ANTI-ILLICIT CIGARETTE TRADE INITITIAVE BULGARIA Spark Finance 4.3% CT Hubei Industrial 2.7% JTI 2.0% Unknown 1.6% Imperial Tobacco 1.3% Ray Tobacco 0.9% Monus D.O.O. 0.8% Kaanee

ANTI-ILLICIT CIGARETTE TRADE INITITIAVE BULGARIA

1

RESULTS FROM EMPTY CIGARETTES PACKS SURVEY - Q2, 2014

Non-Domestic Cigarettes Survey Q2 2014

2

Research Profile

Coverage: Main sample – 14 largest cities

Additional Focus sample – 12 mid-size cities

Empty packs collected: Main sample – 5,000

Additional Focus sample – 1,500

Field work: Apr 17 – May 13, 2014

(First Wave - 2014)

Methodology: Collection of empty packs from streets and public

bins, any brand and variant. The reported results are

calculated based on number of pieces corresponding

to the packs (20s and 10s)

Research agency: AC Nielsen – Independent international market

research agency

Survey conducted by ACNielsen – following assignment from BAT, BT, ITG, JTI, PMI

Identical research profile as the surveys conducted in the period 2010 –2013

3

Main Sample

Main Sample: 14 cities > 71,000 citizens / 41.2% coverage of total population



4

Focus SampleNon-Domestic Cigarettes Survey Q2 2014


Additional Focus Sample: 12 towns mostly in border areas (ranging

from 19,400 to 70,800 inhabitants); 6.8% population coverage, not proportional

to city size or geographical distribution

5

Coverage

Source: Population - 2011 census estimate (National Statistical Institute Bulgaria and www.citypopulation.de, 2013 )

Main Sample – 14 cities Focus Sample – 12 cities


City PopulationSample

(packs)

Sofia 1,202,761 1,980

Plovdiv 338,153 557

Varna 334,870 551

Burgas 200,271 330

Ruse 149,642 246

Stara Zagora 138,272 228

Pleven 106,954 176

Sliven 91,620 151

Dobric 91,030 150

Sumen 80,855 133

Pernik 80,191 132

Haskovo 76,397 126

Jambol 74,132 122

Pazardzik 71,979 118

Total sample 3,037,127 5,000

Total population 7,364,570

Coverage 41.2%

City PopulationSample

(packs)

Blagoevgrad 70,881 150

Vidin 48,071 150

Kjustendil 44,532 150

Montana 44,532 150

Silistra 35,607 100

Razgrad 33,880 100

Sandanski 26,255 100

Lom 22,507 100

Svishtov 30,157 100

Veliko Tarnovo 68,783 150

Gabrovo 58,950 150

Svilengrad 19,416 100

Total Focus sample 503,572 1,500

Coverage 6.80%


6

Limitations

The survey’s design and purpose is to focus on trends rather than incidence at a single point in time

The survey does not cover homes, other private places and workplaces

The survey does not cover rural areas

In the survey results, cigarette brands are allocated to companies based on the trademarks ™ registration, as per available public TM databases (www.tmview.com) at the time of the preparation of this presentation on the survey results and is validated by the participating companies.

Information on counterfeit packs is received only by the participating companies following their analysis and feedback on their brands.

Non-Domestic Cigarettes Survey Q2, 2014


http://www.tmview.com/

7

Domestic81.2%

Non-domesti

c18.8%

April 2013

Base: Total sample

(5,000 packs)

RESULT: Main Sample - Non-Domestic Incidence


Domestic80.2%

Non-domestic

19.8%


Domestic80.0%

Non-domestic

20.0%

October 2013

April-May 2014

Non-domestic packs represent 20% of the total main sample in

Q2’14 compared to 19.8% in Apr’13 and 18.8% in Oct’13

8

Main Sample – Non-Domestic Incidence Evolution

Note: All historic non-domestic data has been recalculated using the sticks equivalent of the packs collected, due to the existence of packs with 10 sticks.



14.3% 14.2%17.6%

34.5%

23.3%

15.3%18.0% 18.8%

19.8% 20.0%

0%

10%

20%

30%

40%

2007 2008 2009 May2010

May2011

May2012

Oct2012

Apr2013

Oct2013

Apr2014

Non-Domestic Incidence increases for the 4th time for a period of 2 years,

which is a clear indication of the growing unfavourable trend of illicit

trade level in Bulgaria.

