ITC’s cigarette business kicked the growth habit in fiscal 2011

Are smokers finally kicking the habit? Cigarettes remain ITC’s flagship business, but failed to deliver the customary boost to sales and profits in the March quarter.
During the quarter, cigarettes contributed to 68% of its consumer product sales, 43% of overall sales and, more importantly, 82% of profit before interest and tax. But the business grew at a relatively sedate pace of just under 13% year-on-year (y-o-y) during the March quarter, and around 14% in the full year.

The year that went by saw the full impact of price hikes taken to counter the 17% increase in excise duties in the Union budget of 2010-11. The industry was spared any excise duty hikes in this year’s budget, giving rise to hope of better sales growth in future. While price hikes have dampened growth, the March quarter cigarette sales also reflect a high base effect, as sales in the year-ago period had risen by 18%. Some of this may have been due to stocking up prior to March, when the excise duty hike was implemented.

The cigarette segment’s profitability improved, however, as the company implemented price hikes and launched new products. Profit margin improved 2 percentage points y-o-y in the March 2011 quarter to 53%.

ITC’s focus in 2010-11 in its non-cigarettes consumer business was to cut losses, which fell 14% to Rs. 68 crore in the March quarter, while sales rose by 17%. Competition has increased with firms such as P&G (Procter and Gamble Co.) and Hindustan Unilever Ltd upping the stakes for growing their share of the market. If ITC can grow sales faster in fiscal 2012, even as it cuts losses, it will send a positive signal to shareholders.

Among its other main businesses, hotels turned in a good performance with profits rising at a higher pace than its sales growth of 17%. Paper and paperboard had a subdued quarter with both sales and profits growing by 14-15%.

ITC’s overall sales rose by 14% during the quarter, and operating profit rose by around 17.5% during the quarter; but a near 70% increase in other income, only a 7% increase in depreciation, and lower tax incidence contributed to a 24% growth in its net profit.

Its share trades at around 29 times its fiscal 2011 consolidated earnings per share. With full year operating profit growth at 17%, and net profit growth of 20%, ITC will have to deliver higher growth to justify its valuation and investor faith.

Shareholders will be hoping its cigarette business rises to the occasion in fiscal 2012. If it does not, its shares are likely to underperform during the year. They fell by 2% on Friday, after the results were announced.

Feds charge 11 in NY contraband cigarette case

Federal prosecutors in New York say 11 people have been indicted on charges of conspiring to sell untaxed cigarettes.
The U.S. attorney's office says some of the cigarettes came from the Poospatuck Indian reservation on Long Island, where the state does not impose a tax.
The prosecutor says federal agents seized more than 3,000 cartons of cigarettes and $135,000 in the operation.
The indictment announced Wednesday says the defendants would obtain up to 1,000 or more cartons at a time. It says they stored the cigarettes at rented locations in Yonkers, Mount Vernon and elsewhere. They allegedly hired workers and rented vehicles to distribute them and even paid bail for those workers who were arrested.

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Cigarette tax could create dangerous atmosphere for smuggling tobacco

In a bid to keep money flowing for the state construction program, Illinois Senate President John Cullerton has floated a plan to raise the state cigarette tax to $1.98 per pack.
Fine, say some nonsmokers. We don't buy cigarettes, so we won't feel the pinch. But what if the hike resulted in more criminal behavior in Illinois, including the Metro East area?

A recent study by a Michigan research institute forecasts that a $1 per pack increase could result in rampant, large-scale cigarette smuggling. Across the country, the opportunity by criminals to profit from trafficking tobacco has led to violence against people and police, including small-scale retail cigarette theft, murder-for-hire schemes, the growth of a counterfeit cigarette market and even the financing of Middle East terrorist organizations.

