Illegal Cigarettes Study (ICS) in Malaysia 2018 (Annualised) Report

ILLICIT CIGARETTES STUDY (ICS) IN MALAYSIA 2018 (ANNUALISED) REPORT

Report Commissioned by CMTM member companies

FEBRUARY 2019

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. TABLEOFCONTENT No 6 5 4 3 2 1

Illegal Illegal Cigarettes Incidence by States Evolution Illegal of Cigarettes Incidence Illegal Cigarettes Criteria Content Appendix: Nielsen’s Appendix: Nielsen’s ICS Research Objective & Methodology TaxStamps Breakdown of Illegal Cigarettes Top 10 Illegal Cigarettes Brands

Page 8 - 7 6 5 4 3 40

9. 8. 7. 6. 5. 4. 3. 2. 1.

Verifiedby Not registered with the RoyalMalaysian Customs II. I. I. Non Compliance NonCompliance Ministry to Health’s of Control of Tobacco Product Regulations (CTPR) 2004 Unregistered Brand* Packs withnon Packs withoutMalaysian stamp tax Packs with Unregistered Manufacturers* Absence of Registered Manufacturers Unregistered Importers* Absence of Registered Importers Lembah Absence Absence orNon Compliance mandated of labeling requirements Pack Size other 20sticks than Absence orNon Compliance Pictorial of Health Warning Requirements

Sari Sdn counterfeit counterfeit (fake)

Bhd -

(LSSB) Malaysian tax stamp Malaysian taxstamp –

Government appointed solevendor for tax stamp

Malaysian tax stamp** Malaysian stamp** tax

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. Continues on upward trend, recording a +3.3ppt increase vs. 2017 increase a +3.3pptrecording trend, upwardon Continues IILEGALCIGARETTES INCIDENCE ATNATIONALLEVEL: Incidence Estimated Total industry Illegal Cigarettes Volume (Billions sticks) Smuggled Kreteks Smuggled Whites Tax Stamp Products Fakewith Incidence (%)

10 20 30 40 50 60 70 80 0 2013 35.7 26.0 35.7% 9.7 22.1 7.9

2014 33.7 25.7 33.7% 8.0 20.8 7.0

2015 36.9 36.9% 29.3 7.6 19.2 7.1

2016 52.3% 52.3 10.2 39.3 19.3 10.1 2.8

55.6% 2017 55.6 41.0 20.0 11.1 8.9 5.7

58.9% 2018 20.4 12.0 58.9 10.1 43.9 4.9

(Mar-May) 2018 W1 58.0% 58.0 44.1 5.1 3.0 9.0 4.9

(Jun-Aug) 2018 W2 57.4 10.1 42.2 57.4% 5.1 5.0 2.9

(Oct-Dec) 2018 W3

61.2 11.2 45.2 4.8 61.2% 5.4 3.3

0 10 20 30 40 50 60 70 4

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. 11 States recording an increase vs 2017 vs an increase States recording11 ILLEGALCIGARETTES INCIDENCE BY STATES: Terengganu N.Sembilan Incidence Selangor Kelantan Sarawak National Penang Pahang Melaka WP WP KL Kedah Sabah Perak Johor Perlis

Illegal Total 58.9 39.3 43.6 43.9 46.2 50.8 52.4 54.5 55.2 56.4 72.5 76.5 78.0 81.3 83.5

Fake Fake Tax Stamp 12.6 11.1 11.2 4.9 9.1 7.4 7.0 1.9 9.2 4.0 2.0 2.0 0.0 0.0 0.0

2018 A Smuggled Smuggled

Whites

43.9 25.5 25.0 31.4 29.2 35.2 36.8 37.9 37.6 34.9 60.0 65.5 71.0 79.7 67.6

Smuggled Smuggled Kretek 10.1 10.0 13.7 17.5 10.5 15.9 4.7 6.0 5.1 4.5 5.4 8.4 9.0 7.0 1.6

Illegal Total Total 55.6 34.6 50.8 42.4 36.1 46.3 53.0 52.6 50.1 51.3 72.4 77.2 73.4 69.3 76.2

Fake Fake Tax Stamp 14.1 16.2 10.2 5.7 5.2 8.4 8.6 3.7 6.6 4.8 2.7 0.9 0.2 0.0 0.0

