1. Basis of preparation of the accounts

The results for the six months ended 31 March 2004 and 31 March 2003 are unaudited. Except for the restatement following a change in accounting policy as described below, the figures for the year ended 30 September 2003 are taken from the statutory accounts of Imperial Tobacco Group PLC which have been delivered to the Registrar of Companies and upon which an unqualified audit report was given.

The accounting policies are as stated in the Annual Report and Accounts for the year ended 30 September 2003, with the exception of the change in accounting policy following the adoption of UITF Abstract 17 (Revised 2003) "Employee Share Schemes" and UITF Abstract 38 "Accounting for ESOP Trusts", for which the half year and full year results for 2003 have been restated.

2. Changes in accounting policy and presentation

The 2003 half year and full year results have been restated following the adoption of UITF Abstract 17 (Revised 2003) "Employee Share Schemes" and UITF Abstract 38 "Accounting for ESOP Trusts". Shares held by the Employee and Executive Benefit Trusts, previously shown in the balance sheet as fixed asset investments, are now required to be shown as a deduction from shareholders’ funds. The cost of employee share schemes is charged to the profit and loss account using the quoted market price of shares at the date of grant less the exercise price of the share options granted. The charge is accrued over the vesting period of the shares. There is an exemption from making such a charge for Inland Revenue approved SAYE schemes and equivalent overseas schemes.

The impact was to reduce investments by £28m at 31 March 2003 and by £36m at 30 September 2003, and increase the deficit in the profit and loss account reserve by corresponding amounts.

The consolidated cash flow statement has been restated to reflect the reallocation of the cash payments relating to the purchase of shares from "Capital expenditure and financial investment" to "Financing".

The consolidated profit and loss accounts for the six months ended 31 March 2003 and the year ended 30 September 2003 have not been restated as the effect in any one period is not material. The impact of the change in accounting policy in the six months to 31 March 2004 on Group profit after tax is not material.

3. Segmental information (by destination)

The geographical analysis of turnover, duty in turnover and operating profit was as follows:

4. Exceptional items

The profit on disposal of fixed assets relates to the sale of land and buildings no longer required by the business.

Exceptional operating costs of £55m comprise £35m in respect of the factory closures announced in January 2004 and £20m in respect of an ongoing capacity and infrastructure review. These provisions relate primarily to termination of employment and fixed asset write-downs.

5. Taxation

Taxation has been calculated on the basis of an estimated effective tax rate of 27.1% pre-amortisation for the full year. This compares with an effective pre-amortisation tax rate of 27.2% for the 2003 half year and 27.1% for the year ended 30 September 2003.

6. Earnings per share

Basic earnings per share are calculated using the weighted average number of ordinary shares outstanding during the period.

Adjusted earnings per share are calculated before tax-effected exceptional items of £36m and amortisation of £103m, since the Directors consider that this provides a better comparison of underlying business performance.

Diluted earnings per share have been calculated by taking into account the weighted average number of shares that would be issued on conversion into ordinary shares of options held under employee share schemes.

7. Reconciliation of operating profit to net cash flow from operating activities

8. Analysis of net debt

The deferred consideration paid during the period relates to the purchase of a further 9.19% of Reemtsma, for £385m (€558m), taking our total holding to 99.2%.

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