Research shows smuggling occurs at higher rates when government increases prices -- usually through a tax -- and when the increased prices are significantly higher than in neighboring states.
In 2009, a modest 5.9 percent of all cigarettes consumed in Illinois were smuggled in from other states, according to the Mackinac Center for Public Policy. By contrast, Michigan's smuggling rate is more than 26 percent of total consumption -- the 10th-highest smuggling rank in the nation. Why? One reason is that Michigan levies a $2 per pack tax on cigarettes, which is higher than neighboring states.
Through 2009, Illinois ranked 30th in the nation when it came to smuggling. However, the state's smuggling rate could leap to 26.3 percent if the $1 cigarette tax increase passed, and Illinois would displace Michigan as having the 10th-highest smuggling rate in America.
Should Illinois' tax go to $2 a pack, Missouri's 17-cents per pack tobacco tax would make it worth criminals' time to up their smuggling into the Prairie State.
As with hard drugs, smuggling can lead to violence. And too often, blameless bystanders can get caught up in the mix.

In 2008, an elderly New York couple was accidentally killed in a high-speed chase between Canadian police and a suspected cigarette smuggler. In 2002, a would-be cigarette thief rammed a Michigan police cruiser, dragging the officer down the street. YouTube has plenty of videos showing thieves breaking into stores to steal cash and cigarettes.
Cigarette truck hijackings also have long been a problem. Mafia Don John Gotti's first major arrest was for stealing a trailer of cigarettes. In Michigan, several hijackings led Detroit's last remaining wholesaler to hire armed security teams.
In July 2009, the Bureau of Alcohol, Tobacco, Firearms and Explosives confiscated 12 million counterfeit cigarettes in Virginia alone. That same year, agents arrested two men for attempting to swap cocaine for 600,000 untaxed cigarettes. Perhaps worse, profits from contraband trafficking have been funneled to anti-American terrorist groups like Hezbollah in Lebanon.

Illinois has porous borders. Traffickers and consumers will find a way to acquire the products they want at the best price. Shortly after Florida hiked its tax, a prison guard was caught smuggling cigarettes for distribution to inmates. It is na've to think that the state's security apparatus could dramatically dampen the massive new inflow of illegal cigarettes.
Some believe a $1-per-pack cigarette tax hike would generate about $377 million in annual revenue. While a steeper cigarette tax could raise state coffers, smuggling alone could limit the take to about $250 million -- just two-thirds of what is expected.
Illinois lawmakers might crave new sources of revenue to keep the state capital program moving, but new spending should not come at the expense of public safety.

Plain cigarette packs won't work: company

British American Tobacco Australia (BATA) has attacked the federal government's cigarette plain packaging plans, saying there's no proof it will reduce smoking rates.

BATA chief executive David Crow said confidential documents the company had obtained under Freedom of Information (FOI) showed there was no evidence to back its experiment.

"What proof does the government have that their plain-packaging experiment will work?" Mr Crow said in a statement on Monday.
"Can the government give a 100 per cent guarantee that taxpayers' dollars won't be wasted on legal fees and compensation."

One of the documents showed there was no evidence to support the government's plain-packaging plan, the company said.

The document was a Senate Estimates Committee question on notice asking the Department of Health what the estimated reduction in smoking rates would be from the plain packaging measure.

The department couldn't answer, the company said.

The department responded: "this figure has not been calculated. As no other countries have implemented plain packaging for tobacco products, the actual impact on smoking behaviour is not able to be calculated at this stage", the company said.

BATA said another confidential briefing note indicated the government had budgeted $4.8 million to implement the legislation, but the figure did not include legal costs, estimated to be more than $10 million.

The note also said the figure did not include possible damages associated with defending a legal challenge to plain packaging from the industry.

"We don't want to see a situation where taxpayer dollars are being wasted," Mr Crow said.

"Unfortunately, this suggests the government has been planning a court case all along and is pushing us down the legal path."

He also warned that organised crime could profit from the plain-packaging plan, especially since the prevalence of illegal tobacco in Australia had grown 150 per cent over the last three years.

"When all cigarette packs look the same and lose their trademarks and distinguishing features, counterfeiters will have a field day mass-producing packets to smuggle into Australia."

Mr Crow said BATA was undertaking a media campaign to "draw attention to the potential unintended consequences plain packaging could have".

On Monday, the federal government clarified the colour of its proposed plain-packaging for cigarettes at the request of olive growers.

"I need to publicly say to the olive growers that we don't think that their products are in any way connected with the very unattractive product of tobacco," federal Health Minister Nicola Roxon told reporters on Monday.

When the legislation was announced earlier this year, the government said the plain packaging would be olive green, but olive growers objected.

