Last updated: May 2019
Suggested citation: Scollo, M, Bayly, M. 10.3 The manufacturing and wholesaling industry in Australia—major international companies. In Scollo, MM and Winstanley, MH [editors]. Tobacco in Australia: Facts and issues. Melbourne: Cancer Council Victoria; 2019. Available from http://www.tobaccoinaustralia.org.au/chapter-10-tobacco-industry/10-3-the-manufacturing-and-wholesaling-industry-in-australia
The Australian tobacco industry is a subset of the global industry. All three major tobacco companies which operate in Australia—British American Tobacco Australasia (BATA), Philip Morris International (Australia; PMA) and Imperial Tobacco Australia (ITA)—are wholly owned subsidiaries of their overseas parent companies. Although the Australian tobacco market is considered to be mature and per capita consumption is in decline (see Chapter 2), and despite the challenging regulatory environment, tobacco companies remain highly profitable entities and continue to successfully operate. In 2017, an estimated 14,062.2 million cigarettes were sold in Australia, the equivalent of 1,070 packs of 25 cigarettes per minute (this does not include roll-your-own tobacco, which has increased in consumption).1 More than 1 billion fewer factory-made cigarettes were sold in 2017 than 2016, representing a drop of 6.7%, however the value of cigarette sales increased by 6.7%, or $781,000,000.1
As of 2016, no tobacco products are manufactured in Australia. Philip Morris International (Australia) closed its Australian manufacturing facility in 2014,2 and British American Tobacco Australia did so in 2015.3 Most brands sold by Imperial Tobacco Australia, which entered the market following the merger of WD & HO Wills and Rothmans in 1999, have for some years been manufactured in New Zealand. A smaller tobacco company, Richland Express, imports several cigarette and roll-your-own tobacco brands specifically for the Australian market. In addition, a small number of companies import speciality products and brands. Chapter 10, Sections 10.4 and 10.6–10.7 provide further detail on the size and composition of the Australian tobacco industry.
Overseas ownership of the tobacco companies operating in Australia means that no tobacco company is currently listed on the Australian Securities Exchange and that the availability of information specific to local company operations is limited. British American Tobacco Australiai and Philip Morris Internationalii both offer websites with some information about their Australian operations, but Imperial Tobacco Australia provides little in the way of Australian data. Most of the information used in the following sections discussing the Australian tobacco companies and their operating environment has been sourced from reports provided to shareholders, reports to the Australian Securities and Investments Commission, and reports published by various trade and marketing associations.
The tobacco market in Australia is dominated by three major companies, of which the largest is British American Tobacco Australia (BATA). With the closure of Philip Morris’s and BATA’s manufacturing operations, the Australian tobacco market after 2015 is largely a wholesale market, whereas previously local manufacturers would bypass the wholesale market and sell to large retailers directly.4 The transition of BATA and Philip Morris’s previous manufacturing business to the tobacco wholesaling market caused massive spikes in revenue for the tobacco wholesaling industry. Industry revenue increased by 45% when Philip Morris ceased manufacturing in Australia in the 2014-15 financial year, and increased by 140% in 2015-16 when BATA closed its manufacturing plant in the first half of that year. 4 Annual revenue growth then stabilised at 1.4% in 2016–17 then 0.1% in 2017–18.
In 2017–18, the total revenue of the tobacco product wholesaling market was $2.7 billion.5 Factory-made cigarettes comprised 87.7% of the wholesale tobacco market, roll-your-own tobacco was 11.0%, and the remaining 1.3% consistent of ‘other’ tobacco products including cigars, cigarillos and pipe tobacco. Table 10.3.1 describes the three major tobacco companies operating in Australia in 2018, which collectively accounted for 82.8% of the wholesaling industry.5
Tobacco companies operating in Australia: summary, 2017 and 2018
Source: IBISWorld Pty Ltd company reports: BATA—December 2017,6 PMA—December 2017,7 ITA—December 2018.8 Euromonitor International. Tobacco in Australia. London: Euromonitor International, 2019.1 Data up to 2017 available for purchase or on subscription: http://www.euromonitor.com/tobacco
British American Tobacco Australasia (BATA) is a wholly owned subsidiary of British American Tobacco.9 British American Tobacco is a publicly listed company on the London Stock Exchange.