9

Main Sample – Non-Domestic Incidence



Participating / Non-participating companies


13.1%8.2% 7.1%

5.0% 5.2% 4.9% 3.0% 4.0% 3.5%

21.4%

14.1% 16.2%

15.6%

10.1%13.0% 15.7%

15.8% 16.5%

34.5%

22.3% 23.3%

20.5%

15.3%

18.0% 18.8% 19.8% 20.0%

0%

50%

2010 Q2(98,251)…

2010 Q4(95,406)…

2011 Q2(94,732)…

2011 Q4(92,474)…

2012 Q2(91,521)…

2012 Q4(91,281)…

2013 Q2(91,948)…

2013 Q4(93,380)…

2014 Q2(94,546)…

Non-participating companies

Participating companies

N (sticks):

(packs):

The share of total NDI associated with companies not participating in this survey remains

considerably higher than of the combined NDI of the 5 AITI companies

10

Main Sample – Origin of Non-Domestic Cigarettes

Growing tendency of DF labeled cigarettes reaching highest level since 2010.

• Unspecified origin – cigarettes packs with no specific market or Duty Free labeling

• Duty Free – cigarette packs with Duty Free labeling

Non-Domestic Cigarettes Survey O2 2014


18.1%

9.7% 10.1% 9.8%7.5%

11.7%13.4%

14.8%16.1%

11.0%

9.3% 8.8%6.9%

4.1%

2.7%

2.6%2.0%

0.9%

0.5%

0.7%0.8%

0.9%

0.0%0.6%

2.0%

1.7% 1.8%

1.1%

1.6%

0.9%

0.6% 0.6%0.3%

2.5%

1.7%2.0%

2.8%

2.1%

2.6%1.4%

2.2%1.3%

34.5%

22.3%23.3%

20.5%

15.3%

18.0%18.8%

19.8% 20.0%

0%

35%

2010 Q2(98,251)(5,000)

2010 Q4(95,406)(5,000)

2011 Q2(94,732)(5,000)

2011 Q4(92,474)(5,000)

2012 Q2(91,521)(5,000)

2012 Q4(91,281)(5,000)

2013 Q2(91,948)(5,000)

2013 Q4(93,380)(5,000)

2014 Q2(94,546)(5,000)

Others

Serbia

UAE

Benin

Unspecified

Duty Free

N (sticks):

(packs):

11

Main Sample – Non-Domestic Cigarettes – Share by brand family & company

Packs bearing brands registered as TMs for the Bulgarian market by Finansconsult EOOD represent

more than 1/3 of the total number of non-domestic packs

Non-Domestic Cigarettes Survey –Q2 2013


Turquoise9.6%

Karelia8.2%

Don7.8%

Ome7.3%

Famous7.3%

Diva7.1%Velvet

6.7%

Palladium5.6%

Merilyn5.0%

Victory4.0%

Eva3.9%

Assos3.3%

Corsair2.0%

Marble1.8%

My Way1.7%

MM1.5%

Jim1.4%

Pall Mall0.7%

Gracia0.7%

Marlboro0.7%

LD0.6%

The King0.6%

Others**12.5%

R.C. Rodlan Corp. N.V. 24.2%

Karelia Tobacco 15.5%

Finansconsult 17.6%

Spark Finance 6.7%

Finansconsult (manuf. KT)* 5.6%

Bulgartabac 9.4%

PMI 4.0%

Hongta 1.8%

Mediterranean Star 1.4%

JTI 0.6%

BAT 0.7%

Others:

European Tobacco, Monus, Explosal,

Von Eicken, Unknown, etc., incl. from

all of the above listed companies

12.5%

12

Main Sample – Non-Domestic Cigarettes – Share by company

• R.C. RODLAN CORPORATION N.V. & KARELIA TOBACCO –

increase to close to the levels in April 2013

• FINANSCONSULT – decrease vs. Oct 2013

R.C. Rodlan Corporation N.V.

27.4%

Karelia Tobacco18.2%

Finansconsult (manufacturer Kings Tobacco)

8.5%

Finansconsult7.5%

Bulgartabac6.6%

PMI5.8%

Explosal5.0%

Spark Finance4.3%

CT Hubei Industrial

2.7%

JTI2.0%

Unknown1.6%

Imperial Tobacco1.3%

Ray Tobacco0.9%

Monus D.O.O.0.8%

Kaanee / London Tobacco

0.7%

KT&G0.7%

Hongta0.6%

BAT0.5%

Others5.0%

April 2013

Oct 2013

The share of the non-domestic packs of each company out of the total non-domestic sample of packs collected

Non-Domestic Cigarettes Survey – Q2 2014

Finansconsult25.2%

Finansconsult (manufacturer Kings

Tobacco)10.1%

R.C. Rodlan Corporation N.V.

