Good morning, everyone, and welcome to the British American Tobacco 2017 Interim Results Presentation. I am Nicandro Durante, Chief Executive of British American Tobacco and with me this morning is Ben Stevens, Finance Director. And as always, a warm welcome to those of you who are listening on the conference call or watching via our website, bat.com. As usual, after taking you through the results presentation, there will be an opportunity for those of you on the call to ask questions. Before I start the presentation, I will take you that you have all seen and read the disclaimer. As you are no doubt aware, it has been a busy start of the year. I am pleased to say that we have delivered another good performance over the first half of this year, despite lapping a strong volume comparator. During the first half of 2017, we continue to grow share, again, driven by the outperformance of the Global Drive brands. Although volume was down 5.6%, with strong price mix, adjusted revenue at constant rates was up 2.5% and adjusted profit grew 3.2%. Adjusted EPS was up over 6% at constant rates and up 21% at current rates. In AGPs growth continues to go from strength to strength and has reached an estimate share of 8% in Sendai, with rollout in Japan progressing well. In Vapor, our business in the U.K. also reached the record share in retail of 41.5% with Vype reaching all-time highs. I will cover this in more detail later. Perhaps more importantly, I am delighted that 2 days ago, we complete acquisition of Reynolds America with overwhelming support from both sets of shareholders. This makes BAT one of the world’s leading consumer products business. I am very excited about the prospects for the larger group. We will now focus on integrating the 2 companies and delivering expected synergies. I am pleased to welcome Debra, who has joined the management Board another Reynolds group employee to BAT. I will now hand over to Ben, who will as usual take you through the detail of the first half results.

Thank you, Nicandro, and good morning, everyone. As Nicandro mentioned, the group performed well against the strong first half comparator last year, when organic volume was up over 2%. Reported volume was down 5.6% and organic volumes down 5.8%. This is mainly due to industry volume decline, in particular in Pakistan, following significant excise-driven price increases last year as well as the phasing of volume shipments, which we expect to unwind in the second half. Excluding Pakistan, volume would have been down only 2.6%. This reflects our continuing corporate share growth of 30 basis points and another strong performance from the Global Drive Brand, which grew share 50 basis points. Although reported Global Drive Brand volume was down 1.3%, excluding Pakistan, it would have been up 2.6%. Adjusted revenue was up 2.5% at constant rates, benefiting from strong price mix, growing NGP revenue and M&A. Adjusted revenue excludes the excise included in goods acquired under short-term contract manufacturing arrangements, mainly from [indiscernible]. Adjusted profit grew 3.2% on a constant basis and the operating margin was up 30 basis points, despite the absorption of a 3% transactional currency headwind. Constant currency adjusted EPS grew 6%, and was up 21% at current rates. Throughout the presentation this morning, we’ll be referring to adjusted revenue, adjusted profit and adjusted EPS as revenue, profit and EPS. Turning now to operating margin. I’m pleased to say that after 2 years of reported decline, we have returned to operating margin growth. On an organic basis, improvement was 50 basis points, driven by good pricing and TaO efficiencies together with significant product cost savings and the benefits of factory footprint optimization. This was despite absorbing a 3% transactional FX headwind. Operating margin was up 30 basis points after the impact of acquisitions. If foreign exchange rates were…

