A Review of the Global Tobacco Industry

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“I’ll tell you why I like the cigarette business. It cost a penny to make. Sell it for a dollar. It’s addictive. And there’s a fantastic brand loyalty.” – Warren Buffet

Page Updated: 4/7/19

The tobacco industry sells about six trillion cigarettes each year. The industry is highly concentrated with a handful of firms controlling the majority of the global tobacco market. The tobacco market was worth about $614 billion in 2009.China is the biggest market based on total cigarettes consumed. There are some 350 million smokers in China who consume around 2,200 billion cigarettes a year, or about 41% of the global total. However the industry in China is state-owned by the monopolistic China National Tobacco Company.

Outside of China, the four largest publicly-listed international tobacco companies account for about 46% of the global market according to British American Tobacco (BTI).

Philip Morris International is US-based and BAT and Imperial Tobacco are based in the UK.Companies that operate mainly in the domestic markets include Egypt’s Eastern Tobacco, Thailand’s Tobacco Monopoly, Bulgaria’s Bulgartabak, Taiwan’s Tobacco & Liquor Corp and Vietnam’s National Tobacco Corporation. The major American players in the U.S. market are Altria(MO), Vector Group Ltd (VGR) and Turning Point Brands, Inc.(TPB).

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Based on the total number of cigarettes sold, the top five global brands are Marlboro, Winston, Mild Seven, L &M and Kent.

After China, the ten countries that consume the largest number of cigarettes are Russia, the U.S., Japan, Indonesia, India, Brazil, Ukraine, Turkey, Korea and Italy. The relationship between volume of cigarettes sold and volume of profits shipped are not consistent across markets. For example, Phillip Morris International’s sales in OECD countries accounts for one-third of total sales but accounts for 46% of total profits. And the tow-third of sales in non-OECD nations account for only 54% of its profits.

Due to their scope and scale of profits, tobacco companies  transfer huge amounts of wealth from one region of the world to another. In 2008, around $20 billion was earned by tobacco companies from outside their home territories.

The Top tobacco growing countries are shown in the graphic below:

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  • Phillip Morris International (PMI), which was spun off from Altria in 2008 is the world’s largest private tobacco company. Altria sells its products in the US market while PHI sells them overseas. With 75,000 employees Philip Morris owns seven of the leading 15 global brands. In 2008, the company reported revenues of over $64 billion. PM repatriates about $10 billion in profits to the US from global sales.
  • British American Tobacco(BTI) is the second largest tobacco company in the world based on unit volume.The company’s 2008 revenue totaled about $50 billion. Some of the top brands owned by BAT include Dunhill, Pall Mall, Lucky Strike, Viceroy and Vogue. BAT also holds substantial stakes in Reynolds American and Indian Tobacco Company (ITC) of India. In terms of ownership, more than two-fifth of the shares are held by just 400 shareholders including the Canada Pension Plan Investment board. BAT repatriates about $6 billion from overseas earnings to UK. More than three-fourths of the company’s sales are in the fast growing emerging markets.
  • UK-based Imperial Tobacco(ITYBY) also sells the majority of cigarettes outside of UK. The company repatriates about $4 billion in earnings to UK from abroad.
  • Altria (MO), formerly known as Philip Morris, is the largest cigarette maker in the US. Reynolds America (RAI) ranks the second followed by Lorriard.
  • Stockholm, Sweden-based Swedish Match(SMWAY) is involved in the production and sales of snuff and snus, chewing tobacco, cigars and pipe tobacco.The company does not make cigarettes and the “match” component makes up only 10% of its revenues.

In addition to shareholders, one of the biggest beneficiaries of sales of tobacco are the governments of various countries. Governments worldwide generated over $160 billion in the form of excise taxes, duties, income taxes, etc. from just nine companies in 2008.

Current and Future State of the industry:

Cigarette smoking is declining in the developed world due to unprecedented bans on cigarette usage in public places, restrictions on advertising, extremely high taxes, health warnings, limitations on retail display and other factors. In addition, the percentage of population who are smokers is reducing. As a result consumers in developed countries are switching to lower-priced offerings and alternatives to cigarettes such as smokeless tobacco, snus, etc.

While sales is declining in developed countries it is booming in emerging markets. Tobacco makers are aggressively marketing in those markets in order to compensate for the declining sales in rich countries. However even in emerging markets governments are proposing tougher regulations governing the sales and marketing of tobacco products.

From an article in the New York Times:

This year, Philip Morris International sued the government of Uruguay, saying its tobacco regulations were excessive. World Health Organization officials say the suit represents an effort by the industry to intimidate the country, as well as other nations attending the conference, that are considering strict marketing requirements for tobacco.

Uruguay’s groundbreaking law mandates that health warnings cover 80 percent of cigarette packages. It also limits each brand, like Marlboro, to one package design, so that alternate designs don’t mislead smokers into believing the products inside are less harmful.

The lawsuit against Uruguay, filed at a World Bank affiliate in Washington, seeks unspecified damages for lost profits.