10.0%PMI 9.6%

Karelia Tobacco8.9%

Spark Finance7.4%

Bulgartabac6.0%

Explosal4.5%

Hongta3.4%

Unknown2.4%

Monus D.O.O.1.8%

BAT1.8%

Imperial Tobacco1.5%

JTI1.2%

PM USA1.1%

Others5.1%


R.C. Rodlan Corp. N.V.,

24.2%

Karelia Tobacco, 15.5%

Finansconsult, 17.6%

Spark Finance, 6.7%

Finansconsult (manuf. KT)*,

5.6%

Bulgartabac, 9.4%

PMI, 4.0%

Hongta, 1.8%Mediterranean Star, 1.4%

JTI, 0.6%

BAT, 0.7%Others, 12.5%

Apr - May 2014

13

Main Sample – Non-Domestic Cigarettes – Share by brand

• Rodlan Corp. N.V. brands (Turquoise, Famous, Palladiumq May

Way) appear again noticeably after the decline in Oct 2013,

currently close to the levels in April 2013 – clear sign that the

phenomenon is alive.

• Finansconsult brands – change of levels from one brand to

another: example - decrease of Corsair on the account of Don

• Karelia’s Ome brand appears at very high level for the first time

• Spark Finance (Velvet – increase; Bohemi – unnoticeable)

