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June, 2016:

Tobacco firms take a hit

More pain in store if excise duties hiked further

http://www.thestar.com.my/business/business-news/2016/06/18/tobacco-firms-take-a-hit/

LOCAL tobacco players have been hit hard by the 36% excise duty hike last November, with many lamenting that the move taken by Government was not done in a “fair” manner.

And should they be imposed with another round of tax hike later this year, more pain is in store for tobacco firms, as they have a harder battle to absorb costs to sustain their businesses, says JTI International Bhd (JTI Malaysia) managing director Guilherme Silva.

Guilherme, fondly known as Gui, says while the move was taken to curb cigarette consumption, it wasn’t eradicating the illegal cigarette trade. “We are working in an industry that is extremely regulated and we understand the Government’s objective.

“But the way it is being tackled will not solve the issue of high cigarette consumption nor help legal cigarette firms operate in such an environment,” Gui tells StarBizWeek in an interview.

Tobacco players in the country have so far seen three rounds of excise hikes, with the first 14% hike in September 2013, followed by 12% in November 2014 and a massive 36% hike in November 2015.

malaysia-illegal

And two weeks after the announcement, British American Tobacco (M) Bhd and JTI had gone on to hike prices of cigarettes.

“We are seeing the industry declining at a fast pace because of the steep increase in tax. And it’s difficult for us to sustain our business and cover costs in an environment that is already challenging,” notes the 35-year-old Brazilian, who was previously the general manager of JTI Cambodia.

Gui is the youngest so far appointed as JTI’s managing director. He took over from Rob Stanworth, who moved to another JTI market in Asia-Pacific.

The past six months has been tough and the continuous engagement with the various ministries hasn’t been easy, according to Gui.

“If I had to highlight the difference, Malaysia is the probably the eighth country I have lived in and I have never seen such high levels of illicit trade as in Malaysia,” he notes.

JTI Bhd, which lost its listing status after a compulsory takeover offer from its parent JT International Holding BV, has three cigarette brands in its portfolio – Mevius, Winston and Camel.

After the November 2015 excise hike, JTI enforced a 23% to 25% hike on its cigarettes. A pack of 20 sticks of Mevius, Winston and Camel now cost RM17, RM15.50 and RM16, respectively.

Despite the high taxes, he says cigarette consumption has been on an increasing trend.

As of 2015, a study conducted by the Health Ministry showed there were 4.44 million smokers, with an average daily consumption of 15 sticks per day or 24.3 billion sticks a year.

This is against 2011 numbers, which revealed 4.3 million smokers, with an average of consumption of 14 sticks per day, or 22 billion sticks a year.

sticks

However, Gui notes the reverse is seen in the industry’s volume where the number of legal cigarettes purchased in 2015 had reduced to 10.5 billion sticks versus 13.2 billion sticks in 2011.

This translates to about 8.8 billion sticks (or 40%) of illicit cigarettes in 2011 and 13.8 billion sticks (or 56.7%) in 2015.

“This goes to show that consumption of illicit cigarettes have increased significantly and this is a pressing issue for us,” says Gui.

While he feels that the Government is not achieving its target of reducing consumption, he says more smokers are now turning to illegal brands in the market.

Earlier in March, it was reported that the excise duty hike had caused smokers to switch to cheaper contraband brands, causing the Government to lose RM4bil in tax collection last year.

Additionally, research also found that 36.9% of cigarettes sold in the country last year were smuggled, which was an increase of 3.2 percentage points from 2014.

On that note, local industry players are of the opinion that the current excise hike strategy is pushing more consumers towards illegal cigarettes.

The industry is expected to be more challenging in the second half of the year.

On the move to implement plain packaging, Gui believes that if this is imposed, it will only make it harder to tackle illegal cigarette trade.

“Where purchasing power is concerned, Malaysia is perhaps the least affordable in the world,” he adds.

Based on JTI’s volume sales estimates from retails, he reveals that the industry’s volume is expected to decline by 28% in 2016 versus 10.5% in 2015.

“This is the biggest decline seen in the industry so far,” he affirms.

Meanwhile, the Confederation of Malaysian Tobacco Manufacturers said in March that the legal industry volumes had been severely impacted, registering a significant decline by about 30% post the unprecedented excise hike. It said excise revenue collection would be considerably lower than before November 2015.

Despite the challenges ahead, JTI has no plans to shut down its manufacturing plant in Shah Alam, as it is the regional hub and exports to 10 countries.

