World Tobacco Development Report 2023 (Middle)
2023, among the four major multinational tobacco companies, Fimo International and Japan Tobacco performed well in their main operating indicators. British American Tobacco's operating performance declined significantly, and Imperial brands achieved their expected goals.
FIMO INTERNATIONAL
is the largest multinational tobacco company selling cigarettes and heated cigarettes, with 50 manufacturing plants, nine of which produce heated cigarettes and seven of which produce nicotine-containing products. The company's cigarette products are sold in 175 countries and regions, and smokeless tobacco products are sold in 84 countries and regions. At the end of 2023, the company had 82700 employees, total assets of $65.3 billion and a total market capitalization of $146 billion.
(I) operating performance
2023, the company's main operating indicators continue to improve. Combined sales of cigarettes and heated cigarettes increased for the third consecutive year, up 1 percent year-on-year to 14.764 million cases. Net income rose 10.7 per cent year-on-year to $35.17 billion, thanks to higher prices for heated cigarettes and higher prices for traditional cigarettes. Among them, the net income of combustible tobacco products was 22.33 billion US dollars, accounting for 63.5; the net income of smokeless tobacco products was 12.84 billion US dollars, accounting for 36.5 percent, an increase of 4.4 percentage points over the previous year. Affected by the acquisition of Swedish matches and exchange rates, profits fell 5.6 per cent year-on-year to $11.56 billion, net profit of $8.27 billion and consumption tax contribution of $49.4 billion.
(II) product and brand development
will become the multinational tobacco company with the most complete range of tobacco products.
combustible tobacco products. In 2023, the company sold 12.259 million cartons of cigarettes, down 1.4 percent year-on-year. Among them, Marlboro, Parliament, Chesterfield, L & M and Philip Morris brand cigarette sales accounted for 79% of the company's cigarette sales. Marlboro brand cigarette sales were 4.8 million cases, down 1.9 percent from the same period last year, accounting for 39% of the company's cigarette sales. The successful acquisition of Swedish Match has given the company a place in the cigar field, but cigar sales have declined for two consecutive years due to merger adjustments and price increases, with 1.58 billion cigars sold in 2023, down 12.2 per cent year-on-year.
smokeless tobacco products. In 2023, the number of IQOS users of heated cigarettes increased by 3.7 million 28.6 million, of which the number of adult smokers switching to IQOS was 20.8 million. The sales volume of heated cigarettes was 2.506 million cases, up 14.7 year on year. The brands include HEETS series, TEREA series, BLENDS, DELIA, SENTIA and Fit and Mix authorized brands of South Korea tobacco companies. Sales of traditional cigarettes were 0.36 billion cans, up 17.1 percent year-on-year on a comparable basis. Nicotine bag sales were 0.42 billion cans, up 55.3 percent year-on-year on a comparable basis, of which ZYN's sales in the United States increased 62 percent year-on-year and its market share in the United States was 72.8 percent. E-cigarettes have made good progress, and VEEV brand e-cigarettes have been launched in 26 markets.
(III) promotes "smoke-free future" strategy
has yielded fruitful results. Since 2008, the company has invested a total of US $12.5 billion in the research and development and verification of smokeless tobacco products, and published 532 scientific research documents. Since 2015, the company has completed 287 evaluation studies, 29 clinical evaluation studies and 69 perception and behavior studies on smokeless tobacco products. In the United States, the European Union, Japan, South Korea and other countries and regions, approximately 3720 patents relating to smokeless tobacco products were obtained.
smoke-free business has achieved remarkable results. The company announced its "Smoke-free Future" strategy in 2016. In 2015, the company had 3 smoke-free tobacco products factories, 7 national and regional markets, IQOS consumer 200000, 8000 cartons of heated cigarettes, accounting for 0.7 of net income. In 2023, the company has 16 smoke-free tobacco products factories, 84 national and regional markets, IQOS consumer 28.6 million, 2.506 million cartons of heated cigarettes, and 36.5 of net income. During that period, company cigarette sales fell 27.9 percent.
appropriately adjust the "smoke-free future" strategic objectives. An important goal of the "Smoke-free Future" strategy was initially set: by 2025, smoke-free tobacco products will account for more than 50% of the company's net income. Obviously, this goal is difficult to achieve. Therefore, the company adjusted its revenue target in September 2023 and proposed that by 2030, the net income of smokeless tobacco products will account for more than 2/3 of the company's net income. Smokeless tobacco products should account for at least 60 markets with more than 50% of the company's local net income and at least 40 markets with more than 75% of the company's local net income.
