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Last Updated: Thursday, 9 February 2006, 08:16 GMT
No smoke without profits
By Will Smale
BBC News business reporter

Gallaher press picture
Gallaher is one of the UK's big three tobacco firms
There is a giant global industry with a billion customers, in which three of the five biggest companies are British.

Each of the three enjoys billions of pounds in annual turnover and profits in the hundreds of millions.

Yet far from being praised, they are at best conveniently ignored, at worst damned.

Welcome to the controversial, if highly successful, world of Big Tobacco.

The three UK cigarette giants are British American Tobacco (BAT), Imperial and Gallaher, occupying the second, fourth and fifth spots in the tobacco world rankings.

All members of the FTSE 100 index of the largest British listed companies, their collective global operations contribute 2.9bn of annual pre-tax profits to the UK economy.

Not bad for selling something that - while perfectly legal - can kill you.

Worldwide reach

Selling the product may be legal, but using it - at least in public - is becoming more of a problem.

With a ban on smoking in public places scheduled to come into force in Scotland next month, and in the rest of the UK some time next year, you would imagine that the three firms are due for a substantial squeeze in their home market.

Breakdown of Imperial's sales

However, each predicts the bans will only have a limited one-off effect. More importantly, they are all now such global players that the UK represents only a minority of their business.

Their operations circle the planet, taking in Europe, Africa, the Middle East, the Far East and the Americas.

Overseas sales at Imperial, which owns Lambert & Butler and West, now contribute more than 60% of its profits. Similarly, the UK is only a very minor market for BAT, whose portfolio includes Lucky Strike, Dunhill and Royals.

Gallaher, which makes popular UK cigarette brands Bensons & Hedges, Silk Cut and Mayfair, estimates that an Irish-style outright ban on smoking in public places would only cause a temporary drop in cigarette sales.

"The overall impact appears to be a one-off, one-year decline of between 3% and 5%," says Gallaher's Claire Jenkins.

Developing world

BAT spokesman Dave Betteridge freely admits the company is targeting developing countries to offset declining sales in the West.

1. Lambert & Butler (Imperial)
2. Benson & Hedges (Gallaher)
3. Marlboro Gold (Philip Morris)
4. Mayfair (Gallaher)
5. Richmond (Imperial)
6. JPS (Imperial)
7. Silk Cut (Gallaher)
8. Richmond (Imperial)
9. Regal (Imperial)
10. Royals (BAT)
Figures for 2003. Source: Ash

"It is perfectly true that the incidence of smoking is falling in Western Europe, North America and other countries too," he says.

"But developing countries are making up for that - their populations are increasing."

The big prize is China, home to a third of the world's smokers.

Currently, the Chinese government continues to maintain a state monopoly on cigarettes and other tobacco products.

But the big tobacco firms are banking on an eventual opening up, thanks to China's recent membership of the World Trade Organization.

New markets - same customers?

Whether in China, Africa or elsewhere, one charge the companies are keen to deny is that of targeting the developing world for new smokers.

"People in every country around the world already smoke - you can't un-invent smoking," says Dave Betteridge.

"All we are doing is saying: 'How about smoking some international cigarettes instead of your local brand?'

Spanish smokers
Smoking is in decline in western Europe

"It is much like any consumer brand - you get a bit richer and wish to trade up."

The total number of world smokers, BAT estimates, will remain flat at about one billion.

"Our marketing activities are focused on existing adult smokers," says Gallaher's Claire Jenkins.

"We are not trying to promote the act of smoking."

Similarly, the companies resist the accusation that by targeting poorer countries, they are taking advantage of populations where knowledge of the health issues surrounding smoking is less widespread.

"We have health warning on our pack in every market, even those in which they are still not legally required, in the appropriate language," Ms Jenkins says.

"Regarding emerging markets, it is inconceivable that adults in those markets are not aware of the health risk."

Imperial's head of media Alex Parsons adds that it is too simplistic to say the cigarette firms are now only interested in the developing world.

"In western Europe for example, our market share ranges from just over 1% in Italy and up to 7% in Greece, so although these markets are in decline, we have an opportunity to get a bigger slice of the pie."

Aspirational brand names

Unsurprisingly, anti-smoking groups remain cynical about the tobacco industry's protestations of piety.

Historic cigarette advertisement
All smoking advertising is today banned in the European Union

"The tobacco companies will always say they operate according to the laws of a particular country," says a spokeswoman for UK anti-tobacco campaigners Ash.

"That hides the fact that in many poorer countries with no tobacco control legislation, there can be no health warnings, or else they are very tiny indeed.

"Tobacco firms also take free rein in naming their products things like Glamour, Vogue or Diplomat to give an aspiration of Western wealth and lifestyles."

Ash is also damning of the tobacco industry's ongoing refusal to accept that second-hand smoke is dangerous.

The industry instead insists there is no scientific data to yet confirm that passive smoking is bad for your health, and it will instead only accept that background smoke is an "annoyance".

1. Philip Morris (US)
2. BAT (UK)
3. Japan Tobacco
4. Imperial (UK)
5. Gallaher (UK)

"Our position is that people should have choice," says Ms Jenkins.

"It is about informed adults having the option to smoke if they want to."

BAT's Dave Betteridge recognises the clash between the financial success of the industry, and the might of opposition it attracts.

"As a business tobacco has rather more enemies than fans, but it isn't about to go bust," he says.

"The industry continues to do extremely well."

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