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BRITISH AMERICAN TOBACCO PLC - Half-yearly report to 30 June 2014

Release Date: 30/07/2014 08:00
Code(s): BTI     PDF:  
Wrap Text
Half-yearly report to 30 June 2014

British American Tobacco p.l.c.
Incorporated in England and Wales
(Registration number: 03407696)
Short name: BATS
Share code: BTI
ISIN number: GB0002875804
("British American Tobacco p.l.c." or "the Company")

30 July 2014
BRITISH AMERICAN TOBACCO p.l.c.
HALF-YEARLY REPORT TO 30 JUNE 2014

ON TRACK FOR ANOTHER GOOD PERFORMANCE

KEY FINANCIALS                                           2014                     2013           Change
Six Months Results - unaudited                    Current    Constant                        Current  Constant
                                                    rates       rates                          rates     rates

Revenue                                         GBP6,798m   GBP7,780m        GBP7,572m          -10%       +3%
Adjusted profit from operations*                GBP2,665m   GBP3,066m        GBP2,944m           -9%       +4%
Profit from operations                          GBP2,458m   GBP2,844m        GBP2,807m          -12%       +1%
Adjusted diluted earnings per share*               101.8p      117.8p           109.1p           -7%       +8%
Basic earnings per share                            93.3p                       106.6p          -12%
Interim dividend per share                          47.5p                        45.0p           +6%
*The non-GAAP measures, including adjusting items and constant currencies, are set out on page 21.

HALF YEAR HIGHLIGHTS
-  Group revenue was up by 3% at constant rates of exchange. Reported revenue was 10% lower,
   as a result of adverse exchange rate movements.
-  Adjusted Group profit from operations increased by 4% at constant rates of exchange and
   decreased by 9% at current rates.
-  Profit from operations, at current rates of exchange, was 12% lower at GBP2,458 million.
-  Operating margin, at current rates of exchange, grew by 30 basis points to 39.2%.
-  Adjusted diluted earnings per share, at constant rates of exchange, were up by 8%, principally as
   a result of the growth in adjusted profit from operations. At current rates, it was 7% lower at 101.8p.
-  Basic earnings per share were 12% lower at 93.3p (2013: 106.6p).
-  Group cigarette volume was 331 billion, a decline of 0.4%. Total tobacco volume (including
   cigarettes) was 0.5% lower.
-  The Group's cigarette market share continued to increase in its key markets, led by good market
   share growth of the Global Drive Brands, which grew volume by 5.7%.
-  Planned US$4.7 billion investment to maintain the 42% shareholding in the enlarged Reynolds
   American, contingent on its proposed acquisition of Lorillard.
-  19 million shares were bought back at a cost of GBP632 million, excluding transaction costs. Due to
   the intended investment in Reynolds American, the share buy-back programme is suspended
   with effect from 30 July 2014.
-  In line with existing policies, the Board has declared an interim dividend of 47.5p, a 6% increase
   on last year, to be paid on 30 September 2014.

Richard Burrows, Chairman, commenting on the 6 months ended 30 June 2014

"British American Tobacco performed well during the first half of the year but, as expected, results
were affected by the strength of sterling. We are consistently increasing our market share, driven by
the strong growth of our Global Drive Brands. Tight control of costs resulted in an improved operating
margin. We remain confident of high single-digit earnings growth at constant rates of exchange, which
we have said we will recognise with an increase in the dividend."

CHIEF EXECUTIVE'S REVIEW

We remain on track for another good performance
We are on course to achieve another good set of results in 2014. We are consistently growing our market
share and we continue to improve our volume performance, driven by our Global Drive Brands (GDBs).
Around the world, there were good performances across all our regions.

Pricing remains on track, with the timing of price increases, compared with 2013, more weighted towards
the second half of the year. Strong growth in emerging markets impacted the Group's price-mix. The
underlying business performance, measured at constant rates of exchange, was good, with revenue up by
3% and adjusted profit by 4%, despite the impact of transactional gains and losses in operations,
generated by exchange rate movements. Adjusted diluted earnings per share were up by 8%.

We continue to grow market share
The Group's cigarette market share increased by 20 basis points in our key markets, led by our GDBs,
which grew share by 60 basis points. Rothmans, Pall Mall and Dunhill all increased share, while Kent and
Lucky Strike were stable. We also increased our share of the premium segment by 40 basis points.

Our volume decline moderates
Cigarette volume in the first half of the year was down by just 0.4%, continuing an improving trend. This
was driven by the strong performance of our GDBs, which grew volume by 5.7%. Our international
brands, including GDBs, make up 58% of our total cigarette volume. Total tobacco volume was down by
0.5%.

We continued to drive down cost
Our operating margin grew by 30 basis points, despite absorbing transactional exchange losses.

We are investing in sustainable growth
The Group continues to build stronger, sustainable businesses in key markets. Growth across Asia Pacific
was particularly strong, with excellent performances in Bangladesh, Pakistan and Indonesia. Our
businesses in Brazil and Russia both achieved good market share growth. The economic environment
across Western Europe is still fragile but there are signs of improvement and we are well-placed to gain
advantage of this upturn when it comes.

We are also investing in new product categories and we are committed to leading the industry with a
strong pipeline of next-generation tobacco and nicotine products, including electronic cigarettes and
tobacco heating devices. One year after launching Vype, our first electronic cigarette in the UK, we
continue to increase retail distribution and to strengthen the product offer for consumers in this growing
category.

We plan to maintain our shareholding in the enlarged Reynolds American
Our planned US$4.7 billion investment to maintain our 42% shareholding in an enlarged Reynolds
American, as part of its proposed acquisition of Lorillard in the US, will enhance our position in one of the
world's most profitable tobacco markets.

We are committed to delivering shareholder value
Despite the adverse impact of exchange rate movements, we continue to deliver for shareholders. At
constant rates, adjusted diluted earnings per share increased by 8% and our interim dividend of 47.5p is
6% up on last year and will be paid on 30 September 2014.

I remain confident that with our strong regional performances, proven strategy and powerful brands, we
are set to deliver another year of good growth.

Nicandro Durante
29 July 2014

REGIONAL REVIEW

Adjusted profit from operations at constant and current rates of exchange and volumes are as follows:

                            Adjusted profit from operations                           Cigarette volumes
                                        6 months to                               6 months to              Year to
                           30.6.14                          30.6.13         30.6.14         30.6.13       31.12.13
                          Constant          Current
                             rates            rates
                              GBPm             GBPm            GBPm             Bns             Bns            Bns

Asia-Pacific                   926              801             875             104             100            197
Americas                       759              632             732              63              64            134
Western Europe                 562              537             573              52              57            119
EEMEA                          819              695             764             112             111            226
Total                        3,066            2,665           2,944             331             332            676

Total tobacco volume                                                            344             346            703

References to profit in the performance of markets are at current rates of exchange. Adjusted profit from operations is
derived after excluding adjusting items from profit from operations and is explained in the Group's non-GAAP measures on
page 21.

British American Tobacco performed well during the first half of the year with an improving trend in
volume and continued growth of the Global Drive Brands. However, the Group has been impacted by
adverse exchange rate movements, in particular, the weakness of the Brazilian real, South African rand,
Australian dollar, Canadian dollar, Russian rouble and Japanese yen against sterling.

Good pricing and improving volume were more than offset by adverse exchange rate movements,
resulting in reported revenue down by 10% at GBP6,798 million. At constant rates of exchange, revenue was
up by 3%. Reported profit from operations was 12% lower at GBP2,458 million with a 9% decrease in
adjusted profit from operations. At constant rates of exchange, adjusted profit from operations grew by
4%.

Group cigarette volume from subsidiaries was 331 billion, down by 0.4%. This was mainly the result of the
Group's strong performances in Bangladesh, Pakistan, Ukraine, Indonesia and Mexico, more than offset
by contracting industry volumes affecting some of our key markets, such as Russia, Vietnam, Brazil,
Denmark and Poland.

Fine Cut volume was down 1.3%, driven by market declines in Western Europe, mainly in Spain, Italy and
France. Total tobacco volume (including cigarettes) was 0.5% lower at 344 billion equivalent sticks.

Global Drive Brands cigarette volume was up by 5.7%, with their combined market share growing strongly
in the Group's key markets. Dunhill volume increased by 4.9% with growth in Indonesia, Brazil, Romania
and South Africa, partially offset by industry decline in Malaysia. Kent's volume decreased by 2.9% mainly
due to industry declines in Russia and Romania, partially offset by good growth in Japan, Ukraine and the
Middle East.

Lucky Strike volume was down by 1.9%, mainly driven by lower volume in Chile, Poland and Germany,
partially offset by higher volume in Russia, Mexico, Spain and France. Pall Mall volume rose by 7.6% with
strong growth in Pakistan, South Africa, Argentina, Mexico and Chile, partially offset by lower volume in
Russia, the UK, Italy and Turkey. Rothmans grew by 32.8% with strong performances in Russia, Italy,
Ukraine, the UK and South Africa.

Asia-Pacific: Adjusted profit at constant rates of exchange increased by GBP51 million or 6%
Adjusted profit at current rates was GBP74 million lower at GBP801 million. At constant rates of exchange, good
performances in Australia, Malaysia, Pakistan and Bangladesh were partially offset by Japan, Indonesia,
New Zealand and Vietnam. Volume at 104 billion was 3.6% higher than last year, with increases in
Bangladesh, Pakistan and Indonesia, partially offset by lower volumes in Vietnam, Australia and Malaysia.


Country           Performance at current rates of exchange

Malaysia          Market share was stable after a robust share performance from Dunhill, while Peter
                  Stuyvesant grew volume and market share. Profit was stable as the impact of exchange
                  rate movements and lower volume were offset by higher pricing. Profit increased
                  strongly at constant rates of exchange.

Australia         Although, at constant currency, profit grew strongly through higher pricing and cost-
                  saving initiatives, reported profit was adversely impacted by exchange rate movements.
                  Growth in the low-priced segment resulted in a lower market share and volume.

New Zealand       Volume, market share and profit were lower as a result of industry contraction and
                  competitor pricing activities.
 
Japan             Market share was higher and volume stable, driven by the good performance of Kent.
                  Adverse exchange rate movements resulted in lower reported profit.

Vietnam           Growth in market share was driven by Kent and State Express 555. Volume was lower
                  due to market contraction. Profit decreased as the benefit of price increases in 2013
                  was partially offset by lower volume and higher marketing investment.

South Korea       Profit was higher driven by cost savings, partially offset by lower industry volume.
                  Market share was stable with a good performance by Dunhill Fine Cut.

Taiwan            Strong performances by Pall Mall and Lucky Strike contributed to market share and
                  volume growth. Profit decreased on the back of higher marketing investment which
                  was partially offset by higher volume.

Pakistan          Strong performances by Pall Mall and John Player Gold Leaf drove market share to a
                  record high, strengthening the Group's leadership position. Profit increased
                  significantly as a result of improved margins and higher volume.

Bangladesh        Excellent growth in volume and market share were the result of the strong performance
                  by the whole brand portfolio, leading to higher profit and extending the Group's
                  leadership position.

Indonesia         Dunhill continued its good performance, driving volume and share growth in the
                  premium segment. Overall, the Group's volume increase outperformed the industry.
                  Marketing investment and excise increases impacted profitability.

