Project Star 2011:
Presentation of results
Advisory - Strategic and Commercial Intelligence
19 June 2012
PRIVATE AND CONFIDENTIAL
KPMG
Tel +44 (0) 207 311 1000
Transaction Services
Fax +44 (0) 207 694 8010
15 Canada Square
London
E14 5GL
Private & Confidential
The report is issued to you on the basis that it is for your information only and, save as
European Commission European Anti-Fraud Office
may be required by law, is not to be disclosed, quoted or referred to, in whole or in
European Commission
part to any other party other than the Relevant Administrations, as defined in the Anti-
OLAF
Contraband and Anti-Counterfeit Cooperation Agreement dated 9 July 2004, and we
B-1049 Brussels
ask you as well as the Relevant Administrations to maintain the confidentiality of the
Belgium
report. Should you choose to disclose the report to any Relevant Administrations you
will ensure that they understand the basis on which disclosure has been made and shall
19 June 2012
provide them with a copy of this letter.
Dear Sirs,
Yours faithfully
KPMG Review of Tobacco consumption in the EU (Anti-Contraband and Anti-
Counterfeit Cooperation Agreement)
We attach a copy of a confidential report on tobacco consumption in the EU
("Report") which has been prepared by KPMG LLP in accordance with the specific
terms of reference ("the terms of reference") agreed between Philip Morris
International Management S.A. ("PMI") and KPMG LLP.
KPMG LLP
KPMG LLP has agreed that the Report may be disclosed to you on the basis set out in
this letter. KPMG LLP wishes you to be aware that KPMG LLP's work for PMI was
performed to meet specific terms of reference agreed between PMI and KPMG LLP
and that there were particular features determined for the purposes of the engagement.
The Report 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 the Report you do
so at your own risk. KPMG LLP will accordingly accept no responsibility or liability
in respect of the Report to you or to any persons other than the addressees of the
Report.
KPMG LLP, a UK limited liability partnership, is a member of KPMG International, a Swiss
Registered in England No OC301540
cooperative
Registered office: 15 Canada Square, London E14 5GL
Disclaimer
PRIVATE AND CONFIDENTIAL
This report on tobacco consumption in the EU (“Project Star 2011 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 LLP.
KPMG LLP wishes you to be aware that KPMG LLP's work for PMI was performed to meet specific terms of reference agreed between
PMI and KPMG LLP and that there were particular features determined for the purposes of the engagement. The Project Star 2011
Results 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 2011 Results to you or to any persons other than PMI.
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
2
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Objectives for today
PRIVATE AND CONFIDENTIAL
■ Provide an overview of developments in the EU illicit cigarette trade in 2011 identified as a result of
Project Star. The presentation will cover;
– Methodology
– Market background and legal sales
– Consumption and illicit market analysis
– Source markets and brands
– Review of PMI counterfeit and contraband
– Conclusions
■ 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
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
3
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Agenda
PRIVATE AND CONFIDENTIAL
Methodology
Market background and legal sales
Consumption and illicit market analysis
Source markets and brands
Review of PMI counterfeit & contraband
Summary
Appendix
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
4
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Project Star uses legal domestic sales, Empty Pack Survey results and consumer
research to determine counterfeit and contraband volumes
PRIVATE AND CONFIDENTIAL
Domestic consumption
Based on consumer
survey results regarding
cross border purchases
Non-domestic
(legal)
)
Non-domestic
Counterfeit and
tes
et
Outflows
contraband
ar
ig
c
Obtained by subtracting
(
legal cross border
ion
purchases from the total
pt
Based on Empty
non-domestic volume
um
Pack Survey
Based on Empty
Legal
results
ons
Pack Survey
c
Domestic
Legal
results
te
sales
domestic
et
consumption
ar
ig
C
The Project Star methodology was developed by KPMG and approved by OLAF. It has been deployed on a
consistent basis since 2006, enabling comparisons to be made between counterfeit and contraband
volumes from year to year.
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
5
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Agenda
PRIVATE AND CONFIDENTIAL
Methodology
Market background and legal sales
Consumption and illicit market analysis
Source markets and brands
Review of PMI counterfeit & contraband
Summary
Appendix
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
6
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Real GDP growth was positive in all Member States except Greece and Portugal,
however, unemployment in the EU27 remained high at 9.7%
PRIVATE AND CONFIDENTIAL
Real GDP change and unemployment rate, 2011(1)(a)
25%
20%
15%
age
10%
Unemployment
ent
c
EU 27 = 9.7%
er
P
5%
Real GDP change
EU 27 = 1.5%
0%
-5%
-10%
a
a
ia
ia
a
a
ta
e
ia
y
ic
g
k
n
ly
a
e
v
tri
us
any
al
um
ar
and
UK
toni
and
ak
s
and
ani
pai
pr
Ita
eni
tugal
s
eden
gi
Lat
ol
m
inl
M
ranc
gar
bour
lands
S
y
reec
E
thuani
P
w
lov
Au
er
F
om
el
F
ul
ungar
epubl
enm
Irel
C
lov
or
G
Li
S
S
B
B
G
R
H
em
her
D
S
P
h R
et
ec
Lux
N
z
Key:
Annual change in real GDP 2011
C
Note:
(a) Real GDP is an inflation-adjusted measure that reflects the value of
Annual change in real GDP 2011 EU-27
all goods and services produced in a given year, expressed in
Unemployment rate 2011
base-year prices.
