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Project SUN
A study of the illicit cigarette market in the European UnionA study of the illicit cigarette market in the European Union
2013 Results
Presenting today: Helen Young, Associate Director, KPMG Strategy Group
Helen YoungAssociate Director, KPMG Strategy Group, London UKLondon UK
■ Helen Young is an Associate Director in KPMG’s Strategy Group with over thirteen years experience in consumer goods, retail and industrial markets
■ Helen is focussed on anti-illicit trade services and has been leading the delivery of Project SUN since 2012, a multi year project assessing the size, evolution and flows of illicit tobacco across all of the EU member states
■ She has also led a similar study assessing the illicit tobacco trade in the Latin American region
■ In addition Helen has extensive strategy consulting and■ In addition, Helen has extensive strategy consulting and transactions experience
1© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
The Project SUN methodology
Pan industry approach
■ In 2013, Project SUN (previously Project STAR) was commissioned jointly by the four major tobacco manufacturers. The input and provision of data sources from all four major cigarette manufacturers has provided KPMG with access to a much wider set of data sources, allowing for greater refinement of results
Objective evidence sourced from LDS and EPS results are i t t th
■ The KPMG EU Flows Model is a dynamic, iterative model that is based on legal domestic sales (LDS) and Empty Pack Survey (EPS ) results and is used to estimate overall manufactured cigarette volumes
■ The KPMG EU Flows model has been developed by KPMG to specifically measure inflows and outflows of input to the bespoke KPMG EU Flows Model
p y p ycigarettes between EU countries. It is an iterative data driven model that uses LDS and EPS results to estimate the volume of non-domestic outflows and inflows to and from each EU Member State
EPS results provide b t i di ti
■ EPS is the only market research method that relies purely on physical evidence, avoiding the variability of bi f d i i t i b d th da robust indication
of the incidence of nondomestic and counterfeit packs by country of origin
consumer bias found in interview-based methods
■ The EPSs are conducted by independent market research agencies on a consistent basis across all the EU markets, allowing for direct comparison of data and the identification of inflows and outflows between all of the countries analysed
■ Over 500,000 packs were collected in 2013 as part of this research
Primary market research, combined with tourism & t l t d d
■ The key objective of the market research programme undertaken by independent market research agencies is to estimate genuine, legal non-domestic tobacco purchases (including cross border shopping) in each market
■ ND(L) data used in the analysis in the 2013 Project SUN Report is based upon approximately 160,000 full travel trends and pricing changes, is used to estimate legal non-domestic cigarette purchases
( ) y j p p pp y ,interviews and over 14,000 net respondents.
■ Primary research is critical to deliver robust results as no other sources of sufficient detail and accuracy are available for legal cross border shopping
■ In addition to the research programme, ND(L) data has been adjusted by KPMG to reflect inbound visitor
2© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
g ■ In addition to the research programme, ND(L) data has been adjusted by KPMG to reflect inbound visitor inflows and relative price changes
Project SUN 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
KPMG has developed and refined its methodology for estimating counterfeit and contraband incidence across the 28 EU k t i 2006
3© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
markets since 2006
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
4© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Executive summaryProject SUN 2013 headlines
Counterfeit and contraband volumes declined as a percentage of overall
■ Overall volumes of counterfeit and contraband (C&C) consumption declined from 65.7 billion cigarettes to 58.6billion cigarettes. The C&C share of overall consumption fell from 11.1% to 10.5%. If these cigarettes had been sold legally in the countries where they were indentified the taxpercentage of overall
consumption in 2013If these cigarettes had been sold legally in the countries where they were indentified, the tax revenue would have been worth approximately €10.9 billion.
■ The C&C decline reflects a reduction of 3.9 billion cigarettes in the UK and 3.6 billion cigarettes in Italy, whilst in most countries, consumption of C&C products remained broadly static.
■ Greece experienced the highest increase in the overall volume of C&C product consumed at 26%■ Greece experienced the highest increase in the overall volume of C&C product consumed at 26%, resulting in C&C volumes rising to over 17% of overall consumption.
Consumption of Illicit Whites brands grew from 17.1 billion to 19 6 billion cigarettes in
■ Illicit Whites brands were identified in every EU country (except Luxembourg), many with unspecified or Duty Free labelling. The majority of Illicit Whites brands are manufactured by six manufacturers and distributed across Europe through sophisticated criminal supply chainsto 19.6 billion cigarettes in
2013, 33% of overall C&C consumption
manufacturers and distributed across Europe through sophisticated criminal supply chains.
■ The largest source of Illicit Whites was Belarus, where a large volume of brands were manufactured by the Grodno Tobacco Company.
