The Spanish Tobacco Market

Seville, September 2013 06/08/2013 1

Barcelona

Madrid

Sevilla

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History of Tobacco in Spain

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The 12 October 1492 Rodrigo de Jerez, sailor in the first Columbus´ expedition, was the first European to see the New World, America

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The 28 October 1492 Rodrigo de Jerez and Luis de Torres exploring the Island of Cuba could see in a village several men smoking burning

The sailors brought that use to Spain.

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Rodrigo de Jerez returned to his village, Ayamonte, and was seen smoking this plant in the village streets.

The Inquisition (Santo Oficio) stated that “only Satan can give to a man the faculty of expelling smoke through the mouth”

Condemned to 10 years in prison. Released after 7 years became a fashion in the streets of Seville.

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1624. Pope Urban VIII’s Bulla against tobacco use by a church. Seville, place with a high rate of tobacco consumption. This tile says that “ The Inquisition (Santo Oficio) will impose a severe and exemplar

punishment to any Christian that with evil arts inhale and expel smoke by any of the natural orifices, using for that the tobacco plant, badly found in the New World. Let it be obeyed and accomplished”.

Prohibition maintained until the end of the XVIII Century. Not too obeyed even by the priests.

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Sevillian Doctor and Pharmacist Nicolás Monardes, first European to research and grow tobacco in 1550

His book titled “Things brought from Western Indies that are worth in Medicine” describes effective tobacco treatments against 65 diseases.

The French Ambassador to Lisbon, Jean Nicot, brought in 1560 tobacco to his Queen, Catherine of Medicis, who had considerable relief in her headaches and started the fame of tobacco as “Panacea Universalis” around Europe.

Francisco Hernández Boncalo, Doctor of the King Philip II, made the first tobacco plantation in 1559 in Spain in the surroundings of Toledo.

Cigar would come from cicada (cigarra) Published treaties on the medicinal properties of the plant

against asthma, migraine, haemorrhage, etc.

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The Armenian Jorge Bautista Carrafa, established in Seville in 1620 the first Tobacco Factory in the World, close the Church of San Pedro.

Factory specialized in the renown “Tabaco polvo sevillano”, with aromatic substances (orange blossom, musk, etc) . It was snuffed.

Cigar production starts by the end of the XVII Century. Yearly production of 57.000 units.

1636. “Real Estanco de Tabaco”, the first Tobacco Monopoly of the World

1728 – 1756. New Tobacco Factory built on purpose.

Producing tobacco dust (tabaco en polvo). 80 % of the consumption, but by the end of the XVIII Century cigars had almost replaced the tobacco dust.

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Real Fabrica de Tabacos de Sevilla (1756 – 1950)

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By 1868, more than 6.000 women were working at the Factory of Seville making cigars.

There wages made them independent economically and an important economic group in the City of Seville.

Tienen las cigarreras En el zapato

Un letrero que dice ¡Viva el tabaco!

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Exit of the Factory

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In 1950, this Factory of San Diego was given to the University of Seville, that established its base there, and a new factory was built in Los Remedios, at the other side of the River Guadalquivir.

By Gonzalo Bilbao, ca. 1914.

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Carmen “la cigarrera”

Carmen is an international archetype after the Opera of Bizet, based in the novel of Prosper Merimée.

She was a “cigarrera” (cigar maker) and famous for her freedom and boldness. And working in the Factory of Seville.

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Evolution of the Monopoly

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1887, Compañía Arrendataria de Tabacos (C.A.T.) starts the management of the Monopoly. State owned but up to 40 % of private capital.

13 Tobacco Factories in the Iberian Peninsula and a Fleet of Boats to bring tobacco from abroad, mainly from the Philippines, that was part of Spain.

1945, Company name changed into Tabacalera S.A. with the

same private owners as before. 1998. Company privatized 1999. Altadis is formed from the merger with the former French

Monopoly Seita. it became the nº 1 Cigar Company in the World.

2005. Spain sold out its last pack of shares in the Company

In 2008, Altadis was bought by Imperial Tobacco.

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Tobacco Factories of Tabacalera S.A. by 1960s

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ITG Factories in 2013

Cantabria Cigar Factory

Logroño Cigarette Factory

Note: The Canary Islands had never been included in the Monopoly

Sevilla

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Monthly sales per company (millions of cigarettes) – Moving average 12 months source: Comisionado del Mercado del Tabaco

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Economic crisis

Smoking ban

New smoking ban

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Total Tobacco Spanish Market evolution in Billions of equivalent cigarettes (legal market)

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A decline in legal sales, with a loss of 29.4% of the total market since 2007 and of 40% in the cigarette segment.

