Imperial Tobacco Gp IMT Final Results

  Imperial Tobacco Gp (IMT) - Final Results

RNS Number : 8198P
Imperial Tobacco Group PLC
30 October 2012






                                                               30 October 2012

                                      

                          Imperial Tobacco Group PLC

      Preliminary Results for the twelve months ended 30 September 2012

                            Sales Growth Momentum

High quality growth through Total Tobacco

· Tobacco net revenue* up 4 per cent; stick equivalent volumes declined
2.7 per cent

· Excellent tobacco net revenue growth across our portfolio

o + 13 per cent key strategic brands: Davidoff; Gauloises Blondes; West and
JPS

o + 13 per cent fine cut tobacco

o + 10 per cent premium cigars

o + 46 per cent snus



High margin profits

· Tobacco adjusted operating margin maintained at 42 per cent

· 8 per cent adjusted earnings per share growth

· Strategic investments driving quality growth



Maximising shareholder returns

· Returns to shareholders increased by 41 per cent in the year to £1.5
billion

· Full year dividend up 11 per cent; ongoing increase in payout ratio to
52.5 per cent

· £528 million shares bought; annualised £500 million share buyback
ongoing



Spanish goodwill

· Non-cash impairment of £1.2 billion due to further deterioration in
Spanish economic indicators; Spanish adjusted operating profit up 6 per cent



* all tobacco net revenue percentage increases and tobacco adjusted operating
margin are on a constant currency basis



Highlights adjusted basis^1       2012 Change       Change at constant    2011
                                                            currency^3
                                           
Stick equivalents^2            336.6bn  -2.7%                         346.0bn
Tobacco net revenue            £7,005m    +1%                      +4% £6,913m
Tobacco adjusted operating     £2,989m    +2%                      +4% £2,924m
profit
Logistics distribution fees      £872m    -6%                      -1%   £932m
Logistics adjusted operating     £176m    -4%                      +2%   £183m
profit
Group adjusted operating       £3,161m    +2%                      +4% £3,103m
profit
Adjusted earnings per share     201.0p    +7%                      +8%  188.0p
Dividend per share              105.6p   +11%                            95.1p



Alison Cooper, Chief Executive, said:



"We're generating high quality growth by investing in total tobacco brands
that will deliver long-term sustainable sales. Revenues were strong across the
portfolio and I'm particularly pleased with the excellent performances from
our key strategic brands Davidoff, Gauloises Blondes, West and JPS, with
volumes up 7 per cent and revenues growing 13 per cent.



"Our portfolio offers consumers unrivalled choice and provides significant
opportunities for further growth. Our focus on realising this growth
potential, whilst effectively managing cost and cash, will continue to
maximise value for our shareholders."









Highlights - reported basis         2012 Change    2011


Revenue                         £28,574m    -2% £29,223
Impairment of intangible assets -£1,187m      -       -
Operating profit                 £1,518m   -43% £2,640m
Basic earnings per share           68.1p   -62%  177.3p





1 Management believes that these non-GAAP measures provide a useful comparison
of business performance and reflect the way in which the business is
controlled. Definitions are included in our accounting policies within the
notes to the financial statements. Reconciliations between adjusted and
reported measures are also included in the relevant notes.

2 Stick equivalent volumes reflect our combined cigarette and fine cut tobacco
volumes. Our 2011 stick equivalent volumes have been restated due to a change
to the conversion factors used to convert fine cut tobacco volumes into stick
equivalent volumes, reflecting increasing consumption patterns of expanded
tobacco products.

3 To aid understanding of our performance, change at constant currency
removes the effects of exchange rate movements on the translation of the
results of our overseas operations. References in this document to percentage
growth and increases or decreases in our adjusted results are on a constant
currency basis unless stated otherwise.





Cautionary Statement





Certain statements in this announcement constitute or may constitute
forward-looking statements. Any statement in this announcement that is not a
statement of historical fact including, without limitation, those regarding
the Company's future expectations, operations, financial performance,
financial condition and business is or may be a forward-looking statement.
Such forward-looking statements are subject to risks and uncertainties that
may cause actual results to differ materially from those projected or implied
in any forward-looking statement. These risks and uncertainties include, among
other factors, changing economic, financial, business or other market
conditions. These and other factors could adversely affect the outcome and
financial effects of the plans and events described in this announcement. As a
result, you are cautioned not to place any reliance on such forward-looking
statements. The forward-looking statements reflect knowledge and information
available at the date of this announcement and the Company undertakes no
obligation to update its view of such risks and uncertainties or to update the
forward-looking statements contained herein. Nothing in this announcement
should be construed as a profit forecast.



This document has been prepared for, and only for the members of the Company,
as a body, and no other persons. The Company, its directors, employees,
agents or advisers do not accept or assume responsibility to any other person
to whom this document is shown or into whose hands it may come and any such
responsibility or liability is expressly disclaimed.



Notes to Editors



Imperial Tobacco Group PLC is a multi-national tobacco company, with
international strength in cigarettes and world leadership in fine cut tobacco,
premium cigars, rolling papers and tubes. The Group has 47 manufacturing sites
and around 37,000 employees and operates in over 160 markets.





Investor Contacts

Gerry Gallagher, Director of Investor
Communications +44 (0)7813 917 339

John Nelson-Smith, Investor Relations
Manager +44 (0)7919 391 866

Grant Edmunds, Investor Relations
Manager +44 (0)7854 521 732



Media Contacts

Alex Parsons, Director of Corporate
Communications +44 (0)7967 467 241

Simon Evans, Group Press Officer
 +44 (0)7967 467 684











A live webcast of a presentation for analysts and investors will be available
on www.imperial-tobacco.com from 9.00am (GMT). An archive of the webcast and
the presentation script and slides will also be made available during the
afternoon.



Interviews with Alison Cooper, Chief Executive and Bob Dyrbus, Finance
Director, are available in video, audio and text formats at:
www.imperial-tobacco.com and www.cantos.com



High-resolution photographs are available to the media free of charge at:

www.newscast.co.uk



Alison Cooper will hosta media conference call at 7.30am, at which there will
be the opportunity for questions.



Dial in Number:  +44(0)20 3140 8286

Participant code: 5849007



A replay of this call will be available for one week. To listen, please dial:



Replay Number:  +44 (0)20 7111 1244

Access Code: 5849007





STRATEGIC REVIEW



Over the last two years we've made great progress in shifting our strategic
focus to put consumers at the heart of our business and drive organic sales
growth.



It's been a rapid transition and we're pleased with the progress we're making,
generating quality growth from quality brands to drive sustainable returns.



Our success is built around a differentiated approach that's focused on
applying our understanding of consumer motivations to realise the potential of
our portfolio and offer consumers the best tobacco experiences.



The response from our people to these changes has been remarkable; a united
focus on sales, on building total tobacco brands and on consistently applying
our four sales growth drivers of portfolio management, innovation, pricing and
customer engagement to deliver high quality sustainable growth.



Improved returns for our shareholders^1



We grew total adjusted operating profits by 4 per cent and delivered 8 per
cent adjusted earnings per share growth to 201.0 pence. Reported earnings per
share were 68.1 pence, (2011: 177.3 pence), reflecting the write down of our
Spanish goodwill, as a result of further deterioration in Spanish economic
indicators. We explain this further in our financial review.



We are increasing our dividend payout ratio to 52.5 per cent of adjusted
earnings per share and the Board is recommending a final dividend of 73.9
pence, bringing the total dividend this year to 105.6 pence, up by 11 per
cent. This will be paid on 18 February 2013 with an ex-dividend date of 16
January 2013.



^1 Throughout this document percentage increases and decreases in our adjusted
results are on a constant currency basis unless stated otherwise.

^



2012 Results



Our focus on driving sales has delivered a number of highlights in the year.



We've increased tobacco net revenues by 4 per cent to £7.0 billion, as we
continued to build momentum behind our total tobacco portfolio.