is ready for the launch of IQOS in the United States. After the company ended the authorization of Altria Group to sell IQOS in the United States, it actively prepared for the independent development of the U.S. heated cigarette market. On the basis that two IQOS and their suitable heated cigarettes and General brand snuff have been authorized as risk improvement products by the US Food and Drug Administration (FDA), the company has Marlboro three heated cigarettes, Sienna, Marlboro Bronze and Marlboro Amber, which have passed the pre-market application (PMTA) review for tobacco products. In October 2023, the company submitted both PMTA and Risk Modified Tobacco Products Application (MRTP) for the latest generation of heating product IQOS ILUMA to the FDA. It is expected that the FDA can conduct two application reviews simultaneously to speed up the pace of product listing. In particular, in early 2024, the company entered into a global settlement agreement with British American Tobacco to resolve all ongoing patent infringement lawsuits between the two parties surrounding heated cigarettes and e-cigarettes, clearing the way for IQOS to be listed in the United States.
remains in the Russian market. The company entered the Russian market in 1992. After years of operation, in 2023, the company will have total assets of about US $2.7 billion in Russia and hold about 23% of the Megapolis, Russia's largest tobacco distributor. The combined market share of cigarettes and heated cigarettes in Russia is 31.8, with sales accounting for 8.8 of the company's total sales and revenue accounting for 6% of the company's total revenue. After the outbreak of the conflict between Russia and Ukraine in 2022, the company made the decision to suspend investment in Russia, sell its Russian business, and contact potential buyers. In 2023, the company finally made the decision to stay in Russia out of a sense of responsibility to its shareholders. According to a study, many Western companies said they would withdraw from Russia after the outbreak of the Russia-Ukraine conflict, but by the end of 2023, less than 9% of the EU and G7 companies operating in Russia before the conflict broke out had actually left Russia.
British American Tobacco
British American Tobacco has 38 cigarette manufacturing plants in 36 countries and operates in more than 150 countries and regions, establishing a database of direct 22 million consumers. As of the end of 2023, the company has 46725 employees, total assets of 118.716 billion pounds (1 pound is about 9.2 yuan), and a total market value of 68.59 billion pounds.
(I) operating performance
2023, the company's overall operating performance declined significantly, with net income of 27.28 billion billion pounds, down 1.3 per cent from the same period last year, of which smokeless tobacco products accounted for 16.5 per cent of the net income, an increase of 1.7 percentage points over the same period last year. On the profit side, due to goodwill and intangible asset impairment adjustments and exchange rates, there was a huge loss of 15.75 billion billion pounds, with profits down 249.7 per cent year-on-year. The smokeless tobacco products business achieved profitability two years earlier than expected. GST 36.917 billion.
(II) product and brand development
combustible tobacco products. In the United States, the company's largest market, macroeconomic pressures such as high inflation have affected the ability of tobacco consumers to spend, the rapid expansion of cigarette alternatives such as disposable e-cigarettes, and the implementation of a tobacco flavoring ban in California, the size of the entire combustible tobacco products market in the United States has continued to shrink significantly. In addition, the company has disposed of Iran, Russia and Belarus operations in the past two years. This set of factors led to a 8.2 per cent year-on-year decline in cigarette sales to 11.1 million cases in 2023 and an 11 per cent year-on-year decline in sales of other types of combustible tobacco products to 296000 cases. Among the company's five strategic brands and three brands dedicated to the U.S. market, only Lucky Strike and Dunhill brands achieved sales growth, while the rest all fell sharply. Pall Mall, Rothmans, Newport and Camel brands all fell by more than 14%.
smokeless tobacco products. The number of consumers of smokeless tobacco products in the company was 23.9 million, an increase of 3.2 million over the previous year. The growth rate of e-cigarette sales fell to single digits, up 7% year-on-year to 0.65 billion (1 unit of measurement with 10 ml of liquid per cartridge). The Vuse brand e-cigarette market expanded by 1 times to 64 countries and regions, accounting for 45.6 percent of the U.S. e-cigarette market. Vuse Go, a disposable e-cigarette product, has been successfully launched in 59 markets, including Canada and many European countries. However, they received a marketing denial order (MDO) from the US FDA for Vuse's three menthol flavors and three berry-flavored e-cigarettes. In the field of heated cigarettes, sales fell by 1.3 year-on-year to 474000 cartons due to the continuous innovation of competitors and increased competition for low-end products. The glo brand market has expanded to 31 countries and regions, with sales in Japan accounting for 53.1 percent of total sales. Nicotine bags were the only tobacco product to see an increase in sales, with sales up 33.6 per cent year-on-year to 5.36 billion bags. The Velo brand has expanded to 34 markets and maintains market leadership in 14 EU countries. Sales of traditional cigarettes fell 10.3 per cent year-on-year to 132000 cases. Since 2020, the company's venture capital firm Btomorrow Ventures(BTV) has invested in 25 projects, and in 2023 it has invested in FlexSea, a British bioplastics company, Hesperos, an American organ chip technology company, and Mais Mu, a Brazilian nutritional tablet company, to form a joint venture with Charlotte's Web, an American health care product manufacturer.