Unemployment rate 2011 EU-27
Source: (1) Eurostat, real GDP growth rate and unemployment rate, accessed
April 2012
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
7
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Price increases of over 5% were observed in 15 Member States in 2011
PRIVATE AND CONFIDENTIAL
Percentage change in weighted average price,
2010-2011(1)(a)(b)
55.0%
45.0%
35.0%
hange
e c
tag
en
c
25.0%
er
P
14.8% 15.3%
15.0%
11.7% 12.4%12.8%
10.3%10.8%
7.2% 7.2% 7.5% 7.7%
5.2% 5.3% 5.6% 5.9%
5.0%
2.6% 2.7% 2.9% 3.4% 3.8% 3.9% 4.0%
1.6%
0.3% 0.4%
-0.2%
-5.0%
-4.3%
d
y
y
e
a
a
e
g
k
a
a
en
ia
ic
ia
ly
al
ar
lta
ki
c
ia
nd
in
an
ar
an
tria
ni
ium
ur
ar
v
ni
a
UK
a
rus
ed
land
e
g
g
Ita
s
a
m
p
Ma
ubl
uan
reec
va
g
rtug
m
lands
toni
y
w
in
ran
bo
ol
ul
un
Au
Sp
lo
el
o
Lat
s
S
F
Irel
ep
lov
F
P
er
C
B
er
th
G
H
B
en
om
E
G
R
Li
S
S
P
em
D
R
h
h
et
Lux
N
zec
C
Note:
(a) Data labels for 2011 price change only
Key:
Change in weighted average price 2010-2011
(b) Weighted average pack price change calculated in local currency
Change in weighted average price 2009-2010
Source: (1) PMI Management and EU Tax Tables
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
8
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Price differentials between Member States and neighbouring countries remained
significant
PRIVATE AND CONFIDENTIAL
Map denotes Marlboro price per 20 cigarettes
at 1 July 2011(1)
Finland
Norway
€5.00
€11.09
17
Sweden
Estonia
%
€5.75
€3.00
Russia
Latvia
Denmark
€1.37
€2.85
€5.36
Luxembourg €4.40
Lithuania
€2.58
Netherlands
€1.37
€5.47
Belarus(a)
Ireland
UK
Belgium
€1.11
€8.55
€7.91
€5.05
Poland
Germany
€3.00
€5.16
Czech Republic
Ukraine
€3.46
Slovakia
€1.00
€3.37
Austria
France
€4.40
Hungary
Moldova
€5.90
€2.49
Slovenia
€1.05
Key:
€6.00 or more
Romania
Italy
€3.20
€2.90
€5.00 to €5.99
€4.60
B-H
Serbia
€1.69
€4.00 to €4.99
Switzerland
Croatia
€1.71
Bulgaria
€6.00
€2.97
€3.00 to €3.99
€2.56
Andorra
Montenegro
€2.00 to €2.99
Spain
€2.40
€1.70
Portugal
Macedonia
Less than €2.00
€3.85(b)
Turkey
€4.00
€1.94
€3.56
Albania
Greece
Notes:
(a) Based upon the price of a pack of 20
€1.61
€4.00
Kent cigarettes, a comparable premium
Malta
Cyprus
brand, as Marlboro is not sold in Belarus
Tunisia
€4.00
€3.85
€2.21
(b) A number of price changes took place
Morocco
Algeria
in Spain between April and October in
€2.88
€1.46
2011, the average Marlboro price for the
Canary Islands
€2.30
Libya
Egypt
year per IMS data is €4.15
€1.36
€1.33
Source:
(1) PMI Management and EU Tax Tables
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
9
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
In 2011, the steepest falls in legal domestic sales were observed in the Mediterranean
region
PRIVATE AND CONFIDENTIAL
Percentage change in legal domestic sales for EU-27, 2010-2011(1)
15%
11%
9%
10%
7%
S
5%
LD
2% 2%
in
0% 1% 1%
0%
hange
EU 27 = -3.2%
-2% -2% -2% -2% -1% -1% -1% -0%
-5%
-3% -3% -3% -3%
-5% -4%
age c
-5% -5%
ent
c
-10%
er
P
-13%
-15%
-14%
-15%
-20%
n
e
k
us
ta
a
a
ly
y
ia
e
ia
a
ic
g
ia
a
a
ar
v
pai
tri
pr
al
and
s
and
UK
Ita
ak
eni
any
um
and
ani
S
y
reec
M
tugal
toni
gi
s
lands
ol
ranc
gar
bour
m
inl
eden
Lat
C
G
or
Irel
Au
P
ungar
lov
F
ul
lov
epubl
el
F
w
om
P
E
enm
er
B
S
thuani
D
her
H
S
B
S
em
Li
R
et
G
h R
N
ec
Lux
z
C
Source: (1) In Market Sales provided by PMI
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
10
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Total EU legal domestic sales declined by 3.2% in 2011, compared with a 6.1% fall the
previous year
PRIVATE AND CONFIDENTIAL
Historic Legal Domestic Sales for EU-27, 1997-2011(1)
1,000
800
804
810
789
793
800
771
)
800
729
tes
698
687
677
et
658
634
595
igar
576
c
600
bn
e (
um
400
ol
V
200
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Key:
EU 27 Countries(a)
Note:
(a) Romania and Bulgaria have been included at 2007 levels for each of the years 1997-2007
Source: (1) In Market Sales provided by PMI
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
11
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Summary of market background and legal sales
PRIVATE AND CONFIDENTIAL
Despite growing economic concerns, real GDP increased in 24 of the 27 Member States in 2011
■ The strongest real GDP growth was observed in the Baltic States, although unemployment remains high in that region
■ The unemployment rate also exceeded 10% in Spain, Greece, Portugal, Ireland, Slovakia, Bulgaria and Hungary
Total EU legal domestic sales declined by 3.2% in 2011, compared with a 6.1% fall the previous year
■ The steepest declines in legal domestic sales during 2011 were observed in the Mediterranean region
Price increases of over 5% were observed in 15 Member States in 2011
■ Price differentials between Member States and neighbouring countries remained significant
– The price of a pack of 20 Marlboro King Size ranges from €2.49 in Hungary, to €8.55 in Ireland
– Prices range between €1.00 and €11.09 for 20 Marlboro King Size in countries bordering the European Union
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
12
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Agenda
PRIVATE AND CONFIDENTIAL
Methodology
Market background and legal sales
Consumption and illicit market analysis
Source markets and brands
Review of PMI counterfeit & contraband
Summary
Appendix
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
13
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
In 2011, total consumption declined while consumption of non-domestic products
increased slightly
PRIVATE AND CONFIDENTIAL
EU consumption by type, 2006-2011(1)
800
720
706
682
15
700
669
685
51
21
13
91
649
89
36
629
88
86
20
86
600
88
89
)
500
tes
ret
400
iga
bn c
629
300
594
616
e (
584
599
561
540
um
ol
200
V
100
0
EU 2006
Change in
2007 (EU25
Accession
EU 2007
Change in
EU 2008
Change in
EU 2009
Change in
EU 2010
Change in
EU 2011
consumption
only)
of Romania
consumption
consumption
consumption
consumption
& Bulgaria
Key:
Non-domestic
Legal domestic consumption
Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
14
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
The share of counterfeit and contraband consumption increased to 10.4%, or 65.3
billion cigarettes, in 2011
PRIVATE AND CONFIDENTIAL
ND(L) and C&C share of total consumption 2006 – 2011(1)
12%
10.4%
9.9%
10%
ion
8.9%
pt
8.3%
8.4%
8.6%
um
8%
ons
C
al
6%
ot
Key:
Non-domestic legal
T
4.5%
Counterfeit and Contraband
4.2%
of
4.1%
3.7%
3.7%
3.7%
%
4%
2%
0%
2006
2007
2008
2009
2010
2011
ND(L) volume
31.0
30.3
29.0
25.0
23.7
23.3
(bn cigarettes)
C&C volume
56.8
60.6
60.5
61.1
64.2
65.3
(bn cigarettes)
Source:
(1) EU Flows Model 2006 - 2011
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
15
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Latvia, Lithuania and Bulgaria remain the markets with the highest illicit product
incidence, but all three experienced declines in illicit consumption levels in 2011
PRIVATE AND CONFIDENTIAL
C&C share of consumption by country 2010 – 2011(1)
6%
3%
35%
31.
31.
of
ion
30%
2%
e
pt
8%
5%
25%
20.
8%
4%
17.
har
um
17.
1%
9%
20%
15.
2%
15.
6%
1%
2%
1%
1%
s
13.