Karelia16.0%

My Way11.6%

Palladium8.7%

Turquoise5.1%

Raquel5.0%

Eva4.8%

Merilyn4.8%

Corsair3.9%

RGD2.7%

The King2.6%

Velvet2.2%

3 Bohemi Nouveau

2.1%

Assos2.1%

Torro2.1%

Famous2.0%

Ome1.7%

LD1.7%

Victory1.3%

Bestman1.2%

Don1.0%

Muratti1.0% Others

16.6%

April 2013

Oct 2013


Corsair12.1%

Diva6.7%

Karelia6.5%

Bestman5.5%

Velvet5.4%

Palladium4.5%

Merilyn3.5%

Raquel3.4%

Torro3.4%

My Way3.4%

Eva3.0%

Assos2.8%

Marble2.7%

3 Bohemi Nouveau1.9%

Muratti1.9%

President1.8%

Ome1.6%

Gracia1.5%

Don1.5%

Famous1.4%

Victory1.4%

Gold Classic1.2%

MM1.2%

Monus1.2%

Marlboro1.1%

The King1.1%

Marlboro (PM USA)1.1% Philip Morris

1.0%Eve1.0%

Others**15.1%


Turquoise9.6%

Karelia8.2%

Don7.8%

Ome7.3%

Famous7.3%

Diva7.1%Velvet

6.7%

Palladium5.6%

Merilyn5.0%

Victory4.0%

Eva3.9%

Assos3.3%

Corsair2.0%

Marble1.8%

My Way1.7%

MM1.5%

Jim1.4%

Pall Mall0.7%

Gracia0.7%

Marlboro0.7%

LD0.6%

The King0.6%

Others**12.5%

Apr-May 2014

14

Main Sample – Non-Domestic Incidence by City


Red marking indicates NDI above main sample average – 20 %



- Ome (Karelia Tobacco): Duty Free

- Dom (Finansconsult): Duty Free

- Karelia (Karelia Tobacco): Duty Free

- Diva (Finansconsult): Duty Free

- Palladium (Rodlan Corp.): Duty Free

- Merilyn (Finansconsult/KT): Duty Free

- Velvet (Spark Finance): Duty Free

- Turquoise (Rodlan Corp.): Duty Free

- Diva (Finansconsult): Duty Free

- Karelia (Karelia Tobacco): Duty Free

- Jim (Mediterranean Star.): Duty Free

- Victory (Bulgartabac): Benin, UAE


- Don (Finansconsult): Duty Free

- Assos (PMI): Duty Free

- Ome (Karelia Tobacco): Duty Free

70.0%

45.5%

43.0%

37.8%

20.0%

18.7%

17.2%

15.9%

13.8%

13.5%

13.5%

7.0%

5.9%

4.0%

2.0%

Sliven

Pazardzik

Plovdiv

Haskovo

Total Sample

Varna

Ruse

Burgas

Sofia

Pleven

Stara Zagora

Pernik

Jambol

Sumen

Dobric

15

Main Sample – Non-Domestic Incidence by City



• Overall tendency by city remains similar to previous waves

• Sliven (70%), Pazardjik (45.5%), Plovdiv (43%) – record high

• Haskovo – decline, but remains high

• Jambol – considerable decrease 21% to 6%


Non-domestic Incidence*

CitySample

2014Q22010 Q2 2010 Q4 2011 Q2 2011 Q4 2012 Q2 2012 Q4 2013 Q2 2013 Q4 2014 Q2

Sliven 151 32.6% 10.2% 19.7% 20.0% 35.2% 39.5% 36.6% 25.7% 70.0%

Pazardzik 118 56.8% 27.0% 32.9% 31.3% 30.1% 28.8% 25.3% 38.5% 45.5%

Plovdiv 557 44.6% 33.2% 24.7% 24.3% 22.0% 12.9% 11.0% 24.7% 43.0%

Haskovo 126 47.3% 46.7% 61.6% 44.2% 31.6% 36.7% 36.9% 44.4% 37.8%

Varna 551 29.6% 20.5% 24.6% 14.7% 7.7% 16.7% 18.0% 25.2% 18.7%

Ruse 246 34.6% 20.9% 23.2% 32.3% 5.1% 13.0% 15.8% 17.8% 17.2%

Burgas 330 28.0% 17.0% 13.6% 12.1% 12.2% 11.0% 16.2% 17.0% 15.9%

Sofia 1,980 31.4% 19.1% 18.5% 17.8% 13.2% 16.5% 20.5% 18.6% 13.8%

Pleven 176 43.9% 37.5% 31.4% 18.3% 12.7% 23.7% 14.0% 17.2% 13.5%

Stara Zagora 228 32.6% 37.8% 43.4% 32.8% 23.0% 34.2% 23.7% 9.1% 13.5%

Pernik 132 50.8% 17.4% 32.6% 27.8% 18.3% 14.2% 13.8% 8.7% 7.0%

Jambol 122 40.3% 19.5% 21.8% 15.1% 22.7% 26.9% 18.9% 21.6% 5.9%

Sumen 133 27.8% 6.2% 5.0% 12.4% 5.0% 6.2% 2.4% 4.0% 4.0%

Dobric 150 14.8% 8.1% 23.2% 18.4% 13.1% 8.8% 15.0% 7.0% 2.0%

Total Bulgaria 5,000 34.5% 22.3% 23.3% 20.5% 15.3% 18.0% 18.8% 19.8% 20.0%

16

Focus Sample – Non-Domestic Incidence by City


Red marking above focus sample average – 24%



17




• Overall tendency remains – stable high NDI in Focus cities

• Svilengrad, Kyustendol, Sandanski – traditionally high NDI cities have shown a decrease,

but the level is still very high

• Montana, Gabrovo, Razgrad – show an increase


- 57 (Imperial Tobacco): Macedonia

- Eva (Bulgartabac): Macedonia

- York (TDR Rovinj): Macedonia

- LD (JTI): Macedonia

- Karelia (Karelia Tobacco): Duty

Free

- Assos (PMI): Duty Free

- Dunhill (BAT): Duty Free

- Don (Finansconsult): Duty Free- York (TDR Rovinj): Macedonia


- Trokadero (Monus D.O.O.):

Macedonia

- Metco (Middle East Tob.): Duty Free

18



Non-Domestic Cigarettes Survey October 2013

• Overall tendency remains – high NDI in Focus cities

• Svilengrad, Kyustendil – traditionally high NDI

• Sandanski – although marked a derease in previous wave (29.9%) it is now highest