Our overall volumes recovered strongly from our first quarter and we ended the
year with overall stick equivalent volumes declining 2.7 per cent, the
majority of which was due to ongoing market weakness in Ukraine and Poland and
compliance with international trade sanctions in Syria.



The quality of our brands and the growth they're delivering is reflected in
the strong portfolio gains we made in the year. The excellent performance of
our key strategic brands, Davidoff, Gauloises Blondes, West and JPS, resulted
in combined volume growth of 7 per cent and net revenue growth of 13 per cent.



Our fine cut tobacco volumes were stable, with net revenues up by 13 per cent.
We delivered further strong results from premium cigars growing volumes by 11
per cent and revenues by 10 per cent and grew Scandinavian snus volumes by 53
per cent and net revenues by 46 per cent.



Building Brands: Key Strategic Brand Success



Driving momentum behind our key strategic brands is an ongoing priority. In
2010, Davidoff, Gauloises Blondes, West and JPS accounted for 26 per cent of
our total stick equivalent volumes; today they account for 30 per cent - a
great performance and one that we're building on going forward.



Accelerating the sales momentum behind Davidoff has been a particular focus
this year. We delivered volume growth of 9 per cent and made excellent
progress in Asia, the Middle East and Eastern Europe, gaining volume and share
in profitable consumer growth segments such as kingsize superslims and queen
size.



We're making Davidoff more accessible to a wider range of consumers in both
new and existing markets through the launch of Davidoff iD, a new kingsize
range available in both standard and our innovative GlideTec packs. Davidoff
iD has been rolled out to 19 markets including in Spain, Taiwan, Russia,
Ukraine and Global Duty Free.



We've further developed Gauloises Blondes this year building on the brand's
strong base in the EU and delivering very strong performances in Africa and
the Middle East. We improved volumes by 11 per cent with innovation and
portfolio management initiatives continuing to support the brand's momentum,
including the Tactil and crushball variants in France, and new additive free
cigarette and fine cut tobacco launches in Germany.



Innovation has been key to the positive performance we've delivered with West
and volumes were up by 5 per cent. We delivered particularly good results in a
number of markets in Eastern Europe and Asia-Pacific with queen size, kingsize
superslims and crushball variants enhancing the brand's profile in high growth
segments.



JPS continues to resonate strongly with value seeking consumers. We delivered
volume growth of 3 per cent with very positive results in Australia and the UK
where we grew in both cigarette and fine cut tobacco.



Our enhanced sales agenda initially focused on our key strategic brands; the
priority two years ago was to drive growth in these brands and we'll be
building on our successes.

We're also growing other core brands in the portfolio such as News, Bastos,
Maxim and Fine. These brands have strong heritage and we have a number of
initiatives underway to add to their growth momentum.



Building Brands: Fine Cut Tobacco, Premium Cigars, Smokeless Tobacco



Our world leadership in fine cut tobacco is a real strength of our business,
particularly in the current economic climate. We know the category and the
consumers better than anyone.



Our performance reflects some great successes in the high growth make your own
sector in core EU markets. We improved make your own volumes by 8 per cent;
excluding Poland they were up 20 per cent. A number of strong brand
performances are driving this growth, including JPS and Fairwind in Germany,
West in the Netherlands and Ducados in Spain.



We also grew volumes in papers and tubes by 4 per cent and 8 per cent
respectively - adding to our margin generation from fine cut tobacco
consumption.



Our premium cigar division, which includes Habanos and other premium cigars,
continues to perform well. We delivered very strong results in emerging
markets through our luxury Cuban cigars, with excellent growth in China,
Russia and the Middle East and we're also driving good growth in premium
cigars in the USA. Limited edition launches continue to support sales and
overall we increased volumes by 11 per cent and net revenues by 10 per cent,
with emerging market volumes up 7 per cent and net revenues climbing 16 per
cent.



Our Scandinavian snus portfolio had another great year, building on what has
been a strong track record of growth.



Innovation: New Consumer Experiences



We've made great progress with our innovation pipeline this year as we
continue to focus on creating new consumer experiences. We're developing more
concepts that can be rolled out across multiple markets to drive growth.



Through our GlideTec pack we've developed an industry leading innovation built
around the sociability of smoking enabling smokers to offer a cigarette with a
one handed motion. This innovation provides smokers with choice and reinforces
brand differentiation.



Since its launch last year we've delivered sales of a billion cigarettes in 17
markets plus global duty free. GlideTec continues to improve the performance
of our key strategic brands and strengthen the position of a number of brands
in our portfolio with strong local heritage such as Lambert & Butler in the UK
and Fortuna in Spain.



We're also focused on growing share in high consumer growth segments. We
launched a number of brands using crushball filter technology which allows
smokers to determine the strength of the menthol flavour in each cigarette.
We've been expanding our kingsize superslims, superslims and queen size
variants in many markets and through Gauloises Blondes applying our blend
expertise to launch additive free cigarette and fine cut tobacco products.



Pricing and Customer Engagement



Our success at building our brands is also about further developing our
pricing and excise strategies. Price-mix doubled in the year to 7 per cent
(2011: 3.0 per cent) driven by innovation and our key strategic brands. We've
strengthened our pricing analysis in a number of markets and broadened the
price options available to consumers with additional formats. This has
improved both consumer choice and the quality of our growth.



Maximising the availability and advocacy of our portfolio at the point of sale
is an important part of our sales strategy. One of our centres of excellence
is Australia where customer engagement has been integral to the share gains we
made in the year.



High Margin Profits



Strong financial discipline is a hallmark of our business and we continue to
optimise costs throughout the Company. We continue to invest for growth with
an additional £200 million invested this year in brand and product initiatives
and in people to support our sales growth agenda. Our diligent approach to
balancing our investments and managing cost has enabled us to maintain strong
tobacco operating margins at around 42 per cent.



Maximising Cash Returns



High margin sales generate strong cash flows that we use to reward our
shareholders and reinvest to support our sales growth strategy. Cash
conversion was 71 per cent, impacted by £0.5 billion working capital
movements, in part reflecting the unwinding of a timing difference in our
Italian logistics business and investment in our sales growth agenda. This
included extending our leaf stock duration and new product launches.



We've again delivered a strong dividend increase and have continued to
steadily increase our dividends per share ahead of the growth in adjusted
earnings per share. In addition, we spent £528 million during the year on our
share buyback programme, acquiring 21.9 million shares.



Our People and Our Values



Our unique portfolio, our people and our values set us apart from other
companies. Our values express what our business and our people stand for,
guiding the way we work with each other and with our stakeholders, encouraging
fresh thinking and new ways of driving success. The talent, commitment and
energy of our 37,000 people around the world is inspiring and our thanks to
them all for their achievements in the year.



Creating Sustainable Value



We've put consumers at the forefront of everything we do and applied that to a
portfolio that offers consumers unrivalled choice. We'll continue to focus on
building total tobacco brands and consumer experiences to deliver further high
quality growth across our markets.



We'll be driving revenue and profit growth in the EU whilst strengthening our
position in the USA and targeting the significant growth opportunities that we
have in our Rest of the World region.



Our focus on cost optimisation and effective cash management supports our
sales agenda and by building on the momentum we're generating we'll continue
to create sustainable value for our shareholders.





OPERATIONAL PERFORMANCE: TOBACCO



Driving Quality Growth



We focus on driving quality growth across our regions, building total tobacco
brands that resonate with consumers and will deliver long-term sustainable
sales growth.



We're achieving this by consistently applying our sales growth drivers
combined with our consumer understandings to realise the growth potential of
our brands and products across our markets.



Our versatile portfolio spans the tobacco spectrum, providing strength in all
major consumer growth segments within cigarette, fine cut tobacco, cigar and
smokeless. This means we're able to meet the needs of changing consumer
preferences to maximise growth.



In the developed markets of the EU our bias is on driving revenue and profit
performance, whilst actively managing our market share positions.We focus on
maximising returns by strategically balancing market shares, revenues and
profits.



