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More Chinese people are smoking cigarettes, and they’re smoking more of them

Dec 30th, 2015
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http://qz.com/583798/more-chinese-people-are-smoking-cigarettes-and-theyre-smoking-more-of-them/

China has 15 million more adult smokers in 2015 than it did in 2010, and they’re smoking almost a pack a day on average, even as the government has been trying to get citizens to curb the habit.

The Chinese Center for Disease Control and Prevention (link in Chinese) finds 27.7% of Chinese people smoke, based on a survey of over 15,000 people above the age of 15 that was published Dec. 28. More than half of all Chinese men, 52.1%, smoke, compared to just 2.7% of Chinese women. In the US in comparison, 16.8% adults smoked in 2014, and the rate of men and women smoking is much closer.

China’s smoking rate is nearly the same as 2010, but the population over the age of 15 has grown, so the study calculates China now has 316 million smokers, a new record.

The average number of cigarettes consumed each day per smoker has also risen, from 14.2 to 15.2, the study found.

The study also suggests Chinese people have a little awareness of the danger of tobacco, despite a several year push to educate the public. While nearly 80% of the respondents know smoking that lead to lung cancer, fewer know about the other risks:

Also, 75.5% of the respondents believe cigarettes with lower levels of tar are less harmful, the study says, due to the misleading promotion from tobacco companies. China’s state-owned tobacco companies have also blocked efforts to curb cigarette advertising.

Beijing introduced a smoking ban in June for all public indoor areas, from restaurants and offices to trains and hospitals. But the results have been mixed, with many Beijing residents are ignoring the ban. While the World Health Organization has urged China to take the smoking ban nationwide, the capital is currently the only Chinese city that imposes one.

An October study published in medical journal The Lancet showed even more grim statistics, reporting that 68% of Chinese men and 3.2% of women smoke, and around two-thirds of young Chinese men start smoking mostly before age 20. The report says tobacco caused about one million deaths in China in 2010 and will kill two million people in 2030.

Raise tobacco tax to save lives in China

Dec 25th, 2015
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From June 1 it has begun to feel like public health might be starting to win out in the battle against tobacco in Beijing. The Beijing smoke-free law now makes it illegal to light up in workplaces, restaurants, hotels and other public spaces across the city. But the battle against tobacco is far from over. Tobacco products still kill thousands of Chinese people every day.

http://usa.chinadaily.com.cn/opinion/2015-12/25/content_22803178.htm

There is a way to combat this, though: tobacco tax. Quite simply, a big enough tax increase could save millions of lives in the next decade.

Tobacco use significantly contributes to a fast growing epidemic in China: non-communicable diseases such as heart attacks, strokes, cancer and chronic pulmonary diseases. These conditions are now the leading causes of premature death, ill health and disability in China, accounting for more than 80 percent of total annual deaths. If tobacco use is not significantly reduced, it will aggravate the economic and social impact of an aging population, increasing the odds of a future economic slowdown, which in turn will pose a significant social challenge.

Experience from many other countries shows that not only is tobacco tax an effective means to reduce tobacco consumption and associated healthcare costs, it can also provide significant revenue which can be reinvested into other priorities.

The Philippines is a great example of how tobacco taxes are “win-win”. The 2012 Philippines “Sin Tax” Law has raised and simplified tobacco and alcohol excises, increased government revenues and reduced smoking. Retail prices of cigarettes increased significantly, with early data suggesting a decline in smoking prevalence.

Despite the decline in volume, revenue still increased – nearly doubling the Philippines’ Department of Health’s budget. This enabled fully subsidized health insurance to be provided to the poorest 40 percent of the population – 14 million families, or approximately 45 million people.

In May 2015, China’s Ministry of Finance announced an increase in tobacco taxation, of 0.005 renminbi per individual cigarette, alongside an increase in the wholesale tax rate. Importantly, this tax increase is flowing onto retail prices – making cigarettes a little more expensive across China as a result.

This tax increase adopted by the government of China, in line with its commitment to the World Health Organization’s Framework Convention on Tobacco Control, is an important step in the right direction. However, it is only one step. As the recently released 2015 WHO Report on the Global Tobacco Epidemic points out, tobacco taxes must be increased regularly in order to reduce tobacco use. Otherwise, if incomes rise more quickly than inflation, the relative cost of tobacco products can actually decrease over time.