BATA was created in 1999 by the merger of WD & HO Wills (Australia) Holdings Ltd (controlled by British American Tobacco) and Rothmans Holdings Ltd.10 D & HO Wills (Australia) had manufactured tobacco products in Sydney since 1913.11 The merger of the two Australian companies mirrored the international merger of British American Tobacco with Rothmans International, making the newly formed BATA the largest tobacco company operating in Australia. The then Chairman of Wills (and former Premier of New South Wales), Mr Nick Greiner, subsequently became Chairman of BATA.10 The new corporate entity soon realised higher profits due to sales growth, cost reductions and distribution advantages arising from rationalisation of resources.12
The head office and main manufacturing base for BATA is located in Woolloomooloo, in Sydney.6, 13 BATA divides its global business into four geographic areas, with Australia grouped in the Asia-Pacific region. Within that region, British American Tobacco Australasia area covers Australia, New Zealand and the Pacific Islands. Taking into account the wider Australasian region, in 2017 BATA reportedly employed a total workforce of about 1100, of which about 550 were employed within Australia.13 At 2019, BATA employed almost 100 staff in New Zealand, 216 people across four offices in Papua New Guinea, including a manufacturing plant, 130 staff in Fiji (across head office and manufacturing facilities) in addition to 380 contracted tobacco farmers, and 126 staff in facilities in the Solomon Islands, including a manufacturing plant.13 The British American Tobacco Exports business additionally supplies tobacco products manufactured elsewhere across the Pacific Islands and Oceania.13
Since BATA is wholly owned by its UK parent British American Tobacco, financial data specific to BATA Australia do not need to be made publicly available. In British American Tobacco's annual company reports, Australia is included in the Asia-Pacific region, for which results from New Zealand and the South Pacific, and Asian countries including Indonesia, Malaysia, the Philippines, Pakistan, Japan, Bangladesh, South Korea, Taiwan and Vietnam are pooled.14 British American Tobacco’s 2018 annual report also incorporated heat-not-burn and tobacco products in their reporting of conventional cigarettes from their “strategic combustible brands” portfolio.15 During the mid-2000s, British American Tobacco's annual reports consistently alluded to increasing profits in Australia, attributing this success to higher margins, reductions in overheads and improved supply chain efficiencies, and strong performances by its key brands, Winfield, Dunhill, Benson & Hedges and Holiday.16-19 However, the 2015 British American Tobacco annual report gave this description of the Australian market: ‘Volume fell due to market contraction. Excise led price increases, a challenging environment and continued high prevalence of illicit trade led to down-trading and a significant reduction in profit. Market share was flat.’14 BATA’s Australian business in 2014–15 also involved ‘factory closures and downsizing activities’.14
Limited financial information for BATA is compiled and published annually as part of IBISWorld's annual ranking of Australia’s largest companies. Annual financial information (at December 31) from 2013 to 2017 for British American Tobacco (Australasia Holdings) is presented in Table 10.3.2. Because these data collapse the Asian-Pacific region, as do British American Tobacco's annual reports, it is not possible to isolate Australian performance. For the year 2017, BATA was ranked 2526 out of Australia's top companies on the basis of total revenue, down from 170 in 2015.11
British American Tobacco (Australasia Holdings)*, year ending 31 December, 2013–2017
* Table includes data from all operations throughout the Asian-Pacific region
† Figures unadjusted for inflation
^ As reported; no explanation for this anomalous figure provided.
Sources: IBISWorld Pty Ltd6
BATA is the market leader in tobacco product wholesaling in Australia, with a stable 48% of market share since 2016.15, 20 BATA's major cigarette brands in Australia have traditionally been Winfield, Benson & Hedges, Dunhill and Holiday with the revitalised Rothmans brand showing a large increase in market share following its relaunch in 2014 as a super-value brand.21 In 2017, by retail volume, BATA had the largest share of the cigarette market at 38% and second largest share of the roll-your-own tobacco market at 28%—both stable from 2016.1, 22 Table 10.3.3 presents BATA's Australian brand portfolio for all types of tobacco products as of 2019.