12.
12.
ons
15%
11.
11.
2%
%
10.
10.
10.
9.
2%
3%
9%
C
c
7.
3%
10%
6.
5.
5.
8%
6%
0%
0%
&
al
3.
3.
9%
3.
3.
1%
7%
C
5%
1.
1.
0.
tot
0%
l
ia
a
a
e
d
ia
e
n
a
ly
ic
g
v
ia
ni
ria
nd
c
n
ny
nd
ta
ry
rk
us
al
tria
n
UK
ai
um
a
k
at
a
a
la
a
a
s
a
nds
p
eni
Ita
tuga
pr
a
L
lg
toni
gi
s
ran
in
m
ol
M
m
la
reec
eden
S
bour
y
v
thua
u
Irel
E
F
F
er
P
Au
G
w
lov
el
unga
epubl
or
enm
C
lo
Li
B
B
G
Ro
her
S
S
H
P
D
em
S
et
h R
N
ec
Lux
z
C
2011 C&C
0.8 1.1 2.7 1.0 0.3 10.7 0.9 14.0 6.7 0.1 1.9 3.1 1.6 2.7 5.0 0.6 4.6 0.2 0.7 4.8 0.5 0.6 0.3 0.2 0.0 0.0 0.1
volumes (bn)
8
8
4.
6
1
2
6
3.
re
pp)
8
4
4
2.
6
2.
2.
0
4
7
5
ha
0.
0
0.
1.
1.
2
0.
0.
0.
0.
s
ion (
C
pt
0
&
-2
5
5
5
um
5
7
3
7
9
3
-4
in C
-0.
-0.
-0.
ons
-6
-1.
-0.
-1.
-1.
-1.
9
3
-1.
l c
-8
-3.
nge
a
-5.
-10
1
ha
ot
4
5
C
t
-12
-8.
of
-9.
-10.
Source:
(1) EU Flows Model 2010 - 2011
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
16
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
The share of C&C consumption accounted for by the Mediterranean region increased to
19.3% in 2011, whilst the share of the Eastern border countries declined significantly
PRIVATE AND CONFIDENTIAL
Classification of markets
Share of total C&C inflows by destination regions, 2006-2011(1)
100%
8.9%
14.1%
13.9%
10.3%
13.2%
90%
19.3%
80%
24.6%
19.4%
23.1%
31.3%
) 70%
32.1%
24.8%
(%
C 60%
&
l C
a 50%
ot
t 40%
66.5%
re of
63.0%
66.5%
30%
58.4%
54.7%
55.9%
ha
S 20%
10%
0%
2006
2007
2008
2009
2010
2011
Key:
Mediterranean 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
Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
17
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Counterfeit and contraband increased significantly in the Mediterranean countries in
2011 to account for 12.6 billion cigarettes and 6.5% of consumption
PRIVATE AND CONFIDENTIAL
C&C inflows to Mediterranean EU countries, 2011(1)
C
)
45
20% &C
tes
40
s
et
har
35
15%
igar
e
c
30
of
bn
25
c
(
10% ons
20
es
6.5%
um
15
um
3.5%
3.7%
4.1%
ol
5%
pt
10
2.4%
2.9%
i
v
on
12.6
C
5
8.0
8.4
5.4
6.3
8.5
&
(%
C
0
0%
)
2006
2007
2008
2009
2010
2011
C&C volumes (bn cigarettes)
C&C share as total consumption (%)
Key:
EU – Mediterranean countries
Source countries with inflows of over 1 billion cigarettes in 2011
C&C flows of over 0.4 billion cigarettes in 2011
Unspecified(a)
Note:
(a) ‘Unspecified’ refers to packs which do no bear any specific market
or Duty Free labelling
Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic
sales and non-domestic (legal) research
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
18
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
In 2011 counterfeit and contraband as a share of consumption in Eastern border
countries declined to close to the 2009 level
PRIVA
V T
A E
T AND
A
CONFI
NF DENTI
NT AL
A
L
C&C inflows to Eastern border EU countries, 2011(1)
C
)
45
20% &C
tes
40
s
et
15.4%
har
35
igar
12.6%
12.7%
15% e
c
30
of
9.9%
bn
25
9.5%
c
8.7%
(
10% ons
20
es
um
15
um
ol
5%
pt
10
19.2
20.6
v
16.2
ion
C
5
11.0
14.0
14.9
&
(%
C
0
0%
)
2006
2007
2008
2009
2010
2011
C&C volumes (bn cigarettes)
C&C share as total consumption (%)
Key:
EU - Eastern border countries
Source countries with inflows of over 1 billion cigarettes in 2011
Unspecified(a)
C&C flows of over 0.4 billion cigarettes in 2011
Note:
(a) ‘Unspecified’ refers to packs which do no bear any specific market
or Duty Free labelling
Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic
sales and non-domestic (legal) research
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
19
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Counterfeit and contraband share of consumption and volumes in the Western and
Central EU markets increased slightly in 2011
PRIVATE AND CONFIDENTIAL
C&C inflows to Western and Central EU countries, 2011(1)
C
)
45
20% &C
tes
40
s
et
har
35
15%
igar
12.4%
e
c
30
11.1%
11.5%
11.3%
11.3%
11.9%
of
Unspecified(a)
bn
25
c
(
10% ons
20
es
um
15
um
40.3
ol
5%
pt
10
37.8
38.2
35.7
35.1
36.5
i
v
on
C
5
&
(
C
0
0%
%
)
2006
2007
2008
2009
2010
2011
C&C volumes (bn cigarettes)
C&C share as total consumption (%)
Key:
Western and Central EU countries
Source countries with inflows of over 1 billion cigarettes in 2011
C&C flows of over 0.4 billion cigarettes in 2011
Note:
(a) ‘Unspecified’ refers to packs which do no bear any specific market
or Duty Free labelling
Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic
sales and non-domestic (legal) research
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
20
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Summary of consumption and illicit market analysis
PRIVATE AND CONFIDENTIAL
Total consumption declined at a rate of 3.1% to 629 billion cigarettes in 2011
■ Despite this decline, consumption of non-domestic increased slightly to 89 billion cigarettes
Counterfeit and contraband increased to 65.3 billion cigarettes, representing 10.4% of total consumption, up from 9.9% in 2010
■ Latvia, Lithuania and Bulgaria remain the markets with the highest share of illicit products, but all three experienced declines in
counterfeit and consumption levels in 2011
The share of illicit cigarette consumption in Mediterranean countries increased significantly in 2011
■ C&C share of consumption in this region increased to 6.5% in 2011, up from 4.1% the previous year and equivalent to 12.6 billion
cigarettes
– Spain and Greece have seen significant increases in the volume of counterfeit and consumption consumed in 2011 compared to
2010
In 2011, counterfeit and contraband volumes in Eastern border countries declined for the first time since 2006
■ Significant declines in counterfeit and contraband consumption were observed in Romania and Bulgaria during 2011; these countries
had previously experienced rapid growth in the illicit trade since 2007
Counterfeit and contraband volumes increased slightly in the Western and Central EU countries in 2011
■ This increase was primarily driven by France and Germany, whilst volumes in Czech Republic and the UK declined
■ Despite this growth, C&C in these regions remains below the 2008 high, both as a share of total consumption and in volume terms.