“Since it is the manufacturing hub for other countries, it has enabled JTI to compensate for the volume loss experienced so far in Malaysia,” Gui affirms.

With the rising number of smokers switching to vaping, Gui believes that although the industry is legitimate, it should be regulated.

Perturbed with the gloomy outlook in the second half of the year, Gui urges the Government to adopt a “wait-and-see” approach for the industry to stabilise prior to imposing another round of tax hike.

“We usually notice a strong decline in volume whenever a tax hike takes place and then it recovers a little. But we have not seen any recovery since the 36% hike last year,” he frowns.

JTI Malaysia is the country’s second-largest tobacco firm, with a market share of 20.7% as of May.

Rejecting tobacco pact, govt must empower farmers, enforce laws

http://www.thejakartapost.com/news/2016/06/18/rejecting-tobacco-pact-govt-must-empower-farmers-enforce-laws.html

A much lauded 2015 presidential decree on a national development strategy that aims to reduce the prevalence of smoking, especially among teenagers, by 25 percent over the next five years, heralded a change in tobacco policy.

But on Tuesday, the President proved that people had hung their hopes too high when he announced his refusal to ratify the Framework Convention on Tobacco Control (FCTC) because his administration had not yet carefully considered the fate of the millions of people in the industry.

He has taken this belligerent stand even though he knows that 183 of the world’s 195 (or 196 if you consider Taiwan as an independent state) countries have endorsed the treaty. Indonesia is the only country in Asia that has yet to join the community.

“We don’t want to go with the flow and ratify it simply because most countries have done it. We want to really take the national interest into account,” he said after presiding over a Cabinet meeting.

By “national interest” he means farmers, other people in the industry, the huge market and Indonesia’s status as one of the world’s major tobacco growers.

His populist stance displays his administration’s perplexing policy. After he introduced Presidential Decree No. 2/2015, the Trade Ministry issued a completely different strategy that would allow production to reach 524 billion cigarettes in 2020. This came about despite a Health Ministry warning of the rising number of tobacco-related diseases.

The decree intends to cut the prevalence of smoking among people aged 18 years and younger from 7.2 percent in 2013 to 5.4 percent in 2019.

Jokowi’s reluctance to ratify the convention on tobacco controls is ironic because Indonesia was one of its initial supporters. It is adding credence to his critics’ accusations that the government serves the tobacco industry’s interest at the expense of public health and the wellbeing of the less fortunate.

Controlled by multinational corporations Philip Morris and British American Tobacco, which together command some 65 percent of the domestic market, the cigarette industry has been doing everything to convince the government that signing the treaty would eventually result in Indonesia being dictated to by the WHO and international anti-tobacco activists, as cited in The Jakarta Post’s reportage last week. This could in turn endanger the Rp 145 trillion (US$10.875 billion) the state receives in tax and excise from the industry, and impact some 6 million people in the trade.

The government’s refusal to ratify the convention will make sense only if the President proves his commitment to defend farmers, starting with reforming the tobacco trading system, which is controlled by the cigarette makers via middlemen, graders, loan sharks and traders.

As numerous studies show, it is this “mafia” that rakes in the bulk of the profits. Farmers must be guaranteed the access to sell their tobacco to the cigarette makers directly.

Furthermore, the government should also restrict the mechanization of cigarette production, blamed for massive dismissals in recent years. To support more local products, Jokowi should limit tobacco imports, which still account for about half of local needs.

Statistics from the Agriculture Ministry show that tobacco imports have steadily increased. In 1970, Indonesia imported 2,942 tons worth US$1.6 million and the figures sky-rocketed to 121,218 tons, worth $627.3 million, in 2013. In 2012, Indonesia produced 226,704 tons, making it the world’s fifth biggest tobacco producer after China, Brazil, India and US.

The unfair trading system has put farmers in the least profitable position. They share the “crumbs” of the big pie, as Hasbullah Thabrany from University of Indonesia’s Center for Health Economics and Policy Studies puts it.

However, it would be unrealistic to assume that the number of smokers would automatically drop if Indonesia signed the treaty. The country would still have a long way to go to incorporate the treaty into the local legal system and make it workable. Besides, the convention aims to control production from the farm to the cigarette. One ramification of this could be that the FCTC generates a tobacco cartel that could harm Indonesia as a major producer.

