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June, 2007

Belgium emerges top Indian tobacco buyer

Brussels — Belgium took over Russia as the number one importer of Indian tobacco in FY ‘07 last week.

While Belgium lifted 19,186 tons of tobacco valued at Rs 197.53 crore against the previous year’s (2005–06) 15,411 tons (Rs 146.30 crore), Russia purchased 20,748 tons worth Rs 140.88 crore in 2006–07 against 27,513 tons (Rs 179.30 crore) in 2005–06.

Philippines bagged the third spot buying 9,163 tons worth Rs 93.29 crore against 3,270 tons at Rs 32.60 crore in 2005–06. The fourth and fifth places were grabbed by Germany with 7,754 tons (Rs 79.26 crore) and UK with 7,370 tons (Rs 68.25 crore).

Indian Tobacco exports grew 21% in 2006–07 touching 1,79,899 tons (worth Rs 1,713.20 crore) in 2006–07 against 1,66,869 tons (Rs 1,413.47 crore) in 2005–06.

Tobacco Board chairman J Suresh Babu said exports comprised 1,52,779 tons of processed tobacco leaf (Rs 1,243.11 crore) and 27,120 tons of tobacco products (Rs 470.09 crore). Flue cured Virginia (FCV) tobacco formed 1,21,073 tons (Rs 1,067.94 crore) of these exports, a 10% increase in quantity and 24% rise in value.

Region-wise, imports from west Europe witnessed a 31% rise. About 14 West European countries imported 47,902 tons of Indian tobacco for Rs 446.61 crore, the highest-ever quantity, followed by 15 south and southeast Asian nations who bought 33,232 tons for Rs 287.42 crore (an increase of 22%).

Imports from East Europe increased 21%, with about 16 countries lifting 31,909 tons (Rs 229.28 crore). A collection of 16 African countries purchased 20,596 tons for Rs 166.20 crore.

Seven West Asian countries lifted tobacco weighing 10,652 tons for Rs 51 crore. Seven North and South American nations purchased 6,541 tons valued at Rs 40.54 crore. Australia and New Zealand imported 1,947 tons of tobacco worth Rs 22.03 crore.

Among the tobacco products, 6,013 tons of chewing tobacco/zarada worth Rs 199.40 crore was exported in 2006-07 followed by 6,311 tons of cigarettes worth Rs 145.01 crore.

About 4,166 tons of cut tobacco (Rs 52.19 crore), 10,023 tons of hookah tobacco (Rs 38.47 crore), 516 tons of beedies (Rs 33.75 crore), and 91 tons of snuff and other tobacco products values at Rs 1.23 crore were also exported.

Exports were the highest in July 2006, with the month witnessing exports of 16,422 tons (Rs 131.10 crore), followed by May with 15,596 tons (Rs 128.33 crore) and August with 14,749 tons (Rs 123.91 crore).

November, February, and January recorded the least exports with 8,956 tons (Rs 61.75 crore), 8,964 tons (Rs 75.65 crore), and 9,099 tons (Rs 79.56 crore), respectively.

British American Tobacco sells Belgian cigar business
Brussels — British American Tobacco recently announced it has agreed to sell its Belgian cigar factory and associated brands to the cigars division of Skandinavisk Tobakskompagni A/S. The business had gross assets of €31 mn as of December 31, 2006.

The sale includes a factory in Leuven as well as the trademarks Corps Diplomatique, Schimmelpennick, Don Pablo, and Mercator, among others.

The transaction is expected to be completed later this year.

Altria, other companies face trial in Canada
Victoria — Altria Group Inc’s Philip Morris International and other tobacco companies operating outside Canada must face trial in British Columbia as Canadian provinces seek to recover money spent to treat smoking-related illnesses.

Canada’s Supreme Court in Ottawa recently rejected without comment the companies’ appeal of a lower court’s finding that cigarette-makers without offices or manufacturing plants in the province can be sued in the jurisdiction.

