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November, 2007

SMOKE Magazine - Cigars, Pipes, and life's other desires

Will new all-Virginia Marlboro burn bright?

New York — Marlboro Virginia Blend, the new Marlboro line extension, created a bit of a buzz when it was rolled out in the fall.

There was considerable speculation that the flavor of this British-type blend, made entirely of flue-cured Virginia (a.k.a. Bright) tobacco, might appeal to a segment of the American public.

Observers pointed to the popularity of the Natural American Spirit (NAS) brand, which is believed to be largely flue-cured, and conjectured that the sort of smoker to whom the NAS cigarettes appeal might gravitate to Virginia Blend because of the rich flavor of this type of tobacco.

It is not believed that any other brand currently sold in the US is a Virginia blend (at least this writer was unable to locate any).

An all-flue-cured blend would be expected to contain few additives, since flue-cured does not absorb additives well. But while NAS advertises its additive-free status, that apparently is not part of the Marlboro Virginia Blend promotion at this time.

Instead, as the legend on the blend’s pack suggests, “Enjoy the crisp, mellow taste and easy finish.”

A spokesman for Philip Morris USA said the leaf for the new blend would come predominantly from the American states Virginia and North Carolina. “The blend is uniquely driven around the flavor of US flue-cured,” he said.

What does this cigarette taste like? The Associated Content website ran a review late in September that gave some insight into the flavor of Virginia Blend.

In the review, James Tigerlobo White wrote, “To my delight, the flavor and inhalation were both smooth and mild. My lungs were not arrested by the typical asperity that normally impedes the smoking experience.

“Marlboro Virginia Blends satisfy the full flavor expectation and, also, mellow out the roughness,” said White, who said, “Chain smokers [should] rejoice” at the arrival of the blend.

The Virginia Blend pack departs significantly from the standard Marlboro pack in design. The top and bottom are a yellowish color that perhaps represents the color of Bright leaf in the field at peak ripeness. The rest of the pack is white, meaning the inverted V so characteristic of the standard Marlboro pack is completely missing. The pack includes the Marlboro coat of arms, but its prominence is greatly reduced, as it appears only as a “ghost” image behind the black Marlboro logo. There is some additional writing in smaller red type. Curiously, the location for the tax stamp is placed at the edge of the top surface rather than in the middle.

Are more line extensions coming for Marlboro? That seems a safe prediction. But the PMUSA spokesman said that though the extensions have consistently gained market share for the brand, he was unable to say if any other such extensions loom in the near future.

There have been plenty already this year. Marlboro Smooth Menthol Kings were introduced in March, and a 100mm version was rolled out at the same time as Virginia Blend. (Virginia Blend comes in Kings and 100s.) Marlboro Snus and Marlboro Moist Smokeless were also introduced earlier this year. - (Bickers)

Shanghai Tobacco Group begins transformation of production lines
Shanghai — Shanghai Tobacco Group—one of the largest Chinese tobacco manufacturers designated by the State Tobacco Monopoly Administration (STMA)—has recently started the project of large-scale technical transformation of the production lines of its famous Chunghwa brand cigarettes, to significantly enlarge their production capacity.

On September 14, the STMA—the regulator of China’s tobacco industry—approved an official document to approve the project of large-scale technical transformation of the production lines of Chunghwa, which have been in operation at Shanghai Cigarette Factory, which is the manufacturing arm of Shanghai Tobacco Group.

The technical transformation project has been the largest of its kind for Shanghai Tobacco Group in its history so far. When technically transformed, the production lines of Chunghwa will be capable of producing cut tobacco for making 50 bn cigarettes (1 mn cases) and also producing 30 bn cigarettes (600,000 cases) annually, and have enough for future upgrade.

According to Shanghai Tobacco Group, the technical transformation project is aimed at substantively improving the production lines of Chunghwa and enabling them to produce cigarettes with unique characteristics of the Chunghwa brand; further improving the quality of Chunghwa brand cigarettes, accelerating the application of new and high technologies in production; and “further enlarging the production capacity of Chunghuwa, significantly increasing its competitiveness and turning it into a superior Chinese cigarette brand.”

Wuhan Tobacco Group sees sharp increase in sales
Wuhan City — At a recent Chinese tobacco conference, the Wuhan Tobacco Group—a large Chinese tobacco manufacturer designated by the STMA—announced it had generated over 10 bn yuan (US$1.31 bn) in taxes and profits in the first nine months of 2007, a sharp increase of 42% year-on-year. In particular, the sales volume of the famous Yellow Crane Tower cigarette brand rose by 65% year-on-year and the Red Golden Dragon 33% year-on-year.