2017 Smuggled Smuggled B Whites

41.0 24.4 25.9 30.4 24.8 32.1 33.3 35.1 36.1 32.7 57.2 68.8 67.9 64.8 59.9

Smuggled Smuggled Kretek 10.8 10.5 13.8 12.5 16.3 8.9 5.0 3.6 2.7 3.5 7.3 7.4 7.5 5.3 4.5

0%*Incidence isless than 0.5%; figure istoo small to feature. Illegal +10.1 +12.0 Total +3.3 +4.7 +1.5 +4.5 +1.9 +5.1 +5.1 +0.1 +4.6 +7.3 - - - 7.2 0.6 0.7

Variance Variance (2018 2017) vs Fake Fake Tax Stamp +3.9 +1.0 +2.6 +1.1 ------0.0 0.0 0.8 1.5 1.0 1.6 1.8 5.1 0.8 0.7 0.2

A minusAB

Smuggled Smuggled Whites +14.9 +2.9 +1.1 +1.0 +4.4 +3.1 +3.5 +2.8 +1.5 +2.2 +2.8 +3.1 +7.7 - - 0.9 3.3

Smuggled Smuggled

Kretek +1.2 +1.5 +7.3 +3.2 +1.0 +1.0 +3.7 +1.5 +1.7 ------0.3 4.8 1.9 2.0 2.9 0.4

Contribution Volume 100% 10% 22% 10% 0

2% 4% 9% 4% 7% 5% 4% 9% 9% 5% % %*

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. They account for approximately 78% of illegal cigarettes volume cigarettes of illegal78% for approximately account They TOP 10 ILLEGALCIGARETTES whether theyaare legal orbrand otherwise *relatesto incidenceof 10. 9. 8. 7. 6. 5. 4. 3. 2. 1.

Illegal Brand Era U2 Saat Gudang John A380 Premium Zon L.A. Canyon

King

Garam

Total % Illegal Total Total 10 Total Total emptypackscollected that Other Other Illegal

SOM 2018 58.9 12.9 46.0 13.5 (%) meetanyof illegalcigarettescriteria pagein 1.3 1.3 4.8 1.7 2.7 4.8 5.0 5.4 5.5

SOM 2017 10.9 55.6 13.9 41.7 (%) 2.4 2.2 4.7 5.7 6.0 5.1 1.2 0.8 2.7

BRANDS 3, regardless Variance SOM +3.3 +4.3 +0.1 +0.5 +0.5 +0.1 +2.1 +0.4 +2.6 - - - - (%) 1.0 0.7 0.7 0.6

# 7 # 4 # 1

# 10 # 8 # 5 # 2

# 9 # 6 # 3

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. 91% of illegal cigarettes are without tax stamps while remaining 9% are with fake fake stamps tax are with 9% remaining while stamps tax are withoutcigarettes of illegal91% TAXSTAMP Incidence (%) Without Without StampTax With Fake Tax Stamp

BREAKDOWN 2016 52.3 49.5

2.8 OF ILLEGALCIGARETTES

2017 55.6 49.9 5.7

2018 58.9 54.0 4.9 :

APPENDIX: NIELSEN’S ICS RESEARCH OBJECTIVE & METHODOLOGY

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. 8 Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. RESEARCHOBJECTIVES 3 1 2

Identify the level level the Identifyof the Identify the Identify III. II. I. Act, Price Control & Anti Profiteering Act Act ) Profiteering AntiControl & Price Act, DescriptionTrade ProductRegulations,Tobacco of(under Control RequirementsMandatedLabeling Customs MalaysianRoyalwithImportersregistered and of ManufacturersLocal Brands features(TaxStamps) Security

illegal brands incidence compliance vs. non vs. compliance &

trend trend

available in Malaysia and at Level State in and Malaysia available

of illegal cigarettes in of Malaysia illegal cigarettes

- compliance

on cigarette packs cigarette on &

at Level State

Results are presented as ratio or percentages of stickscollected. METHODOLOGY RELIABILITY SAMPLING PROCESS ERROR

0.4% at national level and minimum 1.6% at state level state at 1.6% minimum andnationallevel at 0.4% A correlation of correlationA ■ ■ ■ ■ collection Collection Packs Packs & Sarawak = 4,000 packs each ) each = 4,000packs Sarawak & size:Nationwide Sample (Pen. Nationwidecoverage:Geographical Frequency Method: Packs Packs

