Global Tobacco

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Global - Tobacco 0199 - 0817 - 2010

© Datamonitor. This profile is a licensed product and is not to be photocopied

INDUSTRY PROFILE

Global Tobacco

Reference Code: 0199-0817

Publication Date: October 2011

EXECUTIVE SUMMARY

Global - Tobacco 0199 - 0817 - 2010


EXECUTIVE SUMMARY

Market value

The global tobacco market grew by 4% in 2010 to reach a value of $720,796.9 million.

Market value forecast

In 2015, the global tobacco market is forecast to have a value of $889,275.1 million, an increase of 23.4%

since 2010.

Market segmentation I

Cigarettes is the largest segment of the global tobacco market, accounting for 94.5% of the market's total

value.

Market segmentation II

Asia-Pacific accounts for 50.8% of the global tobacco market value.

Market share

China National Tobacco Corporation is the leading player in the global tobacco market, generating a

36.1% share of the market's value.

Market rivalry

The global tobacco market is concentrated at the top end of the market, with the top three players

collectively accounting for 59.7% of the total market value.

CONTENTS

Global - Tobacco 0199 - 0817 - 2010


TABLE OF CONTENTS

EXECUTIVE SUMMARY 2

MARKET OVERVIEW 7

Market definition 7

Research highlights 8

Market analysis 9

MARKET VALUE 10

MARKET SEGMENTATION I 11

MARKET SEGMENTATION II 12

MARKET SHARE 13

FIVE FORCES ANALYSIS 14

Summary 14

Buyer power 15

Supplier power 16

New entrants 17

Substitutes 18

Rivalry 19

LEADING COMPANIES 20

China National Tobacco Corporation 20

Philip Morris International Inc. 21

Japan Tobacco Inc. 25

MARKET DISTRIBUTION 29

MARKET FORECASTS 30

Market value forecast 30

APPENDIX 31

Methodology 31

Industry associations 32

Related Datamonitor research 32

Disclaimer 34

CONTENTS

Global - Tobacco 0199 - 0817 - 2010


ABOUT DATAMONITOR 35

Premium Reports 35

Summary Reports 35

Datamonitor consulting 35

CONTENTS

Global - Tobacco 0199 - 0817 - 2010


LIST OF TABLES

Table 1: Global tobacco market value: $ million, 2006–10(e) 10

Table 2: Global tobacco market segmentation I:% share, by value, 2010(e) 11

Table 3: Global tobacco market segmentation II: % share, by value, 2010(e) 12

Table 4: Global tobacco market share: % share, by value, 2010(e) 13

Table 5: China National Tobacco Corporation: key facts 20

Table 6: Philip Morris International Inc.: key facts 21

Table 7: Philip Morris International Inc.: key financials ($) 23

Table 8: Philip Morris International Inc.: key financial ratios 23

Table 9: Japan Tobacco Inc.: key facts 25

Table 10: Japan Tobacco Inc.: key financials ($) 26

Table 11: Japan Tobacco Inc.: key financials (¥) 27

Table 12: Japan Tobacco Inc.: key financial ratios 27

Table 13: Global tobacco market distribution: % share, by value, 2010(e) 29

Table 14: Global tobacco market value forecast: $ million, 2010–15 30

CONTENTS

Global - Tobacco 0199 - 0817 - 2010


LIST OF FIGURES

Figure 1: Global tobacco market value: $ million, 2006–10(e) 10

Figure 2: Global tobacco market segmentation I:% share, by value, 2010(e) 11

Figure 3: Global tobacco market segmentation II: % share, by value, 2010(e) 12

Figure 4: Global tobacco market share: % share, by value, 2010(e) 13

Figure 5: Forces driving competition in the global tobacco market, 2010 14

Figure 6: Drivers of buyer power in the global tobacco market, 2010 15

Figure 7: Drivers of supplier power in the global tobacco market, 2010 16

Figure 8: Factors influencing the likelihood of new entrants in the global tobacco market, 2010 17

Figure 9: Factors influencing the threat of substitutes in the global tobacco market, 2010 18

Figure 10: Drivers of degree of rivalry in the global tobacco market, 2010 19

Figure 11: Philip Morris International Inc.: revenues & profitability 24

Figure 12: Philip Morris International Inc.: assets & liabilities 24

Figure 13: Japan Tobacco Inc.: revenues & profitability 28

Figure 14: Japan Tobacco Inc.: assets & liabilities 28

Figure 15: Global tobacco market distribution: % share, by value, 2010(e) 29

Figure 16: Global tobacco market value forecast: $ million, 2010–15 30

MARKET OVERVIEW

Global - Tobacco 0199 - 0817 - 2010


MARKET OVERVIEW

Market definition

The tobacco market consists of the retail sale of cigarettes, loose tobacco, chewing tobacco, and cigars

and cigarillos. The market is valued according to retail selling price (RSP) and includes any applicable

taxes. Any currency conversions used in the creation of this report have been calculated using constant

2010 annual average exchange rates.

