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September, 2007


Altria to spin off Philip Morris International

New York - Altria Group plans to spin off its Philip Morris International (PMI) tobacco unit, a move designed to give the overseas maker of Marlboros and other cigarette brands more freedom to pursue sales growth in emerging markets.

The recently announced plans would leave Altria with its much smaller domestic tobacco business that nonetheless still ranks as the biggest in the US. The company's board announced it would finalize its decision and give the exact timing of the spin-off at its board meeting on Jan. 30.

Altria Chief Executive Louis C. Camilleri will become the new CEO of Philip Morris International, once the spin-off is completed. PMI's current CEO Andre Calantzopoulos has agreed to become its chief operating officer and president.

Succeeding Camilleri at Altria would be Michael E. Szymanczyk, the current CEO of Philip Morris USA (PM USA). The company plans to close its New York City headquarters as part of the spin-off plans. Altria's offices will be moved to Richmond, Virginia, where PM USA is based, along with some jobs. PMI will maintain a small office in New York. About 400 of 600 current New York employees will lose their jobs, Camilleri said.

A spin-off of PMI would be the latest step in a restructuring process started in March when New York-based Altria Group Inc. spun off its majority stake in Kraft Foods Inc. Executives at the international cigarette company's Lausanne, Switzerland, headquarters oversee operations in more than 160 countries.

Sales at PMI are more than double those at the US unit, reports Forbes, with 2006 revenues at $48.26 bn compared to PM USA's $18.47 bn. Last year, PMI sold 831 bn cigarettes, making it the world's largest nongovernment tobacco company in terms of volume. It holds 15.4% of the global market and its growth is expected to continue at a healthy clip.

Market stable
Buenos Aires - The total cigarette market in Argentina was stable in the second quarter of 2007.

PMI’s shipment volume increased 2.2%, it said in its second quarter report, and its market share increased 1.7% to a record 68%. The Philip Morris brand gained 2 share points to 31.6%, while Marlboro’s share rose 1.9 points to 21.2%.

BAT, meanwhile, said in its quarterly report that its profit in Argentina was up as prices increased after the severe price competition of last year. Volumes were lower, however. - (Bickers)

Marlboros to make debut
Dhaka - The world’s leading tobacco manufacturer Philip Morris has tied up with a Bangladeshi firm to sell Marlboro cigarettes in the local market, company officials recently said.

The Marlboros will be manufactured and distributed by the Dhaka Tobacco Company, the company’s Chief Executive officer Sheikh Bashir Uddin told reporters.

“This agreement will benefit both companies,” Matteo Pelligrini, president of Philip Morris International, Asia, said in a statement.

Marlboro’s entry into the Bangladesh market is likely to challenge the grip of British American Tobacco on high-priced brands, though Uddin declined to give a specific price per packet.

Dhaka Tobacco, the largest tobacco company in Bangladesh, produced 20 bn cigarettes in 2006 for an estimated market share of about 40%. But the company, with annual sales of around $300 mn dominates here only in terms of the low- and medium-priced brands.

Bangladesh is one of the most profitable tobacco markets in the world, with annual sales of around $1bn dollars. More than 40% of Bangladeshi men smoke, according to industry figures.

Philip Morris controlled 15.4% of the global cigarette market in 2006. The US giant’s brands led by Marlboro and L&M are sold in more than 160 countries.

Bond Street comes to Bulgaria
Sofia - The Philip Morris International affiliate in Bulgaria has launched its Bond Street cigarette brand in the Bulgarian market, according to reports in the Bulgarian media. Bond Street will be available in three varieties and aimed at the lower end of the market. It is being sold for about two leva a packet. It has also launched the Marlboro line extension, Marlboro Silver. Philip Morris International re-entered the Bulgarian market just a year ago and now has 7% of the Bulgarian market, the reports said. - (Bickers)

Bulgarian tobacco privatization continues
Sofia - The biggest, state-owned Bulgaria tobacco producer Bulgartabac Holding (BH) finally sold its company Gotse Delchev Tabac (GDT) on August 8 after several attempts in the beginning of 2007.

The majority stake, 78.27%, was bought by the Blagoevgrad company Prestige Business OOD (PB) at a closed mixed auction at the Bulgarian Stock Exchange (BSE) in Sofia for 2.281 mn leva (3.03 leva a share).

PB’s core activity is selling office equipment, furniture and stationery. After the acquisition of GDT, PB said one of its first tasks will be to cover GDT’s losses. The company registered negative financial results in the past years because of the high cost of processed tobacco and and currency differences. The factory has lost its market position in the past months. It posted a loss of 0.2 mn leva in the first half of 2007 because of constantly decreasing sales.

British American Tobacco moves to new premises
Valletta - British American Tobacco (BAT) Malta has moved to new premises in Qormi.

“We moved to new modern premises in a central location, following the Central Cigarette factory closure,” general manager Ronnie Abela said. “This is a new beginning for us, however British American Tobacco has been in Malta for a hundred years.”

BAT Malta was set up in January this year to import and distribute tobacco products in Malta. It is the successor company to Central Cigarette Company Limited that used to operate from Bulebel, Zejtun.