Litter collection of cigarette packs.collectionLittercigaretteof

: Compared 3 waves 0.99

of packs of Coding

consecutively since 1993 to 2017 were achieved indicating that the Litter Survey is reliable.is LitterSurveythethat indicating achievedwere to 2017 1993 since consecutively with

in a year.in a • • • figuresExcise

51,000 packs per wave 51,000per packs Philip Philip InternationalJT Tobacco(M)AmericanBritish

Morris(M) Lembah vendorappointed governmentbyfeatures securityof Verification from:

M’sia Sari Berhad Sdn

Sdn

and Sabah & Sarawak)& Sabahand

Bhd ( Pen (

–

Bhd

M’sia Berhad

= A minimum Sabah perState,3,000packs of minimum = A

member companiesmember byfeaturessecurity of Verification

Reporting & Analysis

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. ICS RESEARCHMETHODOLOGY ANDDESIGN v. iv. iii. ii. i. Weighting Weighting The Survey Data Data Processing Coding Processes Sampling Coverage OfICS and Fieldwork ICS Universe,Size Sample

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. WHY SAMPLE SIZE OF 51,000 PACKS? n=51,000 n=20,000 n=10,000 n=4,000 n=3,000 n=2,000 n=1,000 n=500 n=250 n=100 n=50 Sample Sample Size (n=)

Sampling Sampling Error @ 95%Confidence 14.9% 0.4% 0.6% 0.8% 1.4% 1.6% 2.0% 2.8% 4.1% 5.9% 9.9%

• • • • minimal minimal effect further Any increment the efficiency fieldwork of turnaround time. chosen State level At sample of size n=51,000 To ensure minimal sampling at error as the sample size of study; a Theaccuracy data for a sample size is dependent on sample sample size to optimize to optimize data accuracy impacting without

, a minimum , minimum a sample of n=3,000 size was

in reducing sampling in reducing sampling error for a study for study is a in sample in sample size will have was chosen Sampling Sampling error declines increased National National level

, 12

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. GEOGRAPHICALCOVERAGE&SAMPLE SIZE FOREACH STATE • • • volume volume These sample size robust are State in East Malaysia, sample size n=4,000 State in Pen Malaysia,minimum sample size n=3,000 n=3,000 Penang Selangor n=8,000 pattern pattern and efficient turnaround of fieldwork

n=3,000 n=3,000

Kedah

Perak n=3,250 WP KL WP

Sembilan n=3,000

n=3,000 Perlis N.

n=3,000 Melaka Kelantan n=3,000 taking taking into consideration geographical landscape, different cigarettes

Terengganu

n=3,000 n=3,000 Pahang n=4,750 Johor

Sarawak n=4,000

n=4,000 Sabah

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. ICS RESEARCHMETHODOLOGY ANDDESIGN v. iv. iii. ii. i. Weighting Weighting The Survey Data Data Processing Coding Processes Sampling Of Coverage and ICS Fieldwork ICS Universe, Sample Size

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. SAMPLING COVERAGEOFICS Sarawak Sabah Kelantan Terengganu Pahang Johor Melaka N.Sembilan WP KL Selangor Perak Penang Kedah Perlis STATE

Bau SriAman Bintulu Kuching Tuaran Papar Lahad Datu Kota Kinabau Bachok Kota Bharu Besut Kuala Terengganu Maran Kuantan Kulai Jaya Johor Bahru Melaka Tampin Seremban Spread across KL Gombak Petaling Hilir Kinta Timur Kubang Kuala Kangar DISTRICT COVERED

Perak

Laut Muda

Pasu

Limbang Sarikei Serian Miri Ranau Penampang Keningau Tawau Tanah Pasir Mas Kemaman Rompin Temerloh Muar Batu Alor Jempol Kuala Langat Ulu Kerian Larut Seberang Baling Kota Setar

Langat Gajah

Pahat &

Merah

Matang

Perai

Tengah

Saratok Kapit Samarahan Sibu Kota Beluran Semporna Sandakan Tumpat Dungun Pekan Bentong Kota Kluang Port Dickson Klang Manjung Seberang Perai Utara Pendang Kulim

Belud Tinggi

• • • • Statistic Statistic (Census2010) releasedMalaysiaby Departmentof Urban&Rural Thesamplingapproachensure populous Covers state’s each MalaysiaFederalKLandTerritory All inEastPeninsular states 13and Nationwide districts

coverage reflects coveragereflects data

topmost50%

both

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. FLOWCHART FOR PRE Establish Establish starting point of collection Head Head Office at for KL coding Packs willbe then delivered to Nielsen’s • • • • Attach to label bag: Standard label with the Collect Collect 25 packs from the street each week following: Date collection of Area type Location collected State

