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Imperial ? A glimpse behind the scenes

A lot has changed for both companies since UK tobacco manufacturer Imperial acquired German cigarette producer Reemtsma in March 2002. The deal promoted Imperial into the top tier of global tobacco manufacturers. For Reemtsma, the keyword is restructuring.

One of the mantras for any acquisition we make is to integrate and re-organise very quickly,?? Imperial?s chief executive office Gareth Davis said on the occasion of one the company?s numerous earlier acquisitions, and this is also true for the company?s latest purchase Reemtsma. The deal, which was completed in May 2002, catapulted Imperial from its back-bench rank to forth place in the list of the world?s largest tobacco companies; the enlarged company is now represented in 100 countries.

The integration and reorganisation process, Imperial says, is ahead of schedule. In February 2003, the sales & marketing functions, which were located in Hamburg, Germany, Nottingham and Bristol, England, and Joure, The Netherlands, will be integrated into one international sales & marketing department situated in Slough in the UK. Head office functions will be in Bristol, while manufacturing and technical support will be based in Hamburg. Rationalisation will also affect the three sales forces in Germany, which will be amalgamated into one; similarly, distribution operations in the country will be streamlined.

The group has also seen a management restructuring. David Creswell, former managing director cigarettes, is now responsible for the entire production of tobacco products. Manfred H??ussler, previously a board member of Reemtsma International, is responsible for sales and marketing. Frank Rogerson, former director of business development at Imperial, is in charge of corporate affairs.

Streamlining efforts within the group will bring about 800 job cuts, or 4.4 per cent of the company?s workforce of 18,000. The job cuts are part of the company?s striving to save at least ?? 170 million (US$ 262 million) in 2004 as a result of the Reemtsma buyout. Analysts estimate that during 2003 the target could already be overshot by up to ?? 30 million and again in the following year, driven by a reduction of stock-keeping units (SKU), packaging simplifications, lower leaf tobacco costs and head office cost reductions over and above existing plans.

Reemtsma deal pays off

Although contributing only four and a half months with its trading results to the group?s financial year ended 28 September 2002, the German purchase has already lifted Imperial?s profits. In November, the tobacco firm reported annual profit up by 26 per cent, at the top end of expectations, a result that was boosted by the acquisition of Reemtsma in 2002. According to the company, adjusted pretax profit, which excludes exceptional items and amortisation, for 2002 rose to ?? 642 million (US$ 1.01 billion) from ?? 509 million a year earlier. The results were ahead of most analysts? expectations. Pretax profit fell by 14 per cent to ?? 423 million, while revenue rose by 40 per cent to ?? 8.3 billion from ?? 5.92 billion in 2001.
The UK, where the company could consolidate its market leadership, registering an increase in cigarette market share from 39.7 per cent in 2001 to 42.9 per cent in 2002, remained Imperial?s largest and most profitable market. Initial contribution from Imperial?s distribution contracts for Philip Morris brands in the UK, as well as a stable duty-paid market, contributed to the strong performance.

The UK market accounts for ?? 390 million of Imperial?s operating profit, whereas Reemtsma generated ?? 107 million and overseas business ?? 292 million. As one of the first results of Imperial?s German acquisition, the UK market in September 2002 saw the launch of Reemtsma brand Davidoff into the super premium sector.

The purchase of Reemtsma made Germany Imperial?s second largest market. The group now holds about 20 per cent of the market, which is the largest in Europe and, at 144 billion units annually, about twice the size of the UK market. With the help of its combined sales force, an increased focus on its key brands and the move from the key brand West to the E 3 price point, Imperial is confident that it can turn around the downward trend of Reemtsma?s market share in Germany over the past two years.

Since its demerger from its parent Hanson Group in 1996, another one of Imperial?s mantras has been to become more and more international, an aim the company has achieved through six acquisitions so far, which have given it a vast geographical spread. And what about the future? In the following exclusive interview with Tobacco Journal International, Imperial?s chief executive officer, Gareth Davis, reveals the company?s plans for growth.

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