This has been the case in China over the last decade as the economy has grown, incomes have increased, and tobacco products have become more affordable. Compared with the progress made in other BRICS (Brazil, Russia, India, China and South Africa) countries, China is lagging behind in raising tobacco taxes.

Higher tobacco taxes not only help smokers quit, but crucially they also prevent the next generation from taking up smoking in the first place. The vast majority of smokers start smoking when they are young. Higher tobacco taxes make cigarettes much less affordable for teenagers, helping to protect the coming generations from tobacco disease and death.

If tobacco control measures are not strengthened with steeper tobacco tax increases, China’s non-communicable disease epidemic will continue to explode over the next 20 years. This really has the potential to undermine the Chinese government’s agenda for harmonious and human-centred development, particularly by aggravating health inequities.

The WHO and the World Bank Group stand ready to support the government of China in advancing the tobacco taxation agenda. A healthy future for China depends on it.

Bernhard Schwartlander is WHO China representative, and Bert Hofman is World Bank’s country director for China, Mongolia and South Korea.

Kenya: Lighting Up

Dec 25th, 2015
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http://www.westfieldtimes.com/world/kenya-lighting-up/16702/

Last year, the British parliament, despite fierce lobbying from tobacco companies, decided that from May 2016 cigarettes would be sold only in plain packaging in the UK.

Anti-smoking campaigners in that country were quick to declare it as the latest nail in the coffin of an industry that has seen consumption of its products shrink inexorably in the West over the past three decades.

But while it is true that health concerns, public education, and increasingly stringent controls on the advertising, sale and use of tobacco have brought about that decline in North America and Europe, anyone thinking to write the obituary of Big Tobacco had better think again, because elsewhere in the world, especially in the developing world, smoking is increasing dramatically.

Nearly 80 percent of the world’s one billion smokers now live in low- and middle-income countries, a figure that continues to rise year on year. In China, for example, an estimated 350 million adults are hooked on tobacco; smoking in Indonesia has more than quadrupled in the past four decades; and in Russia around a third of all teenagers will have tried their first cigarette by age 12.

But it is Africa that is probably most critical to the long-term future of the multinational tobacco firms, because it is relatively unexploited. For all the continent’s other woes, Africa has traditionally had some of the lowest smoking rates in the world, largely because most people can’t afford it. That, though, is now changing as parts of the continent become more prosperous, disposable incomes increase and populations mushroom.

It has become an enticing target for a profit-hungry industry as other routes to growth have been closed off by rules, directives and worries about life-threatening diseases.

With the most smokers in sub-Saharan Africa, Kenya is one of the biggest prizes on offer.

The problem for the industry is that Kenyan health officials are as aware as anyone else about the dreadful menace smoking poses to their nation’s health. Kenya was the first African nation to ratify the World Health Organization’s Convention on Tobacco Control. One of its key sections, Article 5.3, says that countries must “protect their tobacco control and public health policies from commercial and other vested interests of the tobacco industry”.

It gave officials the impetus to work with legislators on drafting strict regulations. These include putting graphic images on cigarette packets, banning advertising, promotion and sponsorship of tobacco and the imposition of a 2 percent health tax on every packet.

Professor Peter Odhiambo, chairman of the Tobacco Control Board, said: “We are already sitting on an epidemic of the cancers from tobacco. The tobacco problem is the most silent undeclared disaster in Kenya and therefore the more we delay the more we will see Kenyans dying.”

But as investigative journalist Purity Mwambia and filmmaker Giovanni Ulleri have been finding out, the industry hasn’t been slow to fight back, going to court in Kenya to argue about the legality of the rules and the proposed timetable for their introduction.

And now, most recently, disturbing allegations about the bribery of government figures have begun to emerge.

FILMMAKER’S VIEW

By Giovanni Ulleri

Around the town of Migori, beside the dusty country roads, you’ll find them: groups of farmers sharing a social moment away from their football pitch-sized plots of tobacco. Here, in one of the most important agricultural regions in Kenya, tobacco is king but, as I discovered in making Lighting Up, this is a crop that demands a high price from those who grow it and those who smoke it.

When I got a phone call from my former boss over the summer about me directing a film on tobacco in Kenya, I hesitated before saying yes. Not because I didn’t want to do it, but because of a potential conflict of interest; I was a former smoker – and in my eyes, once a smoker, always a smoker.