For the purpose of this report, the global market consists of Africa & Middle East, Americas, Europe, and

Asia-Pacific.

Americas comprises Argentina, Brazil, Canada, Chile, Colombia, Mexico, Venezuela, Peru, Uruguay and

the US.

Europe comprises Belgium, the Czech Republic, Denmark, France, Germany, Hungary, Italy, the

Netherlands, Norway, Poland, Romania, Russia, Spain, Sweden, Ukraine, Turkey, Ireland, Greece,

Switzerland, Austria, Portugal, Finland, Croatia, Bulgaria, Lithuania, Latvia, Slovenia, Slovakia, Estonia

and the United Kingdom.

Asia-Pacific comprises Australia, China, Japan, India, Singapore, South Korea, Indonesia, the

Philippines, Thailand, Vietnam, New Zealand, Hong Kong, Malaysia, Pakistan and Taiwan.

Africa & Middle East comprises United Arab Emirates, South Africa, Israel, Egypt, Saudi Arabia, Morocco

and Nigeria.

MARKET OVERVIEW

Global - Tobacco 0199 - 0817 - 2010


Research highlights

The global tobacco market generated total revenues of $720.8 billion in 2010, representing a compound

annual growth rate (CAGR) of 3.8% for the period spanning 2006-2010.

Cigarettes sales proved the most lucrative for the global tobacco market in 2010, generating total

revenues of $681.1 billion, equivalent to 94.5% of the market's overall value.

The performance of the market is forecast to accelerate, with an anticipated CAGR of 4.3% for the five-

year period 2010-2015, which is expected to drive the market to a value of $889.3 billion by the end of

2015.

MARKET OVERVIEW

Global - Tobacco 0199 - 0817 - 2010


Market analysis

The global tobacco market grew at a steady rate during the period 2006-2010, as a result of steady sales

growth in the cigarettes category. Although the overall market growth is expected to accelerate in the

forecast period, the annual rate of growth is set to fall from a high of 4.6% in 2014 to a low of 3.9% in

2015.

The global tobacco market generated total revenues of $720.8 billion in 2010, representing a compound

annual growth rate (CAGR) of 3.8% for the period spanning 2006-2010. In comparison, the Americas and

Asia-Pacific markets grew with CAGRs of 2.5% and 4.9% respectively, over the same period, to reach

respective values of $121 billion and $366.3 billion in 2010.

Cigarettes sales proved the most lucrative for the global tobacco market in 2010, generating total

revenues of $681.1 billion, equivalent to 94.5% of the market's overall value. In comparison, sales of

loose tobacco generated revenues of $17.9 billion in 2010, equating to 2.5% of the market's aggregate

revenues.

The performance of the market is forecast to accelerate, with an anticipated CAGR of 4.3% for the five-

year period 2010-2015, which is expected to drive the market to a value of $889.3 billion by the end of

2015. Comparatively, the Americas and Asia-Pacific markets will grow with CAGRs of 2.2% and 5.7%

respectively, over the same period, to reach respective values of $134.8 billion and $482.7 billion in 2015.

MARKET VALUE

Global - Tobacco 0199 - 0817 - 2010


MARKET VALUE

The global tobacco market grew by 4% in 2010 to reach a value of $720,796.9 million.

The compound annual growth rate of the market in the period 2006–10 was 3.8%.

Table 1: Global tobacco market value: $ million, 2006–10(e)

Year $ million € million % Growth

2006 622,007.1 468,417.6

2007 644,154.6 485,096.4 3.6

2008 666,919.2 502,239.8 3.5

2009 692,944.2 521,838.6 3.9

2010(e) 720,796.9 542,813.7 4.0

CAGR: 2006–10 3.8%

Source: Datamonitor D A T A M O N I T O R

Figure 1: Global tobacco market value: $ million, 2006–10(e)


MARKET SEGMENTATION I

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MARKET SEGMENTATION I

Cigarettes is the largest segment of the global tobacco market, accounting for 94.5% of the market's total

value.

The loose tobacco segment accounts for a further 2.5% of the market.

