26 October - Interim Management Statement for the nine months ended 30 September 2011

• Good organic revenue growth of 7 per cent at constant rates of exchange
•  Volumes from subsidiaries decreased by 0.6 per cent to 523 billion, organic volumes reduced by 0.4 per cent
•  Global Drive Brand volumes grew by 8 per cent

Comment

Nicandro Durante, Chief Executive, commented “While the challenging economic conditions continued to impact consumers in some markets, other markets are showing signs of recovery. Excise-driven price increases in a few markets will continue to affect industry volumes. However, we have grown our Global Drive Brands and achieved good growth in revenue and profit. We are on track for another year of good earnings growth.”

SUMMARY OF PERFORMANCE

Trading update

British American Tobacco performed well in the nine months to the end of September 2011 with the Group increasing overall market share across its top 40 markets and with continued growth in the Global Drive Brands. Group volumes were slightly lower than last year as a result of the industry volume decline, although there are signs that this is moderating.

Group revenue for the nine months, on an organic basis and at constant rates of exchange, grew by 7 per cent, driven by continued good pricing.

Group volumes from subsidiaries were 523 billion, down 0.6 per cent, while organic volumes were 0.4 per cent lower. The benefit to Group volumes from exceptional sales in Japan was offset by industry volume decline following the significant excise-driven price increases in that market last year.

The four Global Drive Brands continued their good performance and achieved overall volume growth of 8 per cent. Kent was up 9 per cent, growing in all of its top ten markets, driven by Russia, Romania and Ukraine. Dunhill was only slightly higher than last year with strong performances in many markets, such as the GCC, Taiwan and Brazil, offset by the adverse impact of pricing activity in South Korea. Good performances in Pakistan, Russia, Germany and Romania contributed to a 12 per cent increase in Pall Mall volumes. Lucky Strike was up 9 per cent following good growth in Germany, France, Argentina and Chile.

The Group continues to improve its operating margin by addressing the cost base through factory rationalisation, systems standardisation and productivity savings.

Trading environment

The environment continues to be challenging due to the current economic climate although there are some signs that the impact on volume is moderating. However, the expansion of illicit trade remains a threat, driven by shock excise increases and pressure on consumers’ disposable income. In addition, a number of currencies weakened against sterling during the quarter.

Cigarette volumes

The segmental analysis of the volumes of subsidiaries were as follows: