Good morning everyone and welcome to British American Tobacco 2017 Preliminary Results Presentation. I'm Nicandro Durante, Chief Executive Officer of American Tobacco and with me this morning is Ben Stevens, Finance Director. 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 you to ask questions. Before I start the presentation, I will take you that you have all seen and read the disclaimer. 2017 was a transformational year for BAT, not only did they deliver on the financials, but we also completed our acquisition of Reynolds America, the largest tobacco deal in history. This is a transformational deal providing BAT of access to one of the most profitable markets in the world, our unique portfolio brands and products and further it reinforces the long-term sustainability of our commitment to high-single figure EPS growth. I’m proud to say that once again we have delivered on this commitment. At current rate, adjusted EPS grew 15% and was that 10% on a constant currency basis. This was driven by the continued good performance of our combustible business, with the GDBs the newly acquired U.S. brands and the group’s overall growing share. Reported EPS was up over 600% mainly due to a counter treatment of the Reynolds' acquisition. Ben will talk more about this later. 2017 was also a transformation year for us in NGPs. Our expanded vapor business reached an annualized revenue of nearly £300 million and a strong growth of glo Japan drove THP revenue from zero to over £200 million. In total, the combined NGP business delivered £500 million of group revenue on an annualized basis in 2017, meeting the target we set…

Thank you Nicandro. As Nicandro said in his opening, this year’s numbers have been significantly impacted by the accounting treatment of the Reynolds acquisition. Revenue was up 38% and profit from operations increased by 39%. This reflects the additional volume of 36 billion fixed revenue of 4.2 billion from profit from operations of 1.3 billion from the inclusion of Reynolds from the days of acquisition. Diluted EPS was up over 600%. You can see from the slide, this is mainly due to a gain of £23.3 billion on the team’s disposal of your associate holding in Reynolds and deferred tax credit created by the revaluation of the deferred tax liability relating to the acquisition as a reduced tax rate following the U.S. Tax Reforms. More details on the adjustments are available in the announcement published this morning and there is a reconciliation of IFRS to the adjusted numbers in the supplementary slides of this presentation which are available on our website. I do not propose to go any deeper into the technical accounting details in this presentation, but for those of you who want to go into the detail in more depth, please contact IR after the meeting closes. So for clarity, I’ll now focus on the adjusted organic results which exclude the results of Reynolds and our other acquisitions. Organic volume is down 2.6% this is mainly due to industry volume decline in particular in Ukraine, Brazil, South Africa and Russia driven by exercise increases and the industry trade growth. This includes THP volume of 2.2 billion sticks. Adjusted organic revenue was up 6.5% or 2.9% on a constant basis benefitting from higher pricing across the majority of our markets offset by negative geographic and portfolio mix of around 1.4%. Adjusted organic profit was up 7.8% benefitting from the…

Thank you, Ben. 2017 was a year, which changed the shape of the Group. We invested heavily into NGPs with excellent results and our combustible has continue to perform strongly. And this is expected to continue in 2018. It is an exciting time for BAT and we remain confident in our ability to continue to deliver high single-figure earnings growth in the years to come. Thank you. And I'll open up for questions for those of you in the room. Who would like to start? We need a microphone because the sound system is not working that well. So if you guys can wait for the microphone to get to you?

Thanks Alberto Lopez from JPMorgan. Couple of questions from my side. First, how should we think about the investments that you are doing this year beyond 2018? Is that some investments go off the base as we go into '19-'20? Also as you give little bit of details on what exactly are you spending is it in terms of device discounts, is it infrastructure, store rollout, et cetera? And then, I was trying to get your views on Japan. Since THP is doing very well. What would be your views on how big can THP be as in the total Japan market this year? And what would you aspire to capture from that share of a segment.

