To view the PDF file, sign up for a MySharenet subscription.

BRITISH AMERICAN TOBACCO PLC - Preliminary announcement for the year ended 31 December 2016

Release Date: 23/02/2017 09:00
Code(s): BTI     PDF:  
Wrap Text
Preliminary announcement for the year ended 31 December 2016

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")

23 February 2017

                                                 BRITISH AMERICAN TOBACCO p.l.c.
                                   PRELIMINARY ANNOUNCEMENT – YEAR ENDED 31 DECEMBER 2016


                                    AN EXCEPTIONALLY GOOD PERFORMANCE
 KEY FINANCIALS                                                                  2016                         2015                       Change
                                                                           Current    Constant                                        Current Constant
                                                                             rates       rates                                          rates     rates
 Revenue                                                                 £14,751m    £14,008m           £13,104m                      +12.6%     +6.9%
 Adjusted profit from operations*                                         £5,480m     £5,197m            £4,992m                       +9.8%     +4.1%
 Profit from operations                                                   £4,655m     £4,424m            £4,557m                       +2.2%     -2.9%
 Adjusted diluted earnings per share*                                       247.5p      230.0p             208.4p                     +18.8%    +10.4%
 Basic earnings per share                                                   250.2p                         230.9p                      +8.4%
 Dividends per share                                                        169.4p                         154.0p                     +10.0%
 *The non-GAAP measures, including adjusting items and constant currencies, are set out on page 19.

FULL YEAR HIGHLIGHTS
 - The Group’s cigarette market share1 in its Key Markets2 continued to grow very strongly, up 50 basis
   points (bps). This was driven by another excellent performance by our Global Drive Brand (GDB) portfolio
   with volume up 7.5% and market share increasing 100 bps.
 - Group cigarette volume grew 0.2% to 665 billion, with a 0.8% decline on an organic basis outperforming
   the industry, which was estimated to decline by around 3.0%. Total tobacco volume was 0.1% higher
   than 2015.
 - Group revenue was up 12.6% at current rates, partly reflecting the translational tailwind as a result of
   the relative weakness of sterling. Revenue grew 6.9% at constant rates and was 5.3% up on an organic    basis.
 - Adjusted Group profit from operations increased 9.8% at current rates, or by 4.1% at constant rates of
   exchange. Excluding the adverse impact of exchange movements on a transactional level, adjusted Group
   profit at constant rates, would have increased by approximately 10%.
 - Profit from operations, at current rates of exchange, was 2.2% higher at £4,655 million.
 - Without the adverse transactional impact of foreign exchange and the impact from acquisitions,
   operating margin would have improved by around 160 bps. On a reported basis, it fell 90 bps to 37.2%.
 - Adjusted diluted earnings per share, at current rates, was up 18.8% at 247.5p. At constant rates of
   exchange, it increased 10.4% despite the transactional headwinds from foreign exchange.
 - Basic earnings per share was up 8.4% at 250.2p (2015: 230.9p), resulting from the improved operating
   performance and foreign exchange tailwind.
 - The Group’s vapour business grew to become the world’s largest, outside of the US, and we successfully
   launched our Tobacco Heating Product, gloTM, in Japan.
 - On 17 January 2017, the Group announced the agreed terms of a recommended offer for the acquisition
   of the remaining 57.8% of Reynolds American Inc. (Reynolds American) not already owned by the Group.
   We expect the transaction to close in Q3 2017, subject to obtaining the relevant approvals.
 - The Board has recommended a final dividend of 118.1p, to be paid on 4 May 2017. This will take the
   2016 total dividend to 169.4p per share, an increase of 10.0%.
 1                                                                                      2
     Key Market offtake share, as independently measured by AC Nielsen.                     The Group’s Key Markets represent around 80% of the Group’s volume
     All variances within this document are based upon the absolute number.

Richard Burrows, Chairman, commenting on the year ended 31 December 2016
“The Group delivered exceptional earnings, volume and market share growth in 2016, despite challenging trading
conditions persisting in many of our Key Markets. Our results this year demonstrate our ability to continue
delivering excellent shareholder returns while investing in the future strength of the business. The 10% increase in
our total dividend for 2016 to 169.4p reflects our confidence in our strategy, our people and in generating growth
for our shareholders in 2017 and beyond.”

CHIEF EXECUTIVE’S REVIEW
The Group delivered a great set of results in 2016, with excellent growth seen across all key business metrics. This was
achieved despite a challenging backdrop of adverse foreign exchange rates impacting our cost base and ongoing pressure on
consumers’ disposable income in many of our Key Markets.
Group revenue was up by 6.9% at constant rates of exchange, driven by good pricing - with price mix exceeding 6%.
Reported revenue was 12.6% higher, reflecting the translational tailwind resulting from the relative weakness of
sterling. On an organic basis, Group revenue was up by 5.3% at constant rates.
At constant rates of exchange, adjusted profit from operations grew by 4.1% and adjusted diluted earnings per share
grew by 10.4%. Adjusted profit from operations would have grown by approximately 10% were it not for the significant
ongoing effect of adverse foreign exchange movements on our cost base during 2016. Underlying operating margin,
excluding transactional foreign exchange and acquisitions, grew by around 160 bps. On a reported basis, it was down by
90 bps to 37.2%.

Agreement to acquire Reynolds American Inc.
I am very pleased that we reached an agreement with the Board of Reynolds American in relation to the acquisition of
the remaining 57.8% of Reynolds American that the Group does not currently own. This is a significant step towards the
completion of this transaction and we look forward to putting the recommended offer to shareholders.
Strategically, this deal will create a truly global business with a world class portfolio of tobacco and Next Generation
Products which will be available across the most attractive markets in the world. Financially, it will be earnings accretive
with enhanced cash generation while maintaining a solid investment grade credit rating. We expect the transaction to
close during the third quarter of 2017, subject to obtaining the relevant shareholder and regulatory approvals.

Combustible tobacco products
Total Group cigarette volume for the full year was up 0.2%, to 665 billion. A 0.8% decline on an organic basis was
considerably better than the industry, which we estimate to be down around 3.0%.
Strong growth in 2016, with overall market share in our Key Markets increasing by 50 bps, was driven by the continuing
momentum of our Global Drive Brands (GDBs). Total volume growth across the GDBs was an outstanding 7.5% and total
market share growth was 100 bps. The GDBs now account for 49% of Group cigarette volume, up from 32% in 2011,
demonstrating the key role they play in our growth strategy.

Next Generation Products
In 2016, we made significant progress with our differentiated strategy of developing and marketing a range of
outstanding next generation tobacco and nicotine products, across both the Vapour and Tobacco Heating categories.
Our Vapour Products business continues to perform very well and, following the geographic expansion of Vype™ in
2016, we are now present in ten markets and have the largest vapour business in the world outside of the US.

In the UK, our category retail share, as independently measured by AC Nielsen, has reached nearly 40% through the
growth of Vype™ and the acquisition of Ten Motives. We also have an estimated market share of around 50% in Poland
as well as category retail share of over 7% in Germany, over 4% in France and over 2% in Italy. In addition, we launched
a new vaping concept in Europe called the Vype Pebble™ which we believe will enhance the overall category and
increase consumer penetration.

In December 2016, we launched a new-to-world Tobacco Heating Product, called glo™, in Sendai, Japan. Initial results
are very encouraging, with glo™ gaining 5.4% volume share in a leading convenience store chain in Sendai after only ten
weeks. Further roll-out and product upgrades are scheduled for 2017 and beyond.

These innovations, alongside our exciting pipeline, demonstrate our commitment to meeting all of the differing
preferences of our consumers, providing them with a choice of outstanding products across the risk continuum.

Facing the future with confidence
As these results demonstrate, our combustible tobacco business continues to perform extremely well and I am very
pleased with the progress we are making in Next Generation Products. Both would be made stronger by our proposed
acquisition of Reynolds American, creating what will become a truly global tobacco and Next Generation Products
company, delivering sustained long-term profit growth and returns.
                                                                                                        Nicandro Durante
                                                                                                        22 February 2017


                                                      Page 1
                                          
REGIONAL REVIEW
This review presents the underlying performance of the regions and markets, at constant rates of exchange.
However, as explained on page 19, the Group does not adjust for transactional gains or losses in profit from
operations which are generated by exchange rate movements. The performance is adjusted for the items explained
on pages 21 to 23.

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

                                      Adjusted profit from operations                  Cigarette volume
                                    2016              2016            2015              2016           2015
                                  Current          Constant              As
                                    rates             Rates        reported
                                      £m                £m              £m               Bns             Bns

    Asia-Pacific                    1,630              1,488            1,469            196            198
    Americas                        1,172              1,202            1,169            113            124
    Western Europe                  1,389              1,236            1,146            120            112
    EEMEA                           1,289              1,271            1,208            236            229
    Total                           5,480              5,197            4,992            665            663

    Total tobacco volume                                                                 689            689

The Group delivered exceptional results in 2016 with market share continuing to grow strongly based upon the
outstanding performance of the Global Drive Brand portfolio. An excellent financial performance was further
enhanced by the translational foreign exchange tailwind, despite the continued impact of transactional foreign
exchange on our cost of sales.

At current rates of exchange, revenue increased by 12.6%, with good pricing across a number of key markets, a
price mix of over 6% and the translational foreign exchange tailwind benefiting the reported results due to the
relative weakness of sterling against the Group’s operating currencies. At constant rates of exchange revenue was
6.9% higher, or 5.3% on an organic basis.

Reported profit from operations was up 2.2% at £4,655 million. Adjusted profit from operations (see page 20) was
9.8% higher, but at constant rates of exchange adjusted profit from operations was £5,197 million, an increase of
4.1%, or 3.6% on an organic basis. Excluding the transactional foreign exchange impact on the cost of items such as
leaf, filter tow and wrapping materials, adjusted operating profit would have increased by approximately 10%.
Group cigarette volume from subsidiaries was 665 billion, an increase of 0.2% against the previous year and a
decline of 0.8% on an organic basis. Volume growth in Bangladesh, Ukraine, Russia, Vietnam, Turkey, Mexico,
Poland and Indonesia was offset by declines in Pakistan, Brazil, Venezuela and Malaysia. Total tobacco volume was
ahead of prior year by 0.1%.

Market share increased 50 bps, driven by a very strong performance from the GDB portfolio with a combined
growth of 100 bps, on volume that was up 7.5%:

-      Dunhill’s overall market share was flat. Volume fell by 3.3%, driven mainly by industry declines in Malaysia and
       Brazil, more than offsetting growth in South Korea, Romania and the continued growth in Indonesia;
-      Kent volume increased 1.0%, with market share up 10 bps, driven by Chile, Turkey and Japan;
-      Lucky Strike grew market share, higher by 10 bps, and volume, up 13.5%, with growth in Indonesia, Colombia
       Egypt, France, Germany and Croatia more than offsetting lower volume in Argentina and Russia;




                                                     Page 2
         Regional review cont…

-          Pall Mall market share grew 10 bps, with volume marginally higher than prior year as growth in Venezuela,
           Poland, Mexico and Romania more than offset reductions in Pakistan and the migration to Rothmans in Italy;
           and
-          Rothmans’ strong growth in volume (+36.9%) and market share (+70 bps) was driven by Russia, Ukraine, Italy,
           Nigeria, Turkey and South Korea.

Other international brands declined by 9.0%, as growth in State Express 555 and Craven A (in Vietnam) was more
than offset by lower volume from Peter Stuyvesant (in South Africa), JPGL (largely in SE Asia), and Vogue (where
growth in Russia was offset by lower volume in South Korea due to the migration to Rothmans).

Innovations[3] volume grew by 12%, driven by the success of tube filters, capsules and the slimmer formats across the
GDB portfolio and now account for 29% of our cigarette volume.

The performances of the Group’s Key Markets are discussed in the regions where they are reported. This discussion
excludes certain markets, identified as new investment or growth markets, which currently do not materially
contribute to the Group profit or volume.

