TI Digest

UNITED STATES

Gets It on! Altria Buys Oral Nicotine Pouch Product

A new oral nicotine pouch product, on! is derived from tobacco.

Altria Group

RICHMOND, VA.—Altria Group has agreed with the shareholders of Switzerland-based Burger Söhne Holding AG to acquire 80 percent ownership of certain companies of the Burger Group that will commercialize on!, an oral tobacco-derived nicotine (TDN) pouch product.

“We’re excited to add on! to our companies’ terrific non-combustible portfolio,” said Howard Willard, Altria’s Chairman and Chief Executive Officer. “This acquisition will add another non-combustible product to our portfolio in what we believe is a high-potential, rapidly-developing category.”

Upon closing, Altria will invest $372 million for an 80 percent ownership interest. Altria expects to complete the transaction in the second half of 2019, subject to customary closing conditions. It will finance the transaction with available cash.

Altria will distribute on! across the United States in advance of the transaction closing, which is expected to allow Altria to quickly expand retail distribution.

The on! portfolio consists of seven flavors and five nicotine strengths for a total of 35 SKUs. It is currently available in limited distribution in several thousand U.S. retail outlets, as well as in Sweden and Japan. It is also sold via e-commerce.

“We’re excited to put our resources behind on! and participate in what we expect to be a fast-growing category,” said Allison Bolyard, Senior Director and General Manager of Helix, Altria’s new subsidiary that will be the parent company of the Burger Group subsidiaries currently manufacturing and selling on! “Combining our deep understanding of adult tobacco consumers and Altria’s best-in-class sales and distribution infrastructure, we expect to drive the on! brand toward sustainable, long-term leadership.”

UNITED ARAB EMIRATES

For Displaying Print Finishing Products, World Tobacco Shone

DUBAI—The World Tobacco Middle East Dubai in April was a “huge success,” said Daniel Lustenberger, Senior Area Manager Marketing & Sales for Web-Fed Solutions, Bobst Mex SA., whose company exhibited there.

“It allowed BOBST and its partners to demonstrate how recognized and requested trends for packaging across the tobacco industry are being met by innovative finishing techniques, coatings and packaging technologies,” he said.

It helped that BOBST, a leading supplier of equipment, was able to exhibit alongside partners IST Metz GmbH (UV technology) and Schmid Rhyner AG (UV and water-based coatings). The shared exhibition stand enabled customers to explore the entire printing spectrum for tobacco packaging, from printing to coating and drying, through the latest UV technology, up to finishing.

Volker Selg, head of sales Web at IST Metz, said, “Providing a qualified and full picture of needed technology for the printing, the curing and the impressive opportunities created a lot of attention.”

BOBST, a leading supplier of equipment and services to packaging and label manufacturers in the folding carton, corrugated board and flexible materials industries, also offers a range of market gravure printing technologies to meet key trends in the tobacco market and add competitive advantage, including Lemanic Riviera ILS®. Featuring 30 percent shorter web path than conventional presses and the ILS (Intelligent Line Shaft) solution, the gravure printing press can print challenging graphic designs on the widest variety of substrates.

Special effects such as soft touch, matt varnishes and tactile lacquers are still prominent in tobacco packaging, said Jakob Rohner, CEO Schmid Rhyner AG. “Silver, such as our Silver Polar, is rising in demand. The perfect combination of quality infrastructure and quality consumables will make the difference in the end.”

More companies are looking at the attractive effects of replacing metallized board, not only for economic reasons, but also to improve the overall CO2 footprint by replacing laminated boards with white boards. BOBST and its partners are promoting sustainable solutions through printing of high gloss silver.

BOBST Lemanic Riviera ILS provides up to 15 color-printing, hybrid-printing technologies and double-sleeve-embossing units. Lemanic Riviera ILS is the flagship of printing and in-line converting technology for the tobacco and general folding carton market segments of packaging production.

JAPAN

JT Announces New Products

New flavored capsules from JT: “MEVIUS Muscat Cooler for Ploom TECH (left) and “Pianissimo Lemon Lime Cooler for Ploom TECH," (right).

TOKYO—Japan Tobacco launched in May its first-ever limited-edition seasonal tobacco flavors for Ploom TECH, JT’s tobacco-infused vapor product with low temperature heating technology.

The new flavored capsules consist of “MEVIUS Muscat Cooler for Ploom TECH” and “Pianissimo Lemon Lime Cooler for Ploom TECH.” These two products will be available from June 4 at the online store and Ploom shops for a limited time.

Another new product from Japan Tobacco launched in May is the Camel brand “Camel Box,” which will roll out nationwide in Japan on July 26.

