The profit from the America-Pacific region increased by £22 million to £446 million as a result of higher profit in local currency in Japan and Canada, partly offset by the impact of weaker exchange rates. At comparable rates of exchange, profit would have increased by £45 million or 11 per cent. Volumes decreased by 3 per cent to 42 billion, mainly as a result of the decline in industry volumes in Canada, partly offset by the increase in Japan.
In Canada, profit of £276 million was down £4 million from last year. However, profit would have been £4 million higher at comparable rates of exchange, due to higher margins and lower production costs following the transfer of manufacturing to Mexico. The impact of these more than offset the reduction in volumes driven by the increased prevalence of illicit product and loss of market share. The continued growth of Peter Jackson resulted in share growth in the Value-for-Money segment, but, as this was more than offset by the decline in the Premium segment, the overall market share was lower.
In Japan, where there was a significant decline in industry volumes, the growth of market share, profit and volumes continued, driven by the strong performances of Kent and Kool. Profit grew through higher volumes, increased margins, improved product mix and effective cost management, partly offset by the impact of unfavourable exchange rates.
Innovation in Japan
In 2006, we recognised that Japan was rapidly becoming one of the world’s most demanding and innovative consumer markets. We resolved to gear our consumer offerings around highly innovative and contemporary ideas to meet consumers’ expectations.
To achieve this, a dedicated innovation group was established at our headquarters in Tokyo, with the task of creating and delivering a step change in innovation. In 2007, almost 14 per cent of our business came from new innovations.
Perhaps the most noteworthy of these is Kool Boost, a highly original product that employs a crushable capsule in the filter to deliver an extra boost of menthol. Such has been the consumer reaction to Boost, that Kool is today the fastest growing brand in the market.