Americas: Adjusted profit at constant rates of exchange increased by GBP27 million or 4%
Adjusted profit at current rates declined by GBP100 million to GBP632 million. At constant rates of exchange,
good performances from Mexico, Chile, Venezuela and Argentina were partially offset by Brazil and
Canada. Volume was down 1.0% at 63 billion, mainly due to reduced industry volume in Brazil and
Canada.

Country          Performance at current rates of exchange

Brazil           Market share increased strongly, led by a good performance from Dunhill,
                 strengthening the Group's leadership position. Volume was lower due to market
                 contraction. Profit was down as a result of the lower volume and adverse exchange
                 rate movements.

Canada           Pall Mall delivered a very good performance, increasing volume and market share.
                 Profit was lower, following a decline in overall volume.

Mexico           An outstanding performance by Pall Mall led to higher volume, a strong profit
                 increase and significant market share growth.

Argentina        Despite lower volume, profit was higher, driven by better pricing and cost savings.
                 The growth of Lucky Strike and Pall Mall led to a small increase in market share.

Chile            Market share was higher on the back of a strong performance by Pall Mall. Industry
                 volume declined following excise-driven price increases and a subsequent increase
                 in illicit trade. Profit in constant currency grew but reported profit was lower.

Venezuela        Strong growth in volume and a higher market share were driven by excellent
                 performances across the brand portfolio. Profit grew strongly despite the difficult
                 exchange environment.

Colombia         Market share grew, driven by Kool and Belmont. Lower volume, higher marketing
                 investment and exchange rate movements, partially offset by higher pricing,
                 resulted in lower profit.

Western Europe: Adjusted profit at constant rates of exchange decreased by GBP11 million or 2%
Adjusted profit at current rates was down by GBP36 million to GBP537 million as a result of industry volume
decline, delayed pricing and adverse currency exchange rate movements. At constant rates of exchange,
there were good profit performances in Germany, Belgium, the Netherlands and Romania, offset by
declines in Italy, France, Poland, Switzerland and the UK. Cigarette volume was 8.1% lower at 52 billion,
mainly as a result of trade inventory movements principally in Denmark and market contractions in
Poland and Romania, partially offset by better performances in Italy and Spain. Excluding the trade
inventory movements, our underlying volume was 6.1% down. Fine Cut volume was 1.0% lower at
10 billion sticks equivalent, with good performances in Germany, Hungary and Belgium offset by declines
in Spain, Italy, France and Poland.

Country           Performance at current rates of exchange

Italy             Cigarette volume grew, with a strong performance by Rothmans but market share
                  was slightly down. The difficult economic environment continued, while the
                  absorption of a VAT increase and continued down-trading led to profit decline.

Germany           Profit increased strongly but market share declined slightly. There were robust
                  performances by Lucky Strike and Pall Mall. Fine Cut grew volume and share.

France            Market share was stable, driven by the good performance of Lucky Strike. Profit
                  decreased as a result of volume decline and absorption of an excise increase.

Switzerland       Market share was maintained but volume declined strongly, in line with the industry
                  market contraction, and as a result profit declined.

The Netherlands   Volume was up strongly following good performances by Lucky Strike and Pall Mall.
                  Profit was higher, mainly driven by better volume and cost reductions.

Belgium           Market share, volume and profit all increased, driven by strong performances by
                  Lucky Strike, Kent and Pall Mall Fine Cut.

Spain             Volume was significantly higher due to trade inventory adjustments in prior years,
                  supported by the good performances of Lucky Strike and Pall Mall. Profit was lower
                  as a result of additional marketing investment.

Romania           Profit grew in local currency but reported profit was in line with last year due to
                  exchange rate movements. Market share and volume were lower although there
                  were good performances by Pall Mall and Dunhill.

Poland            Market share was up after a good performance by Pall Mall. The industry volume
                  decline impacted profit.

The United        A strong performance by Rothmans led to an increase in market share. Profit was
Kingdom           lower due to the phasing of marketing investment.

Denmark           Industry volume declined significantly following increased trade demand at the end
                  of 2013, ahead of an excise increase in 2014. Although market share was lower,
                  leadership of the premium segment was maintained. Profit was lower as a result of
                  volume decline.

Eastern Europe, Middle East and Africa: Adjusted profit at constant rates of exchange increased by
GBP55 million or 7%
Adjusted profit at current rates decreased by GBP69 million to GBP695 million. At constant rates of exchange,
profit increased due to price increases, cost-saving initiatives and higher volume. There were good
underlying performances by Russia, the GCC and Ukraine, partially offset by Turkey. Volume was up 0.4%
to 112 billion, driven by Ukraine and Turkey, partially offset by lower volume in Russia.

Country            Performance at current rates of exchange

Russia             Growth in market share was driven by the excellent performances of Rothmans and
                   Lucky Strike. Volume declined following market contraction. Profit in constant
                   currency grew despite increased marketing investment but reported profit was
                   lower, impacted by adverse exchange rate movements.

Ukraine            Strong growth in volume and an increase in market share, driven by the
                   performances of Rothmans and Kent, resulted in a significant increase in profit.
                   Industry volume benefited from trade demand ahead of an excise increase.

Turkey             Volume increased and market share was up. However, competitive pricing,
                   especially in the low-price segment, led to lower profit.

The GCC            Volume was slightly lower and market share declined. Profit in local currency grew
                   strongly but the growth was offset by adverse exchange rate movements.
Nigeria            Volume was higher, driven by the good performances of Benson & Hedges and
                   Dunhill. Profit was stable in constant currency but lower at current rates of
                   exchange.

South Africa       Volume and profit were stable, but the depreciation of the rand resulted in lower
                   reported profit. Despite a decline in market share, Dunhill, Rothmans, Pall Mall and
                   Peter Stuyvesant performed well.

The following includes a summary of the analysis of revenue, adjusted profit from operations, share of post-tax
results of associates and joint ventures and adjusted diluted earnings per share, as reconciled between reported
information and non-GAAP management information on pages 22 and 23.

REGIONAL INFORMATION
                                                                          Western
For the 6 months ended 30 June                 Asia-Pacific    Americas    Europe    EEMEA     Total

SUBSIDIARIES
Volume (cigarette billions)
2014                                                    104          63        52      112       331
2013                                                    100          64        57      111       332
Change*                                                3.6%      (1.0)%    (8.1)%     0.4%    (0.4)%

Revenue (GBPm)
2014 (at constant)                                    2,216       1,728     1,651    2,185     7,780
2014 (at current)                                     1,932       1,415     1,583    1,868     6,798
2013                                                  2,108       1,650     1,714    2,100     7,572
Change (at constant)                                     5%          5%      (4)%       4%        3%
Change (at current)                                    (8)%       (14)%      (8)%    (11)%     (10)%

Adjusted profit from operations (GBPm)
2014 (at constant)                                      926         759       562      819     3,066
2014 (at current)                                       801         632       537      695     2,665
2013                                                    875         732       573      764     2,944
Change (at constant)                                     6%          4%      (2)%       7%        4%
Change (at current)                                    (8)%       (14)%      (6)%     (9)%      (9)%

Operating margin based on adjusted profit (%)
2014 (at constant)                                    41.8%       43.9%     34.0%    37.5%     39.4%
2014 (at current)                                     41.5%       44.7%     33.9%    37.2%     39.2%
2013                                                  41.5%       44.4%     33.4%    36.4%     38.9%

*Based on absolute volumes.

REGIONAL INFORMATION
                                                                            Western
For the 6 months ended 30 June                   Asia-Pacific    Americas    Europe    EEMEA   Total
    
ASSOCIATES AND JOINT VENTURES    
Share of post-tax results of associates    
and joint ventures (GBPm)    
2014 (at current)                                         158         203         -        3     364
2013                                                      175         249         1        -     425
Change                                                  (10)%       (18)%         -        -   (14)%
    
Share of adjusted post-tax results of    
associates and joint ventures (GBPm)    
2014 (at constant)                                        169         221         -        3     393
2014 (at current)                                         142         204         -        3     349
2013                                                      148         219         1        -     368
Change (at constant)                                      14%          1%         -        -      7%
Change (at current)                                      (4)%        (7)%         -        -    (5)%
    
GROUP    
For the 6 months ended 30 June                                                                 Total
    
Underlying tax rate of subsidiaries (%)    
2014                                                                                           30.7%
2013                                                                                           30.5%
    
Adjusted diluted earnings per share (pence)    
2014 (at constant)                                                                             117.8
2014 (at current)                                                                              101.8
2013                                                                                           109.1
Change (at constant)                                                                              8%
Change (at current)                                                                             (7)%

FINANCIAL AND OTHER INFORMATION

NET FINANCE COSTS
Net finance costs at GBP208 million were GBP33 million lower than last year, principally reflecting lower interest
paid as a result of lower borrowing costs, increased interest income on cash balances and additional net
fair value and foreign exchange gains in the Group.

Net finance costs comprise:
                                          6 months to           Year to
                                        30.6.14      30.6.13   31.12.13
                                           GBPm         GBPm       GBPm

Finance costs                             (248)        (252)      (532)
Finance income                               40           11         66
                                          (208)        (241)      (466)
Comprising:
Interest payable                          (295)        (302)      (614)
Interest and dividend income                 38           24         64
Net impact of fair value and exchange        49           37         84
- fair value changes - derivatives           42           47        103
- exchange differences                        7         (10)       (19)
                                          (208)        (241)      (466)

RESULTS OF ASSOCIATES
The Group's share of the post-tax results of associates decreased by GBP61 million, or 14%, to GBP364 million.
The Group's share of the adjusted post-tax results of associates decreased by 5% to GBP349 million, with a
rise of 7% to GBP393 million at constant rates of exchange.

The adjusted contribution from Reynolds American decreased by 7% to GBP203 million. At constant rates of
exchange the increase was 1%. The Group's adjusted contribution from its main associate in India, ITC,
was GBP137 million, down 5%. At constant rates of exchange, the contribution would have been 13% higher
than last year.

See page 25 for the adjusting items.

TAXATION
                                                6 months to           Year to
                                              30.6.14      30.6.13   31.12.13
                                                 GBPm         GBPm       GBPm
UK                                                  -            -          -
Overseas
   - current year tax expense                     719          751      1,581
   - adjustment in respect of prior periods        14            -       (14)
Current tax                                       733          751      1,567
Deferred tax                                      (5)           52         33
                                                  728          803      1,600

The tax rate in the income statement of 27.9% for the six months to 30 June 2014 (30 June 2013: 26.8%,
31 December 2013 27.6%) is affected by the inclusion of the share of associates' post-tax profit in the
Group's pre-tax results and by adjusting items. The underlying tax rate for subsidiaries reflected in the
adjusted earnings per share on page 30 was 30.7% in 2014 and 30.5% for the six months to 30 June 2013.
For the year to 31 December 2013 it was 30.7%. The increase for the six months to 30 June 2014 is mainly
due to a change in the mix of profits. The charge relates to taxes payable overseas.
Refer to page 34 for the Franked Investment Income Group Litigation Order update.

FREE CASH FLOW AND NET DEBT
Operating cash flow decreased by GBP158 million or 9% to GBP1,682 million, primarily reflecting the lower
adjusted profit from operations due to exchange rate movements, and higher net capital expenditure,
partially offset by working capital movements. The higher cash outflows in respect of net interest paid
and restructuring costs, together with lower dividends and other appropriations from associates (due to
the Reynolds American share buy-back being GBP17 million lower at GBP93 million) were partially offset by
lower dividends paid to non-controlling interests and lower tax paid. These led to the Group's free cash
flow decreasing by GBP245 million or 30% to GBP567 million.

