Project Star 2012:Presentation of results
Private and ConfidentialPrivate and Confidential
2 July 2013
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIAL
Disclaimer
This report on tobacco consumption in the EU (“Project Star 2012 Results") has been prepared by KPMG LLP in accordance with specific terms of reference (“terms of reference") agreed between Philip Morris International Management S A ("PMI") and KPMG LLPspecific terms of reference ( terms of reference ) agreed between Philip Morris International Management S.A. ( PMI ) and KPMG LLP.
KPMG LLP wishes you to be aware that KPMG LLP's work for PMI was performed to meet specific terms of reference agreed betweenPMI and KPMG LLP and that there were particular features determined for the purposes of the engagement. The Project Star 2012Results should not therefore be regarded as suitable to be used or relied on by any other person or for any other purpose. Should you choose to rely on this report you do so at your own risk. KPMG LLP will accordingly accept no responsibility or liability in respect of the Project Star 2012 Results to you or to any persons other than PMI.
1© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIAL
Introduction
Introduction, , KPMG
, KPMG
2© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIAL
Objectives for today
■ Provide an overview of developments in the EU illicit cigarette trade in 2012 identified as a result of P j t St Th t ti illProject Star. The presentation will cover; – Methodology– Market overview– C&C levels– C&C flows– Illicit whitesIllicit whites– Summary
A d t t i i d t il d lt f h M b St t ill b il bl f ll i th■ A document containing detailed results for each Member State will be available following the presentation
■ KPMG is happy to provide clarifications or respond to questions both at the end of the session and on an ongoing basis
3© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIAL
Agenda
Methodology
M k t iMarket overview
C&C levels
C&C flows
Illicit whites
Summary
Appendix
4© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIALProject Star uses legal domestic sales, Empty Pack Survey results and consumer research to quantify the volume of C&C cigarettes consumed in the EU
Domestic consumption
Based on consumer survey results regarding cross border purchasesNon-domestic
(legal)
Counterfeit and
Non-domestic)
Obtained by subtracting legal cross border
purchases from the total non-domestic volume
Counterfeit and contraband
on (c
igar
ette
s
Outflows
Based on Empty Pack
Survey resultsLegal
Domesticsalese
cons
umpt
io
Legaldomestic
Based on Empty Pack
Survey sales
Cig
aret
te domestic consumptionresults
The Project Star methodology was developed by KPMG and approved by OLAF. It has been deployed on a consistent b i i 2006 bli i t b d b t t f it d t b d l f t
5© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
basis since 2006, enabling comparisons to be made between counterfeit and contraband volumes from year to year
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIAL
Our approach integrates multiple sources with custom-built analytical tools
Primary Inputs Data Modelling and Iteration Final Output
The results are put
Empty Pack Surveys The results are put
through extensive iteration and testing to
finalise
y
Legal domestic
KPMG EU Flows Model
Preliminary non-domestic results
Model refinements are informed by gap analysis, external
public research and interviews with both
cigarette
Legal domestic sales
Final results
cigarette manufacturers/ distributors and
independent market expertsLegal cross
border purchasesNon-domestic
(legal) research
Preliminary counterfeit and
contraband resultsresults
6© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIAL
Agenda
Methodology
M k t iMarket overview
C&C levels
C&C flows
Illicit whites
Summary
Appendix
7© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIALNon-domestic consumption in the EUC&C has continued to grow since 2006, reaching 11.1% in 2012. ND(L) also increased in 2012, for the first time since 2006