The economic and regulatory climate in a number of developed markets continues
to shape consumer choices. Many consumers are economising, further stimulating
growth in value brands and products. We're well-positioned to continue to
capitalise on this dynamic through our value cigarette brands and world
leadership in fine cut tobacco, whilst also realising opportunities for our
premium portfolio.



Our Rest of the World focus is biased to quality volume and share growth. The
region includes some developed markets such as Australia, but primarily
comprises developing countries in Eastern Europe, Africa and the Middle East
and Asia. In many of these countries there are consumers with rising
disposable incomes who are increasingly demanding premium brands, but there is
also a value dynamic in place.



Our investments are weighted towards supporting sales in this region and
enhancing momentum behind our key strategic brands Davidoff, Gauloises, West
and JPS. New cigarette formats like kingsize superslims and queen size are
growing rapidly and we're increasing our share of consumption in these high
growth segments. We're also focused on capitalising on the growing demand for
our luxury Cuban cigars.







Our Financial Performance



We grew net revenue and adjusted operating profit in the EU, although
challenging economic conditions affected results in some markets. In the UK we
increased net revenues and adjusted operating profit by 8 per cent and in
Germany net revenues were up over 3 per cent and adjusted operating profit
grew by 2 per cent.



Further weakness in market volumes in Spain affected our performance, although
a strong sales mix meant our net revenues were flat and we grew our adjusted
operating profits by over 6 per cent. However, further deterioration in the
Spanish economy means that under IFRS accounting standards the value of
intangibles previously allocated to Spain has been reduced by £1.2 billion.
More detail is provided in our financial review.



Despite macro-economic weakness in our Rest of EU region, we grew our net
revenues by 2 per cent and adjusted operating profits by 1 per cent.



Outside the EU we delivered net revenue growth of almost 5 per cent and
increased adjusted operating profits by 3 per cent. In the Americas, where our
primary market is the USA, our net revenue and adjusted operating profit both
declined by 11 per cent. In the Rest of the World region we delivered an
excellent performance. We grew our net revenues by just under 10 per cent and
our adjusted operating profit by over 7 per cent.



Volume
                  Stick equivalents Cigarettes  Fine cut tobacco
Billions              2012   2011^1  2012  2011    2012   2011^1
UK                    25.3     25.6  18.7  19.2     6.6      6.4
Germany               32.0     32.2  22.6  23.4     9.4      8.8
Spain                 22.0     23.8  18.7  20.8     3.3      3.0
Rest of EU            74.7     80.3  53.4  57.8    21.3     22.5
Americas              10.8     12.8  10.3  12.3     0.5      0.5
Rest of the World    171.8    171.3 168.8 168.6     3.0      2.7
Total                336.6    346.0 292.5 302.1    44.1     43.9



^1 ^Our 2011 volumes have been restated due to a change in the conversion
factors used to convert fine cut tobacco volumes into stick equivalent volumes
reflecting increasing consumption patterns of expanded tobacco.











Net Revenue ^2
                                      Change at     

                       Foreign Constant  constant     

                      exchange currency  currency     

£ million          2012     2012   growth         %  2011
UK                  936       -      67      7.7   869
Germany             861     (47)      29      3.3   879
Spain               470     (26)      (1)     (0.2)   497
Rest of EU        1,534     (94)      36      2.3 1,592
Americas            660      12     (83)    (11.4)   731
Rest of the World 2,544     (34)     233      9.9 2,345
Total             7,005    (189)     281      4.1 6,913



Adjusted Operating Profit ^2
                                                 Change at     

                                  Foreign Constant  constant     

                                 exchange currency  currency     

£ million                     2012     2012   growth         %  2011
UK                             627       3      47      8.1   577
Germany                        448     (22)       9      2.0   461
Spain                          202     (11)      13      6.5   200
Rest of EU                     626     (40)       8      1.2   658
Americas                       214       6     (26)    (11.1)   234
Rest of the World              872      20      58      7.3   794
Total                        2,989     (44)     109      3.7 2,924



^2 ^We focus on adjusted, or non-GAAP measures which management uses to run
and control our business.



UK: Market context



In the UK we estimate that the overall duty paid market declined by 3 per
cent, with cigarettes down by 6 per cent and fine cut tobacco up by 8 per
cent. The overall duty paid market continued to be impacted by significant
duty increases that have taken place during the last two years.



UK: Performance Highlights



Innovation continues to strengthen our UK portfolio and support our leading
Lambert & Butler brand franchise. During the year we rolled-out GlideTec packs
nationally, Lambert & Butler Profile (queen size cigarettes) and Lambert &
Butler Fresh Burst (with a crushball menthol filter) to strengthen the brand's
position and enhance our sales mix.



We also continued to focus on the performance of our value brands JPS Silver
and Windsor Blue. These brands grew with our overall cigarette market share
broadly held at 45.0 per cent.



In September, we strengthened the premium offerings within our portfolio with
the launch of Davidoff iD cigarettes and Montecristo mini cigars.



Our fine cut tobacco share was 47.4 per cent, reflecting declines in Golden
Virginia and Drum although we delivered further positive performances from JPS
and Gold Leaf and grew our volumes and profits.



Germany: Market context



In Germany we estimate that the overall market was broadly stable. Cigarette
volumes were down 2 per cent and fine cut tobacco volumes were up 3 per cent,
with strong growth in make your own tobacco, up by 5 per cent.



Germany: Performance Highlights



Our cigarette market share declined in the year to 25.8 per cent partly due to
West which was impacted by further downtrading. However our share has been on
an improving trend during the second half due to the success of a number of
portfolio initiatives. The sales momentum we're generating has been driven by
the launch of JPS GlideTec and several limited editions of Gauloises Blondes.



We're making excellent progress in fine cut tobacco, leveraging our expertise
to capitalise on growing consumer demand. JPS and Route 66 make your own
tobacco are performing particularly well, up by 28 per cent and 16 per cent
respectively, which combined with the success of the Fairwind brand launched
in March, has improved our overall fine cut tobacco share to 22.3 per cent.



Spain: Market Context



Economic conditions remain difficult in Spain; high unemployment and
increasing government austerity measures are placing further pressures on
consumers and the duty paid tobacco market, with illicit trade a growing
problem.



Against this backdrop, we estimate that the overall duty paid market declined
by 10 per cent, with cigarettes down 13 per cent and fine cut tobacco up 17
per cent.



As explained in our financial review, the macro economic indicators have
resulted in us taking a non-cash impairment charge of £1.2 billion during the
year.



Spain: Performance Highlights



We are the number one tobacco company in Spain, with leading positions in all
tobacco categories. We continue to strengthen our leadership by evolving our
portfolio to reflect changing consumer preferences.



Fortuna is a brand with a rich heritage in Spain and we're improving its
cigarette share performance through a number of initiatives including Fortuna
GlideTec, Fortuna 24 and Fortuna Redline. Consumers have also responded very
well to new Nobel formats, with Nobel Style and Nobel Slims supporting the
brand's overall growth.



We've built on the momentum behind Fortuna and Nobel and have grown our
domestic blonde cigarette share to 28.3 per cent. In addition, we enhanced our
portfolio with the launch of Davidoff iD in June.



In fine cut tobacco we achieved excellent growth with our market share up to
41.6 per cent. Our strong performance was driven by the ongoing success of
Ducados Rubio and Fortuna fine cut tobacco products, reflecting our focus on
building brands across the tobacco spectrum.



Rest of EU: Regional Context



We estimate that overall duty paid regional volumes were down by 3 per cent,
reflecting cigarette market declines of 5 per cent and fine cut tobacco growth
of 6 per cent.



Rest of EU: Performance Highlights



We've been actively managing our portfolio in France, our largest and most
profitable market in this region, with cigarette innovations including
Gauloises Tactil (in a GlideTec pack) and Gauloises D-clic (with a crushball
filter) supporting our recent cigarette market share improvements and profit
growth.



Our market shares are also on an improving trend in other markets such as the
Netherlands and Czech Republic, and we've delivered further market share
growth elsewhere in the region including in Italy and Portugal.



In fine cut tobacco, overall regional volumes were held back by significant
growth in non-duty paid volumes in Poland.