I was fully aware of all the known cancer risks of smoking and I had tried to quit many times over the years, but like most addicts I kept falling off the wagon and stealing a cigarette from friends. I had starting smoking as a stupid act of rebellion as a teenager behind the bike sheds at school and here I was heading off to Kenya to see how they have been trying to prevent other youngsters from doing what I did – lighting their first cigarette and starting down a path that could eventually lead to an untimely death.

On arriving in Nairobi and meeting up with my colleague Purity Mwambia, the first thing I noticed walking around the streets was how few people smoked in public.

Unlike any high street in the UK, where you see smokers huddled up in doorways of offices and in the cold and rain trying to light up, here in Kenya you are allowed to smoke only in designated smoking zones which, I imagine, makes the city centre of Nairobi one of the largest no-smoking zones in the world.

There’s even a 50,000 Kenyan shilling ($490) fine if you are caught smoking outside these zones. But despite this, eight billion cigarettes are smoked in Kenya every year and the government is trying to introduce new regulations to try to prevent what it fears is just around the corner: a veritable host of tobacco-related diseases.

However tobacco companies view Africa as one of their largest growing markets.

They are eager to keep their market share and to persuade policymakers, not to penalise them. We spoke to a young MP, Stephen Mule, who sits on the Kenyan parliamentary health committee. He told us that he was offered an expenses-paid fact-finding trip to the UK from Kenya’s largest tobacco manufacturer, British American Tobacco. What BAT didn’t know was that Mule’s father had died of a tobacco-related disease and nothing would ever weaken his resolve to introduce strict tobacco control regulations back home.

I also met his mother, who told me how she looked after her dying husband and how she tried to get him to stop smoking. She is rightly proud of her son, whose aim is to stop other Kenyan families from suffering the way his family did caring for a smoker.

But everyone involved in tobacco regulation in Kenya knows they have a fight on their hands. They are up against a rich and powerful industry, battle-scarred from years of similar confrontations in Europe and the US and determined to protect its burgeoning African businesses from government interference.

The more we began to look into this story, the more we began to realise exactly what that determination meant in practice.

Anti-smoking activists call for ban on tobacco charity donations

Dec 18th, 2015
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http://news.xinhuanet.com/english/2015-12/18/c_134931767.htm

BEIJING, Dec. 18 (Xinhua) — Chinese anti-smoking campaigners want a ban on charity donations or activities sponsored by tobacco companies in a draft charity law.

Members of the Standing Committee of the National People’s Congress, the body that runs the legislature between full meetings, will meet in Beijing from Dec. 21 to 27 to deliberate the draft.

The draft, published online for comment in November, has been heatedly discussed among anti-smoking activists.

Xu Guihua of the Chinese Association on Tobacco Control approves of the proposals banning tobacco advertising, but said more strict regulations are needed to stop tobacco companies using charities to promote their products.

According to the draft, organizations and individuals should not seek to promote tobacco products or tobacco companies through charitable donations. However, tobacco companies may still sponsor charitable activities such as fund raisers since charitable activities can take various forms, said Xu.

Besides, the clauses about incentives to encourage organizations and individuals to do charity work, such as tax breaks, naming rights, do not exclude tobacco companies, which could lead to them benefiting from media coverage of charities they sponsor, Xu added.

Banning all tobacco donations is a requirement of international law, said Zhao Jianwen with the Chinese Academy of Social Sciences institute of international law.

China signed the WTO Framework Convention on Tobacco Control in 2003, and ratified it in 2006, which requires all signatories to “ban all tobacco advertising, promotion, and sponsorship.” Incorporating a ban on tobacco sponsorship into the charity law is in line with the spirit of the convention, Zhao said.

Wu Yiqun, vice director of the Beijing-based anti-smoking advocacy group ThinkTank Research Center for Health Development, said that lawmakers should ban donations just as they banned tobacco commercials in the Advertising Law passed in April.

The draft law is short of sanctions for violators, a loophole which could be taken advantage of by tobacco companies since there would be no penalty for breaking the law, said Liu Xin of the China Law Society.

According to the Chinese Association on Tobacco Control, there have been 166 cases of tobacco sponsorship in the last two years.

