Building Total Tobacco Brands

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Imperial Tobacco Group PLC Annual Report and Accounts 2012 this year. this year. further differentiate us, further differentiate us, Davidoff in the second half Davidoff iD Davidoff iD

We delivered 9 per cent volume growth in our 9 per cent volume growth delivered We brand key strategic premium Cover image: of the year was a major portfolio initiative to accelerate momentum behind the brand. The launch of Building Total Tobacco Brands Tobacco Building Total Our unique values Our total tobacco portfolio and our Our total tobacco portfolio set us understanding of consumers and provides apart from our competitors opportunities. significant future growth with each other guiding the way we work and our stakeholders. We employ 37,000 people and sell our employ 37,000 people We more than 160 countries products in world. around the We’re a leading international tobacco company tobacco company a leading international We’re value track record of creating with a strong for our shareholders. Who we are Who we

Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco www.imperial-tobacco.com Introduction

Overview Strategic Review Performance Risk Governance Financials 1 Overview Strategic Review Performance Risk Governance Financials Strategy in Action See how our focus on sales drivers growth and key enablers is delivering success. Governance how explain We high standards of governance to important are our long-term sustainability. eholder Information eholder Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Board of Directors Board PLC Group Members of Imperial Tobacco Income of Comprehensive Consolidated Statement of Independent Auditors’ Report to the Members PLC Group Imperial Tobacco Notes to the Financial Statements of PLC Group Imperial Tobacco Supplementary Information Directors’ Report: Governance Report: Directors’ Financial Statements and Notes Financial Statements 141 Principal Undertakings 141 Principal 143 Shar 58 Chairman’s Introduction 58 Chairman’s 60 95 Report to the Independent Auditors’ 64 Board Committees 64 Board 70 Governance Report Directors’ 77 Remuneration Report Directors’ 96 Statement Consolidated Income 97 98 Sheet Consolidated Balance 99 Consolidated Statement of Changes in Equity 100 Consolidated Cash Flow Statement 101 Notes to the Financial Statements 137 138 PLC Balance Sheet Group Imperial Tobacco 139 IBC Index Our Business Model outline how We our business model creates value for our shareholders. Operating Review how show We driving we’re quality growth our across balanced geographic footprint. Model Review Governance, Assurance and Compliance Key Performance Indicators Directors’ Report: Strategic Review Directors’ Report: Performance Directors’ Directors’ Report: Overview Report: Directors’ Directors’ Report: Risk Management Directors’ IFC Introduction 2 Business 52 Principal Risks and Uncertainties In this report 37 Corporate Responsibility Review Management 48 Risk 50 5 Chairman’s Statement 4 5 Chairman’s Results in Brief 8 11 Review Chief Executive’s 12 People and Values Tobacco 14 Drivers Sales Growth 18 Total Enablers 20 Key 22 Case Study: Russia Review 28 Operating 33 Logistics 34 Financial Contents see p18 Total Tobacco Read more in our Read more on p8 strategic review

It’s a portfolio for all consumers, whatever their choices, a portfolio for all consumers, It’s exciting consumer experiences we’re and includes new and innovation. through creating our drivers and doing with all our sales growth The work we’re and our to our long-term sustainability, key enablers is essential shows how we bring our strategy to life business model below for our shareholders. to maximise returns see p15 see p17 Customer Innovation Engagement see p20 Sales drivers growth Key enablers Consumer insights see p16 see p14 Shaping our environment Pricing Portfolio Management Operation & supply chain alignment

Our Business Model We focus on delivering high quality sustainable sales growth, growth, on delivering high quality sustainable sales focus We ows. ﬂ managing our costs and cash whilst effectively approach; our differentiated Our success is built around consumer understandings to realise applying our in-depth tobacco portfolio. the potential of our total unique asset encompassing a diverse array a Our portfolio’s to smokeless, cigarettes from brands and products, of great cut tobacco to cigars. ne ﬁ from Our Strategy

Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco How we create valueHow we create value Business Model Business

Overview Strategic Review Performance Risk Governance Financials 2 3 Overview Strategic Review Performance Risk Governance Financials . Read about our policy on p77 on remuneration Read more on our sales Read more drivers on p14 and growth our key enablers on p20

Reward our people to be want We fairly compensated and on incentivised to deliver our strategy How our Business Model Works tobacco building total We’re brands that deliver high quality sustainable growth. cash This generates strong ows which we use to ﬂ in the business and reinvest our shareholders. reward Applying our sales growth drivers to our total tobacco portfolio, supported by our focus on key enablers, drives at sustainable sales growth high margins. Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Read about how we manage our risks on p48

Strong Returns Risk Management manage identify, actively We facing and mitigate the risks our business. Cash Flow Maximising Shareholder eation. ts Read about how we on p37 operate responsibly

High Responsibility Operating in a responsible manner is how we do business and supports sustainable value cr Proﬁ Margin Reinvest nance we’ve Read about our governance on p58

Sales Governance of The high standards corporate gover the embedded throughout essential for business are ensuring our long-term sustainability. Supporting Sustainable Sales Growth Sales Sustainable Supporting KPI t 1 % £3,161m 1

ss stated otherwise. % +8 2012: For our ﬁ nancial performance For our ﬁ see p34

es in issue during the period, +4 Adjusted operating profi Adjusted operating % 201.0 2012: 105.6p fectively. 11 12 Dividend per share +11 188.0 1 nition 10 178.8 Adjusted Earnings per Share (pence) Adjusted Earnings per Share % excluding shares held to satisfy employee share plans and held to satisfy employee share excluding shares shares. by the Company and held as Treasury purchased shares Defi t after tax is adjusted profi Adjusted earnings per share attributable to the equity holders of the Company divided by the weighted average number of shar Performance adjusted earnings to 201.0 pence, have grown per share We up by 8 per cent, as we’ve continued to build on our sales momentum whilst ensuring costs and cash continue to be managed ef KPI 2012: £7,005m +4 Tobacco net revenue Tobacco 1 Imperial Tobacco FTSE 100 % 2012: 201.0p +8 09 10 11 12 % Adjusted earnings per share

2012: 336.6bn 07 08

Stick equivalents -2.7 centage points. However, over ﬁ ve years we have over ﬁ centage points. However,

eholders resulting from the movement in the share price the movement in the share from eholders resulting nition Total Shareholder Return Shareholder Total 75 100 125 150 175 1 basis unle on a constant currency are in our adjusted results and decreases increases the Annual Report percentage Throughout

Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco performed and assuming dividends are immediately reinvested in shares. immediately reinvested and assuming dividends are How we have outperformed by 34 per cent. With dividends reinvested £100 outperformed by 34 per cent. With dividends reinvested ve years ago would now be ﬁ invested in Imperial Tobacco to £106 invested in the FTSE 100 Index. worth £142 compared Deﬁ Return gain to Shareholder is the total investment Total shar Performance In 2012, we underperformed the FTSE 100 Index by 8 per Results in Brief in Results

Overview Strategic Review Performance Risk Governance Financials 4 5 Overview Strategic Review Performance Risk Governance Financials d and our talented ss stated otherwise. Chairman

Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Iain Napier 2012 annual report which report 2012 annual our putting how we’re describes growth into action, strategy for ensure that we’re and how we the best interests governed in of our stakeholders.” Iain Napier Chairman “ I’m pleased to introduce our introduce pleased to I’m “ work. for their dedication and hard the world people around that we continue to aims to ensure Our ongoing strategic focus long-term sustainable value for our shareholders. create We have further enhanced the skill set and mix of backgrounds have further enhanced the skill set and mix of backgrounds We with a number of appointments and experiences of the Board during the year. was Director, Corporate & Legal Affairs Matthew Phillips, Group on 1 June Director as Corporate Affairs appointed to the Board plays in Corporate Affairs cant role ecting the signifi 2012, refl strategy. supporting our sales growth Malcolm also appointed two Non-Executive Directors: We internationalWyman and David Haines. Both bring considerable range of industries. At our 2012 Annual a experience across as a the Board from Jungels retired General Meeting, Pierre Mark Williamson and as a result was Non-Executive Director and Malcolm Wyman appointed Senior Independent Director I’d like to was appointed Chairman of the Audit Committee. cant contribution to our success and for his signifi thank Pierre wish him well for the future. In Conclusion 2012 has been another successful year and I would like to thank all my colleagues; both those on the Boar 1 . 2 ound the world. We employ 37,000 employees ound the world. We obacco is governed and and managed with openness, honesty 1 basis unle on a constant currency are in our adjusted results decreases and increases the Annual Report percentage Throughout and contribute around £20 billion every year in taxes. and contribute around also actively work with governments,We non-governmental organisations and other stakeholders on issues of common and concern, such as the illicit trade of tobacco products which underpins our long-term natural resources, protecting details on our initiatives and progress More sustainability. and on our website included in this report are www.imperial-tobacco.com Governance and Board that Imperial to make sure As Chairman, it is my responsibility T committed to ensuring this is and I are The Board transparency. the case. 2 on 18 January 2013. on the register This will be paid on 18 February 2013 to those shareholders We grew total adjusted operating profi ts by 4 per cent and ts by 4 per operating profi total adjusted grew We to growth earnings 8 per cent adjusted per share delivered 68.1 pence, were 201.0 pence. Reported earnings per share ecting the write down of our Spanish (2011: 177.3 pence), refl the deterioration in the Spanish economy. of goodwill, as a result nance section on page 35. explain this further in our fi We per cent of our dividend payout ratio to 52.5 increasing are We a is recommending and your Board adjusted earnings per share total dividend this year nal dividend of 73.9 pence, bringing the fi to 105.6 pence, up by 11 per cent We’ve made further good progress this year, growing sales while growing this year, made further good progress We’ve ows. managing our costs and cash fl effectively is delivering quality Our focus on building total tobacco brands total tobacco portfolio, including particularly our across growth our key strategic brands. performances from strong Returns for our Shareholders Improved Chairman’s Statement Chairman’s Sustainability and Responsibility By running a successful business, we make a positive contribution to the economic and social well-being of many countries ar Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco

Overview Strategic Review Performance Risk Governance Financials 6 7 Overview Strategic Review Performance Risk Governance Financials

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generating quality sales from quality generating quality sales returns.” brands to drive sustainable

Review Strategic Strategic “ We’re making great progress We’re “ , Davidoff , West has been Davidoff , resulted in combined volume in combined volume , resulted , Gauloises Blondes JPS Davidoff and , West Chief Executive

. In 2010, for cant opportunities accounted for 26 per cent of our total stick equivalent JPS unrivalled choice and provides unrivalled choice signifi Our focus on further growth. growth potential, realising this managing whilst effectively will continue cost and cash, to maximise value for our shareholders.” Alison Cooper and volumes; today they account for 30 per cent – a great building on going forward. performance and one that we’re Accelerating the sales momentum behind of volume growth delivered We a particular focus this year. in Asia, the Middle East 9 per cent and made excellent progress table in profi and share gaining volume and Eastern Europe, such as kingsize superslims and segments consumer growth queen size. “ Our portfolio offers consumers Our portfolio offers “ The quality of our brands and the growth they’re delivering is they’re The quality of our brands and the growth portfolio gains we made in the year. ected in the strong refl brands, The excellent performance of our key strategic Gauloises Blondes 13 per cent. of growth of 7 per cent and net revenue growth stable, with net revenues ne cut tobacco volumes were Our fi from results further strong delivered up by 13 per cent. We volumes by 11 per cent and revenues cigars growing premium Scandinavian snus volumes by by 10 per cent and grew by 46 per cent. 53 per cent and net revenues positions us well to perform in believe our approach We have cult economic conditions. We countries experiencing diffi but the deterioration in the Spain this year, ts in profi grown charge economy has led to us taking a non-cash impairment as we results, impacting our reported of £1.2 billion in the year, on page 35. detail explain in more Building Brands: Key Strategic Brand Success Driving momentum behind our key strategic brands is an ongoing priority owth.

Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco growth Driving quality We’ve increased tobacco net revenues by 4 per cent to tobacco net revenues increased We’ve £7.0 billion, as we continued to build momentum behind our total tobacco portfolio. rst quarter our ﬁ from strongly Our overall volumes recovered and we ended the year with overall stick equivalent volumes declining 2.7 per cent, the majority of which was due to ongoing market weakness in Ukraine and Poland and compliance with international trade sanctions in Syria. Overview in shifting progress Over the last two years we’ve made great heart of our our strategic focus to put consumers at the business and drive organic sales gr It’s been a rapid transition and we’re pleased with the progress pleased with the progress been a rapid transition and we’re It’s quality brands to from growth making, generating quality we’re drive sustainable returns. that’s approach a differentiated Our success is built around motivations focused on applying our understanding of consumer consumers the portfolio and offer the potential of our to realise best tobacco experiences. been our people to these changes has from The response a united focus on sales, on building total tobacco remarkable; sales growth brands and on consistently applying our four pricing and drivers of portfolio management, innovation, sustainable growth. customer engagement to deliver high quality 2012 Results highlights a number of Our focus on driving sales has delivered in the year Chief Executive’s Review Executive’s Chief

Overview Strategic Review Performance Risk Governance Financials 8 9 Overview Strategic Review Performance Risk Governance Financials % % % Growth Net Revenue +3 Volume Growth Volume Growth Volume 1 +11 +13 Key Strategic Brands % % % +7 +5 +9 Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Volume Growth Volume Volume Growth Volume Growth Volume Key Strategic Brands Excellent growth from our Excellent growth brands key strategic 1 in our key strategic brands is on a stick equivalent basis. growth Volume and other in Germany, in Germany, has been rolled has been rolled this year building Habanos Fairwind in Spain. and Davidoff iD ent economic climate. We know ent economic climate. We . These brands have strong . These brands have strong Ducados Fine more accessible to a wider range of more and and volumes were up by 5 per cent. up and volumes were West , Maxim obacco , a new kingsize range available in both standard available in both standard , a new kingsize range , Bastos continues to resonate strongly with value seeking with value seeking strongly continues to resonate Davidoff iD We also grew volumes in papers and tubes by 4 per cent and also grew We adding to our margin generation from – 8 per cent respectively ne cut tobacco consumption. fi cigar division, which includes Our premium the category and the consumers better than anyone. successes in the high ects some great Our performance refl improved EU markets. We make your own sector in core growth make your own volumes by 8 per cent; excluding Poland they brand performances up 20 per cent. A number of strong were including JPS driving this growth, are Our world leadership in fi ne cut tobacco is a real strength of our strength tobacco is a real ne cut Our world leadership in fi business, particularly in the curr in the Netherlands and West very delivered cigars, continues to perform well. We premium our luxury Cuban in emerging markets through results strong in China, Russia and the Middle cigars, with excellent growth cigars in premium in good growth also driving East and we’re the USA. Limited edition launches continue to support sales and volumes by 11 per cent and net revenues overall, we increased by 10 per cent, with emerging market volumes up 7 per cent 16 per cent. climbing and net revenues We’re making Davidoff We’re consumers in both new and existing markets through the launch and existing markets through consumers in both new of of 3 per cent with volume growth delivered consumers. We we grew Australia and the UK where in very positive results ne cut tobacco. and fi in both cigarette on our key strategic Our enhanced sales agenda initially focused in these growth brands; the priority two years ago was to drive brands and we’ll be building on our successes. brands in the portfolio such as other core also growing We’re News add underway to heritage and we have a number of initiatives momentum. to their growth Cigars, Premium Building Brands: Fine Cut Tobacco, Smokeless T and our innovative GlideTec packs. and our innovative GlideTec Russia, Ukraine in Spain, Taiwan, out to 19 markets including and Global Duty Free. developed Gauloises Blondes further We’ve delivering very strong base in the EU and strong on the brand’s improved and the Middle East. We performances in Africa with innovation and portfolio volumes by 11 per cent continuing to support the brand’s management initiatives and crushball variants in France, momentum, including the Tactil ne cut tobacco launches and fi cigarette and new additive free in Germany. we’ve Innovation has been key to the positive performance with delivered of markets in a number good results particularly delivered We c with queen size, kingsize and Asia-Pacifi in Eastern Europe le profi the brand’s superslims and crushball variants enhancing segments. in high growth JPS Davidoff iD fers consumers unrivalled ess what our business and our people stand ess what our business portfolio strategies portfolio new consumer experiences heritage brands our market footprint policies regulatory reasonable

2013 Priorities to continue to drive focusing on these key areas, We’re sustainable sales in the coming year. – developing consumer understandings to drive Further – our total tobacco to the momentum across Adding – of the international Accelerating roll-out – to build our innovation pipeline to develop Continuing – potential of our core on growth Capitalising – our anti-illicit trade activities across Strengthening – our stakeholder engagement to encourage Enhancing – the business embedding our values across Further Alison Cooper Chief Executive for, guiding the way we work with each other and with our guiding the way we work with for, and new ways of thinking fresh stakeholders, encouraging commitment and energy of our driving success. The talent, the world is inspiring and I thank them 37,000 people around all for their achievements in the year. Sustainable Value Creating we do and of everything put consumers at the forefront We’ve applied that to a portfolio that of continue to focus on building total tobacco brands choice. We’ll high quality growth and consumer experiences to deliver further our markets. across in the EU whilst t growth and profi be driving revenue We’ll the USA and targeting the our position in strengthening that we have in our Rest of opportunities cant growth signifi region. the World cash management Our focus on cost optimisation and effective on the momentum supports our sales agenda and by building sustainable value for to create generating we’ll continue we’re our shareholders. We’ve again delivered a strong dividend increase and have and have dividend increase a strong delivered again We’ve ahead of per share our dividends increase continued to steadily In addition, we spent in adjusted earnings per share. the growth buyback programme, year on our share £528 million during the shares. acquiring 21.9 million Values Our People and Our other companies. set us apart from Our people and our values Our values expr in applying our Price-mix Lambert & Butler continued oughout the company. oughout the company. eating new consumer experiences. eating new consumer Gauloises Blondes in Spain. ts Fortuna eward our shareholders and reinvest to support our sales and reinvest our shareholders eward Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco growth strategy. Cash conversion was 71 per cent, impacted strategy. growth ecting the by £0.5 billion working capital movements, in part refl in our Italian logistics business unwinding of a timing difference agenda. This included and investment in our sales growth launches. new product extending our leaf stock duration and We continue to invest for growth with an additional £200 million continue to invest for growth We initiatives and in people invested this year in brand and product to agenda. Our diligent approach to support our sales growth balancing our investments and managing cost has enabled tobacco operating margins at around us to maintain strong 42 per cent. Maximising Cash Returns ows that we use to cash fl High margin sales generate strong r doubled in the year to 7 per cent (2011: 3.0 per cent) driven by per cent) doubled in the year to 7 per cent (2011: 3.0 strengthened innovation and our key strategic brands. We’ve the and broadened our pricing analysis in a number of markets formats. price options available to consumers with additional consumer choice and the quality of both This has improved our growth. Maximising the availability and advocacy of our portfolio at the point of sale is an important part of our sales strategy. customer of excellence is Australia where One of our centres gains we made in engagement has been integral to the share the year. High Margin Profi nancial discipline is a hallmark of our business and fi Strong we continue to optimise costs thr We’re also focused on growing share in high consumer growth in high consumer growth share on growing also focused We’re launched a number of brands using crushball segments. We determine the strength lter technology which allows smokers to fi expanding been We’ve avour in each cigarette. of the menthol fl size variants in our kingsize superslims, superslims and queen many markets and through Our Scandinavian snus portfolio had another great year, building year, portfolio had another great Our Scandinavian snus of growth. track record on what has been a strong Experiences Innovation: New Consumer this year with our innovation pipeline progress great made We’ve on cr as we continue to focus across out that can be rolled concepts developing more We’re growth. multiple markets to drive an industry leading pack we’ve developed our GlideTec Through enabling the sociability of smoking, innovation built around with a one handed motion. a cigarette smokers to offer smokers with choice and reinforces This innovation provides brand differentiation. sales of a billion Since its launch last year we’ve delivered GlideTec global duty free. in 17 markets plus cigarettes the performance of our key strategic continues to improve the position of a number of brands in our brands and strengthen heritage such as local portfolio with strong the UK and ne cut and fi cigarette blend expertise to launch additive free tobacco products. Pricing and Customer Engagement about further Our success at building our brands is also developing our pricing and excise strategies. Chief Executive’s Review Review Executive’s Chief

Overview Strategic Review Performance Risk Governance Financials 10 Strategic Review 11 Overview Performance Risk Governance Financials KPI KPI bn % 71 336.6 efl ecting the unwinding efl national trade sanctions in Syria. 336.6 71 11 12 11 12 Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco 346.0 88 e interest and tax payments less net capital expenditure and tax payments less net capital expenditure e interest nition nition 10 10 350.3 97 Cash Conversion Rate (%) Cash Flow Relevance to Business Model: Strong Stick Equivalent Volumes (bn) Stick Equivalent Volumes Model: Sales Relevance to Business ne cut tobacco volumes. Performance Cash conversion was 71 per cent, impacted by £0.5 billion working capital movements, in part r relating to property, plant and equipment and software as a and software plant and equipment to property, relating t. of adjusted operating profi percentage Performance per cent, mostly Our stick equivalent volumes declined by 2.7 and Poland and due to ongoing market weakness in Ukraine compliance with inter have been Our 2011 and 2010 stick equivalent volumes due to a change to the conversion factors used to restated into stick equivalent ne cut tobacco volumes convert the fi consumption patternsecting increasing of volumes, refl expanded tobacco products. in our Italian logistics business that of a timing difference to support ted last year and our strategic decisions benefi These include extending our leaf stock duration and growth. agenda. launches supporting our sales growth product Defi operations ow from Cash conversion is calculated as cash fl befor Defi and ect our combined cigarette Stick equivalent volumes refl fi KPI KPI % bn 42.7 £7.0 oducts. 42.7 7.0 ofi t divided by tobacco net revenue. ofi 11 12 11 12 42.3 6.9 ound 42 per cent, refl ecting our diligent approach to ecting our diligent approach ound 42 per cent, refl ency) to £7.0 billion with good net revenue growth in the UK, growth ency) to £7.0 billion with good net revenue nition nition 10 10 42.5 6.8 Tobacco Adjusted Operating Margin (%) Tobacco Profits Relevance to Business Model: High Margin Tobacco Net Revenue (£bn) Net Revenue Tobacco Model: Sales Relevance to Business Performance stable Our tobacco adjusted operating margin was broadly at ar investments and cost management. Defi adjusted adjusted operating margin is the tobacco Tobacco operating pr Germany, Rest of EU and Rest of the World regions more than more regions Rest of EU and Rest of the World Germany, declines elsewhere. offsetting Defi less duty and tobacco revenue comprises net revenue Tobacco similar items, excluding peripheral pr Performance was up by 4.1 per cent (constant Our tobacco net revenue curr Key Performance Indicators Performance Key Values See how we are enabling our people See how we are p43 to drive our strategy forward

People Capabilities We’re focused on creating an inspiring focused on creating We’re people can do where environment support their their best work. We aspirations and encourage career thinking so that their talents creative ourish. and skills ﬂ Engagement

Values, capabilities and engagement Values, integral to the development of are our people. Our capability framework is aligned and with our values and strategy, includes the behaviours, skills and for our people knowledge required ambitions. to achieve our sales growth Our people are highly skilled and committed to and committed skilled are highly Our people on supporting focused We’re excellence. delivering their their skills and achieve them to develop career aspirations. Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco business forward Driving our People and Values and People

Overview Strategic Review Performance Risk Governance Financials 12 Strategic Review 13 Overview Performance Risk Governance Financials I am My contribution counts, think free, act speak free, with integrity We can We Everything is possible, together we win I own See it, seize it, make it happen Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco We enjoy We Thrive on challenge, make it fun We surprise We New thinking, new actions, exceed possible what’s both operate, encouraging ect the way we I engage Listen, share, make connections Our values uniquely express what our business and our and what our business express uniquely Our values ‘I’ and the of the ‘We’ combination The stand for. people values reﬂ collaborative teamwork and individual contribution. teamwork and individual collaborative , a new Davidoff iD % +6 3 year CAGR ealise its global growth potential ealise its global growth to r Davidoff available in standard and GlideTec packs and GlideTec available in standard For an overview of our For an overview see p2 business model Sales

12 19.7 Davidoff overall growth momentum. overall growth Davidoff’s Customer Innovation volumes (bns) Engagement 1110 is a key strategic brand that continues to perform strongly strongly is a key strategic brand that continues to perform 18.1 e of consumers and consumption occasions to drive quality e of consumers and consumption occasions Sales drivers growth 17.0 Our work on developing during the year. has been a major portfolio management initiative Davidoff on an international scale. In June we launched appeal to a far wider enhanced the brand’s kingsize range that’s credentials. its premium base of consumers whilst retaining made Davidoff iD We’ve in 19 markets and by the end of the year we’d launched it consumers from The response to follow. worldwide, with many more generating are and the sales we’re has been excellent and retailers enhancing Enhancing Pricing Portfolio Davidoff Management Portfolio Management Portfolio Management More Occasions More Consumers, in Action Tobacco Total we apply our unique portfolio to maximise portfolio management Through our shar total tobacco in action. it’s Put simply, growth. understanding their choices The starting point is always our consumers; insight work is crucial to the our consumer through and preferences to make the most of sales way we manage our portfolio. It enables us opportunities by building total tobacco brands that truly resonate growth with consumers.

is always our consumers; we’re building total tobacco brands that truly resonate with them.” “ The starting point The starting “ Roberto Funari Director Marketing Group Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco growth Driving quality Sales Growth Drivers Growth Sales

Overview Strategic Review Performance Risk Governance Financials 14 Strategic Review 15 Overview Performance Risk Governance Financials Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Sep 12 and in Saudi JPS , Germany with fer a cigarette with a one handed fer a cigarette GlideTec’s a great a great GlideTec’s Lambert & Butler, Fortuna . We’ve already sold over a billion cigarettes in sold over a billion cigarettes already . We’ve For an overview of our For an overview see p2 business model

sales GlideTec GlideTec owth driver. We’re translating those insights into translating We’re owth driver. >1bn , Spain with Davidoff iD Customer Innovation Engagement

Sales

drivers growth Gauloises Number of cigarettes of Number Feb 11 World-leading GlideTec Pack GlideTec World-leading the sociability is a world-leading pack innovation built around GlideTec of smoking, enabling smokers to of smokers with choice provide motion. Pack innovations like GlideTec brand differentiation. and reinforce First launched in the UK with bigger, with a fewer, example of how we combine consumer insights multiple markets. across to deliver quality growth better approach in 17 markets including in France So far we’ve launched GlideTec with Arabia with GlideTec packs and this innovation will be applied to more brands in applied to more packs and this innovation will be GlideTec year. markets in the coming more Pricing Portfolio GlideTec volumes GlideTec Management Delivering High Returns key to our insights are As with portfolio management, deep consumer innovation sales gr Innovation Experiences New Consumer deliver new consumer tangible ideas and concepts that allow us to total tobacco portfolio. our experiences across building focuses on scalable initiatives that The innovation pipeline we’re we mean innovations that have By scalable, will deliver high returns. our diverse markets. out across international appeal and can be rolled

Sonoma and USA Gold . Sonoma For an overview of our For an overview see p2 business model

and easingly uncompetitive price positioning of our two main easingly uncompetitive price positioning of Customer Innovation Engagement USA Gold Sales fective pricing decisions by brand, pack size and sales channel. fective pricing decisions by brand, pack size drivers growth We conducted a detailed and thorough pricing analysis, taking the conducted a detailed and thorough We behaviours of our time to understand what drives the purchasing a new pricing consumers. Based on these insights we devised market share. strategy with the objective of stabilising our trialled our new Between February and May 2012 we successfully strategy in four key states and in June we applied this strategic to a further 15 states. approach the performance of improved The strategy’s at 3.4 per cent over market share and stabilised our overall cigarette nancial year. months of the ﬁ three the remaining USA Pricing Strategy due under pressure in the USA has been market share Our cigarette to the incr brands, Pricing Portfolio Management Pricing Revenue Growth Maximising Managing Pricing and Excise behaviours enables us to Our understanding of consumer purchasing make ef whilst continuing to give growth maximising revenue focused on We’re consumers value for money. the price that consumers Excise can account for over 80 per cent of important that in some markets and so it’s pay for tobacco products we consider government of our pricing excise strategies as part encourage governments to take a sensible approach decisions. We and to avoid their revenues to protect order in to excise increases fuelling illicit trade.

continued

Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco connections Developing stronger Sales Growth Drivers Drivers Growth Sales

Overview Strategic Review Performance Risk Governance Financials 16 Strategic Review 17 Overview Performance Risk Governance Financials stronger connections with our retail partners around the world to drive sales growth.” Arthur van Benthem Director Sales Group building even We’re “ Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco

, JPS Horizon esults. This further supports our For an overview of our For an overview see p2 business model

and builds awareness of our innovation initiatives. and builds awareness Customer Innovation Engagement Sales drivers growth Champion investments behind our portfolio and key brands investments behind our portfolio and key brands Customer Engagement in Australia in relationships Our continued focus on building our customer Australia is delivering excellent r and Australia given the Retailer advocacy is particularly important in in of tobacco products of the plain packaging introduction December 2012. customers during Last year we worked closely with our trade the plain packaging consultation and our ‘No Nanny State’ these advertising campaign. This helped us to further strengthen key relationships. Customer engagement has been essential to the market share our Australian this year: we’ve grown gains we have delivered to ne cut tobacco share to 19.4 per cent and our fi share cigarette 60.7 per cent (2011: 19.1 per cent and 59.9 per cent respectively). Pricing Portfolio om large multi-national supermarkets to small independent shops, om large multi-national supermarkets to small Management Excellent Retail Partnerships the world, around have long-standing partnerships with retailers We fr them to provide we work hard customer engagement and through with excellent service at all times. partners to maximise both the availability and the work with our retail We which is an at the point of sale advocacy of our brands and products ts both Customer engagement benefi important part of our sales strategy. environments regulated parties and is particularly important in highly is crucial to building consumer awareness the voice of the retailer where of new brand launches and innovations. Customer Engagement Advocacy and Availability ne cut ne No 1 in fi tobacco No 1 in papers No 1 in papers and tubes nest range of brands Total Total Tobacco Our expertise in all these tobacco categories, coupled with our consumer insights, is enabling us to build total tobacco brands that will deliver long-term quality growth. and products in the world. and products We are driving quality volume and revenue growth growth and revenue quality volume are driving We new and developing tobacco brands total by building unique portfolio Through our consumer experiences. consumers with the fi we provide

For an overview of our business model see p2

Total Total Tobacco We sell some of the world’s most popular sell some of the world’s We global leaders brands and are cigarette ne cut tobacco, papers and tubes. in ﬁ exclusively sell all the luxury Cuban We the world and cigar brands around have a very successful smokeless tobacco business. No 1 in luxury Cuban cigars A growing key A growing strategic brand portfolio Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco consumer choices Unrivalled Total Tobacco Total

Overview Strategic Review Performance Risk Governance Financials 18 Strategic Review 19 Overview Performance Risk Governance Financials Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco We take time to understand our consumers and and our consumers understand take time to We it remains so that our portfolio evolve continually of people around to the millions fresh and exciting products. enjoy our brands and the world who owth Operation and Supply Chain Operation and Alignment on Delivery A Fast and Flexible Business Focused supply chain operations we’re our manufacturing and Across our sales gr focused on operational excellence, delivering strategy in the most efﬁ cient way possible. We’re especially cient way possible. We’re strategy in the most efﬁ availability and quality. focused on maximising product our consumers to quickly to insights from responding We’re and products evolve our portfolio and deliver innovative brands opportunities. that enable us to maximise growth For example, in the 2012 Advantage International Survey was Imperial Tobacco Customers, of Global Duty Free manufacturer, ranked as the highest performing tobacco in Logistics and Supply of all FMCG participants, and third Chain management. ovide our consumers with unrivalled choice. ovide our consumers with unrivalled choice.

Consumer insights Key enablers Shaping our environment

For an overview of our business model see p2

Operation & supply chain alignment Our consumers are experimenting with more formats and we’re formats and we’re experimenting with more Our consumers are the tobacco spectrum. new experiences across providing our learningBy actively listening to them and translating across further build our brands and develop able to our portfolio, we’re innovations that deliver high quality growth. Understanding What Drives our Consumers truly understanding consumer motivations focused on We’re and portfolio and translating these insights into innovations strategies that pr Consumer Insights Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco sales growth strategy Supporting our Key Enablers Key

Overview Strategic Review Performance Risk Governance Financials 20 Strategic Review 21 Overview Performance Risk Governance Financials governments and law enforcement agencies internationally to proactively tackle the illicit trade in tobacco products.” Matthew Phillips Director Corporate Affairs partnering with We’re “ Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco egulated environment and we work constructively with and we egulated environment You can read more about regulation and about regulation more can read You our anti-illicit trade activities on p42

Our Proactive Approach Our Proactive at successfully developing our business in very experienced We’re a highly r solutions nd reasonable governments and other organisations to ﬁ issues. to regulatory based on sound evidence but that’s regulation support proportionate We meet that don’t proposals will continue to speak out against regulatory these criteria. and excessive tobacco regulation very concerned at how extreme We’re This is damaging to in illicit trade. can fuel the growth tax increases tobacco smuggling and t from everyone except the criminals who proﬁ easily obtain tobacco products, can more counterfeiting: children of and the livelihoods deprived of tax revenues governments are threatened. are independent tobacco retailers stakeholder our global these points through make regularly We authorities in particular engagement activities and encourage regulatory excise and illicit trade. between regulation, the relationship to recognise also partner with governments agencies enforcement We and law the smuggling and counterfeiting tackle internationally to proactively of tobacco. underpinned by the Our commitment to combating illicit trade is the world, around we have anti-illicit trade agreements numerous including a long-term partnership that we initiated with the European Commission and EU member states. Proactively Shaping our Environment Proactively

Driving Quality Growth in Quality Growth Driving RUSSIA Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco

Overview Strategic Review Risk Performance Governance Financials 22 Strategic Review 23 Overview Performance Risk Governance Financials West Duo, West , we’re making , we’re Maxim and , Style , West Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Davidoff Building Sustainable Sales our portfolio to Over the years we’ve continually developed to deliver sustainable sales, focusing well positioned it’s ensure consumer where on the brands and tobacco market segments demand is strongest. key cigarette By focusing investment and innovation on four brands, slimmer formats like slims, cant gains in high growth signifi superslims and kingsize superslims. lter innovation and Russia eld of fi also been active in the fi We’ve rst markets in which we launched was one of the fi avour fl consumers the option of a mint that offers a cigarette lter. burst by squeezing a mint crushball in the fi the world is clear: other markets around The evidence from rapidly rising excise duties combined with excessive the smuggling and counterfeiting of increases regulation tobacco products. global cant and growing This illicit trade in tobacco is a signifi and we’ll continue to draw attention to the issue problem to agencies whilst also partnering with law enforcement combat illicit trade. Our work on our three key enablers supports our sales key enablers supports Our work on our three deep consumer insights to developing performance. We’re strategies, whilst managing complex help shape our portfolio aligned chain operations that are manufacturing and supply with our sales ambitions. continues to evolve and and excise climate The regulatory we’re stakeholder engagement our focus on proactive through actively participating in the ongoing debates. people and the Critical to our Russian success story is our guide the way they unique Imperial values that bind them and do business. Managing Regulatory Change of delivering international growth have a long track record We of evolving tobacco regulation. against a backdrop In Russia our engagement focus has been on highlighting the adverse consequences of government plans to implement and excise change. cant regulatory signifi This could potentially involve considerable rises in tobacco both smoking in public places and on excise and restrictions outlets. in retail the display of tobacco products encouraging our Russian stakeholders to recognise We’re to regulation approach the impact that this disproportionate our proactive and excise has on illicit trade through engagement activities. Growing a Successful Business Growing for our business area is a key strategic growth Eastern Europe in Russia. delivering quality growth and we are the second largest Russia is the largest country in the world and volumes of tobacco market, after China, with annual cigarette than 350 billion. more country; our in Russia than in any other cigarettes sell more We and we have a 9.3 per cent cigarettes 35 billion annual sales are market share. and versatility of Central to our success has been the strength of our four key sales our portfolio and the consistent application drivers: portfolio management, innovation, customer growth engagement and pricing. On the following pages we On the following elements show how different come together of our strategy of our to deliver success in one key emerging markets. by Style by 16 per cent, Davidoff was up by 6 per cent. West grew by 13 per cent, grew Delivering Excellent Results Delivering Excellent maximising sales growth to approach This integrated strategic continues to deliver excellent results. opportunities in Russia of success, growing on our track record In 2012 we again built cent. our volumes by 4 per excellent performances: brands delivered Our four key cigarette Maxim 26 per cent and platform for a strong provide These portfolio achievements our prospects very excited about success and we’re future in Russia. the right portfolio got the right strategic approach, We’ve which and the right people to take our business forward in our ability to deliver long-term dence confi gives us great sustainable growth. 2 Factories continued Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco In addition, our total tobacco focus means we’re able to meet focus means we’re In addition, our total tobacco cigars, including popular mass market consumer demand for brands through Cuban premium brands as well as prestigious with Habanos. our exclusive partnership the across brands and products different consumers Offering to value, drives our focused premium pricing spectrum, from to pricing. approach to extensive ongoing price modelling we seek Through giving our consumers a quality whilst growth enhance revenue smoking experience. want engagement work. We our customer And then there’s at the point of sale, our trade partners to advocate our portfolio partnerships across retail building even stronger so we’re the country. sales channel, This is particularly true within the supermarket for an increasing rapidly and is responsible which is growing volume of tobacco sales to consumers. Driving Quality Growth in Russia Russia in Growth Quality Driving

Overview Strategic Review Performance Risk Governance Financials 24 Strategic Review 25 Overview Performance Risk Governance Financials Furthermore, products manufactured at our two manufactured products Furthermore, factories in Volgograd and Yaroslavl take three to take three and Yaroslavl factories in Volgograd four weeks to arrive at the furthest outposts in the four weeks to arrive at the furthest outposts Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco east, some 8,000 kilometres away. away. east, some 8,000 kilometres “Having a reliable distributor in place is essential but this is “Having a reliable backed up by our great portfolio, a clear strategy and our really portfolio, a clear strategy and our really backed up by our great motivated people,” said Wayne. to our critical “The drive and enthusiasm of our people are we do ongoing success. Our values underpin everything and we have a continual focus on employee engagement and development.” and programmes This includes performance recognition partnering with local universities to run leadership training also chairs quarterly meetings with employee courses. Wayne that provides of directors and the local Board representatives an opportunity to discuss business issues. Employees 1,900 General Manager Russia and Belarus

of our people are critical to our ongoing success.” Wayne Merrett Wayne The sheer size of Russia and its nine different time zones time zones and its nine different The sheer size of Russia and logistical challenges. regional unique present by General operational perspective our local team, led an From view Russia not as a single country Merrett, Manager Wayne markets, each with their own very but as several individual characteristics. different into differences has to take regional “Our strategic approach our portfolio and our sales “applying account,” said Wayne, of ect the wide range to reﬂ ways in different drivers growth customer preferences. local consumer and trade like Siberia for in somewhere “Our opportunities for growth very are a 15 per cent market share, we have instance, where we have a those in the south of the country where to different smaller market share.” of running a Finding solutions to the logistical complexities challenge for successful business in Russia is a stimulating and his team. Wayne the winters very harsh but as we arrive at our “Not only are ce each morning, furthest east are our people Moscow ofﬁ he said. coming to the end of their working day,” Focused on Delivery Focused “ The drive and enthusiasm “ Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco

Overview Strategic Review Performance Risk Governance Financials 26 27 Overview Strategic Review Performance What you will find in this section:

“ We’re focused on driving quality 28 Operating Review Performance growth across our regions, building 33 Logistics total tobacco brands that resonate 34 Financial Review 37 Corporate Responsibility Review with consumers and will deliver long-term sustainable sales.” Risk Governance Financials

Building Total Tobacco Brands

Luxuuryry Cubu an ciggarrs OuOur cigaar pop rtfoliio inincluddees somome ofo thehe woorld’s moostst preesstigioous brandds innclludu inng CoC hiibba, Monttececristo andn Romeeo y Juulieta. WWe’rre coc nttinnuiu ngg to deeliver veryy stronng reesults in emmergini g marketets,s achhieviv ng excellentn growwtht in CChina, Russsis a annd ththe MiM ddd le Easst.t

Imperial Tobacco Group PLC | Annual Report and Accounts 2012 28 Operating Review Overview Strategic Review Performance

Volume

Stick equivalents Cigarettes Fine cut tobacco Performance Billions 2012 20111 2012 2011 2012 20111 UK 25.3 25.6 18.7 19.2 6.6 6.4 Germany 32.0 32.2 22.6 23.4 9.4 8.8 Spain 22.0 23.8 18.7 20.8 3.3 3.0 Rest of EU 74.7 80.3 53.4 57.8 21.3 22.5 Risk Americas 10.8 12.8 10.3 12.3 0.5 0.5 Rest of the World 171.8 171.3 168.8 168.6 3.0 2.7 Total 336.6 346.0 292.5 302.1 44.1 43.9

1 Our 2011 stick equivalent volumes have been restated due to a change

Governance to the conversion factors used to convert ﬁ ne cut tobacco volumes into stick equivalent volumes reﬂ ecting consumption patterns of expanded tobacco.

Net Revenue2 Change at Foreign Constant constant Financials exchange currency currency £ million 2012 2012 growth % 2011 UK 936 – 67 7.7 869 Germany 861 (47) 29 3.3 879 Spain 470 (26) (1) (0.2) 497 Rest of EU 1,534 (94) 36 2.3 1,592 Americas 660 12 (83) (11.4) 731 Rest of the World 2,544 (34) 233 9.9 2,345 Total 7,005 (189) 281 4.1 6,913

Adjusted Operating Proﬁ t2 Change at Foreign Constant constant exchange currency currency £ million 2012 2012 growth % 2011 UK 627 3 47 8.1 577 Germany 448 (22) 9 2.0 461 Spain 202 (11) 13 6.5 200 Rest of EU 626 (40) 8 1.2 658 Americas 214 6 (26) (11.1) 234 Rest of the World 872 20 58 7.3 794 Total 2,989 (44) 109 3.7 2,924

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

Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Performance 29 Overview Strategic Review Risk Governance Financials (with and Gold Leaf cigarettes and cigarettes Lambert & Butler Profi le Lambert & Butler Profi and although we delivered although we delivered JPS Drum Davidoff iD brand franchise. During the year Lambert & Butler Fresh Burst and ettes down by 6 per cent and fi ne ettes down by 6 per cent and fi . These brands grew with Windsor Blue. These brands grew and ette volumes were down 2 per cent and fi ne cut down 2 per cent and fi ette volumes were mini cigars. Lambert & Butler Golden Virginia Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco JPS Silver olled-out GlideTec packs nationally, packs nationally, olled-out GlideTec (queen size cigarettes) and (queen size cigarettes) a crushball menthol fi lter) to strengthen the brand’s position and the brand’s lter) to strengthen a crushball menthol fi enhance our sales mix. also continued to focus on the performance of our value We brands held at 45.0 per cent. broadly market share our overall cigarette within offerings the premium we strengthened In September, our portfolio with the launch of Montecristo ecting was 47.4 per cent, refl ne cut tobacco share Our fi declines in Germany Market Context In Germany we estimate that the overall market was broadly stable. Cigar in growth up 3 per cent, with strong tobacco volumes were make your own tobacco, up by 5 per cent. UK Market Context paid market declined In the UK we estimate that the overall duty by 3 per cent, with cigar paid market cut tobacco up by 8 per cent. The overall duty that cant duty increases continued to be impacted by signifi have taken place during the last two years. Performance Highlights our UK portfolio and support Innovation continues to strengthen our leading we r further positive performances from ts. our volumes and profi grew Further weakness in market volumes in Spain affected our volumes in Spain affected Further weakness in market mix meant our net sales a strong performance, although ts our adjusted operating profi at and we grew fl were revenues further deterioration in the by over 6 per cent. However, that under IFRS accounting standards Spanish economy means to Spain has allocated previously the value of intangibles in our detail is provided by £1.2 billion. More been reduced on page 35. nancial review fi of EU region, weakness in our Rest Despite macro-economic 2 per cent and adjusted operating by our net revenues we grew 1 per cent. ts by profi of almost growth net revenue Outside the EU we delivered ts by adjusted operating profi 5 per cent and increased is the our primary market 3 per cent. In the Americas, where t both and adjusted operating profi USA, our net revenue we region World declined by 11 per cent. In the Rest of the our net revenues grew We an excellent performance. delivered t by operating profi by just under 10 per cent and our adjusted over 7 per cent. . New cigarette . New cigarette JPS and , West , Gauloises Davidoff Our Financial Performance t in the EU, and adjusted operating profi net revenue grew We results although challenging economic conditions affected and net revenues in some markets. In the UK we increased t by 8 per cent and in Germany net adjusted operating profi up over 3 per cent and adjusted operating were revenues by 2 per cent. t grew profi Driving Quality Growth Growth Driving Quality building our regions, across on driving quality growth focus We consumers and will with that resonate total tobacco brands sales growth. deliver long-term sustainable our sales growth achieving this by consistently applying We’re to drivers combined with our consumer understandings across potential of our brands and products the growth realise our markets. providing Our versatile portfolio spans the tobacco spectrum, segments within growth in all major consumer strength ne cut tobacco, cigar and smokeless. This means fi cigarette, of changing consumer able to meet the needs we’re growth. to maximise preferences is on driving In the developed markets of the EU our bias t performance, whilst actively managing our and profi revenue by focus on maximising returns positions. We market share ts. and profi revenues strategically balancing market shares, climate in a number of The economic and regulatory choices. developed markets continues to shape consumer economising, further stimulating growth Many consumers are well-positioned to continue We’re in value brands and products. brands our value cigarette to capitalise on this dynamic through tobacco, whilst also realising ne cut and world leadership in fi portfolio. opportunities for our premium focus is biased to quality volume and Our Rest of the World developed markets includes some The region growth. share countries such as Australia, but primarily comprises developing Africa and the Middle East and Asia. In many in Eastern Europe, rising disposable consumers with are of these countries there brands, demanding premium increasingly incomes who are dynamic in place. is also a value but there supporting sales in this weighted towards Our investments are and enhancing momentum behind our key strategic region brands In our operating review we provide details about how we’re details about how we’re we provide In our operating review and markets. We to life in our regions bringing our strategy that and consumer dynamics explain the external environment and how we’ve driven performance. have characterised 2012 growing formats like kingsize superslims and queen size are of consumption in these our share increasing rapidly and we’re focused on capitalising on also segments. We’re high growth demand for our luxury Cuban cigars. the growing

ound value Sonoma and (in a GlideTec pack) and pack) (in a GlideTec USA Gold Gauloises Tactil ofi table market in this region, with cigarette with cigarette region, table market in this ofi (with a crushball fi lter) supporting our recent lter) supporting our recent (with a crushball fi efl ecting cigarette market declines of 5 per cent ecting cigarette efl ces during the year and are refocusing our our refocusing ces during the year and are grew by 7 per cent, achieving particular success in make by 7 per cent, achieving grew Americas Market Context our focus is on the USA which remains In our Americas region, focused ar very competitive with consumer dynamics market was down by overall cigarette estimate the brands. We 4 per cent. Performance Highlights and mass market completed the integration of our cigarette We cigar sales for in business with a new management team to drive growth key states. retailer strengthening customer engagement we’re Through partnerships and we’ve stabilised pricing strategy that was of a new cigarette as a result shares 19 states in the summer after a successful out across rolled trial phase. meant cigar portfolio The excellent performance of our premium by more 11 per cent and revenues volumes by we improved growth than 10 per cent and we’ll be building on this strong going forward. Gauloises D-clic Rest of EU Regional Context down volumes were that overall duty paid regional estimate We by 3 per cent, r of 6 per cent. growth ne cut tobacco and fi Performance Highlights our actively managing our portfolio in France, been We’ve largest and most pr innovations including t growth. and profi improvements market share cigarette other in trend also on an improving are Our market shares Republic, and markets such as the Netherlands and Czech in the elsewhere growth further market share we’ve delivered including in Italy and Portugal. region by held back volumes were ne cut tobacco, overall regional In fi paid volumes in Poland. in non-duty cant growth signifi JPS ecting our success in optimising your own tobacco, refl segments. performance in high consumer growth for the year ne cut tobacco shares our fi we grew Elsewhere in other markets such in Austria and Belgium and our shares in trend as France and Hungary have been on an improving months. recent exceptional another In Scandinavia, our snus business delivered and our market performance with volumes up by 53 per cent to 7.2 per cent and increasing in Sweden and Norway shares 27.0 per cent respectively.

and Fortuna Nobel brand supporting and and Fairwind Ducados Rubio e continue to strengthen e continue to strengthen Nobel Slims , Fortuna 24 and continued in June. easing government austerity measures easing government austerity measures and several limited editions and several limited editions JPS GlideTec . Nobel Style Fortuna GlideTec make your own tobacco are performing performing are make your own tobacco which was impacted by further downtrading. est which was impacted Davidoff iD W Route 66 is a brand with a rich heritage in Spain and we’re we’re is a brand with a rich heritage in Spain and fi ne cut tobacco products, refl ecting our focus on refl ne cut tobacco products, fi . Consumers have also responded very well to new . Consumers have also responded formats, with and Gauloises Blondes improving its cigarette share performance through a number of performance through share its cigarette improving initiatives including our leadership by evolving our portfolio to refl ect changing ect our leadership by evolving our portfolio to refl consumer preferences. Fortuna Redline Nobel building brands across the tobacco spectrum. building brands across Fortuna the brand’s overall growth. overall growth. the brand’s built on the momentum behind Fortuna We’ve to share blonde cigarette our domestic and have grown 28.3 per cent. In addition, we enhanced our portfolio with the launch of with our growth ne cut tobacco we achieved excellent In fi performance per cent. Our strong up to 41.6 market share was driven by the ongoing success of Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Market Context cult in Spain; high diffi Economic conditions remain unemployment and incr Spain the duty paid on consumers and placing further pressures are problem. tobacco market, with illicit trade a growing we estimate that the overall duty Against this backdrop, down paid market declined by 10 per cent, with cigarettes ne cut tobacco up 17 per cent. 13 per cent and fi on page 35, the macro review nancial As explained in our fi in us taking a non-cash economic indicators have resulted year. impairment charge of £1.2 billion during the Performance Highlights one tobacco company in Spain, with leading the number are We positions in all tobacco categories. W We’re making excellent progress in fi ne cut tobacco, leveraging ne cut tobacco, leveraging in fi making excellent progress We’re consumer demand. on growing our expertise to capitalise JPS per cent respectively, particularly well, up by 28 per cent and 16 which combined with the success of the Performance Highlights declined in the year to 25.8 per cent market share Our cigarette partly due to of ne cut tobacco fi our overall improved has launched in March, to 22.3 per cent. share However our share has been on an improving trend during trend has been on an improving However our share the success of a number of portfolio the second half due to generating has been we’re initiatives. The sales momentum driven by the launch of Operating Review Review Operating

Overview Strategic Review Performance Risk Governance Financials 30 Performance 31 Overview Strategic Review Risk Governance Financials 2 2 2 2 2 2 2 2 8.0 9.8 3.3 2.2 3.9 9.4 2011 2011 22.6 26.6 28.1 83.1 11.4 25.0 11.3 45.1 59.9 60.1 51.0 12.2 19.1 23.8 11.2 22.5 14.7 21.4 20.4 46.3 40.3 1 9.3 3.6 2.5 3.4 2012 2012 25.8 22.5 28.3 81.2 11.4 23.0 10.3 10.3 11.5 45.0 22.0 11.5 60.7 16.1 21.2 22.3 45.1 55.4 41.6 47.4 15.2 19.4 22.9 1 Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco 3 3 occo eece ietnam urkey aiwan Germany Gr T Netherlands Poland Portugal Russia T UK Ukraine Fine Cut Tobacco Market Shares Fine Cut Tobacco % Australia Belgium France Germany Netherlands Poland Spain UK 1 estimates. Imperial Tobacco 2 or basis. Restated due to change of source 3 Domestic blonde market share. Cigarette Market Shares Cigarette % Algeria Ireland Spain USA Australia France Italy Mor V

West , West . Gauloises Blondes Davidoff iD . Limited editions in July and growth in in in July and growth by 14 per cent, with particular . , Gauloises Blondes portfolio which includes we grew our overall volumes by our overall volumes we grew supported by strong growth growth supported by strong West Fine in Ukraine which supported West grew volumes in the region by volumes in the region grew own our profi ts by 17 per cent and own our profi Romeo y Julieta Davidoff innovative formats of our brands and Davidoff iD and Davidoff iD Bastos and , Style , Style , we’ve gr continued to grow strongly driving our cigarette driving our cigarette strongly continued to grow c made strong gains, particularly with gains, particularly made strong West , Cohiba although our overall market share was down although our overall market share JPS luxury Cuban cigar Davidoff . We’re generating signifi cant momentum behind generating signifi . We’re and Eastern Europe JPS Asia-Pacifi Africa and the Middle East oviding us with huge growth opportunities particularly with opportunities particularly oviding us with huge growth continue to grow, particularly in the popular kingsize superslims particularly continue to grow, segments and in both Russia and and queen size cigarette Ukraine, we launched market share up to 19.4 per cent and our fi ne cut tobacco share tobacco share ne cut up to 19.4 per cent and our fi market share up to 60.7 per cent. in Vietnam and Laos. 10 per cent with an excellent performance Across took our overall market share to 11.5 per cent. took our overall market share In Australia Davidoff grew We our key strategic brands our key strategic brands Rest of the World: Regional Context encompasses diverse markets, region Our Rest of the World pr and volumes by 14 per cent and regional these brands, growing by 10 per cent. net revenue Performance Highlights In in several in our market shares made excellent progress Vietnam, Australia and New Zealand. countries including Taiwan, we launched In Taiwan, months. In Russia, we in recent share in our cigarette growth also grew 20 per cent and continued strong volumes up by with regional in Algeria and Morocco. growth of volumes In Africa we grew from Maxim from included are details on our Russian business More slightly. in a case study on pages 22 to 25. In with 6 per cent and made excellent progress Chad and Congo. In the Middle East success in Côte D’Ivoire, Davidoff innovative formats including kingsize superslims and slims launched in Saudi Arabia and we recently We delivered another strong emerging market performance another strong delivered We our across Montecristo momentum have continued to support the excellent growth up 13 per cent in China, were achieving; net revenues we’re 38 per cent in Russia and 19 per cent in the Middle East region. 32 Operating Review continued Overview Strategic Review Building on our Growth Momentum

Our focus in 2013 remains on building total tobacco brands build our portfolio for those consumers looking for premium

Performance that generate long-term quality growth. brands and products. In our developed markets such as those in the EU and We see signifi cant growth opportunities in our Rest of Australia, consumers will continue to seek value and we have the World region across Eastern Europe, Africa and the the brands and products to capitalise on this trend and drive Middle East and Asia Pacifi c and we’ll continue to invest revenue and profi t growth, providing our consumers with to support sustainable growth, building on the strong unrivalled choice and value. We’re also seeking to further momentum of Davidoff, Gauloises Blondes and West. Risk Governance Financials

Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Logistics 33 Overview Strategic Review Our logistics business has operations in Spain, France, Italy, Portugal and Poland

and is one of the largest of Performance its kind in Europe.