The ratio of free cash flow per share to adjusted diluted earnings per share was 30% (2013: 39%).

Closing net debt was GBP10,961 million at 30 June 2014 (30 June 2013: GBP10,548 million and 31 December
2013: GBP9,515 million).

The Group's alternative cash flow statement is shown on page 26 and explained on page 21 under non-
GAAP measures.

RISKS AND UNCERTAINTIES
The principal risks and uncertainties affecting the business activities of the Group were identified under
the heading ‘Key Group risk factors', set out on pages 24 to 29 of the Annual Report for the year ended
31 December 2013, a copy of which is available on the Group's website www.bat.com. The Key Group
risks and applicable sub-categories are summarised under the headings of:

Marketplace: Competition from illicit tobacco trade; Failure to lead developing non-tobacco nicotine
market
Excise and tax: Excise shocks from tax rate increases or structure changes; Onerous disputed taxes,
interest and penalties
Finance: Translational foreign exchange rate exposures; Access to end market cash resources
Operations: Geopolitical tensions; Risk of injury, illness or death in the workplace
Regulation: Tobacco regulation inhibits growth strategy

In the view of the Board, the key risks and uncertainties for the remaining six months of the financial year
continue to be those set out in the above section of the 2013 Annual Report. These should be read in the
context of the cautionary statement regarding forward looking statements on page 36 of this Half-Yearly
Report.

GOING CONCERN
A full description of the Group's business activities, its financial position, cash flows, liquidity position,
facilities and borrowings position together with the factors likely to affect its future development,
performance and position, are set out in the Strategic Report and in the notes to the accounts, all of
which are included in the 2013 Annual Report that is available on the Group's website, www.bat.com.
This Half-Yearly Report provides updated information regarding the business activities for the six months
to 30 June 2014 and of the financial position, cash flow and liquidity position at 30 June 2014.

The Group has, at the date of this report, sufficient financing available for its estimated existing
requirements for at least the next twelve months. This, together with the proven ability to generate cash
from trading activities, the performance of the Group's Global Drive Brands, its leading market positions
in a number of countries and its broad geographical spread, as well as numerous contracts with
established customers and suppliers across different geographical areas and industries, provides the
Directors with the confidence that the Group is well placed to manage its business risks successfully in the
context of the current financial conditions and the general outlook in the global economy.

After reviewing the Group's annual budgets, plans, current forecasts and financing arrangements, as well
as the current trading activities of the Group, the Directors consider that the Group has adequate
resources to continue operating for the foreseeable future and that it is therefore appropriate to
continue to adopt the going concern basis in preparing this Half-Yearly Report.

POST BALANCE SHEET EVENTS
On 15 July 2014, the Group announced that it has agreed to invest US$4.7 billion as part of Reynolds
American's proposed acquisition of Lorillard enabling British American Tobacco to maintain its 42% equity
position in the enlarged business. The investment is contingent upon the completion of Reynolds
American's acquisition of Lorillard. The proposed acquisition is subject to a number of regulatory
approvals in the USA and the other parties' shareholder approvals and is anticipated to be completed in
the first half of 2015. The Group will be subscribing for new shares in Reynolds American with funding
from existing resources and debt.

British American Tobacco will suspend its GBP1.5 billion share buy-back programme with effect from 30 July
2014.

In addition, the Group and Reynolds American have agreed in principle to expand their existing
cooperation to encompass the research, development, innovation, intellectual property and
commercialisation of each other's next-generation vapour and tobacco heating products.

DIRECTORS' RESPONSIBILITY STATEMENT
The Directors confirm, that to the best of their knowledge, that this condensed financial information has
been prepared in accordance with IAS 34 ‘Interim Financial Reporting' as adopted by the European Union,
and that this Half-Yearly Report includes a fair review of the information required by the Disclosure and
Transparency Rules of the Financial Conduct Authority, paragraphs DTR 4.2.7 and DTR 4.2.8.

The Directors of British American Tobacco p.l.c. are as listed on pages 46 and 47 in the British American
Tobacco Annual Report for the year ended 31 December 2013 with the exception of John Daly who
retired as a Director on 6 April 2014 and Anthony Ruys who retired as a Director at the conclusion of the
Annual General Meeting on 30 April 2014.

Details of all the current Directors of British American Tobacco p.l.c. are maintained on www.bat.com.

For and on behalf of the Board of Directors:


Richard Burrows                                Ben Stevens
Chairman                                       Finance Director and Chief Information Officer
29 July 2014

ENQUIRIES:

INVESTOR RELATIONS:                                     PRESS OFFICE:
Mike Nightingale            020 7845 1180               Will Hill/Annie Brown        020 7845 2888
Rachael Brierley            020 7845 1519
Sabina Marshman             020 7845 1781

Webcast and Conference Call
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INDEPENDENT REVIEW REPORT TO BRITISH AMERICAN TOBACCO p.l.c.

Report on the condensed consolidated financial information

Our conclusion
We have reviewed the condensed consolidated financial information, defined below, in the Half-Yearly
Report of British American Tobacco Plc for the six months ended 30 June 2014. Based on our review,
nothing has come to our attention that causes us to believe that the condensed consolidated financial
information is not prepared, in all material respects, in accordance with International Accounting
Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority.

This conclusion is to be read in the context of what we say in the remainder of this report.

What we have reviewed
The condensed consolidated financial information, which is prepared by British American Tobacco Plc,
comprises:
   - the Group balance sheet as at 30 June 2014;
   - the Group income statement and Group statement of comprehensive income for the period then
     ended;
   - the Group cash flow statement for the period then ended;
   - the Group statement of changes in equity for the period then ended; and
   - the explanatory notes to the condensed consolidated financial information.

As disclosed in page 20, the financial reporting framework that has been applied in the preparation of the
full annual financial statements of the group is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.

The condensed consolidated financial information included in the Half-Yearly Report has been prepared in
accordance with International Accounting Standard 34, ‘Interim Financial Reporting', as adopted by the
European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct
Authority.

What a review of condensed consolidated financial information involves
We conducted our review in accordance with International Standard on Review Engagements (UK and
Ireland) 2410, ‘Review of Interim Financial Information Performed by the Independent Auditor of the
Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards
on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in an audit. Accordingly, we do not
express an audit opinion.

We have read the other information contained in the Half-Yearly Report and considered whether it
contains any apparent misstatements or material inconsistencies with the information in the condensed
consolidated financial information.


Responsibilities for the condensed consolidated financial information and the review

Our responsibilities and those of the directors
The Half-Yearly Report, including the condensed consolidated financial information, is the responsibility
of, and has been approved by, the directors. The directors are responsible for preparing the Half-Yearly
Report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial
Conduct Authority.

Our responsibility is to express to the company a conclusion on the condensed consolidated financial
information in the Half-Yearly Report based on our review. This report, including the conclusion, has been
prepared for and only for the company for the purpose of complying with the Disclosure and
Transparency Rules of the Financial Conduct Authority and for no other purpose. We do not, in giving this
conclusion, accept or assume responsibility for any other purpose or to any other person to whom this
report is shown or into whose hands it may come save where expressly agreed by our prior consent in
writing.

PricewaterhouseCoopers LLP
Chartered Accountants
1 Embankment Place
London
29 July 2014

GROUP INCOME STATEMENT - unaudited
                                                                           6 months to             Year to
                                                                        30.6.14      30.6.13      31.12.13
                                                                           GBPm         GBPm          GBPm
Gross turnover (including duty, excise and other taxes of GBP13,590    
million (30.6.13: GBP15,125 million; 31.12.13: GBP30,925 million))       20,388       22,697        46,185
    
Revenue                                                                   6,798        7,572        15,260
Raw materials and consumables used                                      (1,498)      (1,678)       (3,348)
Changes in inventories of finished goods and work in progress                35           61           105
Employee benefit costs                                                  (1,062)      (1,152)       (2,384)
Depreciation, amortisation and impairment costs                           (234)        (253)         (477)
Other operating income                                                       93           91           302
Other operating expenses                                                (1,674)      (1,834)       (3,932)
Profit from operations                                                    2,458        2,807         5,526
Analysed as:    
- adjusted profit from operations                                         2,665        2,944         5,820
- restructuring and integration costs                                     (179)         (97)         (246)
- amortisation of trademarks and similar intangibles                       (28)         (40)          (74)
- gain on deemed partial disposal of a trademark                              -            -            26
                                                                          2,458        2,807         5,526
Net finance costs                                                         (208)        (241)         (466)
Finance income                                                               40           11            66
Finance costs                                                             (248)        (252)         (532)
Share of post-tax results of associates and joint ventures                  364          425           739
Analysed as:    
- adjusted share of post-tax results of associates and joint    
  ventures                                                                  349          368           723
- issue of shares and change in shareholding                                 16           27            22
- restructuring and integration costs                                         5          (2)           (4)
- other (see page 25)                                                       (6)           32           (2)
                                                                            364          425           739
Profit before taxation                                                    2,614        2,991         5,799
Taxation on ordinary activities                                           (728)        (803)       (1,600)
Profit for the period                                                     1,886        2,188         4,199
Attributable to:    
Owners of the parent                                                      1,747        2,040         3,904
Non-controlling interests                                                   139          148           295
                                                                          1,886        2,188         4,199
    
Earnings per share    
Basic                                                                     93.3p       106.6p        205.4p
Diluted                                                                   93.1p       106.1p        204.6p
Adjusted diluted                                                         101.8p       109.1p        216.6p

All of the activities during both years are in respect of continuing operations.

The accompanying notes on pages 8 and 20 to 36 form an integral part of this condensed consolidated
financial information.

GROUP STATEMENT OF COMPREHENSIVE INCOME - unaudited
                                                                         6 months to              Year to
                                                                      30.6.14      30.6.13       31.12.13
                                                                         GBPm         GBPm           GBPm
Profit for the period (page 13)                                         1,886        2,188          4,199

Other comprehensive income
Items that may be reclassified subsequently to profit or loss:          (174)        (103)        (1,025)
Differences on exchange
– subsidiaries                                                          (194)         (97)          (972)
– associates                                                             (54)           97          (141)
Cash flow hedges
– net fair value (losses)/gains                                          (20)           99             94
– reclassified and reported in profit for the period                      (7)         (47)           (49)
– reclassified and reported in net assets                                   7            6            (1)
Available-for-sale investments
– net fair value gains/(losses)                                             7         (11)            (7)
Net investment hedges
– net fair value gains/(losses)                                            39         (81)             89
– differences on exchange on borrowings                                    30         (50)           (25)
Tax on items that may be reclassified                                      18         (19)           (13)
Items that will not be reclassified subsequently to profit or loss:     (110)          195            355
Retirement benefit schemes
– net actuarial (losses)/gains in respect of subsidiaries               (141)          200            308
– surplus recognition and minimum funding obligations in respect
of subsidiaries                                                             1         (49)            (5)
– actuarial (losses)/gains in respect of associates net of tax            (4)           55             90
Tax on items that will not be reclassified                                 34         (11)           (38)
Total other comprehensive income for the period, net of tax             (284)           92          (670)

Total comprehensive income for the period, net of tax                   1,602        2,280          3,529

Attributable to:
Owners of the parent                                                    1,464        2,122          3,272
Non-controlling interests                                                 138          158            257
                                                                        1,602        2,280          3,529

The accompanying notes on pages 8 and 20 to 36 form an integral part of this condensed consolidated
financial information.

