek permission to escalate our legal challenge in the UK to the Supreme Court.”

British American Tobacco and Japan Tobacco International (JTI) will reveal “any day now” whether they will continue to fight the rules which came into effect in April, an industry source said.

But Imperial’s decision to walk away from the fight despite relying on the UK for around 15pc of its total earnings raises questions over the commitment of BAT which earns less than 1pc of its takings from Britain.

JTI also has a 15pc exposure to the market and has been the most outspoken against the legislation which its UK boss Daniel Sciamma has branded “commercial vandalism” which “sets a dangerous precedent for other targeted industries”.

Imperial said it plans to focus on maintaining its market share in the face of rising legislation and will invest more heavily in its specialist brands such e-cigarettes and non-tobacco vaping products.

ACCC proposes to deny authorisation for tobacco companies

The Australian Competition and Consumer Commission has issued a draft determination proposing to deny authorisation to British American Tobacco, Imperial Tobacco, and Philip Morris (the tobacco companies) to jointly stop supply to retailers or wholesalers they believe are supplying illicit tobacco.

http://www.accc.gov.au/media-release/accc-proposes-to-deny-authorisation-for-tobacco-companies

The ACCC considers that having the three dominant tobacco companies working together, sharing information, and making decisions about whether or not to supply particular retailers raises competition concerns.

“The ACCC is concerned about the potential for the sharing of information broadly, and that, for example, the proposed arrangements could be used to selectively target retailers that stock competing brands. This could result in detriment to businesses that may be wrongly or mistakenly subject to a joint decision of the applicants to cease supply, without any opportunity for independent review of that decision,” ACCC Chairman Rod Sims said.

These three tobacco companies are the major suppliers of legal tobacco products in Australia. They have proposed the arrangements to reduce the supply of illicit tobacco in Australia.

“While we agree that reducing illicit tobacco sales is in the public interest, we are not satisfied these proposed arrangements would reduce trade in illicit tobacco sufficiently to offset the likely detriments,” Mr Sims said.

The ACCC expects to release its final decision in February 2017.

Further information about the application for authorisation is available on the ACCC Authorisations Register.

BAT Representative Letter on Graphic Health Warnings

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Representative of BAT on Proposal to Change Graphic Health Warnings

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British American Tobacco says a minimum excise tax in the Autumn Statement would only fuel the black market

UK smokers face a triple whammy in 2017 ahead of Philip Hammond’s Autumn Statement, a British American Tobacco spokesperson said.

http://www.cityam.com/254049/british-american-tobacco-says-minimum-excise-tax-autumn

With a duty escalator expected and more limitations to come from the EU’s tobacco products directive, BAT said the minimum excise tax proposed by former chancellor George Osborne should be dropped.

The minimum excise tax is effectively a floor price that would hike the price of value-for-money brands in an effort to encourage smokers to quit rather than switch to cheaper brands.

Will Hill is a spokesperson for BAT who said the company, which has a stake in low cost options, would urge the government not to introduce the proposed tax.

Research for the tobacco company by KPMG also showed the tax could increase activity in illicit trading. The study said British smokers who buy low cost brands are more likely to fall into the black market than to quit smoking.

If set at the wrong level, the research shows the tax could cost the Treasury £1.2bn between 2017 and 2020.

The Treasury lost more than £31bn in tax revenue between 2010 and 2015 due to high taxes on alcohol and tobacco, a report by the TaxPayers’ Alliance said.

The company also said the minimum excise tax would run counter to Theresa May’s assurances of a government that works for the many and not just the privileged few.

British American Tobacco to invest EUR 1 billion in Romania over five years

British American Tobacco is to invest EUR 1 billion in the Romanian economy through its three companies over the next five years. The Ploiesti-based factory is projected to become the second in Europe in terms of importance, at group level, the company announced on Tuesday.

http://www.business-review.eu/news/british-american-tobacco-to-invest-eur-1-billion-in-romania-over-five-years-124382

Apart from the Ploiesti factory, which was established in 1997, British American Tobacco operates two other companies, namely the distribution company at a national level and the services center that provides the operations of British American Tobacco in Europe.