Overall consumption of legally f t d i tt i th
■ Legal domestic consumption, the most significant proportion of total consumption in all markets, d li d b 7 5% L l d ti l h b i t d b b th th imanufactured cigarettes in the
EU declined by 7%declined by 7.5%. Legal domestic sales may have been impacted by both the economic environment within Europe and price rises. Unemployment rose in 21 of the 28 EU countries, whilst in over half the EU countries prices increased by more than 5%. In some countries there is evidence of consumers switching to other tobacco products (OTP).
L l f EU t b d B d l b t h d i l i d k t b 12 0% i 2013 ILevels of EU contraband consumption (excluding Illicit Whites) declined significantly, in the main being replaced by non-domestic legal (ND(L))
■ Border sales between cheaper and more expensively priced markets grew by 12.0% in 2013. In many areas with high volumes of border sales, prices in cheaper markets increased at a greater level than in more expensive markets, resulting in a lower price gap.
■ Countries with large populations close to the border with cheaper markets had the highest volume of non-domestic legal consumption These countries included the Netherlands Austria France and
5© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
purchasesof non-domestic legal consumption. These countries included the Netherlands, Austria, France and Germany.
European market overview There are significant hotspots of C&C consumption across the EuropeanUnionUnion
Germany has the highest
Counterfeit and contraband consumption as a percentage of overall consumption2013(1)
Estonia
Finland
Sweden The Baltic countries on the E t b d f th EU
y gvolume of C&C in Europe,
driven by contraband volumes from Poland and Czech Republic and by
Illicit Whites from BelarusIreland has typically had high volumes of C&C from
LuxembourgLithuania
Latvia Denmark
NetherlandRepublic UK
Eastern borders of the EU have historically had the
highest levels of C&C as a proportion of total
consumption
Poland and Romania
Key: C&C Consumption Over 20%
15-20%
Poland
H
Czech Republic
Austria
Germany
Netherlands
Republic of Ireland
France
UK
Belgium
SlovakiaFrance has the highest percentage of C&C of large
W t E 10-15%
5-10%
0-5%
Non-EU Country
S i
Romania
Hungary
Croatia
Austria
ItalySlovenia
Bulgaria
Portugal
Western European countries, with large volumes originating from Algeria and cheaper markets in Eastern
Europe
SpainGreece
Portugal
CyprusMaltaGreece experienced the
Large volumes of C&C that enter Spain and Italy are
Illicit White brands
6© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
phighest rise in C&C in 2013
Illicit White brandsSource: (1) KPMG EU Flows Model 2013.
European market overviewOverall consumption declined by 7% in 2013. For the first time since thestart of the study, C&C decreased by 11% in volume termsstart of the study, C&C decreased by 11% in volume terms
Total cigarette consumption within the EU by type 2007-2013(1)(a)(b)
30.3 29 0
60.6 60.561.1
720.1 705.6685.0
648.9628.9
593 7
700
800
30.3 29.025.0
23.723.3
24.827.8
64.265.3
65.758.6
593.7558.5
400
500
600
me
(bn
ciga
rette
s)
CAGR (%) 2007-2013 2012-2013 Counterfeit and contraband (0.5)% (10.6)%
Non-domestic legal (1 4)% 12 0%
629.2 616.1 598.8561.0 540.4
503.1 472.1
100
200
300Volu
m Non domestic legal (1.4)% 12.0%
Legal domestic consumption (4.9)% (7.5)%
Total (4.3)% (7.0)%
0
100
2007 2008 2009 2010 2011 2012 2013
Note: (a) The percentages above have been calculated without the inclusion of Croatia, however the overall volumes for 2013 include Croatia for the first time. Without Croatia total consumption would have been 551.5 billion, C&C 58.3 billion, ND(L) 27.7 billion and legal domestic consumption 465.6 billion.
(b) The availability of data from all manufacturers for the first time in 2013 has allowed for additional refinement of results in some countries. The net impact of this is to allocate an additional 1 billion to ND(L) from C&C Without these refinements C&C would be 59 6 billion and ND(L) 26 8 billion
7© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
billion to ND(L) from C&C. Without these refinements C&C would be 59.6 billion and ND(L) 26.8 billion.Source: (1) KPMG EU Flows Model 2007 – 2013.