British American Tobacco Australia brands and products, 2019
Philip Morris (Australia) Limited is the Australian subsidiary of Philip Morris International, based in Lausanne, Switzerland. Philip Morris Australia was established in 1954, the first overseas affiliate to be set up by Philip Morris International to produce Philip Morris brands outside the US.24 Philip Morris Australia's head office relocated to South Wharf, Melbourne in 2016 after the 2014 closure of Philip Morris Australia’s manufacturing plant in Moorabbin, Victoria. Cigarette production was then transferred to Philip Morris International’s Korean affiliate.24 Philip Morris Australia employed 554 people across Australia in 2017.7 Philip Morris International groups Australia as part of its East Asia and Australia Region—one of six global divisions. This region also covers Japan, South Korea, China, Malaysia and Singapore (New Zealand and the Pacific Islands are not listed), and is headquartered in Hong Kong.25
Since its delisting as a public company in 1992, Philip Morris Australia has had no formal requirements to publicly lodge annual reports or financial statements specifying results from its Australian operations. No Australia-specific information is reported in Philip Morris International's annual reports, although the following statement regarding the cigarette shipment volumes in the Asian Region (which included Australia at that time) was made in the 2015 annual report: ‘Our cigarette shipment volume of 288.1 billion units decreased by 4.4%, due primarily to: the unfavorable impact of an adjustment in distributor inventories in Japan; lower total market and share in Australia, mainly reflecting the impact of excise tax-driven price increases and competitive pricing in the deep discount segment, Japan and Pakistan, and lower share in Indonesia.’26 The 2018 annual report highlights both unfavourable sales volumes in Australia, but also favourable pricing ‘variance’ in the Australian market.25
Limited information is also available through the annual listings compiled by IBISWorld. Annual financial data for 2013–17 are presented in Table 10.3.4. In 2017, Philip Morris Australia was ranked 558 out of Australia's top enterprises on the basis of total revenue, down from 459 in 2015.7, 20
Philip Morris Australia, year ending 31 December, 2013–2017
† Figures unadjusted for inflation
Sources: IBISWorld Pty Ltd 7
On the basis of market share, Philip Morris Australia is the second largest tobacco company in Australia with 23% of the tobacco wholesaling market, stable since 2015.7, 20 In 2017, Philip Morris had the third largest volume share of the Australian cigarette market (28.1%)—overtaken for the first time by Imperial Tobacco—and second largest share of the cigar market (32.2%).1 Philip Morris Australia's major brands include Alpine, Bond Street, Longbeach, Marlboro, and Peter Jackson.
Philip Morris Australia brands and products, 2019
Imperial Tobacco Australia Limited is the smallest and most recently formed of the major tobacco companies operating within Australia. Imperial Tobacco Australia was established to coincide with the merger of WD & HO Wills Holdings Limited and Rothmans Holdings Limited as British American Tobacco Australia. At the time of the proposed merger, concerns were raised about the likelihood for reduction in competition in the Australian marketplace, thereby potentially causing a breach of Section 50 of the Trade Practices Act (Cth) 1974. The Australian Competition and Consumer Commission agreed to permit the merger to proceed, on condition that another tobacco company enter the Australian market. The UK-based Imperial Tobacco Group—now Imperial Brands Plc—was invited to enter the Australian market and in September 1999, Imperial Tobacco Australia commenced operations.27, 28 As part of the agreement allowing the formation of British American Tobacco Australia, Imperial Tobacco Australia was sold a portfolio of cigarettes, roll-your-own tobacco and cigarette paper trademarks previously owned by Rothmans or WD & HO Wills for the sum of $325 million. The purchase gave Imperial Tobacco Australia an opening market share of 17.1%.27
The Imperial Tobacco Group does not make available specific information about its Australian business in annual reports. Imperial Tobacco Group segments its international business by strategy not geography, and Australia is categorised in the ‘Returns Market–North’ division, along with the Belgium, Germany, Netherlands, Poland, and United Kingdom. The focus of Returns Markets is ‘sustainable profit performance while actively managing…strong share positions’.29
The head office for Imperial Tobacco Australia is located in the suburb of Baulkham Hills, north-west of Sydney. Regional offices operate in Melbourne, Adelaide, Perth and Brisbane. In 2017, Imperial Tobacco Australia employed 327 personnel.8 Imperial Tobacco Australia has never owned a manufacturing plant in Australia: prior to its manufacturing facility closure in 2015, BATA produced a range of brands for Imperial Tobacco under license. For the year 2017, Imperial Tobacco Australia was rated 502 out of Australia's top enterprises on the basis of total revenue, up from 541 in 2015.8, 30 See Table 10.3.6 for financial information for 2014–18.
Imperial Tobacco Australia, year ending 30 September, 2014–2018
† Figures unadjusted for inflation
Sources: IBISWorld Pty Ltd 8
Prior to the closure of Philip Morris Australia’s and BATA’s manufacturing facilities in 2014 and 2015, respectively, Imperial Tobacco had more than 40% of the tobacco product wholesaling market share, but this declined to less than 13% in 2015—behind BATA and Philip Morris Australia.4 In 2017, Imperial Tobacco Australia’s share of the wholesale tobacco market was 12.4%.5 Imperial Tobacco Australia dominates the roll-your-own tobacco category, where it had a 67% volume share in 2017—up slightly from 65% in 2016. For the first time, Imperial Tobacco’s share of the Australia cigarette market by volume overtook that of Philip Morris (30.4% compared to 28.1%).8 Imperial’s key Australian cigarette brands include Peter Stuyvesant, Horizon, and JPS, the latter of which became Australia’s leading brand in 201529—see Table 10.3.7.
