30th Oct 2007 07:02
Imperial Tobacco Group PLC30 October 2007 IMPERIAL TOBACCO GROUP PLC PRELIMINARY RESULTS FOR THE TWELVE MONTHS ENDED30 SEPTEMBER 2007 HIGHLIGHTS * Cigarette volumes 200bn up 7% (2006: 187bn)* Net revenue £3,280m up 4% (2006: £3,162m)* Profit from operations £1,418m up 8% (2006: £1,311m)* Adjusted** profit from operations £1,475m up 9% (2006: £1,356m)* Profit before tax £1,237m up 6% (2006: £1,168m)* Basic earnings per share 134.3p up 10% (2006: 122.2p)* Adjusted** earnings per share 136.7p up 12% (2006: 122.2p)* Full year dividend 69.5p up 12% (2006: 62.0p) Results are prepared under International Financial Reporting Standards ("IFRS"). ** Adjusted results are reported, where applicable, before amortisation of acquired trademerks restructuring costs, retirement benefits net financing income, certain fair value changes on derivatives and related tax effects. Summarising today's announcement, Gareth Davis, Chief Executive, said: "This has been another excellent year for Imperial Tobacco in which we havedelivered record financial results, with further growth within our cigarettevolumes and market share gains within all our regions. "Our cigarette volumes, which included a six month contribution from our recentacquisition of Commonwealth Brands in the USA, increased by 7%, with strongperformances from our key brands Davidoff, West and JPS, and good growth in anumber of regional brands. "The performance of Commonwealth Brands is particularly pleasing, with anexcellent return on investment in the first six months. We anticipate completingour Master Settlement Agreement application in the coming weeks and look forwardto building on our initial success with the launch of our own brands andproducts in the USA. "We also expect our proposed acquisition of Altadis to be approved by the CNMV,the Spanish regulator, soon. The enlarged group presents considerableopportunities going forward and following completion we will be focused onrapidly realising these through the swift integration of the two businesses. "Our expanding geographic footprint, international strength in cigarette andworld leadership in fine cut tobacco, rolling papers and tubes providesopportunities for future growth in new and existing markets. This is supportedby our ongoing commitment to effectively manage our cash, reduce costs andimprove efficiencies and ensures that we remain well placed to continue tocreate significant value for our shareholders." NOTES TO EDITORS Imperial Tobacco Group PLC Imperial Tobacco Group PLC is the world's fourth largest international tobaccocompany. The Group manufactures and sells a comprehensive range of cigarettes,tobaccos, rolling papers, filter tubes and cigars in over 130 countriesworldwide. It has around 14,500 employees and 31 manufacturing sites. ENQUIRIES Alex Parsons, Group Media Relations Manager +44 (0)7967 467 241Simon Evans, Group Press Officer +44 (0)7967 467 684John Nelson-Smith, Investor Relations Manager +44 (0)791 939 1866 Interviews with Gareth Davis, 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 +44 (0)20 7608 1000 Imperial Tobacco's 2007 Preliminary Results are available at:www.imperial-tobacco.com FINANCIAL HIGHLIGHTS 2007 2006 * Revenue £12,344m up 6% £11,676m ($ 25,168m)* Net revenue £ 3,280 m up 4% £3,162m ($ 6,688m)* Profit from operations £1,418m up 8% £1,311m ($ 2,891m)* Adjusted profit from operations £1,475m up 9% £1,356m ($3,007m)* Profit before tax £1,237m up 6% £1,168m ($2,522m) * Basic earnings per share 134.3p up 10% 122.2p (273.8c)* Adjusted earnings per share 136.7p up 12% 122.2p (278.7c)* Diluted earnings per share 133.7p up 10% 121.6p (272.6c) * Dividend per share proposed*** 69.5p up 12% 62.0p (141.7c) Management believes that reporting adjusted measures provides a bettercomparison of business performance and reflects the way in which the business iscontrolled. Accordingly, adjusted measures of profit from operations, netfinance costs, profit before tax, taxation and earnings per share exclude, whereapplicable, amortisation of acquired trademarks, restructuring costs, retirementbenefits net financing income, fair value gains and losses on derivativefinancial instruments in respect of commercially effective hedges, and relatedtaxation effects. Reconciliations between adjusted and reported profit fromoperations are included within note 1, adjusted and reported finance costs innote 3, adjusted and reported taxation in note 4, and adjusted and reportedearnings per share in note 6. The adjusted measures in this release are notdefined terms under International Financial Reporting Standards and may not becomparable with similarly titled measures reported by other companies. The exchange rate of US$2.0389 to the £1, the pound sterling noon buying rate on28 September 2007, the last business day prior to 30 September 2007, has beenused to translate this statement prepared under IFRS. *** If approved by shareholders the dividend will be paid on 15 February 2008 to those shareholders on the register at close of business on 18 January 2008. CHAIRMAN'S STATEMENT-------------------- In this, my first year as Chairman, I am delighted to be reporting anotherrecord set of results. We remain committed to creating value for our shareholders and, as a result ofour continued and consistent focus on this strategy, we have delivered anotherrecord operational and financial performance. EARNINGS AND DIVIDENDS This year has been defined by growth, both acquisition-led and through organicdevelopments in new and existing markets. We have continued our focus on costsand the effective management of the cash we generate. This successfulcombination has delivered an increase in adjusted earnings per share of 12 percent to 136.7 pence. Basic earnings per share was 134.3 pence (2006: 122.2pence). The Board recommends a final dividend of 48.5 pence per share, bringing thetotal dividend for the year to 69.5 pence, up 12 per cent on 2006 (2006: 62.0pence). A YEAR OF PROGRESS Successful acquisitions have been a hallmark of Imperial Tobacco over the lastdecade. Since our listing on the London Stock Exchange, we have invested £6.2billion in acquisitions, in accordance with our strategic and financialcriteria. These have been efficiently and effectively integrated and deliveredsignificant value for our shareholders. The acquisition of Commonwealth Brands, was completed in April 2007, offering usconsiderable opportunities to expand into this highly profitable market. InJuly, we announced a proposed cash offer for Altadis of €50 per share, and aredelighted that our shareholders voted overwhelmingly in favour of the proposedacquisition at our EGM in August 2007. We expect the transaction to complete inJanuary 2008. Our geographic profile includes regions offering important opportunities forlong term sustainable growth combined with core market strengths. We are focusedon expanding our current geographic profile to deliver further profitable volumegrowth, with expansion during the year in the Americas, Eastern Europe, Africaand Asia. We have grown cigarette market shares within every region and this performance is complemented by our world leadership in fine cut tobacco, rollingpapers and tubes. We have continued to focus on cost control throughout every aspect of ourbusiness, with further cost savings achieved in our manufacturing base. We haveeffectively used our cash by investing appropriately in acquisitions, in marketdevelopments particularly