Introduction by Gareth Davis

“We have delivered another strong performance this year. This further builds on our ongoing commitment to operate responsibly and to support our long-term business sustainability.”

Gareth Davis Chief Executive

The turbulent economic conditions of the past year have been challenging for businesses across the world, and whilst we are not immune from the current difficulties, we are resilient. Our corporate responsibility (CR) strategy is integral to our overall business strategy and is embedded throughout the Imperial Tobacco Group.

Our ongoing commitment to operating responsibly and to managing our economic, social and environmental risks and opportunities is fundamental to our future success. This commitment has been reinforced by further improving the way in which we engage with our stakeholders. I am pleased that this year we have been able to convene a Stakeholder Panel to appraise our approach and help direct our CR agenda. The panel includes representatives from many of our main stakeholder groups including consumers, customers, investors, suppliers, employees and community.

The key issues we manage within our CR strategy include business conduct and accountability, product stewardship and assessment, responsible sales and marketing, fairness and respect for employees, occupational health and safety, supplier sustainability, environmental impact and community involvement.

In 2007, we identified five particular areas of focus for the next five years:

• further increasing transparency in how we adhere to our Group policies;
• empowering local management to better address corporate responsibility issues;
• product portfolio balance;
• supplier sustainability; and
• better carbon management.

Following the acquisition and integration of Altadis we are now undertaking a review to ensure that we have the right CR framework for the enlarged business. The review will also take into account the views of our Stakeholder Panel.

Strong Governance

Our stakeholders expect us to act in a fair and responsible manner and our commitment to high standards of conduct and performance is as strong as ever. Our corporate governance and internal control procedures include appropriate policies, standards and procedures to meet the high standards expected of us. This sets the framework in which we operate and make decisions. Our governance processes support and underpin our business strategy and its objectives of sales growth, cost optimisation and effective cash utilisation.

Our growth strategy is underpinned by our commitment to maintaining a sustainable and profitable business whilst behaving responsibly to the high standards expected of an international company.

View our 2009 Annual Report for more information on our strategy

During the year, we updated a number of corporate documents, including our Group Advertising policy and our International Marketing Standards for tobacco products and smoking accessories. We also began an extensive review of our Code of Conduct, which sets out the responsible behaviours we expect from our employees. The review will be completed in 2010 and employees throughout the Group will be trained to understand the requirements of the updated Code.

Our Consumers

We are proud to manufacture and sell a range of high-quality cigarette and other tobacco products for the enjoyment of millions of adults worldwide. Meeting the needs of our consumers is central to our business sustainability.

Our balanced total tobacco portfolio spans all product categories and price segments, ensuring we can be agile in responding to changing consumer and market dynamics. Understanding the evolving nature of consumers and aligning our local market portfolios to match their preferences is an important element of our sales strategy.

We believe that adults should have the freedom to enjoy tobacco products whilst being aware of the associated risks to their health. We support regulation that is reasonable, proportionate and evidence-based but will continue to challenge disproportionate and unnecessary regulation that undermines the principles of adult choice and the freedom of competition. In our view, such regulation is designed to stigmatise smokers and to denormalise smoking. We strongly believe that consumers and smoking should not be treated in this way.

A key concern with disproportionate regulation is that it can increase the opportunity for illicit trade, which exposes consumers to unregulated products through unregulated channels. This has been our experience with high excise duty increases in numerous countries and remains a key issue relating to product display bans.

Our Employees

As a responsible business we take care of our employees’ health and safety and treat our people with fairness, dignity and respect. Employee engagement is fundamental to our success and we actively promote two-way dialogue.

The smooth integration of Imperial Tobacco and Altadis has been a key priority over the past year and we have made excellent progress. We completed consultations with works councils and trade unions and implemented our major European integration projects, including merging our sales and marketing teams. A number of manufacturing restructuring projects in Europe were also progressed. In addition, we closed two cigar factories in the USA and continued to align processes, systems and standards across our manufacturing operations. Regrettably, these projects have impacted our employees and our priority throughout has always been to provide those affected by integration with a comprehensive range of support measures.

Climate Change and Carbon Management

We remain committed to minimising our environmental impacts and regularly review our policy and performance at Board level. Our environmental management systems are based on ISO 14001. Analysing energy consumption and CO₂ emissions throughout the Group has been a key task for us during the year. We remain on course to meet our 2010 targets for tobacco manufacturing in terms of energy consumption, total waste, waste to landfill and for reductions in CO₂ emissions.

Supplier Sustainability

We work with our suppliers to safeguard future supplies and improve social, environmental and economic standards in the supply chain.

Our 2009 focus has been on reviewing our procurement activities in order to further improve supplier practices. We continue to work with the Social Responsibility in Tobacco Production programme to monitor the performance of our tobacco suppliers. We are also a board member of the Eliminating Child Labour in Tobacco Foundation and stipulate supplier compliance with international standards on child labour.

Continuous Improvement

The successful integration of Imperial Tobacco and Altadis includes ensuring that a responsible business approach is integral throughout the Group.

I am pleased with the progress we have made with the roll-out of our processes and standards, which is reflected in our CR benchmark achievements. Once again we have been recognised externally with a silver award rating in the 2008 Business in the Community CR Index. Participating companies are evaluated in terms of how responsible business practices are integrated into their core business processes. In light of the early stages of roll-out of some of our systems and processes to Altadis, our score was only marginally down from the gold rating that we were awarded in 2007.

It was also gratifying that our progress has again been recognised by Sustainability Asset Management (SAM). SAM analyses companies on behalf of the Dow Jones Sustainability Index and seeks to identify companies that both demonstrate a core ability to manage their economic, environmental and social issues and represent an attractive investment opportunity. SAM assessed us against the world’s largest 2,500 companies and for the second year we were awarded Bronze Class in their 2009 Sustainability Yearbook.

I am delighted to introduce the 2009 CR Review. Here you will find details of our achievements, future objectives and feedback from our newly appointed Stakeholder Panel. Establishing a panel has been an important development in our engagement strategy. I thank those involved for giving their time to appraise our progress.

Finally, my thanks to our employees who have worked hard to drive the responsible performance of the business in such a challenging operating environment.

Gareth Davis
Chief Executive