- FIELDWORKAND FIELDWORK

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. • • • • • GUIDELINES FOR PACKCOLLECTION Remunerationfor packs standardcollectedacross areall brand typepack/ such, As collectors will packs preferencecollected nolongit thebeinghaveas on is indecentcondition Noinstruction brandon restriction is issued(hence, collectors Instruction to is tocollect pack condition.indecent authenticity certainabletheofbadlyatosokeyvalidatepacks if pack elements thatthearedamagedare missing All Packs collectioncollectedfrom the must not pointsin decentbecondition. If Visual ExamplesUnacceptable of Packs rejectionofpacks inpoor condition applies toall

Lembah

Sari Sdn . Bhd. will will Bhd.benot . brands)

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. The following diagram Thediagram following illustrates the pack verification & coding process CODING AROBUSTSOP FOR PACKVERIFICATION & 13 9 5 1

Instructions to to DP Instructions Pack Collection Data Data Checking/ Data Data Change Verifications Lembah SariLembah Reporting Wave End Wave End Check Weekly Weekly PROCESS

10 6 2 14

Warehouse Storage CMTM verification Final Tabulation Final Preparation for Preparation for Pack & Pack Sorting

Data Data Entry Wave End Wave End Weekly Weekly

15 11 7 3

Lembah SariLembah Review

to CMTM to to Verify to CMTM Final Reporting Final Quality ControlQuality Preparation for Preparation for Excel Excel Sheet Weekly 10% Wave End Packs Packs & Wave End Wave End

12 8 4 16

Compile Compile Lembah Data Data Cleaning & Pack &Disposal

Sari & CMTM’s Lembah SariLembah Processing Wave Gaps End of Wave Feedback Wave End Review Weekly

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. CODING ANDSTORAGEPROCESS ATNIELSEN HQ Coding and Storage Process at Nielsen HQ assigned assigned a unique pack ID number 1. Packs which arrive Nielsen at are HQ

Pack Sample Pack

is collectedis anditwhereondetailswhen stickerwithhavewilla arrive packEachcigaretteswhich HQ Nielsenreach wheneachtoitpack assignedID Aisunique

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. CODING ANDSTORAGEPROCESS ATNIELSEN HQ information information on the pack will be captured data entry willprocess begins. All 2. Once the ID pack number is assigned,

packs packs are sorted by brands and types 3. data entry When is completed, the

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. CODING ANDSTORAGEPROCESS ATNIELSEN HQ retrieval whenretrieval required shelves with labeling easy for cigarettes packs are stored on 4. Once the sorting is complete, the

Verifiedby Not registered with the RoyalMalaysian Customs 9. 8. 7. 6. 5. 4. 3. 2. 1. Lembah II. I. I. NonCompliance Ministry to Health’s of Control of Tobacco Product Regulations (CTPR) 2004 Unregistered Brand* Packs withnon Packs withoutMalaysian taxstamp Packs with Unregistered Manufacturers* Absence of Registered Manufacturers Unregistered Importers* Absence of Registered Importers

Sari Absence orNon Compliance mandated of labeling requirements Pack Size other than20sticks Absence orNon Compliance Pictorial of Health Warning Requirements Sdn

Bhd

(LSSB) counterfeit (fake) – -

Malaysian tax stamp Government appointed solevendor for tax stamp

Malaysian taxstamp**

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. • • • REGULATIONSSET BY THE MALAYSIAGOVERNMENT Additional Additional security features for imported / manufactured packs for Additional security features for imported / manufactured packs for All locally manufactured cigarettes and imported cigarettes are required to meet the following criteria: • • • • • • • Blue Blue taxstamp Pack size “no sales to under 18” clause, manufacturing date, name and address manufacturer/importer on Malaysianlabeling requirements Registered importer Registered manufacturer Registered brand Pink Pink taxstamp of not less not less of than 20 sticks

with Customs with Customs Customs with it (if is an imported pack) with Customs with

i.e. pictorial i.e. pictorial health clause, warning textual health warning clause,

duty free dutyfree domestic

consumption: consumption:

Brand,Pack Variant, size & type Malaysian Malaysian or Non Clause Presence Warning Health of Tax Tax Stamp Presence SecurityFeature; of ■ ■ ■ ■ Other Other Tax Stamp Non Pink Tax Stamp Blue Tax Stamp