in our Rest of the World and Rest of Western Europeregions and in our share buyback programme. CORPORATE GOVERNANCE Shareholders, customers, suppliers, employees and society in general expectImperial Tobacco to act responsibly and to high standards at all times. We arecommitted to maintaining high standards of Corporate Governance. We have inplace a set of governance structures and practices designed to ensure that theGroup is run responsibly in the best interests of its shareholders. DEREK BONHAM We were deeply saddened by the death of Derek Bonham, our former Chairman, inSeptember 2007. Derek worked tirelessly as our Chairman, guiding ImperialTobacco through its demerger from Hanson, its listing as an independent companyand through its subsequent transformation into the world's fourth largestinternational tobacco company. BOARD CHANGES We regularly review the composition of the Board to ensure it continues toprovide the most effective leadership for the Group's development as well asplanned and orderly succession. Reflecting our ongoing focus on the strategic and profitable development of thebusiness, I was delighted to welcome Alison Cooper as Corporate DevelopmentDirector in July 2007. To ensure the continued appropriate balance of the Board,Michael Herlihy and Mark Williamson were appointed as Non-Executive Directors,also in July 2007. We reluctantly accepted the resignation of Frank Rogerson as Corporate AffairsDirector in July 2007 for personal and private reasons. David Cresswell,Manufacturing Director, will retire at the end of December 2007. I would like toexpress my sincere thanks to them both for their outstanding contribution to thesuccess of the Company during their long service. Colin Day resigned as a Non-Executive Director as a consequence of his overallbusiness commitments in February 2007 and, as previously announced, ViceChairman Anthony Alexander will retire from the Board at the Annual GeneralMeeting in January 2008. Finally I thank all our employees for their contribution to these strongresults. My ambition is to continue to build on our excellent track record andkeep Imperial Tobacco performing successfully. We have the people, the brandsand the drive to succeed. Iain NapierChairman CHIEF EXECUTIVE'S STRATEGIC REVIEW---------------------------------- A STRATEGY FOR GROWTH It has been another record year for Imperial Tobacco with further growth incigarette volumes, cigarette market share gains within all regions and excellentperformances from our key brands. PERFORMANCE OVERVIEW Our cigarette volumes were up by 7 per cent with key growth areas includingCentral and Eastern Europe, Germany and Asia together with six monthscontribution from the Commonwealth Brands business. Cigarette market shares increased in our core markets of the UK and Germany aswell as in Western Europe, Central and Eastern Europe, Asia, Africa and theMiddle East. Our successful brand strategy has ensured continued positive developments forour key brands Davidoff, West and JPS, growing volumes by 5 per cent, 9 per centand 18 per cent respectively. Since our acquisition of the Davidoff cigarettetrademark in September 2006, we have launched Davidoff in several new marketsand introduced a number of successful brand variants, all contributing to ourvolume and market share gains. As well as developments in our existing markets, the acquisition of CommonwealthBrands has given us a firm foothold in the profitable US market. We areextremely pleased with its early performance, with returns on investment in thefirst six months exceeding our weighted average cost of capital. Our MasterSettlement Agreement application is progressing and we expect to complete ourapplication in a few weeks following constructive dialogue with the NationalAssociation of Attorneys General. We have finalised our plans for thedevelopment of our own brands and are in a position to begin their rollout once we have completed all aspects of becoming a Participating Manufacturer in the Master Settlement Agreement. In our manufacturing operations, our productivity increased by 7 per centdemonstrating the excellent progress we continue to make with our ongoingbusiness efficiency and simplification strategies. ALTADIS In regard to our proposed acquisition of Altadis, we received EuropeanCommission clearance in October 2007, subject to the enlarged Group divesting asmall number of fine cut and pipe tobacco and cigar brands in certain Europeanmarkets. As previously highlighted this will not materially affect theoperational and financial performance of the enlarged Group. We expect approvalof our offer by the CNMV, the Spanish regulator soon and expect to complete thedeal in January 2008. The rights issue, which is part financing the acquisition,will occur before 18 July 2008. REGULATION We have a long history of co-operation with authorities in the markets in whichwe operate and we remain committed to working constructively with governmentsand regulatory bodies worldwide. We believe that sound, reasonable andpracticable regulation, developed in consultation with the tobacco industry, isthe most effective approach. OUR COMMITMENT TO CORPORATE RESPONSIBILITY In recent years, we have built a strong framework in which we manage ourCorporate Responsibility activities, ensuring that we live up to the highstandards we set for ourselves and the high expectations our stakeholders haveof us. Our success to date has been reflected in several performanceimprovements which will be reported in detail in our Corporate ResponsibilityReview published in December. OUTLOOK Looking ahead, we are focused on long term sustainable growth across thebusiness and remain committed to our strategy of growing our operationsorganically and through acquisitions. We have a growing geographic base on whichwe seek to build our position with our broad product and brand portfolio. Our focus on cost and efficiency continues, as well as ensuring the mosteffective use of our free cash flow through value creating acquisitions such asCommonwealth Brands and the proposed acquisition of Altadis, coupled with theongoing investment in our existing business. I believe that the proposed acquisition of Altadis will be a great strategic fitthat will strengthen our position as the world's fourth largest internationaltobacco company, with revenue benefits and substantial cost savings arising fromthe enlarged Group. In conclusion, we are well placed to continue to deliver sustainable shareholdervalue. Gareth DavisChief Executive FINANCIAL REVIEW---------------- FINANCIAL STRENGTH In 2007 we delivered another record financial performance. Revenue was £12,344 million compared to £11,676 million in 2006. Excluding dutyand similar items, net revenue was £3,280 million (2006: £3,162 million). Adjusted profit from operations was up 9 per cent to £1,475 million and Groupadjusted operating margin rose to 45.0 per cent (2006: 42.9 per cent). Reportedprofit from operations grew 8 per cent to £1,418 million (2006: £1,311 million). Good organic growth throughout the business with volume increases and pricingimprovements have offset the cessation of Singles in Germany. Our overallresults benefited from six months contribution from Commonwealth Brands,following its acquisition in April. TRADE MARK AMORTISATION, RESTRUCTURING COSTS AND DERIVATIVE FINANCIALINSTRUMENTS Reported profit from operations in 2007 included trademark amortisation costs of£23 million, principally