Annual Report and Accounts 2006 Annual Imperial Tobacco Group PLC Financial Highlights

Home , Bastos (cigarette), Cabinet (cigarette), Davidoff, Drum (tobacco), Embassy (cigarette), Gallaher Group

ImpTob Rep Cover new.qxd 6/12/06 15:00 Page 2

Imperial Tobacco Group PLC Annual Report and Accounts 2006 Annual Imperial Tobacco Group PLC Financial Highlights

(In £’s million) 2006 % change 2005 Revenue 11,676 +4% 11,229 Imperial Tobacco Group PLC Revenue less duty 3,162 +1% 3,123 Annual Report and Accounts 2006 Profit from operations 1,311 +6% 1,240 Adjusted profit from operations 1,356 +5% 1,297 Building Profit before tax 1,168 +8% 1,078

on our (In pence) 2006 % change 2005 Basic earnings per share 122.2 +13% 108.6 Adjusted earnings per share 122.2 +9% 112.2 success Diluted earnings per share 121.6 +12% 108.1 Dividend per share 62.0 +11% 56.0

Management believes that reporting adjusted measures provides a better comparison of business performance for the year and reflects the way in which the business is controlled. Accordingly, adjusted measures of profit from operations, net finance costs, profit before tax, taxation and earnings per share exclude, where applicable, restructuring costs, retirement benefit net finance income, fair value gains and losses on derivative financial instruments and related taxation effects. Reconciliations between adjusted and reported profit from operations, net finance costs and profit before tax are included within note 1 to the financial statements, adjusted and reported taxation in note 6, and adjusted and reported earnings per share in note 8. The term adjusted is not a defined term under International Financial Reporting Standards and may not be comparable with similarly titled measures reported by other companies.

Adjusted Earnings Per Share Dividend Per Share Adjusted Profit from (pence) (pence) Operations (£million) 122.2p 62p £1,356m +9% on 2005 +11% on 2005 +5% on 2005

Imperial Tobacco Group PLC PO Box 244 Southville Bristol BS99 7UJ ImpTob Rep Cover new.qxd 6/12/06 15:02 Page 4

The Group at a Glance

Imperial Tobacco is the world’s fourth largest international tobacco company, which manufactures, markets and sells a comprehensive range of cigarettes, tobaccos, rolling papers and tubes.

Overview Our Brands 2006 Financial Performance Key Global Brands

Imperial Tobacco products are available Our key premium international cigarette brand Davidoff Our key global brands of Davidoff, West, Drum, Golden Virginia and Group Revenue Less Duty in over 130 countries worldwide. Our has a strong foothold in Asia and a growing presence Rizla are complemented by a strong portfolio of regional and local geographic and product diversity provides in a number of markets worldwide. £3,162m brands such as Lambert & Butler, JPS, Horizon, Maxim, Excellence business resilience and a strong platform West is our biggest selling cigarette brand with and Route 66. for future growth. its major markets in Germany and in Central and Eastern Europe. Adjusted Proﬁt Complementing our cigarette portfolio we are world from Operations £1,356m leaders in ﬁne cut tobacco, papers and tubes with brands such as Golden Virginia, Drum and Rizla.

We have clear market leadership in the UK, Lambert & Butler has been the UK’s best selling United Contributions Revenue Less Duty Adjusted Profit which is a key profit centre for the Group, cigarette for 8 consecutive years with Richmond to the Group from Operations Kingdom with strong positions in cigarette, fine cut the UK’s number two cigarette brand. tobacco and papers. Golden Virginia is the UK’s leading fine cut tobacco brand. UK key brands: Lambert & Butler, Richmond, Windsor Blue, Superkings, Embassy, Regal, Golden Virginia, £835m £506m Drum, Rizla.

Germany is an important contributor to Our cigarette brand JPS has been the main driver Germany Contributions Revenue Less Duty Adjusted Proﬁt our overall results. Our cigarette market behind the growth in our cigarette share, with West a to the Group from Operations share is growing and although trading key brand in Germany in both cigarette and other conditions are challenging, our broad tobacco products. portfolio enables us to respond to changing Germany key brands: consumer dynamics. West, Davidoff, JPS, Cabinet, Peter Stuyvesant, R1, Drum, Van Nelle. £584m £274m

Building on our leading position in ﬁne Davidoff, West and JPS are performing strongly Rest of Contributions Revenue Less Duty Adjusted Proﬁt cut tobacco and papers, we have growing in the premium, mid and value segments across to the Group from Operations Western cigarette shares in a number of markets the region. Europe in our Rest of Western Europe region, Rest of Western Europe key brands: despite a highly competitive and Davidoff, West, JPS, Route 66, Bastos, Interval, Manufacturing regulated environment. Van Nelle, Golden Virginia, Drum, Rizla.

Our 32 factories are focused £637m £324m Cigarette factories on production quality, business simplification and optimising 21 our cost base. We continue Our Rest of the World region is diverse with Davidoff is growing across this region with line to increase productivity and Rest of Contributions Revenue Less Duty Adjusted Profit Other tobacco over 100 countries, with different dynamics, extensions in the Middle East, Asia and Eastern reduce our unit costs. to the Group from Operations the World opportunities and challenges. We are Europe and launches into Africa. product factories 8 growing our market shares and sales Rest of the World key brands: volumes in many markets across the region. Davidoff, West, Paramount, Route 66, Excellence, Boss, Prima, Maxim, Horizon, Classic, Rizla. Papers and tubes factories 3 Cert no. SGS-COC-1722 £1,106m £252m This Annual Report and Accounts is printed on Arctic the Volume. This paper is produced from 100% ECF (Elemental Chlorine Free) pulp that is fully recyclable. It has FSC (Forest Stewardship Council) certification and has been manufactured within a mill which is registered under the British and international Designed and produced by Black Sun Plc. quality standard of BS EN ISO 9001-2000 and the www.imperial-tobacco.com Printed in England by Butler and Tanner. environmental standard of BS EN ISO 14001-1996. ImpTob Rep Cover new.qxd 6/12/06 15:02 Page 4

The Group at a Glance

Imperial Tobacco is the world’s fourth largest international tobacco company, which manufactures, markets and sells a comprehensive range of cigarettes, tobaccos, rolling papers and tubes.

Overview Our Brands 2006 Financial Performance Key Global Brands

Imperial Tobacco Group PLC Annual Report and Accounts 2006 Annual Imperial Tobacco Group PLC Financial Highlights

Adjusted Earnings Per Share Dividend Per Share Adjusted Profit from (pence) (pence) Operations (£million) 122.2p 62p £1,356m +9% on 2005 +11% on 2005 +5% on 2005

Imperial Tobacco Group PLC PO Box 244 Southville Bristol BS99 7UJ 1 Contents e s www.imperial-tobacco.com s s s ed Income and Expen s s s and Judgement s s timate s ’ Report to the Member ’ Report to the Member s s s s ibility s s h Flow Statement Review s Committee s s s and Uncertaintie pon idiarie s s s tern Europe k s Statement s s ’ Remuneration Report s to the Financial Statement to the Imperial Tobacco Group PLC Balance Sheet to the Imperial Tobacco olidated Ca olidated Income Statement olidated Balance Sheet olidated Statement of Recogni s s s s s s t of We t of the World s s Con Supplementary Information Financial Statements Statutory Reports Operating and Financial Review Operating and Financial of Imperial Tobacco Group PLC of Imperial Tobacco Group PLC of Imperial Tobacco 78118 Note Independent Auditor 76 Critical Accounting E 127 Index 71 Accounting Policie 123 Shareholder Information 125 Principal Sub 67 Auditor Independent 24 Re 119 Group PLC Balance Sheet Imperial Tobacco 120 Note 6869 Con 70 Con Con 3638 Board of Director Chief Executive’ 4152 Corporate Governance Report Director 1517 Key Performance Indicator 18 Performance Group 20 Kingdom United 22 Germany Re 39 Report of the Director 24 Chairman’ 6 Executive’ Chief 7 Market Tobacco World 14 Context Strategic Overview Principal Ri 2728 Manufacturing 29 Review Financial 32 Operating Environment Re Corporate our key premium international s i s cigarette brand. Davidoff Davidoff Content int 1 r r ial tfolio. r in this r r ed r r 2 r r nings fully r r and ial essive r r r own by r n ove r own to and po s. r r r imp aphic footp ating ou y of Impe r r e 122.2 pence r nings pe r etu r r 6 times the r

inging the total r r e Index. The r r national tobacco r eholde e we r geog r e b r om 329 pence r r eate sustainable r owth, have delive cent. to 62.0 pence, up eholde r r r r oduct and b success has been ou sha r ongoing focus on costs, r ly demonst cent to 122.2 pence. sha r r r r r gely UK business into the p isen f ease in adjusted ea r gest inte r r r r . Adjusted ea ease ou ecommends a final dividend r ns to sha r r r ganic g d r value. esults build on ou the yea r th la r r etu r d, clea r r r nings pe ’s r r e of 9 pe ice has anks us second amongst FTSE 100 r r med a la r r cent on 2005 (2005: 56.0 pence). ed an inc eco r mances, ou r lying o r owing sales volumes, good b r r r n of the FTSE All-Sha e p eholde e and dividends have both g r ld’s fou ld’s r r r sha iod fo ing this yea The Boa G Since 1996, we have invested £5.2 billion r r r r r ack ansfo etu r r (2005: 108.6 pence). of 43.5 pence pe dividend fo 11 pe Basic ea pe pe companies. £100 invested in Impe in 1996 would have g Tobacco almost £800 by 2006, ove r sha and effective cash management have delive significant pe Fundamental to ou company. Total sha Total company. These acquisitions, combined with ou unde consistent ability to c sha and enhance ou wo sha t a compound 15 pe in acquisitions which have enabled us to significantly inc Tobacco. Since listing in 1996, we have Tobacco. t Earnings and Dividends This yea exciting time in the long histo An Outstanding Track Record An Outstanding Track The last decade has been a wonde 1996 to an all time high of 1,843 pence du at close of business r egiste r s on the r eholde r ights issue in 2002. r y 2007 to those sha -five discounted r r ua r Chairman oup PLC 2006

r y 2007. eﬂect the bonus element of the two-fo r r oved, the dividend will be paid on 16 Feb r

man’s Statement man’s on 19 Janua ating and Financial Review and Financial ating r r ial Tobacco G ial Tobacco 1. If app 2. Adjusted to Derek Bonham, Derek our listing on the London Stock our listing on the London pleased Exchange, I am extremely that the successful execution of our strategy has again delivered a strong set of results.” r

on our success Building “On the tenth anniversary of Impe Ope Chai

2 Operating and Financial Review 3 Operating and Financial Review ep 06 06 S ial-tobacco.com r 05 05 www.impe 04 04 3 0 3 0 2 0 2 0 01 01 00 (£m) 00 99 (Index) 98 99 97 e Index 98 r ial Tobacco r Oct 96 97 e buybacks r FTSE All-Sha Impe Dividends Sha 00 00 00 00 600 600 0 0 700 700 400 400 Cash Returned to Shareholders Total Shareholder Return 500 500 3 3 900 900 2 2 800 800 100 100 Total shareholder return since our listing in 1996 shareholder return since Total ranks us second amongst FTSE 100 companies. than years we have returned more In the past ten and shareholders by way of dividends £2.8 billion to share buybacks. 1000 1000 Total Shareholder Return Total s ed. ial r r s. ate. r tise r r r r keting r ve sﬁeld r r ecto s on r r ently ate in al r s. r ship to r mance, k rr r r r r les Knott eholde ting has r t of ou t of all r r r y success. olling costs po fo man and r mly. r r r r r r ent, and this , cu ecto t and it has r r ate plans into the Independent r r r r r oach to include epo r owth combined ements. r r r

po r d pe r the yea r its sha epo national business. r commitment to ivilege to se r r app r s. David Thu r d membe anspa r r ing excellent equi r r ved nine yea ds of co r r r ted ou r r co r r inte ing as Chai nett and Cha oup Sales and Ma r r r r ecto oach to cont r r eti r . Simon Duffy and Sipko r e and a p man and Senio actices and as pa efined ou r un ou r r r r ed as Non-Executive Di man. Above all, it has been eview Boa r r r tly be I was pleased to welcome ofitable top-line g r r eti ous app r ly r eating value fo r oup is in good shape and in r r r y to esults we have consistently delive esults we have consistently r d colleagues ove d. I thank them most wa dance with ou ce, has conve r last yea r r r r Chai , and Ken Bu r . I have been pleased to wo igo ted by a dedicated and highly skilled ted by a dedicated and r r r r r e that we have the skills and expe nance p nance. We believe ou nance. We man r r r r d in 2000, and wish him eve egula we have r r k fo dedication to delive ek Bonham r I will sho This yea An excellent management team, An excellent management The G This is my last annual r r r ecto ecto aham Blashill as G owth, c r r r r emendously enjoyable, due to the iendship and dedicated suppo esults is matched by ou r esigned as a Non-Executive Di r ongoing evaluation of Boa Huismans gove as Non-Executive Di r Octobe at the end of the 2006 Annual Gene the Boa will be succeeded by Iain Napie tangible gove yea Di Meeting, both having se Corporate Governance Ou always been open and t the latest UK legislative wo maintaining high standa r Board In acco G suppo ensu necessa my Boa capable hands. I am confident that Impe Chai Tobacco will continue to achieve sustainable g De and effectively utilising the cash we gene f as you t we focus on p Joint Vice Chai Di been a pleasu with a alongside Iain since his appointment to the Boa r

r ld pool r r r r r ette JPS r cent r r ibuto r ove ies, r e of ou to 2006, est r ette r r r r r r mance es in most eflected r r eate r position ette r r r competitive many, many, efo fo imp r r r r r s and this oss all ou ies in Live ations, ou sha ciga r r r r owth. r r r tfolio has been Davidoff k, we bought the r r r ongly. In the Rest ongly. and and disation r national ciga r r ess in ou r wegian dist yea elocation of ou r r r r . In Ge og med well, with global e of the T ing ope r educed by 6 pe ldwide ciga r r r acquisition of the own ou r r ow st and, having been the adema and po r r r r r r fo national g e gains ac r cent on last yea owth in ou r r r oduct facto r ovide us with g r r g, a No r pe ope and Rest of the Wo ettes. In Septembe r ette t oducts and accesso r emium inte y and the the b r r r r r kets. y 2006, extending ou Windsor Blue r ed the wo cent g n Eu r r r r ciga k fo . The closu manufactu able success with existing b r r r r r m licensee since the acquisition Stenbe ate its inte ua r r key p r Davidoff r r ma s facto ammes. In July, to fu ammes. In July, r r tobacco p ette unit costs ettes in the last fou r ational efficiencies and ou r r r r success in 2006 has been Ou r In ou In addition to ou og and r r adema om ou egions, we have g egions. In the UK, a good pe eflecting excellent p r r pape othe and Lah of ou position, we announced the closu r of Weste b in a 7 pe complemented by the successful national launch of Performance Overview Ou has continued to g p ope f t we acqui volumes up 6 pe volumes and sha long te have had of Reemtsma in 2002. We conside r 14 billion ciga ciga simplification and standa acquisition will p flexibility to develop the b r ciga in Scandinavia. accele of tobacco p in Feb Davidoff Gunna Chief Executive oup PLC 2006

r ating and Financial Review and Financial ating r ial Tobacco G ial Tobacco Gareth Davis, Gareth the strength of our strategy and the strength of our strategy our organic growth credentials. Our brands and in-market performances and the commitment of our people have all contributed to another great year.” r

our strategy our Delivering “We have again demonstrated “We Impe Ope Review Executive’s Chief

4 Operating and Financial Review 5 Operating and Financial Review

r ette r de r ound r cash. r ciga r ial-tobacco.com r e buyback r ate of a r simpliﬁcation and r y 2006, o in r www.impe educed ou ammes. r r ua olling sha r r cent and made

r og r r ess in ou r ing, we r og r e the effective use of ou eased ou r disation p r r amme to an annual r og r to ensu £600 million in Feb p We inc We unit costs by 6 pe excellent p standa In manufactu s, r r ette e r r ecent yea continued to r 2006. ship position able success r r r s. It has been r olling sha r ldwide ciga r

r ettes in r his guidance and t of the business will r r ld leade r conside r the yea ciga r ia. Ou ve as his Chief Executive. r wo r y pa r r Golden Virginia emain committed to seeking amme is an effective use ek, fo ed the wo r ite r r r r k in Septembe r t ou og r and r Davidoff eating acquisitions that meet ou elenting focus on cost and efficiency r r cash flow in the meantime. adema r man, De r t in fine cut tobacco. Building on ou with we acqui Drum suppo r ivilege to se un eth Davis r Finally, I would like to thank my I would like to thank Finally, Our success in 2006 has been reflected in aOur success in 7 per cent gains across cigarette volumes and share growth in our all our regions. r r oughout eve r Ga a p Chief Executive Chai wise counsel ove of ou buyback p established c value c continue. We continue. We th Ou 2006 Highlights

r r ove. ated r r ial r oss r r r aphic e e in ands. in r r r r oduct r r ou eite r ate of r r ing r Impe esenting ate. We r r ice paid was ecent r r e capital. r esponsibility have now y 2006. In ou oad p r r r r r oduction ep 2006, we held r r t and on ou r y challenges. olling sha r . e held as b ability to r r r ua r tunities to y bodies in r r ospects ac

r r ate r r r ing the yea r es age p r oss many r r business in most ess is included on r r e thanks to them epo r r oducts and b r r po ette p r r r eate value fo widening geog actical and r r and equity, with long and equity, og onments. Regulation r p r r r uctive dialogue with , we spent £556 million, egulato r eat yea ial-tobacco.com r r e use of the effective r r y Sha owth p ated ou eat assets fo r egulato issued sha r r r r p r r r e well positioned to r g r ease du eased ou r es which a r r ia has continued to imp ing we continue to delive r e g r r egulation. amme to an annual r mance ac r r easu r es. The ave r s many oppo ite r r r s. My since fo og opean ciga r r ansaction costs, acqui to ensu r r r kets in which we ope r ategy and c r oduction to ou r r pe ed c de cent of ou y sha egulated envi r ate Responsibility Review, I ate Responsibility Review, r success is as much due to ou r tionate r st r r r r r r int combined with ou nments and al Eu yet anothe r r r age and build b r ong position. Ou eholde r e detail on ou ent ﬁnancial yea r employees’ enthusiasm and po r tfolio offe suit of sensible, p r commitment to co cash we inc In o r Ou r r r m sustainable g r r rr opo r ound £600 million in Feb easu r r r pu p gove believe that we a effectively manage welcome const We many ma continued to inc highly successfully develop ou Regulation have demonst We te all fo website www.impe Outlook Looking ahead, we believe that we a a st footp leve sha pages 32 to 35 of this po on ou Mo the business. ou been completed. measu Tobacco, ensu Tobacco, Cent a buyback p to Poland announced last yea to Poland announced Corporate Responsibility In my int Co and ou Ou commitment a £17.02. As at 30 Septembe 46.0 million T 32.5 million sha T 6.3 pe cu including t ou people as it is to ou Operating and Financial Review World Tobacco Market Context

World Tobacco Market Context

6 Operating and Financial Review In 20051 an estimated 3.5 trillion cigarettes (2004: 3.6 trillion cigarettes) were sold globally, excluding China. Against this background of relatively stable global cigarette consumption, the four largest international tobacco companies, Philip Morris, British American Tobacco, Japan Tobacco and Imperial Tobacco, have a share of around 64 per cent.

Whilst there are local variations, with volumes of international premium cigarettes are manufactured using two brands remaining relatively stable whilst principal tobacco blends, Virginia blend those in the mid and value price and American blend, each accounting segments may continue to grow. for approximately half of the world Duty Increases market. Virginia blend products are In the EU, tax-driven price increases are predominant in the UK, Africa and most stimulating growth in value cigarette Asian markets, including China and brands and fine cut tobacco products India. American blend products are as consumers downtrade. Governments predominant in continental, Central continue to drive excise increases and Eastern Europe, the United States globally as a key instrument to reduce and Latin America. Fine cut tobacco is tobacco consumption. manufactured using blends of light and dark tobacco. Duty increases are generally passed on to the consumer. However, in some Alternatives to cigarettes and fine cut markets such as in the EU accession tobacco products include smokeless countries, which have derogation periods tobaccos, cigars and pipe tobacco. within which they must reach the EU Consumption minimum tax level, duty increases have Some developed markets, including been partly or wholly absorbed by those within the EU, have experienced tobacco manufacturers, which has the reduced duty-paid cigarette sales effect of reducing market profitability. volumes due to significant excise-driven Regulation price increases, resulting in increased Tobacco legislation and regulation cross-border inflow and some reduced continue to increase in speed, scope, consumption. On the other hand, some scale and sophistication. For example, developing markets such as those in restrictions on smoking in public places Asia, Central and Eastern Europe are and pictorial health warnings have been experiencing increases in cigarette adopted in a number of markets. consumption as a result of rising Gross Domestic Product. The Framework Convention on Tobacco Control took effect on 27 February 2005 In recent years, there has been a and by the end of September 2006 had consumer trend towards international been ratified by 140 countries, as well branded cigarettes at the expense of as the EU. local brands. This is likely to continue

1. Most recent year for which worldwide information is available.

Imperial Tobacco Group PLC 2006 7 Operating and Financial Review ial-tobacco.com r www.impe

Sales development Effective cash management Cost optimisation and efﬁciency improvements

Our Strategy create sustainable Our strategy is to by growing both shareholder value acquisitions. organically and through Our Strategic Objectives pursue three primary actively We objectives which underpin our strategy: value

view

r Delivering ating and Financial Review and Financial ating r ategic Ove ategic r

Ope St shareholder Operating and Financial Review Strategic Overview Building

8 Operating and Financial Review sales grow

Our Five Key Brands

Brands Trade Marketing Our broad brand and product portfolio As regulation increases and conventional includes international cigarette brands direct communication between such as Davidoff and West and strong manufacturers and consumersis regional brands such as JPS, Lambert progressively withdrawn, effectiveness & Butler, Richmond and Horizon. at the point of sale is vital. Our trade Complementing our cigarette portfolio is marketing objective is to ensure that our world leadership in ﬁne cut tobacco, our brands are available, have impact papers and tubes with brands such as and are appealing to our consumers. Golden Virginia, Drum and Rizla. Our brand strategy takes a portfolio approach responsive to individual market dynamics and price segmentation. We believe there is considerable potential to leverage and build our brand equity.

Imperial Tobacco Group PLC 2006 Graham Blashill Group Sales and Marketing Director 9

“Sales and marketing excellence Operating and Financial Review are essential to achieving proﬁt growth. We continue to build our sales and trade marketing skills and share best practice to ensure our comprehensive portfolio of brands are available, have impact and are appealing th to consumers globally.”

Market Opportunities With sales in over 130 countries, we have a strong international proﬁle. Our position in mature European markets is balanced by developing markets such as those in Asia and Eastern Europe. We see opportunities, both organic and acquisition led, to enhance and extend our existing operations in our Rest of Western Europe and Rest of the World regions, with the UK and Germany continuing to be key contributors to the overall results.

www.imperial-tobacco.com

r ial r eation. r us to invest r e is focused on r y aspect of Impe r cultu r ovements. r disation continues to delive r ees up funds fo r focus on simplification and oughout eve r r ofit imp r This f in top-line development. cost optimisation and value c p Cost Optimisation Th Simplification and Standardisation Ou standa ou Tobacco, & cost & cost efficiencies ing r ts r manufactu r educing costs r view r

oup PLC 2006 r

oving efﬁciency suppo r ating and Financial Review and Financial ating r ations whilst maintaining sufﬁcient ial Tobacco G ial Tobacco

productiv Driving r r ategic Ove ategic sales development. r r We aim to optimise ou We ope flexibility to adapt to changing demand. ou and imp Impe Efficiency Improvements Efficiency A continual focus on Ope St

Operating and Financial Review 10 11 Operating and Financial Review ial-tobacco.com r r www.impe ecto r ing Di r esswell r David C Manufactu

Cigarette Products Other Tobacco Paper/Tubes • • •

high quality products and high quality and standardising simplifying operations, our manufacturing ensuring a fast and ﬂexible cost response and delivering every aspect savings. Throughout of our culture Imperial Tobacco, is focused on cost optimisation and value creation.” “We are focused on manufacturing are “We ity Operating and Financial Review Strategic Overview

Effective

12 Operating and Financial Review cashmanagement

10 Years of Acquisitions

1996 1997 1998 1999 2000 2001 2002 Imperial Rizla Douwe Egbert Australasia Mayfair Vending EFKA Group Tobaccor Reemtsma Tobacco Imperial Tobacco Van Nelle Acquisition Imperial The EFKA Group, Imperial Tobacco Imperial Tobacco Listed on the acquired Rizla, The acquisition We acquired Tobacco’s a German-based acquired a acquired a 90.01 London Stock the world’s of Douwe Egbert a portfolio of vending manufacturer of 75 per cent per cent interest Exchange as number one Van Nelle cigarettes, fine subsidiary, Sinclair rolling papers and interest in in Reemtsma a FTSE 100 manufacturer extended our cut tobacco and Collis, acquired tubes became Tobaccor, the Cigarettenfabriken company. of rolling papers. fine cut tobacco rolling papers Mayfair Vending, part of Imperial second largest GmbH, the brand portfolio in Australasia, a UK cigarette Tobacco. cigarette German-based with Drum and together with vending machine manufacturer and international Baelen Group Van Nelle. a factory in operator. distributor in sub company. The New Zealand. The Baelen Saharan Africa. remainder was Group, a Belgian r r r The balance was acqui ed in 2004. manufactu e of acquired by fine cut tobacco, October 2004. was acquired.

Imperial Tobacco Group PLC 2006 13 Operating and Financial Review atio. r e the r 06 owing r e with ound 100 r r ial-tobacco.com value. king capital, r r r est costs. sha r 05 r essive, g ate of a r e, wo r r cent pay out eholde r r www.impe og r 04 focus is on managing r nings pe sion oadly in line with r r r r ate sha r 03 ecto bus ative with an ongoing annual r r r policy is p objective is then to ensu cent. Ou r r r ound a ﬁfty pe r t Dy 02 r disciplined allocation of that cash to gene Ou tax efﬁciency and inte capital expenditu a pe dividends b adjusted ea Dividends Ou Cash Conversion Effective continue to be highly cash We gene cash conve Robe Finance Di 01 e r r 00 tunities. business r eholde r r olling sha r

r amme. r 99 og r e an effective use of r amme, at an annual r 98 e committed to r og r ound £600 million. r to maintain balance sheet to ensu r r ed signiﬁcant sha tunities, we have an ongoing 97 r r de e buyback p de r r r cash we have ou EPS Dividend r ough both acquisitions and ganic investment oppo 0 r r 2 0 ate of a

1 100 80 60 40 2 0

efﬁciency while we assess such oppo sha In o o continuing to expand ou th value. We a value. We Buyback Programme Our Share In o Value Creating Acquisitions Creating Value Since 1996, we have invested £5.2 billion in acquisitions which have delive ou buyback p r 10 Year EPS and Dividend 10 Year Record Pence we generate is used efﬁciently, we generate organic through acquisitions, andinvestment returning funds adding to to our shareholders, our value creation.” “We to ensure look cash that the ies, ette r r oducts r of r k. ed by r r ed the wegian ial Tobacco ial Tobacco. r r r r ibuto ldwide r r adema r Impe is acqui and accesso tobacco p dist Gunnar Stenberg AS A No acqui 2006 Davidoff Impe Davidoff ciga t wo uf, r

r e r ial Tobacco r invested in Sk a Swedish manufactu 2005 Skruf Impe of snus. r e r ed the ial Tobacco r r acqui business and assets of tubes manufactu 2004 CTC Tube Company of Canada Impe CTC Tube Company of Canada. se r ities, e r y r r key ing r r damages. t. r y of alleged elating r r r y is ongoing. r r kets may ought against r om the owth of the moneta esult, we may r r r r r elated litigation. ket positions r r oup. To date, no oup. To ecove esult in adve r y f r r r mation elevant autho r r oﬁt development. ial decline in the , if any individual claim r r r ingement of UK pinned by ou r ganic g r nance Repo r r e p able. r ading (OFT) in the UK r r substantial costs in kets. As a r r T r mation is included in the r ation of the UK tobacco futu 2003 and again du r r r y action by ecove r esulted in the r r ate Gove info

r claims, which if successful may r dless of the outcome of pending r mance of these ma r ial Tobacco has been successful ial Tobacco tain ma r r r r eceived an enqui kets. Any mate kets, which could r po e to be successful, it may lead to il 2005. The OFT’s enqui il 2005. The OFT’s fo the ious tobacco litigation claims a r r r r ingement of competition law in these r r the r r r r egulato esult in a significant liability fo and/o tobacco litigation claim b Impe Litigation may incu We connection with health- Va pending against the G Co to the ope supply chain was supplied to the OFT in Octobe Fu into an alleged inf Info competition law. in ce fines, and negative publicity. In 2003, fines, and negative publicity. we Competition Law have significant ma We Office of Fai impact ou including the potential fo pe r ma Rega litigation, the costs of defending such claims can be substantial and may not be fully inf ma Key Market Dependency The continued o business is unde r be subject to investigation fo damages. Howeve we fu Ap r e r isk r ld- ading r r easing able ettes r r ance ength r emium kets fo oducts, r r oducts r r r sin r wo r r e is a ate, r r st p r r ies with r oduction eases have oducts. r r r om p es to detect centage of the r se effect on r r r ice ciga om downt r r eases in excise oducts. ovide only ities. Although we p r r r r r isk. r educe the demand r ocedu r om count onment the ettes and ou r easing levels of excise r ading of ou r se effect on the eatment of fine cut r r r r oducts. r aged consume autho r r p r ade f eased levels of duty. es can p oducts. p Tobacco r r r s. Inc r r t kets to switch f r r aged both legal and illegal ou e likely to othe egulation, including the r r r r r ettes to lowe iced ciga kets in which we ope tising of tobacco p feit tobacco p r r ol illegal t r de r r r r , substantial inc r ocedu p r r ice inc and has been steadily r oducts. Excise duty inc than eliminating levels of duty and the p r r r esents a substantial pe easing excise duties on tobacco eased r p ecent yea oduction of public place smoking bans, r r tobacco p r r r oducts a ice ciga oss-bo e subject to excise duty which, in many r r r r r ep athe easonable and not absolute assu etail p r a of the ma fo p Excise Duty Inc may have an adve demand fo int Inc and adve and fine cut tobacco. Given ou in lowe well positioned to benefit f leading position in fine cut tobacco we a caused by inc Howeve duties and any significantly unfavou affected ma p change in the tax t tobacco may have an adve duty have encou ou the size of individual duty-paid ma r in of detecting non-compliance by managing r r also encou c lowe such p of counte that we may be subject to investigation by customs o and cont Within such an envi have implemented p r ce es r r isk e r r ds y isks al e r r oup’s r r r r ate keting e, ial r r ency r oup. ed to mation r al r y r ing ial r r rr r r r ocedu po kets in business. r r r al r tainties eas of r isks a r r business, equi r r egulato r

isk r r isks and r r egulation. Fo

ate and sou e r r r egulato r iption of the r r d acknowledges tainties that a oss the G ibution, ma r r r r oup’s systems of oup’s e a r r e within the G incipal a r r e unknown to the ocess, ensu r r y is subject to oach to ictive e detailed info p r easing r r r t. r r s a r r n out to be mate end has been towa ols to manage the r r r est the G r r ate, the and consistent p r ials, the impact of natu oup PLC 2006 r r r ate ﬂuctuations, and the ol. Mo which a r e may be othe r r ing, updating and implementing e. s the t isks. The Boa tainties as any othe tainty so that majo r r r isks and unce oup’s app oup’s r r r which may not be mate r eview thei r est r r r iate cont s and changes in gene ea of the business is e clea r r r r easingly ies in which we ope r nance Repo e subject to the same gene r tainties r r ol. The r onment. In many of the ma aw mate op r ictions affecting the manufactu nal cont r r r e a r ating and Financial Review and Financial ating r

r r monito r example, the political stability in the mally oup o incipal r r r r ial Tobacco G ial Tobacco r r esponsibility fo est eviewed at all levels ac Gove We a management is found in the Co on the G inte identiﬁed r Regulation The tobacco indust in the futu substantial and inc unce speciﬁc to, and may impact, ou now but could tu app p impact of competition. Outlined below is a desc Not all these facto G fo development, sale, dist and inte cont economic conditions including cu which we ope disaste the r ou r This is an ongoing p envi fo count and unce and unce an inc many yea fo Each a A detailed assessment of strategic risks is undertaken A detailed assessment and is embedded into our corporate by management planning process. incipal Risks and Unce Risks incipal r Impe Principal RisksPrincipal and Uncertainties Ope P

Operating and Financial Review 14 15 Operating and Financial Review ial-tobacco.com r 2005: 40% 2005: 101% 2005: 41.5% 2005: 44.5% 2005: 19.4% 2005: 112.2p 2005: 26,600t 1 t 2005: 175.2bn 2 2005: up by 15% www.impe bn p % % % % 6 % Germany Fine Cut Tobacco up by 98 UK 45.5 20.7 Cigarettes 186.9 25,500 14% 122.2 42.9 Productivity Cash Conversion Rate Share Market Cigarette Volumes Total Shareholder Return Shareholder Total Adjusted Earnings Per Share Adjusted Operating Margin 1 cent es r r r many, ew to r r cent, r ﬁne cut mances in ket sha r r r fo y in Ge r r e 25,500 tonnes. r ette ma kets, the UK and facto r oduction. r r ettes. Ou r ette volumes g r cent and 20.7 pe r r ciga Lah r views on pages 18 to 26. r oduction. r r ciga r kets can be found in ou r two key ma ma r r many, ou many, r oductivity was up by 6 pe ew to 45.5 pe r r espectively. Detailed pe espectively. egional ove othe g r Ge Productivity is measured as factory output divided by paid hours. Cigarette MarketCigarette Share 2006 Performance In ou which was impacted by the cessation of Singles p r We estimate market shares as the volume excluding ou Volumes represent the number of units Volumes sold in the year. Productivity 2006 Performance P 186.9 billion ciga tobacco volumes we Volumes 2006 Performance In 2006 ou of our brands sold by retailers in the year as a percentage of total market volumes. eased r eased s r r gin inc e inc r r n was r many, which was impacted by the cessation of Singles p many, r etu ate in 2006 was sha r r r

r y in Ge r ating ma r sion r facto r eholde r nings pe r cent. Lah r mance Indicato mance r r cent to 122.2 pence. r fo cent. cent. r r r ial Tobacco estimates. ial Tobacco r adjusted ope cash conve total sha ating and Financial Review and Financial ating r r r r Cash Conversion Rate 2006 Performance Ou to 42.9 pe This represents the adjusted profit from operations divided by revenue less duty. 98 pe Cash conversion is calculated as cash flow from operations before tax payments less net capital expenditure plant, equipment relating to property, and software as a percentage of adjusted profit from operations. Adjusted Operating Margin 2006 Performance Ou by 9 pe Adjusted earnings per share is adjusted profit after tax attributable to the equity holders of the Company divided by the weighted average number of ordinary shares in issue during the period. This excludes shares held to satisfy employee share schemes and shares purchased by the Company shares. and held as Treasury Adjusted Earnings Per Share 2006 Performance Adjusted ea 14 pe return shareholder is the total Total investment gain to shareholders, resulting from the movement in the share price and assuming dividends are immediately invested in shares. 2. Excluding ou 1. Impe Total Shareholder Return Shareholder Total 2006 Performance Ou Key performance indicators are the principal measures indicators are the principal Key performance our to assess performance against used by the Board basis. are reviewed on a regular These strategy. Key Performance Indicators Key Performance Ope Pe Key Operating and Financial Review 16 17 Operating and Financial Review £m 2.1 7.1 1.8 (57) 2005 2005 000’s 15.6 26.6 tonnes 3,123 1,297 1,240 41.5% tain r e and r £m 2005. r 2.1 6.4 1.9 2006 (45) 2006 000’s 15.1 25.5 e set out ial-tobacco.com r r tonnes 1,356 1,311 3,162 eviously estated r r 42.9%

r e tax fo bn r eclassified ce r 2005 23.9 20.9 17.7 www.impe 112.7 175.2 omotion expenditu r ofit befo bn eleasing ou r r ations r 2006 23.4 20.7 20.1 122.7 186.9 ofit r ing costs ations r income statement. These r r £m om ope esults, we have r r 468 294 326 209 2005 tising and p ted IFRS p uctu r r r 1,297 ement benefit net financing income r ofit f r om ope epo eti r in note 30 to the financial statements. Full details of these changes a r within ou r changes do not impact the p adve Subsequent to 2005 f Rest P Group Operating Performance Group Revenue less duty Adjusted p Adjusted operating margin £m 506 274 324 252 2006 1,356 e r r e r ed r sha £m r ended 800 630 644 2005 r oup epa r 1,049 3,123 ting r ew 6 pe r r e up to Revenue Adjusted profit Cigarette Fine cut less duty operations from volumes tobacco volumes r website 2005, cent). r r r £m nings pe r ations was up 835 584 637 the yea 2006 r r full details, sed by the r r 1,106 3,162 ations g oss the business r UK GAAP, in UK GAAP, r r esults which we gins we r owth in adjusted r r cent to 122.2 pence. ope om ope r r r e. Basic ea om ope r r section of ou ld 2005 r r r cent g 2006 have been p ofit f n Eu ted unde r r r r r ating ma r sha ofit f r r ial-tobacco.com r national Financial Repo epo evenue was £11,676 million r r r cent (2005: 41.5 pe r ds (IFRS) as endo ed to £11,229 million in 2005. ed r r ed 9 pe ted p dance with IFRS. Fo r owing volumes, combined with r cent to £1,356 million and G r r r estated ou many r eased by 13 pe eased efficiencies ac opean Union. In Novembe nings pe r Adjusted p G r r r r iginally r www.impe using Inte Standa acco visit the investo o The financial statements fo 30 Septembe (2005: 108.6 pence). inc we Eu Rest of Weste Rest of the Wo Total UK Ge Regional Performance Analysis Detail on our regional performance can be found on pages 18 to 26 of this report. In 2006, ea compa Revenue less duty was £3,162 million (2005: £3,123 million). 5pe adjusted ope Repo 42.9 pe and continued effective cash management, delive inc cent to £1,311 million (2005: £1,240 million). mance r fo r

ating and Financial Review and Financial ating r

oup Pe oup r

Ope G

year of growth Successful United Kingdom

18 Operating and Financial Review Our strategy in the UK is to build on our market leadership position.

Performance Highlights 2006 2005 Revenue less duty £835m £800m Adjusted profit from operations £506m £468m Imperial Tobacco cigarette volumes 23.4bn 23.9bn Imperial Tobacco fine cut tobacco volumes 2,100t 2,100t Market Dynamics The UK is a mature market which has experienced moderate market declines in recent years. Imperial Tobacco is the market leader in cigarette, fine cut tobacco and rolling papers. The value and economy segments of the cigarette market are growing as consumers downtrade. The UK is a highly regulated environment with one of the highest rates of tobacco tax in the world. A ban on smoking in public places was implemented in Scotland in March 2006. Similar bans are due to take effect in both Wales and in Northern Ireland in April 2007 and in England during summer 2007.

20061 20051 Total market size cigarette volumes 49.1bn 50.8bn Total market size ﬁne cut tobacco volumes 3,250t 3,050t Imperial Tobacco’s market share in cigarettes2 45.5% 44.5% Imperial Tobacco’s market share in ﬁne cut tobacco 65.3% 66.3%

1. Imperial Tobacco estimates. 2. Excludes Private Label. 19 Operating and Financial Review 1 1 e 2005 e 2005 r r 16.0% 14.7% 50.8% 15.5% ew r ial-tobacco.com r ket Sha ket Sha . r r ovement. r r . Ma Ma 1 1 www.impe ation packs g Golden Virginia r ands 16.2% 15.5% 49.5% 15.8% r b 2006. r r Lambert & Butler om a packaging imp r and, Market Share 2006 Market Share Market Share 2006 Market Share r elaunch of the celeb ette b r r nationally in the economy secto e in Septembe r t r and the one ciga ee r ket sha r r and has benefited f r ofits. oduct r r r d th s in fine cut tobacco with ou business. r Windsor Blue r r Smooth r the r iences two b r r keting r es we have cent ma ading r r acking and r r , as voted by s. r and and p egulation, we do egulations and r ket leade r r r ovide fu r

r ette r r b r ovements in p r yea r the s will continue to choose focus on costs, sales teams and suppo om which we seek e of numbe the UK’s e ma r r ted by expe r r r r r m effect on ou r r Superkings ew to 2.2 pe imp r r dless of m f r r , the UK’s numbe , the UK’s . y 2006 we launched the sity of ou r mance: Ciga mance: Fine Cut Tobacco kets. iants r r r r ket sha r r ega r and g r fo fo r r r fu Drum r ial Tobacco estimates. r ma s in 2006. is an accolade This r r tunities within a downt amme Best Supplie r ecognises the effectiveness and r onment. This, along with ou r ong platfo and In the UK we a The b In Janua the ma Richmond New va and Pe and Pe r r r r tfolio continues to p view is suppo The dive r r B Lambert & Butler Richmond B Golden Virginia Drum 1. Impe og r excellence and ou efficiency and flexibility, ensu po oppo envi commitment to sales and ma Outlook In the context of fu in othe ou times in the last fou believe smoke We not expect smoking bans in the UK to have significant long te to smoke functions. have won this awa We commitment of ou that Retaile to delive a st We won the Convenience T We P Key Brands r cent ew r r om r ket ands ket r r r r om cent iants , r b r r cent r r eases ket ove cent r elaunch ational e of 15.5 r r r r r ket g r r r ette s in ofit f r r r mance r ette ma ma ette ma ose 4 pe ch 2006. r r r r r y 2006 in Lambert & fo r r e. The numbe ice inc ket volume r ading dynamics, . New va r ew the UK’s r cent r r r ou r owing ou ket sha r r r and the Superkings and r e. ew to 2.2 pe has benefited f Windsor Blue r r ket leade e down 2 pe r ofit pe r and. r e to 45.5 pe is the UK’s best is the UK’s r ading. r and ,g cent to £506 million. r r r essu cent sha ette b r ovement and continued r r r Smooth cent to 49.1 billion s now account fo cent). cent) due to continued r r p r r r ette b r ed an excellent ope ket sha r ation packs g r ovements in ciga r and e in Septembe Richmond, r evenue less duty r r Embassy activity. e than offset ma r r , e the UK ma m well with a ma r r one ciga r ading continuing. The value and ating and Financial Review and Financial ating cent of the total UK ciga to 16.2 pe and, r r fo r mance in the UK, g r ette volumes we r r ette ma r ations up 8 pe e and the benefits of p e declined to 65.3 pe r r Regal ket sha ket. The fine cut tobacco ma r r cent. Reflecting downt fo r r We delive We Lambert & Butler Lambert & Butler selling ciga A ban on smoking in public places was We a oduced in Scotland in Ma r r r r eflects imp emained unde pe ou to pe a packaging imp two b Butler numbe declines and downt Superkings of the celeb which mo sha the economy secto ma (2005: 44.5 pe launched nationally in Janua r ciga economy secto to 23.4This p billion. fine cut tobacco, howeve (2005: 66.3 pe competito Market Dynamics estimate that the UK ciga We We grew our UK cigarette market our UK cigarette grew We market further enhancing our share, leading position. (2005: 50.8 with consume billion) Ope Kingdom United was down 3 pe downt 40 pe ma to 3,250 (2005: 3,050 tonnes). tonnes int Our Performance In the UK, pe r sha to £835 million, with adjusted p ope Ciga 2 2005 2005 43bn 19.4% 24.2% 101bn £630m £294m 20.9bn 10.4bn r ette secto r 2 2006 2006 43bn 92bn 9.5bn 20.7% 21.8% £584m £274m 20.7bn anded ciga r egion. r ice b r ettes; with a leading position r many r many due to the impact of successive ettes r r r ch due to a change in duty status r oduct oducts r r Germany remains a key Germany remains contributor to the overall results. Our strategy is to of build on the momentum market cigarette our growing share, with our broad portfolio enabling us to respond to changing consumer dynamics. two in ciga ia. r r e in othe e in ciga 1 e included in Ge r r r ette equivalents) r ations a ations r r ading, with the low p tobacco p tobacco p r ket sha ket sha ette volumes ettes r r r r r r oducts. ian ope r r 1 ket has declined in Ge r ette equivalents) r om ope r Aust e downt r r ongly. ongly. s a r ofit f r oducts (as ciga om ou r ette ma r r r eases. oduct. tobacco p r r ket size othe ket size ciga ette equivalents) r r r r ial Tobacco is the numbe ial Tobacco r ial Tobacco estimates, excluding Aust esults f ial Tobacco’s ma ial Tobacco’s ial Tobacco’s ma ial Tobacco’s ial Tobacco ciga ial Tobacco ial Tobacco othe r r r r r r oduction of Singles stopped in Ma owing st r r of the p P g duty inc Impe The ciga in othe Consume Impe 2. Impe Total ma Total 1. The Impe tobacco p Total ma Total (as ciga Market Dynamics Impe volumes (as ciga Revenue less duty Adjusted p Performance Highlights Impe Germany

20 Operating and Financial Review 21 Operating and Financial Review r 1 1 r ation. r r 8.5% 1.7% 1.1% 6.3% e 2005 e 2005 e ket r r r r 11.5% in k on ou ecently r r

mig r r packs e well oducts. ial-tobacco.com r r r ket Sha ket Sha r r esults. ket sha r r ation of Singles Ma Ma West r many continues r eased r 1 1 native p emain competitive. West SingleWest Tobacco r ettes and othe www.impe r r Ge r ity of ma obustly given ma r r to alte r r 8.2% 3.8% 1.1% 7.6% 7.5% initiatives planned. aging initial r r ing developments and ou . With inc de r r oducts such as ou JPS Single Tobacco aditional fine cut tobacco r med the r r r limited edition r fo oducts means we a y focus fo r West r s to ou r r ou r pe of fu ed the majo r r own p ima Market Share 2006 Market Share 2006 Market Share r and ch and e monito r r r r p r ength in value ciga r oducts with t r ette b Outlook Ou to be in managing the mig consume May with encou Singles, we launched in Ma In addition, we will continue to wo cost base in o tobacco p positioned to manage consume st We a Davidoff r and r and has captu r e ette segment. r r r r was down, howeve om tobacco p ategic ciga ette b r r r r iced e up and new make you r sha r the ket r st r ia. . r r ket e. In r oducts West . The cent r anded r r JPS r mance ating f ou cent). r r r r West West of fu tobacco ongly. The b ongly. r fo e was anded ciga r r JPS e of ket sha r r limited edition obustly in r to the change r r r r and r ice b r ity of ma emium ciga io r r ket fo s mig r ed additional sales om r r r cent. r Tobacco P engthen the r ice b ow st r ette r r r r med West r oducts sha ket sha r r onment with a stable cent (2005: 8.5 pe many. and’s pe and’s esulted in fo e of othe r r r r r r r esulting impact on ading in the mid-p r r ofitable p cent). P pe r r mance f ed additional sales volumes, with a numbe r r West Single Tobacco ed the majo fo r mance: Ciga mance: Othe r e of 1.1 pe r r ket sha r r ading, ma fo fo cent (2005: 1.7 pe r r r ecent months, ou r tobacco p ading envi r continues to g r ial Tobacco excluding Aust estimates, owth in the low p r r highly p many is a key ma r Davidoff r r ma r oducts such as owth in the low p packs have delive r r ette segment ette segment, with ma e g r r p We have a leading position in othe Ge dynamics in Ge g have delive downt Ou JPS launched and Pe and Pe ket sha r eased downt eased competition in this ma r r othe r Ou r r r West JPS 1. Impe B West JPS Davidoff B opping to 8.2 pe oducts was down to 21.8 pe and captu and. r r r r has stabilised, with a numbe initiatives planned to st cent). In volumes and the b West anticipation of consume d segment, with a ou ciga in duty status of Singles the inc Inc (2005: 24.2 pe to 3.8 pe p ciga sha b ma a downt excellent pe b Key Brands r y r ket r s ch r r has r many, e opean r r liament r oducts cent r esults r r ands r ing 2007. r r cent to r oducts, ket, with the r r e to 20.7 pe cent). r iven by an r s shelves ations down r r r ette equivalents. ket sha ease in ette b r ette secto r r r man pa r 11.4 pe r oduct, although r all tobacco ma r om the Eu r tobacco p r cent to 135 billion tising in Ge r esulted in a change r etaile r r r ette sha ket volume decline, ongly as consume cent) d om ope r r al political initiatives r r ette ma r cent to £584 million, r r continuing to decline to r duty inc r uling f r r evenue less duty ket fell by 9 pe r r anded ciga ofit f

ciga . the r r r r r ow st all ma r cent) of the ma r biggest selling and. ettes, (2005: 101 billion), r r al and state level. A volunta r r r r y developments include the bill r eached the Ge 2005. Othe r ice b r emained on r r ette ma ew ou is ou cent (2005: 15.9 pe r r r ette b r ict tobacco adve ading into value ciga ade, accounting fo ating and Financial Review and Financial ating r r ently in place. r many, ou many, r r cent to £274 million. These oduction of Singles ceased in Ma many t of Justice which rr ette equivalents (2005: 144 billion). r eased by 7 pe r r r r r e stable at 43 billion ciga est tly offset by ciga eement with the hospitality association P Regulato ciga We g West West r r r r ivate Label secto oducts owth and cost efficiencies. r r r eflect the ove g and the cessation of Singles p pa in the duty status of the p 7pe Cou downt r with adjusted p ag is cu Our Performance In Ge 2006, following a dec taken at fede P 13.4 pe (2005: 5.6 pe The debate on smoking in public places continues with seve continued to g and is expected to take effect du downt The low p which has we following the fu 92 billion ciga Septembe The ciga ciga to until Septembe in 2006 was down 6 pe Market Dynamics estimate that the ove We While trading conditions remain While trading conditions we have challenging in Germany, in growth been pleased with the market share. our cigarette Ope Ge cent (2005: 19.4 pe p 1 1 2 e r 2005 2005 2005 e r 51.1% 46.2% 67.0% 11.6% 57.4% 64.4% 29.0% 329bn £326m £644m 17.7bn ket Sha 15,600t 30,900t r Ma egion in r 1 1 2006 e becoming mo r 51.1% 45.2% 67.4% 10.4% 54.1% 58.8% 28.0% 2006 2006 ading in the 320bn r £324m £637m 20.1bn Market Share 15,100t 30,400t egion a r 2 1 e r ope r 2005 4.9% 7.0% 3.3% 5.1% 9.5% 1.6% e is downt r 26.2% ket Sha r n Eu r Ma 1 Our strategy in the Rest of Europe is to continue Western market to grow our cigarette on our shares and build regional leadership in fine cut tobacco, while ensuring our key brands are available to travelling consumers. Cigarette Fine Cut Tobacco 2006 ette 8.9% 8.4% 6.4% 1.5% 3.6% r 26.2% 10.2% ations r ette volumes r Market Share easing levels of duty, the easing levels of duty, r om ope r kets in the Rest of Weste r ket size: ciga ket size: fine cut tobacco r r ofit f r e ma ette and fine cut tobacco. r r lands r ial Tobacco estimates. ial Tobacco ciga ial Tobacco fine cut tobacco volumes ial Tobacco r r r eece ance r r eland egulated. With inc egulated. r both ciga r 2. Restated as AC Nielsen bases changed. 1. Impe F Spain G Belgium Italy I Nethe Imperial Tobacco Performance Imperial Tobacco Regional ma Regional ma Regional Dynamics The matu Impe Impe Revenue less duty Adjusted p Performance Highlights Rest of Western Europe Rest of Western

