Annual report 2010 - Imperial Tobacco Group

Operating ReviewStrategy Performance Governance FinancialsUnited KingdomCigarette2010 2009Volumes 21.1bn 20.8bnMarket size 1 44.5bn 45.3bnMarket share 1 45.4% 45.3%1 Imperial Tobacco estimates.Fine Cut Tobacco2010 2009Volumes 2,800t 2,650tMarket size 1 5,050t 4,450tMarket share 1 54.5% 58.0%1 Imperial Tobacco estimates.Market Environment and Consumer TrendsWe estimate that the duty paid cigarette market returned toits more usual trend of moderate decline and was down by2 per cent to 44.5 billion cigarettes (2009: 45.3 billion).UK consumers continue to look for value resulting in furthergrowth in the economy cigarette segment. This segmentnow accounts for 22 per cent of the UK cigarette marketby volume compared to 15 per cent a year ago.In this context, fine cut tobacco market volumes have alsocontinued to grow, up by 13 per cent, and we estimate amarket of 5,050 tonnes (2009: 4,450 tonnes).In April 2010, the Office of Fair Trading imposed a fine onImperial Tobacco, Gallaher and a number of retailers forallegedly restricting competition. We strongly rejected thisand have appealed the decision to the Competition AppealTribunal. As part of our appeal, we are asking for the fine tobe quashed in its entirety. We are awaiting for an appeal dateto be determined.Excise and RegulationIn his March 2010 Budget, the Chancellor raised tobaccoduty by above inflation levels, resulting in an averageincrease of 15 pence per pack.We oppose all unnecessary and disproportionate regulationof tobacco. Along with other tobacco manufacturers, we haveapplied for a judicial review of the proposed product displayban in England under the Health Act which will be consideredin April 2011.There is no credible evidence to support the idea thatchildren start smoking or that adult smokers continue tosmoke as a result of the display of tobacco products. If thislegislation is implemented it is likely that it will further fuel thegrowth in illicit trade.Our judicial review of the Government’s proposed banon tobacco product sales in vending machines under theHealth Act, was heard in October 2010 and we are currentlyawaiting a judgment.Our StrategyWe are the market leader in the UK. In delivering sustainablesales growth, we are focused on balancing our market sharetargets with sustainable profit growth.Our PerformanceNet revenue was £911 million (2009: £893 million), withadjusted operating profit of £614 million (2009: £601 million)reflecting price increases in January and September and ourstrong performance in fine cut tobacco.Performance Highlights: UKJPS Silver and Windsor Bluehave grown significantly andnow hold 41 per cent of thegrowing economy segment.32