Asia-Pacific: adjusted profit at constant rates of exchange up £19 million, or 1.3%
Adjusted profit, at current rates of exchange, was up by £161 million to £1,630 million as strong profit performances
in Pakistan, Bangladesh, Sri Lanka, Vietnam and South Korea were partly offset by lower profit in Malaysia following
a change in excise and the adverse impact of foreign exchange on cost of sales in a number of markets including
Japan and New Zealand. At constant rates of exchange, adjusted profit grew £19 million or 1.3%. Cigarette volume
fell 0.9% to 196 billion, as increases in Bangladesh, Vietnam, South Korea and Indonesia, were offset by industry
declines in Pakistan and Malaysia.

    Country                           Performance at constant rates of exchange
    Australia                         Market share returned to growth, driven by Rothmans. Pricing in the second half of
                                      the year was offset by lower volume due to the market contraction and down-
                                      trading, leading to a reduction in profit.
    Malaysia                          Volume and profit were down as the tax-driven price increases led to a reduction in
                                      the total market and higher illicit trade. Market share fell despite good growth in
                                      Peter Stuyvesant as Dunhill was impacted by down-trading.
    Japan                             Market share of combustibles grew, driven by Kent. Lower volume and adverse
                                      foreign exchange movements affecting cost of sales led to a reduction in profit.
                                      gloTM, our Tobacco Heating Product, was launched in December 2016, with
                                      encouraging initial results.
    New Zealand                       Good pricing, an increase in market share and stable volume were more than offset
                                      by the adverse impact of foreign exchange on cost of sales, with profit marginally
                                      lower.
    Bangladesh                        Volume, market share and profit continued to increase strongly.
    Pakistan                          Profit increased significantly as a result of pricing and cost savings. Market share
                                      grew, driven by Pall Mall. Market contraction led to lower volume as illicit trade
                                      increased significantly following the excise-led price increases.
    Vietnam                           Higher profit was driven by an increase in volume, pricing and an enhanced mix.
                                      Market share was stable as State Express 555 continued to perform well in the
                                      premium segment.
    South Korea                       Profit was up, driven by higher volume, including in Dunhill, and productivity
                                      initiatives. Market share fell despite good growth in Rothmans.
    Indonesia                         Volume and market share grew, driven by Dunhill and Lucky Strike, with the
                                      enhanced mix and strong pricing leading to an improvement in financial
                                      performance.
    Philippines                       Market share was marginally higher, driven by Pall Mall. Pricing and productivity
                                      initiatives more than offset a decline in volume, leading to an improvement in
                                      financial performance.
3
    Any Group manufactured cigarette containing non-standard features such as slims, capsules, reloc or tubes




                                                                                          Page 3
 Regional review cont…

Americas: adjusted profit at constant rates of exchange increased by £33 million or 2.8%
Adjusted profit, at current rates of exchange, was marginally ahead of prior year at £1,172 million as the reported
results were impacted by the devaluation of the bolivar in Venezuela. At constant rates, adjusted profit rose by £33
million, or 2.8%, driven by good performances from Canada, Chile, Venezuela and Peru, more than offsetting lower
profit in Brazil. Cigarette volume was down 8.8% to 113 billion, as higher volume in Mexico and Colombia was more
than offset by declines in Brazil and Venezuela.

 Country             Performance at constant rates of exchange
 Brazil              Lucky Strike grew market share, gaining segment leadership, with Dunhill growing
                     within the premium segment. Total market share fell from an all-time high. Lower
                     consumer disposable income, higher VAT and excise-led price increases drove market
                     contraction and higher illicit trade, adversely impacting volume and profit.
 Canada              Strong profit growth was driven by good pricing and cost reductions, which offset
                     lower volume. Market share fell, despite growth in Pall Mall.
 Chile               Pricing and an improvement in mix led to higher profit. Total volume fell but market
                     share was up, driven by Kent following the successful migration from Belmont.
 Venezuela           Pricing, to offset currency devaluation and inflation, led to higher profit. Pall Mall grew
                     although, due to the reduction in consumer disposable income, total volume fell.
 Mexico              Volume and market share were up, driven by the continued growth in Pall Mall. A
                     delay in pricing led to stable profit.
 Colombia            Higher volume, an improvement in market share and good pricing were more than
                     offset by the adverse impact of foreign exchange on cost of sales, with profit down.
 Argentina           Excise-led price increases drove a decrease in the total market and a decline in volume.
                     Market share was marginally lower despite Rothmans growth following launch.

Western Europe: adjusted profit at constant rates of exchange increased by £90 million or 7.8%
Adjusted profit, at current rates of exchange, grew by £243 million to £1,389 million reflecting the relative weakness
in sterling against the reporting currencies, notably the euro. At constant rates, adjusted profit was higher by 7.8%
(£90 million) or 6.9% on an organic basis, with good performances in several markets including Germany, Romania,
Italy and France. Cigarette volume was up by 6.7% to 120 billion, or 2.4% on an organic basis, with growth in Poland
and Romania more than offsetting lower volume in the UK, Denmark and Germany.

 Country             Performance at constant rates of exchange
 Germany             Profit grew strongly driven by pricing, with volume marginally lower. Market share was
                     flat as a good performance by Lucky Strike was offset by declines in the local brands.
                     Fine Cut volume and market share fell due to increased price competition. VypeTM was
                     launched nationally, growing to over 7% category retail market share in 12 months.
 Switzerland         Price discounting at retail led to down-trading in the market, lower volume, a fall in
                     market share and a decline in profit.
 France              Profit and volume were marginally higher. Market share was up, driven by the
                     continued growth in Lucky Strike.
 Romania             Profit grew very strongly, driven by good pricing and higher volume. Excellent market
                     share growth was driven by Pall Mall and Dunhill, more than offsetting a decline in
                     Kent.
 Italy               Higher volume and pricing drove profit up. Growth in Rothmans market share was
                     more than offset by declines in the rest of the local portfolio with total market share
                     down. VypeTM distribution was expanded. PebbleTM was launched and the first flagship
                     store was opened.




                                                    Page 4
 Regional review cont…

 Country             Performance at constant rates of exchange
 Denmark             Volume, market share and profit were down due to down-trading leading to the
                     growth of the low-priced segment.
 Netherlands         Profit grew, driven by a lower cost base. Market share growth in Pall Mall and Lucky
                     Strike was more than offset by a decline in Kent and local brands, reducing total
                     market share.
 Belgium             Profit fell, driven by lower volume. Market share fell as the decline in Kent more than
                     offset the continued growth in Lucky Strike.
 United Kingdom      A challenging pricing environment led to a decline in market share, with profit flat as
                     cost reductions offset lower volume. Total retail market share of the NGP business
                     grew to nearly 40%, driven by the continued growth of VypeTM and the acquisition of
                     Ten Motives.
 Spain               Profit was marginally higher, driven by cost savings. Volume and market share were
                     stable.
 Poland              Market share grew strongly with volume higher due to the success of Pall Mall. The
                     financial performance improved, driven by the improved volume and pricing.
 Croatia / Balkans   The integration of TDR is now substantially complete, with the migration to the GDB
                     portfolio on track, driving an increase in total market share.

Eastern Europe, Middle East and Africa: adjusted profit at constant rates of exchange increased by
£63 million or 5.3%
Adjusted profit, at current rates of exchange, increased by £81 million to £1,289 million. Good pricing across the
region and strong profit growth in several markets was partly offset by the effect of currency devaluation, notably in
Russia, Nigeria and Ukraine. At constant rates of exchange, profit was £63 million higher or 5.3%, or 4.3% on an
organic basis. Excluding acquisitions and the impact of adverse foreign exchange movements on cost of sales,
adjusted profit at constant rates would have increased by 19%. Cigarette volume was 3.0% higher at 236 billion, (up
2.1% on an organic basis), as growth in a number of markets including Ukraine, Russia, Turkey and Algeria were
partially offset by lower volume in South Africa and GCC.

 Country             Performance at constant rates of exchange
 Russia              Profit was significantly higher, driven by good pricing and an increase in volume, more
                     than offsetting the continuing adverse impact of foreign exchange on cost of sales.
                     Market share continued to grow strongly, driven by another excellent performance by
                     Rothmans, with Kent premium segment share increasing.
 South Africa        Volume fell, driven by down-trading to the low-priced segment and higher illicit trade.
                     Dunhill, Pall Mall and Benson & Hedges all grew market share although total market
                     share fell. Profit was down due to lower volume and the adverse transactional impact
                     of foreign exchange on cost of sales, partially offset by pricing.
 GCC                 Profit was flat as pricing and cost savings offset lower volume. Market share fell as
                     Dunhill was impacted by down-trading following tax driven price increases.
 Nigeria             Volume growth and pricing were offset by the adverse impact of foreign exchange on
                     cost of sales, with profit in line with prior year.
 Iran                Volume and profit were lower due to the retrospective application of an increase in
                     excise.
 Ukraine             Excellent volume and market share growth was driven by Rothmans. Geopolitical
                     instability continued to impact the financial performance, with a significant
                     deterioration in currency and intense price competition, leading to a decline in profit.
 Turkey              Profit was up, driven by good pricing and higher volume. Market share grew as the
                     excellent performance of Kent and Rothmans continued.
 Algeria             Strong volume growth and pricing drove profit up.




                                                   Page 5
     Regional review cont…

     Country                   Performance at constant rates of exchange
     Kazakhstan                Rothmans drove an increase in volume and market share. Profit improved as pricing
                               and higher volume more than offset the effect of down-trading.
     Egypt                     An improvement in the financial performance was driven by higher volume, pricing
                               and an enhanced mix.

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 page 20.

REGIONAL INFORMATION
                                                                                               Western
For the year ended 31 December                                       Asia-Pacific   Americas    Europe   EEMEA        Total

SUBSIDIARIES
Volume (cigarette billions)
2016                                                                        196         113       120      236        665
2016 (organic)                                                              196         113       115      234        658
2015                                                                        198         124       112      229        663
Change                                                                     -0.9%       -8.8%     +6.7%    +3.0%      +0.2%
Change (organic)                                                           -0.9%       -8.8%     +2.4%    +2.1%      -0.8%

Revenue (£m)
2016 (at constant)                                                        3,770       3,014      3,471    3,753    14,008
2016 (organic, at constant)                                               3,770       3,014      3,317    3,700    13,801
2016 (at current)                                                         4,266       2,868      3,867    3,750    14,751
2015                                                                      3,773       2,720      3,203    3,408    13,104
Change (at constant)                                                      -0.1%      +10.8%      +8.4%   +10.1%     +6.9%
Change (organic, at constant)                                             -0.1%      +10.8%      +3.6%    +8.6%     +5.3%
Change (at current)                                                      +13.1%       +5.4%     +20.7%   +10.0%    +12.6%

Adjusted profit from operations (£m)
2016 (at constant)                                                        1,488       1,202      1,236   1,271       5,197
2016 (organic, at constant)                                               1,488       1,202      1,225   1,259       5,174
2016 (at current)                                                         1,630       1,172      1,389   1,289       5,480
2015                                                                      1,469       1,169      1,146   1,208       4,992
Change (at constant)                                                      +1.3%       +2.8%      +7.8%   +5.3%       +4.1%
Change (organic, at constant)                                             +1.3%       +2.8%      +6.9%   +4.3%       +3.6%
Change (at current)                                                      +11.0%       +0.3%     +21.2%   +6.7%       +9.8%

Operating margin based on adjusted profit (%)
2016 (at current)                                                          38.2%      40.9%      35.9%   34.4%       37.2%
2015                                                                       38.9%      43.0%      35.8%   35.4%       38.1%

All variances quoted above are based upon absolute numbers.
Organic excludes contribution by TDR, Sudan, Ten Motives and Chic.




