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New CEO Gives Imperial Tobacco Boost for Future

Under CEO Alison Cooper, Imperial Tobacco (IMT) is slowly transforming from an also-ran – albeit a highly profitable one – to a significant player and potential consolidator in the global tobacco industry. But despite recent value-creating acquisitions in the United States, we think there is more work to do, and of the three wide-moat European cigarette manufacturers we cover, we prefer the competitive positioning of Philip Morris International and British American Tobacco due to their superior scale.  We attribute a portion of Imperial's lower returns on invested capital, averaging almost 17% over the past five years, lower than peers, to the firm's capital-intensive logistics business, which is a drag on ROIC and masks the highly profitable tobacco business, with margins in line with those of its larger competitors.  Therefore we approved when last year the firm announced that it was to partially sell Logista through an initial public offering. We expect further reductions in Imperial's economic interest in Logista because we see little benefit from owning distribution assets in the tobacco industry.  Imperial's margins are driven by its footprint in super-premium categories, and it remains at a cost disadvantage to its larger rivals. Imperial's operating costs per pack were 37p in fiscal 2014, above the 27p of Philip Morris and 28p of British American.  About 40% of total operating costs in cigarette manufacturing are fixed, so scale delivers operating leverage and lowers average cost and creates a cost advantage through procurement pricing power. Although a clear number four – excluding China – in terms of cost advantages, its overlap with its larger competitors is essentially restricted to the European Union, Ukraine, and Australia. In developing markets which make up about 60% of volume, the firm competes with local players and holds a clear cost advantage through its superior scale.  Given that Imperial is at a structural disadvantage to its bigger rivals, we think a valuation discount to Philip Morris (PM) and British American (BATS) is appropriate. However, the firm has strong competitive advantages. 


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Introduction Since set up in 2009, Feellife Bioscience International Co., Ltd. has focused on the research and development and production of e-liquid, rapidly developed into the greatest global e-liquid OEM manufacturer, providing high-quality e-liquid products for many well-known e-liquid brands all over the world. With modern international standard factory, pharmaceutical grade dust-free workshop and assembly line, Feellife ensure every bottle of e-liquid to meet the requirements of high quality. The excellent quality e-liquid products has been transported to dozens of countries and regions ...

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  • New CEO Gives Imperial Tobacco Boost for Future
    New CEO Gives Imperial Tobacco Boost for Future

    Under CEO Alison Cooper, Imperial Tobacco (IMT) is slowly transforming from an also-ran – albeit a highly profitable one – to a significant player and potential consolidator in the global tobacco industry. But despite recent value-creating acquisitions in the United States, we think there is more work to do, and of the three wide-moat European cigarette manufacturers we cover, we prefer the competitive positioning of Philip Morris International and British American Tobacco due to their superior scale.  We attribute a portion of Imperial's lower returns on invested capital, averaging almost 17% over the past five years, lower than peers, to the firm's capital-intensive logistics business, which is a drag on ROIC and masks the highly profitable tobacco business, with margins in line with those of its larger competitors.  Therefore we approved when last year the firm announced that it was to partially sell Logista through an initial public offering. We expect further reductions in Imperial's economic interest in Logista because we see little benefit from owning distribution assets in the tobacco industry.  Imperial's margins are driven by its footprint in super-premium categories, and it remains at a cost disadvantage to its larger rivals. Imperial's operating costs per pack were 37p in fiscal 2014, above the 27p of Philip Morris and 28p of British American.  About 40% of total operating costs in cigarette manufacturing are fixed, so scale delivers operating leverage and lowers average cost and creates a cost advantage through procurement pricing power. Although a clear number four – excluding China – in terms of cost advantages, its overlap with its larger competitors is essentially restricted to the European Union, Ukraine, and Australia. In developing markets which make up about 60% of volume, the firm competes with local players and holds a clear cost advantage through its superior scale.  Given that Imperial is at a structural disadvantage to its bigger rivals, we think a valuation discount to Philip Morris (PM) and British American (BATS) is appropriate. However, the firm has strong competitive advantages. 

