When one of the world’s largest tobacco groups claims that it wants to “let the world quit smoking”, it will inevitably be suspected, so Philip Morris International spent 1 billion pounds to acquire a British company that makes asthma inhalers and caused a sensation. Not surprising.

The market capitalization of this New York-listed group is $155 billion. Pharmaceutical business Vectura Earlier this month, as part of its “natural evolution into a broader healthcare company.” Nevertheless, the British government has pledged to monitor the transaction closely for public interest reasons.

This is one of a series of acquisitions by large tobacco companies to achieve diversification beyond their traditional businesses–from e-cigarettes and e-cigarettes to oral nicotine pouch products–but Philip Morris can rightly claim to have taken the lead in broadening its business. Vision. Since 2008, it has invested US$8 billion to support its smoke-free product strategy.

“This is a very bold move by the owners of Marlboro,” Emmanuel Gbagbo, the group’s chief financial officer, told the Financial Times. “We believe, and we will contribute to the phasing out of cigarettes,” he added.

However, activists questioned how much an industry that has been accused of dark gold lobbying and sponsoring problematic academic research for decades should be trusted when it expresses an interest in health.

“This is not the first time Philip Morris has claimed that it cares about the health of consumers,” said Matt Myers, chairman of the Tobacco Free Kids Campaign, a US charity.

He acknowledged that the organization has gone further than most competitors in promoting the use of low-risk alternatives, but argued that the company still sells cigarettes in large numbers in many low- and middle-income countries, and currently accounts for about 80% of smokers worldwide. “Many of these actions are inconsistent with words,” he said.

Philip Morris accused organizations such as the Tobacco Free Kids Movement of delaying the transition of cigarettes by lobbying to block the sale of e-cigarettes and other alternatives.

Addictive dividend yield

The tobacco industry has been facing suspicion since there was evidence that the tobacco industry lied to the public about the dangers of smoking decades ago.

According to British American Tobacco, the global tobacco industry is worth about 818 billion U.S. dollars and sells to nearly one-fifth of the world’s people. At the same time, according to the World Health Organization, smoking, including second-hand smoke, causes approximately 8 million deaths each year. In comparison, the number of Covid-19 deaths recorded to date is approximately 4.1 million.

Marlboro Advertising, 1957

Marlboro advertisement in 1957. Marlboro manufacturer Philip Morris says it has linked executive compensation to its new mission of “no smoking world” © Granger/Shutterstock

The market is split About the attractiveness of the industry. Many investors stripped tobacco from their portfolios years ago, but others were attracted by the huge cash flow that an addictive product could generate. Cigarette manufacturers have long been known for their amazing dividend yields-Philip Morris is 5%, Altria and British American Tobacco are above 7%.

Recently, Philip Morris tried to expand its appeal by catering to investors’ sustainable development trends. CEO Jacek Olczak hosted a webcast on the subject last month. He told attendees that his company has linked executive compensation to its new mission to “make the world quit smoking” by phasing out cigarettes. The company also argued that it is more beneficial for health-conscious investors to cooperate with tobacco companies than to divest them.

“From a philosophical point of view, I don’t believe that rejection can solve any problems,” Olzac’s predecessor Andre Carranzopoulos told the Financial Times last year: “Participation is the only way to change human behavior.”

The annual percentage change bar chart shows that with the introduction of PMI heated tobacco, Japan’s combustibles sales have fallen

However, investors continue to move in the opposite direction. ABN Amro decided to stop investing in tobacco stocks in 2018. ABN AMRO’s business and human rights consultant Ruben Zandvliet told the Financial Times that exclusion is not the default choice when dealing with controversial companies, but “for tobacco, we think this is the only option because the negative effects are too extreme. “.

“There is no way to participate successfully, because it means forcing them to stop selling tobacco and completely reform their business model,” he added, calling Philip Morris’ bid for Vectura “the most cynical form of vertical integration I can imagine. “.