JPS grew by 7 per cent, achieving particular success in make your own tobacco,
reflecting our success in optimising performance in high consumer growth
segments.



Elsewhere we grew our fine cut tobacco shares for the year in Austria and
Belgium and our shares in other markets such as France and Hungary have been
on an improving trend in recent months.



In Scandinavia, our snus business delivered another exceptional performance
with volumes up by 53 per cent and our market shares in Sweden and Norway
increasing to 7.2 per cent and 27.0 per cent respectively.



Americas: Market Context



In our Americas region, our focus is on the USA which remains very competitive
with consumer dynamics focused around value brands. We estimate the overall
cigarette market was down by 4 per cent.



Americas: Performance Highlights



We completed the integration of our cigarette and mass market cigar sales
forces during the year and are refocusing our business with a new management
team to drive growth in key states.



Through customer engagement we're strengthening retailer partnerships and
we've stabilised USA Gold and Sonoma shares as a result of a new cigarette
pricing strategy that was rolled out across 19 states in the summer after a
successful trial phase.



The excellent performance of our premium cigar portfolio meant we improved
volumes by 11 per cent and revenues by more than 10 per cent and we'll be
building on this strong growth going forward.



Rest of the World: Regional Context



Our Rest of the World region encompasses diverse markets, providing us with
huge growth opportunities particularly with our key strategic brands Davidoff,
Gauloises Blondes, West and JPS. We're generating significant momentum behind
these brands, growing regional volumes by 14 per cent and net revenue by 10
per cent.



Rest of the World: Performance Highlights



In Asia-Pacific, we've grown our profits by 17 per cent and made excellent
progress in our market shares in several countries including Taiwan, Vietnam,
Australia and New Zealand. In Taiwan, we launched Davidoff iD in July and
growth in West took our overall market share to 11.5 per cent.



In Australia JPS continued to grow strongly driving our cigarette market share
up to 19.4 per cent and our fine cut tobacco share up to 60.7 per cent. Bastos
grew volumes in the region by 10 per cent with an excellent performance in
Vietnam and Laos.



Across Eastern Europe innovative formats of our brands continue to grow,
particularly in the popular kingsize superslims and queen size cigarette
segments and in both Russia and Ukraine, we launched Davidoff iD.



We grew Davidoff, Style and West in Ukraine which supported growth in our
cigarette share in recent months. In Russia, we also grew Davidoff, Style and
West supported by strong growth from Maxim although our overall market share
was down slightly.



In Africa and the Middle East we grew our overall volumes by 6 per cent and
made excellent progress with Gauloises Blondes with regional volumes up by 20
per cent and continued strong growth in Algeria and Morocco.



In Africa we grew volumes of Fine by 14 per cent, with particular success in
Cote D'Ivoire, Chad and Congo. In the Middle East Davidoff and West made
strong gains, particularly with innovative formats including kingsize
superslims and slims in Saudi Arabia and we recently launched Davidoff iD.



We delivered another strong emerging market performance across our luxury
Cuban cigar portfolio which includes Montecristo, Cohiba and Romeo y Julieta.
Limited editions have continued to support the excellent growth momentum
we're achieving; net revenues were up 13 per cent in China, 38 per cent in
Russia and 19 per cent in the Middle East region.



Building on our Growth Momentum



Our focus in 2013 remains on building total tobacco brands that generate
long-term quality growth.



In our developed markets such as those in the EU and Australia, consumers will
continue to seek value and we have the brands and products to capitalise on
this trend and drive revenue and profit growth, providing our consumers with
unrivalled choice and value. We're also seeking to further build our portfolio
for those consumers looking for premium brands and products.



We see significant growth opportunities in our Rest of the World region across
Eastern Europe, Africa and the Middle East and Asia-Pacific and we'll continue
to invest to support sustainable growth, building on the strong momentum of
Davidoff, Gauloises Blondes, and West.









Cigarette Market Shares ^1
%                          2012   2011
Algeria                    15.2  12.2
Australia                  19.4  19.1
France ^3                  22.5  22.6
Germany                    25.8  26.6
Greece                     11.5 11.2^2
Ireland                    22.9  23.8
Italy                       2.5   2.2
Morocco                    81.2  83.1
Netherlands                11.4  11.4
Poland                     23.0  25.0
Portugal                   10.3   8.0
Russia                      9.3  9.4^2
Spain^3                    28.3  28.1
Taiwan                     11.5  11.3
Turkey                      3.6   3.3
UK                         45.0  45.1
Ukraine                    22.0 22.5^2
USA                         3.4   3.9
Vietnam                    10.3   9.8





Fine Cut Tobacco Market Shares ^1                
%                            2012          2011
Australia                    60.7         59.9
Belgium                      16.1        14.7^2
France                       21.2        21.4^2
Germany                      22.3        20.4^2
Netherlands                  45.1        46.3^2
Poland                       55.4         60.1
Spain                        41.6        40.3^2
UK                           47.4         51.0
^

^1 Imperial Tobacco estimates

^2 Restated due to change of source or basis 

^3 Domestic blonde market share

                                              





OPERATIONAL PERFORMANCE: LOGISTICS



Logistics Overview



Our logistics business has operations in Spain, France, Italy, Portugal and
Poland and is one of the largest of its kind in Europe. We make more than 40
million deliveries every year and specialise in different sectors and
channels. There are two key aspects to our business: tobacco and non-tobacco
logistics.



We offer our customers a comprehensive, high quality logistics service
encompassing order taking, storage and stock management, order preparation,
transport and distribution, invoicing and collection and customer services.



We reach a wide network of 300,000 points of sale in the European countries we
service, including tobacconists, convenience stores, grocery stores, kiosks
and bookshops, pharmacies, hospitals and petrol stations.



Logistics Performance Highlights



Our logistics business delivered a good performance in a challenging operating
environment.

Distribution fees were £872 million and on a constant currency basis we grew
our adjusted operating profit by 2 per cent to £176 million.



We delivered a good performance in tobacco logistics with cost saving
initiatives and tobacco price increases, offsetting tobacco volume declines.



In non-tobacco logistics, we have continued to focus on maintaining our
profitability while looking for opportunities to profitably grow our business.
Our pharma business grew sales as a result of market share gains and the
development of our direct distribution business. Our lottery business grew by
adding new points of sale to the network and launching new games. Our
wholesale business also performed well and we made further efficiency gains in
our transport business.



Our focus remains on continuing to identify and develop growth opportunities
while ensuring all aspects of our logistics operations are effectively and
efficiently structured to drive success in a trading environment that we
expect to remain challenging in 2013.



FINANCIAL REVIEW



The analysis of our financial results below focuses on our adjusted measures,
which reflect the way in which we manage the business, and provides a useful
comparison of business performance. The basis of our non-GAAP or adjusted
measures is explained in our accounting policies in our summary financial
statements.



Revenue



Tobacco net revenue increased by 4 per cent, with volume growth in our key
strategic brands, cigars and smokeless tobacco, together with price increases
in many of our markets offsetting overall volume declines. In a difficult
operating environment logistics distribution fees were 1 per cent lower.



Revenue Performance                      

                                        

£ million                     2012   2011
Tobacco revenue             21,161 21,277
Logistics revenue            8,368  8,911
Eliminations                  (955)   (965)
Group revenue               28,574 29,223
Tobacco net revenue          7,005  6,913
Logistics distribution fees    872    932



Group Earnings Performance



Adjusted operating profit grew by 4 per cent reflecting a good performance in
the majority of EU markets given current market conditions and excellent
results in our Rest of the World region, partially offset by reductions in the
Americas.



Tobacco adjusted operating profit was up 4 per cent and Logistics adjusted
operating profit was up by 2 per cent.



After tax at an effective rate of 23.0 per cent (2011: 24.3 per cent),
adjusted earnings per share grew by 8 per cent to 201.0 pence.