Sources with Wuhan Tobacco Group said that the group has managed to improve the production process of competitive brands some 100 times and improve the blending formulas of products some 1,000 times. So far in 2007, Wuhan Tobacco Group has filed applications for 64 patents, in addition to the 139 applications for patents filed over past years.

South Africa
PMI to market Chesterfield again
Johannesburg — Philip Morris International (PMI) has taken its premium brand, Chesterfield, back from British American Tobacco SA (BATSA) as part of its strategy to reinvest in the country and to pursue growth both organically and through business development opportunities.

The South African journal Business Day said in early October that the two companies jointly announced the end of BATSA’s license to produce Chesterfield that had been in effect since PMI shut its local office due to sanctions against apartheid in 1981.

The agreement gave BATSA exclusive rights to make, distribute and sell Chesterfield in South Africa, Angola, Botswana, Lesotho, Mozambique, Namibia, Swaziland, Zambia, and Zimbabwe.

PMI returned to SA in 2003 and established Philip Morris SA, which will now assume responsibility for Chesterfield in the region, a spokesman said.

SA is the fourth-largest consumer of the Chesterfield brand, a PMI spokesman said, behind the Ukraine, Spain, and Austria.

BATSA reportedly holds more than 70% of the domestic SA tobacco market. It owned five of SA’s top 10 selling cigarette brands: Peter Stuyvesant, Rothmans, Benson & Hedges, Courtleigh, and Dunhill. PMI’s Chesterfield and Marlboro are also in the top 10. - (Bickers)

South Korea
Q3 earnings of KT&G rise 3.3%
Seoul — KT&G Corp., South Korea’s leading tobacco company, has said its third-quarter earnings rose 3.3% from a year earlier on increased sales of high-priced cigarettes.

Net profit reached 198.5 bn won (US$216.3 mn) in the July-September period, compared with 192 bn won a year earlier, KT&G said in a regulatory filing.

Revenue inched up 0.6% year-on-year to 634.4 bn won and operating profit increased 2.7% to 233.1 bn won, it added.

United Kingdom
American purchase pays off
Bristol — Commonwealth Brands, the newest addition to the Imperial Tobacco Group stable, got a good review in the parent company’s quarterly report.

“A good six-month contribution from our US acquisition, Commonwealth Brands, is in line with our expectations and has helped to improve the Group’s overall operating margin,” the report said. - (Bickers)

European Commission approves acquisition of Altadis by Imperial
Bristol — The European Commission announced its decision to approve Imperial Tobacco Group PLC’s proposed acquisition of Altadis, S.A. Gareth Davis, Chief Executive, noted: “We are pleased that the European Commission has approved our proposed acquisition of Altadis, subject to the enlarged group divesting a small number of fine cut tobacco, pipe tobacco and cigar brands in certain European markets, including Interval fine cut tobacco in France. We always anticipated some divestments and, in the context of the overall combined portfolios, these will not materially adversely affect the operational and financial performance of the enlarged group.”

Imperial Tobacco envisages receiving approval of its proposed offer of ?50 for each Altadis share from the Comisión Nacional del Mercado de Valores, the Spanish Securities and Exchange Commission, soon. The Offer acceptance period will commence after the CNMV’s approval is received.

United States
Altria profit surpasses estimates on higher prices
New York — Altria Group Inc., said third-quarter profit rose more than analysts anticipated on higher cigarette prices and sales of the top-selling Marlboro brand, spurring the company to raise its forecast for the year, reports Bloomberg.

Profit adjusted for Altria’s spinoff of Kraft Foods Inc. increased 19% to $2.63 bn, beating the average estimate of analysts by 7 cents. Revenue rose 8.9% to $19.2 bn, the New York-based Altria said in a recent statement.

Altria’s Philip Morris USA unit raised cigarette prices and reduced discounts on Marlboro and Virginia Slims. Its share of US smokers increased to a record 50.6%, led by Marlboro. In international markets, Altria expanded through an acquisition in Pakistan and the introduction of Marlboro Wides in Mexico and clove-flavored Marlboros in Indonesia.

As workplace and restaurant smoking bans crimp demand, Philip Morris USA is expanding Marlboro into snuff, a category that’s led by UST Inc., the maker of the Skoal and Copenhagen brands, and growing 6% to 7% a year, Judy Hong, a Goldman Sachs Group Inc. analyst said.

The moves by the US and overseas units signal their strategies once they’re operating independently. Altria Chief Executive Officer Louis Camilleri told investors in August the company will spin off Lausanne, Switzerland-based Philip Morris International.

Tobacco International - November, 2007
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