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

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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