There have been questions of whether banning tobacco donations could be a loss to society. Zhao Jianwen suggested that raising tobacco industry taxes could let the government spend more money on charities.

China has over 300 million smokers and the government has recently made some efforts to change the situation. Beijing rolled out regulations banning all forms of tobacco promotions and title sponsorship, which went into effect on June 1. The rules also prohibit smoking in Beijing’s public indoor areas.

China to set up a cigarette plant in Zim

Dec 4th, 2015
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https://www.newsday.co.zw/2015/12/04/china-to-set-up-a-cigarette-plant-in-zim/

CHINA is expected to set up a cigarette manufacturing company in Harare following discussions between the government and officials from the Asian giant, it has emerged.

Finance and Economic Development minister Patrick Chinamasa said at a recent meeting that the government held discussions with the State monopoly company of China, which is one of the major consumers of local tobacco.

He said local companies must focus on value addition to create more jobs.

“We are getting indications from China and for a longtime we have been engaging with China. There is a State monopoly of tobacco in China and you cannot get tobacco whether raw or processed into China, unless through the State monopoly company,” Chinamasa said.

“We have been asking them to get a quota in China, but they refused then we changed tact and said they could come and make a factory to manufacture cigarettes. If successful, they can come and set up a factory and export cigarettes to China.”

China is the major consumer of Zimbabwean tobacco.

Since 2009, the number of farmers growing tobacco has been on the increase. The golden leaf output has been on the rise and prices have been favourable. But for the 2014/5 season, most tobacco farmers were disappointed because the prices were very low.

Tobacco is mostly grown in the country through contract farming, whereby the contractor provides inputs to the farmers. Tobacco output has been on the increase since 2009 and it reached its peak in 2014 producing 216 million kilogrammes but this year the farmers produced 198 million kgs due to the poor rainfall patterns experienced in the country.

Chinese President, Xi Jinping was in the country this week and signed 12 deals with the government in sectors such as infrastructure, telecommunications and energy. Zimbabwe Power Company signed a co-operation agreement for Hwange 7 and 8 to produce 600 megawatts of power.

Studies show China continues to lag in effective tobacco control

Nov 16th, 2015
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Smoking myth gives slim cigarettes rising popularity in China

Nov 9th, 2015
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http://news.xinhuanet.com/english/2015-11/09/c_134797950.htm

BEIJING, Nov. 9 (Xinhua) — China’s 300 million smokers are turning to slim and super-slim cigarettes in the mistaken belief that they will be exposed to less harmful chemicals than traditional brands.

The world’s largest tobacco consumer and producer, production and sales of slim cigarettes doubled in China in 2014. A total of 15 billion slim cigarettes were sold that year, a drastic increase from 2007 when the figure was a mere 500 million.

Smokers are under the impression that slim cigarettes are “healthier” compared with the regular cigarettes. “It’s the lesser of two evils,” said Zhang Qingyu, a middle-aged chain smoker who switched to slim three years ago.

“My family support me on the switch because, you know, smoking kills and with such a ‘healthier’ alternative, I may live longer,” he added.

Most disturbingly, slim cigarettes are popular among young smokers and fashion conscious white collars, a large proportion of them being female.

At a cigarette store at Beijing’s Xuanwumen, colorful packs of slim cigarettes are prominently displayed in glass counters.

“We have over a dozen slim brands with prices ranging from 12 yuan (approximately 1.8 U.S. dollars) to 32 yuan,” said the shop owner. “There are a growing number of slim brands and they sell well,” he said, adding that most of his customers are young people.

China’s vocal anti-smoking lobby believes that slim cigarettes are “less harmful” myth is a dangerous one, which they describe as a “beautiful trap.”

Wu Yiqun, executive vice director of ThinkTank, a Beijing-based NGO committed to tobacco control, said the hazards of slim cigarettes have been greatly underplayed in China.

“There has been no evidence that a smoker is exposed to less chemicals and poisons after switching to slim cigarettes,” said Wu, one of China’s most prominent anti-smoking campaigners.

“Smokers feel slim cigarettes are less ‘fulfilling’ so they use other tobacco products, smoke more of them or simply take more drags,” she said.

Xu Guihua, deputy head of the Chinese Association on Tobacco Control, said that promotion of slim cigarettes by the tobacco industry misleads consumers.