                                                                      Page 6
Regional review cont…

REGIONAL INFORMATION
                                                                                                                    Western
For the year ended 31 December                                          Asia-Pacific            Americas             Europe               EEMEA                   Total

ASSOCIATES AND JOINT VENTURES
Share of post-tax results of associates and joint
ventures (£m)
2016 (at current)                                                                342                1,880                    3                 2                2,227
2015                                                                             302                  933                     -                1                1,236
Change                                                                         +13.2%               +102%                   n/a           +63.8%               +80.3%

Share of adjusted post-tax results of associates
and joint ventures (£m)
2016(at constant)                                                                307                 877                     4                 2                1,190
2016 (at current)                                                                331                 991                     3                 2                1,327
2015                                                                             286                 656                      -                1                  943
Change (at constant)                                                            +7.4%              +33.8%                   n/a           +62.5%               +26.1%
Change (at current)                                                            +15.8%              +50.9%                   n/a           +63.8%               +40.7%


GROUP
For the year ended 31 December                                                                                                                                   Total

Underlying tax rate of subsidiaries (%)
2016 (at current)                                                                                                                                                29.8%
2015 (at current)                                                                                                                                                30.5%

Adjusted diluted earnings per share (pence)
2016 (at constant)                                                                                                                                              230.0
2016 (at current)                                                                                                                                               247.5
2015                                                                                                                                                            208.4
Change (at constant)                                                                                                                                           +10.4%
Change (at current)                                                                                                                                            +18.8%

Return on capital employed (%) – excluding associates*
2016                                                                                                                                                               32%
2015                                                                                                                                                               33%
* The calculation for “Return on capital employed” excludes the Group’s Investments in Associates and Joint Ventures from the underlying assets, aligning the return
(adjusted profit from operations) to the assets (average total assets less Investment in Associates and Joint Ventures, less average current liabilities).




                                                                          Page 7
                      FINANCIAL INFORMATION AND OTHER

NET FINANCE (COSTS)/INCOME
Net finance costs were £637 million, compared to income of £62 million in 2015. The movement is
principally due to a one-off deemed gain related to the investment in Reynolds American, as described
below, recognised in 2015. Net adjusted finance costs increased as the higher level of borrowing more
than offset an overall reduction in the underlying cost to service the debt.
Net finance (costs)/income comprise:

                                                                                2016              2015
                                                                                 £m                £m

 Finance costs                                                                  (681)             (584)
 Finance income                                                                   44               646
 Net finance (costs)/income                                                     (637)               62

 Less: adjusting items                                                           108              (489)
 Make-whole provision re early redemption of bond, see below                     101                  -
 Hedge ineffectiveness, see below                                                (18)                 -
 Option cost and fees, see below                                                    -              104
 Deemed gain on investment in Reynolds American, see below                          -             (601)
 Interest related to Franked Investment Income Group Litigation Order
                                                                                  25                 8
 (FII GLO), see below

 Net adjusted finance costs                                                     (529)             (427)

 Comprising:
 Interest payable                                                               (650)             (582)
 Interest and dividend income                                                     68                79
 Fair value changes - derivatives                                                458               245
 Exchange differences                                                           (405)             (169)

Net adjusted finance costs                                                     (529)             (427)

On 19 July 2016, the Group redeemed a US$700 million bond, prior to its original maturity date of 15
November 2018 undertaken to manage the Group’s debt maturity profile, manage future refinancing risk
and reduce the on-going interest expense. This led to a loss in the year of £101 million which has been
treated as an adjusting item.

In 2016, the Group experienced significant hedge ineffectiveness on its external swaps, driven by the
market volatility following the referendum regarding “Brexit”. The gain of £18 million has been deemed to
be adjusting as it is not representative of the underlying performance of the business.

In 2015, as described on page 34, the Group received £963 million from HM Revenue & Customs in
relation to the FII GLO. The payment was received subject to the on-going appeals process and was made
with no admission of liability. Any future repayment by the Group is subject to interest and, as any
recognition of income will be deemed to be adjusting (due to size), interest of £25 million (2015: £8
million) has been accrued and treated as an adjusting item.




                                                Page 8
Net Finance (costs)/income cont….

In 2015, the Group incurred costs of £104 million in relation to financing activities, which largely comprise
costs related to the acquisition of the non-controlling interest in the Group’s Brazilian subsidiary, Souza
Cruz S.A. and the Group’s investment in 2015 to maintain its current ownership in Reynolds American
following its acquisition of Lorillard Inc. (“Lorillard”).

In 2015, the Group’s investment of US$4.7 billion in cash in Reynolds American realised a deemed gain of
US$931 million (£601 million), taken through net finance costs. This arose as the contract to acquire
shares is deemed to be a financial instrument and has been fair valued through profit and loss, in
compliance with IAS 39. The deemed gain reflects the difference between the fixed price paid by the
Group to Reynolds American and the market value of Reynolds American shares on the day of the
transaction.

The above have been included in the adjusted earnings per share calculation on page 28.

RESULTS OF ASSOCIATES
The Group’s share of post-tax results of associates increased by £991 million, or 80.3%, to £2,227 million,
benefiting from the sale of the international brand rights of Natural American Spirit by Reynolds
American. The Group’s share of the adjusted post-tax results of associates increased by 40.7% to £1,327
million, or by 26.2% to £1,190 million at constant rates of exchange.

The adjusted contribution from Reynolds American increased by 51.9% to £991 million, or by 34.6% at
constant rates of exchange, reflecting the continued strong performance of Reynolds American and the
full year’s contribution following the acquisition of Lorillard in June 2015. The Group’s adjusted
contribution from its main associate in India, ITC, was £322 million, up 15.2%. At constant rates of
exchange, the contribution would have been 6.9% higher than last year. See pages 22 and 23 for the
adjusting items.

TAXATION
                                                                                  2016                 2015
                                                                                   £m                   £m
 UK
 - current year tax                                                                  7                      5
 Overseas
 - current year tax expense                                                      1,382                 1,317
 - adjustment in respect of prior periods                                           13                     7
 Current tax                                                                     1,402                 1,329
 Deferred tax                                                                        4                     4
                                                                                 1,406                 1,333
 Adjusting items (see below)                                                        67                    58
 Adjusted tax charge                                                             1,473                 1,391

The tax rates in the income statement of 22.5% in 2016 and 22.8% in 2015 are affected by the inclusion of
the share of associates’ and joint ventures’ 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 28 was
29.8% in 2016 and 30.5% in 2015. The slight decrease is mainly due to a change in the mix of profits.

IFRS requires entities to provide deferred taxation on the undistributed earnings of associates and joint
ventures. In 2016, the Group’s share of the gain on the divestiture of intangibles and other assets by
Reynolds American to Japan Tobacco International is £941 million. Given that the profit on this item is
recognised as an adjusting item by the Group, the additional deferred tax charge of £61 million on the
potential distribution of these undistributed earnings has also been treated as adjusting.




                                                  Page 9
Taxation cont.…..

In 2015, the Group’s share of the gain on the divestiture of intangibles and other assets by Reynolds
American to ITG Brands LLC, a subsidiary of Imperial Tobacco Group PLC, is £371 million. Given that the
profit on this item is recognised as an adjusting item by the Group, the additional deferred tax charge of
£22 million on the potential distribution of these undistributed earnings has also been treated as
adjusting. The adjusting tax item also includes £128 million (2015: £80 million) in respect of the tax on
adjusting items, see pages 21 to 22.

Please refer to page 34 for the FII GLO update.

FREE CASH FLOW AND NET DEBT
In the alternative cash flow presented on page 24, operating cash flow increased by £539 million, or
11.8%, to £5,122 million, reflecting the excellent growth in underlying operating performance of the
Group which was partly offset by higher capital expenditure, including that for Next Generation Products.

Cash generated from operations fell by £253 million, or by £450 million at constant rates of exchange, as
2015 benefited from the FII GLO receipt of £963 million (see page 34). Excluding this receipt, cash
generated from operations at constant exchange rates was up £513 million or 21.3% higher.
Free cash flow was lower by £92 million or 2.6%, at £3,389 million but grew, excluding FII GLO, by £871
million as the improved operating performance, higher distributions from associates (including the
proceeds from Reynolds American’s share buyback programme) and lower payments to minorities
following the buy-out of Souza Cruz were partly offset by the increase in Quebec Class Action-related cash
deposits.

The conversion of adjusted operating profit to operating cash flow remained strong at 93% (2015: 92%).
The ratio of free cash flow per share to adjusted diluted earnings per share fell to 73% from 90% in 2015
as the prior year benefited from the receipt in relation to FII GLO.
After taking account of other changes, including the payment of the prior year final dividend and the 2016
interim dividend (£2,910 million, up £140 million on prior year) and exchange rate movements, closing
net debt was up £1,973 million at £16,767 million (2015: £14,794 million).

The Group’s alternative cash flow statement is shown on page 24 and explained on page 19 under non-
GAAP measures.

PROPOSED ACQUISITION OF REYNOLDS AMERICAN INC.
On 17 January 2017, the Group announced the agreed terms of a recommended offer for the acquisition
of the remaining 57.8% of Reynolds American not already owned by the Group. Reynolds American
shareholders will receive for each Reynolds American share $29.44 in cash and 0.5260 BAT ordinary
shares which shall be represented by BAT American Depositary Receipts (ADRs) listed on the New York
Stock Exchange.

We expect the transaction to close during the third quarter of 2017, subject to: obtaining affirmative
votes from BAT and Reynolds American shareholders; obtaining anti-trust approvals in the US and Japan;
registration of BAT shares with the SEC; approval of the BAT shares for listing on the LSE and the BAT
ADRs on the NYSE; and other customary conditions. The completion of the transaction is not subject to
any financing condition.

CHANGE TO QUARTERLY REPORTING
As previously announced, with effect from 1 January 2017, the Group ceased publication of an IMS for Q1
and Q3 and will instead release two short trading updates shortly before the closed periods for the
Interim and the Full Year Preliminary Announcements.




                                                  Page 10

UPDATE ON INVESTIGATION INTO MISCONDUCT ALLEGATIONS
As reported last year, towards the end of 2015 a number of allegations were made regarding historic
misconduct in Africa. We are investigating, through external legal advisors, allegations of misconduct and
are liaising with the Serious Fraud Office and other relevant authorities. The Board also created a sub-
Committee of the Board to specifically monitor matters, having regard to the need to ensure active
oversight of, and support for the investigation between Board meetings. In 2016, the Group began a project,
which will continue into 2017, to review and further strengthen all aspects of the Group’s global compliance
procedures. This important project will create a centre of excellence to champion and guide the Group’s
Statement of Business Conduct programme.

RISKS AND UNCERTAINTIES
During the year, the Directors have carried out a robust assessment of the principal risks and
uncertainties facing the Group, including those that would threaten its business model, future
performance, solvency, liquidity and viability.

The principal risks facing the Group have remained broadly unchanged over the past year. The Board has
considered the risks associated with the inability to recruit required talent and the loss of existing talent,
the impact and likelihood of which has decreased and as such this is no longer a principal risk.
Full details of all principal risks will be included in the Annual Report for the year ended 31 December
2016.

GOING CONCERN
A 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 this announcement. Further information will be provided in the
Strategic Report and in the notes to the financial statements, all of which will be included in the 2016
Annual Report.

The Group has, at the date of this announcement, sufficient existing financing available for its estimated
requirements for at least the next 12 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
current financial conditions and the general outlook in the global economy.
After reviewing the Group’s annual budget, plans and financing arrangements for the next three years,
the Directors consider that the Group has adequate resources to continue operating and that it is
therefore appropriate to continue to adopt the going concern basis in preparing the Annual Report.

BOARD CHANGES
Dr Marion Helmes was appointed as a Non-Executive Director of the Company with effect from 1 August
2016 and Christine Morin-Postel retired as a Non-Executive Director on 6 December 2016.

Dr Gerry Murphy will be standing down as a Non-Executive Director of the Company at the conclusion of
the Annual General Meeting on 26 April 2017, having served eight years on the Board.