Gail Hurley, a sustainable finance consultant at the lobby group Tobacco Free Portfolios, said, “It is important to remember that new products like e-cigarettes are not harmless,” even if they are not as harmful as cigarettes.

Zandvliet stated that the bank has never evaluated the financial impact of its decision because the client did not ask it to do so.

Philip Morris' manufacturing plant in Neuchâtel, Switzerland

Philip Morris factory in Switzerland.Nearly a quarter of the group’s $28.7 billion in net income last year came from its risk-reducing investment portfolio, which includes e-cigarettes © Philip Morris

Despite the financial loss, others still insisted on the decision to leave. Calpers is the largest public pension fund in the United States. It was spun off from the tobacco business in 2000. Although a 2018 study showed that it had lost about $3 billion in returns, it still insisted on its decision.

Doubts about a zero-smoke world

In the promotion of its “beyond nicotine” strategy, Philip Morris has been careful to emphasize to investors that it believes products that replace cigarettes may be equally profitable, or even more.

Nearly a quarter of the group’s $28.7 billion in net income last year came from its risk reduction portfolio, which includes IQOS, a cigarette-like device that can heat rather than burn tobacco. This makes it an industry leader: British American Tobacco’s less harmful products account for slightly more than 5% of sales, and the Empire brand is less than 3%.

Rae Maile, an analyst at Panmure, said that Philip Morris’s “price-to-earnings ratio is much higher than any other product in the industry.” “In this regard, investors are voting with their feet.”

“The investment case surrounding IQOS has attracted the imagination of investors,” he said, adding that IQOS will take time to realize profits after its launch in 2014, “but this year Philip Morris has upgraded its profit guidance… and announced an announcement. A stock repurchase plan-now we not only have a story, but also a delivery.”

An IQOS electronic cigarette

The electronic cigarette IQOS produced by Philip Morris © Fabrice Coffrini/AFP via Getty

But few other tobacco companies are as optimistic as Philip Morris about the possibility of no cigarettes in the world. Philip Morris expressed support for the British government’s goal of eliminating almost all smoking by 2030.

Skeptics argue that even if today’s market leaders stop selling cigarettes, others will stop selling.

“Hopefully one day we will no longer be regarded as the tobacco industry and tobacco companies,” British American Tobacco Chief Marketing Officer Kingsley Wheaton told the Financial Times. “Now, the day British American Tobacco sells its last cigarette, will it be the last cigarette sold in the world? I doubt it is.”

Japan Tobacco International, which produces Old Holborn tobacco and camel cigarettes, did not specify the proportion of non-cigarette product sales, but stated that “we see [cigarettes]In the foreseeable future, heated tobacco products will coexist with other risk-reducing products.”

The London-listed Empire brand behind Winston and Davidoff cigarettes took a completely different approach. In January, its new CEO Stefan Bomhard announced that the group Turn your attention back to cigarettes, That it has “over-focused” on alternatives. Last week, it announced the reorganization of its e-cigarette research facility in Liverpool, putting half of the work there at risk.

Line chart of stock price readjustment, local currency shows that Philip Morris outperforms competitors

Who will become the new consumer?

Critics of the industry have another concern: If existing smokers switch to cigarette alternatives, new consumers are needed.

Moira Gilchrist, vice president of strategy and science communications at Philip Morris, asked the same question: “What happens when you exhaust all adult smokers and switch to low-risk products?”

Her answer lies in the company’s research on CBD, a non-psychoactive extract from the cannabis plant, and Fertin Pharma, a nicotine bag and lozenge company it recently acquired. She said one way is for Philip Morris to sell products that promote “sleep, energy and calm.”

“I think we are showing the world our path after smoking products,” she added: “We are very careful to ensure that we reach the right audience.”

Deborah Arnott, the chief executive of the British lobby group Action Smoking and Health, still does not believe that the tobacco industry can successfully get rid of nicotine products.

“Philip Morris came up with the idea that it’s all about changing smokers, not making the new generation addicted,” she said. “But in the long run, it will only work if the new generation becomes addicted.”


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