Table 2: Global tobacco market segmentation I:% share, by value, 2010(e)

Category % Share

Cigarettes 94.5%

Loose tobacco 2.5%

Chewing tobacco 1.7%

Cigars and Cigarillos 1.3%

Total 100%


Figure 2: Global tobacco market segmentation I:% share, by value, 2010(e)


MARKET SEGMENTATION II

Global - Tobacco 0199 - 0817 - 2010


MARKET SEGMENTATION II

Asia-Pacific accounts for 50.8% of the global tobacco market value.

Europe accounts for a further 30.3% of the global market.

Table 3: Global tobacco market segmentation II: % share, by value, 2010(e)

Category % Share

Asia-Pacific 50.8%

Europe 30.3%

Americas 16.8%

Africa and Middle East 2.1%

Total 100%


Figure 3: Global tobacco market segmentation II: % share, by value, 2010(e)


MARKET SHARE

Global - Tobacco 0199 - 0817 - 2010


MARKET SHARE

China National Tobacco Corporation is the leading player in the global tobacco market, generating a

36.1% share of the market's value.

Philip Morris International Inc. accounts for a further 14.2% of the market.

Table 4: Global tobacco market share: % share, by value, 2010(e)

Company % Share

China National Tobacco Corporation 36.1%

Philip Morris International Inc. 14.2%

Japan Tobacco Inc. 9.4%

Others 40.3%

Total 100%


Figure 4: Global tobacco market share: % share, by value, 2010(e)


FIVE FORCES ANALYSIS

Global - Tobacco 0199 - 0817 - 2010



The tobacco market will be analyzed taking tobacco manufacturers as players. The key buyers will be

taken as retailers, and tobacco leaf farmers and other raw material suppliers as the key suppliers.

Summary

Figure 5: Forces driving competition in the global tobacco market, 2010


The global tobacco market is concentrated at the top end of the market, with the top three players

collectively accounting for 59.7% of the total market value.

The global tobacco market has seen relatively strong market growth, despite strengthening legislation and

government regulation with regards to smoking in many markets. Due to the dominance of large players

such as China National Tobacco, Japan Tobacco, and Philip Morris International, coupled with advertising

restrictions in many markets, new entrants would find it increasingly difficult to establish a brand.

Furthermore, because of the health implications associated with tobacco products, there are a number of

benefits to consumers from using substitutes, which is why there is a moderate threat from substitute non-

durable goods in this market. Rivalry in the market is boosted by the lack of product differentiation and the

pressure placed on market players by the illicit cigarette trade.


Global - Tobacco 0199 - 0817 - 2010


Buyer power

Figure 6: Drivers of buyer power in the global tobacco market, 2010


The retailers are considered as buyers in the tobacco market. The main retailers for the global tobacco

market include independent retailers, supermarkets/hypermarkets, and convenience stores. The

concentration of retail outlets is relatively fragmented in the tobacco market, as there are a number of

outlets where the products can be sold. In the global market, independent retailers are the most

dominant distribution channel, with a total share of 17.6%. Increasing excise duties on tobacco products

are likely to reduce the demand for tobacco products, which could result in retailers reducing their stocks,

and in-turn increase buyer power. Furthermore, tobacco products are just one of many products sold by

most retailers, which illustrates that in most cases retailers are not reliant upon tobacco sales, which

increases buyer power. Customers are likely to be loyal towards certain brands, so there is potentially

some pull-through of end-consumer demand on retailers, this decreases buyer power to some extent.

Overall, the buyer power in this market is moderate.


Global - Tobacco 0199 - 0817 - 2010


Supplier power

Figure 7: Drivers of supplier power in the global tobacco market, 2010


Tobacco is an agricultural product and therefore key suppliers to the tobacco market include tobacco leaf

farmers. These farmers lack power in the supply chain because of their smaller size, with many farms

being family run businesses, particularly those in developing countries. Further inputs to the market

include processing aids, humectants (which keep the tobacco moist and pliable), preservatives and

brand-specific flavors. Companies such as Alcan Packaging, who are a leading global manufacturer of

tobacco packaging, are key suppliers to the tobacco market. Alcan's inputs include in-line rotogravure

printed hinge-lid blanks and soft packs. They are also the world's largest supplier of RYO (Roll Your Own)

tobacco booklet covers, as well as printed OPP film (Oriented Polypropylene film), bundle wraps and

tobacco pouches. Another global tobacco packaging supplier is Amcor. Due to the relative size of these

suppliers, their respective influence over the market is increased. There are limited alternative raw

materials in this market, so players are unlikely to switch a supplier, which increases supplier power.