“There is no such thing as ‘safe’ cigarettes no matter how slim they are,” she said, adding that slim cigarettes are a marketing hoax used by the industry to dupe and extract more profits from the world’s largest tobacco market.

Ling Chengxing, head of the China’s State Tobacco Monopoly Administration and China National Tobacco Corporation told a meeting earlier this year that the slim cigarettes are “in line with the trend of consumption and tobacco product innovation” and are of “lower costs and cause less harm” compared with the regular smokes.

An article on the corporation’s website says that slim cigarettes have a”huge potential market.”

China’s tobacco industry generated almost 956 billion yuan in taxes and profits in 2013. More than 1 million people die in the country from tobacco-related illness annually – around 3,000 people every day – around 150,000 U.S dollars of profit for each death.

Adolescent E-Cigarette Use Tied To Breathing Problems

Nov 9th, 2015
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http://www.medicaldaily.com/adolescent-e-cigarette-use-tied-breathing-problems-360836

(Reuters Health) – Adolescents who reported using e-cigarettes were about 30 percent more likely to report respiratory symptoms than those who never used e-cigarettes, in a study from China.

The increased risk of breathing problems – like a cough or phlegm – varied depending on whether or not the adolescents also smoked traditional cigarettes.

“Among never smoking adolescents, e-cigarette users are twice as likely to report respiratory symptoms than non-users,” study author Dr. Daniel Ho, of the University of Hong Kong School of Public Health.

“E-cigarettes are certainly not harmless and serious health problems of long-term use will probably emerge with time,” Ho added in an email to Reuters Health.

E-cigarettes deliver nicotine through a vapor, which contains propylene glycol and flavoring chemicals known to be bothersome to the respiratory system, the researchers write in JAMA Pediatrics.

While past research found some short-term respiratory effects in adults after e-cigarette use, the researchers say no study had looked for these effects in adolescents.

The new findings are drawn from data collected between 2012 and 2013 from over 45,000 schoolchildren in Hong Kong with an average age of about 15.

Overall, 1.1 percent of students reported smoking e-cigarettes within the past 30 days, and about 19 percent of all students reported respiratory symptoms.

Students who smoked e-cigarettes were 30 percent more likely to report breathing problems, compared to those who didn’t use the devices.

The difference in breathing problems was most pronounced among students who said they never smoked traditional cigarettes. These students were over twice as likely to report breathing problems as those who didn’t use e-cigarettes.

Students who reported using e-cigarettes and also smoking traditional cigarettes at some point in their lives were at a 40 percent increased risk of breathing problems, compared to those who didn’t use the devices.

While the study can’t prove the devices caused breathing problems among children, the researchers say the findings support the World Health Organization’s recommendation to regulate e-cigarette use among children.

“Other studies have also shown that adolescent e-cigarette users are more likely to initiate cigarette smoking than non-users,” Ho said. “One in two smokers will be killed by tobacco; two in three if started from a young age.”

Parents, he said, can prevent e-cigarette and traditional cigarette use among their children by not using the devices or tobacco, not exposing their children to secondhand smoke and setting strict smoke-free rules at home.

“E-cigarette use is a controversial topic,” Ho said. “While supporters are optimistic about the potential for harm reduction in the minority of established cigarette smokers, (for) which convincing evidence is lacking, this does not seem to justify the potential harm of re-normalizing cigarette smoking, delaying smoking cessation, and escalating to real cigarette smoking, especially among the majority non-smoking young people.”

On anti-smoking policies, mainland China can learn from Hong Kong

Oct 23rd, 2015
by AdminCTA.
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So chronic is the addiction to smoking on the mainland, so dilatory is the official response to science-based appeals for action to combat it, that it could seem a waste of time to keep on about it. But occasionally researchers come up with a new angle that cannot be ignored. In this case it is that smoking could eventually kill one in three young men in China in what will be a crisis for a labour force depleted by ageing and for the public health system.

What sets this scenario apart is not just that it is so grim. It is also because it is based on collaborative studies by researchers from Oxford University, the Chinese Academy of Medical Sciences and the Chinese Centre for Disease Control. These showed that two-thirds of China’s young men smoke and, unless they quit, half will die from smoking-related diseases.

China has more than 350 million smokers who consume more than a third of the world’s cigarettes and account for a sixth of the global smoking death toll. The principal beneficiary is not Big Tobacco – the multinationals fighting over a shrinking market in the West – but the state-owned tobacco monopoly and its administration. The government needs to break its addiction to the huge profits and tax revenue they amass.

