Business news from Ukraine

PHILIP MORRIS CEO: WAR MADE LOGISTICS DIFFICULT FOR US

The armed invasion of the Russian Federation into Ukraine had a strong impact on the operations of PJSC “Philip Morris Ukraine”, the tobacco company had the most difficulties with logistics, since its factory and the largest warehouses of products are located in the Kharkiv and Kiev regions, where active battles are now being fought with Russian invaders.

“You can imagine the difficulty we faced when it comes to logistics and delivery of the product. It took us two weeks to resume deliveries in 12 regions and the product is still quickly disappearing from the shelves. Some of our partners stop paying on contracts, so we have to to cover this at the expense of our reserves,” said Maxim Barabash, CEO of the company, in a blitz interview with the Interfax-Ukraine agency on Wednesday.

Philip Morris was able to reopen ten branded Iqos smoke-free food stores across the country in the past week, he said, and plans to open two more this week.

Barabash stressed that during the war with the Russian Federation, the company focuses on the safety of its employees.

“Those who work in stores and warehouses have an air raid shelter nearby. The rest of the teams work remotely, helping both in commercial and volunteer projects, for example, our colleagues with evacuation and delivery of humanitarian aid,” the CEO explained.

He recalled that Philip Morris International Inc. (PMI) in March took concrete steps to wind down the work of its branch in the aggressor country Russia: it stopped the planned investments and withdrew the current ones, namely the installation of a new line for the production of tobacco sticks for Iqos Iluma worth $150 million. In addition, the company canceled the launch of new commercial projects in 2022 and removed a number of cigarette brands from sales in Russia

“Currently, the company is working on options for a proper exit from the Russian market,” Barabash said about the corporation’s plans in the Russian Federation.

Philip Morris International, which includes PJSC “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 the Kharkiv region. More than 1.3 thousand people work at the company’s enterprises.

PJSC “Philip Morris Ukraine” in 2020 increased its net profit by 5% compared to 2019 – up to UAH 2.73 billion, assets increased by 18% over the year – up to UAH 11.51 billion, and retained earnings – by 55, 5%, up to UAH 7.79 billion.

PHILIP MORRIS STOPS INVESTMENT IN RUSSIA

Philip Morris International Inc. (PMI) is suspending planned investments in Russia, including new product launches, investments in innovation, as well as commercial and manufacturing activities, the tobacco concern said in a statement.

PMI has also stepped up plans to reduce manufacturing operations in Russia amid supply chain disruptions and changing regulations, the company said.

“Given the situation, the board of directors and management have decided to halt all of our planned investments in Russia and to step up plans to reduce our production operations. We will support our employees in Russia during this period, including by continuing to pay their wages,” PMI CEO Jacek Olczak said in the statement.

PMI’s Russian business in 2021 accounted for nearly 10% of cigarette and heated tobacco sales, and around 6% of PMI’s global revenue.

The company started operating in Russia in 1992, opening a representative office in the country. PMI has more than 3,200 employees in Russia.

PMI owns a tobacco factory in the country’s Leningrad Region, CJSC Philip Morris Izhora; and it owns Philip Morris Sales and Marketing that distributes cigarettes through a branch network in more than 100 Russian cities. Last autumn, PMI decided to close a factory in the Krasnodar Territory amid a shrinking tobacco market.

The brand portfolio includes Marlboro, L&M, Bond Street, Parliament, and others. The company also produces tobacco sticks for its Iqos tobacco heating systems.

PMI’s share in the Russian tobacco market is 31.7% according to data for the fourth quarter 2022.

PHILIP MORRIS SENDS OVER 500,000 PACKS OF CIGARETTES TO UKRAINIAN ARMY

The U.S. tobacco company Philip Morris handed over 500,000 packs of cigarettes to the Ukrainian army, MP from the Servant of the People party Danylo Hetmantsev has said.
“Philip Morris donated 500,000 packs of cigarettes to help the army! Lviv Tobacco Factory and JT International Ukraine also handed over cigarettes to the military today in all regions where there are logistics warehouses,” Hetmantsev wrote in Telegram.

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PHILIP MORRIS SHIPMENT OF PRODUCTS GOES DOWN BY 3% IN 2021

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.

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PHILIP MORRIS STARTS ELECTRONIC RECYCLING

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).

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PHILIP MORRIS HEAD: GROWTH OF MARKET FOR HEATED TOBACCO PRODUCTS STALLS NOW DUE TO INCREASE IN EXCISE DUTY

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.

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