Tobacco in the United States

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United States - Tobacco 0072 - 0817 - 2010

© Datamonitor. This profile is a licensed product and is not to be photocopied Page 1

INDUSTRY PROFILE

Tobacco in

the United States

Reference Code: 0072-0817

Publication Date: October 2011

EXECUTIVE SUMMARY



EXECUTIVE SUMMARY

Market value

The United States tobacco market grew by 2.2% in 2010 to reach a value of $95,599.9 million.

Market value forecast

In 2015, the United States tobacco market is forecast to have a value of $106,282.5 million, an increase

of 11.2% since 2010.

Market segmentation I

Cigarettes is the largest segment of the tobacco market in the United States, accounting for 91.9% of the

market's total value.

Market segmentation II

The United States accounts for 13.3% of the global tobacco market value.

Market share

Altria Group, Inc. is the leading player in the United States tobacco market, generating a 53.4% share of

the market's value.

Market rivalry

The US tobacco market is highly concentrated, with the top three players collectively accounting for 90%

of the total market value.

CONTENTS



TABLE OF CONTENTS

EXECUTIVE SUMMARY 2

MARKET OVERVIEW 7

Market definition 7

Research highlights 8

Market analysis 9

MARKET VALUE 10

MARKET SEGMENTATION I 11

MARKET SEGMENTATION II 12

MARKET SHARE 13

FIVE FORCES ANALYSIS 14

Summary 14

Buyer power 15

Supplier power 16

New entrants 17

Substitutes 18

Rivalry 19

LEADING COMPANIES 20

Altria Group, Inc. 20

Reynolds American Inc. 24

Lorillard, Inc. 28

MARKET DISTRIBUTION 31

MARKET FORECASTS 32

Market value forecast 32

MACROECONOMIC INDICATORS 33

APPENDIX 35

Methodology 35

Industry associations 36

Related Datamonitor research 36

CONTENTS



Disclaimer 38

ABOUT DATAMONITOR 39

Premium Reports 39

Summary Reports 39

Datamonitor consulting 39

CONTENTS



LIST OF TABLES

Table 1: United States tobacco market value: $ million, 2006–10(e) 10

Table 2: United States tobacco market segmentation I:% share, by value, 2010(e) 11

Table 3: United States tobacco market segmentation II: % share, by value, 2010(e) 12

Table 4: United States tobacco market share: % share, by value, 2010(e) 13

Table 5: Altria Group, Inc.: key facts 20

Table 6: Altria Group, Inc.: key financials ($) 22

Table 7: Altria Group, Inc.: key financial ratios 22

Table 8: Reynolds American Inc.: key facts 24

Table 9: Reynolds American Inc.: key financials ($) 26

Table 10: Reynolds American Inc.: key financial ratios 26

Table 11: Lorillard, Inc.: key facts 28

Table 12: Lorillard, Inc.: key financials ($) 29

Table 13: Lorillard, Inc.: key financial ratios 29

Table 14: United States tobacco market distribution: % share, by value, 2010(e) 31

Table 15: United States tobacco market value forecast: $ million, 2010–15 32

Table 16: United States size of population (million), 2006–10 33

Table 17: United States gdp (constant 2000 prices, $ billion), 2006–10 33

Table 18: United States gdp (current prices, $ billion), 2006–10 33

Table 19: United States inflation, 2006–10 34

Table 20: United States consumer price index (absolute), 2006–10 34

Table 21: United States exchange rate, 2006–10 34

CONTENTS



LIST OF FIGURES

Figure 1: United States tobacco market value: $ million, 2006–10(e) 10

Figure 2: United States tobacco market segmentation I:% share, by value, 2010(e) 11

Figure 3: United States tobacco market segmentation II: % share, by value, 2010(e) 12

Figure 4: United States tobacco market share: % share, by value, 2010(e) 13

Figure 5: Forces driving competition in the tobacco market in the United States, 2010 14

Figure 6: Drivers of buyer power in the tobacco market in the United States, 2010 15

Figure 7: Drivers of supplier power in the tobacco market in the United States, 2010 16

Figure 8: Factors influencing the likelihood of new entrants in the tobacco market in the United

States, 2010 17

Figure 9: Factors influencing the threat of substitutes in the tobacco market in the United States,

