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June, 2009

Bulgartabac goes on sale, raises prices
SOFIA - Some reports state that Bulgartabac Holding may be privatized soon as a package including its two remaining factories in Sofia and Blagoevgrad, and a smaller plant in the village of Yasen close to Pleven.

The way through which the Bulgarian tobacco monopoly will be privatized - through the Bulgarian Stock Exchange or by seeking a strategic investor - is said to become clear. At the end of 2008, the Bulgarian Parliament voted to cross Bulgartabac out of the list of state-owned companies that cannot be privatized. In the summer of 2008, Bulgartabac already sold two of its plants - in Plovdiv and in Stara Zagora - through the Stock Exchange.

In other Bulgartabac news, the prices of some of the company’s most popular cigarette brands went up this month.

The prices of the brands Eva and Sredets will increase by BGN0.20 to 0.30, but the Victory brand will maintain its price of BGN3.40 until the end of 2009. The prices of all Bulgarian cigarette brands went up April 1 due to the excise increase. The manufacturers then established the so-called "intermediate" prices to deal with market competition.

Bulgartabac owns 60% of the cigarette market in the country. The other cigarette makers: Plovdiv Cigarette factory and Sluntse Stara Zagora announced they will maintain the current prices, but added that they keep the option to raise them at any time over market changes.

Scandinavian Tobacco Group acquires Norwegian brands
COPENHAGEN - Scandinavian Tobacco Group A/S (STG) (previously Skandinavisk Tobakskompagni A/S) has acquired several Norwegian tobacco brands in the RYO and cigarette segments from British American Tobacco (BAT).

With the acquisition, Scandinavian Tobacco Group will gain an approximate 30% share of the large Norwegian market for rolling tobacco which will now include Tiedemanns Rød, Tiedemanns Gul, and Tiedemanns Lys, as well as Teddy, Mento, and Mentolett.

The acquisition is a consequence of the EU Commission's approval of the sale to BAT of STG's cigarette and certain RYO activities in summer 2008. As a condition of approval, the Commission required that BAT dispose of the predominant part of the RYO activities in Norway, in order to prevent BAT from gaining too strong a position on the Norwegian market. The deal is thus effectively a repurchase of part of the activities STG sold to BAT in summer 2008.

Likewise as a consequence of the Commission's requirements, BAT sold the Petterøe’s brand in November 2008 to PMI, and with the sale of Tiedemanns to STG, BAT has now complied with the Commission's requirements regarding the sell-off in Norway.

Tiedemanns' rolling tobacco is already being produced under contract at STG's factory in Holstebro, where production will also be carried out henceforth. BAT Norway will handle distribution on the Norwegian market of the Tiedemanns products and the other acquired brands.

BAT puts 'less toxic' tobacco to the test
HAMBURG - British American Tobacco is recruiting 250 volunteers in Germany to test experimental cigarettes designed to produce less toxic smoke than conventional products, according to a report by The Financial Times.

The smokers' biological reactions will be analyzed through a battery of scientific tests. The study in Hamburg is believed to be the first modern clinical trial of tobacco treated to be safer when smoked. BAT's long-term business plan is to produce cigarettes that can be marketed as less likely to cause disease, with solid evidence to support the claim.

BAT has made three "prototype combustible products" for the German trial. They incorporate tobacco that has been processed in several ways to generate fewer toxicants as it burns, including treatment with enzymes similar to those in biological washing powders. The prototypes also have new filters, with activated charcoal and resins to absorb harmful chemicals.

Momentum Pharma Services, a contract research organization that normally works for drug companies, is carrying out the £6m analysis. It has been registered on an independent clinical trials database - a first for BAT - and results will be published in a scientific journal next year.

Although the tobacco industry has been investigating cigarette safety for decades, science has only now reached a stage at which researchers can discover how to make smoking genuinely safer, said David O'Reilly, BAT head of public health and scientific affairs.

"There are 100 or so toxicants in cigarette smoke and more than 30 significant diseases associated with smoking," he said.

JTI sales in Russia gain as taxes lift rivals' prices
MOSCOW - Japan Tobacco Inc., the world's third-largest publicly traded cigarette maker, said Russian sales are rising as taxes force up the prices of budget competitors to its Winston and LD brands.

Cigarette volumes in Russia climbed 1.5% from January to March, Executive Vice President Masakazu Shimizu said at a press conference in London. "People are starting to trade up from the value segment," as prices rise, he said. "When people who used to belong to higher pricing products are trading down, we have the expansive presence in the mid-pricing zone to catch them."

Taxes on tobacco are being increased incrementally until 2011 in Russia, where 42% of the population smokes, according to Japan Tobacco. Tax currently accounts for around one-third of the retail price on filtered cigarettes in the country. Japan Tobacco includes Russia in its Rest of the World unit, which accounted for 17% of sales last fiscal year.

Lorillard has a great first quarter
GREENSBORO - Lorillard Inc. - the US’ oldest tobacco company - saw its firstquarter profit rise 5.7%, as retails were higher and costs lower, according to an Associated Press report.

The makers of Newport cigarettes saw its profit grow to $184 mn, or $1.09 per share, in the three months ended March 31, up from $174 mn, or $1 a share, a year ago, according to the report.

Sales fell less than 1% to $917 mn on lower volumes, which were partially offset by higher prices. Sales were down from $921 mn a year ago.

"We are pleased with our results for the quarter despite the extraordinary inventory adjustments that occurred related to the Federal Excise Tax increase and the impact of the current macroeconomic pressures," Chief Executive Martin Orlowsky said in a statement.

For the quarter, Lorillard said it saw a 7.6% decrease in its wholesale shipment volumes to 7.909 bn cigarettes, with declines of 10.6% on its Newport brand. However, with the decrease in US smokers overall, Newport's retail market share increased 0.2 to 10.1% compared with the year-ago period.

Tobacco International - June, 2009

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