They are using litigation to threaten low- and middle-income countries, says Dr. Douglas Bettcher, head of the W.H.O.’s Tobacco Free Initiative. Uruguay’s gross domestic profit is half the size of the company’s $66 billion in annual sales.

Peter Nixon, a vice president and spokesman for Philip Morris International, said the company was complying with every nation’s marketing laws while selling a lawful product for adult consumers.

He said the company’s lawsuits were intended to combat what it felt were excessive regulations, and to protect its trademark and commercial property rights.

Cigarette companies are aggressively recruiting new customers in developing nations, Dr. Bettcher said, to replace those who are quitting or dying in the United States and Europe, where smoking rates have fallen precipitously. Worldwide cigarette sales are rising 2 percent a year.

But the number of countries adopting tougher rules, as well as the global treaty, underscore the breadth of the battleground between tobacco and public health interests in legal and political arenas from Latin America to Africa to Asia.

The cigarette companies work together to fight some strict policies and go their separate ways on others. For instance, Philip Morris USA, a division of Altria Group, helped negotiate and supported the anti-smoking legislation passed by Congress last year and did not join a lawsuit filed by R. J. Reynolds, Lorillard and other tobacco companies against the Food and Drug Administration. So far, it is not protesting the agency’s new rules, proposed last week, requiring graphic images with health warnings on cigarette packs.

But Philip Morris International, the separate company spun out of Altria in 2008 to expand the company’s presence in foreign markets, has been especially aggressive in fighting new restrictions overseas.

It has not only sued Uruguay, but also Brazil, arguing that images the government wants to put on cigarette packages do not accurately depict the health effects of smoking and vilify tobacco companies. The pictures depict more grotesque health effects than the smaller labels recommended in the United States, including one showing a fetus with the warning that smoking can cause spontaneous abortion.

In Ireland and Norway, Philip Morris subsidiaries are suing over prohibitions on store displays.

In Australia, where the government announced a plan that would require cigarettes to be in plain brown or white packaging to make them less attractive to buyers, a Philip Morris official directed an opposition media campaign during the federal elections last summer, according to documents obtained by an Australian television program, and later obtained by The New York Times.

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Hence similar to other sectors tobacco multinationals are increasingly dependent on emerging markets to maintain earnings. As income levels and standard of living increases in EM countries, sales of tobacco products may increase further. In some ways a bet on tobacco stocks can be considered as a bet on emerging markets.

Currently Altria Group (MO),Philip Morris International (PMI) and Imperial Tobacco Group (ITYBY) pay have dividend yields between 4% to 6% while Swedish Match (SWMAY) and British American Tobacco (BTI) pay between 2% to 3%.

Sources: Euromonitor International, The New York Times, The Wall Street Journal, Company sites, WHO, The Global Tobacco Economy by Physicians for a Smoke-Free Canada.

Tobacco Stocks List:

Related Articles:

  1. Economic Facts About U.S. Tobacco Production and Use, CDC
  2. The Tobacco Atlas, World Lung Foundation & American Cancer Society
  3. Tobacco industry, Wikipedia
  4. New Tobacco Atlas Estimates U.S. $35 Billion Tobacco Industry Profits and  Almost 6 Million Annual Deaths
  5. Tobacco industry dying? Not so fast, says Stanford expert, Stanford University News
  6. Tobacco Industry, Guardian, UK
  7. Tobacco atlas: country by country, Guardian, UK
  8. Tobacco in Australia, The Cancer Council
  9. The Tobacco Atlas, WHO
  10. Tobacco Economics, Allan Gray Asset Managemen
  11. Philip Morris International Inc, Euromonitor
  12. Top tobacco producing U.S. states in 2011, Statista
  13. The Legacy Tobacco Digital Library – Contains more than 14 million documents created by the industry (University of California, San Francisco)
  14. Top Global Tobacco Companies:

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 Source:  Tobacco Industry Set to Grow In Emerging Markets, Credit Suisse

From TobaccoFreeKids.org site:

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Source: Kremlin Cracks Down on Big Tobacco, WSJ

Biggest Global Tobacco Makers:

Source: The Global Tobacco Industry (Click to download the pdf report), Mazars

American Smokers

Source: America’s Smokers: Still 40 Million Strong, The Wall Street Journal, July 16, 2014

World’s Top Tobacco Companies 2014 (Bloomberg Industry Market Leaders)

Where people smoke the most (and least) cigarettes per person:

Cig Map

Source: 40 maps that explain the world, The Washington Post, Aug 12, 2013

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Source: Statista

Comparison of Healthcare Performance Among Seven Countries – U.S. Ranks Last

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New York city-based The Commonwealth Fund published a report few months ago comparing the the U.S. to six other developed countries on measures of healthcare performance in five areas: quality, efficiency, access to care, equity and the ability to lead long, healthy, productive lives. The countries compared were Australia, Canada, Germany, the Netherlands, New Zealand, and the United Kingdom. Despite having the most expensive healthcare system in the world, the U.S. ranked last in this comparison.