The colour rumpus is just one of the issues the government will be taking into consideration before enforcing plain packaging for tobacco products later this year.

"There are lots of things in the legislation that people have views about ... but, ultimately, the fight we face with the tobacco industry is they don't want to see this measure be successful," she said.

"There is fundamentally no good news from the tobacco industry.

"They sell a product that kills people ... We want to make sure that the tobacco industry can't use a package to try to attract new smokers to their product."

British American Tobacco Australia is expected to launch its national media campaign on Tuesday.

Cigarettes returning to NASCAR

The product that once helped propel NASCAR from a regional southern sport to National prominence is returning.

The RJ Reynolds tobacco company through its Winston cigarette branding in NASCAR was once seen everywhere in the sport from the title sponsorship to the iconic red and white colors. As smoking began falling out of the popular culture however, the advertising for cigarettes changed and in 2004, RJ Reynolds tobacco left the sport and was replaced by Sprint, a telecommunications company.

Cigarettes may now be returning to the sport of NASCAR on a limited basis.

A manufacturer of electronic cigarettes, Green Smoke, will sponsor T.J. Bell in the 52nd running of the Coca-Cola 600 on Sunday, May 29th at Charlotte Motor Speedway through its Blu Cigs brand.
Green Smoke's sponsorship of Bell will mark its first NASCAR endeavor, as well as the first NASCAR sponsorship by any organization within the electronic cigarette industry.

"One of the world's signature televised sporting events, NASCAR's Coca-Cola 600 is the ideal global platform to showcase the partnership of Green Smoke and T.J. Bell, a talented NASCAR driver who is making the move to NASCAR's premiere division, the Sprint Cup Series," states Steven Arnold, VP of Marketing & Customer Satisfaction for Green Smoke, an industry leader in providing an authentic, alternative smoking experience. “

The electronic cigarette industry has been controversial with the FDA citing in a report last year that no company has yet submitted any clinical trial results for the product. In a report the FDA said the devices turn nicotine, which is highly addictive, and other chemicals into a vapor that is inhaled by the user. The State of California tried to ban the product unsuccessfully although the industry agreed to ensure the products weren’t marketed to minors.

Images released in Soquel marijuana collective firebombing

Surveillance images were released Monday of a marijuana collective whose lobby was torched by two men with a Molotov cocktail.
A security video shot just outside the Capitola Healing Collective at 3088 Winkle Ave. showed two men in hooded sweatshirts and bandannas over their faces approach the shop about 2:15 a.m., the Sheriff's Office reported.
One man who wore a dark sweatshirt shattered a glass door with a hammer, said Deputy April Skalland. The other man - who wore a light-colored sweatshirt with a design on it - lit a soaked rag in a bottle and threw it in the hole in the door, said Skalland.
The men then ran toward Winkle Farm Park, Skalland said.
Two chairs and a table in the lobby burst into flames, and the walls and floor of the shop were scorched, authorities said. Several surveillance cameras inside the shop also showed the destruction, and footage was released from those angles.
Chris Morganelli, the shop's co-owner, said the video would be useful even though the suspects were disguised.
"You can see their faces and body movements," Morganelli said.
Collective members and employees worked to clean up the damage on Monday, and Morganelli said they expected to reopen the shop on Thursday or later in the week.
A detective visited the shop Monday, and leaders of the collective offered at $7,500 reward for information leading to an arrest, Morganelli said.
David Thompson, an attorney with the Santa Cruz-based Cannabis Healing Association, posted a photo of the charred lobby on the association's website. He said patients who saw the damage at the shop began to help clean it up.
"I would like to see Santa Cruz come together and support the patients," Thompson said.
The shop had about $45,000 to $50,000 in damage, owners said.
The Saturday morning fire tripped alarms in the building, and authorities notified Morganelli and co-owner Brianna Kovach. The owners arrived and started to put the fire out with a garden hose before Central firefighters arrived and doused the blaze.
Firefighters had to cut out part of the ceiling and a wall as they fought the fire, said Battalion Chief Owen Miller.
Sheriff's deputies asked anyone with information to call investigations at 454-2311 or the anonymous tip line at 454 2847.
Surveillance videos can be seen at santacruzsentinel.com.