It is the second largest international tobacco company in the world and has operated in Malta since 1907 through various local subsidiary companies. - (Bickers)

PMI to acquire additional 30% stake in Mexican tobacco business
Philip Morris International Inc. (PMI) recently announced that it has reached an agreement in principle to acquire an additional 30% stake in its Mexican tobacco business from its joint venture partner, Grupo Carso, S.A.B. de C.V.

PMI currently holds a 50% stake in its Mexican tobacco business and this transaction would bring PMI’s stake to 80%. Grupo Carso would retain a 20% stake in the business as part of this reorganization. The acquisition is part of PMI’s strategy to pursue business growth both organically and through business development opportunities.

The transaction has a value of approximately US$1.1 bn and is expected to be completed later this year, subject to execution of definitive agreements and customary regulatory approvals.

Total cigarette industry volume in Mexico was approximately 48 bn units in 2006. PMI’s flagship brand, Marlboro, had a 47.8% share and PMI’s total market share in Mexico was 63.5% in 2006.

An 8.5% decline
Mexico City - In Mexico, the total cigarette market declined 8.5% in the second quarter of 2007. Philip Morris International attributed this primarily to the timing of the Easter holiday in March 2007 versus April 2006, as well as tax-driven price increases and unfavorable inventory movements. In the second quarter of 2007, PMI shipment volume was down 5.9%, due to the lower total market.

However, PMI market share reached a new record of 64.2%, up 1.4 points. Marlboro, which grew 1.0 share point to 47.8%, provided much of the momentum, aided by the national introduction of Marlboro Wides in May 2007. There were also continued strong performances by Benson & Hedges and Delicados.

BAT’s volume in Mexico suffered following excise-driven price increases early in 2007. Together with lower market share and the impact of exchange, the result was lower profit. - (Bickers)

South Korea
KT&G buys stake in financial firm Shinhan
Seoul - KT&G, South Korea’s top tobacco company, recently reported it bought a small stake in second-largest domestic financial firm Shinhan Financial Group for US$213 mn, eyeing investment gains.

KT&G said in a filing to the Korea Exchange that it acquired 3.5 mn shares, or a 0.9% of outstanding common shares, in Shinhan Financial at 56,200 won per share. The deal value was 196.7 bn won (US$212.5 mn).

Consumption decline slowed
Madrid - The Spanish market has achieved stability and declined less than 1% in the second quarter of 2007, Philip Morris International said in its recent quarterly report. - (Bickers)

Thailand turns out the tobacco, before taxes take toll
Bangkok - Thailand Tobacco Monopoly has received unusually high orders ahead of the Cabinet’s resolution to raise excise duty on cigarettes. Spokesman Prapatsorn Pongpanpisand recently announced production had risen to 150 mn cigarettes a day from the usual figure of 105 mn. About 1.5 bn cigarettes, or 75 mn packs, with an estimated value of Bt2.88 bn have been stocked.

Philip Morris (Thailand) also witnessed an increase in orders, from 1.5–2 mn packs a day to 4.5–5 mn packs during the period.

United States
Swedish Match acquires US company
Bethlehem - Swedish Match has agreed to acquire Cigars International (CI), a privately held US company that specializes in the direct marketing and sales of hand-made and machine-made premium cigars and related accessories.

CI, which employs about 100 people, had sales of about SEK400 mn during the 12 months to the end of June. The company, headquartered in Bethlehem, Pennsylvania, was said by SM in a note posted on its website to utilize a coordinated, multi-channel direct marketing strategy that includes an internet presence through its www.cigarsinternational.com and www.cigarbid.com websites. The company offered an attractive product mix that included Macanudo, Romeo y Julieta, and Arturo Fuente, along with a strong mix of proprietary branded cigars and cigars sold exclusively by CI.

“We are very pleased about the growth opportunities that this transaction represents,” President and CEO, Sven Hindrikes, was quoted as saying. “The Cigars International business provides Swedish Match with a new marketing channel in the fast growing direct marketing segment. The immediate access to an extensive customer base allows Swedish Match to actively compete and gain a strong position in the US direct marketing premium cigar segment and expand our portfolio of products in the global premium cigar market.”

CI’s founder and CEO, Keith Meier, and vice-president and COO, John De Marco, will continue in their roles, while the company will be operated as a complementary business to SM’s existing US operations, Swedish Match North America and General Cigar Holdings.

SM said the transaction, which is subject to regulatory approval and the terms of which have not been disclosed, was expected to be finalized during the third quarter of this year.

An all-Virginia blend of Marlboro
Richmond - Good news for American flue-cured growers? Philip Morris USA will introduce a new extension of Marlboro next month made entirely from U.S.-grown flue-cured tobacco and called Marlboro Virginia Blend. The blend, according to PM, will have “a distinctive crisp and mellow taste” and will provide “a new flavor experience.” There was no immediate indication whether the new blend would be marketed in neighboring Canada where all-flue-cured cigarettes are the popular choice. The Virginia blend is often referred to as the British blend. - (Bickers)

Tobacco International - September, 2007

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