THE WORLD AND ASIAN CIGARETTE MARKET 1. Session CoveraFt Scene setting for conference with objective of putting the Asian Cigarette Market into the contexE oCworld as a whole. 1. Looking at overall size and direction of market 2. Reamonal trends. 3. Leadin2 markets. 4. Competitor Scenario. 5. Top brands in the world. 6. International Filter Brand se2ment. 7. The arowth in world cigarette exports. 2. The Global Ci2arette Iffarket The world market for manufactured cigarettes is some 53300 billion and generally growing although declined s lightly in 199 1. Growth rateshave slowed from some 5?/o p.a. in the 1970's, to around 3% p.a. in mid-80's. The leveflinz off in the late 80's due to a. Lower growth rates in China. b. Reduced volumes in CIS due to supply problems. Growth ofabout 1% p.a. to 1997 is forecast. 3. World Rezional Shares and Sales Trends China is by far the largest market for cigarettes in the world (at 1705 billion well over three times the size of the USA in second place) and is therefore separated out for this presentation as a'region' in its own right. The greater Asia-Pacific region (China, Far East, Australasia and Sub- Continent) account for over half the worlds cigarette sales and is the one region which has grown volume overall over past five years. Europe here represents the total region including the markets of Eastern Europe. Nlorth.Aunerica has been declining since the early SO's (peak year 19S 1). Cn CIS has suf,er,-d since Mid-80's with supply problems hitting dornestic C:) manufacture ard reduced imports from Bulgaria. C:) C:) -10 --J N40 BATCo document for Legal Services : Health Canada 21 October 1999 Latin America is volatile ~ut has declined over the past five years due principally to a drop oF-'j billion cigarettes over this period in Brazil. The Africa/N fiddle East . e2ion has uenerally been static. 4. Ton 10 World Civirette Markets - 1992 The top 10 world cigare,:e markets account for nearly 70% of global consumption. Four of the ten are withir ~he Asia-Pacific regiotr- China, Japan, Indonesia and South Korea, - and all fcl-.- are growinQ. T 0 P-3: China very imp-crtant to BATCo historically. over 50~1. of Company's volume here in the 1920's. closed the revolution but started to open up from Mid 80's. USA dominat-.-' by Philip Nforris (42% SOM). erosion c-;er past ten years through down-trading (30% of market is :ow-price). - market 15; -,1 decline. cis - now mal-eup of several independent states. - the datais soft. - vast oppcminity for 'western' companies. Japan - relaxation of import controls in recent years. Imports now account 4_17% ofmarket (56 bri). Indonesia - dominated by Kretek which account for some 90% of market. 5. Top 20 Markets in Asia-Pniciric - 1992 40 The region as a whole acccunts for 5 1% of world volume and includes many very large, and middle-size markets. BAT is well represented in :hose markets where the subsidiary and associated companies within the grou; are established. You can see that in the Dtl".rS Our shares are generally very small. The -opportunities' are consequently enormous. ui CD CD il CC) CD BATCo document for Legal Services : Health Canada 21 October 1999 6. CompetitorScenario 1937 and 1992 Six'companies' account for 68% of the worlds cigarette volume. The Chinese monopoly is by far the largest. The international companies are (yene,-z::!,-; vety widely spread although some are concentrated in particular regions. BAT share is the same today as it was 5 years ago. Note, however, that the loss ofLa Moderna (Mexico) accounted or a'loss! of some 30 bn cigarettes, and that our share of the world has been growin~-since 1989, when 7it fell to 10.3%. Phillo Morris is No. I in the USA and ha'i- a-dozen other markets InclUdinq Germany. Its rate of Lyrowth has been very high, &_e principally to the success of MI ARLBORO which accounts for 57?,'o --fits ci2arette sales worldwide. R f Reynolds are concentrated in North America, Europe and the Far East. The drop in share ('87 to '92) reflects the !oss of share in the declining US market and the withdrawal from Brazil (-3 bri). Today, their international activity is foc:;5ed on SALEM and CA~AEL and, to some extent, WINSTON. Rothmans/Rembrandt have been sluL,2isA since 1980. Sales are concentrated in Africa, Europe and some pockets in the Far East, and they continue to re!y heavily on a few strong local brands and a portfolio of UK International Brands. JTI have seen their share of the Japanese market erode from 9 1% five years a2o, to 32% currently. They are actively seeking export opportunities for their cigarettes, particularly in the Far East, and recently purchased a manufacturing base within the European Community with the acquisition of Manchester Tobacco Co. 7. Intern a tional Corno-inies - LeadingMirkets Asia Picific The international companies are generally well represented in the Asia Pacific region with significant penetration in many markets. On the following tables, shares and votumes are shov;n for domestic duty paid markets based on who own the brands in -each market. Ln CD C:D CD ~10 CD BATCo document for Legal Services : Health Canada 21 October 1999 3. BAT LeadinZ Markets - Asii Pacific For the BAT group, India is by far the largest market in the region in terms of volume, with the combined Sales Of Our associated companies, ITC and VST, exceeding 60 billion cigarettes with a share of nearly 74%, The Groups share ofthe Japan domestic market (principally sourced from Brown & Williamson) nearly touched 4% last ear. with leading brands KENT y and LUCKY STRIKE. Generally, BAT's share of market has been under considerable pressure in most markets within the region. 