Half-yearly results

to 30 June 2010
th
28th July 2010
Paul Adams
Chief Executive
A consistent strategy for building
shareholder value
Volume 0%

GDBs 6%

Revenue 8%

Profit 8%

Adjusted Profit 14%

Operating margin 1.8 ppt

Adj EPS 13%

DPS 19%

Half-yearly results 2010

Outlook
ƒMore economies returning to growth

ƒRecovery fragile and uncertain

ƒImproving volume trend

ƒGood share performances

ƒCigarette price inflation higher in 2010 driven by excise

increases

ƒAnother good year of growth in both earnings and dividends

Half-yearly results 2010

Nicandro Durante
Chief Operating Officer

Half-yearly results 2010

Global drive brands
Dunhill Kent
ƒ Up 21% ƒ Down 4%
ƒ Share up or stable in 85% of key ƒ Share up or stable in 90% of key
markets markets
ƒ Reloc share in Malaysia up 0.6 ppt ƒ Share growth in Japan
ƒ Continued great performance in ƒ HD performing well in Eastern
Middle East Europe
250 GDB volumes 2000 - 1H 2010

200

150
Billions

100

50

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1H10
Half-yearly results 2010
Global drive brands
Lucky Strike Pall Mall
ƒ Up 1% ƒ Up 7%
ƒ Share up or stable in 75% of key ƒ Share up or stable in 70% of key
markets markets
ƒ Continued growth in Americas & ƒ Successful migration in Nordics
AME, offsetting declines in Western
Europe

250 GDB volumes 2000 - 1H 2010

200

150
Billions

100

50

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1H10
Half-yearly results 2010
Asia-Pacific

ƒ Strong volumes in
Bangladesh, Vietnam and
Revenue +17%
from Bentoel. Lower
volumes in Australia and
Japan.
Profit +17%

ƒ Strong profit performance

in Australia, New Zealand Op. margin -0.1 ppt
driven by price increases
and reduced costs.

ƒ Bentoel acquisition
increased volume, share
and profit.
Half-yearly results 2010
Americas

ƒ Improved market share in

Brazil, despite market
Revenue +10%
contraction.

ƒ Canada volumes higher. Profit +20%

ƒ Strong profit performance

Op. margin +3.5 ppt
in Canada and Chile,
favourable FX, and
improved product mix.

Half-yearly results 2010

Western Europe

ƒ Solid profit growth in

Germany, Belgium and the Revenue -3%
Netherlands. Lower profit
and volumes in Switzerland,
Poland and Greece. Profit +8%

ƒ Volumes impacted by the

Op. margin +3.0 ppt
Gauloises agreement.

Half-yearly results 2010

Eastern Europe

ƒ Profit suffered from adverse

FX and lower volumes.
Revenue +2%

ƒ Downtrading in Russia.
Volumes remain flat. Kent Profit -32%
is growing share.

Op. margin -8.4 ppt

ƒ Illicit trade increased in
Romania, impacting
volumes.

Half-yearly results 2010

Africa & Middle East

ƒ Strong revenue growth

reflecting volume growth in
Revenue +13%
Nigeria, GCC and Egypt.

ƒ South Africa: substantial Profit +32%

increase in illicit trade.

Op. margin +5.0 ppt

ƒ Industry volumes in Turkey
impacted by January 2010
excise increase.

Half-yearly results 2010

Ben Stevens
Finance Director

Half-yearly results 2010

Operating margin*
42.2%

38.7%
35.9%
36.0% 35.2%
33.7%
31.9%
30.0% 30.2%

27.0%
24.7%

16.3%

Asia Pacific Americas W. Europe E. Europe AME Group

2009 2010
* Based on adjusted profit
Half-yearly results 2010
Profit from operations – adjusting items

£m
2010 2009 % change
Adjusted profit 2,460. 2,164. 14
Restructuring costs (158) (29)
Amortisation of trademarks (31) (26)
Gains on disposal 2.
Profit from operations 2,271 2,111. 8

