Matthew Phillips, Chief Development Officer · Source: Grant O’Connell, Stéphane Colard , Xavier Cahours and John D. Pritchard; An Assessment of Indoor Air Quality before, during

Quality Growth – New Consumer Experiences

Matthew Phillips, Chief Development Officer

2 |

Disclaimer

Certain statements in this presentation

constitute or may constitute forward-looking

statements. Any statement in this

presentation that is not a statement of

historical fact including, without limitation,

those regarding the Company’s future

expectations, operations, financial

performance, financial condition and

business is or may be a forward-looking

statement. Such forward-looking statements

are subject to risks and uncertainties that

may cause actual results to differ materially

from those projected or implied in any

forward-looking statement. These risks and

uncertainties include, among other factors,

changing economic, financial, business or

other market conditions. These and other

factors could adversely affect the outcome

and financial effects of the plans and events

described in this presentation. As a result,

you are cautioned not to place any reliance

on such forward-looking statements. The

forward-looking statements reflect knowledge

and information available at the date of this

presentation and the Company undertakes no

obligation to update its view of such risks and

uncertainties or to update the forward-looking

statements contained herein. Nothing in this

presentation should be construed as a profit

forecast or profit estimate and no statement

in this presentation should be interpreted to

mean that the future earnings per share of

the Company for current or future financial

years will necessarily match or exceed the

historical or published earnings per share of

the Company. This presentation has been

prepared for, and only for the members of the

Company, as a body, and no other persons.

The Company, its directors, employees,

agents or advisers do not accept or assume

responsibility to any other person to whom

this presentation is shown or into whose

hands it may come and any such

responsibility or liability is expressly

disclaimed. The material in this presentation

is not provided for tobacco product

advertising or promotional purposes. This

material does not constitute and should not

be construed as constituting an offer to sell,

or a solicitation of an offer to buy, any

tobacco products. The Company’s products

are sold only in compliance with the laws of

the particular jurisdictions in which they are

sold.

Imperial Brands Investor Day | June 2016

3 |

Consumer NeedsMore consumers, more occasions

Consumer

focus


4 |

Future Opportunity Nicotine without tobacco


e-vapour

Chewing tobacco

Pipe/Rolling tobacco

Cigars

Snuff

` Cigarettes

0%

20%

40%

60%

80%

100%

1880 1895 1910 1925 1940 1955 1970 1985 2000 2015

Nicotine by consumption vehicle

Consumers have enjoyed nicotine

in different formats for centuries

5 |

Consumers


The experience and rituals of smoking but without tobacco

Tobacco

Heated and

hybrid tobacco

products

Combustible

tobacco

products

e-vapour Nicotine

replacement

therapy

Non-Tobacco

6 |

Fontem Ventures


• Established Fontem Ventures

• Built our know-how

• Acquired and developed IP

• Acquired blu

• Assembling the technology roadmap

7 |

E-vapourQuality, Agility, Discipline


• Lean and scalable

operating model

• Science and regulation

will shape category

• Best brand in blu

• Pursuing best

experience through

technology

• Build presence in 4 key

markets then scale

• Licensing 1st generation

technology

Quality Growth – Our Assets and Strategy in E-vapour

Arthur Van Benthem, CEO, Fontem Ventures

9 |

E-vapour does not Fully Satisfy Smokers …Yet

• Low conversion rates, despite

high awareness and availability

• Reflecting smoker dissatisfaction

with EVP performance

• “an eVape is just not a cigarette”

85%

57%

6.5%

80%

85% of US smokers are aware of EVPs

57% of US smokers have tried

Only 6.5% are loyal users

80% of regular vapers continue to smoke


10 |

Endorsement is Building in Europe

• “e-cigarettes are 95% less harmful to your health than normal

cigarettes”

• “helps most smokers to quit tobacco altogether”

• “regulation should not be allowed to significantly inhibit the

development and use of EVPs”


• “today the work of the HCSP shows that e-cigarettes can be

considered as a tool for tobacco cessation for smokers… and

constitutes a harm reduction tool”

11 |

FDA Deeming Regulations

• Near term - compliance and costs will push out

least reputable suppliers

• Longer term:

– quality of EVP products will improve

– sales through legitimate retailers

– positive impact on our market share and margins

• Concern - product authorisation process

slows innovation


12 |

Expected Growth of E-vapour?

2020F

Canaccord

Technavio

Wells Fargo$34B

2019F2018F2017F2016F2015201420132012

$21B

80% in 4 markets todayUS, UK, France & Italy

90% in 7 markets by 2020Plus: China, Poland & Germany

Technology & Science Unlocks growth

GrowthNot linear


Quality Growth – Science of E-vapour

Joe Thompson, Director Product Science

14 |

Answers to the 4 Big Science Questions

What impact do EVPs have on

consumers?


bystanders?

What is the addictiveness

and health impact of nicotine?

Do EVPs re-normaliseor act as a gateway to tobacco?

1 2

3 4


15 |

Impact of EVP on Consumers?


>98% reduction of harmful chemicals

Source: Rana Tayyarah, Gerald A. Long. Comparison of select analytes in aerosol from e-cigarettes with smoke

from conventional cigarettes and with ambient air Regulatory Toxicology and Pharmacology 2014, 70, 704-710.

Conventional

cigarettes

AirCarbon

monoxide

Carbonyls Phenolics Volatiles Metals TSNAs PAA PAH

100%

75%

50%

25%

0%

100%reduction

>99%reduction

>99%reduction

>98%reduction

>98%reduction

>99%reduction

>98%reduction

>99%reduction

EVP

Q1

16 |

Impact of EVP on Consumers?