22 Operating and Financial Review 23 Operating and Financial Review e r r ate r essing the m. r r oduct r y changes in oving ou ial-tobacco.com oduced in r r r r te p ance is likely to r r r onment to r ial health r r imp r ovide us with futu egulato r r . We also expect the . We the r

r www.impe r oss es and add r r owth. icing envi the egion, ou r r r egional r eadth of ou ket sizes. F fine cut tobacco business. r r g r and picto r r r ictions on smoking in public r ket sha ongly ac r r ly next yea est e planned to be int r r r es on ou r tunities fo med st r eflecting the ette ma r egion will continue to cause mode r r r nings a tfolio continues to p We will focus on fu We fo r r r essu r emain challenging in the nea eductions in ma ciga r competitive and p Belgium ea wa places next yea r implement oppo po the Outlook expect that fu We p believe the b We pe r JPS fine cut tobacco in the s, med well, r egion. r r r . e r fo e r emium, mid and value segments. and e is r e r tfolio. r ette r r r ket fo pe ance ette r West r r emium mance r r po mance ette oss the r r West cent). r fo r e declined r ciga r r , oduced by r ong fo ket sha r at r ciga r r ket decline of cent). cent) due e in F r ette sha r r r r r ted by st gest ma cent cent. r r r r r in the p family. We family. ope in the p Evergreen all ciga r ofitablilty of the ading conditions r r r ciga Davidoff r cent (2005: ong pe cent (2005: 1.6 pe Interval obust pe r , t ette ma r r icing, int

r r and r ette ma r JPS cent (2005: volumes ac r n Eu r ette sha r r owing ou r r y 2006 which we r . Ou g ands r Davidoff r volumes up 15% ends. ciga ua r Rizla Zilver r r .

lands, the la nment in August 2005, ciga r r position in the fine cut r r with a volumes up 32% cent), suppo om r e than 30 pe JPS r volumes up 82% r r r ette b ket leade ability to develop ou bed by tobacco manufactu r r r r e unchanged at was e to 6.4 pe ands cent (2005: 29.0 pe r r r r ading t cent (2005: 3.3 pe r ew ou West JPS Davidoff r r ew ou all fine cut tobacco sha cent with a st cent (2005: 15.1 pe r r r r eece, ou ciga cent). Howeve cent) due to anothe r r r r eland, with the ove r mance f cent this yea essed to 8.4 pe ess with Superkings r r r r all estimated ciga We g downt value b In the Nethe the Rest of Weste Ou ket by mo ket size up slightly to an estimated ket sha ket sha ove r eases in Feb fo r r r r We g In G In I In Spain, we made significant domestic r r r og og r r om om the ma educing the estimated p emain challenging following excise tax educing ou r r to 3.6 pe to the success of the maintained ou tobacco secto p f r ma 26.2 pe ma 5.7 billion (2005: 5.6 billion), ou mainly abso ma r inc 5.1 pe r ma the Italian Gove p cent), with minimum p to 28.0 pe slightly down at 1.5 pe 14.9 pe Ou 5 pe 7.0 pe f segment, now up to 3.3 pe ove Key Brands (2005: 2.7 pe pe , r r r fine r own ket r r ice r cent ictions West kets r r ed into good r easingly r r r ette r est r ma Evergreen esult of ette ma r r owth of r cent (2005: egional r r r oadly stable owth of r r ope and emained stable r r ading dynamic. ciga r ovements in ou r onment. r e r r ette and fine mance, adjusted r r ted by the ong g . r cent (2005: 4.9 pe r Zilver ly in Spain, and r fo own as a and in the low p r n Eu oduction of r r r r cent. The value r e than offsetting the y 2006, we ente r r domestic ciga r y 2006, and debate ette volumes have g ading and an inc r r r ette segment. r eflecting declines in egional fine cut tobacco iven by the g r ket sha r eement with Altadis. Ou oduced in Spain and r r lands, ou r r ations was b r ticula r Bastos r r icing envi r key b ket was down by 3 pe ket. r r r egion. es mo essed to 10.2 pe r om the downt r e int cent with r r r r downt cent with imp r , and suppo r . In Janua og ictions on smoking in public iven by the st ew to 8.9 pe is ou ket decline is now slowing with an r r r r cent), d r om ope easingly competitive fine cut ating and Financial Review and Financial ating r etail, pa r r r ibution ag r r egional ciga anded ciga ette volume pe ette ma r JPS r e p e g r r ket volume decline. Despite ou ket sha ket down 2 pe

r r oss the r r r r Rest In Belgium, ou In the Nethe b Following the int JPS JPS r ofit f r avel r by 14 pe ma ciga p ma Our Performance Ou ac on this issue continues in othe Belgium in Janua 9.5 pe places we sha consume competitive p cut tobacco have g the ma segments in both ciga ma with the annual benefiting f on smoking in public places in Italy last yea at 51.1 pe tobacco ma an inc ciga sha a dist cut tobacco ma t stabilisation of Regional Dynamics estimate that the annual We In the Rest of Western Europe our Europe In the Rest of Western have continued to shares cigarette in the majority of markets, grow position complementing our leading in fine cut tobacco. Ope of Weste Rest cent), d and at £324 million, Route 66 1 ket ette r r and 2005 ong r 5.3% r e 2005 r 18.9% 11.4% 17.7% 15.5% 1,800t Ciga alia and £209m r 112.7bn £1,049m ket Sha egion owing ma r r r egion ehensive b Ma r r an r cent and a st aine, complemented 1 kets of Aust r r r comp r 2006 5.5% 17 pe 1,900t 19.0% 17.8% 11.1% 16.1% r £252m Cigarette 122.7bn £1,106m key. r ope with ou r es of ove Market Share 2006 Market Share The Rest of the WorldThe Rest of the is a diverse region, with with over 100 countries different dynamics, opportunities and challenges. r esence. r e Russia and the Uk al Eu esence in the sub Saha r r r ofitable developed ma r ette sha ket p r r ope a and in the Middle East we have g r es in Cent emium position in Taiwan, complemented by emium position in Taiwan, n Eu r r tunities to continue to expand in this r r ations r ette volumes ong p r tfolio and ma Excellence, r r ket sha . r e oppo e we have ciga r age. r r egion contains the p r e a om ope r r kets in Easte r and po r esence in Vietnam and Laos. Davidoff r ofit f ma owing ma alasia r r r r owing business in the Caucasus and Tu ands such as r r e g r ica, we have a well established p ms of b ial Tobacco estimates. ial Tobacco r es with r ial Tobacco ciga ial Tobacco fine cut tobacco volumes ial Tobacco r owing p majo Aust r alia tfolio and cove r r r r r r r aine r by a g In Af Ou po position in fine cut tobacco. We a New Zealand whe Ou a g In Asia, we have a st sha with b in te We believe the We Russia Uk 1. Impe Taiwan Aust Poland Imperial Tobacco Performance Imperial Tobacco Regional Dynamics Impe Impe Revenue less duty Adjusted p Performance Highlights Rest of the World Rest of the

24 Operating and Financial Review 25 Operating and Financial Review e r r r owth cent r launch, r Peter ated ofit. r r ed and r ket sha eased r p ial r cent) while , in r om Peter r r r e was down packaging volumes r ial-tobacco.com r r fine cut e was up r r Drum st king size alia and and r r ow ou r held ma . Boss e. Ou .Ou r mance f ket sha alia and extensive ong volume g r r r r egion Davidoff Neon r www.impe fo ette sha r r Horizon ld, with picto Maxim r ettes and Davidoff Neon cent (2005: 11.4 pe cent (2005: 17.7 pe r Bastos ed st r r egional all ma r r ket sha r , we have demonst r r Brandon cent), due to inc kets of Aust e among the most highly esult of a ciga r and r r r r and family. and family. ette, kets. We have kets. We e was down to 62.0 pe r tant r r r ove and. r r r and in ciga 2005, which has captu cent (2005: 10.2 pe in fine cut tobacco. ’b r nings in Aust e ma r r r ‘A ciga ou r Classic alia, ou cent ma r r ands include ette b r r ican ma r of impo ictions on display and smoking in public ovement and the ew volumes in the r r r r ability to continue to g alia. r r ciga om the in Taiwan. in Taiwan. est egulated in the wo r cent) with a good pe Stuyvesant (2005: 63.4 pe slightly at 17.8 pe tobacco sha Champion Key b Stuyvesant Our Performance In Aust Australasia Overview f The matu ou cent). In Vietnam, at 10.3 pe in Laos we delive slightly to 11.1 pe health wa r places. Howeve howeve benefited as a New Zealand a r 0.5 pe imp Our Performance launched the fi we In Taiwan Davidoff Decembe of Af r ope with r n Eu r om r and in Aust tially Paramount r and and we g r r and r y ong kets r r r ming well. r k Davidoff Neon r ou fo r ofit r ette b cent r r r ette b ted by r cent to r apidly in the Middle East, with volumes up r ands in the ol. r Bastos r r cent of global with egion pa egulato r r , ation and the r is pe eflect st r ket fo egion, we have a numbe r owing economic r r r r amewo ettes. ow r r esence in r the r r ld ope. easing population, r r r key b Boss emium position r main ciga r , r esults r emium ciga r ation with the State al Eu and fu owth suppo r owing volumes in Easte r r r r owing p p Excellence is ou r r ong p r esents 50 pe ands. e g oup. Ou ld’s fastest g ld’s r r r Davidoff ica r r r continues to g is ou ep r ations was up 21 pe Horizon Poland is a key ma In Af We a Rest of the Wo r r and family. and family. ocess of adopting the 30%, and it was launched into a numbe r r r b ising GDP and inc r ette consumption. The ette volume g onment is mixed with some ma r r and local b In ou extended the b ove by 6% to 11 billion ciga Davidoff Davidoff r ‘A’ positive collabo We have a st We r om ope ecommendations of the F egion and egion include r Vietnam and Laos. In China, we benefit f ou in Taiwan and a g in Taiwan Convention on Tobacco Cont Convention on Tobacco r in the p envi ciga Tobacco Monopoly Administ Tobacco r Asia is the wo Asia Overview With offset by the ongoing competitive challenges in Cent continued investment in the r £252 million. These ciga the Yuxi HongtaYuxi G to £1,106 million and adjusted p f In 2006, we delivered volume and In 2006, we delivered gains in many markets share cigarette in the region. Rest of the World Revenue less duty was up 5 pe Key Brands ld r was launched in Taiwan 2005. r ating and Financial Review and Financial ating r Davidoff Neon Davidoff Davidoff Neon in Decembe Ope of the Wo Rest r r ’s r ently rr kets, ship of ability r egion with r r r ance. Ou e in place. r r egion. We se r r tfolio and ket to capitalise r ent dynamics, r uctu r r ket with tobacco key ma r ated ou r r eement, which is membe ket ent r r r ast oup. We cu oup. We r s and tubes in the r r and po ganically and without ma r r r ld is a dive owth in the r r ou oute to ma the G r r r ofitable ma ies with diffe r r ms of b r ibute pape r ganic g r Settlement Ag r ic liabilities. o esence. r r r ecently applied fo esults to date. We see many esults to date. We r r ands and equisite fo r

r tunities to continue to develop ou tunities and challenges. This yea r mance has demonst int in te r r r r 100 count e- y into this p ket p r r fo e b r r We r r oducts be o would eat potential fo r r ma footp oppo on ou to delive co will continue to invest in ou g pe sell and dist US and have a basic inf the Maste a p ove oppo ent any histo p Outlook The Rest of the Wo r ld ove r iod r ing r r e s r r ket in in r e and . ing r r cent) ibution r ow r es. r om e r r r r onment chandising r r in Senegal, ket leading e continued in able pe r ovements Klasik r r evolving r . ket sha ican Tobacco cent) and r r r aged by the r r gest ma Excellence cent of wo r ma r in the sub y 2006. In the ket sha egion with om r r age and imp r esence with r is, we a r in the Middle r ma r r Good Look rr e imp manufactu ua r r r e was stable at ing and dist Davidoff r r ading envi easing with diffe ing developments in oﬁt, the US offe r r r r ations in Senegal. We ica, itish Ame owth of r continued to g r a conside r r r Good Look tant to ensu key ou cent, notably in r mance f r r ld p med a joint me Davidoff One Davidoff r r ket sha r etail cove r Excellence r ope ibution. ket sha fo cent (2005: 0.4 pe

r r r r r r esenting 7 pe r e and ictions in place o and r r . Following the decision to end . In Tu Davidoff r r kina Faso and Côte d’Ivoi ma ep r r ica, we have benefited f r ed ma r egion of Af r egional management of ou est ing ou r r kets. As the t r cent (2005: 18.9 pe r abia with r r r e positive signs of development in ld, r r ease ou Prima kets. ecently launched r an r r r ette volumes and a significantly highe ations is impo uctu r r e a r eased volumes and ma aine ou centage of wo eement with Phillip Mo r r r r ce with Altadis in Feb angements with B r ongly in the Middle East ands such as and ew to 1.4 pe r r r r r rr ecent positive developments in the litigation est in all ma supply and dist Madagasca Our Performance East. Regulation is inc the may be subject to political instability, effective ope levels of b Saha We delive We Africa and the Middle East Overview have an established p We with a good pe g Uk fo efficiencies we fo b 19.0 pe in ou we continue to invest United States Overview have been monito We the United States fo To inc To the licensed manufactu a Madagasca with the continued g in Côte d’Ivoi of time and have been encou r landscape. As the second la in West Af in West ciga pe the wo inc With the cessation of ou ag r have Gabon, Bu the all ma st volumes up 31 pe Saudi A , r e r . y e eases , e was oss r r r r r , . ands in oducts, r iencing r r Maxim owing cent) also ability to onment r r r r , Maxim aine a eased r cent), r cent), with r egion, as r ket sha egion with r key b s is significantly cent r y 2006, ds EU minimum cent ac r Route 66 r r r om Davidoff West r r r r . r established mance of ou , r r business. r ua Paramount ma es: Poland to r ovided a base fo r r r r ading envi owing business in the r towa r in both Sweden r egion is expe of tobacco p ld continued oss the and key. Ou key. r r cent (2005: oss the r r r r r e in place, ou mance f John Brandon acquisition of the r r the Davidoff r . r ket sha fo oup PLC 2006 r r r ing the yea g, in Feb cent). ope e to 17.6 pe ibuto r r r r r r ands include Moon r uf, have p ope the t cent, (2005: 5.3 pe r , r r Prima egion we have inc r ictions a n Eu activity. activity. Paramount r r cent (2005: 7.2 pe r iven by the pe r ong pe r ette ma cent) and the Czech Republic cent (2005: 15.5 pe investment in the Swedish snus r esented ac way du r r r kets including Poland, Hunga ands. We launched ands. We and al Eu ates, impacting volumes. We a ates, impacting volumes. We r ket sha r Stenbe y to 14.5 pe r r r r r r est than in the EU. Ou r ating and Financial Review and Financial ating r r ies move fu r ew volumes by 14 pe r and med well in New Zealand, g med well in New Zealand, r r ep r egional b ial Tobacco G ial Tobacco egion include egion. In Russia, ou r r r r r

Easte wegian dist oss the fo ciga ma r r r r r r r ong economic development and, while owth d eate r r r om which to develop ou r Gunna st some Golden Gate In Scandinavia, ou No value b West and No Slovenia, Slovakia and the Czech Republic. Ou key ma Eastern Europe Overview Ou g to 9.6 pe Hunga 12.6 pe well 16.1 pe excise ou the Our Performance Ac Caucasus and in Tu f Central Europe Overview In Cent (2005: 17.0 pe count positions in Russia and the Uk complemented by a g and ou Sk company, Impe competito pe ou Ope of the Wo Rest have taken place ac continues to be challenging. Duty inc up to 5.5 pe communicate with consume g Classic with a st the Our Performance We g

26 Operating and Financial Review 27 Operating and Financial Review ial-tobacco.com r www.impe ing r ican r d r r r r ade Af r r r emains r y. This y. oviding the r e r ational locations r r r r int r y upg r e ibution has oss ou r ope r r ing fu oss all ou r t, as well as r r r amme of ing r r the ies a r r eview, should og . A total of r r r ing footp edients by 10%. ess ac ovements in efficiency r r s. cost base. Ou r r educing complexity r r ad and Kiev. In p plus machine ationalised, p r edited. r r r r r ed fu og r facto r k and the development ocess. Dist r r imp r e focused on manufactu r r ocesses, which a editation with fou r manufactu r oduction. ovements ac ough the use of standa r r supply chain, we have ocess of r r r the r ements, delive r esponsive in line with changing r r ing the yea ing activities. r manufactu r r fu r oducts, on ly in Volgog r r equi r flexibility and suppo cent of ou eviewed and ing cost savings. oss ou r r r planning p mance indicato r r ies, utilising su e ou amme is in p r r r r r ibution netwo ket objectives a r fo ticula tified du r We continued ou We We haveWe delive Ac r r r r og eate r r eflected in ou ce ISO14001 acc efficiency imp continuous p ensu flexible and ma and on optimising ou systems and p pe quality p r and quality. will delive efficiencies th g facto been delive Outlook Ou of ou p dist focused on the competitiveness of ou addition, a significant machine pa now ISO14001 acc The drive for excellence across our manufacturing In 2006, base continues. we delivered significant cost savings further optimising our cost base and simplifying and standardising our business. manufactu 59 pe editation to 19 locations. r r educing blends by 8% and ing r ove . r r r many esult r r ates r . ope, r ch 1 r r e of oduct r r ing of ations, r r ect edients r r mats in p r r tfolio by n Eu r ette r y in Ge r oss the r uctu many to r r r many. Both many. t have r r ing the yea r cent. We r eview to imp eduction in ISO14001 acc est capital as a di r ette ope r r r oss ou r r r

r r facto r many, which was impacted by the cessation of Singles p many, oductivity by 6 pe oduct po r r r om Ge y as announced e in the UK of ou r blends, ing r the r r r ette pack fo p Lah ings du r r pool in the UK and r opean ciga r of activities within illos in Ge r r all p r ing suppo y in Ge r r r r eased ou amme. This concent ongoing r unit costs ac r r easing capacity in line with r uctu r s facto ing r ove opean ciga r facto al Eu r oductivity was up by 6% r r og r r r r elocated f est r many, the latte many, r Lah r r Eu e due to be closed by Ma oduction). continued ou We educing ou r r ies in Live t of ou all p r r r r r . A numbe Cent of r r r ating and Financial Review and Financial ating monising ciga ed eco-ciga r r r est pape al manufactu We have inc We Ove We simplified ou We ette unit costs of 6 pe r educed ou ational efficiencies we announced a r in Ge r r r r eased ou tfolio, ope and inc facto t of ou As pa We have continued ou We r r r r r oup, including a fu oduction owing sales volumes in Easte r efo r r r Lah ou This included announcing the closu ope numbe and stock keeping units. po focus on simplification ac which was impacted by the cessation of Singles p Eu on ha cent, (excluding ou cent also been consolidated. investment p inc Poland and the closu last yea ciga with ou p T G of the change in tax status of Singles and unfilte facilities a completed the 2007. We g 1. Excluding ou Our Performance We Manufacturing Ope Manufactu pa Operating and Financial Review Financial Review

28 Operating and Financial Review Strong ﬁnancial performance

In 2006, adjusted profit from operations Taxation expenditure. Our net capital expenditure was up 5 per cent, to £1,356 million, The tax charge for the year was was £67 million (2005: £75 million) including as a result of our continuing sales £310 million (2005: £288 million), proceeds on disposal of fixed assets of development and efficiency gains. representing an effective tax rate of £15 million (2005: £27 million). Reported profit from operations 26.5 per cent (2005: 26.7 per cent). was £1,311 million, up by 6 per cent Financing (2005: £1,240 million). Earnings and Dividends At the end of the year our reported net debt Adjusted earnings per share increased increased to £3.9 billion (2005: £3.3 billion). Restructuring Costs by 9 per cent to 122.2 pence (2005: Eliminating the fair value of interest rate Reported profit from operations was 112.2 pence) and basic earnings per share derivatives and accrued interest of impacted by restructuring costs of increased by 13 per cent to 122.2 pence £0.1 billion (2005: not applicable), our £45 million (2005: £57 million). The 2006 (2005: 108.6 pence). adjusted net debt was £3.8 billion (2005: costs relate to the announced closures We have proposed a final dividend of £3.3 billion). A reconciliation of reported to of our Lahr and Liverpool factories. Annual 43.5 pence such that the total dividend adjusted net debt is included within note 28 savings of around £4 million are expected for the year is 62.0 pence, an increase of to the financial statements. The increase in in our 2007 financial year with additional 11 per cent, just ahead of our adjusted adjusted net debt is due to the acquisition annual savings of £7 million in our 2008 earnings per share growth. This dividend of the Davidoff cigarette trademark and the financial year. will be paid on 16 February 2007 to those level of the share buyback programme shareholders on the register at the close of being greater than our free cash flow Net Finance Costs business on 19 January 2007. Our dividend after dividends. Our cash conversion of Reported net finance costs of £143 million policy is progressive, growing dividends 98 per cent (2005: 101 per cent) is in line (2005: £162 million) include retirement broadly in line with adjusted earnings per with our target rate of around 100 per cent. benefit net finance income of £46 million share, with around a 50 per cent payout ratio. In April 2006 we agreed an increase (2005: £22 million) and fair value losses in our core committed bank facility of on interest rate derivatives of £1 million Acquisitions €1.5 billion on existing terms. Following this (2005: not applicable). Eliminating these In September 2006, we acquired the increase our core committed bank facility items, adjusted net finance costs totalled worldwide Davidoff cigarette trademark from totalled £2.5 billion. £188 million (2005: £184 million) giving Tchibo Holding AG for a cash consideration adjusted interest cover of 7.2 times of €540 million (£368 million). We also (2005: 7.0 times). The increase in adjusted acquired Gunnar Stenberg, a Norwegian net finance costs is due to a marginal distributor of tobacco products and increase in our average all-in cost of debt accessories in February 2006 and paid to 5.4 per cent (2005: 5.3 per cent). Our the final instalment on the Tobaccor average adjusted net debt was stable acquisition in December 2005. during the year at £3.5 billion. Capital Expenditure Profit Before Tax Gross capital expenditurein relation to Reported profit before tax increased by property, plant, equipment and software 8per cent to £1,168 million (2005: was £82 million (2005: £102 million), £1,078 million). reflecting a maintenance level of capital

Imperial Tobacco Group PLC 2006 29 Operating and Financial Review r s r s ies r r view r esolved tesy and aise r r r ns about r ants, ba r ial-tobacco.com r of count eady have r e. , it is ou r eland, Italy, r r r estau r www.impe ecognises that r actical solutions such as r kplaces, annoying and can r ld including I r r kplace. Howeve public places. r r ns leading to calls to ban smoking tant issue. A numbe r r oducing p ial Tobacco ial Tobacco r people’s tobacco smoke can be people’s r ehensive bans in place and othe r r ough common sense and cou eas into wo r way and New Zealand al r r and othe well-ventilated smoking and no-smoking a by int people’s tobacco smoke is a cause of any tobacco smoke is a cause of people’s believe that conce disease. We smoking in public places can be th that the scientiﬁc evidence, taken as a whole, is insufﬁcient to establish that othe othe in the wo conce Impe unpleasant o e likely to follow in the futu ound the wo r r Our View a comp No a SMOKING IN PUBLIC PLACES Smoking in public places continues to be an impo Corporate Affairs Director onment r

ating and Financial Review ating and ating Envi r r Frank Rogerson, We believe that sound, reasonable We and practical regulation combined with well thought out voluntary agreements is the most effective way forward.” co-operation with authorities in co-operation with authorities operate the markets in which we and we remain committed to working constructively with governments and regulatory bodies worldwide. our operating environment

“We have a long history of have a long “We Understanding Ope Ope r e e ial r r r r om r e r alia all r r y in equi r cent r ound r r inted on r view that oducts f r r eness of the r ies, a s, and we oduced p ial health r r r ldwide ial health ently r r r r nings to cove rr r oduct packaging. s have decided e mandato r r ying the new r rr s. ch 2006, Aust r y. It is ou y. e cu r r r ies wo ing the use of picto ont and 90 pe eady int r r r r eady passed legislation of count nings to be p r r s a nings make no ove r use. We believe that use. We packaging to enable ou r ies including Canada r . r r nings a r r e designed solely to r r otating wa r competito have al e expected to be on the e necessa r r r r use. e conside s to distinguish ou r opean Union, Belgium is the only ette packs ca r r nings a r r nings while othe r r of count r cent of the f y that has al r ee with thei r ld a ial health wa ial health wa r r ibution to the public awa r azil. A numbe r r r ial health wa nings a nings o nings a r oduced 14 r r r r eady well known. We believe that we a eady well known. We aft legislation. In Ma r r isks associated with smoking, which a shelves next yea wa and ciga 30 pe count of the back of tobacco p In the Eu int d wa discussing the use of picto packs whilst othe picto To date,To eight count consume al r entitled to use ou cont picto shock and stigmatise smoke disag such wa wa We do not believe thatWe picto those of ou health wa against thei Our View the wo and B a numbe PICTORIAL HEALTH WARNINGS PICTORIAL HEALTH Picto 2006 Summary

r with ies eed eas oduct r ing r r eas r r r bodies r r ing r r essed ade and r r actical tising, r r esses k r ld Health r ties ag r ganisation. r ol (FCTC) e familia r r r tightened . add ules in a r ganisation o r y initiatives. r r r r pins the FCTC eaty that seeks , it gives the r r r egulation) to otocols and egime cove r r r ds O ties (all count r y 2006. Du esented fo tising) and two ties which is r amewo r r r y r r r oducts in a numbe ade O eove r isdiction of othe r r ua s, who a aft p onmental tobacco egulato r r r r r r iginal text of the easonable, p e competence – a espects the WHO’s r eas bette r oduct r r r

belief that some of the r ticipating pa adve ld T r r r r r mation, as well as p r otocols (on illicit t egulato r r de the ju atified the FCTC) held its e to be p r r ity to establish r r egulato r ence of Pa r r oduct testing and the submission oducts. r r , it is ou ovisions seek to go beyond r ange of a r national Standa r r ence of the Pa r st global tobacco t ial Tobacco ial Tobacco r oss-bo r aft two p r edient info anational all objective that unde r r r r eas including tobacco adve r st session in Feb egulate tobacco p r r egulation and self- easonable objectives and impose a ganisation’s (WHO) F ganisation’s r Impe ove and would favou a wide FCTC p r sup Howeve by national local conditions. Mo WHO autho the Inte well outside its co that fall unde such as the Wo smoke and on p discussion at the next session of the Confe due to take place next yea guidelines (on envi on c guidelines a to d supplement the o Convention. The d the meeting, pa fi The Confe which have r aceability. The FCTC also add The FCTC aceability. r legislation to clamp down on smuggling and illicit p Our View tobacco taxation and calls fo t labelling, p of ing of a to is the fi FRAMEWORK CONVENTION ON FRAMEWORK CONVENTION TOBACCO CONTROL (FCTC) Wo Adopted in May 2003, the O Cont Convention on Tobacco 2006 Summary e r en n r e r r om the kplace r ants. r age r r r ovide onments. ing the r s and bans a r r r r s who wish r oduced than kets whe r r estau r allow child r s will continue e may be an r r all hospitality r iod. Although r on Smoke r in 2006, to r r ee envi r view on the impact e exempt f r r ictions o e scheduled to take r r custome eceived du onment continued r r e smalle r r est es a r ts ou r r time. ve food o venues may p oup PLC 2006 r r r r een Pape ea fo smoke-f iences in ma r s, pubs and r r r ge r r opean Commission is expected e met r onments late r allowed inside any wo r y 2006, Spain int emises, although ba r r r States to adopt minimum egulations a r ate a ds fo r r ants that a r expe

ch 2006. In Scotland, smoking is r r r r e smoking ating and Financial Review ating and ating Envi r mal consultation pe r r r The Eu Ou ial Tobacco G ial Tobacco r ee Envi r eland in 2007. eﬂect comments estau r r F to adopt a G I effect in England, Wales and No effect in England, Wales Simila initial dip in consumption but this diminishes ove including ba in place, suppo of this legislation. Smoke to choose to smoke; the to smoke. This was followed by a public smoking ban in Scotland which took effect in Ma no longe a sepa the ban. La 100 squa seve r standa on the p Membe a public smoking ban fo venues that se the Commission does not have the competence to enact an EU-wide smoking ban, it seeks to encou In Janua info Impe 2006 Summary Ope Ope

30 Operating and Financial Review 31 Operating and Financial Review ial-tobacco.com r www.impe

ed ial s r r r ial r r elated r e. We r able r alia was r e sought oceedings r r natu r ies. Impe r ch 2006. In r ently facing two rr eland, the numbe ought against us r of a claimant in any r elated health effects and om 307 in 1997, to r y 2006. The claimant eceived a favou r r r r e cu e subject to pending r r ua ious defences to the legal r r ito eats to do so, no p r ial Tobacco and no action has ial Tobacco r r any of its subsidia r lands. tobacco companies) by a Health r elated litigation involving Impe r r able judgment in Ma y 2006, we r r e tobacco- not facing any active r eatened actions of a simila ua r r In Poland, we a In the Republic of I The only case against us in Aust Despite th To date, no judgment has been ente date, no judgment To alleged smoking- oceedings in which damages a r r TOBACCO-RELATED LITIGATION TOBACCO-RELATED We a will continue to contest all such speculative litigation against us. to th 11, ten of which a dismissal motions. of claims has f fallen individual claims, one on appeal following a favou litigation in the UK. Feb have been commenced against us in the Nethe (and othe Association. The Association has not appealed against the judgment. judgment in a case b dismissed in Feb has not appealed. against Impe been settled in favou Tobacco has been advised by its lawye has been Tobacco that it has me tobacco- o Tobacco p fo e r

r owth eated r r ally UK ch r r r ading anda of r r essing in of r r t r oducts a ds the national evious r eases in k with r majo r r og oducts r r r r r de r ld to tackle ies was less ages the g r e p ld to counte ies. In Ma r r r r r centage of the r s, we signed an oducts have c r r ading and e committed r oss-bo e r r r t tobacco p r count r oducts. Inte r r de ates of excise duty ities in a numbe r r with the othe r r States that joined the EU r ound the wo ial-tobacco.com opean count r r ound the wo r ade in tobacco p r r feiting. of othe r r oss-bo feiting. We a feiting. We r n Eu r y MoU with HM Revenue & r king with customs and excise ies. Discussions a ies a ities a standing (MoU) in a total of eleven r onment that encou r r r r r ice of the p r emain totally opposed to smuggling, r evious MoUs. ities in the r , Membe r ked in 2006 than in the p eases as they move towa r r ettes and othe r We have continued to wo We r r esent a significant pe r For more information www.impe such activities. autho counte to wo illegal c We ma Although the level of duty inc Weste Customs that builds on the success of p indust a numbe count tobacco manufactu and we have now signed Memo Unde count 2006, togethe customs autho the illegal t minimum EU level. in May 2004 continue to implement duty inc yea etail p ep 2006 Summary an envi Our View and counte imposed on tobacco p of smuggling, illegal c dispa r r subject to excise duties, which gene subject to excise duties, which EXCISE DUTY Ciga eas r . r the r secto age of 66% r r ing sites. r ave . r r onment Index 2005 r . r ch assessment fo r e manufactu companies in ou r r ed with 2004 base yea cent. r r cent. r cent. ol and HIV/AIDS. r cent. r ed with 2001 base yea r r cent. r 2005 compa by 11 pe r by 12 pe 1 ships with local NGOs, especially in the a 1 r ia cont ed with five othe tification at 4 mo r r r e was 79%). by 32 pe r by 20 pe tne 2005 compa 2 r r 1 by 3 pe 2 financial yea r sco r anked 48/145. r financial yea waste fo r r ating compa r onment, mala r isk r consumption down r emissions down ed 90% in the Business in the Community Envi ed 73% (66% in 2005) in the SAM Resea gy consumption down r r r 2 eated significant pa r (83% in 2004), Rating agency SERM Index (Risk Management) has given us the second Rating agency SERM Index (Risk Management) lowest Named as 64th in the 2006 ‘Top 100 Companies That Count’ 100 ‘Top Named as 64th in the 2006 by the UK’s Business in the Community. Sco Dow-Jones Sustainability Index 2006, against a secto Dow-Jones Sustainability Index 2006, against (the highest secto of the envi Sco C Ene CO Wate Waste output down Waste Achieved ISO 14001 ce Waste to landfill down Waste 2. values fo Absolute 1. values fo Absolute Achieved all targets environmental performance of schedule. set for 2010 ahead Corporate Responsibility Highlights Corporate

32 Operating and Financial Review 33 Operating and Financial Review s. e r r ing y. nal r r full r r oles r ent r rr the the r ocess. the r r edients ship e leade r r r r potential ds of ca r s of the r ds. r r ial-tobacco.com r of goals, r dship activities actices in r ial Tobacco. r onment which will r r engthen and standa ial Leade ging talent within e leade m the ing r r r r r r s and futu ate both fo r r oles; select and www.impe r stewa itical management r oup’s successes. Du oup’s r edients used in ou r business. We have business. We r r s of Impe ou r r ship development and own high standa manage r stated aim. r r r eviewed ou ovide an envi r r employment p succession planning p r r outinely ope s to those r ospective futu r r e leade e in the G etain and motivate the best people, r e they can maximise thei r r r t of ou ocess fulfils a numbe ing 2006, we completed a fu r r r amme (ILP) aims to develop cu r act, Du We have We oup; and identify eme r og oducts and fo r r r Investing in future leaders view leade We succession planning as essential fo 2006 we continued to st develop ou suppo sustainability of ou committed significant investment into developing ou and sha to ensu and futu att P associated with leaf and smoke chemist Employees aim to p We each function. The Impe G which we validate p assessment of ing p successo within the business; scope potential inte This p namely to identify c compliance and to confi used meet ou cycle of ou y, r r y, actice kets r r cial t r oduct r r r ocesses ing and aphical r ibe r r r Values, Business ted by esponsible iate r r ate. p r r y r r r iately to r r esponding to keting r r op e necessa r r d fo op oup. actices. The new ma r r r d, ou r r ning e comme r r national needs, r : to suppo r elevant to ou ate, itable activity. r r r egulato n suppo r r ega oducts o r r e r e that app all employees the national Ma r r example, anti-b r e in tu r to sale, any new p r ate citizen in the age employee involvement in which the activities of r r espond app r r r io , fo r r po oughout the G e key to gove e to be conducted.These r r r r inciples, Standa the science r r th of employment p r r ies of acceptable business p uption, anti-money launde ds a r r rr oup a r eas in which we ope r oductions into existing o oup sets out fo r oducts, to ensu in community and cha and to encou local and significant inte community activities in the geog a Community Investment communities in which we ope a good co e checked to ensu e assessed, patented whe r r r r Standa Conduct and Inte Business P whistleblowing. In this anti-co policies cove and the manne the G G bounda a numbe a These policies a int application. P evaluated and tested befo a developments. New p behaviou investigations take place and that we anticipate and Product Stewardship and Health Stewardship Product monito We p Frank Rogerson, Corporate Affairs Director Frank Rogerson, Corporate Affairs corporate citizen in the communities in which we work and in society as a whole.” “We are committed to behaving as a responsible of our business is heart at the r io r oup. r r cise r r ation r e iate : to ate with r r r r oup e that r r r ovide key op elevant r elated to r r r : to exe vices on the ies in which r r iate non-financial : to build r : to p ate Responsibility r ito oughout the G op r rr e the suitability of r r se impact of ou po : to conduct and business activities; ights by the r r r r such stakeholde ofitable business ises (2000) and employees and r r r r national Labou r oducts; to assess p p e conventions. r r r ate th r esponsibly. evaluations and indices. Economic Co-ope r r e fo p r dship and health a : to be guided on r r r oadly in line with the Global r onment and, as a minimum s with app r r business activities with e taken. t the Inte ials used; and to ensu r r r r ate. r ed, evaluated and app d, to comply with any ate Responsibility r r r ting Initiative and to co-ope stand ou ity and to ente r t ou r s involved in ou al envi r ating and Financial Review and Financial ating oduct manufactu r r r mation b r r r po ganisation’s co ganisation’s ganisation fo r oduct stewa oducts, activities and se r r commitment to Co r r r epo esponsible ca elevant investo engagement as may assist us to be integ Social Accountability actions a r O Occupational Health Safety and Environmental Management to minimise the adve monito O and Development guidelines fo multinational ente to suppo r othe p p fundamental human Human Rights developments in the science r unde to p the mate we ope Product Stewardship and Health Repo info legislation within the te standa stakeholde natu Corporate Responsibility a sustainable and p while behaving Non-Financial Reporting is encapsulated in the following G Policies which ope

Our Commitment Ou Responsibility Ope Co t r r ing ect r r r ing epo r t s, e r r r r essed bon r r s at an es. ends r r indi e no m fo r es. r r bon r amme, r r epo r s in the r amme ive ies have r r r oving r r og ca r r d og ate and in e we audits, tne r r s – exp r ing 2006 we r r r r . r ing sites. In the y closu r r r accident data manufactu mance easing t e platfo ly p r r facto r r r r r pa ategy aims to , have helped us educe ou ends, an indication tiﬁed systems in r r fo r s, we have r r r r r otocol. ovement. r r mance. inging the total to 19. om ou e saddened to mance indicato ease in absolute opean manufactu r r r r d t r r r r ica. The of ou r om ou fo ate citizen in the fo r yea r r r ee-yea consumption, ca r r r r imp Eu ette equivalents – a r onmental measu r r ing the yea get we set fo manufactu r po ISO14001 p r r pe r th r r r r ,fou r esult of facto elative indicato r e an essential component ect impact by imp r r r

envi onmental management systems r tification; b of ou e showing dec eas fo r onmental pe r r r r r r onmental management systems, di t of the dec ted ou r r r r t of ou ategy. r 1,000 employees in 2004, 1,000 employees in 2004, , ou s a r with analysis of ou r r oving ou the last fou r r envi r r gy and wate r oadblock in Af climate change st envi cent of ou million ciga r r r r e committed to behaving as st r eduction ta r r r r fatalities du onmental data f gy efficiency, and to gy efficiency, r oved the way we collect and es is as a r r r r non-financial pe Ou As pa We sta We Ou Ove esponsible co r the 2005 financial yea r r e imp r educe ou ene r facilities. The findings f togethe a that ou we commissioned independent OHS audits we commissioned independent of a numbe also showing downwa as pe Howeve illegal othe figu to 11.6 in 2005. a We the fatal shooting of one of ou the fatal shooting of one including ou ou 12.4 pe dioxide emissions, waste and waste to landfill. Pa implemented a new softwa facilities and main offices. Du in ene envi indicato designed to manage local impacts and sensitivities, a of ou in 2001 and now have ce 59 pe imp last financial yea cent supply chain. We have achieved the ten pe supply chain. We communities in which we ope society as a whole. to identify a Environment Good envi fo achieved ce impacts by influencing ou Social Performance We a a dioxide emissions, well ahead of the 2010 deadline of the Kyoto p r ting ld r

r r t ade ate, r r r om r skills ning r ings. ticula r ee tunities onmental r r r r r esulting r pool and r r business, ganisations r . r king with r pa r ate in a r emental r uctu o oved f r r r r eas. esponsible r r d of managing est r r y and announced e than th emains a high r -changing wo us to take a r r r iety of locally r eate oppo omotion of good r ies in Live r r k, imp eas of ou and r eco onment. Whilst we r r r r s, r r y fo ing 2006, we closed r ing decisions r r s facto ing any e in place to suppo ack r r r r cumstances of both the facto acto business objectives and employees. r r r r oughout the yea r r om wo r uctu ess in these a tant. A va r r ong emphasis on lea m and involve employees in oup lost time accident r r r r emain committed to suppo r og est r esulting in mo G r ks councils and othe r r r e of ou onment. The p est pape r r r elationships with employees, t ship skills and competencies. r r of ies , and ly impo r r r employees to develop both as employees to develop r employees and those wo r efo standing ou r r r ity. Ou ity. . We have a t . We r r king k envi employees du people to adapt and extend thei T edundancies. Du r r r r ou inju r r ocess, ILP facilitates the development ocess, ILP facilitates the io r r r r Occupational health and safety The occupational health and safety (OHS) of ou (OHS&E) management and have made signiﬁcant p Occupational Health, Safety and Environment policy fo have a well-established We occupational health, safety and envi ou wo unde local developments affecting thei wo Responsible restructuring like many companies, ope We, highly competitive envi has continued th unions, wo manne Employee engagement aim to info We these situations in a fai based initiatives a business and ou is clea the needs and ci ou and knowledge in an eve the closu Lah days absence f individuals and as a team. The need fo fo fo and development and c and development and ou of leade in Learning and development place a st We Aligned to the succession planning Aligned to the succession p us, such as cont it has been necessa numbe have continued to invest in inc employment in some a p oup PLC 2006 r ate Responsibility continued ate Responsibility r ating and Financial Review and Financial ating r po ial Tobacco G ial Tobacco r r Impe Ope Co

34 Operating and Financial Review 35 Operating and Financial Review s, s. r r apid r equests ance r otocols r r itish r al disaste ial-tobacco.com d. r r r s. ance r mance data r r Assu t a B r r website. fo ance p r r r natu epeated r ent best r ovided by the rr r ee yea t Assu r r www.impe Level One r th r ance Standa r eceived ting Initiative and the r r ity fo ts can be found in the r donation to the Asian tsunami donation to the Asian r espond to individual disaste r r mation and pe r epo 2005 and 2006 CR Reviews r iﬁed by SGS United Kingdom r

r r than r actice guidance p otocols detailed in thei e based on the cu r r r espond to many othe Global Repo AA1000 Assu Thei CR Reviews and on ou Statement. These assu a p p Limited, using thei Sustainability Repo in ou is ve Independent verifier’s statement Independent verifier’s on corporate responsibility The info r isis, we have r esponse cha Rathe we have decided to suppo r to c Following ou . r e r r ing r r d. r ica, om aise r r r sity ies, r r eated r m ega ships decision r t as new r r r national om r nmental r r r ships at r ica. We a ica. We ope to r ting causes tne ing 2006, we r r r r many, Af many, egional ldwide. tne r r r king with ou r ability to compliance r r r and sanitation, r an Af al pa r ojects in Uganda, management time. r ench NGO, which of the Eliminating estation, r ds on child labou r r r r sial in this onmental aspects r r r espect thei r ound 30 count ces. Although t employees and thei efo r r r r us. ove r ing o age thei r ty, wate ty, r r r community investment of a F r r eland to Russia and f sou r r and value o the Rest of Eu r med seve r ate. We have ate. We e we have pa alasia. In 2006, we c d membe r e emphasis on biodive r tne r r r r r business, by building long vation, b in Tobacco Foundation. r r r , Malawi and Mozambique. ships with Non-Gove r om I r s to new SRiTP guidelines that s to new SRiTP guidelines national Community Investment r eful to avoid suppo r r r r ibuting to the global effo r e committed to wo ess pove national standa new initiatives have focused on ations in the UK, Ge tne s of the Global Business Coalition r r r r r s to encou sity and sustainable development. r r om othe r r t activities in a r Inte e ca r r e a Boa r r ing 2006, we committed £1.2 million supplie ope eading f Othe We a Ou We have fo We One aim of ou r m pa est conse r r r ganisations (NGOs). Some inte r r r elated to ou O will help us to suppo both global and local level. Du became a pa te HIV/AIDS whe with inte beneficial impact on significant global issues r biodive These include ongoing p Madagasca Committee aims to make a long te communities in sub-Saha supplie fo and the safety and envi of site vehicles. now have mo Scandinavia to Cyp with NGOs engaged in innovative schemes that add ou a committee fo Asia and Aust suppo sp Community Investment Committees cove ou which may be cont and a activity is to benefit the local communities in which we ope saddened by this, we This does not include payments in kind, employee voluntee Child Labou Community investment Du to community investment wo membe on HIV/AIDS. We a tobacco companies, in the belief that it may damage thei NGOs will not accept donations f also cont funds f e r e r s r r e ies r ts oduct r r r r inciples r keting e awa sion. r r r oduct oduced r r al pa tunity and oved r eland and r r ough r r oducts r dive ed in mo oducts on r level of r ovements of count r oduction amme cove iate action to r ected only r r owing and r r r r r ade associations. al and p r r the r r cumstances. oof-of-age identity ules and p og op actices. r r r r tising and tance of human r r

r r e di national Ma r r r ights policy commits national Labou ations and a e cove r r r r s. SRiTP allows icultu ate the Social r r r kets. A detailed p r oup employment Inte stand thei d equal oppo r adve king in conjunction with r r r oved p r r ope r e conventions on labou ammes in seve r y. The p y. ing 2005, we int r r s in all ci r r ights may be an issue of ights may be an issue r r ial-tobacco.com ights a r r ega human involvement is th amme in conjunction with og r isk of any fu t the Inte oughly investigate p ate in a numbe r r r r r r r r ious G r cial basis only to app ld including the UK, I og r imination as essential aspects r s and ma r oss ou ocess is one way we help to ensu e active in youth smoking r r r employment p r r e that ou r s to unde ds set out clea r y. Ou r r n. Ou ate Responsibility policy and r adults. Ou r r mance and make imp r nment-app ammes, wo r r e human e necessa ecognise the impo sions and take app onmental impacts of g r r r r r r policy is to supply ou po fo tobacco supplie r We a We believe that tobacco p We www.impe For more information r r r ganisation co evention p omotional activities a ocessing. Du og e fo r r r r r r ights. These ights ac performance data on what we see as our most important issues.” as our most what we see data on performance supply p custome a comme p Responsible sales and marketing Ou gove of the wo Hunga non-disc of all ou p policies. We policies. We to adult smoke detail in va to ensu p O r Standa us to suppo a conce p whe Co envi that we ope mitigate the management, health and safety and the socio-economic, ag whe pe supplie r Social responsibility in tobacco production continue to ope We independent bodies and t (SRiTP) p ou dive Responsibility in Tobacco P Responsibility in Tobacco Human rights We this. We tho this. We “Our including further insight, provides Review Responsibility Corporate 13. 14. 11. 12. 10. 9. 7. 8. 6. s r oup PLC 2006 r ecto r ating and Financial Review and Financial ating d of Di d of r r ial Tobacco G ial Tobacco r Impe 5. 4. 3. 2. 1. Ope Boa

36 Operating and Financial Review 37 Operating and Financial Review r r

r e r rr ecto r

r il r man 2004, r iety ked r r r r r ous owth ecto d of r r r r noff r ison ved as ofina SA in Decembe ity and a e r r r rr d in Ap ial-tobacco.com r r ges Salmon. r r national, esident r r ise Inns Plc, r 1998 until deen Asset r r r to joining e Smi 2001. He is r p eviously a long- r ecto rr r ch, owned by r r r y in Octobe io eviously wo r r r of the Boa r eta ds Autho ts, a council membe r r of Abe e he fulfilled a va r ldwide P s and Bu www.impe r r r r of Ente national, Pet r of ICI plc and Chai r d in August 2002. Pie ances business based r ial Tobacco’s legal ial Tobacco’s r r om Octobe r les was p d Catalyst Inc and a Di man of Offsho r ly as Chief Executive of r r ecto r aphic and financial g r r r ag r ecto oleum Ltd. r ecto r r es Limited. P r t of Diageo plc. She is a fellow r lands. He was appointed to ICI’s ms Linklate r tising Standa r ement in Novembe r r s and f national positions within the oil national positions within the r r kets plc. She has also se national PLC and Wm Mo r bon Mapping plc and Rockhoppe eti r r Hughes Inc. He has held nume r until 1997, whe r man of Oxfo r ise Oil in 1996, leading the business ise Oil in 1996, leading the r national assignments. y 2004, latte y with Shell Inte itish Gas PLC. He became CEO of itish Gas PLC. He became r r ation PLC and a Non-Executive Di ation PLC and a Non-Executive r r ma inte r tment in 2000 having p ial Tobacco’s acquisitions of Tobacco ial Tobacco’s r r r p r r les was appointed to the Boa oca d in 2004. Cha r r r r m executive at National Sta the law fi r r a Non-Executive Di SSL Inte Supe Management PLC. of inte Non-Executive Di Unileve Hyd Explo Pet of Woodside of the Adve te of the Royal Society of A Non-Executive Chai to substantial geog He was closely involved in negotiations fo Impe until his Boa Company, pa Company, and Reemtsma. Ente in the Nethe and Chief Executive of The Pie and B fo Littlewoods she was wo senio indust 2006. He is a Di and Chief Executive of Quest Inte flavou ICI’s Littlewoods Limited f Janua Littlewoods Sto depa of Bake Matthew joined Impe 2004. Susan was a membe 13. Susan Murray Aged 49 Non-Executive Director, Member of the Remuneration Committee and the Audit Committee Appointed a Non-Executive Di 14. Matthew Phillips LLB, Aged 36 Company Secretary Appointed Company Sec 11. Jungels Pierre C.ENG, PHD,CBE (HON), Aged 62 Director and a Member Non-Executive Committee and of the Remuneration the Audit Committee Appointed to the Boa 12. Charles Knott FCMA, Aged 51 Non-Executive Director and a Member of the Remuneration Committee and the Audit Committee Cha is Chai

r r r s. ew r r r eland r b om of ecto

oup plc. r r r r d in r r me r r of ewe r oup plc r . Anthony r r me r d Di ecto and r r ge in July 2005. in 2000. r ank has business in r r r ecto s Ltd r r r r am, Inte r to joining Reckitt esponsibility r of Reckitt nod Rica r ecto ecto r r the acquisition r r of BOC G il 2006, Ken was io r r r national B r r of Ciga r main boa ecto esident UK and I r r r ecto r s & Vintne management positions eviously held a numbe r r of easyjet PLC. he had r ecto me ust plc. He is a fo r r d in Ap d in June 2003, having d in June 2003, r r r in 2000, he was r r man on deme r oup Finance Di r r 2000. P r ating companies. oup PLC and a fo management positions in r r oup plc. He is a Non-Executive r of Hanson PLC and as ecto oup Chief Executive of Taylo r r r r ecto egion with Seag r r of senio r ecto s and Bass Inte ial Tobacco in 1977, F ial Tobacco r r e and then Chief Executive of r to joining Allied Domecq, he held r ating Office r oup Finance Di r UK ope ently G r he was G plc, having been appointed to its of senio r ew SA until August 2001. He is also a r r r io r rr Own Tobacco. Appointed Business Own Tobacco. t of Diageo plc). national Distille oup plc and p finance positions with ABB G r r r r r r ewe ves as a Non-Executive Di of WPP G b r r r r ow plc. As a fo Non-Executive Di r r d in Septembe umental in negotiations fo r r ecto me Inte all thei esident, Asia Pacific of Allied Domecq f r r r r r fo fo Non-Executive Di 2000, he became Vice P Following the sale of the Bass bee (now pa and De La Rue G Di of senio Bass B Aegis G and Inte inst of Bass PLC, he was Chief Executive of Bass Leisu of Reemtsma. fo Benckise Development Di Chief Ope Roll You Boa a numbe the Asia Pacific including Managing Di 2005. P Benckise Executive Di held a numbe 1996 until its acquisition by Pe also se Platinum Investment T Wood Colin is G Iain is cu joined Impe P Non-Executive Director, Chairman of the Audit Committee Appointed a Non-Executive Di 9. Ken Burnett MA, MBA, PHD, Aged 54 Non-Executive Director Appointed to the Boa 10. Colin Day MBA, FCCA, Aged 51 8. Anthony Alexander FCA, Aged 68 Joint Vice Chairman Appointed Vice Chai 7. Iain Napier FCMA, Aged 57 Independent Joint Vice Chairman, Senior Remuneration Director, Chairman of the of the Committee and a Member Audit Committee Di Appointed a Non-Executive 6. Frank Rogerson AgedBSC, PHD, 53 Director Corporate Affairs the Boa Appointed to r s r y ked r om r

ecto r oup e r r

r r r Ready. Ready. ee-man r r ope. ing r r ole in r r r oss eth led

r me ial me r ette, eviously r ecto r r r r r r oup PLC, sales and 30 yea r r r n Eu ial Tobacco ial Tobacco’s ial and ategy and r r r r me r p (USA). in 1996 and 2005, r management r r r r oup’s enti oup’s r gy G t in shaping s and du ategic ge r man on ou r r oup. P al st r r management r r r r man of Cadbu om ove amme. In 2003 he r ound, David has Weste r of senio r r r r of Impe Own Tobacco. r r al pa the G with Hanson PLC, r og fo of senio r r r of the Company f r r 38 yea r ica and the Middle East, oup. He became Finance r of TXU Co r r t was one of the th r ecto d in Octobe d in June 2003. An r olle ge each of Impe r of senio r r ial Tobacco and Eve ial Tobacco r r coni plc, CamAxys G r keting activities ac r r ecto r r r ange of manage fo r by backg ecto r oup on deme r r r eviously held the position of d Estates plc and a fo r ection of the G man of The Ene r oss all aspects of Impe r r Impe ience gained as a fo r r r ecto and Roll You man of Hanson PLC, having ial Tobacco in 1961 and was ial Tobacco k Stock Exchanges. With wide r r r r r esponsible fo r ating divisions namely Ciga r alia and New Zealand. He has wo r ial Tobacco fo ial Tobacco Non-Executive Chai r of the G r r ategic di taken a numbe r ience ac ope ical enginee r r r r me ganisation of the G r keting positions, including Managing Di ek has a wide ope, Asia Pacific, Af r r r Graham Blashill ecto r Impe aham is r eviously held a numbe r r r . esponsible fo oles and has p eo UK and Regional Di ma he was financial cont r Rolling Pape that time has held a numbe majo the st has since played an integ fo of Wolseley plc. of Wolseley and financial positions. He is also a fo and financial positions. He Non-Executive Di r Managing Di Di Hanson team involved in the st r Schweppes plc, Ma Eu and Aust p was appointed as a Non-Executive Di Deputy Chai plc and Songbi a fo the ongoing expansion p Limited in 1989 Robe Executive Chai unde with the Company, he has played a key with the Company, the development of both gene G global sales and ma expe Hanson PLC and its listings on the London and New Yo business gained f Tobacco’s the successful deme London Stock Exchange Listing in 1996. Exchange Listing in 1996. London Stock De financial expe elect appointed to the Boa 5. David Cresswell C ENG, MIEE, Aged 61 Manufacturing Director Joined Impe 4 Group Sales and Marketing Director Appointed to the Boa 3. Robert Dyrbus BSC, FCA, Aged 53 Finance Director Appointed Finance Di Chief Executive Appointed Chief Executive in 1996 Ga 2. Davis Gareth BA, Aged 56 Chairman Chai Appointed Non-Executive 1. Bonham Derek FCA, Aged 63 BSC, Aged 59 egion. r of keting r r of esponsible r om r r ope ategic r oles and s including r r r st ked with r r n Eu r om . She is r r of yea r ce management finance r oles in change r r all Sales and Ma r esou r s, having wo r a numbe e she was a membe esponsibility fo r of senio r r r ial Tobacco in 2002 f ial Tobacco r oup in 1999 f r t of the Chief Executive’s Committee. t of the Chief Executive’s r oup. d. She has also held a numbe r r esponsible fo oss the Rest of Weste r r ational consulting r houseCoope r field PLC, whe ope r ial Tobacco ove ial Tobacco r yn joined Impe r r oss the G elation to acquisitions. and 2005, Between 1999 all aspects of human r r icewate r r she is now activities ac planning as pa She holds additional in Alison held a numbe Impe ac management in the FMCG secto fo 1. Alison Cooper BSC, ACA, Aged 40 Regional Director – Western Europe Alison joined the G 2. Kathryn Brown Aged 51 Group Human Resources Director Kath P Some the PLC Boa senio oup PLC 2006 r ating and Financial Review and Financial ating r ial Tobacco G ial Tobacco r Impe 2. 1. The Chief Executive’s Committee is the senior management steering group for the is the senior management Committee The Chief Executive’s the Company the Executive Directors and of the Chief Executive, Comprised Company. Resources Europe, and the Group Human Western Regional Director, the Secretary, Group is responsible for implementing below). The Committee Director (biographies of all aspects of the business. the detailed performance strategy and monitoring Ope Committee Executive’s Chief