Overall, supplier power is moderate.


Global - Tobacco 0199 - 0817 - 2010


New entrants

Figure 8: Factors influencing the likelihood of new entrants in the global tobacco market, 2010


The markets for tobacco products in many countries are very concentrated, and have strong existing

brands which would make it very difficult for a new player to enter. This dominance of existing brands is

notable, with leading players such as Philip Morris International (whose brands include Marlboro and

L&M) and Japan Tobacco (whose brands include: Camel, Winston, Silk Cut etc.), having presence in over

120 countries worldwide. Furthermore, shelf-space in retail outlets is finite and retailers may be unwilling

to stock products of an entirely new, unproven brand. Legislation and government regulation with regards

to smoking also continues to grow, for example, bans on smoking in public places, stricter age restrictions

and pictorial health warnings have been adopted in a number of markets, which act as a further deterrent

to new entrants. In countries that are part of the European Union, and Australia, cigarette packs must be

labeled with statutory warning statements such as “SMOKING KILLS". Current tobacco control strategies

seek primarily to decrease the demand for cigarettes through measures that encourage individuals to

adopt healthier behaviors, thus raising entry barriers. Despite growing regulation and the enforcement of

smoking bans, there are large variations to the extent of these within specific markets. Furthermore, there

are restrictions on the advertisement of tobacco products in many markets, which makes it increasingly

difficult for new entrants to create brand awareness. Healthy market growth may encourage new entrants

in the global market. Overall, there is a weak threat from new entrants in the global market.


Global - Tobacco 0199 - 0817 - 2010


Substitutes

Figure 9: Factors influencing the threat of substitutes in the global tobacco market, 2010


Substitutes in the tobacco market may include various non-durable consumer goods, for example nicotine

gum, nicotine patches, and herbal cigarettes. However, there are inter-segmental substitutes apparent

within this market, alternatives to cigarettes and fine cut tobacco products include smokeless tobacco,

cigars and pipe tobacco. Players and consumers alike may substitute one tobacco product for another,

with players who specialize in the manufacture of cigarettes diversifying into cigars for example. However,

inter-segmental substitution still involves essentially the same product. The benefits of substituting

tobacco products for alternate non-durable consumer goods are especially notable largely due to the

health implications associated with smoking (e.g. increased risk of lung cancer, heart disease etc.).

Furthermore, because of the addictive quality of nicotine present in tobacco products, many smokers who

want to quit, attempt to do so by substituting tobacco products for products such as nicotine gum, or

patches. These products fulfill the consumer's need for nicotine, without the harmful effects of inhaling

smoke. Unlike tobacco products, which face restrictions on advertising in many markets, nicotine

replacement products are highly promoted through a range of media. Overall, there is a moderate threat

from substitutes in the global tobacco market.


Global - Tobacco 0199 - 0817 - 2010


Rivalry

Figure 10: Drivers of degree of rivalry in the global tobacco market, 2010


The global tobacco market is fairly concentrated, with the major players such as China National Tobacco,

Japan Tobacco, and Philip Morris International collectively holding 59.7% of the total market value.

Product differentiation is essentially limited between the core tobacco products, which include chewing

tobacco, cigars and cigarillos, cigarettes and loose tobacco. Consequently, this increases rivalry. Illicit

tobacco supplies impact upon players' revenues and it is estimated that over 10% of the annual global

tobacco consumption (around 600 billion cigarettes) is supplied by smuggled or counterfeit trade, which

will serve to boost rivalry. Market growth is relatively steady in the global market, which serves to ease

rivalry between players to an extent. Overall, there is a moderate degree of rivalry in the global tobacco

market.

LEADING COMPANIES

Global - Tobacco 0199 - 0817 - 2010


LEADING COMPANIES

China National Tobacco Corporation

Table 5: China National Tobacco Corporation: key facts

Head office: No. 26 B. Xuwumenwai, Xi Da Jie, Xuanwu District, Beijing, 100053, CHN

Telephone: 86 10 6360 5000

Fax: 86 10 6360 5036

Website: www.tobacco.gov.cn

Source: company website D A T A M O N I T O R

China National Tobacco Corporation (CNTC) is a state-owned company engaged in the manufacture and

sale of tobacco products in the Chinese and foreign markets. The company is headquartered in Beijing,

China.

