Nicandro Durante - Chief Executive Officer John Benedict Stevens - Chief Information Officer & Finance Director.

Erik Bloomquist - Berenberg Jonathan Leinster - UBS Investment Bank Adam Spielman - Citi Charles Manso - Soc Gen.

So good morning everyone and welcome to British American Tobacco 2014 Full Year Results presentation. I am Nicandro Durante, Chief Executive Officer of British American Tobacco and with me this morning, we have Ben Stevens our Finance Director.

And as always a warm welcome to those of you who may be listening to 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 in the audience to ask questions. 2014 has been a challenging year for consumer goods companies generally.

Why is the tobacco industry’s more resilient than most, it is not immune from the micro economic environments? However I’m pleased to say that British American Tobacco has continued to perform well and the group has delivered another good performance in 2014.

Although currency movements had a significant effect on our reported numbers, on a constant currency basis, we grew revenue 3%, profit more than 4% and EPS 8%. This is a very good performance given the weak economic environment, significant excise increases in two of our largest markets and an increase in competitive price activity during the year.

Volume was down 1.4% against an industry down [ph] around 2.5% as we continue to grow share. This was driven by another excellent performance from the Global Drive Brands, with volumes up nearly 6% and share up 90 basis points.

Pricing in the vast majority of our markets remain strong and price mix of 4.2% for the full year reflects the later timing of price increases during the year with a good uplift in price fix in the final quarter. We continue to make good progress on our operating margin, which was up over 50 basis points to 38.7%.

Exchange rates had nearly a 12% translational impact on reported EPS, however I’m pleased that on a constant currency basis we have again delivered on our commitment to high single figure earnings growth with a 8% increase in EPS. I’ll now hand over to Ben to take you through the numbers in more detail..

Thank you, Nicandro, and good morning everyone. Looking at the Group's performance by region, Group cigarette volume was down 1.4%. This was driven by good performances from EEMEA and Asia-Pacific together with a slowdown in the rates decline in Americas.

Western Europe volume was impacted by continued industry decline driven by the weak economic environment, although there are signs that this is gradually improving. EEMEA, Asia-Pacific and the Americas all contributed to the good increase in revenue and profits, which at constant rates were up 3% and 4% respectively.

Western Europe revenue was 2% lower mainly due to industry volume contraction and the partial absorption of excise increased in Italy and France. Adverse exchange rates affected all regions resulting in reported revenue and profit down 8% and 7% respectively.

I highlighted the impact of foreign exchange on our reported numbers at the time of interim results and given the continuing appreciation of sterling, I’d like to do so again before we look at the regions individually.

Some of our major currencies including the Brazilian real, Australian dollar, South African rand and the Japanese yen, have lost well over 10% against sterling while the Russian ruble’s fallen by nearly 50%. This resulted in a 12% reduction in reported earnings per share which marks an [ph] otherwise very good 8% in EPS on a constant currency basis.

Predicting foreign exchange rates as a hazardous business binomially gives some guidance on the translational impact on results, if FX rates have stayed exactly where they are today.

So the translational headwinds that we’ve faced over the last two years do look set to continue and at today’s rates the headwind would be 7% at the operating profit level and over 5% at the EPS level.

However, the movement we’ve seen in transactional exchange rates also considerably increases input cost and local currency for items such as leaf, filter tow and wrapping materials. We do not strip out of the effects of transactional FX in our adjustment from current to constant rates of performance.

If we did profit would have grown by 6%, the operating margin, which I’ll cover in more detail later, would have been up nearly a 120 basis points and EPS would have grown by nearly 9.5%. Obviously given the scale of recent exchange rate movements transactional FX is lightly to be a bigger feature in 2015.

Exchange rates are changing overtime, however at current rates transactional FX would be a drag on operating profit of over 5% in 2015. This of course is before any mitigating actions re-pricing or cost reduction. Now moving ton to the regions, ASPAC performed well in 2014, growing volume share and constant currency revenue and profit.

Despite a challenging pricing environment in Australia, profit in constant terms was up 1.2% due to good performances in Bangladesh, South Korea, Malaysia and Pakistan. The significant devaluation of the Australian dollar and the Japanese yen meant the reported revenue and profit were down 7.9% and 8.6% respectively.

Volume was in line with last year as the industry volume declined in Vietnam and Australia offset good performances in Bangladesh, Pakistan and Indonesia. In Australia, volume declined as the market contracted, a competitive pricing environment and some share loss in the first part of the year led to lower profits.

However, Rothmans is performing extremely well and now has a share of 9% nationally just six months after launch. As a result we’ve stabilized corporate share and have seen growth over the final quarter of the year.

In Indonesia, volume increased due to continued growth of Dunhill and Club Mild, which more than offset the decline in tail brands and led to an improvement in profitability in this investment market. The two brands now came [ph] for around 80% of volume. In Japan, a strong performance from Kent drove share to a new high of 12.3%.

