56.6 Billion Illegal Cigarettes Consumed in the EU in 2014, Worth More Than €11bn in Lost Tax Revenue

New KPMG report for British American Tobacco, Imperial Tobacco, Japan Tobacco International and Philip Morris International confirms sustained rates of illegal tobacco trade across the EU

LONDON--(BUSINESS WIRE)--May 28, 2015-- The scale of the illegal trade in cigarettes remains sizeable in the European Union (EU), with a total of 56.6 billion illegal cigarettes consumed in 2014, representing 10.4% of total consumption, according to the latest annual report by KPMG. This illegal market costs taxpayers and communities more than €11 billion a year in lost tax revenue. If combined, the thousands of transactions made by criminals involved in the illegal tobacco trade would equate to them being the fifth largest cigarette supplier to EU consumers.

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The source and type of products available on the illegal tobacco market have continued to evolve, while the upward trend of illegal trade levels in the EU has moderated in recent years. For example, in 2014, more than 8 out of 10 illegal cigarettes originated from outside the EU, which is a 10% increase compared to 2013. In contrast, flows within the EU continue to decline, driven by improved industry supply chain controls and narrowing price gaps between EU Member States.

“Overall levels of illicit cigarette consumption in the EU remained essentially flat during 2014, however the illegal tobacco market remains sizeable and continues to evolve. Our research shows that while this is a problem that touches every Member State, caution is needed particularly in countries that share borders with non-EU countries where cigarettes are cheaper and where we continue to see high illicit cigarette consumption levels,” commented Robin Cartwright, a Partner at KPMG.

“Illicit whites” - cigarettes that are generally produced legally in a country but are smuggled into other countries where they have limited or no legal distribution - are also proliferating across the EU. According to KPMG, while smuggling of well-known brands has become less common, the number of illicit whites has grown exponentially from virtually zero in 2006 to 37% of all illegal cigarettes in 2014.

The illegal cigarette market continues to deprive Member States of much needed revenues, hurts legitimate businesses, and fosters crime in local communities. Eliminating the illegal tobacco industry requires governments, law enforcement agencies, manufacturers, and retailers to work together to stop the criminals responsible for this illegal trade. British American Tobacco (BAT), Imperial Tobacco Group (Imperial), Japan Tobacco International (JTI) and Philip Morris International (PMI) remain committed to these efforts and together with law enforcement continue to invest in combating this problem.

Additional findings in the report include:

• Illicit whites brand flows grew by 8% to 21.1 billion cigarettes in 2014, with consumption of such products being most prevalent in Poland, Italy, Spain and Greece;
• In 2014, 10.4% of all cigarettes consumed in the EU were illegal, compared to 10.5% in 2013 and 11.1% in 2012;
• Total illicit cigarette volumes declined by 3.3% in 2014 to 56.6 billion cigarettes.

The 2014 KPMG study on the illicit cigarette market in the EU, Switzerland and Norway is available on KPMG’s website: http://kpmg.com/UK/en/IssuesAndInsights/ArticlesPublications/Pages/the-illicit-cigarette-market.aspx

NOTES TO EDITORS

KPMG Study on the illicit cigarette consumption in the EU:

KPMG has conducted this study every year since 2006, as part of the Cooperation Agreement between Philip Morris International, the European Commission and the EU Member States. Since 2013, the study has been commissioned by all four major tobacco manufacturers –BAT, Imperial, JTI and PMI.

The study is the only comprehensive annual measurement of the black market for cigarettes in the EU. Access to a wider set of data sources, as well as methodology improvements in line with feedback received from external stakeholders, have allowed KPMG to further refine the completeness of the analysis over the years. The study’s methodology is presented in detail in the report.

About KPMG LLP:

KPMG LLP undertakes economic analysis, commissioned by the tobacco industry, in a variety of jurisdictions. The OECD considers the methodology of KPMG LLP the “most authoritative assessment of the level of counterfeit and contraband cigarettes” in the EU. KPMG LLP recognises the wider public policy context within which governments decide regulatory and fiscal changes for the tobacco industry, and that the analysis in this report only considers one aspect. KPMG LLP expresses herein no view, nor makes any recommendation, in relation to future policy for the industry in this regard.

About British American Tobacco plc:

British American Tobacco is a global tobacco Group with brands sold in more than 200 markets.

It employs more than 57,000 people worldwide and has over 200 brands in its portfolio, with its cigarettes chosen by one in eight of the world’s one billion smokers. Alongside offering tobacco products, British American Tobacco is committed to offering safer nicotine alternatives to adult smokers. As such, it was the first tobacco company to launch an e-cigarette in the UK. www.bat.com

About Imperial Tobacco Group PLC:

Imperial Tobacco Group PLC is a multi-national tobacco company headquartered in the UK, with international strength in cigarettes and world leadership in fine cut tobacco, premium cigars, rolling papers and tubes. The Group has 44 manufacturing sites and around 33,000 employees and operates in over 160 markets.

About JTI:

JTI, a member of the Japan Tobacco Group of Companies, is a leading international tobacco manufacturer. It markets world-renowned brands such as Camel, Winston and Mevius. Other global brands include Benson & Hedges, Silk Cut, Sobranie, Glamour and LD. With headquarters in Geneva, Switzerland, and about 26,000 employees worldwide, JTI has operations in more than 120 countries. Its core revenue in the fiscal year ended December 31, 2014, was USD 11.9 billion. For more information, visit www.jti.com.

About Philip Morris International Inc:

Philip Morris International Inc. (PMI) is the leading international tobacco company, with six of the world's top 15 international brands, including Marlboro, the number one cigarette brand worldwide. PMI's products are sold in more than 180 markets. In 2014, the company held an estimated 15.6% share of the total international cigarette market outside of the U.S., or 28.6% excluding the People's Republic of China and the U.S. For more information, see www.pmi.com.

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Source: British American Tobacco plc and Imperial Tobacco Group plc and JTI and Philip Morris International Inc

KPMG
(for enquiries on the research and methodology)
Jessica Liebmann
Tel: +44 (0) 20 7311 3245
Email: Jessica.Liebmann@kpmg.co.uk
or
BAT Press Office
Will Hill / Anna Vickerstaff
+44 (0) 20 7845 2888 (24 hours)
email: press_office@bat.com
or
Imperial Tobacco Group PLC
Iain Watkins
+ 44 117 933 7481
or
JTI Press Office
email: pressoffice@jti.com
T: +41 22 703 0291
or
Philip Morris International Press Office
email: media@pmi.com
T: +41 58 242 4500