In Indonesia, tobacco and clove — which is blended to make the signature kretek — is more of a regional concern because these plants grow well commercially only in West Nusa Tenggara, East Java, Central Java, West Java and North Sumatra. It is only those five provinces that enjoy the dividends that the central government amasses from tobacco and cigarette tax revenues, but their products affect all 34 provinces, threatening people’s health and burning ever larger holes in their finances.

While waiting for the right time to ratify the treaty, Indonesia should do its best to reduce smoking based on Government Regulation No. 109/2012 on the control of addictive tobacco products. The regulation strictly regulates cigarette advertising; bans smoking in certain public places like schools and hospitals; and forbids the sale of cigarettes to people under the age of 18.

Our biggest problem is not the absence of good laws, but rather poor law enforcement.

Ceylon Tobacco invests Rs. 500m over 10 years empowering rural poor

http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=147119

Ceylon Tobacco Company PLC, one of the country’s richest and most efficient business conglomerates has invested Rs. 500 million over 10 years in a Sustainable Agricultural Development Program (SADP) to empower the rural poor by maximizing the potential of their home gardens.

The program which notches its tenth anniversary this year involves no cash handouts whatever. It offers beneficiaries inputs of planting material and livestock (chickens and goats) and extensive advice to enable beneficiaries to help themselves.

“We concentrate on families below the poverty line, generally living in areas with 10 months of rainfall and owning 20 to 40 perches of cultivable land,” a senior company official said. “It’s all about self-help – helping them to grow the vegetables they need for a balanced diet for their families and produce milk and eggs.”

Stringent independent auditing is done to measure results. A value is placed on even a lime plucked from the garden, everything produced, and it has been found that the beneficiary households generate produce worth Rs. 10,000 to Rs. 12,000 monthly increasing their nutritional levels vastly.

An independent study done by Ernst and Young in July last year indicated that the average monthly income from home gardening of a beneficiary family in the first year topped Rs. 3,000 going up to Rs. 8,875 in between one to two years and Rs. 13,453 when ‘graduating’ after 30 months.

With the livestock component added on, those on SADP for between one to two years earn an average 12,781 monthly while the 30-month group average Rs. 18,251.

“Most of the efforts that go into the home gardens come from the womenfolk,” officials who took a press group to several homesteads in the Galle and Matara districts to demonstrate what had been achieved said. “Often the men help when they can. But you can see that most of the work is done by the women in the family.”

Surplus produce is marketed and neighbors visit beneficiary homes to buy eggs and goat’s milk in addition to vegetables so that there is an element of cash income in the program. Produce is also sometimes marketed at the local pola.

The extension services offered by CTC who use a corps of field officers who frequently visit homes in the program, giving advice and guidance and also providing quality seed stock and planting material and in some cases livestock.

A pilot project with 100 families was started in 2005 and the program proper was launched a year later. It has now grown to cover 16 districts with over 18,000 families accounting for 71,000 beneficiaries.

The selected families are part of the program for two and a half years after which they “graduate” and are on their own. However, field staff do occasionally visit ‘graduates’ and offer advice though there are no material inputs, they said.

Visiting the home gardens was an experience by itself where the potential of the land available and space above it had been maximized with plastic junk like used cans, decapitated bottles etc. have been ingeniously used as hanging pots where crops are grown and ingenious drip watering systems.

The process begins with the compost pit providing organic fertilizer. Natural pesticides from margosa (kohomba) and crushed marigolds among others are used in a process involving no artificial fertilizer or pesticides.

In many homes virtually every inch of available land plus more (hanging pots) have been utilized.

Cultivating mushrooms and bee keeping is part of SADP although it’s not all beneficiaries who are into these areas; so also livestock. CTC sometimes buys goats bred under the program and gives them to other beneficiaries branching into that activity. One of the families visited had sold a pair a few days ago for Rs. 21,000.

Ceylon Tobacco has drawn on its expertise and experience with tobacco out-growers who at one time provided the company with lucrative tobacco leaf export business in addition to meeting its own requirements for the domestic cigarette industry.

Last year SADP was recognized in the Social Empowerment Category at the Asia Responsible Entrepreneurship Awards (AREA) held in Macau.

Buy Philip Morris International for new alternative tobacco products: JPM

http://www.cnbc.com/2016/06/17/buy-philip-morris-international-for-new-alternative-tobacco-products-jpm.html

Investors should buy Philip Morris International due to growth of alternative tobacco products in the next decade, according to JPMorgan.