As previously announced on 26 October 2016, Paul McCrory has been appointed as Company Secretary
Designate with effect from 1 February 2017 and as Company Secretary with effect from 1 May 2017. He
will take over from Nicola Snook who is retiring from the Company and from the role as Company
Secretary, having held that position for ten years. As part of the handover process, Nicky will remain with
the Group until July 2017.




                                                   Page 11
DIRECTORS’ RESPONSIBILITY STATEMENT
The responsibility statement below has been prepared in connection with the company’s full Annual
Report for the year ended 31 December 2016. Certain parts thereof are not included within this
announcement.

We confirm to the best of our knowledge:

-    the financial statements, prepared in accordance with FRS 101 and IFRS as adopted by the European
     Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the
     Company and the Group respectively; and
-    the Directors’ Report and the Strategic Report include a fair review of the development and
     performance of the business and the position of the Group and the Company, together with a
     description of the principal risks and uncertainties that they face.

This responsibility statement has been approved and is signed by order of the Board by:




Richard Burrows                                  Ben Stevens
Chairman                                         Finance Director

22 February 2017

ENQUIRIES:

INVESTOR RELATIONS:                               PRESS OFFICE:
Mike Nightingale           020 7845 1180          Anna Vickerstaff                    020 7845 2888
Rachael Brierley           020 7845 1519
Sabina Marshman            020 7845 1781

Webcast and Conference Call
A live webcast of the results is available via www.bat.com/ir.
If you wish to listen to the presentation via a conference call facility please use the dial in details below:
Dial-in number: +44 20 3139 4830
Passcode: 67103419#

Conference Call Playback Facility
A replay of the conference call will also be available from 1pm for 48 hours.
Dial-in number: +44 20 3426 2807
Passcode: 681908#




                                                   Page 12
GROUP INCOME STATEMENT
For the year ended 31 December
                                                                                      2016          2015
                                                                                       £m            £m
Gross turnover (including duty, excise and other taxes of £32,136 million (2015:
£27,896 million))                                                                  46,887         41,000

Revenue                                                                            14,751         13,104
Raw materials and consumables used                                                  (3,777)       (3,217)
Changes in inventories of finished goods and work in progress                           44           184
Employee benefit costs                                                              (2,274)       (2,039)
Depreciation, amortisation and impairment costs                                       (607)         (428)
Other operating income                                                                 176           225
Other operating expenses                                                            (3,658)       (3,272)
Profit from operations                                                               4,655         4,557
Analysed as:
– adjusted profit from operations                                                    5,480         4,992
– restructuring and integration costs                                                 (603)         (367)
– amortisation and impairment of trademarks and similar intangibles                   (149)          (65)
– Fox River                                                                            (20)             -
– South Korea sales tax                                                                (53)             -
– Flintkote                                                                               -           (3)
                                                                                     4,655         4,557
Net finance (costs)/income                                                            (637)           62
Finance income                                                                          44           646
Finance costs                                                                         (681)         (584)
Share of post-tax results of associates and joint ventures                           2,227         1,236
Analysed as:
– adjusted share of post-tax results of associates and joint ventures                1,327           943
– issue of shares and change in shareholding                                            11            22
– gain on disposal of assets                                                           941           371
– other (see page 23)                                                                  (52)         (100)
                                                                                     2,227         1,236
Profit before taxation                                                               6,245         5,855
Taxation on ordinary activities                                                     (1,406)       (1,333)
Profit for the year                                                                  4,839         4,522
Attributable to:
Owners of the parent                                                                 4,648         4,290
Non-controlling interests                                                              191           232
                                                                                     4,839         4,522
Earnings per share
Basic                                                                               250.2p        230.9p
Diluted                                                                             249.2p        230.3p
Adjusted diluted                                                                    247.5p        208.4p
All of the activities during both years are in respect of continuing operations.

The accompanying notes on pages 8 to 10 and 19 to 34 form an integral part of this condensed consolidated
financial information.



                                                  Page 13
GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December
                                                                                      2016          2015
                                                                                       £m            £m

Profit for the year (page 13)                                                       4,839          4,522
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:                      1,760           (849)
Differences on exchange
– subsidiaries                                                                      1,270         (1,006)
– associates                                                                        1,425            336
Cash flow hedges
– net fair value gains/(losses)                                                        29            (99)
– reclassified and reported in profit for the year                                     38             15
– reclassified and reported in net assets                                             (12)           (45)
Available-for-sale investments
– net fair value gains in respect of subsidiaries                                        -            14
– reclassified and reported in profit for the year                                       -           (10)
– net fair value (losses)/gains in respect of associates net of tax                   (10)             1
Net investment hedges
– net fair value losses                                                              (837)          (118)
– differences on exchange on borrowings                                              (124)            42
Tax on items that may be reclassified                                                 (19)            21
Items that will not be reclassified subsequently to profit or loss:                  (173)           263
Retirement benefit schemes
– net actuarial (losses)/gains in respect of subsidiaries                            (228)           283
– surplus recognition and minimum funding obligations in respect of subsidiaries       (1)              -
– actuarial gains in respect of associates net of tax                                  20              3
Tax on items that will not be reclassified                                             36            (23)
Total other comprehensive income for the year, net of tax                           1,587           (586)

Total comprehensive income for the year, net of tax                                 6,426          3,936

Attributable to:
Owners of the parent                                                                6,180          3,757
Non-controlling interests                                                             246            179
                                                                                    6,426          3,936
The accompanying notes on pages 8 to 10 and 19 to 34 form an integral part of this condensed consolidated
financial information.




                                                   Page 14
GROUP STATEMENT OF CHANGES IN EQUITY
At 31 December
2016                                       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
                                                £m            £m         £m          £m             £m            £m           £m
Balance at 1 January 2016                     507         3,927     (1,294)      1,754          4,894           138          5,032
Total comprehensive income for the year
(page 14)                                       -             -      1,707       4,473         6, 180           246          6,426
Profit for the year                             -             -          -       4,648          4,648           191          4,839
Other comprehensive income for the year         -             -      1,707        (175)         1,532            55          1,587
Employee share options
– value of employee services                    -             -          -          71             71             -             71
– proceeds from shares issued                   -             4          -            -              4            -               4
Dividends and other appropriations
– ordinary shares                               -             -          -      (2,910)        (2,910)            -         (2,910)
– to non-controlling interests                  -             -          -           -              -          (156)          (156)
Purchase of own shares
– held in employee share ownership
  trusts                                        -             -          -         (64)           (64)            -            (64)
Non-controlling interests – acquisitions        -             -          -           4              4            (4)             -
Other movements                                 -             -          -            3              3            -               3
Balance at 31 December 2016                  507         3,931         413       3,331          8,182           224          8,406


2015                                       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
                                                £m            £m          £m         £m             £m            £m            £m
Balance at 1 January 2015                     507         3,923       (498)      1,578          5,510           304          5,814
Total comprehensive income for the year
(page 14)                                       -             -       (796)      4,553          3,757           179          3,936
Profit for the year                             -             -           -      4,290          4,290           232          4,522
Other comprehensive income for the year         -             -       (796)        263           (533)          (53)          (586)
Employee share options
– value of employee services                    -             -           -         50             50              -            50
– proceeds from shares issued                   -             4           -           -              4             -             4
Dividends and other appropriations
– ordinary shares                               -             -           -      (2,770)        (2,770)            -        (2,770)
– to non-controlling interests                  -             -           -           -              -         (238)          (238)
Purchase of own shares
– held in employee share ownership
  trusts                                        -             -           -         (46)           (46)            -           (46)

Non-controlling interests – acquisitions        -             -           -      (1,642)        (1,642)        (107)        (1,749)
Other movements                                 -             -           -         31             31              -             31
Balance at 31 December 2015                   507         3,927     (1,294)      1,754          4,894           138          5,032


The accompanying notes on pages 8 to 10 and 19 to 34 form an integral part of this condensed
consolidated financial information.




                                                           Page 15
GROUP BALANCE SHEET
At 31 December
                                                                                  2016           2015
                                                                                   £m             £m
Assets
Non-current assets
Intangible assets                                                               12,117         10,436
Property, plant and equipment                                                    3,661          3,021
Investments in associates and joint ventures                                     9,507          6,938
Retirement benefit assets                                                          455            408
Deferred tax assets                                                                436            326
Trade and other receivables                                                        599            248
Available-for-sale investments                                                      43             37
Derivative financial instruments                                                   596            287
Total non-current assets                                                        27,414         21,701

Current assets
Inventories                                                                      5,793          4,247
Income tax receivable                                                               69             74
Trade and other receivables                                                      3,884          3,266
Available-for-sale investments                                                      15             35
Derivative financial instruments                                                   375            209
Cash and cash equivalents                                                        2,204          1,963
                                                                                12,340          9,794
Assets classified as held-for-sale                                                  19             20
Total current assets                                                            12,359          9,814

Total assets                                                                    39,773         31,515

The accompanying notes on pages 8 to 10 and 19 to 34 form an integral part of this condensed
consolidated financial information.




                                               Page 16
GROUP BALANCE SHEET - continued
At 31 December
                                                                                  2016           2015
                                                                                   £m             £m
Equity
Capital and reserves
Share capital                                                                      507            507
Share premium, capital redemption and merger reserves                            3,931          3,927
Other reserves                                                                     413         (1,294)
Retained earnings                                                                3,331          1,754
Owners of the parent                                                             8,182          4,894
after deducting
– cost of treasury shares                                                       (5,053)        (5,049)
Non-controlling interests                                                          224            138
Total equity                                                                     8,406          5,032

Liabilities
Non-current liabilities
Borrowings                                                                      16,488         14,806
Retirement benefit liabilities                                                     826            653
Deferred tax liabilities                                                           652            563
Other provisions for liabilities and charges                                       386            296
Trade and other payables                                                         1,040          1,029
Derivative financial instruments                                                   119            130
Total non-current liabilities                                                   19,511         17,477

Current liabilities
Borrowings                                                                       3,007          2,195
Income tax payable                                                                 558            414
Other provisions for liabilities and charges                                       407            273
Trade and other payables                                                         7,335          5,937
Derivative financial instruments                                                   549            187
Total current liabilities                                                       11,856          9,006

Total equity and liabilities                                                    39,773         31,515

The accompanying notes on pages 8 to 10 and 19 to 34 form an integral part of this condensed
consolidated financial information.




                                               Page 17
GROUP CASH FLOW STATEMENT
For the year ended 31 December
                                                                                          2016            2015
                                                                                           £m              £m
Cash flows from operating activities
Cash generated from operations (page 26)                                                 4,893           5,400
Dividends received from associates                                                         962             593
Tax paid                                                                                (1,245)         (1,273)
Net cash generated from operating activities                                             4,610           4,720

Cash flows from investing activities
Interest received                                                                           62              64
Purchases of property, plant and equipment                                                (586)           (483)
Proceeds on disposal of property, plant and equipment                                       93             108
Purchases of intangibles                                                                   (88)           (118)
Purchases of investments                                                                  (109)            (99)
Proceeds on disposals of investments                                                        22              45
Investment in associates and acquisitions of subsidiaries                                  (57)         (3,508)
Proceeds from associate's share buy-back                                                    23                -
Net cash used in investing activities                                                     (640)         (3,991)

Cash flows from financing activities
Interest paid                                                                             (641)           (596)
Proceeds from increases in and new borrowings                                            3,476           6,931
(Outflow)/inflow relating to derivative financial instruments                              (26)            201
Purchases of own shares held in employee share ownership trusts                            (64)            (46)
Reductions in and repayments of borrowings                                              (3,840)         (2,028)
Dividends paid to owners of the parent                                                  (2,910)         (2,770)
Purchases of non-controlling interests                                                     (70)         (1,677)
Dividends paid to non-controlling interests                                               (147)           (235)
Other                                                                                       (7)              1
Net cash used in financing activities                                                   (4,229)           (219)
Net cash flows (used in)/generated from operating, investing and financing
activities                                                                                (259)            510
Differences on exchange                                                                    180            (272)
(Decrease)/Increase in net cash and cash equivalents in the year                           (79)            238
Net cash and cash equivalents at 1 January                                               1,730           1,492
Net cash and cash equivalents at 31 December                                             1,651           1,730

The accompanying notes on pages 8 to 10 and 19 to 34 form an integral part of this condensed consolidated
financial information.
The net cash outflows relating to the Quebec Class Action and adjusting items on pages 21 and 23, included
in the above, are £711 million, including £nil million related to interest (2015: £577 million with £97 million
related to interest). The receipt in relation to FII GLO in 2015 from HMRC was £963 million, and is included in
‘Cash generated from operations’ as shown on page 26.