38 Operating and Financial Review 39 Statutory Reports

s gust 2005 2005 the 120 279 399 issued

the its y ves tion hese ed ominal the ledge roup, is roup, is share capital share capital election. ve and nd e financial e financial Percentage of Percentage net assets.

ncome 22 3.00 2006 2006 127 295 422 ordinary ordinary Number of www.imperial-tobacco.com www.imperial-tobacco.com shares millions shares millions

being held in the treasur in the being held January 2006 and Mr D W January ott and Dr K M Burnett joined in 3 per cent or more of the Company’ er 1,665,000 ordinary shares of 10 pence er 1,665,000 e Annual General Meeting and offer themsel e Annual General Meeting not been cancelled and are nual General Meeting on 31 e requirements of the Business Review, including th of e requirements 28 October 2005 and Mr C F Kn date is 17 January 2007. The interim dividend was paid on 4 Au date is 17 January 2007. The interim dividend was paid are shown on pages 36 and 37. Messrs A G L Alexander, are shown on pages 36 and 37. Messrs A G L Alexander, gives an analysis of revenue, profitduty, from operations and on pages 125 and 126. on pages 125 in note 20 to the financial statements. During the year the Company continued statements. During the year the Company continued note 20 to the financial in 2006 the Company has purchased a furth notified that the following persons had interests e close of business on 7 July 2006. on 7 July e close of business g been appointed during the year, retire at th g been appointed during for the Company the financial year million was £851 in as shown i consolidated the within the Group are shown within the share reserve. At 27 October 2006 the Company had been capital. issued share share buyback programme purchasing 32,489,000 ordinary shares of 10 pence each in Imperial Tobacco Group PLC for a total cost purchasingprogramme Tobacco Group PLC for a shares 32,489,000 ordinary share buyback Imperial of 10 pence each in an aggregate n having capital and representing 4.46 per cent of issued share shares, expenses. The of £556 million inclusive of issu shares represent 0.2 per cent of expenses. These of each in Imperial Tobacco Group of £30 million inclusive for a cost PLC nominal value of £166,500. These shares also have and have a share capital value of £3,248,900, have not been cancelled but are held in a treasury shares reserve within the profit and loss account reser a treasury shares reserve within the profit and but are held in value of £3,248,900, have not been cancelled shareholders’ funds. equity from represent a deduction Subsequent to the year end, as at 27 October Thursfield resigned from the Board on 28 October 2005. Thursfield resigned close of business on 19 January 2007. The associated ex dividend associated ex dividend close of business on 19 January 2007. The 2006 to shareholders on the register at th Share capital share capital are shown Company’s Details of the Mr C F Knott, and Dr K M Burnett, havin for election. retired from the Board following the An Messrs S P Duffy and S Huismans Legal & General Investment Management Limited Limited Investment Management Legal & General capital. issued share holds 3 per cent or more of the Company’s notification that any other person has not received The Company 29 4.03 Franklin Resources, Inc Resources, Franklin Financial results and dividends The profit attributable to equity holders of The principal operating subsidiaries The principal operating The final dividend, if approved, will be paid on 16 February 2007 to shareholders whose names are on the Register of Members at Register are on the to shareholders whose names 16 February 2007 paid on approved, will be if The final dividend, Company for the year to 30 SeptemberCompany for the year 2006. Business Review products. tobacco and tobacco-related marketing and sale of the manufacture, its core business: on The Group remains focused statementfinancialstatements seton page1 to the out 68. Note (In £’s million) Ordinary shares Interim paid, 18.5p per share (2005: 16.5p) persons are shown on page 57. any connected The share interests of the Directors, their families and Board of Directors Marketing Director on and as Sales Mr G L Blashill joined the Board Board on 19 April 2006 as Non-Executive Directors. The Directors of the Company for the year to 30 September 2006 Meeting and being eligible, offer themselves for re- General Dr F A Rogerson retire at the Annual Cresswell and I J G Napier, D The Directors submit their report together with the audited consolidated financial statements of the Group and the accounts of Group and statements of the financial audited consolidated together with the submit their report The Directors Report of the Directors of the Report to the members of the Company. The Annual Report contains certain forward-looking statementsReport to the operations, Company. The Annual to the members of the with respect events a future involve uncertainties since these statements nature, By their of the Group. condition performance and financial statements reflect know The forward-looking those anticipated. materially from results to differ actual can cause circumstances no obligation to update t undertakes and the Company preparation of this Annual Report date of at the and information available a profit forecast. should be construed as Nothing in this Annual Report forward-looking statements. The Directors have declared dividends as follows: A review of the Group’s activities and future developments, which fulfils th which fulfils developments, activities and future A review of the Group’s Proposed final, 43.5p per share (2005: 39.5p)Proposed final, Total ordinary dividends, 62.0p (2005: 56.0p) performance during the year, key performance indicators and a description of the principal risks and uncertainties facing the G facing risks and uncertainties the principal of and a description performance indicators key the year, performance during Annual Report is to provide of the 2 to 38. The purpose informa section on pages Review Financial and Operating the in included ial

, ls ks gible eport. ection n. Code ve Plan s, by roposed can be can be s employees through skil s the year (2005: Nil). the be proposed at the Annual General Meeting. proposed at the General be Annual development of all it development in respect of the UK (2005: £1.0m of £1.0m which in respect of the UK (2005: h the Charities Aid Foundation in accordance with the with accordance Foundation in Charities Aid h the t, London. WC1A 1DU). For other suppliers, the Company’s the t, London. WC1A 1DU). For other suppliers, mpany or its subsidiaries during and motivate the very best people, recognising that this motivate the very and and capital supplies of goods and services without exceptio and ction and marketing techniques. ction and marketing

environment that encourages the continuous the continuous that encourages environment unication methods each of the Group’s businesses is encouraged to keep their employees employees to keep their encouraged businesses is of the Group’s unication methods each at he/she ought to have taken as a director in order to make himself/herself aware of any in order to aware of a director make himself/herself ought to have taken as at he/she useCoopers LLP as Auditors to the Company will charitable donations of £1.0m of which £0.7m was charitable donations of £1.0m of which £0.7m to the consumer and in produ continued they have each taken all the steps th they have each so far as they are aware, there is no relevant audit information (that is, information needed by the Company’s Auditors in conn the Company’s needed by information (that is, information audit is no relevant aware, there so far as they are with preparing their report) of which the Company’s Auditors are unaware; and and Company’s Auditors are unaware; with preparing their report) of which the relevant audit information and to establish that the Company’s Auditors are aware of that information. Auditors are aware of that information. the Company’s and to establish that relevant audit information

rewards to individual and team performance. Employees are encouraged to build a stake in the Company through ownership of Imper through ownership in the Company stake performance. are encouraged to build a team rewards to individual and Employees Tobacco Group PLC shares. A further opportunity to join the Sharesave Scheme was offered during the year and 77 per cent of eli cent and 77 per during the year Scheme was offered Sharesave to join the further opportunity A shares. Tobacco Group PLC opportunity to join the International Sharesa offered a further were also International employees UK employees now participate. Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco Employees Employees policies are designed to attract, retain,The Group’s employment train Report of the Directors of the Report • achieved only through offering equal opportunities regardless of gender, race, religion, age or disability. disability. religion, age or race, regardless of gender, equal opportunities offering achieved only through lin packages and, wherever possible, competitive pay and benefit offers the Group success, in our can share To ensure employees and 32 per cent of eligible international employees now participate. international employees and 32 per cent of eligible to providing an The Group is committed programmes. training and enhancement and comm Using their own consultative factors economic and aware of the financial developments and to make its employees business and individual informed on Group Auditors and disclosure of information to auditors information Auditors and disclosure of approval of this report confirms that: of as of the date in office Directors Each of the • A resolution to reappoint Pricewaterho Charitable and political donations Charitable and the Group made During the year Creditor payment policy the majority of its trade creditors is to follow the CBI’s Prompt Payers payment of concerning the The Company’s current policy supplied both in the products affecting the performance of their employing company. To progress this pan- briefed on aim further employee representatives are of their employing company. performance affecting the Employee Forum. European through a European issues R Remuneration the Directors’ in note 4 to the accounts and is given in and their remuneration Information concerning employees £0.3m was in respect of the UK), much of which was distributed throug was distributed which £0.3m was in respect of the UK), much of Group’s charities policy. by the Co made or incurred No political donations or expenditure were Wherever possible UK subsidiaries follow the same policy and international subsidiaries are encouraged to adopt similar policie are encouraged international subsidiaries policy and follow the same Wherever possible UK subsidiaries practices. applying local best days’ purchases outstanding of as at 30 SeptemberThe number 2006 for Imperial Tobacco Group PLC was 30 days. Research and development which brings innovative improvements to the Group and development, of investing in research The Group recognises the importance Matthew R Phillips Company Secretary 31 October 2006 (copies are available from the CBI, Centre Point, 103 New Oxford Stree Point, 103 New Oxford CBI, Centre (copies are available from the policy is to: a) each transaction; the terms of when agreeing of payment with those suppliers agree the terms b) and in contracts; of the relevant terms of the terms of payment by inclusion made aware suppliers are ensure that those c) and other legal obligations. with its contractual pay in accordance creditors for revenue to The payment policy applies to all payments Annual General Meeting resolutions to be p of the 2007, together with explanations January on 30 held Meeting to be General details of the Annual Full appear in the notice of meeting enclosed with this report. at the meeting, By order of the Board

40 Statutory Reports 41 Statutory Reports d e f e s e nce the trials trials rnal d

FT. ould ot which alty d be of the e may th the ies. mpose ny duty tion ty In the with oup has ongoing

g and ns into me of the y in the future. www.imperial-tobacco.com www.imperial-tobacco.com acquisition, the Gr acquisition, the isition of the business. in connection with one complied with the governanc ough this latest revision is n is ough this latest revision unable to predict the outcome of 2005 parts of the investigatio 2006, investigations against so 2006, p’s activities. Notwithstanding the der review the Group’s entire system of inte satisfied that, since the satisfied g a period prior to its acquisition by the Group. g a period prior to its acquisition by the Group. ggling have been brought been brought ggling have unal. As at 27 October 2006, the OFT has not issue unal. As at 27 October 2006, the OFT has not with the authorities and settlement was made of a with the authorities and settlement was made nual Report, the Group has nual Report, the and management of the significant areas of risk to risk and management of the significant areas of but in the course of course but in the arrangements made on the acqu on the arrangements made A G L Alexander, remains in place to monitor the progress monitor the progress o L Alexander, remains in place to A G for the first time in respect of the financial year ended for the first time in respect and as such the Board is and as such the Board ples of good governance, advocated by the Code, have been an ples of good governance, advocated by the g high standards of corporate governance, which it sees as it sees which of corporate governance, g high standards revised during 2003 and 2006, alth during 2003 and 2006, revised no cost to the Group. In no cost to the continued rationalisation of the Grou continued rationalisation of d regular formal reporting to the Audit Committee, have ensured the maintena ensured the reporting to the Audit Committee, have d regular formal on behalf of the Board. The German authorities’ investigations are based on allege investigations are based on authorities’ The German of the Board. on behalf similar to those alleged by the German authorities. by the German authorities. to those alleged similar e maximum amount of a fine was 10 per cent of a company’s UK turnover for up to thre a fine e maximum amount of dit Committee have continued to keep un to continued dit Committee have e of whom is a former Reemtsma employee. The continuing investigations and any ensuing investigations continuing The Reemtsma employee. is a former e of whom troduced in 1998 and further further troduced in 1998 and ocedures, including well established and embedded internal controls, have been and continue to b continue been and internal controls, have and embedded established well ocedures, including der review and up to the date of approval of the An up to the date of approval der review and a cornerstone in managing the business affairs of the Group and a fundamental part of discharging its stewardship responsibilit discharging part of and a fundamental of the Group affairs business the a cornerstone in managing The Board of Directors (the Board) remains committed to maintainin remains committed of Directors (the Board) The Board Corporate Governance Report Governance Corporate this enquiry. of it may impose a fine. The amount competition law, OFT decides that a company has infringed UK However, in the event that the fine is calculated by reference to the turnover of the infringing company. The rules regarding the maximum amount of such a pen of such amount the maximum rules regarding company. The the turnover of the infringing by reference to is calculated fine changed on 1 May 2004. Before that date, th years. In the three years to 30 September 2003 our aggregate net UK turnover was £2,215 million. Under the revised rules, a fin was £2,215 the revised rules, years to 30 million. Under September 2003 our aggregate net UK turnover years. In the three ended infringement state that where an worldwide turnover. However, the OFT’s guidelines not exceed 10 per cent of a company’s on the old rules. In either case, the applicable turnover under penalty not exceed the maximum before 1 May 2004, the fine may have been advised w taxes directly related to turnover, which we excludes VAT and other is based expressly fine the amount of a also exclude duty. In addition, if the OFT were to make an infringement finding, it could issue orders prohibiting that activit could issue it finding, infringement make an were to the OFT In addition, if also exclude duty. rules and best practice provisions applying to UK listed companies as contained in section 1 of the Combined Code on Corporatecontained in section as companies best practice provisions applying to UK listed rules and was in which Governance (the Code) Applicable Corporate Governance Provisions Applicable Corporate Throughout the year un able to appeal the OFT’s infringement decision to the Competition Appeal Trib infringement decision OFT’s able to appeal the to do so intention an a Statement of Objections or publicly announced activities prior to the Group’s acquisition of Reemtsma and the Committee remains and the Committee remains of Reemtsma activities prior to the Group’s acquisition the investigations and the Group’s responses anticipated to come into effect until the second quarter of 2007. until the second effect anticipated to come into the Group Commission (the SEC), Exchange and registered with the US Securities Tobacco Group PLC has securities Since Imperial accelerated filers. to foreign large are applicable of the Sarbanes-Oxley Act of 2002 which with those provisions also complies requirements Group to meet the further the enable to place a programme of activity was put in obligation, light of this ongoing seek recovery under for which the Group would penalties on Reemtsma A Board Committee established in 2003, under the Chairmanship of Mr 30 September 2006. Compliance Corporate Governance report, together wi this shareholders for the and Group’s standard of governance accountable to The Board recognises that it is seeks to demonstrate how the princi Directors’ Remuneration Report, within the Group. applied in practice continue to be been has of the financial year there course During the regard to section 404 of the Sarbanes-Oxley Act, which are applicable which of the Sarbanes-Oxley Act, regard to section 404 organisational changes, the Board and its Au not been involved in any activities of a nature any activities of a nature not been involved in Fair of companies to the UK Office number of other Tobacco and a was supplied by Imperial As previously reported, information informa Further supply chain. the operations of the UK tobacco into Trading (the OFT) in October 2003 in relation to an enquiry the O has been received from was supplied in April 2005 but submitted to date no substantive response to any of the information of issue a Statement against the Group, it would decision for an infringement to decide that there are grounds If the OFT were an opportuni have Imperial Tobacco would then those findings. for and the basis findings Objections setting out its preliminary Tobacco would Imperial finding, to make an infringement OFT were subsequently the findings. If to respond to these preliminary control, encompassing both financial and operational controls, as well as compliance and risk management. Based on these review risk management. Based on these and as compliance controls, as well operational control, encompassing both financial and Group. across the whole is in place control framework internal appropriate the Board is satisfied that an pr Throughout the Group, formal together with continue maintained. Such procedures, achievement of the Group’s strategic objectives. the Group’s achievement of 2003 into alleged foreign tradin German authorities in January As previously reported,investigations were initiated by certain could take several years to be concluded. If employees are ultimately found to have committed offences, the authorities could i the authorities could found to have committed offences, are ultimately years to be concluded. If employees could take several of a strong procedural framework for the ongoing identification, evaluation of a strong procedural framework durin of people, including Reemtsma employees related violations by a number several assistance from have sought German authorities and the been interviewed employees have A number of former and current investigations are continuing other jurisdictions to obtain evidence. These agreed by the individuals on terms individuals were terminated certain of the being investigated at the activities payable as a result of certain of investigations against 18 individuals, on other individuals were terminated for lack of evidence. Charges relating to smu Charges evidence. other individuals were terminated for lack of

y t for r rs. y f r

ly d o y at e all all e gularity and the t it was

ly to have inent g new esult the tained in they have having a duration of two days), current of having a duration dependent Director when determining th within the Asia Pacific region, recruitin whole Board with the Chief Executive, in with the Board whole of Chairman was produced by the Nominations Committee. of Chairman was produced by the the Group Compliance Function’s programme of activity. Function’s programme of activity. the Group Compliance ch discussions. As also announced on 23 May 2006, ch discussions. As also announced osition of the Board or its Committees and five Executive Directo its Committees and five Executive osition of the Board or of business and financial experience which is vital to the management o which is vital experience and financial of business J G Napier’s skills and experience so closely matched this profile tha this profile so closely matched experience skills and G Napier’s J April 2006 as Non-Executive Directors having been identified as fitting as as Non-Executive Directors having been identified April 2006 the purposes of the Code, as an in the purposes

to the Board as Group Sales and Marketing Director. d balance of the Board it was announced, on 23 May 2006, that Mr I J G Napie the Board it d balance of ring the year (with two of the meetings ring the year (with two minations Committee was chaired by Mr A G L Alexander and once Mr I J G Napier Mr I J and once G L Alexander minations Committee was chaired by Mr A under the Code on directors who have served in excess of nine years, the Compan nine years, the in excess of Code on directors who have served under the g the conclusion of the 2006 AGM. iring minor remediation work which is being completed. iring minor remediation mance of the Board, its Committees and individual Directors. its Committees and individual mance of the Board, identified that, given the Group’s expansion at its meeting in September 2006 thatits meeting in September all Non-Executive Directors continue to contribute at when determining the comp determining the when continued e Chairman is responsible for the leadership of the e for the purposes of the Code. business reviews of the Group’s operations and reviews performed in preparation for conformance t performed in preparation operations and reviews of the Group’s business reviews change of role, Mr I J G Napier will also offer himself for re-election. for re-election. himself will also offer Mr I J G Napier change of role, However, recognising the general external focus However, recognising the general external focus the Code) remain independent imm AGM. In addition, given his Company’s 2007 at the for re-election himself nine years, will offer having served in excess of No succession the discussions of the Chairman’s the purposes of the NYSE Corporate Governance rules and all seven Non-Executive Directors (excluding the Chairman as required b required Directors (excluding the Chairman as all seven Non-Executive rules and the purposes of the NYSE Corporate Governance for is no longer going to classify Mr A G L Alexander, to ensure continuit on the Board A G L Alexander will remain For the time being Mr composition of the Board and its Committees. not a member is A G L Alexander 2007. Mr during Chairman as C Bonham D Mr succeeding I J G Napier senior Board level pending Mr Alexander, Mr A G L the Group’s policy, accordance with CommitteesCommittee. In other than the Nominations of any of the Board During open advertising. undertaking or search external by conducting an be found would more suitable candidate that a unlikely S Huismans both retired from the Board followin S Huismans The Directors’ biographies, appearing on pages 36 and 37, demonstrate a detailed knowledge of the tobacco industry and the wide of the tobacco industry and 36 and 37, demonstrate a detailed knowledge on pages biographies, appearing The Directors’ Fast Moving Consumer Goods sector together with a range wider provisions of the Code but also of the and experience of Board members skills, knowledge of not only the overall balance joined the Board on 19 Dr K M Burnett and Mr C F Knott experience of the competences, during 2007. Prior to this appointment a role profile Mr D C Bonham as Chairman would succeed for the position candidate by any potential required and time commitment an expanding international company. The biographies also include details of their other major directorships. other major of their details include biographies also The company. international an expanding Board Changes the Nominations of the Board. This review took into accoun During the year Committee again reviewed the composition and balance results of the annual evaluation of the perfor The Board performance evaluation in 2005 the criteria. As part of the ongoing review of the composition an that Mr I It was determined by the Nominations Committee the Code and the NYSE Corporate Governance rules, all eight Non-Executive Directors (including the Chairman) remain independent remain Chairman) Directors (including the Non-Executive the NYSE Corporate Governance eight the Code and rules, all had been identified as a potential candidate he was excluded from all su from was excluded he potential candidate as a had been identified to be a director of Taylor Woodrowwill cease plc by spring 2007. Mr I J G Napier On 28 October 2005 Mr G L Blashill was appointed October 2005. Messrs S P Duffy an from 28 effect resignation with D W Thursfield’s accepted Mr As reported last year, the Board Non-Executive Directors with international, and specifically Asian, experience would enhance the skill set of the Board. As a r the skill set would enhance Asian, experience Directors with international, and specifically Non-Executive Subsequent suitable candidates. to identify consultancy search Nominations Committee produced an external two role profiles for Governance rules, the Board concluded and robustly and at all times constructively to Board debate, objectively effectively and question management to challenge and together with the other relevant factors con of these factors, and that, taking account of the Group in mind the best interests There is a clear separation of the roles of Chairman, Mr D C Bonham, and Chief Executive, Mr G Davis, to ensure an appropriate G Davis, to ensure an Mr Chief Executive, and D C Bonham, Mr separation of the roles of Chairman, There is a clear balance of power and authority. Th the Group and implementing the strategy and policies responsible for managing Committee, Executive’s Chief conjunction with the have been set by the Board. which senior independent and the recognised designate Chairman Mr A G L Alexander), Chairman (alongside is Joint Vice Mr I J G Napier by shareholders. conveyed can be Director to whom any concerns Non-Executive in the Code andNYSE Corporat the other relevant factors contained all consideration of Board evaluation and Following the 2006 Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco During the course of the year of the course During the Corporate Governance Report Governance Corporate purposes of the Code, as independent as purposes of the Code, comprises a Non-Executive Chairman, six independent Non-Executive Directors, one Non-Executive Director not classified, for the for not classified, Non-Executive Director one Directors, Non-Executive independent Chairman, six comprises a Non-Executive section 404 of the Sarbanes-Oxley Act, have been performed as part of as been performed Act, have section 404 of the Sarbanes-Oxley of controls requ a number highlighted This has irre or accounting of fraud instances any potential of operations by the business Function Compliance From reports to the Group that may have occurred during the financial year, the Audit Committee concluded that neither individually nor collectively did individually concluded that neither Committee the Audit year, during the financial occurred that may have year. for the financial of the Group or performance results a material impact on the Board Committees Board and Board Structure du met seven times which The Board of Directors,

42 Statutory Reports 43 Statutory Reports

e d 005. ility

e of to s

lity for ht of him time Group’s d in the 2005 he Board Board he Nominations Committee www.imperial-tobacco.com www.imperial-tobacco.com present, to consider the Remuneration Remuneration Committee G Napier, the senior independent G Napier, the senior independent unity. No fundamental issues or training unity. Audit Committee p, without the Chairman p, without the e discharge of their duties. in September 2006. Feedback on individual Directors was discussed in September 2006. Feedback on individual of its Committees and individual Directors. These reviews were of its Committees and individual Directors. ional experience, specifically within the Asia region, identifie within the Asia region, ional experience, specifically d the wider industry. The key themes of succession and the desirab industry. The key themes of succession and the wider d the

Board the Board meeting in September 2006 for Mr I J the Board meeting in September 2006 for Mr d Mr C F Knott to the Board. d Mr C ce of the Executive Directors in th ce of the g Board refreshment, there remains a high degree of Board g Board refreshment, there remains a d for election, at the 2007 AGM. election, at the d for e year the Chairman additionally held meetings exclusively with the Non-Executive Directors to consider, Non-Executive meetings exclusively with the e year the Chairman additionally held matters reserved for its decision contained in the Group’s Corporate Manual. These include, inter-alia, responsibility for the inter-alia, These include, Manual. matters reserved the Group’s Corporate for its decision contained in the appointments of Dr K M Burnett an As reported last year, followingthe disclosure of individual Directors’ external commitments as part of the 2005 evaluation, t accepted that Mr D W Thursfield’s increasing level of external was likelycommitments to have an adverse impact availabion his Board and Committee matters. As a consequence, the Board accepted Mr D W Thursfield’s resignation with effect from 28 October 2 years. and may employ alternative formats and approaches in future anannual basis The Board plans to conduct evaluations on Board Operations affairs by the schedul of the Group’s overall control of the Group and manages forum making decision The Board is the principal evaluation were addressed during the year with the announcement of the appointment of Mr I J G Napier as Chairman Designate and Designate Chairman as I J G Napier Mr the announcement of the appointment of addressed during the year with evaluation were commercial strategy, the approval of financial statements and corporate plans, the overall corporate governance statements and corporate plans, the overall corporate framework, commercial strategy, the approval of financial amongst other things, the performan that, effectively and and performing are operating are satisfied that they and its Committees reviews the Board Following these notwithstanding the ongoin between strategic matters and those relating to governance an Directors with internat of one or more additional Non-Executive and commitment to contribute effectively to the Board and its Committees. Accordingly, the Board recommends that Messrs Board recommends to contribute effectively to the Committees. Accordingly, the that Messrs and commitment its Board and and Dr K M Burnett re-election, and F A Rogerson should stand for with Dr D Cresswell, together A G L Alexander, I J G Napier, Mr C F Knott should stan an appropriate balanc the Board continues to maintain related to the need to ensure emerged from the review which The key theme formal performance evaluation, Mr I J G Napier held a private feedback meeting with the Chairman. Chairman. with the private feedback meeting a held Napier Mr I J G formal performance evaluation, of th During the course has sufficient current Directors each of the that also satisfied and the Board is were identified needs that require addressing Non-Executive Director, to meet with the Non-Executive Directors as a grou Non-Executive Director, to meet with the Non-Executive of the Chairman’ and the results Directors Executive After also taking account of the views of the performance of the Chairman. having served for six years. This review was conducted as part of the Chairman succession process. succession the Chairman as part of conducted having served for six years. This review was opportunity was taken at In addition, an with the Chairman and this in turn was followed by private feedback meetings between the Chairman and each of the Directors. each of the Directors. and Chairman between the by private feedback meetings was followed turn this in and with the Chairman lig to particularly rigorous review in J G Napier was subjected performance of Mr I provisions of the Code the In line with the meet shareholders after the formal business of the AGM had been completed. been completed. the AGM had of business after the formal meet shareholders Committees and Board Structure of the Board together with the performance evaluated its own performance, Board at its meeting of the Board Committees was made to the Performance Evaluation and the Board formally reviewed consultant, of an external assistance with the and with the Code year, in accordance During the D C Bonham I J G Napier Independent Director Senior A G L Alexander K M Burnett C R Day P H Jungels C F Knott S E Murray Chairman Joint Vice Member an whole on the performance of the Board as a report completed by the Directors. A questionnaires, conducted by way of detailed Chairman Chairman Chairman Joint Vice – Member Member – Member Member Member – Member – – Member Chairman Member Member Member – Member – Chairman Member Member Member Member Member Member Member G Davis Dyrbus Cresswell Executive Directors G R G L Blashill D F A Rogerson Member – – – Member – – – Non-Executive Directors Member – – – Member Member – – – – – –

The opportunity exists for major shareholders to meet with new and existing Directors. Directors also made themselves available also Directors Directors. existing and new meet with shareholders to exists for major The opportunity

e s the

ning ning and the Board and are share Group m interest conduct n respect s having a mework, worldwide return of capital to shareholders through return Term Note programme. Actual results of the Group wer Term Note of major projects, for example the acquisition of the acquisition example the of major projects, for and appointment and removal of Directors and the of Directors and the and removal appointment and nce at Board and Board Committee meetings during the year. A meetings nce at Board and Board Committee on the progress of the business in a timely manner and that on the progress manner and of the business in a timely

continued renewal of the Group’s European Medium monitoring and if appropriate approval monitoring and if ademark, approval of annual and medium term plans, plans, term and medium ademark, approval of annual Board was supplied with information Board was supplied with Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco Company Secretary. and for ensuring governance matters all on Chairman, through the is responsible for advising the Board, Secretary The Company complied with. regulations rules and and applicable followed Board procedures are acquisitions and disposals, treasury, tax and risk management policies management policies tax and risk and disposals, treasury, acquisitions Corporate Governance Report Governance Corporate particular responsibility for ensuring that strategies proposed for the development of the business, resources and standards of and standards that strategies proposed for resources the development of the business, for ensuring particular responsibility ter the best long acts in Board experience. ensures that the This and judgement independent using their are critically reviewed All Directors are equally accountable in law for the proper stewardship of the Group’s affairs, with the Non-Executive Director with the Group’s affairs, proper stewardship of the law for the in accountable All Directors are equally of shareholders, takes account of the wider community of interest represented by employees, customers and suppliers and that and by employees, customers and suppliers of interest represented account of the wider community of shareholders, takes risk assessment processes. into the Group’s are fully integrated issues ethical environmental and review of the strategy Board changes detailed above, by the Board included the considered matters the principal year During the operating results of the business, operating results of the rights to the Davidoff cigarette tr buybacks, feedback from results’ presentations to institutional shareholders, review of the Group’s non-financial reporting fra of the Group’s non-financial review presentations to institutional shareholders, from results’ buybacks, feedback of and review within the Group trends and priorities environment health safety and occupational consideration of the three-year funding arrangements, including the minutes. of the Committees’ Committees and receive copies of the membership governance through their role in corporate accountability and The Non-Executive Directors also play a leading are of each Committee and remit The membership Committee and the Audit Committee. Nominations Committee, the Remuneration considered below, together with a record of each Director’s attenda Directors were properly briefed on issues arising at Board Meetings. All Board members receive reports from the chairmen of all at Board Meetings. All Board members receive arising Directors were properly briefed on issues reviewed at each Board meeting, with monthly reports, including detailed commentary and analysis, being provided in the interve provided in the analysis, being and detailed commentary reports, including Board meeting, with monthly reviewed at each periods. This ensured that the year were reviewed during the these Committees of for each review, the terms of reference part of the Group’s policy of annual published on the Imperial Tobacco website www.imperial-tobacco.com. They are also available from the Company Secretary. the are also available from the Imperial Tobacco website www.imperial-tobacco.com. They published on and expense, advice, at the Group’s to seek professional both independent to allow Directors procedures in place The Group has insurance cover i appropriate Secretary their duties. The Group maintains Company of the in order to fulfil advice and services of Directors and Officers’ liabilities.

44 Statutory Reports 45 Statutory Reports ss d Meeting Meeting over urope, and Annual General General Annual Committee Nominations www.imperial-tobacco.com www.imperial-tobacco.com it Committee and Mr G Davis stepped down to the Remuneration Committee and Audit Committee Remuneration Remuneration Audit Committee

Board Board been approved by the Remuneration Committee and the Board and signed and the by the Remuneration Committee been approved e Chief Executive’s Committee, the Board delegates day-to-day Committee, the Board busine and Executive’s e Chief Committee, outlines remuneration strategy and policy, details of the Committee’s activities strategy and policy, details of the Committee, outlines remuneration 0/1 – 0/1 0/1 – 4 2/2 – 1/1 2/2 1/1 1/1 – 4/4 – – 7/7 2/2 2/2 4/4 1/1 3 1/1 – 3/4 – – 1/1 7/7 – – – 2 5 1 2/2 2/2 – 2/2 1/1 2, 5 3 6/7 2/2 – 3/4 1/1 5 Committee on 6 September 2006. Mr C R Day was appointed to the Audit Committee on 31 January 2006. Mr D W Thursfield Dr P H Jungels H P Dr Mr C F Knott 6/7 4/4 3/3 3/4 1/1 Ms S E Murray Mr D Cresswell D Mr Dr F A Rogerson Non-Executive Directors 1/1 – – 7/7 – 7/7 – – – 1/1 Mr C R Day Remuneration Committee Remuneration Report which in the Directors’ Committee are contained of the Remuneration and responsibilities The membership has which appears on page 52. The Remuneration Report, by the chairman of the Remuneration 1. Mr G L Blashill was appointed to the Board on 28 October 2005. 2. Dr K M Burnett and Mr C F Knott were appointed to the Board on 19 April 2006. 3. Messrs S P Duffy and S Huismans retired from the Board on 31 January 2006. 4. Mr D W Thursfield resigned from the Board on 28 October 2005. 5. Ms S E Murray was appointed to the Remuneration Committee and Audit Committee on 31 January 2006. Mr C F Knott was appointed from the Nominations Committee. Mr D C Bonham Mr I J G Napier Mr A G L Alexander Dr K M Burnett The maximum number of meetings for each individual Director is the number which they were eligible to attend. Following the 2006 AGM Mr D C Bonham stepped down from the Remuneration Committee, Mr A G L Alexander stepped down from the Aud 6/6 7/7 6/6 – 2/2 3/4 1/1 3/3 – 3/3 3/3 4/4 1/1 1/1 1/1 Mr R Dyrbus R Mr G Davis Mr Mr G L Blashill 1/1 – – 7/7 – 7/7 – – 2/2 1/1 Total number of meetings in 2006 Number of meetings attended in 2006 Executive Directors 7 4 3 4 1 Chief Executive’s Committee Chief Executive’s Director – Western E the Regional Directors, Committee, comprising the Executive Chief Executive’s year, the Over the financial

the Group Human Resources Director and the Company Secretary, met 12 of Director and the to ensure appropriate control and management times Resources the Group Human day-to-day of th business matters. Within the framework Mr S Huismans Mr S P Duffy the financial year and contains full details of Directors’ emoluments. Directors’ details of full contains and year the financial process described above. the Board performance evaluation Committee was evaluated as part of The performance of the control matters to the Chief Executive and the Chief Executive’s Committee who are responsible for implementing Group policy an Group policy implementing who are responsible for Committee Executive’s Chief and the control matters Executive to the Chief monitoring the detailed performance of all aspects of the business. They have full power to act subject to the reserved powers act subject to the reserved powers to full power have of the business. They performance of all aspects monitoring the detailed policy guidelines. Group’s the Board and the down by sanctioning limits laid Committees regularly communicate Board the of chairmen Chairman and meetings, the Board and Board Committee Between formal Committee. Executive’s Chief the members of other and Executive with the Chief Committees and Shareholders Board Meetings of the Board, . e ber ard ct and affairs he s for two ctors on qualifications qualifications s the e Group’s Auditors, external lawyers, meetings e Group’s Auditors, external lawyers, recommending such re-election. recommending such re-election. nley Management College focusing on the roles and on College focusing Management nley lations and developments. cluded meetings with th cluded meetings Committee following the AGM on 31 January 2006); Committee following the AGM on 31 January

Director is considered before with current regu g in the appointments as detailed in the Board Changes section above. section above. Changes the appointments as detailed in the Board g in continued Blashill attended a programme at He Blashill Mr S P Duffy (retired from the Board 31 January 2006); Mr S P Duffy (retired from the Board 31 January 2006); and Mr S Huismans (retired from the Board 31 January 2005). October 28 (resigned Mr D W Thursfield Mr D C Bonham (Chairman); (Chairman); Mr D C Bonham discussions); succession during Chairman committee (chaired Mr A G L Alexander Mr I J G Napier; 19 April 2006); Dr K M Burnett (appointed Mr C R Day; Dr P H Jungels; 19 AprilMr C F Knott (appointed 2006); Ms S E Murray; the from Mr G Davis (Chief Executive – stepped down

relevant issues such as legislation and regulation changes and corporate governance developments. During the year the Group’s During the year the and corporate governance developments. changes and regulation legislation such as relevant issues interest. items of on topical Board external lawyers also briefed the of the Group’s senior management team via the Imperial available to members made is also Structured training on leadership Leadership Programme. Woodrow Bacon and and Hewitt, from PricewaterhouseCoopers Committees also received briefings Remuneration The Audit and respectively to up to date ensure they remain Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco responsibilities of a listed PLC Board Director. of a listed PLC responsibilities in programmes induction Dr K M Burnett and Mr C F Knott’s site visits. These meetings included briefings on relevant corporate responsibility and corporate with key Group personnel and scientific impact, social management, environmental and safety, issues, legal matters, product health stewardship, occupational risk management. regulatory affairs and commercial provided to Dire are also Regular briefings needs. to meet their individual Directors to all Ongoing training is made available to annual re-election. The performance of each of each The performance re-election. to annual process described above. evaluation the Board performance Committee was evaluated as part of The performance of the Induction and Training individual to the Board, taking into account their provided to allappointment Detailed training and briefing are Directors on and experience. Mr G L appointment Following his Nominations Committee Membership year th the During as required basis. Directors and meets on an comprised of all the Non-Executive is The Nominations Committee • • • the Company Secretary acts as secretary to the Committee. Mr M R Phillips Responsibilities t on the Board, and experience knowledge skills, of the balance evaluation of the include Committee of the The responsibilities following their appointment the AGM by shareholders at themselves for election submit Any Directors appointed by the Board must Corporate Governance Report Governance Corporate Thereafter all Directors, in accordance with the Code, are subject to re-election at least every three years. Furthermore, it i three years. Furthermore, every to re-election at least Code, are subject the with in accordance Thereafter all Directors, or more is subje post for nine years in having been the Chairman, including Non-Executive Director, Company’s practice that any Committee met four times. Committee met four times. during the year were: The members of the Committee • • • • • • • • • to the Board with reg of recommendations making and the plans of succession the formulation development of role specifications, of recommendations to the Board resultin to the appointment of Directors. plans, produced role profile succession Board evaluation and account the taking into after year the Committee, In the financial a num made candidates of suitable following the identification and to the Chairman, Directors and a successor new Non-Executive

46 Statutory Reports 47 Statutory Reports ad

, ority, with ay e rd; and

rmal ernal s g items to meet the www.imperial-tobacco.com www.imperial-tobacco.com appropriately qualified to discharge the Form 20-F, prior to submission to the Boa Form 20-F, prior to submission to the ancial reporting cycle, together with standin cycle, reporting ancial ants and are therefore ants and are tent of the risk assessment and compliance programme implemented tent of the risk assessment and compliance regarding the reappointment of the Auditors; regarding the reappointment of the Auditors; e Head of Group Compliance, the Deputy Company Secretary and other e Head with key events of the annual fin with key events presence of any Executivepresence of of Director or other manager, providing a direct line statements, together with the US filing on the statements, together with Independence Policy document, which provides clear definitions of services that the ext of definitions Policy document, which provides clear Independence p’s Public Interest Disclosure (Whistleblowing) policy; and p’s Public Interest Disclosure (Whistleblowing) ment from the Board 31 January 2006). ment from the Board rs attended each meeting of the Committee during the year and, as a standing item on each agenda standing item on each a as the year and, rs attended each meeting of the Committee during throughout the Group; oversight and monitoring of the Grou review of risk management systems. reviewing the scope of the external Audit plan and the internal Group Compliance work plan; Group Compliance work plan; internal and the reviewing the scope of the external Audit plan matters; consideration of any related party review of Auditor independence; Board to the consideration of and recommendations to the Auditors; fees paid review of non audit to consideration by the Board; review of the Going Concern statement prior approving the Group’s accounting policies; approving the Group’s accounting policies; reviewing the interim and annual financial monitoring internal control Mr C R Day (appointed and chairman 31 January 2006); Mr C R Day (appointed Dr P H Jungels; 6 September 2006);Mr C F Knott (appointed 31 January 2006); Ms S E Murray (appointed Mr I J G Napier; down 31 January 2006); and Mr A G L Alexander (stepped until retire Mr S P Duffy (chairman

• • process described above. evaluation the Board performance Committee was evaluated as part of The performance of the provided the Committee with detailed reports to facilitate the regular monitoring Group Compliance of the Head year During the • • • • • • review of its activities and effectiveness including those in respect of the programme of activity in place to enable the Group of activity in place to of the programme including those in respect review of its activities and effectiveness requirements of section 404 of the Sarbanes-Oxley Act. con the scope and The Committee undertook its annual review of reviews the auth monitors and critically continually Committee its approval. The Function and confirmed by the Group Compliance the activity. allocated to level of resource effectiveness and Controller, th the Group Financial The Finance Director, the He allowed for agenda item on each and a standing the Committee of to attend each meeting were invited management financial Director or being present, in line any Executive other manager of Group Compliance to meet formally with the Committee, without Messrs C R Day, C F Knott and I J G Napier are qualified account Messrs C R Day, C F Knott and I J G Napier • • responsibilities that Audit Committee membership entails and are regarded as financial experts for the purposes of both the Cod for the purposes experts financial as are regarded and entails that Audit Committee membership responsibilities alia: inter included, responsibilities These at each meeting. to consider is required that the Committee • and section 407 of the Sarbanes-Oxley Act. and section 407 of the Sarbanes-Oxley Act. the Company Secretary acts as secretary to the Committee. Mr M R Phillips Responsibilities Imperial Tobacco website on the published matters recommendedCode and are by the the The Committee’s terms of reference cover with a the Committee worked Report of approval of the Annual date up to the and www.imperial-tobacco.com. During the year structured agenda of matters focused to coincide Audit Committee Audit Committee Membership members’ Directors, met four times during the year and Non-Executive independent consisting exclusively of The Audit Committee, in the table on page 45. attendance is set out during the year were: The members of the Committee • • • • • • • the Code’s requirements.