(III) to adjust management and organizational structure
large-scale adjustment and optimization of management and organizational structure. On the management side, the CEO was removed. In May 2023, the Board appointed Chief Financial Officer Tadeu Marroco as the Company's Chief Executive Officer. Former CEO Jack Bowles, who was instrumental in developing and promoting the company's new strategy for a Better Tomorrow, was replaced after four years in office. The new CEO is committed to a greater focus on execution and operational excellence, enhancing key capabilities for strategic development and transformation, and building a responsive organization with a culture of collaboration and inclusion. To this end, he reorganized the company's management committee as soon as he took office. Six senior management positions were changed. Among them, the direct heads of the subsidiary Reynolds American Tobacco Company and the new category department were all fired, in an effort to revitalize the U.S. business and move faster. Shift to new categories such as e-cigarettes. New management refined strategic objectives. The main objectives of the "better tomorrow" strategy formulated in 2020 are: by 2025, the net income of three new categories of tobacco products, such as electronic cigarettes, heated cigarettes and nicotine bags, will be 5 billion pounds (by 2023, the net income of three new categories of tobacco products will be 3.35 billion pounds); By 2030, the company will have 50 million consumers of non-combustible tobacco products. The newly established strategic goal is to generate 50% of its revenue from non-combustible tobacco products by 2035 and become the leading company in the smokeless tobacco products industry. In terms of organizational structure, in order to accelerate the business transformation, the company reduced the regional organizational structure from 4 to 3, and the new regions were divided into the United States, America and Europe, Asia Pacific, Middle East and Africa; the number of business units was reduced from 16 to 12, while accelerating the exit from inefficient markets.
impairment of goodwill and intangible assets. In 2017, BAT bought the remaining 57.8 per cent stake in Reynolds American for £ 41.77 billion in a bid to re-enter the heavily regulated but lucrative US market. After the completion of the acquisition, the company's goodwill and intangible assets increased significantly. At the time, goodwill premiums and high valuations of intangible assets such as trademarks were based on a bullish view of the U.S. market, believing that cigarette brands such as Camel, Newport, Natural American Spirit could always create value. As the U.S. cigarette market capacity continues to shrink in recent years, the development environment has deteriorated significantly. The company believes that these brands should be recognized as having an economic life of no more than 30 years. Although it does not believe that cigarettes will disappear in 30 years, it is no longer possible. It is proved that these brands have indefinite value. This judgment is also in line with the company's strategic goal of becoming a leader in the smokeless tobacco products industry. As a result, in 2023, the Company implemented a one-time significant write-down of goodwill and intangible assets resulting from the acquisition of Reynolds American, in which goodwill was impaired by £ 4.3 billion and trademarks and similar intangible assets were impaired by £ 22.99 billion, while at the same time redefining these brands according to the 20-30 year useful life estimate.
to sell Russian business. BAT has been operating in Russia since 1991. As of the end of 2022, BAT has a net worth of 0.77 billion pounds in Russia and Belarus, employs more than 2500 people, owns a cigarette manufacturing plant in St. Petersburg, has a business headquarters in Moscow, and has 75 regional offices. Russia and Belarus business revenue accounts for less than 3% of the company's revenue. After the outbreak of the conflict between Russia and Ukraine, the company announced that it was suspending its investment in Russia and seeking to sell its Russian business. In September 2023, BAT completed the sale of its Russian and Belarusian operations. The buyer was a consortium led by the then-British American Tobacco Russia management team, which was renamed ITMS Group after the completion of the acquisition. The newly established group is registered in Abu Dhabi, UAE, so registration may be related to the local preferential tax policies and legal system provided to Russian companies, as well as easy access to the international banking system.
Japan Tobacco
Japan's tobacco business is composed of tobacco, medicine and food, of which tobacco business accounts for more than 90% of its revenue. The company has 38 tobacco manufacturing plants, including 5 in Japan and 33 abroad. The company's products are sold in more than 130 countries and regions. At the end of 2023, the company's total assets were 7282.1 billion yen (1 yen is about 0.05 yuan), the total market value was 7290 billion yen, and the Japanese government held 33.35 percent of the company's shares.