                                                 Page 18
ACCOUNTING POLICIES AND BASIS OF PREPARATION
The condensed consolidated financial information has been extracted from the Annual Report, including
the audited financial statements for the year ended 31 December 2016. This condensed consolidated
financial information does not constitute statutory accounts within the meaning of Section 434 of the
Companies Act 2006.

The Group has prepared its annual consolidated financial statements in accordance with International
Financial Reporting Standards (IFRS) as adopted by the European Union.

These financial statements have 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 2015.

The preparation of these condensed consolidated financial statements 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 these condensed consolidated financial
statements. 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 statements. In the future, actual experience may deviate
from these estimates and assumptions, which could affect these condensed consolidated financial
statements as the original estimates and assumptions are modified, as appropriate, in the year in which
the circumstances change.

NON-GAAP MEASURES
In the reporting of financial information, the Group uses certain measures that are not required under
IFRS, 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 that 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 IFRS, 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 accounts 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. The Group also includes organic measures of volume, revenue and
adjusted profit from operations to ensure a full understanding of the underlying operating performance
of the Group, before the impact of acquisitions. All adjustments to profit from operations and diluted
earnings per share are explained in this announcement. See pages 21 to 23 and 28.

The Management Board, as the chief operating decision maker, reviews current and prior year segmental
adjusted profit from operations of subsidiaries and joint operations, and adjusted post tax results of
associates and joint ventures, at constant rates of exchange. This allows comparison of the Group’s
results, had they been translated at the previous year’s average rates of exchange. The Group does not
adjust for normal transactional gains and losses in operations that are generated by exchange
movements. However, for clarity the Group also gives a figure for growth in adjusted operating profit
excluding both transactional and translational foreign exchange movements. As an additional measure to
indicate the impact of the exchange rate movements on the Group results, the principal measure of
adjusted diluted earnings per share is also shown at constant translation rates of exchange. See page 20.

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 on page
25. 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 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. These are shown on page 28.
                                                 Page 19

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

                                                                   2016                                                               2015
                                                                                                                Adj
                                            Adj                                  Adjusted      Impact      Organic2                        Adj
                        Reported         Items      Adjusted       Exchange        at CC1      of Acqs       at CC1      Reported       Items    Adjusted
                             £m             £m           £m             £m            £m           £m           £m            £m           £m         £m
Revenue
Asia-Pacific                4,266            -          4,266           (496)       3,770            -        3,770          3,773           -         3,773
Americas                    2,868            -          2,868             146       3,014            -        3,014          2,720           -         2,720
Western Europe              3,867            -          3,867           (396)       3,471         (154)       3,317          3,203           -         3,203
EEMEA                       3,750            -          3,750               3       3,753          (53)       3,700          3,408           -         3,408
Total Region              14,751             -         14,751           (743)      14,008         (207)     13,801         13,104            -        13,104

Profit from Operations
Asia-Pacific           1,432               198          1,630           (142)       1,488            -        1,488          1,361       108           1,469
Americas                    1,017          155          1,172             30        1,202            -        1,202          1,082         87          1,169
Western Europe              1,044          345          1,389           (153)       1,236          (11)       1,225            990       156           1,146
EEMEA                       1,182          107          1,289             (18)      1,271          (12)       1,259          1,127         81          1,208
Total Region                4,675          805          5,480           (283)       5,197          (23)       5,174          4,560       432           4,992
Fox River /
                              (20)          20               -              -            -                                      (3)          3             -
Flintkote 3
Profit from
                            4,655          825          5,480           (283)       5,197                                    4,557       435           4,992
operations
Net finance
                             (637)         108           (529)            35         (494)                                      62      (489)          (427)
(costs)/income
Associates and
                            2,227         (900)         1,327           (137)       1,190                                    1,236      (293)           943
joint ventures
Profit before tax           6,245           33          6,278           (385)       5,893                                    5,855      (347)          5,508
Taxation                   (1,406)         (67)        (1,473)            47       (1,426)                                  (1,333)       (58)        (1,391)
Non-controlling
                             (191)           1           (190)            12         (178)                                   (232)         (3)         (235)
interest
Profit
attributable to             4,648          (33)         4,615           (326)       4,289                                    4,290      (408)          3,882
shareholders
Diluted number of
                            1,865                       1,865                       1,865                                    1,863                     1,863
shares (m)
Diluted earnings
                            249.2                       247.5                       230.0                                    230.3                     208.4
per share (pence)

       Notes:
               (1)   CC: profit translated at constant rates of exchange. No adjustment is made for the transactional impact of currency movements
                     on cost of sales, as described on page 19
               (2)   Organic performance excludes the contribution from TDR, Sudan, Chic and Ten Motives
               (3)   The Fox River and Flintkote charges have not been allocated to any segment as they neither relate to current operations nor to
                     the tobacco business. They are not included in the segmental performance as reported to the chief operating decision maker.




                                                                          Page 20
ADJUSTING ITEMS INCLUDED IN PROFIT FROM OPERATIONS
Adjusting items are significant items in the profit from operations that individually or, if of a similar type,
in aggregate, are relevant to an understanding of the Group’s underlying financial performance, as
described on page 19. 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 costs represent additional expenses incurred that are not
related to the normal business and day-to-day activities. The new operating model is underpinned by a
global single instance of SAP with full deployment occurring during 2016 with benefits already being
realised within the business and future savings expected in the years to come. The 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:
                                                                                      2016              2015
                                                                                       £m                £m

 Employee benefit costs                                                                240                 159
 Depreciation, amortisation and impairment costs                                        64                  26
 Other operating expenses                                                              325                 228
 Other operating income                                                                (26)                (46)
 Total                                                                                 603                 367

Restructuring and integration costs in 2016 principally relate to the restructuring initiatives directly
related to implementation of a new operating model and the cost of initiatives in respect of permanent
headcount reductions and permanent employee benefit reductions in the Group. The costs also cover
factory closure and downsizing activities in Germany, Malaysia and Brazil, certain exit costs and asset
write-offs related to the change in approach to the commercialisation of Voke, uncertainties surrounding
regulatory changes, and restructurings in Japan and Australia.

Restructuring and integration costs in 2015 principally relate to the restructuring initiatives directly
related to implementation of a new operating model and the cost of initiatives in respect of permanent
headcount reductions and permanent employee benefit reductions in the Group. The costs also cover the
factory closure and downsizing activities in Australia, certain costs related to the acquisitions undertaken
(including TDR in Croatia) and restructurings in Indonesia, Canada, Switzerland and Germany.

Other operating income in 2016 includes gains from the sale of land and buildings in Malaysia. In 2015,
other operating income includes gains from the sale of land and buildings in Australia.

(b) Amortisation and impairment of trademarks and similar intangibles
Acquisitions including Ten Motives, CHIC, TDR, Bentoel, Tekel and ST resulted in the capitalisation of
trademarks and similar intangibles that are amortised over their expected useful lives, which do not
exceed 20 years. The amortisation and impairment charge of £149 million (2015: £65 million) is included
in depreciation, amortisation and impairment costs in the profit from operations.




                                                   Page 21
Adjusting items included in profit from operations cont…
(c) Fox River
In 2011, a Group subsidiary provided £274 million in respect of claims in relation to environmental clean-
up costs of the Fox River. On 30 September 2014, a Group subsidiary, NCR, Appvion and Windward
Prospects entered into a Funding Agreement with regard to the costs for the clean-up of Fox River. Based
on this Funding Agreement, £17 million has been paid in 2016, which includes legal costs of £11 million
(2015: £17 million, including legal costs of £8 million).

In 2016, NCR and Appvion entered into a settlement agreement with certain other defendants (the
“Settling 5”) to release claims amongst those parties. In January 2017, NCR and Appvion also entered into
a consent decree with the US Government to resolve how the remaining clean-up will be funded and to
resolve further outstanding claims between them, although this consent decree requires approval from
the District Court of Wisconsin. The agreements reduce the Group’s exposure under the Funding
Agreement. However, this is offset by the devaluation of sterling against the US Dollar, leading to a net
charge of £20 million (2015: nil). Considering these developments, the provision is £163 million at 31
December 2016 (up £3 million against prior year).

In July 2016, the High Court ruled in a Group subsidiary’s favour that a dividend of €135 million paid by
Windward to Sequana in May 2009 was a transaction made with the intention of putting assets beyond
the reach of the Group subsidiary and of negatively impacting its interests. On 10 February 2017, further
to a hearing in January 2017 to determine the relief due, the Court found in the Group subsidiary’s favour,
ordering that Sequana must pay it an amount up to the full value of the dividend plus interest which
equates to around US$185 million, related to past and future clean-up costs. The Court granted all parties
leave to appeal, with an appeal hearing expected in late 2017 at the earliest. Due to the uncertain
outcome of the case no asset has been recognised in relation to this ruling.

(d) South Korea sales tax
In 2016, the Board of Audit and Inspection of Korea (“BAI”) concluded its tax assessment in relation to the
2014 year-end tobacco inventory and imposed additional sales tax (excise and VAT) and penalties. This
resulted in the recognition of a £53 million charge by a Group subsidiary. Management deems the tax and
penalties to be unfounded and has appealed to the tax tribunal against the assessment. Management
believes that this appeal will be successful and based upon the Group’s expectation that the penalties will
be reversed in future, BAT has recognised the tax and penalties charge as adjusting for 2016.

ADJUSTING ITEMS INCLUDED IN NET FINANCE (COSTS)/INCOME
Adjusting items are significant items in net financing costs which individually or, if of a similar type, in
aggregate, are relevant to an understanding of the Group’s underlying financial performance and are
discussed on pages 8 and 9.

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 28.

In 2016, the Group’s interest in ITC Ltd. (ITC) decreased from 30.06% to 29.89% (2015: 30.26% to 30.06%)
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 £11 million (2015: gain of £22
million), which is treated as a deemed partial disposal and included in the income statement.

In 2016, Reynolds American recognised a gain in relation to the sale of the international rights to Natural
American Spirit to the Japan Tobacco Group of companies (JT) of US$4,861 million. The Group’s share of
this net gain amounted to £941 million (net of tax). In 2015, Reynolds American recognised a gain on the
related divestiture of assets, following the Lorillard, Inc. (“Lorillard”) acquisition, of US$3,288 million. The
Group’s share of this net gain amounted to £371 million (net of tax).




                                                    Page 22
Adjusting items included in share of post-tax results of associates and joint ventures cont…

Reynolds American has also recognised amounts that have been combined in the table of adjusting items
in the Group income statement and are included within “other”. In 2016, this includes income relating to
the early termination of the Manufacturing Agreement between BATUS Japan Inc. and R.J. Reynolds
Tobacco Company of US$90 million, the Group’s share of which is £18 million (net of tax), restructuring
charges of US$36 million, the Group’s share of which is £7 million (net of tax) (2015: US$223 million, the
Group’s share of which is £39 million (net of tax)) and costs in respect of a number of Engle progeny
lawsuits and other tobacco litigation charges that amounted to US$86 million, the Group’s share of which
is £17 million (net of tax) (2015: US$152 million, the Group’s share of which is £26 million (net of tax)).