2010 18

Figure 10: Drivers of degree of rivalry in the tobacco market in the United States, 2010 19

Figure 11: Altria Group, Inc.: revenues & profitability 23

Figure 12: Altria Group, Inc.: assets & liabilities 23

Figure 13: Reynolds American Inc.: revenues & profitability 27

Figure 14: Reynolds American Inc.: assets & liabilities 27

Figure 15: Lorillard, Inc.: revenues & profitability 30

Figure 16: Lorillard, Inc.: assets & liabilities 30

Figure 17: United States tobacco market distribution: % share, by value, 2010(e) 31

Figure 18: United States tobacco market value forecast: $ million, 2010–15 32

MARKET OVERVIEW



MARKET OVERVIEW

Market definition

The tobacco market consists of the retail sale of cigarettes, loose tobacco, chewing tobacco, and cigars

and cigarillos. The market is valued according to retail selling price (RSP) and includes any applicable

taxes. Any currency conversions used in the creation of this report have been calculated using constant

2010 annual average exchange rates.

For the purpose of this report the Americas comprises Argentina, Brazil, Canada, Chile, Colombia,

Mexico, Venezuela, Peru, Uruguay and the US.

MARKET OVERVIEW



Research highlights

The US tobacco market generated total revenues of $95.6 billion in 2010, representing a compound

annual growth rate (CAGR) of 2.3% for the period spanning 2006-2010.

Cigarettes sales proved the most lucrative for the US tobacco market in 2010, generating total revenues

of $87.9 billion, equivalent to 91.9% of the market's overall value.

The performance of the market is forecast to decelerate, with an anticipated CAGR of 2.1% for the five-

year period 2010-2015, which is expected to lead the market to a value of $106.3 billion by the end of

2015.

MARKET OVERVIEW



Market analysis

The US tobacco market grew at a sluggish rate during the period 2006-2010, as a result of sluggish sales

growth in the cigarettes category. Overall market growth is expected to decelerate in the forthcoming five

years.

The US tobacco market generated total revenues of $95.6 billion in 2010, representing a compound

annual growth rate (CAGR) of 2.3% for the period spanning 2006-2010. In comparison, the Chinese

market increased with a CAGR of 6%, and the Japanese market declined with a CARC of -1.4%, over the

same period, to reach respective values of $266.3 billion and $47.7 billion in 2010.

Cigarettes sales proved the most lucrative for the US tobacco market in 2010, generating total revenues

of $87.9 billion, equivalent to 91.9% of the market's overall value. In comparison, sales of cigars and

cigarillos generated revenues of $3.7 billion in 2010, equating to 3.9% of the market's aggregate

revenues.

The performance of the market is forecast to decelerate, with an anticipated CAGR of 2.1% for the five-

year period 2010-2015, which is expected to lead the market to a value of $106.3 billion by the end of

2015. Comparatively, the Chinese market will increase with a CAGR of 6.7%, and the Japanese market

will decline with a CARC of -1%, over the same period, to reach respective values of $368 billion and

$45.4 billion in 2015.

MARKET VALUE



MARKET VALUE

The United States tobacco market grew by 2.2% in 2010 to reach a value of $95,599.9 million.

The compound annual growth rate of the market in the period 2006–10 was 2.3%.

Table 1: United States tobacco market value: $ million, 2006–10(e)

Year $ million € million % Growth

2006 87,153.9 65,633.4

2007 88,937.1 66,976.3 2.0

2008 91,515.5 68,918.0 2.9

2009 93,532.8 70,437.2 2.2

2010(e) 95,599.9 71,993.8 2.2

CAGR: 2006–10 2.3%

Source: Datamonitor D A T A M O N I T O R

Figure 1: United States tobacco market value: $ million, 2006–10(e)


MARKET SEGMENTATION I



MARKET SEGMENTATION I

Cigarettes is the largest segment of the tobacco market in the United States, accounting for 91.9% of the

market's total value.

The cigars and cigarillos segment accounts for a further 3.9% of the market.

Table 2: United States tobacco market segmentation I:% share, by value, 2010(e)

Category % Share

Cigarettes 91.9%

Cigars and Cigarillos 3.9%

Chewing tobacco 3.4%

Loose tobacco 0.8%

Total 100%


Figure 2: United States tobacco market segmentation I:% share, by value, 2010(e)


MARKET SEGMENTATION II



MARKET SEGMENTATION II

The United States accounts for 13.3% of the global tobacco market value.