That's the questions. So I'll try to answer all. So in terms of investment beyond for 2018. As we just mentioned, we are going to use part of the U.S. Tax Reform for additional investment in BAT. So I expect that in all, we will have an additional just in THP space, THP and vaping, mainly THP another £500 million for 2018. So it's a huge investment to allow us to rollout to at least 40 markets THP and several others for Vaping in 2018, because we are capacity constraint as you just mentioned. The breakdown of the investment in terms of stores and so on and so forth, I don't have this here, but I can supply this later for you. No problem at all. We don't usually disclose the investment in this kind of detail, but I'm sure that you find a way of percentage base to tell you whatever you are. In terms of Japan, and your question was about Japan, how big the segment is? Well, as you know, the segment is quite substantial in Japan. It's very difficult to predict how it's going to be in one year time, but do I see this growing for 30% of the segment of the market. Yes, I see this growing for 30% of the market. I cannot be precise on how long it's going to take it. Talking a little bit about our platforms in Japan. You know that you are capacity constraint. I think that the numbers are showing that despite being capacity constraint since the national launch in October, we have provided we are supplying one device per store per week a national base in Japan. And even though our market share is growing substantially in December over 3.3 the less really that you have…

Hi, its Alicia Forry from Investec. My question is on the EMEA region which however is perhaps one of the weaker areas this year. Do you expect the down trading in Russia the impact of the excise in GCC foreign exchange headwinds on the COGS in that region to persist i.e. should we see another year of EBIT being under pressure in this region and then secondly I was interested to hear even more about the THP launch in Russia you mentioned in briefly in the presentation but any additional color would be appreciated. Thank you.

Okay. Let me start with EMEA in general it was a difficult year for 2017 for a lot of different reasons. One of those for example we saw in Russia excise absorption a very competitive price environment there. It seems that things are getting better, we see a much better environment. The second one was that so discretionary exercise increase with the GCC that's a really important market for us, not only for BAT for other players as well, in which the excise increase demanded us to double price, and one of the reasons that you have a hit in turnover last year, because turnover went down dramatically in the second half of last year in the GCC. And I think that probably those are the two main reasons for EMEA being under pressure and I think that ahead of information as well the transactions headwinds that we had in Russia last year that offset the COGS as we have mentioned. We don’t see transactions headwinds for 2018 mixing levels 2017 so it's going to easy on that side for BAT as a whole we see in transactions headwinds it is going to be a 1% only for 2018 and much of better position that it was in 2017 even better than 2016 and if it’s going to be in that range we are not going to report that numbers with and without transaction, because BAT doesn't believe that's the right way to report anyway. So that's the COGS element. I think that things should be a better environment for 2018, but it's too early to call, so have to wait a little bit but it's been very confusing that are improving but don’t forget that in the GCC while comparing 12 months with this see this posture excise increase against six months of that the prior year it's going to affect 2018 anyway not all products but all the competitors but I think the environment is better.

Remember the selling prices had to double in the GCC after the excise increase has been very disruptive to the market.

Yes, the decline in revenue there in net revenue there was 26% I think in the second half because of the huge exercise they are down trading their markets. But you know you should never lose focus of a good prices now our market share is I see that's 80 to 100 basis points higher, we had found one of the most important segment in the GCC is the value for money, out of this we did extremely well we have Pall Mall there and I think that our market share has increased substantially there. Substantially. So when the market picks up again, I think that we would be in a very good position there so that’s the GCC. Regarding the 19 Russia it's six weeks, so it's too early to call and we are capacity constrained as well. We had launch the date of last year in additional four markets and all of them like Romania is three weeks after the launch, Russia is six week after launch so it's too early to call, but the initial reading of the market is that their market is consuming everything that we have in stores. One, device per week per store, and we are selling everything so it's going very well as we have extremely limited distribution, because our focus for 2017 has been in Japan, so we are giving all the supply that we have for Japan, because it's a more developed markets. So the other markets like Korea or like Russia or like Romania, we have very limited supply that's going to be lift in the second half of this year. I was discussing these earlier with some of you [indiscernible] it will be full supply around March and April but we have to do capacity in order to be able respond to the market needs. So around May and June, we will be fully unconstrained. And I think, that's the reason that we are scheduling all the launches in the market at the beginning of the second half of the year, probably third quarter of the year. And then you will see unconstrained supply in places like Russia, Romania, South Korea so on and so forth. Then you have a better reading about the performance of the brand. But if you look at Japan as I said as a proxy, with the numbers that I gave earlier on. It gives the rationale for the confidence. So that's why I stated that £1 billion it should substantially exceed, because it's beyond our expectation of the results in Japan. Adam.