Performance in Bangladesh and Pakistan continued to be very strong with growth in volume, profit and share although we know there’ve been [ph] some very strong very performances in the prior year.

The GDBs again performed very well with volume of 6.5%, mainly driven by the outstanding performance of Pall Mall in Pakistan and the Philippines, Dunhill in Indonesia and Kent in Japan. In the Americas region reported revenue and profit decline mainly due to exchange rate movements in Brazil, Canada and Venezuela.

However on a constant basis revenue grew due to improved pricing in the region. Good performances in Brazil, Canada, Mexico, Venezuela and Chile drove strong growth in profit. Volume was down 2.3% mainly due to Brazil and Canada, which offset growth in Venezuela and Mexico.

In Brazil, strong pricing ensured good growth in revenue and this together with cost savings resulted in profit growth of constant rates despite industry volume decline. Share reached a record high of 78.4%, driven by the continued strong growth of Dunhill and local brands.

In Canada, profit in constant terms increased due to higher pricing and reduced costs. Volume declined following both federal and provincial excise increases, which also led to an increase in illicit trade for the first time in two years. Full year share was lower, the share grew over the second half of the year exiting at over 50%.

Mexico delivered another great performance, profit grew strongly as a result of improved pricing and higher volume driven by strong share gains, in particular from Pall Mall and Lucky Strike. Excellent performances from Pall Mall in Mexico, Chile and Canada and Dunhill in Brazil drove overall GDB volume up by 10%.

In Western Europe, the majority of markets continued to be impacted by the weak macroeconomic environment in particular the high levels of unemployment. Lower volume, competitive pricing actions and absorption of excise in some markets led to a small decline in revenue and profit in constant terms.

At current rates, revenue and profit declined 8% and 7% respectively due to the weakness of the Euro. Volume in the region was down 5.9%, mainly due to market contractions in Denmark, Poland and Romania offsetting growth in Spain and The UK. In Romania, we maintained our market leadership position with Dunhill and Pall Mall, both performing well.

Pall Mall is now the fastest growing brand in the market. In Italy we made good progress with share growth in the final quarter of the year, as Rothmans continued to perform well. Changes to the excise structure have now unlocked industry pricing in the market. In the UK, volume in share grew with good performance from Rothmans.

In Poland, profits increased as with share, with the strong performance from Pall Mall. In France, volume and profit were lower impacted by contractions in the end market and the industry absorption of an increase in excise. However market share increased, driven by a strong performance from Lucky Strike.

The Global Drive Brands performed well across the region with flat volume in a declining market, driven by good performances from Rothmans in Italy and the UK, and Lucky Strike in France, Spain and the Netherlands. Fine Cut volume grew by 1.7% as a result of increases in Hungary, Belgium, Luxembourg and Germany.

The GDBs including Fine Cut were up 0.9%. EEMEA delivered another outstanding performance, growing volume, share and constant currency revenue and profit. Reported profit and revenue were down impacted by FX, in particular the depreciation of the Russian ruble.

Revenue in constant terms was up 7%, driven by slightly higher volumes and good pricing, leading to a 9% improvement in profit in constant terms. Volume from the region was up 0.3% to 227 billion stakes, this increase was mainly driven by Iran, Ukraine and Turkey. These upsides were offset by market contraction in Russia.

On a constant currency basis Russia delivered double digit profit growth in 2014 due to strong pricing. We also continue to grow share driven by the strong growth of Rothmans and Lucky Strike. Volume was down over 10% in 2014, driven by industry contraction following the large excise driven price increases.

In South Africa, volume and share fell due to increased competitor pricing activity. In Turkey, I’m pleased to report that excellent performances by Kent and Viceroy, helps grow volume and stabilize share in the market. Profit in Ukraine was up strongly due to robust pricing and volume growth. Share also increased significantly driven by Rothmans.

The GDBs grew nearly 8% with strong performances from Rothmans, Pall Mall and Lucky Strike. Now turning to operating margin, we grew our operating margin by 54 basis points in 2014 to 38.7%. As anticipated at the time of the interims, this was driven by a strong performance in the second half of the year.

The rollout of SAP remains on time and on budget and the new way of working now covers more than 60% of the business following the successful completion of the rollout in Western Europe. Change to the organization structure, resulting from the implementation of the single operating model helped drive a significant reduction in group overheads.

In Asia-Pacific, a continued strong performance in lower margin markets such as Pakistan and Bangladesh and growth in the low price segment in some markets did affect operating margin. All the other regions contributed to the margin improvement.

In Americas, strong pricing and cost management in Canada, Chile and Mexico, drove an excellent 190 basis points increase. In Western Europe, good pricing in Germany and Poland together with continued cost management meant an improvement of 40 basis points.

