Half Yearly Report

HALF YEARLY REPORT TO 31 MARCH 2011

Highlights

Delivering Sales Growth Through Total Tobacco Portfolio

§ Group sales growth driven by a strong performance in emerging markets outside the EU

§ Combined volumes of global cigarette brands Davidoff, Gauloises Blondes, West up 5 per cent

§ JPScigarette volumes up 16 per cent

§ Fine cut tobacco volumes up 5 per cent

§ Luxury handmade Cuban cigar sales up 16 per cent in non-EU markets

§ Snus volumes up 19 per cent

Ongoing Cost Optimisation

·; Disciplined investments supporting portfolio gains in consumer growth segments

Maximising Cash Returns: Dividend Growth and Share Buyback

·; Interim dividend of 28.1 pence up 16 per cent with Board confirming intention of 50 per cent dividend payout ratio in 2011

·; Post 2011 gradual increase in dividend payout ratio by steadily growing dividends per share ahead of adjusted earnings per share

·; £500 million per annum share buyback programme effective from today

Alison Cooper, Chief Executive, said:

"I'm pleased with how we are driving sales growth through our total tobacco portfolio across our international markets. We've delivered good first half results with tobacco net revenues up 3 per cent, earnings per share up 7 per cent and dividends increasing by 16 per cent.

"Spain remains difficult but we made gains elsewhere in the EU and our growth in emerging markets outside the EU was excellent. Our ongoing cost focus continues and disciplined investments are supporting the strong sales we are delivering in consumer growth segments.

"Our success translates into further dividend increases going forward and a £500 million annualised share buyback programme which is effective from today.

"I'm focused on maintaining our sales growth momentum and delivering a strong performance in the second half. We have the assets, the capabilities and the opportunities to continue to create significant value for our shareholders."

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, cigars, rolling papers and tubes. The Group has 51 manufacturing sites and around 38,000 employees and operates in over 160 markets.

Investor Contacts

Media Contacts

A live webcast of a presentation for analysts and investors will be available on www.imperial-tobacco.com from 9.00 am (BST). 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 +44 (0)20 3137 9137

Alison Cooper will host a media conference call at 7.30am (BST), at which there will be the opportunity for questions.

Dial in number: +44 (0)20 7806 1951 (UK)

Dial in number: +34 91 788 9937 (Spain)

Dial in number: +33 (0)1 7099 4304 (France)

Dial in number: +49 (0)69 5007 1306 (Germany)

Confirmation Code: 5415403

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

+44 (0)20 7111 1244

Access code: 5415403

Cautionary statement

Certain statements in this announcement 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 a forward-looking statement. Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. 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.

Chairman and Chief Executive's Statement

We delivered good results in the first half of 2011, with strong growth across our total tobacco portfolio. We increased volumes of our key cigarette brands, fine cut tobacco, luxury Cuban cigars and snus with gains in markets in the European Union and emerging markets outside the EU. Our focus on building sales whilst effectively managing our costs and cash flows are the key components of our successful growth strategy and enable us to create long term sustainable value for our shareholders.

Results and Dividends

Our performance in the first half of the year is better understood on a constant currency basis. This excludes the impact of foreign exchange translation, particularly in relation to the euro. On a constant currency basis tobacco net revenue grew by 3 per cent to £3.3 billion, tobacco adjusted operating profit was up 4 per cent to £1.4 billion and adjusted earnings per share grew by 7 per cent to 88.4 pence.

The Board has declared an interim dividend of 28.1 pence per share, which represents a third of last year's full year dividend, an increase of 16 per cent. This will be paid on 19 August 2011, with an ex-dividend date of 20 July 2011.

Share Buyback and Dividend Growth

Using our substantial cash flows effectively is a key element of delivering returns to our shareholders. Since the acquisition of Altadis, we have used our cash to significantly reduce our debt. We have already announced we will increase our dividend payout ratio to 50 per cent of adjusted earnings in our current financial year.

Post 2011 we envisage gradually increasing our dividend payout ratio by steadily growing dividends per share ahead of adjusted earnings per share.

In addition, we will begin a share buyback programme of £500 million on an annualised basis, effective from today.

Building Sustainable Sales Through Total Tobacco

Our portfolio is the most versatile and comprehensive in the industry, with strong representation in all tobacco products and across all prices. We have strong international, regional and local cigarette brands, we are the world leaders in fine cut tobacco, papers and cigars, and we have a growing snus business. This unique total tobacco approach gives us a competitive advantage in meeting changing consumer choices in EU and non-EU markets. There are growth segments in all these markets and we have the portfolio and the consumer understanding to capitalise on these opportunities. Investment in innovation and rejuvenating our brands and products supports our sales growth strategy, ensuring our portfolio remains relevant and appealing to consumers worldwide.

Our volume performance in the first half was particularly pleasing, with half year stick equivalent volumes declining just 0.7 per cent, despite significantly reduced volumes in Spain. Our cigarette volumes were down by 1.4 per cent and our strong momentum in fine cut tobacco resulted in volumes growing by 5 per cent.