Logistics Overview Risk Our logistics business has operations in Spain, France, Italy, Portugal and Poland and is one of the largest of its kind in Europe. We make more than 40 million deliveries every year and specialise in different sectors and channels. There are two key aspects to our business: tobacco and non-tobacco logistics. Governance We offer our customers a comprehensive, high quality logistics service encompassing order taking, storage and stock management, order preparation, transport and distribution, invoicing and collection and customer services.

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

Logistics Performance Highlights Our logistics business delivered a good performance in a challenging operating environment. Distribution fees were £872 million and on a constant currency basis we grew our adjusted operating profi t by 2 per cent to £176 million. We delivered a good performance in tobacco logistics with cost saving initiatives and tobacco price increases, offsetting tobacco volume declines. In non-tobacco logistics, we have continued to focus on maintaining our profi tability while looking for opportunities to profi tably grow our business. Our pharma business grew sales as a result of market share gains and the development of our direct distribution business. Our lottery business grew by adding new points of sale to the network and launching new games. Our wholesale business also performed well and we made further effi ciency gains in our transport business. Our focus remains on continuing to identify and develop growth opportunities while ensuring all aspects of our logistics operations are effectively and effi ciently structured to drive success in a trading environment that we expect to remain challenging in 2013.

Imperial Tobacco Group PLC | Annual Report and Accounts 2012 (4) 67 932 2011 2011 (965) (487) (337) 6,913 8,911 177.3 2,577 1,816 2,640 2,153 21,277 29,223 (4) 75 699 2012 68.1 (437) (382) 1,447 1,518 1,081 872 2012 (955) 7,005 8,368 21,161 28,574 (4) 183 2011 (562) (617) 188.0 2,924 3,103 2,541 1,924 (4) Adjusted Reported 176 2012 (535) (604) 201.0 2,989 3,161 2,626 2,022 ofi t grew by 4 per cent refl ecting a good by 4 per cent refl t grew ofi evenue nance costs nings per ordinary nings per ordinary oup operating profi t oup operating profi oup revenue Tobacco Tobacco Logistics Eliminations ofi t before taxation t before ofi t for the year ofi axation obacco net revenue increased by 4 per cent, with volume growth in our by 4 per cent, with volume growth increased obacco net revenue obacco net revenue Logistics distribution fees T Logistics r share (pence) share market performance in the majority of EU markets given current region, in our Rest of the World conditions and excellent results in the Americas. by reductions partially offset t was up 4 per cent and Logistics adjusted operating profi Tobacco t was up by 2 per cent. adjusted operating profi rate of 23.0 per cent (2011: 24.3 per cent), After tax at an effective by 8 per cent to 201.0 pence. grew adjusted earnings per share 68.1 pence (2011: 177.3 pence) were Reported earnings per share nancial ecting fair value and exchange movements on fi additionally refl intangibles, an impairment of instruments, amortisation of acquired Spanish goodwill of £1.2 billion and other adjusting items. key strategic brands, cigars and smokeless tobacco, together with price key strategic brands, cigars and smokeless overall volume declines. offsetting in many of our markets increases were logistics distribution fees cult operating environment In a diffi 1 per cent lower. EarningsGroup Performance Eliminations Gr £ million unless otherwise indicated t Operating profi The analysis of our fi nancial results below focuses on our adjusted below nancial results The analysis of our fi in which we manage the business, and ect the way which refl measures, The basis of our a useful comparison of business performance. provides is explained in our accounting policies in measures non-GAAP or adjusted nancial statements. our summary fi given on a constant are for our adjusted results gures fi growth Percentage translation (but not transactional) effects exchange basis, where currency rates to the 2012 results. by applying 2011 exchange removed are Revenue Performance £ million revenue Tobacco T Adjusted operating pr Pr Pr Net fi T Ear Gr ted from our focus on delivering quality growth while effectively managing costs and cash.” “ Our results benefi Our results “ Robert Dyrbus Finance Director Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Financial Review Financial

Overview Strategic Review Performance Risk Governance Financials 34 Performance 35 Overview Strategic Review Risk Governance Financials – 4.3 0.6 (6.1) 2011 32.1 (20.2) 188.0 177.3 change currency currency Constant (pence) 7.2 1.8 (0.9) 2012 68.1 (10.4) (13.8) 201.0 149.0 Earnings per share – – – – 10 2012 Change (85) 2011 (562) (487) 3 176 (3.8%) 1.6% (4) (535) 4.8% (0.7%) – – – – (12) 872 (6.4%) (1.3%) 27 nance costs nance 112 3,161 1.9% 3.6% 109 2,989 2.2% 3.7% 281 7,005 1.3% 4.1% ency 14.6p 201.0p 6.9% 7.8% 2012 (535) (125) (437) growth curr Constant Net fi Net Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco – – – – 61 Foreign Foreign 402 2011 Spain has been particularly affected by the euro crisis and a by the euro Spain has been particularly affected prices, with high unemployment collapse in Spanish property cits, a banking government and central defi levels, regional of austerity measures. sector bail-out, and the introduction (IFRS), Under International Financial Reporting Standards the various attributed to goodwill and other intangible assets are cash generating units (CGUs) at the time of an acquisition. On the acquisition of Altadis in 2008 we allocated total acquired intangibles of £13.5 billion to CGUs, including £2.7 billion to our Spanish tobacco business. This allocation was made on the basis of the existing assets and our expectations for each CGU in the a reduction us to recognise at that time. IFRS requires expectations for an value of intangible assets if our current individual CGU do not fully support the value of intangible assets attributed to it. previously At the end of September 2011 the carrying value of our Spanish tobacco intangible assets was £2.8 billion. As we noted in our value was sensitive to nancial statements, the carrying 2011 fi to required movements in a number of assumptions we are appropriate. make when testing that the value remains nancial During 2012, and particularly in the second half of the fi and we economy has deteriorated further, the Spanish year, of the economy has receded believe the timing of a recovery In line with level of uncertainty has increased. while the current exchange 3,103 2,640 t – – – 183 (10) 932 (48) 2011 (562) 31 3,103 (54) 2,924 (44) 6,913 (189) 188.0p (1.6)p (10) 101 2012 es 3,161 1,518 1,552 Operating profi ts net fi nancing cost ts net fi efl ecting further deterioration in Spanish efl ovisions established on the acquisition of ed intangibles nancial instruments providing nancial instruments providing ax provisions released released ax provisions T Adjusted EPS Measur Reconciliation of Adjusted Performance Post-employment benefi Restructuring costs Adjusted net fi nance costs Adjusted net fi Logistics adjusted operating profi t profi Logistics adjusted operating t Adjusted operating profi Tobacco adjusted operating profi t profi adjusted operating Tobacco Adjusting Items of a the release Acquisition accounting adjustments includes small number of pr Adjusted Fair value and exchange (gains)/losses on fi commercial hedges commercial economic indicators. Altadis that are no longer required. Amortisation and impairment required. no longer Altadis that are intangibles was £1,552 million (2011: £402 million) of acquired of Spanish respect including a non-cash impairment charge in nancial intangibles. Net fair value and exchange gains on fi included in reported hedges commercial instruments providing £125 million (2011: £85 million). nance costs were net fi ts amounted nancing cost of post-employment benefi The net fi with £10 million in 2011. to £27 million compared with £61 million Restructuring costs of £101 million compared ect a non-cash £43 million impairment of surplus in 2011 refl and further costs in respect and plant and machinery, properties rationalisation including several factory of US and European during the year. closures of £137 million (2011: £205 million) of tax provisions The release certain prior year tax matters outside of due to the resolution of changes in estimates in the normal course of business tax charge in 2012. our reported cantly reduced signifi Spanish Intangibles nancial year we have written down part At the end of the fi of the value of the intangible assets in our Spanish tobacco business, primarily r Logistics distribution fees £ million unless otherwise indicated Tobacco net revenue Tobacco Group Results – Constant Currency Analysis – Constant Currency Results Group £ million unless otherwise indicated Acquisition accounting adjustments Reported Amortisation and impairment of acquir Share Buyback Programme and Dividends Buyback Programme Share and in the year we buyback programme our share continued We which acquiring 21.9 million shares spent just over £0.5 billion, was £24.02. The average price paid shares. held as treasury are representing shares At 30 September 2012, we held 77.8 million intend to continue capital. We 7.3 per cent of our issued share £500 million per annum. at around the buyback programme pence nal dividend of 73.9 a fi has declared The Board This brings the total dividend for the year to per share. of 11 per cent over 2011, ahead 105.6 pence, an increase and in line with in adjusted earnings per share of the growth our dividend policy. Liquidity and Going Concern cient that we always have suffi ensure policy is to The Group’s to meet funding and committed bank facilities in place requirements. peak borrowing foreseeable that we have adequate resources to satisfy ourselves In order committed the Group’s has reviewed the Board for the future, generate cash from funding and liquidity positions, its ability to need to raise externaltrading activities and its ability to meet the our future has also reviewed The Board funding in the future. face (as described plans, our strategy and the principal risks we on pages 52 to 55). acknowledged the current the Board In performing its review nancial markets and considered level of uncertainty in the fi funding various sensitivity analyses when assessing the forecast in the context of the of the Group requirements and headroom facilities set out in note 19 to the le of the Group’s maturity profi billion of bonds £1.4 has approximately accounts. The Group maturing in October and November 2013 and a combination nancing operations as well as new fi of cash generated from nancing in plans its fi these. The Group will be used to replace dent that confi manner and remains and proactive a structured nancing will be available. of fi sources is of the opinion that the Group the Board Based on its review, PLC have adequate Group as a whole and Imperial Tobacco to meet their operational needs for the foreseeable resources nancial the fi prepare to and conclude that it is appropriate future statements on a going concern basis. The denomination of our closing adjusted net debt was The denomination of our 45 per cent sterling. 10 per cent US dollar and 45 per cent euro, nancing facilities we had committed fi As at 30 September 2012 cent was bank £12.5 billion. Some 25 per in place of around capital markets. raised through facilities with the balance covenants and fully compliant with all our banking remain We grade ratings. our investment to retaining committed remain 85 (10) 487 562 2011 (27) 125 437 535 2012 continued ts net nance costs nance costs were down from £562 million to down from nance costs were nancial instruments providing nancial instruments providing fi nancing cost fi Post-employment benefi commercial hedges commercial Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Our reported net debt was £9.0 billion, down from £9.4 billion at net debt was £9.0 billion, down from Our reported 30 September 2011 due to fair value and exchange movements. the fair value of derivatives Eliminating accrued interest, nance lease ow hedges and fi cash fl commercial providing liabilities, our adjusted net debt was £8.8 billion (2011: £8.8 billion). Cash conversion was 71 per cent, impacted by £0.5 billion ecting the unwinding working capital movements, in part refl in our Italian logistics business and our of a timing difference agenda. These include extending investment in our sales growth launches. our leaf stock duration and new product to to our shareholders returns During the year we increased £1.5 billion (2011: £1.1 billion), comprising £0.5 billion of buybacks (2011: £0.2 billion) and dividend payments share of £1.0 billion (2011: £0.9 billion). Cash Flows and Financing £ million nance costs Net fi Net fair value and exchange gains on fi Net Finance Costs these developments we have updated our assumptions to these developments we of impairment market data for the purposes ect current refl the discount rate increased testing, and have consequently rate. growth the long-term reduced applied to Spain and conditions and the current of the macro-economic The effect economic assumptions have of longer term revision downward of the goodwill in an impairment of £1.2 billion together resulted in our Spanish business. is a non-cash item and has been The impairment charge in line with our existing our adjusted results excluded from policy on non-GAAP measures. as a whole, the Altadis acquisition has enhanced the Taken returns in line with our performance and generated Group’s and our our geographic spread expectations, strengthening cant portfolios, as well as generating signifi brand and product cost synergies. Financial Review Review Financial Adjusted net fi Adjusted net fi £535 million despite the impact of a full year’s share buyback share £535 million despite the impact of a full year’s nance costs were fi and higher dividend payments. Reported net cost of debt was £437 million (2011: £487 million). Our all in 5.7 per cent) and our interest at 5.5 per cent (2011: improved cover was 5.9 times (2011: 5.5 times).

Overview Strategic Review Performance Risk Governance Financials 36 Corporate Responsibility Review 37 Overview Sustainability and Responsibility: What corporate responsibility means to us Strategic Review Responsibility is central to our sustainable growth strategy – how we behave today impacts

our business tomorrow. Performance Millions of people around the world choose to enjoy our tobacco products every day. We make, market and sell our brands and products in a way that is ﬁ nancially, socially and environmentally responsible. We also actively support our consumers and proactively tackle important issues such as the smuggling and counterfeiting of tobacco products. Risk We respect the natural resources we use, whether it’s tobacco leaves, wood for paper and packaging or water to grow and then process our tobacco. Our manufacturing processes use energy and water and create waste, and we focus on reducing

our environmental impact. Governance The welfare of our people is very important to us. We’ve created a rewarding work place for our 37,000 employees with our values guiding the way they work with each other, our business partners and other stakeholders.

We operate on an international scale and make many positive Financials contributions to society, not just in terms of wealth creation and employment, but by being an active member of the communities of which we are part.

Find out more online You will ﬁ nd several QR codes throughout the CR section of this report. Download a QR code scanning app to your smartphone and scan the code to access extra content online at www.imperial-tobacco.com/cr

Imperial Tobacco Group PLC | Annual Report and Accounts 2012 47 factories Product Product manufacture for our 44 products continued countries where we source tobacco ting ght illicit trade

eement we initiated in 2010

Leaf buying, processing Leaf buying, processing and planning £7.9 billion Paid to shareholders dividends and share Through buybacks since 1996, beneﬁ millions of pensions and other investments worldwide which in turn supports international economies Investment to ﬁ a 20 year partnership Through agr Commission with the European and EU member states US$300 million £20 billion Returned to governments excise duty, Every year through and company taxation In countries around the globe; In countries around the tobacco industry indirectly of sustains tens of millions the jobs, most of them in developing world 37,000 employees Supporting Stakeholders and the Communities we Operate in we the Communities and Stakeholders Supporting Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco the contribution we make the contribution we Our global operations andOur global operations Corporate Responsibility Review Review Responsibility Corporate

Overview Strategic Review Performance Risk Governance Financials 38 Performance 39 Overview Strategic Review Risk Governance Financials emissions 2 Tackling Tackling resources consumers Tobacco Foundation Tobacco Supporting child labour enjoy tobacco products by 4 per cent and energy by 4 per cent and energy Eliminating Child Labour in consumption by 5 per cent consumption by 5 per and championing their right to We’ve reduced CO reduced We’ve and are a board member of the a board and are We actively oppose child labour We ﬁ ghting disproportionate regulation regulation ghting disproportionate ﬁ We stand up for our consumers by stand We Respecting naturalRespecting Delighting and satisfying our consumers Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco products we sell our 160 markets where Sales, marketing and brand management Storage and distribution 40 Corporate Responsibility Review continued

Overview Sustainability and Responsibility

Strategic Review Responsibility and our Strategy: Reporting on our Performance What’s Important and Why? Every year we use our annual report to update you on Our most important responsibility issues are those which have the progress we’re making in managing our important the potential to impact our business and are of the greatest responsibility issues. interest to our stakeholders. These issues are highlighted in the More detailed information on other responsibility issues table below. To ﬁ nd out more about how we’re managing risks

Performance is available in the Responsibility section of our corporate associated with these issues see pages 52 to 55 of this report. website www.imperial-tobacco.com/cr Focus Area Important Issues Responsible with Products Tobacco and Health Regulatory Engagement Anti-Illicit Trade

Risk Rewarding Workplace Our People – Our Values Workplace Health and Safety Respecting Natural Climate Change Resources Environmental Performance Reinvesting in Society Responsible Sourcing Governance Financials CR Framework Goals By assessing what’s important for us to continue to successfully develop our business and by understanding the Focus Areas To support To create a external expectations of our stakeholders, legitimate great we’ve carefully identiﬁ ed four long-term markets and workplace Re goals and focus areas which are deﬁ ned ace spo consumers pl ns in our CR Framework. k ib or l e We use these to align our business w w g it n h activities and stakeholder issues and set i d p r r new objectives each year to further drive a o d responsible performance. w e Our Values u c R t s

e R c

e r i u n o v Code of Conduct s e e s r t l in a g r tu in a s n o g cie in ty ect To make Resp To reduce our positive societal environmental contributions impact

Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Performance 41 Overview Strategic Review Risk Governance Financials eativity around our values. eativity around fi ciency in Africa and targets for further fi ough initiatives such as the ‘Safety Pin’ elevant quality and simplifying our complaint elevant quality and simplifying oll-out of an enhanced anti-illicit trade framework oll-out of an enhanced Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco c focus on factory excellence based on best practice c focus on factory excellence based on best We maintained a ‘Gold’ status in the 2012 Business in We The Community Corporate Responsibility Index of 76 per cent in the achieved our highest ever score We SAM assessment for the Dow Jones Sustainability Index Increase market engagement on responsible sales issues market engagement on responsible Increase with the r manufacturing techniques. further energy by establishing energy reductions Target saving contracts. the involvement through our community Strengthen development of key partnerships and by supporting employee activities. sustainability strategy with an action plan our leaf Progress for wood self suf in supplier performance. improvement and toolbox. consumers by driving forward Continue to support our consumer r management processes. lost time accidents zero accidents towards Further reduce and employee with continued management commitment engagement thr quiz competition. strategy focused on engaging Embed our new responsibility our people and enabling cr with a and recycle re-use of reduce, an approach Promote specifi – – – – – – – – – – External Recognition of our Progress 2013 Priorities below with our detailed for 2013 are Our top level priorities our website. objectives for 2013 on Responsible with Products Reinvesting in Society Rewarding Workplace Rewarding Respecting Natural Resources e of Chinese counterfeit e of Chinese counterfeit educed carbon emissions by 4 per cent. oved our score by 8 per cent for our Social by 8 oved our score e pleased that 15 factories have recorded zero LTAs LTAs zero e pleased that 15 factories have recorded ect business impacts in Morocco which highlighted ect business impacts in Morocco Our intelligence assisted law enforcement agencies to law enforcement Our intelligence assisted seizur make the largest ever a number of positive contributions and identifi ed areas ed areas a number of positive contributions and identifi for improvement. for more than 12 months. for more use by 5 per cent and exceeded energy reduced We targeted energy savings of £1.5 million. to Project in the Carbon Disclosure score our increased We 75 per cent and r engaged with key leaf suppliers on wood sustainability We and impr Programme. Production Responsibility in Tobacco and of our direct conducted an independent review We indir cigarettes in Europe. cigarettes and development facility agship research Investment in our fl at Fleury-les-Aubrais in France. 80 ‘Our People’ workshops globally to over delivered We capabilities. bring our values to life and build our people the number of lost time accidents have further reduced We and ar Key data reported in the annual report and accounts for and annual report in the Key data reported the year to 30 September 2012 has been independently of the under the limited assurance requirements assured by PwC. They have also been engaged ISAE3000 standard to look at our alignment with AA1000AS (2008) principles Some of of inclusiveness, materiality and responsiveness. by this assurance is clearly the selected data covered highlighted within the Corporate Responsibility section of of the selected data is included and all the annual report in the Corporate Responsibility section of the website their limited where www.imperial-tobacco.com/cr assurance statement can be found. PwC have provided FY10. with CR assurance services from Imperial Tobacco by another provider. Earlier data was assured – – – – – – – – 2012 Performance Highlights 2012 Performance highlights this a number of CR performance delivered have We and contribution of behaviour year driven by the responsible our people. Responsible with Products Respecting Natural Resources Reinvesting in Society Rewarding Workplace Rewarding oducts. By doing so we protect the legal duty paid tobacco market from the legal duty paid tobacco market from so we protect product. unregulated a ght illicit trade through have invested US$300 million to fi We Commission with the European 20 year partnership agreement and EU member states. of investigations undertaken by During 2012, as a result of Chinese counterfeit Imperial, the largest single EU seizure passed intelligence to the European was made. We cigarettes ce (OLAF) in Brussels who worked with the Anti-Fraud Offi This led to authorities to identify several suspect containers. cigarettes. further raids, seizing 160 million counterfeit or Memoranda have a number of co-operation agreements We formalise the way of Understanding (MoUs) in place to help us have a total authorities. We information with customs we share with France, of 21 MoUs, including newly signed agreements Luxembourg and Kosovo. movement of bulk Our tracking and tracing systems follow the the supply chain. If there’s through quantities of genuine product we can assist tobacco products, of genuine smuggled a seizure the seized tobacco cials to determine where offi law enforcement supposed to go. they were and where came from products continuing to develop new and At an industry level we’re innovative tracking and tracing systems. Association founded by Imperial The Digital Coding & Tracking and Philip Japan Tobacco British American Tobacco, Tobacco, tracking and tracing Morris International develops and promotes system known This includes a supply chain control standards. as Codentify which uses advanced digital coding technology easy-to-copy packaging, replacing onto product printed directly tax stamps. paper-based The association is working with INTERPOL to make Codentify accessible via a new INTERPOL Global Register (IGR) to combat illicit trade. In Europe the key driver of regulation is the European is the European the key driver of regulation In Europe Union Tobacco the European Commission, through being revised. (EUTPD) which is currently Directive Products ministries both within to engage with relevant continued We’ve States and within the EU Commission individual EU Member that any changes to the EUTPD seeking to ensure and are c and scientifi based on factual, by the Commission are evidence. robust Anti-illicit Trade stop the to our anti-illicit trade activities we work hard Through smuggling and counterfeiting of tobacco pr continued e support eview tobacco and health oducts. We’re focused on manufacturing, marketing and focused on manufacturing, oducts. We’re Responsible with Products Responsible Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco balanced, proportionate regulation and continue to oppose regulation balanced, proportionate freedoms that undermines consumer and commercial regulation spaces, product such as attempts to ban smoking in private on our packaging. and further encroachment display restrictions focused on the Much of our engagement this year has been which we strongly plain packaging of tobacco products, attack an unwarranted oppose. Plain packaging represents rights. on our valuable trademarks and intellectual property available in the same, easy-to-copy Making all tobacco products counterfeiting, cantly increase plain packaging will also signifi undermining the joint anti-illicit trade initiatives we work on with police and customs authorities worldwide. in will be introduced The plain packaging of tobacco products Australia on 1 December 2012. Australia is the only country in the world to implement plain packaging laws. A legal challenge and other tobacco against the legislation by Imperial Tobacco by the High Court of Australia. companies was rejected government consultations on plain packaging are Elsewhere, ongoing in the UK and New Zealand and we continue to actively participate in the debate. developments and make the results of our scientifi c of our scientifi developments and make the results to the public via our science website available research www.imperialtobaccoscience.com. and agship research During 2012 we invested in our fl have France. We development facility at Fleury-les-Aubrais in methods and laboratory the number of accredited increased regulation to product techniques so we can better respond on our website. developments. Further details can be found Regulatory Engagement governments with regulators, and other engage proactively We W stakeholders on a range of tobacco issues. Overview tobacco to enjoy our choose Every day millions of people pr socially and nancially, in a way that is fi selling our products stand up for our consumers We responsible. environmentally and championing our regulation ghting unreasonable by fi smoking. consumers’ right to enjoy which helps the legitimate tobacco market protecting We’re sold only to adults, are that tobacco products to ensure illicit trade. t through and criminals do not profi and Health Tobacco stakeholders have concerns that recognise over We the potential health risks associated with tobacco-use. Our scientists monitor and r Corporate Responsibility Performance 2012 Performance Responsibility Corporate Corporate Responsibility Review Review Responsibility Corporate

Overview Strategic Review Performance Risk Governance Financials 42 Performance 43 Overview Strategic Review Risk Governance Financials forts to e support Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco , and includes the behaviours, skills and knowledge , and includes the behaviours, skills and knowledge Rewarding Workplace Rewarding Overview for our an inspiring work environment Our goal is to create can do their best work. W employees, so that they so that their aspirations and build their capabilities their career to listen to our take the time ourish. We talents and skills fl them as individuals. respect them fairly and people, reward Engagement Capabilities, Values, integral to the capabilities and engagement are Values, development of our people. values and our Our capability framework is aligned with our strategy ambitions. to achieve our sales growth for our people required with a common bond, guiding the way we us Our values provide way we behave. During 2012 uencing the do business and infl global our we launched new values (see page 13) across People’ operations. This has included running 80 ‘Our the world between workshops for over 1,000 managers around the values to life and January and April 2012 that brought to deliver our sales focused on further building our capabilities strategy. growth into our annual In addition, our values have been embedded member meaning every performance and development reviews, on how they are of the management team will be measured delivering their objectives in line with our values. business our to drive engagement across continuing We’re a much wider survey to gather conducting and this year are which is taking the views of a much wider employee population engagement place in November 2012. This builds on the since our management actions we have progressed the end of 2010. engagement survey towards Employee European rst meeting of the Imperial Tobacco The fi Council (ITEEWC) was held in December 2011. This is Works Forum (EEF) and the a forum that combined our European Altadis to discuss du Groupe Comite d’Enterprise European employees in Europe. transnational issues affecting came together Senior executives and employee representatives performance and future information on the Company’s to share employees. our European plans and discuss issues affecting The next meeting is being held in December 2012. & Safety Health Workplace for our a safe, well-equipped, working environment provide We people and actively encourage them to be part of our ef place to work. a great make Imperial Tobacco Our annual ‘Safety Pin’ quiz competition, which tests quality, manufacturing employees on their safety, knowledge, has been a real and product environmental than 2,000 manufacturing This year more success story. employees at 43 sites worldwide took part and further details can be found on our website. In addition, an enhanced behavioural safety training initiative is our factories in the next 12 months to across being rolled-out health and safety schemes around successful build on previous in the workplace. 1 (2011: 34) 34 corporate site for which cigarette Number of countries on Imperial Tobacco’s on Imperial Tobacco’s ingredients are published are ingredients % 3 Global Quality index Percentage increase in increase Percentage information. Administration Case Studies on our website. are Case studies of our progress – the Head of Science and Stewardship Insights from – Engaging with Regulators – The Food and Drug – Supporting our consumers with smoking shelters – A journey – Lao continuous improvement of 1 by PwC. See website for further 2012 data has been assured Responsible with Products: Responsible Indicators Performance % 1 team 59 Engagement score across management across 1.08 2.76 10 11 1.30 2.97 more information. We report health and safety data 12 months in report information. We more to allow for data collection and verification. arrears Sickness absence (days sickness/average number working days) rate. Lost time accident frequency 09 Rewarding Workplace: Workplace: Rewarding Indicators Performance 1.57 3.73 Q absence. and work-related incl. non-work-related Q Rewarding Workplace: Lost time accidents Workplace: Rewarding and sickness (per 200,000 hours) 1 by PwC – see website for rate is assured 2011 lost time frequency Baseline continued e our people are treated with fairness, dignity and respect. with fairness, dignity and respect. treated e our people are Case studies of our progress are on our website. are Case studies of our progress – Safety Pin quiz competition – scheme – UK Apprentice – Supporting employee health in Cote D’Ivoire – Human Rights and Social Assessments – German Health Ministry from Award Case Studies Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco This is reinforced through offering equal opportunities and offering through This is reinforced employment, giving fair consideration to applications for having regard without development and promotion, career age or disability. race, religion, gender, to an employee’s of employment and These policies also cover the continuation who become disabled during training for employees appropriate that candidates are their employment. Our policies ensure of women chosen on merit which involves the consideration for all positions within the organisation. in our success we offer employees can share ensure To ts packages linked, wherever competitive pay and benefi encouraged to build possible, to performance. Employees are ownership of the Company’s a stake in the Company through during plans offered share with a number of employee shares, the year. We have invested in new machinery and factory infrastructure invested in new machinery and factory infrastructure have We as well as ciency effi the business to achieve greater across ts. health and safety benefi cation have achieved OHSAS 18001 certifi A further nine facilities and safety, their commitment to occupational health recognising in Macedonia which extended the including the Skopje factory eld sales operations. scope to include fi the number of to reduce continued our efforts have We – incidents that lead to employee Lost Time Accidents (LTAs) pleased that 15 factories and are absences and major injuries, than 12 months. for more LTAs zero have recorded Employment Policies for human rights to apply universally accepted standards We ensur Corporate Responsibility Review Review Responsibility Corporate

Overview Strategic Review Performance Risk Governance Financials 44 Performance 45 Overview Strategic Review Risk Governance Financials Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Case Studies on our website. are Case studies of our progress – management in Taiwan Environmental – energy renewable Producing – barns’ ‘rocket cient Fuel-effi – beaches Morocco’s Protecting educe our impact through educe our impact through e working to achieve our goal of reducing our our goal of reducing e working to achieve ed with our 2009 baseline. The unverifi ed data for 2012 ed with our 2009 baseline. The unverifi -profi t organisation that encourages private and public -profi Respecting Natural Resources Respecting indicates that this trend is continuing. indicates that this trend 71 per cent of our factories have achieved ISO 14001 management standards. of their environmental accreditation sector organisations to measure and reduce emissions and reduce sector organisations to measure wider carbon and climate change impacts. As part of our to the CDP we have responded management strategy, years. In 2012, annual Information Request for a number of to 75 per cent. our score we increased continue to engage with our strategic suppliers to identify We the impact of savings and to reduce opportunities for shared supplier participation to improve continued climate change. We participation of in the CDP Supply Chain initiative, including available are our logistics business – Logista. Further details at www.cdproject.net. Performance Environmental ll and water consumption waste to landfi continue to reduce We compar energy conservation, lower carbon technology, renewable renewable energy conservation, lower carbon technology, carbon offsetting. applicable, energy and, where Spain and Energy saving initiatives at our factories in Logroño, savings of Radom, Poland, have both exceeded the target larger similar initiatives at our plan to introduce £1.5 million. We and programme factories worldwide in a phased eight-year in energy costs. expect them to deliver substantial savings and opportunities Further details on our climate change risks can be found on our website. Project Carbon Disclosure (CDP) is an independent Project The Carbon Disclosure not-for environmental impact. environmental Climate Change per cent by 2020. energy usage by 20 Our goal is to reduce aims to r Our climate change strategy Overview and water and create use energy Our manufacturing processes waste and we’r baseline to 2009

1 142,268

290 146,814 10 11 10 11 300

/£ million)

3 150,419 09 09

321

Water consumption – Water mains and abstracted (m Energy consumption Energy consumption (KWh/£ million) Baseline Baseline 307,973 equivalent 1.69 2

continued 310,687 10 11 10 11

1.87 307,132 09 09 2.08 emissions from emissions from manufacturing (Tonnes) process Absolute CO Waste to landfill Waste million) (Tonnes/£ Baseline Baseline 44.5 7.47 10 11 10 11 45.7 7.97 equivalent 2 to incorporate this unit. Environmental data includes all manufacturing sites over which we have operational control. data includes all manufacturing sites over which we have operational to incorporate this unit. Environmental 09 09 Respecting Natural Resources: Performance Indicators Natural Resources: Performance Respecting 46.6 8.25 emissions from emissions from manufacturing process million) (Tonnes/£ scope. Ozone depleting substances and our cigar operations have been included in our reporting 1 information. by PwC; please see the website for more FY data has been assured Current cation. to allow for data collection and verifi 12 months in arrears data is reported Environmental our For completeness we have restated energy by revenue. ces measure offi manufacturing sites and main Our cigar and cigarette Waste (Tonnes/£ million) (Tonnes/£ Waste CO Baseline Baseline Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Corporate Responsibility Review Review Responsibility Corporate

Overview Strategic Review Performance Risk Governance Financials 46 Performance 47 Overview Strategic Review Risk Governance Financials (%) 1 e were a number e were 68 , met with us again in 2012 through our Stakeholder , met with us again in 2012 through 10 11 Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco 63 99 per cent of tobacco suppliers participated in the SRiTP programme 99 per cent of tobacco suppliers participated in the SRiTP programme supplier has been included into the in 2011. The one non-responding for 2012. programme information. 09 60 Reinvesting in Society: Performance Indicator Production Social Responsibility in Tobacco – total weighted mean (SRiTP) progress 1 for more by PwC. See our website FY11 data has been assured of fi nancial contributions at a local level as well as employee at a local level as well as employee nancial contributions of fi ts time to maximise the benefi volunteering and management involvement. our from of our an independent review we also commissioned This year, The impact business impacts in Morocco. and indirect direct societal and assessment highlighted a range of positive our operations and informed the local ts from economic benefi our positive where of areas by identifying a number approach impacts can be enhanced. their time to During 2012 many of our employees also gave markets. in a number of contribute to local community projects case studies, is available on information, including More our website. Stakeholder Panel including our main stakeholder groups, from Representatives and the wider consumers, investors, suppliers, employees community views on the business and their their Panel. They shared to approach valuable input continues to help shape our well as our Their feedback as Corporate Responsibility. can be found on our website. response Our supply relationships also support our anti-illicit trade also support our anti-illicit Our supply relationships them to comply with the high standards initiatives and enable Conduct. set out in our Code of Partnership Investment 2012. £3 million to partnership investment in allocated We investment, ther In addition to this central relationships with relationships cation programme, which includes social and cation programme, national leaf supply companies – only a small amount is national leaf supply companies – only a small –Protection in Malawi of forests Case studies of our progress are on our website. are Case studies of our progress – Africa sustainable development in West Supporting – Altadis Foundation The Case Studies e the Social Responsibility in Tobacco Production (SRiTP) for (SRiTP) Production in Tobacco e the Social Responsibility Reinvesting in Society Reinvesting environmental criteria. We conduct audits to ensure compliance conduct audits to ensure criteria. We environmental cation for as well as ISO 9001 certifi against our own standards impact. quality and ISO 14001 for environmental purchased directly from growers. All of our leaf suppliers are All of our leaf suppliers are growers. from directly purchased in the SRiTP programme. to participate required including minimum Our enhancements to the programme, helped focus our supplier engagement performance standards, to increased during 2012. The overall SRiTP percentage that a good degree 68 per cent (63 per cent: 2010), indicating of risk management is in place. low scoring continue to work with and seek to improve We fails to meet suppliers, however if a supplier consistently we consider ending our business our minimum standards with them. relationship also continued to focus on the challenge of sustainable We issues such wood supply for tobacco curing, which includes have engaged with as biodiversity and climate change. We a new agronomy our support through our suppliers, increased with in performance targeting improvements team and are our suppliers in this area. continue to support the Eliminating Child Labour in Tobacco We The ECLT member. a board of which we are Foundation, (ECLT) to address regions works with communities in tobacco growing the underlying causes of child labour. Non-tobacco Materials Our non-tobacco material suppliers comply with our Supplier Qualifi many stakeholders. Responsible Sourcing and assessment programmes Our main supplier engagement ar cation Programme tobacco suppliers and the Supplier Qualifi for the supply of non-tobacco materials. Leaf Partnership the leading The majority of the tobacco we use is from inter Overview communities around active members of many different are We long-standing the world and have built egularly review our policies and risk management our policies and risk management egularly review For more detail on our principal risks For more see pages 52 to 55

In this section we outline the risks we face across face across we the risks In this section we outline mitigating and to approach our business and our managing them. Our approach constantly changing risks we face are Our business and the and we r up-to-date and appropriately are they to ensure procedures stakeholders. our protect and Audit with the Board and in consultation During the year, our risk management to strengthen Committee, we continued these have now brought We and procedures. processes with together into a new Corporate Assurance Department for further driving risk management initiatives responsibility of Corporate Our Director the organisation. throughout and the to the Audit Committee regularly Assurance reports risk management. Operating Executive (OPEX) on matters of enables us to clearly focus on the key risks This approach these change as a result facing our business, particularly where macro-economic of our strategy and/or changes to both the and tobacco operating environments. Committee (RCC) In past years the Risk Coordination risk in developing the Group played an important role of key risks. management framework and overall assessment been assumed has now this role this point, Having reached meetings by the OPEX, supported by other management and facilitated by the new Corporate the Group across Assurance Department. the material risks facing our business to have reviewed We in how we identify, approach a consistent top down ensure as assessing our assess and prioritise material risks, as well manage and mitigate those risks. to existing measures is complemented by an annual This top down approach of by local management of principal areas bottom up review process of the business. This risk and uncertainty by each area As well as of our Risk Register. has driven the production nancial and legal risks our Risk Register strategic, operational, ﬁ community and covers a number of emerging, environmental, ethical risks.

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Senior/local management Corporate Assurance Department Oversight of risk management framework and review of framework and review Oversight of risk management Operational ownership of the risks and mitigating activities Operational ownership of the risks and mitigating Ongoing review of the risks and controls in place to mitigate of the risks and controls Ongoing review Identify and manage the key risks across our markets, factories, Identify and manage the key risks across Works with our business to consolidate identifi ed risks across our ed risks across identifi with our business to consolidate Works assist in refl ecting and assessing the risk landscape and to identify assist in refl regions and functions and develop mitigating actions at a local level regions markets, factories, regions and functions into our Group Risk Register into our Group and functions markets, factories, regions Managed and maintained by our Corporate Assurance Department to Managed and maintained by our Corporate Assurance Risk Management: Risk Management: Imperial Tobacco How it works at Effectively Managing the Risks We Face We the Risks Managing Effectively Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Risk Management Risk

Overview Strategic Review Performance Risk Governance Financials 48 49 Overview Strategic Review Performance Risk Governance Financials cise requiring individual markets, cise requiring chased by the Group after consideration of chased by the Group ocesses that are used to manage the risks, ocesses that are Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco cant risks to the achievement of business objectives; cant risks to the achievement nal environmental factors that may change the Group’s Group’s factors that may change the nal environmental e effective. esult in, losses or adverse results and to refl ect any changes and to refl esult in, losses or adverse results a continuing process for the identifi cation and evaluation of for the identifi a continuing process signifi identify those key risks to the business that have, or may identify those key risks to the business that r the availability of such cover, its cost and the likelihood and its cost and the the availability of such cover, magnitude of the risks involved. in the risk position; impact and analyse those risks and estimate the probability, potential timescales should the risks arise; or other the actions, mitigating controls rm and record confi business pr to or reduced either eliminated entirely so that they are an acceptable level; and these risks on an of managing progress track and report ongoing basis. management processes in place to mitigate signifi cant risks signifi in place to mitigate management processes to an acceptable level; cant risks and internal and signifi ongoing monitoring of exter le; risk profi which Summary process, an annual Risk Assessment view of strategic risks with a bottom- combines a top down up risk assessment exer factories, regions and functions across the Group to identify the Group and functions across factories, regions c local risks including any specifi of business risk, major areas by mitigated and managed and demonstrate how these are level. Group) appropriate, at the local (and where controls annual review forms the basis for the Directors’ This exercise and of the system of internal control; of the effectiveness of both the type and amount of external review a regular insurance pur – – – – – – – – – This approach requires each relevant business unit to: each relevant requires This approach Risk and Local Management for risk the message that responsibility By re-enforcing it becomes management sits at the local operational level, and becomes further embedded in our day-to-day operations mor eviewing its effectiveness. eviewing its effectiveness. ole and has ultimate operational exible framework which provides a consistent and exible framework which provides Group statements on strategic direction, ethics and values, statements on strategic direction, Group including our Code of Conduct; clear business objectives and business principles; policies and standards; Group – – – sustained approach to risk evaluation. Business risks, which to sustained approach or nancial or environmental, may be strategic, operational, fi and visible. understood are reputation, concern the Group’s The business context determines in each situation the level of continues to seek The Group acceptable risk and controls. in the management of risk by sharing best practice improvement the organisation. throughout system of risk management are: of the Group’s Key features responsibility for the Group’s system of risk management. for the Group’s responsibility risks and cant signifi the Group’s The OPEX reviews on material changes to the Board subsequently reports and the associated mitigating actions. of Guidance, an annual review with the Turnbull In accordance management system was carried of the risk the effectiveness out by the OPEX in September 2012. Management Risk and Group-Wide is a key element Managing business risk to deliver opportunities using a practical of all our business activities, and is undertaken and fl Risk and the Board Risk and the Board our for overseeing ultimately responsible are The Directors and for r risk management system This system is designed to manage, rather than eliminate, the This system is designed the Group’s to achieve business objectives and risk of failure to ensure review is subject to regular risk management system Corporate Governancecompliance with the UK Code (the on internal Guidance (2005) control Code) and the Turnbull and risk management. the Audit Committee, has with advice from The Board, of the system of the effectiveness review completed its annual an rms that and risk management and confi of internal control for identifying, evaluating and managing the ongoing process the year operated throughout cant risks has signifi Group’s and of this Annual Report and up to the date of the approval of the Code and with the requirements Accounts in accordance Guidance. the Turnbull set out are the Group The principal risks and uncertainties facing at the end of this section on pages 52 to 55. Risk and the Operating Executive management and appropriate The OPEX considers the careful of risk as a key management r nance Code’s principles nance Code’s fi cer work together to resolve cer work together to resolve fi oup policies. Code of Conduct & Group Policies & Group Code of Conduct of with our Code expected to comply are All employees Gr Conduct and Our Code of Conduct sets out the standards of responsible of responsible standards Conduct sets out the Our Code of expected to follow and we employees are behaviour that all our a senior management team through continue to update our workshops. This is supplemented by a series of face-to-face supporting e-learning which we have used to focus on system, including anti-illicit trade, anti-bribery and our priority risk topics, law compliance. corruption, and competition is aligned with our long established and Our Code of Conduct operation of the cover responsible embedded policies that manufacturing employment, terms of commercial, in Group for business guidance and provides and trading practices trust, respect practice, commercial responsible integrity, and responsibility. Speaking Up (whistle-blowing) and of Corporate Assurance Director The Company Secretary, the Chief Legal & Compliance Of our raised, including through any governance issues that are of Any allegations Speaking Up (whistle-blowing) process. investigated thoroughly are misconduct, fraud and irregularity considered. are environment and implications for our control dential Our people have the opportunity to make confi or wrongdoing. about suspected impropriety disclosures of the improved During the year we made our employees aware via an externalcommunication channels we have put in place, through dential disclosures, for them to make any confi supplier, which has been translated into 37 our Speaking Up policy, the Company languages. A Speaking Up committee, comprising – (or a suitable HR representative the HR Director Secretary, of Corporate Assurance, the Director and depending on area) incidents and decides on the appropriate any reported reviews Committee is method and level of investigation. The Audit reports made and receives ed of any material disclosures notifi and actions taken. The Audit of investigations on the results further information, Committee also has the power to request t. it sees fi additional action as conduct its own enquiries or order Internal Control internal practices control Guidance recommends The Turnbull for UK listed companies to assist them in assessing the application of the UK Corporate Gover to with regard provisions and compliance with the Code’s internal control. designed and are systems of internal control The Group’s cation, evaluation and operated to support the identifi These include the Group. management of risks affecting and the process nancial reporting to the fi in relation controls all of consolidated accounts, but extend across preparation as subject to continuous review of operations. They are areas change and new risks emerge. circumstances party: Director of Director Responsible Assurance Corporate Assurance Area of responsibility: of responsibility: Area and independent assurance Risk Management processes Risk Management processes party: Responsible continued Governance Overall Governance Company Secretary Framework Area of responsibility: of responsibility: Area Governance oup’s framework of governance, framework of including oup’s ols to mitigate risks to an acceptable level are ols to mitigate risks to an acceptable level are party: Chief Legal & Responsible and legislation Compliance oup meets its legal obligations and follows our Code oup meets its legal obligations and follows Compliance Offi cer Compliance Offi Area of responsibility: of responsibility: Area Compliance with policies our Company Secretary is responsible for maintaining and is responsible our Company Secretary developing the Gr of Conduct and policies. our Code of Conduct, Group policies and Speaking Up policies Group our Code of Conduct, (whistle-blowing) process; assurance provides of Corporate Assurance our Director that the contr both the risk management operating as they should, through and internalprocesses audit work; and that cer acts to ensure our Chief Legal and Compliance Offi the Gr – – – Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Our Governance Framework During the year we established a Corporate Assurance Corporate Assurance year we established a During the process risk management to oversee the Group’s Department Group and to encompass our Compliance Group replacing Internal Audit team (see below). the way in which risk we have streamlined As a result aligned to our activities are management and assurance areas three governance by creating (and compliance) framework governance, assurance and compliance. of responsibility: the ensure working to are of our business areas These three governance framework: delivery of the Group’s effective Governance, and Compliance Assurance Risk Management Management Risk

Overview Strategic Review Performance Risk Governance Financials 50 51 Overview Strategic Review Performance Risk Governance Financials nance across the business and is nance across Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco rms that risk mitigation controls have operated controls rms that risk mitigation nance process by setting fi nancial policies and standards. policies and standards. nancial by setting fi nance process etary and comprises senior management from across our across etary and comprises senior management from a Group tax risk and tax operating framework which forms and tax operating framework tax risk a Group tax gover the basis of managed by the Group Tax department, which monitors tax department, which Tax the Group managed by it; to control procedures strategies and risk and implements and InternalGroup Audit reviews; management under which cation process, a year end certifi confi entities have the year and that throughout effectively including the Code of Conduct complied with our policies, as well as fraud prevention and anti-bribery requirements, senior managers all our As a separate exercise, processes. have been no related that there to certify also required are of control. their areas party transactions within – – – business and meets, as required, in order to consider major in order business and meets, as required, nancial disclosures. fi all major Committee reviewed During the year the Disclosure Interim Updates, including Trading nancial disclosures, fi Annual Report Report, Management Statements, Half Yearly nancing corporate fi and Accounts and appropriate when reviewing meet its responsibilities documentation. To the Committee members nancial disclosures, these major fi made enquiries into all aspects of the business which, together were disclosures with their own business knowledge, ensured complete with no material issues omitted. The Committee to our Chief Executive and Finance on its reviews reported the Audit Committee. appropriate, and, where Director Committee were of the Disclosure The terms of reference they continued to during the year to ensure reviewed be appropriate. It also manages our fi nancial reporting processes to ensure the to ensure processes reporting nancial It also manages our fi of information which enables our timely and accurate provision including the production to discharge its responsibilities, Board Finance is and Annual Accounts. Group of our Half Yearly the nance managers throughout supported by a network of fi and accountability to provide who have the responsibility Group and internal information in keeping with our policies, procedures Finance Manual. best practices as documented in our Group nancial position is based on our strategic and Monitoring of our fi c to identify specifi operational plans (the Plans) which we use targets and objectives. the to predict ‘latest estimates’ the year we produce Throughout with compared are likely year end position. The latest estimates our performance the Plans and enable us to monitor and check if challenge sections of the business appropriate, and, where Plans. the actual or anticipated performance varies from Committee Disclosure the Company by is chaired Committee The Disclosure Secr Group Finance Finance Group in the Finance department plays a key role Our Group gover nancial risks, including foreign nancial risks, including foreign oughout the Group; oughout the Group; nal Auditors during the course of their nal Auditors during the es, back-up capabilities and the egation of duties, transaction authorisation, egation of duties, transaction authorisation, e, controls, systems and people throughout systems and people throughout e, controls, e detailed in policy manuals; nancial controls and reviews by Group Internal by Group Audit; reviews and nancial controls regular management reviews including reviews of key including reviews reviews management regular fi exchange, interest rate and counterparty exposures, and rate and counterparty exposures, exchange, interest committees that treasury incorporates central and regional monitor these activities and compliance with the policies. for appraisal, approval, ned procedures well defi Additionally, of capital and strategic expenditure, and review control by the Audit regularly reviewed including acquisitions are Committee on behalf of the Board; purchase of insurance; purchase nancial controls; fi employed in managing operating key policies and standards risk involve segr and review nancial and managerial monitoring, fi and analysis against approved reporting comprehensive and budgets; standards operating framework which establishes policies a treasury and manages liquidity and fi clearly defi ned lines of accountability and delegation of ned lines of accountability clearly defi authority – at all levels thr the businesses; and business continuity planning, including preventative contingency measur minimisation of operating risk by using appropriate minimisation of operating risk by using appropriate infrastructur statutory examinations; and statutory examinations; by the external to the Audit Committee reports regular Auditors. a clear tone from the top from the Board and senior the Board top from the a clear tone from and management, supported by our Code of Conduct our values; as described in this section; risk management processes, within our businesses, written policies and procedures which ar testing of certain aspects of the internal fi nancial control nancial control of the internaltesting of certain aspects fi systems by the exter e have refocused our Group Internal Audit team to ensure a Internal our Group Audit team to ensure e have refocused – – – – – – – – – – – – We gain assurance over compliance with systems of internalover compliance with gain assurance We our: to develop by continuing effectiveness and on their control W greater focus on key business risks and controls across the across on key business risks and controls focus greater the business. During the year we have most material parts of of business entities, audit universe comprehensive a created we have ranked in terms and themes, which projects processes, internal audits Going forward risk to the Group. of their relative suitable coverage is obtained over will be carried out to ensure an acceptable period. are: in the Group of the systems of internal control Key features