Thank you, Ben. Looking at share, the business continues to perform well, and we are now in our seventh consecutive year of share growth with an increased 200 basis points since 2010. The GDB grew share another 50 basis points in the first half. They are consistent, strong growth remains the key driver of our corporate share performance. Looking at the brands in a little bit of detail. Dunhill performed well in a number of these key markets, including Romania and South Africa. Volume was down 4.5%, mainly due to industry decline and down-trading in Malaysia and Indonesia. Market share was down 10 basis points, although it has recovered in the last quarter with an improved share in Malaysia, Brazil and South Africa. In Indonesia, Dunhill remains the largest international kretek brand in the market with a 4.7% share, despite consumer down-trading. Dunhill continues to perform well in Romania with a strong volume growth. In South Africa, Dunhill also reached a record share of 15.1% in May 2017. Kent share was up 15 basis points and volume was down only 1.6%. Volume and share grew strongly in Turkey, while Kent reached a record share of 6.3%, driven by the continued success of the Switch and - range. In Brazil, the migration of free to Kent is on track, with 100% retention to date. Around 60% of the consumer volume has now been migrated. Kent’s volume in the Middle East and Russia was down to marked decline and down-trading. In Chile, Kent grew share for the second consecutive year, reaching 23.7% post implementation of the Kent Spark new brand Imagery. The brand saw strong volume growth in its little range with Kent’s range performing well and Kent’s Spark volume in Japan reaching a share of 3.5%. Lucky Strike had a very…

[Operator Instructions] Our first question comes from the line of Owen Bennett from Jeffries.

Three questions, if I may, please. And the first one. You mentioned how spend on NGPs will be ramped up in the second half. I was just wondering if you could be a bit more specific in terms of how much you will increase versus the first half to get an idea of how margins may progress? Secondly, is it possible at this stage to give a rough idea of how much NGPs are contributing to revenue number? And then thirdly, obviously, a very strong share performance of glo in Sendai, I was just wondering, is this taking share off competition or is it all incremental to the overall tactically? And also you said conversion levels continue to grow. I was just wondering what that’s actually at the moment?

Okay, it’s Ben here. Just struggling against the feedback. We’re not going to give you a separate figure on spend for NGP, but I can guide you towards CapEx for the full year for BATs, excluding Reynolds. So it will come in around $700 million to $750 million in CapEx for the year and that’ll include the extra spending on NGP. In terms of contribution to revenue, again, I’ll give you a bit of a clue on that. In terms of our price mix figure, you’ll remember the price mix figure was pretty high at over 8% in the first half. About 0.6% of that came from NGP, which is obviously a considerable amount of turnover at the moment as we grow. So hopefully that’s helpful. And I’ll hand you back to Nicandro to talk about share.

Answering your question about glo. As I mentioned during the presentation, we are growing extremely well ahead of expectations in Japan. The share that we are experiencing in places like Tokyo with 3% in this retail chain, in Osaka 2.4% and Miyagi region 6.1. They are above our expectations, and if you compare this with the numbers that you have reached against Sendai at the same period 3 -- 2 weeks, they are much stronger, much stronger. So we are very happy with the results so far. Regarding your question, if you -- is the [indiscernible] that is growing and you are taking share from the competition, it’s very difficult for me to say. I think it is better for you to ask the competition how they are doing. But we are growing very fast and we are very happy with that.

Our next question comes from the line of Adam Spielman from Citi.

Some more questions on tobacco using products, if I may. First of all, you say that Switzerland is going very well. In the past, you’ve said that you thought that Japan was really the most -- the best market. And I was wondering if you could just give your sort of personal guess as to relative to market size between Japan, Korea and Europe? So in order words, if share in Japan reaches, I don’t know x, in Europe, do you think it will be 1/2 x or 1/4 x? The second question, do you see any reason why, in Korea, you shouldn’t have remained same market share as IQOS. The third question is, do you think capacity will constrain your volumes at all this year and in 2018? In other words, can you give some color on your capacity for close 6? Thank you.

Thank you, Adam. Very good questions. So let me start with the first one about Switzerland. I reconfirm what I have been saying for a long time. I think that Japan is rather unique. The specific critical conditions come together in Japan really drives this exceptional performance of the category. For example, there is no vaping there. Consumers are exceptionally high on social consideration. It’s a very conformist consumer over indexing [1 million on] [ph] menthol and allow for technology of innovation. You’re not going to repeat this in Europe. When I say this ahead of expectations, it doesn’t mean that in Switzerland we are repeating the success in Japan. Just to give you some data, after three weeks in Sendai, after six months in Sendai, sorry, after the same period of the launch in Sendai that we are in Switzerland, which is around 15 weeks. In Sendai, the device penetration was 12.3%, [Sharing Hunters] [ph] was 5.6%. In Switzerland, device presentation is 0.2%, [Sharing Hunters][ph], 0.2. So they are when I say that the results are good according to our expectations, we are not expecting to have in Europe and Switzerland or in Vancouver, which the results are similar, the same success in Japan for the unique characteristics of the consumers. So I hope that I answer your questions. So do not expect to have Switzerland having half of the success in Japan in the same period of time. This is not going to happen. The consumers are completely different. So the potential is not the same. It doesn’t mean that the category is not going to grow over time, but this is going to take much, much more time and it’s going to be much slower. That’s your first question. Regarding Korea, you said, do I expect to…