(48.5%) since 2010

• Montana, Gabrovo, Blagoevgrad – showing considerable increase

• Razgrad – marks a substantial decrease


Non-domestic Incidence*

CitySample

2013Q42010 Q2 2010 Q4 2011 Q2 2011 Q4 2012 Q2 2012 Q4 2013 Q2 2013 Q4 2014 Q2

Svilengrad 100 N/A N/A 46.4% 72.1% 90.5% 84.8% 81.2% 64.1% 65.4%

Sandanski 100 32.1% 21.6% 11.4% 41.0% 45.8% 41.4% 34.1% 29.9% 48.5%

Kjustendil 150 56.9% 50.0% 43.8% 65.0% 51.5% 54.0% 53.5% 46.0% 42.6%

Montana 150 42.1% 20.4% 27.0% 25.8% 7.6% 8.5% 15.0% 29.0% 38.9%

Gabrovo 150 N/A N/A 27.6% 11.4% 13.9% 17.9% 24.9% 26.4% 38.5%

Blagoevgrad 150 42.5% 25.6% 23.8% 29.3% 43.1% 22.3% 22.6% 24.4% 29.8%

Vidin 150 50.2% 35.2% 29.4% 52.9% 32.6% 40.4% 23.1% 19.1% 24.4%

Veliko Tarnovo 150 N/A N/A 26.1% 11.9% 3.7% 23.6% 15.2% 13.7% 13.9%

Lom 100 N/A N/A 20.9% 18.3% 30.2% 22.4% 32.2% 18.0% 11.3%

Silistra 100 30.7% 26.5% 20.6% 3.3% 11.1% 6.2% 4.3% 3.0% 7.3%

Razgrad 100 42.2% 9.1% 18.5% 8.8% 9.6% 11.3% 11.8% 19.9% 4.4%

Svishtov 100 N/A N/A 13.6% 19.8% 7.2% 1.1% 6.6% 10.5% 1.1%

19

Non-Domestic Incidence – Sample Comparison

• Non-Domestic Incidence in Focus cities sample has increased breaking the stable trend for a two years.

• As NDI in smaller taonw has always been alarmingly high, the further increase shown in this wave indicates that

this phenomenon is a serious issue and requires high level of attention and action by law enforcement .

34.5%

43.4%

23.3%25.9%

15.3%

26.2%

18.0%

25.7%

18.8%

24.5%

19.8%

24.0%20.0%

28.3%

0%

10%

20%

30%

40%

50%

MAIN SAMPLE FOCUS SAMPLEMay-11 May-12 Oct-12 Apr-13 Oct-13 Apr-14 May-11 May-12 Oct-12 Apr-13 Oct-13 Apr-14



20

Key Takeaways and Messages

Non-Domestic Incidence increase for the fourth time since Q4 2012 is a clear and alarming indication on the growing unfavourable trend of illicit trade level

Long-term predictability of cigarette excise duty evolution until achieving the EU requirements in 2018, with no sharp or unexpected changes, by way of establishing in the legislation an excise tax schedule - calendar based on the following principles:

Gradual and moderate yearly (2015-2018) cigarette excise tax increases until 2018 with a balanced impact on

all products on the market

The effective date of the increase in 2015 and in the following years may take effect in Q2 (April – June).

Minimum Excise Tax yearly increases in equal steps until 2018 to reach EUR 90/1000 pcs for all cigarettes

The legal market data for Q2 2014 show a slight increase in legal volume vs. the same period last year – this could be considered a positive sign, but should be validated only if captured in the EPS results of Wave 2 in 2014.

Fight against illicit trade in tobacco products (cigarettes and cut tobacco) should become a priority objective in the government program and law enforcement authorities with outliing concrete measures, specific actions and clear targets.

Strengthening the cooperation between law enforcement authorities and the AITI

• Information sharing – both directions

• Consultations with industry on any legislative initiative

• Joint Information Campaigns (to be presented)


ANTI-ILLICIT CIGARETTE TRADE INITITIAVE BULGARIA

1

THANK YOU!

22

R.C.RODLAN CORPORATION N.V.

• R.C. Rodlan Corp. N.V. is with a registered address in Curacao (small Antilles)

• R.C. Rodlan Corp N.V. has registrations for 17 TMs under class 34 (tobacco) in the Bulgarian Patent Office for

the Bulgarian market

• R.C. Rodlan Corp N.V. has a local IPR representative (Vasya Germanova - same as the IPR representative of TMs

registered by Finansconsult EOOD for the Bulgarian market)

Source: Public data available on Bulgarian Patent Office official website and TMVIEW


23

FINANSCONSULT EOOD

• Finansconsult EOOD has registered numerous TM in class 34 (tobacco) and 33 (alcohol) for the Bulgarian

market, including the brands registered for products manufacture and trade on the domestic market by King’s

Tobacco, such as The King, Merilyn, Bestman, Corset.

• The company’s IPR representative is Vasya Germanova - for tobacco and alcohol TM registrations in the BG

Patent office

Source: Public data available on Bulgarian Patent Office official website


24

SPARK FINANCE

• The company is registered in the Seychelles

• The company has registered these TMs as combined (figurative TMs) for the Bulgarian market, while the “word”

TM is registered by Finansconsult EOOD.

• The company has a local IPR representative (Vasya Germanova, same as for Finansconsult EOOD and Rodlan

Corp. N.V.



25

Others



Documents

ANTI-ILLICIT CIGARETTE TRADE INITITIAVE BULGARIA Spark Finance 4.3% CT Hubei Industrial 2.7% JTI 2.0% Unknown 1.6% Imperial Tobacco 1.3% Ray Tobacco 0.9% Monus D.O.O. 0.8% Kaanee