GROUP STATEMENT OF CHANGES IN EQUITY - unaudited
At 30 June 2014
                                                     Attributable to owners of the parent

                                                        Share
                                                     premium,
                                                      capital                                 Total
                                                   redemption                          attributable          Non-
                                          Share    and merger       Other    Retained     to owners   controlling
                                        capital      reserves    reserves    earnings     of parent     interests  Total equity
                                           GBPm          GBPm        GBPm        GBPm          GBPm          GBPm          GBPm
Balance at 1 January 2014                   507         3,919       (190)       2,398         6,634           301         6,935
Total comprehensive income for the
period (page 14)                              -             -       (170)       1,634         1,464           138         1,602
Profit for the period (page 13)               -             -           -       1,747         1,747           139         1,886
Other comprehensive income for the
period (page 14)                              -             -       (170)       (113)         (283)           (1)         (284)
Employee share options
- value of employee services                  -             -           -          29            29             -            29
- proceeds from shares issued                 -             3           -           1             4             -             4
Dividends and other appropriations
- ordinary shares                             -             -           -     (1,831)       (1,831)             -       (1,831)
- to non-controlling interests                -             -           -           -             -         (146)         (146)
Purchase of own shares
- held in employee share ownership
  trusts                                      -             -           -        (50)          (50)             -          (50)
- share buy-back programme                    -             -           -       (799)         (799)             -         (799)
Non-controlling interests – capital
injection                                     -             -           -           -             -             3             3
Other movements                               -             -           -           4             4             -             4
Balance at 30 June 2014                     507         3,922       (360)       1,386         5,455           296         5,751

At 30 June 2013
                                                    Attributable to owners of the parent

                                                        Share
                                                     premium,
                                                      capital                                 Total 
                                                   redemption                          attributable          Non-
                                         Share     and merger      Other    Retained      to owners   controlling
                                       capital       reserves   reserves    earnings      of parent     interests  Total equity
                                          GBPm           GBPm       GBPm        GBPm           GBPm          GBPm          GBPm
Balance at 1 January 2013                  507          3,916        796       2,253          7,472           307         7,779
Total comprehensive income for the
period (page 14)                             -              -      (108)       2,230          2,122           158         2,280
Profit for the period (page 13)              -              -          -       2,040          2,040           148         2,188
Other comprehensive income for the
period (page 14)                             -              -      (108)         190             82            10            92
Employee share options
- value of employee services                 -              -          -          40             40             -            40
- proceeds from shares issued                -              3          -           1              4             -             4
Dividends and other appropriations
- ordinary shares                            -              -          -     (1,765)        (1,765)             -       (1,765)
- to non-controlling interests               -              -          -           -              -         (157)         (157)
Purchase of own shares
- held in employee share ownership
  trusts                                     -              -          -        (75)           (75)             -          (75)
- share buy-back programme                   -              -          -       (845)          (845)             -         (845)
Other movements                              -              -          -           5              5             -             5
Balance at 30 June 2013                    507          3,919        688       1,844          6,958           308         7,266

At 31 December 2013
                                                         Attributable to owners of the parent

                                                              Share
                                                           premium,
                                                            capital                                 Total
                                                         redemption                          attributable          Non-
                                               Share     and merger      Other   Retained       to owners   controlling
                                             capital       reserves   reserves   earnings       of parent     interests  Total equity
                                                GBPm           GBPm       GBPm       GBPm            GBPm          GBPm          GBPm
Balance at 1 January 2013                        507          3,916        796      2,253           7,472           307         7,779
Total comprehensive income for the year
(page 14)                                          -              -      (986)      4,258           3,272           257         3,529
Profit for the year (page 13)                      -              -          -      3,904           3,904           295         4,199
Other comprehensive income for the year
(page 14)                                          -              -      (986)        354           (632)          (38)         (670)
Employee share options
- value of employee services                       -              -          -         61              61             -            61
- proceeds from shares issued                      -              3          -          1               4             -             4
Dividends and other appropriations
- ordinary shares                                  -              -          -    (2,611)         (2,611)             -       (2,611)
- to non-controlling interests                     -              -          -          -               -         (271)         (271)
Purchase of own shares
- held in employee share ownership
  Trusts                                           -              -          -       (74)            (74)             -          (74)
- share buy-back programme                         -              -          -    (1,509)         (1,509)             -       (1,509)
Non-controlling interests - capital
injection                                          -              -          -          -               -             8             8
Other movements                                    -              -                    19              19             -            19

Balance at 31 December 2013                      507          3,919      (190)      2,398           6,634           301         6,935

The accompanying notes on pages 8 and 20 to 36 form an integral part of this condensed consolidated financial information.

GROUP BALANCE SHEET - unaudited
                                                              30.6.14       30.6.13       31.12.13
                                                                 GBPm          GBPm           GBPm
Assets
Non-current assets
Intangible assets                                              10,932        11,924         11,205
Property, plant and equipment                                   3,042         3,226          3,156
Investments in associates and joint ventures                    2,334         2,588          2,299
Retirement benefit assets                                          88            80            135
Deferred tax assets                                               272           282            248
Trade and other receivables                                       187           230            171
Available-for-sale investments                                     35            40             36
Derivative financial instruments                                  159           198            113
Total non-current assets                                       17,049        18,568         17,363

Current assets
Inventories                                                     4,030         4,046          4,042
Income tax receivable                                              84            80             95
Trade and other receivables                                     2,601         3,019          2,876
Available-for-sale investments                                     42            46             54
Derivative financial instruments                                  260           323            312
Cash and cash equivalents                                       1,580         1,726          2,106
                                                                8,597         9,240          9,485
Assets classified as held-for-sale                                 32            59             33
Total current assets                                            8,629         9,299          9,518

Total assets                                                   25,678        27,867         26,881

The accompanying notes on pages 8 and 20 to 36 form an integral part of this condensed consolidated
financial information.

                                                               30.6.14       30.6.13       31.12.13
                                                                  GBPm          GBPm           GBPm
Equity
Capital and reserves
Share capital                                                      507           507            507
Share premium, capital redemption and merger reserves            3,922         3,919          3,919
Other reserves                                                   (360)           688          (190)
Retained earnings                                                1,386         1,844          2,398
Owners of the parent                                             5,455         6,958          6,634
after deducting
- cost of treasury shares                                      (5,100)       (3,673)        (4,325)
Non-controlling interests                                          296           308            301
Total equity                                                     5,751         7,266          6,935

Liabilities
Non-current liabilities
Borrowings                                                       9,029        10,147          9,716
Retirement benefit liabilities                                     616           877            632
Deferred tax liabilities                                           479           548            514
Other provisions for liabilities and charges                       380           393            387
Trade and other payables                                           130           155            131
Derivative financial instruments                                   114           137            130
Total non-current liabilities                                   10,748        12,257         11,510

Current liabilities
Borrowings                                                       3,685         2,307          1,980
Income tax payable                                                 486           429            487
Other provisions for liabilities and charges                       342           447            194
Trade and other payables                                         4,617         4,999          5,741
Derivative financial instruments                                    49           162             34
Total current liabilities                                        9,179         8,344          8,436

Total equity and liabilities                                    25,678        27,867         26,881

The accompanying notes on pages 8 and 20 to 36 form an integral part of this condensed consolidated
financial information.

GROUP CASH FLOW STATEMENT - unaudited
                                                                     6 months to              Year to
                                                                  30.6.14         30.6.13    31.12.13
                                                                     GBPm            GBPm        GBPm
Cash flows from operating activities
Cash generated from operations (page 28)                            1,702           1,867       5,366
Dividends received from associates                                    179             182         510
Tax paid                                                            (711)           (730)     (1,440)
Net cash generated from operating activities                        1,170           1,319       4,436

Cash flows from investing activities
Interest received                                                      33              26          70
Dividends received from investments                                     2               1           2
Purchases of property, plant and equipment                          (171)           (151)       (574)
Proceeds on disposal of property, plant and equipment                  10              20         173
Purchases of intangibles                                            (106)            (59)       (147)
Purchases and proceeds on disposals of investments                      8            (19)        (32)
Proceeds from associate's share buy-back                               93             110         189
Purchase of subsidiaries                                                -            (12)        (16)
Net cash used in investing activities                               (131)            (84)       (335)

Cash flows from financing activities
Interest paid                                                       (333)           (274)       (570)
Interest element of finance lease rental payments                       -               -         (1)
Capital element of finance lease rental payments                      (1)             (2)         (2)
Proceeds from issue of shares to owners of the parent                   3               3           3
Proceeds from the exercise of options over own shares
held in employee share ownership trusts                                 1               1           1
Proceeds from increases in and new borrowings                       1,503           1,486       2,428
Movements relating to derivative financial instruments                110            (76)          54
Purchases of own shares                                             (614)           (612)     (1,509)
Purchases of own shares held in employee share ownership trusts      (50)            (75)        (74)
Reductions in and repayments of borrowings                          (160)           (238)     (1,421)
Dividends paid to owners of the parent                            (1,831)         (1,765)     (2,611)
Non-controlling interests – capital injection                           4               -           -
Dividends paid to non-controlling interests                         (143)           (154)       (265)
Net cash used in financing activities                             (1,511)         (1,706)     (3,967)
Net cash flows (used in)/generated from operating, investing
and financing activities                                            (472)           (471)         134
Differences on exchange                                                 4            (12)       (197)
Decrease in net cash and cash equivalents in the period             (468)           (483)        (63)
Net cash and cash equivalents at 1 January                          1,776           1,839       1,839
Net cash and cash equivalents at period end                         1,308           1,356       1,776

The accompanying notes on pages 8 and 20 to 36 form an integral part of this condensed consolidated
financial information.


ACCOUNTING POLICIES AND BASIS OF PREPARATION
The condensed consolidated financial information comprises the unaudited interim financial information
for the six months to 30 June 2014 and 30 June 2013, together with the audited results for the year
ended 31 December 2013. This condensed consolidated financial information has been prepared in
accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union and the
Disclosure and Transparency Rules issued by the Financial Conduct Authority. The condensed
consolidated financial information is unaudited but has been reviewed by the auditors and their review
report is set out on page 11.

The condensed consolidated financial information does not constitute statutory accounts within the
meaning of Section 434 of the UK Companies Act 2006 and should be read in conjunction with the annual
consolidated financial statements for the year ended 31 December 2013, which were prepared in
accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union
(EU). The annual consolidated financial statements for 2013 represent the statutory accounts for that year
and have been filed with the Registrar of Companies. The auditors' report on those statements was
unqualified and did not contain an emphasis of matter paragraph and did not contain any statement
under Section 498 of the Companies Act 2006.

This condensed consolidated financial information has been prepared under the historical cost
convention, except in respect of certain financial instruments, and on a basis consistent with the IFRS
accounting policies as set out in the Annual Report for the year ended 31 December 2013.

The preparation of this condensed consolidated financial information requires management to make
estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities
and the disclosure of contingent liabilities at the date of this condensed consolidated financial
information. Such estimates and assumptions are based on historical experience and various other
factors that are believed to be reasonable in the circumstances and constitute management's best
judgement at the date of the condensed consolidated financial information. The key estimates and
assumptions were the same as those that applied to the consolidated financial information for the year
ended 31 December 2013, apart from updating the assumptions used to determine the carrying value of
liabilities for retirement benefit schemes. In the future, actual experience may deviate from these
estimates and assumptions, which could affect these condensed consolidated financial information as the
original estimates and assumptions are modified, as appropriate, in the period in which the circumstances
change.