“Following the successful launch of two new Camel brand products in June 2018, we are presenting Camel Box, a brand-new product with 12mg tar, [selling] at 400 yen per pack,” said Takashi Araki, Vice President of the Marketing Group Product & Brand Division. “The solid tobacco taste of ‘Camel Box’ is achieved by [its] balanced authentic American Blend.”

Finally, in late July, JT will launch “Natural American Spirit Agate” nationwide in late July 2019. Consumers of Agate will be able to enjoy the strong flavor of late harvested and fully ripened leaves with authentic aroma and enriched taste, the company said. The Agate cigarette will feature densely packed tobacco and freedom from additives.

The packaging will depict the moment where the dynamic sunset paints the sky an “Agate” color. The product’s late harvested and fully ripened leaves refer to matured Virginia tobacco leaves. Compared with the ordinary ones, the matured leaves feature light sweetness, as well as richer taste and smoke.

SOUTH AFRICA

Proposed Anti-Tobacco Legislation Could End Up World’s Most Draconian

CAPE TOWN—A draft tobacco products control bill that has been introduced in South Africa would not only ban smoking in all public places. It would also to send to jail those who smoke or encourage smoking in those places. And by the way, public places in this proposed legislation would include ‘enclosed workplaces,’ in the view of its authors.

It had not been enacted at the time of this writing. If enacted, this might turn out to be the toughest anti-smoking legislation anywhere in the world, if passed by the majority ANC government.

Smoking would also be banned in vehicles with passengers, while manufacturers of cigarettes and electronic tobacco devices will be forced to remove “all branding on packaging, with an exception to the company’s logo.” Non-compliance would risk a five-year prison sentence.

Tobacco packaging would have to have a “uniform plain color and texture.”

“Tobacco use is extremely injurious to health of smokers, non-smokers and other users of tobacco products,” the bill observes.

This bill was introduced in South Africa in response to last year’s Worldwide “No Tobacco Day.”

UNITED KINGDOM

A Stronger, Simpler Business at BAT

LONDON—A change in its approach to new brands category will be part of the way British American Tobacco creates

a “stronger, simpler” business in the near future, said Jack Bowles, BAT Chief Executive.

In the company’s pre-closing report for the first half of 2019, Bowles said, “With our focus on building global brands, we intend to consolidate our New Category portfolio into fewer brands. Our Strategic Brands continue to take share, while new product launches and a sharpened focus on priority markets and products are expected to drive stronger New Category growth in the second half.”

BAT is on track for a good performance in 2019, he added. “Revenue and adjusted operating profit growth [are] in line with our guidance and delivery of high single figure FY adjusted diluted EPS growth at constant rates of exchange.”

All of this is based on the foundation of a strong combustible business.

There was one slightly unexpected note in BAT’s report. “ The U.S. is performing well with volume in line with expectations,” it said. “U.S. industry volume decline remains within historic ranges, with Sales to Retail (STR) down 5.3 percent YTD. We expect FY industry volume to be down 4 percent to 5 percent, driven by earlier cigarette price increases and rising gas prices.”

BAT Science Website Gets New Look

LONDON—British American Tobacco’s dedicated science website (bat-science.com) has been transformed to showcase the science and innovation behind the company’s potentially reduced-risk products (PRRPs), said David O’Reilly, Scientific Research Director at BAT.

The original site was launched in 2008 and was a first for the tobacco industry, reflecting BAT’s commitment to openly and transparently communicating its scientific research.

In keeping with BAT’s commitment to transform tobacco, the newlook bat-science.com offers clear scientific information around vapor, tobacco heating and modern oral products, as well as a deep dive into scientific studies and product development. It also features videos and animations which bring to life how our products work, how they are tested and what test results tell us.

The updated site is intended for a broad audience, including public health communities, journalists, scientists, and consumers with an interest in science. New sections on the site include:

• Product science, which provides an overview of how PRRPs work and how they are tested by BAT scientists;

• Pro Zone, a space for science professionals to access detailed research and studies on PRRPs;

• Innovation—the science and technology behind our latest products and innovations.

“We are very proud of our open and transparent approach to scientific research, and bat-science.com is the perfect place to showcase the science behind our PRRPs,” said O’Reilly. “The site has a fresh new look and educational content designed to inform, inspire and engage audiences around the world.”

Chris Proctor, Group Head of PRRP Science, added: “The bat-science.com website is well known within the scientific community, and I’m delighted that we now have a more dynamic, PRRP-focused website that will appeal to all our stakeholders. Sitting alongside our visitor program and biennial Science & Technology Report, the new website will help to strengthen our unique scientific engagement program.”

