Our strategy is clear. It is to create sustainable shareholder value by growing our business both organically and through acquisitions. Our focus on this strategy has transformed Imperial Tobacco over the past nine years into the international company it is today.

In the past five years total shareholder return was 265 per cent and we have outperformed the FTSE All-Share Index by 245 per cent. Contributing to that track record, in 2005 total shareholder return was 40 per cent.

Earnings and dividend

During the year we delivered some pleasing market and brand performances which, combined with our continuing focus on costs and effective cash management, grew adjusted earnings per share by 11 per cent to 112.8 pence. Basic earnings per share was 79.0 pence (2004: 61.4 pence).

As a result of this successful performance, the Board is recommending a final dividend of 39.5¹ pence per share, bringing the total dividend for the year to 56.0 pence, up 12 per cent on 2004 (2004: 50.0 pence). Since 2001 we have grown our dividend by 18 per cent compound.

This financial performance reflected a number of operational highlights that clearly demonstrate the effectiveness of our strategy.

Performance

Our core markets of the UK and Germany delivered significant improvements in profits, against a background of market declines, an excellent achievement. Elsewhere, we grew our cigarette shares in a number of markets across the world with some strong brand performances from Davidoff and West.

Our drive for efficiencies and further cost savings across the Group has continued. The ongoing focus on enhancing productivity and improving operational efficiencies within our manufacturing operations has resulted in the closure of three manufacturing sites in the past year, with further rationalisation announced in September.

We are a highly cash generative tobacco company and we have ensured that shareholders continue to benefit from our effective cash management by initiating a rolling share buyback programme in February 2005. We see this as an efficient use of cash whilst we continue to pursue value creating acquisition opportunities.

Board changes

The Board continues to ensure high standards of corporate governance across every aspect of the business. Each year we conduct a review of Board membership to ensure that an appropriate level of independent Non-Executive Directors is maintained through orderly succession, without compromising the effectiveness of the Board and mindful of the independence requirements of the Combined Code.

Simon Duffy and Sipko Huismans will step down as Non-Executive Directors at our AGM in January 2006 having served nine years on the Board. In addition, David Thursfield resigned as a Non-Executive Director in October 2005, due to his increasing level of external commitments. I would like to thank Simon and Sipko for their valuable contributions to the business since 1996 and David for his contribution since 2003. At our AGM in 2006, Iain Napier, who was appointed as Joint Vice Chairman in December 2004, will take on the role of Senior Independent Non-Executive Director.

I have been delighted to welcome both Susan Murray and Colin Day as Non-Executive Directors during the year. Both bring a wealth of experience to the business; Susan has held a number of high-profile marketing and management roles and Colin is an experienced international executive with a strong track record in the consumer sector.

Bruce Davidson, Sales and Marketing Director, resigned from the Board in February. Graham Blashill, formerly Regional Director Western Europe, has extended his responsibilities to cover all of the Group’s global sales and marketing operations and I was delighted to welcome him to the Board as Group Sales and Marketing Director in October 2005.

Outlook

Our balance, both geographically and in the breadth of the products and brands we offer consumers, together with our ingrained focus on costs, leave us well placed to continue to grow the business.

This, combined with our effective use of cash for value creating acquisitions, further organic investments and share buybacks, should ensure that we continue to deliver sustainable growth for our shareholders.

I am grateful to my colleagues on the Board, our senior management team and to our employees worldwide for their impressive contributions and continued commitment to Imperial Tobacco’s success; my sincere thanks to them all.

In conclusion, I am confident that our strategy will continue to deliver good results, with our strong management team ensuring excellence in its execution.

Derek Bonham
Chairman

 

¹ The dividend will be paid on 17 February 2006 to those shareholders on the register at the close of business on 20 January 2006.