Asia-Pacific accounts for a further 50.8% of the global market.

Table 3: United States tobacco market segmentation II: % share, by value, 2010(e)

Category % Share

Asia-Pacific 50.8%

Europe 30.3%

United States 13.3%

Africa and Middle East 2.1%

Rest of the World 3.5%

Total 100%


Figure 3: United States tobacco market segmentation II: % share, by value, 2010(e)


MARKET SHARE



MARKET SHARE

Altria Group, Inc. is the leading player in the United States tobacco market, generating a 53.4% share of

the market's value.

Reynolds American Inc. accounts for a further 28.2% of the market.

Table 4: United States tobacco market share: % share, by value, 2010(e)

Company % Share

Altria Group, Inc. 53.4%

Reynolds American Inc. 28.2%

Lorillard, Inc. 8.5%

Others 9.9%

Total 100%


Figure 4: United States tobacco market share: % share, by value, 2010(e)


FIVE FORCES ANALYSIS




The tobacco market will be analyzed taking tobacco manufacturers as players. The key buyers will be

taken as retailers, and tobacco leaf farmers and other raw material suppliers as the key suppliers.

Summary

Figure 5: Forces driving competition in the tobacco market in the United States, 2010


The US tobacco market is highly concentrated, with the top three players collectively accounting for 90%

of the total market value.

The US tobacco market has seen increasing legislation and government regulation with regards to

smoking, which limits existing players and discourages new entrants. Moreover, with a new proposal to

post graphic posters warning of the dangers of using tobacco products, is to be approved soon in the later

part of 2010. This would certainly bring many more regulations into market. Furthermore, due to the

dominance of large players such as Altria Group, Reynolds American and Lorillard, coupled with

advertising restrictions in many states, new entrants would find it increasingly difficult to establish a brand.

Also, because of the health implications associated with tobacco products, there are a number of benefits

to consumers from using substitutes, which is why there is a moderate threat from substitute non-durable

goods in this market. Rivalry in the market is boosted by the lack of product differentiation and the

pressure placed on market players by the illicit cigarette trade.




Buyer power

Figure 6: Drivers of buyer power in the tobacco market in the United States, 2010


The retailers are considered as buyers in the tobacco market. The main retailers for the US tobacco

market include independent retailers, service stations and supermarkets/hypermarkets. The concentration

of retail outlets is relatively fragmented in the tobacco market, as there are a number of outlets where the

products can be sold. In the US, independent retailers are the most dominant distribution channel, with

27.8% share of total distribution. Furthermore, tobacco products are just one of many products sold by

most retailers, which illustrates that in most cases retailers are not reliant upon tobacco sales, which

increases buyer power. Customers are likely to be loyal towards certain brands, so there is potentially

some pull-through of end-consumer demand on retailers, which decreases buyer power to some extent.

Overall, the buyer power in this market is moderate.




Supplier power

Figure 7: Drivers of supplier power in the tobacco market in the United States, 2010


Tobacco is an agricultural product and therefore key suppliers to the tobacco market include tobacco leaf

farmers. These farmers lack power in the supply chain because of their smaller size, with many farms

being family run businesses, particularly those in developing countries. Further inputs to the market

include processing aids, humectants (which keep the tobacco moist and pliable), preservatives and

brand-specific flavors. Other key inputs include packaging materials, such as paper/card, plastic, and foil

to protect and preserve the products of this market. Companies such as Alcan Packaging, who are a

leading global manufacturer of tobacco packaging, are key suppliers to the tobacco market. Alcan's inputs

include in-line rotogravure printed hinge-lid blanks and soft packs. They are also the world's largest

supplier of RYO (Roll Your Own) tobacco booklet covers, as well as printed OPP film (Oriented

Polypropylene film), bundle wraps and tobacco pouches. Another global tobacco packaging supplier is

Amcor. Due to the relative size of key suppliers, their respective influence over the market is increased.

There are limited alternative raw materials in this market, so players are unlikely to switch supplier, which

increases supplier power. Overall, supplier power is fairly moderate.