- Malaysian Malaysian banderol

Information on registered brands, registered manufacturers/ Importers isprovided by CMTM - Malaysian

checked checked

& coded coded captured / for for

each Manufacturer/Importer Other information ■ ■ ■ ■ ■ ■

of the collected the collected of packs by Nielsen Address Company Name etc. Etc., (2009) Pictorial Health Warning Clause State/Town/District/Location Free Duty packs ■

clause Malaysian Not Duty Paid

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. VERIFICATIONOF SECURITY TAXSTAMP • • Verification Verification outcome: Tax Stamps are are verified by sign sign byoff Lembah Lembah

Sari using Sari using the special reader/tool

Sari Sari & Nielsen Nielsen as witness

(DutyFree Market) Pink Pink TaxStamp

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. • • • VERIFICATIONOF NON Pack Pack Verification Only applicable members’ CMTMbrands to Counterfeit IDs of identified IDs identified of Counterfeit packs

by the respective by the respective member companies’

- VISIBLE ELEMENTS are given to Nielsen are given Nielsen to Malaysia

technical technical experts

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. ICS RESEARCHMETHODOLOGY ANDDESIGN v. iv. iii. ii. i. Weighting Weighting The Survey Data Processing Data Coding Processes Sampling Coverage OfICS and Fieldwork ICS Universe, Sample Size

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. DATAPROCESSING (DATA CLEANING& MERGING) • • • Security feature verification Security feature verification results merged into data file Logic checks on and brand manufacturers Software program to ensure data accuracy

• • • of Control Response byResearchers List system details Research Team will is list new Any information list Data entry

provided subject subject to

before adding before adding in any response new into the can can only input data as the per response

Research Research Team review review validate the and new to to be added the to response

approval

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. DATAPROCESSING (QUALITY CONTROL) process pack If against database Besides system pack been QC coders check 10

• • %

any Legal E

personnel

g of features keyed .

will

Dunhill data and

are known data packs will

completing a

capturing rectify

be QC

be discrepancies into

reviewed entered will

belongs comes

facts

personnel undergone extracted similar

randomly the the

data only the

system, a into to

10 BAT

data

what

in to check select

% the

and

are pack

ensure

M’sia

physical

correctly cross

has database

a detected,

size for

, % been physical

compare

data

of data of

QC packs

recorded

will

accuracy

s the discrepancy

check,

validation be to which

affected

ensure cross

and has the the -

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. Whyapply Weighting Surveyto Data? • • weighting If is not done, then state A weighting process is used to determine the total estimated cigarettes volume pattern an of individual • states All

• • cigarettes cigarettes volume Malaysia, in in which reality is less than 10%. and Sabah combined Sarawak, would represent about 8,000 16% ( of 51,000 packs) of total population will be Perlis a with smaller population will be in Peninsular in Peninsular assumed are to have under under :

represented

over represented over equal volumes equal

and and Selangor, with bigger a of total cigarettes of cigarettes total

volume

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. • Step 1 Step HOW DOES NIELSEN WEIGHT THE DATA? The • • • estimatedindustrylegalvolume MalaysianDutyFree manufacturers’Local MalaysiaInternational(PMM) Japan Tobaccoand(JTI In : Establish the : Establish - marketsales Total CMTM Member CompaniesMember CMTM OtherLocal

Legal Cigarettes Sales CigarettesLegal Malaysian (BATM,JTI)PMM, as providedas

Estimated LegalEstimated manufacturers Unit of measurement Unitof measurement : thousand sticks volume

volume from Illicit volumefrom Illicit CigarettesStudy Duty FreeDuty independentlyby

from

is is establishedfollowingbasedtheinformationon Nielsen’s RetailNielsen’s (‘000sticks) 2,089,494 1,769,280 Oct 180,856 139,358 2018, Industry Volume Industry - Dec

British British AmericanTobacco Malaysia(BATM), Philip Morris

Audit member companies from Derive ) is not availableis not volume ICS availablenot datais actualsince Retail substituteasis used volume Audit

(ICS)

actual in actual estimation is used as substitute since actual dataactualsince substituteasused is estimation

- market sales market as provided byprovidedas :