. In oblem tobacco ch Mitigating activities We proactively engage on the issue of illicit trade with a wide engage proactively We range of stakeholders. and invest to counter the illicit trade in tobacco products We working with governments, tobacco are other legitimate companies and international organisations globally. into a 20-year co-operation agreement In 2010, we entered of illicit trade. with the EU to collectively tackle the problem Anti-Fraud Commission’s work alongside the European We agencies of EU ce (OLAF) and the law enforcement Offi Member States. have signed Memoranda of Understanding (MoU) We with customs authorities in and industry agreements 21 countries to tackle illicit trade, based on joint action intelligence. and shared internal and have strong business conduct standards We customers. to our and apply stringent controls controls policies and standards, Group set out in our These are supply compliance processes Code of Conduct and product our Our Code of Conduct is available on and procedures. website www.imperial-tobacco.com. ency and interest rate fl uctuations, changes in taxation legislation, cyber-security breaches, failure of our IT of failure breaches, in taxation legislation, cyber-security uctuations, changes rate fl ency and interest oducts and damage to our brand integrity, resulting resulting oducts and damage to our brand integrity, Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco countries where diffi cult economic conditions result in reduced disposable incomes, consumers look for cheaper products. Illicit incomes, consumers look for cheaper products. disposable in reduced cult economic conditions result diffi countries where third and illicit whites (whereby counterfeit tobacco products tobacco products, trade can take the form of smuggled genuine pr cant and growing is a signifi area paying minimal tax, for the primary purpose of smuggling). This cigarettes parties produce in tobacco accounts for over 10 per cent of the global estimate that the illicit trade We for the legitimate tobacco industry. between excessive the relationship to address encouraging regulators proactively are market and in our engagement activities we and illicit trade. excise duty increases regulation, Illicit trade may lead to erosion of demand for legitimate Illicit trade may lead to erosion tobacco pr Risk and potential impact in loss of potential earnings, and potentially an impact on our reputation. and/or in the Group may result Illegal trading in our products or other our employees being subject to investigation by customs or other authorities which could proceedings on nes being imposed in penalties and fi ultimately result the Group. we operate and source our raw materials and the impact of natural disasters. our raw materials we operate and source Illicit Trade to strategy: Potential impact on sales Principal relevance Overview year particularly given the tough economic conditions in certain markets during the a key risk for the Group, Illicit trade remains Principal Risks infrastructure, the cost of our raw materials, the impact of competition, political instability in some of the countries in whi impact of competition, political instability the cost of our raw materials, the infrastructure, Risk Management Overview Risk Management all these we manage and mitigate them. Not c to our business and how specifi outline below the principal risks We that are may be other risks and uncertainties There and the list is not exhaustive. within our control factors are in importance seems immaterial now assumes greater the list may change as something that unknown to us and and vice versa. the future, changes in general economic conditions, as many other businesses; for example, subject to the same general risks are We including curr Principal Risks and Uncertainties Risks Principal

Overview Strategic Review Performance Risk Governance Financials 52 53 Overview Strategic Review Performance Risk Governance Financials ry

de. to Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Mitigating activities specialists to employ experienced senior Corporate Affairs We and consult risk and engage with regulators manage regulatory advice and necessary to provide with external experts where develop company positions and toolkits and guidance. We training and guidance for our markets to comply provide with regulation. globally and analyse for new measures monitor proposals We and its them to identify their potential impact on the Group consistent engagement on key work towards We products. industry bodies, active members of relevant issues and we are regulation. and disproportionate challenging unreasonable potential continuously look to understand and predict We and adapt our regulation to excessive consumer reaction including for example assessing our strategy accordingly, quality. footprint, assets and product Mitigating activities that we have a range of ensures Our total tobacco portfolio price at different to meet consumers’ preferences products strategy we monitor our portfolio to points. As part of our to consumer preferences it continues to be aligned ensure in each market. in the context of the excise duty structure continuing to develop portfolio strategies focused on are We consumers. that will enable us to capitalise on value seeking with local tax and customs authorities to engaging are We between excise the relationship encourage them to address and illicit trade. duty increases eatment of fi ne cut tobacco, if widely ne eatment of fi om engaging with regulators on the om engaging with regulators centage of the retail price. Taxes are generally increasing in many markets and the rate of increase varies country by count of increase in many markets and the rate generally increasing are price. Taxes centage of the retail educe consumption of tobacco products. In many of the countries in which we operate, there are a wide range of regulatory a wide range of regulatory are we operate, there In many of the countries in which educe consumption of tobacco products. r development of regulatory proposals which may lead to which may proposals development of regulatory excessive regulation. to change consumer is often designed regulation Tobacco uencing availability and demand through behaviour by infl as denormalising smoking, by means of such measures and plain packaging, the pack encroachment increasing smoking is permitted and higher in places where restriction combined with rising regulation excise duties. Increasing in illicit trade. excise duties encourage growth of the tobacco industry could changes to regulation Any future or on the demand for our products have an adverse effect to compliance and contribute to the costs related increase in illicit trade. an increase Risk and potential impact along with all other tobacco companies, Imperial Tobacco, is often excluded fr Regulation cost to strategy: Potential impact on sales and Principal relevance Overview seek worldwide, as regulators practices regulatory restrictive and increasingly The tobacco industry is subject to substantial packaging can be smoked and their development, content, manufacture, tobacco products in place, including where restrictions may also marketing and advertising. Some of these measures sale, distribution, display, and labelling, testing, data reporting, and by different tobacco product group. tobacco product and by different we operate, as well as encouraging illicit tra the value of our brands in the various markets where of reducing have the effect Risk and potential impact on the demand for adverse effect adopted, may have an t development. profi future and impact our our products also encourage both legal and illegal Excise duty increases of duty. countries with lower levels from trade cross-border Excise Duty impact on sales to strategy: Potential Principal relevance Overview a substantial we operate, represents duty which, in many of the markets in which subject to excise are products Tobacco per unfavourable in excise duty and any Substantial increases change in the tax tr tability Our international footprint and total tobacco portfolio provides Our international total tobacco portfolio provides footprint and to both EU and Non-EU balanced exposure an increasingly markets. in Our total tobacco portfolio includes international strength ne cut tobacco, cigars, in fi and world leadership cigarettes us with enhanced papers and tubes which provides rolling opportunities. growth our Code of including standards, policies and The Group’s comply with Conduct, mandate that all employees must operate. competition laws in the countries in which we employees and guidance to relevant training provide We of competition laws. detailing the obligations and requirements employ experienced internalWe and external lawyers advice and guidance specialising in competition laws to provide laws. and compliance with competition interpretation regarding action by a c regulatory detail of a market specifi More competition authority is outlined on page 74. Mitigating activities our and reviewing continually monitoring our exposure are We to minimise our economic and policies existing processes our ability to operate in a range of and to preserve exposure potential conditions that may exist in the event of one or more events. of these future of resilience Our total tobacco portfolio also gives us a measure as the market changes. Mitigating activities e continued , Spain and other EU markets. Given our signifi cant position in certain markets, we may cant position in certain markets, we markets. Given our signifi , Spain and other EU dingly, we have a signifi cant exposure to cant exposure a signifi we have dingly, eased risk of currency volatility and/or the potential of an exit of one or more countries from the euro. countries from volatility and/or the potential of an exit of one or more eased risk of currency Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco these markets. or of the euro, the future Ongoing uncertainty regarding countries may impact consumer the exit of one or more spending patterns. situation the resulting to occur, a break-up were Further, may cause disruption to our manufacturing and supply chain operations. Risk and potential impact Eurozone – Country and currency risk – Country and currency Eurozone profi to strategy: Potential impact on sales and Principal relevance our sales in Eurozone is from per cent of our revenue Fifty three countries and, accor profi t development and have an adverse impact on the Group’s the Group’s and have an adverse impact on t development profi ts. or profi revenue countries could also cant market position in certain Our signifi action by relevant in investigations and adverse regulatory result for monetary competition authorities, including the potential nes and negative publicity. fi Overview in the level of consumer in a higher risk of disruption, a reduction countries have resulted Recent developments in Eurozone spending and incr Risk and potential impact Market Place impact on sales and cost to strategy: Potential Principal relevance Overview brands as well as our position in our key by the performance of our key of our business is underpinned The continued growth the UK, Germany markets, including in by their economic positions. affected in these countries, as well as being scrutiny regulatory be subject to enhanced of, and/or the economic circumstances Any material decline in key markets may impact on our futur our performance in, our Principal Risks and Uncertainties Uncertainties and Risks Principal

Overview Strategic Review Performance Risk Governance Financials 54 55 Overview Strategic Review Performance Risk Governance Financials ets. the our up or Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Mitigating activities including our Code of policies and standards, The Group’s Conduct, mandate that all employees must comply with listed company and in the countries to a UK legislation relevant in which we operate. monitor closely developments in internationalWe sanctions and fully compliant with them. that we are ensure against the Group date, no tobacco litigation claim brought To of in the recovery has been successful and/or resulted employ internal and externaldamages. We lawyers specialising advice liability litigation to provide in the defence of product and manage and guidance on defence strategies and to direct the Group. litigation risk and monitor potential claims around Mitigating activities which is responsible function, a centralised treasury have We together Group, nancial risks of the the fi for the management of and liquidity requirements. nancing with its fi Committee (GTC) sets a framework for the Treasury The Group function to operate within. The framework covers, treasury liquidity and counterparty risk. nancing, amongst other things, fi in Treasury The GTC oversees the operation of Group set out by the Board. of reference with the terms accordance decisions all major treasury and approves reviews The Board Treasurer. the Group from reports regular and receives forecast regularly are nancing requirements ows and fi Cashfl loan markets are and developments in debt capital and bank to meet the future well placed we are to ensure monitored nancing needs of the Group. fi esult of tobacco litigation claims. esult in investigations. This may cause damage efi nancing the debt, when it matures, may be materially may be materially when it matures, nancing the debt, efi e expect to rely on these markets to refi nance this debt when it matures and rely on the availability of committed funds from of committed funds from on the availability and rely nance this debt when it matures on these markets to refi e expect to rely incur costs and liabilities as a r nancial and criminal and has the potential for fi to our reputation and individuals. penalties for both the Group pending against the Group litigation claims are Tobacco-related in the claims may be brought in a number of countries. More including claims for personal injury and the recovery future, smokers. If any in treating of medical costs allegedly incurred cant in a signifi it may result to be successful, claim were liability for damages and may lead to further claims against us. of the outcome, the costs of defending such Regardless claims can be substantial and may not be fully recoverable. Risk and potential impact Legal Compliance sales to strategy: Potential impact on cost and Principal relevance Overview applicable to the Gro risk by failing to comply with any of the laws that are may be exposed to liabilities and reputational We to comply with local and international laws (including Failure sanctions) may r outlined on page 74. companies are c tobacco litigation claims against Group Further details of market specifi bank counterparties to be available when required to be drawn. to be be available when required bank counterparties to Risk and potential impact cost. higher than the current nancing availability of fi may be subject to reduced We their unable to honour because our bank counterparties are that they have to deliver funds commitments when required committed to lend when requested. xed at fi debt is currently Although a material part of the Group’s is still exposed to movements in the Group levels of interest, ows. outfl in higher cash rates which could result interest interest nance our debt or incur higher unable to refi If we are rating credit tability, profi costs this could impact the Group’s and ability to operate as a going concern. also additional funds may In addition, limited ability to borrow to, competitive and industry or reacting exibility for, the fl reduce or opportunities. pressures, Financing impact on cost and cash to strategy: Potential Principal relevance Overview markets and in the bank loan mark nanced primarily in the debt capital is fi cant level of committed debt which a signifi have We in when it matures, nance our debt, be unable to refi may We and loan markets. In addition, the cost the debt capital markets of r nancing risks can be found in note 19 to to managing its fi and the approach operations treasury Further details of the Group’s W Financial Statements on pages 118 to 123. Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco

Overview Strategic Review Performance Risk Governance Financials 56

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t icic ngng r r utut lalalalalala uu rtrt cc vivivi uu ououou cucucucucucu yy papa hahah tititititi nenene , fi fi fi e eee ararararar keke ’r’r ppppp ssss n nn ii e coco s,s,ss, mama ne ipipip WeWeWeWe ff sisiss eetetet .. . acac oooo shshsh e rkrkrkrk tetetetete bubu erer a ntntnt r r obobob d u mamama mamamamamam tt adad lililili ououoo meme e lele ccccc U U UU f f f f g EEE ooooo egegeg utut ddd icicicic sss rlrl h cccc rere thththtth o hhh ththth oomoomomomo g wowowowo coccoccco ngngngn rr r nene r rr e ononoon owowowowowoow rerere u ttt OuOuOuOOOO stsssts eececec ououo grgrgrgrggrgrgrgr FiFFFiF Building Total Tobacco Brands Tobacco Building Total What you will find in this section: What you will find Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco 58 Chairman’s Introduction 58 Chairman’s 60 of Directors Board Committees 64 Board 70 Corporate Governance Report 77 Remuneration Report Directors’ Governance . Chairman

Iain Napier our business model and this year our business on succession we have focused enhancing risk planning and and assurance.” management “ Strong governance is integral to Strong governance “ We have further strengthened our risk management procedures our risk management procedures have further strengthened We these together into a new Corporate Assurance and brought Compliance function with Group our Department replacing for driving risk management initiatives throughout responsibility detail on our risk management and the organisation. More be found in the Risk Management can assurance processes section on page 48. The Board’s composition has continued to evolve this year The Board’s business and needs of the and future in line with the current the tobacco operating environment. of the dynamic nature strengthen The appointments we’ve made this year further skill set, experiences and diversity. the Board’s cant signifi continues to play an increasingly Corporate Affairs agenda and as a result in supporting our sales growth role and Group Matthew Phillips, formerly Company Secretary was appointed Corporate Director, Corporate and Legal Affairs 1 June 2012. on Director Affairs appointed Malcolm Wyman and David Haines were Annual at our Jungels retired Pierre Non-Executive Directors. part of an orderly General Meeting in February 2012 and, as succession, Mark Williamson took over as Senior Independent as Audit Committee Chairman. and Malcolm Wyman Director people for the Diversity for us means appointing the right on merit. made purely are appointments job and our Board of committed to appointing the best people, regardless We’re age or disability and do not think it is religion, race, gender, appointments. to set diversity targets for Board appropriate Risk Management and Assurance to is fundamental Successfully managing risk to support growth our long-term sustainability e the continued successful ofessional, business and sector specifi c ofessional, business and sector specifi

nance, which we believe are fundamental to discharging nance, which we believe are

e that Imperial Tobacco is governed and managed e that Imperial Tobacco As Chairman, my primary responsibility is to make As Chairman, my primary responsibility sur Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco good governance Committed to expertise. This ensures a truly balanced Board with the right mix a truly balanced Board expertise. This ensures table to the Boardroom of skills and experiences sitting round challenge decision making. fully contribute to and effectively our stewardship responsibilities. our stewardship In the section that follows, we set out our governance corporate effective framework and explain how the sound and supporting our governance practices we have in place are long-term, sustainable growth. strategy of creating Focus in 2012 Board we have overseen and worked with During 2012, as a Board the management team to ensur contain this report Pages 8 to 37 of execution of our strategy. delivered a detailed performance overview of how we’ve managing costs whilst effectively sustainable sales growth and cash. With governance strong integral to our business model, this year: we have additionally focused on two key areas succession planning and risk management and assurance. Succession and Diversity Board combined international backgrounds have differing Our Directors with a wide range of pr with openness, honesty and transparency and in and with openness, honesty and transparency and our both our shareholders of the best interests wider stakeholders. of corporate to maintaining high standards committed are We gover Governance Introduction Chairman’s

Overview Strategic Review Performance Risk Governance Financials 58 Governance 59 Overview Strategic Review Performance Risk Financials Audit Committee p68 eating long-term Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Disclosure Disclosure Nominations Committee p66 Committee p51 sustainable value. strategy delivery of our sales growth Overseeing the successful priority. Board’s the remains continue to drive the delivery of our strategy we will In order an appropriate plans to ensure developing ongoing succession will approval, obtaining shareholder skill set and, subject to policy. remuneration of our revised oversee the introduction our enhanced In addition we will also continue to embed throughout risk management and assurance processes the business. Iain Napier Chairman Board Priorities 2013 Board governance continues to be integral to our business Strong strategy of cr model, supporting our Operating Executive p63 markets and factories Group functions, regions, functions, regions, Group Remuneration Committee p77 ous evaluation, assisted by an ous evaluation, assisted o better align with our strategy we have o better align with our Board Directors Directors Executive Chairman and Non-Executive Management and Corporate Structure Management and Corporate independent consultant. I was assisted in the 2012 evaluation independent consultant. Ltd. by EquityCommunications is an that there Both our 2011 and 2012 evaluations concluded with a good level of trust culture open and collaborative Board alignment behind our key and universal Board and respect strategic objectives. our ongoing are ed for review identiﬁ The two main areas and retirement approaching succession plans for Directors further are risk and assurance processes ensuring our improved on our more can read integrated into the business. You objectives on page 64 of this report. Remuneration and designed to attract, retain policies are Our remuneration T motivate our people. policies and have of our remuneration conducted a review 84. included details on page Evaluation Board our performance we want to continually improve As a Board, a rigor and every year I lead 60 Board of Directors Overview Our Skills and Experience Our Directors bring together the right mix of skills and diversity of backgrounds and Strategic Review experiences to deliver our strategy, enhance shareholder value and ensure our long-term sustainability. The in-depth tobacco Performance experience of our Executive Directors is supported by our independent Non- Executive Directors who bring a wide range Risk of global experiences, including FMCG, ﬁ nance, mergers and acquisitions, and sales and marketing.

Governance Our Values and Code of Conduct We’re responsible for ensuring that high standards of behaviour begin at Board level

Financials and are embedded throughout our business.

Key

Executive Director Non-Executive Director Company Secretary N Nominations Committee A Audit Committee R Remuneration Committee

Matthew Phillips Iain Napier Alison Cooper Robert Dyrbus Corporate Affairs Director Chairman Chief Executive Finance Director Skills and experience Skills and experience Skills and experience Skills and experience Matthew has held a number of As a former Chief Executive of Since being appointed as Chief Robert draws on over 25 years senior roles including Company Taylor Woodrow PLC and main Executive Alison has led the of financial experience in listed Secretary, General Counsel and board Director of Bass PLC, Iain development and implementation companies and has been Group Corporate and Legal Affairs brings considerable senior level of the Group’s sustainable sales instrumental in the Group’s Director prior to his appointment board and general management growth strategy. Alison joined international expansion. He has to the Board as Corporate Affairs experience to the Group. the Group in 1999 and, through overall responsibility for the Director in June 2012. He played a number of senior roles, has financial management and N Chairman a key role in the acquisitions of contributed significantly to the control of the Group, including Altadis and Reemtsma and has international expansion of the its treasury, tax, information been closely involved in developing Group including leading the services, corporate assurance and supporting the Group’s sales Altadis acquisition team. and investor relations functions. growth strategy. 61 Overview Berge Setrakian David Haines Malcolm Wyman Michael Herlihy Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Skills and experience Skills and experience Skills and experience Skills and experience Berge is a senior partner in the David brings considerable senior As a qualified accountant and Michael is General Counsel for law firm DLA Piper LLP (US) and level board experience and is former Chief Financial Officer of Smiths Group plc. He was formerly brings extensive expertise in currently Chief Executive Officer SAB Miller plc, with responsibility General Counsel and Head of Strategic Review international transactions. He also of Grohe AG. He joined Grohe in for the group’s financial operations, Mergers and Acquisitions for brings significant experience as a 2004 from Vodafone Group PLC corporate finance and development ICI PLC with overall responsibility Non-Executive Director, including where he was Global Marketing and group strategy, Malcolm for corporate acquisitions and within the tobacco sector having Director. He is also a former brings not only a wealth of financial divestments and has extensive been appointed to Altadis S.A.’s Chairman of Vimpelcom A/O. expertise but also considerable experience of both private and board in 2004. David gained extensive general general management experience public market transactions. management and sales experience to the Board. He also meets the Performance N R N A R Chairman with Vodafone and Mars earlier in financial expert requirements of the his career. UK Corporate Governance Code. N A R N A Chairman R Risk Governance Financials

Mark Williamson John Downing Ken Burnett Susan Murray Senior Independent Company Secretary Non-Executive Director Non-Executive Director Non-Executive Director Skills and experience Skills and experience Skills and experience Skills and experience John joined Imperial in 2005 having Ken, an independent management Susan brings to the Board a Mark is a qualified accountant, worked for law firm Linklaters. consultant, brings significant wealth of international general who brings considerable financial He has had a number of senior experience of the consumer goods management, strategy and and general managerial experience legal roles in Imperial and was sector in the Asia Pacific region. marketing experience, as a former to our Board and who meets the appointed Head of Group Legal He was President, Asia Pacific Chief Executive of Littlewoods financial expert requirements of the in 2010. He played a leading role of Allied Domecq from 1996 until Stores Limited and worldwide UK Corporate Governance Code. in the Altadis acquisition and its acquisition by Pernod Ricard President and Chief Executive of Mark was Chief Financial Officer of has considerable experience in in 2005. The Pierre Smirnoff Company. International Power plc until 2012 managing key corporate projects Prior to joining Allied Domecq, Susan has considerable experience and has considerable experience related to financing, business he held senior management as a Non-Executive Director. of managing relationships with the development and other positions in the Asia Pacific region She is a former Non-Executive investor and financial communities. commercial matters. with Seagram, Interbrew and Director of SSL International plc, Prior to joining International Power International Distillers & Vintners Aberdeen Asset Management PLC, plc, Mark was Group Financial Ltd (now part of Diageo plc). Wm Morrison Supermarkets plc Controller and Group Chief and a former council member N A R Accountant of Simon Group. of the Advertising Standards Authority. N A R N A R Q 8 years and over – 2 Q 5 to 7 years – 1 Q 3 to 4 years – 3 Q 1 to 2 years – 2 ector of Tsogo Sun Holdings ector of Tsogo ector of Interaudi Bank of New York, of New York, ector of Interaudi Bank ently General Counsel of Smiths Group plc. of Smiths Group ently General Counsel ector of Pernod Ricard SA, Compass Group PLC and Group SA, Compass ector of Pernod Ricard Tenure of Non-Executive Directors Tenure Non-Executive Director of The Morganti Group, Inc. of The Morganti Group, Non-Executive Director Malcolm Wyman, CA (SA) Non-Executive Director Appointment in October 2011 and Appointed Non-Executive Director 2012. Chairman of the Audit Committee in February External appointments of Nedbank Group Senior Independent Non-Executive Director Limited and a Non-Executive Dir the Royal Society Enterprise Inns Plc. Susan is also a fellow of of Arts. John Downing Company Secretary Appointment in June 2012. Appointed Company Secretary Berge Setrakian Non-Executive Director Appointment June 2008. in Director Appointed Non-Executive External appointments LLP (US), Executive Chairman and CEO of Partner of DLA Piper Dir AGBU, Non-Executive Exchange. Limited, both listed on the Johannesburg Stock Susan Murray CCMI Non-Executive Director Appointment in December 2004. Appointed Non-Executive Director External appointments & Ball and Non-Executive Non-Executive Chairman of Farrow Dir Michael Herlihy, MA (Oxon), Solicitor MA (Oxon), Michael Herlihy, Director Non-Executive Appointment in July 2007. Non-Executive Director Appointed External appointments International of Compass Partners LLP Serves on the board and is curr ector in February 2012. ector of Molson Coors Brewing Brewing ector of Molson Coors continued ector from March 2000. March ector from Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Board of Directors Directors of Board External appointments of National Grid plc. Serves on the board Ken Burnett, MA, MBA, PHD, M Inst M Non-Executive Director Appointment in April 2006. Appointed Non-Executive Director External appointments Limited. of Elemental Energy Technologies Director David Haines Non-Executive Director Appointment in February 2012. Appointed Non-Executive Director External appointments of Joyou AG. AG, Director cer of Grohe Chief Executive Ofﬁ Company and William Limited. Grant & Sons Holdings BSC, ACA Alison Cooper, Chief Executive Appointment Chief Executive in in July 2007. Appointed Appointed Director May 2010. External appointments plc since July 2009. Inchcape Non-Executive Director, Robert Dyrbus BSC, FCA Finance Director Appointment on demerger in 1996. Appointed Finance Director External appointments appointments. No external Director Matthew Phillips LLB Director Corporate Affairs Appointment in June 2012. Director Appointed Corporate Affairs External appointments appointments. No external Director Mark Williamson, CA (SA) Senior Independent Non-Executive Director Appointment in July 2007 and was appointed Senior Mark joined the Board Independent Non-Executive Dir External appointments of McBride PLC and John Menzies Non-Executive Chairman Dir plc, and a Non-Executive Iain Napier, FCMA Iain Napier, Chairman Appointment 2007. Chairman in January Appointed Non-Executive Dir

Overview Strategic Review Performance Risk Governance Financials 62 Governance 63 Overview Strategic Review Performance Risk Financials oll-out of Davidoff iD and Building momentum across our Building momentum across total tobacco portfolio and to further develop our consumer insights. Accelerate the international r capitalise on the growth potential capitalise on the growth heritage brands. of core Further embed our values across the business. detail on our 2013 priorities More is on page 10. – – – – 2013 Objectives oup and Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco oss our global operations. ocess. owth strategy. Continued delivery of sales gr Effective day-to-day operational Effective management of the Gr detailed monitoring of operational all aspects performance across of the business. risk management Increased focus and oversight as part of our enhanced risk management pr The launch of our new values acr Overview – – – – Achievements for 2012 The Board delegates responsibility for developing and implementing the for developing and implementing the delegates responsibility The Board management to the Chief Executive, strategy and for day-to-day Group’s Executive (OPEX), which who is supported by the Operating Alison Cooper, she chairs. by the Chief Executive, after consultation appointed OPEX members are is to The OPEX meets on a monthly basis and its purpose with the Board. the duties delegated to her by support the Chief Executive in carrying out In that context, the OPEX oversees brand and operational the Board. for the Board’s nancial plans and reports execution, delivers strategic plans, fi on these matters to the Chief Executive, reports consideration and, through in place are internal controls that effective The OPEX also ensures the Board. in risk management process is an effective and functioning, and that there the Group. operation throughout ew Newall Andr (Group Human (Group Director Resources October 2012) from Matthew Phillips (Corporate Director) Affairs Prinz Walter Manufacturing, (Group & Research Development Director) Arthur van Benthem Sales Director) (Group total tobacco brands has driven quality sales growth in 2012.” Members Robert Dyrbus (Finance Director) Helen Clatworthy Supply (Group Chain Director) Fernando Dominguez (Chief Operating Officer Cigar Business) Roberto Funari Marketing (Group Director) Kathryn Turner Human (Group Director Resources to December 2011) Alison Cooper Chairman of OPEX Chief Executive and “ Our focus on building Our focus on building “ Operating Executive Operating d ectors to ocess. ee year business plan. Ensuring that through ongoing Ensuring that through succession plans the Boar maintains the appropriate skill maintains the appropriate set to continue to deliver our long-term strategy and create value for our shareholders. Oversee delivery against our business plan for the year and the development of our next thr Facilitate opportunities for the Non-Executive Dir senior meet with the Group’s management team. to Further improvements our risk management and assurance pr – – – – 2013 Objectives . ocess. ed and agreed, subject ed and agreed, ector, two Non-Executive two Non-Executive ector, ee year business plan. Continued oversight of the management team for successful execution of our strategy and a Corporate Directors Director. Affairs to Further improvements our risk management and assurance pr Review and development of our thr Continued focus on succession planning with the appointment of a new Senior Independent Dir completed. Remuneration review New performance criteria identifi at our approval to shareholder 2013 Annual General Meeting. Overview – – – – – Achievements for 2012 The Board sets the strategic objectives for the Group and their measurement and their measurement Group sets the strategic objectives for the The Board delegates to management criteria, determines investment policies and those objectives and policies the detailed planning and implementation of monitors The Board risk parameters. with appropriate in accordance against objectives by holding compliance with policies and achievement monthly and quarterly management accountable for its activities through performance reporting. the Chief Executive updates from regular receives At each meeting the Board nancial on fi the Finance Director from operations, reports on the Group’s corporate governanceperformance and updates on compliance with In addition, the Company Secretary. from other regulations and requirements enabling to the Board, presentations senior management makes regular c issues and developments in and consider specifi to explore Directors detail. greater available on www.imperial-tobacco.com. are reference full terms of The Board’s Berge Setrakian Mark Williamson (Senior Independent Director) Malcolm Wyman (appointed 3/10/11) John Downing (Secretary, appointed 1/6/12) planning and risk management and assurance have been key areas of focus this year.” Ken Burnett Alison Cooper Robert Dyrbus David Haines (appointed 2/2/12) Michael Herlihy Jungels Pierre 1/2/12) (retired Susan Murray Matthew Phillips (appointed 1/6/12, to 1/6/12) Secretary Members Iain Napier Chairman “ Board succession “ Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco The Board and its Committees and its Board The Board

Overview Strategic Review Performance Risk Governance Financials 64 Governance 65 Overview Strategic Review Performance Risk Financials Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Directors toured the factory, met employees and received met employees and received the factory, toured Directors the Spanish and Russian from detailed presentations is being achieved. management teams on how growth said: “The Cantabria David Haines, Non-Executive Director visit allowed me to build my knowledge and understanding, but most importantly I was able to meet the people in the of excellence.” to our cigar centre factory and gain exposure ector and Chairman of Audit Committee Review of the 2011 fi nancial results nancial results Review of the 2011 fi Concern Going status Consideration of the Group’s Performance Review of Corporate Responsibility Review of Logista operations nal dividend Consideration of fi Review of external environment operating evaluation Review of the 2011 Board AGM preparation including interim management statement including interim management AGM preparation Senior Independent Director, including appointment of Non-Executive Succession review Dir Review of macro economic environment and impact on strategy environment economic Review of macro review Capital expenditure Update on Investor Relations issues Review of the 2012 Half Year Results Review of the 2012 Half Year funding strategy Consideration of the Group’s Update on assurance and risk processes Visit to Cantabria factory Financial performance update Consideration of interim management statement of Spain and Russia drivers and review – including update on sales growth Market reviews Review of the 2012 Board evaluation Review of the 2012 Board year corporate plan Consideration of the three processes Review of the risk, assurance and internal control opportunities growth Evaluation of future activity Review of potential impact of regulatory – – – – – – – – – – – – – – – – – – – – – – – – It’s important for the Board to visit our operations, meet our important for the Board It’s rst hand. making at fi we’re people and see the progress visited our factory in Cantabria, In 2012 the Board of excellence for mass market Spain which is our centre cigar-making. An investment of €9.5 million has seen the factory expand years. has doubled in just three and annual production Board visit to Cantabria October 2011 Board in 2012 Board annual plans, our our corporate and of Directors, and appointment the retirement considered the Board nancial year fi In the 2012 In addition, as part evaluation. outcome of the Board Bond issues) and the through nancing cally refi (specifi funding arrangements key strategic issues. on presented the business across managers from strategy meeting, senior of the Board Between Board of our progress. kept informed are Directors meeting we ensure at each Board results the Group’s By reviewing detailed commentary and analysis. including supplied with monthly performance reports, are meetings, Directors January/February 2012 April 2012 June 2012 September 2012 espect of opriate to drive d in terms of Executive Maintain ongoing succession plans, specifically in r Directors approaching retirement retirement approaching Directors identify and and if required to the Board recommend candidates for appropriate appointment. Review the balance of the Boar and Non-Executive Directors. the retains the Board Ensure skill set appr strategy whilst the Company’s understanding its external environment. – – – 2013 Objectives ector ectors. fairs Director, fairs Director, Continued to evolve succession plans. Appointment of Mark Williamson as Senior Independent Dir succeeding Pierre Jungels. succeeding Pierre Appointment of David Haines and Malcolm Wyman as Non-Executive Dir Appointment of Matthew Phillips as Corporate Af ecting the dynamic nature refl of the tobacco operating environment. Overview – – – – Achievements for 2012 During the year the Nominations Committee, which comprises all the Non- Committee, which comprises all the During the year the Nominations by Iain Napier. was chaired and meets as required, Executive Directors and its of the Board The Nominations Committee considers the composition and of Directors, appointment and replacement Committees, the retirement, to the Board. recommendations makes appropriate balance of skills, knowledge andThe Committee has continued to evaluate the of renewal committed to the progressive and remains experience of the Board vacancies arise the Committee succession. Where orderly through the Board for the appointment. required and capabilities of the role a description prepares for the Executive succession plans for the Non-Executive Directors, Appropriate also kept under close review. and for senior management were Directors age race, religion, of gender, regardless Appointing the best people to our Board, on merit so that we made purely appointments are Board is crucial. or disability, appoint of success. We record have the right skill set to build on our long track to ensure and geographic backgrounds diverse professional individuals from nancial expertise. Given our has a wide range of business and fi the Board to do not think it is appropriate commitment to appointing the best people we appointments. set targets for Board available on are full terms of reference The Nominations Committee’s www.imperial-tobacco.com. continued Malcolm Wyman (appointed 3/10/11) Matthew Phillips to 1/6/12) (Secretary John Downing (Secretary, appointed 1/6/12) ensuring the Board has the right balance of skills and experience to build on our long track record of success.” Members Ken Burnett David Haines (appointed 2/2/12) Michael Herlihy Jungels Pierre 1/2/12) (retired Susan Murray Berge Setrakian Mark Williamson Iain Napier Chairman “ We’re focused on We’re “ Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco The Board and its Committees Committees its and Board The Nominations Committee Nominations

Overview Strategic Review Performance Risk Governance Financials 66 Governance 67 Overview Strategic Review Performance Risk Financials – 1/1 1/1 1/1 1/1 1/1 1/1 1/1 1/1 1/1 1/1 Meeting Annual General – – – muneration M I Wyman was 7/7 7/7 7/7 6/6 6/6 3/3 0/1 6/7 Committee Remuneration – – – – 4/4 4/4 4/4 2/2 1/1 1/2 4/4 Audit Committee – – 2/2 2/2 2/2 2/2 1/1 1/1 2/2 2/2 2/2 Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Committee Nominations 52471 2–––– that our remuneration policies and shareholding requirements requirements policies and shareholding that our remuneration of interests to act in the best long-term encourage Directors targets and claw back bonus through stakeholders, for example strategy and the long-term focus of our remuneration provisions, requirements. shareholding together Board, The composition, skill set and balance of our regularly is reviewed with the length of service of each Director, directors. of future to identify the skills required Malcolm Wyman and prior to the appointment of Accordingly, developed further were David Haines, skill set requirements to which Korn Ferry/Whitehead Mann was instructed to appointments, identify potential candidates. Following their a tailored Malcolm Wyman and David Haines underwent further details of which ng programme, induction and briefi on page 71. are / 5/5 5/5 5/5 5/5 2 5/5 3/3 1/2 5/5 5/5 5/5 5/5 Board 2 4 6 1 2 5 6 3 nett Committee on 31 January 2012. unable to attend one Committee meeting. Dr P H Jungels Mr M I Wyman Mr B Setrakian Mr D J Haines Mr M H C Herlihy Ms S E Murray Mr M R Phillips Mr M D Williamson Dr K M Bur 3 on 2 February 2012. Mr D J Haines was appointed to the Board 4 on 2 February 2012. the Board from Dr P H Jungels retired 5 on 3 October 2011. to the Board Mr M I Wyman was appointed 6 meeting and its associated Committee meetings, and Mr Due to prior commitments, Dr P H Jungels was unable to attend one Board The maximum number of meetings for each individual Director is the number which they were eligible to attend. eligible is the number which they were The maximum number of meetings for each individual Director Mr R Dyrbus 1 on 1 June 2012. Mr M R Phillips was appointed to the Board 2 Dr K M Burnett to the Audit Committee and the Remuneration Committee and Mr B Setrakian was appointed to the Re was appointed Total number of meetings in Financial Year number of meetings in Financial Year Total Meetings of the Board, Board Committees and AGM Board Meetings of the Board, Number of meetings attended in Financial Year Executive Directors Mrs A J Cooper Re-election of Directors and recommendation selection process Following a rigorous by appointed are all Directors by the Nominations Committee, to election and subsequent annual subject and are the Board by shareholders. re-election the such election or re-election recommending Before as part of the is considered performance of each Director Following the 2012 evaluation annual evaluation of the Board. and attendance at Board and consideration of each Director’s the Board below, Committee meetings as detailed in the table who of all Directors the election or re-election recommends at our 2013 AGM. standing for election or re-election are expressed have a number of shareholders that recognise We could encourage of Directors concern that annual re-election dent confi however, are, We them to take a short-term view. Non-Executive Directors Mr I J G Napier nal audit partner and evised risk management and the year. esults throughout Oversee the embedding of our r assurance processes and assurance processes operation. ensuring their effective nancial fi Reviewing the Group’s r of the Oversee the rotation exter the independence reviewing of our Auditors and their ongoing effectiveness. – – – 2013 Objectives eview ocess, refl ecting ocess, refl e the Group has adequate has adequate e the Group esults throughout the fi nancial nancial the fi esults throughout Improved risk management and risk management Improved assurance pr our enhanced internal controls, our new risk and assurance of and the creation processes our new Corporate Assurance Department (see page 50). nancial fi Review of the Group’s r year including periodic announcements to the market and the potential impairment of the adjustments as a result continued deterioration in the Spanish economy. of a net the results Considered investment hedging r rst half carried out during the fi of the year. to Reviewed the processes ensur in place to control procedures bribery and corruption risks. Overview – – – – Achievements for 2012 The Audit Committee comprises six independent Non-Executive Directors. comprises six independent Non-Executive Directors. The Audit Committee ed accountants and, Both Malcolm Wyman and Mark Williamson qualifi are terms of the Code and the Committee’s the requirements we meet therefore, nancial expert. least one of its members is a fi that at of reference in of the Audit Committee include assisting the Board The responsibilities nancial fi for the integrity of the Company’s discharging its responsibilities risk management processes, statements, overseeing the internal and control of governance, and compliance standards reporting ensuring that appropriate their performance Auditors and monitoring being met, appointing the Group’s are Up (whistle-blowing) policy. and independence and overseeing our Speaking Financial of Finance and Planning, the Group the Director The Finance Director, January 2012 the Director Compliance (and from the Head of Group Controller, nancial and other fi Secretary of Corporate Assurance), the Deputy Company invited to attend each meeting of the Committee, as well as our managers are Assurance and the externalexternal of Corporate Both the Director Auditors. the Committee, without anyAuditors have separate formal meetings with at each meeting. or other manager being present, Executive Director available on are full terms of reference The Audit Committee’s www.imperial-tobacco.com continued Mark Williamson (Chairman to 1/2/12) Matthew Phillips to 1/6/12) (Secretary John Downing 1/6/12) from (Secretary corporate assurance processes, further embedding our risk management processes and internal controls.” Members Ken Burnett David Haines (appointed 26/4/12) Michael Herlihy Jungels Pierre 1/2/12) (retired Susan Murray Malcolm Wyman Chairman “ We’ve improved our We’ve “ Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco The Board and its Committees Committees its and Board The Audit Committee Audit

Overview Strategic Review Performance Risk Governance Financials 68 Governance 69 Overview Strategic Review Performance Risk Financials s Auditors in ector in order to make himself/herself aware of to make himself/herself aware ector in order Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco so far as they are aware, there is no relevant audit information is no relevant there aware, so far as they are (that is, information needed by the Company’ connection with preparing their report) of which the their report) connection with preparing and unaware; Auditors are Company’s to have taken each has taken all the steps that they ought as a Dir audit information and to establish that the any relevant of that information. aware Auditors are Company’s – – Auditors and Disclosure of Information of Information Auditors and Disclosure to Auditors of this approval ce at the date of in offi Each of the Directors rms that: Annual Report and Accounts confi Statement of Auditors’ Responsibilities of Auditors’ Statement for forming an responsible Auditors are Our statutory of the Group nancial statements opinion on the fi independent of Imperial Tobacco nancial statements and on the fi as a whole on other elements by the Directors, as presented PLC Group by legislation and Accounts as required of the Annual Report their opinion to members and for reporting or regulation (page 95). LLP (PwC) have been the Company’s PricewaterhouseCoopers in 1996. The Audit Committee, Auditors since its demerger ed with the satisfi remains during the year, following a review therefore, and independence of PwC. It has not, effectiveness put out to the audit to be it necessary to require considered the Group Policy, In line with our Auditor Independence tender. ve years fi after a maximum of rotate to Audit Partner is required companies). The Audit Committee (seven years for subsidiary regular with PwC on a discusses engagement partner rotation David Charles to be basis and a succession plan is in place for ve years in date after fi in 2013 at his normal rotation replaced will give further consideration The Audit Committee the role. term to the during the incoming engagement partner’s of the recently application of the audit tendering provision Governancepublished 2012 edition of the UK Corporate Code. internationalThe Audit Committee considers that for a major that the these matters must be well planned to ensure group complies with best practice corporate governance as Group cient and effi a high quality, receives well as ensuring the Group no contractual or external are effective audit service. There choice of auditors. the Group’s similar obligations restricting The Board accepted at its October 2012 meeting the accepted at The Board to reappoint to put a resolution recommendation Committee’s at the PwC as Auditors to the Company to shareholders forthcoming AGM. ed that the Board ed that the Board rmed the Committee continues egularly review our Auditor our Auditor egularly review es; nal Audit), Group Finance and other nal Audit), Group oposed audit plan, fee proposal and confi rmation of and confi oposed audit plan, fee proposal evaluating the Board’s going concern review (more details on (more going concern review evaluating the Board’s is satisfi page 36). The Audit Committee to operate effectively; and as required; accounting policies, approving to relating consideration of the accounting treatment 75; ongoing enquiries detailed on pages 74 and their independence. This, together with management’s their independence. This, together with management’s and independence, assessment of the Auditors’ effectiveness effectiveness, allows the Committee to establish the scope, and, if independence and objectivity of our Auditors their reappointment; to the Board recommend appropriate, of the the evaluation of the effectiveness the output from Audit Committee, which confi has made an appropriate assessment taking into account assessment taking has made an appropriate the risks facing the Group; foreign net investment hedging and related the Group’s exchange exposur to ask and the opportunity functions. These reports the Committee with the information questions provide for to oversee our systems of internal control required internal policies, corporate control nancial reporting, fi the system of risk management governance procedures, and mitigation of associated and to assess the review risks; nancial year ending the internal audit plan for the fi 30 September 2013; of the external Auditors’ independence, an annual review pr reports from members of Corporate Assurance, Group Group members of Corporate Assurance, from reports Compliance (Inter – – – – – – – – External Audit Auditor Independence Policy of our the independence and objectivity to ensure In order Auditors we maintain and r nitions of clear defi This policy provides Independence Policy. services that our externalcannot provide. Auditors can and those non-audit services where Our Auditors may only provide ict with their independence, for example services do not confl tax compliance work. The policy also establishes a formal including the tendering for non-audit authorisation process, services expected to generate fees in excess of £250,000, and by the Audit Committee for allowable non-audit pre-approval work that they may perform. Our policy also establishes of employees or former employees guidelines for the recruitment of our employees by the of our Auditors and for the recruitment Auditors. Details of the audit and non-audit fees paid to the 108. shown on page Auditors are during the year our compliance with this policy, ensure To of the remuneration Audit Committee carried out two reviews services by our Auditors for audit services, audit-related received was that and non-audit work. The outcome of these reviews non-audit work by our Auditors was performance of the relevant in compliance with the policy and was the most cost-effective were icts of interest way of conducting our business. No confl found to exist between such audit and non-audit work which advisory work. The Audit Committee to tax principally related and cient, effective an effi rms that we continue to receive confi independent audit service. Activities of the Committee Activities nancial during the fi held four meetings The Audit Committee 68, the Audit on page In addition to the achievements year. of business: standing items the following considered Committee ectors bring a ectors bring ect or indirect interest that confl icts, that confl interest ect or indirect

they to avoid situations where required are The Directors have, or could have, a dir icts ofInterest diverse range of business and fi nancial expertise to the Board, Board, expertise to the nancial of business and fi diverse range supplements the experiences of which complements and range of expertise and This broad the Executive Directors. to evaluate information provided experience enables them viewpoints management’s and constructively challenge and assumptions. in corporate key role also play a Our Non-Executive Directors of their membership accountability and governance through of each Committees. The membership and remit the Board’s on pages 66 to 68 and page 77. considered Committee are meetings enables our at our Committee The open atmosphere experience to use their judgement, Non-Executive Directors appropriate, and, where critically review and independence to This ensures by management. challenge strategies proposed use of our the further development of our business, effective of conduct. we maintain our high standards and that resources evaluation, page 71, the Board Following the annual Board that all our concluded at its meeting in September 2012 and continue to contribute effectively Non-Executive Directors debate, to demonstrate commitment constructively to Board question to objectively challenge and robustly to their role, of our interests management and at all times to have the best in mind. shareholders of our Chairman rm that, with the exception confi therefore, We, on appointment, who met the independence criteria of the Code ned in as defi independent remain our Non-Executive Directors the Code. Confl interests. the Company’s ict, with or possibly may confl Act 2006 (the Act), the with the Companies In accordance to the Board Articles of Association of the Company allow that may arise and to interest icts of authorise potential confl t. fi impose such limits or conditions as it thinks to give notice of any such potential required are Directors considered icts which are situational and/or transactional confl appropriate, meeting and, if considered at the following Board do not allow any Director authorised. We icts are situational confl their to participate in such considerations or to vote regarding icts. own confl and authorised a number of has considered The Board to the holding of external situations all of which relate icts Register. Confl in our and have been entered directorships considers ed. The Board icts have been identifi No actual confl operate effectively. that these procedures meeting the Board during process, As part of our annual review all situations and reconsidered in September 2012 we reviewed icts Register. in the Confl entered into an to underpin his independence we entered In order with Berge Setrakian, Non-Executive Director, agreement ict of interest in June 2008 to minimise the risk of any confl and of which he was a partner, between Dewey & LeBoeuf LLP, and effect in full force remained This agreement the Company. until he left the partnership in May 2012. In July 2012 a similar of DLA Piper LLP (US) into in respect was entered agreement and effect. in full force remains which he is now a partner, where Non-Executive Directors Non-Executive to the right skill set as vital with see having a Board We Dir success. Our Non-Executive our ongoing esponsibilities, whilst retaining a close working esponsibilities, whilst retaining Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco relationship. They meet regularly between Board meetings to between Board They meet regularly relationship. a full understanding of evolving issues and to facilitate ensure to our shareholders responsible swift decision making. They are for the successful delivery of our strategy. our Chairman leadership of the Board, the effective Through contribute to discussions able to are all Directors ensures their wide range of skills t from such that we fully benefi and experience. The Chairman, supported by our Senior communication for effective is responsible Independent Director, and ensuring they can raise any concerns. with our shareholders Our Chief Executive, supported by the Operating Executive, is it to the for developing our strategy and presenting responsible as well as the successful implementation of the agreed Board, strategy and the day-to-day operational leadership of the Group. external cant changes to the Chairman’s no signifi were There commitments during the year. Each standing Board Committee has specifi c written terms of c written Committee has specifi Each standing Board Committee. and adopted by the Board issued by reference available on our website. All Committee chairmen These are of their Committees at the verbally on the proceedings report and the minutes of the Committee next meeting of the Board included in the papers distributed to all Board meetings are meeting. members in advance of the next Board Chairman and Chief Executive ned and Our Chairman and Chief Executive have clearly defi separate r Board Committees Board There is a schedule of matters which are dealt with exclusively which are is a schedule of matters There nal decision. and on which it must make the fi by the Board nancial statements; the Group’s of fi These include approval plan; major business strategy; the annual capital expenditure management major changes to the Group’s capital projects; material investments or disposals; risk structure; and control policies; management strategy; sustainability and environmental and the Company of Directors the appointment or removal policies. and treasury Secretary; Matters Reserved for the Board Operation of the Board Operation of the meetings encourage direct, Committee and Board Our Board constructive challenge and debate. and robust value and enhance shareholder to deliver our strategy, In order vital that we believe it is our long-term sustainability, ensure have the right mix and diversity of backgrounds our Directors and experiences. kept up-to-date on developing issues are Directors ensure To and of the Board and to enhance the overall effectiveness chairmen its Committees, our Chairman and Committee with the Chief Executive and other communicate regularly members of the Operating Executive. The Board applied all of the principles and provisions of the and provisions all of the principles applied The Board the year ended 30 September Code throughout June 2010 code of the revised the provisions 2012 and is reviewing 2012 which will apply to the Group published in September 2012. 1 October from Application of the UK Corporate of the UK Corporate Application Governance Code Directors’ Governance Report Directors’