We delivered excellent results from our global strategic cigarette brands Davidoff, Gauloises Blondes and West, particularly in emerging markets, and these brands collectively increased volumes by 5 per cent. Our investment in rejuvenating these brands has made them more dynamic and relevant to consumers, and together they have grown to 23 per cent of our total cigarette volumes.

We grew our premium brand Davidoff by 9 per cent with a very strong performance in key markets in Eastern Europe, Asia and the Middle East. We made good gains across Africa and the Middle East with volumes of our best-selling brand Gauloises Blondes up by 5 per cent following temporary supply disruption last year. Our leading international value brand West grew 1 per cent, performing well in Eastern Europe where we have expanded the franchise with our innovative West Fusion king size super slims variant.

We have developed JPS into a key international cigarette brand and achieved further success, improving volumes by 16 per cent with strong performances in Australia, Germany and UK.

We again improved our fine cut tobacco volumes by using our wide range of fine cut tobacco brands and products to capitalise on growth segments. Our expertise in developing popular cigarette brands into successful fine cut tobacco brands that appeal to consumers who are economising continues to deliver impressive results. Excellent performances from West, JPS and Route 66 fine cut tobacco products in Europe were among the highlights of our first half, with volumes growing 10 per cent, 6 per cent and 73 per cent respectively.

We also made further gains in papers and tubes, growing volumes by 8 per cent and 12 per cent respectively.

Snus is a smokeless tobacco product that is extremely popular with consumers in Sweden and Norway. Our snus business has developed rapidly in these markets and we further built on our strong track record of growth by increasing volumes by 19 per cent.

Our luxury Cuban cigar business features the most prestigious cigar brands in the world, including Cohiba and Montecristo. We delivered 2 per cent overall sales growth, a very pleasing performance given the challenges in Spain which is the largest market for Cuban cigars. Growth outside the EU was particularly strong with sales up 16 per cent.

Growth in EU and non-EU Markets

Our gains with our key cigarette brands, fine cut tobacco, luxury Cuban cigars and snus portfolio were spread across a number of our EU and non-EU markets. This broad geographic footprint and the versatility of our total tobacco portfolio provide many future growth opportunities. We are focused on building sales and we invest to support growth including supporting the development of our business in Eastern Europe, Asia and Africa and the Middle East. We also seek to develop into new markets by either extending our own operations or through partnership agreements.

Our success in keeping our portfolio relevant and appealing to consumers has again delivered good results in the EU. One of the key consumer trends is the move to value in these markets and we focus on providing consumers with quality value brands and products at an attractive price. As a result we have grown our cigarette shares in a number of markets.

Complementing our good cigarette performance were further significant fine cut tobacco gains, including improving our market shares in Central Europe.

Outside the EU we have continued to develop our cigarette brands in emerging markets. Highlights included capitalising on the super slims and king size super slims growth segments in Eastern Europe, with West, Davidoff and our regional brand Style. We also achieved good volume growth in Africa and the Middle East with Gauloises Blondes, Davidoff and another of our strong regional brands, Fine. We were pleased with our volume performance in the USA and made further good progress in a number of our Asia Pacific markets including Laos, Vietnam, Australia and New Zealand.

There is great potential for our luxury handmade Cuban cigar brands in emerging markets and we achieved significant growth in China, Russia, Brazil and the Middle East, which was key to improving sales outside the EU by 16 per cent.

Cost Optimisation

We maintained our cost management focus and are continuing to drive our business simplification and productivity initiatives across the Group to further reduce costs. Disciplined investments in brands and products and increasing our manufacturing capacity in consumer growth segments are supporting our sales growth. Examples include the strong results from our global strategic cigarette brands and our continued progress in building fine cut tobacco and snus volumes.

Effective Cash Utilisation

Our business remains highly cash generative due to effective working capital controls, disciplined capital expenditure and management of tax and interest costs. At 31 March 2011, our adjusted net debt was £10.1 billion, an increase of £0.8 billion since 30 September 2010 mainly due to seasonal working capital movements. Reported net debt was £10.9 billion. Cash conversion over the 12 month period to 31 March 2011 was 98 per cent. Our half year working capital cash flows improved on the same period last year and are in line with usual seasonal trends which are expected to unwind in the second half of the year.

Outlook

We are focused on maintaining our sales growth momentum and delivering a strong performance in the second half of the year and we are encouraged by the performance of our portfolio across our markets. Our expertise in total tobacco gives us great confidence in our future growth potential, with many opportunities to capitalise further on consumer growth segments.

While building sales we will continue to effectively manage costs and use the cash we generate to create additional value for shareholders. We have the assets, the capabilities and the opportunities to achieve long-term success. Our focus is on maximising our growth potential and delivering sustainable returns to our shareholders.

Operational Performance: Tobacco

EU Markets Overview

One of the key consumer trends in the EU is for value. Consumers are seeking value brands and products and we are well placed to capitalise on this trend given the versatility of our total tobacco portfolio. We have strong representation in all key tobacco segments and at all price points providing us with the flexibility to respond quickly to changing consumer preferences.