related to trademarks acquired under the CommonwealthBrands acquisition, and £34 million fair value losses on derivative financialinstruments on commercially effective hedges. The 2006 restructuring costs of £45 million relate to the closures of our Lahrand Liverpool factories. There were no restructuring costs in 2007. NET FINANCE COSTS Adjusted net finance costs increased to £237 million (2006: £188 million). Thisincrease was due to higher average adjusted net debt of £4.3 billion (2006: £3.5billion) and a marginally higher average all in cost of debt of 5.5 per cent(2006: 5.4 per cent) reflecting higher euro interest rates on our floating ratedebt. Adjusted interest cover was 6.2 times (2006: 7.2 times). Reported netfinance costs of £181 million (2006: £143 million) included retirement benefitnet finance income of £54 million (2006: £46 million) and fair value gains oninterest rate derivatives of £2 million (2006: loss of £1 million). PROFIT BEFORE TAX Adjusted profit before tax was £1,238 million, up 6 per cent on 2006. Reportedprofit before tax increased to £1,237 million (2006: £1,168 million). TAXATION The adjusted tax charge for the year was £310 million (2006: £310 million),representing an adjusted effective tax rate of 25.0 per cent (2006: 26.5 percent). The reported tax charge was £325 million (2006: £310 million). EARNINGS AND DIVIDENDS Adjusted earnings per share increased by 12 per cent to 136.7 pence (2006: 122.2pence) and basic earnings per share increased by 10 per cent to 134.3 pence(2006: 122.2 pence). We have proposed a final dividend of 48.5 pence such thatthe total dividend for the year is 69.5 pence, an increase of 12 per cent.Following approval by shareholders, this dividend will be paid on 15 February2008 to those shareholders on the register at close of business on 16 January2008. Our policy remains to grow dividends broadly in line with adjustedearnings per share, with a payout ratio of around 50 per cent. NET DEBT AND CASH At 30 September 2007, our reported net debt had increased to £4.9 billion (2006:£3.9 billion). Eliminating the fair value of interest rate derivatives andaccrued interest of £0.1 billion (2006: £0.1 billion), our adjusted net debt was£4.8 billion (2006: £3.8 billion). The increase in adjusted net debt wasprimarily due to the acquisition of Commonwealth Brands in April 2007. During the year to 30 September 2007, we spent a further £105 million, includingtransaction costs, acquiring 5.7 million of our shares at an average marketprice of £18.31 per share. Prior to the suspension of our share buybackprogramme, at the time of our announcement of the Commonwealth Brandsacquisition, we had spent a cumulative £862 million, including transactioncosts, buying back 51.7 million shares representing 7.1 per cent of issued sharecapital. Our cash conversion for year ended September 2007 was 81 per cent (2006: 98 percent). This is lower than our targeted rate of around 100 per cent due to ahigher level of net capital expenditure, as well as a short term increase inworking capital of £194 million as a result of stock building in certain CentralEuropean markets in advance of duty increases due in January 2008. ACQUISITIONS The acquisition of Commonwealth Brands was completed on 2 April 2007. In January2007, we also acquired a controlling interest in Tremaco, a tobacco andtobacco-related products distribution business based in Estonia. FINANCING OF THE PROPOSED ACQUISITION OF ALTADIS The proposed acquisition of Altadis will be financed through new bank debtfacilities and a rights issue. At the time of launching our proposed offer in July, new bank facilities of £9.2billion were put in place ready to refinance certain existing Imperial andAltadis bank facilities, as well as to provide the debt portion of theacquisition funding. As the proceeds of the rights issue will not be available on completion of thedeal and in order to satisfy the requirements for bank guarantees (avales)issued in respect of the total consideration payable, an equity bridge facilityof £5.4 billion was put in place to cover the funding requirements until therights issue process is complete. The rights issue will occur before 18 July 2008 and will be sized to ensure thatwe issue the minimum amount of equity needed to maintain an investment gradecredit rating, to which we are committed. Robert DyrbusFinance Director REGIONAL PERFORMANCE ANALYSIS Net revenue Net revenue Adjusted profit Adjusted profit from operations from operations 2007 2006 2007 2006 £m £m £m £m UK 876 835 564 506Germany 524 575 238 270Rest of Western Europe 635 637 326 324US 117 14 52 4Rest of the World 1,128 1,101 295 252 ----------- ----------- ----------- ----------- Total 3,280 3,162 1,475 1,356 ----------- ----------- ----------- ----------- Cigarette Cigarette Fine cut Fine cut volumes volumes tobacco volumes tobacco volumes 2007 2006 2007 2006 bn bn tonnes tonnes UK 22.9 23.4 2,200 2,100Germany 20.4 19.9 4,700 6,300Rest of Western Europe 19.6 20.1 14,900 15,100US 7.1 - 100 -Rest of the World 130.3 123.5 2,550 2,000 ----------- ----------- ----------- ----------- Total 200.3 186.9 24,450 25,500 ----------- ----------- ----------- ----------- With effect from 1 October 2006, we have reclassified the results of ourAustrian business from 'Germany' to 'Rest of the World' to reflect the way inwhich our operations are managed within the Group. The results for 2006 havebeen restated accordingly. Similarly the 2006 results of our US business havebeen reclassified from 'Rest of the World' to 'US' as the US segment has beenintroduced following the acquisition of Commonwealth Brands. UNITED KINGDOM-------------- We continued to build on our market leading position in the UK and havedelivered excellent financial results. MARKET DYNAMICS We estimate that the total UK cigarette market was down 2 per cent to 47.9billion, with strong growth in the value and economy sector continuing, nowaccounting for over 44 per cent of the total market. Following a buoyant firsthalf, the cigarette market declined in the second half following theintroduction of bans on smoking in public places and the poor weather. The finecut tobacco market grew by 8 per cent to 3,500 tonnes (2006: 3,250 tonnes), withdowntrading into and within the segment. A ban on smoking in public places was introduced in England on 1 July 2007,following similar bans in Wales and Northern Ireland, earlier in the year. Asanticipated, and in line with our experiences in other markets with similarlegislation, these have resulted in an initial decline in cigarette marketvolumes. Once the initial impact of public smoking bans has dissipated, we expect annualcigarette market declines of 3 to 4 per cent in line with the long term trend. On 1 October 2007, the minimum age for the sale of tobacco products by retailersin England, Scotland and Wales was increased from 16 to 18. OUR PERFORMANCE In the UK, net revenue grew by 5 per cent, to £876 million, with adjusted profitfrom operations up by 11 per cent to £564 million. This strong financialperformance reflects growth in our cigarette market share, cost savings andpricing improvements. Our cigarette market share climbed to 46.4 per cent (2006: 45.5 per cent). TheUK's best selling cigarette brand, Lambert & Butler, was up to 16.6 per cent(2006: 16.2 per cent) and the UK's number two brand, Richmond, was up at 15.7per cent (2006: 15.5 per cent). Following the introduction of Windsor Blue lastyear, the brand continued to grow strongly in the economy sector capturing 2.6per cent share of the total market. In fine cut tobacco, our market share dipped to 63.6 per cent (2006: 65.3 percent) but Golden Virginia continues to lead the market. We launched Gold Leaf inJune 2007 in the value segment, and had grown to 1.6 per cent market share inSeptember 2007. We are the UK market leader in rolling papers and, in August, welaunched a new variant Rizla Smooth with positive results to date. OUTLOOK The UK is an important profit centre for the Group. With our broad product andbrand portfolio and the initiatives we have taken in the economy cigarette andvalue fine cut tobacco sectors, we believe we are well placed to continue tobuild on our market leading position. GERMANY------- Our cigarette share grew in Germany, with JPS continuing its strong upwardtrend. MARKET DYNAMICS The German market continued to be impacted by the cessation of the make your ownSingles product, following the change in taxation status of the product in April2006. This, combined with successive tobacco tax increases, has increased bothlegal and illegal cross-border flows into Germany. We estimate that the overall tobacco market in 2007 was down 6 per cent to 127billion cigarette equivalents (2006: 135 billion). The cigarette market fellslightly to 91 billion cigarettes (2006: 92 billion), with downtradingcontinuing, resulting in strong growth in the low price branded cigarettesegment, now 19.1 per cent of the cigarette market compared to 11.4 per cent ayear ago. Other tobacco products were down 16 per cent to 36 billion cigarette equivalents(2006: 43 billion). In 2006, Singles accounted for 20 billion cigaretteequivalents of the total other tobacco products sector. In line with our view atour interim results in May, we estimate that approximately 20 per cent of formerSingles consumers have moved into duty paid cigarettes, 55 per cent into othertobacco products and 25 per cent into both legal and illegal cross-border flows. The Federal Government's ban on smoking in all federal government buildings,whilst allowing for the provision of separate smoking areas as well as a totalban on public transport, came into effect on 1 September 2007. Legislation forhospitality venues such as cafes, bars and restaurants and regional stategovernment buildings continues to be debated at the Regional State level, withthe implementation of further restrictions planned in the coming months. OUR PERFORMANCE In Germany, net revenue fell to £524 million, with adjusted profit fromoperations down to £238 million. Our results benefited from continued growth inour cigarette market share and cost efficiencies, but were adversely affected bythe cessation of the profitable Singles product and the decline in the totalduty paid tobacco market. Our cigarette market share grew to 21.3 per cent (2006: 20.7 per cent), with anexcellent performance from JPS which increased its market share to 6.4 per cent(2006: 3.8 per cent). Along with other mid priced brands, West, the secondlargest cigarette brand in Germany, continued to be impacted by downtrading withits market share down to 7.2 per cent (2006: 8.2 per cent). Davidoff, in thepremium sector, remained broadly stable at 1.0 per cent of the total cigarettemarket (2006: 1.1 per cent). Our market share of other tobacco products was down to 19.1 per cent (2006: 21.8per cent) impacted by the migration of former Singles consumers, and increasedcompetition in this sector. Our make your own West and JPS Single Tobaccoproducts and newly launched Route 66 make your own tobacco performed well andhave captured a significant share of this growing segment. OUTLOOK We are focused on continuing the positive developments in our cigarette marketshare. We believe we are well positioned to benefit from the downtradingenvironment, given our strength in value cigarettes and our broad productportfolio. REST OF WESTERN EUROPE---------------------- Our cigarette share grew in a number of markets in our Rest of Western Europeregion, reflecting growth in Davidoff, West and JPS. REGIONAL DYNAMICS We estimate that the regional cigarette market was stable at 320 billioncigarettes with the annual regional fine cut tobacco market up to 31,200 tonnes.The pricing environment is improving with increases in a number of markets,including Spain, the Netherlands and France. The introduction of bans on smoking in public places continues to be debated atboth the EU and Member State level, including further restrictions introduced inFrance on 1 February 2007. Pictorial health warnings appeared on cigarette packsin Belgium in early 2007. OUR PERFORMANCE Net revenue was down slightly to £635 million, with adjusted profit fromoperations up slightly to £326 million. We have grown our cigarette shares andbenefited from pricing improvements, but results were impacted by lower travelretail sales and euro exchange rates. CIGARETTE PERFORMANCE Our cigarette market share was up to 10.6 per cent in the Netherlands with anexcellent performance from JPS. Route 66 and newly launched JPS grew our marketshare in Belgium to 10.6 per cent. JPS delivered another good performance inFrance, where market share was up to 4.0 per cent. In Ireland, our market shareimprovement to 26.4 per cent was driven by John Player Blue. In Greece, Davidoffand West continued to grow strongly with our total market share continuing itsupward trend to 9.7 per cent. In Spain our market share was impacted by lowertravel retail sales and was down to 5.9 per cent, while in Portugal our marketshare climbed to 4.1 per cent, again with strong growth from JPS. FINE CUT TOBACCO PERFORMANCE In fine cut tobacco the market remains extremely competitive, although theportfolio extension and repositioning initiatives we have undertaken havestarted to deliver some market share improvements. Newly launched Bastos hasgrown our market share in Belgium to 10.9 per cent, while in the Netherlands,the largest fine cut tobacco market in the region, our overall market share wasstable at 51.1 per cent with Zilver and Evergreen performing well. Despitegrowth in JPS, our market share was down in France to 26.7 per cent, due toincreased competition from cigarette branded fine cut tobacco launches. In Italy, Peter Stuyvesant make your own was launched in April and has been successful,capturing 2.9 per cent of the fine cut tobacco market by September. OUTLOOK The strength of our broad portfolio continues to offer us a number of growthopportunities. We are focused on further developing the positive momentum behindour growing cigarette shares. Although we expect the fine cut tobacco marketwill continue to be challenging, we will focus on ensuring the success of theinitiatives we have taken with our fine cut tobacco portfolio. UNITED STATES------------- The acquisition of Commonwealth Brands in April 2007 has significantly increasedour presence in this profitable market. MARKET DYNAMICS The US is the world's second largest cigarette market by volume after China,accounting for a significant percentage of the tobacco industry global profits.In 2007, we estimate that the overall cigarette market declined by 3 per cent to367 billion cigarettes (2006: 379 billion), with the discount sector accountingfor around 27 per cent of the total cigarette market. The other tobacco products sector is dominated by smokeless tobacco productswhich account for approximately 60 per cent of the market. Cigars