News

Australian acquisition

On 19 May 1999, Imperial Tobacco Group PLC ("Imperial Tobacco") announced that it had reached preliminary agreement with British American Tobacco plc, W.D.& H.O. Wills Holdings Limited ("Wills"), Rothmans Holdings Limited ("RHL") and Rothmans Holdings Australia B.V. for the purchase by Imperial Tobacco of a portfolio of cigarette, roll-your-own tobacco and cigarette paper brands in Australia and New Zealand together with a factory in New Zealand.

Imperial Tobacco is now pleased to announce that the required regulatory and shareholder approvals have now been obtained and terms finalised such that completion will occur on 3 September 1999.

Imperial Tobacco is acquiring a portfolio of brands and a factory in New Zealand for consideration of Aus$325m (£130m), which will be satisfied in cash.

The cigarette brands represent a balanced portfolio across the premium ("P"), mainstream ("M") and value ("V") cigarette segments of the market as indicated.

The acquired brands currently on sale in Australia are:

Cigarettes	Tobaccos	Papers
Peter Stuyvesant (P)	Champion	Tally Ho
Escort (M)	Stockman
JPS (M)	Dr Pat
Brandon (V)	Log Cabin
Horizon (V)	Five Star
	Blend 11
	Flagship
	Rotterdam Shag

The acquired brands currently on sale in New Zealand are:

Cigarettes	Tobaccos
Peter Stuyvesant (P)	Horizon
Peter Jackson (M)	Greys
John Brandon (M)	Flagship
Horizon (V)	Pocket Edition
	Virginia Gold
	Riverstone

The brands acquired equate to a cigarette market share of 17.1% in Australia and 17.6% in New Zealand.

The operating profit earned by these brands in the year to December 1998 (Wills brands) and to March 1999 (RHL brands), after allowing for a proforma allocation of overheads, totalled approximately Aus$50m. Taking into account corporation taxation of 36% this represents a profit after taxation of Aus$32m.

Imperial Tobacco is also acquiring a number of trade marks, unused in Australia and New Zealand, which fit its international brand portfolio, including Hallmark, Embassy and Lambert & Butler and also JPS in New Zealand. In addition, Imperial Tobacco has secured further widespread international rights to a number of the brands acquired.

The factory, located in Wellington, New Zealand, has a capacity of c.4 billion cigarettes. As well as manufacturing product for Imperial, it will also contract manufacture product for BAT's merged operation in New Zealand.

In Australia, BAT's newly merged company is contracted to supply product to Imperial Tobacco.

Imperial Tobacco Australia Limited and Imperial New Zealand Limited have been established and senior management teams are now in place. The necessary sales force and support staff have now been selected and ongoing manufacturing, distribution, logistics and point of sale arrangements have been finalised such that Imperial will commence trading on 3 September 1999, on completion of the transaction.

Commenting, Gareth Davis, Chief Executive, said:

" We are pleased to be announcing the imminent completion of this acquisition and the commencement of trading in Australia and New Zealand. Our focus continues to be on delivering shareholder value and our usual demanding acquisition criteria have been applied. We are buying extensive brand equity, growing our international business and we see many opportunities to increase profits."


Trading Update

Imperial Tobacco has performed strongly in the second half with international volumes and profits continuing to grow. A strong European performance has been further enhanced by buoyant sales in the travel sector following the abolition of intra-EU duty free sales in July. Volumes sold outside of Europe continue to be encouraging, particularly in Africa and the Baltic States, supported by strengthened selling infrastructures.

The reorganisation of Van Nelle Tabak is progressing to plan, producing significant margin improvements in the current year. Both Van Nelle Tabak and Rizla products are benefiting from the focused attention of the recently established European Trading Divisions in France, Benelux and Germany.

In the UK, strong market positions in all product categories combined with a low cost base continue to support profits despite the market conditions. Following the Chancellor's March budget, the UK duty paid cigarette market is now declining at a rate of at 8% per annum. Downtrading has continued resulting in increased roll-your-own and low price cigarette volumes. Lambert & Butler has further improved its leading market position, with an estimated share of 17.2% in June. Imperial Tobacco took a manufacturer's price increase in July, earlier than had been anticipated at the time of the Interim Results, and UK profits have benefited in the second half.

The profitability at the top end of the ultra low price sector improved following price increases in June and July, and Imperial Tobacco will launch today a new brand, Richmond King Size, with a lights variant, in this sector. Richmond will be priced at the top end of the sector, positioned to capture an appropriate share of future downtrading in a profitable way.

Imperial Tobacco's strategy continues to deliver substantial real growth and the outlook remains encouraging.

The preliminary results for 1999 will be announced on 29 November 1999.