Annual report 2010 - Imperial Tobacco Group

Operating Review continuedStrategy Performance Governance FinancialsFurther investment in our sales force and extending ourdistribution capabilities has enabled us to cover significantlymore customers.Our USA cigar business remains strong and we have grownour sales in value terms. In the natural wrapper segmentwe have performed well. We have grown Dutch Mastersin the cigarillo size segment and continued to expand ourdistribution. In the homogenised wrapper segment, wehave undertaken a number of promotional and new productand packaging initiatives, particularly with Phillies cigarillosdelivering a positive performance. In our premium handmadecigar business, we outperformed the market with our luxurybrands Montecristo and Romeo y Julieta.OutlookIn the USA, we will continue to focus on expanding ourdistribution and building our position in the value segmentthrough continued brand rejuvenation as market volumesrevert to their long-term trend.Rest of the WorldCigarette2010 2009Volumes 167.6bn 174.1bnMarket shares 1Australia 17.5% 16.2%Morocco 83.1% 85.0%Russia 8.3% 8.6%Saudi Arabia 10.2% 9.8%Taiwan 11.0% 9.9%Turkey 3.9% 3.6% 2Ukraine 20.8% 20.2% 31 Imperial Tobacco estimates.2 Restated due to a changed basis of calculation.3 Restated due to a change of source.Regional ReviewOur Rest of the World region comprises a broad range ofmarkets which offer considerable opportunities for us togrow and develop our business. Our cigarette volumes in theyear have been impacted by market declines in Russia andUkraine, both down by 10 per cent, and by temporary supplydisruption in the Middle East in the first half of the year.Regulation and ExciseLevels of regulation and excise vary across our diverse Restof the World region. We focus on monitoring developmentsand participating in debates through our proactive engagementactivities. We are particularly focused on the situation in Australiawhere the government has announced plans for the plainpackaging of tobacco products with effect from July 2012.Plain packaging legislation has never been implemented byany government in the world and we are robustly challengingthis proposal which would lead to a significant rise in counterfeitproduct, adversely affecting governments, retailers andconsumers as well as the legitimate tobacco industry.Our StrategyWe drive sales by maximising the growth potential thatthe geographic diversity of this region offers. We particularlyfocus on building sales of our key global strategic brands,complemented by our local and regional brands with localconsumer insights supporting our brand choices. Developingstrong partnerships is also an important element of ourstrategy for growth in this region.Our PerformanceWe delivered a strong performance across this region,benefiting from strong pricing and a favourable sales mix.We grew net revenue by 9 per cent to £2,340 million(2009: £2,138 million), and adjusted operating profit by12 per cent to £693 million (2009: £617 million).Africa and Middle EastWe had a good year in Africa and increased our marketshare in a number of markets. Fine and Excellence, twoimportant regional brands, continued to build on their volumegrowth trends. In Morocco, with the monopoly in tobaccomanufacture and distribution ending this year, we continueto be well positioned and have further enhanced the positionof our international brand portfolio, particularly GauloisesPerformance Highlights:Rest of the WorldWe performed well in Africa andmade further good progress withGauloises Blondes in Morocco.38