(I) operating performance
2023, the company's key financial indicators hit a record high, thanks to steady price increases and increased market share of combustible tobacco products. Cigarettes and heated cigarettes (including infiltrated tobacco capsules currently sold only in the Japanese market, which is a low-temperature heated product that combines e-cigarette and heated cigarette technology) sold a total of 10.802 million cases, up 2.4 percent year-on-year. The tobacco business achieved net income of 2591.3 billion yen, up 7.2 percent year-on-year, with combustible tobacco products accounting for 96.8 percent. Tobacco business profit 677.1 billion yen, down 0.3 percent year-on-year. The company's net profit was 485.31 billion yen.
(II) product and brand development
combustible tobacco products. In 2023, the company sold 10.626 million cases of combustible tobacco products, up 2.3 percent year-on-year. The four global flagship brands accounted for more than 70% of total sales, selling 7.796 million cases, up 7.6 per cent year-on-year. Among them, Winston and Camel achieved double-digit growth in 35 markets, with Winston sales of 4.006 million cases, up 8.1 percent year-on-year, ranking second in the world (except China) in cigarette sales. Camel is the fastest growing combustible brand, with sales of 2.014 million cases, up 17.5 percent year on year. MEVIUS and LD sales fell slightly to 880000 and 896000 cases respectively, down 1.6 and 3.8 percent year on year.
harm reduction products (RRP). Japan Tobacco calls heated cigarettes, electronic cigarettes and mouth-containing cigarettes as harm reduction products. In 2023, heated cigarettes sold 176000 cases, an increase of 11.8 percent year-on-year, accounting for 1.6 percent of the company's total sales of tobacco products. The Ploom X market has further expanded, adding 11 markets, and is currently sold in 13 markets including Japan, Italy, and the United Kingdom. In August 2023, the low-temperature heating equipment with 2 using infiltrated tobacco capsules, which is only sold in the Japanese market, will be launched, and it is planned to stop production of Ploom TECH, Ploom TECH +, Ploom TECH + with, etc.
2023, the company's cigarette and heated cigarette sales in Japan, Russia, Turkey, the Philippines, Italy, the United Kingdom, Spain and other markets accounted for 50.2 of the total sales. Sales of cigarettes and heated cigarettes in Japan totaled 1.274 million cartons, up 1.3 year on year. The market share was 42.8, up 0.3 percentage points year on year. Sales of combustible tobacco products fell 1% to 1.126 million cartons year on year. Driven by Ploom, sales of heated cigarettes increased 23.2 to 148000 cartons (110000 cartons of ordinary heated cigarettes and 38000 cartons of infiltrated tobacco capsules). The sales volume in the Russian market was 1.546 million cases, an increase of 0.7 over the same period last year, and the market share was 37.4, an increase of 0.8 percentage points over the same period last year. The sales volume in Turkey market was 728000 cases, up 12.8 year on year; the market share was 26.9, down 0.9 percentage points year on year. The sales volume in the UK market was 304000 cases, down 18.7 per cent from the same period last year, and the market share was 43.7 per cent, down 0.9 percentage points from the same period last year. In the Philippines, the sales volume was 482000 cases, down 4.7 percent from the same period last year, and the market share was 42.4 percent, up 3.9 percentage points from the same period last year.
(III) Optimize Russian Business
Japan Tobacco entered Russia in 1999 and currently has more than 4000 employees and 4 factories in Russia, making it one of the country's larger foreign companies. Since 2007, the company has been the undisputed leader of the Russian tobacco market. In 2023, the company's revenue from the Russian tobacco distributor Megapolis accounted for 15% of the tobacco business revenue, and the Russian business profit accounted for 20% of the company's profit. After the outbreak of the conflict between Russia and Ukraine, the company considered selling its Russian business, but after careful evaluation, after reshaping the supply chain, it decided to keep the lucrative Russian business to meet the requirements of investors. In 2023, in order to ensure the normal flow of people, funds and goods, the company has established a new structure for its Russian department and supply chain to monitor procurement routes and inventory, and to use Turkey, which currently has normal trade with Russia, as an important logistics node to transport materials.
Empire Brand
Imperial Brand includes tobacco and logistics, of which the tobacco business has created more than 60% of the company's revenue and more than 90% of its profits. The company has 30 tobacco manufacturing plants and sells its products in 120 countries and regions. As of September 30, 2023, the company had 25200 employees (74.6 per cent of whom were in the tobacco business), with total assets of £ 29.49 billion and a total market capitalization of £ 9.4 billion.