Hi. Can I ask three questions? First of all, you talked about device constraints. Just within your Tobacco Heating sales, what percentage roughly is coming from devices versus the renewable? And related to that for each sort of consumer you have, how many devices that he or she needs to be glo consumer? So that would be one question. And then I have got a couple of follow-ups.

I think the relationship between device and consumers is one to three in terms of revenue. The percent of device sales, to be honest, can I go back to you at the end of this session? And I'll give you a more appropriate number? If not, I'll give you a very round number here? I'll get back to you.

Thank you. Moving on the U.S. As you look forward, is your priority really operating profit growth or is it market share progression? In other words, would you be happy in 2018 to have flat share, but nice growth at profit? Or would you if you have a choice so would you first share growth, but no profit growth. If you have to choose between those two?

Okay. We are in the business of making money, Adam. We are not business of making market share of volume. Market share of volume, our profits should make money. So I don't see that you have this choice is either go for market share or go for money. We try to have the right brands in the market with the right consumer propositions that should drive our market share, that should drive volume, that should drive money. So I don't think that you start to think, okay, less market share here to have a little bit more money. That's not the discussion that we have inside the Company. So, that's not really top of my mind, but I think that’s what BAT has shown in the last years. And if you look at the combustible business, the business model that we have, it have more new innovations in the market. And I think that we done extremely well of our portfolio of that. We have been declined in the last years much rather than the industry. And this year was not different, driven by the GDB, the GDBs have grown 600 basis points in six years, it's a fantastic performance. And this will help us to over deliver the financial results. So that's this strategy for the world and that's the strategy for U.S. So, I'm very happy with the results of Reynolds last year. They had flat share in the first half. The second half they grew, they have a very good growth in terms of market share, but we will be competitive in pricing.

And then the final question. If I think about the rest of the world and around so no U.S. Tobacco Heating products. In 2015-2016 you had over 5% organic sales growth, this year it was two points something which would imply that it’s a slowdown. And I’m just wondering do you think that slowdown is temporary or do you think its permanent and if we think out the next few years, we are getting back to the 5% again excluding Tobacco Heating, excluding in the U.S.?

I don’t think that you can exclude the U.S. yes because of it then compares. I don’t think that you have to, you can exclude THP. THP and the combustible they are categories in which the migration is 100%. So when you leave the combustible category go through THP I don’t see that you can exclude that then you start saying let’s excludes Japan or let’s excludes Russia, you cannot do that. So I had to look at both things together if not they become very, very difficult because the migration for one category is 100% to the other category and then [indiscernible] tobacco. So if you look at both categories, because it’s how I like to read it, and I think that’s the right way to read it. If you look at the price mix that is the most important thing that you should be discussing here. The price mix of last year was 5.5% and if you look at the price mix of the last three years on average was 5.6%. Our matter is four to six was in the high end of the matter. So I think the price mix in 2017 despite everything that they said was solid, was quite good. Of course there are some concerns and I heard some concerns, because in 2016 the price mix was a little bit higher than usual 6.5%, 6.7% and there was a decline for 2017 but there a good rational for that. As I said before, we have some excised absorption, because of competitive environment in places like Italy, France, Russia. [indiscernible] increase that was not past the price in 2016 in places like Brazil, Malaysia and you had the issue that mentioned turnover in places like the GCC. But despite of that, the price mix was 5.5% was at a high end of our metrics, was quite solid and it was on par with the average over the last three years. And if you take five years, you see that was a little bit higher. So it’s not bad, it’s very good. Thank you. I have a question down here and then I’ll go back to you okay because he raised before.

Good morning Michael Bennet at Jefferies. And just a few question on the SC application in the U.S please and firstly are you confident that at the proven I think you said around mid-year,. And secondly can we get any details on commercialization in place and then thirdly and could you give any details on capacity you have in place for the carbon pit and I’m surely proved popular in the U.S. Thank you.