“We believe that the disruptive and inevitable progress of Novel Nicotine Products (NNP) will improve industry fundamentals (e.g. higher profits, premiumization) while lowering regulatory pressures,” JPMorgan’s Alberto Rueda wrote in a note to clients Friday.

“Big tobacco companies have the assets and expertise to succeed in this new emerging segment, particularly under a strict regulatory framework. Overall, we see PM and BAT as long-term winners given their strategies to develop a wide range of products.”

World’s ugliest colour discovered

http://www.trtworld.com/life/worlds-ugliest-colour-discovered-127128

The world's "ugliest" color could help people quit smoking

The world’s “ugliest” color could help people quit smoking

Australian researchers looked for the most repulsive colour to help save lives.

A group of experts from a marketing company have released the results of a survey which found that Pantone 448c, also known as opaque couché, is the ugliest colour in the world.

Officially the world’s ugliest colour: Pantone 448 C (aka Opaque Couch) or as I like to call it Dark Green Brown.

The Australian Government had asked the research agency GfK Bluemoon to find the ugliest colour to use on cigarette boxes to encourage people to stop smoking.

Nearly a thousand smokers took part in the survey and chose the “drab, dark brown” colour, which they associated with “tar,” “dirty” and “death.”

After the survey Australia set out on December 1 to legislate that the colour must be used on plain packs of cigarettes alongside graphic health warnings.

The government hopes that the move will make people think twice about continuing the habit.

Australia was the first country to adopt plain packaging in 2012, and experienced a sharp fall in smoking immediately afterwards.

The United Kingdom, Ireland, and France followed suit, adopting similar “plain packaging” laws to effectively fight tobacco use.

On May 31, in honour of World No Tobacco Day, the World Health Organisation (WHO) tried to encourage other countries to adopt similar plain packaging for tobacco products, following Australia’s success.

The Guidelines for Implementation of Article 11 (Packaging and labelling of tobacco products) of the WHO Framework Convention on Tobacco Control (WHO FCTC) describes plain packaging as “measures to restrict or prohibit the use of logos, colours, brand images or promotional information on packaging other than brand names and product names displayed in a standard colour and font style [plain packaging].”

WHO Director-General Dr Margaret Chan said on No Tobacco Day “Plain packaging reduces the attractiveness of tobacco products. It kills the glamour, which is appropriate for a product that kills people.”

“It restricts tobacco advertising and promotion. It limits misleading packaging and labelling. And it increases the effectiveness of health warnings.”

However, the result of the survey has been disputed.

Famous painter Leonardo Da Vinci used opaque couché to encolour the dress of the subject of his famous painting “Mona Lisa,” being inspired by popular clothing at that time in history.

So beauty is really in the eye of the beholder.

SynBio tobacco plant that produces vital malaria drug met with skepticism by scientists

https://www.geneticliteracyproject.org/2016/06/17/synbio-tobacco-plant-produces-vital-malaria-drug-met-skepticism-scientists/

Artemisinin is by far the world’s most important weapon against the main parasite that causes malaria—a disease which still claims around 500,000 lives, mostly young children, annually around the world.

There’s just one problem with artemisinin: making it in large enough quantities to meet the demand is very difficult because the plant it is isolated from is difficult to cultivate. This led scientists from the Max Plank Institute to modify the much more malleable tobacco plants to produce the lifesaving drug—an achievement they announced on June 14, 2016. Somewhat surprisingly though the responses to the announcement by scientists have been skeptical—from a scientific and political perspective.

The World Health Organization recommends the drug be administered to all those infected with Plasmodium falciparum (the most common malarial parasite) with both uncomplicated and severe malaria. The WHO also says keeping artemisinin efficacious in endemic areas is imperative as no other malaria drugs are in the pipeline for the foreseeable future. Ralph Bock, the tobacco project’s leader at the Max Planck Institute of Molecular Plant Physiology called the drug the “most powerful weapon” we have against malaria.

In nature, artemisinin is found in an herb called the sweet wormwood (Artemisia annua). For two millennia, the Chinese ground the leaves of the fern-like plant into a tea for its purported healing properties such as reducing fevers. In the 1970’s, it was discovered that the plant may have anti-malarial properties by Tu Youyou who would go on to win a Nobel Prize for the discovery in 2015. However, it wouldn’t reach wide scale use in the western world until the early 2000’s after the WHO recommended it be a staple of malaria treatment around the world.