ND(L) and C&C share of total consumption 2006-2012(1)
8 9%
9.9%10.4%
11.1%
10%
12%
+1.0
+0.5+0.7
8.3% 8.4% 8.6%8.9%
6%
8%
cons
umpt
ion
(%) +0.1 +0.2 +0.3
4.5%4.2% 4.1%
3.7% 3.7% 3.7%4.2%
2%
4%Shar
e of
c
0%
2%
2006 2007 2008 2009 2010 2011 2012
Non domestic (legal) Counterfeit and contrabandNon domestic (legal) Counterfeit and contraband
31.0 30.3 29.0 25.0 23.7 23.3 24.8
56.8 60.6 60.5 61.1 64.2 65.3 65.5
ND(L) volume (bn cigarettes)
C&C volume (bn cigarettes)
8© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Source: (1) EU Flows Model 2006 – 2012
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIALEU Price differentialsPrice gaps have narrowed between EU countries; however, prices in countries on the Eastern border remain up to 8 times lower
Map denotes Marlboro price per 20 cigarettesEnd of 2012(1) Finland
€5.50CountryEnd of
2011End of
2012Price
changeBelarus 0 58 1 08 86 4%
Country price comparison - Marlboro pack of 20 (€)
(a)
Estonia€3.30
17%
Sweden€6.69
Denmark
Norway€13.18
Russia€1.71Latvia
€3 16
Belarus 0.58 1.08 86.4%Moldova 1.05 1.39 32.4%Hungary 2.33 2.98 28.0%Ukraine 1.09 1.31 20.4%Turkey 3.25 3.90 20.0%Russia 1.43 1.71 19.8%Sweden 5.66 6.69 18.2%Norway 11.21 13.18 17.6%UK 8 26 9 54 15 4%
( )
UK€9.54 Poland
€3 08
Ireland€9.30
Lithuania€2.69
Denmark€5.63
Belgium€5.26
Netherlands€6.32
Luxembourg €4.60
€1.71Belarus€1.08(a)
€3.16UK 8.26 9.54 15.4%Serbia 1.66 1.91 15.4%Netherlands 5.47 6.32 15.4%Slovenia 3.20 3.60 12.5%Finland 5.00 5.50 10.0%Estonia 3.00 3.30 10.0%Spain 4.25 4.65 9.4%Albania 1.62 1.76 8.4%P l d 2 86 3 08 7 5%
France€6 60
Germany€5.26
€3.08
Czech Republic
€3.41(
Hungary€2.98
Slovakia€3.58
Sl i
Ukraine€1.31
Switzerland€6.53 Moldova
€1.39
Austria€4.50
Poland 2.86 3.08 7.5%France 6.20 6.60 6.5%Slovakia 3.37 3.58 6.3%Greece 3.50 3.70 5.7%Latvia 2.99 3.16 5.7%Romania 2.87 3.01 4.9%Denmark 5.37 5.63 4.8%Bosnia 1.79 1.87 4.6%
Key: €6.00 or more €5.00 to €5.99 Spain
€6.60Italy
€5.00
Slovenia€3.60
Romania€3.01
P t l
Bulgaria€2.61
Croatia€3.05
Serbia€1.91
Montenegro€2.20 Macedonia
B-H€1.87
Andorra€2.40
Luxembourg 4.40 4.60 4.5%Lithuania 2.58 2.69 4.5%Croatia 2.93 3.05 4.3%Belgium 5.05 5.26 4.2%Switzerland 6.34 6.53 3.0%Czech Republic 3.32 3.41 2.8%Cyprus 4.40 4.50 2.3%Ireland 9.10 9.30 2.2%
€4.00 to €4.99 €3.00 to €3.99 €2.00 to €2.99 Less than €2.00
Note (a) Based upon the price of a pack of 20 Kent cigarettes, a comparable premium brand, as Marlboro is not sold in Belarus
Source: (1) PMI Management and EU Tax Tables
Malta€4.20
€4.65
Greece€3.70
Cyprus€4.50
Portugal€4.20
Albania€1.76
Macedonia€1.92 Turkey
€3.90
Algeria €1 45
Italy 4.90 5.00 2.0%Germany 5.16 5.26 2.0%Bulgaria 2.56 2.61 2.0%Montenegro 2.19 2.20 0.5%Austria 4.50 4.50 0.0%Malta 4.20 4.20 0.0%Portugal 4.20 4.20 0.0%Algeria 1.46 1.45 -0.7%
9© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Source: (1) PMI Management and EU Tax Tables
Canary Islands€2.30
€1.45Algeria 1.46 1.45 0.7%Macedonia 1.94 1.92 -0.9%Canary Islands 2.40 2.30 -4.2%
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIALEU total consumptionNon-domestic volumes increased by 1.9% in 2012, while total cigarette consumption declined by 5.7%
800
Total cigarette consumption within the EU by type2007-2012(1)(a)
30.3 29.0 25.023.7
23.3
60.6 60.561.1
64.265.3
65.5
720.1 705.6 685.0648.9 628.9
593.0600
700
)
% Change2011-2012
C&C +0 4%
629.2 616.1 598.8
24.8
300
400
500
ume
(bn
ciga
rette
s) C&C +0.4%
Non-domestic (legal) +6.5%
Total non-domestic consumption +1.9%
Legal domestic consumption -7.0%598.8 561.0 540.4 502.7
100
200
300
Volu Total consumption -5.7%
02007 2008 2009 2010 2011 2012
Source: (1) KPMG analysis based on EPS, LDS and ND(L) research
10© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Note: (a) Total cigarette consumption within the EU by type is shown from 2007, as Romania and Bulgaria were not included in the 2006 study.