Additionally, there was income of US$6 million (2015: US$108 million) related to the Non-Participating
Manufacturer (NPM) Adjustment claims of the states no longer challenging the findings of non-diligence
entered against them by an Arbitration Panel, the Group’s share of which is £2 million (2015: £18 million)
(net of tax). Also included in 2016 are transaction costs of US$5 million (2015: US$54 million) and
financing costs of US$243 million (2015: US$60 million), connected with the acquisition of Lorillard, the
Group's share (net of tax) of which is £1 million and £47 million (2015: £12 million and £10 million),
respectively. The remaining costs in 2015 of US$99 million are primarily in respect of asset impairment
and exit charges, the Group's share of which is £25 million (net of tax).

ADJUSTING ITEMS INCLUDED IN TAXATION
IFRS requires entities to provide deferred taxation on the undistributed earnings of associates and joint-
ventures. As explained on page 9, the Group’s share of gains on divestiture of intangibles and other assets
by Reynolds American in 2016 and 2015 are treated as adjusting items and therefore the additional tax
charge of £61 million (2015: £22 million) has also been treated as adjusting.
The adjusting tax item also includes £128 million (2015: £80 million) in respect of the tax on adjusting
items, as described above and on pages 21 and 22.




                                                  Page 23
CASH FLOW AND NET DEBT MOVEMENTS
(a) Alternative cash flow (at current rates of exchange unless specifically noted)
The IFRS cash flow statement on page 18 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.
                                                                                    2016              2015
                                                                                      £m               £m

 Adjusted profit from operations (page 13)                                         5,480            4,992
 Depreciation, amortisation and impairment                                           393              338
 Other non-cash items in operating profit                                             62               (1)
 Profit from operations before depreciation, amortisation and impairment           5,935            5,329
 Increase in working capital                                                        (254)            (263)
 Net capital expenditure                                                            (559)            (483)
 Gross capital expenditure                                                          (652)            (591)
 Sale of fixed assets                                                                 93              108
 Operating cash flow                                                               5,122            4,583
 Pension funds’ shortfall funding                                                    (78)            (148)
 Net interest paid                                                                  (537)            (522)
 Tax paid                                                                         (1,245)          (1,273)
 Franked Investment Income Group Litigation Order (FII GLO)                             -             963
 Dividends paid to non-controlling interests                                        (147)            (235)
 Cash generated from operations                                                    3,115            3,368
 Restructuring costs                                                                (452)            (405)
 Non-tobacco litigation: Flintkote and Fox River (settlement)                        (17)             (20)
 Tobacco litigation: Quebec (deposit)                                               (242)             (55)
 Dividends and other appropriations from associates                                  985              593
 Free cash flow                                                                    3,389            3,481
 Dividends paid to shareholders                                                   (2,910)          (2,770)
 Net investment activities                                                          (166)          (5,192)
 Net flow from net investment hedges, share schemes and other                       (476)             (52)
 Net cash outflow                                                                   (163)          (4,533)

 Note: Cash generated from operations at constant rates of exchange                2,918            3,368

 External movements on net debt
 Exchange rate effects*                                                          (1,684)             (112)
 Change in accrued interest and other                                              (126)               16
 Change in net debt                                                              (1,973)           (4,629)
 Opening net debt                                                               (14,794)          (10,165)
 Closing net debt                                                               (16,767)          (14,794)
* Including movements in respect of debt-related derivatives.

In the alternative cash flow presented above, operating cash flow increased by £539 million, or 11.8%, to
£5,122 million, reflecting the excellent growth in underlying operating performance of the Group which
was partly offset by higher capital expenditure, including that for Next Generation Products.
Cash generated from operations fell by £253 million, or by £450 million at constant rates of exchange, as
2015 benefited from the FII GLO receipt of £963 million (see page 34). Excluding this receipt, cash
generated from operations at constant exchange rates was up £513 million or 21.3% higher.
Free cash flow was lower by £92 million or 2.6%, at £3,389 million but grew, excluding FII GLO, by £871
million as the improved operating performance, higher distributions from associates (including the
proceeds from Reynolds American‘s share buyback programme) and lower payments to minorities
following the buy-out of Souza Cruz were partly than offset by the increase in Quebec Class Action-related
cash deposits.


                                                        Page 24
Cash flow and net debt movements cont…

The conversion of adjusted profit from operations to operating cash flow remained strong at 93% (2015:
92%). The ratio of free cash flow per share to adjusted diluted earnings per share fell to 73% from 90% in
2015 as the prior year benefited from the receipt in relation to FII GLO.
Below free cash flow, the principal cash outflows for 2016 comprise the payment of the prior year final
dividend and the 2016 interim dividend, £140 million higher than prior year at £2,910 million, as well as
net investment activities which included the acquisition of Ten Motives. During 2015, the cash outflow
from net investing activities was £5,192 million relating to the investment in Reynolds American, the buy-
out of the minorities in Souza Cruz and the acquisition of TDR in Croatia.
The other net flows in 2016 principally relate to 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 £163 million (2015: £4,533 million outflow). After taking
account of other changes, especially exchange rate movements, total net debt was £1,973 million higher
at £16,767 million at 31 December 2016 (2015: £14,794 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. The maturity profile of net debt is as follows:

                                                                                    2016             2015
                                                                                     £m               £m
 Net debt due within one year:
 Borrowings                                                                        3,007            2,195
 Related derivatives                                                                (498)             (46)
 Cash and cash equivalents                                                        (2,204)          (1,963)
 Current available-for-sale investments                                              (15)             (35)
                                                                                     290              151
 Net debt due beyond one year:
 Borrowings                                                                       16,488           14,806
 Related derivatives                                                                 (11)            (163)
                                                                                  16,477           14,643

 Total net debt                                                                   16,767           14,794

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




                                                 Page 25
Cash flow and net debt movements cont…

(c) IFRS cash generated from operations
The cash generated from operating activities in the IFRS cash flows on page 18 includes the following items:
                                                                                     2016             2015
                                                                                      £m                £m

 Profit from operations                                                            4,655            4,557
 Adjustments for:
 Depreciation, amortisation and impairment costs                                     607              428
 Increase in inventories                                                            (638)            (520)
 Decrease/(increase) in trade and other receivables                                   87             (508)
 Increase in amounts receivable in respect of the Quebec Class Action               (242)             (55)
 Increase in trade and other payables                                                428              732
 FII GLO receipts (see page 34)                                                         -             963
 Decrease in net retirement benefit liabilities                                     (145)            (191)
 Increase in provisions for liabilities and charges                                  141               48
 Other non-cash items                                                                   -             (54)
 Cash generated from operations                                                    4,893            5,400

(d) IFRS net cash and cash equivalents
The net cash and cash equivalents in the IFRS Group cash flow statement on page 18 comprise:

                                                                                    2016             2015
                                                                                     £m               £m

 Cash and cash equivalents per balance sheet                                       2,204            1,963
 Overdrafts and accrued interest                                                    (553)            (233)
 Net cash and cash equivalents                                                     1,651            1,730

(e) Liquidity
The Treasury function is responsible for raising finance for the Group, managing the Group’s cash resources
and financial risks arising from underlying operations. All these activities are carried out under defined
policies, procedures and limits.
The Group targets an average centrally managed debt maturity of at least five years with no more than 20%
of centrally managed debt maturing in a single rolling year. As at 31 December 2016, the average centrally
managed debt maturity was 8.2 years (2015: 7.9 years) and the highest proportion of centrally managed
debt maturing in a single rolling 12-month period was 18.1% (2015: 15.0%).
It is Group policy that short-term sources of funds (including drawings under both the US$3 billion US
commercial paper programme and the £1 billion-euro commercial paper programme) are backed by
undrawn committed lines of credit and cash. At 31 December 2016, £254 million of commercial paper was
outstanding (2015: £505 million).
In March 2016, a one-year extension option was exercised for the £3 billion main bank facility, extending
the final maturity to May 2021. The facility was undrawn as at 31 December 2016.
In March 2016, a US$300 million bond was repaid. In July 2016, the Group issued a £500 million bond
maturing in 2021, with two bonds issued in September 2016 (a US$650 million bond maturing in 2019 and
a £650 million bond maturing in 2052). The Group repaid on maturity a CHF 350 million bond in August
2016 and a £325 million bond in September 2016.




                                                 Page 26
Cash flow and net debt movements cont…

On 19 July 2016, the Group exercised the make-whole provision for its US$700 million bond originally issued
in 2008 pursuant to rule 144A. The bond was redeemed on 18 August 2016, prior to its original maturity
date of 15 November 2018. This was undertaken to manage the Group’s debt maturity profile, decrease
future refinancing risk and reduce the on-going interest expense.
In January 2017, following the announcement that the Group had agreed the terms in relation to the
proposed acquisition of the shares not already owned in Reynolds American, a US$25 billion acquisition
facility was entered into with a syndicate of banks, split in four tranches as follows: two bridge facilities of
US$15 billion and US$5 billion maturing in 2018 and 2019 respectively (each with two six months extensions
at BAT’s option), US$2.5 billion term loan maturing in 2020 and US$2.5 billion term loan maturing in 2022.
The Group intends to refinance the bridge facilities through debt issuance at the capital market at or around
the closing date.
In addition, the Group increased its liquidity position with a new two-tranche £5.7 billion forward starting
revolving credit facility, which consists of a 364-day revolving credit facility of £2.84 billion (with a one year
extension and one year term out option), and a £2.84 billion revolving credit facility maturing in 2021. This
will effectively replace the Group’s existing £3.0 billion revolving credit facility, which will be cancelled upon
closing of the acquisition when the new revolving credit facility will become effective.

EARNINGS PER SHARE
Adjusted diluted earnings per share were 18.8% ahead of prior year at 247.5p (2015: 208.4p), as the
growth in the Group’s operating profit, higher share of post-tax results of associates and joint ventures,
lower tax charge and a reduction in non-controlling interest. Excluding the impact of the relative
weakness of sterling on the reported results, adjusted diluted earnings per share increased by 10.4% to
230.0p (2015: 208.4p), at constant rates of exchange. Basic earnings per share were 8.8% higher at 251.2p
(2015: 230.9p), benefiting from the growth in the Group’s operating performance and the foreign
exchange tailwind on translation of the Group results. The Group incurred higher restructuring charges
and an increase in net finance costs, but these were largely offset by the increase in the Group’s share of
one-off gains from disposals by Reynolds American.

                                                                                        2016              2015
                                                                                       Pence             pence
 Earnings per share
 - basic                                                                                250.2             230.9
 - diluted                                                                              249.2             230.3
 Adjusted earnings per share
 - basic                                                                                248.4             208.9
 - diluted                                                                              247.5             208.4
 Headline earnings per share
 - basic                                                                                205.6             210.4
 - diluted                                                                              204.8             209.8

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 2/2015
‘Headline Earnings’, as issued by the South African Institute of Chartered Accountants.