NON-GAAP MEASURES
In the reporting of financial information, the Group uses certain measures that are not required under
IFRSs, the generally accepted accounting principles (GAAP) under which the Group reports. The Group
believes that these additional measures, which are used internally, are useful to users of the financial
information in helping them understand the underlying business performance.

The principal non-GAAP measures which the Group uses are adjusted profit from operations and
adjusted diluted earnings per share, which are reconciled to profit from operations and diluted earnings
per share. Adjusting items are significant items in the profit from operations, net finance costs, taxation
and the Group's share of the post-tax results of associates and joint ventures which individually or, if of a
similar type, in aggregate, are relevant to an understanding of the Group's underlying financial
performance. While the disclosure of adjusting items is not required by IFRSs, these items are separately
disclosed either as memorandum information on the face of the income statement and in the segmental
analysis, or in the notes to the financial information as appropriate. The adjusting items are used to
calculate the non-GAAP measures of adjusted profit from operations, adjusted share of post-tax results
of associates and joint ventures and adjusted diluted earnings per share.

All adjustments to profit from operations and diluted earnings per share are explained in this
announcement. See pages 24 to 25 and page 30.

The Management Board, as the chief operating decision maker, reviews current and prior year adjusted
segmental income statement information of subsidiaries, joint operations and associates and joint
ventures at constant rates of exchange which provides an approximate guide to performance in the
current year had they been translated at last year's rate of exchange. The constant rate comparison
provided for reporting segment information is based on a retranslation, at prior year exchange rates, of
the current year results of the Group, including inter company royalties payable in foreign currency to UK
entities. Other than in exceptional circumstances it does not adjust for the normal transactional gains and
losses in operations which are generated by exchange movements. As an additional measure to indicate
the impact of the exchange rate movement on the Group results, the principal measure of adjusted
diluted earnings per share is also shown at constant rates of exchange. See page 23.

In the presentation of financial information, the Group also uses another measure, organic growth, to
analyse underlying business performance. Organic growth is the growth after adjusting for mergers and
acquisitions and discontinued activities. Adjustments would be made to current and prior year numbers,
based on the 2013 Group position but for the six months to 30 June 2014 no adjustments are necessary.

The Group prepares an alternative cash flow, which includes a measure of 'free cash flow', to illustrate
the cash flows before transactions relating to borrowings. A net debt summary is also provided. See
pages 26 and 27. The Group publishes gross turnover as an additional disclosure to indicate the impact of
duty, excise and other taxes.

Due to the secondary listing of the ordinary shares of British American Tobacco p.l.c. on the main board of
the JSE Limited (JSE) in South Africa, the Group is required to present headline earnings per share and
diluted headline earnings per share, as alternative measures of earnings per share, calculated in
accordance with Circular 2/2013 'Headline Earnings' issued by the South African Institute of Chartered
Accountants. These are shown on page 30.

ANALYSIS OF REVENUE, PROFIT FROM OPERATIONS AND DILUTED EARNINGS PER SHARE

REVENUE

                                        30 June 2014
                               Impact                                    Organic
                  Reported         of      Revenue            Organic    revenue
                   revenue   exchange      @ CC(2)     adjustments(3)    @ CC(2)
                      GBPm       GBPm         GBPm               GBPm       GBPm
Asia-Pacific         1,932        284        2,216                  -      2,216
Americas             1,415        313        1,728                  -      1,728
Western Europe       1,583         68        1,651                  -      1,651
EEMEA                1,868        317        2,185                  -      2,185
Total                6,798        982        7,780                  -      7,780

                                                    30 June 2013

                                       Reported              Organic            Organic
                                        revenue       adjustments(3)            revenue
                                           GBPm                 GBPm               GBPm
Asia-Pacific                              2,108                    -              2,108
Americas                                  1,650                    -              1,650
Western Europe                            1,714                    -              1,714
EEMEA                                     2,100                    -              2,100
Total                                     7,572                    -              7,572

PROFIT FROM OPERATIONS

                                                                       30 June 2014
                                                                                                                      Organic
                                                                                               Adjusted                     Adjusted
                     Reported         Adjusting            Adjusted          Impact of           PFO(1)           Organic     PFO(1)
                       PFO(1)             items              PFO(1)           exchange          @ CC(2)    adjustments(3)    @ CC(2)
                         GBPm              GBPm                GBPm               GBPm             GBPm              GBPm       GBPm
Asia-Pacific              739                62                 801                125              926                 -        926
Americas                  596                36                 632                127              759                 -        759
Western Europe            463                74                 537                 25              562                 -        562
EEMEA                     660                35                 695                124              819                 -        819

Total                   2,458               207               2,665                401            3,066                 -      3,066


                                                       30 June 2013
                                                                                                            Organic
                     Reported         Adjusting            Adjusted            Organic         Adjusted
                       PFO(1)             items              PFO(1)     Adjustments(3)           PFO(1)
                         GBPm              GBPm                GBPm               GBPm             GBPm                                                                                                 
Asia-Pacific              834                41                 875                  -              875                                                                                                 -
Americas                  711                21                 732                  -              732                                                                                                 -
Western Europe            521                52                 573                  -              573                                                                                                -
EEMEA                     741                23                 764                  -              764
Total                   2,807               137               2,944                  -            2,944


DILUTED EARNINGS PER SHARE

                                                              30 June 2014
                                                  Adjusting                  Impact of   Adjusted
                                       Reported       items     Adjusted      exchange    @ CC(2)
                                           GBPm        GBPm         GBPm          GBPm       GBPm
Profit from operations                    2,458         207        2,665           401      3,066
Net finance costs                         (208)           -        (208)          (18)      (226)
Associates and joint ventures               364        (15)          349            44        393
Profit before tax                         2,614         192        2,806           427      3,233
Taxation                                  (728)        (27)        (755)         (105)      (860)
Non controlling interest                  (139)         (2)        (141)          (23)      (164)
Profit attributable to shareholders       1,747         163        1,910           299      2,209
Diluted number of shares (million)        1,876                    1,876                    1,876
Diluted earnings per share (pence)         93.1                    101.8                    117.8

                                                          30 June 2013
                                                           Adjusting
                                            Reported           items          Adjusted
                                                GBPm            GBPm              GBPm
Profit from operations                         2,807             137             2,944
Net finance costs                              (241)               -             (241)
Associates and joint ventures                    425            (57)               368
Profit before tax                              2,991              80             3,071
Taxation                                       (803)            (22)             (825)
Non controlling interest                       (148)             (2)             (150)
Profit attributable to shareholders            2,040              56             2,096
Diluted number of shares (million)             1,922                             1,922
Diluted earnings per share (pence)             106.1                             109.1

Notes:
(1)   PFO: Profit from operations
(2)   CC: Constant currencies
(3)   Organic adjustments: No organic adjustments are required for events in 2014.

ADJUSTING ITEMS INCLUDED IN PROFIT FROM OPERATIONS
Adjusting items are significant items in the profit from operations which individually or, if of a similar type,
in aggregate, are relevant to an understanding of the Group's underlying financial performance. See
page 21. These items are separately disclosed as memorandum information on the face of the income
statement and in the segmental analyses.

(a) Restructuring and integration costs
Restructuring costs reflect the costs incurred as a result of initiatives to improve the effectiveness and the
efficiency of the Group as a globally integrated enterprise, including the relevant operating costs of
implementing the new operating model. These initiatives also include a review of the Group's
manufacturing operations, supply chain, overheads and indirect costs, organisational structure and
systems and software used. The costs of these initiatives together with the costs of integrating acquired
businesses into existing operations, including acquisition costs, are included in profit from operations
under the following headings:

                                                         6 months to                           Year to
                                                   30.6.14              30.6.13               31.12.13
                                                      GBPm                 GBPm                   GBPm

Employee benefit costs                                  89                   41                    140
Depreciation and impairment costs                       27                   14                     11
Other operating expenses                                63                   42                    161
Other operating income                                   -                    -                   (66)
Total                                                  179                   97                    246

Restructuring and integration costs in the six months to 30 June 2014 principally relate to the
restructuring initiatives directly related to implementation of a new operating model and the cost of
separation packages in respect of permanent headcount reductions and permanent employee benefit
reductions in the Group. The costs also cover the continuation of factory closures and downsizing
activities in Australia and the Democratic Republic of the Congo, and restructurings in Argentina, Canada,
Switzerland and Germany.

Restructuring and integration costs in the six months to 30 June 2013 principally related to the
restructuring initiatives directly related to implementation of a new operating model and the continuation
of factory closures and downsizing activities in Australia and Russia, and restructurings in Argentina and
Canada. The costs also covered separation packages in respect of permanent headcount reductions and
permanent employee benefit reductions in the Group.

For the year ended 31 December 2013, restructuring and integration costs principally included the
activities referred to in respect of the six months to 30 June 2013. In addition, the costs also covered
restructurings in the Democratic Republic of the Congo, Switzerland and Germany.

Other operating income in 2013 included gains from the sale of land and buildings in Australia, Denmark
and Russia.

(b) Amortisation of trademarks and similar intangibles
The acquisitions of Protabaco, Bentoel, Tekel, ST and CN Creative Limited, as well as the creation of CTBAT
International Ltd, resulted in the capitalisation of trademarks and similar intangibles which are amortised
over their expected useful lives, which do not exceed 20 years. The amortisation charge of GBP28 million is
included in depreciation, amortisation and impairment costs in the profit from operations for the six
months to 30 June 2014 (30 June 2013: GBP40 million). For the year to 31 December 2013, the amortisation
charge was GBP74 million.

(c) Gain on deemed partial disposal of a trademark
The contribution of the State Express 555 brand to CTBAT International Ltd in 2013 is accounted for at fair
value in the arrangement. For the year ended 31 December 2013, this resulted in a GBP26 million gain on
deemed partial disposal of a trademark which is included in other operating income but has been treated
as an adjusting item.

ADJUSTING ITEMS INCLUDED IN SHARE OF POST-TAX RESULTS OF ASSOCIATES AND JOINT VENTURES
The share of post-tax results of associates and joint ventures is after the following adjusting items which
are excluded from the calculation of adjusted earnings per share as set out on page 30.

In the six months to 30 June 2014:
The Group's interest in ITC decreased from 30.47% to 30.34% as a result of ITC issuing ordinary shares
under the company's Employee Share Option Scheme. The issue of these shares and change in the
Group's share of ITC resulted in a gain of GBP16 million, which is treated as a deemed partial disposal and
included in the income statement.

Reynolds American recognised a net gain from discontinued activities of USD25 million, reduced by
restructuring activities of USD5 million, resulting in a net gain of USD20 million. The Group's share of this
net gain amounted to GBP5 million (net of tax).

Reynolds American has also recognised amounts which have been combined in the table of adjusting
items in the Group income statement and are shown as “other”. This includes costs of USD45 million in
respect of a number of Engle progeny lawsuits, the Group's share of which is GBP11 million (net of tax). In
June 2014, a further two states entered into a settlement agreement in relation to disputed NPM
Adjustment Claims for the years 2003 to 2012. Under the settlement Reynolds expects to receive more
than USD170 million in MSA credit to be applied over 5 years. During the first six months of 2014,
Reynolds American recognised income of USD21 million related to the 2013 liability as an adjusting item.
The Group's share of this income amounted to GBP5 million (net of tax). Credits in respect of the 2014
liability and future years would be accounted for in the applicable year and will not be treated as
adjustable items.