UK

UK Overview: UK consumers have continued to seek value with strong growth in the economy cigarette segment and in fine cut tobacco. We estimate that UK stick equivalent volumes were down 2 per cent to 54.8 billion (2010: 55.8 billion), reflecting growth in fine cut tobacco of 7 per cent and a cigarette market decline of 4 per cent. The cigarette market decline is in part due to the increase of VAT to 20 per cent in January 2011. In March 2011, the UK Government published its Tobacco Control Plan in which it extended the timetable for the introduction of tobacco product display bans.

UK Performance: There was a timing shift in the way our products are bought by UK trade retailers which has partially shifted our UK volumes from the first to the second half of the year. Our overall cigarette market share was broadly stable at 45.3 per cent with growth in our share of the economy segment, now at 44.2 per cent. This is due to the continued strong performance of our value cigarette brands JPS Silver and Windsor Blue, which have grown share up to 6.2 per cent and 6.1 per cent respectively (2010: 3.9 per cent and 3.5 per cent). In fine cut tobacco, we achieved strong growth in Golden Virginia Yellow and Gold Leaf volumes, although our overall share was down to 51.7 per cent reflecting declines in our premium brands. Further responding to the consumer value trend we launched JPS make your own and roll your own tobaccos in April.

Germany

Germany Overview: Similar to the UK, German consumers are continuing to economise and are looking for value brands and products in both cigarettes and fine cut tobacco. We estimate that overall stick equivalent volumes were broadly stable at 116.7 billion, reflecting a slight decline in the cigarette market and growth in fine cut tobacco, particularly in make your own tobacco. Regular, modest, inflation linked excise duty increases started in Germany on 1 May 2011 and will take place thereafter on 1 January on an annual basis until 2015. In 2011, these excise changes increased prices on cigarettes by eleven euro cents per pack and on fine cut tobacco by an average of 30 euro cents per 40g pack. In addition to these excise increases, we raised our prices on 1 May.

Germany Performance: Our focus on maximising the potential of our JPS brand franchise has been central to our success. Our overall cigarette share was up to 26.9 per cent with JPS up to 10 per cent of the cigarette market (2010: 9.0 per cent). We have grown the distribution of Gauloises Blondes over the past year and given downtrading in the market, the brand was resilient, remaining stable at 5.4 per cent. We have recently introduced Gauloises Blondes Selection, an additive free variant in the natural segment. We reinforced our leadership in fine cut tobacco increasing our share to 20.7 per cent with excellent progress particularly in make your own tobacco.

Spain

Spain Overview: Market conditions in Spain are difficult as consumers continue to economise. We estimate that overall stick equivalent volumes were down by 16 per cent to 65.1 billion (2010: 77.1 billion), with the cigarette market declining by 18 per cent and growth in fine cut tobacco of 18 per cent. This is as a result of the impact of the weak economy, recent duty increases and the ban on smoking in public places. The Spanish government increased excise duty on 4 December 2010 on both cigarettes and fine cut tobacco which we mainly passed onto consumers. In January 2011 a comprehensive public smoking ban was introduced which now includes restaurant, bars and cafes and is having a significant impact on the hospitality sector.

Spain Performance: We are market leaders across all major tobacco segments in Spain. In cigarettes, we have continued to increase our share of the growing value segment with Ducados Rubio, while Fortuna Red Line, launched in November 2010, had captured just over 1 per cent of the cigarette market by the end of March. In October 2010 we launched Nobel Style, a queen size cigarette which now leads the growing queen size segment. As a result, our domestic blonde market share has been on an improving trend in recent months. In fine cut tobacco we delivered a good domestic market performance, growing both our volumes and market share. Ducados Rubio fine cut tobacco delivered an excellent performance with strong volume growth and we also grew market share of Origenes. The economic conditions are affecting sales of luxury goods including Cuban cigars, but we have further developed our market share and continued to build on the leadership position of Coburn in the mass market segment.

Rest of EU

Rest of EU Overview:  We estimate that overall regional stick equivalent volumes were down by 4 per cent to 380.7 billion (2010: 397.2 billion), with cigarettes down 6 per cent and growth in fine cut tobacco of 6 per cent. A key market for us in this region is France where the tobacco market remained strong with stable cigarette and growing fine cut tobacco volumes. We increased prices in France in November 2010 and in many other markets across the region in the first half. We made a submission to the European Commission's consultation on the possible revision of the EU Tobacco Products Directive. The European Commission is currently reviewing over 85,000 responses to the consultation.

Rest of EU Performance: In cigarette, we made strong gains with JPS across this region. JPS volumes were up by 12 per cent, with growth in Portugal, Austria and Greece. In France we grew our profits although our domestic blonde market share was down to 22.8 per cent, with a robust performance from News. We also increased our cigarette market shares in a number of markets including Austria and Portugal. In fine cut tobacco, we have improved our regional fine cut tobacco volumes by 5 per cent and delivered fine cut tobacco market share gains in a number of markets in Central Europe particularly in Poland with Paramount and Route 66. With the trend to smaller mass market cigars we introduced a new range of Niñas pocket cigars in France which has been well received by consumers. In our successful snus business, we grew volumes by 19 per cent across Sweden and Norway with Skruf and Knox and with our additional factory capacity now fully operational, we are well placed to drive further growth.