                                                    Page 27
Earnings per share cont…

Adjusted diluted earnings per share and adjusted diluted earnings per share at constant rates of
exchange are calculated by taking the following adjustments into account (see pages 21 to 23):

                                                                                2016              2015
                                                                               pence             pence

 Unadjusted diluted earnings per share                                         249.2             230.3
 Effect of restructuring and integration costs                                  27.5              15.7
 Effect of amortisation of trademarks and similar intangibles                    6.3               3.0
 Effect of South Korea sales tax challenge                                       2.6                  -
 Effect of Fox River                                                             1.1                  -
 Effect of Flintkote                                                                -              0.2
 Effect of associates’ adjusting items                                         (48.3)            (15.7)
 Effect of adjusting items in net finance costs                                  5.8             (26.3)
 Effect of adjusting items in respect of deferred taxation                       3.3               1.2
 Adjusted diluted earnings per share                                           247.5             208.4
 Effect of exchange rate movements                                             (17.5)                 -
 Adjusted diluted earnings per share (at constant rates)                       230.0             208.4

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

                                                                                2016            2015
                                                                               pence           pence

 Unadjusted diluted earnings per share                                         249.2            230.3
 Effect of impairment of intangibles and property, plant and equipment
 and held-for-sale assets                                                         4.9             1.1
 Effect of gains on disposal of property, plant and equipment and held-          (1.6)           (2.2)
 for-sale assets
 Effect of associates’ gain on disposal of asset held-for-sale                  (47.1)          (18.7)
 Effect of issue of shares and change in shareholding in associate               (0.6)           (1.2)
 Other                                                                               -            0.5
 Diluted headline earnings per share                                            204.8           209.8




                                                Page 28
Earnings per share cont…

In the earnings per share disclosed above, the calculation is based upon the following level of earnings and
number of shares:

                                                        2016                              2015
                                             Earnings            Shares        Earnings             Shares
                                                  £m                 m              £m                  m
 For earnings per share
 - basic                                        4,648             1,858           4,290             1,858
 - diluted                                      4,648             1,865           4,290             1,863
 For adjusted earnings per share
 - basic                                        4,615             1,858           3,882             1,858
 - diluted                                      4,615             1,865           3,882             1,863
 - diluted, at constant rates                   4,289             1,865
 For headline earnings per share
 - basic                                        3,819             1,858           3,909             1,858
 - diluted                                      3,819             1,865           3,909             1,863

DIVIDENDS

Recommendation
The Board recommends a final dividend of 118.1p per ordinary share of 25p for the year ended
31 December 2016. If approved by shareholders at the Annual General Meeting to be held on 26 April
2017, the final dividend will be payable on 4 May 2017 to shareholders registered on either the UK main
register or the South Africa branch register on 17 March 2017 (the record date).

General Dividend Information
Under IFRS, the recommended final dividend in respect of a year is only provided in the accounts of the
following year. Therefore, the 2016 accounts reflect the 2015 final dividend and the 2016 interim dividend
amounting to 155.9p (£2,910 million in total (2015: 150.0p - £2,770 million)).

The following is a summary of the dividends declared/recommended for the years ended 31 December
2016 and 2015.

                                                          2016                               2015
                                                 Pence                              Pence
                                                   per              £m                per               £m
                                                 Share                              share
 Ordinary shares
 Interim
 - 2016 paid 28 September 2016                     51.3            961
 - 2015 paid 30 September 2015                                                        49.4              908
 Final
 - 2016 payable 4 May 2017                       118.1            2,194
 - 2015 paid 5 May 2016                                                              104.6            1,949
                                                 169.4            3,155              154.0            2,857




                                                 Page 29
Dividends cont…

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 final dividend are applicable:

  Event                                                             Date 2017
  Last Day to Trade (LDT) cum dividend (JSE)                        Tuesday 14 March
  Shares commence trading ex-dividend (JSE)                         Wednesday 15 March
  Shares commence trading ex-dividend (LSE)                         Thursday 16 March
  Record date (JSE and LSE)                                         Friday 17 March
  Payment date                                                      Thursday 4 May
  No removal requests permitted between the UK main                 Thursday 23 February to Friday 17
  register and the South Africa branch register                     March (inclusive)

  No transfers permitted between the UK main register and           Wednesday 15 March to Friday 17
  the South Africa branch register                                  March (inclusive)

  No shares may be dematerialised or rematerialised                 Wednesday 15 March to Friday 17
                                                                    March (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 £:R =
16.32100 as at 21 February 2017 (the closing rate on that date as quoted by Bloomberg), results in an
equivalent final dividend of 1,927.51010 SA cents per ordinary share.

South Africa Branch Register: Dividends Tax Information
South Africa Dividends Tax (at a rate of 15%), equivalent to 289.12652 SA cents per ordinary share, will be
withheld from the gross final dividend paid to shareholders on the South Africa branch register, unless a
shareholder qualifies for an exemption. After Dividends Tax has been withheld, the net dividend will be
1,638.38359 SA cents per ordinary share. The final dividend is regarded as a ‘foreign dividend’ for the
purposes of the South Africa Dividends Tax.

At the close of business on 21 February 2017 (the latest practicable date prior to the date of the
recommendation of the final dividend), British American Tobacco p.l.c. (the “Company”) had a total of
1,864,374,894 ordinary shares in issue (excluding treasury shares). The Company held 162,645,590
ordinary shares in treasury giving a total issued share capital of 2,027,020,484 ordinary shares.
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 Proprietary Limited, contact details for which are given in the ‘Corporate Information’ section
below.




                                                 Page 30
RETIREMENT BENEFIT SCHEMES
The Group’s subsidiaries operate around 170 retirement benefit arrangements worldwide. The majority
of the scheme members belong to defined benefit schemes, most of which are funded externally and
many are closed to new entrants. The Group also operates a number of defined contribution schemes.

The present total value of funded scheme liabilities as at 31 December 2016 was £7,155 million (2015:
£5,956 million), while unfunded scheme liabilities amounted to £476 million (2015: £364 million). The fair
value of scheme assets increased from £6,086 million in 2015 to £7,278 million in 2016.

The overall net liability for all pension and health care schemes in Group subsidiaries amounted to £371
million at the end of 2016, compared to £245 million at the end of 2015.

The actuarial loss of £228 million (2015: £283 million gain) recognised in the Group Statement of
Comprehensive Income is principally driven by changes in the discount rates used in the valuation of
retirement benefit scheme liabilities at each year end, resulting in a £843 million loss (2015: £377 million
gain) offset by increases in the fair value of scheme assets of £615 million (2015: £94 million decrease).

Contributions to the defined benefit schemes are determined after consultation with the respective
trustees and actuaries of the individual externally funded schemes, taking into account regulatory
environments.

OTHER CHANGES IN THE GROUP
On 20 April 2016, the Group completed the acquisition of 100% of Ten Motives, a UK based e-cigarette
business with particular strength in traditional grocery and convenience channels. The fair value of the
consideration payable was £56 million of which £6 million is contingent on post-acquisition targets. The
fair value and book value of acquired net assets was not materially different except for the recognition of
trademarks and similar intangibles of £33 million. Goodwill of £21 million arising on this transaction
represents a strategic premium to increase the Group’s share of the UK e-cigarette market.

In January 2017, the Group signed an agreement with CID Adriatic Investments GmbH (CID) for the Group
to acquire certain tobacco assets of Fabrika Duhana Sarajevo (FDS), largely brands, and a retail business
(Tobacco Press). The Group will also enter into a contract manufacturing agreement with FDS for the
continued production of the acquired brands by FDS in Sarajevo. The agreement between the Group and
CID is subject to FDS shareholder approval and approval by the relevant regulatory authority. It is
expected that this transaction will complete in the first half of 2017.

As disclosed in the Annual Report for the year ended 31 December 2015, page 34, on 5 February 2016,
the acquisition of the shares in Souza Cruz not already owned by the Group was approved, with Souza
Cruz becoming a wholly-owned subsidiary at that date.




                                                  Page 31
RELATED PARTY DISCLOSURES
The Group’s related party transactions and relationships for 2015 were disclosed on page 190 of the
Annual Report for the year ended 31 December 2015. In the year to 31 December 2016, there were no
material changes in related parties or in related party transactions except for the matters noted below:

On 17 December 2012, a wholly owned subsidiary of the Group, BATUS Japan Inc. (BATUSJ), entered into
an Amendment and Extension Agreement (referred to as the Amendment) with a wholly owned
subsidiary of Reynolds American, R.J. Reynolds Tobacco Company (referred to as RJRTC). The Amendment
modifies the American blend Cigarette Manufacturing Agreement (referred to as the 2010 Agreement),
effective as of 1 January 2010.

Prior to the Amendment, the term of the 2010 Agreement was scheduled to expire on 31 December 2014,
subject to early termination and extension provisions. Pursuant to the Amendment, the Manufacturing
Agreement would remain in effect beyond 31 December 2014, provided that either RJRTC or BATUSJ may
terminate the Manufacturing Agreement by furnishing three years’ notice to the other party, such notice
was given in January 2016. As a result of early termination of this agreement the Group agreed to a
compensation payment of US$90 million of which US$7 million were paid to RJRTC on 22 September
2016, with the Group recognising the full expense of US$90 million as required by IFRS in 2016. The
balance is due in March 2017.

During 2016, the Group received proceeds of £23 million in respect of its participation in the share buy-
back programme conducted by Reynolds American. This programme ceased in the fourth quarter of 2016.

FOREIGN CURRENCIES
The principal exchange rates used were as follows:
                                                        Average                         Closing
                                                     2016           2015            2016             2015

 Australian dollar                                1.824             2.036          1.707            2.026
 Brazilian real                                   4.740             5.101          4.022            5.831
 Canadian dollar                                  1.795             1.954          1.657            2.047
 Euro                                             1.224             1.378          1.172            1.357
 Indian rupee                                    91.022            98.070         83.864           97.508
 Japanese yen                                   147.466           185.012        144.120          177.303
 Russian rouble                                  91.026            93.591         75.429          107.646
 South African rand                              19.962            19.522         16.898           22.839
 US dollar                                        1.355             1.528          1.236            1.474




                                                 Page 32
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 judgement. 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 in the next three years.

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, among 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
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.

There are disputes that may proceed to litigation in a number of countries including Brazil, Netherlands
and South Africa. A dispute in Bangladesh, which proceeded to litigation in 2014, is on-going, whilst the
Group is appealing the ruling in respect of sales taxes and penalties in South Korea.

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. An
adverse judgment was entered against one Group company, Imperial, in the Quebec class actions and an
appeal has been made. If further adverse judgments are entered against any of the Group’s companies in
any case, all avenues of appeal will be pursued. Such appeals could require the appellants to post appeal
bonds or substitute security (as has been necessary in Quebec) in amounts that could in some cases equal
or exceed the amount of the judgment. In any event, with regard to US tobacco product liability litigation
(which excludes the recent litigation brought against the Company by the shareholders of Reynolds
American Inc. and Lorillard Inc.) the Group has the benefit of an 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 Fox River, the Group (i) does not consider it
appropriate to make any provision or charge in respect of any pending litigation, (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 2016 will be
included in the Annual Report for the year ended 31 December 2016. There were no material
developments in 2016 that would impact on the financial position of the Group.



                                                  Page 33
FRANKED INVESTMENT INCOME GROUP LITIGATION ORDER
The Group is the principal test claimant in an action in the United Kingdom against HM Revenue and
Customs (HMRC) 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 original claim was filed in 2003. The trial of the claim was split broadly into issues of liability and
quantification. The main liability issues were heard by the High Court, Court of Appeal and Supreme
Court in the UK and the European Court of Justice in the period to November 2012. The detailed technical
issues of the quantification mechanics of the claim were heard by the High Court during May and June
2014 and the judgment handed down on 18 December 2014. The High Court determined that in respect
of issues concerning the calculation of unlawfully charged corporation tax and advance corporation tax,
the law of restitution including the defence on change of position and questions concerning the
calculation of overpaid interest, the approach of the Group was broadly preferred. The conclusion
reached by the High Court would, if upheld, produce an estimated receivable of £1.2 billion for the Group.
Appeals on a majority of the issues were made to the Court of Appeal, which heard the arguments in June
2016. The Court of Appeal determined in November 2016 on the majority of issues that the conclusion
reached by the High Court should be upheld. The outcome of the Court of Appeal has not reduced the
estimated receivable. Permission has been sought by HMRC to appeal almost all issues on which it was
unsuccessful to the Supreme Court.

During 2015, HMRC paid to the Group a gross amount of £1,224 million in two separate payments. The
payments made by HMRC have been made without any admission of liability and are subject to refund
were HMRC to succeed on appeal. The second payment in November 2015 followed the introduction of a
new 45% tax on the interest component of restitution claims against HMRC. HMRC held back £261
million from the second payment contending that it represents the new 45% tax on that payment, leading
to total cash received by the Group of £963 million. Actions challenging the legality of the 45% tax have
been lodged by both the Group and other participants in the FII GLO which will be heard in 2017.

