Philip Morris International Inc. (PMI) in 2021 reduced the shipment of its products in Ukraine by 3.3% compared to 2020 due to an increase in excise tax on these products, followed by its rise in price and an increase in the volume of illegal trade in cigarettes.
According to the PMI report, in the fourth quarter of 2021, shipments of its products to Ukraine decreased by 7.4% compared to October-December 2020, mainly due to the overall contraction of the Ukrainian tobacco market, which was partially offset by the growth of tobacco products intended for use in heat-not-burn devices.
The overall contraction of the tobacco market in Ukraine in 2021 was 9.8% compared to 2020, mainly due to an increase in product prices caused by an increase in the excise tax and in illegal trade in cigarettes.
According to the report, in general, in Eastern Europe (including Russia) in 2021, the volume of shipments of tobacco products did not change compared to 2020 and amounted to 114.35 billion units, and in the fourth quarter of last year it decreased by 4.3% – to 27.99 billion units
As reported, Philip Morris International, which includes PrJSC Philip Morris Ukraine, is one of the world’s largest manufacturers of tobacco products. It produces cigarettes in more than 50 factories and sells them in 180 countries.
The company has been operating in Ukraine for more than 20 years, owns a factory in Kharkiv region. More than 1,300 people work at the company’s enterprises.
Philip Morris tobacco company announced the beginning of recycling electronic devices that the company sells in Ukraine: IQOS, IQOS VEEV and lil.
“Users can return the old device at any IQOS Space store. From there, the electronics are sent for recycling to Philip Morris’s international partner Flextronics International Kft. (Hungary),” the company said in a statement.
According to it, about 608,000 products have already been received for recycling from Ukraine to Hungary, in particular devices, holders and chargers for devices that the company has collected thanks to exchange programs.
The company indicated that it is possible to hand over used sticks, pods, cartridges and even electronic cigarettes from other manufacturers for recycling; their utilization is provided by the Ukrainian partner of Philip Morris – Waste Management Center LLC.
Philip Morris International previously announced its goal to recycle 100% of its smokeless devices by 2025 and reduce plastic waste from its products by 50%. In 2020, the company achieved 84% recycling of IQOS devices (percentage of the weight of each device).
The growth of the heated tobacco products market in 2021 has stopped after its growth by 80% in 2020. In the future the market will decline due to an increase in the excise tax on heated tobacco products by 320% from January 1, 2021, Managing Director for Ukraine of international tobacco company Philip Morris Kostas Salvaras has told Interfax-Ukraine.
“In 2020, the heated tobacco products market, according to our estimates, grew by 80%, but after the excise tax was increased by 320% from January 1, 2021 and subsequently the price grew, this indicator first slowed down a lot, and then practically stopped. According to our data, retail prices on tobacco sticks since the beginning of the year [2021] have grown by an average of UAH 13. This is not enough to compensate for even half of the increase in excise duty,” he said.
According to Philip Morris, the state budget receipts from the sale of heated tobacco products in the fourth quarter of 2021 will decrease by 60-70% compared to the same period in 2020. In addition, over the specified period, the company intends to reduce the purchase of excise duty stamps for heated tobacco products by nearly 67%.
“In addition, we have already recorded in Ukraine the first deliveries of smuggled heated tobacco products from neighboring countries, where their prices are lower. On the example of cigarettes, we see: when taxes on nicotine-containing goods grow too sharply, the level of illegal trade begins to rise rapidly. Today, 15.9% of the cigarette market is in the shadows. For comparison: in 2017 this figure was only 2.3%,” Salvaras said.
According to him, in 2021, given the current level of illegal trade in tobacco products, the state will receive less than UAH 13.2 billion in tax receipts.
Philip Morris said that an increase in the illegal trade in tobacco products may also occur in the heated tobacco products category, which will lead to a loss of government income, and smokers will not be able to switch from cigarettes to less harmful tobacco heating systems.
“For example: IQOS, our tobacco heating system, can reduce the amount of pollutants entering the smoker’s body by 90-95% compared to cigarettes. As explained by the FDA after authorization of IQOS sales on the U.S. market as a product with a modified risk, it can have a positive effect on public health in general,” the managing director of Philip Morris said.
According to the company, it proposed to the Ukrainian parliament to reconsider plans to raise excise taxes, delaying the next jump in prices for heating tobacco in the coming years.
“This is a necessary step that will allow consumers and businesses to “digest” the 320% increase and adapt to new conditions. It will also stimulate the attraction of additional investments in this area, which is important both for the country’s economy and for public health – after all, the authorities should be interested in motivating smokers to look for a less harmful alternative to cigarettes,” Salvaras said.