European market overview After years of growth, C&C declined as a share of total consumption in2013, while ND(L) continued to grow2013, while ND(L) continued to grow
ND(L) and C&C share of total consumption2006-2013(1)(a)(b)
8.3% 8.4% 8.6%8.9%
9.9%10.4%
11.1%10.5%
8%
10%
12%
%)
4.5%4.2% 4.1%
3.7% 3.7% 3.7%4.2%
5.0%
4%
6%
e of
con
sum
ptio
n (%
0%
2%
2006 2007 2008 2009 2010 2011 2012 2013
Shar
e
Non domestic (legal) Counterfeit and contrabandNon domestic (legal) Counterfeit and contraband
ND(L) and C&C volumes (bn cigarettes)
2006 2007 2008 2009 2010 2011 2012 2013ND(L) volume 31.0 30.3 29.0 25.0 23.7 23.3 24.8 27.8( )C&C volume 56.8 60.6 60.5 31.1 64.2 65.3 65.7 58.6
Note: (a) As previously noted, the availability of additional data sources has had a net impact of 1 billion sticks in favour of ND(L). Had this not been available, the overall C&C volume would have been 10.75% of total consumption and ND(L) 4.85%.
(b) 2006 calculation does not include Bulgaria and Romania
8© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
(b) 2006 calculation does not include Bulgaria and Romania.Source: (1) KPMG EU Flows Model calculations 2006 – 2013.
European market overview Illicit Whites grew to 33% of overall C&C consumption in 2013
Counterfeit and contraband consumption by type2007-2013(1)(a)(b)
3.4
61.5 60.5 61.164.2 65.3 65.7
58.660
70
Conducting Project SUN on a pan-industry basis has allowed for
estimation of total counterfeit volumes for the first time in 2013(b)
58.9 55.553.3
54.350.6 48.6
35.6
30
40
50
bn c
igar
ette
s
for the first time in 2013(b)
14.7 17.1 19.610
20
30
Volu
me
b
2.6 5.0 7.8 9.914.7
02007 2008 2009 2010 2011 2012 2013
Illicit Whites Contraband Counterfeit
Note: (a) Overall decline in C&C includes the effect of availability of additional data sources as stated previously.(b) The Counterfeit volume reflects Counterfeit data from BAT Imperial Tobacco JTI and PMI but does not include data from other manufacturers
9© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
(b) The Counterfeit volume reflects Counterfeit data from BAT, Imperial Tobacco, JTI and PMI, but does not include data from other manufacturers.Source: (1) KPMG EU Flows Model 2007 – 2013.
European market overview Hungary, Slovenia and Croatia had the highest price increases in the EU in2013 in order to comply with the minimum EU tax rate2013 in order to comply with the minimum EU tax rate
Price
Country price comparison
WAP, pack of 20 (€)Price
Country price comparison
WAP, pack of 20 (€)
Country End of 2012 End of 2013Price
change
Serbia 1.52 1.79 16.2%
Hungary 2.66 3.00 13.0%
Russia 1.16 1.31 12.7%
Slovenia 2 95 3 27 10 8%
Country End of 2012 End of 2013Price
change
Slovakia 2.72 2.87 5.7%
Poland 2.65 2.80 5.5%
Switzerland 6.00 6.33 5.5%
Ireland 8 47 8 92 5 3%Slovenia 2.95 3.27 10.8%
Croatia 2.46 2.70 10.0%
Ukraine 0.80 0.88 9.9%
Albania 1.27 1.39 9.1%
Bosnia 1.57 1.71 9.1%
Ireland 8.47 8.92 5.3%
Netherlands 5.03 5.29 5.1%
Cyprus 3.91 4.08 4.3%
Czech Republic 2.76 2.88 4.2%
Macedonia 1.24 1.29 3.8%
Finland 4.50 4.89 8.7%
Canary Islands 1.68 1.83 8.6%
UK 7.52 8.15 8.5%
Latvia 2.40 2.60 8.3%
Estonia 2.62 2.82 7.6%
Germany 4.88 5.02 2.8%
Luxembourg 3.84 3.95 2.8%
Belgium 4.77 4.88 2.3%
Denmark 5.26 5.33 1.3%
Portugal 3.85 3.90 1.3%
Greece 3.28 3.50 6.8%
Spain 4.03 4.30 6.7%
France 6.10 6.50 6.6%
Romania 2.64 2.81 6.5%
Lithuania 2 25 2 38 5 8%
g
Bulgaria 2.36 2.38 0.9%
Italy 4.56 4.58 0.4%
Malta 4.14 4.07 -1.6%