Due to the uncertainty of the amounts and eventual outcome the Group has not recognised any impact in
the Income Statement in the current or prior period in respect of the receipt which, net of the deduction
by HMRC, is held as deferred income. Any future recognition as income will be treated as an adjusting
item, due to the size of the order, with interest of £25 million for the 12 months to 31 December 2016
(2015: £8 million) accruing on the balance, which was also treated as an adjusting item.




                                                 Page 34
ANNUAL REPORT

Statutory accounts
The financial information set out above does not constitute the Company’s statutory accounts for the
years ended 31 December 2016 or 2015. Statutory accounts for 2015 have been delivered to the Registrar
of Companies and those for 2016 will be delivered following the Company’s Annual General Meeting. The
auditors’ reports on both the 2016 and 2015 accounts were unqualified, did not draw attention to any
matters by way of emphasis and did not contain statements under s498(2) or (3) of Companies Act 2006
or equivalent preceding legislation.

Publication
The Annual Report will be published on bat.com on or around 13 March 2017. A printed copy will later be
mailed to shareholders on the UK main register who have elected to receive it. At the same time,
shareholders will be notified of the availability of the Annual Report on the website and of the
Performance Summary together with other ancillary documents in accordance with their elections.
Specific local mailing and/or notification requirements will apply to shareholders on the South Africa
branch register.

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 that 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 that
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.


DISTRIBUTION OF PRELIMINARY STATEMENT
This announcement is released to the London Stock Exchange and the JSE Limited. It may be viewed and
downloaded from our website 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.




                                            Nicola Snook
                                              Secretary
                                          22 February 2017




                                                Page 35
                                                                                                APPENDIX 1

OTHER TOBACCO PRODUCTS
The Group reports volumes as additional information. This is done with cigarette sticks as the basis, with
usage levels applied to other tobacco products to calculate the equivalent number of cigarette units.

The usage rates that are applied:

                                                                                Equivalent to one cigarette

 Roll-your-own (RYO)                                                                             0.8 grams
 Make-your-own (MYO)
    -    Expanded tobacco                                                                        0.5 grams
    -    Optimised tobacco                                                                       0.7 grams
 Cigars                                                                                             1 cigar
 Snus
    -    Pouches                                                                                   1 pouch
    -    Loose snus                                                                              2.0 grams

Roll-your-own (RYO)
Loose tobacco designed for hand rolling, normally a finer cut with higher moisture, compared to cigarette
tobacco.

Make-your-own (MYO)
MYO expanded tobacco; also known as volume tobacco.
Loose cigarette tobacco with enhanced filling properties – to allow higher yields of cigarettes/kg -
designed for use with cigarette tubes and filled via a tobacco tubing machine.

MYO non-expanded tobacco; also known as optimised tobacco.
Loose cigarette tobacco designed for use with cigarette tubes and filled via a tobacco tubing machine.

GROUP VOLUME
The Group volume includes 100% of all volume sold by subsidiaries. As previously reported in the case of
the joint operation, (known as CTBAT International Limited) between China National Tobacco Corporation
(CNTC) and the Group, the volume of CTBAT not already recognised by Group subsidiaries is included in
Group volumes at 100% rather than as a proportion of volume sold, in line with the Group’s measurement
of market share, which is based on absolute volume sold, both in individual markets and globally.




                                                  Page 36
SHAREHOLDER INFORMATION

FINANCIAL CALENDAR 2017

  Wednesday 26 April                              Annual General Meeting at 11.30am
                                                  Milton Court Concert Hall, Silk Street, London EC2Y 9BH

  Thursday 27 July                                Half-Year Report


CALENDAR FOR THE FINAL DIVIDEND 2016

  2017

  Thursday 23 February                            Dividend announced: amount of dividend per share in both
                                                  sterling and rand; applicable exchange rate and conversion date
                                                  – Tuesday 21 February 2017; plus additional applicable
                                                  information as required in respect of South Africa Dividends
                                                  Tax(1).

  Thursday 23 February to                         From the commencement of trading on Thursday 23 February
  Friday 17 March                                 2017 to Friday 17 March 2017 (inclusive), no removal requests in
                                                  either direction between the UK main register and the South
                                                  Africa branch register will be permitted.

  Tuesday 14 March                                Last Day to Trade or LDT (JSE)

  Wednesday 15 March to Friday 17 March           From the commencement of trading on Wednesday 15 March
                                                  2017 to Friday 17 March 2017 (inclusive), no transfers between
                                                  the UK main register and the South Africa branch register will be
                                                  permitted; no shares may be dematerialised or rematerialised.

  Wednesday 15 March                              Ex-dividend date (JSE)

  Thursday 16 March                               Ex-dividend date (LSE)

  Friday 17 March                                 Record date (LSE and JSE)

  Monday 10 April                                 Last date for receipt of Dividend Reinvestment Plan (DRIP)
                                                  elections (UK main register only)

  Thursday 4 May                                  Payment date (sterling and rand)

Note:

    (1) Details of the applicable exchange rate and the South Africa Dividends Tax information can be
        found under the heading ‘Dividends’ on page 30.

For holders of American Depositary Receipts (ADRs), the record date for ADRs is also Friday 17 March
2017 with an ADR payment date of Tuesday 9 May 2017.




                                                Page 37
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; +44 370 889 3159
Share dealing tel: 0370 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 Proprietary Limited
PO Box 61051, Marshalltown 2107, South Africa
tel: 0861 100 634; +27 11 870 8216
email enquiries: web.queries@computershare.co.za

American Depositary Receipts (ADRs)
NYSE MKT (Symbol: BTI; CUSIP Number: 110448107)
Sponsored ADR programme; each ADR represents one ordinary share 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
The Company’s Representative office in South Africa using the contact details shown below.

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
Waterway House South
No 3 Dock Road, V&A Waterfront
Cape Town 8000
South Africa
(PO Box 631, Cape Town 8000, South Africa)
tel: +27 21 003 6576

                                                 Page 38
Forward looking statements

Certain statements in this communication regarding the proposed merger of Reynolds American and BAT (the
“Proposed Transaction”), the expected timetable for completing the Proposed Transaction, the benefits and
synergies of the Proposed Transaction, future opportunities for the combined company and any other statements
regarding BAT’s, Reynolds American’s or the combined company’s future expectations, beliefs, plans, objectives,
financial conditions, assumptions or future events or performance that are not historical facts are “forward-looking”
statements made within the meaning of Section 21E of the United States Securities Exchange Act of 1934. These
statements are often, but not always, made through the use of words or phrases such as “believe,” “anticipate,”
“could,” “may,” “would,” “should,” “intend,” “plan,” “potential,” “predict,” “will,” “expect,” “estimate,” “project,”
“positioned,” “strategy,” “outlook” and similar expressions. All such forward-looking statements involve estimates
and assumptions that are subject to risks, uncertainties and other factors that could cause actual future financial
condition, performance and results to differ materially from the plans, goals, expectations and results expressed in
the forward-looking statements and other financial and/or statistical data within this communication. Among the
key factors that could cause actual results to differ materially from those projected in the forward-looking
statements are uncertainties related to the following: whether the conditions to the Proposed Transaction will be
satisfied and the Proposed Transaction will be completed on the anticipated timeframe, or at all; the failure to
realize contemplated synergies and other benefits from the Proposed Transaction; the incurrence of significant
costs and the availability and cost of financing in connection with the Proposed Transaction; the effect of the
announcement of the Proposed Transaction, and related uncertainties as to whether the Proposed Transaction
will be completed, on BAT’s, Reynolds American’s or the combined company’s ability to retain customers, retain
and hire key personnel and maintain relationships with suppliers and on their operating results and businesses
generally; the ability to maintain credit ratings; changes in the tobacco industry and stock market trading
conditions; changes or differences in domestic or international economic or political conditions; changes in tax
laws and rates; the impact of adverse legislation and regulation; the ability to develop, produce or market new
alternative products profitably; the ability to effectively implement strategic initiatives and actions taken to increase
sales growth; the ability to enhance cash generation and pay dividends; adverse litigation and dispute outcomes;
and changes in the market position, businesses, financial condition, results of operations or prospects of BAT,
Reynolds American or the combined company.

Additional information concerning these and other factors can be found in Reynolds American’s filings with the
U.S. Securities and Exchange Commission (“SEC”), including Reynolds American’s most recent Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and BAT’s Annual Reports,
which may be obtained free of charge from BAT’s website www.BAT.com. Readers are cautioned not to place
undue reliance on these forward-looking statements that speak only as of the date hereof and BAT undertakes no
obligation to update or revise publicly any forward-looking statements or other data or statements contained within
this communication, whether as a result of new information, future events or otherwise.

No statement in this communication is intended to be a profit forecast and no statement in this communication
should be interpreted to mean that earnings per share of BAT or Reynolds American for the current or future
financial years would necessarily match or exceed the historical published earnings per share of BAT or Reynolds
American, respectively.

Additional information and where to find it

This communication is neither a solicitation of a proxy nor a substitute for any proxy statement or other filings that
may be made with the SEC in connection with the Proposed Transaction. Any solicitation will only be made
through materials filed with the SEC. Nonetheless, this communication may be deemed to be solicitation material
in respect of the Proposed Transaction by BAT.

BAT intends to file relevant materials with the SEC, including a registration statement on Form F-4 that will
include a proxy statement of Reynolds American that also constitutes a prospectus of BAT. Investors and security
holders are urged to read all relevant documents filed with the SEC (if and when they become available),
including the proxy statement/prospectus, because they will contain important information about the Proposed
Transaction. Investors and security holders will be able to obtain the documents (if and when available) free of
charge at the SEC’s website, http://www.sec.gov, or for free from BAT at batir@bat.com / +44 (0) 20 7845 1000.
Such documents are not currently available.




                                                       Page 39
Participants in solicitation

This communication is neither a solicitation of a proxy nor a substitute for any proxy statement or other filings that
may be made with the SEC in connection with the Proposed Transaction. Nonetheless, BAT, and its affiliates and
each of their directors and executive officers and certain employees may be deemed to be participants in the
solicitation of proxies from the holders of Reynolds American common stock with respect to the Proposed
Transaction. Information about such parties and a description of their interests are set forth in BAT’s 2015 Annual
Report, which may be obtained free of charge from BAT’s website www.BAT.com and the proxy statement for
Reynolds American’s 2016 Annual Meeting of Stockholders, which was filed with the SEC on March 23, 2016,
Reynolds American’s annual report for the year ended December 31, 2016, which was filed on Form 10-K with
the SEC on February 9, 2017 and Reynolds American’s Form 10-K/A, which is to be filed with the SEC on or
before May 1, 2017 (such filings by Reynolds American, collectively, “Reynolds SEC filings”). To the extent
holdings of Reynolds American securities by such parties have changed since the amounts contained in the
Reynolds SEC filings, such changes have been or will be reflected on Statements of Change in Ownership on
Form 4 filed with the SEC. Additional information regarding the interest of such parties will also be included in the
materials that BAT intends to file with the SEC in connection with the Proposed Transaction. These documents (if
and when available) may be obtained free of charge from the SEC’s website http://www.sec.gov, or from BAT
using the contact information above.

Non-solicitation

This communication shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an
offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such
jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of
Section 10 of the Securities Act of 1933, as amended.

This communication should not be construed as investment advice and is not intended to form the basis of any
investment decision, nor does it form the basis of any contract for acquisition or investment in any member of the
BAT group, financial promotion or any offer, invitation or recommendation in relation to any acquisition of, or
investment in, any member of the BAT group.



Sponsor: UBS South Africa (Pty) Ltd




                                                        Page 40

Date: 23/02/2017 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

Share This Story