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIALTotal tobacco consumption in the EUThe decline in legal domestic cigarette sales by 6.3% was partly offset by an increase in non-domestic flows and OTP sales
European Union total cigarette consumption and OTP LDS (bn sticks) 2006-2012(1)(a)(b)
Legal domestic sales of manufactured cigarettes and OTP 2007-2012(1)(a)(b)
900
677.4 658.5633.7
595.0 576.2540.0600
700
800
alen
t)
91 89 8688 89
90
97 94 121127 136
145
817 800 806776 765
739
600
700
800
900
tes)
300
400
500
olum
e (b
n st
ick
equi
va
629 616 599 561 540 503
90
200
300
400
500
Vol
ume
(bn
ciga
rett
% Change 2011 2012% Change 2011 2012
96.8 94.4120.6 127.4 136.2 145.4
0
100
200
2007 2008 2009 2010 2011 2012
Vo
0
100
200
2007 2008 2009 2010 2011 2012
% Change 2011-2012 OTP (legal domestic sales) 6.8%
Non-domestic consumption 2.0%
Legal domestic consumption -7.0%
Total consumption (including OTP) -3.4%
% Change 2011-2012Cigarettes (Legal Domestic sales) -6.3%
OTP (Legal Domestic sales) 6.8%
Note: (a) OTP is defined as MYO, MYO volume tobacco, RYO tobacco and cigarillos as appropriate, whose cigarette equivalents d fi d 0 73 f t b i tt f MYO d 0 6 i tt f RYO d MYO l t b Thi
11© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Source: (1) KPMG analysis based on EPS, LDS and ND(L) research
are defined as 0.73g of tobacco per cigarette for MYO and 0.6g per cigarette for RYO and MYO volume tobacco. This definition and conversion rates have been applied for Project Star 2012 and may differ in previous reports.
(b) Significant volumes of green leaf are understood to be consumed in Poland, Czech Republic, Hungary and Bulgaria which are not captured in the LDS data above.
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIALOTP pricingIn most European markets, the price differential between OTP and manufactured cigarettes is significantg
Price differential between weighted average price of RYO 20 cigarette equivalents and weighted average price of a pack of 20 cigarettes(1)(2)(3)(a)(b)
Average RYO: 1.89(c) Average cigarette: 4 00(c)
2 22
1.81
1.35
1.05
Port gal
Hungary
Poland
Greece
cigarette: 4.00(c)
2.81
2.59
2.32
2.22
Italy
Austria
Spain
Portugal
3.28
3.25
2.99
2.91
Germany
Ireland
Luxembourg
Finland
4.23
3.58
3.44
3.43
United Kingdom
Belgium
France
Netherlands
€0.00 €0.50 €1.00 €1.50 €2.00 €2.50 €3.00 €3.50 €4.00 €4.50
Price differential, €, December 2012
Note: (a) Total tobacco market defined as total legal domestic sales of manufactured cigarettes and RYO cigarette equivalents (0.65 grams cigarette equivalent rate), with the price gap being defined as the cost between the weighted average price of pack of 20 and 20 roll-your-own cigarettes For Ireland no weighted average price of RYO was available so the
12© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Source: (1) European Commission “Excise Duty tables”, January 2013(2) Italy, Ireland and Greece – PMI estimates(3) UK – KPMG estimate based on Euromonitor sales data
of pack of 20 and 20 roll-your-own cigarettes. For Ireland no weighted average price of RYO was available so the cheapest price of 20 cigarettes and cheapest RYO cigarette equivalent was used.
(b) Weighted average of European Commission excise duty tables. (c) Simple average across each country
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIALOTP consumption and growth in the EUCountries with the largest growth vs 2011 were Ireland, Italy and Greece
OTP consumption, cigarette equivalent volumes 2012(1)(a)(b)
44.04550
14.9 14.1 13.1 12.1 10 615202530354045
uiva
lent
(bn)
12.1 10.66.9 6.5 6.1 4.8 3.7 2.4 1.8 1.1 0.9 0.8 0.5 0.5 0.3 0.1 0.1 0.0 0.0
05
1015
Ger
man
y
Fran
ce
herla
nds
Belg
ium
Spai
n
UK
Hun
gary
Italy
embo
urg
Gre
ece
Pola
nd
Portu
gal
Rep
ublic
Finl
and
Aust
ria
Den
mar
k
Cyp
rus
Irela
nd
Swed
en
Esto
nia
Slov
akia
Latv
ia
ithua
nia
Stic
k eq
OTP consumption growth 2011-2012(1)(a)(b)
Highest growth markets
G
Net
h H
Luxe
P
Cze
ch R D S L
27.5%17 1%
39.6%33.6%
21.5% 25.1%
40.0%
30%40%50%
-rate
1.4%5.8%
0.6% 3.4%8.7%
17.1%7.1% 9.0%
-1.1%
4.8% 5.0%n/a n/a n/a n/a
-30%-20%-10%
0%10%20%
YoY
Gro
wth
-29.5% -26.7%-40%-30%
Ger
man
y
Fran
ce
Net
herla
nds
Belg
ium
Spai
n
UK
Hun
gary
Italy
Luxe
mbo
urg
Gre
ece
Pola
nd
Portu
gal
zech
Rep
ublic
Finl
and
Aust
ria
Den
mar
k
Cyp
rus
Irela
nd
Swed
en
Esto
nia
Slov
akia
Latv
ia
Lith
uani
a
13© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Note: (a) OTP is defined as MYO, MYO volume tobacco, RYO tobacco and cigarillos as appropriate, whose cigarette equivalents are defined as 0.73g of tobacco per cigarette for MYO and 0.6g per cigarette for RYO and MYO volume tobacco. This definition and conversion rates have been applied for Project Star 2012 and may differ in previous reports.
