08 Nov 2016

Preliminary Results for the 12 months ended 30 September 2016

DELIVERING AGAINST OUR STRATEGY WITH ADJUSTED EPS UP 12%

Performance Headlines

Delivering against strategy

Tobacco net revenue up 9.7%
Total adjusted operating profit up 10.4%
Adjusted EPS up 12.0%
Cash conversion 95%
Dividend growth of 10%

Next Phase of Strategy to Support Sustainable Quality Growth

Strategy is delivering a stronger business providing a solid foundation for the next decade of growth
Maintaining focus on our same four strategic priorities to drive growth in both revenue and profit
New investment of £300m in FY17 behind selected quality growth opportunities
Supported by a further phase of cost optimisation with an additional £300m of annual savings by 2020

Alison Cooper, Chief Executive, commented

“We delivered another strong performance this year with great results from our expanded US business, and we further improved the quality of our growth. We grew the dividend by 10 per cent for the eighth consecutive year and remain committed to this level of increase over the medium term. Our strategy is delivering and we see scope for significant further shareholder value creation by remaining relentlessly focused on the same four strategic priorities. We are today also announcing further investment behind our strategy to support revenue growth over the medium term. This investment will be supported by a new phase of cost optimisation, targeting a further £300 million of annual savings by 2020, at a cost of £750 million. We have established an excellent platform for sustainable quality growth, which will continue to provide growing returns for shareholders.”
Headline Financials.

Headline Financials

Overview - Adjusted Basis		Full Year Result		Change
		2016	2015	Actual	Constant Currency¹
Total tobacco volume	bn SE	276.5	285.1	-3.0%
Growth Brand volume	bn SE	151.3	145.1	+4.3%
Tobacco net revenue	£m	7,167	6,251	+14.7%	+9.7%
Tobacco adjusted operating profit	£m	3,360	2,895	+16.1%	+10.4%
Logistics adjusted operating profit	£m	176	154	+14.3%	+9.1%
Total adjusted operating profit	£m	3,541	3,053	+16.0%	+10.4%
Adjusted earnings per share	pence	249.6	212.5	+17.5%	+12.0%
Dividend per share	pence	155.2	141.0	+10.1%
Adjusted net debt	£m	(12,882)	(11,646)

Overview - Reported Basis		Full Year Result		Change
		2016	2015	Actual
Revenue	£m	27,634	25,289	+9.3%
Operating profit	£m	2,229	1,988	+12.1%
Basic earnings per share	pence	66.1	177.4	-62.7%

See Page 5 for basis of preparation.

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

Delivering Against Strategic Priorities

Strengthening our Portfolio

Growth Brand volumes up 4.3 per cent with a 50 bps increase in market share
Growth and Specialist Brands up to 60.1 per cent of reported tobacco net revenue
Further success of brand migrations
Good progress with blu Plus+ as we invest in brand building and technology development

Developing our Footprint

Excellent result in USA from ITG Brands; Winston and Kool growing share
Overall Group market share up 30 bps, including contribution from our enhanced US business
Progress in Growth Markets with net revenue up 4.3 per cent (up 8.0 per cent ex Iraq & Syria)
Returns Markets net revenue down 2.7 per cent due to investment choices and the end of PMI contracts

Cost Optimisation

Cost optimisation programme on track; incremental savings of £65m
Continued focus on reducing business complexity driving effectiveness and efficiency
Adjusted tobacco operating margins up 60bps to 46.9%

Capital Discipline

Cash conversion of 95 per cent
Net debt reduction of £1bn before adverse FX of £2.3bn: adjusted net debt of £12.9bn
Full year dividend up 10 per cent; dividend payout ratio of 62%

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