Overview Strategic Review Performance Risk Governance Financials 70 Governance 71 Overview Strategic Review Performance Risk Financials ovided no other Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco espect of Directors’ and Offi cers’ liabilities. Offi and espect of Directors’ The Company has also entered into qualifying third party into qualifying third The Company has also entered in a t of all its Directors, indemnity arrangements for the benefi of the Act. form and scope which comply with the requirements the year and up to throughout in force These indemnities were the date of this Report. services to the Group, reviewed its performance, that of its reviewed services to the Group, The feedback, obtained Directors. Committees and individual which was collated into a report detailed questionnaires, through and used as the basis for one-to- to the Board was presented the Chairman and each Director. one discussions between with the Non-Executive met Director Our Senior Independent to without the Chairman present, and the Board, Directors of the Chairman. consider the performance with the Non-Executive Directors The Chairman held meetings amongst other things, the performance of the to consider, Executive Directors. for cant areas The evaluation did not identify any signifi extra training for our to provide concern nor any requirement and its Committees the Board and, consequently, Directors operating and performing effectively. ed they are satisfi are have that all our Directors rmed The evaluation also confi and commitment to contribute cient time, knowledge suffi and its Committees and that it remains to our Board effectively constituted. appropriately the ongoing were ed for review identifi The main areas the retirement, approaching succession plans for Directors and Non-Executive Directors, balance of Executive future to meet Directors enhancing opportunities for Non-Executive risk the revised with the wider management team and ensuring organisation embedded in the are and assurance processes and operate effectively. ed in the 2011 Board the issues identifi have addressed We succession plans, a evaluation and in line with the Board’s year and the appointed during the were number of Directors to ensure policies of its remuneration undertook a review Group strategy and they continue to incentivise the delivery of its details of the review More further align performance to results. contained in our Remuneration Report on page 77. are Insurance insurance and maintain appropriate have purchased We cover in r Members of our Audit and Remuneration Committees received received Committees our Audit and Remuneration Members of advisor our external and remuneration from Auditors ngs briefi with current up-to-date they remain to ensure respectively and developments. regulations Performance Evaluation by an independent assisted During the year the Board, Ltd, who pr consultant, EquityCommunications ds provided they continue to demonstrate the requisite they continue to demonstrate the requisite ds provided ectors in order that they may build on their expertise and ectors in order develop an ever more detailed understanding of the business detailed understanding of the business develop an ever more companies operate. and the markets in which Group for advising the Board, is responsible The Company Secretary of corporate governance. the Chairman, on matters through supplied with full and timely and its Committees are The Board nancial information, to enable information, including detailed fi and the Committees responsibilities, to discharge their Directors to undertake their duties. cient resources suffi with provided are the advice of the Company have access to All Directors the services of other appropriate, and, where Secretary matters. employees for all governance and regulatory advice is also available to Directors Independent professional expense. at the Company’s circumstances, in appropriate are new Directors Following their appointment to the Board, briefed on the duties they owe to the Company as Directors. arranged which include are induction programmes Tailored c training, including visits to the Group’s industry-specifi businesses and meetings with senior management, as ce at head offi briefed on internal controls They are appropriate. advised of the legal and other and business unit level and are of a listed company as well as on duties they have as Directors Company policies and governance-related matters. relevant no training ng programme, Other than the induction and briefi ed in 2012, although ongoing training is identifi needs were to meet their individual needs. available to all Directors issues on relevant ngs to Directors briefi regular provide We changes and corporate such as legislation and regulation governance developments. commitment to discharge effectively their duties. The Chairman effectively commitment to discharge the extent of Committee review and the Nominations the year. throughout other interests Non-Executive Directors’ and each of the ed that the Chairman is satisfi The Board cient time to their duties commit suffi Non-Executive Directors Directors to the Company and the Non-Executive in relation l their cient time to fulfi rmed that they have suffi have also confi obligations to the Company. respective and believes, in principle, in Executive Directors The Board non-executive members of the Operating Executive accepting to widen their in order of other companies directorships t of the Company. experience and knowledge for the benefi of the Board, subject to the agreement Accordingly, and members of the Operating Executive Executive Directors permitted to accept one external board are non-executive such from any fees received appointment and to retain appointment. Information and Training development of The Company is committed to the continuing Dir The Board confi rms Berge Setrakian’s compliance with the compliance rms Berge Setrakian’s confi The Board his continued therefore, and, agreements terms of these independence. ed that the is satisfi Board the annual review Following the have other external who board Directors independence of those compromised. has not been appointments or relationships Outside Appointments of other may serve on a number Non-Executive Directors boar 1 2 1 2 1 of issued Percentage Percentage share capital share 41 4.04 61 6.03 41 3.99 5342 5.25 4.17 (millions) Number of ordinary shares shares ordinary Q Institutions – UK 46% Q Institutions – RoW 40% Q Employees 1% Q Retail investors 2% Q Other 11% Shareholder structure (as at 30 September 2012) (as at 30 September structure Shareholder Legal & General Investment Management Limited holding. 1 Direct holding. 2 Indirect BlackRock Morgan Stanley Investment Management Limited Inc Franklin Resources Share Capital Share 24 to the Financial shown in note are capital Details of our share in other than those held Statements (page 131). All shares for voting transferable and rank pari passu freely are treasury and dividend rights. authority for the At our AGM on 1 February 2012 shareholder of 10 pence shares buyback of up to 106,794,000 ordinary each was obtained. of our ordinary As at 30 September 2012 we held 77,802,200 7.3 per cent of issued share which represent in treasury, shares nominal value of £7,780,000. capital and have an aggregate but hold them in a treasury have not cancelled these shares We and t and loss account reserve within our profi reserve shares funds. equity shareholders’ a deduction from they represent voting or dividend rights. do not carry any shares Treasury ed of the following At 30 October 2012 we had been notifi shares. of our ordinary in 3 per cent or more interests Invesco Limited displayed. Votes received at the AGM are added to the proxy added to the proxy at the AGM are received displayed. Votes a Regulatory published through nal results votes and the fi OTCQX. Information Service, on our website and via approximately votes representing At our 2012 AGM we received held capital (excluding shares 77 per cent of our issued share in treasury). 2013. 30 January Our next AGM will be held on Wednesday contained in the Notice of Meeting available on Full details are applicable, posted with this Report. our website and, where continued Q UK 54% Q United States 31% Q Japan 2% 10% Q Rest of Europe 3% Q Rest of the World Geographical analysis of investors analysis of investors Geographical 2012) (as at 30 September Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Dialogue with our Investors balanced, clear and transparent aim to provide We to understand communications which allow our shareholders in and the market environments how we see our prospects which we operate. nancial maintain an active engagement with our key fi We and sell side audiences including institutional shareholders there During the year analysts as well as potential shareholders. with institutional to and meetings presentations regular were Asia, Canada and the US to investors in the UK, Europe, and strategy and progress communicate our sales growth the year our our investors. Throughout answer questions from at industry conferences, senior management team present investor organised by investment banks for their institutional of Investor Communications manages the base. Our Director presentations interaction with these audiences with regular also undertake a regular We taking place during the year. with potential shareholders. communication programme the majority of our The primary means of communication with Report and Accounts, Half Yearly is via our Annual shareholders Report and website on which we publish Interim Management supported by a Updates. These are Statements and Trading calls, one-to-one conference combination of presentations, and America. meetings and investor meetings in the UK, Europe where investor conferences, have also attended numerous We various aspects of the business to shareholders we presented and potential shareholders. have time to consider our Annual our shareholders ensure To Report and Accounts and Notice of the AGM and lodge their made available to them more votes, the documents are proxy than 20 working days prior to the meeting. the choice of submitting proxy all our shareholders offer We them also offer or in paper format. We votes either electronically the facility to abstain. At the AGM, our Chairman and Chief Executive give business on our performance and current presentations make themselves available to meet activities and all Directors after the conclusion of the formal business. shareholders compliance with the Code, at all general meetings ensure To on each subject and all proposed are separate resolutions put to a poll. At the AGM the number of proxy are resolutions are against and abstentions for each resolution votes for, Directors’ GovernanceDirectors’ Report

Overview Strategic Review Performance Risk Governance Financials 72 Governance 73 Overview Strategic Review Performance Risk Financials editors for revenue editors for revenue nancial institutions made elevant terms in contracts; and elevant terms in contracts; cant to the Group as a whole and which cant to the Group editors is to follow the Prompt Payment Code follow the Prompt editors is to Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco olled by the Board but by a trustee company, the board the board by a trustee company, but olled by the Board eeing the terms of each transaction; eeing the terms of each

a credit facilities agreement dated 16 December 2010 facilities agreement a credit under which certain banks and fi agree the terms of payment with those suppliers when the terms of payment with those suppliers agree agr available to Imperial Tobacco Finance PLC and Imperial Finance available to Imperial Tobacco credit Enterprise Finance Limited committed Tobacco tranches of $632 million, £600 million three facilities across in a facilities and €1,785 million and uncommitted credit ve years; maximum amount of £800 million, for a period of fi ensure that those suppliers are made aware of the terms of of made aware that those suppliers are ensure of the r payment by inclusion pay in accordance with our contractual and other legal with our contractual and other pay in accordance obligations. – – – – contain provisions giving the other party a specifi c right to giving the other party a specifi contain provisions following subject to a change of control terminate them if we are a takeover bid. that provide, facility agreements has four credit The Group of if any person or group unless the Lenders otherwise agree, than more the right to exercise associated persons acquires 50 per cent of the votes at a general meeting of the Company, any outstanding utilisation must repay borrowers the respective and the facility agreement made by them under the respective be will total commitments under that facility agreement immediately cancelled. are: agreements The four credit on Change of Control Terminate those which are summarised below, The following agreements, Alteror Effect, ThatTake cant Agreements we consider to be signifi sponsored by the Department for Business, Innovation and Innovation and the Department for Business, by sponsored Code Payment the Prompt available from Skills (copies are For other website at www.promptpaymentcode.org.uk). to: suppliers, our policy is nominated by the Company, ve directors of which consists of fi and and two by current chosen by employees one director company looks after the pensioners. This trustee deferred those held separately from assets of the pension fund, which are managed by independent fund managers. and are of the Group with in accordance The pension fund assets can only be used rules and for no other purpose. Further details are the fund’s 77 to 93. contained in our Remuneration Report on pages Signifi and capital supplies of goods and services without exception. and capital supplies of follow the same policy possible, UK subsidiaries Wherever encouraged to adopt similar and international subsidiaries are policies by applying local best practices. outstanding as at 30 September The amount of trade creditors days) of trade 2012 was equivalent to 37 days (2011: 40 purchases. Pension Fund Pension Fund, is Our main pension fund, the Imperial Tobacco not contr This policy applies to all payments to cr This policy applies to Creditor Payment Policy Payment Creditor concerning policy of the majority of the payment Our current our trade cr 674 958 284 2011 729 314 2012 1,043 om this fi gure, we have donated £0.2 million gure, om this fi nal dividend, if approved, will be paid on 18 February 2013 nal dividend, if approved, oposed fi nal, 73.9p per share nal, 73.9p per share oposed fi otal ordinary dividends, 105.6p otal ordinary T The fi Pr (2011: 67.0p) (2011: 95.1p) to our shareholders on the Register of Members at the close of to our shareholders ex dividend business on 18 January 2013. The associated on paid an interim dividend date will be 16 January 2013. We at the close of on the register 17 August 2012 to shareholders business on 20 July 2012. (2011: £0.2 million) to UK registered charities operating in the charities (2011: £0.2 million) to UK registered charities UK, £0.3 million (2011: £0.3 million) to UK registered and £1.6 million (2011: £1.3 million) through operating abroad the UK Charities Aid Foundation to charities based overseas. made to EU political parties, No political donations were organisations or candidates (2011: Nil). Relations with Other Stakeholders Charitable and Political Donations continue to support the communities in which we operate We by allocating £3.1 million (2011: £3.1 million) to partnership investment. Fr £ million Shares Ordinary Interim paid, 31.7p per share (2011: 28.1p) Financial Results and Dividends Financial Results nancial and fi of our operational a review include We developments in position and future performance, current and Risks, Performance Report: Strategy, our Directors’ Governance sections on pages 8 to 76. holders of the Company for the t attributable to equity The profi in our consolidated nancial year was £678 million, as shown fi Financial income statement on page 96. Note 3 to the t from and profi Statements gives an analysis of revenue operations (page 106). in the Consolidated An analysis of net assets is provided Notes to the Balance Sheet on page 98 and the related Financial Statements. dividends as follows: and proposed have declared The Directors We have not received notifi cation that any other person holds cation that any other notifi have not received We shares. of our ordinary or more 3 per cent families and any their of the Directors, interests The share than as on page 92. Other shown persons are connected between no agreements are there disclosed on page 73, providing or employees Directors the Company and its ce or employment due to loss of offi for compensation for a takeover. is Information concerning employees and their remuneration Financial Statements (page 108) and in given in note 6 to the Remuneration Report. the Directors’ eign trading and related violations violations and related eign trading rading (OFT) reached a decision fi nding that Imperial Tobacco nding that Imperial Tobacco a decision fi rading (OFT) reached by a number of people, including Reemtsma employees, during by a number of people, in Group by Imperial Tobacco a period prior to its acquisition in 2003 remains Committee established May 2002. A Board of the investigations and the progress in place to monitor the on behalf of the Board. responses Group’s ve the investigations against all but fi Between 2005 and 2007, for lack of evidence or terminated, either of the individuals were by the individuals with the authorities. on terms agreed at no cost to the Imperial Tobacco Settlement was made certain of the activities of any duty payable as a result of Group being investigated. brought to smuggling were relating In September 2006, charges Reemtsma against 18 individuals, one of whom is a former against the former Reemstma employee employee. Proceedings by the former employee with terminated on terms agreed were the authorities. to violations of the German In November 2006, charges relating against four other former brought trade act were foreign guilty and Reemtsma employees. The individuals pleaded Reemtsma. against them and ordered nancial penalties were fi Group. paid at no cost to the Imperial Tobacco These were Offi ce of Fair on 15 April 2010 the UK Offi reported, As previously ce ofFairTrading T and Gallaher had separately engaged in unlawful Group of Chapter I in breach practices with 10 tobacco retailers nes total fi of the Competition Act 1998. The OFT imposed ne of a fi of £225 million on the parties involved, including Group. £112.3 million on Imperial Tobacco lodged an appeal with the Competition Group Imperial Tobacco OFT’s on 15 June 2010 against the (CAT) Appeal Tribunal ne. Five retailers fi ndings of infringement and the level of the fi Morrisons (together with (Asda, the Co-operative Group, the decision and Safeway) and Shell) also appealed against nes imposed on them by the OFT. the fi the appeals between September and November heard The CAT the 2011. On 12 December 2011, following an admission from ndings in the decision, OFT that it could no longer defend the fi ndings of upheld the appeals and quashed the fi the CAT Group nes imposed on Imperial Tobacco infringement and the fi and the other appellants. judgment The OFT decided not to appeal against the CAT’s its and subsequently announced that it would not reopen is no longer Group Imperial Tobacco investigation. Accordingly ne. liable to pay the fi Update on Ongoing Enquiries Update on German Investigations authorities in initiated by German were Certain investigations into alleged for January 2003 continued nancial institutions made available nancial institutions made available nancial institutions made nancial institutions made available made available nancial institutions a letter of credit facility agreement dated 2 March 2011 under 2011 dated 2 March facility agreement a letter of credit banks and fi which certain to Imperial Tobacco Finance PLC a committed credit facility Finance PLC a committed credit to Imperial Tobacco of two years; and of €300 million for a period 15 August 2012 under dated facility agreement a credit fi which certain banks and Finance PLC and Imperial Tobacco to Imperial Tobacco facility of a committed credit Enterprise Finance Limited of two years. £400 million for a period cent 15 September 2008 £600,000,000 8.125 per guaranteed notes due 2024; cent guaranteed 15 September 2008 €750,000,000 7.25 per notes due 2014; 17 February 2009 £1,000,000,000 9 per cent guaranteed notes due 2022; 17 February 2009 €1,500,000,000 8.375 per cent guaranteed notes due 2016; 24 June 2009 £500,000,000 7.75 per cent guaranteed notes due 2019; 5 July 2011 €850,000,000 4.5 per cent guaranteed notes due 2018; 26 September 2011 £500,000,000 5.5 per cent guaranteed notes due 2026; and 2 December 2011 €750,000,000 5 per cent guaranteed notes due 2019. to Imperial Tobacco Limited a Letter of Credit in a maximum a Letter of Credit Limited Tobacco to Imperial August 2016; £232.8 million until 31 amount of dated 16 November 2011 under facility agreement a credit fi which certain banks and – – – – – – – – – – – Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Directors’ GovernanceDirectors’ Report Imperial Tobacco Finance PLC (the Issuer) has issued bonds Finance PLC (the Issuer) has issued bonds Imperial Tobacco Debt Issuance Programme Notes Medium Term under the Euro nal The fi Company acted as guarantor. (as noted below). The provisions of control terms of this series of notes contain change to any earlier under which the holder of each note will, subject the call, have the option to require by the Issuer of a tax exercise that note at option, purchase at the Issuer’s or, Issuer to redeem acting in concert or its nominal value if: (a) any person, persons in: (i) more on behalf of any such person(s) becomes interested capital share than 50 per cent of the issued or allotted ordinary the capital of in of the Company; or (ii) such number of shares than 50 per cent of the voting rights the Company carrying more at a general meeting of the Company; normally exercisable is either: (i) a there of the change of control, and (b) as a result to a non-investment grade rating or withdrawal of the reduction is not raised again, investment grade rating of the notes which by an investment grade rating during to or replaced reinstated or (ii) to nal terms; ed in the fi period specifi the change of control not rated at the time of the change the extent that the notes are the Issuer fails to obtain an investment grade credit of control, as a result period rating of the notes within the change of control of the change of control. as follows: The bonds issued in such manner are

Overview Strategic Review Performance Risk Governance Financials 74 Governance 75 Overview Strategic Review Performance Risk Financials ds have been followed, cigarettes; examine his former cigarettes; opriate to presume that the Company will that opriate to presume Gauloises cigarettes a day for 20 years and died of lung cancer a day for 20 years and died of lung cancer cigarettes Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco easonable and prudent; select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are r state whether IFRSs as adopted by the European Union and state whether IFRSs as adopted by the European applicable UK Accounting Standar disclosed and explained subject to any material departures nancial statements Company fi and parent in the Group and respectively; nancial statements on the going concern basis the fi prepare unless it is inappr continue in business. – – – – Statement of Directors’ Responsibilities Responsibilities Statement of Directors’ the Annual Report, for preparing responsible are The Directors and the Report and the Group Remuneration the Directors’ with nancial statements in accordance Company fi parent applicable law and regulations. nancial fi to prepare the Directors Company law requires Under that law the Directors year. nancial statements for each fi nancial statements in fi the Group have elected to prepare with International Reporting Standards Financial accordance Union, and the parent (IFRSs) as adopted by the European with United nancial statements in accordance Company fi and Standards Kingdom GAAP (United Kingdom Accounting must not the Directors Applicable Law). Under company law, ed that satisfi nancial statements unless they are the fi approve of the Group affairs they give a true and fair view of the state of t or loss of the Group Company and of the profi and the parent nancial statements, the these fi for that period. In preparing to: required are Directors In France, we are facing pre-action summary proceedings summary proceedings facing pre-action are In France, we later to his summons, who, according by an individual brought for the of compensation an undisclosed level intends to seek for the loss to have suffered he is alleged emotional damage it is alleged, smoked 3 packets of of his former partner who, Gauloises alleges that tobacco leaves absorb in April 2012. The claimant claimant element, which the Polonium 210, a radioactive lungs of smokers causing them to be alleges passes into the and has asked a court in Paris radioactively contaminated, analyse the alleged radioactivity of to appoint an expert to Polonium 210 in is a and assess whether there records; medical partner’s and radioactivity in the cigarettes causal link between any has An initial hearing alleged lung cancer. his former partner’s November 2012. been scheduled for 16 been successful or settled in favour of date, no action has To litigation against Imperial any claimant in any tobacco-related has been or any of its subsidiaries. Imperial Tobacco Tobacco defences to the advised by its lawyers that it has meritorious will continue to vigorously We set out above. legal proceedings contest all such litigation against us. om 307 in 1997, to 11. Ten of these claims of these claims 1997, to 11. Ten om 307 in Update on Tobacco Related Litigation Related Tobacco Update on number of tobacco-related the of Ireland, In the Republic fallen fr claims has claim is inactive. motions. The other subject to dismissal are by claimant was heard of one in respect The dismissal motion in 2006. In April 2007, the court ruled the Dublin High Court be dismissed. This Decision has been that this claim should of the nine other motions in respect appealed and the dismissal stayed pending the appeal. The hearing active claims have been Court the Supreme for mention before of the appeal was listed lawyers of the hearing, the plaintiff’s on 11 July 2012. In advance on that is returnable the record off issued a motion to come Justice the Chief the hearing on 11 July, 5 November 2012. At on 8 November 2012 to allow for put the appeal in for mention lawyers come off that the plaintiff’s the hearing of the motion to obtain new the opportunity and to give the plaintiff the record if he wishes to do so. representation 2008, we are Following our acquisition of Altadis in January in the Administrative brought facing a claim in Spain currently GovernmentCourt (the CADAN) on behalf of the Regional of of hospitalisation Andalucia (the Junta) for reimbursement smokers. The claim in treating expenses allegedly incurred 2010 preliminary was served on Altadis in July 2009. In May by Altadis and the other tobacco company led fi objections were in May 2011. by the court rejected defendants. These were 2012 ordering The CADAN issued a further decision in July the co-defendants with a full set of the Junta to provide the claim. the documentation which was attached to a copy of the The co-defendants have not yet received the CADAN awaiting a decision from documentation and are how this and on whether the Junta complied with the order case should proceed. One against Logista facing two claims in Italy. currently are We of jurisdiction which is the subject of a challenge on grounds in was heard and the admission of evidence. This challenge against Imperial 2006 but judgment is still awaited. The other led in Sicily for €5,000 fi is a claim recently Italia S.r.l. Tobacco to damage allegedly caused by a humidifying stone. relating at a hearing on led its defence fi Italia S.r.l. Imperial Tobacco le to fi ordered 26 September 2012. The claimant has been next hearing on 26 January 2013. evidence at the its rebuttal Following our acquisition of Commonwealth Brands in April by an facing one claim brought currently 2007, we are individual in the United States. A motion for summary judgment October 2005 and led by Commonwealth Brands in was fi pending. remains understand that the Saudi Ministry of Health has issued We against distributors for international tobacco legal proceedings medical the alleged costs of providing companies to recover company has Group to individuals. No Imperial Tobacco care to this claim. been served with any court documents in relation understand that the Ministry of Health sought a six month We hearing on 11 December 2010 and has at a stay of proceedings following the expiry of not applied for the case to be reopened the The Ministry of Health may still apply to reopen that stay. that it intends to do so. not aware case but we are continued oup, together with a description of the dance with IFRSs as adopted by the EU, give a true dance with IFRSs as adopted by the EU, give obacco Group PLC obacco Group the Group fi nancial statements, which have been prepared nancial statements, which have been prepared fi the Group in accor principal risks and uncertainties that it faces. and fair view of the assets, liabilities, fi nancial position and and fair view of the assets, liabilities, fi and t of the Group; profi of the a fair review Report includes the Directors’ and the development and performance of the business position of the Gr – – Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Incorporated and domiciled in England and Wales No: 3236483 Wales Incorporated and domiciled in England and John Downing 30 October 2012 Imperial T The Directors are responsible for keeping adequate accounting for keeping adequate responsible are The Directors the Company’s to show and explain cient suffi that are records at any time accuracy and disclose with reasonable transactions enable and Company and the Group position of the nancial the fi the Directors’ nancial statements and that the fi them to ensure the comply with the Act and, as regards Remuneration Report nancial statements, Article 4 of the IAS Regulation. fi Group of the the assets for safeguarding also responsible They are for steps reasonable and hence taking Company and the Group and detection of fraud and other irregularities. the prevention for the maintenance and integrity responsible are The Directors website. Legislation in the United Kingdom of the Company’s nancial and dissemination of fi governing the preparation legislation in other jurisdictions. from statements may differ listed are whose names and functions Each of the Directors, rms that, to the best of their knowledge: on page 62, confi Directors’ GovernanceDirectors’ Report By order of the Board By order

Overview Strategic Review Performance Risk Governance Financials 76 Governance 77 Overview Strategic Review Performance Risk Financials equirements equirements elation to proposed changes elation to proposed emain appropriately Consult with shareholders in Consult with shareholders r to current share plans. share to current is well placed the Group Ensure to meet any r the Department emanating from for Business, Innovation and Skills consultation on revised reporting remuneration regulations. that senior executives Ensure r compensated and incentivised to deliver our strategy. – – – 2013 Objectives e plans Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco om the 2012 AGM. emuneration philosophy of emuneration packages of a A review of the overall A review r the Group to further align the Group with the interests remuneration of our long-term shareholders strategy. and our sales growth Consideration of base salary and bonus targets. of the Reviewing the structure r number of senior appointments. Considering the achievement of performance criteria for the annual bonus and shar vesting levels. and approving Consideration of shareholders’ feedback fr Overview – – – – – Achievements for 2012 Our remuneration policy seeks to achieve a balance between the interests of between the interests policy seeks to achieve a balance Our remuneration and senior Director Executive our employees and long-term shareholders. performance related towards weighted therefore, are, management rewards of our strategy. elements with targets incentivising the delivery Committee has undertaken nancial year the Remuneration During the ﬁ and policy of the Group. philosophy of the overall remuneration a review whilst our policy has served us well it could be concluded that The review therefore, The main changes are, enhanced to further support our strategy. align our senior executives’ to amend the performance criteria to better With with our strategic focus on organic growth. the exception remuneration Matching Scheme and the Long changes to the Share of the proposed at our approval seeking shareholder Incentive Plan for which we are Term implemented the revised forthcoming AGM, the Committee has, therefore, for salary and bonus structure base of total remuneration, policy in respect nancial year ending 30 September 2013. Full details of the revised the ﬁ shown on page 84. policy are available on are full terms of reference The Remuneration Committee’s www.imperial-tobacco.com Mark Williamson Malcolm Wyman (appointed 3/10/11) Williams Trevor (Secretary)

competitive international environment we want our employees to be fairly compensated and incentivised to deliver on our strategy.” Members Ken Burnett (appointed 31/1/12) David Haines (appointed 26/4/12) Jungels Pierre 1/2/12) (retired Susan Murray Berge Setrakian (appointed 31/1/12) Michael Herlihy Chairman “ Within a demanding, a demanding, Within “

performance Rewarding Remuneration Committee Remuneration Directors’ Remuneration Report Remuneration Directors’ To reinforce this independence, a standing item at each a standing item at this independence, reinforce To to meet without meeting allows the members Committee manager being present. or other Director any Executive Mrs A J Cooper (Company Chairman), Mr I J G Napier and Dyrbus (Finance Director) (Chief Executive), Mr R consulted and were Secretary) Mr J M Downing (Company Mr T M Williams appropriate. (Deputy invited to attend where as secretary also attended each meeting Company Secretary) to the Committee. ts also attended Head of Compensation and Benefi The Group internal support and advice on market and and provided practice and our developments in remuneration regulatory the Committee plans. His attendance ensured employee share the Group, of pay policies throughout was kept fully abreast account when determining the which it then takes into of the Executive Directors. remuneration directly No-one is allowed to participate in any matter or conditions concerning the details of their own remuneration of service. principal external adviser Aon Hewitt Limited is the Committee’s against principles and practices our remuneration and reviews to corporate governance us adhere best practice and helps is a signatory to Aon Hewitt Limited our Remuneration Policy. Aon Hewitt the Code of Conduct for Remuneration Advisers. in UK of developments a review Limited also presented corporate governance up-to-date to keep Committee members practice. with new developments and evolving best with employee Aon Hewitt Limited assisted the Group broker. engagement surveys and acts as its insurance by Aon ed that the provision satisfi The Committee is, however, way compromises Hewitt Limited of those other services in no independent advisers. its position as the Committee’s Kepler Associates to assist it with The Committee also retained of the Group. philosophy of the overall remuneration the review is Watson by Towers data provided Executive remuneration the consistent used for benchmarking purposes to ensure application of our Remuneration Policy. services provide Solicitors Allen & Overy LLP and Ashurst LLP They both provide to the Committee as and when required. Allen & Overy is also retained other legal services to the Group. legal advice on our employee by the Company to provide plans. share Alithos Limited to undertake total The Company retains advice on (TSR) calculations and provide return shareholder no other Alithos Limited provides matters. all TSR related services for the Group. PricewaterhouseCoopers LLP (PwC), our Auditors, perform (EPS) on earningsshare per upon procedures agreed plans’ to our employee share calculations used in relation performance criteria. ectors’ continued rmed the Committee onment of the countries in which we eholders whilst ensuring that remuneration eholders whilst ensuring that remuneration ensuring remuneration arrangements support our strategy, arrangements support our strategy, ensuring remuneration align with our values and drive performance; policy appropriate maintaining a competitive remuneration to the business envir operate thereby ensuring we can attract and retain high ensuring we can attract and retain operate thereby individuals; calibre with the interests aligning senior executives’ remuneration of long-term shar is fair but not excessive; and of the the evaluation of the effectiveness the output from Remuneration Committee, which confi continues to operate effectively. – – – – Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco and senior executives’ remuneration is set by people who and senior executives’ remuneration nancial interest, independent and have no personal fi are in the matters discussed. other than as shareholders, The Board recognises that it is ultimately accountable for that it is ultimately recognises The Board this responsibility but has delegated executive remuneration to the Committee. principal function is to determine the The Committee’s detail in more described policy, remuneration overall Company’s package, c remuneration the specifi together with below, and pension arrangements, for each including service contracts and our most senior executives. Executive Director recommendations for making responsible The Committee is also fees, setting Chairman’s of our in respect to the Board of remuneration elements related targets for the performance our overall policy for senior management packages, oversight of plans. and of our employee share remuneration during the seven meetings held The Remuneration Committee on page 77, In addition to the achievements nancial year. fi include: responsibilities the Remuneration Committee’s Activities of the Committee Activities Directors’ Remuneration Report Report Remuneration Directors’ We have prepared this Report in accordance with the this Report in accordance have prepared We Instrument Companies Act 2006 (the Act) and Statutory and Groups 2008/410 The Large and Medium-sized Companies (the Regulations). (Accounts and Reports) Regulations 2008 of the UK Listing Authority’s It also meets the requirements Rules. and Transparency Listing Rules and the Disclosure of good In this Report we describe how the principles as set out in remuneration, to directors’ governance relating applied the UK Corporate Governance Code (the Code), are rms that confi in practice. The Remuneration Committee nancial year the Company has complied the fi throughout with these governance rules and best practice provisions. to shareholders our Auditors to report The Regulations require on the audited information within this Report and to state sections have been in their opinion, the relevant whether, with the Act. The Auditors’ opinion is in accordance prepared set out on page 95 and we have clearly marked the audited sections of the Report. Membership and Advice which independent Non-Executive Directors, All members are we see as fundamental in ensuring Executive Dir

Overview Strategic Review Performance Risk Governance Financials 78 Governance 79 Overview Strategic Review Performance Risk Financials emuneration package aligns the long-term interests long-term interests package aligns the emuneration Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco oss the Group. Our approach for all employees, including for all employees, Our approach oss the Group. of our shareholders and other stakeholders with those of with those of and other stakeholders of our shareholders in the value of the the growth management by incentivising we support this alignment, To business over the long-term. guidelines as we believe ownership share have adopted a set of should be and other senior managers Executive Directors substantial portion of their personal encouraged to hold a wealth in our shares. Executive Directors appointment ve years from Over a period of fi to a shares in the Group’s to build a holding required are times base salary. equivalent to three minimum value broadly to invest at a level expected are Other senior management dependent once and twice base salary, equivalent to between shareholding to meet the minimum upon grade. Failure determining eligibility is taken into account when requirement with the exception of All Executive Directors, awards. for LTIP June 2012, on 1 Mr Phillips who was appointed to the Board shareholding. exceed their required currently cant portion also support this alignment by linking a signifi We remuneration and senior management’s of Executive Directors’ is, therefore, overall remuneration The value of their to shares. price. share heavily dependent on the performance of our plans: share Our long-term incentives consist of two employee the SMS and the LTIP. Base Salary structure be a cohesive remuneration should believe there We acr that to set remuneration is, therefore, Executive Directors, conditions; takes account of: market practice; economic teams and the individual; the performance of the Group, that may apply; and any legal or collective agreements policy In setting the remuneration requirements. regulatory the and levels for executives, the Committee considers arrangements and employment conditions of remuneration the wider employee population within the Group. annually following detailed reviewed Base salaries are individual consideration of a number of factors including performance and the market rate for the responsibilities, nancial year to 30 September 2012 position. Our policy for the fi median the market was to set base pay within a range around after consideration of market data of the comparator group Consideration is given to the effect Watson. by Towers provided base salary would have on an amendment to an individual’s package. Base salary is the only element their total remuneration of the package used to determine pensionable earnings. again conducted in the context of the was review This year’s levels whilst also being in pay restraint need to apply appropriate cognisant of what is a highly competitive international market for executive talent. Share Interests and Incentives and Interests Share performance, cant weight on our annual signifi Whilst placing r our overall e incentivised to deliver our corporate strategy e incentivised to deliver through clear links between reward and performance without and performance clear links between reward through take undue risks. encouraging them to in a highly competitive international operate environment We employees internationallyand continue to assign the to achieve to facilitate and within the Group optimum balance of experience employee development. and employees of long-term shareholders the interests align We the possible, giving our employees wherever at all levels by, in the Company build a shareholding annual opportunity to plans, with over 30 per cent of our employee share through plans. eligible employees participating in one or more package for consider it critical to align the remuneration We and our most senior executives with the Executive Directors believe our therefore, We, strategy and risk appetite. Group’s should be competitive but remuneration Executive Directors’ individual, not excessive and, to incentivise them to maximise they should be able functional and corporate performance, that their pay than from performance related their from to earn more nancial year to 30 September 2012 for the fi Our policy xed pay. fi the around xed elements of remuneration was to position fi of companies, which median paid by our comparator group to the FTSE 30 was the FTSE 50 with secondary reference nancial and pharmaceutical both excluding companies in the fi Remuneration sectors. As further discussed in the Revised Committee reviewed Policy and Practice section on page 84 the is now assessed this during the year and total remuneration FTSE size of companies from against a comparator group and internationalpeers (including pharmaceutical companies) sector peers. the major elements Our policy supported our strategy by linking criteria aligned with our KPIs. to performance of remuneration long-term These elements included both short-term and bonus, Share incentives, the main elements being annual Incentive Plan (LTIP). Matching Scheme (SMS) and Long Term rmly linked to our our Remuneration Policy is fi ensure To plan strategy and risk management, bonus and employee share for example ect key business imperatives, set to refl targets are in net revenue, and growth cash conversion volume growth, as discussed on page strategy used to measure all of which are ownership guidelines. 11. This link is supported by our share of their executive in respect remunerated are Executive Directors and appointment under the terms of their service agreement no additional fees for serving as Directors. receive Remuneration Policy and Practice for Practice for Policy and Remuneration 2012 30 September Ended Year Financial Policy and Practice Executive and to attract, retain Policy is designed Our Remuneration pool of talented employees at all motivate a high quality levels who ar 1

r le

etain Zero 50% ate

100% ls for s ins ployee Awards vesting Awards 2014 and 2015 2013 Zero 100% Award vesting Award

e at the discretion of the Remuneration of the e at the discretion continued ectors’ remuneration targeted at incentivising delivery of the Group’s annual objective annual the Group’s delivery of targeted at incentivising ectors’ remuneration ation over the period of the award (Real Annual EPS Growth). At the Committee’s request, our Auditors perform request, At the Committee’s (Real Annual EPS Growth). ation over the period of the award espect of the other elements. . Under the SMS, at the discretion of the Committee, senior managers are invited to invest any proportion of their SMS invited to invest any proportion of the Committee, senior managers are . Under the SMS, at the discretion Committee and no employee has a right to receive an award. Awards are equivalent to 200 per cent of base salary for the Chief equivalent to 200 per cent of base are Awards an award. Committee and no employee has a right to receive at lower leve with awards Director, and 125 per cent for the Corporate Affairs Executive, 150 per cent for the Finance Director other senior managers. Structure Current of the elements which operate independently and can vest regardless is split into three The performance criteria for all awards performance in r elements are: The three Element EPS Growth protocol, in adjusted EPS based on an agreed is based on average growth The performance criterion for 50 per cent of the award after adjusting for infl equals 3 per cent, 12.5 per cent of this element vests. on the calculations. If Real Annual EPS Growth upon procedures agreed equals or exceeds 10 per cent. Between these two points this element vests This element vests in full if Real Annual EPS Growth on a straight-line basis. 1 ation plus 6 per cent. ation plus 3 per cent and infl Sliding scale applies for performance between infl end on the date the performance period would PLC be acquired Group Tobacco Under the rules of the SMS, should Imperial basis subject to the achievement of the applicable rata would vest on a time pro of acquisition. Any outstanding awards performance criterion. Incentive Plan Long Term years after vest three and other senior management. These awards to Executive Directors of shares conditional award is a The LTIP grant dependent upon satisfaction of performance criteria over the period. All grants ar Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco At Infl ation plus 3 per cent per annum At Infl per annum ation plus 6 per cent or more At Infl Below Infl ation plus 3 per cent per annum ation plus 3 per cent per Below Infl EPS Growth Eligible Bonus in our shares. If those shares are held in an employee nominee facility for three years and the participant rema nominee facility for three held in an employee are If those shares Eligible Bonus in our shares. an employee within the Group, they will be matched on a one-for-one basis. For our Executive Directors and our most senior our Executive Directors basis. For they will be matched on a one-for-one an employee within the Group, as that of which is based on the same protocol measurement as shown below, managers we apply a performance criterion, held in the em of shares their vote in respect Employees can exercise is no opportunity to re-test. There applying to the LTIP. to the nominee. nominee facility by giving written instructions Scale Vesting Matching Scheme Share Annual Bonus think it is appropri therefore, We, annual performance. cant weight on our place signifi and other stakeholders Our shareholders Directors’ Remuneration Report Report Remuneration Directors’ to have a major element of Executive Dir element of Executive to have a major and enhancing performance against key fi nancial and non-fi nancial targets. nancial targets. non-fi nancial and key fi performance against and enhancing salary for the maximum bonus was 200 per cent of base year ended 30 September 2012 the potential nancial For the fi date rata from (pro Director cent for the Corporate Affairs and 125 per cent for the Finance Director Chief Executive, 150 per of appointment). per cent of maximum), volume growth (20 EPS (50 per cent of maximum), net revenue stretching Bonus targets constituted per cent of maximum). nancial metrics (10 and non-fi cash conversion (7.5 per cent of maximum) (12.5 per cent of maximum), consider the othe vesting. We in 58 per cent of this element EPS of 201.0 pence resulting adjusted During the year we delivered 44.4 per cent of these elements vesting overall. met in part, with they were dential, however, confi targets to be commercially Any annual bonus earned SMS (SMS Eligib in cash and is eligible for investment in our up to 100 per cent of base salary is paid to r is required Company which the Director in the shares in excess of this level is used to purchase Bonus). Any bonus payable not eligible for investment in the SMS. are years. These shares for a minimum of three years following the back during the three subject to claw and certain key executives are Directors Annual bonuses for Executive end of the fi nancial year in which they are earned. Claw back would be applied in the event of gross misconduct by the employee earned. are Claw back would be applied in the event of gross nancial year in which they end of the fi would otherwise have been paid. the level of bonus that of increasing this had the effect where or misstatement of results No element of the annual bonus is guaranteed. Matching Scheme Share in the to hold shares Directors, senior managers, including Executive Group’s The purpose of the SMS is to encourage the Company

Overview Strategic Review Performance Risk Governance Financials 80 Governance 81 Overview Strategic Review Performance Risk Financials e nts on ed

SABMiller PLC

e prices of each bespoke comparator group e prices of each bespoke comparator group Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco s TSR ranks it in the top 50 per cent of the companies cent of the companies it in the top 50 per s TSR ranks Performance Criteria British American Tobacco PLCBritish American Tobacco Reynolds American Inc. Carlsberg A/S Imperial Tobacco Group PLC Group Imperial Tobacco Inc. Japan Tobacco Heineken N.V. Altria Group Inc. Altria Group eed order, by Lorillard Inc or Molson Coors Brewing Company; Inc or Molson Coors Brewing by Lorillard eed order, oup comprising 12 tobacco and alcohol companies. No vesting of this element occurs unless the Company’s TSR of this element occurs unless the Company’s and alcohol companies. No vesting oup comprising 12 tobacco if a company in the bespoke comparator group undertakes a rights issue during the performance period a cash neutral approach undertakes a rights issue during the performance period a cash neutral approach if a company in the bespoke comparator group of the rights (commonly known as ‘tail swallowing’) will be applied; and of selling a portion of rights to take up the balance in which each in the currency measured uctuations, TSR calculations are uence of exchange rate fl the undue infl to remove company is listed. if a company in the bespoke comparator group is delisted during the performance period it will be replaced from the start of th from delisted during the performance period it will be replaced is if a company in the bespoke comparator group performance period, in an agr – – – 200 for Chief Executive150 for Finance Director Director 125 for Corporate Affairs 25 per cent on TSR against comparator group 50 per cent on EPS 25 per cent on TSR against FTSE 100 Award as Percentage of Base Salary as Percentage Award Philip Morris International Inc. S.A. Pernod Ricard Company in the top 25 per cent of the index. Between these thresholds this element vests on a straight-line basis. this element vests on a straight-line per cent of the index. Between these thresholds Company in the top 25 Element Comparator Group TSR Relative to Bespoke bespoke to a on TSR relative criterion based on a sliding scale depending has a performance of the award nal 25 per cent The fi comparator gr Diageo PLC exceeds that of the bottom six companies in the bespoke comparator group. At this performance threshold, 30 per cent of this 30 threshold, At this performance group. six companies in the bespoke comparator exceeds that of the bottom this element these thresholds Between in the top three. vests in full if the TSR ranks the Company element vests. This element was: the November 2011 award for basis. The bespoke comparator group vests on a straight-line AB InBev TSR Relative to FTSE Element TSR Relative the to depending on TSR relative on a sliding scale criterion based has a performance per cent of the award A further 25 the Company’ element occurs unless No vesting of this FTSE 100 Index. in this index. At this performance threshold 30 per cent of this element vests. This element vests in full if the TSR ranks the vests in full if element vests. This element 30 per cent of this threshold At this performance in this index. The TSR calculations, performed independently by Alithos Limited, use the shar The TSR calculations, performed independently company, averaged over a period of three months, to determine the initial and closing prices. Dividend payments are recognised recognised are months, to determine the initial and closing prices. Dividend payments averaged over a period of three company, as improv and less volatile result gives a fairer ex dividend. The Committee considers this method declared are the date shares performance has to be sustained for several weeks before it effectively impacts on the TSR calculations. it effectively weeks before performance has to be sustained for several and vesting schedules bespoke comparator group policy, criteria, award the performance During the year the Committee reviewed arrangeme remuneration of the revised these performance criteria pending the introduction and decided to retain awards for LTIP from 2013 onwards. from at any time up to the seventh may be exercised number of shares the relevant to acquire option On vesting, a participant’s amended of jurisdictions outside the UK is, however, in a number process vested. The vesting anniversary of the date the award to comply with local securities and tax legislation. of the if any to re-test is no opportunity there and of each annual award The performance period is set prior to the granting not achieved. performance criteria are would end on the the performance periods for outstanding awards be acquired should the Company Under the rules of the LTIP, rata basis subject to the achievement of the applicable would vest on a time pro date of acquisition. Any outstanding awards performance criteria. vest. awards the extent to which any but not increase, to vary, The Committee has absolute discretion Summary Award LTIP To ensure our Executive Directors and senior managers are incentivised to drive our underlying performance and to ensure that to ensure to drive our underlying performance and incentivised managers are and senior our Executive Directors ensure To comparative underlying performance, the Committee has in exchange rates do not unduly affect uctuations corporate actions or fl the following protocols: agreed :

ity rs s

as ve der te

. of n

e 6 to be etail continued , in respect of new employees, join the UK Imperial Tobacco Pension Fund (the Fund) or receive a salary Fund (the Fund) or receive Pension Tobacco of new employees, join the UK Imperial , in respect ectors have made additional voluntary contributions. eholders. Annually we offer as many employees as practicable, together with our Executive Directors, the opportun the with our Executive Directors, practicable, together many employees as as we offer eholders. Annually the annual accrued pension payable on retirement calculated as if he/she had left service at the year end (any potential UURBS calculated as if he/she had left service at the year end (any potential UURBS the annual accrued pension payable on retirement entitlement is included); un required of the disclosure ation in respect for infl excluding any increases in accrued pension during the year, the increase the Listing Rules; and with the latest Regulations. in accrued pension calculated in accordance the transfer value of the increase – – – Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco supplement in lieu of membership of the Fund. supplement in lieu of For members t scheme operated by the Group. ned benefi defi all members of the Fund, the principal are The Executive Directors membe age of 60. The Fund allows with a normal retirement April 2002 the Fund is largely non-contributory who joined prior to 1 Sharesave Plan Sharesave those of our of employees with a wide group of of aligning the interests Plan is a valuable way Sharesave believe that our We long-term shar Directors’ Remuneration Report Report Remuneration Directors’ to join the Sharesave Plan. Options over shares are offered at a discount of up to 20 per cent to the closing mid-market price per cent to the closing discount of up to 20 at a offered are over shares Plan. Options to join the Sharesave up to Plan allows participants to save the day prior to invitation. The Sharesave on the London Stock Exchange on our shares over shares their option and then exercise ve years, or fi years, and in the UK only three a period of three £250 per month over applied. are plans of this type, no performance conditions In common with most Pensions Executive Directors’ to the option provides Executive Directors, to all current which applies UK pension policy, day) the Group’s Since 6 April 2006 (‘A’ of or maintain membership Pension age, usually after 32 years’ service. retirement of their salary at normal pension of two-thirds to achieve the maximum permitted. is a lump sum on retirement participants to receive commutation to enable pension of two-thirds times salary is payable together with a spouse’s a capital sum equal to four retirement, For death before of the member’s pension of two-thirds a spouse’s For death in retirement, at retirement. expected pension of the member’s allowances. will also receive pension is payable. Dependant children pre-commutation Index, together with a in the Retail Prices annually by the lesser of 10 per cent and the increase Pensions in payment increase in the R in line with the increase to be increase for the annual part of a pension in order option under the rules to surrender Prices Index to a maximum of 15 per cent. ned contribution basis. ts in the Fund on a defi 2010 accrue pension benefi New members of the Fund after 30 September t basis, ned benefi ts in the Fund on a defi 2010 continue to accrue pension benefi Members who joined the Fund prior to 1 October t basis. benefi ned ts on the defi benefi accrue pension as set out above. All Executive Directors by HM Revenue & Customs (HMRC) which abolished most of the detailed was introduced 6 April 2006 a new tax regime From Each member now has a Lifetime ed approach. them with a simplifi pension schemes and replaced imposed on limits previously is levied in the tax year 2012/2013 and a tax, called the lifetime allowance charge, at £1.5 million for retirements Allowance (LTA), t value For any member whose total benefi exceeds this amount. all sources t from of their pension benefi if the value retirement not be the higher value so that they would transitional arrangements allowed them to register on 6 April 2006 exceeded the LTA, opt out of Fund to the member was required qualify for this enhanced protection charge. To LTA subject to a large retrospective of past service. nal salary linked pension entitlement in respect a fi to retain service accrual in order of future membership in respect Cooper and age of 60. Other than Mrs A J scale with a normal retirement ts on the standard earn benefi All Executive Directors service accrual of future has opted out of Fund membership in respect Executive Directors Mr M R Phillips, each of the current a result of registering for enhanced protection with HMRC. The detailed HMRC rules governing enhanced protection mean that it with HMRC. The detailed HMRC rules governing enhanced protection for enhanced protection of registering a result to 6 April 200 nal salary linked pension based on service up for the full fi circumstances, may not be permissible, in some rare retirement an unfunded unapproved event an additional pension will be paid by the Company through the Fund. In this paid from t may be provided. t scheme (UURBS) so that the full accrued benefi benefi and pensionable service accrual which is in lieu of future of a salary supplement of 35 per cent of salary, Mr R Dyrbus is in receipt of salary. 2006 was well below the maximum pension of two-thirds arises because his accrued pension on 6 April ts wer of a salary supplement. Prior to 6 April 2006 their pension benefi also in receipt Mrs A J Cooper and Mr M R Phillips are 6 April 2006, the Fund did not disapply it in as from earnings cap. Although this cap was removed of HMRC’s limited by the effect 6 April 2006 onwards of past pensionable service but maintained its own earnings For service from respect cap going forward. t is a pension at the lower accrual ra Fund benefi earnings standard cap, the and for pensionable salary in excess of the Fund’s a salary supplement of 12 per cent of this amount. ts of ect the value of the benefi to refl In each case these salary supplements have been calculated by the independent actuaries national insurance contributions. The supplement discounted for early payment and for employer’s are in lieu and which they are non-compensatory and non-pensionable. are by both the Listing Rules and Schedule 8 of the Large and Medium-sized the information required The table on page 91 provides of each Executive Director (Accounts and Reports) Regulations 2008 (the Regulations) and gives details for Companies and Groups of 1/60ths with a 50 per cent spouse’s pension and member contributions of 5 per cent of this top slice of salary are payable. pension and member contributions of 5 per cent of this top slice of salary are of 1/60ths with a 50 per cent spouse’s Mrs Cooper and Mr Phillips each recei the UURBS, As an alternative to extra pension accrual on this top slice of salary through None of the Executive Dir