Reported earnings per share were 68.1 pence (2011: 177.3 pence) additionally
reflecting fair value and exchange movements on financial instruments,
amortisation of acquired intangibles, an impairment of Spanish goodwill of
£1.2 billion and other adjusting items.





Group Earnings Performance
                                       Adjusted      Reported
£ million unless otherwise indicated  2012  2011  2012  2011
Operating profit
             Tobacco                 2,989 2,924 1,447 2,577
             Logistics                 176   183    75    67
             Eliminations               (4)    (4)    (4)    (4)
Group operating profit               3,161 3,103 1,518 2,640
Net finance costs                     (535)  (562)  (437)  (487)
Profit before taxation               2,626 2,541 1,081 2,153
Taxation                              (604)  (617)  (382)  (337)
Profit for the year                  2,022 1,924   699 1,816
Earnings per ordinary share (pence)  201.0 188.0  68.1 177.3





Group Results - Constant Currency Analysis
                                      Constant                    Constant
                                                               currency change
                               Foreign currency            

                         2011 Exchange   growth   2012 Change
Tobacco net revenue     6,913    (189)     281 7,005   1.3%            4.1%
Logistics distribution    932     (48)     (12)   872 (6.4%)          (1.3%)
fees
Tobacco adjusted        2,924     (44)     109 2,989   2.2%            3.7%
operating profit
Logistics adjusted        183     (10)       3   176 (3.8%)            1.6%
operating profit
Adjusted operating      3,103     (54)     112 3,161   1.9%            3.6%
profit
Adjusted net finance     (562)      31      (4)  (535)   4.8%          (0.7%)
costs
Adjusted EPS            188.0p    (1.6)    14.6  201.0   6.9%            7.8%



Adjusting Items



Acquisition accounting adjustments includes the release of a small number of
provisions established on the acquisition of Altadis that are no longer
required. Amortisation and impairment of acquired intangibles was £1,552
million (2011: £402 million) including a non-cash impairment charge in respect
of Spanish intangibles. Net fair value and exchange gains on financial
instruments providing commercial hedges included in reported net finance costs
were £125 million (2011: £85 million). The net financing cost of
post-employment benefits amounted to £27 million compared with £10 million in
2011.



Restructuring costs of £101 million compared with £61 million in 2011 reflect
a non-cash £43 million impairment of surplus properties and plant and
machinery, and further costs in respect of US and European rationalisation
including several factory closures during the year.



The release of tax provisions of £137 million (2011: £205 million) due to the
resolution of certain prior year tax matters outside of changes in estimates
in the normal course of business significantly reduced our reported tax charge
in 2012.





Reconciliation of Adjusted Performance Measures


                         Operating profit Net finance costs Earnings per share

                           (£ million)       (£ million)         (pence)
                            2012   2011    2012    2011     2012    2011
Reported                   1,518  2,640    (437)    (487)     68.1   177.3
Acquisition accounting       (10)      -        -       -     (0.9)       -
adjustments
Amortisation and
impairment of acquired
intangibles                1,552    402       -       -    149.0    32.1
Fair value and exchange
(gains)/losses on
financial instruments
providing commercial
hedges                         -      -    (125)     (85)    (10.4)    (6.1)
Post-employment benefits       -      -      27      10      1.8     0.6
net financing costs
Restructuring costs          101     61       -       -      7.2     4.3
Tax provision release          -      -       -       -    (13.8)   (20.2)
Adjusted                   3,161  3,103    (535)    (562)    201.0   188.0



Spanish Intangibles



At the end of the financial year we have written down part of the value of the
intangible assets in our Spanish tobacco business, primarily reflecting
further deterioration in Spanish economic indicators.



Spain has been particularly affected by the euro crisis and a collapse in
Spanish property prices, with high unemployment levels, regional and central
government deficits, a banking sector bail-out, and the introduction of
austerity measures.



Under International Financial Reporting Standards (IFRS), goodwill and other
intangible assets are attributed to the various cash generating units (CGUs)
at the time of an acquisition.



On the acquisition of Altadis in 2008 we allocated total acquired intangibles
of £13.5 billion to CGUs, including £2.7 billion to our Spanish tobacco
business. This allocation was made on the basis of the existing assets and our
expectations for each CGU at that time. IFRS requires us to recognise a
reduction in the value of intangible assets if our current expectations for an
individual CGU do not fully support the value of intangible assets previously
attributed to it.



At the end of September 2011 the carrying value of our Spanish tobacco
intangible assets was £2.8 billion. As we noted in our 2011 financial
statements, the carrying value was sensitive to movements in a number of
assumptions we are required to make when testing that the value remains
appropriate.



During 2012, and particularly in the second half of the financial year, the
Spanish economy has deteriorated further, and we believe the timing of a
recovery of the economy has receded while the current level of uncertainty has
increased. In line with these developments we have updated our assumptions to
reflect current market data for the purposes of impairment testing, and have
consequently increased the discount rate applied to Spain and reduced the
long-term growth rate. The effect of the macro-economic conditions and the
current downward revision of longer term economic assumptions have together
resulted in an impairment of £1.2 billion of the goodwill in our Spanish
business.



The impairment charge is a non-cash item and has been excluded from our
adjusted results in line with our existing policy on non-GAAP measures.



Taken as a whole, the Altadis acquisition has enhanced the Group's performance
and generated returns in line with our expectations, strengthening our
geographic spread and our brand and product portfolios, as well as generating
significant cost synergies.



Net Finance Costs



Adjusted net finance costs were down from £562 million to £535 million despite
the impact of a full year's share buyback and higher dividend payments.
Reported net finance costs were £437 million (2011: £487 million). Our all in
cost of debt was improved at 5.5 per cent (2011: 5.7 per cent) and our
interest cover was 5.9 times (2011: 5.5 times).





Net Finance Costs                                       

                                                       

£ million                                      2012 2011
Net finance costs                               437  487
Net fair value and exchange gains on financial
instruments providing commercial hedges         125   85
Post-employment benefits net financing cost     (27)  (10)
Adjusted net finance costs                      535  562





Cash Flows and Financing



Our reported net debt was £9.0 billion, down from £9.4 billion at 30 September
2011 due to fair value and exchange movements.



Eliminating accrued interest, the fair value of derivatives providing
commercial cash flow hedges and finance lease liabilities, our adjusted net
debt was £8.8 billion (2011: £8.8 billion).



Cash conversion was 71 per cent, impacted by £0.5 billion working capital
movements, in part reflecting the unwinding of a timing difference in our
Italian logistics business and our investment in our sales growth agenda..
These include extending our leaf stock duration and new product launches.



During the year we increased returns to our shareholders to £1.5 billion
(2011: £1.1 billion), comprising £0.5 billion of share buybacks (2011: £0.2
billion) and dividend payments of £1.0 billion (2011: £0.9 billion).



The denomination of our closing adjusted net debt was 45 per cent euro, 10 per
cent US dollar and 45 per cent sterling. As at 30 September 2012 we had
committed financing facilities in place of around £12.5 billion. Some 25 per
cent was bank facilities with the balance raised through capital markets. We
remain fully compliant with all our banking covenants and remain committed to
retaining our investment grade ratings.



Share Buyback Programme and Dividends



We continued our share buyback programme and in the year we spent just over
£0.5 billion, acquiring 21.9 million shares which are held as treasury shares.
The average price paid was £24.02. At 30 September 2012, we held 77.8 million
shares representing 7.3 per cent of our issued share capital. We intend to
continue the buyback programme at around £500 million per annum.



The Board has declared a final dividend of 73.9 per share. This brings the
total dividend for the year to 105.6 pence, an increase of 11 per cent over
2011, ahead of the growth in adjusted earnings per share and in line with our
dividend policy.









Finance Reporting



The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards and with those parts of the
Companies Act 2006 applicable to companies reporting under IFRS.



Financial Statements



The figures and financial information for the year ended 30 September 2012 do
not constitute the statutory financial statements for that year. Those
financial statements have not yet been delivered to the Registrar, nor have
the Auditors yet reported on them. The financial statements have been prepared
in accordance with our accounting policies published in our financial
statements available on our website www.imperial-tobacco.com.