Source: (1) KPMG analysis based on EPS, LDS and ND(L) research
(b) Significant volumes of green leaf are understood to be consumed in Poland, Czech Republic, Hungary and Bulgaria which are not captured in the LDS data above
Cz
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIAL
Agenda
Methodology
M k t iMarket overview
C&C levels
C&C flows
Illicit whites
Summary
Appendix
14© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIALEU total consumption The Baltic countries had the highest non-domestic and C&C incidence as a proportion of total cigarette consumptiong
Total cigarette consumption by type 2012(1)
5% 9%6% 3% 1%
7%1% 1% 1%
9% 10% 8%1% 3% 1% 7% 3% 2%
1% 0% 1% 3% 1%5% 1%
31% 27%20% 19% 17% 16% 16% 16% 13% 13% 12% 11% 11% 10% 9% 9% 8% 7% 7% 7% 4% 3% 2% 2% 2% 2% 1%
80%
100%
68%75% 72%
77% 81% 83%77%
86% 86% 87%80% 79% 82%
89% 88% 91% 85% 90% 91% 95% 97% 96% 94% 97% 93% 98%
3% 5%
40%
60%
tal c
onsu
mpt
ion Outflows
C&C
ND(L)
66% 68% 72%
4% 12% 13% 1% 1% 1% 3% 1% 2% 24% 14% 1% 2% 2% 5% 7% 1% 13% 8% 31% 14% 8% 17% 2% 37% 100% 4%0%
20%
Sha
re o
f tot LDC
-4% -12% -13% -1% -1% -1% -3% -1% -2% -24% -14% -1% -2% -2% -5% -7% -1% -13% -8% -31% -14% -8% -17% -2% -37% >-100% -4%
-40%
-20%
a a a d d K a e e d a y s a a n y m n a y al s k c g a
-200%
Latv
ia
Lith
uani
a
Est
onia
Irel
and
Fin
land UK
Bulg
aria
Fra
nce
Gre
ece
Pola
nd
Mal
ta
Ger
man
y
Net
herla
nds
Aust
ria
Rom
ania
Swed
en
Ital
y
Bel
gium
Spa
in
Slo
veni
a
Hun
gary
Por
tuga
Cyp
rus
Den
mar
k
Cze
ch R
epub
lic
Luxe
mbo
urg
Slo
vaki
a
15© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Source: (1) KPMG analysis based on EPS, LDS and ND(L) research
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIALNon-domestic C&C consumption in the EUThe UK experienced the highest increase of C&C at 6.4 percentage points, followed by Greece and Italy at +3.3 and +3.2 points respectivelyy p p y
Percentage point change in counterfeit and contraband consumption incidence by country, 2011 vs 2012(1)
6.4%
6%
8%
3.3% 3.2% 2.8% 2.2%1.6% 1.5% 1.4% 1.3%
0.7% 0.3% 0.3% 0.3% 0.2% 0.1% 0.1%
0.0% -0.1% -0.2% -0.6% 1 0%2%
0%
2%
4%
6%
re o
f con
sum
ptio
n
0.6% -1.0% -1.4% -1.8% -1.8% -2.0%
-3.8%-4.7%-6%
-4%
-2%
UK
Gre
ece
Italy
Swed
en
Esto
nia
Belg
ium
Finl
and
Cyp
rus
Irela
nd
herla
nds
Slov
enia
Hun
gary
Spai
n
Pola
nd
Slov
akia
embo
urg
Fran
ce
Mal
ta
Portu
gal
Den
mar
k
Latv
ia
Rep
ublic
Aust
ria
Rom
ania
Ger
man
y
ithua
nia
Bulg
aria
Shar
Counterfeit and Contraband consumption incidence by country, 2012(1)
S B
Net
h S H S
Luxe
P D
Cze
ch R R G Li B
30.7%27 5%30%
35%
on
16.4%
13.4%8.5%
11.9%
19.7%
7 5%
16.9% 19.1%
11.0%
6 7% 4 1% 7.5%
13.0%15.7%
12.1%9.7% 9.3%
11.1%
27.5%
15.5%
10%
15%
20%
25%
30%
hare
of c
onsu
mpt
io
7.5%
2.5%
6.7% 4.1% %
0.8%2.0% 2.8% 2.4% 2.2%
0%
5%
UK
Gre
ece
Italy
Swed
en
Esto
nia
Belg
ium
Finl
and
Cyp
rus
Irela
nd
ethe
rland
s
Slov
enia
Hun
gary
Spai
n
Pola
nd
Slov
akia
uxem
bour
g
Fran
ce
Mal
ta
Portu
gal
Den
mar
k
Latv
ia
h R
epub
lic
Aust
ria
Rom
ania
Ger
man
y
Lith
uani
a
Bulg
aria
Sh
16© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Source: (1) KPMG analysis based on EPS, LDS and ND(L) research
N Lu
Cze
c
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIAL
Agenda
Methodology
M k t iMarket overview
C&C levels
C&C flows
Illicit whites
Summary
Appendix
17© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIALC&C inflows by destination regionsThe share of EU illicit cigarette consumption accounted for by the Southern European countries continued to rise in 2012
Share of total EU C&C inflows by destination regions 2006-2012(1) Finland
Total 56 2 60 6 60 5 61 1 64 2 65 3 65 5
19.4% 23.1%24.6%
31.3%32 1%