CNTC produces and owns a portfolio of over 900 brands, of which Hongtashan is the company’s key

cigarette brand. The company, through a partnership agreement with Philip Morris, produces and sells the

Marlboro brand in the Chinese market. The company also markets its own brands such as RGD,

Harmony and Dubliss through Philip Morris in the overseas markets including Central Europe, Eastern

Europe and Latin America. CNTC also produces and markets foreign brands such as 555 (British

American Tobacco plc), Kool (R.J. Reynolds Tobacco Company), Camel (R.J. Reynolds Tobacco

Company) and Lucky Strike (American Tobacco Company), in the Chinese market through license

agreements with the respective manufacturers.

In addition, the company contracts out orders to smaller, local factories. In turn these factories fill orders

and deliver them for distribution to CNTC’s distribution chain.

In November 2010, the company planned to reduce the no. of its cigarette operating brands to 20 in order

to make them the top global brands.

In December 2010, China Kangtai Cactus Biotech Inc., engaged in production and marketing of cactus

based products entered into an agreement with China Tobacco Import and Export Shandong Corp., a

subsidiary of China National Tobacco Corp., to manufacture cactus cigarettes under the name of "Tai

Shan Sheng Chao."

Key Metrics

As the company is state-owned, financial information is not available.

LEADING COMPANIES

Global - Tobacco 0199 - 0817 - 2010


Philip Morris International Inc.

Table 6: Philip Morris International Inc.: key facts

Head office: 120 Park Avenue, New York City, New York 10017, USA

Telephone: 1 917 663 2000

Website: www.philipmorrisinternational.com

Financial year-end: December

Ticker: PM

Stock exchange: New York


Philip Morris International (PMI) is engaged in the manufacture and sale of cigarettes and other tobacco

products. The company’s products are sold in over 180 countries under various brand names that include

Marlboro, Philip Morris, and Red & White. PMI is headquartered in New York City, New York.

Prior to March 2008, PMI was a wholly owned subsidiary of Altria Group. In 2008, Altria Group (Altria)

spun-off 100% of the shares of PMI to Altria’s shareholders, transforming PMI into a publicly traded

tobacco company. The company owns the trademark rights for all its principal brands, including Marlboro,

in all the countries other than the US. PM USA (a subsidiary of Altria) owns the trademark rights to its

brands, including Marlboro, within the US.

The company operates through four business segments that are organized according to the geographic

regions. These include the European Union (EU); Eastern Europe, Middle East and Africa (EEMA); Asia;

and Latin America & Canada.

The European Union (EU) segment is headquartered in Lausanne, Switzerland and covers all the EU

countries excluding Slovenia, Bulgaria and Romania, and also comprises Switzerland, Norway and

Iceland, which are linked to the EU through trade agreements.

The Eastern Europe, Middle East and Africa (EEMA) segment is also headquartered in Lausanne and

covers the Balkans (including Slovenia, Bulgaria and Romania), the former Soviet Union (excluding

Estonia, Latvia and Lithuania), Mongolia, Turkey, the Middle East and Africa and its international duty free

business..

The Asia segment is headquartered in Hong Kong and covers all the Asian countries as well as Australia,

New Zealand, and the Pacific Islands.

LEADING COMPANIES

Global - Tobacco 0199 - 0817 - 2010


The Latin America & Canada segment is headquartered in New York and covers the South American

continent, Central America, Mexico, the Caribbean and Canada. In 2009, the company sold 103.8 million

units of cigarettes in the Latin American and Canadian region.

PMI’s product portfolio includes a wide range of premium, mid-price, and low-priced brands that

comprises both international and local brands. The company’s premium-priced products are marketed

under Marlboro, Merit, Parliament and Virginia Slims. Its mid-priced products are marketed under L&M

and Chesterfield brand names. PMI’s low-priced category products comprise Bond Street, Lark, Muratti,

Next, Philip Morris and Red & White brands.

PMI also owns a number of local brands such as Sampoerna A, Sampoerna Hijau and Dji Sam Soe in

Indonesia; Diana in Italy; Optima and Apollo-Soyuz in Russia; Morven Gold in Pakistan; Boston in

Colombia; Belmont, Canadian Classics and Number 7 in Canada; Best and Classic in Serbia; f6 in

Germany; Delicados in Mexico; Assos in Greece; and Petra in the Czech Republic and Slovakia.

The company owns 58 manufacturing facilities across various geographies, out of which 11 facilities are

located in the European Union region, 10 facilities in the Eastern Europe, Middle East and Africa (EEMA)

region, 17 facilities in the Asia region, and 20 facilities located in the Latin America and Canada region.

