TI Digest

CANADA

Stay Granted in Canada Case

TORONTO—The three major tobacco companies in Canada have received an order suspending legal proceedings against them—to last potentially till mid-March—in a case brought by several Canadian provinces.

A stay of proceedings was first granted to the companies—JTI-Macdonald Corp., Rothmans, Benson & Hedges and Imperial Tobacco Canada Ltd.— in March of this year to allow them to negotiate a settlement with their creditors, after the same firms lost an appeal in a multibillion-dollar class-action lawsuit in Quebec.

SWITZERLAND

Philip Morris International Launches IQOS 3 DUO

LAUSANNE—A new version of Philip Morris International’s IQOS line of neatnot-burn product has been introduced.

IQOS 3 DUO features the fastest and most powerful holder within the IQOS family and allows two consecutive uses without recharging the holder with a much faster holder charging time. IQOS 3 DUO will be available in Japan this month and subsequently rolled out in most of the markets where IQOS is currently available by the end of 2019.

“The launch of IQOS 3 DUO affirms our commitment to constantly and continuously investing in the development and commercialization of scientifically-substantiated products that can help the millions of adults who would otherwise continue to smoke to switch,” said Jacek Olczak, chief operating officer of PMI. “These ongoing product updates, innovations and developments are vital in our achievement of a smokefree future. Today approximately 8 million adults worldwide have switched to IQOS and abandoned cigarettes.”

PMI has stated its aim that by 2025 at least 40 million smokers of PMI’s cigarettes who would otherwise continue to smoke will have switched to smoke free products, and that at least 30 percent of its total shipment volume will come from smoke-free products.

On average, 70 percent of the smokers who switch to IQOS abandon cigarettes, which makes IQOS the most compelling smoke-free alternative today, said Olczak.

IQOS 3 DUO from Philip Morris International.

PMI

UNITED KINGDOM

Imperial Brands CEO Steps Down

Alison Cooper, Chief Executive Officer, Imperial Brands

Imperial Brands

BRISTOL—Alison Cooper and the Board of Imperial Brands have agreed that she will step down from her current role of Chief Executive officer and from the Board once a suitable successor is found.

On behalf of the Board, Chairman Mark Williamson, said: “Alison has worked tirelessly and with great energy and passion during her 20 years with Imperial, nine of which have been as CEO, and the Board would like to thank her for the tremendous contribution she has made.

“During her tenure as CEO, the business has been significantly simplified and reshaped to strengthen its long-term growth potential, and more than £10 billion in dividends has been returned to shareholders. I am pleased that Alison has committed to continue to lead the business until a successor is appointed, ensuring an orderly transition of responsibilities.”

As CEO, Cooper has driven a sharper focus on Imperial’s strongest brands and markets, halving the number of cigarette brands to ensure a higher quality of growth. Asset Brands now account for two thirds of the Group’s tobacco net revenue, the company said. She also significantly enhanced Imperial’s presence in the highly profitable USA market with $7 billion of acquisition of brands and assets in 2014 and has been the architect of the launch and development of Imperial’s next generation products business.

While the search for a successor continues, Cooper will focus on driving the performance of the business, including the asset divestment program, from which we expect to realize proceeds of up to £2 billion by May 2020.

UNITED STATES

Altria-PMI Scuttle Merger Plans

RICHMOND, VA.—The proposal to merge Altria Group, Inc. with Philip Morris International Inc. is history.

“While we believed the creation of a new merged company had the potential to create incremental revenue and cost synergies, we could not reach agreement,” said Howard Willard, Altria’s Chairman and Chief Executive Officer.

“We look forward to continuing our commercialization of IQOS in the U.S. under our existing arrangement.”

“It is evident that significant investor pushback and the reality of holding a larger presence in the U.S. market fraught with risk around the FDA and weak volumes lead to the decision,” wrote analysts at Stifel Financial Corp.