New entrants

Figure 8: Factors influencing the likelihood of new entrants in the tobacco market in the United

States, 2010


Legislation and government regulation with regards to smoking also continue to grow in this market, for

example, restrictions on smoking in public places and pictorial health warnings have been adopted in a

number of US states. For instance, in May 2010, the US government proposed that convenience stores

and other retailers in certain states be required to post graphic poster warnings of the dangers of using

tobacco products. Current tobacco control strategies seek primarily to decrease the demand for cigarettes

through measures that encourage individuals to adopt healthier behaviors, raising entry barriers.

Moreover, with a possibility of the FDA taking over regulation of tobacco in USA, will bring more

regulations in place, making it tough for new entrants. Furthermore, shelf-space in retail outlets is finite

and retailers may be unwilling to stock products of an entirely new, unproven brand. Overall, there is a

weak threat from new entrants to the US tobacco market.




Substitutes

Figure 9: Factors influencing the threat of substitutes in the tobacco market in the United States,

2010


Substitutes in the tobacco market may include various non-durable consumer goods, for example nicotine

gum, nicotine patches, and herbal cigarettes. However, there are inter-segmental substitutes apparent

within this market, alternatives to cigarettes and fine cut tobacco products include smokeless tobaccos,

cigars and pipe tobacco. Players and consumers alike may substitute one tobacco product for another,

with players who specialize in the manufacture of cigarettes diversifying into cigars for example. However,

inter-segmental substitution still involves essentially the same product. The benefits of substituting

tobacco products for alternate non-durable consumer goods are especially notable in concerns to

consumer health, largely due to the health implications associated with smoking (e.g. increased risk of

lung cancer, heart disease etc.). Furthermore, because of the addictive quality of nicotine present in

tobacco products, many smokers who want to quit, attempt to do so by substituting tobacco products for

products such as nicotine gum, or patches. These products fulfill the consumer's need for nicotine,

without the harmful effects of inhaling smoke. Unlike tobacco products, which face restrictions on

advertising in many markets, nicotine replacement products are highly promoted through a range of

media. Overall, there is a moderate threat from substitutes in the US tobacco market.




Rivalry

Figure 10: Drivers of degree of rivalry in the tobacco market in the United States, 2010


The US tobacco market is highly concentrated, with leading players such as Altria Group, Reynolds

American and Lorillard collectively holding 90% of the total market value. Product differentiation is

essentially limited between the core tobacco products, which include: chewing tobacco, cigars and

cigarillos, cigarettes and loose tobacco, which increases rivalry. Illicit tobacco supplies through smuggling

and counterfeit trade impact upon players' revenues, which will serve to boost rivalry. The fairly slow

market growth in the US tobacco market compared to other regions does very little to ease rivalry among

the players. Overall, there is a moderate degree of rivalry in the US tobacco market.

LEADING COMPANIES



LEADING COMPANIES

Altria Group, Inc.

Table 5: Altria Group, Inc.: key facts

Head office: 6601 West Broad Street, Richmond, Virginia 23230, USA

Telephone: 1 804 274 2200

Website: www.altria.com

Financial year-end: December

Ticker: MO

Stock exchange: New York

Source: company website D A T A M O N I T O R

Altria Group (Altria) is a diversified company which has business interests in tobacco, alcohol, food and

financial services. The company operates through its subsidiaries that include Philip Morris USA, U.S.

Smokeless Tobacco Company, John Middleton, Ste. Michelle Wine Estates, and Philip Morris Capital

Corporation. In addition, Altria has 27.1% stake in SABMiller, one of the world's largest brewers. The

company primarily operates in the US.

Altria operates through five business segments: cigarettes, smokeless products, cigars, wine, and

financial services.

The cigarettes segment manufactures and markets cigarettes and smokeless tobacco products in the US

through Altria’s subsidiary Philip Morris USA. The company markets its products under brands like

Marlboro, other premium brands such as Virginia Slims, Benson & Hedges, Parliament; and discount

brands such as Basic and L&M among others.

The smokeless segment manufactures and markets smokeless tobacco products through the company’s

subsidiary U.S. Smokeless Tobacco Company (USSTC). The company markets its products under the

Copenhagen, Red Seal, Skoal and Husky brand names.