“Romania is an investment-friendly environment, with well-trained people and the highest economic growth in the European Union in 2016, a growth to which we are proud we can contribute. Therefore, we want to continue the positive impact we have on the local economy through our long-term commitment, including the securing of over 2,000 jobs across the country, and creating others in the coming years, ” said Gemma Webb, CEO British American Tobacco, in the presence of representatives of government and local authorities attending the event.

The Ploiesti factory will receive investment starting next year in the production of Neopods, a product currently made in the United Kingdom. Francisco Toso, the Director General of the British American Tobacco factory in Ploiesti said: “Currently, we are increasing the capacity of the Ploiesti factory built from scratch in 1997. At the same time, we will start to produce in Romania the Neopods capsules, for the glo Ifuse device, one of the most technologically advanced products.”

Georgeta Gheorghe

SEX, SPIES AND SMUGGLING IN SOUTH AFRICA

BAT IN BED WITH LAW ENFORCEMENT AGENCIES

In November 2013, the South African Revenue Services (SARS) announced that it wanted 15 local tobacco manufacturers and importers to be prosecuted for tax evasion and illicit trade. At stake was R12 billion (US$858.9 million) in unpaid taxes.

About 18 months later, the acting commissioner of SARS, Ivan Pillay, and 55 other top SARS officials, found themselves unemployed— the result of an aggressive campaign against SARS.

The plot involved the Sunday Times newspaper, which published false stories about an apparent “rogue” unit in SARS that supposedly spied on President Jacob Zuma and that set up a brothel aimed at infiltrating the ruling African National Congress Party. The paper subsequently apologised for printing the stories.

But in the wake of the articles, Pillay and the SARS head of enforcement, Johan Van Loggerenberg, were suspended and, after reaching a settlement with SARS, resigned..

A key player in the downfall of Van Loggerenberg is Pretoria attorney Belinda Walter. Walters and Van Loggerenberg first met during investigations of the illicit trade in tobacco and subsequently had a brief romantic liaison. It was after the break-up of their relationship that claims emerged that SARS was running a ‘rogue’ unit first emerged.

Ms Walter was allegedly a doubleagent.

She was an informant to the government’s State Security Agency (SSA) and also to British American Tobacco (BAT), to whom she gave confidential information on smaller rival manufacturers.

In order to infiltrate the rival companies, Ms Walters proposed creating an association, the Fair Trade Independent Tobacco Association (Fita), to represent these companies. The first Fita meeting was held late in 2012, at Walter’s offices, and she was elected chair.

In a court application, a rival has accused BAT of “corporate espionage” and working with government agencies to try to put it out of business.

BAT allegedly spent about $3.6 million a year to bribe politicians, gangsters and government officials in South Africa. The company is accused of money laundering, corruption, spying and the use of state resources to target competitors— all in the name of ‘fighting’ the illicit trade in tobacco.

BAT’s money gave it a seat on the official Illicit Tobacco Task Team, which includes representatives from the Hawks (a state agency tasked with fighting priority crimes), the SSA, South African Police, National Prosecuting Authority and the Tobacco Institute of South Africa.

This structure gives BAT access to state intelligence and the ability to influence who the state targets among BAT’s direct competitors.

A warning from the South Africa experience is that co-operating with the tobacco industry is harmful to democracy. It will use its influence to direct the powers, actions and resources of the state for the benefit of the industry.

Yussuf Saloojee
National Council Against Smoking
South Africa

E-cigarette vapour does not induce DNA mutations linked to tobacco smoke exposures

E-cigarette vapour does not induce DNA mutations commonly observed with tobacco smoke exposures in lab-based tests.

http://www.news-medical.net/news/20161107/E-cigarette-vapour-does-not-induce-DNA-mutations-linked-to-tobacco-smoke-exposures.aspx

Scientists at British American Tobacco used a method called the Ames test to compare the mutagenic potential of cigarette smoke with that of vapour from Vype ePen, a commercially available e-cigarette. DNA mutations result in genetic instability, which may be involved in the development of cancer.

The Ames test is widely used method that uses bacteria to test whether a given chemical or drug causes mutations in the bacteria’s DNA. The standard test involves five bacterial strains. In this study, two of these bacteria were used Salmonella typhimurium strains TA98 and TA100, both of which are effective at screening 90-95% of potential mutagens. TA98 and TA100 have been used widely to assess tobacco smoke, but never for the assessment of freshly generated e-cigarette aerosols, until now.

Traditionally, the particulate matter in smoke is assessed, but this is only a small fraction of the tobacco smoke. To more accurately reflect real-life exposure, whole smoke was also tested. In all, the researchers tested both the particulate matter and whole aerosol of smoke from a reference cigarette 3R4F and vapour from Vype ePen.

To do this, they trapped particulate matter from smoke or vapour on a filter pad and then washed the pad with a solvent to produce a stock solution that could be diluted into various concentrations. They then exposed the test bacteria to the same concentrations of either smoke or vapour extract. They also exposed test bacteria to freshly generated smoke or e-cigarette vapour.

Exposure to smoke was seen to cause mutations in both bacterial strains in a dose-dependent manner – the higher the dose, the higher the mutation rate. Whole smoke took just 24 minutes to cause mutations. E-cigarette vapour extracts, gave no response, and whole vapour did not cause the bacteria to mutate, even after three hours of continuous exposure, which was comparable to the results obtained from air and untreated controls.

‘These findings suggest that Vype ePen vapour does not induce the mutations observed on exposure to smoke,’ said Dr James Murphy, Head of Reduced Risk Substantiation at British American Tobacco. ‘This study adds data to support the growing evidence base that e-cigarettes have the potential to be significantly less harmful compared to cigarette smoke, though more research is needed’ he said.

Many in the public health community believe e-cigarettes offer great potential for reducing the public health impact of smoking. Public Health England, an executive body of the UK Department of Health, recently published a report saying that e-cigarettes are 95% safer than cigarettes. The Royal College of Physicians have said that the public can be reassured that e-cigarettes are much safer then smoking and that they should be widely promoted as an alternative to cigarettes, but called for more research to be done on the potential long term effects of using e-cigarettes.

Source:
R&D at British American Tobacco

It looks like the tobacco industry found a way around Australia’s tough plain packaging laws

http://www.businessinsider.com.au/it-looks-like-the-tobacco-industry-found-a-way-around-australias-tough-plain-packaging-laws-2016-11

Australia’s tough tobacco regulations are acting as a catalyst for the industry to develop sophisticated marketing practices. These companies are gaming the system by anticipating regulatory impact and then using unregulated marketing elements to overcome it.

Australia has been a guiding light for countries looking to improve public health through the effective regulation of tobacco, which remains the world’s biggest cause of preventable illness and death, and still kills around 15,000 Australians annually.

December 2012 saw the implementation of Australia’s innovative plain packaging legislation, this was followed by four 12.5% annual tobacco tax excise increases. As a result the number of Australian smokers has fallen to a record low.

However the tobacco industry has used several strategies, including price reduction, brand differentiation and promoting the idea of healthier cigarettes, to undermine Australia’s new regulatory environment.

To offset price hikes manufacturers have expanded lower priced product ranges, with new ultra low priced brands. One example of this is the British American Tobacco Australia’s (BATA) Just Smokes, which sells for around 70% of the premium brand prices. BATA has also shifted Rothmans, previously a premium brand, into the economy segment by cutting its price by more than 30%.