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
21
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Agenda
PRIVATE AND CONFIDENTIAL
Methodology
Market background and legal sales
Consumption and illicit market analysis
Source markets and brands
Review of PMI counterfeit & contraband
Summary
Appendix
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
22
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
The share of counterfeit and contraband originating from outside the EU remained
broadly stable in 2011 at 60%
PRIVATE AND CONFIDENTIAL
C&C inflows by origin, 2006-2011(1)
100%
Key:
PMI counterfeit
7%
6%
6%
5%
5%
4%
EU
Non-EU
80%
35%
36%
39%
C
48%
&
53%
52%
C
al 60%
ot
t
age of 40%
ent
c
er
61%
P
56%
60%
46%
20%
40%
42%
0%
2006
2007
2008
2009
2010
2011
Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
23
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
The illicit consumption by source market highlights the different nature of the
challenges faced across the EU
PRIVATE AND CONFIDENTIAL
Contraband inflows by origin, 2011(1)
Eastern border EU
Mediterranean EU
Western and Central EU
countries
countries
countries
PMI
PMI
PMI
counterfeit
counterfeit
counterfeit
EU
2%
4%
4%
2%
EU
23%
Non-EU
40%
EU
Non-EU
Non-EU
56%
96%
73%
Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
24
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Unspecified products have become the largest source of illicit products from outside
the EU, as Russian and Ukrainian inflows have declined
PRIVATE AND CONFIDENTIAL
C&C inflows by origin, 2006-2011(1)
100%
Other EU
15%
12%
11% 1%
Slovenia
90%
1%
1%
26%
23%
21%
1%
3%
1%
1%
2%
Spain
5%
2%
80%
1%
1%
5%
6%
1%
3%
Hungary
2%
C
1%
7%
9%
12%
& 70%
13%
9%
0%
1%
13%
Romania
C
5%
3%
1%
5%
tal
3%
3%
3%
4%
60%
Czech Republic
o
2%
5%
11%
f t
12%
o
10%
Poland
50%
11%
18%
20%
e
6%
ag
2%
PMI counterf eit
7%
6%
5%
3%
40%
12%
ent
3%
4%
3%
c
Other non-EU
3%
10%
16%
1%
er
5%
3%
P 30%
11%
7%
1%
Serbia
2%
1%
10%
10%
2%
10%
0%
8%
Moldova
20%
9%
18%
14%
8%
Belarus
10%
18%
18%
13%
Russia
1%
7%
7%
11%
0%
Ukraine
2006
2007
2008
2009
2010
2011
Unspecif ied
Unspecified packs are packs which do not bear any specific market or Duty Free labelling
Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
25
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Unspecified products increased rapidly to 7.0 billion in 2011. All Unspecified brands
are classed as illicit whites
PRIVATE AND CONFIDENTIAL
C&C inflows by origin
Unspecified contraband inflows from non-EU countries,
2011(1)
2009-2011(1)
7.0
7
EU
100%
PMI counterfeit
Unspecified
6
90%
Non-EU
36%
80%
5
4.7
s
C 70%
tte
4.2
&
re
a
4
l C
4%
ig
a 60%
c
ot
n
11%
t 50%
illio
3
B
ge of
a 40%
ent
c
2
30%
er
P
49%
20%
1
10%
0
0%
2009
2010
2011
2011
Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
26
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
The growth in Unspecified products has been driven by increased consumption in the
Mediterranean countries
PRIVATE AND CONFIDENTIAL
Unspecified share of total consumption 2009-2011(1)(a)
2009
2010
2011
4.2bn
4.7bn
7.0bn
Key:
No Unspecified observed
Accounts for 0% - 0.49% consumption
Accounts for 0.5% - 0.9% consumption
Accounts for more than1.0% consumption
Note:
(a) Unspecified refers to packs which do no bear any specific market or Duty Free labelling
Source:
(1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
27
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Karelia, Kaanee American International Tobacco and H. Van Landewyck accounted for
44% of Unspecified volumes consumed in the EU in 2011
PRIVATE AND CONFIDENTIAL
C&C inflows from Unspecified market by
manufacturer, 2011(1)
Karelia
Tobacco
Selected brands for major manufacturers of Unspecified
Others
23%
Manufacturer
Brand
28%
Karelia Tobacco
American Legend
Karelia
Unknown manufacturers
Goal
Amigos
Lampsi
Kaanee American International Tobacco
Gold Mount
Ray Tobacco
Unknown
H.Van Landewyck Gmbh
Ducal
3%
manufacturers
European
Austin
13%
Tobacco
Explosal Ltd.
Raquel
4%
Gold Classic
Explosal Ltd.
Kaanee
European Tobacco
President
8%
H.Van
American
HD
Landewyck
International
Gmbh
Ray Tobacco
Walton
Tobacco
9%
12%
100% = 7.0 billion cigarettes
All Unspecified brands are classed as illicit whites
Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
28
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Illicit white volumes increased to 24% of counterfeit and contraband volumes despite
the decline of Jin Ling and Classic
PRIVATE AND CONFIDENTIAL
Consumption of key and growing illicit white brands, 2006-2011(1)(a)
15.7
16
3.2
12.9
12.7
)
12
tes
2.1
2.8
ret
iga
1.6
Other Unspecified brands
6.5
bn c
8.0
1.9
3.4
Growing illicit white brands
8
e (
0.4
0.6
um
1.0
American Legend
ol
V
2.7
0.9
1.5
Jin Ling
2.6
2.2
4
2.0
Classic
2.4
0.2
4.6
0.4
3.4
3.3
0.2
0.7
2.5
0.2
1.0
-
0
2006
2007
2008
2009
2010
2011
% of total
0%
4%
13%
21%
20%
24%
EU C&C
In 2011, 18 Illicit White brands had volumes of over 200 million cigarettes
Note:
(a) This analysis covers illicit white brands with an inflow greater than 200 million sticks in 2011 as well as Unspecified brands.
Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
29
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
The share of counterfeit and contraband flows accounted for by fast growing illicit
white brands doubled in 2011, reaching 6.5 billion cigarettes
PRIVATE AND CONFIDENTIAL
Consumption of growing illicit white brands, 2006-2011(1)(a)
7
6.5
0.2
0.2
6
0.2
0.2
0.2
0.3
Queen
Magnat
)
0.3
5
0.3
tes
GR
Austin
0.4
ret
4
0.4
NZ
Kiss
iga
3.4
0.5
CK
Marble
bn c
0.1
0.1
0.2
0.6
e (
3
0.4
Ducal
Raquel
um
0.1
0.3
0.8
ol
Fast
Premier
V
2
1.6
0.7
0.1
0.9
Minsk
Gold Mount
0.1
0.4
0.2
0.3
1
0.4
Fest
0.6
0.2
0.4
0.1
0.2
1.2
0.1
0.2
0.0
0.2
0.0
0.2
0.2
0.2
0.2
0.5
0
2006
2007
2008
2009
2010
2011
% of total
0%
0%
1%
3%
5%
10%
EU C&C
Note:
(a) Fast growing illicit brands are defined as those with an inflow greater than 200 million sticks in 2011
Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
30
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
The share of counterfeit and contraband accounted for by Marlboro, Viceroy and
Classic declined whilst the share of Pall Mall, Route 66, American Legend and a
number of growing illicit white brands increased in 2011
PRIVATE AND CONFIDENTIAL
C&C inflows by brand, 2006-2011(1)(a)
100%
Other non-PMI
90%
Other Unspecif ied brands
27.3%
31.0%
36.7%
80%
Growing illicit white brands
41.5%
46.7%
51.9%
American Legend
70%
4.9%
4.4%
Jin Ling
al
5.3%
10.0%
0.7%
3.4%
ot 60%
West
0.4%
2.2%
t
3.5%
0.7%
1.7%
3.1%
1.4%
2.4%
0.5%
2.7%
of
1.2%
4.3%
4.5%
3.0%
Classic
50%
3.1%
1.2%
5.2%
3.4%
0.0% 0.0% 0.9%
2.
1.
8% 6%
ent
2.0%
5.6%
3.9%
7.4%
Viceroy
c
7.1%
4.9%
2.5%
0.9%
2.6%
4.2%
er 40%
1.2%
1.4%
3.1%
3.3%
4.8%
Route 66
P
7.7%
6.5%
2.8%
2.3%
2.7%
4.9%
4.9%
5.1%
Winston
30%
7.5%
6.0%
3.6%
5.4%
6.4%
4.8%
4.5%
Pall Mall
18.6%
8.0%
3.9%
10.9%
20%
6.6%
5.5%
4.5%
PMI counterf eit
9.7%
7.8%
9.8%
7.6%
10%
Other PMI
13.3%
15.0%
9.5%
10.2%
6.4%
8.6%
L&M
0%
Marlboro
2006
2007
2008
2009
2010
2011
Note:
(a) Growing illicit brands include; Austin, CK, Ducal, Fast, Fest, Gold Mount, GR, Kiss, Magnat, Marble, Minsk, NZ, Premier, Queen and Raquel
Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
31
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Summary of source markets and brand analysis
PRIVATE AND CONFIDENTIAL
The share of counterfeit and contraband originating from outside the EU remained broadly stable in 2011 at 60%
■ Unspecified packs are now the largest source of illicit products from outside the EU, accounting for 11%
■ Flows from Russia and Ukraine have decreased, while Belarus has become a major source
■ Poland and the Czech Republic remain the main source markets of contraband originating from EU Member States
Consumption of Unspecified products increased rapidly to 7.0 billion cigarettes in 2011
■ Karelia, Kaanee American International Tobacco and H.Van Landewyck were the largest suppliers of Unspecified product, representing
a combined share of 44% of the EU total in 2011
■ The growth in Unspecified products has been driven by increased consumption in the Mediterranean countries
Illicit white volumes increased to 24% of total EU counterfeit and contraband, exceeding 15 billion cigarettes in 2011
■ Whilst consumption of Classic and Jin Ling further declined in 2011, volumes of American Legend increased to 1.5 billion cigarettes
due to increased penetration in France
■ A number of growing illicit white brands continued to increase in 2011, reaching a combined volume of 6.5 billion cigarettes
■ There were 18 illicit white brands with inflows greater than 200 million cigarettes in 2011
The share of counterfeit and contraband accounted for by Marlboro, Viceroy and Classic declined in 2011
■ Increased C&C levels were observed for Pall Mall, Route 66 and American Legend
■ The biggest movement in share of C&C was the continued growth of a wide range of relatively small volume illicit brands
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
32
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Agenda
PRIVATE AND CONFIDENTIAL
Methodology
Market background and legal sales
Consumption and illicit market analysis
Source markets and brands
Review of PMI counterfeit & contraband
Summary
Appendix
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
33
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Genuine PMI product share of EU counterfeit and contraband consumption declined
to 20.7% in 2011
PRIVATE AND CONFIDENTIAL
PMI share of C&C consumption, 2006-2011(1)
100%
90%
80%
70%
60.2%
66.7%
al
72.4%
71.9%
ot
75.4%
t 60%
Non PMI
of 50%
ent
PMI counterf eit
c
er 40%
P
PMI contraband
6.5%
30%
6.0%
4.8%
4.5%
3.9%
20%
33.3%
27.3%
22.8%
23.5%
10%
20.7%
0%
2007
2008
2009
2010
2011
Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
34
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Consumption of counterfeit of PMI products declined to 2.6 billion cigarettes in 2011
PRIVATE AND CONFIDENTIAL
Consumption of counterfeit of PMI products, 2006-2011(1)
5
4.0
3.9
4
0.1
0.1
3.7
)
0.3
0.1
tes
0.8
et
0.8
2.9
2.9
3
0.0
0.0
igar
0.1
0.1
2.6
c
bn
1.0
0.1
0.1
Others
e (
2
1.4
Chesterfield
3.6
um
1.3
L&M
ol
3.1
V
2.8
Marlboro
1
1.9
1.3
1.0
0
2006
2007
2008
2009
2010
2011
Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
35
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Germany, France and Italy were the largest destination markets for counterfeit PMI
products
PRIVATE AND CONFIDENTIAL
Consumption of counterfeit versions of PMI brands, 2009-2011(1)
2009
2010
2011
Key:
Less than 200 million cigarettes
200 to 400 million cigarettes
More than 400 million cigarettes
Source: (1) KPMG analysis based on Empty Pack Surveys, legal domestic sales and non-domestic (legal) research
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
36
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Summary of PMI counterfeit & contraband levels
PRIVATE AND CONFIDENTIAL
Genuine PMI product share of counterfeit and contraband continued to decline, reaching 20.7% in 2011
■ The share of C&C consumption accounted for by counterfeit of PMI brands also declined, down to 3.9% in 2011.
Consumption of counterfeit PMI products declined to 2.6 billion cigarettes in 2011
■ The volume of counterfeit Marlboro declined from 1.3 billion cigarettes in 2010 to 1.0 billion in 2011.
■ Counterfeit L&M declined by 0.1 billion cigarettes to 1.3 billion in 2011.
Germany, France and Italy were the largest destination markets for counterfeit PMI products
■ Germany remained the biggest destination market for counterfeit PMI products in 2011.