The decision sets a precedent for other provinces, including Ontario, that have passed laws to allow similar lawsuits. Litigation may cost tobacco companies billions of dollars in reimbursements to governments for money spent treating people with diseases such as emphysema and lung cancer.

``The decision will provide further encouragement to other provinces to move ahead with their own lawsuits against the tobacco industry,’’ Rob Cunningham, a policy analyst with the Canadian Cancer Society, said in a telephone interview.

Ontario, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, and Newfoundland and Labrador have passed or are considering laws allowing suits to recover public money spent on smokers’ diseases.

``We know that Ontario and Newfoundland are watching us very closely,’’ Oppal said. ``We’ve been in touch with them and, as a matter of fact, we’ve also been contacted by lawyers in the United States who have successfully sued the tobacco companies.’’ The US lawyers offered to help with the suit, he said. In the US, tobacco companies reached a $206 bn settlement with 46 US states in 1998.

Hubei Tobacco Corp. acquires land, aims to be “transnational tobacco giant”
Hubei Province — Hubei Provincial China Tobacco Industry Corporation—the operator of the manufacturing sector of the tobacco industry in central China’s Hubei Province— has acquired land to build a new cigarette production base as part of a project intended to significantly enlarge its production capacity.

In an interview with the Yangtze River Business News, general manager Peng Mingquan said that the corporation has already acquired more than 960 mu (64 hectares) of land in the Wujiashan Township in the suburbs of the provincial capital city of Wuhan, where the new production base of the corporation will be built.

Mingquan said that in the first phase of the project, Hubei will invest 5 bn yuan (US$625 mn) in building a modern technical infrastructure with the world’s most advanced cigarette production equipment. The company hopes that “in a matter of just a few years, the annual cigarette production capacity of Hubei Provincial will triple to 3 mn cases (150 bn cigarettes)” notes Peng. He went on to state “since Hubei Provincial China Tobacco Industry Corporation wishes to turn itself into a transnational tobacco giant, its innovative development over the next few years will be very crucial.”

Cigar race: two companies vie to become top Chinese producer
Shanghai — Sichuan-Chongqing Regional China Tobacco Industry Corporation in southwest China’s tobacco-producing Sichuan Province and Wuhan Tobacco Group in central China’s Hubei Province are vying for the title of China’s top cigar maker.

Recently, Sichuan-Chongqing Regional declared a plan to develop “China’s No. 1 cigar brand” while Wuhan Tobacco Group has also unveiled an ambitious plan to build a cigar production line “that is expected to become the largest in China or even in the whole of Asia.”

Under its development plan, Sichuan-Chongqing Regional will invest over 300 mn yuan (over US$37.5 mn) over the next five years to develop a project of technical transformation to significantly enlarge its annual cigar production capacity, which will target consumers of high- and medium-grade cigar products.

Meanwhile, Wuhan Tobacco Group has been busy in significantly enlarging its cigar production capacity. In 2005, Wuhan Tobacco Group imported production equipment from the Netherlands to produce little cigars. Recently, it has invested 50 mn yuan (US$6.25 mn) to install a cigar production line that meets the relevant advanced international technical standards.

Both Sichuan-Chongqing Regional and Wuhan Tobacco Group are interested in the upwardly inclined cigar sales figures in China over recent years. For Sichuan-Chongqing Regional China Tobacco Industry Corporation, its cigar sales volumes in 2004, 2005, and 2006 were 150 mn, 280 mn, and 306 mn, respectively. Along with the strengthening of efforts to promote sales, the corporation is expected to earn 10 mn yuan (US$1.25 mn) from cigar sales from the market of Chongqing City alone in 2007.

Everybody loves Altadis
London — Britain’s Imperial Tobacco is ready to fire off a new bid for Altadis, the Franco-Spanish tobacco group, by raising its €47-a-share offer to about €52, valuing the company at over £9bn, reports The Guardian.

