Half-year Report to 30 June 2016

A strong performance driven by organic growth

KEY FINANCIALS

Six months results - unaudited

HALF-YEAR HIGHLIGHTS

• Group revenue was up 7.8% at constant rates of exchange, or 6.0% on an organic basis, driven by a strong volume performance and good pricing. Reported revenue was 4.2% higher than the same period last year, reflecting the continued adverse translational impact of exchange rates.
• Group cigarette volume was 332 billion, an increase of 3.4% on the same period last year, or 2.1% on an organic basis.
• The Group’s cigarette market share¹ in its Key Markets² continued to grow strongly, up 30 basis points (bps) driven by the Global Drive Brands which increased volume by 10.8%.
• Adjusted Group profit from operations, at constant rates of exchange, was up 1.8% at £2,551 million. Excluding the adverse transactional impact of foreign exchange, the increase would have been approximately 8%. At current rates of exchange, adjusted profit from operations fell 2.2%.
• Profit from operations, at current rates of exchange, was 5.7% lower at £2,213 million.
• Underlying operating margin³ fell 170 bps. Excluding the adverse transactional impact of foreign exchange, it would have increased by around 50 bps. On a reported basis, operating margin fell 240 bps to 36.8%.
• Adjusted diluted earnings per share, at constant rates of exchange, were up 13.4%. At current rates, they were 10.9% higher at 111.1p.
• Basic earnings per share were 1.0% higher at 143.8p (2015: 142.4p), benefiting from the acquisition of Lorillard Inc. by the Group’s associate Reynolds American Inc. (RAI) in 2015 and one-off gains as a result of RAI’s sale of the international brand rights of Natural American Spirit.
• Our Next Generation Products portfolio continues to develop with Vype performing well and now available in six markets. iFuse (our first tobacco heating product) is performing ahead of expectations in Romania. Our portfolio has been further strengthened by the acquisition of Ten Motives in April 2016.
• The Board has declared an interim dividend of 51.3p, being one third of the 2015 dividend, a 4% increase on last year. This will be paid on 28 September 2016.