Outlook: EU Markets

With our leading position across the EU region in many tobacco product categories, our strength in value brands and products and our consumer understanding, we are well positioned to continue to grow sales. The timing shift in the way our products are bought by trade retailers in the UK will unwind in the second half with no anticipated overall impact on our full year and we are focused on the success of our recent fine cut tobacco launches in a growing fine cut tobacco market. In Germany, we expect the tobacco market to remain strong and we are looking to build on the market share gains we have made with profits benefiting from our recent price increase. We expect difficult market conditions to persist in Spain but are well placed to capitalise on the growth in value brands and products as consumers continue to economise. A priority across the Rest of EU is to further drive sales of cigarettes and our cigarette branded fine cut tobacco products, whilst continuing to grow our snus business in Scandinavia.

Non-EU Markets Overview

We operate in a diverse array of markets outside the EU. Our main presence in the Americas is the USA, where consumers continue to seek value in both cigarettes and cigars in a very competitive environment. In our Rest of the World region we are capitalising on the considerable opportunities there are for us to develop our business. We are driving growth through the success of our global strategic cigarette brands and our strong portfolio of local and regional brands.

Americas

USA Overview: We estimate that the overall cigarette market declined by 3 per cent to 291.8 billion (2010: 300.4 billion) in line with historic, longer term trends, while in cigars, the trend towards smaller sized mass market cigars and cigarillos has continued. The USA tobacco industry is regulated by the Food and Drug Administration (FDA) and the FDA's Tobacco Products Scientific Advisory Committee (TPSAC) has been debating the future of menthol in cigarettes and in March 2011 issued a report that is currently being reviewed by the FDA.

USA Performance: In cigarette, our market share remained stable at 3.9 per cent. In December 2010, in line with other tobacco companies, we increased prices across our portfolio. In cigars, we delivered a positive performance in natural wrapper cigars, our largest category in the mass market segment, with Backwoods performing well. In addition, we delivered good growth across our premium handmade cigar business. We have continued to grow our distribution and trade marketing capabilities with a revised retail incentive scheme and an improved route to market and are integrating our cigarette and cigar mass market business to further strengthen our competitive position.

Rest of the World

Rest of the World Overview: Our Rest of the World region offers many growth opportunities. We grew profits by over 30 per cent in Eastern Europe, by over 20 per cent in Asia Pacific and by just under 10 per cent in Africa and the Middle East. Our global strategic cigarette brands, Davidoff, West and Gauloises Blondes have delivered excellent results with regional volumes up by 10 per cent. Given the diversity of this region, levels of regulation vary and we continue to proactively engage in the many ongoing debates. This includes strongly opposing the plain packaging of tobacco products in Australia.

Rest of the World Performance

In Africa, our cigarette market shares were up in a number of markets and our key regional brand Fine built on its positive momentum, growing across the region. With recent political instability in some parts of Africa and the Middle East, ensuring the safety of our employees has been our immediate priority. The tobacco monopoly in Morocco ended in December 2010 and we have increased our overall market share with a good performance from Marquise and Gauloises Blondes. In the Middle East, we have grown volumes of Davidoff and Gauloises Blondes and increased our cigarette market shares in Saudi Arabia and the United Arab Emirates.

In Eastern Europe, we have grown Davidoff and West significantly, with volumes up by 7 per cent and 10 per cent respectively, particularly in the consumer growth segments of king size super slims and super slims. Price increases in a number of markets in the region have improved profits. Although cigarette volumes in our major markets of Ukraine and Russia, remain in decline, the rate of decline has slowed and there are positive signs that overall economic conditions have started to improve. In Russia, Davidoff, West and Style have performed strongly, and our positioning of our value brand Balkan Star has grown profits although volumes declined, impacting our overall market share at 8.5 per cent. In Ukraine, we extended our cigarette market share to 22.2 per cent, with Davidoff and Style key drivers of growth. Highlights elsewhere include our market share improvements in the Caucasus, particularly in Azerbaijan with Classic, in Georgia with Gauloises Blondes and in Kazakhstan with Davidoff.

In Asia Pacific, we delivered a strong performance in Australia and New Zealand where we posted excellent cigarette market share growth up to 18.4 per cent and 19.8 per cent respectively. This was due to our continued success from JPS in both markets, with Horizon supporting our overall performance in Australia. In Taiwan, we have continued to grow our distribution and improved our profitability. Our market share was just under 11 per cent with a robust performance from Davidoff, given downtrading in the market. Elsewhere we increased shares in a number of markets, including in Laos and Vietnam and, following our agreement with KT&G last year, we continued to build sales of Davidoff in South Korea.