The cigars segment manufactures and markets machine-made large cigars and pipe tobacco through

Altria’s subsidiary John Middleton (Middleton). The company’s product portfolio comprises brands such as

Black & Mild, Prince Albert, Wine Berry, Carter Hall, Middleton's and Kentucky Club.

Altria operates in the wine segment through its subsidiary Ste. Michelle Wine Estates (SMWE), a

producer of premium varietal and blended table wines. The key brands of the company include Chateau

Ste, Michelle, Columbia Crest, Domaine Ste. Michelle, Villa, Conn Creek and Erath.

LEADING COMPANIES



Altria’s provides financial services through its subsidiary Philip Morris Capital Corporation (PMCC), an

investment company engaged in leveraged and direct finance lease investments.

The group revised its reportable segments to cigarettes and other tobacco products, cigars and financial

services after it spun off Philip Morris International (PMI) in early 2008, and acquired Middleton in

December 2007.

In 2009, Altria acquired UST Inc., a holding company engaged in the manufacturing and marketing of

moist smokeless tobacco products through U.S. Smokeless Tobacco Company and premium wines

through Ste. Michelle Wine Estates.

In February 2011, it was announced that two Altria Group Inc. subsidiaries plan to test-market "tobacco

sticks", a form of smokeless tobacco, an alternative to conventional tobacco products. The company also

plans to expand its Marlboro Snus smokeless tobacco nationwide.

In May 2011, Altria Group Inc. introduced new filter cigarettes in Lithuania marketed under the L&M U-

Spin brand name.

Key Metrics

The company recorded revenues of $24.4 billion in the financial year (FY) ended December 2010, an

increase of 3.4% over FY2009. The net profit of the company was $3.9 billion in FY2010, an increase of

21.8% over FY2009.

During the FY2010, the cigarettes division recorded revenues of $21.6 billion, an increase of 3.4% over

2009.

The smokeless products division recorded revenues of $1.6 billion in FY2010, an increase of 13.6% over

2009.

The cigars division recorded revenues of $560 million in FY2010, an increase of 7.7% over 2009.

LEADING COMPANIES



Table 6: Altria Group, Inc.: key financials ($)

$ million 2006 2007 2008 2009 2010

Revenues 18,790.0 18,664.0 19,356.0 23,556.0 24,363.0

Net income (loss) 12,022.0 9,786.0 4,930.0 3,206.0 3,905.0

Total assets 104,270.0 57,746.0 27,215.0 36,677.0 37,402.0

Total liabilities 64,651.0 38,844.0 24,387.0 32,573.0 32,175.0

Employees 175,000 84,000 10,400 10,000 10,000

Source: company filings D A T A M O N I T O R

Table 7: Altria Group, Inc.: key financial ratios

Ratio 2006 2007 2008 2009 2010

Profit margin 64.0% 52.4% 25.5% 13.6% 16.0%

Revenue growth (70.5%) (0.7%) 3.7% 21.7% 3.4%

Asset growth (3.4%) (44.6%) (52.9%) 34.8% 2.0%

Liabilities growth (10.5%) (39.9%) (37.2%) 33.6% (1.2%)

Debt/asset ratio 62.0% 67.3% 89.6% 88.8% 86.0%

Return on assets 11.3% 12.1% 11.6% 10.0% 10.5%

Revenue per employee $107,371 $222,190 $1,861,154 $2,355,600 $2,436,300

Profit per employee $68,697 $116,500 $474,038 $320,600 $390,500


LEADING COMPANIES



Figure 11: Altria Group, Inc.: revenues & profitability


Figure 12: Altria Group, Inc.: assets & liabilities


LEADING COMPANIES



Reynolds American Inc.

Table 8: Reynolds American Inc.: key facts

Head office: 401 North Main Street, Winston-Salem, North Carolina 227101, USA

Telephone: 1 336 741 2000

Fax: 1 336 741 0881

Website: www.reynoldsamerican.com


Ticker: RAI



Reynolds American (RAI) is engaged in the manufacture and sale of cigarettes. It is a holding company,

which was formed to facilitate the merger of RJR Tobacco Company with Brown & Williamson Tobacco

Corporation, the US subsidiary of British American Tobacco (BAT) in 2004. RAI manufactures and sells

cigarettes either independently or through joint ventures in France, Spain, Italy, and the US.