9. Philip Morris Leadine Markets - Asia Pacific Japan is a very significant market for Philip Morris where LARK is the leading is brand in the import segment and nearly 5 billion MAR.LBORO are made under licence by JTI. Through their associate, Godfrey Phillips, Philip Nforris have a market share of 17% in India with FOUR SQUARE among the leading brands on the market, and similarly through their associate Premier Tobacco the company maintains a presence in Pakistan. Generally, Philip Morris have grown share in all their key markets in the region over the past five year. 10. Rothmans Leading Markets - Asia Pacific Worldwide, the Rothmans group has found its share of market under 1~ considerable pressure in recent years. A few markets in the Far East have'bucked the trend' with share growth in Malaysia, Indonesia and Japan since 1983. Their leading international brand in the region is DU\THILL. I i.R.J. Reynolds Lending. NNIarkets - Asin Pacific Reynolds volumes in the region are considerably smaller than the other international companies but, with the exception of' Malaysia, their share of market has generally been progressive. Their leading brand within the region is SALEM which has doubled its volume over the past five years. (-n CD CD Co r11~j BATCo document for Legal Services : Health Canada 21 October 1999 World Top 10 Cigarette Brands 1991 Estimates of the leading brands in the world in 199 1 MARLBORO way ahead at No. 1. BENSON & HEDGES combines BAT 17 bn, Gallaher 17 bn and Philip Morris 26 bn. BAT's leading brand is BELNIONT. 39 bn of the 42 bn was from BAT (the balance is Philip 11-forris). International Filter Brands The most dynamic segment in the world. Consists of 30 brands defined as 'international'. International Filter Brand Se2ment The segment has grown at 6.6% p.a. over the past five years, several times faster than the world as a whole and, outside the US and UK domestic markets, account for 12.9% of world consumption of cigarettes. It is forecast that the seement will continue to grow strongly over the next Five years, at 4.7% p.a. compared to 1.0% for the world as a whole, and will achieve a share of over 15%. International Filter Brinds - Regionni Sales - 1992 Europe accounts for 44% of the world sales of IFB's and, within the region, have a share of 19%. The Asia-Pacific region accounts for 28% of the segment but the penetration is low due principally to the exclusion of these brands until recently in several large markets - China, Japan, South Korea. Of all the regions, the segment is growing fastest in the Asia-Pacific area. I-FB Se2ment - US and UK Traditionally we have distinguished between USIB's and UKIB's. The differences are principally "blend" and, to some extent, consumer perception, but the borders are blurred. U-1 The segment is dominated by US International Brands which account Cor 719/0 CD ofsegment and are projected to grow faster than UKIB's (5.31/6 p.:i- v's 2.4% to 1997). CC) (~A BATCo document for Legal Services : Health Canada 21 October 1999 17. World Cigarette Exr)orts A key area of the cigarette business, which is linked closely to the corresponding grov,-th in International Brands, is exports. 18. Growth in World Civirette Exoorts Volumes of exports of cigarettes have more or less dOLibled every ten years over the past 30 years, and are now estimated to be 645 billion cigarettes, or 12% of total world market. 19. Exports - Where From? These are the principal exporting nations. 0 The USA is by far the largest of the worlds exporters accounting for 30% of the total Note that well over 100 bn of these cigarettes are defined as intra-EEC and accounts for the majority of the volume from both Germany and the Netherlands. Bulgaria has traditionally exported very large volumes to the former USSF, although this business has declined from some 90 billion five years ago to 67 billion last year. The UK is the largest European exporter of cigarettes outside Europe. Several other countries are also important exporters - Switzerland, Brazil, Hong Kong (domestic production). The traditional destinations for exports have been the Middle East and West Africa, but the growth is now generated from the new 'opportunity' markets, principally in Asia-Pacific. 20. Kev Cienrette Exporters The big 4 "international" companies (BATJ?%,VRJR/Rothmans) account for 70% of the worlds cigarette exports. Given that Bulgartabac account for 10% of global exports, this is a staggering figure. You can see that exports generally account for20-30',',G of the total sales of these companies. C:) C> CO -rt- BATCo document for Legal Services : Health Canada 21 October 1999 I have added JTI to the list. Although its exports are still relatively small, it -:s very, ver-y active in seekina . . tside Japan and is making opportunities ou significant inroads in several far Eastern markets. 21. Surnmarv Session has tried to put the world and the Asia re0gion into perspective. Covered overall geographic trends, the companies and the brands. Have also looked at the two most dynamic Zgro~vth- areas: International Brands and exports- 0 Trevor Bates 18/31"93 0 Ln CD CD CD Co ui BATCo document for Legal Services : Health Canada 21 October 1999