In addition, the Group’s Audito In addition, the Auditors can and cannot provide such that their independence and objectivity are not impaired. The policy also establishes a fo The policy also establishes and objectivity are not impaired. Auditors can and cannot provide such that their independence perform and establishes guidelines for the recruitment of employees or former employees of the external Auditors. This policy i Auditors. This policy of employees or former employees of the external guidelines for the recruitment perform and establishes the Group’s website www.imperial-tobacco.com. published on authorisation process, including the tendering and pre-approval by the Audit Committee for allowable non-audit work that they m and pre-approval by the Audit authorisation process, including the tendering met with the Committee members without the met with the Directors. and Non-Executive communication between the Auditors Auditor Independence Policy The Group regularly reviews its Auditor

ors. sfies risk trol- gular ions.

hich hich from ve fees orated ness ot the ve been e levels of -Oxley

elated ’s assets: ion of legal risks were aging the Group Group to ensure that there nal Financial Reporting Standards, w Financial nal aluating and man zations of the Treadway Commission (COSO) as appropriate. as appropriate. Commission (COSO) Treadway zations of the all business operations of the ns, such a system can provide only reasonable and not absolute and provide only reasonable ns, such a system can in support of maintaining high standards of corporate governancein support of maintaining high sati e Group’s exposure to major business risks is minimised such that the is minimised risks e Group’s exposure to major business no conflict of interest existed between such audit and non-audit work. The between such existed no conflict of interest

going throughout g the Group for compliance with Internatio g the Group for compliance that an ongoing process for identifying, ev process that an ongoing continued objectives by managing rather than eliminating risk and can only provide reasonable and n can only provide reasonable and risk and objectives eliminating rather than by managing e review of work undertaken by other accounting firms prior to implementation), Sarbanes by other accounting firms of work undertaken e review Turnbull guidance and COSO. Turnbull guidance and The Group has clearly set out its strategic objectives as part of its medium term planning process. These objectives are incorp These objectives term planning process. clearly set out its strategic objectives as part of its medium The Group has as part of the annual planning cycle; planning as part of the annual term planning and annu medium as part Directors of the Executive undertaken by the A detailed assessment of strategic risks was that th Audit Committee satisfied itself In this way, the the Group; and acceptable to retained risk are on page 14. business is included facing the risks A summary of the principal and monthly forecasting reporting cycles; and monthly forecasting major of risk so that all risk-profiling areas review their principal exercises to formally undertook business All areas of the summaries from of risk assessment submission annual on the system is based formal reviewed at all levels across the Group. This appropriate controls to minimise the implementing consistent procedures for monitoring, updating and clear and continues to be activities, its ongoing the outcome of Committee meeting Audit Function formally reported at each basis. The Group Compliance These reports reviews. business any more general compliance and including its programme of reviews relating to Sarbanes-Oxley controls within the business operat of internal the effectiveness Board in assessing have supported the Audit Committee and the each of the business operations identifying their major areas of business risk, together with the controls embedded in the busi operations identifying their major areas of business risk, each of the business processes to mitigate such risks. This review is on exposure so identified; on a re risks compliance and financial Group-wide operational, responsibility for considering has delegated The Audit Committee

• became effective for the financial year ending 30 September 2006. In other situations, proposed assignments were subject to were subject to assignments In other situations, proposed financial year ending 30 September 2006. became effective for the cost-effectiveness. and of competence basis the taken on tendering with decisions independent performed by of the audits effectiveness and efficiency by the Audit Committee of the scope, year during the Following a review service. and independent audit to receive an efficient, effective continues that the Group Auditors it was agreed the requirements of both the safeguarding of and the of information reliability operated to provide reassurance of both the features have The following key Risk assessment: • • section 404 compliance and assistance in preparin section 404 compliance Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco way of conducting the Group’s business but also that business but Group’s way of conducting the associated with the reorganisat work principally related to tax advisory work within the financial year were for such non-audit (including th entities within the Group services and non-audit work with the aim of seeking to balance objectivity, value for money and compliance with this policy. Th compliance and money value for objectivity, to balance of seeking work with the aim services and non-audit The Audit Committee also carried out bi-annual reviews of the remuneration received by the Auditors for audit services, audit r audit for audit services, received by the Auditors remuneration of the reviews carried out bi-annual also The Audit Committee Corporate Governance Report Governance Corporate Committee, on behalf of the Board, reviewed the effectiveness of the system in accordance with the guidance set out in the Code the guidance set out in with in accordance of the system reviewed the effectiveness Board, behalf of the Committee, on Internal control The Audit its effectiveness. for reviewing and control the Group’s system of internal responsibility for The Board acknowledges • • outcome of these reviews was not only that performance of the relevant non-audit work by the Auditors was the most cost-effecti work by the Auditors non-audit was not only that performance of the relevant outcome of these reviews established to provide internal control. It confirms established to provide internal control. It Report. of the Annual operated throughout to the date of the approval risks the year and up significant provisions as best practice governance with the to ensure compliance established control processes The Group has and procedures information and regular reports provided by management, the internally independent Group Compliance Function and external Audit external and Function Compliance regular reports provided by management,information and the internally independent Group Group’s operatiothe of However, given the size and complexity control provisions. The provisions of the and relevant US governance with any and to comply Guidance, advocated by the Turnbull assurance of meeting internal control Sarbanes-Oxley Act require US listed companies to adopt a generally accepted framework of control, advocating the “Internal Con the “Internal framework of control, advocating to adopt a generally accepted Sarbanes-Oxley Act require US listed companies of Sponsoring Organi Integrated Framework” issued by the Committee The Group considers its approach, methodology and actions The Group considers its approach, methodology absolute assurance against material misstatement or loss. absolute assurance ha which of the key procedures reviewed the effectiveness through the Audit Committee, regularly The Board, either directly, or

48 Statutory Reports 49 Statutory Reports ls. d

ties; licies rol ’s and

tion, stems nce nce

tion. p, are icant sourcing ended ring the Group. cial), have their roles. eness of the www.imperial-tobacco.com www.imperial-tobacco.com rther documentation an the Group, is reviewed and the Group, is reviewed of risk from each of its business operations and of risk from each of its business operations unication throughout applicable for the Group for the first time in prepa applicable for the of year end controls is still ongoing at the date of publica of year end controls is Sarbanes-Oxley Act during the year, fu ly with the provisions of the Sarbanes-Oxley Act that apply to ly with the and health, safety and environmental issues. This framework of po issues. This framework environmental and health, safety and rols but also other external measures such as insurance and dual insurance such as measures rols but also other external provide the requisite control guidance and remains pertinent to the Group and remains control guidance the requisite provide histleblowing” arrangements) operates throughout the Group; histleblowing” arrangements) operates a well defined policy designed to control the Group’s financing arrangements and a well defined policyarrangements and designed to control the Group’s financing t methodology for rankingt the level responsibilities include reporting to the Audit Committee on the effectiveness of internal cont responsibilities of internal include reporting to the Audit Committee on the effectiveness e procedural and reporting framework for monitoring business risks and controls, as set out above, and controls, as set reporting framework for monitoring business risks e procedural and foreign large accelerated filers. Section 404 of Sarbanes-Oxley Act is the foreign large accelerated filers. As a consequence of its US listing, the Group is required to comp the Group of its US listing, As a consequence Form 20-F for the financial year ending 30 September 2006. Testing nature, which are required to be brought to it for decision; nature, which are required to are expected which personnel by the Board laid down framework of policies and procedures an established The Group has matters and legisla compliance ethical segregation of duties, levels, authorisation key issues such as comply with. These cover taken at an appropriate level; level; taken at an appropriate financial, operational or complia adopted,formally a strategic, reviews, the schedule of matters of The Board has and annually governance, security as well as regulatory, data physical and issued, with consistent comm developed and has been which and procedures, updated on a periodic basis to ensure it continues to updated on a periodic basis to ensure it continues systems, focusing on those areas of greatest perceived of risk to the Group; systems, focusing on those areas to risk controls as any enhancement for appropriate response to recommendations an there is that Follow-up procedures ensure of the Group Compliance Function; and reviews independent identified by the The Board continually reviews the Group’s organisational structure to ensure that clearly defined lines of responsibility with of responsibility lines that clearly defined structure to ensure reviews the Group’s organisational The Board continually to fulfil in place calibre of the necessary with personnel of authority and segregationappropriate delegation duties exist, of Such delegated authority ensures that decisions, significant either because of their value or impact on other parts of the Grou or impact their value of because either that decisions, significant authority ensures Such delegated A formal policy and arrangements for dealing in confidence with issues of genuine and significant concern raised by employees o concern raised and significant issues of genuine with confidence for dealing in A formal policy and arrangements others relating to perceived malpractice, improper business practices, management impropriety or other similar matters, whether management business practices, others relating to perceived malpractice, improper their own management and control structures which satisfy the Group’s controls, accounting policies and regulatory responsibili regulatory policies and controls, accounting which satisfy the Group’s structures and control their own management business activities; the with section 404 of As part of the Group’s work for compliance The Group is organised on a functional basis with manufacturing, sales and marketing and central support functions each having central support functions each marketing and sales and with manufacturing, functional basis on a The Group is organised controls associated with establishing the structure of this framework have all been completed; been completed; have all of this framework structure the controls associated with establishing financial or non-financial (commonly referred to as “W (commonly or non-financial financial The Group has an established and consisten an established The Group has risk that has been identified, including not only internal cont including identified, risk that has been identifying significant risk issues associated therewith. Appropriate strategies have been implemented to deal with each signif to deal Appropriate strategies have been implemented associated therewith. risk issues identifying significant of supplies; strategic expenditure including and of capital and review control for appraisal, approval, procedures There are well-defined acquisitions; and operates within The Group’s treasury function A range of procedures is used to review the risk profile and monitor the effective application of internal controls across the of internal the effective application monitor to review the risk profile and A range of procedures is used each function and at a high level by the Chief Executive’s Committee. Executive’s Committee. level by the Chief high at a and each function of risks and relevant contro together with self-assessment Function, by the Group Compliance reviews independent These included non-finan and (both financial activities and covering all business Group’s policies accordance with the control, in of internal Each area of the business produced detailed financial plans, prior to the start of the reviewed for financial plans, were financial year, which produced detailed of the business Each area and robustness and realism; that area of the business, ensured reviews for each performance regular periodic system of controls, including A comprehensive within a detailed level were conducted at and thoroughly investigated. These reviews promptly against plan were major variances to minimise its exposure to interest rate and foreign exchange risks through treasury instruments. risks through exchange exposure to interest rate and foreign to minimise its sy that effective certify annually and function managers of each business financial and Furthermore both the senior operational been maintained within their area of responsibility; area been maintained within their The Group Compliance Function’s

The Audit Committee confirms it has reviewed and reported to the Board on the system of internal control for the financial year of internal control and reported to the Board on the system confirms it has reviewed The Audit Committee and the of the Code the requirements with Report, in accordance of the Annual to the date of approval 30 September 2006, and up • • • Turnbull guidance. Through th Turnbull guidance. it to review the effectiv to enable information sufficient there is statements, it is satisfied review of the Group’s financial Group’s system of internal control. • • • • Control environment control activities: and •

• • • performance indicators. These indicators are periodically reviewed to ensure that they remain relevant and reliable. reliable. relevant and they remain that periodically reviewed to ensure performance indicators. These indicators are Monitoring: • The achievement of business objectives, both financial and non-financial, were assessed on a regular basis using a range of key using a range a regular basis assessed on were non-financial, and both financial objectives, of business The achievement Information and communication: • • •

l it,

’s

five r e Non- al ll Annual ll Annual nded terial et with n of n of

Imperial rated due line through the ge’s (NYSE) listing standards ge’s (NYSE) listing standards appointment, and that the senio appointment, are available on d or to submit matters for the attention d or to submit matters p and are managed by independent fund managers. managed by independent fund p and are e Group believes that it is in compliance, in all ma e Group believes that it is in compliance, tative bodies on significant issues. The Group also m issues. tative bodies on significant of the New York Stock Exchan New York of the Annual Report and Accounts.Annual Shareholders can also request the fu and a number of methods are used to promote greater understanding number of methods and a

nt Group Compliance Function. nt Group Compliance it was the Group’s practice to include the Chief Executive, in addition to all of th in Chief Executive, include the practice to it was the Group’s meetings with major investors, if so requested. meetings with the opportunity to meet Non-Executive Directors, on continued an Interim Report was published.Report All ofthese documents an Interim other senior management are invited to atten management other senior gh regulatory releases, which were also made available on other news services and on the Group other news services and on the on available were also made gh regulatory releases, which rporate governance requirements requirements rporate governance or concerns were fully understood. the internally independe The Company Secretary – chairman; Secretary The Company – co-ordinator; Compliance Head of Group and Senior Legal Counsel; Controller. Group Financial

and dialogue with investment audiences. The Chairman, Chief Executive and Finance Director, together with feedback from externa together with feedback Director, Finance Chief Executive and Chairman, and dialogue with investment audiences. The within the general remit of Communication with shareholders a high priority Communication with all shareholders is given Executive Directors, on the Nominations Committee. However, he stepped down from the Committee with effect from the 2006 AGM. the Committee with effect from the from However, he stepped down Committee. on the Nominations Executive Directors, corporate governance the and adopts recommends which develops, Committee, the Nominations Furthermore it is the Board, not communicated to the Board as major shareholders were effectively expressed at meetings with that the views advisers, ensured any issues a whole so that The Group’s Annual Review, a summary financial statement, provides shareholders with the material information concerning Imperi to ensure that major shareholders are given to ensure that independent Non-Executive Director attends represen and their its major shareholders The Group regularly liaises with representatives of investors when requested. Corporate Governance on the Group’s Chief Executive and received presentations from the Chairman shareholders Additionally, at the AGM, individual Aud of the Chairman and the chairmen the performance and current business activities and were given the opportunity to question Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco the assets of the pension fund, which are held separately fromheld those of the Grou fund, which are the assets of the pension Disclosure Committee: Disclosure meet corporate practice Commission and to governance best Exchange and Securities US by the issued In line with recommendations Corporate Governance Report Governance Corporate in the UK, the Group has a Disclosure Committee comprising appropriate senior executives: senior executives: has a Disclosure Committee comprising appropriate Group in the UK, the • • • • to Secretary acts as secretary the Committee. The Deputy Company together with The External Auditors Tobacco Group in a form more than readily assimilated the full principles to be applied throughout the Group. It should also be noted that the role of an internal audit department is incorpo department internal audit noted that the role of an be It should also the Group. principles to be applied throughout Report and At Form 20-F. the half year Tobacco website www.imperial-tobacco.com, together with all announcements, investor presentations and share price information. trading statements and other announcements of the progress of the Group through kept informed shareholders were year During the website. There was regular dialogue with institutional shareholders and participation in sector conferences. This has been exte has This in sector conferences. and participation shareholders with institutional was regular dialogue website. There nominees from the Company, one member chosen by employees and two by current and deferred pensioners. The Trustees look after pensioners. by current and deferred by employees and two chosen one member the Company, nominees from no other purpose. for and its rules with accordance only be used in The pension fund assets can co New York Stock Exchange to comply with some Group is required As a listed non-US issuer, the of the Committee. after identified information of relevant of reference, considered the significance with its terms The Committee, in accordance reported on its evaluation of such The Committee ongoing basis. an and on both prior to each meeting enquiry by its members in their evaluatio the Audit Committee to assist them and, as appropriate, Finance Director Executive, information to the Chief that may be required. any disclosure for the purposes of material issues year. the were reviewed during Committee Disclosure The terms of reference of the Going concern for the foreseeable to meet its operational needs resources Company has adequate the Group and The Directors are satisfied that statements. the financial preparing basis in they continue to adopt the going concern accordingly future and Pension fund consisting of controlled by the Board but by Trustees, is not Tobacco Pension Fund, the Imperial fund, pension The Group’s main respects, with the relevant NYSE listing standards. However, in respect of the NYSE standards relating to the composition of a the NYSE However, in respect of NYSE listing standards. respects, with the relevant Governance Committee, Nomination/Corporate of significant developments throu relating to the corporate from others. governance exempt practices of listed companies, being differ from those practices governance ways in which its corporate any significant However, there is an obligation to disclose th At this time, listing standards. the NYSE followed by US companies under

50 Statutory Reports 51 Statutory Reports n ber es eps ber

e m that xy Their net is on of the ced, ced, he state of at period. www.imperial-tobacco.com www.imperial-tobacco.com the results of which are announ which the results of reporting their opinion to members. n or regulation and for n or regulation and of the Group’s website. Information published on the inter of the Group’s website. Information subject, with all resolutions put to a poll, with all resolutions subject, areholders more than 20 working days prior to the meeting. more than areholders d the Group and enable them to ensure that the financial statements comply with the Compani that the financial enable them to ensure d the Group and Accounts as required by legislatio Accounts as ch resolution including details of abstentions. Subsequently the results are also published on are also published on details of abstentions. Subsequently the results ch resolution including meeting, through a Regulatory Information Service release and on the Company’s website. the Company’s on release and Information Service Regulatory meeting, through a reasonable judgements and estimates have been made in preparing the financial statements for the financial year ended 30 Septem year ended statements for the financial in preparing the financial have been made and estimates reasonable judgements Statement of Directors’ responsibilities responsibilities Statement of Directors’ t of fair view and year which give a true financial statements for each to prepare financial Directors the Company law requires affairs of the Company and the Group at the balance sheet date and of the profit or loss and the cash flows of the Group for th confir They also consistently. applied have been These been used. policies have accounting The Directors consider that suitable accounting have been followed. applicable standards 2006 and that th at any given time accuracy records that disclose with reasonable keeping proper accounting The Directors are responsible for financial position of the Company an financial position of the taking reasonable st for and hence Group and the assets of the Company the Act 1985. They are also responsible for safeguarding other irregularities. and fraud of for the prevention and detection integrity and The Directors are also responsible for the maintenance after the conclusion of the after the conclusion of accessible in many countries with different legal requirements. Legislation in the UK governing the preparation and disseminati the UK governing Legislation in requirements. legal different countries with many accessible in financial statements may differ from legislation in other jurisdictions. in other jurisdictions. from legislation statements may differ financial Statement of Auditors’ responsibilities opinio for forming an independent PricewaterhouseCoopers LLP, are responsible Auditors, Imperial Tobacco Group PLC’s Registered other by the Directors, on presented of the Company as statements financial on the statements of the Group and on the financial Report and Annual elements of the Company’s website. proposed on each discrete Separate resolutions are Remuneration and Nominations Committees and other Directors. In accordance with the Group’s practice the Annual Report and Report the Annual practice Group’s with the In accordance other Directors. Committees and Nominations and Remuneration were sent to sh of the AGM Notice Accounts and pro Report, and submitting Annual the documentation, including shareholder receiving of choice are offered the All shareholders of votes for andeach su against report is set out on page 67.

votes either electronically or in paper format, including the ability to abstain if desired. to abstain if ability the including paper format, or in votes either electronically together with the num at its AGMs, level of proxy votes of each resolution proposed the The Company indicates in respect lodged

e). est, and R ort prior The e on d ked.

oup. applied the AGM) on 31 January 2006); AGM) on 31 January e Companies Act 1985 and to e Companies rule amendments, invitations rule amendments, the shareholders at the AGM. lations and provide advice on all TS on the audited information within this Rep on the audited information tive Directors who have no personal financial inter financial who have no personal tive Directors with schedule 7A to th with schedule muneration but has delegated to the Remuneration has delegated to muneration but including approval of minor Annual General Meeting (the ority. In particular, it describes how the Board has ority. In particular, it describes consultants Hewitt Bacon & Woodrow Limited and Towers and consultants Hewitt Bacon & Woodrow Limited out in the Combined Code on Corporate Governance (the Cod (the on Corporate Governance out in the Combined Code Shareholder Return (TSR) calcu ion Report, prior to submission to Cuthbert (Group Compensation and Benefits Manager) also provide also Manager) Cuthbert (Group Compensation and Benefits ired. Hewitt Bacon & Woodrow Limited also review the Group’s Hewitt Bacon & Woodrow ired. in section 1 of the Code throughout the year. in section 1 of the Code Auditors to report Company’sto the shareholders 67 and those aspects of this Report which have been subject to audit have been clearly mar clearly have been to audit of this Report which have been subject 67 and those aspects e Listing Rules of the UK Listing Auth UK e Listing Rules of the in the matters to be decided. in Group) and Towers Perrin have also been used to assist in benchmarking processes ensuring the been used Group) and Towers Perrin have also awards and the allocation or issue of shares or payments under any such plans; and and plans; any such payments under or of shares allocation or issue awards and the approval of the form and content of the Directors’ Remunerat Mr I J G Napier (chairman); (chairman); Mr I J G Napier the the Committee following Mr D C Bonham (who stepped down from the AGM); at Mr S Huismans (who retired from the Board Dr P H Jungels; Mr C F Knott (appointed 6 September 2006); and Ms S E Murray (appointed 31 January 2006); 2005). October 28 (resigned Mr D W Thursfield determination of the remuneration levels and conditions of service for Executive Directors, Chairman and members of the Chief Chief of the Directors, Chairman and members for Executive of service conditions levels and determination of the remuneration Executive’s Committee; oversight of the remuneration; overall policy for senior management plans oversight of the incentive Group’s employee share or cash-based

• Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco This Report has been prepared by the Remuneration Committee in accordance in accordance Committee the Remuneration has been prepared by This Report Directors’ Remuneration Report Report Remuneration Directors’ meet the relevant requirements of th meet the relevant requirements set governance to Directors’ remuneration relating principles of good best practice provisions relating to remuneration as set out best practice provisions Remuneration Committee Remuneration Committee Membership Non-Execu exclusively of independent The Remuneration Committee is comprised other than as shareholders, year were: The members of the Committee during the • • • • • • • are invited to attend Bonham (Board Chairman) Mr D C stepping down from the Committee, Mr G Davis (Chief Executive) and, since to respond to questions Mr M R Phillips (Companyby the Committee. also Secretary) as secretary to the meetings raised attends any matter concerning the details of their own remuneration. from excluded specifically they are all Committee. However, Committee Advisers to the Remuneration Committee after Executive’s Chief Director and member of the Executive for each The Committee sets the remuneration package sources, including remuneration from external taking advice principally as requ Perrin, both of whom are engaged by the Committee services for the Gr any other provide corporate governance Neither against best practice. and practices remuneration principles having provided tax and other as required and the Committee by KPMG (engaged by Executive remuneration data provided to the consultancy services and advice to the Committee. internal support an share plans the Group’s of respect by the Company to provide legal advice in been retained Solicitors Allen & Overy LLP have whole. other legal services to the Group as a The firm also provides when required. as and to provide services to the Committee consistent application of the executive remuneration policy. remuneration of the executive consistent application P Resources Director) and Mr D Ms K A Brown (Group Human The Companies Act 1985 requires the The Companies Act 1985 1985. Act Companies with the in accordance have been prepared those parts of the Report in their opinion, and to state whether, page out on Auditors’ opinion is set the Company’s website www.imperial-tobacco.com), confirms formally that it has been in compliance with the governance rules and rules governance with the in compliance it has been formally that confirms website www.imperial-tobacco.com), the Company’s the Group. related matters. Alithos Limited provides no other services for Group’s share plans used in the Auditors, certify Earnings Per Share (EPS) calculations the Group’s PricewaterhouseCoopers LLP, to awards vesting. Responsibilities and cost of executive re responsible for the framework The Board is ultimately for the following activities: its terms of reference, responsibility Committee, within • • • The Company has appointed Alithos Limited to undertake Total Alithos Limited has appointed The Company The Remuneration Committee, which met three times during the year and operates under clear written terms of reference (availabl operates under clear the year and times during met three which Committee, The Remuneration

52 Statutory Reports 53 Statutory Reports he

ase

y ed of ce ce der hould high high lance of lance on year to relocate ration ied to all Executive ll by directly o provide he he ing, retainingand www.imperial-tobacco.com www.imperial-tobacco.com on achievement of al bonus and awards vesting un and significantly weighted towards, strategy and philosophy that all employees s that all employees strategy and philosophy vironment. For the Group continueto to compete of total remuneration for the Chief Executive and Finan earn upper quartile total compensation light of the Group’s current performance and prospects and align and performance current light of the Group’s long term rewards focusing on, of shareholders, while not being excessive. The executive remune package for Executive Directors and members of the Chief Executive’s of the Chief Executive’s for Executive Directors and members package e other Executive Directors with annu other e significant contributor to its competitive advantage. The Group continues to Group continues The significant contributor to its competitive advantage. the agreed settlement with Mr B C Davidson. Mr with the agreed settlement ior employees were issued with total reward statements. total ior employees were issued with t with the Group’s overall remuneration with the Group’s overall t ts not only align with the Group’s fundamental values of fairness, competitiveness and equit of fairness, competitiveness values ts not only align with the Group’s fundamental e interests of shareholders and employees at all levels by giving employees the opportunity and opportunity and employees the levels by giving interests of shareholders and employees at all e review of executive pension arrangements following the recent pension reforms in the UK; in the reforms pension the recent following arrangements review of executive pension t of awards under groups and grant levels conditions, vesting schedules, comparator performance the operation, annual review of Group’s share plans, to ensure that they remain appropriate in they remain appropriate that to ensure plans, Group’s share oversight of the negotiations/administration of with the strategy and objectives of the Group; objectives of the Group; with the strategy and criteria prior to bonus payment; and the selected against of performance and review performance criteria determination of bonus amendments to the share plan rules to take account of the Age Discrimination Act; of the Age Discrimination rules to take account plan amendments to the share

employees and communicated to ensure each element of the package is understood and the links to corporate performance to corporate and the links package is understood of the element to ensure each communicated employees and communication sen recognised. To assist in this The Group strives to align th of majority plans the employee share of Tobacco Group PLC. Through a series Imperial in to build a shareholding encouragement excess plans with in equity-based participation in one or more offered its subsidiaries have been and employees of the Company 42 per cent of the eligible population participating in one or more of those plans. 42 per cent of the eligible population participating policyExecutive remuneration remuneration determines the The Remuneration Committee experience within each of the Group’s subsidiaries. A cohesive reward structure across the Group is critical in ensuring that a that in ensuring Group is critical reward structure across the A cohesive subsidiaries. Group’s of the experience within each appl consistently was structure year this the the Group’s strategic goals. During for, and strive associate with, employees can employees internationally to facilitate their development, and thus the Company’s pool of talent, and to achieve the optimum ba and to achieve the optimum Company’s pool of talent, the and thus their development, employees internationally to facilitate • • • is fully consisten The Committee’s approach • and succession planning. The Group’s remuneration arrangemen Committee. The package is designed to attract and retain high quality executives, induce loyalty and motivate them to achieve a induce loyalty executives, quality to attracthigh Committee. The package is designed and retain be competitively rewarded to attract and retain their valued skills in the business, as well as supporting corporate strategy,as supporting as well in the business, to attractbe competitively rewarded skills valued and retain their goals. with the Group’s strategic business management reward aligning executive Remuneration strategy Imperial Tobacco Group PLC operates in a highly competitive, international en successfully it is essential that the level of remuneration and benefits offered achieves the objectives of attracting, develop motivating the necessary high quality pool of talented employees at all levels across the Group. The Group sets outtherefore t competitive remuneration to all its employees, appropriate to the business environment in the countries in which it operates. T Remuneration Committee maintains an overview of the remuneration policy for all employees, including arrangements for progressi best interests line with the level of corporate performance in policy is set to provide base salary at around the median level of the comparator group, as set out below, while providing the of the comparator level the median policy is set to provide base salary at around capacity members with the Directors and Chief Executive’s Committee to During the year the most significant issues addressed by the Committee were: the Committee were: addressed by issues the most significant year During the •

but also support the Group’s corporate strategy, a superior business performance. combines short term and policy The executive remuneration are b main components performance. The and corporate functional individual, performance-related elements that take into account and pension benefits. In the financial plan (LTIP) incentive (SMS), long term salary, annual cash bonus, share matching scheme 30 September 2006, base salary typically represented around 28 per cent Director and around 37 per cent of total remuneration for th Director and around SMS and LTIP making up the balance. balance. the SMS and LTIP making up he ive f

t the ual ual fic omparator resenting ching and ching and median of N/A. 1 year. 3 years. 3 years.

N/A. Group adjusted profit before tax and financial incremental performance (Group adjusted profit before tax, sales volume growth and gross margins.) Adjusted EPS growth. 3 elements – 50% adjusted EPS growth 25% TSR vs. FTSE 100 25% TSR vs. comparator group. remuneration policy, including award policies, performance including award remuneration policy, tax, sales volume growth and gross margins. The speci LTIP SMS ial maximum bonus was 100 per cent of base salary for the Chief Execut ial the financial year to 30 September 2006 September 2006 the financial year to 30 Percentage of base salary: Chief Executive 200%, Finance Director 150%, other Executive Directors 100%. Maximum percentage of Maximum percentage base salary: Finance and Executive Chief Director 100%, other Executive Directors 75%. of May elect to invest some or all can shares. These gross bonus in a 1:1 basis. be matched on Median of FTSE 50 excluding Median of and Financial the companies in sectors. Pharmaceutical Beneﬁts

bonus in excess of this level was subject to achievement of additional stret was subject to achievement of this level excess bonus in continued Pension Salary Supplement below and on page 57 both of which form part of this policy statement. of this policy statement. page 57 both of which form part below and on Bonus Incentivise long term delivery of Incentivise long TSR and adjusted EPS and align with interests of shareholders. Incentivise delivery of Incentivise delivery Group objectives. of improved Incentivise delivery with Group adjusted EPS and align interests of shareholders. Reward high performing employees reflecting market value and skills of role and individual’s experience. Salary 0 102030405060708090100 per cent of base salary, related to achievement of performance criteria based on Group adjusted profit before tax, set at the per cent of base salary, related to achievement of performance criteria 3 / 2 cash bonus and LTIP sections and cash bonus and suppor appropriate is satisfied that these remain vesting schedules. The Committee comparator groups and criteria, relevant Group, including the creation of shareholder value. strategy and objectives of the Package in of Directors Remuneration Key Elements In September 2006 the Remuneration Committee reviewed the executive In September 2006 the Remuneration Committee From the financial year ended September 2004, following a comprehensive remuneration review carried out during that year, more more carried out during that year, remuneration review following a comprehensive September 2004, year ended From the financial ann to the performance-relatedapplied detailed in the continue to be as elements, have been and stringent performance criteria factors including individual responsibilities, performance and external market data. It is set within a range around the market range around a is set within external market data. It and responsibilities, individual performance factors including executive. The c of the relevant and market value responsibility, effectiveness the comparator group to reflect the experience, sectors. Base salary is t Pharmaceutical and in the Financial FTSE 50 excluding companies the remains group of companies chosen to determine pensionable earnings. the package used only element of Annual cash bonus September 2006 the potent For the financial year ended 30 Directors potential bonus, to a level rep For all Executive Executive Directors. Director and 75 per cent for other and Finance 66 Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco Base salary Base salary number o detailed consideration of a Committee following by the Remuneration annually and is determined Base salary is reviewed Long term incentive plan. Share matching Share matching scheme. Annual cash cash Annual bonus. Element Base salary. Objective Award level criteria Performance period Performance Percentage of Total Remuneration Total Remuneration of Percentage to 30 year Septemberfor the financial 2006 Directors’ Remuneration Report Remuneration Directors’ beginning of the financial year. The attainment of The attainment year. of the financial beginning confidential. are considered to be commercially targets are not, as they however, disclosed incremental performance criteria relating to Group adjusted profit before criteria relating to Group adjusted profit incremental performance Dr F A Rogerson Mr D Cresswell Mr G Blashill Mr R Dyrbus Mr G Davis

54 Statutory Reports 55 Statutory Reports

– – – – – 7 16 22 76 22 37 2005 443 601 630 100 305 877 609 273 307 £’000 £’000 ent t in 2,103 1,964 1,367 1,823 1,650 6,880 7,953 The ctors.

– 5 7 22 15 15 28 85 2006 700 712 106 702 360 330 735 448 322 197 116 £’000 £’000 1,730 1,669 7,312 1,520 9,559 2,313 1,341 1,788 www.imperial-tobacco.com www.imperial-tobacco.com ecutive’s Committee members is £3.0m (2005 £2.6m). senior management for achieving relevant relevant achieving senior management for and benefit of the buyback programme, encouraging of the buyback programme, and benefit eir gross bonus in the SMS as detailed on page 61. on page 61. as detailed SMS eir gross bonus in the Finance Director and 75 per cent for other Executive Directors. Finance Director and d 30 September 2006 (audited) September 2006 d 30

2 1 1

2 2 1

Reemtsma Supervisory Boards Benefits vesting LTIP annual SMS vesting

Pension Salary Supplement former Executive Director of Contractual settlement Bonus SMS vesting Benefits Benefits Reemtsma Supervisory Boards LTIP vesting Benefits vesting LTIP annual vesting SMS annual Bonus share buyback programme, adjusted Earnings Per Share reflects both the cost reflects programme, adjusted Earnings Per Share share buyback 1. Value of sharesLTIP vesting in the year, based on the closing share price on the day of exercise. 2. Value of sharesSMS vesting on maturity based on the closing share price on the day of vesting. 3. The IFRS 2 charge to the Income Statement in respect of the share-based payments of the Executive Directors and the Chief Ex Salary Total remuneration Committee Executive’s Chief Fees of former Non-Executive Directors Non-Executive Fees of former Reemtsma Supervisory Boards Consultancy fees to former Executive Director Consultancy fees to former Executive Director respect of the other Executive Directors. Cash bonuses were also earned by other earned by also Directors. Cash bonuses were respect of the other Executive the financial year to 30 September 2006. performance targets for maximum bonus Committee has determined that the potential 2007 the Remuneration September year ending 30 For the financial of base salary for the Chief Executive and remains 100 per cent Former Executive Directors Non-Executive Directors Fees Salary Executive Directors Executive Directors Performance in the financial year has resulted in bonuses, as detailed in the table on page 56, being awarded to Executive Dire awarded to Executive being 56, on page in the table detailed as bonuses, in has resulted year the financial in Performance cen Finance Director and 58.0 per and of the Chief Executive base salary in respect 58.0 per cent of These payments represented growth as, given the Group’s curr Earnings Per Share to being based on adjusted however, be changed will, performance criterion

share buyback efficiency and further aligning Executives’ interests with those of shareholders. of shareholders. with those Executives’ interests aligning further and efficiency share buyback is guaranteed. of the bonus No element to the maximum of th may elect to invest up Directors The Executive Emoluments for theEnde Directors’ Year Base £’000 £’000 Salary/ Salary/ Fees from Fees from 1/10/2006

– 50 – 50 – – 390 7 60 40 N/A 66 85 40 N/A 77 80 75 62 N/A 40 50 33 50 Total 2005 443 244 580 – 630 720 122 923 380 945 380 262 300 £’000 £’000 7,953 2,720 835 1,712 530 6,880 2,515

4 4 4 – – 4 78 21 24 50 21 50 15 57 20 85 2006 2006 Total 712 128 876 945 994 302 £’000 £’000 1,392 1,535 9,559 2,700 1,797 7,312

3 SMS £’000 £’000

3 in connection with his appointments to Supervisory LTIP £’000 £’000 until his resignation from employment on 30 April 2005. early leaver provisions. o his duty to mitigate his loss and was paid in instalments, instalments, in paid was and loss his mitigate to duty his o erms of his agreed settlement Mr B C Davidson received a entitlement. contractual his represented This employment. om any other employment. In addition Mr B C Davidson’s B C Davidson’s Mr In addition employment. other any om pointments to Supervisory Boards within the Reemtsma Group. Group. the Reemtsma within Boards Supervisory to pointments £’000 £’000 Sub total total Sub 2 kind £’000 £’000 Benefits in in Benefits 1 £’000 £’000 Salary Salary Pension Pension Supplement £’000 £’000 Bonus

£’000 £’000 Supervisory Supervisory Board fees Board fees Fees £’000 £’000 continued

– 75 – – – 3 78 – – 78 3 – – – 75 – Base 495 – 287 – 87 502 410 16 885 355 – – 206 29 176 212 16 606 salary salary £’000 £’000 – – – – – – 4 – – 4 – – – 702 – – – – – 702 360 330 360 702 – – – – – 702 , 11 – – – – – – – – – 10 10 7 15 – – 15 – – – – – – – 24 – – 7 – 17 – – – 21 – – – 21 – – 8 8 , – – 128 – – 22 – 106 – 6 5 9 – – 21 – – 21 – – – – – 20 – – – – 20 – 6 8 Boards within the Reemtsma Group. payment of £702,000.This payment, which comprisedbase salaryinlieu of noticeplus other contractual payments,was subject t monthlyin arrears. Itwas subject Mr to Davidsonconfirming the to Company,in writing, thathe had not received emoluments fr company car was transferredto him and his rights under the LTIP and SMSvested time onapro-rata basis to his date ofleaving Mr S P Duffy Mr S Huismans Mr A G L Alexander, Chairman Joint Vice 712 – – 700 7 – – 5 – Mr M A Häussler Mr R Dyrbus, Mr R Dyrbus, Director Finance Mr G L Blashill Mr C R Day Day R Jungels C – – 57 – – 57 – – Murray H – Dr K M Burnett – – 50 Mr – – 50 – – E – P – – 50 – – 50 – – – S Dr Mr C F Knott Ms Mr D W Thursfield Mr S T Painter Mr S Huismans 2,313 – – 1,341 116 1,788 1,669 85 3,855 330 360 845 – – 37 – 106 702 Manufacturing Director Mr D Cresswell, Manufacturing 355 Dr F A Rogerson, – Corporate Affairs Director 206 – Mr B C Davidson – 167 200 17 578 Chairman Joint Mr I J G Napier, Vice – – 85 – – 85 – – – Sales and Marketing Director Director – – – – – – – – – Marketing and Sales Sales and Marketing Director Director 328 – Marketing – 190 – and 150 193 15 533 Sales 10. Mr B C Davidson resigned from the Board on 9 February 2005 and subsequently left the Company on 30 April 2005. Under the t the Under 2005. April 30 on Company the left subsequently and 2005 February 9 on Board the from resigned Davidson C B Mr 10. Mr D W Thursfield resigned from the Board on 28 October11. 2005. No sums were paid to any Director by way of taxable expenses allowances. 12. Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco 9. Mr S T Painter retired from the Board on 31 May 2000 but receives fees on a consultancy basis and in connection with his ap 1. Further details are contained in the Executive Directors’ pension section on page 64. 2. Benefits in kind principally include the provision of a company car and health insurance. 3. LTIP and SMS represent the value of awards vesting and LTIP options exercised in the year both on annual vesting and under 4. Includes payment in respect of chairmanship of Board Committees at an annual rate of £10,000. 5. Mr G L Blashill was appointed to the Board on 28 October 2005. 6. Dr K M Burnett and Mr C F Knott were appointed to the Board on 19 April 2006. 7. Mr M A Häussler resigned from the Board on 9 July 2003 but remained an employee receiving his full contractual remuneration 8. 3,015 Messrs S P Duffy and S Huismans retired from the Board on 31 January 2006. However, Mr S Huismans continues to receive fees 806 44 1,341 116 2,148 1,999 90 5,412 Former Directors Mr B C Davidson Non-Executive Directors Mr D C Bonham, Chairman – 300 – – – 2 302 – – Mr G Davis, Chief Executive Mr G Davis, Chief Executive 780 – – 452 – 21 1,253 793 654 Executive Directors Emoluments by individual Director (audited) (audited) by individual Director Emoluments Directors’ Remuneration Report Remuneration Directors’

56 Statutory Reports 57 Statutory Reports 2

30/9/06

t. ding level level nce nce items ter his element ng. ng. ement 1 e discretion Total interests interests Total ts if average if average ts www.imperial-tobacco.com www.imperial-tobacco.com 1/10/05 2 30/9/06 1 1/10/05 (LTIP and SMS shares) (LTIP and SMS shares) Contingent rights to ordinary shares shares to ordinary rights Contingent ree per cent and 100 per cent of this el 2004 and subsequent shareholder approval at the 2004 and 2 rs, Executive Directors and senior management are rs, Executive Directors and senior management 30/9/06 cent of base salary for the Chief Executive, 150 per cent for er senior management. These awards, which vest three years which er senior management. These awards, Shareholder Return (TSR) relative to the FTSE 100 Index as s element (i.e. 6.25 per cent of the total award) ves t to three times base salary for the Chief Executive and Fina and Executive for the Chief t to three times base salary 1 ture awards are split into three elements as follows: elements three ture awards are split into tive Directors with awards at a lower level for other senior managemen tive Directors with awards at a lower 1/10/05 2 and any connected persons interests) (audited) (audited) interests) persons and any connected inflation (Real Annual EPS Growth), equals th EPS (Real Annual inflation a comprehensive remuneration review in a comprehensive remuneration 30/9/06 1 base salary, dependent upon grade. Failure to meet the minimum shareholding is taken into the minimum shareholding to meet Failure base salary, dependent upon grade.

these holdings since 30 September 2006. holdings these agement are aligned with those of shareholde agement are aligned with those of Ordinary shares Sharesave options 1/10/05 Executive share retention Executive share To ensure the interests of man hol a to build of five years from appointment they are required period Over a guidelines. minimum shareholding required to meet and 100 per cent for the other Execu Director the Finance 1. Or date of appointment if later. 2. Or date of resignation if earlier. in There have been no changes Mr D C Bonham Mr I J G Napier Mr A G L Alexander Dr K M Burnett Mr C R Day 124,600 Mr S P Duffy 132,710 124,600 Mr S Huismans 3,662 132,710 Dr P H Jungels Mr C F Knott 4,305 Ms S E Murray – – Mr D W Thursfield – 621 8,825 5,820 2,362 134 – – 1,016 8,825 5,820 – 2,684 400 856 – – – – – – – 722 856 134 – – – – – – – – – – – – 124,600 – 132,710 124,600 – 132,710 – – – – – – – 3,662 – – 4,305 – – – – – – – 8,825 5,820 621 – 2,362 8,825 5,820 – – 1,016 – 2,684 134 400 856 – 722 856 134 Mr G Davis Mr R Dyrbus Mr G L Blashill Mr D Cresswell Dr F A Rogerson Non-Executive Directors 319,181 206,703 330,289 85,224 213,944 89,861 84,093 90,885 89,894 1,979 88,831 1,049 1,979 807 2,008 2,008 776 250,036 2,008 807 2,008 158,527 291,791 170,047 571,196 91,567 59,550 93,274 366,279 624,059 104,650 105,080 384,767 71,646 183,436 179,375 145,581 196,552 195,919 163,338 Executive Directors Executive Directors Directors’ interests in shares (beneficial, family family in shares (beneficial, interests Directors’

described below. in the Group’s shares to a current minimum value broadly equivalen minimum value shares to a current Group’s in the invest at a to are expected the other Executive Directors. Other senior management Director and twice base salary in respect of and twice equivalent to between once shareholdi exceed their required currently for futuredetermining eligibility LTIP awards. All Executive Directors account when Long Term Incentive Plan (LTIP) Directors and oth the LTIP to Executive are made under awards Annual period. All grants are at th performance year criteria over a three performance of subject to the satisfaction after grant, are to receive has a right any such grant. no employee Committee and of the Remuneration lower Awards granted and at a prior to November Directors 2005 were equivalent to 75 per cent of basic salary for all Executive for other senior management. Following for other senior management. 2005 AGM, awards made in November 2005 were equivalent to 200 per 2005 AGM, awards made in November 2005 were equivalent to 200 Current structure The performance criteria for the November 2005 and proposed fu adjusting for inflation over the period of the award. 12.5 per cent of thi annual EPS annual EPS growth, after for UK adjusting (i.e. 50 per cent of the total award) vests if Real equals Annual EPS Growth exceedsor 10 per cent. Between these two points t basis. a straight-line on vests Second element on Total criterion based a performance 25 per cent of the award with First element 50 per cent of the award with a performance criterion based on average growth in basic Earnings Per Share adjusted for certain based on an agreed protocol, such as significantas costssuch of restructuring agreed protocol, (EPS).basedon an adjustments The are confirmed by the Auditorsaf l

ese

tor y only of dex. ble ard.

e luding clared than t any time r several mainder he t vests on ement Company in itial and closing prices rather itial on a straight-line basis. on a straight-line basis. companies constituting the FTSE 100 In the companies constituting ree of the comparator group, this el ree of the comparator l award) vests. If the return ranks the l award) vests. If the return full. Between these thresholds this elemen these full. Between time pro-rata basis, subject to the achievement of th achievement of time pro-rata basis, subject to the depending on TSR achieved over the period of the aw depending on TSR months to determine the in g occurred unless Real Annual EPS Growth was positive and full g occurred unless Real Annual the Auditors. No vesting occurs unless the Company’s Real Annua occurs unless the Company’s Real the Auditors. No vesting e Company in the top th the top e Company in ire the relevant number of shares. The option may be exercised a The option may number of shares. the relevant ire ese thresholds this element vests ese thresholds this element

y’s TSR ranks it in the top 50 of the 50 of the top y’s TSR ranks it in the this element (i.e. 7.5 per cent of the tota this element (i.e. 7.5 discretion to vary, but not increase, the extent to which any awards vest to ensure the any awards which the extent to discretion to vary, but not increase, continued (i.e. 25 per cent of the total award) vests in (i.e. 25 per cent of the Committee reviewed the performance criteria, award policy, comparator groups and vesting policy, criteria, award Committee reviewed the performance Any outstanding awards would vest on a Any outstanding is assumed that the cash flow of dividend payments is recognised on the date the shares are de the shares are on the date recognised is dividend payments the cash flow of is assumed that schedules for LTIP awards and decided that the three elements remain the most important measures that drive and measure drive and measure measures that important most remain the for LTIP awards and decided that the three elements schedules performance the appropriate FTSE sec comparative against in shareholder value. The TSR criteria reflect improvement sustainable weeks before it effectively impacts on the TSR calculations. All share prices and dividend flows are converted to sterling on t flows dividend and on the TSR calculations. All share prices effectively impacts weeks before it investor. a UK based by achievable return reflect the to ensure that the calculations applicable date themselves are performed independently by Alithos Limited. The TSR calculations of vesting regardless of the Company’s performance in respect of the is capable and independently operates Each element other elements. the Remuneration During the year Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco group comprising 12 tobacco and alcohol companies as detailed below. At this performance threshold, 30 per cent of this element per cent of this threshold, 30 group comprisingthis performance 12 tobacco below. At as detailed and alcohol companies th total award) vests. If the return ranks (i.e. 7.5 per cent of the Pernod Ricard SA made. For will be replacement a suitable an award prior to the granting of acquired is group companies If one of the comparator Reynolds American Inc SABMiller PLC Scottish & Newcastle PLC Diageo PLC PLC Gallaher Group Imperial Tobacco Group PLC SA Interbrew No vesting of this element occurs unless the Company’s TSR exceeds that of the bottom six companies constituting the comparator that of the bottom six companies constituting occurs unless the Company’s TSR exceeds No vesting of this element to mirror the actions would be period the intention a comparator group company during an award any corporate actions affecting for the re would be held the original company for in exchange shares offered the new bid equity a passive investor, e.g. for an of the award period. over a period of three prices averaged The TSR calculations use share The performance criterion for this element is based on a sliding scale depending on TSR achieved over the period of the award. period of the award. TSR achieved over the on depending on a sliding scale is based element criterion for this The performance Directors’ Remuneration Report Remuneration Directors’ No vesting of this element occurs unless the Compan No vesting of this element At this performance30 per cent of threshold this element the top 25 of the Index, a straight-line basis. Third element comparator groupon TSR relative to a bespoke below. criterion based as described a performance with 25 per cent of the award sliding scale on a also based is for this element The performance criterion a single day. It those ruling on ex dividend. This method is considered to give a fairer and less volatile result as improved performance has to be sustained fo to be sustained has volatile result as improved performance less and method is considered to give a fairer ex dividend. This a key part of the Group’s strategy to create sustaina companies. The EPS criterion reflects comparator group of and the bespoke shareholder value. shareholder value. Awards outstanding under the historic structure December 2000 and criterion. This was seen as For awards granted between November 2004, EPS growth was the sole performance influence. could exercise Directors and senior management over which performance of the business, financial focusing on the Per Share adjusted under the terms of the Earnings on average growth in basic scale depending These awards vest on a sliding by protocol described above. The EPS calculations are confirmed th Growth is equal to or exceeds 10 per cent. Between Annual EPS Full vesting occurs if Real cent. EPS Growth exceeds three per (i.e. 25 per cent of the total award) vests in full. Between th (i.e. 25 per cent of the Altadis S A Altria Group Inc British American Tobacco PLC Carlsberg A/S two points the award vests on a straight-line basis. two points the award vests on a straight-line vested in November 2005, no vestin In respect of the award which vesting occurred if Real Annual EPS Growth was equal to or exceeded 10 per cent. Vesting of awards On vesting a participant is granted a “nil cost” option to acqu vest, and at an appropriate level, if there has been an improvement in the underlying financial performance of the Company, inc performance financial underlying improvement in the been an has there appropriate level, if vest, and at an up to the seventh anniversary of its date of grant. performance criteria are not achieved. the There is no opportunity to re-test if any of has absolute The Remuneration Committee the maintenance of long term return on capital employed. return on capital of long term the maintenance would come to period performance the relevant Tobacco Group PLC is acquired, that Imperial in the event LTIP Rules, Under the an end on the date of acquisition. applicable performance criteria. criteria. applicable performance

58 Statutory Reports 59 Statutory Reports

period November November– Performance Performance 2003-2006 2004-2007 2004-2007 2005-2008 2005-2008 2003-2006 2004-2007 2005-2008 2003-2006 2004-2007 2005-2008 2003-2006 2004-2007 2005-2008 2003-2006 2002-2005 2002-2005 2002-2005 2002-2005 2002-2005 – – – – – 30/9/06 30/9/06 9,912 8,600 26,974 45,975 21,981 40,493 21,760 19,351 21,981 63,092 21,760 19,351 21,981 63,092 47,872 42,513 96,594 30,464 Balance at at Balance www.imperial-tobacco.com www.imperial-tobacco.com 103,413 186,979 £’000 £’000 Amount Amount exercise realised on realised £ exercise 50 per cent on EPS; EPS; 50 per cent on against FTSE 100; TSR 25 per cent on against TSR 25 per cent on comparator group at date of at date

• • • Market price Market price £ date of vesting date Market price at at Market price in full. Real Annual EPS Growth over the period averaged Real Annual EPS in full. year Vested during during Vested £ grant at date of at date Market price Market price er the Long Term Incentive Plan (audited) er the Long Term Incentive 200 for Chief Executive; 200 for Chief Executive; 150 for Finance Director; Directors 100 for other Executive

• • • Date of grant Date of grant any Directors’ awards since 30 September 2006. any Directors’ awards since 30 Granted during year year during

1 1/10/05 Balance at Balance 8,600 – 9/11/04 12.79 – – – – – 12.79 – – – – 16.15 – 9/11/04 2/11/05 – 8,600 21,981 – 87,156 45,975 (29,718)– – – 16.15 – 2/11/05 45,975 45,975 87,156 – (8,863) 21,981 27,375 – – – 12.79 – – – – 16.15 – (9,906) 9/11/04 2/11/05 21,981 – 19,351 21,981 51,017 – – – 12.79 – (10,427) – – – – 16.15 – 9/11/04 2/11/05 21,981 – 19,351 21,981 51,538 – 42,513 – 9/11/04 12.79 – – – – 12.79 – (46,923)– – – 16.15 – 9/11/04 96,594 2/11/05 – 42,513 96,594 137,308 – – – 12.79 – – 9/11/04 – 26,974 During the year, the November 2002 – November 2005 award vested During the year, the November 1. Or date of appointment if later. in There have been no changes 19.20 per cent, exceeding the average 10 per cent threshold at which the award maximised. average 10 per at which the award 19.20 per cent, exceeding the cent threshold Rogerson 10,427 – 25/11/02 9.59 (10,427)176 16.90 9.59 17.14 25/11/02 Dr F A – – – 10.34 – Rogerson 10,427 – 18/11/03 – 21,760 Cresswell 9,906 – 25/11/02 9.59 (9,906) 17.14 16.90 167 (9,906)16.90 9.59 17.14 25/11/02 Mr D – – – 10.34 – – Cresswell 9,906 18/11/03 – 21,760 9,912 – 18/11/03 10.34 – – – – 10.34 – 18/11/03 – 9,912 Blashill 8,863 – 25/11/02 9.59 (8,863)17.14 16.90 150 16.90 (8,863)17.14 9.59 25/11/02 – Mr G L Blashill 8,863 30,464 – 18/11/03 10.34 – – – – 10.34 – Mr R Dyrbus 18/11/03 29,718 – 30,464 – 25/11/02 9.59 (29,718) 17.14 16.90 502 – – – 10.34 – Mr G Davis 18/11/03 46,923 – 47,872 – 25/11/02 9.59 (46,923) 17.14 16.90 793 Executive Directors’ conditional share awards und conditional share awards Executive Directors’ 1996 – 1999 2000 – 2004 2005 onwards Directors 75 for all Executive Directors 75 for all Executive 100 per cent on TSR 100 per cent on EPS Award summary Award summary Years Award Base Salary of as Percentage Award Criteria Performance

ce o

£’000 £’000 £’000 £’000 be ntained ntained tions e date Award vesting Illustrative value Illustrative Illustrative value value Illustrative No. of shares of shares No. Award vesting Award vesting No. of shares over over shares of No. which option granted granted which option ial year, 100 per cent of the award ial year, 100

chmarking the corporate performan – 47,872 – 30,464 888 – 9,912 565 184 – 21,760 – 21,760 403 403 t performance period, there would £’000 £’000 No. of shares of shares No. Award lapsing Illustrative value Illustrative based upon interim measurement calcula based upon interim

the end of the financ the end of 2007 and the November 2005 – November 2008 awards to be 2007 and the compared with the FTSE 100 Index is set out below. compared with the 29 Sep 06 erage EPS Growth period t was 8.7 per cent in the performance d widely recognised index for ben d widely recognised index for were maintained over the relevan 2007 November of shares No. vesting awards Potential 2008 November 30 Sep 05

30 Sep 04 first with the three part performance criteria, performance criteria, with the three part first continued t of that index and reflects the benchmark index used as an LTIP performance criterion. an as used index index and reflects the benchmark t of that 30 Sep 03 FTSE 100 Return Index 30 Sep 02 Imperial Tobacco 28 Sep 01 Total return indices – Imperial Tobacco and FTSE 100 Total return indices – Imperial Tobacco and FTSE of the Company, which is a constituen The FTSE 100 Indexprovide the most appropriate an is seen to relevant performance period. are as follows; criteria performance price and the above share on values based The illustrative prepared as at 30 September 2006 partial vesting of 38.6 per cent of the first element would occur if this performance were mai prepared as at 30 September would occur if this performance element vesting of 38.6 per cent of the first 2006 partial maintained over th is performance current if the lapse will elements and third The second period. over the relevant performance Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco 0 100 the end of September 2006 and, therefore, if this performance the end of September 200 Evidence of the Group’s sustained performance on a TSR basis when Evidence of the Group’s sustained performance 300 400 Mr G Davis Mr R Dyrbus Mr G L Blashill Mr D Cresswell Dr F A Rogerson 32,795 20,808 6,634 14,927 14,927 608 386 123 277 277 18,629 8,867 4,239 4,239 4,239 345 164 79 79 79 Mr G L Blashill Mr G L Blashill Mr D Cresswell Dr F A Rogerson movements. to share price shown due vesting could vary significantly from that any awards The value of November 2004 – The Remuneration Committee regards the November above. projected too distant from maturity to be included in the value However, in respect of the 2004 – 2007 award, the adjusted Real Av of the award. partial vesting of 77.1 per cent In respect of the 2005 – 2008 award, the Mr G Davis Mr R Dyrbus In respect of the November 2003 – November the November 2003 In respect of to EPS award, based 2006 on Directors’ Remuneration Report Remuneration Directors’

will vest on 18 November 2006. For illustrative purposes only, the share price on 27 October 2006, being the latest practicable 27 October the share price on purposes only, 2006. For illustrative will vest on 18 November awards as follows: £18.54 valuing the prior to publication, was

60 Statutory Reports 61 Statutory Reports ure e is no

ipant d

ed Real ed Real eration indicator www.imperial-tobacco.com www.imperial-tobacco.com d the majority of the Group’s majority of the d the as that applying to the LTIP. There as that applying to the s to 12 August 2007. n over the three year retention period, being an n over the three year retention e SMS from their bonus paid in December 2003 and from their bonus paid in December 2003 e SMS for fut y to create sustainable shareholder value. Under the schem the Under shareholder value. y to create sustainable on invites Executive Directors an on invites Executive Directors met. In setting the performance criterion for SMS awards, the Remun for SMS awards, setting the performance criterion met. In tained for the full five year tained for measurement is based on the same protocol on the measurement is based the participant remains an employee in the Group, the shares will be matched on a sliding scale from 20 per cent for one year’s scale on a sliding will be matched the shares the Group, in employee an the participant remains retention to a maximum of 100 per cent if they are re retention to a maximum of 100 per cent if they Rules, should Imperial Tobacco Group PLC be acquired, the performance period would come to an end on the date of acquisition. acquisition. on the date of to an end would come performance period the acquired, Tobacco Group PLC be Imperial Rules, should performance criterion. the applicable of achievement to the pro-rata basis,Any outstanding awards would vest on a time subject Centenary scheme The Imperial Tobacco of of the founding centenary and to mark the retain a shareholding, To encourage employees to acquire and employed on owned subsidiaries of the Company and its wholly all employees Ireland) Limited, Company (of Great Britain and up to £3,000 worth PLC of Imperial Tobacco Group purchase to were invited 10 December 2001, the date of the centenary, the Trust an left with are Benefit Trust or its nominee. Provided these shares with the Employee Ordinary Shares and lodge them Committee decided that EPS reflects a key part of the Group’s strateg EPS reflects a key part Committee decided that of sustained ongoing profit delivery. Achievement of sustained ongoing opportunity to re-test criterion is not if this performance management to invest any proportion of their gross bonus in Imperial Tobacco Group PLC Ordinary Shares to be held by a nominee a nominee to be held by Ordinary Shares Tobacco Group PLC Imperial any proportion of their gross bonus in management to invest years and the partic three for nominee are left with the shares lodged that the Benefit Trust. Provided managed by the Employee Share Matching Scheme (SMS) (SMS) Scheme Share Matching Annual scheme absolute discreti at its Committee Under the SMS the Remuneration

remains an employee in the Group, they will be matched on a one for one basis. they will be matched on a one in the Group, employee remains an under th investments made by Executive Directors However, in respect of has achiev the Group only occur if matching will that such shares to the matched applied criterion will be years, a performance after adjusting for UK inflatio of three per cent in excess Average EPS Growth

rs .

the August 2007 August 2007 August 2007 August 2007 August 2007 January 2007 January 2008 January 2007 January 2008 January 2007 January 2008 January 2007 January 2008 January 2007 January 2008 January 2006 January 2006 January 2006 January 2006 January 2006 February 2009 February 2009 February 2009 February 2009 February 2009 Expected vesting date year – – – – – ring the transition 294 294 294 294 294 9,211 10,701 31,153 13,262 14,893 13,109 41,558 13,692 14,893 13,109 41,988 36,761 36,059 31,698 23,282 22,947 20,111 66,634 10,947 30/9/2006 30/9/2006 Balance at at Balance 104,812

– – – – – – – – – – – – – – – – – – – – retention period. This performance retention 200 212 654 410 193 £’000 £’000 on vesting Amount realised Amount

£ – – – – – – – – – – – – – – – – – – – – 16.50 16.50 16.50 16.50 16.50 29/1/2006 date of vesting Market price at ensure consistent measurement du measurement ensure consistent ny is required to account under International Financial under International ny is required to account l EPS Growth over the Vested during year year during are Matching Scheme (audited) (audited) Scheme are Matching £

15/2/2006 er both SMS schemes are set out below: schemes are er both SMS date of grant of date Market price at at Market price contingent rights since 30 September 2006. ed in the financial year to 30 September 2002 and SMS for a three-year in the financial year lodged under the ed continued Contingent rights arising arising rights

1 rights to sharesSh under the 1/10/2005 Balance at Balance

14,893– – – 14,893 – – – 36,059 – – – 22,947– – – – 9,211 – – – 13,109 17.52 – – 17.52 17.52 13,109 13,109 – – – 294 – – 294 – – – – 31,698 17.52 – – 17.52 17.52 31,698 20,111 – – 294 – – – – – – 294 – – – 294 – 10,701 17.52 – 17.52 10,701 – 32,175 10,701 (11,723) (12,101) 10,701 (12,857) 13,109 32,175 13,109 40,550 41,736 112,728 31,698 (39,614) (24,848) 31,698 20,111 112,728 71,371 period matured, providing matched shares for participants on a 1:1 basis. period matured, providing matched shares Directo to 30 September 2005 and paid in December 2005, the Executive the financial year In respect of annual bonuses earned in Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco 1. Or date appointmentof if later. in any Directors’ no changes There have been 2006, annual bonuses earn During January Dr F A Rogerson 12,857 13,692 – – – – – (12,857) 13,262– – – Mr D Cresswell 12,101 – – (12,101) 10,947– – – Mr G L Blashill Mr G L Blashill 11,723 – – (11,723) Mr R Dyrbus 24,848 23,282– – – – – (24,848) Mr G Davis 39,614 36,761– – – – – (39,614) The Executive Directors’ rights to shares arising und Directors’ rights The Executive Executive Directors’ contingent Executive Directors’ Directors’ Remuneration Report Remuneration Directors’ elected, in February 2006, to invest their entire bonus in the form of Imperial Tobacco Group PLC Ordinary Shares under the SMS of Imperial Tobacco bonus in the form elected, in February 2006, to invest their entire remains an employee in the SMS for three years, the participant 1:1 basis provided they are left in on a matched These will be Group and the Company has achieved in excess of 3 per cent Real Annua in excess Company has achieved Group and the deemed to remain during the year and by the Committee and vesting schedules were reviewed criterion and the award policy within Contingent rights arising above. appropriate. These matching shares are shown financial the in earned entire bonus their invest again 2007, the Executive Directors will February that, in It is anticipated to 30 September SMS. Shares under the 2006 in the form of Imperial Tobacco Group PLC Ordinary and SMS on LTIP Impact of IFRS the Compa where ending 30 September 2006 is the first year The financial Reporting Standards adjusted to (IFRS). All performance criteria have been to IFRS.