Our luxury Habanos cigar portfolio has made good progress in some key Western European countries, Russia, Brazil, the Middle East and Asia, particularly in China. We have continued to innovate and develop new products to drive growth. Our core brands, especially Cohiba, were particular highlights during the first half of the year with consumers responding very positively to the new offerings and limited editions we have introduced.

Outlook: Non-EU Markets

In markets outside the EU there are many opportunities to grow sales and further expand our presence. We will build on the results we have delivered in the first half of the year, particularly with our global strategic cigarette brands Davidoff, Gauloises Blondes and West and our luxury Cuban cigar portfolio. In the USA, the market remains competitive and we will be strengthening our position by integrating our cigarette and mass market cigar sales forces. In Eastern Europe, market conditions in Russia and Ukraine are more stable and we are focused on increasing our market shares in growing consumer segments. In Africa, market volumes are growing and our strong portfolio of local and regional brands should continue to perform well, while in the Middle East we seek to further grow sales, particularly with Davidoff and Gauloises Blondes. In Asia Pacific, we will continue to drive improvements from our portfolio across the region.

Operational Performance: Logistics

Logistics Overview: Our logistics business covers multiple products and channels with operations in Spain, France, Italy, Portugal and Poland and we are focused on widening the products that we can offer to each point of sale and increasing the countries and channels that we represent. Spain remains a challenging market, given the declines in the tobacco market and current economic conditions.

Logistics Performance: In tobacco logistics, we grew volumes of cigars and roll your own products and increased our distribution fees which has partially offset the impact of the challenging cigarette market in Spain. Across our other logistics business, we signed an exclusive contract in the convenience sector with Repsol petrol stations in Spain. Following the signing of our joint venture last year to provide a range of services to one of the Spanish Lottery companies, we are focused on further developing points of sale, particularly in the hospitality sector.

Logistics Outlook: In the second half of our current financial year, we will continue to identify growth opportunities and manage our costs to ensure we maximise profitability in a difficult environment.

Financial Performance

We have delivered another good financial performance which highlights the strength of our growth strategy. The analysis of our financial performance focuses on our adjusted measures, which reflect the way in which we control the business and we believe provide a useful comparison of business performance.

Our performance in the first half of this year has been affected by foreign exchange movements as the euro has weakened against the pound, with average euro to sterling exchange rates moving by 4.6 per cent compared to the same period last year. Our operational performance is better understood on a constant currency basis, where exchange translation (but not transactional) effects were removed by applying exchange rates in the first half of 2010 to results in the first half of 2011.

Revenue Performance

Reported and non-GAAP revenue

Growth in revenue reflects the gains we have made with our global strategic cigarette brands Davidoff, West and Gauloises Blondes, price increases and our growing volumes in Germany, Americas and our Rest of the World region. This positive performance was impacted by a timing shift in the way our products were bought by UK trade retailers in the first half of this year and the continued market challenges in Spain which have affected both our Tobacco and Logistics businesses.

We grew our tobacco net revenue by 2.7 per cent, excluding a £61 million foreign exchange impact while our logistics distribution fees were impacted by currency effects of £21 million and were down by 1.5 per cent on a constant currency basis.

Group Earnings Performance

Similar to net revenue, adjusted operating profit was adversely affected by exchange rate movements, impacting our Tobacco business by £17 million and our Logistics business by £4 million. On a constant currency basis we grew our Tobacco adjusted operating profit by 3.8 per cent. As well as the net revenue growth we delivered, profits benefited from our focus on costs and we improved our adjusted operating margins. Logistics adjusted operating profit was down by 3.4 per cent on a constant currency basis as a result of the continued challenges in the Spanish tobacco market.

Adjusted net finance costs were 7 per cent lower than in 2010, or by 3 per cent on a constant currency basis, reflecting further repayment of bank debt partially offset by an increase in the average cost of net debt.

After tax at our effective rate of 24.5 per cent (2010: 26.0 per cent), adjusted earnings per share grew by 6.3 per cent, or 7.0 per cent after excluding foreign exchange impacts.

Reported earnings per share was 91.3 pence (2010: 68.0 pence) reflecting both our adjusted results and the effects of fair value movements on derivative financial instruments, amortisation of acquired intangibles, the release of certain tax provisions and other adjusting items as outlined below.

Reconciliation of Adjusted Performance Measures

Amortisation of acquired intangibles fell to £210 million (2010: £231 million) as a number of these assets became fully written down.

We exclude fair value gains and losses on derivative financial instruments providing commercial hedges from adjusted net finance costs. Fair value losses on derivative financial instruments included in reported net finance costs were £47 million compared with gains of £96 million in the first half of last year.

The net financing cost of post-employment benefits amounted to £4 million compared with £8 million in 2010.

The release of tax provisions of £205 million due to the resolution of certain prior year tax matters has significantly reduced our reported tax charge. We have excluded this gain from our adjusted performance measures to aid comparability and understanding of the Group's performance.