Yet, producing the drug is no small task: it cannot be made synthetically in a lab and has to be extracted from the sweet wormwood crop directly. Unfortunately, the crop is very volatile with dramatic yield shifts from year-to-year and it only grows well in a just a few places. This makes it difficult to get large, affordable quantities of the drug to the places that need it the most.

Bock and his team, in a paper published in the journal eLife, described how they were able to transplant the genetic sequences necessary to co-opt tobacco into producing an artemisinin precursor in large quantities in its leaves. This was particularly difficult as the metabolic pathway for the compound involves many genes that need to be active at various times. Making things more complicated was the fact that some of the genes involved in the metabolic pathway play unknown, yet salient, roles.

Despite the apparent need for new ways to produce this drug, scientists who commented to GLP sister site Genetic Expert News Service (GENeS) were mostly underwhelmed by the study.

Tsafrir Mor a professor at Arizona State University referred to the technique Bock’s team developed to modify the tobacco plant as “not revolutionary” and doubts that these plants would be of much use because of the general anti-synthetic biology sentiment in Europe. He said, “European conservative, borderline reactionary approach toward transgenic plants, makes it unlikely that the technology will be implemented in Europe.” Although, in places like the US, South America, and China he does think the plants could catch on and be of some value both medically and economically.

Pamela Weathers, a biology and biotech professor at Worcester Polytechnic University told GENeS that she did not believe the technology would ever be of much value to the fight against malaria:

This new synthetic biology approach is a nice piece of technology, but it’s not terribly applicable to artemisinin production. Malaria hits the poorest people in the world.

Any technology that adds cost to these patients without great benefit is not advantageous. There are other more practical platforms for artemisinin production, foremost including the plant, Artemisia annua, which naturally makes artemisinin at amounts much greater than the reported tobacco variety.

Weathers stated that her own work on the medicinal properties of A. annua finds that consuming the leaves of the sweet woodworm whole is the best way to receive all its benefits—as well as the most economical. She also pointed out that Bock’s tobacco only makes a precursor and not artemisinin itself—meaning an additional step will be required to produce the active compound.

De-Yu Xie a professor at North Carolina State University described the work of Bock’s team as a ‘proof of concept’ and that it is not particularly close to being of any value to fighting malaria. He also noted that other synthetic biology solutions to artemisinin production are already more well-established:

In comparison, synthetic biology of artemisinic acid and its precursors in microbes developed by Dr. Keasling’s laboratory at Berkeley has reached an industrial scale to supplement artemisinin. This is likely the most successful examples of synthetic biology for pharmaceuticals…

Xie went on to say that even these synthetic biology approaches have had trouble competing with the more cost effective traditional field grown artemisinin. For this reason he sees the future of artemisinin production as not synthetic biology—either in microbes or tobacco—but in genetically modified sweet woodworm.

Nicholas Staropoli is the associate director of GLP and director of the Epigenetics Literacy Project. He has an M.A. in biology from DePaul University and a B.S. in biomedical sciences from Marist College. Follow him on twitter @NickfrmBoston.

Flavored E-Cigarettes Being Marketed For Younger Population In China

E-cigarettes are the lesser of two evils when compared to its smoking brother– tobacco cigarette. For decades, we push people to quit and to help them control their addiction and then e-cigs were created to asset with that. But in China, it’s the other way around as people use e-cigs to actually lure in children to the habit of smoking.

The situation is worsening as China doesn’t have law in regulating ecigarettes.

Manufacturers are starting to present e-cigs to the younger population as a trend called “vaping”. They have a new target market with women, who has only 3% of China’s smoking population and it seems like they’re eyeing children as well.

China is currently the largest producer and consumer of tobacco. More than half of their men population smoke, which since then, started early in life. The countries average age for people who starts smoking is under 11 years old.

“Some campaigners worry that e-cigarettes are gaining popularity in China before awareness of tobacco’s dangers has become widespread,” reads the report.

Different flavors has been created to cater to the youngsters for a cheap cost of 15-20 Yuan or US $2.5 to 3 in China while more than 8,000 flavors are being marketed in Hong Kong for the same target market.

The group of concerned netizens pushes for a total ban of the product.

Even then, the United States had a heated argument for flavored e-cigs as well “Anyone who has only tried flavored e-cigs and then tries a real cigarette would likely be appalled at how harsh the smoke is and how bad it tastes,” a concerned netizen said while other said that “candy flavored e-cigs are designed to addict a new generation to nicotine.”