and cigarillosaccount for 30 per cent, with fine cut tobacco and pipe tobacco the remaining 10per cent. We estimate that the fine cut tobacco market grew 10 per cent to10,000 tonnes (2006: 9,100 tonnes). Legislation proposing an increase in federal excise tax on tobacco has beenunsuccessful, but debate on this issue continues. A bill that would give theFood & Drug Administration authority to regulate tobacco products is also beingdebated. In recent times, we have seen considerable improvements in thelitigation environment, reflecting the fact that the great majority ofindividual and class action claims have been decided in favour of the tobaccoindustry. OUR PERFORMANCE Including six months contribution for Commonwealth Brands which was acquired on2 April 2007, net revenue for the year was £117 million (2006: £14 million),with adjusted profit from operations £52 million (2006: £4 million). Cigarette volumes were 7.1 billion, with our cigarette market share at 3.7 percent of the total cigarette market and at 13.4 per cent in the discount sector.The Commonwealth brand portfolio is focused on the discount sector with USA Goldand Sonoma holding 8.2 per cent and 4.8 per cent of the discount cigarettesector respectively. We have an existing strong presence in rolling papers and tubes, which grewvolumes by 13 per cent and 8 per cent respectively in the year. In July 2007, wecompleted the purchase of the Bali Shag and McClintock fine cut tobacco brandsfrom Peter Stokkebye. Prior to this, Commonwealth Brands was the exclusivedistributor of these two brands, which have a combined market share of around 1per cent of the fine cut tobacco market. We continue to progress our own Master Settlement Agreement application and havehad very constructive dialogue with the National Association of AttorneysGeneral and representatives from several settling states. We expect to completeour application in a few weeks. The integration of our existing rolling papers and tubes business withCommonwealth Brands has progressed well, with our New Jersey sales and marketingoperations transferring to the Commonwealth Brands office in Bowling Green,Kentucky. OUTLOOK We have finalised plans for the launch of our brands and are in a position tobegin their roll out once we have completed all aspects of becoming aParticipating Manufacturer in the Master Settlement Agreement. We believe we are well positioned to develop our business in the US with ourversatile, multi-product portfolio and an enhanced platform from which to launchour brands and products. REST OF THE WORLD----------------- The diversity of this region provides opportunities for us to continue to expandour business and grow our brands and profits. OUR PERFORMANCE Net revenue was up at £1,128 million, with adjusted profit from operationsgrowing 17 per cent to £295 million despite foreign exchange losses. This profitperformance reflects our growing cigarette volumes, further geographic expansionand share gains we have achieved in a number of markets in the region. ASIA In Asia, we have a strong presence in Taiwan complemented by a growing presencein Laos and Vietnam, while in China we continue to develop our collaborationwith the State Tobacco Monopoly Administration and the Yuxi Hongta Group. InTaiwan, we grew our market share to 11.7 per cent, with a good performance fromWest adding to our Davidoff market share. We delivered 22 per cent volume growthin Laos and increased our market share in Vietnam to 10.6 per cent. In China,our volumes of West and Davidoff have grown with increased distribution inadditional cities. AUSTRALASIA In the highly regulated mature markets of Australia and New Zealand, we improvedprofitability with the benefit of price increases, despite the value segment ofthe cigarette sector becoming increasingly competitive. Our market shares weredown in Australia to 17.5 per cent (2006: 17.8 per cent), and broadly stable inNew Zealand at 17.5 per cent. CENTRAL EUROPE In Central Europe, important markets in this region include Poland, Hungary,Austria, Slovenia, Slovakia and the Czech Republic supported by our growingScandinavian operations. We have improved our regional profitability and increased our cigarette marketshares in a number of markets including the Czech Republic and Poland. Brandhighlights include Moon in the Czech Republic, Golden Gate in Hungary andSlovakia, JPS in Austria and West in Slovenia and Poland. The EU accessioncountries in this region have rising taxes as they work towards reaching EUminimum tax levels by the end of their derogation periods. In this environment,fine cut tobacco has grown, with our regional volumes doubling during the year. In Scandinavia, we have made progress in developing our snus position growingour volumes by 46 per cent. Following our acquisition of Tremaco in Estonia inJanuary 2007, we have introduced a number of our own brands, while in Norway wehave grown our cigarette market share to 3.5 per cent with growth in Davidoff,Paramount and West. EASTERN EUROPE In Eastern Europe, alongside our established positions in Ukraine and Russia wehave growing operations in Turkey and the Caucasus. Regional cigarette volumescontinued to grow strongly. In Russia while our market share was stable at 5.5per cent, Davidoff improved its performance. In Ukraine, our volumes increasedand our market share continued its upward trend to 20.6 per cent (2006: 19.0 percent), with volume increases for major brands particularly Classic, West andDavidoff. In Turkey, our market share has grown to 2.5 per cent and our volumeshave risen by 85 per cent, with strong growth in West, Klasik and Davidoff. Inthe Caucasus, we delivered significant volume increases with good performancesfrom West, Davidoff and R1. AFRICA AND THE MIDDLE EAST We have an established presence in the sub-Saharan region of Africa and in theMiddle East, where Davidoff is our leading brand. Our market shares grew in anumber of markets across the region including Senegal with growth in Excellence,Madagascar with Good Look performing well, Burkina Faso with Mustang and theIvory Coast with Fine. In the Middle East region, Davidoff has again been driving growth with volumesup by 29 per cent and market share gains across the region including SaudiArabia, Kuwait and UAE. AMERICAS AND DUTY FREE We are focused on building our presence into other markets in the Americasregion. We launched Davidoff into Canada and West and Davidoff into Mexico. In duty free, our cigarette volumes have remained stable and fine cut tobaccovolumes have grown by 27 per cent. In particular, we have increased Davidoff'spresence in duty free following the introduction of new variants. OUTLOOK With over 100 countries in our Rest of the World region it is a key area offuture investment and potential growth for the Group. In the context of thechallenges that the geographic diversity of this region brings, we believe thereis considerable scope for continued market and brand development. MANUFACTURING------------- We have a consistent approach across our 31 factories, enabling oursimplification and standardisation strategy to deliver performance improvements,without compromising on quality. We seek to deliver further cost savings across our manufacturing footprint, andthis year delivered £33 million of savings from a variety of initiativesincluding ongoing business simplification and continued cost management. OUR PERFORMANCE We increased our productivity by 7 per