The company witnessed a series of product launches in 2008 and 2009, some of which were Marlboro

Gold Touch in Italy; Marlboro Filter Plus Extra in Romania; Marlboro Black Menthol in Japan; A Volution in

Indonesia; Lark Classic Milds, Lark Mint Splash and Lark Black Label in Japan; and Marlboro Fresh in

Mexico.

PMI also undertook acquisitions during the year 2009. In September 2009, the company entered into a

joint venture agreement with Swedish Match AB. Earlier, in July 2009, PMI entered into an agreement to

acquire 100% stake in the privately-owned Colombian cigarette manufacturer, Productora Tabacalera de

Colombia, Protabaco, Ltda. for $452 million.

In 2010, PMI announced an agreement with Fortune Tobacco Corporation in Philippines to unite their

respective business activities to form a new company called PMFTC.

Key Metrics

The company recorded revenues of $67.7 billion in the financial year (FY) ended December 2010, an

increase of 9.1% over FY2009. The net profit of the company was $7.3 billion in FY2010, an increase of

14.5% over FY2009.

During FY2010, the European Union division recorded revenues of $28.1 billion, a decrease of 1.8% over

2009.

LEADING COMPANIES

Global - Tobacco 0199 - 0817 - 2010


The Eastern Europe, Middle East Africa division recorded revenues of $15.9 billion in FY2010, an

increase of 14.9% over 2009.

The Asia division recorded revenues of $15.2 billion in FY2010, an increase of 22.7% over 2009.

The Latin America & Canada division recorded revenues of $8.5 billion in FY2010, an increase of 17.2%

over 2009.

Table 7: Philip Morris International Inc.: key financials ($)

$ million 2006 2007 2008 2009 2010

Revenues 48,302.0 55,243.0 63,640.0 62,080.0 67,713.0

Net income (loss) 6,130.0 6,038.0 6,890.0 6,342.0 7,259.0

Total assets 26,120.0 31,777.0 32,972.0 34,552.0 35,050.0

Total liabilities 11,853.0 16,182.0 25,472.0 28,407.0 29,929.0

Employees 74,200 75,500 75,600 77,300 78,300

Source: company filings D A T A M O N I T O R

Table 8: Philip Morris International Inc.: key financial ratios

Ratio 2006 2007 2008 2009 2010

Profit margin 12.7% 10.9% 10.8% 10.2% 10.7%

Revenue growth 6.6% 14.4% 15.2% (2.5%) 9.1%

Asset growth 12.9% 21.7% 3.8% 4.8% 1.4%

Liabilities growth (7.6%) 36.5% 57.4% 11.5% 5.4%

Debt/asset ratio 45.4% 50.9% 77.3% 82.2% 85.4%

Return on assets 24.9% 20.9% 21.3% 18.8% 20.9%

Revenue per employee $650,970 $731,695 $841,799 $803,105 $864,789

Profit per employee $82,615 $79,974 $91,138 $82,044 $92,708


LEADING COMPANIES

Global - Tobacco 0199 - 0817 - 2010


Figure 11: Philip Morris International Inc.: revenues & profitability


Figure 12: Philip Morris International Inc.: assets & liabilities


LEADING COMPANIES

Global - Tobacco 0199 - 0817 - 2010


Japan Tobacco Inc.

Table 9: Japan Tobacco Inc.: key facts

Head office: 2-1 Toranomon 2-chome, Minato-ku, Tokyo 105 8422, JPN

Telephone: 81 3 3582 3111

Fax: 81 3 5572 1441

Website: www.jt.com

Financial year-end: March

Ticker: 2914

Stock exchange: Tokyo


Japan Tobacco (JT) is primarily engaged in the manufacture and sale of tobacco products in the domestic

and international markets. The company is also engaged in pharmaceuticals, processed foods and

beverages businesses. JT has 274 subsidiaries and has operations in Japan, the Netherlands, Canada,

Switzerland, France, Germany, China, Hong Kong, Macau, Canada, Russia, the Middle East and Africa.

The company operates through five business segments: domestic tobacco, international tobacco, foods,

pharmaceuticals, and others. The company owns and operates 31 plants in 23 locations.

The domestic tobacco segment manufactures and markets cigarette products to retail stores all over

Japan. The company holds approximately two-thirds of the domestic Japanese tobacco market. The

segment’s key brands include Mild Seven, Seven Stars, Pianissimo, Cabin, Caster, Camel, Peace and

Hope. The domestic tobacco segment also includes revenues generated through its subsidiary TS

Network Company. TS Network Company imports tobacco products from foreign tobacco manufacturers

and markets in Japan.