Finally in EEMEA, good performance in the Middle East, Nigeria, Ukraine and Russia enabled a solid 50 basis point growth despite significant transactional FX headwinds in Eastern Europe. As you know on average we aim to grow our operation margin between 50 and a 100 basis points a year and I’m delighted that we’ve again achieved this.

Reported earnings per share was 4% lower [ph] 208.1p although it was 8% higher at constant rates, this was largely driven by the good profit growth supported by the performance of associates and the contribution of the share buy-back program in the first half of the year.

We’ve improved our average cost of debt [ph] during the year and this together with the association of the share buy-back reduced net finance costs. The underlying tax rate is marginally lower than this time of last year at 30.6%. Now moving on to cash flow, overall free cash flow is £2.5 billion.

This is below 2013, principally as a result of non-tobacco litigation settlement payments. Depreciation is the largest components of non-cash items and this is slightly down on last year. Working capital outflows are lower than 2013 largely due to stop bill linked to the timing of excise driven price increases.

Crisp [ph] CapEx is slightly below the £700 million and this is partly offset by asset sales giving a net CapEx spend of £627 million. We expect gross CapEx to be around £750 million in 2015, as we continue to support investments in the SAP deployment and innovation and next generation products.

Our operating cash flow conversation rate remains in line with last year at 91%, reflecting our ability to generate strong cash flows. Shortfall funding for pensions relates to the UK schemes and is below last year’s contributions.

Net interest paid is also lower than 2013 and partly reflects our association of the share buy-back in July as well as continued optimization of our debt facilities.

Restructuring and settlement outflows were higher than last year driven by payments relating to the settlement of the Flintkote and Fox River, non-tobacco legacy litigation cases in Canada and the United States. This delivers free cash flow of £2,507. Finally, I would like to touch on shareholder returns.

In 2014 we returned £3.5 billion to shareholders, which is a 140% of our free cash flow or just below a 120% excluding the non-tobacco litigation payments. This reflects our confidence in the business performance, this was our commitment to growing shareholder returns.

Net debt increased by £650 million to £10.2 billion and our credit rating was held at [indiscernible]. As you know we suspended the share buy-back with effect from the end of July 2014, following the announcement of our intention to invest $4.7 billion to maintain our 42% shareholding and support Reynolds proposed acquisition of Lorillard.

Earlier this week we confirmed that we’re considering an investment of another £2.3 billion to purchase the remaining 24.7% of Souza Cruz’s shares not already owned by BAT. Should both the Reynolds and Souza Cruz’s transactions go ahead in full, BAT would in 2015, marginally exceed our net debt to EBITDA guidance of 1.5 to 2.5 times.

We would therefore consider restarting the buy-back in 2017. We’ve always said our priority is the dividend and that 65% dividend payout ratio is a flow not a sealing. At the interims, I reiterated our commitment to growing the dividend in sterling terms in 2014. We’re therefore proposing an increase in the full year dividend of 4%.

Thank you, that’s all for now and I’ll hand you back to Nicandro..

Thank you, Ben. Ben has taken you through the numbers. I’d like now to take you through a few of my highlights about performance last year.

First, I’m pleased that despite 2014 being a challenging year, on a constant currency basis we continue to deliver good operating revenue and profits and delivered on our high single figure earning growth commitment.

As we highlighted at Q3, during 2014 we have seen an increasing competitive pricing leading to growth and the value for money segmenting some of our markets. However, we achieved good price in the vast majority of our markets leading to our price mix for the year of 4.2%.

Geographic mix remains the main setting factor in price mix as we continue to grow strongly in the emerging markets. These results were delivered via continuing to invest significantly in a sustainable future for our business.

This includes investment in growth opportunity markets such as Indonesia, Russia, Japan and new entries such as the Philippines and the next generation product development.

We also continue to invest in our innovations roll out, this is reflected on our 10% share growth and the continued strong growth GDBs, which grew share by 90 basis points and volume by 6% to 278 billion. This is against [indiscernible] 2.5%.

Now turning to each of the GDBs, Dunhill had another good year up nearly 3%, driven mainly by good performance in Indonesia, Brazil and Romania. In Indonesia, Dunhill grew volume by 29%, reaching a premium segment share of nearly 7% and a national share of almost 3%.

The brand performed strongly in Brazil, growing 1.5 percentage points to reach a record exit share of over 12%. Dunhill was a key driver of the groups 30 basis point share growth in the premium segment. Kent global volume declined by 12.8%, mainly due to industry volume contraction in a number of its key markets in particular Russia and Romania.

This was partially offset by strong performance from the brand in Iran, Japan and Uzbekistan. However, share remains stable with growth in Japan, Turkey and Vietnam offsetting decline in Russia and Romania. In Japan, Kent became the fastest growing brand in 2014, through the successful introduction of tube filters and continuous growth of Kent’s [ph].