cent, with higher cigarette volumescontributing to our improved performance. We also reduced our unit costs in bothcigarette and fine cut tobacco, by 3 and 13 per cent respectively. In addition,we have further simplified our blends and ingredients in the year. We aim to ensure that our manufacturing footprint is structured effectively, toensure a fast response to changing market dynamics and consumer requirements. Inorder to meet growing demand in Eastern Europe, we have increased the capacityat both our Volgograd and Kiev factories with the installation of new andupgraded machinery. We have also added cigarette and other tobacco productmachinery in Germany, in support of new product initiatives. The closures of ourfactories in Liverpool in the UK and Lahr in Germany were completed on scheduleby the end of March 2007. In March 2007, we announced our plans to build a factory in Taiwan at a cost of£45 million which will aid the further development of our presence in Asia. Weexpect to generate annual cost savings of £20 million from 2010 as a result of areduction in supply chain costs and other operational efficiencies, with thefactory planned to be fully operational by the end of our 2008 financial year. We gained further ISO14001 accreditation in the year with Madagascar and BurkinaFaso bringing the total number of factories certified to 21 or 68 per cent ofour manufacturing operations. We constantly review potential standardisation opportunities and have deliveredfurther operational efficiencies. Our progress has been reflected in theimprovements in our manufacturing performance indicators. OUTLOOK We are focused on the quality of our products and on the continuing success ofour simplification and standardisation strategies, while ensuring we remainresponsive and flexible to changes in market and regulatory conditions. FINANCIAL REPORTING------------------- The consolidated financial statements have been prepared in accordance withInternational Financial Reporting Standards and IFRIC interpretations asendorsed by the European Union (collectively IFRS) and with those parts of theCompanies Act 1985 applicable to companies reporting under IFRS. CAUTIONARY STATEMENT-------------------- All statements, other than statements of historical fact, included herein, are,or may be deemed to be, forward-looking statements within the meaning of Section21E of the Securities Exchange Act 1934, as amended. For a discussion ofimportant factors that could cause actual results to differ materially fromthose discussed in such forward-looking statements please refer to ImperialTobacco's annual report on Form 20-F for the fiscal year ended 30 September2006, filed with the United States Securities and Exchange Commission on 2February 2007. FINANCIAL STATEMENTS-------------------- The figures and financial information for the year ended 30 September 2007 donot constitute the statutory financial statements for that year. Those financialstatements have not yet been delivered to the Registrar, nor have the Auditorsyet reported on them. The financial statements have been prepared in accordancewith our accounting policies published in our financial statements available onour website www.imperial-tobacco.com. CONSOLIDATED INCOME STATEMENTfor the year ended 30 September 2007 2007 2006 £m £m Revenue 12,344 11,676 ----------- -----------Duty and similar items (9,064) (8,514)Other cost of sales (990) (1,013) ----------- -----------Cost of sales (10,054) (9,527) ----------- -----------Gross profit 2,290 2,149Distribution, advertising and selling costs (659) (627)Administrative expenses (213) (211) ----------- ----------- Profit from operations 1,418 1,311 ----------- -----------Adjusted profit from operations 1,475 1,356Amortisation of acquired trademarks (23) -Restructuring costs - (45)Fair value gains and losses on derivative financial instruments (34) - ----------- -----------Investment income 318 283Finance costs (499) (426) ----------- -----------Net finance costs (181) (143) ----------- -----------Adjusted net finance costs (237) (188)Retirement benefits net financing income 54 46Fair value gains and losses on derivative financial instruments 2 (1) ----------- -----------Profit before taxation 1,237 1,168Taxation (325) (310) ----------- -----------Profit for the year 912 858 ----------- -----------Attributable to:Equity holders of the Company 905 851Minority interests 7 7 ----------- -----------Earnings per ordinary share - Basic 134.3p 122.2p - Diluted 133.7p 121.6p ----------- -----------All activities derive from continuing operations. CONSOLIDATED BALANCE SHEETAT 30 SEPTEMBER 2007 2007 2006 £m £mNon-current assetsIntangible assets 4,950 3,910Property, plant and equipment 640 580Investments in associates 4 5Retirement benefit assets 602 397Trade and other receivables 7 19Deferred tax assets 52 71 ----------- ----------- 6,255 4,982 ----------- -----------Current assetsInventories 998 789Trade and other receivables 1,254 1,067Current tax assets 50 13Cash and cash equivalents 380 263Derivative financial instruments 71 29 ----------- ----------- 2,753 2,161 ----------- -----------Total assets 9,008 7,143 ----------- -----------Current liabilitiesBorrowings (1,067) (1,122)Derivative financial instruments (219) (119)Trade and other payables (1,593) (1,433)Current tax liabilities (267) (272)Provisions (26) (56) ----------- ----------- (3,172) (3,002) ----------- -----------Non-current liabilitiesBorrowings (4,053) (2,930)Trade and other payables (5) (5)Deferred tax liabilities (208) (135)Retirement benefit liabilities (397) (434)Provisions (32) (39) ----------- ----------- (4,695) (3,543) ----------- -----------Total liabilities (7,867) (6,545) ----------- -----------Net assets 1,141 598 ----------- ----------- EquityShare capital 73 73Share premium account 964 964Retained earnings 58 (423)Exchange translation reserve 23 (35) ----------- -----------Equity attributable to equity holders of the Company 1,118 579Minority interests 23 19 ----------- -----------Total equity 1,141 598 ----------- ----------- CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFor the year ended 30 September 2007 2007 2006 £m £m Exchange movements 58 (54)Net actuarial gains on retirement benefits 202 100Deferred tax relating to net actuarial gains on retirement benefits (59) (24)Deferred tax on other items taken directly to or transferred from equity - 7Current tax on other items taken directly to or transferred from equity 5 - ----------- -----------Net income recognised directly in equity 206 29Profit for the year 912 858 ----------- -----------Total recognised income and expense for the year 1,118 887 ----------- -----------Attributable to:Equity holders of the Company 1,111 880Minority interests 7 7 ----------- -----------Total recognised income and expense for the year 1,118 887 ----------- ----------- CONSOLIDATED CASH FLOW STATEMENTFor the year ended 30 September 2007 2007 2006 £m £mCash flows from operating activities 999 1,155 ----------- -----------Cash flows from investing activitiesInterest received 15 13Purchase of property, plant and equipment (128) (75)Proceeds from sale of property, plant and equipment 5 15Purchase of intangible assets - software (5) (7)Purchase of intangible assets - trademarks (5) (368)Purchase of businesses - net of cash acquired (966) (68) ----------- -----------Net cash used in investing activities (1,084) (490) ----------- -----------Cash flows from financing