The company operates through two reportable business segments: RJR Tobacco and American Snuff.

The RJR Tobacco segment consists of the primary operations of R. J. Reynolds Tobacco Company. The

American Snuff segment consists of the primary operations of American Snuff Co. and Lane while the two

RAI’s wholly owned subsidiaries, Santa Fe Natural Tobacco

Company, Inc., referred to as Santa Fe and Niconovum AB is included in All Other segment.

RAI’s largest operating segment, RJR Tobacco, is the second largest cigarette manufacturer in the US.

RJR Tobacco’s largest selling cigarette brands are Camel, Kool, Pall Mall, Doral, Winston and Salem.

RJR Tobacco also manages a contract manufacturing business through arrangements with British

American Tobacco (BAT) affiliates and manages tobacco products sold to certain U.S. territories, U.S.

duty-free shops and U.S. overseas military bases.RJR Tobacco owns cigarette manufacturing facilities in

the Winston-Salem, North Carolina, and the Whitaker Park complex. The company's central distribution

center and a pilot plant for trial manufacturing of new products are located at the Whitaker Park complex,

Winston-Salem, North Carolina, the US. RJR Tobacco has a combined production capacity of

approximately 160 billion cigarettes per year.

RJR Tobacco offers two types of modern smoke-free tobacco, CAMEL Snus and CAMEL Dissolvables.

CAMEL Snus is pasteurized tobacco in a small pouch that provides convenient tobacco consumption.

LEADING COMPANIES



CAMEL Dissolvables include CAMEL Orbs, Sticks and Strips all of which are made of finely milled

tobacco and dissolve completely in the mouth.

American Snuff is the second largest smokeless tobacco products manufacturer in the US. American

Snuff primary brands include its largest selling moist snuff brands, Grizlly and Kodiak. The company also

distributes a variety of tobacco products including Winchester and Captain Black little cigars, and Bugler

roll-your-own tobacco. American Snuff’s primary manufacturing facility is located in Memphis, Tennessee.

Other facilities are located in Clarksville, Tennessee, Winston-Salem, North Carolina; Bowling Green,

Kentucky and Tucker, Georgia. The company markets its products to distributors, wholesalers and other

direct customers, some of which are retail chains.

Santa Fe manufactures and markets cigarettes and other tobacco products under the Natural American

Spirit brand, as well as manages RJR Tobacco’s super premium cigarette brands Dunhill and State

Express 555, which are licensed from BAT.

In March 2011, Reynolds American Inc. sold off its subsidiary Lane Ltd. to Scandinavian Tobacco Group

A/S for $205 million.

Key Metrics


increase of 1.6% over FY2009. The net profit of the company was $1.1 billion in FY2010, an increase of

15.7% over FY2009.

During FY2010, the RJR Tobacco division recorded revenues of $7.4 billion, an increase of 0.2% over

2009.

The American Snuff division recorded revenues of $719 million in FY2010, an increase of 6.8% over

2009.

The all other division recorded revenues of $482 million in FY2010, an increase of 17% over 2009.

LEADING COMPANIES



Table 9: Reynolds American Inc.: key financials ($)

$ million 2006 2007 2008 2009 2010

Revenues 8,510.0 9,023.0 8,845.0 8,419.0 8,551.0

Net income (loss) 1,210.0 1,308.0 1,338.0 962.0 1,113.0

Total assets 18,178.0 18,629.0 18,154.0 18,009.0 17,078.0


Employees 7,500 7,100 6,600 6,400 5,700


Table 10: Reynolds American Inc.: key financial ratios

Ratio 2006 2007 2008 2009 2010

Profit margin 14.2% 14.5% 15.1% 11.4% 13.0%

Revenue growth 3.1% 6.0% (2.0%) (4.8%) 1.6%

Asset growth 25.2% 2.5% (2.5%) (0.8%) (5.2%)

Liabilities growth 39.8% 0.3% 6.8% (3.4%) (8.2%)

Debt/asset ratio 61.3% 59.9% 65.6% 63.9% 61.9%

Return on assets 7.4% 7.1% 7.3% 5.3% 6.3%

Revenue per employee $1,134,667 $1,270,845 $1,340,152 $1,315,469 $1,500,175

Profit per employee $161,333 $184,225 $202,727 $150,313 $195,263


LEADING COMPANIES



Figure 13: Reynolds American Inc.: revenues & profitability


Figure 14: Reynolds American Inc.: assets & liabilities


LEADING COMPANIES



Lorillard, Inc.