Overview Strategic Review Performance Risk Governance Financials 82 Governance 83 Overview Strategic Review Performance Risk Financials

uch the mal nce ieu uals. osses plied t fees n the No provisions No provisions Compensation on termination following a change of control to benefi ts receivable during the notice period during ts receivable to benefi Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Expiry date edetermined amount on termination of employment in any circumstances. The service any circumstances. of employment in amount on termination edetermined 1 July 2007 notice on 12 months’ Terminable Date of contract ector is restricted to one external non-executive directorship and may not serve as the chairman of a to one external non-executive directorship ector is restricted 31 May 2012 on 12 months’ notice Terminable e recorded in letters of appointment which are available for viewing at our registered offi ce during nor offi available for viewing at our registered in letters of appointment which are e recorded ectors and, after recommendation by the Remuneration Committee, our Chairman. In addition to base ectors and, after recommendation 1 Group’s employee share plans. employee share Group’s of their fees is ap annually a proportion with those of our long-term shareholders, interests align Non-Executive Directors’ To their judgement or independence. but not at a level that we believe could compromise in the Company, of shares to the purchase held by a nominee during the term of their directorship. are These shares Letters of Appointment Non-Executive Directors’ including the time but the terms of their appointment, have service agreements do not The Chairman and Non-Executive Directors commitment expected, ar of notice but these are at the Company’s sole discretion. The Company is unequivocally against rewards for failure. Apart from Apart from for failure. rewards The Company is unequivocally against sole discretion. at the Company’s of notice but these are duty and opportunity to mitigate l and an individual’s of the termination to above, the circumstances referred limited respects to the payments to former Executive Directors compensatory stop or reduce into account in every case. Our policy is to taken are and that any such payments would employment during the compensation period other from remuneration extent that they receive be paid monthly in arrears. including death, ed reasons, for specifi vest if a participant leaves outstanding awards SMS and LTIP, Under the rules of our or on a change of ceasing to be part of the Group or company in which the participant is employed the business redundancy, basis subject to the satisfaction of the relevan rata on a time pro vest awards a participant’s In these circumstances control. the termination of employment is not for one of lapsing. If, however, awards performance criteria with the balance of the lapse. full awards to vest a participant’s to allow an award its discretion and the Committee does not exercise ed reasons the specifi of any s in respect fees received permitted to retain are Executive Directors of the Board, At the discretion FTSE 100 company. non-executive directorship. this from fees received the £50,000 of Inchcape PLC and was permitted to retain Mrs A J Cooper is a Non-Executive Director nancial year. position in the fi Policy for Non-Executive Directors policy and level of Within determines the remuneration out in our Articles of Association, the Board the £2.0 million limit set Non-Executive of the Company, in connection with their directorship With of expenses incurred the exception of reimbursement ts or to participate i benefi not eligible for bonuses, retirement ts. They are no other material pay or benefi receive Directors business hours and both prior to and at the AGM. and reviewed terms of appointment were and Non-Executive Directors’ policy the Chairman’s In line with our annual review subject to annual are Articles of Association, all Directors on 31 January 2012. Under the terms of our rmed by the Board confi notice periods in their letters of appointment which state that regarding no provisions are There by shareholders. re-election payment until the date their appointment ends and, therefore, receive will only the Chairman and Non-Executive Directors no compensation is payable on termination. fees, additional fees are paid to our Senior Independent Director and the Chairmen of our Audit and Remuneration Committees. and the Chairmen of our Audit and Remuneration paid to our Senior Independent Director fees, additional fees are practice, with refere on an annual basis after taking account of market but not necessarily increased, reviewed, These fees are 1 on 1 June 2012. the Board Mr M R Phillips was appointed to Appointments Policy in Respect of External Board concernedcial for both the Executive Director and the Company. benefi external are that recognise non-executive directorships We Each serving Executive Dir those arrangements. service agreements, Directors’ compensation on termination within Executive for provisions no liquidated damages are There for payment in l do contain provisions service agreements Executive Directors’ The in the table below. except for those set out Executive Directors Mrs A J Cooper Mr R DyrbusMr M R Phillips 21 August 1996 notice on 12 months’ Terminable Payment of a liquidated sum calculated by reference for our Non-Executive Dir individ high calibre with the need to attract and retain together as used for Executive Directors, to the same comparator group agreement for Mr R Dyrbus was, however, entered into at the time of the demerger of the Company from the Hanson Group in Group the Hanson the demerger of the Company from into at the time of entered for Mr R Dyrbus was, however, agreement ect refl in his service agreement of control on termination following a change dealing with compensation 1996 and the provisions Directors’ Service Arrangements Service Directors’ Service Agreements Executive Directors’ notice and there one year’s than on no more terminable are service agreements is that Executive Directors’ policy The Company’s of a pr to the payment is no entitlement ot er re that re does Chief the other being international sector peers; and continued nancial sector companies) olled up on vested SMS and LTIP shares and paid on vesting. shares olled up on vested SMS and LTIP evised policy. the “playing fi eld” for the value of total remuneration is assessed against two comparator groups, one being companies from one being companies from two comparator groups, is assessed against remuneration eld” for the value of total the “playing fi companies) and FTSE size peers (including pharmaceutical increase weighting on revenue growth and reduce weighting on EPS; and reduce growth weighting on revenue increase ation; and to infl nancial targets (including EPS) on a nominal basis rather than relative set long-term fi similar vesting schedules and targets will be used; dividends used in the SMS and LTIP the same performance criteria are where will be r base salary to be assessed primarily against the same comparators as total remuneration and in addition secondary reference and in addition secondary reference base salary to be assessed primarily against the same comparators as total remuneration to FTSE 30 and FTSE 50 (both excluding fi – – – – – Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco The Finance Director’s base salary was increased to £664,500 (from £654,500) and, having been appointed during the year, the £654,500) and, having been appointed during the year, to £664,500 (from base salary was increased The Finance Director’s reviewed. base salary was not Director’s Corporate Affairs predecessor appointment the Committee decided to set her base salary at a level below that of her Upon the Chief Executive’s it over time, subject to performance. with the intention of increasing policy, remuneration and that indicated by the Group’s above the evaluation, an increase to the 2012 Board including with reference her performance during the year, Having reviewed to continue to bring her base salary closer to that population was approved 3.0 per cent average for our wider UK management the a result, As importance of the role. le and the critical size, international profi indicated by her performance, the Group’s Executive’s base salary was increased by 7.0 per cent to £920,000 (from £860,000). by 7.0 per cent to £920,000 (from base salary was increased Executive’s generally 2012 were both 1 October 2011 and 1 October salaries effective for senior executives’ base increases The percentage located in the same region. of the Group lower than the average for other employees Policy and Practice Summary of Changes to Remuneration levels: have made the following changes to our method of determining pay We The Committee continues to view its primary responsibility as ensuring that the Company can recruit, motivate and retain high and retain motivate can recruit, as ensuring that the Company its primary responsibility continues to view The Committee to ensu that it is important believe We of long-term shareholders. in the best interests to run its business quality management Revised Remuneration Policy and Practice Policy and Practice Remuneration Revised Directors’ Remuneration Report Report Remuneration Directors’ management is competitively rewarded in relation to peers and the other opportunities available to them whilst ensuring we do n to them whilst ensuring opportunities available peers and the other to in relation is competitively rewarded management pay more than is necessary. pay more is a matter of judgement. in setting a competitive level of total remuneration nding a fair outcome in fi Striking the right balance operating in a similar comparator companies of similar scale and the Committee considers pay data at In forming this judgement but, at most serve, the Company offers what remuneration do not determine however, Comparisons with other companies, sector. primary In determining that positioning, the need to be positioned. rewards eld” within which an individual’s fi ne a “playing to defi and their ability and experiences role; to that individual’s will be the scale of the challenges intrinsic factors taken into account fundamentally their performance. ect that refl elements with measures performance based towards cantly weighted signifi packages that are The policy is to offer and achievable. both stretching targets that are corporate performance. The aim is to set individual, functional and and investor major shareholders with the Group’s Remuneration and consultation of Executive Directors’ Following a review concluded The review below. as summarised Directors the policy for Executive revised bodies, the Committee has representative policy revised the well and, therefore, shareholders policy has served both it and its long-term remuneration that the Group’s und xed and variable pay or the level of awards packages; the balance of fi of our remuneration not change the overall structure the annual bonus, SMS or LTIP. nancial year to 30 September 2013. for the fi policy was introduced the revised Withand LTIP, the exception of the SMS at the forthcoming AGM, be introduced approval will, subject to shareholder to the SMS and LTIP amendments The proposed nancial year commencing 1 October 2013. in the fi Base Salary in September 2012 in accordance by the Committee reviewed year ending 30 September 2013 were nancial Base salaries for the fi with the r We propose the following changes to our incentive plans: propose We

Overview Strategic Review Performance Risk Governance Financials 84 Governance 85 Overview Strategic Review Performance Risk Financials 3 years 3 years 3 year retention period 3 year retention 1 year N/A 3 elements: 25% EPS growth with ROIC underpin; 25% Net Revenue with EPS growth underpin; and 50% TSR vs comparator group. 2 elements: 50% EPS growth with ROIC underpin; and 50% Net Revenue with EPS growth underpin. Criteria for 2013 nancial year: fi EPS targets (50% of maximum bonus); Net Revenue growth targets (20% of maximum bonus); Strategic/operational targets (15% of maximum nancial bonus). For 2013 fi year will be a volume target; and nancial targets Non-fi (15% of maximum bonus) All non-EPS elements have an EPS underpin. N/A Performance CriteriaPerformance Period Performance Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Percentage of Percentage base salary: Chief Executive 200%, 150%, Finance Director Corporate Affairs 125%. Director on Dividend roll-up vested shares. May elect to invest some or all of gross cash element of the percentage annual bonus in shares. Maximum match 1:1. on Dividend roll-up vested shares. Non-matchable element: shares deferred Any bonus paid over the limit set for the cash element. Maximum percentage Maximum percentage of base salary. Chief Executive 200% 150% Finance Director Corporate Affairs 125%. Director rst Cash element up to fi 100% of base salary As total remuneration As total remuneration with secondary reference 50 to FTSE 30 and FTSE nancial (both excluding fi sector companies). Competitive level against Competitive two comparator groups one being companies size peers, the FTSE from other being international sector peers. Comparator Groups/ Comparator Level Award Incentivise long-term delivery of Net Revenue EPS and growth, TSR and align with of long-term interests shareholders. Incentivise Executive ownership, growth share in EPS and Net Revenue in line with the growth strategy. Group’s Incentivise delivery of and objectives Group enhance performance. Attract and retain high Attract and retain performing individuals market value ecting refl and executive’s of role skills, experience and performance. performing individuals performing individuals and incentivise delivery strategy. of the Group’s Objective Long Term Long Term Incentive Plan Share Matching Share Scheme Annual Bonus Base Salary Total RemunerationTotal high Attract and retain Revised Executive Directors’ Remuneration Policy Directors’ Revised Executive Element Nil Nil Nil sure sure r ll 25% 25% 25% 100% 100% 100% ds top hting r ly in s coming relative TSR performance condition) relative Shares vesting (as a percentage of element) vesting (as a percentage Shares of element) vesting (as a percentage Shares Between 25% and 100% (pro rata) (pro Between 25% and 100% Shares vesting (as percentage of number relating to of number relating vesting (as percentage Shares continued Short-term 15% growth Q Volume Q Non-financial metrics 15% 20% Q Net Revenue growth Q EPS 50% Long-term Q EPS 33% 33% Q Net Revenue growth Q TSR 33% Revenue Growth elements Revenue Growth oposed vesting schedules for the initial awards are set out below. For both the EPS and Net Revenue targets, the revised targets, the revised EPS and Net Revenue For both the set out below. are initial awards schedules for the oposed vesting oadly defi ned consumer goods sector. oadly defi Illustrative breakdown of CEO variable pay Illustrative breakdown by performance measures appropriate and so is particularly useful to incentivise an appropriate total utilised capital including goodwill tability versus the Company’s of profi fo ROIC will have to be achieved in order that a minimum level of will require acquisitions. The ROIC underpin towards approach element to vest. under the EPS growth any awards Performance Criterion – TSR element a including over 40 companies across will be based on a single comparator group The performance criterion for the TSR element br Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco 3% to 7% per annum 7% per annum or higher underpin will app an EPS tability, overly incentivised at the expense of profi is not growth that Net Revenue to ensure In order wi of EPS growth that a minimum level This will require elements for the Executive Directors. of the Net Revenue growth respect element to vest. under the Net Revenue growth for any awards have to be achieved in order Performance Criterion – EPS elements would occur as per the vesting schedule below: on these elements of awards Vesting 5% to 10% per annum10% per annum or higher an underpin to achieve such growth, to the capital required is not achieved without due regard that EPS growth to ensure In order ROIC is a mea of the EPS elements for the Executive Directors. based on Return apply in respect on Invested Capital (ROIC) will Between median and upper quartileAbove upper quartile Pay for Variable Overall Balance of Measures nancial metrics of variable pay towa the focus of the fi performance criteria is to rebalance of the revised The combined effect in the weig this will result remuneration, based on the Chief Executive’s For long-term incentives (SMS and LTIP), line growth. nancial For the fi Net Revenue growth. EPS and one third TSR, one third EPS to one third TSR and two thirds one third shifting from be 50 per cent EPS, 20 per cent Net Revenue year ending 30 September 2013 the performance targets for the annual incentive will nancial. and 15 per cent non-fi 15 per cent volume growth growth, rata) Between 25% and 100% (pro rata) Between 25% and 100% (pro Below median of peer group Vesting of awards on this element would occur as per the vesting schedule below: on this element of awards Vesting Relative TSR performance from outside the UK, the measurement of fi nancial performance relative to UK infl ation has become less relevant as this does not as this does not less relevant ation has become infl to UK performance relative nancial of fi the UK, the measurement outside from as a whole. to the Group ation relevant infl footprint and, therefore, Group’s ect the refl – Net Performance Criterion per the vesting schedule below: on these elements would occur as of awards Vesting 3% per annum Compound annual EPS growth Less than 5% per annum 5% per annum At median of peer group policy will use growth in absolute terms rather than relative to infl ation. As an international Group with the majority of sale with ation. As an international Group to infl terms rather than relative in absolute growth policy will use in net revenue Compound annual growth Less than 3% per annum Performance Criteria Performance plan and analysts’ forecasts. long-term the Group’s has taken account of the Committee the performance criteria When setting The pr Directors’ Remuneration Report Report Remuneration Directors’

Overview Strategic Review Performance Risk Governance Financials 86 Governance 87 Overview Strategic Review Performance Risk Financials – – – 7 1 5 5 47 39 21 10 883 309 701 548 952 296 913 883 196 132 911 2011 2011 1,602 1,058 4,617 6,807 4,323 6,741 5,544 2,227 14,500 – – – – – – – – – 56 47 662 934 317 155 137 2012 2012 1,020 2,025 7,910 1,660 1,219 1,242 5,962 6,479 5,864 1,076 1,477 7,038 2,154 1,346 14,708 Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco ector ts ts 2 2 1 1 d fees ts ts ts ts e-based payment (in accordance with IAS 24) e-based payment (in accordance ermination beneﬁ ts ermination beneﬁ TIP annual vesting TIP annual vesting

Benefi SMS annual vesting Non-Executive Directors Fees Benefi SMS annual vesting £’000 ts Short-term employee benefi Post employment benefi 1 price on the day of exercise. closing share vesting in the year based on the prevailing shares of LTIP Value 2 price on the day of vesting. closing share vesting on maturity based on the prevailing of SMS shares Value and members of the Operating Executive for qualifying Non-Executive Directors by Executive Directors, to or receivable paid remuneration Note: aggregate (2011: £11,449,359). charges was £15,173,257 with IAS 24, which includes National Insurance and similar services in accordance 30 September 2012 (Audited) Ended Key Management Compensation for the Year £’000 Executive Directors Base salary Report on the Financial Year on the Financial Report 2012 (Audited) 30 September Ended Year for the Emoluments Directors’ Other long-term benefi T Shar Pension salary supplement Fees of former Non-Executive Directors fees Subsidiary Board Bonus L Former Executive Directors Salary of former Executive Director Subsidiary Boar remuneration Total Directors) Operating Executive (excluding Executive Base salary Benefi Pension salary supplement Bonus L Bonus of former Executive Dir Benefi om Base salary/ fees fr 1/10/2012 –73 –98 – 435 5– 5– 5– 65 73 65 73 7595 93 – 85 98 65 73 Total 883 1,031 291 – 489 – 306 – 433 450 2011 1,905 920 2,223 665 4,617 2,020 – ntments to Supervisory 98 96 50 90 33 97 87 74 251 451 2012 Total 1,076 2,687 3,024 5,962 3 ive Directors relate to the relate ive Directors LTIP Q Salary Q Pension Salary Supplement Q Benefits in Kind Q Bonus Q SMS Q LTIP 3 SMS ––– ––– ––– 5––– 5––– 5––– 65–– 65–– – 29–– 75–– 95–– 85–– – 44–– 65–– Sub total 883 – – 229 – – 433 – – 2011 1,417 443 408 1,212 799 811 2,858 1,242 1,219 – – – – – – 98 96 50 90 33 97 87 74 Sub total 251 451 2012 1,076 1,836 1,414 3,501

2 in kind Benefi ts Benefi 1 salary Pension supplement ––– continued – 1,477 317 47 1,020 – – 56 ––––– – 73 – – 25 – 73 – – 23 –– –96– – 1 –86– – 1 ––– – – ––– – – ––– – – ––– – – –48– – 2 –88– – 2 –33– – – – – 73 – – 1 860 – 881 79 16 655 – 503 229 27 Base salary Fees Bonus 1,660 7 7 , 0 102030405060708090100 11 , Group Sales , Group 10 7,8 4 7,9 5 5 12 6 nett ector illiamson esswell reimbursement of travelling expenses to Board meetings held at the Registered Offi ce. Offi meetings held at the Registered of travelling expenses to Board reimbursement an annual rate of Committees at per annum and chairmanship of Board fee of £25,000 of Senior Independent Director Includes payment in respect of the Audit Committee. of the Remuneration Committee and £20,000 in respect £15,000 in respect appoi fees in connection with his Non-Executive Director on 31 December 2007. He received the Board from retired Mr D Cresswell 2010. until 7 December within the Reemtsma Group Boards 2010. until 7 December within the Reemtsma Group Boards appointment in Imperial Tobacco Non-Executive Director fees in connection with his on 31 May 2000. He received the Board from Mr S T Painter retired S.A., until 27 September 2011. S.A., formerly Altadis Maroc Maroc Mr M R Phillips Mr R Dyrbus Mrs A J Cooper Percentage of total actual remuneration for the financial year to 30 September 2012 of total actual remuneration Percentage and Marketing Director Corporate Affairs DirectorCorporate Affairs 145 – 93 9 4 Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco 3 in the year. options exercised vesting and LTIP the value of SMS awards represent SMS and LTIP 4 on 1 June 2012. Board Mr M R Phillips was appointed to the 5 an employee until 15 February 2011. on 2 February 2011. He remained the Board from Mr G L Blashill retired 6 on 2 February 2012. Board Mr D J Haines was appointed to the 7 8 on 1 February 2012. the Board from Dr P H Jungels retired 9 on 3 October 2011. Mr M I Wyman was appointed to the Board 10 11 appointments to Supervisory fees in connection with his Non-Executive Director on 31 January 2006. He received the Board from Mr S Huismans retired 12 waived their fees. expenses allowances and no Directors by way of taxable paid to any Director No sums were 1 pension section on page 82. contained in the Executive Directors’ Further details are 2 ts in kind for the Non-Execut of a company car and health insurance. Benefi ts in kind principally include the provision Benefi £’000 Executive Directors Mrs A J Cooper, Chief Executive Emoluments by Individual Director (Audited) Director by Individual Emoluments Directors’ Remuneration Report Report Remuneration Directors’ Mr M D W Former Directors Mr G L Blashill Mr D J Haines Mr D Cr Mr M H C Herlihy Mr S Huismans Mr S T Painter Dr P H Jungels Ms S E Murray Mr M I Wyman Mr G L Blashill Mr R Dyrbus, Finance Dir Mr B Setrakian Mr M R Phillips Non-Executive Directors ChairmanMr I J G Napier, – 450 – – 1 Dr K M Bur

Overview Strategic Review Performance Risk Governance Financials 88 Governance 89 Overview Strategic Review Performance Risk Financials ce £’000 he eme. vesting date ive Award vesting Award Illustrative value Actual/expected February 2012 February 2012 February 2013 February 2014 February 2015 February 2013 February 2014 February 2015 February 2013 February 2014 February 2015 ointment. – – 8,902 208 20,64432,255 481 752 8,902 Award vesting Award 73,665 77,575 30,304 20,644 31,606 21,415 32,255 32,424 12,896 10,929 10,473 30/9/2012 Balance at Number of shares £’000 vesting Amount realised on realised £ – 443 – 799 –– vesting at date of 15/2/2012 Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Market price ––– ––– ––– ––– ––– ––– ––– ––– ––– – Vested (17,895) 24.73 443 (32,303) 24.73 799 during year 2 3 4 5 2 3 4 5 3 4 5 £ – (17,895) – (32,303) – of grant price at date Prevailing share share Prevailing –– 20.57 19.79 –– 20.57 19.79 ––– 19.79 24.73 – 20.57 – 17.80 – 17.80 21,41521,415 24.73 12,89612,896 24.73 Contingent rights arising 1 – – 8,902 20,644 32,255 31,606 70,145 32,424 96,982 10,929 10,473 30,304 32,303 Balance at 1/10/2011 6 Mrs A J Cooper These matched shares are shown within contingent rights arising above. It is anticipated that in February 2013 the Executive shown within contingent are These matched shares in the scheme. SMS Eligible Bonus equivalent of their entire will again invest the Directors The Committee by the Committee during the year. reviewed were policy and vesting schedules The performance criterion, award policy. remuneration of the revised the performance criterion pending the introduction decided to retain will vest in full. For illustrat nancial year the award based on EPS to the end of the fi award, of the February 2010 In respect valuing t date prior to publication, was £23.32 price on 29 October 2012, being the latest practicable the share purposes only, as follows: February 2010 award Mr R Dyrbus Mr M R Phillips as at 30 September 2012 indicate that, in the event that only this level of performan calculations prepared Interim measurement 71.6 per cent of lapse and approximately would performance periods, the February 2011 award maintained over the relevant were would vest. the February 2012 award There have been no changes in any Executive Directors’ contingent rights since 30 September 2012. have been no changes in any Executive Directors’ There nancial year to 30 September 2008 matured. to annual bonuses earned in the fi During February 2012 the SMS relating our nancial year to 30 September 2011 of annual bonuses earned in the fi respect The performance criterion was met in full. In the sch under SMS Eligible Bonus in the form of our shares elected to invest the equivalent of their entire Executive Directors 1 if later. Or date of appointment as a Director 2 granted 15 February 2009. Award 3 granted 15 February 2010. Award 4 granted 15 February 2011. Award 5 granted 15 February 2012. Award 6 have been no movements in his contingent rights since app on 1 June 2012 and there the Board Mr M R Phillips was appointed to Mrs A J Cooper 17,895 Executive Directors’ Contingent Rights to Shares under the Share Matching Scheme Matching the Share under Shares Rights to Contingent Directors’ Executive (Audited) Mr R Dyrbus Mr M R Phillips 2 3 4 5 2 3 4 5 3 4 5 115 681 389 £’000 £’000 period he Performance Award vesting Award 2008-2011 2009-2012 2010-2013 2011-2014 2009-2012 2010-2013 2011-2014 2009-2012 2010-2013 2011-2014 2008-2011 Illustrative value Illustrative value November 2014 – – nce appointment. over which 29,192 78,624 75,604 51,472 47,299 43,153 12,393 13,636 12,807 38,836 30/9/2012 183,420 141,924 Balance at Award vesting Award option granted Number of shares £’000 Amount 79 4,949 exercise 458276 29,220 16,678 £’000 Number of shares realised on realised 8,893 3,500 82 20,94536,931 8,247 14,541 192 339 year Award lapsing Award during Lapsed Illustrative value November 2013 Number of shares £ Market date of price at 3,409 exercise 19,656 11,824 £ Number of shares Market date of vesting price at year during Vested (26/11/2011) £ grant Market date of price at continued grant Date of year during Granted 1 – 75,604 02/11/11 22.75– – 43,153 02/11/11 22.75 – – – – – – – – – 12,39313,63612,807 –38,836 11/11/09 – 18.70 03/11/10 – 20.35 02/11/11 – 22.75 – – – – – – – – – – – – – – – – – – – – – – 51,47247,299 – 11/11/09 – 18.70 03/11/10 20.35 – – – – – – – – – – 29,19278,624 – 11/11/09 – 18.70 03/11/10 20.35 – – – – – – – – – – Balance at 1/10/2011 139,788 75,604 –162,342 43,153 – (17,811) – – – (35,415) – – (14,161) 408 – (28,156) 811 6 Mrs A J Cooper Mr R Dyrbus Mr M R Phillips price movements. due to share that shown cantly from could vary signifi The value of any options exercised as at 30 September 2012 indicate that, in the event that only this level of performance calculations prepared Interim measurement would of the November 2010 – November 2013 award rst element performance periods, the fi maintained over the relevant were of the November 2011 – element would lapse. In respect lapse, 100 per cent of the second element would vest and the third per cent of the second 97.1 would vest, approximately rst element 28.8 per cent of the fi approximately November 2014 award, element would lapse. element would vest and the third as follows: price and performance criteria are share The illustrative values based on the above Mr R Dyrbus Mrs A J Cooper There have been no changes in any Executive Directors’ awards since 30 September 2012. awards in any Executive Directors’ have been no changes There vested partially on 26 November 2011. Based on EPS and TSR 2011 award the November 2008 – November During the year, 62.1 per cent approximately rst element vested, 80.4 per cent of the fi nancial year approximately performance to the end of the fi lapsed. under award shares element vested. The remaining the third of the second element vested and none of nancial year the end of the fi based on EPS and TSR performance to of the November 2009 – November 2012 award, In respect 73.75 per cent of the second rst element will vest on 11 November 2012, approximately of the fi 19.6 per cent approximately being t price on 29 October 2012, the share element will lapse. For illustrative purposes only, element will vest and the third 1 if later. Or date of appointment as a Director 2 between 26 November 2011 and 25 November 2018. price of 1 penny, upon the payment of the option exercise Exercisable, 3 between 11 November 2012 and 10 November 2019. price of 1 penny, upon the payment of the option exercise Exercisable, 4 between 3 November 2013 and 2 November 2020. price of 1 penny, upon the payment of the option exercise Exercisable, 5 between 2 November 2014 and 1 November 2021. price of 1 penny, upon the payment of the option exercise Exercisable, 6 si Awards have been no movements in his Conditional Share on 1 June 2012 and there the Board Mr M R Phillips was appointed to as follows: the awards valuing was £23.32, latest practicable date prior to publication, Mrs A J Cooper 31,972 – 26/11/08 14.70 (17,811) 22.54 22.91 (14,161) 408 Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Executive Directors’ Conditional Share Awards under the Long Term Incentive Plan Incentive Term under the Long Awards Share Conditional Executive Directors’ (Audited) Directors’ Remuneration Report Report Remuneration Directors’ Mr R Dyrbus 63,571 –Mr M R Phillips 26/11/08 14.70 (35,415) 22.54 22.91 (28,156) 811 Mr M R Phillips

Overview Strategic Review Performance Risk Governance Financials 90 Governance 91 Overview Strategic Review Performance Risk Financials – – – 3 2011 £’000 (net of £’000 value of Transfer Transfer infl ation) infl increase increase 9 5 5 £’000 (net of during During pension Disclosures required required Disclosures the year infl ation) infl the year Increase Increase Gains on exercise in accrued under the Listing Rules 2 At ment. . Aggregate gains during the gains . Aggregate dates of Range of 30/9/2012 exercisable 30/09/2012 options held at Director’s Director’s contribution £ –– –– –– Increase/ Director’s Director’s during the (decrease) (decrease) year net of 12.54 01/08/12 – 31/01/13 9 – 20.4531/01/16 01/08/15 – 12.5431/01/13 01/08/12 – 15.63 –31/01/14 01/08/13 – 20.4531/01/16 01/08/15 – 5 – –15.63 –31/01/14 01/08/13 – – – – – – 20.45 01/08/15 – 31/01/16 – – 12.5431/01/13 01/08/12 – 5 – contributions At Exercise price Exercise Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Transfer value of accrued pension £’000 Transfer

– – – 1/10/2011 440 440 232 264 496 232 496 264 At 30/09/2012 Balance at £ Disclosures required under the Regulations required Disclosures 30/09/2012 at date of exercise during Market price the year Increase Increase At The pension is made up of two parts: one part payable from the unfunded pension The pension is made up of two parts: one part payable from during Accrued pension £’000 the year Exercised 1/10/2011 ––– cent of his fi xed annual salary at age 63. For death in retirement, a spouse’s pension for life of a spouse’s xed annual salary at age 63. For death in retirement, cent of his fi during Lapsed the year Years ––––––––– – (437) – service at 30/09/2012 Pensionable 440440 – –264 (729) –264 – – – – (437) – – – during the year Granted 1 Years – – Age at 729 232 669 264 933 232 437 – – (437) 24.97 437 – – (437) 24.97 30/09/2012 Balance at 1/10/2011 4 etirement age. His service agreement with the Group provided that he would receive similar overall pension benefi ts to similar overall pension benefi that he would receive provided the Group with age. His service agreement etirement year were £19,925 (2011: £nil). £19,925 year were Remuneration Arrangements for Former Director Mr M A Häussler his he reached because it was taken before that has been reduced pension of a retirement in receipt Mr Häussler is currently normal r GmbH pension arrangement. This was in the Reemtsma Cigarettenfabriken had he remained those that he would have received a pension per for life equivalent to 42 60 per cent of that amount would be payable. Pension the separately funded Imperial Tobacco GmbH, the other part payable from arrangement of Reemtsma Cigarettenfabriken Pension Fund may be increased the Imperial Tobacco Fund. The pensions payable under the Reemtsma arrangement and from by law. as required with the Rules of those arrangements, or annually in accordance Mrs A J CooperMr R DyrbusMr M R Phillips 46 59 41 13 109 30 12 20 324 64 129 6 10 1,114 330 74 5,564 367 601 601 32 194 1,513 – 15 10 6,165 182 805 – 7 – 82 4 options since appoint have been no movements in his share on 1 June 2012 and there Board Mr M R Phillips was appointed to the Executive Directors’ Pension Disclosures (Audited) Pension Disclosures Executive Directors’ 1 if later. Or date of appointment as a Director 2 dates will lapse. by the end of the range of exercisable Any option not exercised 3 the option price and the market price on the date of exercise between calculated as the difference are Gains made on exercise options since 30 September 2012. share in any Executive Directors’ have been no changes There nancial year, September 2012, being the last trading day of the fi price at the close of business on 30 Our middle market share price during the year was £21.25 to £25.95. was £22.92 and the range of the middle market ce. offi at our registered Interests of Directors’ available for inspection in the Register are interests share Full details of the Directors’ Dates Award dates based on an annual cycle. plans on predetermined under all our employee share Our policy is to grant awards Mrs A J Cooper 729 – – (729) 24.97 Executive Directors’ Share Options under the Sharesave Plan (Audited) Plan Sharesave under the Options Share Directors’ Executive Mr R Dyrbus Mr M R Phillips

2 139 3,151 1,251 2,991 3,810 2,109 6,012 3,041 30/9/12 18,457 629,995 106,744 405,442 2012 1 – – Imperial Total Interests Total Tobacco 2,890 1,018 2,758 3,442 1,876 6,012 1/10/11 FTSE 100 16,807 659,455 106,480 340,849 2 – – – – – – – – – 69,140 30/09/12 219,499 257,085 2011 1 – – – – – – – – – Ordinary Shares Ordinary 1/10/11 69,140 Contingent Rights to Contingent Rights 259,324 209,933 (LTIP and SMS Shares) and SMS (LTIP 2 – – – – – – – – – 496 496 440 2010 30/09/12 1 – – – – – – – – – 669 669 729 1/10/11 Sharesave Options Sharesave 2 139 2009 3,151 1,251 2,991 3,810 2,109 6,012 3,041 37,108 18,457 30/09/12 410,000 147,917 continued 1 – – 2,890 1,018 2,758 3,442 1,876 6,012 Ordinary Shares Ordinary 1/10/11 s as it provide have chosen the FTSE 100 Index nancial year ends to 30 September 2012. We 36,671 16,807 399,462 130,187 2008 ectors 5 3 6 4 2007 75 100 125 150 Total Return Indices – Imperial Tobacco and FTSE 100 Return Indices – Imperial Tobacco Total Mr M I Wyman Mr M D Williamson Mr B Setrakian Dr P H Jungels Mr M R Phillips Mr D J Haines Ms S E Murray Non-Executive Dir Mr M H C Herlihy Mr R Dyrbus Dr K M Burnett Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco the most appropriate and widely recognised index for benchmarking our corporate performance and refl ects one of our LTIP ects one of our LTIP and refl index for benchmarking our corporate performance and widely recognised the most appropriate performance criteria. Review of Past Performance with the value of £100 invested in the Company on 1 October 2007 compared The chart below shows the value of £100 invested in the FTSE 100 Index for each of our fi There have been no changes in these interests since 30 September 2012. in these interests have been no changes There Other Information 1 Or date of appointment if later. 2 if earlier. or retirement Or date of resignation 3 on 1 June 2012. the Board Mr M R Phillips was appointed to 4 on 2 February 2012. the Board Mr D J Haines was appointed to 5 on 1 February 2012. the Board from Dr P H Jungels retired 6 on 3 October 2011. the Board Mr M I Wyman was appointed to Executive Directors Mrs A J Cooper Directors’ Interests in Ordinary Shares (Benefi Persons and any Connected cial, Family (Benefi Shares in Ordinary Interests Directors’ (Audited) Interests) Directors’ Remuneration Report Report Remuneration Directors’ Mr I J G Napier

Overview Strategic Review Performance Risk Governance Financials 92 Governance 93 Overview Strategic Review Performance Risk Financials 0.2 0.2 0.1 rants , Surplus/ (shortfall) t of (including those held in treasury) under award at 30/09/2012 Ordinary shares shares Ordinary as a percentage of issued share capital share of issued as a percentage Options and awards granted during the year Options and awards Balance at 30/09/2012 1.9 1.0 1.2 Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Distributed during year (including those held in treasury) Acquired Acquired during year as a percentage of issued share capital share of issued as a percentage Cumulative options and awards granted Cumulative options and awards Balance at 1/10/2011 979,644 70,000 (236,517) 813,127 804,848 8,279 3,834,659 1,000,000 (1,598,385) 3,236,274 4,286,880 (1,050,606) t Trusts t ds to 5 per cent of issued share capital in fi ve years and 10 per cent in 10 years for all employee share plans share ve years and 10 per cent in 10 years for all employee capital in fi ds to 5 per cent of issued share dinary shares held in treasury, distributed through our employee benefi t trusts: The Imperial Tobacco Group PLC Employee and PLC Employee and Group The Imperial Tobacco t trusts: employee benefi our distributed through treasury, held in dinary shares have averaged 0.3 per cent of issued share capital (including shares held in treasury). (including shares capital have averaged 0.3 per cent of issued share Granted Summary of Options and Awards M H C Herlihy Chairman of the Remuneration Committee 30 October 2012 with an additional restriction to 5 per cent in 10 years for executive share plans. Currently an aggregate total of 0.3 per cen an aggregate plans. Currently to 5 per cent in 10 years for executive share with an additional restriction tive execu under the Group’s is subject to options and awards held in treasury) capital (including shares issued share the Company’s plans. and all employee share to all of the Company’s granted pursuant under option and award of shares Since demerger in 1996, the cumulative number subsequent annual g capital. Following initial grants on demerger, totals 3.1 per cent of its issued share plans employee share For the Board Limit on awards 10% in 10 years 2001 Trust Plan Flow Rates Share limiting plans contain provisions and the rules of each of our employee share t Trusts Deeds of the Employee Benefi The Trust options and awar Executive Trust 5% in 5 years 5% in 10 years (executive plans)

Employee Benefi Employee or shares ordinary either market purchased plans from share under our employee awards is to satisfy options and Our policy or Trust) (the 2001 t Trust Employee Benefi PLC 2001 Group Tobacco and the Imperial Trust) (the Executive t Trust Executive Benefi t Trusts). Benefi (together the Employee under awards which can be used to satisfy options and in treasury shares we held 77,802,000 ordinary As at 30 September 2012, t Trusts. Employee Benefi or by gifting them to the plans either directly our employee share shares. ed by the issue of new ordinary may also be satisfi Options and awards as follows: are t Trusts held by the Employee Benefi shares Details of the ordinary 139 141 137 138 Parent Company Financial Statements Company Parent the Auditors’ Report to Independent PLC Group Imperial Tobacco Members of Balance Sheet PLC Group Imperial Tobacco Statements Notes to the Financial PLC Group of Imperial Tobacco Principal Undertakings 96 98 99 95 124 127 117 118 131 131 132 134 134 135 135 135 136 101 106 108 108 108 109 110 111 111 112 114 116 116 117 128 100 115 116 in Net Debt 1920 Financial Risk Factors 21 Financial Instruments Derivative 22 Assets and Liabilities Tax Deferred t Schemes Benefi Retirement 2425 Capital Share 26 Schemes Share 27 Shares Treasury 28 Commitments 29 Legal Proceedings 30 Operating Activities Cash Flows from 31 Net Debt Reconciliation of Cash Flow to Movement 23 Provisions 1 Accounting Policies Notes to the Financial Statements Notes to the Financial 234 and Judgements Critical Accounting Estimates 5 Segment Information Taxation t Before 105 6 Profi 7 Restructuring Costs and Employees 8 Directors 9 Net Finance Costs 10 Taxation 11 Dividends Earnings Share Per 12 Intangible Assets 13 Plant and Equipment Property, Joint Ventures 1617 and Cash Equivalents Cash 18 and Other Payables Trade and Finance Lease Liabilities Borrowings 1415 Inventories and Other Receivables Trade Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Independent Auditors’ Report to the Auditors’ Report Independent PLC Group Imperial Tobacco Members of Group Financial Statements Financial Group Financial Statements and Notes – Contents Notes and Statements Financial Consolidated Income Statement Consolidated Income Consolidated Statement of Comprehensive Income of Comprehensive Consolidated Statement Sheet Consolidated Balance of Changes in Equity Consolidated Statement Statement Consolidated Cash Flow 97

Overview Strategic Review Performance Risk Governance Financials 94 Financials 95 Overview Strategic Review Performance Risk Governance elation to going concern; and s compliance with the nine provisions of the UK s compliance with the nine provisions Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco e not made; or ectors’ remuneration. ed Accountants and Statutory Auditors equire for our audit. equire certain disclosures of directors’ remuneration specifi ed by specifi remuneration of directors’ certain disclosures law ar we have not received all the information and explanations all the information and explanations we have not received we r the Corporate Governance statement in the Directors’ Report, in r to the the part of the Corporate Governance Report relating Company’ and ed for our review; Corporate Governance Code specifi by the Board to shareholders certain elements of the report on dir – – – – – We have reported separately on the parent company fi nancial fi company separately on the parent have reported We PLC for the year ended Group statements of Imperial Tobacco in the Directors’ 30 September 2012 and on the information been audited. Remuneration Report that is described as having David Charles (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Charter Bristol 30 October 2012 Opinion on Other Matter Prescribed by the by the Prescribed on Other Matter Opinion Act 2006 Companies for Report in the Directors’ the information given In our opinion are nancial statements fi the Group year for which nancial the fi nancial statements. fi is consistent with the Group prepared to Required Are We Matters on Which Report by Exception of the following: in respect nothing to report have We to to report required Act 2006 we are Under the Companies you if, in our opinion: Other Matter Under the Listing Rules we are required to review: required Under the Listing Rules we are ofi t and cash fl ows for the t and cash fl ofi opean Union; and give a true and fair view of the state of the Group’s affairs as affairs give a true and fair view of the state of the Group’s at 30 September 2012 and of its pr have been prepared in accordance with the requirements of with the requirements in accordance have been prepared the Companies Act 2006 and Article 4 of the lAS Regulation. year then ended; with IFRSs as in accordance prepared have been properly adopted by the Eur – – – Opinion on Financial Statements nancial statements: fi In our opinion the Group An audit involves obtaining evidence about the amounts and An audit involves obtaining evidence about cient to give nancial statements suffi in the fi disclosures free nancial statements are assurance that the fi reasonable material misstatement, whether caused by fraud or error. from accounting This includes an assessment of: whether the and circumstances to the Group’s appropriate policies are disclosed; have been consistently applied and adequately cant accounting estimates made of signifi the reasonableness nancial of the fi overall presentation and the by the Directors; nancial and non- all the fi statements. In addition, we read nancial information in the Annual Report and Accounts to fi nancial identify material inconsistencies with the audited fi material of any apparent statements. If we become aware misstatements or inconsistencies we consider the implications for our report. Scope of the Audit of the Financial Scope of the Audit of the Financial Statements Respective Responsibilities of Directors of Directors Respective Responsibilities and Auditors Directors’ fully in the Statement of As explained more the preparation for responsible are Responsibilities, the Directors ed that satisfi nancial statements and for being fi of the Group is to audit Our responsibility view. they give a true and fair nancial statements in fi an opinion on the Group and express law and International with applicable Standards accordance us to require Those standards on Auditing (UK and Ireland). Standards Ethical comply with the Auditing Practices Board’s for Auditors. for and has been prepared including the opinions, This report, with members as a body in accordance only for the Company’s 2006 and for no Chapter 3 of Part 16 of the Companies Act not, in giving these opinions, accept or do other purpose. We for any other purpose or to any other assume responsibility is shown or into whose hands it person to whom this report by our prior consent agreed expressly may come save where in writing. to the Members of Imperial Tobacco Group PLC Group Tobacco Imperial of Members to the of Imperial nancial statements fi Group have audited the We September 2012 for the year ended 30 PLC Group Tobacco the Income Statement, the Consolidated which comprise Income, the Statement of Comprehensive Consolidated Sheet, the Consolidated Statement of Consolidated Balance Cash Flow Statement and the Consolidated Changes in Equity, framework that has been nancial reporting The fi notes. related and International is applicable law applied in their preparation as adopted by the (IFRSs) Financial Reporting Standards Union. European Independent Auditors’ Report Auditors’ Independent – 20 785 2011 (487) (337) (804) (804) 5,450 2,153 1,816 176.8 1,796 177.3 2,640 (2,006) (9,736) (1,272) 29,223 (23,773) (14,037) 21 699 678 2012 67.9 68.1 (437) (784) (382) 1,036 5,494 1,081 1,518 (9,178) (1,187) (1,473) (2,005) (1,971) 28,574 (13,902) (23,080) 7 7 7 3 4 8 3 11 10 10 Notes ed intangibles ent t t olling interests nance costs axation Duty and similar items Duty and similar of sales Other cost Other expenses Investment income Finance costs Impairment of acquir Profi Profi taxation t before t fortheyear Cost of sales profi Gross and selling costs Distribution, advertising T Attributable to: Owners of the par Revenue £ million unless otherwise indicated £ million unless Non-contr – Diluted Profi Profi (pence) share Earnings per ordinary – Basic Administrative and other expenses Administrative and other Operating profi Net fi Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Consolidated Income Statement Income Consolidated 30 September ended year for the

Overview Strategic Review Performance Risk Governance Financials 96 Financials 97 Overview Strategic Review Performance Risk Governance – – – 10 17 61 41 (21) (85) 402 2011 2011 2011 (562) (127) (487) (107) 1,709 2,640 1,816 1,692 1,709 3,103 6 96 27 18 (10) 699 365 101 2012 2012 2012 (126) (535) (437) (523) (126) (144) (404) (825) (125) 1,518 3,161 1,187 7 5 7 21 22 11 11 Notes Notes Notes t nance costs nance Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco adjusted operating profi t to nancial instruments providing nancial instruments providing costs to adjusted net fi nance etirement benefi ts benefi etirement t ts net fi nancing cost ts net fi costs ed intangibles ed intangibles ent t nance olling interests ed tax relating to net actuarial losses/(gains) on retirement benefi ts benefi to net actuarial losses/(gains) on retirement ed tax relating nance costs nance ent tax on exchange movements Curr Net fair value and exchange gains on fi Attributable to: Owners of the par Other comprehensive income for the year, net of tax income for the year, Other comprehensive income for the year comprehensive Total Adjusted net fi Net actuarial (losses)/gains on r Net actuarial (losses)/gains Acquisition accounting adjustments Amortisation of acquir Reconciliation from net fi Reconciliation from £ million Net fi Reconciliation from operating profi Reconciliation from £ million Operating profi for the year ended 30 September ended year for the £ million year t for the Profi Consolidated Statement of Comprehensive Income Comprehensive of Statement Consolidated income Other comprehensive Exchange movements Non-contr Impairment of acquir Total comprehensive income for the year comprehensive Total Adjusted operating profi Restructuring costs Deferr commercial hedges commercial Post-employment benefi 5 (1) 18 42 55 (19) (22) 107 759 100 102 956 429 223 2011 (163) (759) (545) (301) (434) (760) 7,710 2,038 1,171 5,833 7,655 3,055 7,710 2,897 7,388 (2,056) (8,076) (7,617) (2,104) 20,487 23,179 30,567 (22,857) (10,620) (12,237) – – 16 49 98 55 (20) (18) 107 631 245 142 636 266 2012 (150) (103) (410) (372) (729) (182) 6,084 2,025 5,833 6,035 3,132 6,084 3,029 7,113 (1,877) (8,333) (9,142) (1,046) (7,231) (1,234) 17,609 20,526 27,639 (21,555) (12,413) 8 8 24 20 20 12 20 20 21 18 23 18 22 23 17 18 17 11 16 22 21 14 15 15 18 Notes Robert Dyrbus eserve

nings nancial instruments nancial instruments nancial instruments nancial instruments olling interests ed tax liabilities ed tax assets nancial statements on pages 96 to 136 were approved by the Board of Directors on 30 October 2012 and signed on its of Directors by the Board approved nancial statements on pages 96 to 136 were e premium ement benefi t liabilities ement benefi ement benefi t assets ement benefi ent tax liabilities ent tax assets ovisions ovisions operty, plant and equipment operty, rade and other payables rade and other payables rade and other receivables rade and other receivables Shar Net assets Equity capital Share Retir Investments in associates Retir Non-current liabilities Non-current Borrowings Derivative fi Pr liabilities Total T Curr Pr T Finance lease liabilities Deferr Finance lease liabilities Iain Napier Chairman Director Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Non-current assets Non-current Intangible assets £ million Consolidated Balance Sheet Balance Consolidated September at 30 Pr Derivative fi T Retained ear Equity attributable to owners of the parent Non-contr T Cash and cash equivalents equity Total The fi behalf by: Derivative fi assets Current Inventories Curr Exchange translation r Deferr Total assets Total Current liabilities Current Borrowings Derivative fi

Overview Strategic Review Performance Risk Governance Financials 98 Financials 99 Overview Strategic Review Performance Risk Governance

Non- interests equity Total controlling controlling –1 Equity the parent attributable to owners of to owners of reserve Exchange translation –1 Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco earnings Retained e Shar premium – – 370 (514) (144) 18 (126) – – 5 – 5 (5)5 5 – – – – – – 1,816 (124) 1,692 17 1,709 – 41 41 – – 41 – – – 1,796 – 1,796 20 1,816 – – (404)(404) – (404) – – – (308)– 96 – – 96 – – 96 – (514) (822) (3) (825) – – – (520)– – 678 – – – – 678 6 – 6 6 – – – 699 21 (520) (3) (523) – – 8 – 8 – 8 8 – 8 – – – – – 20 1 20 – 1 – 1 – – – – 20 ––1 – – – (528) – (983) – (528) – (983) – (528) (19) (1,002) – – (182) – (182) – (182) – – – – (22) 20 – – (22) (124)– – – (892) – (22) (104) 26 – (892) (3) (107) – (22) (914) 26 – 26 – – – (124)– – – (124) (3) (127) – – (21) – (21) – (21) – – 4 – 4 – 4 107 5,833 956 759 7,655 55 7,710 107 107 5,833 5,833 (150) 206 245 6,035 883 7,029 49 6,084 60 7,089 107 5,833 956 759 7,655 55 7,710 Share Share capital e schemes etirement benefi ts benefi etirement cise of share schemes cise of share ofi t for the year ofi etirement benefi ts benefi etirement easury shares easury shares otal comprehensive income otal comprehensive Deferred tax relating to net actuarial to net actuarial tax relating Deferred losses on r Exchange movements tax on exchange movements Current Net actuarial losses on r Exchange movements Exchange to net actuarial tax relating Deferred ts benefi gains on retirement retirement benefi ts benefi Net actuarial gains on retirement Changes in non-controlling interests Changes in non-controlling held as in own shares Increase tr Other comprehensive income Other comprehensive T Transactions with owners Transactions employees on maturity/ Cash from exer At 1 October 2011 At 1 October the year t for Profi £ million Costs of employees’ services compensated by shar payments tax on share-based Current payments tax on share-based Deferred Dividends paid At 30 September 2012 At 1 October 2010 Pr Share Ownership Trusts Ownership owners with Transactions by Employee of shares Purchase Share paid Dividends Total comprehensive income comprehensive Total employees on maturity/ Cash from schemes of share exercise Costs of employees’ services shares schemes compensated by share held as in own shares Increase treasury At 30 September 2011 Other comprehensive income Other comprehensive for the year ended 30 September ended year for the Consolidated Statement of Changes in Equity Changes of Statement Consolidated 4 (2) 21 18 (44) (22) (22) (34) (22) (18) 416 773 2011 (892) (182) (324) (341) (570) 2,556 1,785 1,171 (1,816) (1,837) – 8 (2) 21 15 (19) (24) 196 631 2012 (275) (983) (528) (438) (288) (300) (515) (102) 2,119 1,335 1,171 (2,269) (1,486) 29 Notes nancial instruments ent activities olling interests nancing nancing activities nancing owings om employees on maturity/exercise of share schemes of share om employees on maturity/exercise

activities operating ows from

ease/(increase) in collateralisation deposits ease/(increase) ease in borrowings chase of treasury shares chase of treasury chase of property, plant and equipment chase of property, – software chase of intangible assets chase of shares by Employee Share Ownership Trusts by Employee Share chase of shares oceeds from sale of property, plant and equipment sale of property, oceeds from fect of foreign exchange rates on cash and cash equivalents fect of foreign Incr Net cash used in fi Dividends paid to owners of the par Dividends paid to non-contr Net (decrease)/increase in cash and cash equivalents Net (decrease)/increase Cash and cash equivalents at start of year Cash fl Net cash used in investing activities Net cash used in investing Cash fl Pr Decr Repayment of borr Pur Finance lease payments Pur Pur Cash fr fi ows from Interest paid Interest Ef Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Cash fl received Interest activities investing ows from £ million Consolidated Cash Flow Statement Cash Consolidated 30 September ended year for the Pur Settlement of exchange rate derivative fi Settlement of exchange Cash and cash equivalents at end of year

