Marlboro Parent Company Makes Major Changes with New Leadership to Expand into Vaping

Latest news: Since the launch of iQOS, Philip Morris stock has proven more resilient than that of other tobacco companies. On Thursday, Philip Morris announced a series of organizational changes and executive appointments that will help the long-established tobacco company transform into a “smoke-free” company.

According to a statement released by Philip Morris, the company has appointed CFO Jacek Olczak as CEO.

Going forward, he will be responsible for both traditional cigarettes and reduced-risk products, including the iQOS vaping device. Jacek Olczak joined Philip Morris in 1993 and has served as the company’s CFO since 2012.

The biggest change comes from the restructuring of the company’s regional organization, which has been expanded from 4 regions to 6. Under Philip Morris’s previous regional structure, the Asia region included all of Asia and the Australian market. This area has now been split into East Asia, responsible only for the Japanese and Korean markets, and Australia, which is responsible for Southeast Asia and Australia. The Eastern European market, which was previously part of the Middle East and Africa region, has also been separated out on its own.

“The realignment of the roles and composition of each region reflects the growing sales of our reduced-risk products,” a Philip Morris spokesperson said in an email. “These regions will pursue growth and success based on their own unique business environments and consumer markets.”

These so-called reduced-risk products refer to the iQOS electronic cigarette, which is already being sold in more than 20 countries worldwide, including parts of Europe, Japan, and Canada. Among all markets, Japan is of crucial importance to Philip Morris, which may be a major reason why the East Asia market was separated from the broader Asia region.

Japan is the world’s largest electronic cigarette market. A report by Euromonitor once stated that 96% of global electronic cigarette sales came from Japan, and it projected that Japan’s electronic cigarette market would continue to grow rapidly at a rate of 38% through 2018. Although iQOS produces no smoke and can help limit nicotine intake, it has captured more than 10% market share in Japan in just two years.

Due to limited production capacity at the iQOS factory in Malaysia, Naomi Takagi, an analyst at UBS Securities Japan, believes: “If production can keep up with demand in time, iQOS will continue to expand its market share in Japan.” Increasing production capacity and expanding iQOS awareness and market share outside Japan have therefore become key tasks facing the new CEO, Jacek Olczak.

The popularity of iQOS has shown investors the potential for this long-established tobacco company to transform itself. Since the start of 2017, Philip Morris shares have already risen 22%. Even before this announcement of organizational and executive changes, Goldman Sachs had already listed Philip Morris as a stock it “strongly recommends investors buy.”

In July, the U.S. Food and Drug Administration (FDA) announced plans to regulate nicotine levels in cigarettes, attempting to lower them to a “non-addictive” level.

Shares of Altria, the largest tobacco company in the United States, fell 10%, while Philip Morris, which owns iQOS, proved far more resilient, with its stock declining only 3%.