Altria and PMI have an agreement to advance together the iQOS heated tobacco product, and they plan to continue it.

Juul Recruits New Executives

SAN FRANCISCO—K.C. Crosthwaite has been named by Juul Labs as CEO, following Kevin Burns’ decision to step down from that position.

K.C. Crosthwaite

As Chief Growth Officer at Altria Group Inc., Crosthwaite oversaw the company’s expansion into alternatives to combustible cigarettes and played a key role in the commercial and regulatory efforts related to the U.S. launch of IQOS. He also served as an observer on Juul Labs’ board of directors.

“I have long believed in a future where adult smokers overwhelmingly choose alternative products like Juul,” said Crosthwaite. “That has been this company’s mission since it was founded, and it has taken great strides in that direction.”

Unfortunately, today that future is at risk due to unacceptable levels of youth usage and eroding public confidence in our industry.

“Against that backdrop, we must strive to work with regulators, policymakers and other stakeholders, and earn the trust of the societies in which we operate. That includes inviting an open dialogue, listening to others and being responsive to their concerns.”

Also, Juul Labs has since hired Joe Murillo, the head of regulatory affairs at its co-owner Altria Group Inc., to take on a similar role at the e-cigarette maker. In his new role, Murillo will help guide the applications that Juul must submit by May to the U.S. Food and Drug Administration for any products it wants to keep on the market beyond that point, Crosthwaite said in an emailed statement.

“The company is fully committed to supporting and complying with FDA’s final effective flavor policy and to working through the PMTA (premarket tobacco product application) process—a process Joe understands well and one he will help lead Juul Labs through,” Crosthwaite said in a statement.

Altria’s Chairman and CEO Howard Willard seconded the motion to hire Crosthwaite. “K.C. is a proven industry leader who understands the importance of responsible business practices. This decision by Juul recognizes that this is a critical time for the company. I believe K.C.’s experience, discipline and dedication to making harm reduction an industry-wide reality will help Juul achieve its mission, while also urgently confronting and reversing underage use of vapor products.”

Universal Corp: Even Start on 2020 Leaf Sales Season

RICHMOND, VA.—Universal Corp. has started off fiscal year 2020 with sales results in line with expectations.

In his recent report on UC’s first quarter results George Freeman, CEO of UC, said the first fiscal quarter is a seasonally slow quarter, and volumes for the quarter were lower as fiscal year 2019 benefited from large carryover crop volumes, particularly in North America and Africa.

“However, our overall volumes are similar to those in prior first fiscal quarters when we were not impacted by large carryover shipments,” said Freeman. “In addition, our results benefited from lower selling, general and administrative expenses, primarily from more favorable currency variances.”

George Freeman, CEO, Universal Corp.

“Our overall volumes are similar to those in prior first fiscal quarters when we were not impacted by large carryover shipments…our results benefited from lower selling, general and administrative expenses.” —George Freeman, CEO, Universal Corp.

The Other Regions segment operating loss of $3.8 million for the quarter ended June 30, 2019, was $1.8 million greater than the prior year’s first fiscal quarter operating loss of $2.0 million. In the first quarter of fiscal year 2020, benefits from higher carryover crop sales in Brazil and increased trading volumes in Asia were offset by lower results from Africa on lower carryover crop sales and distributions from unconsolidated subsidiaries.

Selling, general and administrative costs for the segment were lower in the quarter ended June 30, 2019, largely from favorable foreign currency comparisons, lower customer claim costs, and lower legal and professional expenses compared to the same period in the prior fiscal year.

Revenues for the Other Regions segment of $202.1 million for the quarter ended June 30 were down $5.9 million compared to the same period last year, as increases in sales revenues were offset by lower processing revenues, primarily in Europe, and reduced dividend income from unconsolidated affiliates.

NORTH AMERICA— In North America, operating income for the North America segment for the first quarter was $0.9 million, down $8.1 million from the comparable prior year period. This was mainly on significantly lower carryover crop sales volumes.