CMTM 34

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. • Step HOW DOES NIELSEN WEIGHT THE DATA? national volume of 1,999,798 millionvolume nationalof1,999,798sticks UsingNielsen Retail aas guideline,Audit TERENGGANU 2 N.SEMBILAN : Establish the Legal Industry VolumeIndustryLegalthe : Establish Stateby contribution SELANGOR KELANTAN SARAWAK NATIONAL PAHANG PENANG MELAKA PERLIS JOHOR KEDAH SABAH PERAK WP KL

NIELSENRETAIL 1,721,940 439,593 105,160 146,705 312,208 213,983 22,594 56,798 59,353 29,376 90,784 83,011 73,613 80,775 AUDIT 7,989

STATE’S STATE’S LEGAL CONTRIBUTION VOLUME 18.1% 12.4% 25.5% 1.3% 3.3% 3.4% 1.7% 5.3% 4.8% 4.3% 6.1% 8.5% 4.7% 0.5%

establish each states’eachestablishvolumelegalcontribution

State VolumeLegal Step 2a.

(Using Retail Retail (Using Audit) SELANGOR

NATIONAL ( = State Projected States Step 2b. e.g. e.g. ( Contribution derived derived fromRetail Audit 25.5

Legal Legal Volume Contribution

% x RETAILAUDIT 1,721,940 NIELSEN

439,593 2,0894,94 2,0894,94

( e.g. e.g. = Legal VolumeLegal State’s 439,593 439,593

National National

= 533,426) Retail Retail Audit Volume ) (obtained (obtained ) STATE‘S STATE‘S LEGAL CONTRIBUTION / Volume 1,721,940 1,721,940 VOLUME

25.5

National National %

towardsthe 25.5

Legal Volume

%) from Step

STATE LEGALSTATE PROJECTED/ PROJECTED/ ESTIMATED 2,089,494 VOLUME 536,426 1) 1)

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. Step 2 Step HOW DOES NIELSEN WEIGHT THE DATA? : Key Output : Key TERENGGANU N.SEMBILAN SELANGOR KELANTAN SARAWAK NATIONAL PAHANG PENANG MELAKA PERLIS JOHOR KEDAH SABAH PERAK WP KL

NIELSENRETAILAUDIT 1,721,940 312,208 213,983 439,593 105,160 146,705 22,594 56,798 59,353 29,376 90,784 83,011 73,613 80,775 7,989

STATE’S STATE’S LEGAL VOLUME CONTRIBUTION 18.1% 12.4% 25.5% 1.3% 3.3% 3.4% 1.7% 5.3% 4.8% 4.3% 6.1% 8.5% 4.7% 0.5%

STATE LEGALSTATE VOLUME PROJECTED/ ESTIMATED 2,089,494 110,162 378,849 100,730 259,659 533,426 127,606 178,019 27,417 68,922 72,022 35,646 89,326 98,016 9,694

SELANGOR

• • State The The from datathe Convert • • : Establish the Incidence for Cigarettesfor / IllegalLegalIncidence the : Establish study’s unit of measurementof unit study’s

packs sizes below 20 sticks 20 below sizes packs The be found still could ofsticks 20 sizes pack the below cigarettesof salesthe prohibitsCTPR Though

( Oct’16 Oct’16 calculation based on number of packs collectedpacksof numberon based calculation Total packs Total collected collected 8,000 –

Dec’16)

“packs collected “ collected“packs

in pack sizes below 20 sticks20 belowsizespackin Number of Number of legal packs packs collected 3,036

is based on consumption in consumption on based is

packs packs collected Volume of of legal Volume to (Unweighted) (Unweighted) volume estimated establish collected to legal packs all per pack for sticks number of up the Sum 3a. Step “sticks” 60,720 A

in sticks in

the

legal legal (based on pack size) on pack (based

illegal packs packs illegal will Number of of Number collected collected sticks 4,964 create a falseinflationa create

Volume of illegal of illegal Volume packs packs collected (Unweighted)

in sticks in illegal the establish Step Repeat 3b.Step 89,400 estimated B , illegal cigarettes, illegal 3

volume

to to

on illegal

Total volumeTotal C =+ A B (Legal (Legal + 150,120 state state level volume total T establish to and illegal for both legal consumption the total up Sum 3c.Step Illegal) he volume volume

estimated cigarette cigarette

at at (primarily for illegalfor(primarily

due to the presence of presencethe to due

Incidence of of Incidence cigarettes

D =C / A 40.4% legal legal volume illegal vs. estimated ratio Calculate the 3d.Step

of Incidence of of Incidence

cigarettes

E = B / C B / E = kretek illegal illegal 59.6%

legal

)