China does have smoking bans in public areas but there is room to extend them and enforce them with greater urgency and rigour. As Wu Yiqun, from the think tank Research Centre for Health Development, says, persuading people to cut down and quit smoking will not hurt the economy as it is a gradual process rather than abrupt dislocation of an industry that provides or helps provide a living for millions.

According to Chinese Academy of Medical Sciences professor Yang Gonghuan, failure to heed scientific studies could lead to catastrophic losses in health expenditure and the workforce. To avoid them, the government must resort to incremental tax rises on cigarettes, backed by relentless focus on public education, and inexorable tightening of restrictions on where people can smoke. In these respects, Hong Kong and its smoking rate of just 10 per cent is a model of kinds.

http://www.scmp.com/comment/insight-opinion/article/1871226/anti-smoking-policies-mainland-china-can-learn-hong-kong

Philip Morris: Reading The Smoke Signals In 2015 – Part 1

Oct 22nd, 2015
by AdminCTA.
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http://seekingalpha.com/article/3592586-philip-morris-reading-the-smoke-signals-in-2015-part-1

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…)I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Summary

Roughly one year after my series on international tobacco, I have decided to write an update.

I will focus primarily on the performance of Philip Morris versus its three largest international competitors.

In the first part of the 2015 series, I will study the competitive dynamics in Western Europe.

Due to popular demand, I have decided to write another installment of my 2014-published series on international tobacco called ‘Reading the Smoke Signals’. As customary, I will focus mostly on the international arena (excluding the U.S. and China), because this is the primary battleground for Philip Morris (NYSE:PM) and its largest competitors: British American Tobacco (NYSEMKT:BTI), Japan Tobacco (OTCPK:JAPAY) and Imperial Tobacco (OTCQX:ITYBY). This article will focus on the relative performances delivered by these four companies in some of the different geographic areas in which they compete. I will also look at some of the important structural developments, including the increased pace of consolidation seen year to date. Since Philip Morris is the international market share leader, this company in particular is the focus of the article. In this first installment, I will take a look at the competitive landscape in Western Europe.

Philip Morris in Western Europe

Western Europe is a mature cigarette market with high average prices as a result of high excise tax levels. It also has an increasingly strict regulatory environment with more regulation in sight, as the new EU tobacco products directive is mandated for adoption by EU member states in the spring of 2016 at the latest. Profitability in this region is above average as a result of high average income levels and high average tobacco prices at retail. Philip Morris is the undisputed share leader in the region, due in important part to Marlboro’s long-time leadership and continued resilience. The new Marlboro 2.0 architecture appears to have benefited the brand’s consumer perception and its market share has continuously showed improvements over the past 4 years or so. Marlboro market share in the region was up to 19.3% for 2014 and has increased further to 19.4% as of September 2015. That is an important indication of PM’s ability to keep the brand relevant despite its reliance in part on an aging demographic.

The pace of volume declines in the EU market overall accelerated during the economic crisis in 2008. Next to economic reasons like pressure on personal incomes and high unemployment rates, other important factors contributing to this pressure have been increasing tax rates, an increased prevalence of illicit trade, e-cigarette consumption and increasing regulation because of health concerns. In 2014, however, the industry saw significant moderation in volume declines as a result of the decreased popularity of e-cigarettes, a decrease in illicit trade and some economic improvements as well.

Market share for Philip Morris in the region was up to 39.8% for 2014 and to 39.9% as of September 2015. Next to Marlboro, PM relies on brands like L&M (up 0.1pp to 7.1% share) and Chesterfield (up 0.3pp to 5.8% share) as its most important volume drivers. In markets like Italy and the Czech Republic, it also has ownership of local brands like Diana and Red & White, respectively, that have generally witnessed declines as consumers gradually move to international brands. Philip Morris’s performance has been strong in recent years, as it continues to gain share in many of the region’s most important markets. Its market shares were up during 2014 in all of the following markets: France (up 0.8pp to 41%), Germany (up 0.4pp to 36.6%), Italy (up 1.8pp to 54.9%), Poland (up 1.9pp to 40.1%) and Spain (up 0.9pp to 32.1%). Marlboro’s performance was strong primarily in France and Spain, while L&M drove performance in Poland and Germany. Improvements in Italy were driven by share gains delivered by Chesterfield, which continued to derive benefits from its price repositioning in this market. Market share improvements were reflected in PM’s overall volume improvement of +0.1% during 2014, while the total cigarette market was lower by -3.1%.