UNITED STATES

Will an All-Virginia Cigarette

Find Favor in the United States?

Manitou’s colorful cigarette packaging.

USTC

RALEIGH, N.C.—The U.S. [Flue-Cured] Tobacco Cooperative has announced that it plans to manufacture and market a new super-premium cigarette. Called Manitou, it will be a cigarette of the “Virginia” or “British” type, meaning it will contain only flue-cured tobacco.

And the flue-cured tobacco will be exclusively grown in the United States by grower members of the cooperative, and only upper-stalk flue-cured leaf produced by those growers will be used.

Virtually all other American cigarette brands have been made using a blend of flue-cured, burley and oriental tobaccos—i.e., the “American blend”—since Richard Joshua Reynolds introduced Camel, the first American blend, in 1914.

Before that, “British” blend cigarettes were the leading type on the U.S. market. “Manitou cigarettes contain no reconstituted sheet tobacco, stems or fillers, [and] no additives and no artificial flavors,” a spokesman for USTC said. “Manitou cigarettes are 100 percent free from chemical additives like artificial preservatives, humectants or synthetic flavors commonly found in other brands. Manitou blends only contain water and tobacco.”

“We know consumers and retailers are looking for alternative products in this category; one that is truly 100 percent grown and made in America,” said Russ Mancuso, USTC senior vice president of consumer products. The company planned to roll out soon a full marketing campaign spanning print ads, point-of-sale ads and a website to educate consumers about the product.

Manitou cigarettes will be available in six varieties: bright-mellow taste; full-bodied taste; smooth, mellow taste; smooth, rich taste; full-bodied mellow taste; and a dark, rich and mellow taste.

Manitou cigarettes will be distinguished through packaging. “The packaging designs combine bold color combinations and finishing treatments that elevate the brand. Each pack and carton have embossed textures and has a special sand varnish applied to the edges to let the adult consumer know they are holding something different,” Mancuso said.

USTC’s consumer products division, Premier Manufacturing of Chesterfield, Mo., will market Manitou, which some observers expect will compete with Natural American Spirit cigarettes. Although it has never been confirmed by the company, it is widely believed that most of the Natural American Spirit blends are made with a high percentage of flue-cured.

The USTC growers have taken quite a hit since the Chinese withdrew from the American leaf market as a result of the Trump tariffs last year. All of China’s leaf purchases in recent years prior to the tariffs were believed to be flue-cured, since the dominant cigarette blend in China is all Virginia.

It was not immediately apparent as to whether USTC’s Manitou was related to a line of German cigarettes and smoking tobacco with the brand name Manitou. The manufacturer of that line advertises that it is all Virginia tobacco but according to its advertising, it hasn’t been limited— at least to this point—to American leaf.

Manitou is a Native American word referring to a primitive life force, refleting perhaps the Native American presentation of Natural American Spirit.

Vapor and Heated Tobacco Cause Less Staining

LONDON—Research by scientists at British American Tobacco have shown that aerosol from potentially reduced-risk products (PRRPs), such as vapor and tobacco heating products (THPs), cause significantly less staining to tooth enamel, skin, cloth and wallpaper than does the smoke from conventional cigarettes.

In research results presented at the recent Global Forum on Nicotine in Warsaw, Poland, John McAughey, BAT Principal Scientist for aerosol science, said, “A lack of combustion and significantly reduced emissions from glo as compared to conventional cigarettes mean there is less material to deposit and odor to linger. Again, this reflects consideration for others by those using the glo product.”

These results show switching completely from cigarettes to vapor products or THPs may offer cosmetic and social benefits for consumers, said Senior Scientist Annette Dalrymple, who presented the results at the conference. “These benefits around social consideration and personal hygiene are really resonating with users.

UNITED STATES

Juul’s Prospects for FDA Seem Gaint, SFformer Commissioner

WASHINGTON—The Juul vapor product may never get government approval for sale in the United States, contends Scott Gottlieb, who until recently was the Commissioner of the Federal Food and Drug Administration.

Gottlieb told the American television news channel CNBC that approval will be difficult.

“Juul is in a hard spot to ever get their product approved,” Gottlieb said. “They have so much historical youth use with their product, I don’t know how Juul gets through an application process.”

FDA originally proposed that e-cigarette manufacturers apply for regulatory approval by 2022. But a U.S. district court recently ruled that an earlier deadline must be imposed, and FDA proposed 10 months

This is a crucial change for Juul, Gottlieb told CNBC. Juul may have wanted to get a revamped “kid proof” product together for review. “But if applications are required to be due sooner, they won’t have time to do that,” he suggested.