Carryover crop volumes in the United States were high in the quarter, as reduced transportation availability had delayed some shipments into that quarter, which would otherwise have shipped earlier in calendar year 2018.

In addition, current crop tobacco volumes were down in Mexico due to later shipment timing this fiscal year compared to fiscal year 2019. Selling, general, and administrative costs for the North America segment were down slightly, compared to the prior year’s first fiscal quarter.

Revenues for this segment decreased by $87.9 million to $27.7 million for the quarter ended June 30, 2019, compared to the same period in the prior fiscal year, on the lower carryover crop sales volumes.

OTHER TOBACCO—Other Tobacco Operations operating income of $10.5 million for the first quarter of fiscal year 2020 reflected an increase of $8.5 million, compared to operating income of $2.0 million for this segment in the same period last year. This was largely due to improved results from our dark tobacco operations on higher wrapper sales and lower costs.

Despite increased sales volumes, results for ULTC’s oriental joint venture were down for its seasonally weak first fiscal quarter ended June 30, compared to the prior fiscal year on lower foreign currency remeasurement gains.

However, selling, general, and administrative costs for the segment were down compared with the prior year, mainly due to favorable foreign currency comparisons. Revenues for this segment in the quarter ended June 30, increased by $11.0 million to $67.2 million on higher dark tobacco sales.

Reynolds American Applies to Market Vuse

REYNOLDS AMERICAN INC.

WINSTON-SALEM, N.C.—British American Tobacco’s U.S. subsidiary, Reynolds American Inc., has submitted a Premarket Tobacco Product Application to the U.S. Food and Drug Administration (FDA) seeking orders authorizing the marketing of Vuse Electronic Nicotine Delivery Systems products.

Vuse products offer a cartridge-based vapor system intended for adult tobacco consumers, and the application highlights key evidence demonstrating that the continued marketing of Vuse products is appropriate for the protection of the public health.

Reynolds’ Vuse portfolio is well-positioned in the FDA’s PMTA process, in which all vapor products must be submitted for review by 11th May 2020, to remain on the market.

Dr. James Figlar, Executive Vice President of Scientific and Regulatory Affairs at Reynolds, said, “This is an important first step in a long process for the millions of adult cigarette smokers who may want a legal alternative to combustible cigarettes, thus we look forward working with the agency as the process moves forward.”

General Snus Promoted to “Modified Risk”

RICHMOND, VA.—The U.S. Food & Drug Administration allowed Swedish Match (U.S. Division) the right to market eight varieties of General Snus, a smokeless, spitless tobacco product placed in the upper lip, as a less harmful alternative to cigarettes.

“[The] decision is a huge accomplishment for public health in the U.S. and another step toward realizing our vision of a world without cigarettes,” said Gerry Roerty, Swedish Match Vice President and General Counsel. “There are nearly 35 million adult smokers in the U.S., all of which have been led to believe the only way to reduce tobacco risk is complete abstinence. We now have the opportunity and responsibility to inform cigarette users who cannot abstain that General Snus can be a risk-reducing alternative.” FDA’s decision makes General Snus the first tobacco product to secure the modified risk designation in the U.S., classifying it as a tobacco product that is sold or distributed for use to reduce harm or the risk of tobacco-related disease associated with commercially marketed tobacco products.

The FDA also cleared Swedish Match’s claim that using General Snus instead of cigarettes puts users at a lower risk of mouth cancer, heart disease, lung cancer, stroke, emphysema and chronic bronchitis.

IN PASSING

James Adhitya Setiawan, a marketing professional at Bukit Muria Jaya (BMJ) died suddenly at the age of 41 on August 17. James graduated from Maryville University of Saint Louis in 1998 and earned his master’s degree from the University of Melbourne in 2003. He joined BMJ in 2005. He was the mastermind behind BMJ’s creative campaign, well known in tobacco industry for the outstanding and interactive advertisement, exhibition concept, and corporate events.