The trends seen during 2014 have largely continued during the recently reported 9M period of 2015, with further share improvements seen in France, Germany and Spain. In Italy, the positive performance of 2014 was reversed due to share declines seen in Marlboro as a result of price increases (from €5 to €5.20 a pack), with weakness in brand Philip Morris as well (which includes the morphed local brand Diana), as a result of increased competition in the low-price segment.

British American Tobacco in Western Europe

British American Tobacco has been locked into a battle for the No. 2 share position in Western Europe with Japan Tobacco for a number of years now. BAT appears to be losing this battle when looking at current data. British American’s volume in the Western European segment was down by -5.88% to roughly 112 billion sticks during 2014, while Japan Tobacco’s volume was up slightly by 0.09% to 111.4 billion sticks (for comparison: PM’s was 185.2 billion). In 2014, BAT performed well in markets like France, the Benelux, the U.K., Spain and Poland. Weaker performances were delivered in markets like Italy, Denmark, Switzerland and Germany. Weakness seen in Italy during 2014 appears to have improved notably during the first half of 2015, although the company’s reporting does not really allow for great market share insights.

BAT’s Rothmans brand continues to amaze in terms of volume improvements and added 10 billion sticks during 2014 to its 2013 volume of 26 billion sticks globally (roughly +38.5%). This brand’s strong growth benefits BAT’s European performance in certain markets as well. Italy is one of the markets, where the company is deriving benefits from the performance of this brand, which was up to 4.1% share of market in H1-2015, up from 0.2% in H1-2013 and 2.4% in H1-2014. Rothmans is probably the fastest growing cigarette brand globally (out of those with notable size of course) as a result of its roll-out into new markets and the strong performance of innovations like convertible cigarettes. BAT’s share in Italy stabilized at 20.2% for H1 of 2015 as a result of the performance displayed by Rothmans in this market.

Romania continues to be a BAT stronghold with total share up to roughly 54% in Aug-2015 versus 53.8% during 2013, largely as a result of higher share for Global Drive Brands (GDB) like Kent, Dunhill and Pall Mall. Pressure on BAT’s German share of market during 2014 seems to have been reversed during H1 of 2015, with important brands like Pall Mall and Lucky Strike bouncing back and rising above their shares of last year. This development pushed BAT’s share back up to 19.5% (June 2015) versus 19.4% for the same period last year. In France, BAT’s share has been on the rise thanks to strength displayed by Lucky Strike, with that brand’s share up a full share point to 8.3% in July 2015 and total BAT share up to 17.6% in the same month (17% during 2014).

The most important development in the area of European tobacco M&A was conducted by British American, when it acquired TDR a couple of months ago. The acquisition price totaled €550 million including debt, roughly 12.5x EBITDA of €44 million (2014), which is broadly in line with historic tobacco buy-out multiples. It is not a particularly large acquisition and I am not very familiar with the business in question. TDR apparently has a leading market position in the Balkan country of Croatia (once part of Yugoslavia) and a relevant presence in the neighboring countries Bosnia and Serbia. I expect BAT will use the acquisition, which includes a manufacturing facility in Croatia, as a platform to further develop its business and brands in Central Europe.

Japan Tobacco in Western Europe

Japan Tobacco saw broad-based market share gains in many Western European markets during 2014 with important markets like France up to 20.8% share (+0.8ppt) and Spain to 21.7% (+0.7ppt), largely driven by strengths seen in brands like Winston and Camel. The good performances delivered in these markets were continued during H1-2015 with France up to 21.1% and Spain up to 22%. Market share in Poland improved further as well and was up to 16.4% during H1-2015. Other good performances were delivered in the Czech Republic, Hungary, Germany, the Benelux countries, Greece, Ireland, Poland and Switzerland.