The company is working on “a comprehensive application to demonstrate the potential public health impact of Juul products, including the unprecedented rate at which our products are switching adult smokers from combustible use, which will be reviewed by FDA technical and scientific experts,” said Juul spokesman Ted Kwong.

“Taken together with our industry-leading action on youth prevention and hopefully category-wide actions from FDA in the near future, we are confident adult smokers will not be left without a viable alternative to combustible cigarettes, the leading cause of preventable death,” he said.

African Cyclones Devastating But Leaf Operations Not Materially Affected

RICHMOND, VA.—The effect of the recent cyclones in Mozambique, Malawi, and Zimbabwe was devastating, but George C. Freeman III, Chairman, President, and Chief Executive Officer of Universal Corporation, said the company, which has operations in those countries, is not expecting “a material effect from the cyclones on upcoming crop sizes or shipment timing.”

“We are deeply saddened by the loss of life and the devastating damage caused by the recent cyclones and [Universal Corp. is] supporting humanitarian aid and recovery efforts in the region,” Freeman said.

Universal was fortunate to sustain minimal impact on employees, facilities, crops and stored tobacco awaiting shipment at Beira, Mozambique, he said. “Although there was infrastructure damage from the cyclones in Mozambique, production, transportation and port activities are returning to normal in the areas in which we operate.”

In other observations from Universal’s annual report (all details referring to Universal operations):

In the United States, the benefits Universal enjoyed from increased shipment volumes during the quarter ended March 31, 2019, compared to the same quarter in the prior year were more than offset by reduced margins due to lower crop yields and processing volumes as a result of adverse weather during the growing season.

In both Africa and South America, sales volumes were higher in the same period, but the product mix was less favorable.

In Asia in the same period, sales volumes in Asia were lowering the same period, in part due to shipment timing. Selling, general, and administrative costs were higher on higher customer claim valuations and provisions on farmer advances. These were partially offset by positive foreign currency remeasurement and exchange variances and lower sales commission expenses.

Universal’s net income for the fiscal year ended March 31, 2019, was $104.1 million, or $4.11 per diluted share, compared with $105.7 million, or $4.14 per diluted share, for the prior fiscal year.

ITG Brands Appoints a New CEO; Oliver Kutz is Third Top Exec in Four Years

GREENSBORO, N.C.—Oliver Kutz is the new chief executive officer of Imperial’s U.S. affiliate, ITG Brands.

Kutz has worked for 20 years for Imperial Brands, most recently as the general manager of the Russia-AAAA division. He joined the company in 1999 and has since undertaken a number of international leadership roles.

“Oliver Kutz brings a wealth of international experience in tobacco and next generation products to ITG Brands,” said Dominic Brisby, Imperial Brands’ Division Director for the Americas, Africa, Asia and Australia. “This will further drive our performance and build on our strong capabilities and worldclass brands.”

Kutz replaces Dan Carr, who reportedly left the company to pursue other interests. Kutz is the third CEO ITG Brands has had since it was formed in 2015.

Oliver Kutz

In addition to Kutz’s appointment to the CEO and President position, ITG Brands has announced the addition of Kim Reed as the company’s executive vice president of sales.

Kim Reed

Reed has nearly 30 years of experience in the consumer-packaged goods industry and will report directly to Kutz. Previously, Reed worked at Kellogg Company where she was general manager of U.S. Sales. She has held key leadership positions at both the Kellogg Company, which she joined in 2006, and the Pepsi Bottling Group.

ITG Brands is the third-largest tobacco company in the United States. Local media reported that ITG had a 7.2 percent market share as of May 18. The legendary cigarette brand Winston by itself accounted for a 2.1 percent market share, with Kool and Maverick each providing a 1.6 percent share.

Counterfeit E-cigs from China Flood U.S.

WASHINGTON—Chinese manufacturers have flooded American convenience stores with counterfeit and potentially dangerous vape pods, frequently featuring kid-friendly vape flavors like “juice box” and “candy cane,” Senator Chuck Schumer of New York said in June.

“I have to give the Food and Drug

Administration credit, they did a very good job telling American manufacturers you can’t do this,” said Schumer. “But the Chinese don’t care. Like in so many other instances, Chinese companies violate our laws to make a fast profit.”

NAMES IN THE NEWS

Jon Stanton has joined the Board of Imperial Brands and will also be a member of the audit committee and succession & nominations committee. Stanton is Chief Executive of Weir Group PLC. Prior to that, he spent 22 years at Ernst & Young.

Jon Stanton

Therese Esperdy has succeeded Malcolm Wyman as Senior Independent Non-Executive Director at Imperial Brands. Wyman stepped down for personal reasons.

Therese Esperdy