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

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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. TABLE OF CONTENT No Content Page 1 Illegal Cigarettes Criteria 3 2 Evolution of Illegal Cigarettes Incidence 4 3 Illegal Cigarettes Incidence by States 5 4 Top 10 Illegal Cigarettes Brands 6 5 Tax Stamps Breakdown of Illegal Cigarettes 7 6 Appendix: Nielsen’s ICS Research Objective & Methodology 8-40 2 Copyright © 2017 The Copyright 2017Nielsen The © LLC. ConfidentialCompany(US), and proprietary. Do not distribute. ILLEGAL CIGARETTES CRITERIA FOR VERIFICATION Packs with at least one (1) of the following features: 1. Absence of Registered Importers 2. Unregistered Importers* 3. Absence of Registered Manufacturers 4. Unregistered Manufacturers* 5. Packs with counterfeit (fake) Malaysian tax stamp** 6. Packs without Malaysian tax stamp 7. Packs with non-Malaysian tax stamp 8. Unregistered Brand* 9. Non Compliance to Ministry of Health’s Control of Tobacco Product Regulations (CTPR) 2004 I. Absence or Non Compliance of Pictorial Health Warning Requirements I. Pack Size other than 20 sticks II. Absence or Non Compliance of mandated labeling requirements * Not registered with the Royal Malaysian Customs ** Verified by Lembah Sari Sdn Bhd (LSSB) – Government appointed sole vendor for tax stamp 3 Copyright © 2017 The Copyright 2017Nielsen The © LLC. ConfidentialCompany(US), and proprietary. Do not distribute. IILEGAL CIGARETTES INCIDENCE AT NATIONAL LEVEL: Continues on upward trend, recording a +3.3ppt increase vs. 2017 80 70 61.2 Incidence (%) 58.9 70 58.0 57.4 55.6 60 52.3 60 4.8 4.9 50 4.9 5.1 5.7 50 2.8 35.7 36.9 40 33.7 40 Products with Fake Tax Stamp 45.2 30 43.9 44.1 42.2 30 39.3 41.0 Smuggled Whites 26.0 29.3 20 20 25.7 Smuggled Kreteks 10 10 11.2 9.7 8.0 7.6 10.2 8.9 10.1 9.0 10.1 0 0 2013 2014 2015 2016 2017 2018 2018 W1 2018 W2 2018 W3 (Mar-May) (Jun-Aug) (Oct-Dec) Volume (Billions sticks) Illegal Cigarettes 7.9 7.0 7.1 10.1 11.1 12.0 3.0 2.9 3.3 Estimated Total industry 22.1 20.8 19.2 19.3 20.0 20.4 5.1 5.0 5.4 Incidence 35.7% 33.7% 36.9% 52.3% 55.6% 58.9% 58.0% 57.4% 61.2% 4 Copyright © 2017 The Copyright 2017Nielsen The © LLC. ConfidentialCompany(US), and proprietary. Do not distribute. ILLEGAL CIGARETTES INCIDENCE BY STATES: 11 States recording an increase vs 2017 A B A minus B Volume 2018 2017 Variance (2018 vs 2017) Contribution Total Fake Tax Smuggled Smuggled Total Fake Tax Smuggled Smuggled Total Fake Tax Smuggled Smuggled Illegal Stamp Whites Kretek Illegal Stamp Whites Kretek Illegal Stamp Whites Kretek % Sarawak 83.5 0.0 67.6 15.9 76.2 0.0 59.9 16.3 +7.3 0.0 +7.7 -0.4 5% Sabah 81.3 0.0 79.7 1.6 69.3 0.0 64.8 4.5 +12.0 0.0 +14.9 -2.9 9% Kelantan 78.0 0.0 71.0 7.0 73.4 0.2 67.9 5.3 +4.6 -0.2 +3.1 +1.7 9% Terengganu 76.5 2.0 65.5 9.0 77.2 0.9 68.8 7.5 -0.7 +1.1 -3.3 +1.5 4% Pahang 72.5 2.0 60.0 10.5 72.4 2.7 57.2 12.5 +0.1 -0.7 +2.8 -2.0 10% Selangor 56.4 4.0 34.9 17.5 51.3 4.8 32.7 13.8 +5.1 -0.8 +2.2 +3.7 22% Kedah 55.2 9.2 37.6 8.4 50.1 6.6 36.1 7.4 +5.1 +2.6 +1.5 +1.0 5% Penang 54.5 11.2 37.9 5.4 52.6 10.2 35.1 7.3 +1.9 +1.0 +2.8 -1.9 7% Melaka 52.4 11.1 36.8 4.5 53.0 16.2 33.3 3.5 -0.6 -5.1 +3.5 +1.0 4% WP KL 50.8 1.9 35.2 13.7 46.3 3.7 32.1 10.5 +4.5 -1.8 +3.1 +3.2 9% Perak 46.2 7.0 29.2 10.0 36.1 8.6 24.8 2.7 +10.1 -1.6 +4.4 +7.3 4% Johor 43.9 7.4 31.4 5.1 42.4 8.4 30.4 3.6 +1.5 -1.0 +1.0 +1.5 10% N.Sembilan 43.6 12.6 25.0 6.0 50.8 14.1 25.9 10.8 -7.2 -1.5 -0.9 -4.8 2% Perlis 39.3 9.1 25.5 4.7 34.6 5.2 24.4 5.0 +4.7 +3.9 +1.1 -0.3 0%* National 58.9 4.9 43.9 10.1 55.6 5.7 41.0 8.9 +3.3 -0.8 +2.9 +1.2 100% Incidence 0%* Incidence is less than 0.5%; figure is too small to feature. 