activitiesInterest paid (227) (199)Purchase of treasury shares (105) (556)Proceeds from sale of shares held by Employee Share Ownership Trusts 7 7Purchase of shares held by Employee Share Ownership Trusts (55) (55)Increase in borrowings 2,324 1,356Repayment of borrowings (1,317) (795)Dividends paid to minority interests (4) (7)Dividends paid to shareholders (434) (406) ----------- ------------Net cash generated by/(used in) financing activities 189 (655) ----------- ------------Net increase in cash and cash equivalents 104 10 Cash and cash equivalents at start of year 263 257Effect of foreign exchange rates 13 (4) ----------- -----------Cash and cash equivalents at end of year 380 263 ----------- ----------- 1. Segmental information The principal activity of the Group is the manufacture, marketing and sale oftobacco and tobacco-related products. The management structure is based ongeographical regions. These geographical regions of UK, Germany, Rest of WesternEurope, US and Rest of the World have been used as the primary reportingsegments. The manufacture, marketing and sale of tobacco and tobacco-relatedproducts is a single integrated business and as a consequence, the Group hasonly one business segment and no secondary segment disclosure has been made.Central costs are allocated to segments on the basis of net revenue. With effect from 1 October 2006, we have reclassified the results of ourAustrian business from 'Germany' to 'Rest of the World' to reflect the way inwhich our operations are managed within the Group. The results for 2006 havebeen restated accordingly. Similarly the 2006 results of our US business havebeen reclassified from 'Rest of the World' to 'US' as the US segment has beenintroduced following the acquisition of Commonwealth Brands. Geographical consolidated income statement by destination of sales 2007 2007 2007 2007 Revenue Duty and Net revenue Profit from similar items operations £m £m £m £m UK 4,842 3,966 876 555Germany 2,645 2,121 524 232Rest of Western Europe 1,746 1,111 635 319US 266 149 117 35Rest of the World 2,845 1,717 1,128 277 ----------- ----------- ----------- ---------- 12,344 9,064 3,280 1,418 ----------- ----------- ----------- ---------- 2006 2006 2006 2006 Revenue Duty and Net revenue Profit from similar items operations £m £m £m £m UK 4,762 3,927 835 496Germany 2,698 2,123 575 239Rest of Western Europe 1,647 1,010 637 321US 14 - 14 4Rest of the World 2,555 1,454 1,101 251 ---------- ---------- ---------- ---------- 11,676 8,514 3,162 1,311 ---------- ---------- ---------- ---------- Geographical reconciliation from profit from operations to adjusted profit fromoperations by destination of sales 2007 2007 2007 2007 2007 Profit from Amortisation Restructuring Fair value Adjusted profit operations of costs changes on from trademarks* derivative operations* financial instruments £m £m £m £m £m UK 555 - - 9 564Germany 232 - - 6 238Rest of Western Europe 319 - - 7 326US 35 17 - - 52Rest of the World 277 6 - 12 295 ---------- ---------- ---------- ---------- ---------- 1,418 23 - 34 1,475 ---------- ---------- ---------- --------- ---------- 2006 2006 2006 2006 2006 Profit from Amortisation Restructuring Fair value Adjusted profit operations of costs changes on from trademarks* derivative operations* financial instruments £m £m £m £m £m UK 496 n/a 10 - 506Germany 239 n/a 31 - 270Rest of Western Europe 321 n/a 3 - 324US 4 n/a - - 4Rest of the World 251 n/a 1 - 252 ----------- ---------- ---------- ---------- ---------- 1,311 n/a 45 - 1,356 ----------- ---------- ---------- ---------- ---------- * Amortisation of trademarks relates principally to Commonwealth Brands'trademarks acquired in 2007 and trademarks acquired in Australia and New Zealandin 1999. Adjusted profit from operations has not been restated for 2006 as thetrademark amortisation effect was not significant in that year. 2. Restructuring Costs 2007 2006 £m £m Employment related (mainly termination) - 23Fixed asset write offs and impairment - 17Other operating charges - 5 ----------- ----------- - 45 ----------- ----------- There were no restructuring costs in the year ended 30 September 2007. In 2006 restructuring costs were primarily in respect of the closure of ourLiverpool and Lahr factories. 3. Net finance costs 2007 2006 £m £m Interest on bank deposits (14) (13)Expected return on retirement benefit assets (203) (188)Fair value gains on derivative financial instruments (101) (82) ----------- -----------Investment income (318) (283) ----------- -----------Interest on bank and other loans 251 201Interest on retirement benefit liabilities 149 142Fair value losses on derivative financial instruments 99 83 ----------- -----------Finance costs 499 426 ----------- -----------Net finance costs 181 143 ----------- ----------- Reconciliation from net finance costs to adjusted net finance costs 2007 2006 £m £m Reported net finance costs 181 143Expected return on retirement benefit assets 203 188Interest on retirement benefit liabilities (149) (142)Fair value gains on derivative financial instruments 101 82Fair value losses on derivative financial instruments (99) (83) ----------- -----------Adjusted net finance costs 237 188 ----------- ----------- 4. Taxation Analysis of charge in the year 2007 2006 £m £m Current taxUK corporation tax at 30% (2006: 30%) 120 148Overseas taxation 172 164 ----------- -----------Total current taxation 292 312 Deferred taxOrigination and reversal of temporary differences 33 (2) ----------- -----------Total tax charge 325 310 ----------- ----------- Reconciliation from reported taxation to adjusted taxation The table below shows the tax impact of the adjustments made to reported profitbefore tax in order to arrive at the adjusted measure of earnings. 2007 2006 £m £m Reported taxation 325 310Deferred tax on amortisation of acquired trademarks (10) -Tax on restructuring costs - 16Tax on retirement benefits net financing income (15) (16)Tax on fair value gains and losses on derivative financial instruments 10 - ----------- ----------Adjusted tax charge 310 310 ----------- ---------- 5. Dividends Amounts recognised as distributions to ordinary shareholders in the year: 2007 2006 £m £mFinal dividend for the year ended 30 Sept 2006 of 43.5p per share (2005: 39.5p) 293 279Interim dividend for the year ended 30 Sept 2007 of 21.0p per share (2006: 18.5p) 141 127 ----------- ----------- 434 406 ----------- ----------- A final dividend for the year ended 30 September 2007 of 48.5 pence per sharehas been proposed. This amounts to £326 million based on the number of sharesranking for dividend at 30 September 2007. At the year end, the shareholders hadnot yet approved the final dividend and therefore it is not included in thebalance sheet as a liability. 6. Earnings per share Basic earnings per share is based on the profit for the year attributable to theequity holders of the Company and the weighted average number of ordinary sharesin issue during the year excluding shares held to satisfy the Group's employeeshare schemes and shares purchased by the Company and held as treasury shares.Diluted earnings per share have been calculated by taking into account theweighted average number of shares that would be issued if rights held under theemployee share schemes were exercised. No instruments have been excluded fromthe calculation on the grounds they are anti-dilutive. 