If Imperial pushes ahead as is widely expected, its terms would trump a bid tabled by private equity group CVC Capital Partners, which spearheaded a consortium that recently failed to acquire Sainsbury.

The CVC bid for Altadis was in disarray when it emerged that PAI, a private equity firm working with it, had dropped out. However, as of our print date, the Spanish journal La Gaceta de los Negocios reported that CVC plans to formalize a €12.8 bn (£8.7 bn) bid for Altadis “imminently.” The paper added that CVC had secured financial backing for the bid from various banks including Goldman Sachs, Lazard, Societe Generale, BNP Paribas, Calyon, Caja Madrid, and ING.

But the unions could be a sticking point for private equity. Altadis is in the final stages of a cost-cutting program and a takeover by private equity could lead to industrial action. ‘We’d prefer a company with an industrial model and tradition, because we know what private equity is about: investment for quick profits,’ one union representative told a Spanish news agency last month.

CVC does not plan to break up Altadis. It also plans to keep the management team intact. However, a possible exit route for the consortium could include selling parts or all of the business to either Imperial or British American Tobacco. BAT has played down speculation that it is eyeing Altadis.

Swedish Match acquires Bogaert Cigars
Stockholm — Swedish Match has agreed to purchase Bogaert Cigars, a privately held cigar company that has been producing cigars since 1937. The company is headquartered in Belgium with production facilities in Jabbeke, Belgium and Pasuruan, Indonesia. Bogaert has an annual turnover of approximately 20 MEUR, and approximately 600 employees. Yearly production volumes are currently some 270 mn cigars. The Bogaert cigar portfolio consists of machine-made cigars/cigarillos of own-brands (Bogart and Hollandia) as well as private labels. The primary markets are France, Germany, Netherlands, and Belgium, which together comprise more than 90% of company turnover. In this transaction, Swedish Match would acquire 100% of the shares in Bogaert Cigars NV (production and sales/marketing in Belgium) and PT Java Cigar Manufacturing (production in Indonesia). “We are very excited about this transaction,” said Sven Hindrikes, President and CEO of Swedish Match. “The Bogaert Cigar business fits very well with our existing organization, allows the company to expand its portfolio of products, and helps Swedish Match to increase its presence in fast growing segments in several important European markets.” Details of the purchase price have not been disclosed.

Turkey to sell tobacco firm after July election
Ankara — Turkey plans to privatize state-run tobacco firm Tekel after general elections in July, according to Turkish finance minister Kemal Unakitan.

“The tobacco firm Tekel will be privatized after the elections,” he told Reuters in an interview during a visit to Malaysia.

Turkish voters elect a new parliament on July 22 and the ruling centre-right AK Party is expected to win the most seats again, although it is unclear whether it will be able to govern alone as now or whether it will need a coalition partner.

United Kingdom
BAT pulls out of North Korea
London – British American Tobacco is pulling out of North Korea, reports The Guardian, but insisted the move had nothing to do with political pressure.

The world’s second largest cigarette group, whose brands include Lucky Strike, Kent, and Dunhill, said it had agreed to sell its 60% share in Taesong BAT, its joint venture in Pyongyang with the Korea Sogyong Chonyonmul Trading Operation, a state-owned company.

BAT is selling the stake to SUTL, a Singapore-based trading group that invests in business ventures in South East Asia. The price has not been agreed yet but will be small in relation to the group. The sale is expected to be completed later this year.

Under the terms of the agreement, BAT will license its Craven A brand to the Singaporean investment group for manufacture and sale in the North Korean domestic market.

BAT, whose deputy chairman is former chancellor Kenneth Clarke, has been operating the factory in North Korea since 2001. It opened the plant shortly before the regime was denounced by US President George W Bush as part of the “axis of evil,” and despite concerns over the country’s human rights record. A BAT spokeswoman denied yesterday that the company had come under pressure to leave North Korea. “It was a purely commercial decision,” she said.