Half-yearly results 2010

Profit before tax

£m
2010 2009 % change

Profit from operations 2,271. 2,111. 8

Net finance costs (231) (219) 5

Associates 239. 231. 3

Profit before tax 2,279. 2,123. 7

Half-yearly results 2010

Taxation and profit for the period

£m
2010 2009 % change
Profit before tax 2,279. 2,123. 7

Taxation (624) (534) 17

Profit for the period 1,655. 1,589. 4

Profit attributable to

Shareholders’ equity 1,525. 1,450. 5

Minorities 130. 139. 6

Underlying tax rate 30.0% 28.0%

Half-yearly results 2010
Drivers of adjusted EPS growth

Pence %
EPS 6 months 2009 77.3
Profit performance 7.0) 9.1)
Net finance costs (0.3) (0.4)
Associates 1.3) 1.7)
Taxation (1.7) (2.2)
Minority interests 1.0) 1.3)
Exchange 2.5) 3.2)
EPS 6 months 2010 87.1 12.7

Half-yearly results 2010

Cash Flow

2010 2009
£m £m
Operating cash flow 1,902.. 1,723)
Net interest paid (297) (307)
Tax paid (546) (517)
Dividends to minorities (107) (112)
Restructuring costs (109) (82)
Dividends from associates 150 143)
Free cash flow 993) 848)

Half-yearly results 2010

Cash Flow

2010 2009
£m £m
Free cash flow 993) 848)
Dividends paid to shareholders (1,431) (1,241)
Purchase of Bentoel (3) (300)
Purchase of Tekel cigarette assets (12)
Proceeds from ST transactions 190)
Proceeds from disposal of 12)
subsidiaries
Other net flows (80) (151)
Net cash flow (509) (666)

Half-yearly results 2010

Net debt

2010 2009
£m £m
Opening net debt at 1 January (8,842) (9,891)
Net cash flow for the period (509) (666)
Exchange rate effects 311) 1,173)
Other (including acquired net debt) 69) 8)
Closing net debt at 30 June (8,971) (9,376)

Half-yearly results 2010

Half-yearly results
to 30 June 2010
th
28th July 2010

Half-yearly results 2010

Supplementary Slides

Half-yearly results 2010

Adjusted profit per mille
£9.45 £9.24

£8.07
£7.82
£6.88 £7.09 £7.06
£6.20
£6.33

£5.25

£3.05

£2.13

Asia Pacific Americas W. Europe E. Europe AME Group

2009 2010

Half-yearly results 2010

Volumes and revenue

30%

20%

10%

0%

-10%
Asia Pacific Americas W. Europe E. Europe AME Group
Volumes 8% -1% -6% -3% -2% 0%
Revenue (Const) 9% 0% -2% 5% 8% 4%
Revenue (Curr) 17% 10% -3% 2% 13% 8%

Half-yearly results 2010

Volumes and profit

35%

25%

15%

5%

-5%

-15%

-25%

-35%
Asia Pacific Americas W. Europe E. Europe AME Group
Volumes 8% -1% -6% -3% -2% 0%
Profit (Constant) 6% 8% 10% -8% 23% 9%
Profit (Current) 17% 20% 8% -32% 32% 14%

Half-yearly results 2010

Volumes by region – half year

Region Billions
2010 2009 % change
Asia Pacific 95 88 8)
Americas 73 74 (1)
Western Europe 59 63 (6)
Eastern Europe 58 60 (3)
Africa & Middle East 63 64 (2)
Total 348 349 0)

Half-yearly results 2010

Volumes by region – second quarter

Region Billions
2010 2009 % change
Asia Pacific 50 45 11)
Americas 35 36 (3)
Western Europe 30 33 (9)
Eastern Europe 33 33 0)
Africa & Middle East 32 32 0)
Total 180 179 1)

Half-yearly results 2010

Net revenue by region – half year

Region £m
2010 2009 % change
Asia Pacific 1,811 1,547 17)
Americas 1,646 1,496 10)
Western Europe 1,825 1,884 (3)
Eastern Europe 758 741 2)
Africa & Middle East 1,258 1,112 13)
Total 7,298 6,780 8)

Half-yearly results 2010

Adjusted profit from operations – half year

Region £m
2010 2009 % change
Asia Pacific 651 557 17)
Americas 694 579 20)
Western Europe 548 509 8)
Eastern Europe 124 183 (32)
Africa & Middle East 443 336 32)
Total 2,460 2,164 14)

Half-yearly results 2010