Another pricing initiative is twin pack promotion. Most consumers recognise that progressively larger packs offer progressively lower unit prices – a lower cost per single item or single pack.

This used to be true for tobacco, with the largest cartons (usually with 200 cigarettes) offering best value. However, since 2012 discounted twin packs represent best value.

A supermarket twin pack, per cigarette price, is up to 10% cheaper than single packs – effectively discouraging single pack purchases. Australia’s leading brand Winfield twin pack, per cigarette price, is equal to or below that of larger cartons.

Regulatory price increases are financial deterrents to smoking. The low price branding and discounting strategies in Australia are clear attempts to get around these, and reduce smokers’ financial motivation to quit or cut down.

Heavily discounted twin packs also teach smokers, through financial reward and penalty, to buy twin rather than single packs. This is of particular concern since research shows that larger purchases trigger higher consumption.

In 2014 the industry claimed tobacco consumption had actually increased after plain packaging. While this was disproved, it suggests big tobacco anticipated increased consumption as smokers switched to twin pack purchase behaviour.

New tobacco products and promotions

Plain packaging was expected to restrict tobacco brands. However, after 2012 manufacturers introduced numerous new products, and brand ranges actually expanded.

For example, Australia’s leading brand Winfield supported more than 20 brand variants in 2015-2016 compared to just 12 in 2012-2013. Brand differentiation is a proven marketing approach for generating greater sales, with each variant targeting a specific consumer market segment.

Since plain packaging was introduced, tobacco companies have varied the names of brands as well. Names have evolved to include the information previously covered by packaging, such as colour and new product features. For example, Dunhill Infinite is now Dunhill Infinite White + Taste Flow Filter.

Today around 80% of Australia’s leading brands’ variant names include a colour, compared to less than half before plain packaging. Tobacco companies are also using colours to mislead consumers that certain product ranges are “healthier” options.

A universal colour code has been promoted by the industry in which smokers interpret lighter colours (white, silver, gold, yellow and blue) as being less harmful, and darker colours (red and black) as more harmful. Before plain packaging colour hues were a pack design component, now the myth of healthier tobacco options is perpetuated by colour names. This is disturbing from a public health perspective as it represents industry efforts to lessen smokers’ health motivations for quitting.

The effects of clever marketing

Australia’s tobacco regulations have significantly reduced smoking. However, their impact would be greater without unscrupulous industry initiatives to overcome and thwart them.

Industry response to plain packaging and excise increases have not been simple marketing efforts to increase sales, but illustrate cynical attempts to reduce financial and health motivations for quitting, and to encourage smokers to smoke more. Australian regulators, and those in other countries, should therefore consider further regulation.

Research suggests that future effective controls might include:

  • Introducing a standard fixed per stick price for all cigarettes – preventing differentiation by price and cheaper brand options
  • Prohibiting price variation by pack size – preventing volume discounting or twin pack promotion that encourage smokers to make larger purchases and smoke more
  • Restricting pack size to a maximum of 10 or 20 cigarettes to limit increased consumption associated with larger pack sizes
  • Banning colour variant names – removing colour-health connotations
  • Restricting brand variant ranges, for example to one variant or representation per brand, to limit the way tobacco companies use differentiation to increase sales.

The tobacco industry is committed to gaming regulations, like plain packaging and tax excise increases, and developing approaches to undermine their impact. However, the Australian government is equally committed to reducing the national adult daily smoking rate to 10% by 2018. The additional tobacco controls outlined above should help the government achieve this.

Steven Greenland is an Associate professor at the Swinburne University of Technology.

Vaper-ised! Why boom in e-cigarettes is key to BAT and Reynolds’ £38bn merger as tobacco sales go up in smoke

http://www.thisismoney.co.uk/money/markets/article-3862312/Vaper-ised-boom-e-cigarettes-key-38bn-merger-tobacco-sales-smoke.html

It’s set to be the biggest transatlantic merger in years and could create the world’s largest tobacco company.

