Legal Cigarette volumes 1981 - 2006

1981 1991 2006Source – Industry sales figures

40 000 mn

30 000 mn

20 000 mn

1991 - 38 billion

2006 - 23 billion

Fewer people are smoking

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

2001 2002 2003 2004 2005 200616%

17%

18%

19%

20%

21%

22%

23%

24%

25%

26%

Smoking Population Smoking Incidence

Source – General Consumer Survey, 2001 - 2006

Total tobacco not declining since 2001,but illicit trade is growing

24,632 24,769 24,038 23,668 23,531 23,617

8,076 6,9996,279

5,8495,152 4,651

--

- 2,261 4,743 5,094

32,70831,769

30,317

31,778

33,427 33,362

2001 2002 2003 2004 2005 2006

Pipe/RYO

Legal Cigarette

Illicit Trade

70.7% 72.8% 73.6% 68.3% 63.7% 63.5%

Source - Illicit Trade Research – Research International

Impact on farmers and farm workers

0

200

400

600

800

1000

1200

Tobacco Farmers

Workers employed on farmsand in processing / 100

Linear (Workers employedon farms and in processing /100)

1990 – 1016 farmers

2006 – 200 farmers

1990 – 60 810 farm workers

2006 – 21 000 farm workers

Source – Tobacco Institute of South Africa

Smoke AerosolSmoke AerosolTobacco LeafTobacco Leaf

Combustion of Tobacco

Burnt in aBurnt in a

cigarettecigarette100’s of 100’s of substancessubstances

ParticlesParticles

Gas / VapourGas / Vapour

1000’s of 1000’s of substancessubstances

Nicotine (1%-4%)no TAR

TAR max 12mg/cig Nicotine max 1.2mg/cig

in smoke as per machine measure

TAR: Total Aerosol Residue

+ =

Snus-use and consequences

Snus with tobacco in it

No burning of Snus

1000’s of 1000’s of substancessubstances

No tar

TAR: Total Aerosol Residue

+ =

8 ingredients

33 ingredients

1 ingredient

6 ingredients

6 ingredients

4 ingredients

13 ingredients

http://www.bat-ingredients.com or batsa.com

Non-tobacco ingredients for TOTAL BATSA portfolio

Illicit Trade Research Methodology

BackgroundThis project is designed to track the incidence of illicit

trade in tobacco products in SAMonthly waves of interviews and pack retrievals with

respondents around the country.Because all outlet types are representatively covered in

a three month period of fieldwork, the total sample is a good, representative sample of cigarette purchases.

Definition of illicit

Compliant SA Stock – packs

Counterfeit – packs

Non-compliant (duty not paid, no H/W, etc) – packs – tar for all above 12mg

Suspect Priced – packs (local manufactured)

Suspect Priced – packs (SADC manufactured)

Suspect Priced – packs (EU manufactured)

Legal

Illicit

Definitely illicit

Suspect

Below R8.50

Methodology

Representative coverage (time/ day/ area/ store type)One wave per year we have 2 interviewers per oultet

Interviewer 1: cigarette purchase incidence Interviewer 2: exit interviews & product swap

Interview structure: Masked as Quality Control Demographic and pricing questions Product swap (incentive: R20/pack) Collected product analysed by BATSA internal experts

Quality control: 100% questionnaire check, Spot checks on outlets Back checks per interviewer: Average 30%

Methodology: Sample breakdown

Q5 2005 / Q1 2006

n=2825

Jan ‘06 Feb ‘06 March ‘06

Packs only Packs only Packs only

Gauteng

n=575

Gauteng

n=484

Gauteng

n=577

Rest of RSA

n=472

Rest of RSA

n=346

Rest of RSA

n=371

*margin of error = 1.3%

Q2 2006

n=2768

Apr ‘06 May ‘06 Jun ‘06

Packs only Packs only Packs only

Gauteng

n=481

Gauteng

n=493

Gauteng

n=533

Rest of RSA

n=395

Rest of RSA

n=455

Rest of RSA

n=411

Internal verification

Due to the serious nature of the research certain key checks and balances undertaken Methodology Audited by BAT International Auditors

against Global Protocol Currently being audited by BATSA internal audit against

independent research standards – SAMRA (South African Market Research Association)

Results then cross referenced against other BAT research