The international tobacco segment manufactures and sells cigarettes in the overseas market under the

brands Winston, Camel and Mild Seven, Benson & Hedges, Silk Cut, LD, Sobranie and Glamour (through

the acquisition of the Gallaher Group). The other key brands include Hamlet cigars, Old Holborn and

Amber Leaf and Gustavus Snus. The international segment operates through the company’s subsidiary

JT International (JTI) and other consolidated subsidiaries of JT International Holding. The company’s

international tobacco segment operates in 120 countries.

In Russia, JTI invested $100 million in 2007-08 to expand production facilities in its plants. The key

brands in Russia include Camel, Winston, LD, Glamour, Pyotr I, Russky Stil and Troika. In 2008, the

company introduced Mild Seven Impact One 100's in the Japanese market. In May 2009, the company

LEADING COMPANIES

Global - Tobacco 0199 - 0817 - 2010


launched Camel Snuff in the Swedish market. In May 2010, Japan Tobacco launched smokeless

cigarettes under the Zero Style brand name.

The foods segment manufactures and sells processed foods, beverages and seasonings. This segment

operates through the company's subsidiaries, Katokichi Co., Saint-Germain Co., Japan Beverage and Fuji

Foods. In May 2010, the company launched a tea sports drink in the Japanese market under the JT brand

name.

The pharmaceuticals segment is engaged in the research and development, manufacture and distribution

of prescription drugs. In the domestic market, JT operates through subsidiary Torii Pharmaceutical, which

manufactures and sells prescription drugs using its marketing network.

The others segment includes real estate business, engineering business, logistics and other operations.

In May 2011, Japan Tobacco planned to scrap 23 cigarette brands in order to stabilize the supply chains

disrupted by the earthquake and tsunami in northeastern Japan. In the same month the company decided

to close its Hainburg factory in Austria.

In July 2011, Japan Tobacco invested to start a tobacco production plant in Tajikistan.

In August 2011, Japan Tobacco, Incsigned an agreement to acquire Haggar Cigarette & Tobacco

Factory, Ltd, a company dealing in cigarettes and other tobacco products for $450 million.

Key Metrics

The company recorded revenues of $70.5 billion in the financial year (FY) ended March 2011, an

increase of 1% over FY2010. The net profit of the company was $1.7 billion in FY2011, an increase of

4.7% over FY2010.

Table 10: Japan Tobacco Inc.: key financials ($)

$ million 2007 2008 2009 2010 2011

Revenues 54,303.2 72,979.8 77,791.1 69,848.3 70,529.8

Net income (loss) 2,399.8 2,717.9 1,405.1 1,576.3 1,650.5

Total assets 38,309.3 57,921.9 44,174.6 44,092.5 40,669.0

Total liabilities 15,257.5 33,389.7 25,680.6 24,471.6 22,551.9

Employees 33,428 47,459 47,977 49,665 48,472


LEADING COMPANIES

Global - Tobacco 0199 - 0817 - 2010


Table 11: Japan Tobacco Inc.: key financials (¥)

¥ million 2007 2008 2009 2010 2011

Revenues 4,769,387.0 6,409,730.0 6,832,307.0 6,134,695.0 6,194,550.0

Net income (loss) 210,772.0 238,710.0 123,410.0 138,448.0 144,960.0

Total assets 3,364,663.0 5,087,210.0 3,879,800.0 3,872,590.0 3,571,910.0

Total liabilities 1,340,047.0 2,932,580.0 2,255,500.0 2,149,310.0 1,980,710.0


Table 12: Japan Tobacco Inc.: key financial ratios

Ratio 2007 2008 2009 2010 2011

Profit margin 4.4% 3.7% 1.8% 2.3% 2.3%

Revenue growth 2.8% 34.4% 6.6% (10.2%) 1.0%

Asset growth 10.8% 51.2% (23.7%) (0.2%) (7.8%)

Liabilities growth 10.1% 118.8% (23.1%) (4.7%) (7.8%)

Debt/asset ratio 39.8% 57.6% 58.1% 55.5% 55.5%

Return on assets 6.6% 5.6% 2.8% 3.6% 3.9%

Revenue per employee $1,624,482 $1,537,744 $1,621,426 $1,406,389 $1,455,062

Profit per employee $71,790 $57,268 $29,287 $31,739 $34,050


LEADING COMPANIES

Global - Tobacco 0199 - 0817 - 2010


Figure 13: Japan Tobacco Inc.: revenues & profitability


Figure 14: Japan Tobacco Inc.: assets & liabilities


DISTRIBUTION

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MARKET DISTRIBUTION

Independent Retailers form the leading distribution channel in the global tobacco market, accounting for a

17.6% share of the total market's value.