The brand now has over 7% share of the markets. The roll out of tubes in Russia, has led to a stabilization of sharing that market despite very high price increase, a result of excise rises and Kent remains the leading brand in the premium segment. Kent is also performing well in Turkey, achieving a nationwide share of nearly 2%.

I’m very pleased to say that in 2014, Lucky Strike resumed its growth momentum with volume up 0.8% to 31billion. Growth in Argentina, Spain, France and Russia more than offset the declines in Chile and Poland.

The launch of our Lucky Strike menthol [indiscernible] in France last year has shown promising initial results becoming the most successful invested launch in France in the last five years, already reaching a market share of 0.44%.

Lucky Strike additive free and convertibles, continued to be key drivers of the brands growth with volume up 42% and 5% respectively in the year. Lucky Strike remains the additive free segment leader with 35% share in the top 40 markets. Overall the brand performed well, we share 10 basis points across the top 40.

Pall Mall grew share and volume strongly. The brand continues to have great momentum, with volume up 5.6% and including Fine Cuts, Pall Mall reached the record volume crossing the 100 billion sticks equivalent mark for the first time. This fantastic performance is driven by growth in key markets across all the regions.

The brand continues to perform very well in Mexico, with volumes up 30% versus 2013. In the Philippines it is showing a great performance in the convenience channel, achieving leadership in [indiscernible] with 32% share.

Overall, share grew by 30 basis points with very strong results in Pakistan, Mexico, Canada and South Africa offsetting decline in Italy and UK. Fine Cut volume was also up by 5.4% with growth in Germany, Hungary, Belgium and the Netherlands.

Rothmans, the most recent addition to our GDB portfolio grew volume by nearly 40%, due to the success of new market launch. It is the fastest growing international brand globally, driven by its performance in Russia, Italy, Ukraine, the UK and Australia.

This zimmer [ph] has great momentum contributing 31% of total volume during 2014, driven by successful launch of Rothmans demi slims in EEMEA. Share was up 40 basis points driven by Russia, Italy, Ukraine, UK and Australia.

Other international brands, volume failed by 3%, principally as a result of market contraction despite a good performance from our Chinese JV brands, the State Express 555 and Zuanchi. Together with the GDBs international brands now account for almost 60% of the BAT volume.

Over the last 10 years the GDBs have more than doubled their volume and since the strategy review in 2011, they have grown share by over 300 basis points. Given their geographic footprint, GDB volume in 2015 is likely to be affected by industry contractions in some of our key markets.

However, investments behind the rollout of innovation continues to - continues and the GDB carry a good share growth momentum entering the year. We have also made good progress during 2014 on our next generation products development. Our continued focus on practical research and development has begun to pay off.

Last year we launched two new Vype products, the eStick and the ePen. In consumer tests both perform better than any comparable product on the market. I’m pleased to report that they have shown very encouraging initial results.

Vype is currently the fastest growing e-cigarrette brand in UK, more than tripling its UK market share to reach 6.5% according to Neilson [ph]. We have a compelling product pipeline for Vype and we’ll extending the range on - we’ve new products during 2015. We also made significant progress last year with Voke, our nicotine inhalation product.

We were successful in gaining a UK medicines license for Voke, first foreign tobacco company in the world. We’re now working towards the launch in 2015. Finally, we’re making excellent progress developing our pipeline for tobacco heating products or THPs. We have three new product platforms in development.

First, a compact easy to use electrical device that heats the unique tobacco stick; second, a series of hybrid products that integrate tobacco on vapor technologies and third, we’re partnering with Reynolds American to commercialize products based on the [indiscernible] eclipse technology.

We expect to consumer test our first THP during 2015 and if successful, we plan to launch in 2016. Overall, we continue to make great progress in NGP. There is a long way to go and must be led by the consumer. However, we remain very confident in our ability to lead the development of NGPs globally.

In July we announced our intention to invest $4.7 billion as part of Reynolds American proposed acquisition of Lorillard, enabling us to maintain our 42% shareholding in the new enlarged Reynolds American. All shareholders approval have now been obtained and Reynolds is currently waiting for FTC approval.

The deal remains on track to complete in the first half of the year. As Ben has already mentioned, on Monday following presence [ph] speculation we confirmed that we’re considering making public tender offer for the remaining 24.7% of the shares of Souza Cruz, that BAT does not already own.

This is a strategically attractive deal for BAT, assuming to allow us more scope to leverage Souza Cruz’s capability for BAT group and that integrates the business into the Americas region. As we’ve any minority buyouts the synergies are more limited. This deal would be accretive to be achieved by less than 1%.

If this offer goes ahead, it would be at a price of R$26.75, less any dividend paid by Souza Cruz, representing a cost of £2.3 billion for BAT in the event of 100% take up. However, no offer has yet been made. We have stated that you clarify our intention within 30 days.