Sweden 6.02 5.91 -1.8%
Belarus 0 66 0 64 3 5%Lithuania 2.25 2.38 5.8%
Austria 3.95 4.18 5.7%
Belarus 0.66 0.64 -3.5%
Norway 12.14 11.66 -3.9%
Note (a) Manufacturer estimates used for countries not included in the EU Tax Tables(b) EU countries highlighted
Key EU Countries highlighted
10© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
(b) EU countries highlighted Source: (1) EU Tax Tables
European market overview Price gaps have narrowed between EU countries; however, prices in non-EUcountries on the Eastern border remain up to 13 times lower than the EUcountries on the Eastern border remain up to 13 times lower than the EU
Map denotes weighted average prices for a pack of 20 cigarettesEnd of 2013(1)
Estonia€2 82
17%
Sweden€5.91
Finland€4.89Norway
€11.66
€2.82%
UKIreland€8 92
Lithuania€2.38
Denmark€5.33
Belgium€4 88
Netherlands€5.29
Luxembourg €3.95
Russia€1.31
€1.31Belarus€0.64
Latvia€2.60
€8.15
France
Germany€5.02
Poland€2.80
Czech Republic
€2.76
€8.92
Hungary€
Slovakia€2.87
€4.88
Ukraine€0.88
Switzerland Austria€4 18
Key: €6.00 or more €5.00 to €5.99 €4.00 to €4.99 €3.00 to €3.99
€2 00 t €2 99
Spain
€6.50Italy
€4.58
€3.00Slovenia
€3.27Romania
€2.81
€6.33
Portugal
Bulgaria€2.38
Croatia€2.70
Serbia€1.79
Macedonia
B-H€1.71
€4.18 €2.00 to €2.99 Less than €2.00
Malta€4.07
€4.30
Greece€3.50
Cyprus€4.08
Portugal€3.90
Albania€1.39
€1.29
Canary Islands€1.83
11© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Note (a) Manufacturer estimates used for countries not included in the EU Tax Tables Source: (1) EU Tax Tables
European market overview The key C&C consumption markets of Germany, France and Poland were stable.Declines in Italy and UK were offset by an increase in Spain and Greece. The main
t t i B lsource country to increase was BelarusC&C volume by source country2006-2013(1)
Conducting Project SUN on
C&C volume by destination country2006-2013(1)
13.6 12.456.860.6 60.5 61.1
64.2 65.3 65.7
58.660
70
12.711.5 11.3
3 456.8
60.6 60.5 61.164.2 65.3 65.7
58.660
70
a pan-industry basis has allowed for estimation of
total counterfeit volumes for the first time in 2013(b)
4 69 48.6 6.7
5 4
5.08.2
4 21.21.9
0.7 1.01.8
2.7 3.1
3.94.04.3 2.0 3.0 4.5
4.8 7.3
3.72.2 3.1 4.6 5.3
3.12.5
2.917.4
15.8 16.0 14.917.2
12.4
40
50
n ci
gare
ttes) Other EU
Romania
Italy
Greece10.5 8.1 11.1
5.7 5.4 5.86.9
6.35.2 4 4
0.30.4
0.81.1
1.5 1.5
0.91.7 1.00.8
1.51.7 2.3
1.4 3.2 2.0 4.9 8.5 13.8 14.7
17.8
8.210.6 10.7 11.1
8.0
3.4
40
50
ciga
rett
es
Counterfeit
Other non-EU
Unspecified
Canary Islands
AlgeriaNon EU
8.5 10.011.5 9.2 9.3
10.710.3 9.6
3.8 4.74.9 7.1 5.8
6.76.2 6.12.1 1.8
2.1 1.9 1.8
4.64.1 4.47.8
9.4 5.4 4.2
10
20
30
Volu
me
(bn Greece
UK
Spain
Poland
France4 2 3 65 1
4.2 5.7 2.9 1.90.9 1.5
17.8 17.6 15.311.6 9.8 8.1 6.5
6.1
0.10.6
1.6 3.2 4.6 6.6
6.9
11.1 8.7 5.4 4.5
1.3
5.2 4.4
3.02.41.2
10
20
30
Vol
ume
bn
Russia
Ukraine
Belarus
Other EU
SpainEU
12.1 10.4 11.5 12.7 13.1 14.0 11.5 11.3
0
10
2006 2007 2008 2009 2010 2011 2012 2013
Germany5.8 7.5 6.4 7.9 7.5 8.4 8.6 5.51.4
1.8 1.5 1.5 3.0 4.2 3.62.5
5.1 5.70.4
0
10
2006 2007 2008 2009 2010 2011 2012 2013
p
Czech Republic
Poland
Almost half of C&C
EU
Almost half of C&C manufactured cigarettes are
consumed within three countries in Europe
The growth in “unspecified” as a source of C&C is the result of greater volumes
being sold with no taxstamps and as Illicit Whites
12© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Source: (1) KPMG EU Flows Model 2007 – 2013.
