Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses(Questions 560-579)



  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.


  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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