Thank you for the answers. I just want to come back on the capacity, because you gave a lot of data, which I didn’t quite understand. You said it’s going to be 4 times at the end of 2018 where it is at the end of 2017. And then you said in 2017, you can fully supply the current demand. Is it, can you just expand on that last bit?

I’m saying that we have launch plans for ‘17 and ‘18. And as I said, by the end of this year, we expect to be in 5 markets. By the end of next year, we expect to be in 20 markets. What I’m saying is that, according to our projections, in terms of demand, we’ll be fully equipped to supply double the demand that we’re estimating for these 5 markets this year and the 20 markets next year. And as I said...

You are estimating?

Demand that’s more than double than we estimate. We may run into problems of capacity, but it’s a good problem to have if you have more than double than the demand. And I said that the lead time to create a new capacity is around 9 months. So you have early signs if the success is significant, then you can increase our capacity.

Excellent. That’s good news. Are you able to say what you’re expecting, what you’re forecasting for demand?

No, we are not. Because we think that the markets that we are launching and the volumes that we intend to sell, no, we are not, we are not going to disclose this Adam.

Our next question comes from the line of Jon Leinster from Berenberg.

Afraid a couple of questions still on the same subject, just following up from Adams. If you’re going to be launching in the further 15 markets for glo during 2018, does that imply a significant shift in the internal resources in terms of marketing and also sort of big pickup in the sort of number of flagship stores around the world. So is it going to be a big increase in marketing? And does that reflect in the sort of reallocation away from the conventional business into Next Generation Products?

Jon, the reality, there will be some resource allocation, of course. Because if you’re going to go for a big launch, for example, in places like Korea, there will be conflicting priorities in terms of launches. You have the focus of the company needs to be focused on 1 or 2 big launches during the year. There will be some reallocation, of course. But we expect to have an increase in the market investment, not only in reallocation. We think that this a nascent category that will demand some investments upfront. And not only in THP but in vaping as well. We are not talking about, a lot about vaping here. But we expect by the end of this year, beginning next year, to launch 2 fantastic products [indiscernible] that we have discussed this before and Raptor. And also, there will be conflicting investments between the vaping and THP and combustible. But I think that we can manage it, but net-net, there will be an increase in investment.

Secondly, on Russia, some of the other comments, again, a bit like yours have been that there’s been a big price-driven scenario there. I mean, at what stage are we? Have there been any price increases since, say, March in the marketplace? And is, do you know is there any sort of time frame on that being resolving itself or is this just a competitive situation, we’ll just have to see how it rolls out over the next year or so?

Russia is a very competitive market. We are doing well there, as you know, we are growing share. Rothmans is doing extremely well. But there was some absorption of excise in the beginning of this year. How the price is going to unfold, nobody knows. So we have to wait and see. It’s a very -- the only thing that I can say, it’s a very competitive price environment nowadays. And the company is doing well in this competitive price environment.

Right. And lastly, perhaps, in terms of the global market, I think that earlier in the year, you said the global market, in volume terms, you’d expect to be down about 4%. I mean, given that everybody’s volumes seem to be well below that in the first half, is that something which you’re still sticking to? Do you expect volumes in the second half on a global basis to be -- show a significant improvement versus the first half?