European market overview A greater proportion of counterfeit and contraband now originates from unspecifi edsources along with Belarus, Russia and North African countriessources along with Belarus, Russia and North African countries
Major C&C inflows and source countries 2013(1)
Whilst there is a 2.5 billion Belarus has become the
largest C&C source
Russia
flow from Poland to Germany, there is also a significant C&C flow into
Poland from Belarus
country, with many Illicit Whites brands
3 0 billi
BelarusPoland
UK
Germany 5.5 billion 6.9 billion
Germany has the highest
3.0 billion
Romania
UkraineCzech Republic
France
1.3 billion billion
2.5 billion
16% of C&C in Romania is counterfeit from Ukraine, with an
Germany has the highest amount of C&C in Europe by volume, driven by contraband
volumes from Poland and Czech Republic and Illicit
Whites from Belarus
Spain
Greece
Italy,
additional 50% accounted for by Illicit Whites
Canary Islands
AlgeriaUnspecified
Gibraltar
1.2 billion
2.4 billion
High volumes of unspecified packs enter Italy and Greece from unidentifiable sources, which are Illicit Whites
The flow from Algeria to France doubled in
2013
13© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
2013Source: (1) KPMG EU Flows Model 2013.
European market overview 11 of the 28 EU markets experienced a decline in illicit cigarette consumption as apercentage of overall consumption in 2013percentage of overall consumption in 2013
C&C consumption incidence by country 2013(1)
1% 8.8%35%
% % 4% 1% 7% 7% 4.5%
4.7% 6.
4% 7.1%
7.6%
8.0% 8.8% 10
.2%
10.3
%
10.7
%
10.9
%
11.3
%
13.9
%
14.4
%
15.4
%
15.4
%
17.8
%
18.2
%
18.6
%
21.1
% 27. 28
10%15%20%25%30%
1.7%
1.9%
2.4 3.1
3. 3. 4 4
0%5%
Slov
akia
Portu
gal
uxem
bour
g
ch R
epub
lic
Den
mar
k
Cro
atia
Cyp
rus
Italy
Aust
ria
Slov
enia
Belg
ium
Hun
gary
Spai
n
UK
Net
herla
nds
Swed
en
Rom
ania
Ger
man
y
Pola
nd
Mal
ta
Fran
ce
Finl
and
Gre
ece
Bulg
aria
Esto
nia
Irela
nd
Lith
uani
a
Latv
ia
3.9% 4.4%6%
Percentage point change in C&C consumption incidence by country 2012 vs. 2013(1)
L
Cze
c N
0.9%
-0.9%
0.5% 0.9% 1.3%n/a
2.0%
-3.8%-3.4%
0.5% 0.0%1.2%
-0.7%-1.7%
1.6%0.2%
0.9%2.3%
-0.4%-1.5%
2.7%
-1.2%
2.0%
-0.4%-1.8%
6%-4%-2%0%2%4%
-6.2%-8%-6%
Slov
akia
Portu
gal
Luxe
mbo
urg
zech
Rep
ublic
Den
mar
k
Cro
atia
Cyp
rus
Italy
Aust
ria
Slov
enia
Belg
ium
Hun
gary
Spai
n
UK
Net
herla
nds
Swed
en
Rom
ania
Ger
man
y
Pola
nd
Mal
ta
Fran
ce
Finl
and
Gre
ece
Bulg
aria
Esto
nia
Irela
nd
Lith
uani
a
Latv
ia
14© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Cz
Source: (1) KPMG EU Flows Model 2007 – 2013.
European market overview Key ND(L) flows were from Poland and Czech Republic to neighbouring westernEuropean countriesEuropean countries
ND(L) consumption incidence by country 2013(1)
10.
10.6
11.3%
12.1%
14%
0.