62 Statutory Reports 63 Statutory Reports

2005 ees £’000 £’000 ial ial gs-

Surplus / / Surplus (Shortfall) (Shortfall) 3 e of an ing £’000 £’000 any’s Gains on exercise Gains on Award at 30/9/2006 30/9/2006 www.imperial-tobacco.com www.imperial-tobacco.com Shares under Shares under during the year the during

2 30/9/2006 Balance at Balance 30/9/2006 Range of exercisable Range of exercisable dates of options held at at held of options dates e. Aggregate gains during the year were £6,203 (2005: nil). Distributed Distributed during year year during £ exercise of share options and on the vest of share options and on the exercise price Exercise Purchased during year year during ld by that Trust at 30 September 2006. 29 September 2006, being the last trading day of the financ 29 September 2006, being the last in Treasury which may be used to satisfy awards under the Balance at Balance 30/9/2006 tion in the Register of Directors’ Interests at the Comp £ Balance at Balance 1/10/2005 exercise at date of at date Market price Market price price during the year was £15.47 to during the year £18.43. price established to acquire Ordinary Shares in the Company, by subscription or Company, by Shares in the acquire Ordinary established to year Exercised during the the during to satisfy rights to shares arising on the to satisfy rights to during during the year Granted Ordinary Shares of the Company he the Ordinary Shares of any Directors’ share options since 30 September 2006. any Directors’ share options

1 options (audited) (audited) options 1/10/2005 Balance at Balance

Details of the shareholdings by the Employee Benefit Trusts are as follows: Benefit Trusts are the Employee Details of the shareholdings by a contingent interest in the 905,542 of the SMS and LTIP awards. As potential beneficiaries of the Executive Trust, each of the Executive Directors is deemed to hav Executive Directors Executive Trust, each of the of the SMS and LTIP awards. As potential beneficiaries of the year, was £17.80 and the range of the middle market market year, was £17.80 and the range of the middle Full details of the Directors’ share interests are available for inspec registered office. Award Dates cycle. dates based on an annual on predetermined share plans all its employee It is the Group’s policy to grant awards under Trusts Employee Benefit Group PLC 2001 Benefit Trust (the Executive Trust) and the Imperial Tobacco The Imperial Tobacco Group Employee and Executive Trust (the 2001 Trust) have been Employee Benefit from funds provided by the Group purchase, share plans. share plans. Executive Trust Executive Trust 2001 As at 30 September 2006, the held 46,004,000 shares Company also 929,837 259,735 284,030 905,542 886,994 18,548 (1,370,298) 2,096,700 3,102,009 1,857,908 3,340,801 4,711,099 There have been no changes in There have been no changes the close of business on share price at The Company’s middle market 2,008 – – – 2,008 – – – – – 2,008 – – – Dr F A Rogerson 2,008 1. Or date of appointment the to Board if later. 2,008 2. Any option not exercised by the end of the range of exercisable dates will expire. 3. Gains made on exercise, calculated as the difference between the exercise price and the market price on the date of exercis – – – 2,008 8.24 1/8/07 – 31/1/08 – – 807 – – – 807 – – – – – – – – 807 2,008 – – – – – – 807 Mr D Cresswell 2,008 2,008 – – – 2,008 8.24 1/8/07 – 31/1/08 – – Mr G L Blashill Mr G L Blashill 807 – – – 807 11.73 1/8/08 – 31/1/09 – – 1,979 – – – 1,979 – – – – – 6 – – 1,979 776 – – – (675) – 402 1,979 Mr R Dyrbus 1,049 675 774 – – (675) 374 17.41 – – – 402 – – – 8.22 – 1/8/06 – 31/1/07 774 – – 8.22 6 1/8/08 – 31/1/09 374 402 10.08 13.95 1/8/07 – 31/1/08 – – 1/8/09 – 31/1/10 – – – – – Mr G Davis 1,205 – – – 1,205 8.24 1/8/07 – 31/1/08 – – Share options Share options employ are eligible (along with all Executive Directors However, share option scheme. not operatedoes The Company an executive Imperial Tobacco Group PLC’s savin in subsidiariesof the Company and participating possible) to participate of the Group where

related Sharesave Plan. Under this Plan options are granted, at a discount of up to 20 per cent to the closing mid-market price to 20 per cent to the up a discount of this Plan options are granted, at Under related Sharesave Plan. to participants who have Exchange on the day prior to invitation, Stock Ordinary Share on the London PLC Imperial Tobacco Group contracted to save or five years. up to £250 per month over a period of three share Executive Directors’ ion on s. ives the tional

al llows order hare and ge. To with ecutive

der the of the tlement n to 10 years der the rulesder the egate total of nal pension nal f their pension 5 per cent. 2.9 0.3 2.9 0.3 1.4 Current awards (%) awards Current (%) year during in awards Increase d schedule 7A to the Companies Act 1985 and g d schedule y in Treasury in order to satisfy vesting awards. in order y in Treasury be subject to a large retrospective recovery char discounted for early payment and employers Nation y’s share plans totals under 3 per cent of its issued share y’s share plans totals contributory with a normal retirement age of 60. The fund a contributory with a normal retirement he had left at service the year end (any potential UURBS enti ry is payable together with a spouse’s pension of two-thirdsry is payable together with a spouse’s pension nue & Customs (HMRC) which abolished most of the detailed limits & Customs (HMRC) which abolished nue April 2006 to be paid from the fund. In this event an additio the paid from April 2006 to be their salary at normal retirement age after 32 years’ service. Pension 32 years’ service. Pension age after retirement at normal their salary

er value so that they would not they er value so that continued final salary. These supplements were provided with shares held by the Compan held by with shares provided the annual accrued pension payable on retirement calculated as if is included); un required of the disclosure respect in increases for inflation any the year, excluding during accrued pension in the increase Listing Rules; and note GN11. guidance actuarial the accordance with in calculated pension in accrued increase of the the transfer value

arrangements allowed them to register the high arrangements allowed them to register the will be paid by the Company through an unfunded unapproved retirement benefit scheme (UURBS) so that the full accrued benefit accrued the full so that scheme (UURBS) unapproved retirement benefit unfunded through an by the Company will be paid may be provided. pension service of future paid in lieu supplement is of a salary supplement. The Mr R Dyrbus and Dr F A Rogerson are in receipt to surrender part of a pension inorder for the annual increase to be in line with the increase in the Retail Prices Index to 1 by HM Reve From 6 April 2006 a new tax regime was introduced Lifetime now has a member Each approach. with a more simplified them replaced previously imposed on pension schemes and the value o at retirement if levied the recovery charge, is called a new tax, set at £1.5 million and Allowance (LTA) initially LTA, transi 2006 exceeded the 6 April any member whose totalFor benefit value on this amount. sources exceeds benefit from all than no greater of benefit provide an accumulation actuaries to by independent calculated was supplement salary accrual. Each promise of two-thirds of a total pension and for Dr F A Rogers Dyrbus is 35 per cent of salary The supplement for Mr R are non-compensatory. contributions and Insurance payments. non pensionable amounts are is 16.4 per cent of salary. These an the Listing Rules by both provides the information required The following table to retain a final salary linked pension entitlement in respect of past service. in respect of entitlement pension salary linked to retain a final current Ex of the However, each of 60. age a normal retirement with standard scale benefits on the earn All Executive Directors protection for enhanced registering of as regards future service accrual as a result Directors has opted out of fund membership permissible in some rare circumstances may not be protection mean that it governing enhanced rules HMRC HMRC. The detailed pension based on service up to 6 salary linked for the full final member’s expected pension at retirement. For death in retirement, a spouse’s pension of two-thirds of the member’s pre-commutat pension of a spouse’s retirement, death in retirement. For pension at member’s expected receive allowances. also will children Dependent pension is payable. Pensions increase annually by the lesser of 10 per cent and the in increase the Retail Prices Index, together with an option un accrual in as regards future service opt out of fund membership was required to protection the member qualify for this enhanced Director of: details for each • members to achieve the maximum pension of two-thirds of of two-thirds members to achieve the maximum pension is permitted. retirement on a lump sum to receive participants commutation to enable sala to four times For death before retirement a capital sum equal None of the Directors has made additional voluntary contributions. has made additional voluntary contributions. None of the Directors • • Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco Group. For members who joined prior to 1 AprilGroup. For members who joined prior to 1 2002 the fund is non- 5% in 5 years 5% in 10 years (executive schemes) Executive Directors’ pensions Executive Directors, provides the optio all current applies to Post pension policy, which 6 April 2006 (‘A’ day) the Group’s UK 1.4 0.1 The Trust Deeds and the Rules of all plans contain provisions limiting awards to five per cent in five years and 10 per cent in 10 per cent in five years and awards to five contain provisions limiting of all plans and the Rules The Trust Deeds in 10 years for executive an aggr per cent five plans. Currently restriction to an additional with share plans for all employee s employee executive and all the Group’s subject to awards under all capital is Company’s issued share only 0.8 per cent of the awards on Limit 10% in 10 years of lieu in supplement or receive a salary the UK Imperial Tobacco Pension Fund of or join (new employees) maintain membership the Fund. membership of by scheme operated defined benefit members of the Imperial Tobacco Pension Fund, the principal Directors are all The Executive Share plan flow rates Share plan Trust through the purchased shares been to satisfy from market has always The Company’s policy awards under its share plans all Directors’ Remuneration Report Remuneration Directors’ plans. In future the Trust may also be the Trust plans. In future Since demerger in 1996 the cumulative awards under all of the Compan Since demerger in 1996 share capital. per cent of issued averaged 0.3 grants have subsequent annual on demerger, grants initial Following capital. awards outstanding: Summary of current

64 Statutory Reports 65 Statutory Reports wn £’000 £’000 the value of value of of Transfer Transfer he he ction ation of inflation) e rman ons xecutive potential increase (net (net increase irman of eria. If, d lapses. r reduce eir fees be year £’000 £’000 accrued during the the during of inflation) Increase in pension (net (net pension www.imperial-tobacco.com www.imperial-tobacco.com At 30/9/06 At 30/9/06 discussions relating to their o discussions relating Director’s Director’s contribution contribution Increase Director’s Director’s during the the during year net of year net contributions contributions ation Report Regulations 2002 2002 Regulations Report ation Rules Listing ding the use of Company offices by the Chai use of Company offices by the ding the At by either party giving 52 weeks’ notice, as shown in party giving 52 weeks’ notice, by either 1/10/05 1/10/05 eholders, it was agreed that a proportion of th eholders, it was agreed that a (including following a change of control) within Executiv of control) a change following (including At tive Directors do not take part in do not tive Directors 30/9/06 30/9/06

of contract Date date Expiry year Increase during the the during At 1/10/05 1/10/05 d provision of administrative support inclu of administrative d provision Years 30/9/06 30/9/06 service at at service Non-Executive Directors with those of shar Non-Executive Pensionable Pensionable y such payments should be paid monthly in arrears. paid monthly in y such payments should be Executive Directors Years Age at 30/9/06 30/9/06 service agreements Remuner Directors’ under required Disclosures £’000 Accrued pension £’000 pension accrued of value Transfer 28 October 2005 52 weeks’ notice on Terminable 1 each Non-Executive Directorship. Exceptionally, in respect of Mr D C Bonham and Mr A G L Alexander, this requirement has been requirement L Alexander, this and Mr A G Mr D C Bonham in respect of Non-Executive Directorship. Exceptionally, each above. of investment, as detailed level waived due to their continued Mr D C Bonham and Joint Vice Chairman Mr A G L Alexander), do not participate in the Company’s share plans, bonus schemes or share Company’s do not participate in the A G L Alexander), Mr Chairman Vice and Joint Mr D C Bonham scheme membership. not eligible for pension and are incentive plans the the interests of To align further the term during by a nominee to be held shares are shares in Imperial Tobacco Group PLC. These to purchase applied, after tax, Mr D Cresswell Dr F A Rogerson 30 May 2003 30 May 2003 52 weeks’ notice Terminable on 52 weeks’ notice Terminable on with their directorship of the Company an with their directorship remuneration. They receive no other material pay or benefits (with the exception of reimbursement of expenses incurred in conne incurred of expenses reimbursement of pay or benefits (with the exception other material receive no remuneration. They Fees for Non-Executive Directors are determined by the Board as a whole with regard to market practice and within the restricti to market practice and regard as a whole with are determined by the Board Directors Fees for Non-Executive 1. Mr G L Blashill was appointed to the Board on 28 October 2005. Remuneration Policy for Non- Executive Directors Executive Directors Mr G Davis Mr R Dyrbus Mr G L Blashill 21 August 1996 21 August 1996 52 weeks’ notice Terminable on 52 weeks’ notice Terminable on contained in the Company’s Articles of Association. The remuneration of the Chairman is determined by the Board following Non-Execu Committee. The from the Remuneration recommendation The transfer values disclosed above do not represent a sum paid or payable to the individual Director. Instead they represent a represent to the individual paid or payable do not a sum The transfer values disclosed above Mr D Cresswell Dr F A Rogerson Mr G L Blashill 61 53 59 43 29 220 197 38 17 183 18 237 53 215 4,669 2,404 236 160 3,498 708 1,398 – – 4,829 – 3,112 4,896 12 14 45 241 209 941 Mr G Davis Mr R Dyrbus 56 53 34 24 483 228 37 22 520 250 7,225 2,808 1,699 838 – – 8,924 3,646 26 18 446 257 Executive Directors’ Pension Disclosures (audited) (audited) Directors’ Pension Disclosures Executive Agreements Executive Directors’ Service

liability of the pension scheme. scheme. liability of the pension Benefits insurance. health cars and Executive Directors are the provision of company for benefits taxable The principal policy is to stop o every case. The Group’s in opportunity to mitigate account duty and loss are taken into and an individual’s employment during the other compensatory they receive remuneration from payments to former Directors to the extent that an period and that compensation awar full individual’s an in the Rules than one of those specified for a reason other however, the termination of employment is Under the Rules of the LTIP and SMS, outstanding awards vest on termination for certain reasons, such as death, retirement, retirement, such as death, termination for certain reasons, awards vest on Under the Rules of the LTIP and SMS, outstanding crit performance to satisfaction of the relevant a time-related pro-rata basis subject control, on on a change of redundancy or Directors’ service agreements. However, the Group is unequivocally against rewards for failure. The circumstances of the termin circumstances for failure. The against rewards Group is unequivocally However, the Directors’ service agreements. Company. At the discretion of the Board, Executive Directors are permitted to retain fees received in respect of any such non-e of any such in respect Directors are permitted to retain fees received Executive Company. At the discretion of the Board, Remuneration from other Non-Executive Directorships Directorships Remuneration from other Non-Executive for both the Executive Director concerned and t directorships are beneficial external non-executive that The Company recognises directorship. Each serving Executive Director is restricted to one external non-executive directorship and may not serve as cha Director is restricted to onenon-executive directorship and may directorship. Each serving Executive external a FTSE 100 company. of £65,000 per annum. fees and currently receives PLC Mr G Davis serves on the Board of Wolseley Executive Directors’ under service agreements terminable Directors The Group appoints Executive table below. termination for compensation on provisions There are no predetermined

h d

or on on h ice oup’s lection ed his Board hours those re of the eir letters isions of the ompensation ompensation per cent of unfunded UK company UK company unfunded pervisory Boards within the Board at the AGM in January 2006, having bot Board at the AGM in January 2006, having March 2007. He is also entitled to reimbursement March 2007. He is nsion agreement the nsion agreement Directors, the Board is supportive of the best pract Directors, the Board is supportive of the best to March 2007. Under the terms of the agreement he provides 2007. Under the terms of the agreement he provides to March Board considers a Non-Executive Director is making a particularly considers a Non-Executive Director is making a particularly Board Huismans remains a member of Su remains Huismans rate of £1,000 with a minimum fee based on 100 days service for eac rate of £1,000 with a

receive payment until the theirdate appointment ends and therefore no c continued d 67 days for the period 1 July 2006 to 6 d 67 days for the period 1 vited to remain on the Board in excess of nine years. In such instances the length of tenu the length instances nine years. In such in excess of vited to remain on the Board maximum term of appointment for Non-Executive appointment for Non-Executive maximum term of Code. Messrs S P Duffy and S Huismans retired from the Messrs S P Duffy and Code. been on the Board since demerger in 1996. However, where the been on the Board since demerger in 1996. valuable contribution, they may be in valuable contribution, they may Non-Executive Director would be relevant to the Company’s deliberations as to the independence of the Non-Executive Director an Non-Executive of the to the independence deliberations as Director would be relevant to the Company’s Non-Executive he/she wouldItAGM. isthe at proposed also re-election annual be to subject that Mr A G L Alexander, whohas also been on the since demerger in 1996, will continue to serve on the Board and will therefore offer himself for re-election at the 2007 AGM. himself for offer will therefore to serve on the Board and in 1996, will continue since demerger Directors former Executive for Remuneration arrangements Mr S T Painter the Gr with Imperial Tobacco Limited, agreement 2000, Mr S T retirement in May Painter entered into a consultancy Following his is payable on termination. The letters of appointment detail the time commitment expected of each Non-Executive Director. Although there is no current provisions contained in the principal operating company. principal operating The agreement, as amended in October 2001 and May 2004, runs fees at a day as required and receives consultancy services 12 month period ending on 30 June, an car. his for the use of remuneration f receives additional he for which Group Boards within the Reemtsma of Supervisory Mr S T Painter is also a member roles. non-executive such fulfilling Mr M A Häussler before he reach taken it has been because reduced pension that has been receipt of a retirement is currently in Mr M A Häussler that amount would be payable. The pension is made up of three parts: one part of the pension is payable from the unfunded pensi the unfunded from is payable pension parts: one part of the up of three made is that amount would be payable. The pension arrangement of Reemtsma Cigarettenfabriken GmbH, another part is payable from the separately funded Imperial Tobacco Pension funded Imperial from the separately part is payable GmbH, another arrangement of Reemtsma Cigarettenfabriken with the Rules of those accordance in annually increased be may Fund arrangement and from the Imperial Tobacco Pension pe M A Häussler’s with Mr In accordance by law. arrangements or as is required Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco Reemtsma Group for which he received additional remuneration for fulfilling such non-executive roles. non-executive such for fulfilling remuneration received additional he which Reemtsma Group for Letters of Appointment Non-Executive Directors’ with the Company. doThe Non-Executive Directors not have service agreements and confirmed Directors Non-Executive all for terms were reviewed These annually. are reviewed The terms of their appointments registered office during normal business Company’s available for viewing at the letters of appointment are 30 January 2006. The to the prov by shareholders and retire (subject subject to triennial re-election are appointment and at the first AGM following Companies Actfollowing at the AGM 1985) their reachingprovisionsno70 yearsage. Thereare of periods regardingnoticein th of appointment which state Directorthat the will only Following his retirement from the Board in January 2006, Mr Board in January 2006, retirement from the Following his S Directors’ Remuneration Report Remuneration Directors’ and prior to and at the AGM. Under the terms of the Articles of Association of the Company, Non-Executive Directors stand for e Directors Association of the Company, Non-Executive Under the terms of the Articles of AGM. and prior to and at the normal retirement age. His service agreement with the Group provided that he would receive similar overall pension benefits to pension benefits similar overall provided that he would receive with the Group normal retirement age. His service agreement pension for a was This arrangement. GmbH pension Cigarettenfabriken the Reemtsma in he remained have received had that he would life equivalent to 42 per cent of his fixed annual salary at age 63. For death in retirement, a spouse’s pension for life of 60 63. For death in retirement, a spouse’s pension salary at age annual fixed 42 per cent of his to life equivalent I J G Napier I J G Napier Chairman of the Remuneration Committee 31 October 2006 portion was increased in line with the Imperial Tobacco Pension Fund 2006 increase of 2.21 per cent, from £11,811.37 to Tobacco Pension Fund 2006 increase of 2.21 per cent, the Imperial line with portion was increased in £12,072.48 per annum. For the Board Fund and the difference, which is not separately pre-funded, is paid by the Company. The pension payable under the Reemtsma under the Reemtsma payable Company. The pension by the paid pre-funded, is is not separately which and the difference, Fund

66 Statutory Reports 67 Financial Statements

to ted

pplied cial cial of the t al al

uacy

e wn e nts. We We are not We f information f www.imperial-tobacco.com www.imperial-tobacco.com e audited Group financial e t with the Group financial stateme with the Group t it is consistent with th y’s compliance with the nine provisions of the 2003 FRC nine with the y’s compliance Auditing (UK and Ireland) issued by the Auditing Practices Auditing (UK and Ireland) issued by the otes. These Group financial statements have been prepared under the financial statements have been prepared Group otes. These adopted by the European Union are set out in the statement of Union are set out in the statement adopted by the European Report of the Directors is consisten of the Directors Report of the remuneration report. We consider the implications for our report if we become We consider the implications of the remuneration report. in the directors’ remuneration report that is described as having been audited. audited. as having been report that is described in the directors’ remuneration the Group financial statements give a true and fair view and whether the Group finan the Group view and whether fair give a true and statements the Group financial d Ireland). This report, including the opinion, has been prepared for and only for th only for for and been prepared has including the opinion, report, This d Ireland). the Group financial statements have been properly prepared in accordance with the Companies Act 1985 and article 4 of the properly prepared in accordance with the have been statements the Group financial IAS regulation; and Report is financial statements. consistent with the Group given in the Directors' the information the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the as adopted with IFRSs the European Union, by accordance fair view, in give a true and statements the Group financial state of the Group’s affairs as at 30 September 2006 and of its profit and cash flows for the year then ended;

Company’s members as a body in accordance with section 235 of the Companies Act 1985 of the do not, and for no other purpose. We with section 235 Company’s members as a body in accordance other purpose to whom this report is sho or to any other person for any opinion, accept or assume responsibility in giving this agreedexpressly in writing. by our prior consent save where or into whose hands it may come We report to you our opinion as to whether directors’ responsibilities. directors’ responsibilities. relevant legal and regulatory requirements and in accordance with statements audit the Group financial Our responsibility is to International Standards on Auditing (UK an Group financial statements, and of whether the accounting policies are appropriate to theconsistently a Group’s circumstances, are appropriate statements, and of whether the accounting policies Group financial and adequately disclosed. necessary in order considered which we and explanations We planned and performed our audit so as to obtain all the information you whether, in our opinion the information given in the information given in our opinion the you whether, in accounting policies set out therein. set out therein. accounting policies Group PLC for the year ended Imperial Tobacco statements of financial company on the parent We have reported separately 30 September on the information 2006 and of auditors Respective responsibilities directors and with applicabl accordance in statements Group financial report and the annual preparing the for The directors’ responsibilities Reporting Standards Financial (“IFRS”) as law and International IAS regulation. We report Act 1985 and article 4 of the Companies with the prepared in accordance statements have been properly statement of recognised income and expense and the related n and the related and expense income statement of recognised PricewaterhouseCoopers LLP Registered AuditorsChartered Accountants and Bristol 31 October 2006

• • to provide us with sufficient evidence to give reasonable assurance that the Group financial statements are free from material statements are Group financial to give evidence reasonable assurance that the sufficient to provide us with the overall adeq or error. In formingwe also evaluated by fraud or other irregularity our opinion misstatement, whether caused statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the significant estimates and judgements made by the directors in the assessment statements. It also includes an Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the Group financi to relevant basis, of evidence on a test examination, includes Board. An audit also report to you if, in our opinion, we have not received all the information and explanations we require for our audit, or i we require for and explanations the information not received all have we opinion, in our also report to you if, We have audited the Group financial statements of Imperial Tobacco Group PLC for the year ended 30 September 2006 which ended 30 September the year Group PLC for of Imperial Tobacco Group financial statements the We have audited consolida the statement, cash flow the consolidated sheet, balance the consolidated statement, income comprise the consolidated Independent auditors’ report auditors’ Independent PLC Group Tobacco Imperial of members to the of the presentation of information in the Group financial statements. statements. in the Group financial of the presentation of information Opinion In our opinion: • specified by law regarding directors’ remuneration and other transactions is not disclosed. transactions is and other remuneration regarding directors’ specified by law governance statement reflects the Compan the corporate We review whether it does not. Services Authority, and we report if of the Financial listing rules for our review by the specified combined code required to consider whether the board’s statements on internal control cover all risks and controls, or form an opinion on the controls, and control cover all risks board’s statements on internal required to consider whether the control procedures. and governance or its risk the Group’s corporate procedures effectiveness of consider whether annual report and We read other information contained in the statements. The other information comprises only the operating and financial review, the Report of the Directors, the corporate review, the Report only the operating and financial comprises statements. The other information governance report and the unaudited parts no do statements. Our responsibilities Group financial with the misstatements or material inconsistencies aware of any apparent extend to any other information. Basis of audit opinion with International Standards on our audit in accordance We conducted 3 6 22 (97) (57) n/a 2005 2005 790 784 180 (288) (651) (455) (683) (342) (162) (184) 1,240 1,078 108.6p 108.1p 1,297 (8,106) 11,229 Year ended 30 September

7 (9) (1) 46 (45) 2006 2006 858 851 283 (310) (641) (468) (103) (630) (426) (143) (188) 1,311 1,356 1,168 122.2p 121.6p (8,514) 11,676 Year ended 30 September

4 8 1 5 8 1 1 5 5 2 6 3 Notes Notes ished goods and work in progresswork ished goods and Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco All activities derive from continuing operations. Consolidated income statement statement income Consolidated 2006 September 30 year ended for the net finance costs Adjusted income net financing benefits Retirement instruments derivative financial and losses on gains value Fair Restructuring costs Restructuring Adjusted profit from operations Other operating charges Employment costs Employment used and consumables Raw materials Minority interests Minority Diluted –

Profit for the year of Changes in inventories fin Depreciation and amortisation Profit from operations costs Net finance Earnings per ordinary share – Basic Attributable to: Attributable Equity holders of the Company Profit before taxation Taxation Investment income Investment costs Finance (In £’s million) Revenue Duty

68 Financial Statements 69 Financial Statements

– – 4 5 19 73 19 62 44 by: (11) (57) (50) (56) 2005 2005 705 964 686 705 642 259 857 256 (707) (235) (133) (438) (370) 3,554 4,526 1,012 2,169 6,695 (1,528) (2,520) (2,775) (3,470) (5,990) 30 September

– 5 (5) 73 19 19 71 13 29 (56) (39) (35) 2006 2006 598 964 579 598 580 397 789 263 (119) (272) (135) (434) (423) 3,910 4,982 1,067 2,161 7,143 (1,433) (3,002) (2,930) (3,543) (6,545) (1,122) www.imperial-tobacco.com www.imperial-tobacco.com 30 September

6 6 9 15 17 22 17 14 15 22 11 13 13 18 19 18 19 22 20 23 16 16 12 Notes Notes 22 were approved its behalf by the Board of Directors on 31 October 2006 and signed on Equity attributable to equity holders of the Company Trade and other payables Trade and other Deferred tax liabilities Deferred tax liabilities Share premium account Share premium Total equity

Deferred tax assets Deferred tax assets equivalents cash Cash and Current tax liabilities Current tax liabilities Derivative financial instruments 16 Derivative financial instruments Derivative financial instruments 16 Trade and other payables Trade and other Retained earnings Investments in associates associates Investments in receivables Trade and other receivables Trade and other Derivative financial instruments 16

Retirement benefit assets Retirement benefit assets Property, plant and equipment Property, plant and equipment Current tax assets 10 Provisions Retirement benefit liabilities Provisions reserve Exchange translation Share capital The financial statements on pages 68 to 1 The financial statements Minority interests Equity Total liabilities Net assets Non-current liabilities Borrowings Current liabilities Borrowings Total assets Current assets Inventories Non-current assets Intangible assets (In £’s million) (In £’s million) Derek Bonham Director Chairman Dyrbus Robert Consolidated balance sheet sheet balance Consolidated 2006 September at 30

– – – 8 6 3 (6) (8) (4) 19 16 27 86 (65) (10) (91) (92) (34) 2005 2005 2005 2005 339 256 101 790 876 870 876 (374) (212) (201) (373) 1,143 (1,169) Year ended Year ended 30 September 30 September

– 1 7 7 7 6 6 (4) (7) (7) 10 13 15 29 (75) (68) (55) (54) (24) 2006 2006 2006 2006 256 263 561 100 858 887 880 887 (368) (490) (199) (556) (406) (655) 1,155 Year ended Year ended 30 September 30 September

27 Notes Notes IAS 39 from 1 October 2005 t and equipment Net cash used in investing activities Increase/(decrease) in borrowings Cash and cash equivalents at end of year Minority interests Net income recognised directly in equity directly in equity Net income recognised Purchase of intangible assets – software Purchase of intangible assets Dividends paid to shareholders Dividends paid Adjustments relating to adoption of Purchase of subsidiary undertakings

Purchase of property, plan Purchase of property, – trademarks Purchase of intangible assets Cash and cash equivalents at start of year Equity holders of the Company Equity holders of the Company Interest received Interest paid Proceeds from sale of property, plant and equipment Proceeds from equipment sale of property, plant and Deferred tax on other items taken directly to or transferred from equity items taken directly to or transferred from equity Deferred tax on other Effect of foreign exchange rates Effect of foreign exchange Dividends paid to minority interests Dividends paid Deferred tax relating to actuarial gains on retirement benefits actuarial gains on retirement benefits Deferred tax relating to Total recognised year the income and expense for Minority interests Total recognisedthe year income and expense for Employee Share Ownership Trusts under Purchase of shares held Purchase of treasury shares Proceeds from held under Employee Share Ownership Trusts sale of shares Net cash used in financing activities Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco

Net increase/(decrease) in cash and cash equivalents Cash flows from financing activities Cash flows from investing activities (In £’s million) (In £’s million) Cash flows from operating activities statement Consolidated cash flow 2006 for the year ended 30 September 39 attributable to: Adoption of IAS Attributable to: Profit for the year (In £’s million) (In £’s million) Exchange movements benefits on retirement Actuarial gains Consolidated statement of recognised income and expense and expense income of recognised statement Consolidated 2006 September 30 year ended for the

70 Financial Statements 71 Financial Statements

04 ent ure s are lieved IC time by ve le ents e on IAS 39: nomic d at g rates e d rates of nsition es at the e beginning e beginning re included ion over the www.imperial-tobacco.com www.imperial-tobacco.com ts prepared under IFRS, with a tra prepared under ts 1 October 2005. In addition, IFRS 1 on first October 2005. In 1 g products or services within a particular eco g products or services within a particular ose parts of the Companies Act 1985 applicabose parts of the Companies the Group has the power to govern the financial an the Group has the power to govern the financial in the opening balance sheet for 2004. Where these ha balance in the opening are set out in the Critical Accounting Estimates and Judgem are set out in the Critical Accounting Estimates figures for 2005 and the Group’s balance sheet as at 1 October 20 sheet as at 1 October Group’s balance figures for 2005 and the IAS 32: “Financial instruments: Disclosure and Presentation” and Disclosure IAS 32: “Financial instruments: mptions are based on historical experience and various other factors that are be and various other historical experience mptions are based on Union (collectively “IFRS”) and with th Union (collectively “IFRS”) p’s first full year consolidated financial statemen financial p’s first full year consolidated s. These geographical regions of UK, Germany, Rest of Western Europe and Rest of the Europe and Rest of Western s. These geographical regions of UK, Germany, Rest and Measurement” which have been applied from have been applied from which and Measurement” component of the Group that is engaged in providin ement benefit schemes below. below. schemes ement benefit interpretations as endorsed by the European by the European interpretations as endorsed Basis of preparation Basis of preparation Reporting Standards and IFR Financial International accordance with prepared in have been statements financial The consolidated under IFRS. to companies reporting are the Grou The 2006 financial statements 2004. Consequently, the comparative date to IFRS of 1 October assu estimates and note on pages 76 to 77. Such statements. In th date of the financial at the best judgement constitute management’s and circumstances to be reasonable in the Accounting policies policies Accounting The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the make estimates and assumptions that affect to management statements requires financial The preparation of the consolidated contingent liabiliti the disclosure of and assets and liabilities, the period, during reported amounts and expenses of revenues have been restated to comply with IFRS, with the exception of the exception of comply have been restated to with IFRS, with from retrospective of IFRS application exemptions adoption allows certain below. policies relevant accounting in the are explained they been used, policies accounting described in the except as cost convention historical under the been prepared have statements The financial instruments and retir financial The key estimates and assumptions statements. date of the financial as th statements future financial This could affect deviate from these estimates and assumptions. may experience future, actual “Financial instruments: “Financial instruments: Recognition to ens changed have been policies of subsidiaries accounting necessary, be recovered. Where unless costs cannot also eliminated operating policies of an enterprise taking into account any potential voting rights. The financial statements of subsidiaries a statements of subsidiaries voting rights. The financial account any potential into taking operating policies of an enterprise that control ceases. the date until commences that control statements from the date financial consolidated in the measure is acquisition of an The cost subsidiaries. of account for the acquisition used to method of accounting is The purchase of the cost of the acquisit directly attributable to the acquisition. The excess the consideration plus costs the fair value of as goodwill. recorded is acquired the subsidiary assets of identifiable of the net of the fair value Group’s share losse unrealised eliminated; are Group companies between gains on transactions Intragroup transactions,unrealised balances and original estimates and assumptions are modified, as appropriate, in the year in which the circumstances change. change. circumstances the which in the year as appropriate, in original estimates and assumptions are modified, is set out below. policies A summary of the more important Group accounting Basis of consolidation undertakings. and its subsidiary Company) comprise Imperial Tobacco Group PLC (the statements financial The consolidated by the Group. Control exists when those entities controlled Subsidiaries are Group. consistency with the policies adopted by the on pages 125 to A list of the principal subsidiaries is included 126. Segmental reporting distinguishable A segment is a duty. of revenue less basis consistent are allocated to segments on a The central costs been made. disclosure has for intragroup sales of materials, manufactured goods, charges for royalties, companies The prices agreed between Group businesses. independent would apply between which practices on normal commercial based commissions and fees are Foreign currency economic using the currency of the primary are measured of each Group company statements the financial in Items included currency). operates (the functional company which the environment in translated to sterling (the Group’s Group companies are denominated non-sterling statements of and cash flow The income at are translated these companies of period. Assets and liabilities each exchange in presentation currency) at average rates of profits and losses translated at average and closin between retained differences sheet date. The at the balance exchange ruling denominated net assets at th to sterling of non-sterling arising on the retranslation are taken to reserves, as are differences of the year. component of equity. As permitted arisen since 1 October 2004 are presented as a separate have Any translation differences that structure is based on geographical region sale of tobacco and tobacco-related and marketing manufacture, The reporting segments. as the primary used World have been segment and no secondary segment has only one business the Group a consequence, business and as products is a single integrated of equity. separate component in this not included to this prior date are IFRS 1, any differences environment. and tobacco-related products. The managem of tobacco and sale marketing manufacture, of the Group is the activity The principal

the be tion and the on in pply basis eferred eferred duty is cation is he period sheet e sheet ept where ough

ge gains ed in s recognised nce will not nce will oved by l statements ssets and ssets available available global growth d party g units for the purpose of impairment testing. The allo for the purpose of impairment testing. The g units e year, using tax rates substantially enacted at the balanc e year, using tax rates substantially enacted services net of sales taxes, rebates and discounts. Revenue from of sales net services bstantially enacted by the balance sheet date, and are expected to a to and are expected date, sheet by the balance enacted bstantially -generating units that are expected to benefit from the business combinati from units that are expected to benefit -generating continued net investment hedges. and losses resulting from the settlement of such transactions and from the translation at exchange rates ruling at the balance rates ruling at the balance translation at exchange the and from such transactions the settlement of and losses resulting from when d statement, except income recognised in the are in foreign currencies denominated and liabilities date of monetary assets in equity as qualifying as qualifying in equity Revenue recognition invoiced value for the sale of goods and Revenue comprises the Foreign currency transactions are initially recorded at the exchange rate ruling at the date of the transaction. Foreign exchan Foreign transaction. the date of rate ruling at the recorded at the exchange are initially transactions Foreign currency reverse in the foreseeable future. reverse in the foreseeable it is in equity, in which case to items recognised directly where it relates statement, except Tax is recognised in the income equity in the period of acquisition. As permitted under IFRS 1 goodwill arising on acquisitions prior to 1 October 2004 is statgoodwill arising on acquisitions prior IFRS 1 permitted under of acquisition. As period equity in the sale of goods is recognised when a Group company has delivered products has delivered products products the to the customer, the customer has accepted company when a Group sale of goods is recognised for distributing thir fees which include assured. Sales of services is reasonably of the related receivables and collectibility accruals an on fees are recognised Licence are rendered. services period in which the accounting in the products are recognised Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco Accounting policies policies Accounting made to those cash-generating units or groups of cash subsequently reversed. Goodwill is allocated to groups of cash-generatin Goodwillsubsequently reversed. is allocated the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary differe the is probable that controlled by the Group and it is difference the timing of the reversal of the temporary in equity. Dividends are appr dividends the which period in statements in the in the Group’s financial as a liability are recognised dividends Final are paid. dividends in which the in the period are recognised interim dividends while shareholders, Intangible assets – goodwill a identifiable net value of the the fair share of over the Group’s acquisition of the cost of an Goodwill represents the excess intangible. and both tangible acquired, liabilities written off thr 27 September Previously all goodwill was 1998 is capitalised. Goodwill arising on acquisitions made on or after for impairment transition to IFRS. Goodwill is tested at least annually remeasured on has not been UK GAAP and accordance with cannot statement and income in the is recognised immediately Any impairment impairment losses. carried at cost less accumulated in accordance with the substance of the relevant agreements. relevant of the the substance with in accordance Duty tax, duty is a sales expense. Where as an income statement the in duty is included tax, is a production In countries where duty which the goodwill arose. Gains or losses on the disposal of a Group company are determined by comparing the proceeds with the by comparing the proceeds company are determined Group losses on the disposal of a goodwill arose. Gains or which the when the deferred tax liability is settled or the deferred tax asset is realised. is settled tax liability deferred when the exc overseas subsidiaries), subsidiaries (including provided on temporary in investments Deferred tax is differences arising on date, and any adjustments to tax payable in respect of previous years. respect date, and any adjustments to tax payable in in the financia and liabilities carrying amount of assets on temporary differences the between provided in full Deferred tax is profits will be future taxable that is probable assets are recognised only to the extent that it Deferred tax and the tax base. i Deferred tax not discounted. are tax assets and liabilities Deferred utilised. be can the temporary differences against which enacted or su determined using the tax rates that have been deducted from revenue. Taxes comprises current and deferred tax. Income tax on the profit or loss for the year for th payable on the taxable income expected tax Current tax is the carrying value of the Group company’s assets and liabilities including the carrying amount of related goodwill. amount of including the carrying assets and liabilities carrying value of the Group company’s is not recycled to the income statement on the disposal of t GAAP to reserves under UK directly Goodwill previously written off and impairment. Trademarks include the Davidoff cigarette trademark which was acquired in September 2006. The Directors are of was acquired in cigarette trademark which Davidoff Trademarks include the and impairment. with international brand is an established fact that Davidoff based on the life, an indefinite has trademark opinion that this For lives. basis over their useful line software are amortised on a straight computer and potential. Other trademarks, licences written off over a 20 years. Computer software is does not exceed life useful the than Davidoff) (other trademarks and licences that does not exceed five years. subsidiary to which it relates. Intangible assets – other amortisa at cost less accumulated carried are which computer software and trademarks, licences mainly of acquired These consist

72 Financial Statements 73 Financial Statements r he

ecided ecided s sks. The e are nts. oup has rading nd the nd dentifiable dentifiable ectly thin elevant t to the period d in the ed in the tinguished. tinguished. ying value included in the ed future cash its estimated of receivables is receivables of eivable. al terms of those cost using the using cost www.imperial-tobacco.com www.imperial-tobacco.com term highly liquid investme le amounts. A provision for impairment impairment le amounts. for A provision together with other short together not be able to collect all amounts due according to the origin to according due amounts all collect to able not be to utilise the IFRS 1 exemption from the requirement to restate comparative information fo from the requirement to utilise the IFRS 1 exemption instruments to manage the underlying exposure to foreign exchange and interest rate ri exposure to foreign exchange the underlying instruments to manage duction for allowances for estimated irrecoverab allowances for duction cles 2 – 14 years (straight line) associated with them will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenanc All reliably. measured be item can and the cost of the the Group flow to will associated with them charged to the income statement as incurred. charged to the income over to its residual value of each asset cost write off the initial is provided so as to Depreciation is not depreciated. Land as follows: life useful Buildings Plant and equipment Fixtures and motor vehi 2 – 20 years up to 50 years (straight balance) line/reducing (straight line) The assets’ residual values and useful lives are reviewed and, if appropriate, adjusted at each balance sheet date. sheet adjusted at each balance appropriate, and, if reviewed are useful lives values and The assets’ residual income carrying amounts. These are included in the by comparing proceeds with losses on disposals are determined Gains and statement. Impairment of assets Assets that are subjec or depreciationAssets that are not subject to amortisation annually for impairment. tested at least are amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying indicate circumstances in events or changes whenever impairment reviewed for amortisation or depreciation are carrying by which the for the amount statement income the loss is recognised in impairment be recoverable. An amount may not to sellless costs a fair value of the higher amount is the exceeds its recoverable amount. The recoverable amount of the asset are separately i for which there grouped at the lowest levels are assets the purpose of assessing impairment, For use. value in Property, plant and equipment and equipment Property, plant and impairment. depreciation less accumulated at historical cost sheet the balance are shown in Property, plant and equipment includ costs are Subsequent to the acquisition of the items. attributable that is directly expenditure Historical cost includes economic benefit that future probable only when it is asset as appropriate as a separate or recognised assets’ carrying amounts is ex obligation de-recognised when the are liabilities of ownership. Financial and rewards transferred substantially all risks amortised at stated are They equivalents. cash and or cash receivables as either classified are assets financial Non-derivative to re subject method, interest effective

includes accrued interest payable, as well as unamortised issue costs. All borrowing costs are recognised in profit or loss in All borrowing costs arecosts. recognised unamortised issue interest payable, as well as includes accrued are incurred. in which they The Group transacts derivative financial are liabilities Derivative financial assets and for trading purposes. instruments Group does not transact derivative financial has d However, as the Group where relevant. payable and interest receivable accrued includes which fair value, sheet at balance are recognise values IAS 39), changes in fair under permitted (as instruments not to hedge account for its derivative financial arise. they in which income statement in the period Financial instruments (2005) As noted above, the Group has chosen cash flows (cash-generating units). cash flows (cash-generating Financial instruments (2006) of the r contractual provisions Group becomes a party to the when the are recognised liabilities assets and financial Financial the Gr or been transferred, and expired to receive benefits have assets are de-recognised when the rights Financial instrument. IAS 32 and IAS 39. For the year ended 30 September 2005, financial instruments are accounted for in accordance with UK GAAP IAS 32 and IAS 39. For the year ended 30 September 2005, financial instruments are accounted for in accordance with UK GAAP following policies. using the t rate risks and are not used for interest foreign exchange and of exposure to manage are used Derivative financial instruments dir which can be characteristics asset or liability has underlying hedge accounting where the for purposes. Instruments qualify Non-derivative financial liabilities are stated at amortised cost using the effective interest method. For borrowings, the carr interest method. For borrowings, at amortised cost effective using the are stated liabilities Non-derivative financial established when there is objective evidence that the Group will will Group the that evidence is objective there when established receivables. The amount of the provision is the difference betweenasset’s the carrying amount and the present value estimat of rec interest accrued includes value carrying the assets, interest-bearing For statement. income the in recognised is and flows, held on call, and deposits equivalents include cash in hand cash Cash and related to the instrument transacted. wi and included accruals basis statement on an interest rate swaps are taken to the income under Interest differentials arising are amortised over the lives of the instruments. or discounts received or paid Any premiums interest payable or receivable. exchange rates ruling at t are revalued at the currency swaps cross at maturity under be exchanged due to amounts The principal balance sheet date and included within derivative financial instruments. instruments. derivative financial within date and included sheet balance recognised until the gains and losses are not future transactions, hedge contracts are used to Where forward foreign exchange transactions occur. s odel, s of ution ution h

r number pensed h on e in ring has When s on ble. cognised any non- any if any, in in if any, considering tement redit method. t, it is more m included in in included m a straight line a straight line d the fair value ethod. can be made. can be the projected unit c respect to any one ite respect first-in, first-out (FIFO) m first-in, first-out (FIFO) all cumulative actuarial gains and losses wit all e vesting period. The total amount to be ex e vesting period. The ecessary to satisfy rights to shares arising unde determined using the using determined to equity holders of the Company at 1 October 2004. to equity holders of the Company the likelihood of an outflow with materials, direct labour, other direct costs and related producti labour, other direct costs and direct materials, sted at 1 January 2005, the dates specified in IFRS 1. sted at 1 January 2005, the dates specified annually by independentannually by actuaries using mined by discounting the estimated future cash outflows. Group buys the number of shares n Group buys the number of shares upon which the equity instruments were granted. equity instruments the upon which p pays a defined contribution to the scheme; there are no further payment obligations are no further there p pays a defined contribution to the scheme; eet when the Group has a legala or constructiveeet Groupthe has when obligationpastevena resulta as of struments granted and is expensed over th struments granted and is expensed over

ised when the Group has approved a detailed formal restructuring plan, and the restructu and plan, restructuring approved a detailed formal has ised when the Group e optional exemption under IFRS 1 to recognise earnings per share). Non-market vesting conditions are included in assumptions about the number about the in assumptions vesting conditions are included per share). Non-market earnings continued fit schemes schemes. The Group’s two principal schemes are defined benefit schemes and are operated by Imperial Tobacco Limited in the UK are operated by Imperial Tobacco Limited and schemes benefit are defined Group’s two principalschemes. The schemes the funds while trustee administered in assets are held scheme’s UK The in Germany. GmbH Cigarettenfabriken and Reemtsma is unfunded. German scheme Under a defined benefit scheme, amount the of retirement benefit that will be received by an employee is defined. The amount re in the balance sheet is the difference between the present value of definedthe benefit obligation at the balancesheet date an of the scheme assets. The defined benefit obligation is calculated either commenced or has been publicly announced. Future operating losses are not provided for. publicly announced. Future operating either commenced or has been determined by is in settlement required will be that an outflow obligations, the likelihood a number of similar Where there are even if is recognised the class of obligations as a whole. A provision of obligations may be small. the same class Retirement bene its employees, including both defined benefit and defined contrib benefit schemes for of retirement The Group operates a number basis over the average vesting period. All actuarial gains and losses, including differences between actual and expected return expected actual and losses, including differences between and basis over the average vesting period. All actuarial gains A provision for restructuring is recogn The present value of the defined benefit obligation is deter employee on the are conditional plan to the pension the changes unless in income, Past service costs are recognised immediately once these contributions have been paid. Such contributions are recognised as an employee benefit expense when they are due. when they are benefit expense employee as an are recognised contributions Such been paid. once these contributions have payments is availa future reduction in refund or that a cash asset to the extent as an Any prepaid contributions are recognised taken advantage of th The Group has assets and differences that arise as a result of changes in actuarial assumptions are recognised immediately in full in the sta in the in full immediately are recognised assumptions actuarial changes in as a result of that arise assets and differences in which they arise. expense for the period of recognised income and contribution schemes, the Grou For defined respect to employee retirement benefit schemes in the equity attributable Share-based payments in respect The Group applies the requirements of IFRS 2 “Share-based payments” to equity-based employee compensation schemes of awards granted after 7 November 2002 whichunve remained overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling pric selling is the estimated value realisable but excludes borrowing costs. Net capacity) normal operating overheads (based on selling expenses. costs of completion and estimated business, less the the ordinary course of wit asset, consistent as a current months is classified twelve that exceeds cycle which has an operating Leaf tobacco inventory practice. recognised industry Provisions A provision is recognised in the balance sh likely not than that an outflow of resources will be required to settle that obligation, and a reliable estimate of the amount case, the past service costs are amortised on period). In this time (the vesting period of for a specified remaining in service equity instruments that are expected to become exercisable. At each balance sheet date, the Group revises its estimates of the sheet date, to become exercisable. At each balance that are expected equity instruments The cost of employees’ services received in exchange for the grant of rights under equity-based employee compensation schemes i schemes compensation employee grant of rights under equity-based for the exchange The cost of employees’ services received in in measured at the fair value of the equity of impact the of the equity instruments granted, excluding value to the fair over the vesting period is determined by reference market vesting conditions (e.g. The cost of finished goods and work in progress comprises raw and The cost of finished goods of equity instruments that are expected to become exercisable. It recognises the impact of the revision of original estimates, revision of original impact of the It recognises the to become exercisable. expected of equity instruments that are the rights are exercised, equity is increased by the amount of the proceeds received. by the amount of is increased equity the rights are exercised, taking into account the terms and conditions taking into account the terms exposure, the In order to manage the related the income statement, with a corresponding adjustment to equity. The fair value is measured based on an appropriate valuation m appropriate based on an is measured value adjustment to equity. The fair statement, with a corresponding the income equity-based employee compensation schemes. On consolidation, these shares are accounted for as a deduction from equity a deduction for as are accounted shares these On consolidation, equity-based employee compensation schemes. plan. the equity compensation of shares are issued as a result attributable to the equity holders of the Company. No additional Inventories Inventories Cost is value. and net realisable at the lower of cost Inventories are stated Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco Accounting policies policies Accounting

