Examination of Witnesses(Questions 560-579)
MR GARETH
DAVIS, MR
BRUCE DAVIDSON
AND MR
JOHN DIBBLE
WEDNESDAY 19 JUNE 2002
560. You do not have any estimates of the kind
of product that is smuggled?
(Mr Dibble) We do not have to know, because the hard
data which we do know is the seizures, and that is why we co-operate
with Customs.
561. You do not have any estimate or any guess
of the number of your products which are consumed in this country
illegally?
(Mr Dibble) No. We would not—
(Mr Davis) How could we? We rely totally on the seizure
data from Customs and, as Mr Wells said, that is then extrapolated.
562. Customs & Excise say, "Very large
volumes of Regal and Superkings cigarettes are exported to parts
of the world outside the EU where, in Customs' understanding (for
example because the economy is weak with low personal incomes
and would therefore not appear to be able to support the purchase
of more expensive UK brands), the domestic market for these brands
is limited." Do you accept that?
(Mr Davis) I do not think I do totally accept that.
The domestic markets that are referred to, are sizeable existing
markets where there are international brands present and where
there are many other brands and local brands present also. So
I do not really accept that point in total, no.
563. I am afraid I am forced into the conclusion
that you have lied to this Committee. I am forced to the conclusion
that you knew, when you were exporting cigarettes to these countries,
particularly the ones I have focused on but there are others too,
like Montenegro, these cigarettes were going to be or likely to
be smuggled back into this country.
(Mr Davis) I could not refute that more strongly,
Mr Osborne; I could not refute it more strongly. I find it very
disappointing and I can say no more than that. It is not a fair
or accurate conclusion or reflection.
Chairman: Do we have any comments or
further questions?
Mr Gardiner
564. Mr Dibble or Mr Davidson, what is the population
of Afghanistan?
(Mr Davidson) Our distributor estimates that it is
a transient population but he put it at somewhere around 15 million
people.
565. Obviously you have done your research in
the market, what was the percentage of that population which you
reckoned you could market your cigarettes to?
(Mr Davidson) The percentage of the population? It
is very, very difficult to know that.
566. But you did tell us earlier that it was
single figures of the premium cigarette sales in that country
you were looking at, therefore you must have done your research.
(Mr Davidson) Single figures of the international
segment; not all international cigarettes are premium.
567. So what were they?
(Mr Davidson) What was our estimate of what we were
aiming to achieve?
568. Yes.
(Mr Davidson) About 5%.
569. So 5% of that, so what were the number
of smokers out of the 15 million?
(Mr Davidson) At a guess I think it would be somewhere
around 5 million.
570. You wanted 5% of 5 million. That, to my
mind, makes something like 250,000 people approximately, is that
correct? We agree roughly a quarter of a million people. Yet,
you imported 338 million cigarettes for 250,000 people. It does
not make sense, does it?
(Mr Davis) I really do not—
571. What I would like from you—
(Mr Davis) I think you want the demographic data and
the smoking population data that was in our possession for Afghanistan,
and we can send you it. We are not equipped with that today.
572. That is fine. I am just going on what Mr
Dibble told us earlier. What I would like you to do is, you said
you were looking for a single figure market share of the international
cigarettes consumed in those destination countries, please advise
this Committee in writing what the premium cigarette, the international
cigarette, consumption is in each of those countries, and what
your exports, as recorded in the table you have given us, in accordance
with that table, represent as a percentage of those international
cigarettes in those countries. What is your advertising spend
in the UK for Lambert & Butler?
(Mr Davis) That is commercially sensitive information.
573. Can you provide that in confidence?
(Mr Davis) In confidence, yes.
574. And likewise if you could do that for Regal
and Superkings.
(Mr Davis) Yes.
575. Because my belief is, despite the fact
that Lambert & Butler have your highest percentage of sales
in this country, over 11% of market share, I suspect that what
you have done in your advertising spend for Regal and Superkings
is factored into that spend to create a market for the smuggled
cigarettes which are coming back into this country. That is actually
a question which Mr Williams raised at our previous meeting on
29 April.
(Mr Davis) As I said, I will supply you with the exact
data, but what I can tell you is that our advertising spend on
our premium brands, of which Regal is one, is very much in proportion
to the profitability of the brand, but I will send you the data.