I think that the volume decline for this year, we estimate it to be around, I said in the past, 4% to 4.5%, and I still think that’s going to be around this. It’s very difficult to be precise on those numbers as you can expect. So I don’t change my view for the year. We were a little bit higher in the volume decline in the first half, because you have the swing in Pakistan. Because of excise last year was a different moment. We have some load -- it usually happens before an excise increase in the first half. But if you model this, in a yearly base, it should be around 4% something. I think that it is going to be much better than this, because we are growing share. We have a very strong share performance, 30 basis points, 50 basis points in Global Drive Brands. Global Drive Brands now, they are 50% of our portfolio, which is a fantastic progress. If we go back to 2010, it was around 30%. So we are doing very well. And the Global Drive Brands growing much bigger in our portfolio, making our life easier to drive growth. So I think that the second half is going to be stronger for us for the reason that I highlighted. So I -- we haven’t changed our views about the 4%, and we haven’t changed our views that they’re going to perform better than this.

[Operator Instructions] Our next question comes from the line of David Hayes from Bank of America Merrill Lynch.

Three from me, if I can. Just as first, if I can just confirm the answer to the other question. Do you say that the Next Generation Product contribution was 60 basis points to the pricing in the first half? Sort of making sure I understood that correctly. And I guess, still on NGPs, just trying to again get you to be a little bit more specific about the medium-term plans. I mean, can you give us an idea when you think that you’ll breakeven based on current plans at least from that rollout of both vaping and heat-not-burn products? Then secondly, just on the cost-savings and synergies at Reynolds and I know you’ve only had it for 1 day, so I’m not going to ask you to increase the $400 million expectation just yet. But you keep talking about being at least $400 million. I wonder if you can talk about whether you can think in that point because there’s specific areas that you think that you can explore that aren’t in that number? Or whether it’s just you think potentially you can get deeper into the areas that you’ve already talked about? And then finally for me, just on Saudi Arabia, I know it’s relatively small, but we’ve had a big price rise there recently. Just wondering whether you can give us the quantum of your exposure to that and whether that will affect that number in terms of volume performance in the -- for the full year? Thanks so much

Yes, David, it’s Ben here. So yes, of the 8.1% price mix in the first half, 0.6% came from NGP, so you can confirm that. In terms of the breakeven for NGP, NGP is already profitable in a number of markets. Obviously, as it’s being rolled out to new markets, then we invest in those markets. So it’s hard to give us sort of overall figure. But we expect NGP to be a positive contributor from next year. In terms of Reynolds, we’ve said at least $400 million of synergy benefits. We’ve only owned the company for 36 hours, so it’s going to take us some time to lift the hood on it and have a good look. I know the U.S. referencing there rather lift the bonnet to take a good look at the $400 million and see what really is there and what time it will take to extract that. So we’ll stick to our at least $400 million of synergy benefits for the moment. And obviously, if we can achieve more, we will do.

Regarding the GCC question, yes, we have a significant excise increase recently. We expect the market to be down this year because of that, around 11%. We expect as well some down-trading. We think that, obviously, premium segments and aspirational premium and even value for money is going to be down to the low price benefiting from that. We have launched recently Pall Mall as a value-for-money brand and it’s doing very well and is taking, it’s doing its role of absorbing the down traders. So we are doing well, but the industry is going to be down by 11%. I cannot be precise now how big it is going to perform in the scenario because the change in pricing was significantly, I think that price is almost double. You have some time for the consumers to get used to that and you’ll see how it is going to work. But we estimate for the year around 11% decline. But that’s the number that we have to wait and see. It can be 2% or 3% up or down, depends on how it’s going to be received by the consumers. Because that’s not an environment that have seen many price increases in the past. So it’s very difficult to understand elasticity there. So we have to wait another two or three months to see how the market is going to unfold.

Next question comes from the line of Michael Lavery from Piper Jaffray.

Good morning, thank you. Just wanted to follow up on the capacity. A couple of questions. You’ve talked about some of the limitations. Am I hearing you right that it’s both on the device and the Neostick capacity side? And then, related to that as you look ahead with the expansion you expect for 2018, you’ve got CapEx running this year about 100, 150 higher. What should we expect for 2018 if you’ll have 4x NGP capacity. Is it some order of magnitude of that incremental increase?