0.8
1.0
1.0
1.0
1.1
1.1
1.1
1.4 %
1.4%
1.5%
1.9%
2.2%
2.3%
2.4%
2.3%
2.6%
2.6%
3.7%
4.3%
5.7%
5.8%
7.2%
9.8%
.4%
%
4%6%8%
10%12%
.4%
8%
0% 0% 0% % % % % % % %
0%2%
Portu
gal
Hun
gary
Mal
ta
Pola
nd
Gre
ece
Italy
Bulg
aria
Slov
akia
Cyp
rus
Rom
ania
Cro
atia
ch R
epub
lic
Latv
ia
Den
mar
k
Lith
uani
a
Spai
n
Slov
enia
Swed
en
Esto
nia
UK
Luxe
mbo
urg
Finl
and
Irela
nd
Fran
ce
Ger
man
y
Belg
ium
Aust
ria
Net
herla
nds
Percentage point change in ND(L) consumption incidence by country 2013(1)
Cze
c L N
2.9%3.6%
3.2%3%4%
-0.1%
0.3%
-0.4%-0.3%-0.1%
0.1%
0.0%
0.1% 0.3% 0.0% n/a
0.9%
-0.8%-1.0%-0.4%
0.7%
-0.1%
1.6%1.1%
-0.3%
1.2%1.8%
2%-1%0%1%2%3%
1.0%
-2.4%-1.7% -2.0%-3%
-2%
Portu
gal
Hun
gary
Mal
ta
Pola
nd
Gre
ece
Italy
Bulg
aria
Slov
akia
Cyp
rus
Rom
ania
Cro
atia
ech
Rep
ublic
Latv
ia
Den
mar
k
Lith
uani
a
Spai
n
Slov
enia
Swed
en
Esto
nia
UK
Luxe
mbo
urg
Finl
and
Irela
nd
Fran
ce
Ger
man
y
Belg
ium
Aust
ria
Net
herla
nds
15© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Cz
Source: (1) KPMG EU Flows Model 2007 – 2013.
European market overview Non-domestic legal consumption increased as a result of greater border sales between markets with large price differentialsbetween markets with large price differentials
Major border sales points(1)
Luxembourg€3.95
Poland€2.80
Germany€5.02
Belgium
Netherlands€5.29UK
€8.15
3.4 billion
0.4 billion
3.9
Key: Border sales countries Higher priced country
Lower priced countryHungary
€3.00
Czech Republic€2.88
Slovenia
Austria€4.18
€4.88
France€6.50
1.8 billion
0.5 billion
3 9billion
0.7 billion
0.3 billion
0.4 billion
Slovenia€3.27
1.5 billion
billion
Spain€4.30
16© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Source: (1) KPMG analysis of Non-domestic legal research
Illicit WhitesTotal consumption of Illicit Whites increased by 22% in 2013, representing 33% of total C&C volumes in the EU. The largest Illicit Whites brand is Fest, which increased it l b 44%its volumes by 44%
25
Consumption of Illicit Whites brands2006-2013(1)(a)
Top Illicit Whites brand growth
Brand 2012-13%F t 44%
19.620
25 Fest 44%Jin Ling 8%American Legend (5)%Ducal 81%Gold Mount 5%NZ 32%
7.7
8.714.7
17.1
15
Cig
aret
tes
(bn) Other
Premier
Minsk
RGD
Raquel
Raquel (11)%RGD 541%Minsk (21)%Premier (17)%
0 1 0 50.98
0 00.9 0.8
0.86
0 0
0.2 0.7
0.92
0 2
0.40.8
0.75
0 0
0.00.1
0.70
0.2
0.81.0
0.77
0.2 0 3
0.6
0.9
0.72
2.34.8
6.7
5.0
7.8
9.9
5
10
Raquel
Nz
Gold Mount
Ducal
American Legend
CAGR (%) 2007-13 2012-13Illicit Whites 40% 15%
0.0 0.0 0.0 0.2 0.5 1.2 1.5 2.100.0 0.7
2.6 2.7 2.22.0 1.5
1.66
0.00.4
1.01.9
0.91.5 1.6
1.49
0.0
0.0
0.0
0.1
0.0
0.5 0.5
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.2
0.2
0.20.7
0.0
0.0
0.0
0.00.0
0.0
0.0
0.0
0.20.4
0.0
0.0
0.0
0.3
0.1
1.2
1.2
0.1
2.6
0
5
2006 2007 2008 2009 2010 2011 2012 2013
Jin Ling
Fest
Note: (a) Our definition of Illicit Whites has been updated in 2013 to the ITIC definition (shown in the Glossary). We have updated our Illicit Whites analysis from prior years in reflection of this and have applied this definition consistently over the period shown resulting in some updates to Illicit White volumes from prior years
% of total EU C&C
0.2% 4.3% 8.3% 12.7% 15.5% 22.6% 26.0% 33.5%
17© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
applied this definition consistently over the period shown, resulting in some updates to Illicit White volumes from prior years.Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research.
Illicit WhitesGrodno Tobacco remained the largest Illicit Whites trademark owner in 2013 whilst Baltic Tobacco increased volumes by 19%Baltic Tobacco increased volumes by 19%
Consumption of Illicit Whites brands by trademark owner2006-2013(1)(a)
25
19.620
25
Other Illict White TMOs
0 90.9
5 2
5.2
6.114.7
17.1
15
Cig
aret
tes
(bn)
Kaane American International Tobacco
China National
Explosal Ltd.