The Pivnichny (Northern) Economic Court of Appeal upheld an appeal of CJSC Philip Morris Ukraine and Philip Morris Sales and Distribution LLC in case No. 910/17723/19, canceled the decision of the Kyiv Economic Court dated August 5, 2020, and canceled the fines for a total amount of UAH 1.18 billion imposed on them in 2019 by the Antimonopoly Committee of Ukraine (AMCU). According to the court’s decision, promulgated in the unified public register of court rulings, the Pivnichny Economic Court of Appeal ruled to invalidate paragraphs 1 and 11 of AMCU decision No. 697-r dated October 10, 2019 that concern the PMI group of companies, as well as invalidate paragraphs 3 and 4 of this solution.
In addition, the court ruled to collect UAH 14,400 of court fee from the AMCU in favor of OJSC Philip Morris Ukraine (the settlement of Dokuchayevske, Kharkiv region) and Philip Morris Sales and Distribution LLC (Kyiv).
The Pivnichny Economic Court of Appeal also ruled to return the materials of case No. 910/17723/19 to the Economic Court of the city of Kyiv.
The decision of the appellate instance entered into force from the date of its awarding.
As reported, the AMCU in October 2019 imposed a fine of UAH 6.5 billion on four tobacco producers and distributor Tedis Ukraine for anticompetitive concerted actions. Later, Philip Morris Ukraine paid a fine to the AMCU in the total amount of more than UAH 1.18 billion in order to avoid the accrual of penalties, but in February 2020, PMI submitted a notification to the Ministry of Justice of Ukraine that Ukraine had violated a number of obligations under investment protection agreements.
The companies of the Philip Morris International group on December 21, 2020 also filed a claim about bilateral investment arbitration against the government of Ukraine with the International Centre for Settlement of Investment Disputes (Washington, DC, the United States) in connection with the unfair, in their opinion, decision of the Antimonopoly Committee of Ukraine (AMCU) to fine them UAH 1.2 billion in the case of the wholesale distributor Tedis Ukraine.
The Pivnichny (Northern) Economic Court of Appeal upheld an appeal of CJSC Philip Morris Ukraine and Philip Morris Sales and Distribution LLC in case No. 910/17723/19, canceled the decision of the Kyiv Economic Court dated August 5, 2020, and canceled the fines for a total amount of UAH 1.18 billion imposed on them in 2019 by the Antimonopoly Committee of Ukraine (AMCU). According to the court’s decision, promulgated in the unified public register of court rulings, the Pivnichny Economic Court of Appeal ruled to invalidate paragraphs 1 and 11 of AMCU decision No. 697-r dated October 10, 2019 that concern the PMI group of companies, as well as invalidate paragraphs 3 and 4 of this solution.
In addition, the court ruled to collect UAH 14,400 of court fee from the AMCU in favor of OJSC Philip Morris Ukraine (the settlement of Dokuchayevske, Kharkiv region) and Philip Morris Sales and Distribution LLC (Kyiv).
The Pivnichny Economic Court of Appeal also ruled to return the materials of case No. 910/17723/19 to the Economic Court of the city of Kyiv.
The decision of the appellate instance entered into force from the date of its awarding.
As reported, the AMCU in October 2019 imposed a fine of UAH 6.5 billion on four tobacco producers and distributor Tedis Ukraine for anticompetitive concerted actions. Later, Philip Morris Ukraine paid a fine to the AMCU in the total amount of more than UAH 1.18 billion in order to avoid the accrual of penalties, but in February 2020, PMI submitted a notification to the Ministry of Justice of Ukraine that Ukraine had violated a number of obligations under investment protection agreements.
The companies of the Philip Morris International group on December 21, 2020 also filed a claim about bilateral investment arbitration against the government of Ukraine with the International Centre for Settlement of Investment Disputes (Washington, DC, the United States) in connection with the unfair, in their opinion, decision of the Antimonopoly Committee of Ukraine (AMCU) to fine them UAH 1.2 billion in the case of the wholesale distributor Tedis Ukraine.
PrJSC Philip Morris Ukraine, one of the largest tobacco companies in Ukraine, in 2020 increased its net profit by 5% compared to 2019, to UAH 2.73 billion.
According to the company’s statement in the information disclosure system of the National Securities and Stock Market Commission, its assets for the year increased by 18%, to UAH 11.51 billion, and retained earnings by 55.5%, to UAH 7.79 billion.
Total debtor indebtedness over the year increased by 28.4%, to UAH 8.63 billion.
It is also indicated that at an annual meeting of shareholders on April 27, it is planned to obtain approval for the company to carry out significant transactions with an aggregate value of up to UAH 40 billion, which until April 30, 2022 can be used by the company to conduct business. In addition, during the meeting, it is planned to approve the main directions of the company’s activities, which include the further increase in production capacity and the expansion of the company’s product range.
Philip Morris International, which includes PrJSC Philip Morris Ukraine, is one of the world’s largest manufacturers of tobacco products. It produces cigarettes in more than 50 factories and sells them in 180 countries.
The company has been operating in Ukraine for over 20 years, owns a factory in Kharkiv region, and employs over 1,300 people.
The company reduced the shipment of cigarettes in Ukraine in 2020 by 4.3% compared to 2019 due to a general market decline, which was partially offset by an increase in the market share of heated tobacco products.