The company has had a difficult relationship with pressure groups and the British government over its involvement with controversial regimes. In 2003 it was forced to pull out of Burma, after a year-long campaign waged by human rights groups and pressure from the UK government.

United States
Philip Morris to expand production/marketing of “Taboka”
New York — Philip Morris USA (PM USA) plans to manufacture “Taboka,” its smokeless tobacco product, at its re-opened 144,000-square-foot plant in York, Virginia, according to a state document obtained by the Daily Press of Hampton Roads, Virginia. The plant, idle since 2004, will reopen later this year.

Taboka is a spit-free tobacco pouch placed between the cheek and gum. The company began test-marketing Taboka in July 2006 in Indianapolis. It comes in two versions: Original and Taboka Green, which is a menthol version. It uses pasteurized tobacco grown domestically.

PM USA recently announce that it would test-market four flavors of a smokeless tobacco product known as snus under the Marlboro brand name in the Dallas-Fort Worth area starting in August.

Snus is widely used in Scandinavia, where numerous studies have shown that it offers smokers an alternative way to get the nicotine and taste of cigarettes with less risk of cancer. Sales of smokeless products in the US have increased at a 6% annual rate over the last five years. PM USA has been test-marketing two versions of a snus product in Indianapolis with less than stellar results, industry analysts said.

One analyst, Christopher Growe at A. G. Edwards & Sons, said last month that most retailers he surveyed in Indianapolis had stopped selling Tobaka. But PM USA said that it was learning from the test and would continue it.

In moving to attach the name of the company’s best-selling cigarette brand to snus, PM USA, is following the lead of R. J. Reynolds Tobacco, which put its Camel brand name on a snus product it is test-marketing in Austin and Portland and selling over the Internet.

Universal Corporation announces improved annual results

Richmond — Allen B. King, chairman and CEO of Universal Corporation, announced that income from continuing operations for the fourth quarter of fiscal year 2007, which ended on March 31, 2007, was $21.1 mn. That performance represented a significant improvement over last year’s results, which reflected a loss of $25.3 mn, from continuing operations. Fourth quarter earnings for fiscal year 2007 included about $15.1 mn in impairment costs, primarily related to the company’s decision to end its direct involvement in its African flue-cured growing projects.

Mr. King noted, “We are very pleased with our recovery in fiscal year 2007. While it will take time to restore our profitability to prior levels, we have made substantial progress.”

Flue-cured and burley operations earned $37.8 mn in the fourth fiscal quarter, compared to last year’s performance of $6.5 mn. Operating income for the North America segment declined slightly primarily due to lower processing volume in Canada where crops were smaller. The Other Regions segment reported significantly higher operating income for the quarter, largely due to higher shipments in South America and lower charges and improved performance in Africa.

The Other Tobacco Operations segment also showed substantial improvement for the fiscal year, but declined in the fourth quarter due to shipment delays. The dark air-cured operations benefited from higher sales volumes for wrapper and increased leaf sales. The operations also benefited from the company’s decision last year to reduce overhead and to close its Colombia dark tobacco operation. Volume attributed to the company’s 49%-owned oriental tobacco joint venture was lower for the quarter and year primarily due to shipment timing. Revenues for this segment increased by $3 mn in the quarter and $17.7 mn in the fiscal year.

State declares monopoly in tobacco industry
Ha Noi – Vietnam will create a tobacco monopoly, which will cover distribution, production, and import, Prime Minister Nguyen Tan Dung stated in a recent decree, according to the official Vietnamese News Agency.

The decision, signed on June 13, made it clear that only state-owned enterprises and joint-ventures with foreign partners, of which the state holds majority of the stake and which have been licensed for the business are allowed to manufacture tobacco products.

The state will control the distribution and consumption of cigarettes in the market and tightly manage the wholesales and retails of tobacco products, stated the decree. The Viet Nam Tobacco Corporation will play a key role in the industry while merging small-sized or loss-making enterprises, it added.

Tobacco International - June, 2007

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