Overview Strategic Review Performance Risk Governance Financials 100 Overview Strategic Review Performance Risk Governance Financials 101 . In countries where duty is a production duty is a production . In countries where e measured using the currency of the primary of the currency using e measured Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco ebates and discounts. Revenue from the sale of goods is ebates and discounts. Revenue from recognised when a Group company has delivered products to products company has delivered when a Group recognised and the customer has accepted the products the customer, assured. is reasonably receivables collectibility of the related Sales of services, which include fees for distributing certain in the accounting period recognised are party products, third rendered. in which the services are comprises the invoiced For the Logistics business, revenue value for the sale of goods and services net of sales taxes, and discounts. The Logistics business only recognises rebates and sale transactions in purchase on commission revenue which it acts as a commission agent. Distribution and Revenue is included in revenue. marketing commissions are sold on consignment when these are on products recognised by the consignee. Duty and Similar Items Duty and similar items includes duty and levies having the characteristics of duty economic environment in which the company operates the company operates in which economic environment (the functional currency). companies ow statements of Group fl The income and cash translated to are currencies using non-sterling functional at average rates currency) presentational sterling (the Group’s Assets and liabilities of these of exchange in each period. ruling at the translated at rates of exchange companies are ts profi between retained differences balance sheet date. The taken to at average and closing rates are and losses translated of the arising on the retranslation differences as are reserves, of the year. net assets at the beginning functional other than a company’s in currencies Transactions rate ruling at the at the exchange initially recorded are currency exchange gains and losses date of the transaction. Foreign settlement of such transactions and from the from resulting balance sheet the translation at exchange rates ruling at the in foreign date of monetary assets and liabilities denominated income statement in the consolidated recognised are currencies arising on trading transactions with exchange differences arising on t, and with those profi in operating being reported nance costs unless as in net fi nancing transactions reported fi in other reported they are of net investment hedging a result income. comprehensive designates as net investment hedges certain external The Group up to the value of the net assets of and derivatives borrowings companies that use non-sterling functional currencies Group loans. Gains or losses after deducting permanent intragroup are as highly effective regarded on these hedges that are gains or offset income and to other comprehensive transferred recorded that are losses on translation of the net investments the exchange translation reserve. in in equity, Revenue Recognition comprises the invoiced business, revenue For the Tobacco of sales taxes, value for the sale of goods and services net r and in cost of sales in the tax, duty is included in revenue tax, duty duty is a sales consolidated income statement. Where Payments due in the United States revenue. is excluded from be to considered are under the Master Settlement Agreement as a treated levies having the characteristics of duty and are tax. production Foreign Currency Foreign of each Group nancial statements in the fi Items included company ar obacco Group PLC (the Company) and its subsidiary obacco Group dance with International Financial Reporting Standards Internationaldance with Standards Financial Reporting d parties jointly control. The fi nancial statements of joint The fi d parties jointly control. ventures are consolidated using the proportionate method, consolidated using the proportionate are ventures in the of assets and liabilities recognised share with the Group’s to their nature. ed according consolidated balance sheet classifi of income and expenses is share the Group’s In the same way, in the consolidated income statement in accordance presented with their function. undertakings. by the Group. entities controlled those Subsidiaries are to govern has the power the exists when the Group Control taking into nancial and operating policies of an enterprise fi nancial statements account any potential voting rights. The fi nancial in the consolidated fi included of subsidiaries are until the commences date that control the statements from policies accounting necessary, Where ceases. date that control with the consistency to ensure changed of subsidiaries are policies adopted by the Group. to account for the The acquisition method of accounting is used to of subsidiaries. The excess of the value transferred purchase business together of the acquired for control the seller in return in held equity interest with the fair value of any previously the fair value of the of share that business over the Group’s as goodwill. able net assets is recorded identifi gains on transactions, balances and unrealised Intragroup eliminated. companies are transactions between Group also eliminated unless costs cannot be losses are Unrealised A list of the principal undertakings is included on recovered. pages 141 and 142. Joint Ventures and those businesses which the Group are Joint ventures thir 1 Accounting Policies 1 Accounting Basis of Preparation in been prepared statements have nancial fi The consolidated accor the Companies Act 2006 applicable to and with those parts of under IFRS. companies reporting under the have been prepared nancial statements The fi fair value measurement except where historical cost convention below in the accounting under IFRS as described is required instruments. nancial policies on fi nancial statements of the consolidated fi The preparation and assumptions that management to make estimates requires and expenses during amounts of revenues reported the affect liabilities and contingent liabilities at the the period and of assets, set key estimates and assumptions are balance sheet date. The Estimates and Judgements. out in note 2 Critical Accounting based on historical Such estimates and assumptions are to be believed experience and various other factors that are and constitute management’s in the circumstances reasonable nancial statements. In the best judgement at the date of the fi these estimates and deviate from actual experience may future, nancial statements as the fi future assumptions. This could affect appropriate, ed, as modifi original estimates and assumptions are change. in the year in which the circumstances accounting policies is important Group A summary of the more set out below. Basis of Consolidation of nancial statements comprise the results The consolidated fi Imperial T Notes to the Financial Statements the Financial to Notes balance cigarette trademark and some trademark cigarette Davidoff up to 50 years straight line 3 – 5 years straight line e acquired), less accumulated depreciation and less accumulated depreciation e acquired), oup becomes a party to the contractual provisions of the oup becomes a party to the contractual provisions relevant instrument. Financial assets are de-recognised when de-recognised instrument. Financial assets are relevant or been transferred, ts have expired benefi the rights to receive risks and rewards substantially all has transferred and the Group when the de-recognised of ownership. Financial liabilities are obligation is extinguished. ed as loans classifi nancial assets are Non-derivative fi (including cash and cash equivalents). and receivables at fair value and are initially recognised Receivables are subsequently stated at amortised cost using the effective for allowances for method, subject to reduction interest for impairment amounts. A provision estimated irrecoverable is objective evidence is established when there of receivables able to collect all amounts due will not be that the Group The amount to the original terms of those receivables. according carrying between the asset’s is the difference of the provision ows, cash fl value of estimated future amount and the present in the consolidated income statement. For and is recognised assets, the carrying value includes accrued interest-bearing receivable. interest at fair initially recognised nancial liabilities are Non-derivative fi stated at amortised cost using the subsequently value and are the carrying value method. For borrowings, interest effective payable, as well as unamortised includes accrued interest transaction costs. impairment. Costs incurred after initial recognition are included included are after initial recognition impairment. Costs incurred as a separate in the assets’ carrying amounts or recognised that future only when it is probable asset as appropriate ow to the ts associated with them will fl economic benefi reliably. and the cost of the item can be measured Group on other is provided Depreciation Land is not depreciated. the initial plant and equipment so as to write down property, value over its estimated useful cost of each asset to its residual life as follows: Buildings reducing Plant and equipment 2 – 20 years and Fixtures motor vehicles line/ straight and, reviewed values and useful lives are The assets’ residual balance sheet date. adjusted at each if appropriate, 2 – 14 years Financial Instruments and Hedging when the recognised liabilities are nancial straight line Financial assets and fi Gr These assets consist mainly of acquired trademarks, consist mainly of acquired These assets and relationships customer and rights, acquired concessions The computer software. to by the Directors considered are cigar trademarks premium established are on the fact that they nite lives based have indefi with international potential. Trademarks brands with global annually for reviewed not amortised but are nite lives are indefi (including supply agreements impairment. Other trademarks, amortised are and computer software customer relationships) lives as follows: over their estimated useful Trademarks Supply agreements Software 3 – 15 years Plant and Equipment Property, 30 years 20 – straight line shown in the consolidated are plant and equipment Property, cost or fair value (depending on balance sheet at historical straight line how they ar e continued continued e approved by shareholders, while interim by shareholders, e approved , using tax rates enacted or substantively enacted at rates enacted or substantively , using tax eturn for control of the acquired business together with the of the acquired eturn for control Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco acquired as part of a business combination, in which case acquired shown in at fair value. They are initially recognised they are the balance sheet at historical cost or fair value (depending less accumulated amortisation acquired) on how they are and impairment. dividends are recognised in the period in which the dividends in the period in which the recognised dividends are paid. are Intangible Assets – Goodwill to the seller the excess of value transferred Goodwill represents in r in that business held equity interest fair value of any previously able of the fair value of the identifi share over the Group’s net assets. Goodwill is tested at least annually for impairment and carried at cost less accumulated impairment losses. Any impairment immediately in the consolidated income statement is recognised For the purpose of and cannot be subsequently reversed. of cash- impairment testing goodwill is allocated to groups the business t from expected to benefi generating units that are combination in which the goodwill arose. Intangible Assets – Other in the initially recognised Other intangible assets are consolidated balance sheet at historical cost unless they ar Taxes on the taxable income expected tax payable tax is the Current for the year and any adjustments to tax payable in the balance sheet date, years. previous of respect evaluates positions taken in tax returns Management periodically is subject to interpretation the applicable tax regulation where amounts expected on the basis of and establishes provisions it is considered only where to be paid to the tax authorities received. likely than not that an amount will be paid or more each individual uncertain position which This test is applied to outcome. on the single most likely is then measured on temporary differences in full tax is provided Deferred amount of assets and liabilities in the between the carrying and the tax base, except if it arises from nancial statements fi or liability in a transaction, other of an asset initial recognition of the transaction than a business combination, that at the time tax t or loss. Deferred neither accounting nor taxable profi affects arising on investments on temporary differences is provided of the the timing of the reversal in subsidiaries, except where and it is by the Group is controlled temporary difference in the will not reverse that the temporary difference probable only to recognised assets are tax Deferred future. foreseeable ts will be taxable profi that future the extent that it is probable tax Deferred available against which the assets can be realised. been enacted or is determined using the tax rates that have date, and are substantively enacted at the balance sheet or tax liability is settled expected to apply when the deferred tax asset is realised. the deferred income statement, except in the consolidated is recognised Tax in other comprehensive to items recognised it relates where in in which case it is recognised in equity, income or directly income or equity. other comprehensive Dividends as a liability in the period in which recognised Final dividends are the dividends ar 1 Accounting Policies 1 Accounting Notes to the Financial Statements Statements Financial to the Notes

Overview Strategic Review Performance Risk Governance Financials 102 Overview Strategic Review Performance Risk Governance Financials 103 ransactions to both equity-settled and cash-settled ransactions to both equity-settled and cash-settled Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco share-based employee compensation schemes. The majority of employee compensation share-based equity-settled. schemes are the Group’s at fair measured payments are Equity-settled share-based expensed over the vesting value at the date of grant and are expected that are period, based on the number of instruments based on total vesting conditions are to vest. For plans where ects the fair value at the date of grant refl returns, shareholder vesting conditions are these conditions. Earnings per share that will eventually vest. ected in the estimate of awards refl payments, a liability equal to For cash-settled share-based at its current is recognised the portion of the services received applicable the fair value at each balance sheet date. Where to original estimates the impact of revisions recognises Group in the consolidated income statement, with a corresponding adjustment to equity for equity-settled schemes and current measured liabilities for cash-settled schemes. Fair values are models, taking into account the valuation using appropriate terms and conditions of the awards. to satisfy rights to of shares funds the purchase The Group employee compensation arising under share-based shares held in to satisfy those rights are acquired schemes. Shares On consolidation, these Ownership Trusts. Employee Share equity attributable accounted for as a deduction from are shares equity exercised, When the rights are to owners of the parent. by the received by the amount of any proceeds is increased Ownership Trusts. Employee Share sheet date and the fair value of the scheme assets to the extent scheme assets to and the fair value of the sheet date or a either by refund demonstrably recoverable that they are t obligation ned benefi The defi contributions. in future reduction the actuaries using annually by independent is calculated ned value of the defi method. The present unit credit projected is determined by discounting the estimated t obligation benefi rates of high quality corporate ows using interest cash fl future in which the denominated in the currency bonds that are and that have terms to maturity ts will be paid, benefi pension obligation. to the terms of the related approximating ts to employees benefi retirement The service cost of providing t. Past service to operating profi during the year is charged t, unless the operating profi immediately in recognised costs are conditional on the employees plan are changes to the pension ed period of time. in service for a specifi remaining between losses, including differences All actuarial gains and that arise on assets and differences actual and expected returns recognised assumptions, are of changes in actuarial as a result income for immediately in full in the statement of comprehensive the period in which they arise. on plan assets of the the expected return representing A credit t schemes during the year is included within net benefi retirement value of the assets nance costs. This is based on the market fi A charge is also nancial year. of the schemes at the start of the fi in the nance costs for the expected increase made within net fi t schemes benefi value of the liabilities of the retirement present the schemes being one year closer during the year arising from to payment. recognised ned contribution schemes, contributions are For defi due. when they are t expense as an employee benefi Payments Share-Based of IFRS 2 Share-Based applies the requirements The Group Payment T ference between the ference rst-in, fi rst-out (FIFO) rst-in, fi Schemes t oup has a legal or constructive obligation as a oup has a legal or constructive obligation as For defi ned benefi t schemes, the amount recognised in the t schemes, the amount recognised ned benefi For defi consolidated balance sheet is the dif present value of the defi ned benefi t obligation at the balance benefi ned value of the defi present result of a past event, it is more likely than not that an outfl ow likely than not that an outfl of a past event, it is more result to settle that obligation, and a will be required of resources estimate of the amount can be made. reliable when the Group is recognised for restructuring A provision plan, and the formal restructuring a detailed has approved has either commenced or has been publicly restructuring likely than not that the plan will be announced, and it is more to settle any obligations implemented, and the amount required operating losses are estimated. Future arising can be reliably for. not provided a number of similar obligations, the likelihood are there Where in settlement is determined by ow will be required that an outfl is considering the class of obligations as a whole. A provision to ow with respect even if the likelihood of an outfl recognised any one item included in the same class of obligations may be small. Benefi Retirement method. The cost of fi nished goods and work in progress goods and work in progress nished method. The cost of fi costs and other direct labour, comprises raw materials, direct overheads (based on normal operating production related value is the estimated selling price in capacity). Net realisable less the estimated costs of course of business, the ordinary completion and selling expenses. cycle that Leaf tobacco inventory which has an operating asset, consistent ed as a current exceeds 12 months is classifi industry practice. with recognised Provisions sheet in the consolidated balance is recognised A provision when the Gr Cash and cash equivalents include cash in hand and equivalents include Cash and cash other short-term highly on call, together with deposits held liquid investments. to manage nancial instruments derivative fi transacts The Group exchange and interest to foreign the underlying exposure nancial fi does not transact derivative rate risks. The Group nancial instruments purposes. Derivative fi instruments for trading attributable value plus any directly at fair recorded initially are liabilities are nancial assets and fi transaction costs. Derivative balance sheet at fair value, and included in the consolidated relevant. and payable where receivable include accrued interest IAS 39) has decided (as permitted under as the Group However, or fair value hedge account for its derivative ow not to cash fl in recognised changes in fair values are nancial instruments, fi in the period in which they arise unless the income statement a net es and has been designated as the derivative qualifi in which case the changes in investment hedging instrument in recognised exchange, are fair values, attributable to foreign income. other comprehensive under the terms and conditions of Collateral transferred support annex documents under International Swaps credit of in respect and Derivatives Association (ISDA) agreements netted therefore net settled and are certain derivatives are the carrying value of those derivatives in the consolidated off balance sheet. Inventories stated at the lower of cost and net realisable Inventories are value. Cost is determined using the fi owings evenue from the evenue from elated tax effects are excluded from our adjusted earnings excluded from are elated tax effects etirement benefi t liabilities, together with the unwind of t liabilities, together benefi etirement esolution of prior year tax matters (outside of changes in ecognised in the consolidated balance sheet at fair value, with ecognised in the consolidated sale of peripheral and non-tobacco-related products. products. sale of peripheral and non-tobacco-related in Management considers this an important measure operations. tability of Tobacco assessing the profi measures. These costs include the impairment of property, the impairment of property, These costs include measures. due surplus to requirements plant and equipment which are activity. to restructuring ts Net Financing Cost Post-Employment Benefi on on plan assets and the interest The expected return r and social plans costs included in discount on redundancy nance costs. within net fi reported are provisions, restructuring excluded are tax effects These items together with their related our adjusted earningsfrom measures. Provisions Tax the arising from tax charges or credits cant one-off Signifi r excluded from estimates in the normal course of business) are our adjusted tax charge to aid comparability and understanding performance. of the Group’s Used by Management Other Non-GAAP Measures Net Revenue less business revenue comprises the Tobacco Net revenue associated duty and similar items less r IAS 39 requires that all derivative fi nancial instruments are nancial instruments are fi that all derivative IAS 39 requires r in the consolidated being recognised changes in the fair value es the hedge the instrument satisfi income statement unless chooses to IFRS and the Group accounting rules under nancial instrument as a hedge. fi designate the derivative cient, in an effi hedges underlying exposures The Group the strict hedging However, manner. and structured commercial effective commercially of IAS 39 may lead to some requirements for hedge accounting. As a result, hedge positions not qualifying has decided not to IAS 39, the Group and as permitted under accounting for its derivative ow or fair value hedge apply cash fl apply net does the Group nancial instruments. However, fi and investment hedging, designating certain borrowings in the Group’s derivatives as hedges of the net investment to minimise by IAS 39, in order operations, as permitted foreign income statement volatility. nancial exclude fair value gains and losses on derivative fi We on borrowings instruments and exchange gains and losses nance costs. fi adjusted net hedges from commercial providing element of derivative Fair value gains and losses on the interest over time excluded as they will reverse nancial instruments are fi charges. Fair value periods by interest matched in future or are nancial element of derivative fi gains and losses on the currency are on borrowings instruments and exchange gains and losses and losses on exchange gains foreign excluded as the relevant accumulated as a separate hedged item are the commercially with income in accordance component of other comprehensive currency. policy on foreign the Group’s Restructuring Costs in integrating acquired costs incurred cant one-off Signifi together with businesses and in major rationalisation initiatives their r disposal of the intangibles and goodwill. The related current current The related the intangibles and goodwill. disposal of ect the to refl adjusted measure in the t is retained cash tax benefi the Group. t to benefi ongoing tax Instruments Derivative Financial Gains and Losses on Fair Value and Losses on Borr and Exchange Gains continued continued e these are considered to be fi nite. to be fi considered e these are elate to the operational performance of the Group, elate to the operational performance of the Group, ovide a useful comparison of business performance and ovide a useful comparison easury shares), the consideration paid, including any the consideration paid, easury shares), Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco such as subsequent releases of, or additional charges to, such as subsequent releases established at the time of an acquisition. provisions Intangibles Amortisation and Impairment of Acquired amortised over their estimated useful intangibles are Acquired economic lives wher Acquired intangibles considered to have an indefi nite life are nite life are to have an indefi intangibles considered Acquired the our adjusted measures exclude from not amortised. We other than intangibles, amortisation and impairment of acquired tax associated with amortisation of and the deferred software, intangibles and tax deductible goodwill. The deferred acquired tax is excluded on the basis that it will only crystallise upon refl ect the way in which the business is controlled. Accordingly, Accordingly, way in which the business is controlled. ect the refl nance costs, t, net fi operating profi of adjusted measures taxation, attributable earnings tax, t before and earnings profi accounting applicable, acquisition exclude, where per share of acquired adjustments, amortisation and impairment ts costs, post-employment benefi intangibles, restructuring nancing cost, fair value gains and losses on derivative net fi effective of commercially nancial instruments in respect fi of in respect hedges, exchange gains and losses on borrowings and taxation effects hedges, and related effective commercially arising from charges or credits tax provision cant one-off signifi matters. Reconciliations between of prior year tax the resolution included within note 3 t are operating profi adjusted and reported nance net fi nancial statements, adjusted and reported to the fi 8, and taxation in note costs in note 7, adjusted and reported 10. in note earnings per share adjusted and reported ned terms not defi are in this report The adjusted measures similarly titled under IFRS and may not be comparable with by other companies. reported measures those which are are adjusted results The items excluded from not due to acquisitions and are or which arose in nature one-off and the the Group, uenced by the day to day operations of infl nancial instruments which are movements in the fair value of fi nance Adjusted net fi marked to market and not naturally offset. nance t net fi costs also excludes all post-employment benefi and redundancy cost since pension assets and liabilities and not form part of adjusted net debt. do social plan provisions cost of debt with This allows comparison of the Group’s used by are adjusted net debt. The adjusted measures nancial performance fi management to assess the Group’s year on year. and aid comparability of results ts are profi The principal adjustments made to reported as follows: Acquisition Accounting Adjustments items which exclude acquisition-related Adjusted measures do not r Treasury Shares Treasury capital its own equity share purchases When the Company (tr costs (net of income taxes), attributable incremental directly equity attributable to from is deducted on consolidation reissued cancelled, are until the shares owners of the parent subsequently sold are such shares or disposed of. When net of any directly any consideration received, or reissued, and the related transaction costs attributable incremental equity attributable to owners increases income tax effects, of the parent. Use of Adjusted Measures that non-GAAP or adjusted measures Management believes pr 1 Accounting Policies 1 Accounting Notes to the Financial Statements Statements Financial to the Notes

Overview Strategic Review Performance Risk Governance Financials 104 Overview Strategic Review Performance Risk Governance Financials 105 ette cigar Davidoff ocess and issues related ocess and issues related oup are determined using oup are ts cant judgement is required in determining the cant judgement is required Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco ojected future operating results; operating results; ojected future signifi cant underperformance relative to historical or cant underperformance relative signifi pr signifi cant changes in the manner of the use of the acquired cant changes in the manner of the use of the acquired signifi and assets or the strategy for the overall business; cant negative industry or economic trends. signifi – – – trademark and certain premium cigar trademarks) and property, trademarks) and property, cigar premium trademark and certain over their amortised or depreciated are plant and equipment estimates of based on management’s useful lives which are and the assets will generate revenue, the period over which appropriateness. for continued reviewed periodically are cant in signifi used can result Changes to the estimates value. variations in the carrying plant and assesses the impairment of property, The Group assets subject to amortisation or equipment and intangible whenever events or changes in circumstances depreciation value may not be recoverable. indicate that the carrying nite acquisitions and indefi goodwill arising on Additionally, The Group’s to impairment review. subject lived assets are annually, management undertakes an impairment review if events or changes in circumstances frequently or more recoverable. indicate that the carrying value may not be that could trigger an impairment important Factors considered plant and equipment and/or intangible of property, review assets include the following: estimates and assumptions. on actuarial methods relying to independent actuaries relating takes advice from The Group assumptions. It is important to note, of the the appropriateness that comparatively small changes in the assumptions however, nancial fi on the Group’s cant effect used may have a signifi set out in statements. Details of the key assumptions are note 22. Income Taxes jurisdictions is subject to income tax in numerous The Group and signifi many transactions and calculations are for tax. There provision for which the ultimate tax determination is uncertain. The Group for tax based on estimates of the taxes provisions recognises nal tax outcome is the fi likely to become due. Where that are such initially recorded, the amounts that were from different tax income tax and deferred will impact the current differences in the period in which such determination is made. provisions The complexity of the estimation pr in the inherent to the assumptions, risks and uncertainties to accounting estimates in relation application of the Group’s assets affect plant and equipment and intangible property, nancial statements, especially in the fi the amounts reported lives and the estimates of the expected useful economic conditions the carrying values of those assets. If business used in the assumptions were or if different different, were it is likely that application of this and other accounting estimates, in the Group’s amounts could be reported materially different levels of volatility and and future nancial statements. Current fi important factors in uncertainty over economic conditions are of these estimates, assumptions assessing the reasonableness and judgements. nancial statements. See notes 11 and 12 to these fi Benefi Retirement t retirement ned benefi The costs, assets and liabilities of the defi schemes operating within the Gr A summary of signifi cant legal cases in which the Group is the Group cant legal cases in which of signifi A summary 28 Legal Proceedings. is disclosed in note involved currently Assets Equipment and Intangible Plant and Property, the (other than goodwill, Intangible assets est accruals, the fair oducts. Management considers oducts. Management oceedings at each balance ent reporting period did not have a material impact on the period did not have a material impact ent reporting sheet date, considering the nature of the litigation, claim or sheet date, considering the nature and potential level of damages assessment; the legal processes in the jurisdiction in which the litigation, claim or assessment has after case (including progress of the the progress been brought; those statements nancial statements but before the date of the fi issued); the opinions or views of legal counsel and other are advisers; experience of similar cases and any decision of the to the litigation, management as to how it will respond Group’s claim or assessment. assessments at any time do the extent that the Group’s To ect subsequent developments or the eventual outcome not refl nancial statements may be materially fi of any claim, its future with a favourable or adverse impact upon the Group’s affected, position and liquidity. nancial t, fi operating profi 2 Critical Accounting Estimates and 2 Critical Accounting Estimates Judgements the and assumptions regarding makes estimates The Group evaluated continually are Estimates and judgements future. including based on historical experience, and other factors, to be reasonable believed events that are expectations of future under the circumstances. these may deviate from actual experience In the future, estimates and assumptions. The estimates and assumptions cant risk of causing a material adjustment to that have a signifi the carrying amounts of assets and liabilities within the current discussed below. nancial year are fi Disputes and Legal Proceedings outstanding legal cases following reviews The Group developments in the legal pr net assets or results of the Group. net assets or results which becomes mandatory for the Under IAS 19 (Revised) charge on retirement its 2014 accounts, the interest in Group t liabilities and the expected return on pension plan benefi income or expense on by a net interest assets will be replaced t assets or liabilities based on high-quality ned benefi net defi potential impact, monitoring the are corporate bond rates. We nance net fi in our reported which is likely to be an increase nance costs is net fi costs. While the volatility of reported be nance costs will adjusted net fi expected to increase, on the net assets do not expect the effect We unaffected. to be material. IFRS 11 is likely to become of the Group in its 2015 accounts and will require mandatory for the Group which are for its joint ventures to equity account the Group consolidated. It is not expected to proportionately currently of the Group. or net assets on the results have a material effect issued, but not yet effective, interpretations and Other standards net on the Group’s not expected to have a material effect are assets or results. value of derivative fi nancial instruments providing commercial commercial nancial instruments providing value of derivative fi nance lease liabilities. and fi ow hedges cash fl Interpretations and New Accounting Standards for the which came into effect or interpretations New standards curr Distribution Fees Distribution segment revenue fees comprises the Logistics Distribution of distributed pr less the cost tability of in assessing the profi measure this an important Logistics operations. Adjusted Net Debt levels using borrowing the Group’s Management monitors excludes inter adjusted net debt which – ly 67 e.

869 879 497 932 183 731 2011 2011 2011 ct 19.6 42.3 s 8,911 6,913 1,592 2,345 6,913 2,577 2,924 21,277 2011 75 497 56 936 861 470 872 176 660 2012 2012 2012 (965) 20.2 42.7 1,408 1,408 5,469 4,945 4,147 4,147 5,030 5,030 8,911 8,911 4,726 4,726 8,368 7,005 1,534 2,544 7,005 1,447 2,989 29,223 29,223 21,277 20,312 21,161 Total revenueTotal External revenue – 2012 470 32 (955) 1,223 1,223 5,015 4,498 3,931 3,931 5,390 5,390 8,368 8,368 5,132 5,132 28,574 28,574 21,161 20,206 Total revenueTotal External revenue continued ofi t ofi ofi t ofi orld orld ofi t ofi t ofi opean Union opean Union evenue otal Group otal Tobacco otal Tobacco of £254 million products the sale of peripheral and non-tobacco related from excludes revenue obacco net revenue Tobacco net revenue Tobacco Rest of the W Americas Spain Rest of Eur Germany £ million UK Eliminations Germany Spain Rest of Eur £ million Tobacco UK T Logistics T Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco The Tobacco business comprises the manufacture, marketing and sale of tobacco and tobacco-related products, including sales products, sale of tobacco and tobacco-related marketing and comprises the manufacture, business The Tobacco for tobacco produ the distribution of tobacco products business. The Logistics business comprises to (but not by) the Logistics Revenue £ million unless otherwise indicated for the Tobacco and Logistics businesses, the Operating Executive regularly reviewed during the year the performance and plans the year the performance during reviewed Executive regularly businesses, the Operating and Logistics for the Tobacco geographic markets and of certain individual ecting the importance basis, refl on a geographic business analysed of the Tobacco business. and the Logistics regions six Tobacco the Group’s therefore are below The segments presented groupings. provided t disclosures and profi revenue Executive is used as the basis of the segment to the Operating The information provided costs allocated consistent central Group based on the location of customers, and analysis of Tobacco with the geographic below, by the Operating Executive t used of profi The main measure support provided. assessment of the level of based on management’s to the Operating Executiv sheet information is not provided t. Segment balance is adjusted operating profi to assess performance and services. products as well as a wide range of non-tobacco including Imperial Tobacco, manufacturers, and consequently equally, treated all customers are is run on an operationally neutral basis ensuring The Logistics business market prices ecting length basis refl undertaken on an arm’s businesses are and Logistics the Tobacco transactions between and services. for comparable goods Iceland, Union comprises the EU member states plus Norway, Rest of European For the purposes of the analysis below, All of the Logistics business included in the Rest of the World. are joint ventures Liechtenstein and Switzerland. The Cuban Union. is located in the European Tobacco £ million unless otherwise indicated Revenue Distribution fees Operating pr Imperial Tobacco comprises two distinct businesses – Tobacco and Logistics. In addition to regularly reviewing results and plan and results reviewing to regularly Logistics. In addition and – Tobacco two distinct businesses comprises Imperial Tobacco 3 Segment Information 3 Segment Notes to the Financial Statements Statements Financial to the Notes Net r Operating pr Revenue Adjusted distribution margin % Americas Rest of the W T T (2011: £326 million). Adjusted operating pr Adjusted operating margin % Logistics Adjusted operating pr

Overview Strategic Review Performance Risk Governance Financials 106 Overview Strategic Review Performance Risk Governance Financials 107 – – (4) (13) (48) 577 461 200 183 658 234 794 2011 (103) (299) (487) assets 3,103 2,640 2,153 2,924 Non-current Non-current amortisation Depreciation Depreciation and software and software 2011 2011 (4) 16 10 20 35 27 26 48 20 15 6 10 (19) (82) (82) 627 448 202 341 169 321 134 106 35 109 37 176 626 872 214 2012 (283) (437) evenue 3,161 1,518 1,081 3,992 3,479 1,972 4,316 4,147 3,325 5,030 162 1,408 3,074 7,948 2,791 4,726 5,396 2,989 r External (1,187) 29,223 22,543 Additions to operty, plant operty, pr and equipment assets Non-current Non-current amortisation Depreciation Depreciation and software and software 2012 2012 9 10 17 35 39 21 31 17 14 7 68 46 300 171 283 136 122 35 3,814 3,160 1,849 2,691 3,931 3,064 5,390 166 1,223 2,908 7,235 2,626 5,132 5,035 evenue Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco r External 28,574 19,650 Additions to operty, plant operty, pr and equipment obacco t and reconciliation to profi tax t before to profi t and reconciliation obacco ed intangibles – Logistics ed intangibles – Tobacco ofi t ofi ed intangibles – Tobacco orld orld orld ofi t ofi opean Union opean Union opean Union ent assets comprise intangible assets, property, plant and equipment, and investments in associates. ent assets comprise intangible assets, property, nance costs ofi t before tax t before ofi otal Group otal Group otal Tobacco otal Tobacco Operating pr Adjusted operating pr Restructuring costs – Logistics Acquisition accounting adjustments – T Acquisition accounting Net fi Other segment information Impairment of acquir Restructuring costs – T Rest of Eur France Spain Germany Rest of the W UK Americas T Non-curr Adjusted operating profi Adjusted operating £ million Tobacco UK Germany Spain Rest of Eur Additional geographic analysis cant countries. the UK and for individually signifi for presented assets are and non-current External revenue Rest of Eur Logistics T £ million Germany Spain Americas Rest of the W T £ million Tobacco UK Logistics Eliminations Amortisation of acquir Americas Rest of the W T Amortisation of acquir Pr – (1) (1) 12 27 22 61 28 67 65 26 (66) 0.4 4.0 0.2 4.6 0.9 0.2 0.3 6.0 911 202 2011 2011 2011 2011 ining ement 1,476 1,206 visions illion) – 1 27 45 28 43 30 62 22 0.4 4.0 0.3 0.9 0.2 6.2 0.1 4.8 0.3 (86) 929 189 101 2012 2012 2012 2012 1,467 1,185 operties in Spain to refl ect current property market property ect current operties in Spain to refl continued s subsidiaries eceivables ectors’ emoluments and interests, and of key management compensation which represent related party transactions related and of key management compensation which represent ectors’ emoluments and interests, eign exchange gains elated assurance services elated assurance services e-based payments (note 25) ofi t on disposal of property, plant and equipment t on disposal of property, ofi rite down of inventories ax advisory services ax compliance services Pr as incurred as these costs did not meet the provisioning requirements of IAS 37 at previous reporting periods. reporting of IAS 37 at previous requirements as these costs did not meet the provisioning as incurred included within administrative and other expenses in the consolidated income statement. Restructuring costs are Analysis of fees payable to PricewaterhouseCoopers LLP and its associates to PricewaterhouseCoopers LLP Analysis of fees payable and the streaml manufacturing rationalisation in Europe, to integration of our American businesses, conditions, amounts related 2012 we closed our factories in Berlin, Palazuelo and Menen, rationalised our Asian of parts of our Logistics operations. During for moving to our new purpose-built Headquarters ince in Farnham Royal in readiness and closed our offi ces, administrative offi Bristol in 2013. pro £61 million) included £29 million (2011: £30 million) of unused restructuring The net charge of £101 million in 2012 (2011: and £43 million (2011: £27 m provisions during the period, £33 million (2011: £30 million) of additional restructuring reversed in the income stat directly £54 million (2011: £34 million) was recorded charge of impairment of tangible assets. The remaining Shar Social security costs Pension costs (note 22) £ million and salaries Wages 6 Directors and Employees 6 Directors Employment costs Employment related Employment related 5 Restructuring Costs £ million Audit of the company’ £ million nancial statements company and consolidated fi Audit of parent Asset impairments Other charges impairments of surplus pr Restructuring costs in 2012 and 2011 included Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Profi t before taxation is stated after charging/(crediting): taxation is stated t before Profi £ million used and consumables Raw materials 4 Profi Taxation Before t 4 Profi Notes to the Financial Statements Statements Financial to the Notes Operating lease charges Net for Details of Dir W Impairment of trade r Audit r Other assurance services T T Other services requiring disclosure under IAS 24, are provided within the Directors’ Remuneration Report on pages 77 to 93. These disclosures Remuneration Report on pages 77 to 93. These disclosures within the Directors’ provided under IAS 24, are disclosure requiring nancial statements. form part of the fi

Overview Strategic Review Performance Risk Governance Financials 108 Overview Strategic Review Performance Risk Governance Financials 109 8 (8) 85 76 (10) (18) (76) 562 487 428 178 580 180 487 445 144 2011 2011 (785) (144) (178) (445) (428) (180) 1,272 Average Average 2011 2011 5 8 (5) (8) 92 (27) (92) (15) 168 125 535 437 761 723 550 187 437 2012 2012 (723) (187) (168) (761) 1,473 9,100 9,100 9,100 9,100 6,600 6,700 6,600 6,700 (1,036) 38,200 37,900 17,300 17,100 31,600 31,200 31,600 11,800 11,700 38,200 37,900 At 30 September At 30 September 2012 2012 8,600 8,600 8,600 8,600 6,200 6,400 6,200 6,400 Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco 37,200 37,300 37,200 37,300 17,000 17,100 31,000 30,900 31,000 11,600 11,600 37,200 37,300 nance costs nance At 30 September Average At 30 September Average nancial instruments providing commercial hedges commercial nancial instruments providing nance costs to adjusted net ﬁ

nancial instruments providing commercial hedges commercial nancial instruments providing nancial instruments hedging underlying borrowings nancial instruments hedging underlying borrowings nancial instruments providing commercial hedges commercial nancial instruments providing nancial instruments providing commercial hedges commercial nancial instruments providing nancial instruments providing commercial hedges commercial nancial instruments providing edundancy and social plans t net fi nancing cost t net fi edundancy and social plans nancing activities nancing activities nance costs orld eturn on retirement benefi t assets benefi eturn on retirement eturn on retirement benefi t assets benefi eturn on retirement est on retirement benefi t liabilities benefi est on retirement nance costs est on bank and other loans est on retirement benefi t liabilities benefi est on retirement Expected r Fair value gains on derivative fi Inter Exchange gains on fi Unwind of discount on r Fair value losses on derivative fi Fair value losses on derivative fi Adjusted net fi £ million nance costs Reported net fi Net fair value and exchange gains on fi Post-employment benefi Inter Investment income Expected r Net fi Finance costs Fair value losses on derivative fi Fair value gains on derivative fi Exchange gains on fi Inter Rest of the W Number of people employed by the Group by location during the year by location during the by the Group Number of people employed Americas £ million on bank deposits Interest European Union European 7 Net Finance Costs Tobacco Tobacco Number of people employed by the Group during the year during the by the Group people employed Number of Logistics Unwind of discount on r Fair value losses on derivative fi net fi reported Reconciliation from

– – – – – 4 3 1 1

77 16 16 17 (29) (23) (58) 337 350 337 205 617 529 337 321 581 2011 2011 2011 2011 (205) (602) (321) (392) 2,153 (outside 9 6 1 8 4 (2) (4) (1) 55 69 45 29 (21) 382 490 296 382 137 604 442 382 378 270 2012 2012 2012 2012 (137) (378) (392) (112) (145) (317) 1,081 e resolved with tax authorities. The reported tax charge with tax authorities. The reported e resolved continued ed tax assets espect of prior years ferences e of earnings disclosed in note 10. ed tax on amortisation of acquired intangibles ed tax on amortisation of acquired ed tax edited to other comprehensive income edited to other comprehensive edited to equity ax on post-employment benefi ts net fi nancing cost nancing ts net fi ax on post-employment benefi otal tax charged to the income statement otal tax charged to the hedges commercial nancial instruments providing fi ax on net fair value and exchange gains on released ax provisions released ax provisions otal tax charged to the income statement otal current tax otal current ax on acquisition accounting adjustments 27%) ax at the UK corporation tax rate of 25% (2011: of: ax effects ax on restructuring costs ax on restructuring Adjustments in r T Permanent dif Cr T Charged to the income statement Cr At 1 October £ million £ million tax t before Profi £ million Reported taxation T T Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Analysis of charge in the year Analysis of £ million tax Current the year 25% (2011: 27%) being the average rate for UK corporation tax at 8 Taxation Notes to the Financial Statements Statements Financial to the Notes Overseas taxation T T Non-deductible goodwill impairment T T During the year ended 30 September 2012 certain outstanding matters wer 30 September 2012 certain outstanding matters During the year ended Adjusted tax charge the tax charge for the year Factors affecting amount that would arise using the average UK corporation tax the theoretical from tax differs t before profi The tax on the Group’s cent) as follows: rate for the year of 25 per cent (2011: 27 per Cash paid Exchange movements Other movements T Movement on current tax account Movement on current for the period includes a release of £137 million (2011: £205 million) of tax provisions following resolution of these matters following resolution million (2011: £205 million) of tax provisions of £137 a release for the period includes the adjusted is excluded from credit tax provision cant one-off in the normal course of business). This signifi of changes in estimates the use of with our stated policy on performance in accordance and understanding of the Group’s tax charge to aid comparability adjusted measures. taxation to adjusted taxation reported Reconciliation from to arrive at the adjusted tax in order t before profi adjustments made to reported The table below shows the tax impact of the measur Impairment of deferr Origination and reversal of temporary differences Origination and reversal Differences in effective tax rates on overseas earnings tax rates on in effective Differences Deferr T T At 30 September Deferr

Overview Strategic Review Performance Risk Governance Financials 110 Overview Strategic Review Performance Risk Governance Financials 111 es (62) 3.0 608 284 892 2011 2011 1,796 177.3 176.8

1,013.0 1,016.0 e – – – – 2011 2.9 0.6 6 4.3 44 (6.1) 669 983 678 314 2012 2012 2011 2010 2011 95.1 84.3 28.1 24.3 28.1 67.0 60.0 68.1 67.9 32.1 325 (20.2) (205) (pence) Earnings 187.4 1,904 188.0 1,904 995.4 177.3 1,796 998.3 Earnings per shar (9) 2012 31.7 73.9 105.6 e 2012 1.8 18 7.2 72 (0.9) 68.1 678 29.7 296 (13.8) (137) (10.4) (104) 200.4 2,001 201.0 2,001 119.3 1,187 Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco (pence) Earnings Earnings per shar nancial instruments nancial year nancial ts net fi nancing cost ts net fi e options ed intangibles ed intangibles e paid and recognised in the second half of the year, and fi nal dividends in respect of a year are paid and of a year are nal dividends in respect and fi year, in the second half of the e paid and recognised nings per share oposed fi nal dividend for the year ended 30 September 2012 of 73.9p per share amounts to a proposed fi nal dividend nal dividend fi to a proposed amounts 30 September 2012 of 73.9p per share nal dividend for the year ended oposed fi es for diluted earnings per share ax provisions released ax provisions otal Adjusted diluted £ million Earnings: basic and diluted Millions of shares average number of shares: Weighted for basic earnings per share Shares 10 Earnings Per Share average and the weighted the parent t for the year attributable to the owners of is based on the profi Basic earnings per share schemes and shar employee share held to satisfy the Group’s in issue during the year excluding shares shares number of ordinary have been calculated by taking into account Diluted earnings per share shares. and held as treasury by the Company purchased exercised. schemes were share that would be issued if rights held under the employee the weighted average number of shares anti-dilutive. that they are the calculation for any period on the grounds No instruments have been excluded from Adjusted £ million nancial year fi of previous the period in respect Final dividend paid in Interim 9 Dividends fi of in respect share Dividend per Pence Interim dividends ar nancial period. in the following fi recognised holders in the year equity as distributions to ordinary Amounts recognised Interim dividend The pr Potentially dilutive shar Final T Diluted ear Amortisation of acquir £ million unless otherwise indicated Reported basic Pence Basic earnings per share Acquisition accounting adjustments hedges commercial providing Post-employment benefi Reconciliation from reported to adjusted earnings and earnings reported per share Reconciliation from payment of £729 million based on the number of shares ranking for dividend at 30 September 2012, and is subject to shareholder ranking for dividend at 30 September 2012, and is subject to shareholder of shares payment of £729 million based on the number will be £1,043 million (2011: £953 million). of 2012 the total dividend paid in respect If approved, approval. Shar Restructuring costs T Net fair value and exchange gains on fi Impairment of acquir nt. (5) (6) g Total (7) (106) (9) (1,434) Supply Supply agreements Software Software agreements Total 2011 2012 agreements Software Trademarks – (70) (29) – 271 94 21 386 (5) – – – – – – 24 24 24 – – – (6) – – – 21 1,165 363 82 1,631 (857) (466) (102) 1,208 1,366 428 3,093 91 1,187 – – – 1,187 – – 1,187 – Goodwill Trademarks Goodwill Trademarks 10,970 5,653 926 17,609 60 12,178 7,019 1,354 12,178 7,019 20,702 151 13,035 7,485 1,456 13,035 7,485 22,118 142 Goodwill continued Net book value At 30 September 2012 Exchange movements At 30 September 2012 Exchange movements Amortisation and impairment At 1 October 2011 the year Amortisation charge for the year Impairment charge for Disposals/retirements At 30 September 2012 Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco profi t and adjusted operating profi t. The adjustment comprises the amortisation and impairment charges in respect of goodwill, t. The adjustment comprises the amortisation and impairment charges in respect profi t and adjusted operating profi trademarks and supply agreements. in to the Spanish market, which is explained of goodwill relating An impairment charge of £1.2 billion was taken in 2012 in respect detail below. more Net book value At 30 September 2011 and exclusive supply arrangements in Cuba. The exclusive supply Logistics customer relationships include Supply agreements under the purchase acquired became fully amortised during the year ending 30 September 2011. All were arrangement in Morocco of Altadis. in the consolidated income stateme included within administrative and other expenses Intangible amortisation and impairment are 13,014 6,320 1,093 60 20,487 Reclassifi cationsAmortisation and impairment At 1 October 2010Amortisation charge for the yearDisposals/retirements Reclassifi Exchange movementsAt 30 September 2011 – 5 5 – – – 21 (209) 280 – – – 884 21 122 (3) 1,165 453 1 (212) 18 363 64 420 (3) 1,422 82 (2) 1,631 (4) Reclassifi cationsCost At 1 October 2010AdditionsDisposals/retirements Reclassifi Exchange movementsAt 30 September 2011 13,076 13 13 – – – (209) 7,501 – – 13,035 (41)22 22 1,673 – – – (5) 7,485 (16) 113 (214) 1,456 22,363 (8) 142 22,118 (1) (66) £ million Amortisation and impairment in respect of acquired intangible assets are treated as reconciling items between reported operatin items between reported as reconciling treated intangible assets are of acquired Amortisation and impairment in respect Cost At 1 October 2011 Additions Disposals/retirements £ million 11 Intangible Assets 11 Intangible Notes to the Financial Statements Statements Financial to the Notes

Overview Strategic Review Performance Risk Governance Financials 112 Overview Strategic Review Performance Risk Governance Financials 113 rate l

GUs. nite lives Intangible s, Long-term assets with ny indefi 2011 2011 4.2 3.0 7.6 3.0 4.3 3.0 Initial 291 252 10.9 2.7 11.8 3.0 10.4 3.0 1,842 106 1,842 106 4,814 126 4,814 126 1,511 – 1,511 – 2,868 340 2,868 340 1,688 – 1,688 – Goodwill 13,014 824 13,014 824 11,326 824 11,326 824 owth rate gr rate lives nite Intangible Long-term opean Union and Rest of the World), opean Union and Rest of the World), assets with indefi 2012 2012 1.7 1.5 5.8 1.8 5.0 2.5 9.7 4.0 7.4 1.7 218 – 281 242 12.0 4.0 Initial 1,776 102 1,776 102 4,466 117 4,466 117 2,663 315 2,663 315 1,566 – 1,566 – 9,404 776 9,404 776 Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco 10,970 776 10,970 776 Goodwill owth rate gr es es e based on the geographic areas in which the Group operates. A summary of the carrying value of goodwill and value of goodwill summary of the carrying operates. A in which the Group the geographic areas e based on orld orld opean Union opean Union ows from the three year plan period are extrapolated out to year fi ve using the growth rate implicit in the three year plan. rate implicit in the three ve using the growth out to year fi extrapolated year plan period are the three ows from obacco Spain % Other Eur Rest of the W Americas in trends in line with long-term growth rates have also been revised Other long-term growth for the Spanish economy. prospects economies. the relevant les of the C risk profi adjusted for the different weighted average cost of capital based on the Group’s Discount rates used are 8.5 per cent to 13.1 per cent (2011: 8.7% to 11.3%). discount rates in 2012 ranged from Pre-tax our internal plans. from under the basis set out in IAS 36 which can differ prepared are Our impairment projections Estimated long-term weighted average compound annual growth rates of between 1.5 per cent and 4.0 per cent per annum Estimated long-term weighted average compound annual growth ows arising in existing market shown above applied to cash fl rates addition to the initial growth ve. In used beyond year fi are business these ar business these Other Eur Americas Cuban cigar joint ventur entry to ows from of cash fl includes assumptions about the timing and extent the valuation of the Cuban cigar joint ventures new markets. c factors such long-term expectations, taking account of industry specifi based on management’s are rates Long-term growth long-term stable and predictable and relatively scal policy, of excise in government fi the role of our products, as the nature uncertainty over in light of current has been reduced rate for Spain The long-term growth industry. in the Tobacco trends macro £ million Spain Goodwill and intangible assets impairment review intangible assets Goodwill and the Tobacco units (CGUs). For cash-generating to the Group’s allocated nite lives are indefi intangible assets with Goodwill and is set out below. nite lives with indefi intangible assets Cuban cigar joint ventur Rest of the W Goodwill has arisen principally on the acquisitions of Reemtsma in 2002 (mainly Other Eur Goodwill has arisen principally on the acquisitions Logistics Commonwealth Brands in 2007 (Americas) and Altadis in 2008 (all CGUs). Commonwealth Brands in 2007 (Americas) a are if there frequently or more nite lives for impairment annually, intangible assets with indefi tests goodwill and The Group indications that impairment may have arisen. The value of a CGU is based on value-in-use calculations. These calculations use indications that impairment may have arisen. detailed based on annually and are by the Board approved nancial plans which are year fi three from derived ow projections cash fl ect, on an individua refl These forecasts line. sales volumes for each product of projected bottom-up market-by-market forecasts anticipated changes in market size, prices and duty regimes, assumptions and estimates regarding market basis, numerous mix, based on long-term market changes in product and other preferences consumer uptrading and downtrading, consumer consider that pricing, We developments, and management experience and expectations. market data, anticipated regulatory trends, the key assumptions used in our plans. ation are and cost infl market size, market shares rates and discount rates used Growth shown below. rates implicit in these value-in-use calculations are The compound annual growth Logistics Cash fl T (1) (1) to Total

r e r the ate, tion discount pairment (3) (7) (61) Fixtures and Fixtures motor vehicles 2012 Plant and equipment 3 (1) (3) (28) (23) (54) (9) (41) (25) (75) 13 99 38 150 13 99 38 26 11 2 39 32 220 48 300 14 (3) (12) (76) (69) (19)(16) (164) (38) 161 709 230 1,100 161 709 230 184 752 237 1,173 184 752 237 2,025 902 931 192 operty 1,086 1,683 429 3,198 1,125 1,576 3,138 437 Pr continued egional and central government defi cits, a banking sector bail-out, and the introduction of austerity of austerity and the introduction sector bail-out, cits, a banking central governmentegional and defi ease in the discount rate of 25 basis points from 9.9 per cent, or a 75 basis point reduction in the short-term growth r growth in the short-term 9.9 per cent, or a 75 basis point reduction from ease in the discount rate of 25 basis points Exchange movements At 30 September 2012 and impairment Depreciation At 1 October 2011 charge for the year Depreciation Impairment Disposals cations Reclassifi Exchange movements Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Additions Disposals cations Reclassifi At 30 September 2012 Net book value At 30 September 2012 nance lease. million (2011: £25 million) held under a fi of £23 The net book value above includes property £ million Cost At 1 October 2011 12 Property, Plant and Equipment 12 Property, an incr strategy focused the integration of our US businesses, a new management team and a revised the business, including strengthen states. on key growth in an would result the Cuban cigar joint ventures movement in assumptions for that a reasonable reported have previously We in ou headroom increased is there tability of the joint ventures and profi in revenue growth impairment. Due to continued strong in an movement in the key assumptions will result we no longer consider that a reasonable impairment calculation. Accordingly impairment of this CGU. in movement in the assumptions used in the impairment tests would not result any reasonable of the Group, For the rest an impairment. Spain with high prices, in Spanish property crisis and the collapse euro by the particularly affected economy has been The Spanish levels, r unemployment 11 Intangible Assets continued 11 Intangible further, the Spanish economy has deteriorated nancial year, half of the fi During 2012, and particularly in the second measures. In lin increased. level of uncertainty has while the current of the economy has receded of a recovery and we believe the timing Notes to the Financial Statements Statements Financial to the Notes with these developments we have updated our assumptions to refl ect current market data for the purposes of impairment testing, for the purposes of impairment testing, market data ect current refl we have updated our assumptions to with these developments reduced 10.6 per cent last year) and cent (from discount rate applied to Spain to 13.1 per the increased and have consequently conditions and the of the macro-economic last year). The effect 2.7 per cent rate to 1.5 per cent (from the long-term growth billion of the goodwill in in an impairment of £1.2 together resulted of longer term assumptions have revision downward current our Spanish business. in in the discount rate, or a reduction in the event of an increase our Spanish intangible assets could result Further impairment of in the of 50 basis points An increase ows. of overall cash fl in the value a reduction rates, or growth the initial or long-term im rate of 50 basis points in further in the initial growth million, a reduction in further impairment of £70 rate would result impairment of £45 million. A reduc rate in a further points in the long-term growth of 50 basis of £35 million, and a reduction million. in a further impairment of £90 ows would result cash fl of 5 per cent in overall Other CGUs in the event of either would result of £100 million, and that an impairment headroom The impairment test for Americas indicated ows. Our assumptions fo cash fl in overall rate, or a 3 per cent reduction in the long-term growth or a 30 basis point reduction taken actions we have recently ts we expect to arise from take into account the benefi performance of the Americas business also

