Chief Executive's review of the half-yearly report to 30 June 2013

Continued good performance

We performed well during the first half of the year with strong pricing momentum, increased market share and continued growth in our Global Drive Brands, strengthening the foundations for another year of good results in line with our long term strategic goals.

The underlying business performance, measured by constant rates of exchange, was strong with revenue up by 4%, adjusted profit up by 6% and adjusted diluted earnings per share up by 10%.

The business performance was impacted by industry volume contraction in some parts of the world and fragile economic conditions persisting, notably in Europe. Despite the good performance in Asia-Pacific, Group cigarette volume from subsidiaries was 332 billion, down 3.4%. This was also adversely compounded by trade inventory movements last year in specific markets, notably Brazil and the GCC, and the leap year impact. Excluding these one-offs, the cigarette volume decline would have been 2%.

Share growth 

We continued to grow cigarette market share in our Top 40 markets, led by the good performances of the Global Drive Brands (GDBs). Globally, Dunhill, Lucky Strike and Pall Mall all grew market share, while Kent was stable.

Collectively, our four GDBs achieved good volume growth of 2.3%. Our other International Brands grew by 1.9% and combined with our Global Drive Brands, now make up nearly 60% of our total cigarette volume.

Next-generation products 

This month, CN Creative, our stand-alone company specialising in the development of next-generation products, launched Vype in the UK, the Group’s new e-cigarette brand. This is another step in our ongoing commitment to developing a portfolio of next-generation products alongside our tobacco business.

Delivering shareholder value 

The Group has been exposed to adverse exchange rate movements over the past six months. Despite this, once again, we delivered excellent value to shareholders, with adjusted diluted earnings per share up by 8% on last year. Our interim dividend of 45p is 7% up on last year and will be paid on 30 September 2013.

I remain confident that we have the right plans in place and the resources at hand to continue to strengthen our competitive position and to deliver another year of good growth.

Nicandro Durante 
31 July 2013