Geographic Analysis of Tobacco

Overall Volume Performance

Tobacco: Regional Net Revenue Analysis

Tobacco: Regional Adjusted Operating Profit Analysis

Tobacco Regional Financial Results

The currency effects on net revenue and adjusted operating profit were significant and are shown by region in the tables above. Growth rates in the analysis below excludes these exchange effects.

EU Market Performance

UK net revenue fell by 5 per cent to £418 million reflecting the timing shift in the buying patterns of UK retailers as well as downtrading. Adjusted operating profit declined by 5 per cent to £281 million. In Germany, we grew both our volumes and market shares, growing our net revenues by one per cent and adjusted operating profit rose £4 million to £212 million. In Spain, excluding currency effects of £12 million, net revenue declined by 7 per cent, reflecting the challenges in the Spanish tobacco market. As a result, adjusted operating profit was down 12 per cent. In the Rest of EU, net revenue grew by 5 per cent reflecting a strong sales performance in a number of markets, with adverse currency effects on net revenue of £35 million. Adjusted operating profit was £8 million lower at £311 million, but was up 2 per cent excluding currency effects.

Non-EU Market Performance

In the Americas, net revenue was down one per cent at £335 million as we continued to invest in the price support of our brands in a competitive environment. Adjusted operating profit rose by £4 million to £105 million, reflecting improved cigarette volumes and cost savings. We delivered a strong financial performance in the Rest of the World, with net revenue increasing by 9 per cent reflecting volume and share growth in a number of markets and across different product categories, including our global strategic cigarette brands and luxury Cuban cigars. Constant currency adjusted operating profit rose 18 per cent, as operating margins were further enhanced.

Synergies

Profits continued to benefit from the incremental synergies from the Altadis acquisition and we remain on track to deliver euro 400 million of synergies by the end of 2012.

Logistics

Logistics distribution fees were impacted by £21 million as a result of foreign exchange, with constant currency distribution fees down £7 million due to difficult economic conditions in Spain. Logistics adjusted operating profit of £80 million was £7 million lower than last year, of which £4 million was due to the weakening euro.

Net Finance Costs

Adjusted net finance costs fell 7 per cent to £280 million, a reduction of 3 per cent on a constant currency basis, as we used our strong cash flow to pay down debt. Reported net finance costs of £331 million (2010: £214 million) include fair value losses of £47 million (2010: gains of £96 million) on derivative financial instruments providing commercial hedges and post-employment benefits net finance expense of £4 million (2010: £8 million). Our all in cost of debt was higher at 6.1 per cent (2010: 5.2 per cent) primarily reflecting the expected change in our debt mix. For covenant purposes, based on 12 months to March 2011 our interest cover was 5.6 times (2010: 4.9 times).

Cash Flows and Financing

Our reported net debt was £10.9 billion, up from £10.0 billion at 30 September 2010 primarily due to the seasonal increase in working capital which we expect to unwind in the second half of the year. Reported net debt was £1.4 billion lower than at 31 March 2010. Eliminating accrued interest, the fair value of derivatives providing commercial cash flow hedges and finance lease liabilities, our adjusted net debt was £10.1 billion, up by £0.8 billion since 30 September 2010 but reduced by £1.3 billion since 31 March 2010.

This 12 month reduction in adjusted net debt was supported by our 98 per cent cash conversion over the year to 31 March 2011. Working capital management remains a key priority for us. Outflows in the half year of £0.7 billion were £0.1 billion lower than in the same period in 2010, despite including the unwinding of last year's one-off benefit in our Italian Logistics business of £0.1 billion.

The denomination of our closing adjusted net debt was 47 per cent euro, 10 per cent US dollar and 43 per cent sterling. At 31 March 2011, we had committed financing facilities in place of around £12 billion. Some 30 per cent was bank facilities with the balance raised through capital market bond issues.

We remain fully compliant with all our banking covenants and remain committed to retaining our investment grade ratings.

Principal Risks and Uncertainties

The principal risks and uncertainties to which the Group is exposed and our approach to managing those risks are unchanged from those identified on pages 25 to 27 of our 2010 Annual Report and Accounts, and cover the following areas:

·; the degree of regulation in the Group's markets;

·; the levels of excise duty applied in the many markets in which the Group operates;

·; the illicit trade of tobacco products;

·; the Group's performance being dependent on key markets;

·; the potential impact of competition law in the Group's markets;

·; the Group's exposure to tobacco-related litigation; and

·; the levels of the Group's borrowings and prevailing interest rates.

It is the Board's view that the principal risks and uncertainties surrounding the Group in the second half of the financial year remain those set out in the 2010 Annual Report and Accounts.

The Board considers that having taken into account the Group's plans and financial commitments the Group has sufficient resources to meet its expected requirements over the next twelve months.

Statement of Directors' Responsibilities

The directors confirm that this condensed consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

·; an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·; material related party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

At our Annual General Meeting in February, Graham Blashill, Group Sales and Marketing Director retired from the Board. We have also made two key sales and marketing appointments to our Operating Executive to further drive our sales growth agenda. Arthur van Benthem, formerly Customer Management Director of the Metro Group, joined the company as Group Sales Director in March, to work closely with Robert Funari who was appointed Group Marketing Director in November, having previously been Global Category Officer for Reckitt Benckiser.