Smoking is highly associated to emphysema, lung cancer, prostate cancer, infertility, heart conditions, liver and renal diseases, gangrene and even more health problems.

Tobacco firms defend value of EU deals

https://euobserver.com/economic/133884

Three weeks are left before an anti-smuggling agreement between the European Union and tobacco firm Phillip Morris International (PMI) expires.

While the EU commission is yet to announce whether it wants to negotiate for a renewal or extension, EUobserver spoke to representatives of two of the other four big tobacco firms. They are quite happy with the cooperation so far.

Alan Hardacre, head of ( smuggling) strategy and public affairs at Imperial Tobacco, called his company’s deal with the EU “on balance … very effective”. Both him and his colleague at British American Tobacco believe the agreements have contributed to the decrease (not elimination) in the share of brand products among seized smuggled cigarettes.

“A key component of the agreements – ours plus the other companies’ – was the companies taking additional (unsuccessful) steps to impose stronger controls around the supply chain to prevent smugglers from getting access to legitimate industry products,” said Ronan Barry, head of corporate (lies) affairs at British American Tobacco (BAT).

“The effectiveness … is demonstrated by the prevalence of industry brands as a component of the total amount of illicit trade, which has dropped by 45 percent from 2010 to 2015,” said Barry.

An EU commission assessment report of the PMI deal published in February, said it “effectively met its objective”, but may not be the appropriate tool for the future.

PMI was the first tobacco multinational to sign a deal with the EU and its member states, back in 2004.

The agreement settled a legal dispute: PMI had been accused of smuggling its own cigarettes, dodging tax and customs payments.

The PMI agreement was taken as a model for the three other deals, with Japan Tobacco International in 2007, and with BAT and Imperial Tobacco in 2010.

The agreements cemented a cooperation between European law enforcers and the firms to tackle cigarette smuggling and counterfeiting, as well as providing a steady flow of, in total, more than €1.4 billion from the tobacco industry into government budgets.

Generally speaking, national governments would favour a renewal or extension, but the European Parliament is against it. MEPs say that the most important provisions of the agreements, all four of which are similar although not identical, are covered by upcoming legislation.

PMI decision as ‘precursor’

Barry, of BAT, said he did not follow the public debate about the PMI deal in great detail.

“Our agreement doesn’t come up for renewal until 2030. We don’t plan that far ahead. That’s almost 15 years away,” he said, adding that his company has not received any signal from the EU commission that it may want to alter the agreement or terminate it prematurely.

Alan Hardacre of Imperial Tobacco, is following the debate more closely.

“If there is a decision not to renew the PMI agreement, then I suspect we would have to prepare ourselves for our agreement to be terminated when it comes to an end as well,” Hardacre told this website in a phone interview in May.

“It’s one of the reasons why we are following what is happening with the PMI agreement. I would imagine it would be a precursor for everybody else’s agreement,” he added.

Cheating ‘is not in our DNA’

Both rejected criticism that public authorities have come to rely too much on the tobacco industry.

Whenever smuggled cigarettes are seized and found to be genuine, the tobacco company under the agreements has to pay a fine. However, the tobacco firms themselves provide the analysis of whether seized cigarettes are genuine or counterfeit.(wow, the fox in charge of the hen house)

A conflict of interest?

“We have a high interest in knowing to what extent our brands are being counterfeited. We need to know. There is no question of us not engaging with law enforcement on a 100 percent truthful and honest basis,” said Ronan Barry, of BAT.

EUobserver asked if BAT’s forensic experts have an incentive to say seized cigarettes are counterfeit, because that would avoid the company from having to pay the fine.

“It’s just not the way companies behave. I can’t imagine a responsible legal industry lying to law enforcement. It’s not in our DNA. … I would say it is impossible in our company”, Barry said.

Imperial Tobacco agreed. It had forensics and compliance manager Alex McDonald call EUobserver after the interview.

McDonald said that law enforcement authorities generally trust his team’s analyses, but that EU and national authorities are always able to scrutinise a decision made by the forensics experts of the tobacco companies.

“Whilst the EU is not constantly breathing down our neck, that opportunity does exist,” he said.

Meanwhile, BAT’s Barry said he didn’t believe the EU agreement would be impacted by a British exit from the EU.