H. Van Landewyck GMBH
Karelia Tobacco
Illicit Whites trademark owner growth
Trademark owner 2012-13%Grodno Tobacco 9%2.41.8
1.91.7
0.9
1.11.5
0 3
0.6
1.11.3
0.1 0 1
0.1
0.3
0.9
0.9
0.8
1.63.9
5.2
5 0
7.8
9.910
Karelia Tobacco
Baltic Tobacco Factory
Grodno Tobacco
Grodno Tobacco 9%Baltic Tobacco Factory 19%Karelia Tobacco (9)%H. Van Landewyck GMBH 27%Exposal Ltd 12%China National 161%0.1 0.7 1.4
3.24.6 5.0
0.82.7
2.82.4
2.1
2.0
0.00.6
1.2
2.1 1.1
0.1
0.2
0.20.1
0.2
0.2
0.30.9
0.0
0.1
0.1
0.9
0.7
0.1
2.6
5.0
0
5
2006 200 2008 2009 2010 2011 2012 2013
Note: (a) Our definition of Illicit Whites has been updated in 2013 to the ITIC definition (shown in the Glossary). We have updated our Illicit Whites analysis from prior years in reflection of this and have applied this definition consistently over the period shown resulting in some updates to Illicit White volumes from prior years
Kaane American International Tobacco 5%2006 2007 2008 2009 2010 2011 2012 2013
18© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
applied this definition consistently over the period shown, resulting in some updates to Illicit White volumes from prior years.Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research.
Illicit WhitesPoland had the highest level of Illicit Whites consumption in 2013. 15 out of 28 EU markets experienced a growth in Illicit Whites consumption in 2013markets experienced a growth in Illicit Whites consumption in 2013
4.04 04.5
Illicit Whites consumption by country 2013(1)(a)
2.82.5
1.61.4 1.3
1.1 1.0 0.9 0.80.5 0.5
0 2 0 2 0 21.01.52.02.53.03.54.0
Cig
aret
tes
(bn)
0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.00.00.5
Pola
nd
Gre
ece
Spai
n
Bulg
aria
Ger
man
y
Italy UK
Fran
ce
Rom
ania
Lith
uani
a
Hun
gary
Latv
ia
Irela
nd
Esto
nia
Cro
atia
zech
Rep
ublic
Slov
akia
Swed
en
Net
herla
nds
Belg
ium
Portu
gal
Slov
enia
Aust
ria
Mal
ta
Finl
and
Den
mar
k
Cyp
rus
Luxe
mbo
urg
0.6 0.50.5
0.30.4
0 40.60.8
n)
Cz
Volume change in Illicit Whites consumption by country 2012 vs. 2013(1)(a)
0.1 0.1
-0 5
0.0 -0.1
0.3
0.1 0.1 0.1 n/a 0.0 0.1 0.1 0.0
-0.1
0.0
-0.1
0.0
-0.1 0.0
0.0 0.0 0.0
0.0
-0.6-0.4-0.20.00.20.4
Cig
aret
tes
(bn
0.5-0.8
Pola
nd
Gre
ece
Spai
n
Bulg
aria
Ger
man
y
Italy UK
Fran
ce
Rom
ania
Lith
uani
a
Hun
gary
Latv
ia
Irela
nd
Esto
nia
Cro
atia
Cze
ch R
epub
lic
Slov
akia
Swed
en
Net
herla
nds
Belg
ium
Portu
gal
Slov
enia
Aust
ria
Mal
ta
Finl
and
Den
mar
k
Cyp
rus
Luxe
mbo
urg
19© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Note: (a) Our definition of Illicit Whites has been updated in 2013 to the ITIC definition (shown in the Glossary). We have updated our Illicit Whites analysis from prior years in reflection of this and have applied this definition consistently over the period shown, resulting in some updates to Illicit White volumes from prior years.
Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research.
Illicit WhitesBelarus continues to be the largest known source country of Illicit Whites brands, which are mainly manufactured by Grodno Tobacco Companywhich are mainly manufactured by Grodno Tobacco Company
Source country of Top 5 manufacturers2013(1)(a)(b)
17%
Russia%
Poland
Lithuania
Belgium
Netherlands
Luxembourg
2.6 billion
0.7 billion0.9 billion
Belarus
Grodno TobaccoB lti T b F t
Key: Destination Countries Source countries of the top 5 manufacturers with outflows of >0.5bn cigarettes per
destination country in 2013France
Germany
Poland
HungaryRomania
1.3 billion 0.6 billion
Baltic Tobacco FactoryKarelia TobaccoH. Van Landewyck GMBHExplosal Ltd.