In summary, the business performed well and the group has delivered another strong performance in 2014. On a constant currency basis, we grew revenue 3%, profit over 4% and EPS 8%. Volume was down 1.4% against industry down around 2.5% as we again grew share.

Global Drive Brands continues to perform strongly with volumes up nearly 6% and share up 90 basis points. Pricing in the vast majority of our markets remain strong and we continue to make progress on our operating margin.

Finally, in recognition of the good underlined performance of the group, we have increased the dividend by 4% and this is line and [indiscernible] intention growing the dividend in sterling terms and increasing the payout ratio in circumstances where a good underlining PS performance has been overwhelmed by the negative effects of currency translation.

This reflects our continued commitment to growing shareholders return. It’s still early in the year, but at this stage we expect the industry in 2015 to face similar challenges to last year, with external environment remaining difficult.

Clearly exchange rates are very volatile at the moment, however as rates stand today, we face a significant transactional ForEx headwind.

It relates to what you stay day after day, operating profit on EPS will be reduced by more than 5%, this will impact our constant currency performance and there’ll be an addition to the 5% translational impact on EPS that Ben mentioned earlier. So far we have taken about 70% of the price we’ve planned for the year, which is ahead of last year.

However, first half numbers will be against a strong volume competitor [ph]. These together with increased transactional exchange rating part will affect first half performance. We therefore expect profit growth to be largely squid to the second half of the year.

We are continuing to invest for the future, new launches, strategic markets developments, products and NGP developments and the business is performing well. We have another challenging year ahead, but at this stage of the year I remain optimistic on our prospects for another good year of earnings growth excluding the effects of currency.

Thank you and we’ll now open up for questions..

Two questions, one for yourself and one for Ben please. Firstly, I think discussed in your early comments about markets having a variety of trading - consumer impacts, some down-trading, some up-trading and some polarizing.

Could you talk about in which you’re seeing any of those trends accelerating or decelerating? And then for Ben, my question is could you help us understand which countries are driving the transactional FX in fact and has BAT already taken pricing in some of those this year to mitigate that impact? Thanks..

In reality Eric, what we saw in - let me talk about the overall market first then I go to down-trade and up-trade in specific markets.

What we saw in 2014, in reality some down-trading overall and you look at overall market [ph] was declined around 2.5%, premium was declined around 2%, but you saw the emergence of the value for money category that was growing 5%. So [indiscernible] premium is growing more than 3, 4 and low price was average of the market.

And this has happened mainly because the consumers are stretched as we are discussing. Disposable income in the majority of the markets is coming down, we have still the economic crisis in Europe, so these reflect of all of these.

And BAT has tapped this segment with the launch of Rothmans, so we are taking our fair share of growth, to be honest more than our fair share of growth because Rothmans is growing very fast. So we are using our market abilities to tap in this emergence of the segment.

When you look at market-by-market, we always have the [indiscernible] there are markets that are up-trading, markets that are down-trading and markets in which you have a polarization. When I say a polarization, you see the premium segment growing and you see the value for money segment growing as well. So the mid-segment is the one that’s declining.

One example of that is Brazil, Brazil you see the value for money segment growing and then at the same time you see premium growing and I’ve to say that we’re taking all the growth in premium because Dunhill, that’s the most premium brand in the market from the pricing point of view as well, has grown from 10.5% to 12.1% at the end of the year.

So it’s a growth of 1.6%, which is phenomenal, 160 basis points premium Brazil, it is really a great fantastic [ph]. So Brazil is a clear example that you had this polarization. The same is happening for example in Romania, in which premium is growing through Dunhill and Kent, but value for money is growing as well.

On the other hand you have markets in which has some up-trading. An example of that, you see Columbia, you see France, those markets we saw some up-trading last year and you have several markets that’s down-trading because of the economic situation and not only because of the current situation because sometimes its self-inflected by the industry.

Australia is an example of that. You have a huge down-trading, self-inflected because you have players playing in the low price category and you had to do also. So Australia is one that we saw some down-trading; UK, we see some down-trading; Canada, we some down-trading. So some markets we see some down-trading, okay..

Yeah, let me tell you some good news. I mean the good news is that the dollar is strengthening and the Rupiah is strengthening and that’s why you see the translational impact on operating profit being greater than it is on EPS, so it’s 7% operating profit, but it’s only 5% EPS and that’s the effect the associate is coming through.

The big currency devaluations we’re facing, I mean obviously is the ruble, the average rate of the ruble in 2014 was 63 and then later traded in 96, so that’s a big hit and I think that the gretna [ph], the average rate was 20, the latest rate is 42.

So these are pretty eye watering rates, but even the riyal, average is 387, closing rate is 441, so it’s a broad spread across major currencies that we’re seeing yeah, the devaluation against sterling. Now the transactional impacts, these are early days. For example gretna moved 20% against the dollar two days ago.