Well, the carbon tip application, the submission was July 2017, we expect the decision to be half one 2018. Unfortunately we don’t manage this process, FDA manages the process, our expectations is that half one of this year you will have FDA making this, I cannot guarantee that but our expectation is going to before half one 2018. And the half one 2018 is confirmed and you are able to launch dispersing the market is going to happen in the second half we have place for that in United States and we don't have capacity problems. So that's what I can disclose, I cannot disclose the states and things like that because these are plans that are quite confidential, but we would be launching before the end of the year in United States and you won't be capacity constraint in the case of. But as I said this is all dependent on that for the year it's very to confirm me to tell you what I see that's going to happen and my expectations we will have these going ahead. I have a question here.

Thanks. Hi Jon Leinster, Berenberg. Actually a few I’m afraid. First of all I think you mentioned in past, intense of competition in the South Korea in terms of the Heated Tobacco market was that a reference to Phillip Morris or was that a reference to the new products from KT&G?

The reference for new proper KT&G because the size of the company in that market they have a lot of trading power in order to put forward their propositions so I think that's more on that South Korea than anything else, but the main reason for having 0.7% share is South Korea is the initial supply as well. As soon as we have an constant supply we think that you will have the same sales tax in South Korea that we had in Japan. But I was mentioning a second player a third player in the category in my comments.

The product from KT&G seems credible there.

That I cannot say. Actually I do have to ask KT&G I think that glo has their best product in the market and has the widest range of flavors in the market, actually we have with the brand as I've said the net inflow of consumers in Japan is positive for glo. So I'm extremely excited about what we have in the markets and now our new launch is in terms of consumables and device that's what I can tell you?

Second, one when you launch Raptor and some of the other products in the vacant market do you expect that to cause a step change in the growth of the Vype market in the way that actual did in the U.S. market?

That's a very good question. The answer is yes and as I've said before and in October, Investor Day in October, I think that it is a ground breaking developments. I think that ePen 3 and Raptor best into all of the best-in-class the initial results of the test mark that we are going for UK is very small test market at extremely positive. we think that you don’t see now a numbers because we are playing safe here until you have in the prices available to launch for launch but I think that could be a step a very important step in terms of the growth of the category and the growth of our business. So I'm very optimistic about those products but one of those, you will come at the end of the year as we said in the Investor Day we will do a launch maybe beginning on the second half of next year that's roughly but it's not coming to the market before the year-end and ePen 3 we are testing now probably in the year with the second half we will see a launch and later expansion for one of the countries. So we are just taking a little bit more time, it’s going according to what we have said in October but the timing that takes to guarantee that you come to the market with the right strategy with the right preposition in consumers' mind to meet consumer needs. And also there is an element here of margins. These are going to be products that will be in higher margins. And I think that from financial point of view, from a market point of view, I'm extremely excited about those developments. And they are going to go through FDA. This is now plans as soon as we have the final products, they are going to follow the FDA test. So everything has been met.

And lastly, do you think the health claims or medical claims. Do you think that's absolutely key to get in this, to getting heated tobacco to grow in Europe or indeed in the U.S.? Or do you think that's the key competitive tool, or do you think that's not necessary particularly?

Well, we don't have medical claim in Japan and Korea. I feel that market has growing for a lot of different reasons, and we discussed these several times before why to grow so far when you see another markets are not growing as fast. As you know as well as I know, it was once in Italy. At the same time that was once in Japan and it just look at the performance of both markets. There are a lot of reasons why it's going so fast in Japan and Korea. I'm not going to go back on that, because we discussed this so many times before and I think that is in some markets it can be more important than others. But if you ask me the question, do I see if I had a chance to use this tool, use these are important, but it's difficult to tell you in a worldwide basis. I think the some market is going to be more important than others. Can I have one more question before we close discussion? If there is one, yes, one there.

Hi, Mirco Badocco, RBC. So you mentioned a total cumulative investment in NGPs, $2.5 billion since 2012. I wanted to know if you can share more if you can give more color on how much that was behind heat-not-burn? How much behind, vaping and the state of CapEx and P&L?

We don't disclose this kind of data. To give you a breakdown of $2.5 billion and I have to say that some of the research that we do was for both categories and in terms of personnel was for both categories. So it's difficult for us to split indeed and so other laboratory work it was for both categories. So we don't disclose this kind of data. So guys, thank you for coming. We look forward to speaking to you in July at our Interim results and we will be reporting our new regional structures. So thank you very much for coming.