Spain
Greece
RomaniaCroatia
0.7 billion
Note: (a) Analysis represents flows for brands of the top 5 manufacturers and from unspecified markets, representing over 60% of total illicit White volumes in 2013
Cyprus
0.6 billion
0.6 billion
20© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
of total illicit White volumes in 2013Source: (1) KPMG analysis based on EPS, LDS and ND(L) research
Illicit WhitesWhile Grodno Tobacco brands were found in 4 countries in 2009, its brands havespread further West, becoming prevalent in 15 countries in 2013spread further West, becoming prevalent in 15 countries in 2013
Consumption of Grodno Tobacco brands 2013(1)(a)(b)
Consumption of Grodno Tobacco brands 2009(1)(a)(b)
Finland
Latvia
Lithuania
Estonia
Latvia
Lithuania
Sweden
Denmark
UK Poland
Czech Republic
Lithuania
UK Poland
SlovakiaCzech
Republic
Germany
Lithuania
Italy
Hungary Romania
GreeceGreece
Key: Grodno tobacco brands comprise greater than 0 5% of total consumption
Note: (a) The analysis covers Illicit Whites brands found in 2009 and in 2013(b) The number of dots marked represent the varying levels of consumption in each country
21© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Key: Grodno tobacco brands comprise greater than 0.5% of total consumption Grodno tobacco brands comprise between 0.1% and 0.5% of total consumption
(b) e u be o dots a ed ep ese t t e a y g e e s o co su pt o eac cou t y(c) Grodno brands in the EU consist of Fest, NZ, Minsk, Premier, Queen, Magnat and VIP
Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research.
Illicit WhitesEastern European and Scandinavian countries have seen the fastest growth of IllicitWhites volumes in 2013Whites volumes in 2013
Change in Illicit Whites consumption2012/2013(1)(a)(b)
Fi l d
Volume and growth of Illicit Whites brands by country
Country 2012 2013Change 2012-
13%Share of
consumption
Estonia17%
Sweden
FinlandCountry 2012 2013 13% consumptionHungary 0.12 0.52 >100% 5.8%Finland 0.01 0.03 >100% 0.6%Slovakia 0.04 0.10 >100% 1.5%Slovenia 0.02 0.05 >100% 1.5%Czech Republic 0.09 0.15 70% 1.1%
UKPoland
Ireland
LithuaniaDenmark
Belgium
Netherlands
Luxembourg
LatviaEstonia 0.12 0.19 64% 10.3%Ireland 0.15 0.23 57% 5.0%Romania 0.60 0.93 54% 3.5%Bulgaria 1.10 1.64 50% 11.9%Germany 0.93 1.39 49% 1.4%Sweden 0 07 0 09 40% 1 5%
France
Germany
Czech Republic
Hungary
Slovakia
Slovenia RomaniaSwitzerland
Austria
Key: 2012/2013 % Growth > 30%
Sweden 0.07 0.09 40% 1.5%Spain 1.83 2.45 34% 4.9%Latvia 0.40 0.50 24% 21.1%Denmark 0.02 0.02 19% 0.4%Cyprus 0.01 0.01 18% 0.6%Lithuania 0.67 0.76 13% 21.2%
Spain
ItalySlovenia Romania
Portugal
BulgariaCroatia
Key: 2012/2013 % Growth > 30% 2012/2013 % Growth 0 -30% 2012/2013 % Growth < 0%
Greece 2.63 2.76 5% 12.2%Belgium 0.05 0.06 3% 0.5%Poland 3.87 3.99 3% 9.1%Croatia n/a 0.17 n/a 2.5%UK 1.06 1.06 (1)% 2.5%F 1 08 1 03 (5)% 1 6%
Malta
Greece
Cyprus
Note: (a) Our definition of Illicit Whites has been updated in 2013 to the ITIC definition (shown in the Glossary). We have updated our Illicit Whites analysis from prior years in reflection of this and have applied this definition consistently over the periodshown, resulting in some updates to Illicit White volumes from prior years.
France 1.08 1.03 (5)% 1.6%Malta 0.04 0.04 (5)% 7.7%Italy 1.84 1.30 (30)% 1.7%Netherlands 0.12 0.06 (48)% 0.5%Austria 0.09 0.04 (59)% 0.3%Portugal 0.13 0.05 (60)% 0.5%
22© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
g y(b) Illicit Whites volumes in Croatia were not identified in 2012, 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.
Portugal 0.13 0.05 (60)% 0.5%Luxembourg 0.01 0.00 (100)% 0.0%Total 17.11 19.61 15%
© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
The KPMG name, logo and “cutting through complexity” are registered trademarks , g g g p y gor trademarks of KPMG International Cooperative (KPMG International).
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