[Intl-tobacco] Imperial Tobacco profile

[rob@essential.org]

On Track - Tobacco Reporter
December 2003 Issue

With the successful integration of Reemtsma, soaring profits and new
ventures under way, Imperial is on target.

Imperial Tobacco Group of the U.K. is on track-it has surpassed its own
expectations of last year's acquisition of Reemtsma and plans are under way
to further strengthen and grow its international operations. The company's
net profit for 2003 was 421 million pounds (=A31=3Dus$1.69), compared with =
=A3272
million last year, a 55 percent increase. Sales increased 37 percent to
=A311.41 billion and adjusted operating profit jumped 44 percent to =A31.14
billion.

This year marked the first full year Imperial was able to incorporate
Reemtsma results into its earnings. The U.K. company said that syn ergies
realized from the Reemtsma acquisition amounted to =A3150 million, exceedin=
g
initial estimates of =A3140 million. Gareth Davis, Imperial's chief executi=
ve,
said there will be more scope for savings from the Reemtsma deal. For next
year the company has improved its synergy projections to =A3210 million,
against an initial target of =A3170 million.

"We have never been in a better position to continue our proven track recor=
d
of driving sustained profitable growth," said Davis.

Imperial is not resting on its laurels from the Reemtsma acquisition. The
company is actively pursuing other ventures. It recently announced a 10-yea=
r
commercial agreement with the Yuxi Hongta Group for the production and
distribution of its West cigarettes in China. Production is expected to
begin before the end of the year, and Imperial is optimistic that with a
market of 1.7 trillion sticks, the endeavor will prove to be successful. Th=
e
venture will cost Imperial =A35 million a year.

Though Imperial did not place a bid for Tekel, it is making inroads into th=
e
Turkish market. The company will soon begin construction of a cigarette
factory in Izmir, which is expected to become fully operational in early
2005. Imperial will invest us$50 million in the new facility.

Imperial is steadily marking its growth in other markets too. Its market
share in Greece is at its highest level ever at 6.9 percent, led by the
success of Davidoff. Spain is another growth region, with an increased
market share of 4.2 percent, up from 3.7 percent in 2002. In Russia,
Imperial's market share is up for the third year in a row, currently at 5.1
percent, and the company is significantly increasing its capacity to meet
the market demand for its Davidoff, West and R1 brands. And in Dublin,
Ireland, a new making and packing facility is expected to become operationa=
l
in the first half of next year.

Clearly, from the new ventures in China and Turkey, Imperial is eager to
expand into new markets. Despite pulling out of the Tekel auction, Davis
says that the company is interested in other pending privatizations such as
Taiwan and Thailand. "Imperial is in good shape to compete for assets."

CORE MARKETS. While claiming success in markets across the globe, Imperial
has also been thriving in its core markets-the U.K. and Germany-despite
litigation woes and tax hikes. The U.K. is in the midst of its first tobacc=
o
compensation case, in which a smoker's widow is suing Imperial for =A3500,0=
00.
A decision is expected next year. In addition, other U.K. legislation has
significantly restricted tobacco ad vertising and sponsorship, but Imperial
proved resilient and successfully strengthened its brand avail ability and
visibility at point-of-sale. Its market share in the U.K. is at its highest
level in 20 years, 44 percent, cementing it as the market leader in the
country (see sidebar).

And in Germany, the government's excise duty increases have seen the
cigarette market decline by 6 billion sticks to 138 billion sticks in the
past year. Here, Imperial has cleverly focused on roll-your-own products, a
segment that grew 9 percent this year in Germany. Overall, Imperial's marke=
t
share in Germany grew to 21.4 percent this year, up from 21.1 percent in
2002.

This same scenario is being played out in France as well. Confronted with
consistent tax increases, the French market declined 7.6 percent in 2003,
but Imperial grew its RYO market share to 30 percent, making it profitable
in an otherwise struggling market.

"In an environment of regular tax increases, we expect to see increasing
market segmentation with down trading in cigarettes and migration to other
tobacco products. With our market leadership position in other tobacco
products, we continue to be well-positioned to benefit from the changing
market dynamics," said a recent company statement.

Imperial, along with the rest of the industry, faces steep challenges in th=
e
coming year. A recovery from the SARS epidemic is under way in the
Asia-Pacific region, particularly in Taiwan, China, Singapore and Hong Kong=
.
Tax hikes continue to litter parts of Western Europe and are sure to
encourage European cross-border shopping. And U.S.-style litigation is
spreading to Europe and other parts of the world as legal teams prime
tobacco company's defenses. "The next few years will be challenging, but we
believe we are well-placed to meet these challenges," said a company
statement.