14.1% 13.9% 8.9% 10.3% 13.2%19.3% 22.8%
70%
80%
90%
100%
Netherlands
Sweden Estonia
Latvia
Total 56.2 60.6 60.5 61.1 64.2 65.3 65.5
66 5% 66 5%
32.1% 24.8% 21.8%
40%
50%
60%
70%
a
UKPoland
Denmark
Luxembourg
Ireland
Lithuania
66.5% 63.0% 66.5%58.4% 54.7% 55.9% 55.4%
0%
10%
20%
30%
2006 2007 2008 2009 2010 2011 2012
Belgium
France
GermanyCzech
Republic
AustriaHungary
Slovakia
Romania2006 2007 2008 2009 2010 2011 2012
BulgariaItaly
Slovenia
SpainPortugal Greece
Malta CyprusKey: Southern EU countries – Cyprus, Greece, Italy, Malta, Portugal and Spain
Eastern border EU countries – Bulgaria, Estonia, Finland, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia Western and Central EU countries Austria Belgium Czech Republic Denmark France Germany Ireland Luxembourg Netherlands Slovenia Sweden and UK
18© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Western and Central EU countries – Austria, Belgium, Czech Republic, Denmark, France, Germany, Ireland, Luxembourg, Netherlands, Slovenia, Sweden and UKSource: (1) KPMG analysis based on EPS, LDS and ND(L) research
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIALC&C inflows by destination regions: Western EU countriesC&C flows to Western EU countries remained stable in volume; however, there was an increase to the UK from Eastern Europe and Spainp p
C&C inflows to Western EU countries 2006-2012(1)
11.1% 11.5%
12.4%
11.3% 11.3%11.9%
12.3%
12.0%
14.0%
50
60
Denmark
Netherlands
SwedenDuty Free
Russia4.4 billion
7 8 9.48.6
6.7 5.45.0 8.2
4.6 3.0 1.5
0.6 1.81.6 1.6
1.7 2.0 1.5
1.3 1.41.9 1.5
3.1 3.4 5.7
5.1 4.13.3 3.2
6.0%
8.0%
10.0%
30
40 % of consum
pte (b
n ci
gare
ttes)
a
UK
Belgium
Poland
Denmark
Luxembourg
Ireland Belarus
37.8 38.240.3
35.7 35.1 36.5 36.3 15.6 billion
12.1 10.4 11.5 12.7 13.1 14.0 11.5
8.5 10.011.5 9.2 9.3
10.710.3
7.8
2.0%
4.0%
10
20
ion
Volu
me
France
GermanyCzech
Republic
Austria
0.0%02006 2007 2008 2009 2010 2011 2012
Germany France
UK Netherlands
Austria Others
C&C share of total consumption
Spain4.0
billion
p
Key: Western EU countries Source countries with inflows of >0.5 billion cigarettes in 2012 –
total flows from highlighted source countries to Western Europe
Algeria
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total flows from highlighted source countries to Western EuropeSource: (1) KPMG analysis based on EPS, LDS and ND(L) research
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIALC&C inflows by destination regions: Eastern EU countries Eastern European countries’ C&C inflows declined, mainly as a result of lower flows into Bulgaria and Romania
Finland
R i
C&C inflows to Eastern EU countries 2006-2012(1)
g
16%30
Estonia
Latvia
Lith i
Russia
Duty Free
2 32.2
9.9% 8 7%9.5%
12.6%
15.4%12.7%
12.1%
10%
12%
14%
20
25
% of tet
tes) 19.2
20.6
Poland
Lithuania
Belarus
3 1
4.65.3 3.1
2.52.22.7
3.3 4.8
2.72.11.1
1.1
0.80.9
0.91.01.6
0.9
1.11.6
1.10.9
4.3
2.22.1
2.3
1.71.6
9.9% 8.7%
4%
6%
8%
10
15
otal consumptionV
olum
e (b
n ci
gare
11.0
14.014.9
16.214.3 7.2 billion
2.0 billion
Hungary
SlovakiaUkraine
Romania
Moldova3.8 4.7 4.9
7.1 5.8 6.7 6.2
2.2 3.1
0.00.62.3
0%
2%
0
5
2006 2007 2008 2009 2010 2011 2012
Poland Romania
3.0 billion
Bulgaria
SerbiaPoland Romania
Bulgaria Finland
Lithuania Others
C&C share of total consumption
Key: Eastern EU countries Source countries with inflows of >0.5 billion cigarettes in 2012 - total flows
from highlighted source countries to Eastern Europe
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from highlighted source countries to Eastern EuropeSource: (1) KPMG analysis based on EPS, LDS and ND(L) research