In the six months to 30 June 2013:
The Group's interest in ITC decreased from 30.72% to 30.54% as a result of ITC issuing ordinary shares
under the company's Employee Share Option Scheme. The issue of these shares and change in the
Group's share of ITC resulted in a gain of GBP27 million, which is treated as a deemed partial disposal and
included in the income statement.

Reynolds American recognised restructuring charges of USD8 million in respect of its overall activities.
The Group's share of these charges amounted to GBP2 million (net of tax).

Reynolds American also recognised amounts which have been combined in the table of adjusting items in
the Group income statement and shown as “other”. These mainly consist of costs of USD4 million in
respect of a number of Engle progeny lawsuits, the Group's share of these costs amounted to GBP1 million
(net of tax); costs of USD3 million relating to other tobacco related litigation charges, the Group's share of
these costs amounted to GBP1 million (net of tax). In addition, during 2013 Reynolds American, various other
tobacco manufacturers, 19 states, the District of Columbia and Puerto Rico reached a final agreement
related to Reynolds American's 2003 Master Settlement Agreement (MSA) activities. Under this
agreement Reynolds American will receive credits, currently estimated to be more than USD1 billion, in
respect of its Non- Participating Manufacturer (NPM) Adjustment claims related to the period from 2003
to 2012. These credits will be applied against the company's MSA payments over a period of five years
from 2013, subject to meeting the various ongoing performance obligations. During the first half of 2013,
Reynolds American recognised income of USD124 million related to its 2012 liability. The Group's share of
this income amounted to GBP34 million (net of tax). Credits in respect of the 2013 liability and future years
would be accounted for in the applicable year and will not be treated as adjusting items.

For the year ended 31 December 2013:
The Group's interest in ITC decreased from 30.72% to 30.47% as a result of ITC issuing ordinary shares
under the company's employee stock option scheme. The issue of shares and change in the Group's share
of ITC resulted in a gain of GBP22 million, which was treated as a deemed partial disposal and included in the
income statement.

Reynolds American recognised restructuring charges of USD24 million in respect of its overall activities.
The Group's share of these charges was GBP4 million (net of tax).

Reynolds American also recognised amounts which have been combined in the table of adjusting items in
the Group income statement and shown as “other”. These mainly consist of costs of USD18 million in

respect of a number of Engle progeny lawsuits, the Group's share of which amounted to GBP3 million (net of
tax); costs of USD34 million relating to other tobacco related litigation charges, the Group's share of which
amounted to GBP6 million (net of tax); trademark amortisation and impairment of USD27 million, the
Group's share of which amounted to GBP4 million (net of tax) and costs of USD124 million relating to losses
on extinguishment of debt, the Group's share of which amounted to GBP22 million (net of tax). In addition,
as a result of the final agreement on MSA activities described above Reynolds American recognised
income of USD219 million related to its 2012 liability, the Group's share of which amounted to GBP33 million
(net of tax).

CASH FLOW AND NET DEBT MOVEMENTS

(a) Alternative cash flow
The IFRS cash flow statement on page 19 includes all transactions affecting cash and cash equivalents,
including financing. The alternative cash flow statement below is presented to illustrate the cash flows
before transactions relating to borrowings.
                                                                        6 months to                  Year to
                                                                  30.6.14           30.6.13         31.12.13

                                                                      GBPm             GBPm             GBPm

Adjusted profit from operations (page 13)                            2,665            2,944            5,820
Depreciation, amortisation and impairment                              179              199              392
Other non-cash items in operating profit                                17               42               30
Profit from operations before depreciation and impairment            2,861            3,185            6,242
Increase in working capital                                          (916)          (1,156)            (375)
Net capital expenditure                                              (263)            (189)            (547)
Gross capital expenditure                                            (273)            (209)            (720)
Sale of fixed assets                                                    10               20              173

Operating cash flow                                                  1,682            1,840            5,320
Pension funds' shortfall funding net of one-off receipts              (70)             (70)            (190)
Net interest paid                                                    (288)            (274)            (443)
Tax paid                                                             (711)            (730)          (1,440)
Dividends paid to non-controlling interests                          (143)            (154)            (265)
Cash generated from operations                                         470              612            2,982
Restructuring costs                                                  (175)             (92)            (310)
Dividends and other appropriations from associates                     272              292              699
Free cash flow                                                         567              812            3,371
Dividends paid to shareholders                                     (1,831)          (1,765)          (2,611)
Share buy-back (including transaction costs)                         (614)            (612)          (1,509)
Net investment activities                                              (5)             (17)             (19)
Net flow from share schemes and other                                   69             (98)             (79)
Net cash flow                                                      (1,814)          (1,680)            (847)

External movements on net debt

Exchange rate effects*                                                 316           (427)             (163)
Change in accrued interest and other                                    52              32              (32)
Change in net debt                                                 (1,446)         (2,075)           (1,042)
Opening net debt                                                   (9,515)         (8,473)           (8,473)
Closing net debt                                                  (10,961)        (10,548)           (9,515)

* Including movements in respect of debt related derivatives.

Cash flow and net debt movements cont…

Operating cash flow decreased by GBP158 million or 9% to GBP1,682 million, primarily reflecting the lower
adjusted profit from operations due to exchange rate movements, and higher net capital expenditure,
partially offset by working capital movements. The higher cash outflows in respect of net interest paid
and restructuring costs, together with lower dividends and other appropriations from associates (due to
the Reynolds American share buy-back being GBP17 million lower at GBP93 million) were partially offset by
lower dividends paid to non-controlling interests and lower tax paid. These led to the Group's free cash
flow decreasing by GBP245 million or 30% to GBP567 million.

The ratio of free cash flow per share to adjusted diluted earnings per share was 30% (2013: 39%).

Below free cash flow, the principal cash outflows for the six months to 30 June 2014 comprise the
payment of the prior year final dividend which was GBP66 million higher at GBP1,831 million, as well as an
outflow of GBP614 million due to the continuation of the on-market share buy-back programme in 2014
(2013: GBP612 million), including transaction costs.

During 2014, the cash outflow from net investing activities was GBP5 million. In the six months to 30 June
2013, the cash outflow was mainly for the acquisition of CN Creative and amounted to GBP17 million.

The other net flows principally relate to the impact of the level of shares purchased by the employee
share ownership trusts and cash flows in respect of certain derivative financial instruments.

These flows resulted in a net cash outflow of GBP1,814 million (2013: GBP1,680 million). After taking account
of other changes, especially exchange rate movements, total net debt was GBP10,961 million at 30 June
2014 (30 June 2013: GBP10,548 million and 31 December 2013: GBP9,515 million).

(b) Net debt
The Group defines net debt as borrowings including related derivatives, less cash and cash equivalents
and current available-for-sale investments. An analysis of net debt is as follows:

                                                          30.6.14          30.6.13          31.12.13
                                                             GBPm             GBPm              GBPm
Net debt due within one year:
Borrowings                                                  3,685            2,307             1,980
Related derivatives                                          (87)            (107)              (55)
Cash and cash equivalents                                 (1,580)          (1,726)           (2,106)
Current available-for-sale investments                       (42)             (46)              (54)
                                                            1,976              428             (235)
Net debt due beyond one year:
Borrowings                                                  9,029           10,147             9,716
Related derivatives                                          (44)             (27)                34
                                                            8,985           10,120             9,750

Total net debt                                            10,961            10,548             9,515

The Group remains confident about its ability to access the debt capital markets successfully and reviews
its options on a continuing basis.

(c) IFRS cash generated from operations
The cash generated from operating activities in the IFRS cash flows on page 19 include the following
items:

                                                                 6 months to                  Year to
                                                             30.6.14          30.6.13        31.12.13
                                                                                 GBPm            GBPm

Profit from operations                                         2,458            2,807           5,526
Adjustments for:
Amortisation of trademarks and similar intangibles                28               40              74
Amortisation of other intangible assets                           27               27              48
Gain on deemed partial disposal of a trademark                     -                -            (26)
Depreciation and impairment of property,
 plant and equipment                                             179              186             355
(Increase)/decrease in inventories                             (110)               62           (386)
Decrease/(increase) in trade and other receivables               149            (240)           (246)
(Decrease)/increase in trade and other payables                (932)            (943)             311
Decrease in net retirement benefit liabilities                 (100)            (117)           (222)
(Decrease)/increase in provisions for liabilities
 and charges                                                     (15)               6            (19)
Other non-cash items                                              18               39            (49)
Cash generated from operations                                 1,702            1,867           5,366

(d) IFRS net cash and cash equivalents
The net cash and cash equivalents in the IFRS Group cash flow statement comprise:

                                                             30.6.14         30.6.13         31.12.13
                                                                GBPm            GBPm             GBPm

Cash and cash equivalents per balance sheet                    1,580           1,726            2,106
Accrued interest                                                 (2)               -              (1)
Overdrafts                                                     (270)           (370)            (329)
Net cash and cash equivalents                                  1,308           1,356            1,776

(e) Liquidity
The Central Treasury Department is responsible for managing, within an overall policy framework, the
Group's exposure to funding and liquidity, interest rate, foreign exchange and counterparty risk arising
from the Group's underlying operations.

The Group has a target average centrally managed debt maturity of at least 5 years with no more than
20 per cent of centrally managed debt maturing in a single rolling year. As at 30 June 2014, the average
centrally managed debt maturity was 7.0 years (30 June 2013: 6.8 years; 31 December 2013: 7.2 years)
and the highest proportion of centrally managed debt maturing in a single rolling year was 16.8 per cent
(30 June 2013: 18.2 per cent; 31 December 2013: 18.3 per cent).

It is Group policy that short-term sources of funds (including drawings under both the Group USD2 billion
commercial paper programme, and the Group GBP1 billion euro commercial paper (ECP) programme) are
backed by undrawn committed lines of credit and cash. At 30 June 2014, GBP795 million of commercial
paper was outstanding (30 June 2013 GBP171 million; 31 December 2013: GBP521 million).

In May 2014, the Group negotiated a new central banking facility of GBP3 billion with a final maturity of May
2019 (with two additional one year extensions at the option of the banks). This facility is provided by
22 banks. The new facility is on significantly improved terms compared to the previous central banking
facility of GBP2 billion, with a maturity of December 2015, which was cancelled at the same time. The new
facility was undrawn as at 30 June 2014.

In June 2014, the Group purchased and cancelled, an existing USD40 million bond with a maturity of 2029;
this purchase was financed from Group cash balances.

In March 2014, the Group issued a new €400 million bond with a maturity of 2018 and a new €600 million
bond with a maturity of 2029.

During the period to 30 June 2014, the Group's subsidiary in Brazil received proceeds of GBP213 million
(2013 to 30 June 2013: GBP323 million; full year: GBP399 million) from short-term borrowings in respect of
advance payments on leaf export contracts and repaid GBP49 million (30 June 2013: GBP172 million;
31 December 2013: GBP436 million).

In December 2013 a maturing GBP152 million bond was repaid and this repayment was financed from Group
cash balances.

In November 2013 a maturing USD300 million bond was repaid and this repayment was financed from
Group cash balances. In September 2013 the Group issued a GBP650 million bond with a maturity of 2026.
In July 2013 the Group repaid a €519 million bond and this repayment was financed from Group cash
balances.

In March 2013, the Group issued a USD300 million bond with a maturity of 2016 and a €650 million bond
with a maturity of 2025.