A list of current directors is maintained on the Imperial Tobacco Group website: www.imperial-tobacco.com

By order of the Board

Financial Statements

Independent Review Report

to Imperial Tobacco Group PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half yearly financial report for the six months ended 31 March 2011, which comprises the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated Cash Flow Statement and related notes. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' Responsibilities

The half yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in the Accounting Policies section, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half yearly financial report has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half yearly financial report for the six months ended 31 March 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

PricewaterhouseCoopers LLPChartered AccountantsBristol10 May 2011

Notes

(a) The maintenance and integrity of the Imperial Tobacco Group PLC website is the responsibility of the Directors; the work carried out by the Auditors does not involve consideration of these matters and, accordingly, the Auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Consolidated Income Statement

for the six months ended 31 March 2011

All activities derive from continuing operations.

Consolidated Statement of Comprehensive Income

for the six months ended 31 March 2011

Reconciliation from operating profit to adjusted operating profit

Reconciliation from net finance costs to adjusted net finance costs

Consolidated Balance Sheet

at 31 March 2011

Consolidated Statement of Changes in Equity

for the six months ended 31 March 2011

Consolidated Cash Flow Statement

for the six months ended 31 March 2011

Accounting Policies

Basis of Preparation

The financial information comprises the unaudited results for the six months ended 31 March 2011 and 31 March 2010, together with the audited results for the year ended 30 September 2010.

The information shown for the year ended 30 September 2010 does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006, and is an abridged version of the Group's published financial statements for that year. The Auditors' Report on those statements was unqualified and did not contain any statements under section 498 of the Companies Act 2006. The financial statements for the year ended 30 September 2010 were approved by the Board of Directors on 2 November 2010 and filed with the Registrar of Companies.

This condensed consolidated financial information for the six months ended 31 March 2011 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 Interim Financial Reporting as adopted by the European Union. The condensed consolidated financial statements for the six months ended 31 March 2011 should be read in conjunction with the annual financial statements for the year ended 30 September 2010 which have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The Group's principal accounting policies used in preparing this information are as stated in the financial statements for the year ended 30 September 2010, which are available on our website www.imperial-tobacco.com. The effect of changes in accounting standards and interpretations is considered at the end of this section.

Critical Accounting Estimates and Judgements

The Group makes estimates and judgements regarding the future. Estimates and judgements are continually evaluated based on historical experience, and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

In the future, actual experience may deviate from these estimates and judgements. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the current financial year are discussed in the financial statements for the year ended 30 September 2010.

Use of Adjusted Measures

Management believes that reporting non-GAAP or adjusted measures provides a useful comparison of business performance and reflects the way in which the business is controlled. Accordingly, adjusted measures of operating profit, net finance costs, profit before tax, taxation, attributable earnings and earnings per share exclude, where applicable, acquisition accounting adjustments, amortisation of acquired intangibles, restructuring costs, post-employment benefits net financing cost, fair value gains and losses on derivative financial instruments in respect of commercially effective hedges and related taxation effects and significant one-off tax provision charges or credits arising from the resolution of prior year tax matters. Reconciliations between adjusted and reported operating profit are included within note 1 to the financial statements, adjusted and reported net finance costs in note 2, adjusted and reported taxation in note 3, and adjusted and reported earnings per share in note 5. The adjusted measures in this report are not defined terms under IFRS and may not be comparable with similarly titled measures reported by other companies.

The items excluded from adjusted results are those which are one-off in nature or which arose due to acquisitions and are not influenced by the day to day operations of the Group, and the movements in the fair value of financial instruments which are marked to market and not naturally offset. Adjusted net finance costs also excludes all post-employment benefit net finance cost since pension assets and liabilities and redundancy and social plan provisions do not form part of adjusted net debt. This allows comparison of the Group's cost of debt with adjusted net debt. The adjusted measures are used by management to assess the Group's financial performance and aid comparability of results year on year.

The principal adjustments made to reported profits are as follows:

Acquisition Accounting Adjustments

Acquisition accounting adjustments eliminate costs charged to the income statement as a consequence of investigations into alleged foreign trading violations in the period prior to our acquisition of Reemtsma and which have been recovered from the sellers. IFRS 3 requires that adjustments to the cost of an acquisition are taken to goodwill, whereas changes in measurement of assets and liabilities after the provisional fair value period are taken to the income statement. These items have been excluded from our adjusted earnings measures since the costs do not relate to the trading performance of the Group and the amounts have been recovered from the sellers.

Amortisation of Acquired Intangibles

Acquired intangibles are amortised over their estimated useful economic lives where these are considered to be finite. Acquired intangibles considered to have an indefinite life are not amortised. We exclude from our adjusted measures the amortisation of acquired intangibles, other than software, and the deferred tax associated with amortisation of acquired intangibles and tax deductible goodwill. The deferred tax liability is excluded on the basis that it will only crystallise upon disposal of the intangibles and goodwill. The related current cash tax benefit is retained in the adjusted measure to reflect the ongoing tax benefit to the Group. Impairment of goodwill is also excluded from our adjusted measures.