Overview Strategic Review Performance Risk Governance Financials 114 Overview Strategic Review Performance Risk Governance Financials 115 (6) 24 (76) (70) the Total tory – – (8) 6 213 1 (3) (3) (2) (66) (2) (58) 15 256 18 332 12 119 Others Fixtures and Fixtures motor vehicles Total 2011 2012 2011 (1) (1) 47 70 59 11 13 (23) (22) Plant and Altabana equipment (5) (7) 48 10 49 104 13 166 15 18 2 35 112 38 62 12 141 35 96 10 (50) (45) (42) (22) (35) (21) 194 244 196 180 48 13 241 180 48 13 184 8 3 195 184 8 3 307 222 70 15 Property Habanos Altabana Others Total Habanos Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Corporación Corporación Net assets Total liabilities Total Non-current liabilities Non-current Current liabilities Current Total assets Total Current assets Current Non-current assets Non-current Net assets Total liabilities Total £ million Revenue 13 Joint Ventures nancial information for the SA, Cuba and Altabana SL, Spain. Summarised fi Corporación Habanos are The principal joint ventures consolidation method, is shown below: accounted for under the proportional which are of joint ventures, share Group’s £ million Revenue t after taxation Profi assets Non-current assets Current assets Total liabilities Current liabilities Non-current t after taxation Profi Cost At 1 October 2010AdditionsDisposals cationsReclassifi Exchange movementsAt 30 September 2011 and impairment Depreciation At 1 October 2010 charge for the yearDepreciation ImpairmentDisposals cationsReclassifi Exchange movementsAt 30 September 2011Net book value At 30 September 2011 through acquired in the carrying value of surplus property mainly to reductions relate The impairment charges in 2012 and 2011 1,113 1,492 1,125 (7) 16 8 270 63 341 16 (5) 410 1,576 (40) (110) 118 3,015 91 (36) 437 (13) (6) 720 3,138 27 (2) 161 27 – – (17) 44 3 (107) (1) 206 (53) 964 709 (17) 151 (58) (64) 1,044 (21) 867 230 (3) (1) (16) 1,100 207 (22) (62) 2,038 (38) £ million Altadis acquisition to refl ect current property market conditions, which have been treated as restructuring costs. as restructuring market conditions, which have been treated property ect current Altadis acquisition to refl plant and equipment to other inven ed from reclassifi value were parts and consumables of individually low In 2011 certain spare and pattern Also during 2011 their nature of usage. The net book value of these items was £31 million. ects a as this better refl and motor vehicles to xtures fi from ed including £8 million, at net book value, of software reclassifi number of other items were intangible assets. – 8 6 18 53 77 63 (10) 928 177 2011 2011 2011 1,171 1,153 1,887 3,055 a their sfer ory, ory, heet date. 2011 2011 3 56 – 86 19 15 – 55 – 23 76 81 73 97 11 65 (55) (13) 631 608 148 2012 2012 2012 Current Non-current Non-current Current Current Non-current Non-current Current 2,735 – 2,664 – 2,790 – 2,897 100 2,790 – 1,006 1,913 3,132 oval is required to tran oval is required – 2012 2012 57 – 36 – 58 – 73 80 (58) 104 18 2,852 – 2,759 – 2,910 – 3,029 98 2,910 – Current Non-current Non-current Current Current Non-current Non-current Current continued continued e than 3 months e impaired ecognised industry practice to classify leaf tobacco inventory as a current asset although part of such invent asset tobacco inventory as a current ecognised industry practice to classify leaf eceivable from eceivables ovision for impairment of receivables eceivables ent loans to chases from epayments and accrued income ork in progress rade receivables may be analysed as follows: rade receivables because of the duration of the processing cycle, ordinarily would not be consumed within one year. We estimate that around estimate that around We would not be consumed within one year. cycle, ordinarily because of the duration of the processing held within raw materials will not be utilised within a year of the balance s £120 million (2011: £120 million) of leaf tobacco ects inventories as this better refl plant and equipment to other ed from reclassifi parts were During 2011 £31 million of spare of usage. pattern and nature Other r Past due by less than 3 months Past due by mor prior appr £183 million (2011: £233 million) of cash and cash equivalents is held in countries in which Less: pr T Amounts that ar £ million Cash at bank and in hand Short-term deposits and other liquid assets 16 Cash and Cash Equivalents £ million Within terms credit Trade receivables Trade 15 Trade and Other Receivables 15 Trade £ million Pr £ million Raw materials 14 Inventories W Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Transactions and balances with joint ventures and balances Transactions £ million Sales to 13 Joint Ventures Ventures 13 Joint Notes to the Financial Statements Statements Financial to the Notes Pur Accounts r Curr Finished inventories Other inventories tax stamps. Other inventories mainly comprise duty-paid It is generally r at its disposition within such liquid funds are complies with these requirements, Nevertheless, if the Group the funds abroad. period of time. reasonable Accounts payable to Net trade r

Overview Strategic Review Performance Risk Governance Financials 116 Overview Strategic Review Performance Risk Governance Financials 117 – – 1 nd 34 22 23 2011 625 500 647 414 470 738 210 509 450 136 521 357 1,070 1,356 1,053 8,076 8,098 1,090 2,104 2,105 10,203 10,180 2011 – – – – 2 20 20 84 126 – 307 19 2012 625 499 389 682 212 509 623 600 471 418 993 Current Non-current Non-current Current 6,015 – 6,015 – 1,169 – 1,169 – 7,617 19 7,617 19 1,258 1,054 8,333 9,587 8,333 9,565 1,234 1,254 1,150 2012 151 – 450 18 5,594 – 5,594 – 1,036 – 1,036 – 7,231 18 7,231 18 Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Current Non-current Non-current Current ch 2024 ed income ed: ed: drafts ent borrowings and non-current borrowings at 30 September 2012 include interest payable of £2 million (2011: £19 million) a payable of £2 million (2011: £19 million) at 30 September 2012 include interest borrowings and non-current ent borrowings owings opean commercial paper opean commercial otal non-current borrowings and fi nance lease liabilities and fi borrowings otal non-current liabilities nance lease and fi otal borrowings otal non-current borrowings otal non-current otal current borrowings otal current nance lease liabilities and fi borrowings otal current £500m 5.5% notes due September 2026 T Unsecur 18 Borrowings and Finance Lease Liabilities and Finance 18 Borrowings as follows: cost at the balance sheet date are nance lease liabilities at amortised fi and borrowings The Group’s £ million borrowings Current Secured: Finance lease liabilities Other payables Accruals and deferr Other taxes, duties and social security contributions Other taxes, duties and £ million payables Trade 17 Trade and Other Payables 17 Trade £285 million (2011: £278 million) respectively. €500m 4.0% notes due December 2015 €1,500m 8.375% notes due February 2016 €850m 4.5% notes due July 2018 £200m 6.25% notes due December 2018 £500m 7.75% notes due June 2019 €750m 5.0% notes due December 2019 £1,000m 9.0% notes due February 2022 Curr €750m 7.25% notes due September 2014 £450m 5.5% notes due November 2016 £600m 8.125% notes due Mar Capital market issuance: €500m 5.125% notes due October 2013 €1,200m 4.375% notes due November 2013 Bank loans T T Analysed as: Borr Finance Lease Liabilities Unsecur Over T T borrowings Non-current Secured: Finance lease liabilities Capital market issuance: Eur £350m 6.875% notes due June 2012 €1,250m 5.0% notes due June 2012 Bank loans and overdrafts – – – e

2011 sks he osur 2,498 2,498 re ate life. – – fi nancial fi liabilities Total 2012 639 3,054 2,415 Net derivative 2011 leases Finance – 22 253 275 drafts 4,105 8,076 – 22 77 331 4,182 8,429 3,971 – 1 3,972 Borrowings Borrowings and over continued nancial fi liabilities Total 2012 Net derivative continued drafts 8,333 93 8,426 4,204 88 4,292 2,011 (29) 1,982 2,118 34 2,152 Borrowings Borrowings and over liabilities ve years ve years nancial encies, foreign currency cash deposits, borrowings and non-sterling derivatives. Currently, the Group’s fi nancial results a results nancial fi the Group’s and non-sterling derivatives. Currently, cash deposits, borrowings currency encies, foreign ve years or more ve years or more nancial liabilities detailed in note 20) was as follows: nancial liabilities detailed in note 20) was Non-current fi Non-current Treasury activities, covering all key areas within Group Treasury. The Group Treasurer reports on a regular basis to the Board, basis to the Board, on a regular reports Treasurer The Group Treasury. within Group activities, covering all key areas Treasury to the GTC. which is also provided report of a monthly treasury including the provision Market risk Foreign exchange risk transactions denominated in foreign trading exchange rates due to its commercial is exposed to movements in foreign The Group curr Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Between one and two years Between one and two Between two and fi Between two and fi used to manage them, including and assessed, and summarises the policies and processes measured to these risks, how they are of capital. to the management those related nancial ri of the fi for the management which is responsible Treasury, function, Group treasury operates a centralised The Group nor does it enter into t centre, It does not operate as a profi nancing and liquidity requirements. together with its fi of the Group, with terms in accordance Treasury Committee (GTC) oversees the operation of Group Treasury speculative transactions. The Group comprises the decisions. The GTC currently all major treasury and approves reviews The Board set out by the Board. of reference Marketing, Investor Sales, Group Finance and Planning, Group Group and other senior management from Finance Director Group Treasury. Communications and Group oversight of Group expectations and boundaries to assist in the effective which sets out the current a framework The GTC agrees and US dollar exchange rates. uctuations in sterling, euro fl principally exposed to gains or losses arising from 19 Financial Risk Factors Financial risk management Overview exp and liquidity risk. This note explains the Group’s is exposed to market, credit In the normal course of business, the Group Amounts expiring: Between one and two years £ million The maturity profi le of the carrying amount of the Group’s non-current fi nancial liabilities at 30 September (including net derivative fi non-current of the carrying amount of the Group’s le The maturity profi fi £ million Amounts expiring: Within year one Certain borrowings drawn under revolving credit facilities have been classifi ed as non-current borrowings, in accordance with t in accordance borrowings, non-current ed as have been classifi facilities credit drawn under revolving Certain borrowings 18 Borrowings and Finance Lease Liabilities Finance Lease and 18 Borrowings Notes to the Financial Statements Statements Financial to the Notes ultimate maturity date of those facilities, but contractual cash fl ows will be required within 12 months of the balance sheet d of the balance sheet within 12 months ows will be required cash fl but contractual date of those facilities, ultimate maturity being met. to condition precedents subject they may then be redrawn and such borrowings repaying in to LIBOR case the reference at rates set in advance by oating rate liabilities. The majority bear interest fl are The bank borrowings issuances in place at 30 September The capital market borrowings. and to EURIBOR in the case of euro of sterling and US dollars their xed rate throughout in note 20) at a fi detailed derivatives which are nancial of fi the effects (before 2012 bear interest no defaults). nance lease liabilities during the year (2011: or fi has not defaulted on any borrowings The Group facilities Undrawn borrowing had been of which all condition precedents undrawn committed facilities in respect had the following Group At 30 September the met at that date. In fi In fi

Overview Strategic Review Performance Risk Governance Financials 118 Overview Strategic Review Performance Risk Governance Financials 119 .

414

ial y Other eaf, n foreign foreign – (3) USD 2,036 346 2012 EUR – 1,171 – (1,431) – 2 – – – – – – – – – – – – 684 185 29 – (837) (226) (35) – 4,363 1,184 113 – 5,404 113 – 10,638 27 718 206 – 1,978 564 350 – 4,475 1,518 58 1 20,409 5 – 79 2 79 5 – 1 4 21 – 1 4 7 719 254 46 (6) (588) (208) (38) 63 6,472 2,288 58 19 127 4 58 19 GBP Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco 1 1 owings (post cross currency swaps) in the currency of the underlying net assets. This also results in in assets. This also results of the underlying net in the currency swaps) currency cross owings (post ced from various countries but purchased principally in US dollars, and packaging materials which are sourced from sourced and packaging materials which are principally in US dollars, various countries but purchased ced from ease in functional currency value ease in functional currency ease in functional currency value ease in functional currency ease in functional currency value ease in functional currency ease in functional currency value ease in functional currency encies other than their functional currencies and resulting in exchange movements in the income statement and balance sheet in exchange movements in the income statement and balance and resulting encies other than their functional currencies rade and other payables 10% decrease in functional currency value currency in functional 10% decrease 10% decrease in functional currency value in functional currency 10% decrease Financial liabilities: T value currency in functional 10% decrease income – (loss)/gain Potential impact on other comprehensive 10% incr Potential impact on income statement – (loss)/gain 10% incr Borrowings liabilities Intra-group Cash and cash equivalents assets Intra-group exchange cash fl ow risk, and to provide greater certainty as to the amount of sterling available to pay expected future dividends, of sterling available to pay expected future certainty as to the amount greater ow risk, and to provide exchange cash fl expected euro between now and 2015 that will convert swaps maturing currency transactional cross into has entered the Group subsidiaries into sterling. dividends from Foreign currency sensitivity analysis in companies held by Group nancial assets and liabilities arising on fi exposures currency The tables below illustrate the Group’s curr £ million Financial assets: receivables and other Trade nancial instruments Derivative fi Translation risk Translation and the underlying mater material acquisitions risk by funding balance sheet translation policy of managing its has a The Group business assets with borr business assets on the translation exposure minimising costs thereby interest currency by foreign offset ts being partially profi operating currency after tax. ts profi currency foreign nance and has a policy of at the time of raising new fi most appropriate that are issues debt in the market or markets The Group to change the necessary, exchange swaps where foreign swaps and currency nancial instruments, such as cross using derivative fi currency. debt into the desired risk Transaction of tobacco l include the purchase of subsidiaries other than the functional currencies in currencies Material costs denominated which is sour currentl the Group ows dollar infl After taking into account other US number of currencies. in a purchased various countries and enough to hedge. ow risk to be material cash fl exchange foreign does not consider this the foreig to manage subsidiary earnings. In order foreign from is partly sourced sterling dividend to shareholders The Group’s Derivative fi nancial instruments Derivative fi 1 nancial instruments. the notional amounts of derivative fi Amounts represent 10% decrease in functional currency value in functional currency 10% decrease income – (loss)/gain Potential impact on other comprehensive 10% incr Potential impact on income statement – (loss)/gain 10% incr 6 – – – – (5) 4 g n on

nancial ury – – – 8 36 2011 – – – 1 – – – (507) (217) – – 4,639 1,240 150 – 3,242 2,280 49 – 2,339 – 1 620 266 5 5,581 2,393 56 1 21,344 1,947 469 GBP EUR USD Other continued 1 1 ow and fair value interest rate risk oup to cash fl ow interest rate risk. Borrowings at fi xed rates expose the Group to fair value interest rate risk. Group Treas rate risk. Group to fair value interest xed rates expose the Group at fi risk. Borrowings rate ow interest oup to cash fl Financial liabilities: payables and other Trade nancial instruments Derivative fi 10% decrease in functional currency value in functional currency 10% decrease Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco exchange rates and ignores any tax effects. exchange rates and ignores that nancial instruments to fi exchange rate movements primarily relates foreign from in the income statement The effect effective not accounted for as hedges under IAS 39 although commercially but which are exposures, hedge Group commercially other movements through by related is expected to be substantially offset (see note 20 for hedge accounting). This value our adjusted performance measures. gain or loss is excluded from any residual income and, accordingly, comprehensive net debt was denominated in sterling, 56% in euro 24% (2011: 24%) of reported At 30 September 2012, approximately (2011: 51%) and 20% in US dollars (2011: 25%). Interest rate risk Cash fl Gr and GTC. the position monthly to the Board basis and reports a regular chose to the Group rate risk. Historically, to interest exposure rate swaps to manage the Group’s transacts interest The Group with the xing transactions in accordance executing fi oating rates at the time of issue, xed rate debt into fl convert newly issued fi as and when deemed appropriate. rate risk management framework and GTC approval interest nancial instruments detailed in note 20, 31% (2011: 26%) of of derivative fi At 30 September 2012, after adjusting for the effect xed rate of interest. (2011: 74%) was at a fi and 69% rate of interest oating net debt was at a fl reported The Group’s interest rate risk arises from borrowings net of cash and cash equivalents. Borrowings at variable rates expose the net of cash and cash equivalents. Borrowings borrowings rate risk arises from interest The Group’s 1 nancial instruments. fi the notional amounts of derivative Amounts represent changes. Other larger or smaller possible reasonably to represent considered exchange rates are The above movements in foreign of net debt and the proporti on the basis that the amount also possible. The sensitivity analysis has been prepared changes are of fi nancial instruments in foreign currencies are all constant and on the basis of the net investment hedge designations in place at all constant and on the basis of the net are currencies nancial instruments in foreign of fi changin from costs that may result nance or non-fi to revenue ect any change The sensitivity analysis does not refl 30 September. accruals, the fair value of derivative fi levels using adjusted net debt which excludes interest borrowing monitors the Group’s o rate exposure manages its interest nance lease liabilities. The Group ow hedges and fi cash fl commercial instruments providing £ million Financial assets: and other receivablesTrade instruments nancial Derivative fi 5 – 77 3 19 Financial Risk Factors continued Risk Factors 19 Financial Notes to the Financial Statements Statements Financial to the Notes 10% decrease in functional currency value in functional currency 10% decrease Potential impact on income statement – (loss)/gain Potential impact on income value in functional currency 10% increase Intra-group assets Intra-group income – (loss)/gain comprehensive Potential impact on other value in functional currency 10% increase Cash and cash equivalents Borrowings liabilitiesIntra-group Potential impact on income statement – (loss)/gain value in functional currency 10% increase value in functional currency 10% decrease income – (loss)/gain Potential impact on other comprehensive value in functional currency 10% increase value in functional currency 10% decrease – – – 677 – – (828) 1 1,263 11,210 (1,544) 171 (210) 5,494 699 6 (7) 41 (49) – 317 2 (3) 2

Overview Strategic Review Performance Risk Governance Financials 120 Overview Strategic Review Performance Risk Governance Financials 121 – – – (4) Total Total Other exposure Group’s Group’s – – – – 10,203 – 10,203 – 2 84 (392) 84 (392) USD Effect of Effect derivatives 2011 – 17 22 1,033 1,055 Total Total EUR 691 2,800 3,491 owings 9,512 (2,800) 6,712 3,971 (1,933) 2,038 2,105 2,800 4,905 4,105 (1,900) 2,205 10,203 10,203 borr 2012 2011 – 8 47 (196) GBP Total Total Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco exposure – – – – – – – – 27 6 24 1 (4) 24 1 27 6 otal 23 603 30 909 (20)909 603 30 (316) Total Total GBP EUR USD Other T (457) 8,956 3,420 5,872 8,956 3,420 (20)1,461 140 (47) 2,151 597 (363) 2,370 120 (316) 2,754 627 2,320 812 1,703 197 (392) 9,032 3,771 5,569 (8,353) (3,390) (4,963) (9,489)(3,724) (5,765) Effect of Effect 2012 derivatives Total Total 2,118 1,501 3,619 9,587 – 9,587 9,587 – 9,587 9,587 – 8,353 (2,151)1,234 2,151 3,385 6,202 1,254 2,151 3,405 2,011 (1,780) 231 4,204 (1,872) 2,332 owings borr ehensive income nance lease liabilities) exposed to either fi xed interest rates or fl oating interest rates and revises this rates and revises interest oating rates or fl xed interest nance lease liabilities) exposed to either fi ve years est est 1 1 ve years or more otal interest bearing otal interest bearing otal interest elated to variable rate fi nancial instruments. nancial rate fi elated to variable +/- 100bps change income Potential impact on other comprehensive Adjust for the effect of derivative fi nancial instruments derivative fi of Adjust for the effect Net variable rate debt exposure +/- 100bps change 2,777 Potential impact on income statement 765 1,899 113 In fi Analysed as: Fixed rate inter T Floating rate inter £ million Financial liabilities: Repricing due: Within one year fl oating rate debt at 30 September, and ignores any tax effects. and ignores oating rate debt at 30 September, fl nancial liabilities les of fi Interest rate profi nancial derivative fi (excluding of the underlying borrowings repricing The following table sets out the timing of contractual instruments but including fi Between one and two years Between two and fi 1 nancial instruments. Excluding net derivative fi possible changes. Other larger or smaller changes reasonably to represent considered rates are The above movements in interest xed to on the basis that the amount of net debt and the ratio of fi also possible. The sensitivity analysis has been prepared are all constant. rates of the debt and derivatives portfolio are oating interest fl of the nance costs in respect on net fi ects the effect rates refl changes in interest The impact in the income statement due to swaps. currency rate and cross of interest effect for the repricing £ million Net debt 1 nancial instruments. Excluding net derivative fi £ million Net debt Interest rate sensitivity analysis Interest rate rates interest of movements in income other comprehensive income statement and on the illustrates the effect The table below r Variable rate debt Variable Less: fi xed rate debt Less: fi Variable rate debt Variable Less: fi xed rate debt Less: fi nancial instruments of derivative fi Adjust for the effect exposure Net variable rate debt +/- 100bps change statement Potential impact on income +/- 100bps change compr Potential impact on other T 98 95 90 8.

: 223 131 127 112 ses

ther al £ million hort to

credit risk credit Maximum exposure to exposure osed in ed by the eral is redit limits is redit 2011 A A A- A+ AA AA AA S&P edit rating cr 92 128 £ million Maximum credit risk credit exposure to exposure 2012 A 113 A 74 A 64 A 59 A- 115 A+ S&P AA- edit rating cr ent obligations. continued nancial instruments transacted with fi nancial institutions. transacted with fi nancial instruments oup is exposed to commodity price risk in that there may be fl uctuations in the price of tobacco leaf. As with o in the price of tobacco uctuations be fl may risk in that there to commodity price oup is exposed oducts are made to customers with an appropriate credit history and obtains guarantees or other means of credit support or other means of credit history and obtains guarantees credit made to customers with an appropriate oducts are d. The Group has placed cash deposits and entered into derivative fi nancial instruments with a diversifi ed group of fi nanci of fi ed group nancial instruments with a diversifi into derivative fi has placed cash deposits and entered d. The Group o manage this risk the Group has a policy of actively maintaining a mixture of short, medium and long-term committed facilities of short, medium and long-term committed facilities has a policy of actively maintaining a mixture o manage this risk the Group agricultural commodities, the price of tobacco leaf tends to be cyclical as supply and demand considerations infl uence tobacco infl as supply and demand considerations the price of tobacco leaf tends to be cyclical agricultural commodities, variations in weather patterns may experience that regions Also, different tobacco is grown. where plantings in those countries tobacco this price risk by sourcing seeks to reduce and so lead to changes in price. The Group quality or supply crop may affect these leaf held. Currently, and by varying the levels of tobacco countries and counterparties a number of different leaf from no sensitivity analysis not material and accordingly, considered to this risk to levels the expected exposure techniques reduce has been presented. risk Credit cash and cash deposits as well as from customers, due from its trade receivables risk arising from is exposed to credit The Group of derivative fi and the mark-to-market institutions with suitable credit ratings in order to manage its credit risk to any one fi nancial institution. Utilisation of c risk to any one fi to manage its credit ratings in order institutions with suitable credit with most of its counterparties for has ISDA Master Agreements the Group exposures, credit and to reduce monitored regularly In limited cases, collat of assets and liabilities in certain circumstances. nancial derivatives, which permit net settlement fi Support Annex in each case. supported by an ISDA Credit nancial liabilities and these are pledged against derivative fi rating and balances at 30 September nancial institution counterparties by credit major fi The table below summarises the Group’s on these forecasts, which are subsequently reviewed by the Audit Committee. Undrawn borrowing facilities are detailed in note 1 facilities are by the Audit Committee. Undrawn borrowing subsequently reviewed are which on these forecasts, The Group considers its maximum aggregate credit risk to be £4,443 million at 30 September 2012 (2011: £4,613 million). credit considers its maximum aggregate The Group Liquidity risk nancing needs of the Group. cient funds to meet the fi having insuffi is exposed to liquidity risk, which represents The Group T by a range of instruments including bank funding is provided of liquidity, on individual sources over-reliance prevent medium term. To and sensitivity analy tests stress perform corporate bonds. Management routinely paper and facilities, commercial loans, credit dialogue with function is in regular Treasury liquidity needs, the Group core monitoring the Group’s and As well as forecasting capital funded by a combination of share met. Subsidiary companies are their liquidity needs are subsidiary companies to ensure local terms, or in some limited cases through nance companies on commercial central fi earnings, loans from and retained to Group subsidiary companies is remitted liquidity from Available currencies. by the subsidiaries in appropriate borrowings basis. on a regular practical and possible where Treasury that are designed to ensure that the Group has suffi cient available funds for the forecast requirements of the Group over the s of the Group requirements cient available funds for the forecast has suffi that the Group designed to ensure that are Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Financial institution A Counterparty Boar Financial institution B Financial institution C to reduce the risk where this is considered necessary. Analysis of trade and other receivables is provided in note 15. in note is provided other receivables Analysis of trade and necessary. this is considered the risk where to reduce Financial instruments in excess of limits agre nancial institutions that are fi risk from no concentrations of credit has a policy of having The Group Trade and other receivables Trade that to ensure has implemented policies Group the However, risk. of customer credit cant concentrations has some signifi The Group sales of pr Price risk discl than its pension assets price risk other nancial instrument price risk or fi exposed to equity securities is not The Group 19 Financial Risk Factors continued Risk Factors 19 Financial Notes to the Financial Statements Statements Financial to the Notes note 22. The Gr note 22. The Financial institution D Financial institution E Financial institution F Financial institution G to default on their curr Management do not expect these counterparties

Overview Strategic Review Performance Risk Governance Financials 122 Overview Strategic Review Performance Risk Governance Financials 123 – to cash mix evant vable has been the fi nancial the fi 2011 – 106 106 383 395 4,709 8,098 5,148 9,204 3,389 4,056 1,616 1,642 2,105 2,143 Between Between 2 and 5 years > 5 years 2 and 5 years > 5 years Carrying amount Fair value Between Between 1 and 2 years 1 and 2 years 2012 2011 2012 1 1 41 41 50 50 <1 year 4,963 5,581 8,333 9,955 3,370 4,374 1,162 1,162 1,254 1,254 Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Carrying amount Fair value otal Total <1 year ows T cash fl ows cash fl Contractual cash fl Contractual 84 84 84 – – – 84 – 84 84 – – 20 – 20 20 911 1,264 232 151 372 509 232 151 1,264 911 1,036 1,036 1,036 – – – – – 1,036 1,036 3,091 5,895 1,695 2,422 13,103 9,483 1,036 amount 1,061 1,427 368 217 446 396 amount 10,623 14,243 2,835 2,422 3,091 5,895 2,835 2,422 14,243 10,623 Balance sheet Balance sheet ces of fi nance such as the debt capital markets. The Group defi nes capital as adjusted net debt (see note 30) and nes capital as adjusted net debt (see note 30) defi nance such as the debt capital markets. The Group ces of fi ent borrowings and fi nance lease liabilities: and fi ent borrowings oximate to their book values. All derivative fi nancial instruments are valued using techniques based signifi cantly on obser valued using techniques based signifi nancial instruments are oximate to their book values. All derivative fi o o ithin the table above, it is only the capital market issuances that have a fair value different to the carrying value and this ithin the table above, it is only the capital market issuances that have a fair value different otal non-current borrowings and fi nance lease liabilities and fi borrowings otal non-current otal current borrowings and fi nance lease liabilities and fi borrowings otal current market data such as yield curves and foreign exchange rates (Level 2 classifi cation hierarchy of IFRS 7). cation hierarchy rates (Level 2 classifi exchange market data such as yield curves and foreign in carried nancial liabilities that are Set out below is a comparison by category of carrying amounts and fair values of all fi statements at amounts other than fair values. carried at fair value. nancial instruments that are than derivative fi carried at amortised cost, other nancial assets and liabilities are All fi so to their fair value and approximate and trade payables are The carrying amounts of cash and cash equivalents, trade receivables carried at fair value. excluded as they are nancial instruments are Derivative fi the analysis below. excluded from are calculated by comparing the current trading levels to par. calculated by comparing the current T W ongoing sour Eur balance sheet date. balance sheet £ million nancial liabilities: Non-derivative fi Bank loansCapital market issuance payablesTrade Finance lease liabilitiesnancial liabilities non-derivative fi Total nancial liabilities – derivative fi Total note 20 11,372 Capital management 10,010 of capital whilst ensuring access to minimise the cost in order cient manner in an effi structure manages the capital The Group 14,719 13,355 3,862 23 170 1,169 2,520 1,169 533 170 25 511 1,169 5,011 170 5,011 3 5,313 5,313 – – 22 – – – – US dollars Other – – T Sterling £ million nancial liabilities: Non-derivative fi Bank loans Capital market issuance payables Trade Finance lease liabilities nancial liabilities non-derivative fi Total liabilities – nancial derivative fi Total note 20 The table below summarises the Group’s fi nancial liabilities by maturity based on their contractual cash fl ows. The contractual fl their contractual cash by maturity based on nancial liabilities fi Group’s summarises the The table below fl ows disclosed in the table include interest to be paid, are undiscounted and have been calculated using spot rates at the rel using spot rates and have been calculated undiscounted to be paid, are interest in the table include ows disclosed fl Non-curr £ million equity attributable to owners of the parent company (see Consolidated Statement of Changes in Equity). The only externally company (see Consolidated Statement of Changes equity attributable to owners of the parent cover and gearing covenants under the terms of the ECP Facility and interest are for the Group imposed capital requirements the prior period. period and with which we have fully complied during both the current Bank Bridge Facility, has and will continue to take the rating and to maintain an investment grade credit structure manages the capital The Group an appropriate through of capital to shareholders to maintain this, including consideration of the return measures appropriate buy backs and dividends. of share liabilities nancial nancial assets and fi Fair value estimation and fair values of fi to be considered other than derivatives, are year, nancial assets and liabilities with maturities less than one The fair values of fi appr Current borrowings and fi nance lease liabilities: and fi borrowings Current Sterling Eur 29 409 tive etail in 2011 – (134) – – 403 40 (104) 28 218 429 760 183 223 405 301 652 1,061 429 894 155 158 429 491 Assets Liabilities Between Between 2 and 5 years > 5 years 2 and 5 years years > 5 9 Between Between 1 and 2 years 1 and 2 years 2011 2012 2012 (3) (61) 11 9 13 (11) 19 138 37 9 636 729 253 193 266 182 902 911 639 790 205 175 620 652 <1 year Assets Liabilities otal Total <1 year ows T 2,540 1,334 314 100 792 1,334 314 2,540 1,264 232 151 372 509 1,264 232 151 (2,377) (1,274) (307) (90) (706) cash fl ows cash fl Contractual cash fl Contractual instruments equired. Any collateral transferred to counterparties in respect of deriva to counterparties in respect Any collateral transferred equired. 791 1,101 172 144 362 423 1,101 172 791 120 911 continued 1,061 1,427 368 217 446 396 1,061 amount amount nancial Balance sheet Balance sheet instruments nancial nancial instruments nancial ed under the terms and conditions of credit conditions of credit ed under the terms and ed under the terms and conditions of credit eign exchange and interest rate risk arising on fi nancial assets and liabilities. These risks are discussed in more d discussed in more nancial assets and liabilities. These risks are rate risk arising on fi eign exchange and interest d foreign currency contracts currency d foreign oss currency swaps oss currency oss currency swaps oss currency otal current derivatives otal current nancial instruments otal carrying value of derivative fi otal non-current derivatives otal non-current support annex documents under ISDA agreements support annex documents support annex documents under ISDA agreements T Cr Collateral transferr derivative fi Non-current T Net liability T Collateral transferr Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Derivatives as hedging instruments rate swaps and swaptions to contracts, interest currency foreign swaps, forward currency into various cross has entered The Group manage for note 19. hedging the strict However, manner. and structured cient, commercial in an effi hedges underlying exposures The Group hedge positions not qualifying for hedge accounting. As a result, effective of IAS 39 may lead to some commercially requirements ow or fair value hedge accounting for its derivative not to apply cash fl has decided and as permitted under IAS 39, the Group and derivatives certain borrowings does apply net investment hedging, designating the Group nancial instruments. However, fi to minimise income operations, as permitted by IAS 39, in order foreign as hedges of the net investment in the Group’s statement volatility. Liabilities: Net settled derivatives settled derivativesGross – receipts– payments 652 409 851 173 152 (8,531) 9,107 (3,046) 356 3,241 (1,233) 1,298 170 (2,003) 2,093 (2,249) 2,475 £ million Gross settled derivatives Gross – receipts – payments Liabilities: Net settled derivatives £ million Derivative fi nancial instruments have been classifi ed in the balance sheet as current or non-current according to their undiscounted according or non-current ed in the balance sheet as current been classifi nancial instruments have Derivative fi rates as r contractual cash settlements applying spot Interest rate swaps and swaptions Interest rate swaps and swaptions Interest £ million fi derivative Current 20 Derivative Financial Instruments Financial 20 Derivative Notes to the Financial Statements Statements Financial to the Notes fi nancial liabilities has been classifi ed consistently with the related underlying derivative. underlying with the related ed consistently nancial liabilities has been classifi fi Forwar Cr Maturity of obligations under derivative fi Maturity of obligations under derivative

Overview Strategic Review Performance Risk Governance Financials 124 Overview Strategic Review Performance Risk Governance Financials 125

bt et place h llion on of date. 47 million). Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco est rate swaps entered into to manage the Group’s exposure to interest rate risk was £7,337 million to interest exposure the Group’s into to manage est rate swaps entered est rates transacted under these swaps are as follows: these swaps are est rates transacted under est rate swaps have embedded options. Assumptions have been made based on market information and from have been made based on market information and from est rate swaps have embedded options. Assumptions oughout the life of the trade. These trades are not expected to be cancelled before their maturity date. expected to be cancelled before not are oughout the life of the trade. These trades opriate at the time of raising new fi nance and then using derivative fi nancial instruments where necessary to change the de necessary instruments where nancial derivative fi nance and then using fi time of raising new opriate at the Sterling denominated: fi xed rate received varies from 7.5% to 8.7% (2011: 7.5% to 8.7%) against a fl oating rate paid of LIBOR oating rate (2011: 7.5% to 8.7%) against a fl 7.5% to 8.7% varies from xed rate received fi Sterling denominated: (2011: 301bps to 511bps). plus 301bps to 511bps oating rate paid of EURIBOR fl to 8.0% (2011: 3.9% to 8.0%) against a 3.9% varies from xed rate received fi denominated: Euro (2011: 55bps to 503bps). plus 55bps to 503bps of LIBOR oating rate paid 4.2% to 5.5%) against a fl 4.2% to 5.5% (2011: varies from xed rate received USD denominated: fi (2011: 175bps to 285bps). plus 175bps to 285bps Sterling denominated: fi xed rate paid varies from 3.0% to 5.7% (2011: 3.0% to 6.1%) against receiving LIBOR. (2011: 3.0% to 6.1%) against receiving 3.0% to 5.7% paid varies from xed rate Sterling denominated: fi EURIBOR. receiving 2.0% to 5.1% (2011: 2.0% to 5.1%) against xed rate paid varies from denominated: fi Euro LIBOR. 4.7% (2011: 1.4% to 4.8%) against receiving 1.4% to rate paid varies from xed US dollar denominated: fi £15 million interest rate swap maturing in 2031 where the counterparty has the option to cancel every six months throughout the the option to cancel every six months throughout the counterparty has swap maturing in 2031 where rate £15 million interest cancelled in April 2021. life of the trade. This trade is expected to be the ve years throughout the counterparty has the option to cancel every fi swap maturing in 2041 where rate £50 million interest cancelled in April 2021. life of the trade. This trade is expected to be months the counterparty has the option to cancel every three rate swaps maturing in 2013 where €1,200 million interest thr – – – – – – – – – The notional amount of inter The notional amount of Applied as commercial hedges commercial Applied as st mo that are in the market or markets by issuing debt is managed borrowings rate risk on Group in note 19, interest As mentioned appr into the appropriate proportions of fi xed and fl oating interest rates in accordance with the interest rate risk management framework. risk management rate interest with the rates in accordance interest oating xed and fl of fi proportions into the appropriate swaptions Interest rate swaps and was oating rate borrowings to change newly issued debt into fl into swaps entered rate interest The notional amount of (2011: net asset these swaps was a net asset of £788 million (2011: £8,291 million). The fair value of £7,492 million equivalent of £582 million). The inter equivalent (2011: £9,025 million). The fair value of these swaps was a net liability of £705 million (2011: net liability of £6 equivalent (2011: £9,025 million). The fair value as follows: rates transacted under these swaps are The interest Certain of these inter rate swaps with a total notional amount of £1,135 mi starting interest into several forward has entered the Group Additionally, with tenors extending between 5 and 10 years, starting between October 2012 and equivalent (2011: £2,307 million equivalent) liability of £73 million (2011: net liability May 2017 (2011: April 2012 and May 2017). The fair value of these swaps was a net rate risk. ow interest to cash fl exposure to manage the Group’s xed rates in order into fi oating borrowings equivalent) of fl Forward foreign currency contracts As at exposures. currency contracts to manage short-term foreign currency foreign into forward has entered The Group (2011: £1,608 million equivalent) 30 September 2012 the notional amount of these contracts was £2,373 million equivalent liability of £29 million). and the fair value of these swaps and contracts was a net asset of £2 million (2011: net counterparties expectations at 30 September 2012 to determine whether, and if so when, such options are likely to be exercised be exercised likely to are and if so when, such options 2012 to determine whether, counterparties expectations at 30 September mark The actual maturity date could be earlier or later depending upon future maturity date. to determine the probable in order conditions and a cancellation would not result in a cash fl ow other than in respect of interest outstanding at the cancellation outstanding of interest ow other than in respect in a cash fl conditions and a cancellation would not result borrowings of the Group’s the proportion rate swaps would be to reduce of any of these interest of the cancellation The effect rate risk. Shortly after any such cancellation Group ow interest to cash fl exposure the Group’s xed rate, increasing that was at a fi rate swaps to re rate risk, transact further interest the management of interest would, if deemed necessary as part of Treasury £256 million). rate swaps wit them with the right to transact interest sold options to two counterparties providing the Group During the year, 2014 by the counterparty on 27 March available for exercise notional values of €100 million and £100 million. The options are for 5 years. 2.72% respectively xed rates of 2.79% and paying fi in the Group would result and 30 April 2014 and if exercised, The fair value of these swaps was a net liability of £13 million. rate swaps live at 30 September 2012 is to convert £6,202 million equivalent (2011: £6,711 milli of interest The overall effect the cancelled swaps. The embedded options are as follows: are the cancelled swaps. The embedded options (9) 34 44

ent Total

275 Total (440) (409) (409) (196) in) llion)

million). on exchanged – (5) 73 321 73 (566) (723) Income Income Fair value statement Fair value statement movements interest rate interest movements interest rate interest attributable to recognised in: recognised recognised in: recognised attributable to 2011 2012 est Income Income statement statement – 122 639 761 – (157) – (5) 288 – – 288 288 – – 288 (40) income income rate movements recognised in: rate movements recognised Fair value attributable to interest Fair value attributable to interest rate movements recognised in: rate movements recognised Comprehensive Comprehensive Fair value attributable to inter Comprehensive Comprehensive instruments nancial continued om subsidiaries into sterling. As at 30 September 2012 the notional amount of these contracts was £2,311 million of these contracts was the notional amount at 30 September 2012 into sterling. As om subsidiaries ency swaps with a notional value of €2,922 million (2011: €4,555 million) have been designated as hedges of the net investm million) have been designated as hedges value of €2,922 million (2011: €4,555 ency swaps with a notional nancial instruments nancial liabilities Collateral transferred in respect of certain derivative in respect Collateral transferred fi Gains arising on instruments designated as net investment hedges Gains arising on instruments designated as nancial instruments Net fair value gains/(losses) on derivative fi 2011 Net fair value of derivatives at 30 September Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Derivative fi nancial instruments: Derivative fi hedges (note 7)Gains arising on commercial hedges (note 7)Losses arising on commercial 7) (note borrowings underlying Losses offsetting Gains arising on instruments designated as net investment hedgesnancial instruments Net fair value gains/(losses) on derivative fi Net fair value of derivatives at 30 September 2010 12 12 – – – – (76) 7 – (76) (7) 17 438 12 (421) (47) – 445 (428) (76) were transferred to reserves through other comprehensive income. other comprehensive through to reserves transferred were derivative fi Reconciliation of fair value gain/loss on £ million of certain derivative in respect Collateral transferred nancial liabilities fi derivative Cash payments on settlement of matured nancial instruments fi Net fair value of derivatives at 30 September 2011 £ million nancial instruments: Derivative fi hedges (note 7) Gains arising on commercial curr €6,792 million (2011: €6,365 mi loans with a fair value of Permanent intra-group operations. foreign investments in the Group’s operations. foreign in investments in the Group’s as a reduction have been treated exchange gains amounting to £1,143 million (2011: £5 million ga investment hedging, foreign of net as a result During the year, hedges (note 7) Losses arising on commercial derivative Cash payments on settlement of matured fi Net fair value of derivatives at 30 September 2012 The movements in the carrying value of derivative fi nancial instruments in the year were as follows: instruments in the year were nancial fi The movements in the carrying value of derivative Cross currency swaps Cross currency converting euro risk associated with ow fl exchange cash to manage foreign swaps into currency has entered The Group dividends fr liability of £257 was a net asset of £9 million (2011: net million) and the fair value of these swaps equivalent (2011: £3,605 20 Derivative Financial Instruments continued Financial 20 Derivative Notes to the Financial Statements Statements Financial to the Notes Principal amounts are exchanged at the start and maturity of these trades. exchanged at the Principal amounts are rate. As at and type of interest currency issued debt into the desired swaps to convert currency into has entered The Group equivalent) and £1,828 million equivalent (2011: £2,231 million notional amount of these contracts was 30 September 2012 the are net liability of £336 million). Principal amounts swaps was a net liability of £100 million (2011: the fair value of these of these trades. at the start and maturity milli £6,202 million equivalent (2011: £6,711 nancial derivatives is to convert of fi the overall effect As detailed in note 19, rate borrowings. xed into fi oating borrowings equivalent) of fl operations of net investments in foreign Designated as hedges externalAt 30 September 2012 million) and cross €6,424 million (2011: €5,224 million and US$100 loans with a carrying value of of these the retranslation gains or losses on effective, are the extent that these hedges To operations. foreign in the Group’s any gains or losses on translation of the net income to offset as other comprehensive recognised are and derivatives borrowings (note 7) underlying borrowings Losses offsetting

Overview Strategic Review Performance Risk Governance Financials 126 Overview Strategic Review Performance Risk Governance Financials 127 – 7 (4) 10 56 59 11 (59) (69) (21) (27) 102 2011 2011 Total Total (125) (2,056) (1,954) – (2) (2) 37 39 32 47 85 47 67 102 (38) (52) (68) 142 2012 2012 Other Other (100) Other Other (1,877) (1,735) temporary temporary differences Total differences Total temporary temporary differences differences – (6) – – 123 150 – – – (14)– 120 – – 5 315 (2,074) 4 247 (2,056) (1) (1) (4) Fair value Fair value Fair value Fair value movements movements 2011 2011 2012 2012 movements movements – 4 – (16) 4 – 7 2 8 4 (47)8 4 (85) (1) ts ts 48 58 4 247 (2,056) 247 58 4 94 63 – 183 (1,877) 183 63 – 58 (21) ement ement benefi ts benefi benefi ts benefi benefi benefi Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Retirement Retirement Retirement Retirement Retir Retir – 79 – 79 – – – 1 1 – (4) – – – – – 17 – – 17 2 34 (18) 48 25 (14) – 19 14 (11) 47 54 – – (97)54 – – 50 (8) (43) 10 (47) (67) (65) 100 (67)142 48 158 3 (65)102 67 100 – (50) 138 (4) assets assets assets assets (2,442) (2,365) (2,365) (2,123) intangible intangible Fixed and Fixed and Fixed and Fixed and intangible intangible ed tax liabilities ed tax liabilities At 30 September 2012 Exchange movements Deferred tax assets Deferred Deferred tax expected to be recovered within 12 months within tax expected to be recovered Deferred Credited/(charged) to income statement Credited/(charged) At 1 October 2010 £ million £ million At 1 October 2011 Credited to other comprehensive income to other comprehensive Credited £ million At 1 October 2010 to income statement Credited/(charged) Transfers £ million At 1 October 2011 to equity Credited Transfers Credited/(charged) to income statement Credited/(charged) Other movements Exchange movements Deferr £ million tax assets Deferred £ million tax assets Deferred 21 Deferred Tax Assets and Liabilities Assets Tax 21 Deferred current tax assets against current right to set off is a legally enforceable only when there offset and liabilities are tax assets Deferred after amounts, determined The following scal authority. fi to the same taxes relate income and when the deferred tax liabilities balance sheet. shown in the consolidated are offsetting, appropriate Deferr Exchange movements Charged to other comprehensive income Charged to other comprehensive Transfers Exchange movements At 30 September 2012 Credited to other comprehensive income to other comprehensive Credited Transfers Credited/(charged) to income statement Credited/(charged) At 30 September 2011 tax liabilities Deferred Within other temporary differences, deferred tax assets of £24 million (2011: £88 million) are recognised for tax losses carried for tax losses carried recognised million) are tax assets of £24 million (2011: £88 deferred Within other temporary differences, ts is probable. taxable profi future t through tax benefi of the related to the extent that the realisation forward At 30 September 2011 3 2 (5) n 18 51 51 69 18 49 67 49 180 2011 2011

(178) t nised to erred erred

rences, rences, rable. onomic hese 2 18 46 19 43 64 27 18 27 45 (18) 187 2012 2012 (168) t continued t Schemes t t scheme costs charged to operating proﬁ

eturn on retirement benefi t assets benefi eturn on retirement om special termination benefi ts om special termination benefi ement benefi ts net fi nancing costs in net fi nance costs (note 7) nancing costs in net fi ts net fi ement benefi est on retirement benefi t liabilities benefi est on retirement ned benefi t costs in operating profi t t costs in operating profi ned benefi ned contribution costs in operating profi t ned contribution costs in operating profi ned contribution costs in operating profi t ned contribution costs in operating profi otal defi ned benefi t scheme cost ned benefi otal defi otal retirement benefi t scheme costs in the income statement benefi otal retirement otal retirement benefi t scheme costs in operating profi t t scheme costs in operating profi benefi otal retirement Defi Retir T Defi T £ million service cost Current Past service cost Losses fr Inter Expected r T Retirement benefi Retirement Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Defi ned benefi t costs in operating profi t t costs in operating profi ned benefi Defi relating to losses and tax credits previously recognised on the basis that it is more likely than not that these are not recove than not that these are likely the basis that it is more on recognised previously losses and tax credits to relating tax associated with undistributed earnings of subsidiaries for which deferred amount of temporary differences The aggregate for of £6 million (2011: £8 million) has been made A provision is £8 billion (2011: £8 billion). liabilities have not been recognised No liability has been recog one subsidiary. payment of £92 million from dividend taxation expected to arise on a planned future of the temporary diffe the timing of the reversal is in a position to control because the Group of other differences in respect future. in the foreseeable will not reverse that such differences and it is probable ion 1 April 2012 and a further reduct 26 per cent to 24 per cent from by 2 per cent from The rate of UK corporation tax was reduced cent is expected to be enacted of 1 per April 2013 was enacted at the balance sheet date. A further reduction 1 to 23 per cent from 2012, tax balance at 30 September cent, if applied to the deferred of 1 per reduction of this further 1 April 2014. The effect as from £2 million. tax liability by the deferred would be to reduce £ million Defi The Group operates a number of retirement benefi t schemes for its employees, including both defi ned benefi t and defi ned t and defi ned benefi for its employees, including both defi t schemes benefi of retirement operates a number The Group operated by Imperial t schemes and are ned benefi defi nal salary fi two principal schemes are contribution schemes. The Group’s held in trustee assets are scheme’s The UK GmbH in Germany. Limited in the UK and Reemtsma Cigarettenfabriken Tobacco t scheme was closed to new members with benefi ned defi funds while the German scheme is unfunded. The UK administered instead. ned contribution scheme a defi offered 2010 and since that date new employees are 1 October from effect for the principal UK scheme have been updated to 30 September 2012 by actuarial valuation of the most recent The results consolidated to determine the amounts to be included in the Group’s Limited, actuaries and consultants, in order Watson Towers made as at or updated were of the pension liabilities of other schemes of the Group nancial statements. Actuarial valuations fi 22 Retirement Benefi 22 Retirement been recognised due to the potential uncertainty of the utilisation of the underlying tax losses in certain jurisdictions. Of t of the utilisation of the underlying tax losses due to the potential uncertainty been recognised per annum £60 million at approximately to expire expected assets, £539 million (2011: nil) losses are tax deferred unrecognised 5 years and £38 million (2011: nil) are within to expire expected £12 million (2011: £12 million) are between 2013 and 2021, between 2024 and 2029. expected to expire carried for tax credits recognised £113 million) are tax assets of £48 million (2011: deferred differences, Also within other temporary tax assets of Deferred ts is probable. taxable profi future t through tax benefi of the related to the extent that the realisation forward def These unrecognised of the credits. due to the potential uncertainty of the utilisation recognised £57 million have not been between 2016 and 2021. expected to expire tax assets are deterioration in ec in an overseas territory in the light of further tax assets of deferred the recoverability reviewed have We tax assets of £55 millio deferred impaired we have nancing arrangements. Consequently, fi in the Group’s indicators and a change to those schemes. 30 September 2012 by the various actuaries in the income statement Amounts recognised During the period, the Group has obtained a ruling from an overseas tax authority confi rming the availability of tax losses rming the availability of tax authority confi an overseas from has obtained a ruling period, the Group During the has tax asset ts no deferred profi taxable uncertainty of future available. Due to the as not regarded previously (£539 million) 21 Deferred Tax Assets and Liabilities continued and Liabilities Assets Tax 21 Deferred Notes to the Financial Statements Statements Financial to the Notes been recognised for these losses. As at the balance sheet date, deferred tax assets of £593 million (2011: £18 million) have no (2011: £18 million) have assets of £593 million tax deferred at the balance sheet date, for these losses. As been recognised