But the success of the proposed buyout by British American Tobacco of Reynolds American may hinge not on tobacco sales, but on the booming market for e-cigarettes.

On Friday, Footsie-listed BAT, which owns the Dunhill, Kent, Lucky Strike, Pall Mall and Rothmans brands, made a takeover approach for Reynolds – the maker of Camel cigarettes.

BAT already owns just over 42 per cent of Reynolds, but the deal would see BAT pay $47billion (£38billion) to take full control.

The deal, BAT says, would allow the combined company to make cost savings of $400million a year, which has left some analysts wondering whether such a colossal deal is worth it for such relatively modest gains.

However, the logic of the deal lies as much in the new market for ‘vaping’ and other non-traditional nicotine products, as it does in the traditional pack of 20 cigarettes.

Smoking is in decline across Britain, while the use of e-cigarettes is growing fast. Figures from Public Health England show a surge in vaping against a steady decline in smoking, a pattern expected to be replicated across the developed world.

While most major tobacco groups have developed e-cigarette brands, none has secured the kind of market dominance they are used to with traditional tobacco.

One adviser to the deal said so-called ‘new generation products’ were a significant reason for the bid. He said: ‘Both players are chasing the new generation market hard, putting in a lot of research and development and clearly it’s a big market opportunity.

e-cig-stub-tobacco

‘At the moment it’s a pretty fragmented market, but it’s a growing one. So the two companies will be able to bring together their research and development, and sales capability, across the globe as a consequence of the merger.’

In the e-cigarette market BAT has ‘got nothing in the States’, he added, while Reynolds has got ‘nothing outside of the States’.

Reynolds was one of the pioneers in the sector in the US, first launching an e-cigarette in the mid-1990s – albeit without much success. The recent boom in vaping is now looking a surer bet.

Nigel Driffield, professor of international business at Warwick Business School, said: ‘They know their core business is declining and what they are looking to do is to find ways to diversify and protect their cash flow as best they can. Obviously cigarette-replacement products in whatever form are one of those.’

Nicholas Hyett, equity analyst at financial services firm Hargreaves Lansdown, said the deal also brought two different types of e-cigarette technologies under the same roof.

While BAT has favoured forms of vaping where liquid nicotine is heated, Reynolds has gone down a route known as ‘heat not burn’, in which tobacco itself is heated but not set on fire.

Hyett said global leader Philip Morris (the maker of Marlboro) has favoured heat not burn while Imperial Brands (the maker of Lambert & Butler and Embassy, among others) have favoured vaping.

BAT’s leading ‘next generation’ product is Vype, launched in 2013, which is by far its most popular e-cigarette, though the company does have a tobacco-heating product, the glo iFuse. Hyett said BAT had a 35 per cent share of the vaping market in the UK.

A BAT-Reynolds merger would allow both companies to push their respective e-cigarettes into new markets, which for BAT would mean getting its leading Vype brand into the lucrative US.

‘This would allow BAT to compete with Philip Morris directly,’ said Hyett.

BAT chief executive Nicandro Durante said: ‘We have been a shareholder in Reynolds since its creation in 2014 and have benefited from its growth in the US market.

‘The proposed merger of our two companies is the logical progression in our relationship and offers all shareholders a stake in a stronger, truly global tobacco and next generation products company.’

Meanwhile, Driffield said he believed the timing so soon after the Brexit vote was coincidental. He warned that while the deal, if successful, would create a global giant, it might not benefit the UK economy greatly.

He added: ‘I think both firms are trying to consolidate themselves where they still have a significant presence, cut costs because they both have overcapacity, and then look to diversify away from tobacco while the cash from that is still coming in.’

Reynolds has indicated that it is open to discussing BAT’s approach, but analysts believe the British company may yet have to raise its price.

The future prospects of e-cigarettes under a merged group may be vital to convincing the US group, if the deal is not to go up in smoke.