Good question, Michael. The first one was about capacity of device and consumables. If it is the question, the numbers that I gave you, in terms of 4 times more capacity next year in order to cope, we’ve got launch plans for 2017 and ‘18. As I said, now we are present in three markets. We are going to be present in another two before the end of the year, one of those being South Korea, and we’ll have another 15 for next year. So all the numbers that I gave you for capacity, they refer for both device and consumables. So there is no difference. For the second question. Ben?

I guess, what I’m curious is where is your bottleneck? Is the restriction that you’re not able to make the devices as quickly or the consumables or are both of them constrained? Or at the moment, is it simply a question of, are you saying you don’t have capacity constraints at the moment and it’s just a question of getting the demand to grow?

As I said, Michael, just going back to what I said before, we have capacity for these 20 markets. We have doubled the capacity for the demand that we estimate for the both markets. If the demand is going to be more than double than we estimated, we may run into capacity problems. The lead time to build the new capacities, either for device or consumables, is around 9 months. So if you know well enough that we are selling more than double that we estimate, we can build capacity but not less than 9 months. So the bottleneck is for both, if you sell more than double than our forecast for the category.

Okay, sorry. That’s very helpful. And then on the CapEx side?

I’m not going to give guidance for 2018 CapEx. But obviously, to the extent that our THP product is successful, we’ll be laying down capacity in line with what Nicandro has talked about. So I would expect to see a growth in CapEx in 2018, but we’re not going to put a figure on that until we got a bit closer to understanding what the amount of capacity we need to or the CapEx we need to spend in ‘18, because that will depend on our demand forecast for 2019.

That’s very reasonable. One last one. Just when you look at the Vype flagship store in Milan and then some of the glo stores like in Japan or Vancouver, do you imagine any opportunity to put both of those under one roof? Or do you feel like the message and the marketing is separate that you would want to keep those, even if you are present with both products in the market, you would rather keep those separate or could that be a place that operates for both?

There’s an opportunity to bring all of our marketing to NGP together. But you got to remember that individual markets that were either driving ahead with say glo, which should be a Japan flagship store, or Italy, which would be more on Vype and Pebble and brands like that. Over time, we see opportunities to bring them together. But at the moment, we got different stores in different markets.

Our next question comes from the line of Fulvio Cazzol from Goldman Sachs.

My first one was on the strong price mix of 8.1%. You highlighted that 0.6% of that came from NGPs. Could you break out the rest, i.e., how much was price and how much was mix? I presume that the decline in Pakistan would have had a significant benefit to the price mix line, please? And then my second question is, in Australia, you reported improving pricing and marginally lower volumes and market share gains. Do you think industry pricing power has now been restored in this market? And then my third question is just on Sendai data, the chart that you provided on, I can’t remember what slide this is, it’s not numbered, but showing that, in the first 10 weeks, you went from basically 0% share for glo to about 6%. And since then, over the past 20 weeks or so, it’s only gained an additional 2%. Obviously, the overall 8% share improvement is quite interesting, but just wanted to know how you’re thinking about future growth prospects in terms of share for that -- for the brand in Sendai?

Maybe I’ll take the price mix question. Two other big influences on price mix, obviously, one was Pakistan, where as Nicandro said, we had trade loading last year ahead of a big excise increase in the second half of the year. And then this year, of course, we have the impact of that excise increase. Good news in Pakistan is that the excise structure has actually been changed by the government. So expect a better performance in the second half. And then Ukraine, of course, where we were coming out of a price war with prices going up and volumes going down. So if you put U.K. and Pakistan together, you can probably take another 3% of that price mix. So that takes us to an underlying price mix of around 4.5% in the first half of the year.