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIALC&C inflows by destination regions: Southern EU countries Southern European countries’ C&C inflows continued to increase, mainly as a result of a 50% increase in Italy between 2011 and 2012
C&C inflows to Southern EU countries 2006-2012(1)
y
6.5%
8.5%
6%
7%
8%
9%
20
24
28
% share of tte
s)
4 6
4.1
1 9 1 8
2.7
3.1
0 7 0.4 0.3
0.4
0.4
3.5%3.7%
2.4%2.9%
4.1%
3%
4%
5%
8
12
16
total consumption
Vol
ume
(bn
ciga
re
Duty Free
Belarus
8.0 8.4
6 3
8.5
12.6
14.9
4.0 4.32.0 3.0
4.5 4.87.3
2.1 1.8
2.11.9
1.84.61.2 1.9
0.71.0
1.80.7
0.50.3
0%
1%
2%
0
4
2006 2007 2008 2009 2010 2011 2012
Ukraine5.4
6.3
2.7 billion
2.1 billion
Italy Spain
Greece Others
C&C share of total consumption
Spain
Italy
GreecePortugal
Key: Southern EU countries Source countries with inflows of > 0.5 billion cigarettes in 2012 - total flows
from highlighted so rce co ntries to So thern E rope
MaltaCyprus
4.0 billionAlgeria1.4 billion
21© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
from highlighted source countries to Southern EuropeSource: (1) KPMG analysis based on EPS, LDS and ND(L) research
Unspecified
Canary Islands
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIALC&C source countriesThe largest source countries of C&C are from outside the EU, predominantly Belarus, which grew by 3.1 percentage points vs 2011. Within the EU Poland, the Czech Republic and Spain
Main non-domestic outflow countries and outflows 2012(1)
continue to be major source countries
Total 56 2 60 6 60 5 61 1 64 2 65 3 65 5
Russia
Total 56.2 60.6 60.5 61.1 64.2 65.3 65.5
13.2%2 4%4.6%
6.4%5.5%
4.8%3.0%
1.4%2.3%
32.6% 29.1% 25.2%19.0% 15.3% 12.4% 9.7%
80%
90%
100%
C&C
Other EU
Spain
Czech Republic
Belarus
Poland
Luxembourg
15.8% 22.8% 26.2% 30.1%
7 4%6.5%
6.0%
4.8%4.5% 3.9%
2.4%
10.7%12.4%
10.6%
13.0%11.7%
12.9%3 %
2.6%
3.0% 2.5%
2.4%
9.3%7.0%
9.4%
50%
60%
70%
Perc
enta
ge o
f to
tal C
Poland
PMI counterfeit
Other non-EU
Ukraine
MoldovaHungary
Czech Republic
19 2% 18 3% 18.1% 13.6% 8.3%6.9%
10.4%
8.9%
9.6%11.3%
9.8%8.0% 6.7%
1.7%
2.7%
1.7%1.4%
2.3%2.7% 3.5%0.3%
0.7%6.9%
7.4%10.8% 9.6%
6.2% 16.4%14.9%
7.4%
10%
20%
30%
40% Unspecified
Canary Islands
Russia
Ukraine
Spain
Romania
Serbia0.2% 1.0% 2.7% 5.0% 7.0% 10.1%19.2%
13.4%18.3%
0%
10%
2006 2007 2008 2009 2010 2011 2012
Belarus
Canary Islands
Algeria
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Canary Islands
Key: Source countries with outflows of > 0.5 billion cigarettes in 2012Source: (1) KPMG analysis based on EPS, LDS and ND(L) research
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIALManufacturer consumption in the EUThe share of C&C accounted for by the big four manufacturers is significantly lower than their market share of legal domestic salesg
EU27 share of manufacturers by consumption type (LDS, C&C) 2012(1)(a)
Share of market Share of C&C
14.7%
8.2%
35.3%
70%
80%
90%
100%
22.2%
18.6%
15.2%
11.0%
40%
50%
60%
70%Others
JTI
Imperial
BAT
36.3%25.0%
13.5%
0%
10%
20%
30%PMI
0%Legal Domestic sales Counterfeit and Contraband
Source: (1) KPMG analysis based on EPS, LDS and ND(L) researchNote: (a) The counterfeit and contraband calculations are made on a brand basis with brands allocated to each manufacturer.
This creates limitations where there are non-EU brands manufactured by the big four manufacturers which are included in “others”. In addition, there may be minor changes between the big 4 manufacturers where brands have been
ll t d t th f t ith th l t h d l d i id h th f t d
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allocated to the manufacturer with the largest share and may exclude incidences where another manufacturer produces the same brand in a different territory.