Consolidated Income Statement

for the year ended 30 September



£ million unless otherwise indicated           2012    2011
Revenue                                      28,574  29,223
Duty and similar items                      (13,902) (14,037)
Other cost of sales                          (9,178)  (9,736)
Cost of sales                               (23,080) (23,773)
Gross profit                                  5,494   5,450
Distribution, advertising and selling costs  (2,005)  (2,006)
Impairment of acquired intangibles           (1,187)       -
Other expenses                                 (784)    (804)
Administrative and other expenses            (1,971)    (804)
Operating profit                              1,518   2,640
Investment income                             1,036     785
Finance costs                                (1,473)  (1,272)
Net finance costs                              (437)    (487)
Profit before taxation                        1,081   2,153
Taxation                                       (382)    (337)
Profit for the year                             699   1,816
Attributable to:
Owners of the parent                            678   1,796
Non-controlling interests                        21      20
Earnings per ordinary share (pence)
                  - Basic                       68.1    177.3
                  - Diluted                     67.9    176.8



Consolidated Statement of Comprehensive Income

for the year ended 30 September



£ million                                                          2012  2011
Profit for the year                                                699 1,816
Other comprehensive income
Exchange movements                                                (523)  (127)
Current tax on exchange movements                                    6     -
Net actuarial (losses)/gains on retirement benefits               (404)    41
Deferred tax relating to net actuarial losses/(gains) on            96   (21)
retirement benefits
Other comprehensive income for the year, net of tax               (825)  (107)
Total comprehensive income for the year                           (126) 1,709



Attributable to:
Owners of the parent                    (144) 1,692
Non-controlling interests                 18    17
Total comprehensive income for the year (126) 1,709







Reconciliation from operating profit to adjusted operating profit



£ million                             2012  2011
Operating profit                     1,518 2,640
Acquisition accounting adjustments     (10)     -
Amortisation of acquired intangibles   365   402
Impairment of acquired intangibles   1,187     -
Restructuring costs                    101    61
Adjusted operating profit            3,161 3,103



Reconciliation from net finance costs to adjusted net finance costs



£ million                                                  2012 2011
Net finance costs                                          (437) (487)
Net fair value and exchange gains on financial instruments
                providing commercial hedges                (125)  (85)
Post-employment benefits net financing cost                  27   10
Adjusted net finance costs                                 (535) (562)



Consolidated Balance Sheet

at 30 September



£ million                                       2012    2011
Non-current assets
Intangible assets                             17,609  20,487
Property, plant and equipment                  2,025   2,038
Investments in associates                         16      18
Retirement benefit assets                          -       5
Trade and other receivables                       98     100
Derivative financial instruments                 636     429
Deferred tax assets                              142     102
                                              20,526  23,179
Current assets
Inventories                                    3,132   3,055
Trade and other receivables                    3,029   2,897
Current tax assets                                55      42
Cash and cash equivalents                        631   1,171
Derivative financial instruments                 266     223
                                               7,113   7,388
Total assets                                  27,639  30,567
Current liabilities
Borrowings                                    (1,234)  (2,104)
Derivative financial instruments                (182)    (301)
Trade and other payables                      (7,231)  (7,617)
Finance lease liabilities                        (20)      (1)
Current tax liabilities                         (372)    (434)
Provisions                                      (103)    (163)
                                              (9,142) (10,620)
Non-current liabilities
Borrowings                                    (8,333)  (8,076)
Derivative financial instruments                (729)    (760)
Trade and other payables                         (18)     (19)
Finance lease liabilities                          -     (22)
Deferred tax liabilities                      (1,877)  (2,056)
Retirement benefit liabilities                (1,046)    (759)
Provisions                                      (410)    (545)
                                             (12,413) (12,237)
Total liabilities                            (21,555) (22,857)
Net assets                                     6,084   7,710




Equity
Share capital                                    107     107
Share premium                                  5,833   5,833
Retained earnings                               (150)     956
Exchange translation reserve                     245     759
Equity attributable to owners of the parent    6,035   7,655
Non-controlling interests                         49      55
Total equity                                   6,084   7,710



Consolidated Statement of Changes in Equity

for the year ended 30 September



                                                 Equity                

                                                attrib-                

                                                 utable                

                                                     to      Non-       

                                        Exchange  owners  control-       

                 Share   Share Retained translation  of the      ling   Total

£ million       capital premium earnings     reserve  parent interests  equity
At 1 October       107  5,833     956        759  7,655       55  7,710
2011
Profit for the       -      -     678          -    678       21    699
year
Exchange             -      -       -       (520)   (520)       (3)   (523)
movements
Current tax on
exchange
  movements          -      -       -          6      6        -      6
Net actuarial
losses on
retirement
 benefits            -      -    (404)          -   (404)        -   (404)
Deferred tax
relating to net
 actuarial
 losses on
 retirement          -      -      96          -     96        -     96
 benefits
Other                -      -    (308)       (514)   (822)       (3)   (825)
comprehensive
income
Total                -      -     370       (514)   (144)        18   (126)
comprehensive
income
Transactions
with owners
Cash from
employees on
maturity/
 exercise of         -      -       8          -      8        -      8
 share schemes
Costs of
employees'
services
 compensated by
 share
 schemes             -      -      20          -     20        -     20
Current tax on
share-based
 payments            -      -       1          -      1        -      1
Deferred tax on
share-based
 payments            -      -       1          -      1        -      1
Changes in
non-controlling
 interests           -      -       5          -      5       (5)      -
Increase in own
shares held as
  treasury           -      -    (528)          -   (528)        -   (528)
  shares
Dividends paid       -      -    (983)          -   (983)      (19) (1,002)
At 30 September    107  5,833    (150)        245  6,035       49  6,084
2012
At 1 October        107   5,833     206        883  7,029       60  7,089
2010
Profit for the       -      -   1,796          -  1,796       20  1,816
year
Exchange             -      -       -       (124)   (124)      (3)   (127)
movements
Net actuarial
gains on
 retirement          -      -      41          -     41        -     41
 benefits
Deferred tax
relating to net
 actuarial
 gains on
 retirement          -      -    (21)          -    (21)        -    (21)
 benefits
Other                -      -      20       (124)   (104)       (3)   (107)
comprehensive
income
Total                -      -   1,816       (124)  1,692       17  1,709
comprehensive
income
Transactions
with owners
Purchase of
shares by
Employee
  Share                             (22)                (22)        -    (22)
  Ownership
  Trusts
Cash from
employees on
maturity/
  exercise of        -      -       4          -      4        -      4
  share schemes
Costs of
employees'
services
  compensated
  by share
  schemes            -      -      26          -     26        -     26
Increase in own
shares held as
treasury shares
  in                 -      -    (182)          -   (182)        ‑   (182)
  shareholdings
Dividends paid       -      -    (892)          -   (892)     (22)   (914)
At 30 September    107  5,833     956        759  7,655       55  7,710
2011







Consolidated Cash Flow Statement

for the year ended 30 September



£ million                                                        2012    2011
Cash flows from operating activities                           2,119  2,556
Cash flows from investing activities
Interest received                                                 15     18
Purchase of property, plant and equipment                       (300)   (341)
Proceeds from sale of property, plant and equipment               21     21
Purchase of intangible assets - software                         (24)    (22)
Net cash used in investing activities                           (288)   (324)
Cash flows from financing activities
Interest paid                                                   (515)   (570)
Cash from employees on maturity/exercise of share schemes          8      4
Purchase of shares by Employee Share Ownership Trusts              -    (22)
Settlement of exchange rate derivative financial instruments    (275)    (44)
Increase in borrowings                                         1,335  1,785
Repayment of borrowings                                       (1,486) (1,837)
Decrease/(increase) in collateralisation deposits                196    (34)
Finance lease payments                                            (2)     (2)
Purchase of treasury shares                                     (528)   (182)
Dividends paid to non-controlling interests                      (19)    (22)
Dividends paid to owners of the parent                          (983)   (892)
Net cash used in financing activities                         (2,269) (1,816)
Net (decrease)/increase in cash and cash equivalents            (438)    416
Cash and cash equivalents at start of year                     1,171    773
Effect of foreign exchange rates on cash and cash equivalents   (102)    (18)
Cash and cash equivalents at end of year                         631  1,171



Notes to the Financial Statements



1. Segment Information



Imperial Tobacco comprises two distinct businesses - Tobacco and Logistics.
In addition to regularly reviewing results and plans for the Tobacco and
Logistics businesses, the Operating Executive regularly reviewed during the
year the performance and plans of the Tobacco business analysed on a
geographic basis, reflecting the importance of certain individual markets and
geographic groupings. The segments presented below are therefore the Group's
six Tobacco regions and the Logistics business.