Main causes: economic crisis, stricter regulations, increase in taxation and illicit trade.

Migration to cheaper products and segments (downtrading): a 114% growth in demand for fine-cut roll-your-own tobacco and of 75.6% in the segment of lower-priced cigarettes.

Illicit trade has multiplied by more than 5 times since 2007, rising from 2.2% to 12.7% of the market in 2012

Note: The Spanish population in 2013 is 46.704.314 inhabitants

89.1 90.3 81.4

72.4

60.3 53.4

1.1 1.1

1.2

1.5

1.9

2.2

5.1 6.9

9.1

9.0

8.4 10.9

0.1 0.2

0.2

0.4

1.4 0.9

2.1 4.6

4.0

3.5

6.8 8.6

0

20

40

60

80

100

120

2007 2008 2009 2010 2011 2012

Bill

ion

s o

f e

qu

ival

en

t st

icks

Total Spanish Tobacco Market

cigarettes cigars RYO pipe tob. Illicit trade

78

,8

76

,0

97

,5

10

3,1

86

,8

95

,9

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The Tobacco sector

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The tobacco sector is strategic in generating economic activity, employment and tax revenues in Spain

• The tobacco sector in Spain includes a wide range of business activities, ranging from cultivation to retail sale to the end consumer, as well as in the primary processing industry, the manufacturing industry and wholesale distribution. It is strategic in generating economic activity, employment and tax revenues, especially in some regions: Extremadura for cultivation and primary industry, Canary Islands, Rioja and Cantabria for manufacturing, Navarre for distribution by vending machines on which they are leaders in the EU.

• More than 2.7 billion euros of gross value added (GVA).

• More than 56,000 full-time equivalent jobs.

• More than 9.8 billion in tax revenues.

• Gross value added (GVA) is the economic value generated by different companies/productive sectors of the economy. It measures the contribution of these sectors and companies to the country’s Gross Domestic Product (GDP), given that this latter is but the sum of the GVA of its different business/productive sectors.

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Extremadura concentrates 93,4 % of the total crop in Spain. And it has CETARSA as the only transforming industry in Spain. It is the 2nd source of income for the region. The former crops of fermented Burley and Havana tobaccos have been changed in the last decades to processed Burley and Virginia Flue Cured.

Spain is the 4th country in the EU producing raw tobacco.

The tobacco farming sector is essential, contributing 103.7 million euros of GVA and generating 7,859 jobs.

Tobacco cultivation in Spain

Sevilla

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Spanish Tobacco Manufacturing

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In the Canary Islands, tobacco is considered to be a strategic sector for the island's economy, with a contribution to the GVA of 193 million euros and the generation of 4,568 jobs.

In Spain 48 industries operate in tobacco manufacturing giving direct work to 4.500 people, with 74,5 % of them operating in the Canary Islands, and generating 13.755 indirect jobs. Total income was of 930 million € and the GVA was of 465 million €

The biggest manufactures are in Mainland Spain, with one cigarette factory in Logroño (Rioja) and one cigar factory in Cantabria.

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Logistics, sales and taxes In 2010, tobacco products made a total tax contribution to the State of more than 10.000 million €, including VAT.

Tobacco special taxes were 40% of total special taxes in Spain in 2010 and 5,7% of the total tax income, much bigger than the specific weight of the sector in the national economy.

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The “estancos” oficial network (tobacconists) is composed of 13.601 establishments all around the Spanish territory, giving work to an estimate number of more than 20.000 jobs.

Logistics and sales have 27.000 direct and indirect jobs

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Tobacco Vending Machines

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After the “estancos”, tobacco products can be sold in the secondary network only by vending machines in the HORECAs.

Navarre is the region dominating the vending machine industry, with a predominant presence in the EU.

The Navarran companies Azkoyen, Jofemar and GM Vending have manufactured 90% of the tobacco vending machines installed in the EU.

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Hand Made Premium Cigars Top ROW Countries (USA excluded)

TOTAL VOLUME = 0.13 BN u = 130 M u

• Spain is the most important market by far. Cuban cigars

are 72 % of this market.

France 9% = 12 M u

Spain 17% = 22 M u

Italy 4% = 5 M u

Switzerland 8% = 10 M u

Germany 7% = 9 M u

Others 55% = 72 M u

Sources: 2010 ECMA, ERC, Estimations

=

=

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Note: USA has 2/3 of the World Premium Cigar market. Cuban cigars are not allowed.

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Thank you for your

attention!

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