Overview Strategic Review Performance Risk Governance Financials 128 Overview Strategic Review Performance Risk Governance Financials 129 3 5 3 1 3 (3) (5) 11 32 24 67 51 94 (67) (41) 405 178 180 2011 2011 2011 2011 2011 2011 (687) (754) (202) (759) (754) (202) (158) (199) 2,876 3,630 3,802 2,960 2,876 (2,943) – 2 3 3 22 33 43 45 (10) (21) (78) (18) 404 809 168 184 101 187 588 2012 2012 2012 2012 2012 2012 (262) (784) (212) (212) 3,099 4,145 3,630 2,876 3,099 (1,046) (3,361) (1,046) (1,046) Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco ts balance sheet in the consolidated recognised t schemes – amounts value t scheme obligations – changes in present t scheme assets – changes in fair value eturn on defi ned benefi t scheme assets was a gain of £352 million (2011: gain of £20 million). ned benefi eturn on defi eturn on scheme assets ts paid ts paid ement benefi t liabilities ement benefi est cost ent service cost ned ned ned esent value of unfunded obligations esent value of unfunded otal retirement benefi t scheme costs in operating profi t operating profi t scheme costs in benefi otal retirement Pr Recognised in the consolidated balance sheet as: Recognised in the consolidated balance sheet Fair value of scheme assets Fair value of scheme Exchange movements Defi Defi Exchange movements At 30 September Inter T Distribution, advertising and selling costs advertising and selling Distribution, expenses Administrative and other £ million of funded obligations value Present benefi Which is split as follows in the income statement: as follows in the income Which is split £ million Cost of sales Curr Retirement benefi t assets t benefi Retirement £ million At 1 October benefi £ million Retir Expected r £ million At 1 October benefi Cumulative net actuarial losses since 1 October 2004 £ million Net actuarial losses/(gains) Amounts recognised in other comprehensive income other comprehensive in Amounts recognised Defi Past service cost Special termination benefi Benefi Actuarial gains/(losses) Contributions by employer At 30 September The actual r Contributions by employees Actuarial losses/(gains) Benefi Contributions by employees % %

3.0 ent Other tancy, tancy, other assets other assets Percentage of Percentage Percentage of Percentage 11 394 100.0 126 34.0 Other 2011 2012 2012 2011 % Fair value % Fair value UK Germany Other UK Germany UK 7.4 5.5 4.30 3.60 3.56 4.30 3.60 4.86 5.70 n/a 3.66 4.30 3.10 1.35 2.80 2.00 2.20 2.80 2.00 5.28 5.40 5.41 2.22 3.20 2.00 return Expected per annum per annum Expected return UK Germany 2012 2011 UK Germany % % Male Female Male Female Male Female Male Female 21.0 22.9 18.6 22.6 22.1 24.1 20.6 24.6 11.0 assets 100.0 UK assets Percentage of Percentage Percentage of UK Percentage 276 2,705 2,506 100.0 370 100.0 UK Other UK % Fair value % Fair value 7.0 1,189 44.0 3.4 920 34.0 7.2 3.9 12.0 6.4 325 5.5 216 54.9 134 34.1 10.0 13 7.0 271 4.2 3.2 31 7.8 4.4 877 35.0 4.4 203 54.9 7.6 1,153 46.0 5.7 200 8.0 4.4 30 8.1 continued continued per annum per annum Expected return Expected return t Schemes t in scheme valuations assumptions used – principal actuarial t scheme ned benefi ned Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco £ million unless otherwise indicated Equities Bonds Property Other Life expectancy at age 65 years: 65 aged Member currently 50 aged Member currently Categories of scheme assets and their expected rates of return 20.9 22.0 22.8 24.0 18.4 20.5 22.5 24.5 Life expectancy at age 65 years: aged 65 Member currently Expected return on scheme assets Expected return salary increases Future pension increases Future ation Infl on scheme assetsExpected return salary increasesFuture pension increasesFuture ation Infl the weighted averages of the rates used for schemes outside the UK and Germany. Other represents the IAS 19 pension expense by in the discount rate for all plans would increase estimate that a 0.5 per cent increase We estimate that a the pension expense by £1.3 million. We would reduce a 0.5 per cent decrease £0.3 million and approximately the IAS 19 pension expense increase/(decrease) on plan assets would return in the expected 0.5 per cent decrease/(increase) £15.1 million. by approximately set based on advice that uses published statistics and experience in each mortality experience are future Assumptions regarding aged 50 Member currently 6.24 n/a 4.70 3.20 5.50 3.10 2.00 3.71 1.91 % Discount rate Discount rate Defi % 22 Retirement Benefi 22 Retirement Notes to the Financial Statements Statements Financial to the Notes territory, and are provided in the table below for the defi ned benefi t schemes in the UK and Germany, which in aggregate repres which in aggregate and Germany, t schemes in the UK ned benefi in the table below for the defi provided and are territory, at the year end. The average life expec t scheme obligations ned benefi total defi 84 per cent (2011: 84 per cent) of the Group’s at age 65 is as follows: in years, of a pensioner retiring Bonds 7.1 Property £ million unless otherwise indicated Equities Other

Overview Strategic Review Performance Risk Governance Financials 130 Overview Strategic Review Performance Risk Governance Financials 131 ts as 163 107 545 708 ith 2011 2011 the

the timated siness. yments es were es were 103 107 410 513 2012 2012 8 – 8 8 – 33 25 58 63 8 (18) 63 8 (29)(22) (23) (20) (52) (42) 351 357 708 221 292 513 (120) (47) (167) Restructuring Other Total (24) 2011 2010 2009 2008 2011 2010 (754)(158) (842) 146 (58) (794) (633) (105) 3,630 3,802 3,592 2,874 3,630 3,802 2,798 2,769 2,876 2,960 Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco (36) 184 2012 4,145 3,099 (1,046) ovisions relate primarily to European Integration projects announced in June 2008 as part of the integration of announced projects Integration to European primarily ovisions relate cit)/surplus on plans ch 2010 the level of employer’s contributions to this scheme was increased from nil to £31 million per year as set by nil to £31 million per year from contributions to this scheme was increased ch 2010 the level of employer’s ent ITPF actuary. This level of contribution will be reviewed again at the next triennial valuation in 2013 at which time future pa time future again at the next triennial valuation in 2013 at which This level of contribution will be reviewed ITPF actuary. values to market relative investment returns continuing, it was assumed that the future mortality rates. On the basis that the ITPF is would average 5.0 per cent and per annum and that pay and pension increases at the valuation date would be 5.5 per cent into account at their market value. brought The assets were 3.5 per cent respectively. cient to cover suffi was £2,622 million. The total assets were 2010 the market value of the invested assets of the ITPF At 31 March pay increases. that had accrued to members for past service, after allowing for expected future ts 100 per cent of the benefi to members for past service and future ts that had accrued cient to cover 88 per cent of the total benefi suffi The total assets were members. ts for current service benefi may be increased or decreased. may be increased liabiliti when valuing the ITPF’s cant effect the assumptions which had the most signifi to the triennial valuation, In relation in pay and pensions and es existing assets, the rates of increase the ITPF’s on investment return to the rate of those relating 24 Share Capital 24 Share £ million Issued and fully paid of 10p each (2011: 1,067,942,881) shares 1,067,942,881 ordinary Non-curr £ million Current 23 Provisions £ million At 1 October 2011 an expected return for each asset class. The bond return is based on current market yields. The corporate bond yield has been bond yield has been yields. The corporate market on current is based bond return for each asset class. The return an expected including on a number of factors is based and property risk. The return on equities an element of default to allow for reduced relationship in general, the long-term for the economy prospects growth date, the long-term at the measurement income yield date. measurement since the previous and the movement in market indices and bond returns, between each asset class nancial investments in fi Pension Fund pooled fund holdings, the Imperial Tobacco through Excluding any self-investment £3 million). PLC amounted to £3 million (2011: Group Tobacco instruments of Imperial History of the plans assets Fair value of total plan Net total (defi charged to the income statement Additional provisions and social plan liabilities Unwind of discount on redundancy Amounts used Unused amounts reversed Exchange movements At 30 September 2012 Analysed as: At 30 September t obligations ned benefi of defi value Present £ million The derivation of the overall expected return on assets refl ects the actual asset allocation at the measurement date combined w date combined measurement asset allocation at the ects the actual refl on assets return of the overall expected The derivation Restructuring pr ve years. expected to crystallise within the next fi These liabilities are Imperial Tobacco and Altadis. They affect sales and marketing, manufacturing and central support functions in a number of marke and Altadis. They affect Imperial Tobacco expected to be used over which include employee social plans are provisions and have largely been implemented. The remaining the next ten years. value at the fair represent legal claims and disputes. The majority of other provisions to commercial relate principally Other provisions disputes, litigation and duty claims arising in the normal course of bu and potential Altadis commercial acquisition of current Experience (loss)/gain on total plan liabilities Experience (loss)/gain levels UK scheme triennial valuation and contribution scheme) (ITPF – the main UK Group Pension Fund valuation of the Imperial Tobacco Following completion in 2011 of the triennial at 31 Mar Experience gain/(loss) on total plan assets Experience gain/(loss) 6 3 17 26 2 2011 price £ price £ 17.80 average exercise exercise average weighted exercise exercise weighted Sharesave Sharesave e Sharesave Sharesave 2 3 74 16.97 17 22 428 2012 options options Sharesave Sharesave Sharesave Sharesave – 2011 2012 491 – – – 107 15.59 107 – – 856 349 610 20.45 856 349 610 (192)(811) (253) (183) (132) (356) 15.26 15.41 (174)(925) (264) (245) (97) (871) 15.77 12.96 awards awards LTIP 2,770 1,034 2,981 2,217 1,089 14.19 2,157 14.64 2,981 1,089 2,157 14.64 2,981 1,089 2,157 17.31 1,799 2,738 929 awards awards LTIP e matching Share matching Share ectors and some senior executives are set out in th executives are ectors and some senior Shar continued ee years after grant and are subject to performance criteria based on adjusted EPS growth and total EPS growth to performance criteria based on adjusted subject are ee years after grant and obacco Group PLC shares for a period of three years, after which additional shares are awarded on a 1:1 ratio. on a 1:1 awarded are years, after which additional shares for a period of three PLC shares obacco Group ds are predominantly equity settled. The balance sheet liability in respect of cash settled schemes at 30 September 201 of cash settled schemes equity settled. The balance sheet liability in respect predominantly ds are erm Incentive Plan esave Plan The weighted average Imperial Tobacco Group PLC share price at the date of exercise of awards and options was £24.20 of awards price at the date of exercise share PLC Group The weighted average Imperial Tobacco options granted during the year was £3.55 (2011: £4.77). (2011: £19.77). The weighted average fair value of sharesave Granted 1,214 Lapsed/cancelled Exercised Outstanding at 30 September 2011 at 30 September 2011 Exercisable Outstanding at 1 October 2010 Thousands of shares unless otherwise indicated Thousands of shares Thousands of shares unless otherwise indicated Thousands of shares Outstanding at 1 October 2011 Granted Lapsed/cancelled Exercised Outstanding at 30 September 2012 2012 at 30 September Exercisable Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Directors’ Remuneration Report on pages 77 to 93. Remuneration Report on pages 77 to Directors’ income statement Analysis of charge to the consolidated Long T £ million Matching Scheme Share Long Term Incentive Plan (LTIP) Incentive Long Term of the Remuneration and senior executives at the discretion made to the Executive Directors are LTIP under the of shares Awards thr Committee. They vest group. to the FTSE 100 and a comparator compared returns shareholder Plan Sharesave year period. ve or fi for a three participate in a designated savings scheme granted to eligible employees who Options are to dir including additional criteria applying Further details of the schemes The Group operates three types of share-based incentive programmes, designed to incentivise staff and to encourage them to build encourage them to and to to incentivise staff designed programmes, incentive types of share-based three operates The Group Group. a stake in the Scheme Matching Share bonus in matching scheme eligible of their share invest a proportion invited to employees who are made to eligible are Awards Imperial T 25 Share Schemes Schemes 25 Share Notes to the Financial Statements Statements Financial to the Notes Shar was £2.1 million (2011: £1.6 million). Reconciliation of movements in awards/options The awar

Overview Strategic Review Performance Risk Governance Financials 132 Overview Strategic Review Performance Risk Governance Financials 133 n 28 40 35 . 4.4

2011 21 – 50 of options 21 – 116 ollowing the outstanding £ outstanding Exercise price Exercise 2011 3 3 – 5 22 40 35 n/a 17.80 2.0 1.1 – 2.4 4.4 4.4 4.7 2012 34.1 31.5 – 33.4 17.34 19.79 22.24 4.15 – 5.39 months 18 – 44 18 – 104 remaining in remaining Share matchingShare Sharesave Vesting period Vesting 10 – 14.96 17.50 10 – 17 10 261 22 12.55 12.55 15.63 261 22 17.80 502 14 20.45 402 24 607 37 243 1 n/a 243 1 n/a 337 13 n/a 349 25 929 842 4 n/a 842 4 n/a 842 28 1,799 1,054 16 n/a n/a 1,054 16 2,738 Number of ds/options outstanding awar 2012 3 3 – 5 0.5 0.7 – 1.3 4.7 4.7 n/a 20.45 24.7 23.1 – 31.5 21.46 24.73 25.56 3.51 – 4.94 Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Share matchingShare Sharesave e incorporated into the Monte Carlo method used in determining the fair value of LTIP awards at grant date awards e incorporated into the Monte Carlo method used in determining the fair value of LTIP emaining and the exercise price of options outstanding are weighted averages. Participants in the Sharesave weighted averages. price of options outstanding are emaining and the exercise e Matching Scheme and Sharesave Plan. A summary of the assumptions used in the Black-Scholes model for Plan. A summary of the assumptions used in the Black-Scholes e Matching Scheme and Sharesave erm Incentive Plan e Imperial Tobacco Group dividend yield Group e Imperial Tobacco esave Plan e price used to determine exercise price £ e price used to determine exercise e price volatility of the FTSE 100 comparator group e price volatility of the tobacco and alcohol comparator group cise price £ elation between Imperial Tobacco and the FTSE 100 comparator group elation between Imperial Tobacco elation between Imperial Tobacco and the alcohol and tobacco comparator group and the alcohol and tobacco comparator elation between Imperial Tobacco olatility (based on 3 or 5 year history) % Market conditions wer 2007 2008 2009 2010 2011 2012 options outstanding Total exercisable. date on which they are or options and the earliest grant of awards The vesting period is the period between the The vesting period r 2009 2010 2011 outstanding awards Total Shar Assumptions in 2012 and 2011 are given in the following table. Assumptions in 2012 and 2011 are Futur used for the Shar V % price volatility share Group Imperial Tobacco Future Risk-free interest rate % interest Risk-free 2012 and 2011 is as follows. 2011 2012 outstanding awards Total Long T the the end of have seven years from their option. Participants in the LTIP the maturity date to exercise Plan have six months from xed over the life of each option, except that f price of the options is fi their option. The exercise vesting period to exercise Matching Scheme, of the Share plans outstanding at that time. In respect made to the share rights issue in 2008, adjustments were Plan ‘nil paid’ to enable the balance of the rights to be taken up. In the case of the Sharesave cient rights sold suffi the Trustees In the case of the bonus factor. was adjusted by the relevant under option or subject to awards the number of shares and LTIP, bonus factor. price was also adjusted by the relevant Plan the option Sharesave Pricing bee payment charge, the Black-Scholes option pricing model has the share-based For the purposes of valuing options to calculate Shar Exer Share Matching Scheme Matching Share 2010 Summary of awards/options outstanding at 30 September 2012 outstanding at 30 of awards/options Summary indicated unless otherwise shares Thousands of Expected lives of options granted years Dividend yield % Fair value £ Shar Shar Corr Corr 30 73 11 3.8 5.3 1.0 4.8 1.2 (1.2) 147 114 2011 2011 2011 2011 8,673 (1,235) 57,007 49,569 sury quired in quired – 35 80 16 4.8 7.3 4.1 1.1 123 131 2012 2012 2012 2012 (1.8) (1,070) 21,865 77,802 57,007 continued continued e Ownership Trusts ve years es held by Employee Share Ownership Trusts Ownership Share es held by Employee ve years es in the Trusts are accounted for on a fi rst in fi rst out basis and comprise 1.8 million (2011: 1.5 million) shares ac comprise 1.8 million (2011: 1.5 million) shares rst out basis and rst in fi accounted for on a fi are es in the Trusts easury shares t Trust (the Trusts) have been established to acquire ordinary shares in the company to satisfy rights to shares arising on the arising satisfy rights to shares in the company to shares ordinary to acquire been established have (the Trusts) t Trust chase of treasury shares chase of treasury chase of shares centage of issued share capital % centage of issued share Pur Gift of tr At 30 September Per Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Between one and fi £ million Property Within one year Capital commitments £ million for: Contracted but not provided plant and equipment Property, 27 Commitments Thousands of shares Thousands of shares At 1 October 26 Treasury Shares 26 Treasury million per annum as an £500 at the rate of around programme buyback share its recommenced On 16 May 2011, the Group not cancelled but are under the buyback programme purchased Shares cient means of returning surplus funds to shareholders. effi (see Consolidated Statement of equity attributable to owners of the parent a deduction from and represent in issue retained are at a cost of (2011: 8,673,000) under the programme 21,865,000 shares purchased Changes in Equity). During 2012 the Group £528 million (2011: £182 million). Operating lease commitments fall due: payments consist of leases where minimum lease payments under non-cancellable operating leases future Total At 1 October Millions of shares Millions of shares Employee Share Ownership Trusts Ownership Share Employee Employee PLC 2001 Group Tobacco and the Imperial t Trust Benefi PLC Employee and Executive Group Tobacco The Imperial Benefi million nanced by a gift of £19.2 has been fi by the Trusts of shares The purchase and vesting of options and awards. exercise has gifted trea (2011: £181.9 million). In addition the Group loan of £181.9 million free an interest (2011: £19.2 million) and 25 Share Schemes Schemes 25 Share Notes to the Financial Statements Statements Financial to the Notes shares to the Trusts. None of the Trusts’ shares has been allocated to employees or Executive Directors as at 30 September 2012. Directors has been allocated to employees or Executive shares None of the Trusts’ to the Trusts. shares income statement as they charged to the consolidated are the Trusts administration expenses connected with nance costs and All fi basic the calculation of excluded from are by the Trusts held their rights to dividends and the shares have waived accrue. The Trusts earnings per share. Ownership Trusts held by Employee Share Shares Distribution of shar Gift to Employee Shar Beyond fi At 30 September The shar the Trusts gifted to shares £28.2 million) and 2.3 million (2011: 3.3 million) treasury the open market at a cost of £23.3 million (2011: (2011: 1.2 million). nancial year 2012 gifted in the fi of which 1.1 million were by the Group, Pur

Overview Strategic Review Performance Risk Governance Financials 134 Overview Strategic Review Performance Risk Governance Financials 135 2 1 (6) (1) ial 80 26 (45) (47) (39) 337 598 2011 Total (529) (785) (130) ect 1,272 2,556 1,816 3,091 h

ieve – – 1 (9) (8,965) 85 20 (74) 699 382 2012 (442) (505) (161) (285) (305) 1,473 2,119 1,762 3,066 nancial (1,036) fi Derivative instruments – – 10 2 79 (206) liabilities Finance lease Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco borrowings Non-current Non-current ent Curr borrowings – – – – 321 321 (13) – 23 321 – – – – e schemes 631 (1,234) (8,333) (20) (438) 729 (578) (102) 118 334 1 – 351 1,171 (2,104) (8,076) (23) (409) (9,441) equivalents Cash and cash e ts ows before movement in working capital ows before ovisions ows from operating activities ows from eciation, amortisation and impairment e of post-tax loss of associates ease)/decrease in trade and other receivables ease)/decrease ease/(decrease) in trade and other payables ease/(decrease) ease in inventories ofi t on disposal of property, plant and equipment t on disposal of property, ofi axation paid axation Net cash fl Shar Finance costs T Operating cash fl Costs of employees’ services compensated by shar Costs of employees’ services compensated Post-employment benefi Adjustments for: T are being vigorously contested. Although it is not possible to predict the outcome of the pending litigation, the Directors bel the Directors of the pending litigation, the outcome possible to predict Although it is not contested. being vigorously are nancial or fi ow operations, cash fl of the the results upon will not have a material adverse effect that the pending actions in the consolidated of these cases for any amounts in respect has not provided the Group Consequently, condition of the Group. nancial statements. fi nanc apply fi Service Department seeking to the State Tax from a decision Ukraine (ITU) received Tobacco In August 2012 Imperial acted in contravention of the law on state £87 million. The alleged violation is that ITU approximately sanctions equivalent to Operating Activities 29 Cash Flows from £ million t for the year Profi 28 Legal Proceedings 28 Legal alleged smoking and seeking damages for claimants are of legal cases in which involved in a number is currently The Group all of whic to these actions, has meritorious defences lawyers, the Group the Group’s In the opinion of effects. health-related regulation of production and circulation of alcohol and tobacco, by engaging in the wholesale trade of tobacco without the corr in the wholesale trade of tobacco of alcohol and tobacco, by engaging and circulation of production regulation July 2011. from licence for the period on the basis that it has at all times Administrative Court in Kiev primarily against the decision in the Circuit led an appeal ITU fi in its branches. Hearings took place engage in wholesale trade in tobacco from licence to trade and does not held the correct appeal. ITU’s 2012, and on 23 October the court upheld September and October ten days of receiving the Kiev Administrative Court of Appeal within Department is entitled to appeal to Service The State Tax basis of the advice ITU has decision and on the As a consequence of the court’s for its decision. reasons written the court’s for any amount in the consolidated has not provided case on the legal arguments, the Group that it has a strong received of this matter. nancial statements in respect fi £ million 30 Net Debt nance lease liabilities in the year nancial instruments and fi derivative fi The movements in cash and cash equivalents, borrowings, as follows: were At 1 October 2011 Cash fl ow Cash fl of interest Accretion Change in fair values Exchange movements At 30 September 2012 Loss on disposal of softwar Movement in working capital Investment income Depr (Incr Pr Incr Movement in pr Incr – 2 (9) 87 34 44 23 (52) 583 297 416 548 290 2011 2011 Total Total (409) 1,837 (9,441) (9,441) (8,831) (9,441) (1,785) (8,965) (10,024) – (10,203) – – – 2 20 (94) 331 351 476 287 275 2012 2012 (438) (196) (206) Other 1,486 (8,965) (9,441) (8,965) (8,752) (1,335) – (74) (9,587) 20 316 (8,956) 20 316 22 392 1,171 (84) (9,032) 392 USD 2011 2012 EUR (5,872) (5,194) (1,808) 316 (8,956) – 221 20 390 631 1 756 GBP EUR USD Other Total GBP 1,500 731 (2,231) 1,150 678 (1,828) 1,150 678 (3,772) (6,325) (106) (2,271) (4,838) (2,315) 392 (9,032) (3,771) (5,569) (2,270) (3,420)(3,420) (6,093) continued nancial instruments evaluation of derivative fi nancial instruments evaluation of derivative fi oviding commercial hedges oviding commercial esulting from cash fl ows cash fl esulting from owings nance leases est nancial instruments providing commercial cash fl ow hedges and fi nance lease liabilities. ow hedges and fi cash fl commercial nancial instruments providing ease)/increase in collateralisation deposits ease)/increase ease in borrowings Closing net debt Accrued inter Exchange movements Movement in net debt during the year Opening net debt Effect of cross currency swaps currency cross of Effect Repayment of fi Fair value of derivatives pr Settlement of exchange rate derivative fi (Decrease)/increase in cash and cash equivalents (Decrease)/increase 31 Reconciliation of Cash Flow to Movement in Net Debt 31 Reconciliation of Cash Flow £ million £ million Reported net debt Net debt Adjusted net debt accruals, the fair value of excludes interest levels using adjusted net debt which borrowing Management monitors the Group’s derivative fi Cash and cash equivalents £ million Derivative fi nancial instruments Derivative fi Total borrowings and fi nance lease liabilities nance and fi borrowings Total swaps currency of cross Effect Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Cash and cash equivalents nance lease liabilities and fi borrowings Total Analysis by denomination currency Analysis by £ million 30 Net Debt continued 30 Net Debt Notes to the Financial Statements Statements Financial to the Notes Incr Repayment of borr Change in net debt r Other non-cash movements including r (Decr Adjusted net debt Finance lease liabilities Derivative fi nancial instruments nancial Derivative fi Net debt

Overview Strategic Review Performance Risk Governance Financials 136 Overview Strategic Review Performance Risk Governance Financials 137 operly prepared in accordance with in accordance operly prepared ectors’ Remuneration Report to be audited are not not are ectors’ Remuneration Report to be audited Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco e not made; or ed Accountants and Statutory Auditors ent company, or returns adequate for our audit have or returns ent company, equire for our audit. equire nancial year for which the parent company fi nancial nancial company fi the parent nancial year for which the part of the Directors’ Remuneration Report to be Remuneration Report the part of the Directors’ audited has been pr kept by the have not been adequate accounting records par the Companies Act 2006; and the Companies Act 2006; Report for the in the Directors’ the information given fi is consistent with the parent prepared statements are statements. nancial company fi branches not visited by us; or from not been received nancial statements and the part of company fi the parent the Dir or and returns; records with the accounting in agreement ed by specifi remuneration directors’ of certain disclosures law ar all the information and explanations we we have not received r – – – – – – Other Matter nancial fi separately on the Group have reported We PLC for the year Group statements of Imperial Tobacco ended 30 September 2012. David Charles (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Charter Bristol 30 October 2012 Opinion on Other Matters Prescribed by the by Prescribed on Other Matters Opinion Act 2006 Companies In our opinion: to Required Are We Matters on Which Report by Exception of the following matters in respect nothing to report have We to you if, us to report the Companies Act 2006 requires where in our opinion: give a true and fair view of the state of the Company’s affairs affairs give a true and fair view of the state of the Company’s as at 30 September 2012; with United in accordance prepared have been properly Kingdom Generally Accepted Accounting Practice; and with the requirements in accordance have been prepared of the Companies Act 2006. – – – In our opinion the parent company fi nancial statements: company fi In our opinion the parent Opinion on Financial Statements Scope of the Audit of the Financial Scope of the Audit of the Financial Statements the amounts and An audit involves obtaining evidence about cient to give nancial statements suffi in the fi disclosures free nancial statements are assurance that the fi reasonable material misstatement, whether caused by fraud or error. from accounting policies This includes an assessment of: whether the and circumstances company’s the parent to appropriate are disclosed; have been consistently applied and adequately cant accounting estimates made of signifi the reasonableness nancial of the fi and the overall presentation by the Directors; nancial and non- all the fi statements. In addition, we read and Accounts to nancial information in the Annual Report fi nancial identify material inconsistencies with the audited fi material of any apparent statements. If we become aware misstatements or inconsistencies we consider the implications for our report. As explained more fully in the Statement of Directors’ Directors’ fully in the Statement of As explained more the preparation for responsible are Responsibilities, the Directors and for being nancial statements company fi of the parent is Our responsibility give a true and fair view. ed that they satisfi nancial company fi an opinion on the parent to audit and express law and International with applicable statements in accordance Those standards on Auditing (UK and Ireland). Standards with the Auditing Practices Board’s us to comply require Auditors. for Ethical Standards for and has been prepared including the opinions, This report, with members as a body in accordance only for the Company’s 2006 and for no Chapter 3 of Part 16 of the Companies Act not, in giving these opinions, accept or do other purpose. We for any other purpose or to any other assume responsibility is shown or into whose hands it person to whom this report by our prior consent agreed expressly may come save where in writing. Respective Responsibilities of Directors of Directors Respective Responsibilities and Auditors to the Members of Imperial Tobacco Group PLC Group Tobacco Imperial of Members to the of nancial statements company fi parent have audited the We September for the year ended 30 PLC Group Imperial Tobacco notes. Sheet and the related comprise the Balance 2012 which has been applied in framework that reporting nancial The fi is applicable law and United Kingdom their preparation Generally Accepted (United Kingdom Accounting Standards Accounting Practice). Independent Auditors’ Report Auditors’ Independent 98 107 2011 3,035 5,659 5,757 8,792 5,833 2,852 8,792 107 185 2012 4,225 3,297 3,482 7,707 5,833 1,767 7,707 v iii iv vi vi Notes Robert Dyrbus

nancial statements on pages 138 to 140 were approved by the Board of Directors on 30 October 2012 and signed on its of Directors by the Board approved were nancial statements on pages 138 to 140 e premium account e premium ofi t and loss account ofi Chairman Director Iain Napier Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Shar Fixed assets Investments £ million Imperial Tobacco Group PLC Balance Sheet Balance PLC Group Tobacco Imperial September at 30 Current assets Current Debtors Cash at bank and in hand assets Net current assets Total Capital and reserves capital Called up share Pr Total shareholders’ funds shareholders’ Total The fi behalf by:

Overview Strategic Review Performance Risk Governance Financials 138 Overview Strategic Review Performance Risk Governance Financials 139 – 608 284 892 2011 2011

oss 3,035 3,035 nds

ence 983 669 314 2011 2010 2012 2012 28.1 24.3 95.1 84.3 67.0 60.0 3,035 1,190 4,225 2012 31.7 73.9 105.6 Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco ofi t and loss account has been presented for the has been presented t and loss account ofi nancial year nancial fective interest method, subject to reduction for allowances for estimated irrecoverable for allowances for estimated irrecoverable method, subject to reduction fective interest eased its investment in Imperial Tobacco Holdings (2007) Limited as part of a legal entity eased its investment in Imperial Tobacco e paid and recognised in the second half of the year, and fi nal dividends in respect of a year are paid and of a year are nal dividends in respect and fi in the second half of the year, e paid and recognised emental costs (net of income taxes), is deducted from equity until the shares are cancelled, reissued or disposed of. or disposed reissued cancelled, are equity until the shares from emental costs (net of income taxes), is deducted oposed fi nal dividend for the year ended 30 September 2012 of 73.9p per share amounts to a proposed fi nal dividend fi amounts to a proposed nal dividend for the year ended 30 September 2012 of 73.9p per share oposed fi otal eceivable are recognised as an asset when they are approved, while interim dividends are recognised in the period in which the which the in the period in recognised while interim dividends are approved, they are as an asset when recognised eceivable are recognised in the following fi nancial period. in the following fi recognised in the year shareholders as distributions to ordinary Amounts recognised Interim dividend The pr iii Investments Holdings (2007) Limited Tobacco in Imperial Cost of shares £ million At 1 October Additions At 30 September During the period the Company incr £ million nancial year fi of previous Final dividend paid in the period in respect Pence Interim When such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental attributable incremental net of any directly any consideration received, subsequently sold or reissued, are When such shares funds. shareholders’ increases income tax effects, transaction costs and the related ii Dividends of fi in respect Dividend per share amounts. A provision for impairment of receivables is established when there is objective evidence that the Company will not be is objective evidence is established when there for impairment of receivables amounts. A provision Final Interim dividends ar dividends are paid. dividends are Financial Instruments subsequently at fair value and are initially recognised ed as cash and debtors. Debtors are classifi nancial assets are Non-derivative fi stated at amortised cost using the ef i Accounting Policies i Accounting Basis of Preparation convention, with the historical cost on the going concern basis in accordance been prepared statements have nancial The fi Accounting Principles. Generally Accepted Act 2006 and UK the Companies pr 408(3) of the Companies Act 2006, no separate As permitted by section Notes to the Financial Statements of Imperial Tobacco Group PLC Group Tobacco Imperial of Statements the Financial to Notes in the FRS 29 Financial Instruments: Disclosures 29, the Company has elected not to present As permitted by FRS Company. nancial statements. fi in the consolidated presented are disclosures nancial statements as full equivalent fi notes to its individual subsidiaries. disclosed transactions with wholly owned the Company has not 8 Related Party Disclosures As permitted by FRS set out below. policies are The principal accounting Investments for impairment. shown at cost less any provision in subsidiaries and are investment the Company’s Investments comprise Dividends divide by shareholders, approved in which the dividends are as a liability in the period recognised are Final dividends payable differ is the The amount of the provision to the original terms of those receivables. able to collect all amounts due according t and l in the profi ows, and is recognised cash fl value of estimated future and the present carrying amount between the asset’s receivable. assets, the carrying value includes accrued interest account. For interest-bearing Shares Treasury consideration paid, including any directly the shares), capital (treasury its own equity share When the Company purchases attributable incr T r reorganisation in the normal course of business. reorganisation believe that the carrying value of the investments is supported by their underlying net assets. The Directors A list of the principal subsidiaries of the Company is shown on pages 141 and 142. payment of £729 million based on the number of shares ranking for dividend at 30 September 2012, and is subject to shareholder ranking for dividend at 30 September 2012, and is subject to shareholder payment of £729 million based on the number of shares of 2012 will be £1,043 million (2011: £953 million). the total dividend paid in respect If approved, approval. t

5.3

107 2011 2011 2011 2011 (182) (892) ember 1,733 8,673 2,807 5,659 7,059 8,792 (1,235) llion account 57,007 49,569 is is after ofi t and loss ofi Pr – 426 – (983) – (528) 7.3 426 107 2012 2012 2012 2012 (528) (983) 5,833 2,852 5,833 2,852 5,833 1,767 3,297 8,792 7,707 (1,085) (1,070) account 21,865 77,802 57,007 Share premium premium Share continued eholders’ funds e Ownership Trusts oup undertakings are unsecured, have no fi xed date for repayment and are repayable on demand. repayable and are repayment xed date for have no fi unsecured, oup undertakings are eholders, dealt with in the fi nancial statements of the Company, is £426 million (2011: £2,807 million). Th nancial statements of the Company, eholders, dealt with in the fi eholders’ funds eholders’ funds chase of treasury shares chase of treasury chase of own shares centage of issued share capital % centage of issued share fi cient means of returning surplus funds to shareholders. Shares purchased under the buyback programme are not cancelled but are under the buyback programme purchased Shares shareholders. cient means of returning surplus funds to fi Movements in total shar charging an audit fee of £0.4 million (2011: £0.4 million). charging an audit fee of £0.4 million (2011: shares Treasury £500 million per annum as an at the rate of around buyback programme its share On 16 May 2011, the Company recommenced ef Pur Opening total shar At 30 September Per 2012 and which, in accordance with Book 2, Article 403 of The Netherlands Civil Code, do not fi le separate fi nancial statements le separate fi with Book 2, Article 403 of The Netherlands Civil Code, do not fi 2012 and which, in accordance Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco ix Related Party Disclosures Remuneration Report on pages 77 to 93. within the Directors’ provided are and interests emoluments Details of Directors’ nancial statements. form part of the fi These disclosures Dividends Pur viii Guarantees and liabilities of certain UK and overseas subsidiary PLC has guaranteed various borrowings Group Imperial Tobacco contingent liability totalled £9,378 mi undertakings, including various Dutch and Irish subsidiaries. At 30 September 2012, the (2011: £9,308 million). nancial statements as at 30 Sept included in the consolidated fi The guarantees include the Dutch subsidiaries, all of which are PLC has issued declarations to assume any and Group Under the same article, Imperial Tobacco with the Chamber of Commerce. all liabilities for any and all debts of the Dutch subsidiaries. nancial statements as at included in the consolidated fi The guarantees also cover the Irish subsidiaries, all of which are have therefore Mullingar, Tobacco 30 September 2012. The Irish companies, namely John Player & Sons Limited and Imperial of documents 17 of the Irish Companies (Amendment) Act 1986 in respect by section availed themselves of the exemption provided to be attached to the annual returns for such companies. required have assessed the fair value of the above guarantees and do not consider them to be material. They have therefore The Directors vii Reconciliation of Movements in Shareholders’ Funds in Shareholders’ vii Reconciliation of Movements £ million t for the year Profi Thousands of shares Thousands of shares At 1 October are retained in issue and represent a deduction from shareholders’ funds. During the year the Company purchased 21,865,000 funds. During the year the Company purchased shareholders’ a deduction from and represent in issue retained are (2011: 8,673,000) at a cost of £528 million (2011: £182 million). under the programme shares Profi t for the year Profi Dividends of own shares Purchase At 30 September 2012 The profi t and loss account of the Company is not presented. Act 2006, the profi As permitted by section 408(3) of the Companies attributable to shar the balance sheet. on not been recognised At 1 October 2011 vi Reserves £ million Issued and fully paid of 10p each (2011: 1,067,942,881) shares 1,067,942,881 ordinary v Called Up Share Capital v Called Up Share £ million £ million undertakings by Group Amounts owed iv Debtors: Amounts Falling Due Within One Year Due Within Amounts Falling iv Debtors: Notes to the Financial Statements of Imperial Tobacco Group PLC PLC Group Tobacco Imperial of Statements Financial to the Notes Amounts owed by Gr Gift to Employee Shar Closing total shar

Overview Strategic Review Performance Risk Governance Financials 140 Overview Strategic Review Performance Risk Governance Financials 141 Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco Export and marketing of tobacco products Export and marketing Holding investments in subsidiary companies Holding investments in in marketing and sale of tobacco products Manufacture, the UK Finance company of tobacco marketing, sale and distribution Manufacture, in Spain products in France Distribution of tobacco products Finance company Finance company States of America States of America Principal activity United States of America services in Spain and related Distribution of tobacco products marketing and sale of tobacco products Manufacture, Marketing and sale of tobacco products in Australia Marketing and sale of tobacco products Marketing and sale of tobacco products in Greece Marketing and sale of tobacco products in Belgium Marketing of tobacco products in China Marketing of tobacco products Czech Republic in Finland Marketing and sale of tobacco products Marketing and sale of tobacco products in Italy Marketing and sale of tobacco products Manufacture of tobacco products in Turkey products of tobacco Manufacture in Taiwan Marketing and sale of tobacco products in Taiwan products of tobacco Manufacture in Turkey Marketing and sale of tobacco products Marketing and sale of tobacco products in Hungary Marketing and sale of tobacco products sale and distribution of tobacco marketing, Manufacture, in Morocco products and sale of tobacco products marketing Manufacture, in New Zealand in Norway Marketing and sale of tobacco products and sale of tobacco products marketing Manufacture, in Poland in Poland products of tobacco Manufacture in Russia Marketing and sale of tobacco products Slovak Republic in Ukraine Marketing and sale of tobacco products Country of incorporation activity Principal Spain Netherlands United Arab EmiratesUnited States of America marketing and sale of cigars in the United Manufacture, in the Middle East and sale of tobacco products Marketing United States of America in the United Sales and distribution of tobacco products United States of America in the marketing and sale of tobacco products Manufacture, Spain Belgium Czech RepublicFinland Greece in the Marketing and sale of tobacco products Italy Hungary Morocco Norway Poland Poland Turkey Slovak RepublicTaiwan in the Marketing and sale of tobacco products Turkey Ukraine Republic of Irelandne cut tobacco in the Republic of Ireland of ﬁ Manufacture Imperial Tobacco Finance PLC Imperial Tobacco Incorporated overseas, wholly owned Incorporated overseas, Name Altadis SAU Name Holdings (2007) Limited Imperial Tobacco Limited Imperial Tobacco International Limited Imperial Tobacco Altadis Distribution France SASAltadis Emisiones Financieras SAUAltadis Finance BV Altadis Middle East Fzco Spain France Altadis USA Inc Commonwealth-Altadis Inc Commonwealth Brands Inc The principal subsidiaries and joint ventures of the Group, which are unlisted unless otherwise indicated, are shown below. indicated, are unlisted unless otherwise are which of the Group, ventures subsidiaries and joint The principal wholly owned Wales, in England and Registered Principal Undertakings Principal Compañía de Distribución Integral Logista SAU Fils NV Ets. L. Lacroix Imperial Tobacco Australia LimitedImperial Tobacco Australia Imperial Tobacco China LimitedImperial Tobacco China Imperial Tobacco CR sro Imperial Tobacco Finland Oy Imperial Tobacco Hellas SA Imperial Tobacco Imperial Tobacco Italia Srl Imperial Tobacco Imperial Tobacco Magyarorszäg Magyarorszäg Imperial Tobacco Dohänyforgalmazö Kft Imperial Tobacco Maroc SA Maroc Imperial Tobacco Mullingar Imperial Tobacco New Zealand LimitedImperial Tobacco New Zealand Norway AS Imperial Tobacco Polska SA Imperial Tobacco Polska Imperial Tobacco Manufacturing SA Sales & Marketing LLCImperial Tobacco Russia Sigara ve Tutunculuck Imperial Tobacco Sanayi ve Ticaret AS Imperial Tobacco Slovakia AS Imperial Tobacco Manufacturing Taiwan Imperial Tobacco Company Limited Urunleri Satis ve Tutun Imperial Tobacco Pazarlama AS Ukraine Imperial Tobacco Imperial Tobacco Taiwan Co Limited Taiwan Imperial Tobacco Taiwan ld 99.8 99.1 50.0 50.0 98.6 74.1 owned owned Percentage Percentage Percentage Manufacture of tobacco products in Russia of tobacco products Manufacture Holding investments in subsidiary companies involved in Holding investments in subsidiary companies in Slovenia Marketing and sale of tobacco products in marketing and sale of tobacco products Manufacture, Principal place of business: Industriestrasse 6, Postfach 1257, Germany D-78636 Trossingen, Manufacture of cigarettes in Ukraine of cigarettes Manufacture marketing and sale of tobacco Manufacture, in Macedonia products Holding investments in subsidiary companies involved in the marketing and sale of Cuban cigars in Cuba Export of cigars manufactured Manufacture of tobacco products in Russia of tobacco products Manufacture Marketing and sale of tobacco products in the Canary Islands tobacco products Marketing and sale of of Ireland in Italy products Distribution of tobacco Principal activity Manufacture, marketing and sale of tobacco Manufacture, in Kyrgyzstan products Germany of tubes in Manufacture Manufacture, marketing and sale of tobacco Manufacture, in the Ivory Coast products Manufacture, marketing and sale of tobacco products products marketing and sale of tobacco Manufacture, in Germany products marketing and sale of tobacco Manufacture, in Sweden in products marketing and sale of tobacco Manufacture, tobacco products France and export of in France Wholesale distribution and sale of tobacco products marketing the manufacture, in Africa the Netherlands the sale of cigars in the United States of America continued Netherlands France Slovenia Country Country of incorporation Principal activity Country of incorporation Principal activity Country of incorporation Country of incorporation Principal activity Macedonia Cuba Spain Spain Republic of IrelandItaly in the Republic Marketing and sale of tobacco products Kyrgyzstan Sweden France France United States of America Holding investments in subsidiary companies involved in continued Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco The subsidiaries listed above were held throughout the year. the year. held throughout The subsidiaries listed above were the subsidiary undertakings and entities shown above. Withnancial statements include all the exception ﬁ The consolidated Group in the subsidiaries is he none of the shares Holdings (2007) Limited, which is wholly owned by the Company, of Imperial Tobacco Imperial Tobacco TKS ad Imperial Tobacco Reemtsma Kyrgyzstan OJSC Corporación Habanos SA A full list of undertakings is attached to the Annual Return of the Company. by the Company. the same are voting rights of the Group and the effective capital held by the immediate parent of issued share The percentage by held rights, are 100 per cent of the voting capital, and therefore share the entire Srl where Italia except for Imperial Tobacco companies. a number of Group is listed on the Stock Exchange of the Ivory Coast. SA Société Ivoirienne des Tabacs The Group also owns the following partnership: The Group Name (EFKA) GmbH & Co KGImperial Tobacco Germany Partnerships Incorporated overseas, joint ventures Name Altabana SL Name Ukraine Production Imperial Tobacco Ukraine Incorporated overseas, partly owned Incorporated overseas, partly ZAO Imperial Tobacco Yaroslavl CJSCYaroslavl ZAO Imperial Tobacco Russia Name LLC Volga Tobacco OOO Imperial Russia Incorporated overseas, wholly owned wholly owned overseas, Incorporated Principal Undertakings Undertakings Principal John Player SA John Player & Sons Limited Logista Italia SpA Van Nelle Tabak Nederland BV Nelle Tabak Van Société Ivoirienne des Tabacs SASociété Ivoirienne des Tabacs Ivory Coast Reemtsma Cigarettenfabriken GmbHReemtsma Cigarettenfabriken Germany Skruf Snus AB Société Nationale d’Exploitation et Allumettes SAS Industrielle des Tabacs SAS Supergroup SAS Tobaccor Ljubljana doo Tobacna 800 JR Cigar Inc

Overview Strategic Review Performance Risk Governance Financials 142 Overview Strategic Review Performance Risk Governance Financials 143 Imperial Tobacco Group PLC | Annual Report and Accounts 2012 Group Imperial Tobacco ales No: 3236483 e ce eholder Services eet ed Accountants and Statutory Auditors est Sussex BN99 6DA calls to this number will be charged at 8p per minute from a BT landline. Mobile and other providers’ charges may vary. vary. charges may landline. 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Commission Account are shares. of ordinary and purchase or call Equiniti on Account go online to www.shareview.co.uk/dealing or to apply for an ISA or Investment For a brochure 0845 300 0430*. charges may vary. a BT landline. Mobile and other providers’ rate from * calls to this number will be charged at local Dividend Reinvestment Plan (DRIP) to use their cash dividend plan (DRIP) to enable shareholders PLC has set up a dividend reinvestment Group Imperial Tobacco to buy further Imperial T and is a member of the London Stock Exchange and PLUS. For details please contact NatWest Stockbrokers, Premier Place, Premier Stockbrokers, details please contact NatWest Stock Exchange and PLUS. For and is a member of the London 2 Financial Calendar and Dividends Financial 2013. in November results and the full year’s announced in April 2013 expected to be are results Half yearly held on W Company is to be General Meeting of the The Annual Shareholder Information Information Shareholder The Notice of Meeting and explanatory notes about the resolutions to be proposed are set out in the circular enclosed with enclosed the circular set out in are to be proposed resolutions notes about the of Meeting and explanatory The Notice this report. will be on 18 February nal dividend, if approved, Payment of the 2012 fi generally paid in August and February. Dividends are date will be January 2013. The associated ex dividend at the close of business on 18 on the register 2013 to shareholders 16 January 2013. instruction form who wish to do so should complete a mandate mandate their dividends and who do not currently Shareholders shown. Equiniti, at the address obtainable from Dealing Service Share is shares PLC ordinary Group and sale of Imperial Tobacco dealing service for the purchase only share A low cost, execution available fr

Overview Strategic Review Performance Risk Governance Financials 144 Index

New Zealand 31 A D Nominations Committee 66 Accounting Policies 101,139 Deferred Tax Assets and Liabilities 127 Notes to the Financial Statements 101 Adjusted Earnings Per Share 4 Derivative Financial Instruments 124 Notes to the Financial Statements Adjusted Measures 104 Directors of Imperial Tobacco Group PLC 139 Africa 31 Biographies 60 Algeria 31 Interests in Shares 79 American Depositary Pensions 82, 91 O Receipts/Shares 143, 144 Remuneration 77 Office of Fair Trading 74 Americas 30 Responsibilities 75 Operation and Supply Chain Alignment 20 Analysis of Net Debt 135 Directors and Employees 108 Operating Executive 63 Annual General Meeting 72, 144 Disclosure Committee 51 Operating Review 28 Asia-Pacific 31 Dividend Reinvestment Plan (DRIP) 144 Assurance 50 Dividends 36, 73, 111, 144 Audit Committee 68 P Auditors Pensions 73, 128 Remuneration 108 E People 12 Report 95, 137 Earnings Per Share 111 Poland 30 Australia 31 Eastern Europe 31 Portfolio Management 14 Austria 30 Employees 108 Pricing 16 Eurozone 54 Principal Risks and Uncertainties 52 Excise Duty 53 Principal Undertakings 141 B Profit Before Taxation 108 Balance Sheet (Consolidated) 98 Property, Plant and Equipment 114 Balance Sheet (Parent) 138 F Provisions 131 Belgium 30 Financial Calendar 144 Board Committees 63 Financial Review 34 Board of Directors 60 Financial Risk Factors 118 R Borrowings and Finance Financial Statements 94 Reconciliation of Cash Flow to Lease Liabilities 117 Financing 55 Movement in Net Debt 136 Business Model 2 France 30 Registrars 143, 144 Regulation 53 Remuneration Committee 77 C G Remuneration Report 77 Cash and Cash Equivalents 116 Germany 29 Rest of EU 30 Cash Conversion Rate 11 Going Concern 36 Rest of the World 31 Cash Flows from Operating Activities 135 Governance 50, 56 Restructuring Costs 108 Cash Flow Statement 100 Group Performance 26 Retirement Benefit Schemes 128 Chad 31 Revenue Performance 34 Chairman’s Introduction 5 Risk Management 48 Chairman’s Introduction to Governance 58 H Russia 22, 31 Charitable and Political Donations 73 Hungary 30 Chief Executive’s Review 8 China 31 S Commitments 134 I Sales Growth Drivers 14 Compliance 50 Illicit Trade 52 Saudi Arabia 31 Congo 31 Income Statement 96 Segment Information 106 Consumer Insights 20 Innovation 15 Shaping our Environment 21 Contents 1 Introduction IFC Share Buyback Programme 36, 134 Corporate Governance Report 70 Intangible Assets 112 Share Capital 72, 131 Corporate Responsibility Review 37 Inventories 116 Share Schemes 79, 132 Anti-illicit Trade 42 Italy 30 Shareholder Information 143 Carbon Disclosure Project 45 Spain 30 Climate Change 45 J Spanish Intangibles 35 Employment Policies 44 Statement of Changes in Equity 99 Environmental Performance 45 Joint Ventures 115 Statement of Comprehensive Income 97 Leaf Partnership 47 Stick Equivalent Volumes 4, 11 Non-tobacco Materials 47 K Strategy 7 Partnership Investment 47 Sweden 30 PwC Assurance 41 Key Enablers 20 Key Performance Indicators 4, 11 Regulatory Engagement 42 T Reinvesting in Society 47 Respecting Natural Resources 45 L Taiwan 31 Responsible Sourcing 47 Taxation 110 Responsibility Strategy 37 Laos 31 Tobacco Adjusted Operating Margin 11 Responsible with Products 42 Legal Proceedings 135 Tobacco Net Revenue 11 Rewarding Workplace 43 Litigation 55, 75 Total Shareholder Return 4 Stakeholder Panel 47 Liquidity 36 Total Tobacco 18 Tobacco and Health 42 Logistics 33 Trade and Other Payables 117 Values, Capabilities, Engagement 43 Trade and Other Receivables 116 Workplace Health and Safety 43 M Treasury Shares 134 Côte D’Ivoire 31 Market Place 54 Creditor Payment Policy 73 U Critical Accounting Estimates Middle East 31 and Judgements 105 Morocco 31 Ukraine 31 Customer Engagement 17 United Kingdom 29 Czech Republic 30 N United States of America 30 Net Debt 135 Net Finance Costs 109 V Netherlands 30 Values 13, 43 Norway 30 Vietnam 31 Registered Office Imperial Tobacco Group PLC PO Box 244 Upton Road Bristol BS99 7UJ UK www.imperial-tobacco.com

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