The information provided to the Operating Executive is used as the basis of
the segment revenue and profit disclosures provided below, with the geographic
analysis of Tobacco based on the location of customers, and central Group
costs allocated consistently based on management's assessment of the level of
support provided. The main measure of profit used by the Operating Executive
to assess performance is adjusted operating profit. Segment balance sheet
information is not provided to the Operating Executive.



The Tobacco business comprises the manufacture, marketing and sale of tobacco
and tobacco-related products, including sales to (but not by) the Logistics
business. The Logistics business comprises the distribution of tobacco
products for tobacco product manufacturers, including Imperial Tobacco, as
well as a wide range of non-tobacco products and services.



The Logistics business is run on an operationally neutral basis ensuring all
customers are treated equally, and consequently transactions between the
Tobacco and Logistics businesses are undertaken on an arm's length basis
reflecting market prices for comparable goods and services.



For the purposes of the analysis below, Rest of European Union comprises the
EU member states plus Norway, Iceland, Liechtenstein and Switzerland. The
Cuban joint ventures are included in the Rest of the World. All of the
Logistics business is located in the European Union.





Tobacco



£ million unless otherwise indicated   2012   2011
Revenue                              21,161 21,277
Net revenue                           7,005  6,913
Operating profit                      1,447  2,577
Adjusted operating profit             2,989  2,924
Adjusted operating margin %            42.7   42.3



Logistics



£ million unless otherwise indicated  2012  2011
Revenue                              8,368 8,911
Distribution fees                      872   932
Operating profit                        75    67
Adjusted operating profit              176   183
Adjusted distribution margin %        20.2  19.6



Revenue

                              2012               2011
                        Total External   Total External

£ million              revenue  revenue revenue  revenue
Tobacco
UK                       5,390    5,390   5,030    5,030
Germany                  3,931    3,931   4,147    4,147
Spain                      470       32     497       56
Rest of European Union   5,015    4,498   5,469    4,945
Americas                 1,223    1,223   1,408    1,408
Rest of the World        5,132    5,132   4,726    4,726
Total Tobacco           21,161   20,206  21,277   20,312
Logistics                8,368    8,368   8,911    8,911
Eliminations              (955)        -    (965)       - 
Total Group             28,574   28,574  29,223   29,223



Tobacco net revenue

£ million              2012 2011
UK                       936   869
Germany                  861   879
Spain                    470   497
Rest of European Union 1,534 1,592
Americas                 660   731
Rest of the World      2,544 2,345
Total Tobacco          7,005 6,913



Adjusted operating profit and reconciliation to profit before tax



£ million                                         2012 2011
Tobacco
UK                                                  627   577
Germany                                             448   461
Spain                                               202   200
Rest of European Union                              626   658
Americas                                            214   234
Rest of the World                                   872   794
Total Tobacco                                     2,989 2,924
Logistics                                           176   183
Eliminations                                         (4)    (4)
Adjusted operating profit                         3,161 3,103
Acquisition accounting adjustments - Tobacco         10     -
Amortisation of acquired intangibles - Tobacco     (283)  (299)
Amortisation of acquired intangibles - Logistics    (82)  (103)
Impairment of acquired intangibles - Tobacco     (1,187)     -
Restructuring costs - Tobacco                       (82)   (48)
Restructuring costs - Logistics                     (19)   (13)
Operating profit                                  1,518 2,640
Net finance costs                                  (437)  (487)
Profit before tax                                 1,081 2,153



2. Impairment of Acquired Intangibles



The Spanish economy has been particularly affected by the euro crisis and the
collapse in Spanish property prices, with high unemployment levels, regional
and central government deficits, a banking sector bail-out, and the
introduction of austerity measures. During 2012, and particularly in the
second half of the financial year, Spanish economic indicators have
deteriorated further, and we believe the timing of a recovery of the economy
has receded while the current level of uncertainty has increased. In line
with these developments we have updated our assumptions to reflect current
market data for the purposes of impairment testing, and have consequently
increased the discount rate applied to Spain to 13.1 per cent (from 10.6 per
cent last year) and reduced the long-term growth rate to 1.5 per cent (from
2.7 per cent last year). The effect of the macro-economic conditions and the
current downward revision of longer term economic assumptions have together
resulted in an impairment of £1.2 billion of the goodwill in our Spanish
business.



Further impairment of our Spanish intangible assets could result in the event
of an increase in the discount rate or a reduction in the initial or long-term
growth rates, or a reduction in the value of overall cash flows. An increase
of 50 basis points in the discount rate would result in further impairment of
£70 million, a reduction in the initial growth rate of 50 basis points in
further impairment of £35 million, and a reduction of 50 basis points in the
long-term growth rate in a further impairment of £45 million. A reduction of
5 per cent in overall cash flows would result in a further impairment of £90
million.



3. Restructuring Costs



£ million          2012 2011
Employment related    28    12
Asset impairments     43    27
Other charges         30    22
                     101    61



Restructuring costs in 2012 and 2011 included impairments of surplus
properties in Spain to reflect current property market conditions, amounts
related to integration of our American businesses, manufacturing
rationalisation in Europe, and the streamlining of parts of our Logistics
operations. During 2012 we closed our factories in Berlin, Palazuelo and
Menen, rationalised our Asian administrative offices, and closed our office in
Farnham Royal in readiness for moving to our new purpose-built Headquarters in
Bristol in 2013.



The net charge of £101 million in 2012 (2011: £61 million) included £29
million (2011: £30 million) of unused restructuring provisions reversed during
the period, £33 million (2011: £30 million) of additional restructuring
provisions and £43 million (2011: £27 million) impairment of tangible assets.
The remaining charge of £54 million (2011: £34 million) was recorded directly
in the income statement as incurred as these costs did not meet the
provisioning requirements of IAS 37 at previous reporting periods.



Restructuring costs are included within administrative and other expenses in
the consolidated income statement.



4. Net Finance Costs



£ million                                                         2012  2011
Interest on bank deposits                                          (15)   (18)
Expected return on retirement benefit assets                      (168)  (178)
Fair value gains on derivative financial instruments providing    (761)  (445)
commercial hedges
Exchange gains on financing activities                             (92)  (144)
Investment income                                               (1,036)  (785)
Interest on bank and other loans                                   550   580
Interest on retirement benefit liabilities                         187   180
Unwind of discount on redundancy and social plans                    8     8
Fair value losses on derivative financial instruments providing    723   428
commercial hedges
Fair value losses on derivative financial instruments hedging        5    76
underlying borrowings
Finance costs                                                    1,473 1,272
Net finance costs                                                  437   487



Reconciliation from reported net finance costs to adjusted net finance costs



£ million                                                          2012 2011
Reported net finance costs                                          437  487
Fair value gains on derivative financial instruments providing      761  445
commercial hedges
Fair value losses on derivative financial instruments providing    (723) (428)
commercial hedges
Exchange gains on underlying borrowings                              92  144
Fair value losses on derivative financial instruments hedging        (5)  (76)
underlying borrowings
Net fair value and exchange gains on financial instruments
providing
                        commercial hedges                           125  85
Expected return on retirement benefit assets                        168  178
Interest on retirement benefit liabilities                         (187) (180)
Unwind of discount on redundancy and social plans                    (8)   (8)
Post-employment benefit net financing cost                          (27)  (10)
Adjusted net finance costs                                          535  562



5. Taxation



Analysis of charge in the year



£ million                                                        2012 2011
Current tax
UK corporation tax at 25% (2011: 27%) being the average rate for  (112)   (29)
the year
Overseas taxation                                                  490   350
Total current tax                                                  378   321
Deferred tax
Origination and reversal of temporary differences                    4    16
Total tax charged to the income statement                          382   337



During the year ended 30 September 2012 certain outstanding matters were
resolved with tax authorities. The reported tax charge for the period includes
a release of £137 million (2011: £205 million) of tax provisions following
resolution of these matters (outside of changes in estimates in the normal
course of business). This significant one-off tax provision credit is excluded
from the adjusted tax charge to aid comparability and understanding of the
Group's performance in accordance with our stated policy on the use of
adjusted measures.