Question about Australia. Yes, in terms of Australia, as I said before, we had very good share growth of 70 basis points. The company is doing well, [indiscernible] is doing extremely well, Rothmans as well. We have a more -- a price environment that was not as complex as last year that was very competitive. It’s still very competitive but we had excise increase and price followed. I don’t know how this is going to unfold for the future, because we don’t make predictions about pricing. But nowadays, we are in a better situation that we were 1 year ago. That’s the fact. Regarding Sendai and regarding the potential for glo, after 3 months in Sendai, we already had around 5% market share and it continued its growth. The way that you measure this is not only about the share, but the share has been growing week after week since then. It’s difficult to grow market share in the first -- in the second 3 months as you grow in the first 3 months, of course. But we look at the vice penetration, conversion rates, overall share. And in Sendai, week after week, we are having a great performance. We are extremely happy with Sendai. And as I said before several times, when I launched the product in Sendai in December or 6 months ago, someone has told me that I will have 8% share after 6 months. Well, I would have said that, I will be the happiest man in town, which is the case nowadays. So very happy with that. What I said in the case of Tokyo is that we are having even a better performance there. And even more importantly, it’s that awareness of the brands in the whole Japan outside Sendai is above 25% without any work done by the company, which helps, of course, the rollout. And one of the reasons that in Tokyo we are having even a bigger success. And I think I’ll take advantage here. Just to highlight to the point that I made earlier about Switzerland and Vancouver. And I said that I don’t expect the same results. And I’d like to highlight that the launch plan for these places, they are exactly the same ones that we implemented in Japan, with exactly the same concept, the flagship store, exactly the same amount of resource. And the results are not similar, because consumers are different. Places like in Europe, in which vape is available, social considerations aren’t so high, don’t expect the same results. It’s not for lack of investment, it’s because consumers are different.

The final question comes from the line of Chas Manso from Societe Generale. Please go ahead.

Yeah, good morning. I have a question on Vapor and for the pricing outlook, the pricing strategy we have for the Vapor. Fairly lower unit price point than heated tobacco, and I was wondering whether you see that price gap narrowing over time and what your view is to get that up to get the revenue and the profitability up in that area where you are the global leader? And on combustible, previously you have sort of quantified how big your sort of top five tobacco markets were in terms of advantages and profits, and I was wondering whether you could do that again given that you’ve called out Brazil, Russia and South Africa as being challenging markets. I think they are in the top five. And clearly, that’s been offset by good performances elsewhere. So maybe we should start to focus on how the top 10 are doing maybe? And the final question from me would be a Western European pricing question. I think the price mix in Western Europe was less than 1%, and obviously, there has been some absorption in France. And I was just wondering your view on the price movement in Europe, whether it’s still in line with sort of traditional rates or whether you see the pricing in Europe slowing down?

I’ll try to answer your questions. If I understood well the first one about vaping, you’re talking about the market, the prices. So let me take advantage and talk a little bit about vaping here and let me start by saying why we believe in this category. If you look at 2016 against ‘15, we have 60% more consumers in the category than one year ago. I’m talking about vaping in the top 40 markets outside United States, we had in 2016, 24 million of users as compared to 15 million roughly users in 2015. So penetration clearly is not an issue, because the penetration is much, much higher than tobacco heating products, much, much higher. The problem is the depth of usage. And depth of use is going to be solved by quality products. And we think that’s what we have been working so hard and made such a huge investment in the last six years to develop an outstanding set of products for consumers. And that’s why I said, we have good products already. We are leaders in more than 50% market share in Poland, 41% in U.K. So we’ve leadership in several markets in Europe. We are leaders already outside of United States in the vaping category, and Vype is probably the biggest brand in the category already. But we think that with the - and Raptor coming end of this year, first half of next year I think that we have a good chance of crack the product quality. And if you transform and if you transform consumers with this high penetration to conversion, and I think that the category is going to be a fantastic category and very profitable going forward. Regarding your questions on the pricing, prices are moving up. But as I said,…

I will now be handing over to Nicandro Durante for any closing comments.

Okay, guys, thank you very much for joining us in this conference call. If you have any further questions, please give Mike a call. Thank you very much.