Mr Gardiner: Thank you. I think what
Mr Osborne said I have to agree with. When my four year old is
standing in the kitchen with jam all over his face and I go in
and say, "Have you been at the jam?" and he tells me,
"No, Daddy, I haven't", that is what you three guys
have been like here this afternoon. It is unbelievable. It is
called circumstantial evidence and it is there and you are simply
sitting there saying, "No, no, no, it wasn't us. We didn't
know the market. We had no idea this was going on." Mr Osborne
was absolutely right, I believe you have lied to this Committee,
I believe you are the least credible witnesses that I have ever
seen come before the Committee of Public Accounts. You have lied
unashamedly to pretend your company has not had a policy to profit
from 8 billion of your cigarettes—
Chairman: Mr Gardiner, we have to be
very careful about using words like "lie" in the House
of Commons.
Mr Gardiner: I did say "I believe".
Chairman: We do not normally accuse each
other of lying and I think we should generally extend that courtesy
to the witnesses.
576. In that case, what I will say is that I
cannot believe that you did not have a policy to profit from the
8 billion cigarettes illegally smuggled into the UK each year.
I cannot believe that six months into negotiations with Reemtsma
you did not know that Reemtsma were responsible for the most smuggled
brand in Europe. I cannot believe that it was not your policy
to control the top three smuggled brands in Europe. I believe
that is what your export policy was. That is why you tried to
take over Reemtsma, that is why you wanted their cigarettes to
add to the other best smuggled brands in Europe. I find it astonishing
that you can sit there and think that this Committee will just
swallow what you have given us this afternoon.
(Mr Davis) I can only say that I am equally astonished
by your assertions. They are absolutely incredible.
577. If you did not know, Mr Davis, all I can
say is that you must have been totally incompetent. Six months
into a takeover negotiation you were unaware of it. If I were
one of your shareholders and I heard the chief executive admit
that, I would say, "These guys are incompetent."
(Mr Davis) You are actually bending my words and I
do think there is—
Mr Gardiner: On 2 May you stated that
you did not know that until today.
Chairman
578. I think, Mr Gardiner, you have made your
point. Are there any final comments you want to say to Mr Gardiner's
question, Mr Davis?
(Mr Davis) To Mr Gardiner's question. Only to say
I have been told that I and we have lied, yet we have a situation
where we have a problem in this country—obviously we have
some cause for optimism because it seems to be a reducing problem
and long may that be the case—and we are accused, and the
point has been made, that we could be more co-operative with Customs,
which we are more than happy to do, and it has been outlined in
our submission and it has been outlined today so many times that
I will not repeat what we have said. We are very committed to
that co-operation, we have a long track record of co-operation.
Where product of ours—which has been legitimately exported
in a legitimate desire to establish a presence for Imperial in
established international markets where there are other brands
« through some different link or lower down in the distribution
chain, has been hoovered up by smugglers and brought back into
the UK, for you to imply that has been done deliberately or say
outright it has been done deliberately, I find outrageous. It
is so far from the truth it is unbelievable. Let us let the actions
speak for themselves. We have discontinued 30 distributors and
I think that is something that Customs would applaud, and I think
it is something you should applaud, sir. Obviously you have an
impression of me which I think is mistaken. As regards the West
situation, yes, we did due diligence; yes, I am aware at a point
in time well in the past West was smuggled, again that is a problem
which Reemtsma have had to deal with as Imperial is dealing with
its problems, so I really cannot square with what you are saying.
579. There are no other questions from members.
You might just give us a note on what that represents in lost
sales, the 30 markets which you have wound up. In paragraph 4.4
of your paper you say, "Imperial take action once there is
evidence of material diversion of products", and I think
we might also have a note on what is a material diversion. You
do not have to answer that now, we will have a note on that. We
would also like to know why is it your Lambert & Butler cigarettes
are not smuggled into the country at the same rate as Regal and
Superkings and we would like a note on that.
(Mr Davis) We do not own that brand as such in all
markets.[4]
4 `Commercial in Confidence' note not printed. Back
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