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
37
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Agenda
PRIVATE AND CONFIDENTIAL
Methodology
Market background and legal sales
Consumption and illicit market analysis
Source markets and brands
Review of PMI counterfeit & contraband
Summary
Appendix
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
38
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Summary
PRIVATE AND CONFIDENTIAL
EU cigarette consumption fell by 3.1% in 2011
Despite this, the volume of counterfeit and contraband increased to 65.3 billion cigarettes; equivalent to 10.4% of total
consumption
Rapid growth in counterfeit and contraband consumption has been most apparent in Mediterranean countries, in
particular in Spain and Greece
In 2011, counterfeit and contraband share of consumption in Eastern border countries declined to close to 2009 levels,
whilst Latvia, Lithuania and Bulgaria remained the countries with the highest illicit levels in the EU
Counterfeit and contraband volumes increased slightly in the Western and Central EU countries in 2011, driven by
France and Germany
Illicit white brands increased to 24% of counterfeit and contraband volumes driven by a large number of growing
brands and Unspecified variants
Consumption of Unspecified variants increased rapidly to 7.0 billion cigarettes
PMI share of counterfeit and contraband in the EU declined to 20.7%
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
39
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Agenda
PRIVATE AND CONFIDENTIAL
Methodology
Market background and legal sales
Consumption and illicit market analysis
Source markets and brands
Review of PMI counterfeit & contraband
Summary
Appendix
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
40
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Individual country results
PRIVATE AND CONFIDENTIAL
Copies of both this presentation and individual country results for 2011 are available for your
collection after this meeting
France
Total non-domestic consumption
France
Non-domestic (legal) breakdown
France
DRAFT FOR DISCUSSION PURPOSES ONLY
Total non-domestic consumption
France
Consumption of non-
(1)(2)
Total non-domestic inflows (ND(L) and C&C) by origin
DRAFT FOR DISCUSSION PURPOSES ONLY
Total France consumption
2006-2010(1)(2)
domestic cigaret
M tes
arket overview
Country
Non-
Billio
dome n
st c
i ig
c ( a
l r
e ette
gal s
) by origin
2006
2007
2008
2009
2010
Non-domestic (legal) inflows
ND(L
DRA ) an
FT al
Fysi
O s
R DI
1
SCUSSIO 2
N PUR
3
POSES O 4
NLY
increased to 13.53 billion 2006- Legal
2010(1 do
)(2
m
)(3) estic sales (LDS)
55.77
54.95
53.59
54.99
54.80
increased to 4.
M 24 b
ar illion
ket
overview
Ave.
Consumption of
cig
non- arettes in 2010, compared
20
Outflows
(1)(2)
-0.91
-1.32
-0.92
-0.61
Tot -
a0.
l 68
non-domestic inflows (ND(L) and C&C) by origin
7.66
DRAFT FO P
R op
D u
I lat )
SCUSSION PURPOSES ONLY
Total France consumption
1
ion 8 Propensity
16.11
Propensity
16.29
Ave. no.
purchases
Total ND(L)
cigarettes in 2010.
8
15.33
2006-2010(1)(2)
domestic cigarett to 1
es
2.49 billion in the
Legal domestic consumption (LDC)
54.86
53.63
52.67
54.38
54.11
PMI counterfeit
19+
16
to travel
to purchase
of trips
(cigarettes)
(cigarettes)
)
Other countries
ttes
1.74
s
0.54
1.34
13.53
Ma B
rl illio
born c
o ig
20 a
1re
0 tte
pr s
ice comparison in E 2006
uros a
2007
nd
2008
2009
2010
S
DRA ha
FTre of
F Fr
O
a
R nc
DI e cons
SCU um
SSI pt
O i
re
on
N by
PU ty
Rpe
12.49
The share of cigarette
14
POSES ONLY
Other countries
increased to 13.
p
53 r
b evi
illi o
o u
n s year.
te
2.66
Values
0.16
percentage ch
et
6
5.29)(c)
Belgium
iga
x
Legal domestic s
an al
g es
e f (
r LD
om S
)
2009(1)(3)(a)(b 55.77
54.95
53.59
54.99
54.80
2006-2010(1)(2)
37%
x
x5.25
49.6m 12
0.4
x 8
=
Non-domestic legal (ND(L)
consumption in France
ar
4. )
74
7.66
5.29
4.74
3.29
4.24
2010
32%
5.0
146
c
4.24
7.10
7.45
20
n
6.06
Luxembourg
Marlboro 2010 price compa ig
rison in 0
E .53
uros and
Sha 4
r .
e24
of Countryconsumption by type
10
Luxembourg
The share of cig ci
ar gar
ett et
e tes in 2010, compared
Outflows
-0.91
-1.32
-0.92
-0.61
-0.68
b
0.86
Non-domestic inflows of
c
Counterfeit an
1d c
.30 ontraband (C&C)
8.45
10.04
11.55
9.
) 20
9.29
(
18
16.29
0.41
6.04
accounted for by counterfe
p it
ercentage change from
n
0.50
16.11
2009(1)(3)(a)(b)(c)
4
1.29
2006-2010(1)(2)
e
8
Algeria
3.29
15.33
1.00
0.95
0.52
Legal domesti b
consumption in to 1
C
2.
ount4
r 9
y bi
llion in the
PMI counterfeit
(
c consu T
m o
pttial
o n
n o
( n-
LDdo
C) m
0 es
.73tic
54.86
53.63
52. 16.
67 111.4
54.
15.
8
38
33
54.
16.
Du
11 t 29
y Free 12.
ttes 49
16
13.53
6
0.00
0.26
4.38
0.58
1.00
and contraband decline M
d ar
by l
boro increased from
1.74
um
e
1.67
0.40
0.71
re
EU rank
0.54
1.34
13.53
1.02
0.43
14
ol
3.42
1 3.
2. 25
0.80
49
2.08
Spain
0.18
4
Spa
accounted for by counterfeit
1 in
00%
V
Other countries
previous year.
um
1.02
11.9%
3
18
0.16
2.40
2
0.94
0.48
n
iga
2010
14.6%
8
4
13
2
16.7%
0.1 percentage points to1.
91bn cigarettes
1 5
3. .25
12
8%
13. 0.4
7% 8
N
in
o
-
2009
dom
t
es
o
i
ol
0.13
0.50
2
c legal (ND(L))
7.66
5.29
4.74
3.29
4.24
3.70
Duty Free
V
Total consumption
0.63
70.970.7
68.
1
95io
68.96
66.
c 1
86
0.8%
67.64
2.84
2.87
4.04
7.10
7.45
C&C
2
L .2
ux 0
embourg
and contraband declined by
2.29
80%
n
10
7.7%
6.9%
4.9%
6.3%
pt
0
6.06
1.84
b
0.86
13.
No
7% i n
n -dom
2010. estic infl 3.28b
ows n
of in 2010.
1.62
Counterfeit and contraband (C&C)
8.45
10.04
100%
1.04
11.55
1.1
9. 2
20
9.
1 m1.29
9%
14.6% (
0.
6.04
u
e
8 16.7%
13.8%
13.7%
2
4 00
1
6
2007
2008
ND( 0
L .)52
200
Alg 9
eria
2010
0.1 percentage points to
0
1.00
0.95
Total non-domestic
16.11
15.33
16.29
tion
12.