Reduced toxicity in vitro

Source: Misra, M.; Leverette, R.D.; Cooper, B.T.; Bennett, M.B.; Brown, S.E. Comparative in vitro toxicity profile of electronic and tobacco cigarettes, smokeless tobacco and

nicotine replacement therapy products: E-liquids, extracts and collected aerosols. International journal of environmental research and public health 2014, 11, 11325-11347.

Q1

Conventional

cigarettes

Control

100%

75%

50%

25%

0%

Cytotoxicity

(NRU)

Bacterial

mutagenicity

(Ames)

Genotoxicity

(IVM)

>99%reduction

>98%reduction

>99%reduction

EVP

17 |

Supported by Clinical Trials

Source: D’Ruiz, C. Evaluation of biomarkers of smoke exposure in adult smokers following dual use and

complete substitution of cigarettes with electronic cigarettes. Tobacco Science Research Conference 2015. Imperial Brands Investor Day | June 2016

Q1

% change in blood% change in urine

(0%)

(25%)

(50%)

(75%)

(100%)

E-cig use Dual use Cessation

-69% -35% -70%

1-OHP(pyrene exposure)


-94% -30% -94%

S-PMA(benzene exposure)


-85% -32% -86%

CEMA(acrylonitrile exposure)


-90% -26% -84%

MHBMA(1,3-butadiene exposure)

(0%)

(25%)

(50%)

(75%)

(100%)


-62% -22% -66%

NNAL(TSNA exposure)


-93% -37% -98%

NNN(TSNA exposure)


-83% -36% -87%

3-HPMA(acrolein exposure)


-82% -33% -88%

HMPMA(crotonaldehyde exposure)

(0%)

(25%)

(50%)

(75%)


-83% -23% -75%

Carboxyhaemoglobin [COHb](carbon monoxide exposure)


-37% -17% -99%

Nicotine(nicotine exposure)


-30% +15% -98%

Cotinine(nicotine exposure)

18 |

Impact Of EVP On Bystanders?

Source: Grant O’Connell, Stéphane Colard , Xavier Cahours and John D. Pritchard; An Assessment of Indoor Air Quality before, during and after

Unrestricted Use of E-Cigarettes in a Small Room. International journal of environmental research and public health 2015, 12, 4889-4907.

Q2


Conventional

Cigarettes

Air

100%

75%

50%

25%

0%

Nicotine Harmful Chemicals

80%reduction

At background level

EVP

19 |

Do EVP Act as a Gateway to Tobacco?

• Investigating EVPs and smoking initiation,

relapse and dependency on nicotine

• 30,000 vapers enrolled


• EVP being a gateway to smoking is not evidence based

• Two behavioural studies by the UK Centre for Substance Use Research*

*Studies funded by Fontem Ventures

Q3

US study

• EVPs are a roadblock to smoking initiation,

not a gateway

• EVPs de-normalise smoking, rather than

re-normalise it

UK study

20 |

Addictiveness and Health Impact of Nicotine?

• Nicotine is regarded as addictive

• EVPs meet consumers smoking-ritual needs

• Growing evidence that EVPs support smoking cessation


No toxicity

concern

Nicotine is

regarded

addictive

Long term

health risks?

• No toxicity concern with nicotine in the small doses in an EVP

• USSG: Science is inadequate to conclude either way on nicotine and cancer

• Any long term risks are unknown

• Further long term research is required

Q4

21 |

Answers to the 4 Big Science Questions


consumers?


bystanders?

What is the addictiveness

and health impact of nicotine?

Do EVPs re-normaliseor act as a gateway to tobacco?

1 2

3 4


Consumer perception and behaviour assessment

Post-market surveillance

Quality Growth – Our Strategy in E-vapour

Arthur Van Benthem, CEO, Fontem Ventures

23 |

blu Strategy

Global

• blu

• Product range

Invest

• Brand

• Innovation

• Digital

Global

• blu

• product range

Build

• Lean and

scalable

operating model

Profitability

• 4 markets

• IP licensing


24 |

blu is the Best Brand

• The consumer preferred e-vapour brand

• Enjoy your moment, your truth, and make it matter!

25 |

Quality Growth

Imperial Brands Investor Day | June 2016 Source: Nielsen retail audit

• Market

• Conversion

• Growth momentum

• Best product, best brand

• Consumer loyalty

26 |

blu Creates Value

Cigarettes

£0.50

blu G2

£0.58

blu

G3

£0.67

Daily gross margin earned with cigarettes and blu

from an average consumer in the USA


27 |

Sources Mainly from Lower Tar and Menthol


28 |

Four Levers to Drive Quality Profit Growth

OnlineTrade

margin

Pricing Economies

of scale


29 |

Roadmap to a ‘Better than a Cigarette’ Consumer Experience

Vaping

Flavour

Design

Accessories

Vape

Draw

Kick

Hit


30 |

Convince Yourself…

G3

works like a cigarette

Choice

Simplicity

Style

Familiarity

Responsive


31 |

E-vapourQuality, Agility, Discipline


• Lean and scalable

operating model

• Science and regulation

will shape category

• Best brand in blu

• Pursuing best

experience through

technology

• Build presence in 4 key

markets then scale

• Licensing 1st generation

technology

Documents

Matthew Phillips, Chief Development Officer · Source: Grant O’Connell, Stéphane Colard , Xavier Cahours and John D. Pritchard; An Assessment of Indoor Air Quality before, during