  • UK: Fontem to Axe 55 E-cigarette Jobs in Scotland
    UK: Fontem to Axe 55 E-cigarette Jobs in Scotland

    Fifty five jobs are expected to be axed as Imperial Tobacco's non-tobacco product subsidiary, Fontem Ventures, implements its plan to close its electronic cigarette warehouse and office in Edinburgh, Scotland, according to a Herald Scotland story relayed by the TMA.  The closure is to be carried out from September 30 to December 30, basically during the company's first quarter.  The Edinburgh operations are to be transferred to Amsterdam, the Netherlands, and Charlotte, North Carolina, the US. Imperial said that the 55 employees facing the axe would be offered assistance to find new employment. We deeply regret that this strategic restructuring will result in redundancies among our 55 employees in Edinburgh and appreciate the commitment, achievements and contribution of all our employees" in the city, Bart Maas, general manager of Fontem, was quoted as saying. Fontem Ventures, set up in 2013 to develop non-tobacco ventures for Imperial, used the Edinburgh site as a base to distribute electronic cigarettes. The Herald reported that, in November 2013, Fontem acquired vapor technologies and patents from Dragonite International. It acquired the blu e-cig brand in July 2015 and owns the e-cig brands Jai and Puritane. 

  • Zimbabwe: Tobacco Export Earnings up 150pc
    Zimbabwe: Tobacco Export Earnings up 150pc

    Tobacco export earnings have increased by over 150 percent to $322 million since the beginning of the year, latest statistics from the Tobacco Industry and Marketing Board (TIMB) show. During the comparable period last year, Zimbabwe earned $211 million from 45.8 million kilogrammes of flue-cured tobacco exported to different parts of the world at an average price of $4,60 per kg. Since the beginning of the year 58.9 million kgs of the golden leaf have been exported to 50 countries at an average price of $5,60 per kg. Zimbabwe's major consumer of the golden leaf, China, has since January spent $176.7 million importing 20.8 million kgs at an average price of $8,48 per kg. South Africa is on second position importing 7.6 million kgs of tobacco valued at $22.1 million at an average price of $2,92 a kg. Indonesia, Belgium and Russia were also among the top five major consumers of Zimbabwe's flue-cured tobacco. Indonesia was on third position having so far spent $20.5 million on 4.8 million kgs at an average price of $4,19 a kg. Belgium and Russia have so far spent $18.7 million and $12.1 million importing 4.96 million kgs and 3.89 million kgs respectively. Sudan, Malawi, Mauritius, Kenya, Morocco, Botswana, Malaysia, the United Arab Emirates, Jordan, Hong Kong, Italy, the United Kingdom, Vietnam and Brazil were some of the countries consuming tobacco from Zimbabwe. An economic commentator Peter Mhaka said taking into cognisance of the earnings Zimbabwe was realising every year fromthe tobacco sector, there is a need for stakeholders in the agriculture sector to promote value addition of the crop. Given the trend on tobacco export earnings, stakeholders in the tobacco sector should seriously consider value addition so that the country benefits more. Value addition of the crop is important as it buttresses the objectives of Zim-Asset," he said. The tobacco sector has since the adoption of a multi-currency system in 2009 improved liquidity in the economy that has been characterised by liquidity constraints. Last year, Zimbabwe earned more than $1 billion through tobacco export receipts. 

  • Lebanese Tobacco Farmers Urge Government to Increase Prices for Export Losses
    Lebanese Tobacco Farmers Urge Government to Increase Prices for Export Losses

    Tobacco farmers in Akkar called upon the government to support the sector by allowing them to expand their harvested areas while increasing the number of kgs per permit from 330 kg to 500 kg. We also ask the government to increase the price of 1 kg from LL10,000 to LL12,000 to help farmers in covering their living expenses," said Abdel Hamid Sakr, head of the syndicate of tobacco farmers in the north. Sakr said farmers in Akkar rely on tobacco to make up for their losses after the halt in the exports of other agricultural products due to the closure of Nassib border crossing in April. Nassib was the last functioning border crossing between Jordan and Syria. "Tobacco farming is our only hope for the time being but it costs us a lot because it needs special pesticides and the cost of irrigation is too high in addition to the elevated cost of labor," said farmer Youssef Ahmed. 

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Since set up in 2009, Feellife Bioscience International Co., Ltd. has focused on the research and development and production of e-liquid, rapidly developed into the greatest global e-liquid OEM manufacturer, providing high-quality e-liquid products for many well-known e-liquid brands all over the world.

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