So these are very, very volatile conditions and we would expect to mitigate some of those transaction impacts with pricing and with cost reduction, which you can’t just price on your own.

As Nicandro always says, we don’t have pricing power, the industry has pricing power and you got to be careful not to move too far ahead of a very stretched consumers, it’s always balanced FX you got to make.

But where we can, where we’re experiencing significant devaluation along with which will come significant levels of local inflation, we’ll try and recover that with pricing..

Yes, David..

Hi, just a follow up on the, I guess [indiscernible] in terms you go into ’15, I mean in terms of the margin this year underlying of a 110 more pricing potentially - potentially more cost savings, transactional flows at minus 200, as it stands probably somewhere you discussed.

The question being, I guess in terms of 50 to a 100 is that doable on a reported basis for the [indiscernible]..

Yeah, I mean transactional is never 300 as we speak. We hope to keep driving operating margin growth and we look to drive it by 50 to 100 basis points a year. We’ve never said it would be 50 to 100 basis points each and every year.

We say overtime we look at operating margin and we look to it exceeding 40% and then we’ve said that once it’s exceeded 40% we’ll give further guidance. Not necessarily that will stop growing operating margin, but we’ll know a lot more about the deployment of SAP.

Now we’ll continue to drive cost side of this business, I still believe that there’s cost, so we can drive out of BAT. It will certainly be helped by the deployment of SAP, we’re live now [ph] in over 60% of our market, so it’s not through in Europe, chunks EEMEA, most Asia is done. Where we will end up on transactional FX is hard to say.

It’s only February, this time last year I sat here and said, I think we’ve got an FX tail end [ph] behind us for the year and see how things turned out.

So it will be tougher growing operating margin this year, if you’re facing 300 million of transactional FX, but we still remain hopeful go be driving costing out of this business and improving profitability..

Just to put up on next generation product development, is that a cost [indiscernible]?.

Taking the first half of the year, obviously because we got a winning set of products now and it’s in our interest to roll this out as quickly as we can, so we’re trying to expand distribution, which comes with the cost..

And the last one just on Brazil, I guess the question is why now off from the currency tension, is there anything that’s changed as to why you’re now thinking about buying in minorities and then to your point earlier, you said about more integration, I mean if you do the buying does anything change that can you kind of highlight at this stage, it means Brazil becomes a different entity or subsidiary for BAT [ph]?.

I think it’s - I mean we haven’t even made an offer yet, so I just want to make that point. And as we’ve always said, in terms of buying in minorities, the returns from buying in minorities are fairly skinny because there are no real synergy benefits from buying together field forces or closing factories or whatever.

So we felt it was a good time to look at to buy out the minorities of Souza Cruz, if we decide to make an offer. I think that it could form a more central part of our operations in Latin America and that’s easier to do if you haven’t got leakage into minorities, so that’s the thinking behind it..

Hi, couple of questions.

First, insights to the [indiscernible] on the margin, but extra transactional impacts, would you still be aiming for 50 to 100 basis points?.

Absolutely..

Okay and then secondly on your tobacco heating products, you showed a picture of that which I’m sure if you guys can help nursing some similarities with the Philip Morris products.

I wonder if you are able to say how you visit [ph] that being differentiated versus what’s already on the market?.

The concepts are the same like in cigarettes, but the delivery is different. For obvious reasons, I’m not going to disclose now, what we have in the pipeline in a greater detail. But the most important thing is that we’re well advanced on the developments, we’re testing the markets already during 2015 and we’re ready for a launch in 2016.

We’re learning what’s going on out there as well, so we have fine-tuned our products in order to have a very winning proposition.

We think that we can win this category, I’ve always said, I had been saying this for the last couple of years, our ambition is to be the leader in next generation products that compares tobacco heating products and e-cigarette and I think that we can achieve that.

Just to show our capabilities, what we have in the e-cigarette area for example, it took some time to launch the products, I have been talking about that for the last two or three years.

Huge investments behind it and huge investments behind the tobacco heating products, but we’ve just come out to the market when we have a winning proposition and the products that are out there, after the launch in November, we have tripled our market share in UK. We have 6.5% market share coming from 1.7 and we’re growing by the week.

In grocery that we focus we have 14% market share, in the pharmacy channels, another focus area, we have 37% market share, an inconvenience that you’re not focusing because of distribution capabilities have to grow there. We have a minimum share of 1%, so the possibility for growing fast is significant. It just shows that our strategy is paying off..

You mentioned as part of your three platforms, you’re likely to roll out Venel’s technology on [indiscernible], you didn’t mention Venel’s e-stick for product use, would that potentially be in your plans if that collaboration is finalized?.

We mentioned when Reynolds went through the potential offer, the offer to Lorillard, that we’re looking for opportunities to work together in many areas and this is one them. But the tobacco heating products are little more advanced, but yes, we’re looking to opportunities that are out there with the views [ph] technology as well.