Supermarkets / hypermarkets accounts for a further 14% of the market.

Table 13: Global tobacco market distribution: % share, by value, 2010(e)

Channel % Share

Independent Retailers 17.6%

Supermarkets / hypermarkets 14.0%

Convenience Stores 11.2%

Others 57.3%

Total 100%


Figure 15: Global tobacco market distribution: % share, by value, 2010(e)


MARKET FORECASTS

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MARKET FORECASTS

Market value forecast

In 2015, the global tobacco market is forecast to have a value of $889,275.1 million, an increase of 23.4%

since 2010.

The compound annual growth rate of the market in the period 2010–15 is predicted to be 4.3%.

Table 14: Global tobacco market value forecast: $ million, 2010–15

Year $ million € million % Growth

2010 720,796.9 542,813.7 4.0%

2011 750,716.8 565,345.6 4.2%

2012 782,914.8 589,593.1 4.3%

2013 817,774.8 615,845.3 4.5%

2014 855,579.5 644,315.0 4.6%

2015 889,275.1 669,690.3 3.9%

CAGR: 2010–15 4.3%


Figure 16: Global tobacco market value forecast: $ million, 2010–15


APPENDIX

Global - Tobacco 0199 - 0817 - 2010


APPENDIX

Methodology

Datamonitor Industry Profiles draw on extensive primary and secondary research, all aggregated,

analyzed, cross-checked and presented in a consistent and accessible style.

Review of in-house databases – Created using 250,000+ industry interviews and consumer surveys

and supported by analysis from industry experts using highly complex modeling & forecasting tools,

Datamonitor’s in-house databases provide the foundation for all related industry profiles

Preparatory research – We also maintain extensive in-house databases of news, analyst

commentary, company profiles and macroeconomic & demographic information, which enable our

researchers to build an accurate market overview

Definitions – Market definitions are standardized to allow comparison from country to country. The

parameters of each definition are carefully reviewed at the start of the research process to ensure they

match the requirements of both the market and our clients

Extensive secondary research activities ensure we are always fully up-to-date with the latest

industry events and trends

Datamonitor aggregates and analyzes a number of secondary information sources, including:

- National/Governmental statistics

- International data (official international sources)

- National and International trade associations

- Broker and analyst reports

- Company Annual Reports

- Business information libraries and databases

Modeling & forecasting tools – Datamonitor has developed powerful tools that allow quantitative

and qualitative data to be combined with related macroeconomic and demographic drivers to create

market models and forecasts, which can then be refined according to specific competitive, regulatory

and demand-related factors

Continuous quality control ensures that our processes and profiles remain focused, accurate and

up-to-date

APPENDIX

Global - Tobacco 0199 - 0817 - 2010


Industry associations

International Tobacco Growers' Association

No. 30 - A, 1º dtº, 6000-081 Castelo Branco, Portugal

Tel.: 351 272 325 901

Fax: 351 272 325 906

www.tobaccoleaf.org

Related Datamonitor research

Industry Profiles

Tobacco in the United States

Tobacco in Canada

Tobacco in Mexico

Tobacco in Brazil

Tobacco in France

Tobacco in Germany

Tobacco in the United Kingdom

Tobacco in Belgium

Tobacco in Italy

Tobacco in the Netherlands

Tobacco in Spain

Tobacco in the Czech Republic

Tobacco in Denmark

Tobacco in Hungary

Tobacco in Norway

Tobacco in Russia

Tobacco in Poland

Tobacco in Sweden

Tobacco in Europe

Tobacco in Australia

APPENDIX

Global - Tobacco 0199 - 0817 - 2010


Tobacco in China

Tobacco in India

Tobacco in Japan

Tobacco in Singapore

Tobacco in South Korea

Tobacco in Taiwan

Tobacco in Asia-Pacific

Tobacco in South Africa

APPENDIX

Global - Tobacco 0199 - 0817 - 2010


Disclaimer

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accuracy we are not always in a position to guarantee. As such Datamonitor can accept no liability

whatever for actions taken based on any information that may subsequently prove to be incorrect.

ABOUT DATAMONITOR

Global - Tobacco 0199 - 0817 - 2010


ABOUT DATAMONITOR

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Global Tobacco

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