Interim Management Statement for the nine months ended 30 June 2015

STRATEGIC PROGRESS CONTINUES - ON TRACK FOR FULL YEAR

Strengthening our Portfolio

• Excellent results from Growth Brands; underlying net revenue, underlying volume and market share up 14 per cent, 10 per cent and 100 bps respectively
• Continued success of brand migrations; 13 complete (8 in FY15), 21 ongoing; high level of consumer retention
• Growth and Specialist Brands proportion of reported tobacco net revenue up 580 bps to 59 per cent

Developing our Footprint

• Continued progress in Growth Markets: underlying net revenue down 1 per cent; up 3 per cent ex Iraq
• Improving underlying net revenue growth of 1 per cent in Returns Markets
• Total underlying net revenue flat and volumes down 6 per cent (net revenue up 1 per cent and volumes down 4 per cent ex Iraq)
• Acquisition of US assets completed; ITG Brands fully operational and integration progressing to plan

Cost Optimisation

• Focus on complexity reduction, improved ways of working and cost efficiencies ongoing
• Cost optimisation programme remains on track to deliver £85 million savings in FY15

Capital Discipline

• Expect cash conversion of c.90 per cent for the full year with consistent focus on managing working capital
• Continuing commitment to ongoing debt reduction
• On track to deliver dividend growth of 10 per cent for the full year

Alison Cooper, Chief Executive, said:

“This has been another good quarter, building on the progress we made in the first half. Our continued focus on improving the consistency and quality of our performance has delivered excellent results from our Growth Brands which continue to grow net revenue, volume and market share. We’ve strengthened our performance in Returns Markets and maintained positive momentum in Growth Markets. We completed the US acquisition towards the end of the quarter and I am pleased with the successful start we’ve made in implementing our commercial and integration plans for ITG Brands. This consistent delivery against our strategic agenda leaves us on track to deliver against full year expectations and to create further sustainable value for our shareholders.”

¹ Change at constant currency removes the effect of exchange rate movements on the translation of the results of our overseas operations.
² Underlying change additionally removes from constant currency the impact of the stock optimisation programme which adversely affected the reported results in FY14. References in this document to percentage growth and increases or decreases in our results for volumes and net revenue are on an underlying basis unless stated otherwise.
³ Reported, constant currency and underlying tobacco net revenue and total tobacco volume includes the contribution from the US asset acquisition which completed on 12 June 2015
^R FY14 results restated for the adoption of IFRS 11: Joint Arrangements

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