EARNINGS PER SHARE
Adjusted diluted earnings per share decreased by 7% to 101.8p (2013: 109.1p), principally as a result of
the lower profit from operations, due to adverse exchange rate movements, the lower share of post-tax
results of associates and joint ventures, partially offset by the impact of the share buy-back programme.
Basic earnings per share were 12% lower at 93.3p (2013: 106.6p).

                                                                     6 months to                  Year to
                                                               30.6.14        30.6.13            31.12.13
                                                                 pence          pence               pence
Earnings per share
- basic                                                           93.3          106.6               205.4
- diluted                                                         93.1          106.1               204.6
Adjusted earnings per share
- basic                                                          102.0          109.5               217.4
- diluted                                                        101.8          109.1               216.6
Headline earnings per share
- basic                                                           93.1          105.7               201.1
- diluted                                                         92.9          105.3               200.4

Basic earnings per share are based on the profit for the year attributable to ordinary shareholders and the
weighted average number of ordinary shares in issue during the period (excluding treasury shares). For
the calculation of the diluted earnings per share, the weighted average number of shares reflects the
potential dilutive effect of employee share schemes.

The presentation of headline earnings per share, as an alternative measure of earnings per share, is
mandated under the JSE Listing Requirements. It is calculated in accordance with Circular 2/2013
'Headline Earnings', as issued by the South African Institute of Chartered Accountants.

Adjusted diluted earnings per share are calculated by taking the following adjustments into account (see
page 24 and 25):

                                                                              6 months to                Year to
                                                                          30.6.14       30.6.13         31.12.13
                                                                            pence         pence            pence

Unadjusted diluted earnings per share                                        93.1         106.1            204.6
Effect of restructuring and integration costs                                 8.3           4.3             11.0
Effect of amortisation of trademarks and similar intangibles                  1.2           1.7              3.2
Gain on deemed partial disposal of a trademark                                  -             -            (1.4)
Effect of associates' adjusting items                                       (0.8)         (3.0)            (0.8)
Adjusted diluted earnings per share                                         101.8         109.1            216.6

Diluted headline earnings per share are calculated by taking the following adjustments into account:

                                                                              6 months to                Year to
                                                                          30.6.14       30.6.13         31.12.13
                                                                            pence         pence            pence

Unadjusted diluted earnings per share                                        93.1         106.1            204.6
Effect of impairment of intangibles and property, plant and equipment         1.1           0.6              1.7
Effect of gains on disposal of property, plant and equipment and held-
for-sale assets                                                             (0.5)             -            (3.5)
Effect of disposal of business and trademarks                                   -             -            (1.4)
Effect of gains reclassified from the available-for-sale reserve                -             -            (0.1)
Effect of share of associates' trademark and other asset impairments            -             -              0.2
Effect of issue of shares and change in shareholding in associate           (0.8)         (1.4)            (1.1)
Diluted headline earnings per share                                          92.9         105.3            200.4

The earnings per share are based on:

                                  30.6.14                       30.6.13                     31.12.13
                            Earnings        Shares          Earnings     Shares       Earnings        Shares
                                GBPm             m              GBPm          m           GBPm             m
Earnings per share
- basic                        1,747         1,872             2,040      1,914          3,904         1,901
- diluted                      1,747         1,876             2,040      1,922          3,904         1,908
Adjusted earnings per
share
- basic                        1,910         1,872             2,096      1,914          4,133         1,901
- diluted                      1,910         1,876             2,096      1,922          4,133         1,908
Headline earnings per
share
- basic                        1,742         1,872             2,024      1,914          3,823         1,901
- diluted                      1,742         1,876             2,024      1,922          3,823         1,908

DIVIDENDS

Declaration
The Board has declared an interim dividend of 47.5 pence per ordinary share of 25p for the six months
ended 30 June 2014. The interim dividend will be payable on 30 September 2014 to shareholders
registered on either the UK main register or the South Africa branch register on 22 August 2014 (the
record date).

Key Dates and South Africa Branch Register
In compliance with the requirements of the London Stock Exchange (LSE) and of Strate, the electronic
settlement and custody system used by the JSE Limited (JSE), the following salient dates for the payment
of the interim dividend are applicable:

Event                                                               Date 2014
Last Day to Trade (LDT) cum dividend (JSE)                          Friday 15 August
Shares commence trading ex dividend (JSE)                           Monday 18 August
Shares commence trading ex dividend (LSE)                           Wednesday 20 August
Record date (JSE and LSE)                                           Friday 22 August
Payment date                                                        Tuesday 30 September

No removal requests permitted between the UK main                   Wednesday 30 July to Friday 22
register and the South Africa branch register                       August (inclusive)
No transfers permitted between the UK main register and             Monday 18 August to Friday 22
the South Africa branch register                                    August (inclusive)
No shares may be dematerialised or rematerialised                   Monday 18 August to Friday 22
                                                                    August (inclusive)

As the Group reports in sterling, dividends are declared and payable in sterling except for shareholders on
the branch register in South Africa whose dividends are payable in rand. A rate of exchange of GBP:R =
17.97280 as at 28 July 2014 (the closing rate on that date as quoted by Bloomberg), results in an
equivalent interim dividend of 853.70800 SA cents per ordinary share.

South Africa Branch Register: Dividends Tax Information
South Africa Dividends Tax of 128.05620 SA cents per ordinary share will be withheld from the gross
interim dividend paid to shareholders on the South Africa branch register at the rate of 15% unless a
shareholder qualifies for an exemption. After Dividends Tax has been withheld, the net dividend will be
725.65180 SA cents per ordinary share.

At the close of business on 28 July 2014 (the latest practicable date prior to the date of the declaration of
the interim dividend), British American Tobacco p.l.c. (the “Company”) had a total of
1,864,221,767 ordinary shares in issue (excluding treasury shares). The Company held 162,433,317
ordinary shares in treasury giving a total issued share capital of 2,026,655,084 ordinary shares.

The Company, as a South Africa non-resident, was not subject to the secondary tax on companies (STC)
regime which used to operate before the introduction of Dividends Tax. No STC credits are available for
set-off against Dividends Tax liability on the interim dividend which is regarded as a 'foreign dividend' for
the purposes of the South Africa Dividends Tax.

British American Tobacco p.l.c. is registered with the South African Revenue Service (SARS) with tax
reference number 9378193172.

For the avoidance of doubt, Dividends Tax and the information provided above is of only direct
application to shareholders on the South Africa branch register. Shareholders on the South Africa branch
register should direct any questions regarding the application of Dividends Tax to Computershare Investor
Services (Pty) Ltd, contact details for which are given in the 'Corporate Information' section below.

CHANGES IN THE GROUP

CTBAT International Limited
On 30 August 2013 the Group announced that CTBAT International Limited (CTBAT), a joint investment
incorporated in Hong Kong between subsidiaries of China National Tobacco Corporation (CNTC) and the
Group, had commenced official business operations. The joint venture was created in accordance with the
Joint Venture Agreement signed by both companies. It owns and manages the worldwide international
cigarette trademark State Express 555, and also owns the worldwide rights outside China to the leading
CNTC brand Shuang Xi.

CTBAT is treated as a joint operation as defined under IFRS 11 Joint Arrangements, as it operates as an
extension of the existing tobacco businesses of its investors and the Group therefore recognises its share
(50%) of the assets, liabilities, income and expenses of the arrangement on a line by line basis in the
consolidated financial statements. CTBAT is reported as part of the Asia Pacific Region with the majority of
its international sales (non China domestic sales) made through existing BAT end markets in that region.
All sales to mainland China are via CNTC.

In accordance with best practice, the contribution of brands and businesses into CTBAT have been
recognised by the new entity at fair value, resulting in a gain on the deemed partial disposal of the State
Express 555 brand which has been treated as an adjusting item and the recognition of the Group's share
of the assets of the new business.

The impact of the arrangement on operating results for 2013 and 2014 was not material.

SHARE BUY-BACK PROGRAMME
The Company continued with its approved on-market share buy-back programme with a value of up to
GBP1,500 million for 2014, excluding transaction costs. During the six months to 30 June 2014, 19 million
shares were bought at a cost of GBP632 million, excluding transaction costs of GBP4 million (30 June 2013:
18 million shares at a cost of GBP641 million, excluding transaction costs of GBP4 million).

For the year ended 31 December 2013, 44 million shares were bought at a cost of GBP1,500 million,
excluding transaction costs of GBP9 million.

The purchase of own shares in the Group statement of changes in equity, includes an amount of
GBP163 million (30 June 2013: GBP200 million) provided for the potential buy-back of shares during July 2014
under an irrevocable non-discretionary contract. On 15 July 2014, the Company announced that it would
suspend its share buy-back programme with effect from 30 July 2014.

RELATED PARTY DISCLOSURES
In the six months to 30 June 2014, there were no material changes in related parties or related party
transactions. The Group's related party transactions and relationships for 2013 were disclosed on page
184 of the Annual Report for the year ended 31 December 2013.

FOREIGN CURRENCIES
The principal exchange rates used were as follows:

                                        Average                                       Closing
                        30.6.14       30.6.13         31.12.13        30.6.14       30.6.13         31.12.13

US dollar                 1.669         1.544            1.564          1.710         1.517            1.656
Canadian dollar           1.830         1.568            1.612          1.821         1.600            1.760
Euro                      1.218         1.176            1.178          1.249         1.167            1.202
South African rand       17.855        14.221           15.099         18.191        15.057           17.347
Brazilian real            3.833         3.139            3.381          3.769         3.351            3.908
Australian dollar         1.825         1.523            1.623          1.812         1.657            1.851
Russian rouble           58.433        47.915           49.853         58.224        49.790           54.424
Japanese yen            171.005       147.400          152.715        173.216       150.661          174.080
Indian rupee            101.454        84.922           91.707        102.839        90.130          102.447

CONTINGENT LIABILITIES AND FINANCIAL COMMITMENTS
The Group has contingent liabilities in respect of litigation, taxes and guarantees in various countries. The
Group is subject to contingencies pursuant to requirements that it complies with relevant laws,
regulations and standards. Failure to comply could result in restrictions in operations, damages, fines,
increased tax, increased cost of compliance, interest charges, reputational damage or other sanctions.
These matters are inherently difficult to quantify.

In cases where the Group has an obligation as a result of a past event existing at the balance sheet date, it
is probable that an outflow of economic resources will be required to settle the obligation and the
amount of the obligation can be reliably estimated, a provision will be recognised based on best estimates
and management judgment. There are, however, contingent liabilities in respect of litigation, taxes in
some countries and guarantees for which no provisions have been made.

While the amounts that may be payable or receivable could be material to the results or cash flows of the
Group in the period in which they are recognised, the Board does not expect these amounts to have a
material effect on the Group's financial condition.

Taxes
The Group has exposures in respect of the payment or recovery of a number of taxes. The Group is and
has been subject to a number of tax audits covering, amongst others, excise tax, value added taxes, sales
taxes, corporate taxes, withholding taxes and payroll taxes.

The estimated costs of known tax obligations have been provided in these accounts in accordance with
the Group's accounting policies. In some countries, tax law requires that full or part payment of disputed
tax assessments be made pending resolution of the dispute. To the extent that such payments exceed the
estimated obligation, they would not be recognised as an expense. In some cases disputes are proceeding
to litigation.

Group litigation
Group companies, as well as other leading cigarette manufacturers, are defendants in a number of
product liability cases. In a number of the cases, the amounts of compensatory and punitive damages
sought are significant.

