04 May 2016

Half Year Results for the six months ended 31 March 2016

STRONG FIRST HALF PERFORMANCE AND ON TRACK FOR FULL YEAR

Performance Highlights

Delivering against strategy; including strong US contribution

Tobacco net revenue up 16.8%
Total adjusted operating profit up 19.5%
Adjusted EPS up 20.4%
Cash conversion 105%
Interim dividend up 10%

Improving quality of growth

Continued Growth Brand momentum
Further success of brand migrations
Tobacco net revenue from Growth/Specialist Brands up to 58.6%

Excellent results from ITG Brands

Incremental tobacco net revenue of £468 million from acquired US brands
Volume of 8.6 billion stick equivalents from acquired US brands
Winston and Kool growing share; overall US share at 9.3%
Integration largely complete

Alison Cooper, Chief Executive, commented

“This was a strong first half performance, as we continued to deliver against our strategic agenda. Our quality of growth continues to improve and we achieved excellent results from ITG Brands. We’re focused on maintaining momentum in the second half and remain on track to meet full year expectations and create significant value for our shareholders.”

Headline Financials

Overview - Adjusted Basis		Half Year Result		Change
		2016	2015	Actual	Constant Currency¹
Total tobacco volume	bn SE	133.9	138.2	-3.1%
Growth Brand volume	bn SE	70.7	70.5	+0.2%
Tobacco net revenue	£m	3,399	2,945	+15.4%	+16.8%
Tobacco adjusted operating profit	£m	1,577	1,295	+21.8%	+21.3%
Logistics adjusted operating profit	£m	68	73	-6.8%	-4.1%
Total adjusted operating profit	£m	1,637	1,367	+19.8%	+19.5%
Adjusted earnings per share	pence	113.0	93.3	+21.2%	+20.4%
Dividend per share	pence	47.0	42.8	+9.8%
Adjusted net debt	£m	(13,710)	(9,056)	+51.4%

Overview - Reported Basis		Half Year Result		Change
		2016	2015	Actual
Revenue	£m	12,806	12,129	+5.6%
Operating profit	£m	1,002	959	+4.5%
Basic earnings per share	pence	30.4	89.5	-66.0%

See page 22 for basis of preparation and page 4 for basis of presentation.

¹Change at constant currency removes the effect of exchange rate movements on the translation of the results of our overseas operations.

Delivering Against our Strategy

Strengthening our Portfolio

Continued Growth Brand momentum
Further success of brand migrations: 35 complete to date and 20 underway
Growth and Specialist Brands up to 58.6% of reported tobacco net revenue
Growth Brand initiatives and campaigns supporting market share gains of 80 bps
Excluding Iraq and Syria, Growth Brand volume up 4.7% and net revenue up 12.5%
Specialist Brand revenue growth driven by premium cigar, snus and blu

Developing our Footprint

Excellent progress in the US with market share gains from Winston and Kool; integration largely complete
Good momentum in Growth Markets with net revenue up 2.1% (up 9.7% ex Iraq & Syria)
Returns Markets net revenue down 0.5%; growth in Returns South offset by Returns North
Overall Group market share up 40 bps, including our enhanced US business

Cost Optimisation

Cost optimisation programme on track; incremental savings of £55m for full year
Continued focus on reducing complexity and implementing new ways of working
Adjusted operating margins up 240 bps to 46.4%

Capital Discipline

Cash conversion of 105% benefiting from timing of MSA payments in US; full year expected range 90-95%
Adjusted net debt of £13.7bn; a reduction of £1.2bn before US acquisition debt (£4.6bn) and FX (£1.2bn)
Interim dividend of 47.0p; up 10%

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