74 Financial Statements 75 Financial Statements y at in these t on the ity holders rom tions remain ncluded in in ncluded www.imperial-tobacco.com www.imperial-tobacco.com ich have not been applied struments: Recognition and Measurement” struments: Recognition and Measurement” vironmental Rehabilitation Funds” vironmental Rehabilitation are shown in equity as a deduction, net of tax, f are shown in equity as ested at 1 January 2005, the dates specified in IFRS 1. ested at Standards and Interpretations wh ncial Reporting in Hyperinflationary Economies” ncial Reporting in Hyperinflationary Economies” Cumulative exchange differences on retranslation of net investments of net investments on retranslation differences exchange Cumulative d Presentation” and IAS 39 “Financial in IAS 39 “Financial d Presentation” and from Decommissioning, Restoration and En from Decommissioning, ation of Mineral Resources” The Group elected not to apply IFRS 3 retrospectively to business combinations that took place prior The Group elected to apply IFRS 2 only to equity-based employee compensation schemes in elected to apply IFRS 2 only to equity-based employee compensation schemes The Group s in Foreign Exchange Rates” s in Foreign Exchange Rates” The Group has taken advantage of the optional exemption to recognise all cumulative actuarial gains of the optional exemption to recognise all cumulative The Group has taken advantage IAS 32 and IAS 39 have been1 October 2005. applied from

Share capital Share capital equity. as Ordinary shares are classified or options directly attributable to the issue of new shares Incremental costs

to the date of transition. In the opening balance sheet, goodwill and other assets and liabilities acquired in previous transac acquired in previous and liabilities other assets goodwill and sheet, opening balance the to the date of transition. In under UK GAAP. at the same carrying value as IAS 19 “Employee Benefits” the Company of attributable to the equity holders in the equity benefit schemes and losses with respect to employee retirement consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is i tax effects, is related income costs and the transaction incremental attributable any directly net of consideration received, holders of the Company. equity equity attributable to the Initial adoption of IFRS under IFRS 1: to take the following exemptions sheet at 1 October 2004, the Group elected balance In restating its transition IFRS 2 “Share-based Payments” the proceeds. any paid, including the consideration shares), Company’sshare capital (treasury purchases the Where any Group company equity from equity attributable to the equ consolidation is deducted on costs (net of income taxes), directly attributable incremental sold or reissued, an subsequently are of. Where such shares disposed reissued or are cancelled, shares the of the Company until IFRIC 7 29 Fina IAS “Applying the Restatement Approach under IFRIC 8 of IFRS 2” “Scope IFRIC 9 Derivatives” of Embedded “Reassessment Reporting and Impairment” “Interim Financial IFRIC 10 no material impac will have periods The Directors anticipate that the adoption of these Standards and Interpretations in future Group. statements of the financial in overseas subsidiaries, which are recognised separately in equity under IFRS are deemed to be nil at 1 October 2004. at 1 October be nil are deemed to under IFRS separately in equity are recognised which in overseas subsidiaries, IAS 32 “Financial instruments: an Disclosure 1 October 2004. IAS 21 “The Effects of Change and yet mandatory for the period: was not financial statements, were issued but the application IFRS 6 “Exploration for and Evalu IFRS 7 to IAS 1 on related amendment capital disclosures and the instruments: Disclosures”; “Financial IFRIC 4 Arrangement contains a Lease” an “Determining whether IFRIC 5 “Rights to Interests Arising Standards and Interpretations issued but not applied Interpretations issued Standards and statements, the following At the date of approval of these financial IFRS 3 “Business Combinations” respect of awards granted after 7 November 2002 that remained unv 2002 that remained respect of awards granted after 7 November nt nt ts or

der n ealth alth nt nt s of the

ted ut ut tor that es re the any

’s is tion ases, the te ns, y by the reliability. reliability. orously r of actions will actions will be al effect on the litigation, the litigation, loss in year assumptions that have assumptions that have the Group; or from a prese the Group; or from a e overall business; and e overall business; , the Directors believe that the pending , the Directors developments or the eventual outcome of any developments within the control of within may not be recoverable. Factors considered importa assumptions. The estimates and assumptions. The estimates assets or the strategy for th g amounts of assets and liabilities within the next financial within the and liabilities g amounts of assets the outcome of the pending litigation the outcome storical or projected future operating results; s regarding the future.regarding s evaluated based judgements are continually Estimates and e progress of the case (including progress after thee progress of the case (including progress statements b date of the financial and intangible assets and intangible assets p’s determinations at any time do not reflect subsequent not reflect subsequent at any time do determinations p’s stry or economic trends. significant negative indu significant underperformance rela tive to hi the acquiuse of manner of the in the changes significant red

the carrying value may not be recoverable, impairment is measured based on estimates of the fair values of the underlying asset the underlying values of of the fair is measured based on estimates impairment the carrying value may not be recoverable, unit. cash-generating applica uncertainties inherent in the and The complexity of the estimation process and issues related to the assumptions, risks repor intangible the amounts assets affect and equipment and to property, plant in relation accounting estimates of the Group’s changes in circumstances indicate that the carrying value may not be recoverable. When it is determined that there is an indica determined that there is an is it not be recoverable. When value may that the carrying indicate circumstances changes in • to impairment review. The Group cigarette trademarksubject the Davidoff are acquisitions and Additionally, goodwill arising on if even more frequently annually or Davidoff cigarette trademark impairment review of goodwill and the undertakes an management Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco that could trigger an impairment review include the following: review include that could trigger an impairment • • used can result in significant variations in the carrying value. carrying in the variations in significant used can result subject to amortisation or depreciatio assets intangible and The Group assesses the impairment of property, plant and equipment indicate that the carrying value or changes in circumstances whenever events The Group makes estimates and assumption makes estimates and The Group on historical experience and other factors, including expectations of future events that are believed to be reasonable under under to be reasonable that are believed events of future expectations including factors, other and on historical experience the circumstances. from these estimates and may deviate experience actual In the future, Critical accounting estimates and judgements judgements and estimates accounting Critical depreciated over their useful lives. Useful lives are based on management’s estimates of the period that the assets will genera management’s are based on lives Useful lives. depreciated over their useful of assets, changes to the estimat the long lives appropriateness. Due to reviewed for continued are periodically revenue, which Intangible assets (other than goodwill and the Davidoff cigarette trademark) and property, plant and equipment are amortised or and equipment Davidoff cigarette trademark) and property, plant the Intangible assets (other than goodwill and Property, plant and equipment Property, plant and equipment to assess the need for provisions in its financial statements. Among the factors considered in making decisions on provisions a statements. Among the factors considered to assess the need for provisions in its financial in which in the jurisdiction level of damages and potential assessment, the legal processes litigation, claim or nature of the brought, th claim or assessment has been beyond its control. in or sheet date, balance and at each proceedings legal developments in the following The Group reviews outstanding legal cases Group has not provided for any amounts in the consolidated financial statements. See note 26 to these financial statements. 26 to these financial provided for any amounts infinancial statements. See note Group has not the consolidated a significant risk of causing a material adjustment to the carryin of causing a material risk a significant are discussed below. below. are discussed Legal proceedings event, a transfe from a past obligation is a present where there liabilities Group only recognises IFRS, the with In accordance provision a instances In such estimated. reliably can be of costs of the transfer and the amount is probable economic benefits may met, a contingent liability criteria are not where these statements. In instances financial recorded in the and calculated to the financial statements. disclosed in the notes be confirmed onl existence will and whose that arises from past events a possible obligation arises when A contingent liability uncertain future events not wholly of one or more occurrence or non-occurrence embodying possible that an outflow of resources not is not recognised because it events but is obligation that arises from past with sufficient amount of the obligation cannot be measured to settle the obligation; or the will be required economic benefits materi could have a statements recognised or disclosed in the financial not currently contingent liabilities Realisation of any condition. the Group’s financial he for alleged smoking-related damages are seeking claimants which cases in principles to legal Application of these accounting to provide for Deciding whether or not involved. and law facts complex nature of the given the difficult, effects is inherently legal matters make determinations about various factual and to the Group’s management requires connection with such claims claim, its future financial statements may be materially affected, with an adverse impact upon the Group’s profit from operatio upon the Group’s profit impact adverse with an affected, may be materially statements financial its future claim, financial position and liquidity. smoking-related for alleged h are seeking damages claimants which in of legal cases number involved in a The Group is currently vig are being of which actions, all meritorious defences to these the Group has effects. In the opinion of the Group’s lawyers, contested. Although it is not possible to predict before those statements are issued), the opinions or views of legal counsel and other advisers, experience of similar cases and of similar cases other advisers, experience and or views of legal counsel the opinions before those statements are issued), or assessment. will respond to the litigation, claim it as to how Group’s management decision of the To the extent that the Grou of any such c respect in Consequently, Group. condition of the the revenue, profit or financial effect upon not have an adverse

76 Financial Statements 77 Financial Statements rom hods for small rse of sets. will impact will impact timates, y to become www.imperial-tobacco.com www.imperial-tobacco.com in note 18. The Group takes advice f Group in note 18. The important to note, however, that comparatively important to note, however, tax determination is uncertain during the ordinary cou the ordinary during uncertain tax determination is based on estimates of the additional taxes that are likel based on estimates of the additional taxes Details of the key assumptions are set out Details of the key assumptions numerous jurisdictions and significant judgement is required in determining the provision in determining judgement is required and significant jurisdictions numerous e appropriateness of the assumptions. It is e appropriateness of the in the financial statements, especially the estimates of the expected useful economic lives and the carrying values of those as values of those the carrying lives and useful economic the expected estimates of especially the statements, financial in the

If business conditions were different, or if different assumptions were used in the application of this and other accounting es other and this of application the in assumptions were used if different or were different, If business conditions statements. the Group’s financial be reported in could amounts different it is likely that materially due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences recorded, such differences were initially amounts that is different from the matters tax outcome of these final the due. Where made. is determination such which period in in the the income tax and deferred tax provisions statements. See note 6 to these financial independent actuaries relating to th relating to independent actuaries See notes 9 and 10 to these financial statements. these financial statements. See notes 9 and 10 to Retirement benefits are determined using met Group retirement schemes operating within the benefit of the defined liabilities The costs, assets and relying on actuarial estimates and assumptions.relying on actuarial estimates anticipated tax issues for Group recognises liabilities business. The changes in the assumptions used may have a significant effect on the income statement and balance sheet. balance on the income statement and effect significant may have a assumptions used the changes in Income taxes to income tax in The Group is subject tax. There are many transactions and calculations for which the ultimate for which and calculations many transactions tax. There are

ent 496 815 283 243 321 251 (426) 1,311 1,168 Profit from from Profit Profit from from Profit operations operations operations operations Profit from operations operations – – – – – – 46 188 (142) income income income financing financing financing 2005 2005 Retirement Retirement benefits net benefits Retirement benefits net – – – – – – (1) 82 (83) financial financial 4,710 3,910 460 2,630 2,000 265 308 1,571 927 2,318 1,269 207 6,519 4,196 780 Revenue Duty Duty Revenue financial derivative derivative Fair value value Fair Fair value derivative 11,229 8,106 1,240 instruments instruments changes on changes on on changes instruments – – (3) (1) (10) (31) (35) (45) (45) costs 496 243 321 251 815 costs 1,311 Profit from operations operations Restructuring Restructuring 13 506 274 324 252 850 (201) 1,356 1,168 3,927 2,123 1,010 1,454 4,587 8,514 1,297 (57)1,240 n/a – 1,113 (57)1,078 n/a 22 Adjusted Reported Adjusted 2006 2006 Adjusted profit profit Adjusted from operations operations from Adjusted profit from operations Adjusted Reported Reported Adjusted

4,762 2,707 1,647 2,560 6,914 Revenue Duty 11,676 s. These geographical regions of UK, Germany, Rest of Western Europe and Rest of the of the Europe and Rest of Western regions of UK, Germany, Rest s. These geographical Segmental information Segmental

Profit before taxation Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco

2005

Geographical reconciliation of profit from operations to adjusted profit fromGeographical reconciliation of profit from operations by destination of sales 2006 The principal activity of the Group is the manufacture, marketing and sale of tobacco and tobacco-related products. The managem of tobacco and sale marketing manufacture, of the Group is the activity The principal 1 Notes to the financial statements statements financial to the Notes Profit before taxation disclosure has been made. The central costs are allocated to segments on the basis of revenue less duty. less to segments on the basis of revenue allocated are The central costs made. been disclosure has of sales by destination income statement consolidated Geographical structure is based on geographical region structure is based on and tobacco-related sale of tobacco marketing and manufacture, reporting segments. The as the primary used World have been segment and no secondary segment has only one business the Group a consequence, business and as products is a single integrated Germany Rest of Western Europe Rest of the World 326 (18) 209 294 n/a (2) (29) n/a – n/a 308 – – 207 265 of the World Rest Germany of Western Europe Rest of Western Europe Rest of the World Rest Germany

Investment income Investment costs Finance 22 – n/a 158 180 (206) – n/a (136) (342) International 829 (49) n/a – 780 (In £’s million) UK 468 (8) n/a – 460 income Investment costs Finance International UK (In £’s million)

(In £’s million) International UK

78 Financial Statements 79 Financial Statements 3 6 9 2 2 2 23 22 10 39 71 94 2005 2005 2005 www.imperial-tobacco.com www.imperial-tobacco.com Depreciation Amortisation – (3,482) (3,482) – (57) (57) 5 29 47 106 (368) (262) 294 370 375 259 (438) (179) 836 (650) 186 256 – 256 910 (743) 167 assets Assets Liabilities Net Assets Net Assets Liabilities Assets Liabilities Liabilities Net assets Depreciation Amortisation 1,088 (312) 776 6,695 (5,990) 705 1,049 (297) 752 2,242 5,164 6,074 (288) (902) (1,645) 1,954 4,262 4,429 1,790 2,360 (328)5,238 6,074 (355) 1,462 (995) (1,645) 2,005 4,243 4,429 1,873 (317) 1,556 Intangible Intangible Intangible

8 24 14 29 51 75 (37) (90) 215 885 263 598 217 785 (323) 2,128 4,620 4,837 1,355 2,382 4,622 4,837 1,707 (4,052) & equipment & equipment & equipment Property, plant plant Property, Property, plant

– – 5 1 369 370 375 assets (250) (813) (670) (311) (252) (300) (863) (434) (407) (119) (720) (320) (243) assets Intangible Intangible (1,533) (1,533) (4,052) (6,545) 2006 2006 2006 Intangible

– 4 84 29 29 16 26 46 75 885 263 397 937 Assets Liabilities Net Assets Net Assets Liabilities Assets Net Assets Liabilities Capital expenditure Capital expenditure 2,378 5,433 6,370 1,666 1,137 2,682 5,485 6,370 7,143 2,027 1,028 & equipment By location of business unit By destination of sales & equipment & equipment Property, plant plant Property, Property, plant continued unit of business By location Capital expenditure Capital expenditure sales of By destination

Geographical analysis of assets and liabilitiesGeographical by location of business unit Geographical analysis of assets and liabilitiesGeographical by destination of sales 2005 Geographical analysis of other segment items of other segment items analysis Geographical 2006 1 Segmental information information 1 Segmental

Unallocated assets and liabilities: and liabilities: Unallocated assets

Rest of Western Europe Rest of the World Germany Germany of Western Europe Rest of the World Rest Germany of WesternRest Europe of the World Rest 2 17 15 2 2 17 5 47 1 4 5 47 1 4 8 37 8 2 Germany Rest of Western Europe Rest of the World Derivative financial instruments Retirement benefit asset/(liability) equivalents cash Cash and Taxation Borrowings

International UK International UK International 12 62 82 15 67 7 7 69 92 10 92 10 UK 3 20 25 3 23 3 (In £'s million)

International (In £'s million) UK (In £'s million) (In £'s million)

1 1 (2) (2) (3) 11 25 s of ects 2005 2005 nts ded not inated d taxation t before air value fair value ce these

– 2 3 (1) 10 24 (18) 2006 2006 s, retirement benefit net financing income, f income, net financing s, retirement benefit

and may not be comparable with similarly titled measures reported by titled measures comparable with similarly be not and may continued

continued financing income Profit before taxation Profit before

Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco

2 after charging/(crediting): Profit before taxation is stated being recognised in the income statement unless the instrument qualifies for hedge accounting under IAS 39. hedge accounting qualifies for instrument in the income statement unless the being recognised strict hedging requirement However the structured manner. and commercial efficient, exposures in an underlying The Group hedges Use of adjusted measures Use of adjusted measures year and refl performance for the business a better comparison of adjusted measures provides that reporting Management believes 1 Segmental information information 1 Segmental Notes to the financial statements statements financial to the Notes The expected return on plan assets and the interest on retirement benefit liabilities is included within net finance costs. Sin net finance within included is on retirement liabilities benefit and the interest assets The expected return on plan the way in which the business is controlled. Accordingly, adjusted measures of profit from operations, net finance costs, profi costs, net finance from operations, measures of profit adjusted Accordingly, is controlled. the business the way in which instrume on derivative financial losses and gains value fair IAS 39 and we exclude permitted under to apply hedge accounting as appropriate. from adjusted measures where Retirement benefit net elim control they have been volatility outside of management’s subject to significant be and can items do not impact cash flows tax, taxation and earnings per share exclude, where applicable, restructuring cost restructuring where applicable, share exclude, per tax, taxation and earnings reporte and between adjusted Reconciliations taxation effects. and related instruments derivative financial losses on gains and note 8. in per share and reported earnings adjusted note 6 and between in are included is not a defined term under IFRS The term adjusted other companies. to reported made profits are as follows: adjustments The principal Restructuring costs initiatives. and rationalisation acquired businesses integrating incurred in one-off costs These are significant derivative financial instruments and losses on Fair value gains the changes in fair value, with sheet at on the balance be recognised instruments financial IAS 39 requires that all derivative IAS 39 lead to some commercially effective hedge positions not qualifying for hedge accounting. As a result, the Group has deci has the Group hedge accounting. As a result, positions not qualifying for hedge IAS 39 lead to some commercially effective share. per profit before tax and earnings finance costs, from adjusted measures of net costs Repairs and maintenance Write-down of inventories – assets other Profit on sale of property, plant and equipment gains Net foreign exchange Impairment of trade receivables charges: Operating lease – equipment plant and (In £’s million)

80 Financial Statements 81 Financial Statements

8 57 60 44 11 36 13 0.6 1.5 1.1 3.2 1.3 0.4 4.9 2005 2005 2005 2005 2005 2005 340 455 2,535 2,518 1,380 8,477 12,375 14,910 he Board tory in

5 45 61 51 16 23 17 0.6 1.5 1.6 3.7 1.1 0.1 4.9 2006 2006 2006 2006 2006 2006 340 468 2,425 2,328 1,443 8,290 12,061 14,486 www.imperial-tobacco.com www.imperial-tobacco.com e closure of our Liverpool and Lahr factories. Lahr of our Liverpool and e closure

continued Directors and employees Restructuring costs Restructuring

Details of Directors’ emoluments and interests are provided within the Directors’ Remuneration Report on pages 52 to 66. These emoluments Details of Directors’ his of and details was Mr G Davis The highest paid Director during the year disclosures form part of the financial statements. shown on pages 54 to 65. emoluments are year during the Average number of persons employed by the Group by location Dublin, the rolling papers factory in Treforest and a significant headcount reduction at the Berlin cigarette factory. cigarette factory. at the Berlin headcount reduction Treforest and a significant papers factory in rolling the Dublin, 4 In 2006 restructuring costs were primarily in respect of th respect of In 2006 restructuring costs were primarily in 3 In 2005 restructuring costs were in respect of the closure of our tube factories in Plattsburgh and Montreal, the cigarette fac in Plattsburgh closure of our tube factories of the In 2005 restructuring costs were in respect Of the above fees £0.1m (2005: £nil) has been capitalised in the balance sheet. capitalised in the balance sheet. been has (2005: £nil) Of the above fees £0.1m T to the scheme. the auditors Tobacco Pension Fund to appoint of the Imperial It is the responsibility of the Board of Trustees Analysis of fees payable to PricewaterhouseCoopers: to PricewaterhouseCoopers: Analysis of fees payable 2 Profit before taxation taxation before 2 Profit Tobacco of the Imperial in respect to PricewaterhouseCoopers paid The fees of Group management. of Trustees acts independently were £23,500 (2005:Pension Fund £20,500).

Employment costs Germany Rest of Western Europe Rest of the World Social security costs

pursuant to legislation Fees for other services supplied transactions Services relating to corporate finance Pension costs (note 18) Share-based payments (note 21) Other operating charges International (Number) UK (In £’s million) Wages and salaries Employment related (mainly termination) impairment Fixed asset write offs and (In £’s million) Other services relating to taxation (In £’s million) of the audit of the accounts of the Company Audit fees in respect of the Company of the audit of the accounts of associates Audit fees in respect

(6) 15 (20) (22) n/a 2005 2005 2005 2005 206 136 342 162 109 199 308 288 288 297 n/a (158) (180) ed

(2) 16 83 (16) (13) (82) 2006 2006 2006 2006 2006 312 310 310 310 201 142 426 143 148 164 (188) (283)

to reported profit after taxation in order to arrive at the adjust continued Taxation Net finance costs costs finance Net

Finance costs Total tax charge Adjusted tax charge Adjusted tax charge Investment income Interest on retirement benefit liabilities liabilities benefit Interest on retirement instruments on derivative financial losses Fair value Overseas taxation Total current tax Fair value gains on derivative financial instruments instruments on derivative financial gains Fair value Tax on retirement benefits net financing income income net financing Tax on retirement benefits Origination and reversal of temporary differences Origination and Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco

Reported taxation Tax on restructuring costs (In £’s million) (In £’s million) Adjusted taxation adjustments made impact of the shows the tax The table below UK corporation tax at 30% (2005: 30%) Deferred tax Analysis of charge in the year in the Analysis of charge (In £’s million) Current tax Net finance costs 6 measure of earnings disclosed in note 8. note in disclosed measure of earnings loans Interest on bank and other Interest on bank deposits Interest on bank deposits benefit assets Expected return on retirement 5 (In £’s million) Notes to the financial statements statements financial to the Notes

82 Financial Statements 83 Financial Statements

– 8 4 (4) (9) 44 (35) 2005 2005 2005 2005 2005 2005 323 288 239 253 120 373 (121) (308) (191) (235) (191) ved 1,078 d timing rate

1 7 6 2 13 (24) (24) 2006 2006 2006 2006 2006 2006 236 279 127 406 350 310 (191) (312) (259) (272) (259) 1,168 www.imperial-tobacco.com www.imperial-tobacco.com e shareholders had not yet appro the date of the year end, th the date of the year ce per share has been proposed. This amounts to £295m based on share ce per ber 2006 of 18.5p per share (2005: 16.5p) ember 2005 of 39.5p per share (2004: 35.0p) tly has no plans to remit dividends which would result in a material tax cost. material tax in a dividends which would result no plans to remit tly has continued Dividends Dividends

Items not deductible for tax purposes Items not deductible for Unrecognised deferred tax asset deferred Unrecognised Total tax charge Differences in effective tax rates on overseas earnings tax rates effective in Differences Other movements As at 30 September Charge to income statement Charge to income Adjustments in respect of prior periods Adjustments in Cash paid of future remittances. The Group curren account current tax Movement on A final dividend for the year ended 30 September 2006 of 43.5 pen A final dividend Final dividend for the year ended 30 Sept Final dividend for the year ended 30 Septem Interim dividend 7 shareholders in the year: Amounts recognised as distributions to ordinary (In £’s million) Current tax assets Current tax liabilities Analysis of current tax account Analysis of current tax account (In £’s million) (In £’s million) (In £’s million) As at 1 October Exchange movements Factors that may affect future tax charges affect future tax Factors that may to control the source an is able subsidiaries as the Group earnings of overseas unremitted the No deferred tax is recognised on (In £’s million) (In £’s million) Profit before taxation Tax at the UK corporation 30%) tax rate of 30% (2005: Tax effects of: Factors affecting the current tax charge for the year for the the current tax charge Factors affecting UK corporation tax the arise using that would amount profit before taxation differs from the theoretical Group’s The tax on the 6 Taxation 6 Taxation of 30% as follows:

the final dividend at the Annual General Meeting and therefore it is not included in the balance sheet as a liability. liability. as a sheet balance in the it is not included and therefore General Meeting at the Annual the final dividend the number of shares ranking for dividend at 30 September 2006. At

9 (1) (4) (1) 11 3.4 (25) 2005 2005 2005 e re ides 375 554 558 784 es Earnings Earnings 4,468 3,910 3,554 4,108 721.6 725.0 108.6 108.1 average tion from s follows:

– – 7 3 (1) (1) (1) 14 11 29 34 18 20 EPS 3.3 n/a n/a 2005 2006 2006 5.8p 42 851 (2.2)p (16) 696.3 699.6 122.2 121.6 108.6p 784 112.2p 810

– – – 1 6 (9) (3) 94 29 55 58 (30) 2006 2006 ld under the employee sha under the employee ld 450 851 851 149 368 508 Earnings & licences & licences Software Total Trademarks Trademarks

– – – – (1) 11 EPS (15) 2006 481 480 4.2p 0.1p (4.3)p 3,446 3,449 3,930 3,926 Goodwill 122.2p 122.2p to ordinary shares of rights he to ordinary shares of rights continued Intangible assets assets Intangible Earnings per share Earnings

As at 30 September 2006 Amortisationthe year charge for As at 30 September 2006 Additions As at 1 October 2005 As at 30 September 2006 Acquisitions (note 24) Disposals Exchange movements Disposals As at 1 October 2005 Exchange movements Fair value gains and losses on derivative financial instruments and losses on gains Fair value Potentially dilutive share options Adjusted Shares for diluted earnings per share Shares for diluted earnings Retirement benefits net financing income net financing Retirement benefits Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco

Net book value Amortisation Cost As at 1 October 2005 9 (In £’s million) (In £’s million unless otherwise indicated) indicated) otherwise unless £’s million (In Reported basic Restructuring costs As described in note 1 above, management believes that reporting adjusted measures, including adjusted earnings per share, prov per share, adjusted measures, including adjusted earnings that reporting believes As described in note 1 above, management (In pence) per share Basic earnings per share Diluted earnings

number of ordinary shares in issue during the year excluding shares held to satisfy the Group’s employee share schemes and shar the Group’s employee share schemes to satisfy shares held year excluding during the shares in issue number of ordinary th into account by taking calculated been per share have earnings shares. Diluted as treasury held and purchased by the Company in millions) (Numbers of shares: Weighted average number share per Shares for basic earnings is controlled. A reconcilia the business reflects the way in which the year and for a better comparison of business performance a is them calculating used in figures (net of tax) the earnings per share, and reported earnings per share to adjusted earnings (In £’s million) (In £’s million) Earnings: basic and diluted Basic earnings per share is based on the profit for the year attributable to the equity holders of the Company and the weighted equity holders for the year attributable to the on the profit is based per share Basic earnings 8 Notes to the financial statements statements financial to the Notes weighted average number of shares that would be issued on conversion in conversion that would be issued on of shares weighted average number schemes.

84 Financial Statements 85 Financial Statements

554

9.3% 9.3% 9.3% 9.3% 4,108 3,554 he Intangible Intangible scount assets with

indefinite lives lives indefinite ny ny Discount rate Discount summary summary 2005 2005 1 40 – 29 18 11 377 – 347 – 3.4% 3.5% 5.1% 7.2% Goodwill Goodwill 1,093 – 1,592 – 3,449 – Software Total Total Software www.imperial-tobacco.com www.imperial-tobacco.com Growth rate – – 28 47 55 94 293 368 149 & licences & licences Intangible Trademarks assets with indefinite lives

2006 2006 – – 10 10 (1)– – (1) 42 345 346 481 Goodwill Goodwill 1,164 1,549 3,446 3,930 3,449 Goodwill regarding discount rates and the long term growth rates. The di in 2006 (2005: £nil). in 2006 continued Pre-tax discount rate applied to the cash flow projections. projections. flow cash the to applied rate discount Pre-tax Weightedaverage growthrate usedextrapolate to cash flowsthe beyond budget period.

As at 1 October 2004 3,452 95 9 3,556 2.

1. The goodwill in Germany and the Rest of the World arose principally on the acquisition of Reemtsma in 2002. in 2002. acquisition of Reemtsma World arose principally on the Rest of the Germany and the The goodwill in a if there are frequently or more annually, lives for impairment with indefinite The Group tests goodwill and intangible assets As at 30 September 2005 unit. A separate as a single identified with manufacturing according to country of operation for distribution units, identified follows: as level is shown at CGU presented lives, assets with indefinite intangible value of goodwill and of the carrying calculations. based on value-in-use CGU is determined amount of a have arisen. The recoverable impairment may indications that for the value-in-use calculations are those The key assumptions Goodwill and intangible asset impairment review Goodwill and intangible asset impairment have been Group’s cash-generating units (CGUs), which to the are allocated lives Goodwill and intangible assets with indefinite Net book value Amortisation As at 1 October 2004 Exchange movements Acquisitions (note 24) Additions 3,938 (26) 140 18 9 20 – 4,098 – – (17) 18 2005 (In £’s million) Cost 9 Intangible assets 9 Intangible Disposals 2005 As at 30 September As at 1 October 2004 Exchange movements Amortisationfor the year charge As at 30 September 2005 – 486 (5) 45 8 2 11 7 – 542 15 (3)

rate is based on the weighted average cost of capital, while growth rates are based on management’s experience and expectations of experience average cost capital, while growth rates are based on management’s rate is based on the weighted and do not exceed the long term average growth rate for the area in which the CGU operates. These calculations use cash flow use cash These calculations operates. the CGU area in which growth rate for the average the long term and do not exceed beyond the three-year a three-year period. Cash flows budgets approved by management, covering projections based on financial with forecasts and t average growth rates are consistent period are extrapolated using the estimated growth rates. The weighted discount rates are pre-tax. charges were recognised No impairment Rest of Western Europe Rest of Western Europe Rest of the World Manufacturing Manufacturing Rest of the World

UK Germany (In £’s million) UK Germany

– 2 (6) 75 94 17 (17) (57) (40) 451 642 451 516 580 642 1,093 1,093 1,096 al of

to 1 2 1 (1) (1) 78 73 78 21 89 70 73 21 (10) (15) 151 151 159 Fixtures and and Fixtures Fixtures and and Fixtures motor vehicles vehicles motor Total motor vehicles Total

1 (5) (2) 67 10 52 (27) (14) (33) 370 406 370 415 365 406 776 776 780 Plant and Plant Plant and and Plant equipment equipment equipment

– – – – (1) 1 – (1) – – 13 – 13 3 3 6 6 2 6 (8) 2 6 (8) – 2 69 21 92 (3) (2) (9) 12 (12)(56) (44) – (35) (48) (3) (86) 163 145 163 166 166 157 Property Property Property garette trademark for a cash consideration of £368m. The Group a cash consideration garette trademark for isition of Reemtsma in 2002. Given the global growth potenti the Given in 2002. Reemtsma isition of continued

continued tember 2005 p Property, plant and equipment equipment and plant Property,

s at 30 Se dditions s at 1 October 2004 189 751 129 1,069 Charge for the year Charge for the Disposals Impairment Disposals As at 1 October 2005 As at 30 September 2006 Acquisitions (note 24) Reclassifications As at 30 September 2006 As at 30 September 2006 As at 1 October 2004 182 414 69 665 Exchange movements As at 1 October 2005 Additions Exchange movements Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco Net book value A A Accumulated depreciation had been the long term licensee of the trademark following the acqu following licensee of the trademark long term had been the A year the movements for As at 1 October 2004 Exchange Reclassifications Charge Impairment Disposals As at 30 September 2005 As at 30 September 2005 7 59 16 82 1 6 1 8 7 337 60 404 2005 (In £’s million) Cost Net book value Accumulated depreciation As at 1 October 2005 the brand, the Directors consider that the Davidoff cigarette trademark has an indefinite life and it is therefore not subject is therefore and it life an indefinite has cigarette trademark Davidoff consider that the Directors the brand, the of IAS 36. requirements review under the subject to an annual impairment amortisation. It is, however, 2006 (In £’s million) Cost 10 Acquisition of cigarette trademark Davidoff the GroupOn 5 September 2006, the worldwide Davidoff ci acquired 9 Intangible assets assets 9 Intangible Notes to the financial statements statements financial to the Notes Exchange movements Exchange Reclassifications 4 12 2 18 Disposals

86 Financial Statements 87 Financial Statements 7 5 (2) 25 12 16 2005 2005 2005 2005 2005 2005 151 163 301 407 133 857 231 256 ls ory, because ory, 2005 2005 – 5 5 (7) – 25 2 28 2 17 12 14 2006 2006 2006 2006 2006 2006 966 – 959 – 410 106 789 246 263 133 145 259 Current Non-current 1,012 4 www.imperial-tobacco.com www.imperial-tobacco.com – – – 4 15 19 2006 2006 (6) 16 45 Current Non-current 1,012 1,006 1,067

continued Cash and cash equivalents Trade and other receivables receivables other and Trade Inventories Inventories Investments in associates associates in Investments

(In £’s million) (In £’s million) As at 30 September Net trade receivables Other inventories

inventories Finished Prepayments and accrued income income Prepayments and accrued

Short term deposits and other liquid assets 14 (In £’s million) in hand and Cash at bank Other receivables Trade receivables of receivables Less: provision for impairment 13 Other inventories comprise mainly duty-paid tax stamps. Other inventories comprise mainly duty-paid although part of such invent leaf tobacco inventory as a current asset to classify practice industry It is generally recognised Raw materials Work in progress None of the associates is considered to be significant to the Group. considered associates is None of the 12 (In £’s million) Impairments 11 (In £’s million) As at 1 October Assets with a net book value of £1m (2005: £1m) are pledged as security for liabilities. for liabilities. £1m) are pledged as security value of £1m (2005: Assets with a net book Land and buildings at net book value: Land and buildings at (In £’s million) Freehold Long leasehold 10 10 equipment plant and Property,

inventories at the balance sheet date will ordinarily be utilised within two years. within two be utilised date will ordinarily inventories at the balance sheet of the duration of the processing cycle, ordinarily would not be consumed within one year. Leaf tobacco held within raw materia within raw year. Leaf tobacco held one be consumed within would not ordinarily of the processing cycle, of the duration

of roup s to ut ut t to s are ks of the ll be ll be

the naged s (ii) and es foreign ns into unts due cruals. cruals. e fair value peculative 2005 2005 borrowings. borrowings. 55 8 49 2 165 1 125 – Current Non-current 1,134 – 1,528 11

– – – 1 4 5 t in the Group’s foreign t in the Group’s 2006 2006 8 70 123 106 CurrentNon-current 1,126 1,433 profit centre, nor does it enter into s The Group Treasurer reports on a regular basi

dges of the net investmen assets of the Group’s foreign operations is ma September 2006 in order to meet the requirements of IAS 32. in the relevant foreign currencies. currencies. in the relevant foreign ations was in international markets. Certain sales in these market ations ingscash deposits.most and The materialin respect riskis its of

the debt into the desired currency. rrency exposure arising from the net rrency exposure arising from the continued treasury summaries and an annual review of strategy. review and an annual summaries treasury in foreign exchange rates due to its commercial trading denominated in foreign currencies, th in foreign currencies, trading denominated in foreign exchange rates due to its commercial d liquidity requirements. It does not operate as a d liquidity the delegated authorities set out by the Board. the delegated authorities set out by the Board. financial instruments and hedging activities instruments and financial cross currency swaps) denominated denominated cross currency swaps) rs the Group’s borrowing levels using adjusted net debt which includes the fair value of amo the principal financial risk Management of Borrowings and derivative financial instruments instruments financial derivative and Borrowings Trade and other payables Trade and

Deferred consideration Deferred consideration Other payables Accruals and deferred income income Accruals and deferred (In £’s million) (In £’s million) 1 October 2005. The following disclosures are included as at 30 at included as disclosures are 1 October 2005. The following (i) of the financing ris for the management treasury function, Group Treasury, that is responsible The Group operates a centralised Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco 2006 – IFRS disclosures from applied are being instruments, policy notes, financial IAS 32 and IAS 39, which deal with the Accounting As explained in 16 Group, together with its financing an the operation approved by the Board. A treasury sub-committee oversees procedures and to policies is subject transactions, and Trade payables security contributions social Other taxes, duties and 15 Notes to the financial statements statements financial to the Notes Group Treasury in accordance with Group Treasury in accordance the Board, including provision of monthly Accounting for derivative in th fair value, with changes sheet at balance in the are recognised instruments financial IAS 39 requires that all derivative IFRS. The hedge under rules hedge accounting satisfies the the instrument statement unless in the income being recognised UK GAAP and while the Group continues more restrictive under considerably than the requirements accounting rules under IFRS are of IAS 39 may lead to some structured manner, the requirements and commercial efficient, exposures in an to hedge underlying no has decided hedge accounting purposes. As a result, the Group not being effective for hedge positions commercially effective apply hedge accounting for its derivative financial instruments as permitted under IAS 39. The information contained in section as permitted under IAS 39. The in derivative financial instruments information contained its for apply hedge accounting rate swaps or position currency swaps. However, cross effect of interest borrowing before the the underlying (iii) below shows certain borrowings as he designating Group does apply net investment hedging, details. (v) for operations. See section Foreign exchange risk The Group is exposed to movements The Group has foreign operations whose net assets are exposed to foreign currency translation risk when consolidated into the G into foreign currency translation risk when consolidated are exposed to assets foreign operations whose net The Group has foreign currency borrowings (both pre and post cross currency swaps), the translation of the net assets of its foreign operatio cross currency swaps), the translation of the net assets of its borrowings (both pre and post foreign currency costs. currency denominated statements and foreign financial the consolidated less duty and 62% of profit from operIn 2006, 74% of revenue invoiced in currencies other than the functional currency of the selling company, in particular Taiwanese dollars. The Group us Taiwanese dollars. The Group particular company, in currency of the selling functional other than the invoiced in currencies financial statements. A proportion of the cu currency derivative instruments, such as forward foreign exchange contracts, to reduce exposure to the risk that these sales wi contracts, to reduce exposure to the risk exchange foreign as forward currency derivative instruments, such forward foreign were £32m notional outstanding 2006, there As at 30 September rates. in exchange adversely affected by changes exchange contracts. from various countries b is sourced purchase of tobacco leaf, which the include denominated costs currency The material foreign number a in purchased various countries and from are sourced which materials packaging purchased principally in US dollars, and of currencies. derivative financial uses and of execution that are most appropriate at the time market or markets The Group issues debt in the to change swaps, instruments, such as cross currency through borrowings (post Group Treasury monito to be exchanged at maturity under cross currency swaps and excludes the fair value of interest rate derivatives and interest ac Interest rate risk The Group is exposed to interest rate risk due to its borrow

88 Financial Statements 89 Financial Statements

85 ure 2006 2006 322 361 206 wn 1,037 1,122 2,041 2,930 4,052

te of rns that ng ng oup uence uence entered ncial ncial

nagement nd different nd different s s. In order its credit risk to its www.imperial-tobacco.com www.imperial-tobacco.com currency and into floati currency and 79% in Euro. Accordingly, the 79% in Euro. Accordingly, g and Euro interest rate function is in regular dialogue with function is e Group has implemented policies to ens e the debt into the desired into the debt minated in sterling and minated in sterling and fluctuations in sterlin £20m and £22m September respectively at 30 2006.

September of adjusted2006, 51% at a floating ra net debt was institutions with suitable credit ratings in order to manage suitable credit institutions with continued core liquidity needs, the Group Treasury core liquidity

from having insufficient funds available to enable it to meet the financing need financing it to meet the to enable available from having insufficient funds trations of credit risk from customers. However, th trations of credit risk from customers. However, borrowings include interest payable of borrowings include interest e borrowings, the Group separates the borrowing activities risk ma its interest rate separates from e borrowings, the Group continued market or markets that are most appropriate at the time of execution and using derivative fina time of are most appropriate at the market or markets that

financial risk continued Borrowings Management of

€1,500m 6.25% notes due 2007 US$600m 7.125% notes due 2009 £350m 6.875% notes due 2012 £200m 6.25% 2018notes due Total non-current borrowings Total current borrowings Capital market issuance: Capital market issuance: Capital market issuance: may affect crop quality or supply and so lead to changes in price. price. changes in and so lead to may affect crop quality or supply sourcing from various number of different countries, from a to reduce this price risk by sourcing tobacco leaf The Group seeks counterparties and by varying theheld. levels of tobacco leaf (ii) The Group’s borrowings as at 30 September 2006 are as follows: any one financial institution. any one financial Liquidity risk The Group is exposed to liquidity risk arising of the Group. Gr are designed to ensure that the that term and short term committed facilities mixture of long a maintains The Group actively 2006 the GroupSeptember at 30 had £504m of undra requirements of the Group. As has sufficient available funds for the forecast committed facilities, maturing in 2010. As well as forecasting and monitoring the Group’s needs are met. their liquidity subsidiary companies to ensure Price risk of tobacco leaf. price in the to commoditymay be fluctuations The Group is exposed price risk in that there considerations infl and demand supply cyclical as tends to be the price of tobacco leaf As with other agricultural commodities, patte may experience variations in weather regions tobacco is grown. Also, different tobacco plantings in those countries where Total borrowings Total borrowings Current borrowings and non-current Non-current borrowings Bank loans (In £’s million) (In £’s million) Current borrowings overdrafts and Bank loans (i) 16 Borrowings and derivative financial instruments instruments financial 16 and derivative Borrowings Interest rate risk are currently exposedGroup’s financial results from to gains or losses arising at a fixed rate of interest. interest and 49% was Credit risk instruments financial deposits and and cash to credit from customers due The Group is exposed risk due to its trade receivables institutions. transacted with financial some significant concen The Group has As at 30 Septemberwas deno approximately 2006, 21% of adjusted net debt that sales of products are made to customers with an appropriate credit history and obtains guarantees or other means of credit credit history and obtains appropriate with an that sales of products are made to customers support to reduce the risk where this is considered to be necessary. to be necessary. this is considered support to reduce the risk where cash deposits and has placed The Group institutions. financial of credit risk from concentrations no significant The Group has group of financial into derivative instruments with a diversified interest rate shortly after issue. The Group then transacts interest rate swaps at other times for different notional amounts a for interest rate swaps at other times transacts issue. The Group then interest rate shortly after to manage its interest rate risk on th to manage its interest in the decisions by issuing debt maturities to manage our exposure to interest rate risk. As at 30 our exposure to interest rate risk. As at maturities to manage instruments, such as cross currency swaps and interest rate swaps, to change and interest rate swaps, to change swaps cross currency instruments, such as

– – – – – – – – 4.3 5.2 4.0 6.5 5.2 4.3 2.5 3.3 3.2 6.0 4.6 7.1 t at average average Weighted

(3) 67 99 97 Total n the case of n the case of t 256 183 263 573 (37) (55) (31) (323) (123) 1,012 (1,092) (2,634) (4,052) (2,126) (1,926) (4,052)

– – – – 6.6 6.6 6.6 6.6 5 years 5 years

More than – – – – (567) (567) (567) (567)

– risk arising is shown in risk arising is shown in 5.3 3.5 7.1 4.4 3.9 7.1 4.4

Between Between – 2 and 5 years 5 years 2 and (501) (322) (322) (1,539) (2,362) (2,040) (2,362)

– – – – Maturity 9.2 9.2 9.2 9.2

Between Between – – – – 1 and 2 years 2 years 1 and (1) (1) (1) (1)

ge the resultant interest rate ge the

– – – – – – – – 5.3 6.2 5.8 4.3 6.2 4.8 6.2 6.1 4.3 2.5 3.3 3.2 continued 1 year 1 year

Less than (1) (3) £m % £m £m % % £m % £m % 97 67 99 (24) (85) 263 573 256 183 (37) (55) (31) (123) 1,012 (1,037) (1,122) (1,094) (1,122)

continued Currency analysis and effective interest rates of financial assets and financial liabilities financial liabilities of financial assets and effective interest rates Currency analysis and

By class of instrument: borrowings Bank Sterling Trade receivables Sterling By currency: Sterling Euro Other Total trade receivables Euro Other Total trade payables Total borrowings Total borrowings Capital market issuance Total borrowings Euro Other Total cash and cash equivalents Euro dollars US Other a fixed rate until maturity. a fixed rate currency swaps to mana The impact of interest rate swaps and cross section (iv) overleaf. Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco Weighted average payable interest rate (%) interest balances. accrued the excluding been calculated above have rates shown in the table The effective interest to LIBOR i by reference advance bear interest at rates fixed in The majority rate liabilities. The bank borrowings are floating Weighted average payable interest rate (%) Weighted average payable interest bears in place at 30 September 2006 interes borrowings. The capital market issuance EURIBOR in the case of Euro sterling and to Borrowings

Trade payables Sterling Weighted average receivable interest rate (%) Weighted average receivable interest 30 September as follows: 2006 are the impact Assets/(liabilities) (before and interest of cross currency swaps rate swaps) equivalents cash Cash and The currency denomination, the maturities and the effective interest rates of the Group’s financial assets and liabilities as a liabilities as of the Group’s financial assets and interest rates the effective the maturities and The currency denomination, indicated) otherwise unless £’s million (In (iii) 16 Borrowings and derivative financial instruments instruments financial 16 and derivative Borrowings Notes to the financial statements statements financial to the Notes

90 Financial Statements 91 Financial Statements

37 Total 321 350 200 sed t he 2,126 4,052 1,018 1,926 2,124 posure. interest

markets ate risk. ansacts e fair value www.imperial-tobacco.com www.imperial-tobacco.com Accounting year ending in ending year Accounting

shortly after issue. The Group then tr shortly after issue. The foreign currency exchange rate and interest rate ex and foreign currency exchange rate

rket information and third party advice at 30 Septemberrket information and third party advice at 30 2006 to held by the Group as at 30 September 2006, and demonstrates t Group as at 30 September 2006, and demonstrates held by the terest rate where relevant. Some of the interest rate swaps have terest 2007 2008 2009 2010 2011 Thereafter Thereafter 2011 2010 2009 2008 2007 continued 30 Sept 2006 2006 30 Sept rrency and into floating interest rate into floating rrency and exercised in order to determineexercised in order probable maturity date. the Sterling equivalent at equivalent Sterling instruments to manage the Group’s instruments to manage of such instruments used to calculate the contractual payments under such contracts, analy such contracts, payments under contractual instruments used to calculate the of such Derivative financial instruments Derivative financial instruments

(iv) in th fair value, with changes sheet at balance in the are recognised instruments financial derivative IAS 39 requires that all 16 Borrowings and derivative financial instruments instruments financial 16 and derivative Borrowings The hedge IFRS. under hedge accounting rules satisfies the the instrument statement unless in the income being recognised while the Group continues UK GAAP and more restrictive under considerably the requirements than IFRS are accounting rules under some of IAS 39 may lead to requirements structured manner, the and commercial efficient, exposures in an to hedge underlying no has decided As a result, the Group hedge accounting purposes. for not being effective hedge positions commercially effective

of borrowing overdrafts, borrowed at and Bank loans at the time a margin LIBOR (or equivalent) plus of 2,038 1 85 to apply hedge accounting for its derivative financialto apply hedge accounting as permitted under IAS 39. instruments or by issuing debt in the market decisions its interest rate risk management the borrowing activities from The Group separates and currency swaps such as cross financial instruments, derivative using and execution at thethat are most appropriate time of the debt into the desired cu rate swaps, to change Group’s use of those derivative Group’s use of financial interest rate swaps at other times for different notional amounts and different maturities to manage our exposure to interest r maturities to manage notional amounts and different other times for different interest rate swaps at instruments The following table sets out the derivative financial The table presents the nominal value by maturity date, together with the related weighted average in by maturity date, together with the related weighted embedded options and assumptions have been made based on ma embedded options and assumptions have are likely to be such options determine whether of execution appropriate at the time are most markets that or the market in Debt is issued Total bank borrowings accruals bank Interest Total 2,040 borrowings 1 Total 85 2 1,122 2,040 1 322 567

£200m 6.25% notes due 2018 due 200 200 notes 6.25% £200m £350m 6.875% notes due 2012 accruals and discounts Interest capital market issuance Total 350 19 1,037 322 1 350 567 17 market issuance Capital €1,500m 6.25% notes due 2007 US$600m 7.125% notes due 2009 1,018 321 1,018 321

(In £’s million)

20 45 38 16 119 onvert

s ofinterest 5 10 14 29 Fair value as at as Fair value 30 September 2006 2006 30 September

Liability Asset

of the trade. This trade is expected expected is trade This trade. of the expected is trade This trade. of the of the trade. This trade is expected expected is trade This trade. of the f the trade. This trade is expected expected is trade This trade. the f 550 425 2,926 1 4 6 6.5 6.5 1.2 1.2 185 1,586 3 321 5 50 1

Accounting year ending in ending year Accounting 7.1 7.1 7.1 1.3 1.3 1.3 2 continued