5 Copyright © 2017 The Copyright 2017Nielsen The © LLC. ConfidentialCompany(US), and proprietary. Do not distribute. TOP 10 ILLEGAL CIGARETTES BRANDS* They account for approximately 78% of illegal cigarettes volume # 1 # 2 # 3 2018 2017 Variance SOM SOM SOM Illegal Brand (%) (%) (%) 1. John 13.5 10.9 +2.6 # 4 # 5 # 6 2. Gudang Garam 5.5 5.1 +0.4 3. Saat 5.4 6.0 -0.6 4. U2 5.0 5.7 -0.7 5. Era 4.8 2.7 +2.1 6. Canyon 4.8 4.7 +0.1 # 7 # 8 # 9 7. L.A. 2.7 2.2 +0.5 8. Zon King 1.7 2.4 -0.7 9. Premium 1.3 0.8 +0.5 10. A380 1.3 1.2 +0.1 Total 10 Total 46.0 41.7 +4.3 # 10 Other Illegal 12.9 13.9 -1.0 Total Illegal % 58.9 55.6 +3.3 *relates to incidence of empty packs collected that meet any of illegal cigarettes criteria in page 3, regardless whether they are a legal brand or otherwise 6 Copyright © 2017 The Copyright 2017Nielsen The © LLC. ConfidentialCompany(US), and proprietary. Do not distribute. TAX STAMP BREAKDOWN OF ILLEGAL CIGARETTES: 91% of illegal cigarettes are without tax stamps while remaining 9% are with fake tax stamps Incidence (%) 58.9 55.6 52.3 4.9 5.7 2.8 54.0 49.5 49.9 With Fake Tax Stamp Without Tax Stamp 2016 2017 2018 7 Copyright © 2017 The Copyright 2017Nielsen The © LLC. ConfidentialCompany(US), and proprietary. Do not distribute. APPENDIX: NIELSEN’S ICS RESEARCH OBJECTIVE & METHODOLOGY Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. 8 RESEARCH OBJECTIVES 1 Identify the incidence & trend of illegal cigarettes in Malaysia & at State Level 2 Identify the illegal brands available in Malaysia and at State Level 3 Identify the level of compliance vs. non-compliance on cigarette packs I. Security features (Tax Stamps) II. Brands of Local Manufacturers and Importers registered with Royal Malaysian Customs III. Mandated Labeling Requirements (under Control of Tobacco Product Regulations, Trade Description Act, Price Control & Anti Profiteering Act ) 9 Copyright © 2017 The Copyright 2017Nielsen The © LLC. ConfidentialCompany(US), and proprietary. Do not distribute. OVERVIEW OF STUDY FRAMEWORK ■ Method: Litter collection of cigarette packs. ■ Frequency: 3 waves in a year. METHODOLOGY ■ Geographical coverage: Nationwide (Pen. M’sia and Sabah & Sarawak) ■ Sample size: Nationwide 51,000 packs per wave ( Pen M’sia = A minimum of 3,000 packs per State, Sabah & Sarawak = 4,000 packs each ) Verification of security Verification of Packs Coding features by government Analysis & PROCESS security features by collection of packs appointed vendor – Reporting member companies Lembah Sari Sdn Bhd SAMPLING 0.4% at national level and minimum 1.6% at state level ERROR Excise figures from: Packs • British American Tobacco (M) Berhad • JT International Berhad Collection Compared with • Philip Morris (M) Sdn Bhd RELIABILITY A correlation of 0.99 consecutively since 1993 to 2017 were achieved indicating that the Litter Survey is reliable. - Results are presented as ratio or percentages of sticks collected. 10 Copyright © 2017 The Copyright 2017Nielsen The © LLC. ConfidentialCompany(US), and proprietary. Do not distribute. ICS RESEARCH METHODOLOGY AND DESIGN i. ICS Universe, Sample Size ii. Sampling Coverage Of ICS and Fieldwork iii. Coding Processes iv. Data Processing v. Weighting The Survey Data 11 Copyright © 2017 The Copyright 2017Nielsen The © LLC. ConfidentialCompany(US), and proprietary. Do not distribute. WHY SAMPLE SIZE OF 51,000 PACKS? Sampling Error @ Sample Size (n=) 95% Confidence n=50 14.9% • The data accuracy for a sample size is dependent on the sample size of a study; Sampling error declines n=100 9.9% as sample size for a study is increased n=250 5.9% n=500 4.1% • To ensure minimal sampling error at National level, sample size of n=51,000 was chosen n=1,000 2.8% n=2,000 2.0% • At State level, a minimum sample size of n=3,000 was n=3,000 1.6% chosen to optimize data accuracy without impacting the efficiency of fieldwork turnaround time. n=4,000 1.4% n=10,000 0.8% • Any further increment in sample size will have n=20,000 0.6% minimal effect in reducing sampling error n=51,000 0.4% 12 Copyright © 2017 The Copyright 2017Nielsen The © LLC.
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