Performance in Italy apparently was less favorable, which continued during H1-2015 because market share dipped to 20% during that period, even though the company’s newly launched Benson & Hedges value offering saw good growth. Austria was a weak performer as well as market share dropped to 32% (down 0.2ppt), with further declines to 31.4% during H1-2015. In the U.K., the company continued to show resilience by widening its leading position, with Amber Leaf further consolidated as the No. 1 fine-cut brand in this market, Sterling is still No.1 in cigarettes and total company share up to 41.6% as of June 2015. I consider the performance of JT in the U.K., especially admirable because it is being achieved largely through the continued strength of local brands, thereby defying the negative growth seen in national brands in most other cigarette markets. In the U.K., the tobacco market is largely divided between Imperial Tobacco and Japan Tobacco, with share gains made by Philip Morris and BAT apparently primarily at the expense of Imperial Tobacco.

In Romania, JT also continues to perform well with its share of market up to 25.2% due to strength in Winston, Sobranie and Benson & Hedges. It has a decent No. 2 position in this market after BAT, which has roughly half the market.

Imperial Tobacco in Western Europe

Imperial Tobacco meanwhile relies to an important degree on core markets like France, Germany, Spain and the U.K. for a large part of its European volumes. This company is extremely reluctant with providing data on market share performance, which I attribute to their largely unfavorable track record on this metric. I believe the company lost market share in all four of its core European markets, which is due at least in part to their inferior brand portfolio which contains mostly local brands. Their historic strength in fine-cut tobacco has also been less advantageous than one might expect to be the case in austerity-stricken Europe, because the other companies have leveraged their cigarette brands to launch fine-cut offerings as well.

Imperial Tobacco has been actively trying to gain share of the Italian market with its John Player Special brand, which I believe is the factor primarily responsible for the changed dynamics in the lower-priced segment of this market. Imperial gained share in Italy during 2014 from a modest level. This positive momentum was continued during H1 of 2015 with premium brand Davidoff also doing well. Other gains were delivered in Greece, the Nordics (in snus tobacco), Portugal and the Czech Republic. Share declines were registered in markets like the Benelux and Germany (in fine cut), with share developments apparently stabilizing in Austria. The developments in Imperial’s most important European markets largely continued in the same direction during 2015. The Benelux countries, which are also important fine-cut markets for Imperial, apparently showed more stabilized share performances.

Market share was reportedly down in the U.K. during H1-2015. Interestingly, the company reports having a ‘leading position’ in the U.K., but in my opinion they now trail Japan Tobacco in this market.

The U.K. is one of the most important European markets for Imperial Tobacco, because it has long held a significant market share there, although this position has been eroded somewhat by PM and BAT gaining share with Marlboro and Rothmans, respectively.

IMT does not provide extensive volume numbers either, but its global volume was down strongly during its fiscal year 2014, namely by -7.26% to 294 billion sticks. This was due in part to an inventory realignment program that ended during the year, as could be seen by the moderation in its reported decline to -2.77% for 9M-2015 (the underlying decline was -6% though). I strongly expect this company’s organic growth will continue to underperform its international peers, although it has in the past year benefited from its lower-than-average exposure to emerging market currencies and the brand acquisition in the US.

Conclusion

Philip Morris and Japan Tobacco continued to outperform in the Western Europe region during 2014 and H1-2015, with British American and Imperial showing significant weakness during FY 2015, but apparently showing some improvements during H1-2015. Since PM, BAT and JT have all reported significant gains in important markets like Germany, France, Spain and the U.K. over the past years, I strongly suspect Imperial Tobacco is losing ground rather quickly in these countries.

Imperial Tobacco is a company that has conducted a lot of acquisitions during the past two decades or so; its significant presence in France and Spain is the result of its 2008 acquisition of Altadis (which was created out of those two countries’ former state tobacco monopolies). It, therefore, relies extensively on local brands in these markets, which are very consistently being outcompeted by the international brands owned by PM, BAT and JT. In Germany, Imperial Tobacco also has a strong presence as a result of its 2002 acquisition of Reemtsma, which includes a strong presence in the fine-cut tobacco category. This is a very large segment of the German tobacco market overall, which should have served Imperial well since it is a fine-cut specialist, but the other companies have successfully taken share in this category as well. In my opinion, therefore, Philip Morris and Japan Tobacco have shown themselves to be the best operators in Western Europe.

In the upcoming Part 2 of my ‘Reading the Smoke Signals 2015′ series, I will take a look at the performance of the international tobacco companies in another geographic region, so keep an eye out!

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