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIAL
Agenda
Methodology
M k t iMarket overview
C&C levels
C&C flows
Illicit whites
Summary
Appendix
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PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIALIllicit whitesConsumption of Illicit Whites increased by 3% in 2012, representing over 24% of total C&C volumes in the EU
18
Consumption of Illicit White brands2006-2012(1)(a)
13.2
15.516.0
14
16
18
Other identified Illicit White brands
Gold Mount
Nz
0.20.2 0.20.2
0 80 20.70.8
0.7
3.2
4.3
5.55.2
9.2
13.212.7
10
12
aret
tes
(bn)
Raquel
Premier
Minsk
Fest
Jin Ling
1.92.6
2.7
2.2 2.01 5
0.5 1.21.5
0.40.8
1.00.30.6 0.9
0.2
0.70.4 0.80.2
0.02.0
4.1
6
8Cig
a Jin Ling
American Legend
Classic
0 21.0
3.44.6
3.32.5 2.20.4
1.0 0.91.5
1.6
0.7
1.5
0.2
1.1
1.8
1.4
4.1
0
2
4
0.202006 2007 2008 2009 2010 2011 2012
% of total EU C&C 2.4% 6.8% 15.3% 21.5% 19.8% 23.8% 24.3%
25© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Note: (a) The analysis covers Illicit Whites brands as defined by PMI with at least 10 packs found in 2012. Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research.
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIALIllicit WhitesGrodno tobacco is the fastest growing Illicit White manufacturer, with volumes increasing by 47% in 2012
Consumption of Illicit White brands by manufacturer2006-2012(1)(a)(b)(c)
15.516.0
14
16
18Other Illict White TMOs
Kaanee American Tobacco
Explosal Ltd.
Baltic Tobacco Factory
8.8
7.6
9.2
13.212.7
10
12
14
ette
s (b
n)
Grodno Tobacco
2.00.6
1.1
0.8
0.7
6.3
9.4 8.0
4 1
6
8Cig
ar
0 71.4
3.14.6
0 8
2.72.8
2.4
2.1
0.2
0.2
0.30.90.0
1.4
3.11.4
4.1
2
4
0.70.802006 2007 2008 2009 2010 2011 2012
Note: (a) The analysis covers Illicit Whites brands as defined by PMI with at least 10 packs found in 2012. (b) Consumption represents the total consumption of each of the company’s main brands, which may include packs
labelled as Unspecified or immaterial volumes from packs labelled with another TMO.(c) Illicit White Manufacturers represent manufacturers of Illicit White brands as indicated by PMI
26© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
(c) Illicit White Manufacturers represent manufacturers of Illicit White brands as indicated by PMI. Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research.
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIALIllicit WhitesWhile Grodno Tobacco brands were present in 4 countries in 2009, they have become prevalent in 10 countries in 2012
Consumption of Grodno Tobacco brands2009(1)(a)(b)
Consumption of Grodno Tobacco brands2012(1)(a)(b)
Latvia LatviaEstonia
Czech Republic
Lithuania
Czech Republic
GermanyBelgium
UK
Lithuania
PolandPolandUK
Republic Republic
Italy
Hungary
SlovakiaFrance
Note: (a) The analysis covers Illicit Whites brands with at least 10 packs found in 2012. (b) Cities marked in these maps represent locations where Grodno Tobacco brands represented at least 1% of packs
collected in that city
Key: Grodno tobacco brands comprise greater than 0.5% of TC
Grodno tobacco brands comprise
27© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
collected in that city.Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research.
between 0.1% and 0.5% of TC
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIALIllicit WhitesBelarus has become the largest source of Illicit White brands, particularly in Eastern Europe; Unspecified brands remain significant in Southern Europeg
Source country of Top 20 Illicit White brands2012(1)(a)
Russia
0.3
Duty Free
Belarus
Germany
Lithuania
Poland0.3
0.6
2.9UK
Duty Free Illicit White inflows into Italy are mainly
comprised of Jin Ling
Flows from Belarus are largely comprised of Grodno
Tobacco brands such as Fest, Minsk and Nz
Ukraine
1.1
0.4
0.3
0.8
France
Italy
GreecePortugal
0 5
Spain
0.7
0.7
Unspecified1.3
0.5Key: Destination Countries
Source countries with inflows of 0.3 and >0.3 billion cigarettes in 2012
Note: (a) Analysis represents flows for top 20 Illicit White Brands, representing over 80% of total illicit White volumes in 2012.