2007 2006 £m £m Earnings: basic and diluted 905 851 ----------- ----------- Millions of Millions of shares sharesWeighted average number of shares:Shares for basic earnings per share 673.8 696.3Potentially dilutive share options 2.9 3.3 --------- -----------Shares for diluted earnings per share 676.7 699.6 ----------- ----------- Basic earnings per share 134.3p 122.2pDiluted earnings per share 133.7p 121.6p ----------- ----------- Reconciliation from reported to adjusted earnings and earnings per share 2007 2007 2006 2006 EPS Earnings EPS Earnings £m £m Reported basic 134.3p 905 122.2p 851Amortisation of acquired trademarks 4.9p 33 n/a n/aRestructuring costs - - 4.2p 29Retirement benefits net financing income (5.8)p (39) (4.3)p (30)Fair value gains and losses on derivative financial instruments 3.3p 22 0.1p 1 --------- ----------- -------- --------Adjusted 136.7p 921 122.2p 851 --------- ----------- -------- -------- 7. Acquisitions On 2 April 2007, the Group acquired from Houchens Industries Inc 100% of theshare capital of CBHC Inc, which trades as Commonwealth Brands and manufacturesand sells quality discount cigarettes across the United States. The acquiredbusiness contributed revenue of £252 million and profit from operations of £35million after charging trademark amortisation of £17 million in the period from2 April 2007 to 30 September 2007. If the acquisition had occurred on 1 October2006, Group revenue would have been £12,561 million and Group profit fromoperations for the year would have amounted to £1,446 million, these amountshaving been estimated by including Commonwealth Brands' results for the sixmonths prior to acquisition adjusted to reflect the Group's accounting policiesand changes in depreciation and amortisation due to fair value adjustments. During the year the Group also acquired interests in a number of smallbusinesses including in January 2007 a controlling interest in Tremaco, atobacco and tobacco-related products distribution business based in Estonia. Theaggregate consideration for these acquisitions amounted to £1 million. Full IFRSdisclosures have not been provided for these small acquisitions as they are notconsidered to be significant to the Group as a whole. Details of Commonwealth Brands' net assets acquired are as follows: Fair value Fair value Book Value adjustments under IFRS £m £m £m Trademarks 163 507 670Property, plant and equipment 14 (4) 10Inventories 37 - 37Trade and other receivables 6 - 6Unrestricted cash 29 - 29Restricted cash 123 - 123Trade and other payables (177) (4) (181)Dividend payable to Houchens by Commonwealth Brands (194) - (194)Borrowings (279) - (279) --------- -------- --------Net assets acquired (278) 499 221Goodwill 305 --------Total consideration 526 -------- The fair value adjustment in respect of trademarks relates to CommonwealthBrands' cigarette brands, principally USA Gold and Sonoma, which have beenindependently valued using the income method. The trademarks are being amortisedover their estimated useful lives of 20 years. Goodwill represents a strategicpremium to immediately establish critical mass in the US market and acquireassembled sales, manufacturing and distribution workforces. Consideration for Commonwealth Brands satisfied by: £m Cash 516Direct costs related to the acquisition 10 --------Total consideration 526 -------- The purchase price for Commonwealth Brands on a debt free basis is as follows: £m Total consideration 526Dividend payable to Houchens by Commonwealth Brands 194Borrowings at acquisition 279Unrestricted cash (29) --------Total purchase price 970 -------- Cash flows relating to acquisitions were as follows: £m Commonwealth BrandsTotal consideration 526Dividend paid to Houchens at acquisition 194Borrowings repaid at acquisition 279Unrestricted cash acquired (29) ----------- 970Other businesses acquired 1 -----------Total cash flows arising due to acquisitions 971Direct costs related to Commonwealth Brands acquisition not paid at the balance sheet date (5) -----------Acquisition cash flows reflected in investing activities in consolidated cash flow statement 966 ----------- 2006 During 2006 the Group acquired interests in a number of small businesses,including in February 2006 a 100% interest in Gunnar Stenberg AS, a tobacco andtobacco-related products sales and distribution company based in Norway. The fair and book value of the net assets acquired were £2 million, giving riseto goodwill of £11 million. The acquisition of the worldwide Davidoff cigarette trademark announced inAugust 2006 has, in accordance with IFRS 3, not been treated as a businesscombination as the substance of the transaction is the purchase of an intangibleasset. In December 2005 the Group made the final payment of deferred consideration inrespect of the acquisition of Tobaccor SA. 8. Cash flows from operating activities 2007 2006 £m £m Profit for the year 912 858Adjustments for:Taxation 325 310Finance costs 499 426Investment income (318) (283)Depreciation, amortisation and impairment 115 120Profit on disposal of property, plant and equipment (2) -Net retirement benefits 4 5Share based payments 15 16Movement in provisions (37) (11) ----------- -----------Operating cash flows before movements in working capital 1,513 1,441 ----------- -----------(Increase)/decrease in inventories (141) 59Increase in trade and other receivables (149) (99)Increase/(decrease) in trade and other payables 96 (10) ----------- -----------Movement in working capital (194) (50) ----------- -----------Taxation paid (320) (236) ----------- -----------Net cash flows from operating activities 999 1,155 ----------- ----------- 9. Analysis of net debt The movements in cash and cash equivalents, borrowings and derivative financialinstruments in the year were as follows: Cash and cash Current Non-current Derivative Total equiva-lents borrowings borrowings financial instruments £m £m £m £m £mAs at 1 Oct 2006 263 (1,122) (2,930) (90) (3,879)Exchange movements 13 17 (31) - (1)Cash flow 104 23 (1,030) - (903)Accretion of interest - 15 (62) - (47)Change in fair values - - - (58) (58) ----------- ----------- ----------- ----------- -----------As at 30 Sept 2007 380 (1,067) (4,053) (148) (4,888) ----------- ----------- ----------- ----------- ----------- Adjusted net debt Management monitors the Group's borrowing levels using adjusted net debt whichexcludes the fair value of interest rate derivative financial instruments andinterest accruals. 2007 2006 £m £mReported net debt (4,888) (3,879)Accrued interest 88 41Fair value of interest rate derivatives 15 16 ----------- -----------Adjusted net debt (4,785) (3,822) ----------- ----------- 10. Purchase of treasury shares During the year the Company continued its share buyback programme purchasing5,713,000 ordinary shares in Imperial Tobacco Group PLC for a total cost of £105million including expenses. The total number of shares held in treasury is51,717,000 representing 7.1% of the issued share capital. The total cost,including expenses, of shares held in treasury is £862 million. The sharespurchased to date have not been cancelled but are held in a treasury sharesreserve and represent a deduction from equity shareholders' funds. The sharebuyback programme was suspended on 8 February 2007 following the announcement ofthe agreement to acquire Commonwealth Brands. FINANCIAL CALENDAR Ex-dividend date for final dividend 16 January 2008Final dividend record date 18 January 2008Final dividend payable 15 February 2008 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Imperial Brands