Table 11: Lorillard, Inc.: key facts

Head office: 714 Green Valley Road, Greensboro, North Carolina 24708 7018, USA

Telephone: 1 336 335 7000

Website: www.lorillard.com


Ticker: LO



Lorillard is a tobacco company engaged in the manufacture and marketing of cigarettes. It offers various

cigarette products in premium and discount segments. The company primarily operates in the US. Its

products are manufactured at Greensboro, North Carolina facility.

The company's flagship brand includes Newport, a menthol-flavored cigarette brand. Newport accounted

for 90% of the total sales of the company in 2010. The company also markets cigarettes through five

additional brands that include Kent, True, Maverick and Old Gold. These five brands are marketed in 43

different product offerings which vary in taste, flavor, length and packaging.

Lorillard uses burley, flue-cured and aromatic tobaccos which are grown in Turkey and other near Eastern

countries to manufacture its tobacco products. An affiliate of Reynolds American Inc. (RAI) manufactures

all of Lorillard’s reconstituted tobacco pursuant to its specifications. Lorillard purchases more than 66% of

the domestic leaf tobacco from Alliance One International. The company has 29 storage warehouses at

Danville, Virginia facility. The company produces cigarettes at their Greensboro, North Carolina

manufacturing plant, which has a production capacity of approximately 200 million cigarettes per day and

approximately 50 billion cigarettes per year.

Lorillard’s subsidiaries include Lorillard Tobacco Company (Delaware), Lorillard Licensing Company

(North Carolina) and One Park Media Services, Inc. (Delaware).

Key Metrics


increase of 13.4% over FY2009. The net profit of the company was $1 billion in FY2010, an increase of

8.5% over FY2009.

LEADING COMPANIES



Table 12: Lorillard, Inc.: key financials ($)

$ million 2006 2007 2008 2009 2010

Revenues 3,755.0 3,969.0 4,204.0 5,233.0 5,932.0

Net income (loss) 826.0 898.0 887.0 948.0 1,029.0

Total assets 2,759.0 2,600.0 2,321.0 2,575.0 3,296.0


Employees - 2,800 2,800 2,700 2,700


Table 13: Lorillard, Inc.: key financial ratios

Ratio 2006 2007 2008 2009 2010

Profit margin 22.0% 22.6% 21.1% 18.1% 17.3%

Revenue growth 5.2% 5.7% 5.9% 24.5% 13.4%

Asset growth (1.3%) (5.8%) (10.7%) 10.9% 28.0%

Liabilities growth 0.5% 8.4% 6.5% 47.2% 41.5%

Debt/asset ratio 53.1% 61.0% 72.8% 96.6% 106.8%

Return on assets 29.7% 33.5% 36.0% 38.7% 35.1%


LEADING COMPANIES



Figure 15: Lorillard, Inc.: revenues & profitability


Figure 16: Lorillard, Inc.: assets & liabilities


DISTRIBUTION



MARKET DISTRIBUTION

Independent Retailers form the leading distribution channel in the United States tobacco market,

accounting for a 27.8% share of the total market's value.

Service Stations accounts for a further 21.5% of the market.

Table 14: United States tobacco market distribution: % share, by value, 2010(e)

Channel % Share

Independent Retailers 27.8%

Service Stations 21.5%

Supermarkets / hypermarkets 11.7%

Others 39.0%

Total 100%


Figure 17: United States tobacco market distribution: % share, by value, 2010(e)


MARKET FORECASTS



MARKET FORECASTS

Market value forecast

In 2015, the United States tobacco market is forecast to have a value of $106,282.5 million, an increase

of 11.2% since 2010.

The compound annual growth rate of the market in the period 2010–15 is predicted to be 2.1%.