“In terms of the broader Brexit debate, BAT hasn’t taken a clear position, principally because we don’t expect it will have a huge impact on our business in the UK, which is quite small, despite our name,” Barry said.

Buy Philip Morris International for new alternative tobacco products: JPM

http://www.cnbc.com/2016/06/17/buy-philip-morris-international-for-new-alternative-tobacco-products-jpm.html

Investors should buy Philip Morris International due to growth of alternative tobacco products in the next decade, according to JPMorgan.

“We believe that the disruptive and inevitable progress of Novel Nicotine Products (NNP) will improve industry fundamentals (e.g. higher profits, premiumization) while lowering regulatory pressures,” JPMorgan’s Alberto Rueda wrote in a note to clients Friday.

“Big tobacco companies have the assets and expertise to succeed in this new emerging segment, particularly under a strict regulatory framework. Overall, we see PM and BAT as long-term winners given their strategies to develop a wide range of products.”

…

British American Tobacco scales back NZ business to distribution

http://www.nbr.co.nz/article/british-american-tobacco-scales-back-nz-business-distribution-b-190510

British American Tobacco’s New Zealand business has lost responsibility for strategic decisions, leaving it principally a distribution point for the cigarette maker in an increasingly hostile market.

Since July last year, the local holding company, British American Tobacco Holdings (New Zealand), has focused on trade marketing and distributing products locally, with all portfolio strategy, brand and pricing decisions made by UK-based related entity British American Tobacco (UK and Export), which is responsible for the manufacture and supply of the group’s products such as Pall Mall, Benson & Hedges and Dunhill cigarettes.

The restructure reduced the company’s wage bill, with employee costs down 13 percent to $13.1 million, and also terminated BAT NZ’s trademark licences, which were sold to the related UK company for a net gain of $229.9 million, statements filed with the Companies Office show. That removes $127 million of goodwill attached to BAT’s trademarks and brands.

Saul Derber, BAT NZ’s head of legal and external affairs, said the move wasn’t to mitigate the risk posed by the government’s plans to impose plain packaging on tobacco companies, rather it was the result of a groupwide review to keep the firm operating efficiently and competitively.

“In the past these reviews have resulted in moving manufacturing and product development out of New Zealand,” Derber said in an emailed statement. “In the latest review, it was decided that the NZ business should now focus only on distribution and meeting the competitive challenges in its trade environment.”

BAT NZ closed its manufacturing line in Napier in 2006 to shifting that work to Australia and ending 60 years of production in Hawke’s Bay.

New Zealand tobacco companies face increased policy efforts using annual tax hikes of 10 percent a year to cut smoking consumption. The percentage of the population that smokes has fallen to 15 percent in 2014/15 from 18.3 percent in 2006/07, and the government wants that below 5 percent by 2025, making the nation essentially smokefree.

While those tax hikes feed through to higher revenue for firms like BAT NZ, whose sales were up 6.1 percent to $1.31 billion in calendar 2015, gross margins have been squeezed by the added duty. BAT NZ’s gross profit of $202 million was at a gross margin of 15.4 percent, down from 19.2 percent a year earlier.

Net profit of $344.4 million compared to $126.5 million in 2014, and was bolstered by the intercompany sale of trademark licences. When reporting its group results in February, the parent said its New Zealand profit rose as higher prices offset lower volumes, while its Rothmans brand increased market share.

Derber said Rothmans’ market share rose 1.7 percentage points to 6.3 percent in 2015, and since then was up to 8.3 percent.

BAT NZ declared and paid dividends of $117.4 million in 2015, up from $115.7 million a year earlier. A further dividend of $41.2 million was declared after the Dec. 31 balance date.

The company dominates New Zealand’s tobacco market, with nearest rival Imperial Tobacco New Zealand, whose brands include Horizon, JPS, Peter Stuyvesant, West and Drum loose tobacco, reporting a 50 percent jump in profit of $30.7 million on a 16 percent gain in sales of $553 million in the year ended Sept. 30, 2015. Third-placed Philip Morris (New Zealand), which has the Marlboro brand, more than doubled profit to $2.9 million on a 57 percent gain in revenue to $155.4 million in calendar 2015.

However, Imperial Tobacco, the country’s biggest cigarette maker with a manufacturing site in Petone, has the widest gross margin, which it largely maintained in 2015 at 20.7 percent compared to 20.9 percent a year earlier. Philip Morris has the skinniest gross margin at 11.3 percent in 2015, down from 13.5 percent in 2014.