Annual report 2010 - Imperial Tobacco Group

OutlookThe strength of our portfolio and our agile approach leavesus well placed to benefit from consumer shifts.We remain focused on further improving our cigarettepositions across the region while building on the momentumof the considerable growth we have achieved with our finecut tobacco and snus portfolios.AmericasCigarette2010 2009Americas volumes 11.9bn 13.8bnUSA market size 1 298.5bn 319.1bn 2USA market share 1 3.9% 4.2%1 Imperial Tobacco estimates.2 USA market volumes for 2009 have been restated due to a changed basisof calculation.Fine Cut Tobacco2010 2009Americas volumes 300t 650tMarket Environment and Consumer TrendsOur primary market in the Americas is the USA, where weestimate that the overall cigarette market declined by 7 percent to 298.5 billion cigarettes (2009: 319.1 billion).The USA is the second largest cigarette market by volumeafter China, accounting for a significant percentage oftobacco industry global profits.The USA market remains competitive, impacted by thefederal excise tax increases in April 2009, with significantpromotional activity, discounting and brand repositioningby competitors.In cigars, although the large cigar market has declinedconsumers have continued to seek value with the trendtowards smaller sized cigars and cigarillos.Excise and RegulationThe Food and Drug Administration (FDA) assumedregulatory control of the USA tobacco industry in June2009 and has subsequently issued a number of regulatoryrequirements for tobacco including ingredient testing andreporting requirements.The Tobacco Products Scientific Advisory Committee(TPSAC) of the FDA is currently debating the future ofmenthol in cigarettes. The committee has until March 2011to present a report and recommendations to the FDA. TheTPSAC will also be considering the testing and disclosureof tobacco product constituents.The disparity in federal excise tax between pipe and fine cuttobacco has come under congressional scrutiny. Definitions forthese categories are under development and tax harmonisationis also being considered.Our StrategyGiven the size of the market and our relatively small position,the USA provides us with a unique long-term opportunity togrow our business. We are developing our sales force and ourdistribution capabilities, as well as investing in our brands andin a number of promotional activities to build our market share.Our cigar strategy focuses on growing our sales value in linewith customer demands and maximising our profitability.Our PerformanceAs a result of market volume declines following the substantialincreases in federal excise tax last year and a highly competitivemarket, net revenue was down by 9 per cent to £780 million(2009: £861 million), and adjusted operating profit decreasedto £244 million (2009: £288 million).Our USA cigarette market share has been broadly stablefor a number of months, although for the year it was at 3.9per cent (2009: 4.2 per cent). We have invested in our keydiscount brands USA Gold and Sonoma which continue tobe well positioned, with new packaging recently introduced.We have also continued to grow volumes of Fortuna.Performance Highlights: AmericasInvestment in our key brands USAGold and Sonoma and extendingour distribution capabilities isstrengthening our position inthe USA.37