Source: (1) KPMG analysis based on EPS, LDS and ND(L)
0.7
Gold Mount and American Legend are the most
prominent Unspecified brands
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( ) y , ( )research
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIALIllicit WhitesPoland has the largest Illicit White consumption levels in Europe at 4.5 bn cigarettes; Italy and Greece have the next highest levels at 2.8 bn cigarettes and 1.7 bn cigarettes respectively g g g y
Illicit White consumption by country2012(1)(a)
4.5
2.83.0
3.54.54.5
1 7
2.0
2.5
s (b
n)
Illicit White consumption is1.7
1.0 1.0 0.91.0
1.5
Stic
ks Illicit White consumption is highly concentrated in the
top 10 geographies, representing over 90% of
total Illicit White consumption
0.8 0.80.7 0.6
0.4
0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
0.5
0.0
Note: (a) The analysis covers Illicit Whites brands as defined by PMI with at least 10 packs found in 2012
29© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
Note: (a) The analysis covers Illicit Whites brands as defined by PMI with at least 10 packs found in 2012. Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research.
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIALIllicit WhitesItaly and Greece have seen among the fastest growth rates of Illicit White volumes in 2012
Change in Illicit White consumption2011/2012(1)(a)(b)
(1)(a)(b)Volume and growth of illicit white brands by country
Country 2011 2012Change 11/12
%
Finland
Key: 2011/2012 % Growth > 30% 2011/2012 % Growth 0 -30% 2011/2012 % Growth < 0%
Country 2011 2012 %Hungary 0.01 0.11 >100%Slovakia 0.01 0.07 >100%Italy 1.58 2.76 75%Malta 0.02 0.03 61%Greece 1.09 1.73 59%Spain 0 49 0 76 54%
Estonia
Lith i
Latvia
Sweden
Denmark
Spain 0.49 0.76 54%UK 0.64 0.95 49%Estonia 0.07 0.11 48%Slovenia 0.05 0.06 24%Latvia 0.35 0.40 13%Austria 0.02 0.02 8%Fi l d 0 01 0 01 5%
UK
Lithuania
PolandGermany
Ireland
Netherlands
Belgium
Czech Rep.Luxembourg
Finland 0.01 0.01 5%Lithuania 0.66 0.67 2%Portugal 0.00 0.03 -Cyprus 0.00 0.01 -Luxembourg 0.00 0.00 -Poland 4.62 4.48 (3)%
Hungary
Slovakia
Slovenia
Italy
FranceRomania
Bulgaria
Austria
Rep.
Portugal
Belgium 0.02 0.02 (6)%Ireland 0.17 0.15 (9)%Denmark 0.01 0.01 (12)%Netherlands 0.08 0.07 (14)%Sweden 0.06 0.04 (21)%Bulgaria 1.02 0.76 (26)%
Note: (a) The analysis covers Illicit Whites brands as defined by PMI with at least 10 packs found in 2012.
Greece
Spain
Cyprus
PortugalRomania 1.29 0.93 (27)%France 1.58 0.96 (39)%Czech Republic 0.30 0.17 (44)%Germany 1.36 0.64 (53)%Total 15.50 15.95 3%
30© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
(b) Illicit White volumes in Portugal, Cyprus and Luxembourg were zero in 2011, therefore it is not possible to calculate a percentage change year on year; countries where volumes have increased from zero have been coloured red, while countries which remained at zero have been coloured yellow.
Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research.
MaltaCyprus
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIAL
Agenda
Methodology
M k t iMarket overview
C&C levels
C&C flows
Illicit whites
Summary
Appendix
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PRIVATE AND CONFIDENTIAL
Project Star 2012: summary of key findings
■ Although manufactured cigarette consumption declined in the EU in 2012, Counterfeit & Contraband (C&C) and Non Domestic Legal (ND(L)) increased– Cigarette consumption declined by 5.7% to 593 billion cigarettes in the EU 27– C&C and ND(L) both increased in 2012, both in absolute terms and as a proportion of consumption
■ C&C inflows to Western EU countries remained stable in volume, however there was an increase in flows to the UK from Eastern Europe and Spain
C&C i fl t E t E t i d li d i l lt f l fl i t B l i d■ C&C inflows to Eastern European countries declined, mainly as a result of lower flows into Bulgaria and Romania
■ C&C inflows to Southern European countries increased, mainly as a result of a 50% increase in flows to Italy■ C&C inflows to Southern European countries increased, mainly as a result of a 50% increase in flows to Italy between 2011 and 2012
■ The largest source countries of C&C are from outside the EU
■ Growth in Illicit White brands has predominantly been driven by emerging brands originating in Belarus– Consumption of Illicit White brands increased by 3% to 16 billion sticks in 2012, representing over 24% of total
C&C l i th EU
32© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
C&C volumes in the EU
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIAL
Agenda
Methodology
M k t iMarket overview
C&C levels
C&C flows
Illicit whites
Summary
Appendix
33© 2013 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.
PRIVATE AND CONFIDENTIALPRIVATE AND CONFIDENTIAL
Individual country results
Copies of both this presentation and individual country results for 2012 are available for your collection after this meetingg
Country results provide an overview of the total consumption and legal sales trends and detail of both the counterfeit and contraband and non-domestic (legal) results
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