But we usually under promise over delivering BAT, so I don’t want to promise anything..

[Indiscernible] couple of questions, one on pricing.

You mentioned that pricing is coming a bit earlier this year, does that mean your expectations for the year returns to price mixes that we’ve been higher than 2014 or would that be offset by some of the down-trading? And secondly, as you mentioned about - you gave a sort of commitment on sterling dividend grade for 2014, does this serve [ph] something at this stage you’ll prepare to give it for 2015 as well or is that too early?.

Okay, I’ll pick the pricing question. Ben is going to take the other one. Regarding pricing, pricing is more solid this year than last year, with exception of Australia, price is moving well across the world [ph], so price is more solid.

It’s very difficult when you’re in February to make a prediction, how price mix are going to work throughout the year because we still have some pricing to go, we have portfolio mix effect that we need to understand a little bit better, it’s too early and you have the geographic mix that you need to understand as well.

When I say that our price mix last year was 4.2%, pricing was much modern there, but you have the impact of some portfolio mix and the impact of geographic mix there, so we need to understand, how these three moving parts are going to work in 2015.

But I have to say that, if I look now February 2015 versus February 2014, it looks more solid, no doubt about that , but we have to wait and see..

Yeah, Jon I mean we said last year that we want to reward our shareholders with a real increase in dividends in sterling terms. We’ve done that this year. We have a strong balance sheet, obviously we’ve looked forward to see what the impact of the Reynolds, Lorillard deal and doing the Souza Cruz deal, if we do make an offer would be.

And I’m confident we can continue to reward shareholders with real increases in dividends in sterling terms, even if sterling continues to strengthen because we got a strong enough balance sheet and strong cash flows to deliver on that..

This is Adam Spielman from Citi, three questions [indiscernible]. First couple I’ll ask from [ph] hemisphere, can you give us an outlook for Australia.

Secondly, in the document you’ve said there’s been I think some increased down-trading professional activity in South Africa and I think you said other African markets and so a little comment on the would be very nice too.

And thirdly returning to the next generation question, are you planning to build clones [ph] to make the heat sticks anywhere or how should we think about capacity?.

Okay, let me start with Australia. Three or four years ago as we had a player in the market playing the low price segment by itself.

Because we had price increases in Australia, not moving that fast, the segment was growing and we were declining a little bit market share in the last three or four years, but not significantly, 3.4% and we let it go because we didn’t want to jump on that there’s profitability.

But what’s happened, we had an implementation of the second year of the four year’s excise increase in Australia, 2.5% excise increase as you are aware of and the prices went up quite significantly and the segment started to grow very fast. So we had to participate there, so that’s why we launched at end of first half of last year, Rothmans.

That was a very successful launch. This brand now, after eight, nine months in the market has 9% market share already. And BAT Australia in the second half of the year is back to growth, so this is very good.

Unfortunately the pricing format is not very solid, just to have an idea, recently I think that one month ago we came with a price lists, a price increase, it was followed by one competitor, it was not followed by the other, we had to roll it back. So we’re doing better in Australia, I think we have to prepare [ph] the organization for the future.

I’m very confident about the Australian market for the future, but the price environment is not very solid yet. The South Africa question, I think that when I was talking about low price competition was related to South Africa first of all.

Let me talk a little bit South Africa, we have seen some low price competition of South Africa driven by several reasons. First, because of the strength of BAT in that market, we have more than 82% market share. So it’s very difficult to compete against us there.

We have outstanding capabilities in the [indiscernible] portfolio, so it’s very difficult to against us. That only [ph] usually prices one of the two that’s used. And also the consumers in South Africa especially strive to - we have some - disposable income is not that - the growth, the decline is happening.

So for those reasons we have some low priced completion there, but [indiscernible] reacting well as I said, the strengths that we have in the market allow us to face them. But this is not a new thing, this is happening for the last three, four, five years and our position has been strong for those years, but yes, we have low price competition there.

The same thing that you have in Canada, the same thing that you have in Brazil, the same thing that you have in several markets in the world, this is not a new thing. So the third question is about NGP. We’ve been working very hard in the NGP to - and we’ve made some substantial investments in the last couple of years in manufacturing capabilities.

And we produce our [indiscernible] inside BAT and all the devices are of external partners. In terms of THP or developing best spoke [ph] proprietary technology and we’re going to use our facilities to produce the products. So I don’t expect huge investments going forward in our manufacturing facilities.

So we’re not going to view the specific plants for THP or for cigarettes..

Let me just come back on South Africa, two sub questions I guess. One is, can you talk about the pricing environment in South Africa specifically, you talked about Australia.

And secondly, is the single player - in Australia there was a single player, I think you said that nearly triggered the down-trading, is that also true in South Africa or is it everyone is growing that or developing that results?.

I’ll not use the expression growing that, we can use the expression of playing there because they’re not growing. We’re doing very well in South Africa.