Table 15: United States tobacco market value forecast: $ million, 2010–15

Year $ million € million % Growth

2010 95,599.9 71,993.8 2.2%

2011 97,695.6 73,572.1 2.2%

2012 99,818.9 75,171.1 2.2%

2013 101,968.8 76,790.1 2.2%

2014 104,146.1 78,429.8 2.1%

2015 106,282.5 80,038.6 2.1%

CAGR: 2010–15 2.1%


Figure 18: United States tobacco market value forecast: $ million, 2010–15


MACROECONOMIC INDICATORS




Table 16: United States size of population (million), 2006–10

Year Population (million) % Growth

2006 298.4 1.0%

2007 301.4 1.0%

2008 304.2 0.9%

2009 306.7 0.8%

2010(e) 309.1 0.8%


Table 17: United States gdp (constant 2000 prices, $ billion), 2006–10

Year Constant 2000 Prices, $ billion % Growth

2006 11,509.5 2.7%

2007 11,733.0 1.9%

2008 11,697.8 (0.3%)

2009 11,288.4 (3.5%)

2010(e) 11,627.0 3.0%


Table 18: United States gdp (current prices, $ billion), 2006–10

Year Current Prices, $ billion % Growth

2006 13,475.5 6.0%

2007 14,129.5 4.9%

2008 14,627.9 3.5%

2009 14,065.8 (3.8%)

2010(e) 14,725.5 4.7%





Table 19: United States inflation, 2006–10

Year Inflation Rate (%)

2006 3.2%

2007 2.9%

2008 3.8%

2009 (0.4%)

2010(e) 1.6%


Table 20: United States consumer price index (absolute), 2006–10

Year Consumer Price Index (2000 = 100)

2006 117.1

2007 120.4

2008 125.0

2009 124.6

2010(e) 126.6


Table 21: United States exchange rate, 2006–10

Year Exchange rate (€/$)

2006 1.2547

2007 1.3683

2008 1.4633

2009 1.3905

2010 1.3279


APPENDIX



APPENDIX

Methodology

Datamonitor Industry Profiles draw on extensive primary and secondary research, all aggregated,

analyzed, cross-checked and presented in a consistent and accessible style.

Review of in-house databases – Created using 250,000+ industry interviews and consumer surveys

and supported by analysis from industry experts using highly complex modeling & forecasting tools,

Datamonitor’s in-house databases provide the foundation for all related industry profiles

Preparatory research – We also maintain extensive in-house databases of news, analyst

commentary, company profiles and macroeconomic & demographic information, which enable our

researchers to build an accurate market overview

Definitions – Market definitions are standardized to allow comparison from country to country. The

parameters of each definition are carefully reviewed at the start of the research process to ensure they

match the requirements of both the market and our clients

Extensive secondary research activities ensure we are always fully up-to-date with the latest

industry events and trends

Datamonitor aggregates and analyzes a number of secondary information sources, including:

- National/Governmental statistics

- International data (official international sources)

- National and International trade associations

- Broker and analyst reports

- Company Annual Reports

- Business information libraries and databases

Modeling & forecasting tools – Datamonitor has developed powerful tools that allow quantitative

and qualitative data to be combined with related macroeconomic and demographic drivers to create

market models and forecasts, which can then be refined according to specific competitive, regulatory

and demand-related factors

Continuous quality control ensures that our processes and profiles remain focused, accurate and

up-to-date

APPENDIX



Industry associations

International Tobacco Growers' Association

No. 30 - A, 1º dtº, 6000-081 Castelo Branco, Portugal

Tel.: 352 272 325 901

Fax: 352 272 325 906

www.tobaccoleaf.org

Related Datamonitor research

Industry Profiles

Global Tobacco

Tobacco in Canada

Tobacco in Mexico

Tobacco in Brazil

Tobacco in France

Tobacco in Germany

Tobacco in the United Kingdom

Tobacco in Belgium

Tobacco in Italy

Tobacco in the Netherlands

Tobacco in Spain

Tobacco in the Czech Republic

Tobacco in Denmark

Tobacco in Hungary

Tobacco in Norway

Tobacco in Russia

Tobacco in Poland

Tobacco in Sweden

Tobacco in Europe

Tobacco in Australia

APPENDIX



Tobacco in China

Tobacco in India

Tobacco in Japan

Tobacco in Singapore

Tobacco in South Korea

Tobacco in Taiwan

Tobacco in Asia-Pacific

Tobacco in South Africa

APPENDIX



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Tobacco in the United States