While it is impossible to be certain of the outcome of any particular case or of the amount of any possible
adverse verdict, the Group believes that the defences of the Group's companies to all these various claims
are meritorious on both the law and the facts, and a vigorous defence is being made everywhere. If an
adverse judgment is entered against any of the Group's companies in any case, an appeal will be made.
Such appeals could require the appellants to post appeal bonds or substitute security in amounts which
could in some cases equal or exceed the amount of the judgment. In any event, with regard to US
litigation, the Group has the benefit of the indemnity from R. J. Reynolds Tobacco Company, a wholly-
owned subsidiary of Reynolds American Inc. At least in the aggregate, and despite the quality of defences

available to the Group, it is not impossible that the Group's results of operations or cash flows in a
particular period could be materially affected by this and by the final outcome of any particular litigation.

Summary
Having regard to all these matters, with the exception of the Fox River matter, provided for in 2011, the
Group (i) does not consider it appropriate to make any provision in respect of any pending litigation, save
insofar as stated above and (ii) does not believe that the ultimate outcome of this litigation will
significantly impair the Group's financial condition.

Full details of the litigation against Group companies and tax disputes as at 31 December 2013 are
included in the Annual Report for the year ended 31 December 2013. There were no material
developments during the six months to 30 June 2014 that would impact on the financial position of the
Group.

FRANKED INVESTMENT INCOME GROUP LITIGATION ORDER
British American Tobacco is the principal test claimant in an action in the United Kingdom against HM
Revenue and Customs in the Franked Investment Income Group Litigation Order (FII GLO). There are 25
corporate groups in the FII GLO. The case concerns the treatment for UK corporate tax purposes of
profits earned overseas and distributed to the UK. The claim was filed in 2003 and the case was heard in
the European Court of Justice (ECJ) in 2005 and a decision of the ECJ received in December 2006. In July
2008, the case reverted to a trial in the UK High Court for the UK Court to determine how the principles of
the ECJ decision should be applied in a UK context.

The High Court judgment in November 2008 concluded, amongst other things, that the corporation tax
provisions relating to dividend income from EU subsidiaries breached EU law. It also concluded that
certain dividends received before 5 April 1999 from the EU and, in some limited circumstances after 1993
from outside the EU, should have been creditable against advance corporation tax (ACT) liabilities with
the consequence that ACT need not have been paid. Claims for the repayment of UK tax incurred where
the dividends were from the EU were allowed back to 1973.

The case was heard by the Court of Appeal in October 2009 and the judgment handed down on
23 February 2010. The Court of Appeal determined that various questions, including which companies in
the corporate tree can be included in a claim, should be referred back to the ECJ for further clarification.
In addition, the Court determined that the claim should be restricted to six years and not cover claims
dating back to 1973.

The issue of time limits was heard by the Supreme Court in February 2012 and in May 2012 the Supreme
Court decided in British American Tobacco Group's favour, that claims submitted before 8 September
2003 can go back to 1973. A hearing took place in February 2012 at the ECJ on the questions referred
from the Court of Appeal.

The ECJ judgment of 13 November 2012 confirms that the UK treatment of EU dividends was
discriminatory and produces the same outcome for third country dividends from 1994 in certain
circumstances. The judgment also confirms that the claim can cover dividends from all indirect as well as
direct EU subsidiaries and also ACT paid by a superior holding company.

The High Court hearing to determine the application of the ECJ judgment and the quantification
mechanics of the claim took place in May and June 2014. The decision of the Court is expected to be
delivered in the final quarter of the year and BAT will provide an indication of the value of the claim and
the judgment when known.

No potential receipt has been recognised in the current period or the prior year, in the results of the
Group, due to the uncertainty of the amounts and eventual outcome.

FAIR VALUE MEASUREMENTS AND VALUATION PROCESSES
The Group held certain financial instruments at fair value at 30 June 2014.

The definitions and valuation techniques employed for these as at 30 June 2014 are consistent with those
used at 31 December 2013 and disclosed in Note 24 on pages 175 to 176 of the 2013 Annual Report:

-    Level 1 financial instruments are traded in an active market and fair value is based on quoted prices
     at the period end.
-    Level 2 financial instruments are not traded in an active market, but the fair values are based on
     quoted market prices, broker/dealer quotations, or alternative pricing sources with reasonable levels
     of price transparency. The Group's level 2 financial instruments include certain money market
     securities and most OTC derivatives.
-    The fair values of level 3 financial instruments have been determined using a valuation technique
     where at least one input (which could have a significant effect on the instrument's valuation) is not
     based on observable market data. The Group's level 3 financial instruments primarily consist of an
     equity investment in an unquoted entity which is valued using the discounted cash flows of
     estimated future dividends.

While the carrying values of assets and liabilities at fair value have changed since 31 December 2013, the
Group does not consider the movements in value to be significant, and the categorisation of these assets
and liabilities in accordance with the disclosure requirements of IFRS 7 has not materially changed. The
values of level 1 assets and level 3 assets are not material to the Group and were GBP18 million and
GBP35 million respectively at 30 June 2014 (30 June 2013: GBP32 million and GBP39 million respectively and
31 December 2013: GBP54 million and GBP36 million respectively).

Level 2 assets and liabilities are shown below.

                                                                   30.6.2014      30.06.2013    31.12.2013
                                                                     Level 2         Level 2       Level 2
                                                                        GBPm            GBPm          GBPm
Assets at fair value
Available-for-sale investments                                            24              15             -

Derivatives relating to
– interest rate swaps                                                    220             272           121
– cross-currency swaps                                                    18              35             6
– forward foreign currency contracts                                     181             214           298
Assets at fair value                                                     443             536           425
                                                                                         521
Liabilities at fair value
Derivatives relating to
– interest rate swaps                                                     88             139            63
– cross-currency swaps                                                    25              35            41
– forward foreign currency contracts                                      50             124            60
– others                                                                   -               1             -
Liabilities at fair value                                                163             299           164

The fair value of borrowings is estimated to be GBP13,012 million (30 June 2013: GBP13,440 million and
31 December 2013: GBP12,701 million) and has been determined using quoted market prices or discounted
cash flow analysis. The value of other assets and liabilities held at amortised cost are not materially
different from their fair values.

DISCLAIMERS
This announcement does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or
dispose of any British American Tobacco p.l.c. shares or other securities.

This announcement contains certain forward looking statements which are subject to risk factors
associated with, among other things, the economic and business circumstances occurring from time to
time in the countries and markets in which the Group operates. It is believed that the expectations
reflected in this announcement are reasonable but they may be affected by a wide range of variables
which could cause actual results to differ materially from those currently anticipated.

Past performance is no guide to future performance and persons needing advice should consult an
independent financial adviser.

ANNUAL REPORT AND HALF-YEARLY REPORT

Annual Report: Statutory Accounts
The information for the year ended 31 December 2013 does not constitute statutory accounts as defined
in s434 of the Companies Act 2006. A copy of the statutory accounts for that year 2013 has been
delivered to the Registrar of Companies. The auditors' report on the 2013 accounts was unqualified, did
not draw attention to any matters by way of emphasis and did not contain statements under s498(2) or
(3) of the Companies Act 2006.

Half-Yearly Report: Publication
This Half-Yearly Report is released to the London Stock Exchange and the JSE Limited. It may be viewed
and downloaded from our website www.bat.com.

Copies of the announcement may also be obtained during normal business hours from: (1) the Company's
registered office; (2) the Company's representative office in South Africa; and (3) British American
Tobacco Publications, as below.

Nicola Snook
Secretary
29 July 2014

SHAREHOLDER INFORMATION

FINANCIAL CALENDAR

Tuesday 30 September 2014                        Payment date of 2014 interim dividend

Wednesday 22 October 2014                        Interim Management Statement

Thursday 26 February 2015                        Preliminary Statement 2014


CALENDAR FOR THE INTERIM DIVIDEND 2014

2014

Wednesday 30 July                                Declaration of interim dividend: amount of dividend per ordinary
                                                 share in both sterling and rand; applicable exchange rate and
                                                 conversion date – Monday 28 July 2014; plus additional
                                                 applicable information as required in respect of South Africa
                                                 Dividends Tax*.

Wednesday 30 July to Friday 22 August            From the commencement of trading on Wednesday 30 July 2014
                                                 to Friday 22 August 2014 (inclusive), no removal requests in
                                                 either direction between the UK main register and the South
                                                 Africa branch register will be permitted.

Friday 15 August                                 Last Day to Trade or LDT (JSE)

Monday 18 August to Friday 22 August             From the commencement of trading on Monday 18 August 2014
                                                 to Friday 22 August 2014 (inclusive), no transfers between the UK
                                                 main register and the South Africa branch register will be
                                                 permitted; no shares may be dematerialised or rematerialised.

Monday 18 August                                 Ex-dividend date (JSE)

Wednesday 20 August                              Ex-dividend date (LSE)

Friday 22 August                                 Record date (LSE and JSE)

Tuesday 9 September                              Last date for receipt of Dividend Reinvestment Plan (DRIP)
                                                 elections (UK main register only)

Tuesday 30 September                             Payment date (sterling and rand)

*      Details of the applicable exchange rate and the South Africa Dividends Tax information can be found
       under the heading 'Dividends' on page 31.

American Depositary Receipts (ADRs)
For holders of ADRs, the record date is Friday 22 August 2014 with a payment date of Friday 3 October
2014.

CORPORATE INFORMATION

Premium listing
London Stock Exchange (Share Code: BATS; ISIN: GB0002875804)
Computershare Investor Services PLC
The Pavilions, Bridgwater Road, Bristol BS99 6ZZ, UK
tel: 0800 408 0094; +44 870 889 3159
Share dealing tel: 0870 703 0084 (UK only)
Your account: www.computershare.com/uk/investor/bri
Share dealing: www.computershare.com/dealing/uk
Web-based enquiries: www.investorcentre.co.uk/contactus

Secondary listing
JSE (Share Code: BTI)
Shares are traded in electronic form only and transactions settled electronically through Strate.
Computershare Investor Services (Pty) Ltd
PO Box 61051, Marshalltown 2107, South Africa
tel: 0861 100 925; +27 11 870 8222
email enquiries: web.queries@computershare.co.za

American Depositary Receipts (ADRs)
NYSE MKT (Symbol: BTI; CUSIP Number: 110448107)
Sponsored ADR programme; each ADR represents two ordinary shares of British American
Tobacco p.l.c.
Citibank Shareholder Services
PO Box 43077
Providence, Rhode Island 02940-3077, USA
tel: 1-888-985-2055 (toll-free) or +1 781 575 4555
email enquiries: citibank@shareholders-online.com
website: www.citi.com/dr

Publications
British American Tobacco Publications
Unit 80, London Industrial Park, Roding Road, London E6 6LS, UK
tel: +44 20 7511 7797; facsimile: +44 20 7540 4326
e-mail enquiries: bat@team365.co.uk or
Computershare Investor Services (Pty) Ltd in South Africa using the contact details shown above.

British American Tobacco p.l.c.
Registered office
Globe House
4 Temple Place
London
WC2R 2PG
tel: +44 20 7845 1000

British American Tobacco p.l.c. is a public limited company which is listed on the London Stock Exchange
and the JSE Limited in South Africa. British American Tobacco p.l.c. is incorporated in England and Wales
(No. 3407696) and domiciled in the UK.

British American Tobacco p.l.c.
Representative office in South Africa
34 Alexander Street
Stellenbosch
7600
South Africa
(PO Box 631, Cape Town 8000, South Africa)
tel: +27 21 888 3077

Sponsor: UBS South Africa (Pty) Ltd




Date: 30/07/2014 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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