(I) operating performance
fiscal year 2023, the company's profitability increased significantly through significant product price increases and cost control. The company sold 3.96 million cases of traditional tobacco products, including cigarettes, cigars and tobacco, down 10.4 percent year-on-year. Net income from the tobacco business was £ 8.01 billion, up 2.8 per cent year-on-year, with traditional tobacco products accounting for 96.7 per cent of net income. Profit of 3.11 billion pounds and net profit of 2.46 billion pounds, up 26.8 per cent and 47.5 per cent respectively. Company excise tax £ 14.4 billion.
(II) product and market development
traditional tobacco products. In fiscal year 2023, in terms of scale, due to unfavorable factors such as the continuous shrinking of the traditional tobacco product market, the company's withdrawal from the Russian market, and the weak performance of the U.S. cigar market, the sales volume experienced the largest decline in history of more than 10% year-on-year. Even if the Russian factor is excluded (the company's sales volume in Russia in 2022 is 156000 cases), it still fell 7.1 year-on-year. In terms of price, the company raised its weighted average price by 7.9 percent, taking into account investor profitability requirements and the affordability of the tobacco market, and by 10.4 percent, excluding the Russian factor, partially hedging the adverse impact of lower sales on its performance. In terms of market share, product market share has increased in the five priority markets established by the company (the United States, Germany, Spain, the United Kingdom, and Australia). In the United States, for example, the concentration of resources into the two major brands of Wiston and Kool has reversed the decline of high-end cigarettes for many years. At the same time, thanks to the increase in discount market share and the successful carve-out of the market share left by South Korea tobacco companies after their withdrawal from the United States in December 2021, the market share of cigarettes in the United States in fiscal year 2023 increased by 65 basis points year-on-year to 10.7 percent. The profits of the five priority markets account for more than 70% of the company's profits. An important goal of the company's five-year transformation strategy in 2021 is to reverse the continuous decline of the five priority market share for many years. Through three years of efforts, the company has successfully stabilized and slightly increased its market share in the five priority markets.
Next Generation Tobacco Products (NGP). The next generation of tobacco products claimed by Imperial brands mainly include blu brand electronic cigarettes, Pulze brand heated cigarettes and Zone X cigarettes. In fiscal year 2023, the company successfully launched the bomb-changing electronic cigarette blu 2.0, the disposable electronic cigarette blu bar and the heated cigarette Pulze 2.0 with longer endurance, and the pace of innovation has accelerated significantly. In addition to the United States, the company has launched next-generation tobacco products in more than 20 markets in Europe, contributing to the rapid growth of net income from next-generation tobacco products. In fiscal year 2023, the net income of next-generation tobacco products was 0.27 billion pounds, up 26% year-on-year; the net income of the European market was 0.22 billion pounds, up 41% year-on-year.
(III) Challenger Enterprise Positioning
released a new strategy and promoted the transformation, proposing to "build a strong challenger enterprise driven by responsibility, focus and choice". Challenger enterprise positioning is based on a careful analysis of the development of the tobacco industry, the competitive landscape and its own strength, that is, it is not willing to be a follower, but to be a challenger to the top three multinational tobacco companies, which also means that it must take a different approach from large competitors. Over the past three years, the company has put consumers at the core of its business, established a global consumer office, expanded the number of consumer tracking, covering 120000 consumers in 35 countries, and guided the company's decisions with keen market insight. The company reinvigorated its combustible tobacco business, investing resources in the most substantial opportunities, focusing on five priority markets, shifting from focusing only on global brands to focusing on both global and local brands, responding to consumer demand, and forming a clear brand and market portfolio strategy. The company's next-generation tobacco products business has almost been overturned and rebuilt, resetting its investment focus, withdrawing from the Japanese heated cigarette market and focusing on the European and American markets. A brand-new innovation model has been formed, guided by consumers and deeply involved in the whole research and development process, so as to respond to consumers' demands more quickly, establish a partner ecosystem covering tastes, appliances, data, packaging, etc., and strive to become a "chain master" enterprise in the value chain.
Major Performance of Four Multinational Tobacco Companies from 2019 to 2023
Note: Data are from each company's annual report; sales include combustible tobacco products and heated cigarettes; Japan Tobacco and Imperial brand sales only count tobacco business; Japan Tobacco has not disclosed consumer tax and tax-inclusive consolidated sales revenue since 2022.
2023
Note: Sales of L & M, Chesterfield and Parliament are based on the world cigarette share disclosed by Fimo International; sales of BAT's brands are based on the growth rate of each brand published over the years; sales of Imperial brands are Winston excluded.
