INVESTING IN QUALITY GROWTH AND DELIVERING SUSTAINABLE RETURNS

Delivering against our strategy

• Results in line with expectations with additional investment programme on track
• Investments are strengthening share trends in many priority markets, supporting quality growth
• Strong results from Growth and Specialist Brands, which now generate 60.4% of tobacco net revenue
• Excellent progress with cost optimisation and reducing business complexity
• Focus on capital discipline delivering 99.6% cash conversion and 10% dividend growth

Alison Cooper, Chief Executive, commented

“We’re delivering encouraging improvements in share trends in many of our priority markets after significantly stepping up investment behind our strategy and quality growth. The volume and share gains we achieved with our Growth Brands in the period were particularly pleasing. Our performance is underpinned by the rollout of our Market Repeatable Model, which provides an effective and consistent approach for delivering sustainable quality growth in markets. We are deploying this model in e-vapour and believe it can also be successfully applied to drive growth in other consumer adjacencies. As expected, first half revenue and profit were impacted by the considerable increase in investment. In a challenging industry environment, we are delivering against our strategy and remain on track to meet full year earnings expectations at constant currency. Cash conversion remains strong and we are delivering another dividend increase of 10%.”

Headline Financials

See page 4 for basis of preparation and page 13 for the reconciliation between reported adn adjusted measures.
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

We are investing more behind the right brands and the right markets to deliver further quality growth and ongoing returns. Our Market Repeatable Model provides a clear framework for our investment and is supporting Growth Brand performance and improved market share trends in priority markets.

Strengthening our Portfolio

• Growth Brand volumes up 3.2% with a 60 bps increase in market share
• Growth and Specialist Brands up 200bps to 60.4% of reported tobacco net revenue
• Brand migrations and SKU rationalisation realising simplification benefits
• Building blu through investment in brand building and technology development

Developing our Footprint

• Investment is delivering improved share trends in priority markets; Growth Brand share gains in all divisions
• In USA: Winston and Kool share increased; mass market cigars performing well
• Growth Markets: increased share in Italy, Japan and Saudi Arabia; and improving trend in Russia
• Returns Markets: gaining share with Growth Brands in UK and Australia; other priority markets stabilising
• Market Repeatable Model informing investment choices and supporting effective market execution

Cost Optimisation

• Cost optimisation expected to deliver £130m of savings in FY17, ahead of the £90m announced in November
• Continued focus on reducing business complexity driving effectiveness and efficiency
• Savings supporting investment programme

Capital Discipline

• Cash conversion of 99.6%
• Net debt reduction of £1.2bn before adverse FX of £1.4bn: adjusted net debt of £13.9bn
• Interim dividend of 51.7p; up 10%
  

Highlights show movements based on adjusted numbers at constant currency.

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