Well, we have completion from local players like in Brazil, we have competition for all international players and all of them are trying to play in the value for money categories stronger because the segment that they believe that can grow in the future.

We have responded with the launch of B&H, we have responded with some actions in that market and these actions are working quite well. The price environment is moving in South Africa, but of course if you have more launches in the value for money, you have a tendency of having a down-trading.

So there is some down-trading in South Africa, the answer is yes. But price is moving there. Should have been one of the markets when we’ve answered the question about down-trading, and there’s some down-trading there. Any other questions? Yes, John..

A quick one about Venezuela, can you remind us what exchange rate you’re using out there and is there any cash that’s stuck out there or are you getting cash back Venezuela happily?.

Yeah, right. We translate Venezuela against the - against sterling is 71.65, obviously..

This goes by the minutes..

Yeah, that’s the point. It does change by the minute. We’re considering what happens in relation to the new rates the [indiscernible] rate that they’ve announced in Venezuela, obviously that’s floating anywhere between 170 to the dollar now and 200 and obviously that’s part of our consideration with the transactional FX that we highlighted this year..

Okay, one last question..

Yeah, Charles Manso from Soc Gen. On Russia, could you give us an update of what’s happening to the Russian premium segments and your share within the Russian premium segments and given the pricing and Russia has been so strong for the last two years, given the pressures on disposable income, whether that’s getting tougher going forward.

That’s the Russian question.

And just a follow up on the [indiscernible] questions on mix, you talked about mix a lot here, do you expect the general mix drag [ph] for the industry and for you in 2015 to be greater than it was in 2015?.

Okay, regarding Russia. We have a substantial price increase last year around 8 to 9 rubles, we’re have in general this year as well. We usually have a second one in the second half of the year. I’ll talk about the history. So the consumers are under stress there, so we saw in Russia, some down-trading.

That’s why the value for money category there is growing very fast and that’s why we launched Rothmans as an offer in value for money category. We still have the low price categories a little bit higher as an international offer in the value for money category.

And it has been probably the most successful launch in Russia in the last years, so the brand is doing extremely well. So I’m very happy with the performance of the Russian business, profit growth was substantially higher last year compared to the previous year, so it’s moving well from the profit point of view. The industry is taking prices.

Regarding the premium segment we see a decline in the premium segment, but Kent has declined a little bit of share 0.2 and share down because of the decline of the premium segment, but Kent inside the premium segment is stable.

Our market share, one of my collogue [indiscernible] 44%, 45% of the segment has been stable, around stable and the brand has stabilized in the last part of the year of 2015, either with the decline of segments. So we put some innovations behind the brand like capsules, so we have hope that the value will go back to growth next year.

But yeah, we see some down-trading in Russia, but from the profit point of view the industry is taking price and things are moving well from his point of view. Regarding the mix, well the mix, we have two issues with our results in terms of the mix. The first one is geographic mix, that’s not new, is happening for the last years.

BAT tends to grow more in developing markets, which is part of our strategy anyway. So the margins are lower, the potential for growth is higher. So this is going to happen over time, but we over compensated this because you always have an improvement in our portfolio mix in BAT because the Global Drive Brands are growing very fast.

Remember 10 years ago, Global Drive Brands were 20% of our portfolio, less than 20%, now it’s 40%, so it just shows, how strong is the growth of our Global Drive Brands. This year Global Drive Brands grew 900 basis points, 0.9% market share, that’s a fantastic performance and this year has helped to offset some of the geographic mix.

So mix in terms of Portfolio mix for next year, I believe that the value for money is doing very well. I don’t see things changing dramatically from 2014, as I said in the beginning of my speech.

I don’t see things getting worse, but I don’t think that you’ll see in 2015 a huge growth in the premium segment and a decline in the value for money segment.

I think things will stay as it is for the time being because I don’t see that on a worldwide base; consumers having more money to spend, so I don’t think that disposable income is going up or never is across the world.

We’re still facing that problems in Western Europe, we still face that problems in Latin America, so I think that’s going to be more of the same for 2015 against 2014, not worse. Okay, can I have a last question here, David..

Just on the cost side, so lot of the SAP facilitate to cost [indiscernible] support service, is there a couple of competitors in Europe in particular we can figure production close to couple of [indiscernible] if it’s significant.

Is there more the BAT plans to do on the operational side as Europe is something is which I think can talk about because of sensitivity, is there something that we should be looking forward in the next year or so, but we see [indiscernible] bigger things happening on the operational side of the business constantly?.

Yeah, [indiscernible] is subject to information consultation rules in Europe, but obviously it expects a business with a decline in volume base to be reviewing its footprint, not just in Europe but globally and you can count on the fact..

Okay, thank you all very much for coming. We appreciate that. If you have any other questions, you can ask Mike and he will be right there to help you. Thank you very much..