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. Step HOW DOES NIELSEN WEIGHT THE DATA? • Sarawak Sabah Kelantan T’gganu Pahang Johor Melaka Negri 9 WP KL Selangor Perak Penang Kedah Perlis

Establish the levelEstablishthe illegal oflegalvs. cigarettes ratioinrespectiveeach state State

: Incidence for Legal / Illegal Cigarettes Key Output Key Cigarettes for / IllegalLegal : Incidence collected (Oct’16 Total packs –

Dec’16) 4,000 4,000 3,000 3,000 3,000 4,750 3,000 3,000 3,250 8,000 3,000 3,000 3,000 3,000

Numberoflegal packs packs collected 2,566 1,399 1,633 1,482 3,036 1,456 1,336 1,149 1,840 614 582 626 628 717

packs collected packs Volumeoflegal ( Unweighted 12,280 11,640 12,520 12,560 14,340 51,320 27,980 32,660 29,640 60,720 29,120 26,720 22,980 36,800 A

)

Numberofillegal packs packs collected 3,386 3,418 2,374 2,372 2,283 2,184 1,601 1,367 1,768 4,964 1,544 1,664 1,851 1,160

Volumeof illegal packs packs collected ( Unweighted 64,972 68,025 44,694 45,112 42,669 42,286 31,195 25,705 32,193 89,400 27,126 31,590 33,247 21,501 B

)

Total volume C= A+ B (Legal + 150,120 Illegal) 77,252 79,665 57,214 57,672 57,009 93,606 59,175 58,365 61,833 56,246 58,310 56,227 58,301

Incidence of cigarettes D= A/ C 15.9% 14.6% 21.9% 21.8% 25.2% 54.8% 47.3% 56.0% 47.9% 40.4% 51.8% 45.8% 40.9% 63.1% legal

Incidence of cigarettes E E = B/ C 84.1% 85.4% 78.1% 78.2% 74.8% 45.2% 52.7% 44.0% 52.1% 59.6% 48.2% 54.2% 59.1% 36.9% illegal

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. Step HOW DOES NIELSEN WEIGHT THE DATA? • used toprojectusedtotal industry for volume state each states’ eachOnce SELANGOR 4 : Project Total Market Volume Market Total : Project

STATE STATE estimated LEGAL 533,426 A

legal VOLUME

volume and legal incidence have been established,volumethelegalincidencehavenumbers and will been be

LEGAL INCIDENCELEGAL 40.4%

= 1,320,361) (e.g. 533,426 divide by 40.4% volume the for state Perlis, project the total legal cigarettes 47.2% of in Based on incidence the for Step4a. TOTAL MARKETTOTAL

1,320,361 C = A / B / C = A

VOLUME

STATE STATE 789,935) (e.g. 1,320,361 legal volume total volume state’s with the subtracting by projected the Illegal volume is established Step4b. ILLEGAL D =C

786,935

- –

533,426 533,426 =

VOLUME

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. Step 4 Step HOW DOES NIELSEN WEIGHT THE DATA? • Repeat the same process the Repeat same process in Step for 4 all States : Key Output : Key Divide TERENGGANU

N.SEMBILAN National Illegal VolumeNationalIllegal SELANGOR KELANTAN NATIONAL SARAWAK PAHANG PENANG MELAKA PERLIS JOHOR KEDAH SABAH PERAK WP KL WP -

Illegal Cigarettes Incidence @ National level@ NationalIncidenceCigarettes Illegal

STATE STATE 2,089,494 VOLUME 110,162 378,849 100,730 259,659 533,426 127,606 178,019 27,417 68,922 72,022 35,646 89,326 98,016 9,694 LEGAL 3,300,830

with LEGAL INCIDENCELEGAL

National Total Market Volume Market NationalTotal

15.9% 14.6% 21.9% 21.8% 25.2% 54.8% 47.3% 56.0% 47.9% 40.4% 51.8% 45.8% 40.9% 63.1%

TOTAL MARKETTOTAL

5,390,324 1,320,361

172,432 472,071 328,865 163,515 437,150 691,331 212,959 159,511 542,085 246,344 388,689 239,648 15,363 5,390,324

VOLUME

61.2%

STATE STATE

ILLEGAL 3,300,830 145,015 403,149 256,843 127,869 326,988 312,482 112,229 282,426 786,935 118,738 210,670 141,632 70,185 5,669

VOLUME