8
49
0%
13.
s
1 n 53 60%
0.8%
7.7%
6 6. 0
9 .0
% 0
4.9%
0.266.3%
4.38 C&C
0.58
1.00
2006
2007
2008
2009 p
2010
Marlboro increased from
um
o
ol
3.42
3.25
0.80
2.08
Spain
13.7% in 2010.
l c
4
LDC
um
40%
V77.3%
77.8%
76.4%
81.3%
8
ND( 0.
L) 2.4
0% 0
s
60%
ta
o
2
ND(L) analysis: 2007-2010
1.91bn cigarettes in 2009 to
3.70
Duty Free
Total consumption
70.97
68.95
68.96
on
66.86
67.
t
64
2.84
2.87
4.04
2.20
Outflows
LDC
ND(L)
20%
0
l c
of
3.28bn in 2010.
40%
77.3%
77.8%
76.4%
81.3%
80.0%
ta
2007
2008
2009
2010
share of
11%
8%
7%
5% o
6%
re
2006
2007
2008
2009
2010
0
f t
-1.3%
-0.9%
Out -f1
l .
o 0%
ws
consumption:
20%
ha
Pro-pen
1.9 s
% ity to t
- rav
1.3 el
% and purchase cigarettes 1
x 2
8.9%
12.8%
12.2%
11.9%
o
S
ND(L) share
re
(1)(a)
-20%
Average annual ci
0
Tot
gar
a
ett
l i
es
nfl
pu
ow
rch
s
as
(N
ed
D(L) and
3
x C
4
&
C
1,
) by
033
brand
646
504
729
Outflow
48% s from Fr
34% ance 29%
26% ha
31%
-1.3%
of ND:
-1.9%
-1.3%
-0.9%
-1.0%
S
2006
2007
2008
2006-
2
2010(1)(2)
009
2010
Billion cigarettes
2006
-20%
2007
2008
2009
2010
€4.20
Volume (bn
Netherlan
5.
ds
0%
2006
2007
2008
2009
2010
€4.95
0.37
0.35
0.12
0.08
71.0
0.35
Non-domestic (legal) by brand
69.0
69.0
66.9
67.6
cigarettes)
4.4%
■ “Other N 1
on8-PMI” brands include 0.15 billion John Player Special,
2006-
Ita
(1 ly
2010(1)(2)(3)
)(a)
V 0.
ol 02
ume (bn 0.00
0.05
0.04
0.10
16.11
16.29
Total inflows (N )
D(L) and C&C)
1
by 5.33
br
Outflow s from Franc
€
e
5.60
71.0
69.0
69.0
0.11
66. bi
9
lli
and
s 16
on Luc
67.6 ky Strike and 0.11 billion Peter Stuyvesant
Belgium
ci 0.
gar07
ettes)
0.15
0.03
0.16
0.
2006- 07
1.74
2010(1)(2)
0.54
1.34
13.53
7.66
tte
cigarett e
es
8
1
. 4
12.49
PMI counterfeit
Billion cigarett
Proportions of total EU levels, 2010(1)(2)
)
es
UK
2006
2007
2008 0.16
2009 0.38
2010 0.28
0.14
0.05
0.16
ar
€3.70
ig
Other Non-PMI
12
0.48
Netherlands
€
5.7%
ttes3.85
Other EU
0.37
0.35
0.12 0.300.08 0.430.35 0.45
0.18
0.11
c
8.65
9.49
Others
Proportions of total EU levels, 2010(1)(2)
11.6%
18
10
re
16.11
bn
Italy
6
16.29
3.49
5.29
0.02
0.00
0.05
0.04
0.Gau
10 loises
10.07
7.84
Total outflow s
0.91
1.32
0.92
0.)
61
0.68
15. (
Pall Mall
s
e
33
iga
4.74
16
8
7.67
c
Belgium
0.07
0.15
0.03
25%
4.
0.
24
16
0.)Cam
07 el
1.74
0.
tte
um
54
1.34
13.53
n
0.13
e 14
6
Camel
b
€1.46
(%
20.0%
ol
1
1 .2
2. 2
49
0.32
PMI counterfeit 0.69
UK
(
0.00
2.21
0.16
4
0.16
0.38
3.29
0.28
2 0.
5% 14
0.05
ar
V
0.00
e
1.76
11.0%
n
)
Othe
2 r PM
0%
I
0.43
0.93
0.10
0.79
ig 12
4
0.85
0.48
0.47
0.76
American Legend
io
0.00
0.98
0.28
1.95
c
8.65
9.49
1.8
Ot6
hers
0.79
Other EU
um
0.18
0.30
0.43
0.45
0.1820.
0.
0%
pt11
0.23
0.69
(%
10
2
ol
0.20
n
Philip Morris
3.44
4.36
m
bn
3.23
3.28
Marlboro
0.70
0.40
V
20%
13.7%
7.84
0.09
0.11
0.20
0.29
10.07
u
(
1.91
Total outflow s
13.5%
Pall Mall
2
Note:
(a)
High level anal
0. y
91sis
0.
of
18
the
1. Sw
32 iss empt
0.
0. y tio
pac
45
92
k sur
0.vey
61 results i
0. ndi
68 c
1
ate
5%
outflows fe
rom France to
0.13
8
0
0.27
p
0.31
7.67
ns
2.89
Switzerland. However, Switzerland is
0.
not
05
cover
0.
ed
10
withi
0.
n t
10
he
o
s
M
c
a
ope of
rlbor
P
o
roject Star and therefore it is
m
um 13.7%
0
France
9. .1
9 3
2006
2007
2008
200
C 9
amel
2010
%
not pos
1.98
sible for KP
2.
MG
05
to reliably es
u
13.5%
6
1.64
timate t
1
he v
5%
olume of thes
l c
e outflows. Furt
s
ol
hermore, as cigarette
1.48
1.22
0.32
0.69
10%
ta
V
0.00
0.10
prices in France are more expensive than in Switzerland, any outflows are likely to be incidental
0.43
0.93
EU 27 total
0
on
o
4
6. 0
3 .8
% 5
France
American Legend
9.9%
0.98
0.47
0.76
and/or driven by inbound tourism.
t
0.00
l c
1.8
5. 6
3%
0.79
Key:
France
2006
2007
2008
2009
1 201
0%
0
2
Sources: (1)
KPMG EU Flows Model and interviewsta
with PMI Local Managem
of
5
ent
%
3.44
4.36
3.7%
3.23
EU 27 total
3.28
Marlboro
o
re
6.3%
1.91
Note:
(a
T )
op fiH
v igh l
e s ev
our el
c anal
e c
y
ount s
ri is
es of t (2
he )
Swi A
s C
s Ni
em el
pts
yen N
pac D
k (
sL)
ur r
v es
ey ear
r
c
es h,
ult 2006
s indi -
c 2010
ate out
f t
flows from France to
0
5.3%
Key:
Country
ha
0.2%
1.0%
0.4%
Note:
(a)
M PM
ap s I
S sh
wit
how ar
zer
s fl e
l
o
owsf
and. H
of ow
ov ev
er er,
1% Sw
of i
c tzer
ons land
umptiis not
on. c
C over
ountried
es w
withi
hic n t
h he
ar
scope of
e both s
o
P
ourc roj
e ec
5
t
%
Star and ther
S
efore it is 3.7%
Sources:
2
(1
00
)
6
KPMG E
2
U
00
F
7
lows Model
Top five source c and
ountri des
es tination countri 44%
es are c
42%
oded according to t
49%
he larger flow
60%
re
40%
2008
2009
2010
0%
ND(L)
not possible for KPMG to reliably estimate the volume of these outflows. Furthermore, as cigarette
(2)
AC N
0.