Reconciliation from reported taxation to adjusted taxation



The table below shows the tax impact of the adjustments made to reported
profit before tax in order to arrive at the adjusted measure of earnings
disclosed in note 7.



£ million                                                          2012 2011
Reported taxation                                                   382  337
Tax on acquisition accounting adjustments                            (1)    -
Deferred tax on amortisation of acquired intangibles                 69   77
Tax on net fair value and exchange gains on financial instruments
providing
                          commercial hedges                         (21)  (23)
Tax on post-employment benefits net financing cost                    9    4
Tax on restructuring costs                                           29   17
Tax provisions released                                             137  205
Adjusted tax charge                                                 604  617



Factors affecting the tax charge for the year



The tax on the Group's profit before tax differs from the theoretical amount
that would arise using the average UK corporation tax rate for the year of 25
per cent (2011: 27 per cent) as follows:



£ million                                                2012  2011
Profit before tax                                       1,081 2,153
Tax at the UK corporation tax rate of 25% (2011: 27%)     270   581
Tax effects of:
Differences in effective tax rates on overseas earnings  (145)   (58)
Impairment of deferred tax assets                          55     -
Permanent differences                                      45    16
Non-deductible goodwill impairment                        296     -
Tax provisions released                                  (137)  (205)
Adjustments in respect of prior periods                    (2)     3
Total tax charged to the income statement                 382   337



Movement on current tax account



£ million                              2012 2011
At 1 October                           (392) (602)
Charged to the income statement        (378) (321)
Credited to other comprehensive income    6    -
Credited to equity                        1    -
Cash paid                               442  529
Exchange movements                        8    1
Other movements                          (4)    1
At 30 September                        (317) (392)



6. Dividends



Dividend per share in respect of financial year



Pence    2012 2011 2010
Interim  31.7 28.1 24.3
Final    73.9 67.0 60.0
Total   105.6 95.1 84.3



Interim dividends are paid and recognised in the second half of the year, and
final dividends in respect of a year are paid and recognised in the following
financial period.



Amounts recognised as distributions to ordinary equity holders in the year



£ million                                                            2012 2011
Final dividend paid in the period in respect of previous financial    669  608
year
Interim dividend                                                      314  284
                                                                      983  892



The proposed final dividend for the year ended 30 September 2012 of 73.9p per
share amounts to a proposed final dividend payment of £729 million based on
the number of shares ranking for dividend at 30 September 2012, and is subject
to shareholder approval. If approved, the total dividend paid in respect of
2012 will be £1,043 million (2011: £953 million).



7. Earnings Per Share



Basic earnings per share is based on the profit for the year attributable to
the owners of the parent and the weighted average number of ordinary shares in
issue during the year excluding shares held to satisfy the Group's employee
share schemes and shares purchased by the Company and held as treasury shares.
Diluted earnings per share have been calculated by taking into account the
weighted average number of shares that would be issued if rights held under
the employee share schemes were exercised. No instruments have been excluded
from the calculation for any period on the grounds that they are
anti-dilutive.



£ million                             2012    2011
Earnings: basic and diluted             678   1,796
Millions of shares
Weighted average number of shares:
Shares for basic earnings per share   995.4 1,013.0
Potentially dilutive share options      2.9     3.0
Shares for diluted earnings per share 998.3 1,016.0
Pence
Basic earnings per share               68.1   177.3
Diluted earnings per share             67.9   176.8



Reconciliation from reported to adjusted earnings and earnings per share



                                                2012               2011
                                         Earnings          Earnings        

£ million unless otherwise indicated     per share Earnings per share Earnings
Reported basic                               68.1p     678    177.3p   1,796
Acquisition accounting adjustments          (0.9)p      (9)        -p       -
Amortisation of acquired intangibles         29.7p     296     32.1p     325
Impairment of acquired intangibles          119.3p   1,187        -p       -
Net fair value and exchange gains on
financial
    instruments providing commercial       (10.4)p    (104)    (6.1)p     (62)
    hedges
Post-employment benefits net financing        1.8p      18      0.6p       6
cost
Restructuring costs                           7.2p      72      4.3p      44
Tax provisions released                    (13.8)p    (137)   (20.2)p    (205)
Adjusted                                    201.0p   2,001    188.0p   1,904
Adjusted diluted                            200.4p   2,001    187.4p   1,904



8. Cash Flows from Operating Activities



£ million                                                   2012  2011
Profit for the year                                          699 1,816
Adjustments for:
Taxation                                                     382   337
Investment income                                         (1,036)  (785)
Finance costs                                              1,473 1,272
Share of post-tax loss of associates                           -     1
Depreciation, amortisation and impairment                  1,762   598
Profit on disposal of property, plant and equipment            -    (1)
Loss on disposal of software                                   1     2
Post-employment benefits                                     (74)   (45)
Costs of employees' services compensated by share schemes     20    26
Movement in provisions                                      (161)  (130)
Operating cash flows before movement in working capital    3,066 3,091
Increase in inventories                                     (305)   (39)
(Increase)/decrease in trade and other receivables          (285)    80
Increase/(decrease) in trade and other payables               85   (47)
Movement in working capital                                 (505)    (6)
Taxation paid                                               (442)  (529)
Net cash flows from operating activities                   2,119  2,556



9. Analysis of Net Debt



The movements in cash and cash equivalents, borrowings, derivative financial
instruments and finance lease liabilities in the year were as follows:



                 Cash                                                     

                 and                  Non-     Finance  Derivative       

                cash    Current    current       lease   financial       

£ million equivalents borrowings borrowings liabilities instruments  Total
At 1            1,171     (2,104)     (8,076)         (23)        (409) (9,441)
October
2011
Cash flow        (438)        729       (578)           2          79   (206)
Accretion           -         23        (13)           -           -     10
of
interest
Change in           -          -          -           -         321    321
fair
values
Exchange         (102)        118        334           1           -    351
movements
At 30             631     (1,234)     (8,333)         (20)          (9) (8,965)
September
2012



Adjusted net debt



Management monitors the Group's borrowing levels using adjusted net debt which
excludes interest accruals, the fair value of derivative financial instruments
providing commercial cash flow hedges and finance lease liabilities.



£ million                                               2012   2011
Reported net debt                                     (8,965) (9,441)
Accrued interest                                         287    297
Fair value of derivatives providing commercial hedges    (94)    290
Finance lease liabilities                                 20     23
Adjusted net debt                                     (8,752) (8,831)



Reconciliation of fair value gain/loss on derivative financial instruments



The movements in the carrying value of derivative financial instruments in the
year were as follows:



                                              2012
                                                 Fair value

                                            attributable to

                  Fair value attributable to   interest rate

                      currency movements           movements

                        recognised in:        recognised in:
                  Comprehensive    Income         Income                 

£ million                 income statement      statement            Total
Derivative
financial
instruments
Gains arising on               -       122            639              761
commercial hedges
(note 4)
Losses arising on              -      (157)           (566)             (723)
commercial hedges
(note 4)
Losses offsetting              -        (5)              -               (5)
underling
borrowings (note
4)
Gains arising on
instruments
designated as net
    investment               288         -              - 288
    hedges
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