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Compares-US-Healthcae-to-other-countries

Source: via The Global and Mail

The U.S. ranked last in terms of efficiency such as use of information technology, spending on administrative costs, duplicate medical testing, etc. Another key point noted by the report is that Americans have the hardest time affording the health care they need. Lack of affordability of healthcare adversely affects factors such as leading healthy and productive lives, infant mortality and deaths before the age of 75.

From a news release:

“Provisions in the Affordable Care Act that could extend health insurance coverage to 32 million uninsured Americans have the potential to promote improvements to the United States’ standing when it comes to access to care and equity according to Mirror Mirror On The Wall: How the Performance of the U.S. Health Care System Compares Internationally 2010 Update, by Commonwealth Fund researchers Karen Davis, Cathy Schoen, and Kristof Stremikis. The United States’ low marks in the quality and efficiency dimensions demonstrate the need to quickly implement provisions in the new health reform law and stimulus legislation that focus on realigning incentives to reward higher quality and greater value, investment in preventive care, and expanding the use of health information technology.

“It is disappointing, but not surprising that, despite our significant investment in health care, the U.S. continues to lag behind other countries,” said Commonwealth Fund President and lead author Karen Davis. “With enactment of the Affordable Care Act, however, we have entered a new era in American health care. We will begin strengthening primary care and investing in health information technology and quality improvement, ensuring that all Americans can obtain access to high quality, efficient health care.”

Earlier editions of the report, produced in 2004, 2006, and 2007, showed similar results. This year’s version incorporates data from patient and physician surveys conducted in seven countries in 2007, 2008, and 2009.”

You can download the full report in pdf format by clicking here.

Chart: Five-Year Performance of Major North American Railroads

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The chart below from Yahoo Finance shows the performance of the major North American railroad stocks over the past five years:

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US-railroad CSX  Corp (CSX) is the best performer with a growth of about 150% followed by Union Pacific (UNP). Of the two Canadian railroads, Canadian National (CNI) has performer better than Canadian Pacific (CP). It must be noted that Microsoft’s Bill Gates is the largest shareholder in Canadian National. His Cascade Investments LLC owned over 34 million shares of CNI at the start of 2009. CNI is also one of the largest 20 holdings in the portfolio managed by Cascade. All five stocks have recovered nicely from the March 2009 lows.

Disclosure: Long CSX, NSC, CNI

Global Finance Mag: Stars of China – Top Companies and Banks

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The latest edition of Global Finance magazine lists the top Chinese companies and banks in various categories. These top ranked firms are shown below:

a) Stars of China – Banks

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b) Stars of China – Companies

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Some of the key points mentioned in the Global Finance report include:

  1. China Merchants Bank’s (CIHKY) retail lending now accounts for more than one third of the bank’s total lending portfolio.
  2. Among the foreign banks operating in China HSBC (HBC) has the largest banking network in terms of total outlets and geographical reach with 100 outlets.
  3. Industrial and Commercial Bank of China (IDCBY) has issued the largest number of credit cards by partnering with supermarkets, department stores and other merchants. As a result of this, the bank saw its credit card portfolio increase by 35.4% from the same period last year.
  4. By buying Volvo, Geely has gained an edge over competitors in its goal to sell cars in North America and Western Europe.
  5. Beer maker Tsingtao Brewery (TSGTY) profits in the first half of this year was up by about 30% relative to the same period last year.
  6. In addition to holding  about 29% of domestic PC market, Lenovo holds about 10% the global market share.
  7. CNOOC’s (CEO) revenue and profits doubled year-on-year in the first half of the year and production also increased by 41%.
  8. Goldwind’s business is growing strongly due to China’s big push into the renewable energy sector.
  9. Huawei Technologies supplies telecom-related products and services to 45 of the world’s top 50 telecom operators.


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The Great Wall of China, Jinshanling

Magyar Telkom Delisted from the NYSE

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Magyar Telkom, the leading Hungarian telecommunications service provider became the latest European to delist its ADRs from the New York Stock Exchange. The ADR which used to trade under the ticker MTA was delisted as of November 11, 2010.

Effective 11/12/20, the ADR will trade on the Level 1 category on the OTC markets with the ticker MYTAY.

The company majority owned by Germany’s Deutsche Telecom (DTEGY) made the announcement to delist back in June. The reason for the delisting is “to reduce complexity in financial reporting and administrative costs. The Company remains committed to serve its investor base in the United States, as well as to comply with the highest standards of corporate governance, and to provide transparent financial reporting.” It may noted be that Deutsche Telecom already delisted from the NYSE and now trades on the OTC markets as well.

With this delisting, none of the Hungarian companies are trade on the NYSE. The other four Hungarian ADRs that trade on the OTC are Fotex (FOTXY), Genesis Energy Investment (GEIVY), MOL Magyar Olaj-ES Gazipari (MGYOY) and Pannonplast (PNPSY).

At the closing price of $14.33 yesterday the stock pays a hefty dividend of 11.60%. In addition to providing fixed-line telecom services in Hungary,  Magyar Telekom also offers services in Hungary, Macedonia and Montenegro and acts as an alternative service provider in Bulgaria, Romania and in Ukraine.

Disclosure: No positions