iel
4
s
%
en ND(L) research, 2006-2010
© 2011 KPMG LLP, a United Kingdom LLP and a member firm of the KPMG network of independent member hafirms affiliated with KPMG International
0.2%
1.0%
Note:
(a)
Map shows flows of over 1% of consumption. Countries which are both source
ND Cooperative
ND( (‘
L K
) PMG
(b)
Bas prices
ed on
in F
a pac r
kanc
of e ar
20 e
M m
arl ore ex
boro Ki pens
ng Si iv
z e
e than
as at in S
July wit
1s z
t erland, any out
2009 and 2010 flows are likely to be incidental
C&C
PMI CF
Outflows
S
1
International’), a Swis
and s ent
desti ity.
nat A
i
ll r
on c ights
ountr r
i es
es er
ar v
e ed.
(3)
Interviews with PMI Local Management
(c)
Arr
and/
ow siz or
e i
c dr
ndiiv
c en
at
oded acby
es r
c i
el
or nbound
at
di ive c
ng t i
o t tour
garet
he l its
ar m
e fl
ger.ow
fl
ovol
w ume
0%
(b)
B S
as our S
c our
es
ed on : ces
(1)
a pac :
k (1
K
of )
PM
20 K
G
M P
E
arl M
U G
F
bor lE
o U
ow
Ki F
s low
M
ng Si s
z M
odel
e odel
and
as at i
J and
nter
uly viint
1st er
ews vi
wew
it
s w
h PMiIt h P
2009 and 2010 M
LocalI Loc
M
al Managem
anagement
ent
ND
ND(L)
C&C
PMI CF
Outflows
© 2011 KPMG LLP, a United Kingdom LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG
(c)
Arrow size i (2
ndi )
cat (2
A
es )
C
r N
el A
i
ati C
el
vs N
e c iiels
en N
gar en N
D(L)
ett r
e f D
l (
esL)
ow vr
ear es
c
ol ear
h,
ume ch,
2006 2006
-2010 -2010
4
International’), a Swiss entity. All rights reserved.
Sources: (1)
KPMG EU Fl (3)
ows
M
M arlbor
odel
o r
and iet
ntail
er vsiell
ewing
s w pr
it ice
h P s
MI uppl
Loc ied by
al M
PMI, bas
anagement ed on PMI standard exchange rates
(2)
AC Nielsen ND(L) as
r
es at J
ear une
ch,
2009
2006- and J
2010
une 2010
© 2011 KPMG LLP, a United Kingdom LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG
(3)
Marlboro retail selling price supplied by PMI, based on PMI standard exchange rates
1
International’), a Swiss entity. All rights reserved.
as at June 2009 and June 2010
© 2011 KPMG LLP, a United Kingdom LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG
0
International’), a Swiss entity. All rights reserved.
© 2011 KPMG LLP, a United Kingdom LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG
0
International’), a Swiss entity. All rights reserved.
Country results follow a similar structure to previous years and will provide an overview of the
total consumption and legal sales trends and detail of both the counterfeit and contraband and
non-domestic (legal) results
This document is CONFIDENTIAL and its circulation and use are RESTRICTED. © 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a
41
member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
This document is CONFIDENTIAL and its circulation and use are
RESTRICTED. © 2012 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 or trademarks of KPMG International Cooperative (KPMG
International).
Document Outline
- Project Star 2011: Presentation of results
- Slide Number 2
- Disclaimer
- Objectives for today
- Agenda
- Project Star uses legal domestic sales, Empty Pack Survey results and consumer research to determine counterfeit and contraband volumes
- Agenda
- Real GDP growth was positive in all Member States except Greece and Portugal, however, unemployment in the EU27 remained high at 9.7%
- Price increases of over 5% were observed in 15 Member States in 2011
- Price differentials between Member States and neighbouring countries remained significant
- In 2011, the steepest falls in legal domestic sales were observed in the Mediterranean region
- Total EU legal domestic sales declined by 3.2% in 2011, compared with a 6.1% fall the previous year
- Summary of market background and legal sales
- Agenda
- In 2011, total consumption declined while consumption of non-domestic products increased slightly
- The share of counterfeit and contraband consumption increased to 10.4%, or 65.3 billion cigarettes, in 2011
- Latvia, Lithuania and Bulgaria remain the markets with the highest illicit product incidence, but all three experienced declines in illicit consumption levels in 2011
- The share of C&C consumption accounted for by the Mediterranean region increased to 19.3% in 2011, whilst the share of the Eastern border countries declined significantly
- Counterfeit and contraband increased significantly in the Mediterranean countries in 2011 to account for 12.6 billion cigarettes and 6.5% of consumption
- In 2011 counterfeit and contraband as a share of consumption in Eastern border countries declined to close to the 2009 level
- Counterfeit and contraband share of consumption and volumes in the Western and Central EU markets increased slightly in 2011
- Summary of consumption and illicit market analysis
- Agenda
- The share of counterfeit and contraband originating from outside the EU remained broadly stable in 2011 at 60%
- The illicit consumption by source market highlights the different nature of the challenges faced across the EU
- Unspecified products have become the largest source of illicit products from outside the EU, as Russian and Ukrainian inflows have declined
- Unspecified products increased rapidly to 7.0 billion in 2011. All Unspecified brands are classed as illicit whites
-
- Karelia, Kaanee American International Tobacco and H. Van Landewyck accounted for 44% of Unspecified volumes consumed in the EU in 2011
- Illicit white volumes increased to 24% of counterfeit and contraband volumes despite the decline of Jin Ling and Classic
- The share of counterfeit and contraband flows accounted for by fast growing illicit white brands doubled in 2011, reaching 6.5 billion cigarettes
- The share of counterfeit and contraband accounted for by Marlboro, Viceroy and Classic declined whilst the share of Pall Mall, Route 66, American Legend and a number of growing illicit white brands increased in 2011
- Summary of source markets and brand analysis
- Agenda
- Genuine PMI product share of EU counterfeit and contraband consumption declined to 20.7% in 2011
- Consumption of counterfeit of PMI products declined to 2.6 billion cigarettes in 2011
- Germany, France and Italy were the largest destination markets for counterfeit PMI products
- Summary of PMI counterfeit & contraband levels
- Agenda
- Summary
- Agenda
- Individual country results
- Slide Number 43