Fair Value Gains and Losses on Derivative Financial Instruments

IAS 39 requires that all derivative financial instruments are recognised in the balance sheet at fair value, with changes in the fair value being recognised in the income statement unless the instrument satisfies the hedge accounting rules under IFRS and the Group chooses to designate the derivative financial instrument as a hedge.

The Group hedges underlying exposures in an efficient, commercial and structured manner. However, the strict hedging requirements of IAS 39 may lead to some commercially effective hedge positions not qualifying for hedge accounting. As a result, and as permitted under IAS 39, the Group has decided not to apply cash flow or fair value hedge accounting for its derivative financial instruments. However, the Group does apply net investment hedging, designating certain borrowings and derivatives as hedges of the net investment in the Group's foreign operations, as permitted by IAS 39, in order to minimise income statement volatility.

We exclude fair value gains and losses on derivative financial instruments providing commercial hedges from adjusted net finance costs. Fair value gains and losses on the interest element of derivative financial instruments are excluded as they will reverse over time or are matched in future periods by interest charges. Fair value gains and losses on the currency element of derivative financial instruments are excluded as the relevant foreign exchange gains and losses on the commercially hedged item are accumulated as a separate component of other comprehensive income in accordance with the Group's policy on foreign currency.

Restructuring Costs

Significant one-off costs incurred in integrating acquired businesses and in major rationalisation initiatives together with their related tax effects are excluded from our adjusted earnings measures. These costs include the impairment of property, plant and equipment which are surplus to requirements due to restructuring activity.

Post-Employment Benefits Net Financing Cost

The expected return on plan assets and the interest on retirement benefit liabilities, together with the unwind of discount on redundancy and social plans costs included in restructuring provisions, are reported within net finance costs. These items together with their related tax effects are excluded from our adjusted earnings measures.

Tax Provisions

Significant one-off tax charges or credits arising from the resolution of prior year tax matters are excluded from our adjusted tax charge to aid comparability and understanding of the Group's performance.

Other Non-GAAP Measures Used by Management

Net Revenue

Under our normal continuous review process to ensure our reporting remains relevant and useful we have revised the definition of our Tobacco non-GAAP revenue measure to exclude revenue from products which are not part of our core business of manufacturing and selling tobacco and tobacco-related products. Under the revised definition with effect from 1 October 2010 net revenue comprises the Tobacco business revenue less associated duty and similar items less revenue from the sale of peripheral and non-tobacco-related products. Comparatives have been restated in line with the revised definition. Management considers this an important measure in assessing the profitability of Tobacco operations.

Distribution Fees

Distribution fees comprises the Logistics segment revenue excluding the cost of distributed products. Management considers this an important measure in assessing the profitability of Logistics operations.

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

New Accounting Standards and Interpretations

The following standards and interpretations became effective for the current reporting period:

IFRS 2 (amendment) Group Cash-Settled Share-Based Payments

IFRIC 15 Agreements for the Construction of Real Estate

IFRIC 18 Transfers of Assets from Customers

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

Application of these standards and interpretations has not had a material impact on the net assets or results of the Group.

The following standards and interpretations were issued but application was not mandatory for the period:

IFRS 9 Financial Instruments

IFRIC 14 (amendment) Prepayment of a Minimum Funding Requirement

The Directors anticipate that the adoption of these standards and interpretations will have no material impact on the net assets or results of the Group.

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 (which superseded the Chief Executive's Committee on 1 October 2010 as the chief operating decision maker for the purposes of IFRS 8) regularly reviewed during the period 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, 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

Logistics

Revenue

Tobacco net revenue

Following a change in definition as described in the Accounting Policies note, Tobacco net revenue excludes revenue from the sale of peripheral and non-tobacco products of £168 million (2010 6 months: £127 million, year: £262 million), with prior period data restated accordingly.

Adjusted operating profit and reconciliation to profit before tax

2. Net Finance Costs

Reconciliation from reported net finance costs to adjusted net finance costs

3. Taxation

Reported taxation

Reported tax for the six months ended 31 March 2011 has been calculated on the basis of an estimated effective rate for the year ended 30 September 2011.

The change in UK Corporation tax rate to 26% from 1 April 2011 does not have a material impact on the Group's tax position.

During the six months ended 31 March 2011 certain outstanding matters were resolved with tax authorities. The reported tax charge for the period includes a net release of £205 million of tax provisions following resolution of these matters. This release is excluded from the adjusted tax charge to aid comparability and understanding of the Group's performance.

Reconciliation from reported taxation to adjusted taxation

Adjusted taxation for the six months ended 31 March 2011 has been calculated on the basis of an estimated adjusted effective rate of 24.5% for the year ended 30 September 2011 (2010: 26.0%).

The table below shows the adjustments made to reported taxation in order to arrive at the adjusted measure of earnings disclosed in note 5.