Imperial Tobacco Australia brands and products, 2019
1. Euromonitor International. Tobacco in Australia—2016 and 2017. London: Euromonitor International, 2019. Available from: http://www.euromonitor.com/tobacco .
2. Philip Morris International. Country overview: Australia. 2016. Last update: Viewed 29 November 2016. Available from: http://www.pmi.com/marketpages/pages/market_en_au.aspx.
3. British American Tobacco. BAT forced to close Australian factory. London: British American Tobacco, 2014. Last update: Viewed Available from: http://www.bata.com.au/group/sites/bat_9rnflh.nsf/vwPagesWebLive/DOA3CJ8E/$FILE/medMD9QD9EF.pdf?openelement.
9. British American Tobacco Australia. About us. Woolloomooloo, New South Wales: British American Tobacco Australia, 2016. Last update: Viewed Available from: http://www.bata.com.au/group/sites/BAT_9RNFLH.nsf/vwPagesWebLive/DO9F8LV9?opendocument.
10. British American Tobacco. Australian announcement. Merger of Rothmans Holdings Limited and WD & HO Wills Holdings Limited, 19 May 1999. London: British American Tobacco, 1999. Last update: Viewed Available from: http://www.bat.com/group/sites/uk__3mnfen.nsf/vwPagesWebLive/DO52AFRT/$FILE/medMD52XFE8.pdf?openelement.
13. British American Tobacco. About us. 2019. Last update: Viewed 16/04/2019. Available from: http://www.bata.com.au/group/sites/BAT_9RNFLH.nsf/vwPagesWebLive/DO9RNMKD?opendocument.
15. British American Tobacco. Transforming tobacco: Annual Report and Form 20-F 2018. 2018. Available from: https://www.bat.com/group/sites/UK__9D9KCY.nsf/vwPagesWebLive/DOAWWGJT/$file/Annual_Report_and_Form_20-F_2018.pdf.
16. British American Tobacco. Annual Review and Financial Summary Statement 2003. London: British American Tobacco, 2004. Last update: Viewed Available from: http://miranda.hemscott.com/ir/bats/ar_2003/main.htm.
17. British American Tobacco. Annual Review and Summary Financial Statement 2004. London: British American Tobacco, 2005. Last update: Viewed Available from: http://miranda.hemscott.com/ir/bats/re_2004/main.htm.
18. British American Tobacco. Annual Review and Summary Financial Statement 2005. London: British American Tobacco, 2006. Last update: Viewed Available from: http://miranda.hemscott.com/ir/bats/ar_2005/download/pdf/management_review_regional_summary.pdf.
19. British American Tobacco. Annual Report and Accounts 06. Annual Review and Summary Financial Statement and Directors’ Report and Accounts 2006. London: British American Tobacco plc, 2007. Last update: Viewed Available from: http://www.bat.com/group/sites/uk__3mnfen.nsf/vwPagesWebLive/DO52AK34/$FILE/medMD6ZPCA4.pdf?openelement.
22. Euromonitor International. Tobacco in Australia—2015 and 2016. London: Euromonitor International, 2017. Available from: http://www.euromonitor.com/tobacco.
24. Philip Morris International. Country overview: Australia. 2019. Last update: Viewed 18/04/2019. Available from: http://www.pmi.com/marketpages/pages/market_en_au.aspx.
25. Philip Morris International. Annual Report 2018. 2019. Available from: http://media.corporate-ir.net/media_files/IROL/14/146476/PMI-FINALFILES/index.html.
27. Imperial Tobacco Australia. Joint Select Committee on Tobacco Smoking in New South Wales. Inquiry into tobacco smoking in New South Wales. Baulkhan Hills, New South Wales: Imperial Tobacco Australia, 2006. Available from: http://www.parliament.nsw.gov.au/prod/parlment/committee.nsf/0/468F5DB9395A7382CA257162000F4502.
28. Imperial Tobacco Group. Australian acquisition, 1999, Imperial Tobacco Group: Bristol, UK. Available from: http://www.imperial-tobacco.com/index.asp?page=78&newsid=47&type=18&year=archive.