1.2 1.2 1.2 6.1 6.1 6.1 6.6 6.1 5.6 4.3 5.3 4.8 3.1 5.1 3.7 4.3 3.9 continued continued The following trades are included within this balance: balance: this within included are trades The following the throughout life three months every to cancel the option has counterparty the in where 2031 maturing £60m rate swap interest to be cancelled in June 2016. 2016. June in cancelled to be life the throughout months three every cancel to option the has counterparty the where 2031 in maturing swap rate £15m interest 2016. April in cancelled to be option. counterparty’s the at 5.5% at 2006 October starting swaption five-year start £25m forward to be cancelled in April 2011. 2011. April in cancelled to be The following trade is included within this balance: balance: this within included is trade following The o life the throughout years five every cancel to option the has counterparty the where 2041 in maturing swap rate £50m interest The following trade is included within this balance: balance: this within included is trade following The the throughout life three months every to cancel the option has counterparty the in where 2031 maturing £20m rate swap interest 2008. March in cancelled to be Principal amounts under these cross currency swaps are exchanged at the start and maturity of these trades. trades. these of maturity and start the at exchanged are swaps currency cross these under amounts Principal

4. 3. 2. Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco 1. Therefore, the overall effect of the interest rate swaps transacted as at 30 September 2006 that were live at this date is to c 2006 that were live at rate swaps transacted as at 30 September the interest overall effect of Therefore, the £1,886m of borrowings into a fixed rate. Derivative financial instruments are then transacted to create the desired interest rate risk are then transacted Derivative financial instruments Derivative financial instruments are then transacted to change the debt issued into the desired currency and floating into rate (iv) Derivative financial instruments 16 Borrowings and derivative financial instruments instruments financial 16 and derivative Borrowings Notes to the financial statements statements financial to the Notes average margin over Weighted to pay (%) EURIBOR Interest rate swaps – pay variable, receive fixed: average interest rate Weighted (%) to receive interest margin over LIBOR Sterling (%) to pay to pay (%) pay to Interest margin over EURIBOR Total fair value of derivative financial instruments as at 30 September 2006 Total fair value of derivative Notional amount Notional Weighted average interest rate to pay (%) 997 61 187 95 Interest rate swaps – pay fixed, receive variable: average interest rate Weighted pay (%) to Interest rate swaps – pay fixed, receive variable:

Notional amount amount Notional 1,018 1,018 interest rate derivativesEuro Notional amount Notional rate to receive (%) US dollar interest 321 (%) Sterling interest rate to receive Notional amount Notional Cross currency swaps 550 interest rate derivatives Sterling

interest rate derivativesEuro amount Notional 50 140

indicated) otherwise unless (In £’s million 2007 2008 2009 2010 2011 Thereafter Total

92 Financial Statements 93 Financial Statements

1 3 25 24 2005 2005 682 707 867 369 575 332 1,021 2,832 3,539 ial 1,129 1,157 1,103 1,540 2,975 l ty to

d this has the financial the financial 1 3 24 322 amount Fair value amount Fair Carrying 1,094 1,122 1,068 1,540 2,930 www.imperial-tobacco.com www.imperial-tobacco.com tober 2005 and to record financial

32 and IAS 39 from 1 Oc currency swaps that have been reclassified to derivative financia swaps that have been reclassified to derivative currency continued

e net investments in the subsidiaries. net investments in the subsidiaries. e continued period on the UK GAAP basis. period on the Hedge of net investments in foreign operations in foreign Hedge of net investments Fair values of financial assets and financial liabilities Fair values of financial assets The following trades are included within this balance: balance: this within included are trades The following 2007. in March starting swaps rate interest ten-year forward €250m and five-year start €200m forward 2007. April in starting swaps rate interest seven-year start forward €220m and five-year start €1189m forward 2012. April in starting swaps rate interest five-year start €125m forward The following trade is included within this balance: balance: this within included is trade following The 2007. March in starting rate swaps interest three-year start €140m forward

Total non-current borrowings Other Total current borrowings US dollars Euro US dollars Euro statements at amounts other than fair values. statements at amounts other than other payables, and derivative financ other receivables, trade and trade and equivalents, and cash of cash The carrying amounts analysis below. from the and so are excluded their fair value approximate to instruments are instruments on the face of the balance sheet in accordance with IAS 21 “The effects of changes in foreign exchange rates”. exchange rates”. foreign in with IAS 21 “The effects of changes accordance sheet in balance the the face of instruments on Set out below is a comparison by category of carrying amounts and fair values of all financial liabilities that are carried in that are liabilities of Set out below is a comparison by category of all financial carrying amounts and fair values 6. Other loans to cross The borrowings total above includes £57m in relation Total borrowings Total borrowings Other loans – between one and two years one and Other loans – between Bank loans and overdrafts overdrafts and Bank loans Amounts falling due after more than one year (In £’s million) (In £’s million) Amounts falling year due within one It is only the capital market issues contained within the table above that have a fair value different to the carrying value an to the carrying value different above that have a fair within the table contained market issues It is only the capital Sterling Non-current borrowings to par. bonds capital market trading levels of the by comparing the current been calculated 2005 – UK GAAP disclosures IFRS 1 to adopt IAS exercised the exemption under The Group has instruments in the comparative the 2005 balance sheet date: at the Group’s financial liabilities analyses The following table two and five years – between Bank loans Sterling (In £’s million) (In £’s million) Current borrowings (v) been have currency swaps) which of cross €3,720m (before the effect at 30 September 2006 were loans of in borrowings Included Group’s exposure used to hedge the and are being in the Group’s foreign operations of the net investment hedges designated as borrowings are transferred to equi of these on the retranslation Gains or losses to foreign exchange risk on these investments. (iv) Derivative financial instruments 5. 16 Borrowings and derivative financial instruments instruments financial 16 and derivative Borrowings offset any gains or losses on translation of th (vi) two and five years Other loans – between five years Other loans – after

hich hich

2005 2005 Years 118 598 716 place place for which for which Weighted Weighted ocal rate is fixed rate is fixed ed bond bond ed l ry the R (in the hree the ce. The of the average period average period k, the te. tions in of bank ing rate, as at et date. % average Weighted Weighted interest rate interest financial financial liabilities liabilities Fixed rate rate Fixed financial financial liabilities liabilities Floating rate Floating Net foreign currency monetary assets/(liabilities) assets/(liabilities) monetary currency foreign Net Total Total 3,539 1,593 1,946 4.7 3.3

Sterling Sterling Euro US dollars dollars Australian Other Total vatives, including interest rate and cross currency swaps, to va rate and cross currency vatives, including interest currency swaps that have been reclassified to derivative financia currency continued continued in interest rates on its borrowings and surplus cash. In order to manage interest rate ris and surplus cash. In order to manage interest borrowings in interest rates on its liabilities financial rate Fixed

Interest rate risk profile of financialInterest rate risk profile liabilities Borrowing facilities Currency risk disclosure Currency risk disclosure

(In £’s million unless otherwise indicated) indicated) otherwise unless £’s million (In (In £’s million) (In £’s million) The Group is exposed to fluctuations The Group is exposed matures in June 2012). matures in June 2012). (i) exchange rates”. foreign in changes of with IAS 21 “The effects accordance sheet in balance the the face of instruments on The majority issuances (post-derivatives). market capital and liabilities comprise bank borrowings The floating rate financial Group maintains both fixed and floating rate debt and uses deri Group maintains both Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco In addition to the above committed facilities there are other uncommitted facilities available to the Group. to available In addition to the above committed facilities there are other uncommitted facilities Expiring within one year Expiring within years Expiring between two and five (iii) at a float available are all facilities which undrawn committed to it. The available various borrowing facilities The Group has (In £’s million) (12) 605 (65)(83) 65 510 65 (64) (65)(83) 28 Euro Other (11) (12) (27) 605 (54) – (1)101 – 25 11 66 Sterling – 632 (36)(94) (29)473 (36)(94) 632 Sterling –

The borrowings total above includes £57m in relation to cross to The borrowings total above includes £57m in relation Australian dollar dollar Sterling dollar Euro Australian US Other 0.5 4.7 115 85 30 15 15 765 390 375 5.7 5.0 n/a – n/a 2,634 1,094 1,540 4.5 2.0 3.0 9.1 10 9 1 borrowings bear interest at rates fixed in advance for periods of one month by reference to LIBOR in the case of sterling and t case in the to LIBOR reference advance for periods of one month by borrowings bear interest at rates fixed in in market issuance borrowings). The capital of Euro case (in the and EURIBOR dollar borrowings of Australian months in the case six months by reference to LIBO at rates fixed in advance for and currency swaps) bears interest (post-interest at the year end bonds). Euro sterling and case of the to EURIBOR (in the dollar bond) and for three months by reference case of the US The figures shown in the tables above take into account various interest rate and currency swaps. Hence the US dollar denominat are shown Euro issuedbalan and in the bonds balance, and in 2002 within sterling 2003 is shown the sterling issued in 1999 the fixed rate financial liabilities do not take into account forward start swaps, which may become effective after the balance she (ii) currency to minimise local in the are raised of overseas companies, borrowings foreign currencies. On significant acquisitions into to hedge a proportionentered deals are forward foreign exchange necessary, For translation risk, where translation risk. flows. At 30 September notional 2005, £36.1m were outstanding. forecast foreign currency cash of forward foreign exchange deals date: sheet balance currency at the operation Functional currency of Group The Group is exposed to the translation of the results of overseas subsidiaries into sterling, as well as the impact of transac well as the as subsidiaries into sterling, the results of overseas The Group is exposed to the translation of The loans maturing after five years are the £200m sterling bond (which matures in December 2018) and the £350m sterling bond (w 2018) December in matures five years are the £200m sterling bond (which The loans maturing after 16 Borrowings and derivative financial instruments instruments financial 16 and derivative Borrowings Notes to the financial statements statements financial to the Notes The tables below show the extent to which Group companies have monetary assets and liabilities in currencies other than their l currencies in have monetary assets and liabilities show the extent to which Group companies The tables below mix. sheet da balance at the liabilities financial Group’s interest composition of the the currency and analyses The following table 30 September 2005 in respect of which all conditions precedent have been met at that date, were as follows: met at that date, were as follows: have been precedent conditions 30 September all 2005 in respect of which

94 Financial Statements 95 Financial Statements

ity by l arty ge interest Fair value value Fair Book value www.imperial-tobacco.com www.imperial-tobacco.com values Negative fair fair Negative 10 (28) (18)10 (28) – values Positive fair fair Positive

e Group’s derivative financial instruments is set out below: is set out below: financial instruments derivative e Group’s comprise mainly short term money market deposits with a matur currency swaps that have been reclassified to derivative financia swaps that have been reclassified to derivative currency continued instruments have been derived from market information and third p market derived from instruments have been 3.4 3.4 9.1 5.8 4.1 3.4 3.8 3.4 4.1 5.8 9.1 3.4 3.4 2.5 2.5 2.5

rate interest average weighted and date Maturity Fair values of derivative financial instruments Fair values of derivative Detailed analysis of financial assets and financial liabilities of financial assets and financial liabilities analysis Detailed

instruments on the face of the balance sheet in accordance with IAS 21 “The effects of changes in foreign exchange rates”. exchange rates”. foreign in with IAS 21 “The effects of changes accordance sheet in balance the the face of instruments on The cash deposits earn interest at floating rates of interest and rating. limiting the aggregate amount of exposure to any one counterparty, based on their credit date not exceeding one year. date not exceeding other financial instruments, are managed to cash deposits and in relation Credit risks on the amounts due from counterparties, (In £’s million unless otherwise otherwise unless £’s million (In indicated) value Fair % Total Thereafter % % 2010 % 2009 % 2008 % 2007 2006 The borrowings total above includes £57m in relation to cross The borrowings total above includes £57m in relation Weighted average payable interest rate (%) Euro (1,022) 3.4 (356)2.5 (575) 3.4 (1,953) (2,061) (114)(114)3.4 (114)5.9 Long term debt (575) dollars (356)2.5Sterling (749)(773) Euro (380)5.0 (369)5.8 Australian 3.4 Other Total long term debt (1,022) (1,022) (1) 9.1 (15) 4.2 (16) (1) (16) (369) (865) (575) (2,832) (2,964) Total short term debt (707) (707)(733) (1) (707) debt (1) (16) term Short term debt (681)(707)6.5 dollars (16) Sterling Euro (1) short Australian (9) 5.3 Other 3.4 Total (16) (9) (681) 0.9 (9) Weighted average receivable interest rate (%) Total cash deposits 256 256 256 256 67 deposits 256 67 Cash deposits 98 Sterling 91 98 cash Euro 91 Other 2.8 Total 67 1.5 3.4 98 91 rate swaps) swaps) Assets/(liabilities) (all at floating rates after cross currency swaps before interest the effect of rate The figures shown in the table above for derivative financial above for derivative in the table The figures shown Derivative financial instruments held to manage the interest and currency profile the interest and to manage held Derivative financial instruments instruments Interest rate swaps and similar Currency swaps 62 (116) (54) – (iv) and book values of th values of the fair A comparison by category (In £’s million) 16 Borrowings and derivative financial instruments instruments financial 16 and derivative Borrowings

The following table shows the financial assets and financial liabilities held by the Group, their maturities and weighted avera weighted maturities and by the Group, their held liabilities and financial assets shows the financial The following table rates as at 30 September 2005: advice as at 30 September 2005. advice as at 30 September (v) 2005 2005 Losses

72 (144) 2005 2005 Gains

continued

the year not recognised in the year the year not recognised 91 (127) continued not recognised in the year (19) (17) hedges at 1 October 2004 hedges at 1 100 (137) Hedges

Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco

Unrecognised losses on hedges at 30 September 2005 gains and Of which: within one year to be recognised losses expected Gains and after one year to be recognised Gains and losses expected 19 53 – (144) Gains and losses arising in previous years recognised in the year in the years recognised previous losses arising in Gains and start of the before Gains and losses arising in the year Gains and losses arising (9) 10 (vi) (In £’s million) and losses on Unrecognised gains 16 Borrowings and derivative financial instruments instruments financial 16 and derivative Borrowings Notes to the financial statements statements financial to the Notes

96 Financial Statements 97 Financial Statements

and e www.imperial-tobacco.com www.imperial-tobacco.com 550 (1) 400 (26) 1,894 (90) 5 2 4 1.2 1.2 6.5 6.5 501 370 (17) 370 3 5 7.1 7.1 7.1 1.3 1.3 1.3 Group at 30 September 2005. The table presents th

t. Some of the interest rate swaps have embedded options rate swaps have embedded options t. Some of the interest 120 210 120 continued 1 6.0 6.4 5.2 5.7 ancial instruments held by the ancial instruments held

5.5 5.5 5.5 1.0 1.2 1.1 1.2 1.0 6.1 6.1 6.1 6.1 6.1 2.6 4.8 3.1 5.1 3.7 4.1 4.5 4.1 4.8 3.1 5.1 3.7 2.6 4.7 4.7 4.7 in ending year Accounting Derivative financial instruments Derivative financial instruments

Australian dollar interest rate derivatives Notional amount – 136 136 Caps purchased: Notional Weighted average strike price (%) Weighted average margin over EURIBOR to pay (%) Interest margin over EURIBOR to pay (%) Notional amount 682 1,022 1,704 62 1,704 amount 1,022 Interest rate swaps – pay 682 fixed: variable, receive Notional Weighted average interest rate to receive (%) receive (%) Sterling interest rate to receive Weighted average interest rate to pay (%) Euro interest rate derivatives Weighted average interest rate to pay (%) Sterling interest margin over LIBOR to pay (%) US dollar interest rate to US dollar interest receive (%) Notional amount 550 Notional (In £’s million unless otherwise indicated) indicated) otherwise unless (In £’s million 2006 2007 2008 2009 2010 Thereafter Total value Fair

Notional amount – 30 30 Notional Weighted average interest rate to pay (%) Notional amount 370 Interest rate swaps – pay fixed, receive variable: Interest rate swaps – pay fixed, receive variable: Notional amount Notional amount 70 48 1,002 61 187 95 Sterling interest rate Sterling interest rate derivatives Interest rate swaps – pay fixed, receive variable: (vii) out the derivative fin The following table sets 16 Borrowings and derivative financial instruments instruments financial 16 and derivative Borrowings analysed by maturity date, contracts, under such contractual payments the used to calculate such instruments value of nominal weighted average interest rate where relevan together with the related whether date to determine the balance sheet third party advice at information and based on market made assumptions have been to determine the probable maturity date. in order likely to be exercised such options are Currency swaps

(2) 13 62 15 (71) 2005 2005 2005 (133) edged, ropriate inst current tax 71 22 (64) (38) (16) 2006 2006 2006 (135) This trade is expected to be cancelled cancelled be to expected is trade This cancelled be to expected is trade This cancelled be to expected is trade This cancelled be to expected is trade This d to double the notional amount to to amount notional the double to d

continued

continued continued al floating rate debt when the existing debt matures. the existing debt rate debt when al floating Principal amounts under these cross currency swaps are exchanged at the start and maturity of these trades. these of maturity and start the at exchanged are swaps currency cross these under amounts Principal The following trades are included within this balance: balance: this within included are trades The following 2007. March starting swaps five-year start €130m forward 2007. March starting swaps ten-year start €250m forward Deferred tax assets/liabilities assets/liabilities Deferred tax The following trades are included within this balance: balance: this within included are trades The following an trade the of life the throughout years five every cancel to option the has counterparty the where 2041 in maturing £25m swap £50m in April 2006. This trade is expected to be cancelled in April 2011. 2011. in April to cancelled is expected be 2006. This trade £50m April in trade. the of life the throughout months three every cancel to option the has counterparty the where 2031 in maturing £40m swap 2015. in December trade. the of life the throughout months three every cancel to option the has counterparty the where 2031 in maturing £15m swap 2016. in December trade. the of life the throughout months three every cancel to option the has counterparty the where 2031 in maturing £20m swap 2017. in March option. counterparties’ the at 5.5% at 2006 October starting swaption five-year start £25m forward years. a five to extend further for option counterparties’ the with 5.5% at 2006 October in £50m swaps maturing balance: this within included are trades The following 2007. March starting swaps three-year start €140m forward The following trade is included within this balance: balance: this within included is trade following The trade. the of life the throughout months three every cancel to option the has counterparty the where 2031 in maturing £20m swap in March 2007. 2007. in March

5. 4. in anticipation of there being addition in anticipation of 2. 3. 17 Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco

Deferred tax expected to be recovered within 12 months: (In £’s million) Deferred tax assets Deferred tax liabilities Deferred tax liabilities Deferred tax liabilities (In £’s million) (In £’s million) Deferred tax assets Deferred tax assets and liabilities are offset only when there is a legally enforceable right to set off current tax assets aga a legally enforceable and liabilities are offset only when there is Deferred tax assets The Group has entered into certain swap transactions with contractual maturities exceeding those of the underlying debt being h debt being the underlying of exceeding those maturities with contractual transactions swap into certain entered The Group has 1. (vii) financial instruments Derivative 16 Borrowings and derivative financial instruments instruments financial 16 and derivative Borrowings Notes to the financial statements statements financial to the Notes liabilities and when the deferred income taxes relate to the same fiscal authority. The following amounts, determined after app The following amounts, determined authority. fiscal relate to the same income taxes the deferred and when liabilities sheet. balance consolidated offsetting, are shown in the

98 Financial Statements 99 Financial Statements 4 62 21 71 22 16 Total Total (16) (19) (21) Total Total (133) (111) (135) ax through – – 7 3 16 16 23 11 37 (12) (28) (17) differences differences differences Total Total differences differences differences differences differences www.imperial-tobacco.com www.imperial-tobacco.com Other temporary Other temporary Other temporary Other temporary Other temporary Other temporary – – – – – – – – – 22 22 22 gains gains losses losses Fair value value Fair Fair value value Fair Fair value Fair value – – 4 (8) (3) 39 17 57 (77) (77) (28) (113) benefits benefits benefits benefits Retirement Retirement Retirement Retirement Retirement Retirement – – – – – 39 23 62 – 1 44 21 (72) (77)(133) – 16 (72) (72) (27) (44) (23) t that the realisation of the related tax benefit Excess of Excess of Excess of of Excess Excess of of Excess allowances allowances allowances allowances over capital over capital over capital over capital allowances allowances allowances allowances depreciation depreciation depreciation depreciation over capital over capital depreciation depreciation continued Transfers Credited to equity As at 1 October 2005 after IAS 39 transition As at 30 September 2006 As at 30 September 2006 As at 30 September (Charged)/credited to equity Transfers Deferred tax assets are recognised for tax losses carried forward to the exten Deferred tax assets (In £’s million) (In £’s million) As at 1 October 2004 Credited to income statement Charged to equity As at 30 September 2005 1 (73) – (24) – – – (53) 7 9 – (88) 8 – (53)

Credited/(charged) to income statement Credited/(charged) to income statement at 30 September 2006. Deferred recognised t tax losses have been is probable. assets for No deferred tax future taxable profits As at 30 September 2005 before IAS 39 transition IAS 39 transition (note 30) Deferred tax liabilities (In £’s million) (Charged)/credited to income statement Credited to equity As at 30 September 2005 (1) – – – 13 19 12 – – 19 (In £’s million) (In £’s million) As at 1 October 2004 1 20 – 10 31

As at 1 October 2005 income statement Credited/(charged) to Deferred tax assets (In £’s million) 17 Deferred tax assets/liabilities assets/liabilities tax 17 Deferred of the utilisation of the assets of £13m due to the uncertainty £11m) have as at 30 September 2006 (2005: not been recognised in certain jurisdictions. underlying tax losses

e 2

(4) (6) 20 14 42 44 38 42

(22) 2005 2005 147 (169) ution ution ed

– – 1 4 4 47 51 43 47 (46) 2006 2006 142 (188) Dr Zimmerman und Partner at 30 September 2005 Dr Zimmerman und Partner ts in order to determine the amounts to be included in the ts in order to determine included the amounts to be

on schemes were undertaken by Russ, undertaken by schemes were on continued Retirement benefit schemes schemes benefit Retirement

Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco

The Group operates a number of retirement benefit schemes for its employees, including including its employees, and defined contrib both defined benefit for of retirement benefit schemes number The Group operates a 18 Notes to the financial statements statements financial to the Notes schemes. The Group’s two principal schemes are defined benefit schemes and are operated by Imperial Tobacco Limited in the UK by Imperial Tobacco Limited are operated schemes and benefit are defined two principalGroup’s schemes. The schemes the funds while trustee administered in assets are held scheme’s UK The in Germany. GmbH Cigarettenfabriken and Reemtsma German scheme is unfunded. is unfunded. German scheme updat been (outside Germany) have Group schemes for the principal valuations available actuarial recent The results of the most to 30 September 2006 by Watson actuaries and consultan Wyatt Limited, income statements. and sheet balance and Badisch Cigarettenfabriken GmbH Reemtsma Co. KG, GmbH & Reemtsma Holding of liabilities of the pension Actuarial valuations Roth-Händle GmbH pensi Tabakmanufaktur and 30 September 2006. These valuations quantified unfunded past service liabilities of £376m at 30 September past service liabilities 2005 and £401m at unfunded Theseand 30 September 2006. valuations quantified 30 September 2006, which have been recognised in the accounts, together with the other German unfunded schemes. unfunded German the other together with 30 September accounts, have been recognised in the 2006, which Amounts recognised in the income statement Charges included in employment costs in included Charges Retirement benefit net financing income included in finance costs finance in benefit net financing income included Retirement benefits Losses from special termination Total pension costs in profit from operations (note 4) Curtailment gain Curtailment Past service credit charges in profit from operations contribution Defined Expected return on scheme assets Total defined benefit scheme costs from operations charges in profit benefit Defined Interest cost Interest Current service cost service Current (In £’s million) Defined benefit schemes:

100 Financial Statements Financial Statements 101 1 (4) (3) (8) 27 38 2005 2005 2005 2005 2005 226 237 259 147 (179) (179) (161) (416) (438) 3,007 2,828 2,744 (2,591) – 1 7 (5) (2) 44 43 (37) (37) 2006 2006 2006 2006 2006 370 397 142 (165) (407) (434) 3,072 3,035 3,007 (2,665) www.imperial-tobacco.com www.imperial-tobacco.com

defined benefit obligation are as follows: defined benefit obligation are continued s – amounts recognised in the balance sheet sheet s – amounts recognised in the balance Contributions by employees Interest cost Actuarial losses Exchange differences Exchange differences Curtailments Special termination benefits Special termination

Past service credit Benefits paid As at 30 September (In £’s million) (In £’s million) obligation as at 1 October benefit Defined cost Current service Retirement benefit liabilities Retirement benefit liabilities Changes in theof the present value Reflected in the balance sheet as: sheet in the balance Reflected (In £’s million) Retirement benefit assets Present value of unfunded obligations obligations Present value of unfunded Defined benefit scheme (In £’s million) obligations Present value of funded Fair value of scheme assets 18 18 schemes Retirement benefit

– 6 1 % 41 2005 2005 2005 169 327 (161) (101) (101) 9.7% 2,445 2,828

44.5% 45.8% 4.62% 5.97% 3.81% 2.23% 2.15% 100.0% total assets Percentage of – 1 (3) 22 42 n/a 2006 2006 2006 104 227 101 188 144 (165) (100) (201) 2,828 3,035 4.60% 3.00% 1.90% 1.90%

– % Fair value % Fair UK Germany UK Germany Other* 5.00% 4.30% 4.29% 4.55% 2.85% 3.57% 2.80% 1.60% 1.89% 2.80% 1.60% 2.09% 4.30% 5.60% 7.80% 5.10% 6.99% 4.85% 3.10% 3.10% per annum Expected return return Expected UK Germany UK Germany

UK Germany Other* Germany UK

% Male Female Male Female 1.0% 23.0% 13.0% 63.0% 100.0% total assets Percentage of the UK and Germany. Germany. the UK and 28 645 365 2,805 1,767 UK Other*

% Fair value % Fair the schemes outside of outside the schemes 4.50% 6.70% 4.10% 8.00% per annum Expected return return Expected

of the assets are as scheme follows:

ce are set based on advice that uses published statistics and experience in each statistics ce are set based on uses published advice that continued e rates used in the calculations for the calculations in used rates e continued scheme assets was £332m (2005: scheme assets £496m) – changes in the fair value in the – changes mes – principal actuarial assumptions used actuarial mes – principal

Future salary increases Future salary increases Future pension Inflation Benefits paid Other Property Actuarial gains Contributions by employees Contributions by employer Contributions by employer As at 30 September As at 30 September Exchange differences Exchange differences (In £’s million unless otherwise indicated) indicated) otherwise unless £’s million (In Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco

Equities Bonds Member currently aged 65 Member currently aged 50 as follows: their expected rates of return are The major categories of scheme assets and 2006 18.4 19.1 19.9 20.7 17.7 19.8 21.8 23.8 Future pension increases Future pension Inflation at age 65 (years): Life expectancy * Values shown are the weighted averages of th of averages the * are weighted Values shown mortality experienAssumptions regarding future Expected return on scheme assets increases Future salary 6.89% n/a 5.12% 2005 Discount rate Discount rate Expected return on scheme assets Cumulative actuarial gains recognised in Statement of Recognised Income and Expense Income of Recognised in Statement gains recognised Cumulative actuarial Defined benefit sche 2006 The actual return on pension (In £’s million) of Recognised Income and Expense recognised in Statement Actuarial gains Defined benefit schemes Defined benefit schemes (In £’s million) As at 1 October Expected return 18 18 schemes Retirement benefit Notes to the financial statements statements financial to the Notes territory. The average life expectancy, in years, of a pensioner retiring at age 65 is as follows: of a pensioner retiring in years, territory. The average life expectancy,

102 Financial Statements Financial Statements 103

% (9) 2005 2005 179 333 ge ned being sion 3,007 2,828 re not ith an ent of aluation, total assets total ncial ncial stment Percentage of Percentage return on ted to be ted

es of increase – 37 2006 2006 144 3,072 3,035 Fair value value Fair www.imperial-tobacco.com www.imperial-tobacco.com % 3m (2005: £3m) of assets related to the the to related assets of £3m) (2005: 3m per annum annum per Expected return Expected return % total assets total year as set by the ITPF Actuary. The fina Percentage of Percentage on the ITPF’s existing assets, the rat the UK and Germany. £ Germany. the UK and Fair value value Fair % the schemes outside of outside the schemes per annum per was £2,248m. The total assets were sufficient to cover 108% of was £2,248m. Thesufficient to the total assets were Expected return Expected return UK UK Other* 2,606 100.0% 219 100.0% 219 100.0% 2,606 t into account at their market value. t into account at their defined benefit schemes in the year to 30 September defined 2007.

relating to the rate of investment return luation date would be 5.85% per annum and that pay and pension increases would avera increases would and pension that pay 5.85% per annum and date would be luation e rates used in the calculations for the calculations in used rates e continued 2004/2005 financial year at the level of £10m per 2004/2005 financial year at the level of £10m the economy in general; German unfunded schemes are not shown separately. separately. shown not are schemes unfunded German Experience adjustments on total plan assets Experience adjustments on total plan assets (In £’s million unless otherwise indicated) indicated) otherwise unless £’s million (In Fair value of total plan assets Net total deficit/(surplus) on plans used by Imperial Tobacco Group PLC. is as follows: and prior year History of the plans for the current Fund are in respect of Imperial Tobacco Group PLC’s own financial instruments. None of this amount is known to relate to assets of this amount is known None instruments. of Imperial Tobacco Group respect PLC’s own financial in are Fund In accordance with the transitional provisions for the amendments to IAS 19 in December 2004, the disclosures above are determi 2004, the disclosures to IAS 19 in December provisions for the amendments with the transitional In accordance Experience adjustments on total plan liabilities on total plan liabilities Experience adjustments expected return for each asset class. The bond return is based on the prevailing return available on fixed interest gilts. The interest on fixed available return on the prevailing return is based class. The bond expected return for each asset factors including: number of property is based on a equities and date; at the measurement yield the income the long term growth prospects for returns; and class and bond asset the long term relationship between each date. since the previous measurement market indices the movement in Imperial Tobacco Pen approximately £7m of the assets held by the portfolio, investment in the JP Morgan held self Excluding any (In £’s million) As at 30 September obligations Present value of defined benefit prospectively from the 2005 reporting period. The Group expects to contribute £16m to its funded v ITPF (the triennial of the valuation ITPF”). An actuarial (“the Fund Pension the Imperial Tobacco scheme is The main UK Group The derivation of the overall expected return on assets reflects the actual asset allocation at the measurement date combined w measurement allocation at the asset the actual return on assets reflects of the overall expected The derivation * Values shown are the weighted averages of th of averages the weighted are * Values shown Equities Bonds Property Other 3.3% 7 105 47.9% 3.80% 625 24.0% 3.57% 4.40% 7.90% 3.80% – – 6.70% 1,616 62.0% 365 7.68% 14.0% 92 – 42.0% 15 6.8% 2005 18 18 schemes Retirement benefit

employer’s contributions during the is expec which at the next actuarial valuation, be reviewed will to be paid of contributions position of the ITPF and the level carried out at 31 March 2007. sufficient to cover future service benefits for current members and, as a result of this deficiency, the Group recommenced paym the Group recommenced this deficiency, of a result and, as for current members benefits to cover future service sufficient for funding purposes) was made at 31 Marchthe most significant effect 2004 by which had for funding purposes) Watson Wyatt Limited. The assumptions in pay and pensions and estimated mortality rates. On the basis that the ITPF is continuing it was assumed that the future inve mortality rates.that the future in pay and pensions and estimated On the basis that the ITPF is continuing it was assumed to market values at the va returns relative when valuing the ITPF’s liabilities were those However, the assets we increases. for expected future pay for past service, after allowing members accrued to benefits that had 4.5% and 2.75% respectively. The assets were brough 4.5% and 2.75% respectively. The assets were At 31 March 2004 the market value of the assets of the ITPF

P. 56 95 73 50 56 (67) 2005 2005 2005 k 106 106 100 ut ut in in hree ight to York r a three- entering r several irectors’ ed to

35 11 32 73 56 39 95 (14) 2006 2006 2006 100 ring the year (note 4). ring the year 71 45 63 (53) RestructuringOther Total not be less than 80% of the closing price on the New the not be less than 80% of the closing price on to share-based payment transactions du to share-based payment transactions 00% of the award vested in full on 25 November 2005. 00% of the award vested in full continued Share schemes Share schemes Share capital Share capital Provisions

Amounts used As at 30 September 2006 As at 30 September Issued and fully paid

Other provisions principally relate to holiday pay, employee benefits and commercial legal claims. These liabilities are expect liabilities These claims. legal commercial and to holiday pay, employee benefits Other provisions relate principally crystallise within the next five years. next five years. the crystallise within years after entering the Plan. shares Board may offer options to purchase ordinary Plan, the of the International is part which UK Sharesave Scheme, Under the savings contract. Earn (SAYE) as You Customs approved Save Revenue and UK employees who enter into an HM the Company to or five years after contract, either three after expiry of the SAYE the six months The options may normally be exercised during the Scheme. Long Term Incentive Plan (LTIP) the LTI under to Executive Directors and other senior executives made have been awards demerger in 1996, annual Each year since Stock Exchange on the same day. Options may normally be exercised during the six months after expiry of the savings contract, t after expiry of the savings contract, exercised during the six months day. Options may normally be Stock Exchange on the same Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco The Group recognised total expenses of £16m (2005: £11m)The Group recognised total expenses of £16m related 729,200,921 ordinary shares of 10p each 21 (In £’s million) (In £’s million) Authorised 1,000,000,000 ordinary shares of 10p each 20 The restructuring provision relates to the factory closures announced in current and prior years. The provision will unwind ove will current and prior years. The provision in closures announced The restructuring provision relates to the factory Current Non-current countries. EU number of number of years in a an extended years as termination payments are made over as follows: schemes benefit operated a number of share-based employee period, the Group During the International Sharesave Plan Depositary Shares (ADSs) to the Board may offer options to in the Company or American purchase ordinary shares Under the Plan laws, b on local options may be offered varies depending contract. The price at which non-UK employees who enter into a savings Stoc London on the Tobacco Group PLC share price of an Imperial mid-market than 80% of the less for ordinary shares will not be ove criteria, measured to the satisfaction of specified performance years after grant, are subject vest three The awards, which D set out in the the scheme are and the terms of relating to the performance criteria grant. Further information receive such a Remuneration Report. In respect of the November 2002 – November 2005 award 1 Analysed as: (In £’s million) As at 1 October 2005 Additional provisions charged to income statement 19 (In £’s million) Notes to the financial statements statements financial to the Notes Exchange on the day prior to invitation. In respect of ADSs the price will of ADSs the Exchange on the day prior to invitation. In respect year performance period. All grants are at the absolute discretion of the Remuneration Committee, with no employee having the r Committee, with no absolute discretion of the Remuneration the year performance period. All grants are at

104 Financial Statements Financial Statements 105 , t

t gers to land) one ticipant www.imperial-tobacco.com www.imperial-tobacco.com with the Group, the par vest any proportionvest of up to a maximum value of £424,697, all acquired in the open by the Trusts has been financed by a gift of £19.2m Trusts has been financed and an by the dividual remains in employment dividual remains in employment been allocated to employees or Directors as at 30 September 2006. allocated been arising on the exercise of share-based employee benefit schemes. A benefit schemes. of share-based employee on the exercise arising 3.0m) ordinary shares with a nominal 3.0m) ordinary shares with management, individuals may elect to in elect may management, individuals ds and the shares held by the Trusts are excluded from the calculation of basic of basic Trusts are excluded from the calculation by the held ds and the shares continued 30 September 2006, the Trusts held 4.2m (2005: 30 September 2006, the Trusts held 4.2m (2005: 100% of their gross bonus in Imperial Tobacco Group PLC ordinary shares to be held by the Employee Benefit Trusts. Provided tha Employee Benefit the PLC ordinary shares to be held by Tobacco Group in Imperial 100% of their gross bonus the in for three years, and are left in the Trusts the shares elected for In respect of the November 2003 – November 2006 award, it is expected that 100% of the award will vest on 18 November 2006. 100% of the award will that 2003 – NovemberIn respect of the November 2006 award, it is expected Scheme Share Matching PLC ordinary shares. Tobacco Group Imperial to acquire and retain employees encourage Scheme is designed to The Share Matching and most of the Group’s For Executive Directors 21 Share schemes schemes 21 Share build a meaningful shareholding in the Group. shareholding meaningful build a Ire Tobacco Company (of Great Britain and of the founding of The Imperial in 2002 to mark the centenary There was an initiative Limited. All employees of the Company and its wholly owned subsidiaries employed on 10 December 2001, the date of the centenary on 10 December 2001, the date of the its wholly owned subsidiaries employed of the Company and Limited. All employees with the Employee shares and lodge them up to £3,000 worth of Imperial Tobacco Group PLC ordinary were invited to purchase from 20% for scale on a sliding matched will be in the Trusts, the lodged shares shares are left Provided these Benefit Trusts. five years. they are retained for of 100% if year’s retention to a maximum (ESOTs) Trusts Ownership Employee Share Group PLC 2001 Employee Benefit the Imperial Tobacco Trust and and Executive Benefit The Imperial Tobacco Group PLC Employee or purchase, Group PLC, by subscription Tobacco ordinary shares in Imperial to acquire Trust (the Trusts) have been established from funds provided by the Group to satisfy rights to shares from funds provided by the Group to satisfy market at a cost of £65.3m (2005: £31.3m). The acquisition of shares shares market at a cost of £65.3m (2005: £31.3m). The acquisition of interest-free loan of £110.8m. None of the ESOT shares has interest-free loan of £110.8m. None of the as they accrue. statement charged to the income connected with the ESOTs are expenses costs and administration All finance The Trusts have waived their rights to dividen earnings per share. would receive the original shares plus additional shares. The matching ratio for bonuses is 1:1 to encourage Directors and mana is 1:1 to encourage Directors and bonuses matching ratio for The plus additional shares. shares would receive the original Options Options (Number) end of year end of year exercisable at exercisable end of year Outstanding at at Outstanding Lapsed/ Lapsed/ (Number) Cancelled in year in year Cancelled

(Number) Exercised in year Exercised in Year from 1 October 2005 to 30 September 2006 2006 September 30 to 2005 1 October Year from Options Options (Number) start of year exercisable at exercisable Balance Balance (Number) start of year outstanding at at outstanding

Balance Balance October 2004 2004 October outstanding at 1 at outstanding continued

12,950,723 6,633,697 6,128,486 6,128,486 6,633,697 12,950,723 (1,917,487) 20,300 5,711,062 (315,373) 139,712

continued Date of grant Date of grant Granted Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco **Granted as American Depositary Shares, each representing two ordinary shares and denominated in US dollars. dollars. US in denominated and shares ordinary two representing each Shares, Depositary American as **Granted Total options/awards Long term incentive plan 4,274,832 2,382,276 2,388,767 – (629,997) (144,217) 2,411,206 – – 2,411,206 – (629,997) 1,015,658 (144,217) (342,063) (65,708) – 2,388,767 – 1,032,917 2,382,276 Share matching scheme Scheme Centenary – 2002 12 August 2002 29 January 2003 29 January 2004 29 January 231,941 2005 29 January 2006 15 February 1,188,276 199,217 4,274,832 181,972 650,767 2001 26 November 762,883 2002 25 November 999,733 520,953 2003 18 November – 832,855 681,267 2004 9 November 796,653 980,839 2005 2 November (12,476) 573,009 2,086,476 – 835,815 – – 384,376 (5,503) 474,547 797,971 – 481,180 – 309,963 163,993 – 407,091 355,861 – (558,704) 471,222 390,512 (40,351) – 311,653 – – – (14,305) 378,193 – – (17,452) (48,677) – 343,071 – – 746,787 – – (58,246) (1,014) – (309,377) – 722,273 (17,486) (23,325) – – – – – (2,276) 778,153 (23,310) – (9,201) – – – 331,558 – (31,004) – (160) 302,866 – – (9,118) – 381,234 – – – Conditional awards 6,589,415 3,063,145 2,706,802 20,300 (945,427) (105,448) 2,284,198 139,712 139,712 2,284,198 (945,427) (105,448) 20,300 1999 19 June 2000 5 June 2001 7 June 2002 31 May 2003 4 June 2004 26 May 2,706,802 2005 23 May 2006 22 May 599,862 International 1,203,945 2001 June – 18 7 June 758,286 340,855 2002 18 June 735 820,132 2003 June – 17 4 June 245,667 638,919 2004 June – 4 26 May 676,315 423,863 2005 June – 1 23 May 3,063,145 395,313 581,347 218,131 – – 2006 June – 1 22 May 419,525 322,347 331,730 534,653 64,388 US** 391,384 15,961 – 2002 18 June – – 639,579 – – 2,626 2003 17 June 162,479 65,897 392,265 2004 4 June 573,532 – (195,935) (18,072) 171,189 2005 1 June – 162,088 301,612 49,287 – – 2006 1 June (326,248) 497,109 – – (15,584) (8,031) 6,589,415 152,597 (7,063) – – 4,339 (15,482) 298,074 – 14,165 – – – (18,272) 169,168 – – (8,248) 192,923 1,866 4,339 – 14,165 7,028 (378,225) 366,049 – – (11,964) – – 2,580 9,245 1,560 (1,505) (3,554) – – – 5,818 7,028 (2,582) 372,053 4,312 – 2,580 (12,804) – (3,677) – – 116,302 (515) (785) – 7,028 – – 138,288 – 318,670 2,580 – 116,302 (9,531) – – 5,818 – – – 159,122 – – – – (5,770) (6,062) – – 295,842 – – – – – (966) – – – – – – – – 2,580 – – 5,818 – 4,312 – – – Sharesave options options Sharesave UK 21 Share schemes schemes 21 Share Notes to the financial statements statements financial to the Notes

106 Financial Statements Financial Statements 107 for shares for shares otherwise) otherwise) the year (in £ (in the year unless stated unless stated Share price at at Share price date of exercise of exercise date exercised during exercised during otherwise) otherwise) www.imperial-tobacco.com www.imperial-tobacco.com unless stated unless stated exercisable at exercisable end of year (in £ (in end of year Exercise price of of Exercise price options currently currently options months) end of year end of year (Number of outstanding at at outstanding options/awards options/awards Contractual life of life Contractual options options otherwise) otherwise) unless stated unless stated outstanding at at outstanding end of year (in £ (in end of year Exercise price of of Exercise price for shares for shares otherwise) otherwise) the year (in £ (in the year unless stated unless stated Share price at at Share price date of exercise of exercise date exercised during exercised during otherwise) otherwise) unless stated unless stated exercisable at exercisable end of year (in £ (in end of year Exercise price of of Exercise price options currently currently options months) end of year end of year (Number of outstanding at at outstanding options/awards options/awards Contractual life of life Contractual

otherwise) otherwise)

unless stated unless stated outstanding at at outstanding options/awards options/awards end of year (in £ (in end of year Exercise price of of Exercise price

stated) continued grant date £ date grant Share price at at Share price (except where 2005* September 30 to 2004 1 October Year from 2006* September 30 to 2005 1 October Year from Date of grant Date of grant * averages. weighted are columns these in measures All dollars. US in and denominated shares ordinary two representing each Shares, Depositary American ** as Granted

29 January 2002 n/a 13.90 n/a n/a n/a 16.59 n/a 13.90 2002 n/a n/a 14.20 2003 4 16.89 January Conditional awards January Share matching scheme Scheme Centenary – 2002 12 August n/a 29 14.05 29 2002 2 2004 29 January 2005 29 January 2006 15 February November Long term incentive plan 22 26 November 2001 25 2003 18 November 2004 9 November 2005 2 November 14.26 16 28 n/a n/a 14.31 10 14 15.64 n/a 25 n/a 13.66 16.93 14.19 4 16 14.94 29 n/a n/a 16.90 17.00 2 16.81 13 25 n/a 17.01 16.95 16.78 Sharesave options options Sharesave UK 21 Share schemes schemes 21 Share 1999 2000 n/a n/a n/a n/a 13.81 n/a n/a 6.25 n/a n/a n/a n/a n/a 15.09 2001 n/a n/a 4.68 n/a June 2002 June 2003 6.58 4.83 15 4.83 13.39 8.24 11.55 n/a 8.24 14.75 17.44 June 26 8.24 3 4.83 15 17.00 2005 2004 17.99 n/a 8.22 10.79 11.73 May 19 36 n/a 25 8.22 14.46 11.73 2006 18.01 n/a 48 n/a n/a 26 8.22 14.79 June 5 13.95 n/a 48 n/a 10.08 12.29 n/a n/a n/a n/a 16.38 7 37 May May 10.08 14.90 n/a 31 25 May 17.15 n/a 4 2002 16.97 26 n/a n/a n/a 15.19 8.34 8.34 10.91 4 23 22 June International 2001 June – 18 7 June 18 2002 – 6.66 6.58 n/a n/a n/a n/a $28.10 $34.33 2003 June – 17 4 June 2003 n/a n/a n/a $16.22 $12.14 n/a n/a n/a n/a 16 n/a 2004 June – 4 26 May 10.79 – 10.40 $17.92 n/a 2004 n/a 16 $17.56 $17.92 2005 June – 1 23 May n/a 28 n/a 12.29 – 12.24 $22.49 n/a 2005 n/a 28 June $22.50 n/a $22.49 2006 June – 1 22 May n/a 40 n/a 15.01 – 14.79 2006 June $27.23 $24.92 n/a 8.24 40 n/a 16.48 – 16.38 June n/a n/a n/a n/a $30.76 10.08 US** June 11.74 18 n/a June 17 n/a 16 4 28 1 40 n/a 1 n/a n/a n/a 13.13 n/a 14.40 n/a 15.12 n/a n/a 8.22 10.08 n/a 11.74 n/a 13.95 4 16 28 n/a 8.22 40 n/a n/a n/a 17.95 16.99 n/a 17.20 n/a

2005 2005 2006 2006 n 3.8% £6.10 £8.59 rm 21.0% 16.0% 23.0% £11.74 the scheme). the 16.0% – 30.0% 13.0% – 94.0% 2006 2006 £7.57 £9.73

£13.95 3 yrs 3 yrs

2005 2005 4.4% 4.4% 4.4% 4.4% 4.4% Sharesave Share Match Match LTIP Sharesave Share 6 months 3 – 5 yrs + e Black-Scholes optionhas bee model pricing 3.5% – 4.3% 4.4% 4.6% £2.76 – £3.55 £12.30 £11.21 21.0% – 24.0% 23.0% 23.0% £14.66 – £15.50 £14.02 £12.79 £11.73 – £12.40 n/a n/a n/a 3 yrs 4.2% 3.9% 17.0% £17.52 £15.58 e history (the time period being determined by the length of 2006 2006

3.9% Sharesave Share Match Match Share Sharesave 6 months 3 – 5 yrs + £3.46 – £4.33 3.6 % – 5.5% 16.0% – 21.0% £16.69 – £17.44 £13.35 – £13.95 continued

e Black-Scholesfollows: model for 2005 and 2006 is as calculate the share-based payment charge, th calculate value at grant date. Assumptions used in this model were as follows: model were as value at grant date. Assumptions used in this

continued Share price volatility of tobacco and alcohol comparator group comparator Share price volatility of tobacco and alcohol Correlation between Imperial Tobacco and the companies in the FTSE 100 comparator group FTSE and the companies in the Tobacco Correlation between Imperial Share price volatility FTSE 100 comparator group Share price volatility FTSE 100 comparator tobacco comparator group and alcohol the in companies and the Correlation between Imperial Tobacco Dividend yield Lapsed/cancelled Lapsed/cancelled Exercise price Share price used to determine exercise to determine Share price used price Fair value Expected lives of options granted Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco Incentive Plan, in determining fair

Future Imperial Tobacco Group share price volatility Tobacco Group share price Future Imperial Tobacco Group dividend yield Future Imperial Volatility is determined based on the three or five year share pric Volatility Risk-free interest rate Market condition features were incorporated into the Monte Carlo model for the total shareholder return elements of the Long Te of the Long were incorporated into the Monte Carlo model for the total shareholder return elements Market condition features Exercised Option pricing options to For the purposes of valuing The weighted average exercise prices of options granted, exercised and lapsed during the year were: the during lapsed and exercised exercise prices of options granted, The weighted average Granted 21 Share schemes schemes 21 Share Notes to the financial statements statements financial to the Notes used for all the share option and share matching schemes and for the Long Term Incentive Plans except for the LTIP granted in Plans except Term Incentive the Long and for share option and share matching schemes used for all the Carlo model was used. the Monte November 2005, where used in th A summary of the assumptions

108 Financial Statements Financial Statements 109 – 6 (17) (54) (31) 2005 2005 686 692 851 100 579 201 201 Equity (556) (406) Company attributable attributable to the equity equity to the holders of the of holders uirements – – – – – – – 19 19 (54) (35) 2006 2006 201 556 757 reserve reserve Exchange translation translation www.imperial-tobacco.com www.imperial-tobacco.com – 6 (31) (17) 851 100 (556) (406) (423) (370) (364) earnings earnings Retained Retained – – – – – – – – 964 964 964 – – – – – – – – 73 73 73 Share capital Share capital Share premium lders of the Company lders of the Company – – 784 – 784 Changes in equity equity in Changes

As at 1 October IAS 39 adjustments 2005 following Dividends paid Dividends paid As at 30 September 2006 As at 30 September Actuarial gains on retirement benefits Actuarial gains taken directly to and other items gains Deferred tax on actuarial reserves Exchange movements schemes share Movement in employee treasury shares as Increase in own shares held Net investment in own shares in the year in in own shares Net investment statements. financial note (vi) to the parent company in may be found share buyback scheme Details of the Group’s was written off directly to reserves in line with the req prior to 1998 acquisitions Cumulative goodwill of £2,410m relating to Treasury shares (In £’s million) As at 1 October at the time. were in force of the accounting standards that Profit for the year to equity holders of the Company attributable IAS 39 transition balance sheet adjustments sheet IAS 39 transition balance Profit for the year attributable to equity ho (In £’s million) (In £’s million) As at 1 October 2004 73 964 (656) – 381 22 movements benefits on retirement Actuarial gains to taken directly and other items gains Deferred tax on actuarial reserves Exchange paid schemes share Movement in employee treasury shares held as Increase in own shares Dividends As at 30 September 2005 as previously reported 19 19 – – – – – – – – 101 – – (201) – (373) – (373) – 9 – – 101 – (201) – (34) 9 – (34)

6 7 3 4 7 6 (1) (4) 19 13 39 18 19

2005 2005 2005 2005 2005

ition h in note 9 h in net dingly the

– 5 2 3 5 7 (7) 30 14 10 29 19 19 2006 2006 2006 2006 2006 2006 fair and book values of the and book fair ire the remaining shares by mid 2009 and 43% interest in Skruf Snus AB. The acquis 43% interest in Skruf bstance of the transaction. The bstance of operating leases consist of leases where payments fall due: consist of leases where payments fall due: leases operating

ancial policies of Skruf Snus AB (including its dividend policy). Accor its Snus AB (including of Skruf policies ancial Snus AB includes a commitment to acqu Snus AB includes a number of small businesses, including a including a number of small businesses, continued des fixtures and motor vehicles) Commitments Commitments Acquisitions Minority interests interests Minority

Share of net profit Share of net profit Between one and five years Between one and five years Between one and Dividends Beyond five years As at 30 September treated as a business combination as the substance of the transaction is the purchase of an intangible asset. This is dealt wit This is dealt asset. an intangible of is the purchase of the transaction as the substance treated as a business combination Intangible Assets. of the acquisition of Tobaccor S.A. in respect payment of deferred consideration the Group made the final In December 2005 2005 acquisitions – Skruf Snus AB interests in During 2005 the Group acquired The fair and book values of the net assets acquired were £2m, giving rise to goodwill of £11m. net assets acquired book values of the The fair and to the Group as a whole. significant not considered are as these acquisitions been presented not have Full IFRS 3 disclosures with IFRS 3, not been in accordance 2006 has, trademark announced in August of the worldwide Davidoff cigarette The acquisition provides the Group with control of the operating and fin Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco

Within one year (In £’s million) Plant and equipment (inclu Stenberg AS, a tobacco and tobacco-related products sales and distribution company based in Norway. in distribution company based products sales and and tobacco-related Stenberg AS, a tobacco agreement relating to the 43% interest in Skruf to reflect the su is accounted for as a 100% subsidiary acquisition Within one year (In £’s million) (In £’s million) Property Contracted but not provided for: Property, plant and equipment commitments Operating lease non-cancellable under Total future minimum lease payments 25 Capital commitments (In £’s million) 24 100% 2006 a Gunnar February interest in in businesses, including number of small a in interests acquired During 2006, the Group As at 1 October Exchange movements 23 (In £’s million) Notes to the financial statements statements financial to the Notes liabilities acquired were £4m, giving rise to goodwill of £18m. acquired liabilities

110 Financial Statements Financial Statements 111

(2) 29 11 21 78 (10) (47) n/a n/a (18) (54) 2005 2005 2005 2005 Total 790 288 342 110 (239) (180) (551) 1,143 1,361 ealth (3,283) (3,283) (3,879) (3,283) (3,337) ive orously actions will actions will

– – – 41 16 59 11 (57) (15) (72) (18) (90) (29) (11) (99) 2006 2006 2006 2006 858 310 426 120 (236) (283) 1,155 1,420 financial (3,879) (3,822) Derivative instruments www.imperial-tobacco.com www.imperial-tobacco.com – 17 13 (39) (146) (2,775) (2,814) (2,930) Long term borrowings – (1) 20 (19) (707) (708) (415) (1,122) Short term borrowings , the Directors believe that the pending , the Directors

– – 1 (4) 10 256 257 263 Net cash cash Net and cash cash and equivalents the outcome of the pending litigation of the pending the outcome levels using adjusted net debt which excludes the fair value of interest rate derivat excludes which net debt adjusted levels using Analysis of net debt debt of net Analysis Reconciliation of cash flow from operating activities of cash flow from operating activities Reconciliation Legal proceedings

Fair value of interest rate derivatives Adjusted net debt Increase in trade and other receivables Increase in trade and other receivables Change in fair values in fair values Change As at 30 September 2006 Increase in trade and other payables Increase in trade and other payables Operating cash movements in flows before working capital Taxation Finance costs Finance Investment income Movement in provisions Currency translation differences differences Currency translation As at 1 October 2005 after IAS 39 transition Depreciation, amortisation and impairment Movement in working capital Movement in working financial instruments and interest accruals. instruments and financial Net debt as reported Accrued interest (In £’s million) (In £’s million) Adjusted net debt the Group’s borrowing Management monitors Cash flow Cash flow Accretion of interest As at 30 September 2005 before IAS 39 transition IAS 39 transition (note 30) effects. In the opinion of the Group’s lawyers, the Group has meritorious defences to these actions, all of which are being vig are being of which actions, all meritorious defences to these the Group has of the Group’s lawyers, effects. In the opinion is not possible to predict contested. Although it 28 as follows: year were in the instruments borrowings and derivative financial equivalents, cash and The movements in cash (In £’s million) Net cash flow from operating activities Taxation paid inventories in Decrease/(increase) Profit for the year Adjustments for: 27 (In £’s million) The Group is currently involved in a number of legal cases in which claimants are seeking damages for alleged smoking-related for alleged h are seeking damages claimants which in of legal cases number involved in a The Group is currently 26 Group. of the condition or financial of the operations, cash flow the results upon adverse effect not have a material

– – 22 (91) 2005 2005 790 374 283 305 d 1,078 1,240 (3,588) (3,283) flows Restated – IFRS Restated – IFRS this note. 4 4 4 10 29 (20) (54) 2006 2006 (561) (551) (542) payments (3,283) (3,879) change in cash change Share-based 198 198 198 Goodwill Goodwill (8) 14 12 GAAP and explains the benefits Post-employment

expenses promotion promotion Advertising & Advertising 862 576 1,046 reported) reported) UK GAAP (as previously ative financial instruments instruments ative financial

the Group prepared its financial statements under UK generally accepted accepted under UK generally the Group prepared its financial statements IFRS has changed when compared with UK IFRS has changed continued of IAS 39 from 1 October 2005 of IAS 39 from 1 October cluding revaluation of deriv cluding revaluation 1**2** 3 6 6 1**2** 3 Explanation of to transition IFRS Reconciliation of cash flow to movement in net debt in net debt flow to movement of cash Reconciliation

Change in net debt resulting from cash flows net in Change Adjustments relating to adoption Adjustments relating to Movement in net debt during the year Movement in net debt Closing net debt Other non-cash movements in Other non-cash movements accounting principles (“UK GAAP”). given in relating to the transition to IFRS are with IFRS 1 (“First time adoption of IFRS”), certain disclosures In accordance These disclosures are prepared under IFRS as set out in the “Basis of preparation” on page 71. of set out in the “Basis prepared under IFRS as are These disclosures Cash flow statement The format of the cash flow statement under so no reconciliation has been provided. provided. has been so no reconciliation IFRS to reported) UK GAAP (as previously equity from and Reconciliation of income statement Consolidated income statement for the year ended 30 September 2005 Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco – Diluted 78.6p 1.6p27.3p78.6pDiluted 0.6p 108.1p – Basic Earnings per ordinary share – 79.0p 1.6p 27.4p 0.6p 108.6p Minority interests interests Equity holders of the Company Minority 6 6 570 12 198 4 784 Attributable to: Taxation Profit after taxation Attributable (286)(288) (2) Finance costs Investment income Finance Profit before taxation (206) (136) 22 (342) 158 180 Duty (8,106) (8,106) 11,229 Notes Revenue Duty (26) Profit from operations (8,106) 11,255 (In £’s million) (In £’s million) 30 30 September statements prepare ended statements for the year 2006 are the Group’s first consolidated financial These financial Opening net debt For all accounting periods prior to this, under IFRS. Currency movements Currency movements Increase/(decrease) in cash and cash equivalents cash equivalents and cash Increase/(decrease) in borrowings(Increase)/decrease in 29 (In £’s million) Notes to the financial statements statements financial to the Notes and cash equivalents rather than just cash. Although the format is different, the transition to IFRS had no impact on net cash on net cash had no impact IFRS transition to the is different, cash. Although the format and cash equivalents rather than just

112 Financial Statements Financial Statements 113 705 705 4,526 2,169 (3,470) (2,520) – 21 (10) (21) (10) (10) Others – IFRS Restated www.imperial-tobacco.com www.imperial-tobacco.com – – – – – – Financial Financial instruments instruments – – – (13) (13) (13) – – – 278 278 278 – – – 198 198 198 Goodwill Dividends Income tax Income Dividends Goodwill –

(10) 112 112 249 (127) benefits Post-employment

2 3 5 7 10 4,6,8,9 4,6,8,9 10 3 5 7 2 continued 140 140 121 112 198 278 (13)121 – (10) 686 4,058 2,200 reported) reported) (2,788) (3,330) IFRS format IFRS format UK GAAP in UK GAAP (as previously

256 256 256 Equity minority interests Total equity 19 19 Reserves (916) 79 198 25 (1)(615) 25 198 capital 79 73 Share 73 account Share premium Reserves (916) IFRS reserve* Equity attributable to equity holders of the Company 964 – 33 253 (13) (9) 964 264 Net assets Trade and other payables (11) (11) payables (11) (50)other (388) liabilities (438) and Non-current liabilities Borrowings (2,775) benefit Derivative financial instruments 57 Trade (2,832) Deferred tax liabilities (57) Retirement (56) (57) Provisions (56) – (43) (77) (13) (133) Trade and other payables (1,806) 278 (1,528) 278 (1,806) payables other (235) liabilities (235) and tax Current liabilities Borrowings Trade Current (707) (10)Provisions (40) (707) (50) Current tax assets 44 44 assets 44 857 tax Current assets (21) Inventories Trade and other receivables Current equivalents Cash and cash 1,022 878 (10) 1,012

Intangible assets 3,345 198 11 3,554 5 11 198 259 62 associates 39 259 5 assets assets – assets 3,345 in benefit Intangible 23 642 Property, plant and 10 equipment tax Investments Retirement receivables Trade and other Deferred 632 53 (49) 4 (In £’s million) (In £’s million) Notes Non-current assets Consolidated balance sheet sheet Consolidated balance at 30 September 2005 30 to IFRS of transition Explanation

399 399 4,341 2,188 (3,777) (2,353) – 23 (23) (10) (10) (10) Others – IFRS Restated – – – – – – Financial Financial instruments instruments ndthe ininterim report for the six months e and net pension benefit financing income income financing benefit pension net and e quent periods. quent periods. – – – (13) (13) (13) – – – 253 253 253 Dividends Income tax Income Dividends – – 33 33 (67) 100 benefits Post-employment

2 5 7 10 4,6,8,9 10 5 7 2

136 136 118 33 253 (13)118 33 – (10) 381 4,218 2,211 reported) reported) (2,596) (3,697) IFRS format UK GAAP in UK GAAP (as previously continued continued ts 339 339 within the income statement. These changes do not affect the reported profit before tax. Full details of this change can be fou be can change of this details Full tax. before profit reported the affect not do changes These statement. income the within www.imperial-tobacco.com. from is available which 2006, March 31 ended Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco * subse in reserves revenue within included be will and only purposes illustrative for separately disclosed is reserve IFRS The Minority interests Total equity 18 18 Share premium account capital 964 premium 964 Share Share Reserves IFRS reserve* Equity attributable to equity holders of 73 the Company 73 (919)(1) – (920) 33 253 (13) (9) 264 Net assets expenditur promotion and advertising certain reclassify to decided was it 2005 results, restated the to releasing ** Subsequent Trade and other payables other (59)(59) and Non-current liabilities Borrowings Derivative financial instruments Trade Deferred tax liabilities Retirement benefit liabilities (3,131) Provisions (3,208) – 77 (340) (51) (43) (24) (39) (13) (77) (77) (383) (88) (39) Current tax liabilities tax Current liabilities (167)Borrowings Trade and other payables Current (167) Provisions (40) (1,670) (719)(719) (10) (50) 253 (1,417) Trade and other receivables receivables 962 962 other assets and tax Current assets 46 Inventories 46 Trade Current equivalen Cash and cash (23) 864 841 Trade and other receivables receivables associates assets 2 assets other 2 assets in 80 7 7 benefit 80 3,556 – Intangible and Property, plant and equipment tax 9 31 Investments 3,547 20 Retirement 11 Trade Deferred 651 14 665 (In £’s million) (In £’s million) Notes Non-current assets Consolidated balance sheet sheet Consolidated balance at 1 October 2004 30 IFRS 30 to transition of Explanation Notes to the financial statements statements financial to the Notes

114 Financial Statements Financial Statements 115 www.imperial-tobacco.com www.imperial-tobacco.com ubstantially into line with with line into ubstantially for Pension Costs” 24), (SSAP Pension for o restate the goodwill to the the to goodwill the restate o harge for depreciation for the year year the for depreciation for harge rtain spare parts should be held held be should parts spare rtain ied no impairments. eriod based on the difference the difference based on eriod theyrelated. Under IFRS dividends

cash settlement. IAS 19 (“Employee 19 (“Employee IAS settlement. cash K GAAP, deferred tax was recognised recognised was tax K GAAP, deferred l is prohibited, instead it is subject subject is it instead prohibited, is l ransition reserve. reserve. ransition oftware integral to another fixed asset to another integral oftware no effect on the income statement for for statement income the on effect no ended 30 September 2005 under IFRS. IFRS. under 2005 September 30 ended adjustment to the opening balance balance opening the to adjustment x. e results for the year ended ended e results for the year fferences, the impacts are similar to similar are impacts the fferences, acquisition; acquisition; current tax accounting requirements requirements accounting tax current ances arising from actuarial valuations valuations actuarial from arising ances he accounting entry being a debit to to a debit being entry accounting he 2004 and 30 September 2005, spare spare 2005, September 30 and 2004 tement and deducted from revenue rather rather revenue from deducted and tement 0 September 2005 included in the balance balance the in included 2005 September 0 h scheme,net a asset or liability for xpense in the period in which they arise. arise. they which in period the in xpense s in accordance with the amendment to to amendment the with accordance s in rences, which include timing differences, differences, timing include which rences, for post-employment benefits (as outlined outlined benefits (as for post-employment is based on the fair value of the share options options share the of fair value the on is based e in which those gains and losses were were losses and gains those e in which e charge to the income statement in respect respect in statement income the to e charge he effect of this change of approach is to to is approach of change this of effect he ised on temporary ised on temporary diffe deferred tax is recogn is tax deferred

of holiday entitlements not taken at the balance sheet date. T date. sheet balance the at taken not entitlements holiday of specific exemptions, continued Under IFRS, except for shareholders’ funds as a reserves movement. There is therefore no impact on net assets. assets. net on impact no therefore is There movement. reserves as a funds shareholders’ Share-based payments Share-based p performance the over schemes option share for its account loss and profit the to charge a recognised Group the GAAP, UK Under between the exercise price of the award and the share price at the date of grant (the intrinsic value). Under IFRS, the charge charge the IFRS, Under value). intrinsic (the grant of date the at price share the and award the of price exercise the between period. vesting the over spread of grant date the at awarded t IFRS the and reserve loss and profit the between of £1m 2004 October at 1 sheet balance opening the to adjustment an is There Proposed final dividends Proposed final which to period accounting the in event sheet balance post adjusting an as accrued were dividends final proposed GAAP, UK Under are recognised in the period in which they are approved. As a result, the proposed final dividend of £278m for the year ended 3 ended year the £278m for of dividend final proposed the result, a As approved. are they which in period the in recognised are is an there Similarly, IFRS. under prepared statements the in recognised not is GAAP UK under account loss and profit and sheet year the for statement income the in recognised is which dividend final 2004 the representing £253m 2004 of October at 1 sheet side of t other the by £4m, with 2005 30 September ended for the year profit operating is to increase The change impact this of ended 30 September 2005 has been reclassified as amortisation in respect of this software for the year ended 30 September 2005. September 30 ended year the for this software of respect in amortisation as reclassified been has 2005 September 30 ended whereby the cost of providing pensions was charged to the profit and loss account over the service lives of employees. Any vari of employees. lives the service over loss and account profit to the was charged pensions providing cost of the whereby employees. the of lives service remaining estimated the over profit to credited or charged were for eac produce, to date sheet balance each at valued are scheme benefit defined each of liabilities and assets the IFRS, Under e and income recognised of statement the in full in recognised are losses and gains Actuarial sheet. balance the on recognition i treatment This statement. the income in recognised are on assets return expected the and costs interest and service All other s 19 of IAS methodology the and brings 2005, 8 November EU on the by endorsed and 2004 December 16 on IASB the by issued 19 IAS di valuations minor and presentation to subject that means 17). This (FRS Benefits” “Retirement 17 Standard Reporting Financial GAAP. UK under provided disclosures 17 FRS the in given those ta deferred related of by £2m £14m, offset of increase an is 2005 September 30 ended year the for profit retained on impact The Post-employment benefits Post-employment 24 “Accounting Practice Accounting Standard of Statement under benefits post-employment for accounted Group the GAAP, UK Under Intangible assets – goodwill assets – Intangible of goodwil 3, amortisation IFRS Under life. economic useful its over amortised was sheet balance the on goodwill GAAP, UK Under to an impairment review which must be carried out at least annually and whenever there is an indicator of impairment. impairment. of indicator an is there whenever and annually least at out carried be must which review impairment an to Th be amortised. no longer 2004 £3,452m will of as at October 1 a value with asset the goodwill IFRS, of adoption the Following t order in GAAP UK under recorded was that of £198m charge amortisation goodwill the to reverse restated were 2005 30 September valuation. 2004 1 October identif of Assets” 36 “Impairment IAS with accordance in 2005 September 30 and 2004 October at 1 out carried reviews Impairment Intangible assets – other Intangible assets – s only IFRS under however, sheet, balance the in assets fixed tangible within included was software computer all GAAP, UK Under should be included in tangible fixed assets. Any separately identifiable software must be classified as an intangible asset. Th asset. intangible an as classified be must software identifiable separately Any assets. fixed tangible in included be should GAAP. UK under depreciation as than rather IFRS under amortisation as classified is software of such c £7m A assets. intangible to reallocated was software of respectively £11m and £9m 2005, September 30 and 2004 October 1 As at within fixed assets and transferred to the relevant asset as required and subsequently depreciated accordingly. As at 1 October 1 at As accordingly. depreciated subsequently and as required asset relevant the to transferred and assets fixed within had change This equipment. and plant to property, inventories from reclassified were respectively £21m and £23m at valued parts 2005. September 30 ended year the Spare parts Spare ce IFRS, Under used. when expensed and inventories within held were machinery and plant for held parts spare all GAAP, UK Under than included in other operating charges. These changes did not impact the reported profit before tax. tax. before profit reported the impact not did changes These charges. operating other in included than Advertising and promotion expenditure expenditure and promotion Advertising sta income our within reclassified been has (£26m) sold volumes to linked is that expenditure and promotion advertising Certain under IAS 12, compared with those of UK GAAP. GAAP. UK of those with compared 12, IAS under U Under GAAP. UK under than rather IFRS under tax deferred for accounting for requirements the in differences are there However thos from differed that periods in tax assessments in losses and of gains inclusion the from arising differences timing on only included in the financial statements. Tax the in difference is no There taxation. deferred and current for both requirements accounting the covers Taxes” “Income 12 IAS reduce net assets as at both 1 October 2004 and 30 September 2005 by £10m. £10m. by 2005 September 30 and 2004 October 1 at both as assets net reduce arising from the difference between the tax base and accounting base of balance sheet items. items. sheet of balance base accounting and base tax the between difference the from arising follows: as 2005 September 30 and 2004 1 October at sheets balance the to adjustments made has Group The an adjustment £7m to reflect of deferred tax on fair value adjustments madeto property valuationsas a result the of Reemtsma assets. replacement into over rolled gains on tax of deferred respect in £6m of adjustment further a accounting for requirements IFRS the of adoption the of result a as made were liability tax deferred the to adjustments Further benefits”) explicitly requires provision to be made for the cost the for made be to provision requires explicitly benefits”) Holiday pay accrual Holiday pay accrual a to make obliged legally was it where except accruals pay holiday for account not did Group the GAAP, UK under reporting When in 2 above). above). in 2

7. 6. 5. 2. 3. 4. 9. Explanatory notes notes Explanatory 1. 30 to IFRS of transition Explanation

8. of ntinue ntinue pplied ffect of the swap. However, under under However, swap. the of ffect ff-balance sheet with their impact impact their with sheet ff-balance strument were matched against against matched were strument tatecomparative information for IAS 32 hange and interest rate risks. Foreign e exchange rate ruling at the balance sheet sheet balance the at ruling rate exchange e year ended 30 September 2005, the Group the 2005, 30 September ended year nised in the income statement unless the the unless statement income the in nised

continued continued d balance sheet to include IAS 32 and IAS 39 as at 1 October 2005 to include d balance sheet currency borrowings are also used to hedge foreign exchange risk. risk. exchange foreign hedge to used also are borrowings currency rates” exchange foreign in of changes effects “The 21 IAS e the reflects debt underlying the of value book the risk, exchange hedge to used are swaps currency cross where GAAP, UK Under th at translated is debt underlying the and sheet balance the on separately shown is derivatives of such value book the 21, IAS borrowings. reducing liabilities, in instruments financial derivative to reallocated was £57m change, this of result a As date. measurement” and recognition instruments: “Financial 39 IAS in the of value market the in changes that such instruments financial derivative to applied was accounting hedge GAAP, UK Under o kept were instruments the swaps, currency cross of exception the With exposure. hedged underlying the of value the in changes statements. financial the to note a in disclosed recog being value fair the in changes with value, fair at sheet balance the on recognised be to derivatives all requires 39 IAS instrument satisfiesthe IFRS hedge accounting rules,which are much more restrictivethan those underGAAP. UK res to requirement the from exemption 1 the IFRS utilise to chosen has Group the 2005, for figures comparative the In preparing the for IFRS with accordance in statements financial its of preparation the in Therefore, instruments. financial on 39 IAS and GAAP. UK of rules accounting hedge the apply to continued has Financial instruments instruments Financial exc foreign to exposure underlying the manage to order in instruments financial in derivative transactions undertakes Group The

Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco IAS 39 and has recognised transitional adjustments for the following at this date: this date: at for the following recognised transitional adjustments IAS 39 and has value; at fair instruments financial derivative of all (a) The measurement or borrowings; and the carrying value of the related cash part of accruals to form of interest (b) The reclassification (c) Deferred tax on adjustments (a) and (b). deemed to have a instruments, it is to hedge account for its derivative financial not Although the Group has taken the decision until 30 SeptemberDetailed UK GAAP 2005 and discontinued thereafter. prospectively hedge accounting under hedge accounting applying at 30 September 2005 restated balance sheet prior UK GAAP hedge accounting between the IFRS below is a reconciliation co instruments will 1 October 2005 all derivative financial of IAS 32 and IAS 39. From sheet after the adoption and the balance From 1 October 2005, the Group is required to account for its financial instruments in accordance with the measurement criteria measurement with the accordance in instruments From 1 October is required to account for its financial 2005, the Group Restatement of consolidate 10. 30 IFRS 30 to transition of Explanation Notes to the financial statements statements financial to the Notes to be recognised in the balance sheet at fair value with future gains and losses being recognisedgains and in earnings. immediately value with future sheet at fair balance to be recognised in the

116 Financial Statements Financial Statements 117 711 711 4,569 2,241 of IAS 39 of IAS 39 (3,474) (2,625) Restated IFRS Restated IFRS including impact impact including 6 6 (4) 43 72 (105) adjustments www.imperial-tobacco.com www.imperial-tobacco.com IAS 39 transition IAS 39 transition

19 19 73 73 (50) (50) (11) (11) (56) (56) 705 705 964 964 (235) (235) (438) (438) 4,526 2,169 (2,520) (3,470) continued

3,554 3,554 3,554 857 44 857 44 (b) (707) (1) (b) (708) (2,775) (39) (2,814) Notes Restated IFRS (a), (b), (c) (351) 6 (345) continued lders of the Company lders of the Company 686 6 692 d balance sheet to include IAS 32 and IAS 39 as at 1 October 2005 to include IAS 32 and IAS 39 d balance sheet valents (b) 256 1 257

Minority interests Total equity Equity Net assets Borrowings Derivative financial instruments Trade and other payables Current tax liabilities Provisions Non-current liabilities Derivative financial instruments payables Trade and other Deferred tax liabilities Retirement benefit liabilities Provisions Share capital account Share premium (a)Reserves Equity attributable to equity ho (b) – (1,528) (144) (a) 40 (144) (1,488) (57) (c) 57 (133) – (22) (155) Current liabilities Borrowings Current assets Inventories Non-current assets Intangible assets Restatement of consolidate (In £’s million) 30 to IFRS of transition Explanation Property, plant and equipment associates Investments in Retirement benefit assets receivables Trade and other Deferred tax assets Trade and other receivables Current tax assets equi Cash and cash Derivative financial instruments 642 5 259 (c) 4 (b) 642 62 1,012 (a) 259 43 5 (1) – 4 105 1,011 72 72

t , of

to e t with

rent y aware

urpose not l he port, or error. ncial ncial corporate other audited cribed gnificant Auditing (UK and Ireland) issued by the Auditing Practices Auditing (UK and Ireland) issued by the statements and the part of the directors’ remuneration report to be remuneration and the part of the directors’ statements of the remuneration report. We consider the implications for our report if we become We consider the implications of the remuneration report. the parent company financial statements give a true and fair view and whether the pa and whether view and fair true give a statements the parent company financial ated the overall adequacy of the presentation of information in the parent company financia information in the parent of of the presentation adequacy ated the overall is report is shown or into whose hands it may come save where expressly agreed by our prior may come save where expressly agreed it hands is report is shown or into whose the information given in the Directors’ Report is consistent with the parent company financial statements. company financial Report is consistent with the parent given in the Directors’ the information the parent company financial statements give a true and fair view, in accordance with UK Generally Accepted Accounting Practice Accepted UK Generally with accordance in fair view, give a true and statements financial the parent company the parent company financial statements and the part of the directors’ remuneration report to be audited have been properly be audited to remuneration report and the part of the directors’ statements financial the parent company and the Companies Act 1985; with prepared in accordance the state of the Company’s affairs as at 30 September 2006; Company’s affairs the state of the

PricewaterhouseCoopers LLP Registered AuditorsChartered Accountants and Bristol 31 October 2006 • statements and the part of the directors’ remuneration report to be audited. directors’ statements and the part of the Opinion In our opinion: • • In forming our opinion we also evalu In forming our opinion we also Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco Independent auditors’ report auditors’ Independent PLC Group Tobacco Imperial of members to the We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order necessary in considered which we and explanations to obtain all the information We planned and performed our audit so as directors’ remuneration report to be audited are free from material misstatement, whether caused by fraud or other irregularity by fraud or caused misstatement, whether free from material directors’ remuneration report to be audited are We have audited the parent company financial statements of Imperial Tobacco Group PLC for the year ended 30 September year ended Group PLC for the Imperial Tobacco 2006 statements of financial company the parent We have audited under prepared have been statements financial parent company notes. These related the and sheet balance comprise the which that is des report remuneration the directors’ in information also audited the have therein. We set out policies the accounting audited. as having been ended Group PLC for the year of Imperial Tobacco statements on the Group financial We have reported separately 30 September 2006. of auditors Respective responsibilities directors and company fina and the parent report the annual report, the directors’ remuneration preparing for The directors’ responsibilities are set ou Accounting Practice) Standards (UK Generally Accepted and UK Accounting law with applicable statements in accordance within the Report of the Directors. of directors’ responsibilities included statement in the financial audit the parent company Our responsibility is to and Ireland). This re (UK Standards on Auditing requirements and International and regulatory with relevant legal in accordance 235 of the as and only for the Company’s members section a body in accordance with including the opinion, has been prepared for accept or assume responsibility for any other p opinion, in giving this Companies Act 1985 and for no other purpose. not, We do provide us with sufficient evidence to give reasonable assurance that the parent company financial statements and the part of t company financial statements and the part that the parent to give reasonable assurance evidence sufficient provide us with or to any other person to whom th financial statements and the part of the directors’ remuneration report to be audited. It also includes an assessment of the si assessment an It also includes report to be audited. of the directors’ remuneration part financial statements and the governance report and the unaudited parts governance report and the unaudited parts do statements. Our responsibilities company financial the parent with misstatements or material inconsistencies of any apparent extend to any other information. Basis of audit opinion with International Standards on our audit in accordance We conducted disclosures in the parent compan the amounts and to relevant basis, of evidence on a test examination, includes Board. An audit consent in writing. consent in writing. We report to you our opinion as to whether estimates and judgements made by the directors in the preparation of the parent company financial statements, and of whether th of whether and statements, financial company of the parent by the directors in the preparation made estimates and judgements disclosed. and adequately appropriate to the Company’s circumstances, consistently applied are accounting policies company financial statements and the part of the directors’ remuneration report to be audited have been properly preparedthe directors’ remuneration report to be audited have been properly in and the part of statements company financial Report of the Directors is consisten the Companies Act 1985. We also report to you whether, in our opinion, the accordance with all the if we have not received not kept proper accounting records, if the Company has statements, financial the parent company remuneration and by law regarding directors’ specified information if require for our audit, or explanations we information and not disclosed. transactions is parent company audited with the consider whether it is consistent and report annual the contained in We read other information of the Directors, the review, the Report financial comprises only the operating and information financial statements. The other

118 Financial Statements Financial Statements 119

1 73 2005 2005 748 749 552 550 (197) 964 f by: 1,035 1,587 1,587 1,587 Restated

– 73 2006 2006 599 964 597 (454) 1,035 1,053 1,053 1,634 1,634 1,634 www.imperial-tobacco.com www.imperial-tobacco.com

(ii) (v) (iii) (vi) (vi) (iv) Notes Notes 2006 and signed on its behal Boardon 31 October of Directors Cash Share premium account Share premium

Debtors up share capital Called Equity shareholders’ funds Profit and loss account Net current assets Current assets The financialstatementswere approved by the 119 to 122 The on pages Net assets Capital and reserves due within one year Creditors: amounts falling liabilities Total assets less current Derek Bonham Director Chairman Robert Dyrbus Tangible fixed assets Tangible fixed assets Investments (In £’s million) (In £’s million) Imperial Tobacco Group PLC balance sheet balance PLC Group Tobacco Imperial 2006 September at 30

i). the ble and in e approved are oved by full equivalent disclosures on the Company’s profit or net assets. financial statements as financial £852m) due to the write back of the dividend payment by the write back of the dividend payment £852m) due to the Date”. Following adoption of the Standard final dividends paya dividends of the Standard final adoption Date”. Following g adoption, equity-settled share-based payments are measured in the notes to its individual notes to its individual in the change in the timing of recognising dividends receivable from Group companies (see note vi from Group companies dividends receivable change in the timing of recognising ments: Measurement” had no impact g policy and presentation g policy and presentation Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco The adoption of FRS 26 “Financial Instru apply to adopt the exemption to elected FRS 20 “Share-based payment” and has of requirements the has applied The Company FRS 20 only to awards made after 7 November 2002. Followin Basis of accounting cost convention, the with the historical in accordance going concern basis on the been prepared have The financial statements Principles. and UK Generally Accepted Accounting Companies Act 1985 are set out below. policies accounting The principal Changes in accountin during became effective which by the Accounting Standards Board standards issued new of a number of Following the introduction Accounting policies policies Accounting Notes to the Imperial Tobacco Group PLC balance sheet sheet PLC balance Group Tobacco Imperial to the Notes receivable are recognised as a liability or asset in the Company’s financial statements in the period in which the dividends ar dividends in which the statements in the period financial Company’s in the liability or asset as a receivable are recognised paid. are dividends period in which in the are recognised dividends by shareholders, while interim receivable from Group companies of £305m (2005: £800m). in income increase The adoption of FRS 21 has resulted in an by £27m at 1 October 2005 (2004: Shareholders’ funds have decreased Company at 30 September 2005 and the using their fair value at market date. However, as the Company has no employees, there is no effect on its financial statements its financial on no effect is there no employees, has Company date. However, as the at market fair value using their year, the Company has made changes to its accounting policies, as follows: as follows: accounting policies, to changes its has made year, the Company 30 September restated 2005 have been at sheet 30 September the balance 2005 and for the year ended The profit and loss account the Balance Sheet of FRS 21 “Events after following the adoption current or prior years. assets Investments held as fixed less any provision are shown at cost and in subsidiaries Company’s investment the comprise Investments held as fixed assets for impairment. Dividends are appr dividends the which period in in the statements in the Group’s financial as a liability are recognised dividends Final are paid. dividends in which the in the period are recognised interim dividends while shareholders, has been presented for the Company. account Act 1985, no separate profit and loss As permitted by section 230 of the Companies statement a cash flow or providedFRS 1 has not presented details of related party transactions as permitted under The Company the advantage of has taken “Related party disclosures” respectively. The Company (revised) “Cash flow statements” and FRS 8 exemption not to present FRS 25 disclosures statements. financial presented in the consolidated

120120 Financial Statements Financial Statements 121

– 2 2 73 2005 2005 2005 2005 2005 2005 2005 746 748 253 120 195 197 100 373 ved 1,035 Restated* Restated Restated

– 2 73 2006 2006 2006 2006 2006 2006 2006 213 454 100 406 241 279 127 1,051 1,053 1,035 www.imperial-tobacco.com www.imperial-tobacco.com e shareholders had not yet appro e shareholders had not the date of the year end, th the date of the year ce per share has been proposed. This amounts to £295m based on been proposed. This amounts to £295m has share ce per y is shown on pages 125 to 126. y is shown on ber 2006 of 18.5p 16.5p) per share (2005: ember (2004: 35.0p) 2005 of 39.5p per share Called up share capital Called Investments held as fixed assets assets fixed held as Investments Creditors: amounts falling due within one year due within falling Creditors: amounts Debtors: amounts falling due within one year within due amounts falling Debtors: Dividends Dividends

Other creditors Issued and fully paid

729,200,921 ordinary shares of 10p each Authorised 1,000,000,000 ordinary shares of 10p each (v) (In £’s million) Amounts owed to Group undertakings (iv) (In £’s million) Bank overdrafts Other debtors andprepayments (iii) (In £’s million) Amounts owed by Group undertakings Cost of shares in Imperial Tobacco Holdings Limited Cost of shares in Imperial Tobacco A list of the principal subsidiaries of the Compan (ii) (In £’s million) * See note (vi) note (vi) * See Interim dividend for the year ended 30 Septem for the Interim dividend year ended 30 Septemberfor the 2006 of 43.5 pen A final dividend Amounts recognised as distributions to ordinary shareholders in the year: as distributions to ordinary shareholders in Amounts recognised (In £’s million) ended 30 Sept for the year Final dividend (i)

the final dividend at the Annual General Meeting and therefore it is not included in the balance sheet as a liability. liability. sheet as a balance in the included it is not and therefore General Meeting at the Annual the final dividend the number of shares ranking for dividend at 30 September 2006.the number of shares At

2005 2005 603 597 525 , it ave (373) (201) 550 (556) ot 1,099 1,062 1,587 Restated Restated Profit and Profit 7m. loss account loss account eptember

– – 47 2006 2006 964 Share 964 (406) (556) account account 1,009 1,587 1,634 premium Act 1986 in respect of es, of shares held in treasury is £75 es,

mpany, is £1,009m (2005 restated: £1,099m). e Irish Companies (Amendment) continued 30 September 2006 the total number of shares held in treasury is September 2006 the total number of shares held 30 e financial statements of the Co e financial statements issued share capital. The total cost, including expens issued share capital. The Other information information Other Reconciliation of movements in shareholders’ funds funds in shareholders’ of movements Reconciliation Contingent liabilities Contingent liabilities Reserves

Purchase of own shares Purchase of own shares As at 30 September 2006 As at 30 September Payments for purchase of own shares funds shareholders’ Movement in equity (Originally £1,614m and £1,914m before prior year adjustments of £(27)m and(Originally £1,614m and £1,914m before prior £(852)m) Closing equity shareholders’ funds therefore availed themselves of the exemption provided by section 17 of th themselves of the exemption therefore availed file separate financial statements with the Chamber of Commerce. Under the same article, Imperial Tobacco Group PLC has issued the Under of Commerce. statements with the Chamber file separate financial subsidiaries. of the Dutch debts for any and all liability all declarations to assume any and as at 30 S statements financial consolidated the in included are all of which also cover the Irish subsidiaries, The guarantees h Tobacco Mullingar Limited and Imperial Distributors John Player & Sons Limited, John Player namely companies, 2006. The Irish companies. for such returns documents required to be attached to the annual Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco (ix) Number of employees The average number of employees during 2006 was nil (2005: nil). Statutory audit fees audit fees of £0.6m (2005: £0.6m). statutory of the Company included The expenses including its Dutch and Irish subsidiaries. At 30 September 2006, the contingent liability totalled £4,205m (2005: £3,783m). liability including its Dutch and Irish subsidiaries. At 30 September 2006, the contingent do n Civil Code, Article 403 of The Netherlands with Book 2, which, in accordance subsidiaries include the Dutch The guarantees Imperial Tobacco Group PLC has guaranteed various borrowings and liabilities of certain UK and overseas subsidiary undertakings and overseas subsidiary of certain UK liabilities various borrowings and has guaranteed Imperial Tobacco Group PLC (viii) Opening equity shareholders’ funds shareholders’ funds Opening equity Profit on ordinary activities after taxation Dividends (vii) (In £’s million) Profit for the year The prof not presented. of the Company is account Act 1985, the profit and loss 230(3) As permitted by section of the Companies attributable to shareholders, dealt with in th Purchase of treasury shares ordinary shares in Imperial Tobacco buyback programme purchasing 32,489,000 the Company continued its share During the year at expenses. As Group PLC for a total cost of £556m including 46,004,000 representing 6.3% of the Retained profit for the year Retained profit for (In £’s million) (In £’s million) As at 1 October 2005 as previously stated policies on page 120) (see accounting Prior year adjustments As at 1 October 2005 as restated – (27) 964 577 (vi) Notes to the Imperial Tobacco Group PLC balance sheet sheet PLC balance Group Tobacco Imperial to the Notes The shares purchased to date have not been cancelled but are held in a treasury shares reserve and represent a deduction from treasury shares in a held cancelled but are have not been to date The shares purchased Statements). Financial the Consolidated equity shareholders’ funds (see note 22 to

122 Financial Statements Supplementary Information 123 www.imperial-tobacco.com www.imperial-tobacco.com earing difficulties) TI-ADR (877-248-4237) shareholders with h ADR depositary ADR depositary Shareholder Services for ADR Holders Services Citibank Shareholder PO Box 43077 02940-3077Providence, RI USA Toll-free number in the US: 1-877-CI email: [email protected] Stockbrokers Hoare Govett Limited, 250 Bishopsgate, 4AA London EC2M +44 (0)20 7661 6556 Limited Morgan Stanley & Co International 20 Cabot Square Canary Wharf London E14 4QW +44 (0)20 7425 8000 Auditors PricewaterhouseCoopers LLP Registered AuditorsChartered Accountants and 31 Great George Street, Bristol BS1 5QD Lawyers Ashurst, Broadwalk House, 5 Appold Street, London2HA EC2A Allen & Overy, One Bishops Square London E1 6AO Financial advisers CitiGroup Citigroup Centre, 33 Canada Square Canary Wharf, London E14 5LB Registered office Registered PO Box 244, Upton Road, Bristol BS99 7UJ +44 (0)117 963 6636 and Wales No: 3236483Registered in England Registrars Lloyds TSB Registrars, Worthing, The Causeway, West Sussex BN99 6DA 0870 241 3932 +44 (0)121 415 7009 (0870 600 3950 text phone for Shareholder Information Information Shareholder he ed , the cated buy up by up 07, Hoare ative k. nd otice of Meeting and explanatory notes Meeting and explanatory otice of about t TSB Registrars, Box 699, PO Worthing, West Sussex um charge of £15. For details please contact Hoare Govett Limited at Hoare of £15. For details please contact charge um ly and transactions are limited to €15,000 (approximately€15,000 £10,000). and transactions are limited to ly Sussex BN99 6UY, tel: 0870 242 4244. 2007. The associated ex dividend date is 17 January 2007. 2007. The associated the Financial Services Authority. is to be held on 30 January 2007.30 The N is to be held on

the circular enclosed with this report. the circular enclosed the International Direct Investment Program, please call Citibank N.A., the administrator a N.A., the Citibank Program,call please the International Direct Investment continued Further information can be obtained from Lloyds Further information can be obtained address shown. This service is restricted to UKrestricted residents on is address shown. This service by Govett Limited is authorised and regulated Individual Savings Account (ISA) Account (ISA), dedi cost Individual Savings a low shares may take advantage of Investors in Imperial Tobacco Group PLC ordinary further shares in the market. Registrars, ISA Team, The Causeway, Worthing, West Registrars, ISA Team, The Dividend Reinvestment Plan (DRIP) to dividend to use their cash (DRIP) to enable shareholders reinvestment plan a dividend has set up Imperial Tobacco Group PLC resolutions to be proposed are set out in resolutions to be proposed will be on 16 February 20 approved, if final dividend, Payment of the 2006 August and February. in paid Dividends are generally on 19 January register to shareholders on the form a mandate instruction do so should complete who wish to not currently mandate their dividends and Shareholders who do TSB Registrars at the address shown. obtainable from Lloyds Share Dealing Service set has been Imperial Tobacco Group PLC shares of sale and for the purchase postal dealing service A low cost, execution-only, from Lloyds TSB obtained ISA can be plc. Details of the by Lloyds TSB Bank to Imperial Tobacco Group shares and operated Hoare Govett Limited. Commission is 1 per cent with a minim Hoare Govett Limited. Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco Shareholder Information Information Shareholder Financial Calendar and Dividends Dividends and Financial Calendar in October. year’s results the full May and in announced expected to be Interim results are of the Company The Annual General Meeting 0870 241 BN99 6YY, tel: 3018. American Depositary Receipt Facility Depositary Shares the form of American in York Stock Exchange traded on the New ordinary shares are Imperial Tobacco Group PLC administer facility is shares. The ADS two Imperial Tobacco Group PLC ordinary (ADSs) using the symbol ITY. Each ADS represents by Citibank N.A. and enquiries should be directed to them at the address shown. shown. to them at the address should be directed enquiries N.A. and by Citibank Program International Direct Investment Direct Investment Program which provides International in the Citibank included ADSs have been Imperial Tobacco Group PLC Tobacco Group PLC ADSs. Imperial and sell way to purchase with a convenient registered holders and interested investors To obtain further information about sponsor, at 1-800-808 8010USA). (toll free in the Website www.imperial-tobacco.com. our website: on available is Information on Imperial Tobacco Group PLC indic on your holdings, information You can access on-line. Lloyds TSB Registrarsof shareholder information also offer a range details at www.shareview.co.u or updating your shares on transferring help practical find and dividend details share prices and

124 Supplementary Information Supplementary Information 125 www.imperial-tobacco.com www.imperial-tobacco.com Manufacture, marketing and sale of tobacco products and sale marketing Manufacture, in New Zealand sale of tobacco products in Turkey Marketing and of tobacco products and sale marketing Manufacture, Slovak Republic in the of tobacco products in Germany and sale marketing Manufacture, and export of tobacco products of tobacco products and sale marketing Manufacture, in the Netherlands

Dunkerquoise des Blends S.A., France France Blends S.A., des Dunkerquoise Belgium Belgium N.V.), N.V. (Rizla Fils Lacroix Ets. L. AS, Norway Gunnar Stenberg Singapore Imperial Tobacco (Asia) Pte. Ltd., Australia Imperial Tobacco Australia Limited, Czech Republic Imperial Tobacco CR s.r.o., of tobacco products in Belgium and sale marketing Manufacture, Imperial Tobacco France S.A.S., France Greece Imperial Tobacco Hellas S.A., Imperial Tobacco Italy Srl, Italy Tobacco processingFrance in Hungary Kft, Imperial Tobacco Magyarorszäg Dohänyforgalmazö in Hungary sale of tobacco products and Marketing of Ireland Republic Imperial Tobacco Mullingar, sale of tobacco products in South East Asia Marketing and Zealand Limited, New Imperial Tobacco New Zealand sale of tobacco products in Australia and Marketing Republic Czech products in the sale of tobacco and Marketing Netherlands the Imperial Tobacco Overseas B.V., in Norway sale of tobacco products Marketing and ve Ticaret A.S., Sanayi Imperial Tobacco Sigara ve Tutunculuck France tobacco products in Marketing of Turkey Imperial Tobacco Slovakia A.S., Slovak Republic sale of tobacco products in Greece Marketing and of Ireland tobacco in the Republic fine cut of Manufacture ve Pazarlama A.S., Turkey Satis Imperial Tobacco Tutun Urunleri tobacco products of in Turkey Manufacture company Finance Ireland Republic of Sons Limited, John Player & John Player S.A., Spain Italy of tobacco products in Marketing GmbH, Germany Reemtsma Cigarettenfabriken China Limited, Reemtsma International Asia Services Ukraine Reemtsma Ukraine, OOO Reemtsma Volga Tabakfabrik, Russia of Ireland Republic sale of tobacco products in the and Marketing OOO Reemtsma, Russia Robert Burton Associates Limited, USA China of tobacco products in Marketing Tobaccor S.A.S., France Canada Limited, Canada Van Nelle Netherlands Van Nelle Tabak Nederland B.V., the tobacco products of in Russia Manufacture sale of tobacco products in Spain Marketing and USA in the and tubes sale of rolling papers Marketing and sale of tobacco products in Ukraine Marketing and Canada of tobacco products in tubes and sale of Manufacture sale in Russia of tobacco products Marketing and companies Holding investments in subsidiary Incorporated overseas Incorporated overseas Name and country of incorporation Germany GmbH, Roth-Händle Badische Tabakmanufaktur tobacco products of in Germany Manufacture Principal activity Imperial Tobacco Finance PLC Imperial Tobacco Finance Limited Imperial Tobacco Holdings Limited Imperial Tobacco International Limited Sinclair Collis Export and marketing of tobacco products companies in subsidiary Holding investments company Finance Cigarette vending in the UK Name Principal activity shown below: unlisted are are which all of the year, throughout Group held subsidiaries of the owned wholly The principal and Wales Registered in England Principal Name Imperial Tobacco Limited UK products in the of tobacco and sale marketing Manufacture, Principal Subsidiaries Subsidiaries Principal

74.1 n owned* Percentage na Ljubljana d.o.o. in in d.o.o. Ljubljana na þ th the exception Toba of e year, are shown below. All are unlisted unless unlisted All are shown below. e year, are Manufacture, marketing and sale of tobacco products and sale marketing Manufacture, in the Ivory Coast

to the Annual Return of the Company. to the Annual Return

, Côte d’Ivoire 1 owns the following partnership: continued va Fabrika, Ukraine va Fabrika, Ukraine in Ukraine cigarettes Manufacture of 99.8 na Ljubljana d.o.o., Slovenia d.o.o., Slovenia na Ljubljana sale of tobacco products in Slovenia and Marketing 76.5 þ Listed on the Côte d’Ivoire Stock Exchange. Exchange. Stock d’Ivoire Côte the on Listed

which the Group holds a 99% interest. interest. 99% a holds Group the which

Tutunski Kombinat AD, Macedonia AD, Macedonia Tutunski Kombinat of tobacco products in Macedonia and sale marketing Manufacture, 99.1 Toba Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco of Imperial Tobacco Holdings Limited, which is wholly owned by the Company, none of the shares in the subsidiaries is held by by held shares in the subsidiaries is of the none owned by the Company, wholly is Limited, which of Imperial Tobacco Holdings is attached A full list of subsidiaries the Company. The consolidated Group financial statements include all the subsidiary undertakings and entities shown above. With the exceptio shown entities subsidiary undertakings and the all statements include Group financial The consolidated Principal place of business: Industriestrasse 6, of business: Industriestrasse Principal place Postfach 1257, D-78636 Trossingen, Germany wi same, the are Group the of rights voting effective the * and parent immediate by held capital share issued of percentage The In addition, the Group also wholly In addition, the Name and country Co. KG, Germany Imperial Tobacco (EFKA) GmbH & tubes in Germany of Manufacture Principal activity 1. Reemtsma Kiev Tyutyuno Reemtsma Kyrgyzstan OJSC, Kyrgyzstan Reemtsma Kyrgyzstan Skruf Snus AB, Sweden Société IvoirienneS.A. des Tabacs products in Kyrgyzstan and sale of tobacco marketing Manufacture, 98.7 of tobacco products in Sweden and sale marketing Manufacture, 43.0 Principal Subsidiaries Subsidiaries Principal Name and country of incorporation Principal activity The principal partly owned subsidiaries of the Group, held throughout th held Group, the owned subsidiaries of partly The principal otherwise indicated: Incorporated overseas S.A., Poland Imperial Tobacco Polska in Poland and sale of tobacco products marketing Manufacture, 96.5

126 Supplementary Information Supplementary Information 127 www.imperial-tobacco.com www.imperial-tobacco.com Subsidiary Undertakings Subsidiary Undertakings Sweden 26 T 125-126 Taiwan Taxation Tobacco Consumption Total Shareholder Return Index Turkey U 3 Ukraine, the 28, 82-83, 98-99 6 25 26 26 United Kingdom United Kingdom United States V Vietnam W World Tobacco Market Context 18-19 6 26 25 P Fund Pension 6 Warnings Pictorial Health Productivity10-11 Profit Before Tax Poland Property, Plant and Equipment Provisions 30 86-87 R Analysis Regional Performance 50 Registrars 5, Regulation 28 Committee Remuneration 17 Remuneration Report Report of the Directors Rest of the World Region 45, 52 26 Rest of Western Europe Region 104 Restructuring Costs 22-23 Retirement Benefit Schemes 52-66 39-40 24-26 Risk Assessment 123 100-103 Risks and Uncertainties Russia S 28, 81 Sales Development Saudi Arabia Segmental Information 14 Senegal 26 48 Share Buybacks Share Capital Shareholder Information 78-80 8-9 Slovakia 26 Slovenia 26 13, 109, 122 Places Smoking in Public 26 123-124 Spain 26 Statement of Recognised Income and Expense 39, 104 Strategy 29 70 23 7-13 E Earnings Per Share Employee Share Schemes Employees/Employment Excise Duty 104-108 F 33, 40, 81 2, 28, 84 Financial Calendar Highlights Financial Performance Financial Financial Statements 28 Financing on Framework Convention Tobacco Control 6, 31 124 France IFC 68-122 28 G Gabon 26 Germany Greece Group Performance 6, 30 H Health, Safety and Environment Hungary 26 I 34 23 Income Statements Intangible Assets 17 20-21 International Financial Reporting Standards Ireland 23 Italy 68, 122 L 112-117 Laos 84-86 Litigation M Madagascar 26 Manufacturing Master Settlement Agreement Middle East 23 N Costs Net Finance 26 23 Netherlands, the New Zealand 31 Nominations Committee 25 Norway 26 27 Notes to the Financial Statements 78-122 O 26 Review Financial Operating and 28 46 Operating Environment 23 Outlook 2-38 26 29-31 5, 19, 21, 23, 26 Remuneration Report 81 118 67, Biographies 37 Interests in Shares Remuneration Responsibilities Pensions 64-66 57 52-66 51 A Accounting Policies Acquisitions Africa American Depositary 120 71-75, Receipts/Shares Annual General Meeting Asia 12-13, 28, 110 Audit Committee Auditor) Auditor (Independent 40, 124 123-124 Australia B Balance Sheets 26 Belgium 47 Board Committees Board of Directors Burkina Faso 25 Business Review C 69, 119 Capital Expenditure 42-44 25 Cash Flow 36-37 Cash Management 26 Caucasus Statement Chairman’s 23 Changes in Equity 39 26 Chief Executive’s Committee 28 Chief Executive’s Review China 12-13 38, 45 Community Investment 2-3 Contents Contingent Liabilities 70 4-5 Report Corporate Governance 109 Corporate Responsibility 41-51 Côte d’Ivoire 35 Creditor Payment Policy Estimates Critical Accounting 5, 32-35 and Judgements 122 Czech Republic D 25 40 Debt 1 Directors 26 76-77 26 Disclosure Committee 88-98, 111-112 Dividend Reinvestment Plan (DRIP) Dividends 124 Donations 50 2, 28, 83, 124 35, 40 Index Index Imperial Tobacco Group PLC 2006 Group PLC Imperial Tobacco Notes Notes This page is for notes and has been left blank intentionally. intentionally. blank been left has notes and for This page is

128 Supplementary Information Cert no. SGS-COC-1722

This Annual Report and Accounts is printed on Arctic the Volume. This paper is produced from 100% ECF (Elemental Chlorine Free) pulp that is fully recyclable. It has FSC (Forest Stewardship Council) certiﬁcation and has been manufactured within a mill which is registered under the British and international Designed and produced by Black Sun Plc. quality standard of BS EN ISO 9001-2000 and the Printed in England by Butler and Tanner. environmental standard of BS EN ISO 14001-1996. Imperial Tobacco Group PLC PO Box 244 Southville Bristol BS99 7UJ