Annual report 2010 - Imperial Tobacco Group

Chief Executive’s Review continuedStrategy Performance Governance FinancialsWe delivered a strong fine cut tobacco performance, withexcellent share gains in Central Europe. We grew our netrevenues in the UK, Germany and the Rest of the EU andin Rest of the World region.Our cash conversion was very strong at 97 per cent and wehave reduced our debt by £1.5 billion with closing adjustednet debt of £9.3 billion.Brand EquityDavidoff and West have been effectively positioned tocapitalise on consumer trends, growing volumes by 3per cent and 2 per cent respectively.In Eastern Europe, we have grown volumes of Davidoff by20 per cent with particular success in the growing superslimsand kingsize superslims segments. We continued to growDavidoff’s market share in many markets including inUkraine, Saudi Arabia and Greece.We grew volumes of West in the value cigarette segmentand delivered additional brand innovations with specialisedfilters and variants adding an extra dimension for consumers,resulting in particularly impressive growth in Turkey and Taiwan.Gauloises Blondes has continued to consolidate its positioncelebrating its centenary in 2010 with a series of limitededition packs and new variants which were well receivedby consumers. We have further extended the brand’s reach,with a particular focus on Eastern Europe and notable earlysuccess in the Balkans.Complementing our strategic brands is our versatile portfolioof regional and local cigarette brands with consumer insightsdriving our brand and product portfolio choices at a marketlevel. Our regional value brand JPS was a particular highlightand we have grown volumes by 13 per cent and deliveredsignificant market share growth in a number of our majorEuropean markets including in the UK and Germany andin Australia. Other notable performances include Fine andExcellence in Africa and Maxim in Eastern Europe.Total TobaccoOur total tobacco portfolio provides consumers with acomprehensive range of tobacco products.By anticipating local consumer requirements we grew ourtotal fine cut tobacco volumes by 8.7 per cent on a whitestick equivalent basis. We made very good progress inCentral Europe, with volumes growing strongly by 54 percent across the region and Paramount up by 67 per cent.Another notable success during the year was the launch ofDucados Rubio in Spain, the first expanded make your owntobacco product in the market. Launched in June, it hassince captured 5.8 per cent of the Spanish fine cut tobaccomarket. In addition, we had another excellent performancewith snus in Scandinavia, with volumes up 24 per cent.In cigars, despite the challenging environment we grewsales and profits with the continued recovery of ourHabanos business.Market FootprintOur products are sold in over 160 markets and our balancedgeographic exposure provides opportunities to maximise thepotential of our brands.We drive sales growth across all markets with our globalstrategic brands complemented by our regional and localbrand portfolio. We balance our market share targets withsustainable profit growth in mature markets, while ourinvestment priorities target Eastern Europe, Africa, theMiddle East and Asia to further build our position inemerging markets.We also have an excellent partnership track record, withseveral new partnership agreements signed in the year,building our market footprint. We announced a licenceagreement with KT&G for the manufacture and sale ofDavidoff in South Korea, a manufacture and licenceagreement for West and Davidoff in Mexico and a cigarcollaboration framework agreement in China. In addition,we signed an import and distribution agreement forDavidoff in India.PeopleSince my appointment as Chief Executive in May, I havespent time in each of our regions discussing opportunitiesto further develop and implement our sales growth strategy.The response from our employees has been extremelypositive – with our global team fully aligned behind ourenhanced sales focus.LogisticsIn logistics we delivered another positive result. Our tobaccologistics business performed robustly, with price increasesand effective cost management key to maintaining ourprofit levels in both our tobacco logistics and our otherlogistics businesses.Our Responsible ApproachWe recognise the controversial nature of tobaccoand believe it is essential that tobacco products aremanufactured and sold by legitimate, responsiblebusinesses. Our commitment to managing our businessresponsibly has once again been recognised externallyby Business in the Community, with a gold award rating.More details on our corporate responsibility performanceare included on pages 41 to 52.Outlook: Our Priorities and ChallengesDriving sustainable sales growth is at the heart of ourshareholder value agenda. We will continue to build salesacross our balanced geographic footprint ensuring ourversatile brand and product portfolio remains relevantand appealing to evolving consumer preferences.Our focus on cost and efficiency continues as well aseffectively utilising the cash we generate. We have theassets, the opportunities and most importantly thecapabilities and value creating mindset to succeedand I believe we are well placed to continue to createsustainable value for our shareholders in the years ahead.Alison CooperChief Executive8