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Reynolds American Inc.

Business Update

May 16, 2016

1

Agenda

Overview– Susan Cameron – President and Chief Executive Officer, RAI

Operating companies’ business and brand highlights– Debra Crew – President and Chief Operating Officer, R.J. Reynolds Tobacco

Financial position and outlook– Andrew Gilchrist – Chief Financial Officer, RAI

Closing comments / Q&A– Susan Cameron

2

Forward-looking information

This presentation contains forward-looking information. Future results or events can be

impacted by a number of factors that could cause actual results to be materially different

from our projections. These factors are listed in RAI’s first-quarter 2016 earnings release

and in the company’s SEC filings. Except as provided by federal securities laws, RAI is

not required to publicly update or revise any forward-looking statement, whether as a

result of new information, future events or otherwise.

Web and Social Media Disclosure

RAI’s website, www.reynoldsamerican.com, is the primary source of publicly disclosed

news, including our quarterly earnings, about RAI and its operating companies. RAI also

uses Twitter to publicly disseminate company news via @RAI_News. It is possible that

the information we post could be deemed to be material information. We encourage

investors and others to register at www.reynoldsamerican.com to receive alerts when

news about the company has been posted, and to follow RAI on Twitter at @RAI_News.

All brand references are for RAI’s operating companies’ brands

3

www.reynoldsamerican.com

http://www.twitter.com/RAI_News

www.reynoldsamerican.com

http://www.twitter.com/RAI_News

Adjusted vs. GAAP

RAI management uses ‘adjusted’ (non-GAAP) measurements to set performance goals and

to measure the performance of the overall company, and believes that investors’

understanding of the underlying performance of the company’s continuing operations is

enhanced through the disclosure of these metrics. ‘Adjusted’ (non-GAAP) results are not,

and should not be viewed as, substitutes for ‘reported’ (GAAP) results. A reconciliation of

GAAP to Adjusted results is at the end of this presentation.

4

Overview

Susan Cameron

President and CEO, RAI

5

Remember

this

check list?

6

Delivering on our objectives

Newport integration set for early completion by end of June

Generating strong business performance and momentum

Increased dividend by 16.7% in 1Q16

Reduced debt by $4.1 billion over the past year

On track for targeted $800 million in synergies

7

Strong start to 2016

$5 billion sale of Natural American Spirit business outside the U.S.

Completion of $3.6 billion tender offer / redemption of debt

Creation of RAI Innovations Company

8

Deeming Rule considerations

FDA regulations/oversight provide structure to category that

needed it

Rule recognizes distinctions in vapor restrictions versus

combustible products

Premarket authorization process has the potential to slow

innovation

Additional regulations could be forthcoming

9

is to achievevisionOur

transforming tobacco

market leadership by

10

Competitive strengths

Industry’s broadest array of strong brands

Leaders in innovation and new product commercialization

Effective and efficient business strategies and operations

Masters of consumer and trade engagement

High-performing work culture drives performance

11

Distinctive brands driving growth

• Cigarettes

• Moist

• Snus

• NRT

• Vapor

12

Youth Tobacco

Prevention

Tobacco Harm

Reduction

Commercial

Integrity

13

accelerating

effortssustainability

ourWe’re

14

Delivering outstanding total shareholder return

Since 2004 …

942%

Through April 29, 2016

Source: Bloomberg

15

Business & brand highlights

Debra Crew

President and COO

R.J. Reynolds

16

Adult

tobacco

reshaping consumers are

17

Trends driving consumer choice

Seeking Alternatives to

CigarettesDemographics

Menthol Value Hunting

18

Current cigarette industry dynamics

Macroeconomic factors positive for industry

‒ Stronger volume trends in 2015 and 1Q16; less than 1% decline

Migration and poly-use more prevalent

Moderate up-trading

Adult smokers’ preference for menthol

19

Positive macroenvironment for ATCs

$3.49$3.34

$2.40

$1.86

$0.00

$1.00

$2.00

$3.00

$4.00

2013 2014 2015 1Q16

Retail Gasoline Prices Hourly Wage Rate (Core Tobacco Consumers* – Selected Occupations)

National average price of regular unleaded gasoline

Source: Bloomberg

* Average of manufacturing, hospitality and construction industries

Source: Bloomberg

$21.32

$21.80

$22.31

$22.66

$20

$21

$22

$23

2013 2014 2015 1Q16

20

Up-trading in total tobacco and cigarettes

Total Tobacco/Vapor Volume Premium Cigarette Mix

Source: MSA, Inc. shipments to wholesale; industry estimates

0

100

200

300

400

2013 2014 2015

Cigarettes Vapor RYO/Cigars

Moist Snuff Snus Chewing

-1.9% -0.9% -0.7%

Source: MSA Inc. shipments to retail

Billions 75.2%

70

75

2013 2014 2015 1Q16

%

%

21

Adult smokers shifting to premium

Source: MSA, Inc. shipments to retail, 1Q16.

Price

point

Low

High

$5.87 average U.S. pack price

22

Menthol share growing long term

Source: MSA, Inc. shipments to retail, Tracker FY 2015

2007 2008 2009 2010 2011 2012 2013 2014 2015

39%

34%

28%

49%

39%

34%

Menthol Claimed Usual Brand – ASU30

Menthol Claimed Usual Brand – Total Market

Menthol Share of Market

23

Smoking prevalence in U.S.

Source: NSDUH, September 2015. Past month cigarette use among people aged 12 or older, by age group.

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

25%

13%

21%

5%

Cigarette use - Age 26 or Older

Cigarette use - Age 12 to 17

Cigarette use - Age 18 to 2541%

28%

24

Cigarette portfolio

25

Strength in cigarettes

42%

55%

72%

93%

ASU30 Share

Menthol Volume

Premium Volume

Drive Brand Volume

Source: MSA, Inc. shipments to retail, 1Q16. Tracker FY 2015

26

93%

7%

1Q16

70%

30%

2014

Enhanced growth profile

RAI Operating Companies’ Portfolio Market Share

Source: MSA, Inc. shipments to retail

Camel, Pall Mall & NAS

All other brands

Newport, Camel, Pall Mall & NAS

All other brands

27

Strong across all key areas

Premium

Value

Menthol

Non-menthol

28

R.J. Reynolds

29

Volume

Net Pricing

Retail Market Share

R.J. Reynolds marketplace performance

+35.1%

+14.3%

+0.0 ppt.

1Q15

Source: Company filings; MSA, Inc. shipments to retail.

1Q16

30


Continuing ASU30 momentum

Optimize retail impact

Increasing ATC interaction

Newport – accelerated growth

+0.6

+0.5+0.4+0.3

+0.6

12

13

14

1Q15 2Q15 3Q15 4Q15 1Q16

Share of market(ppt. change from prior year)

31

Solid Newport growth across U.S.

OPPORTUNITY

SOM: 4.4

Menthol: +.2

Non Menthol: +.2

EMERGING

SOM: 9.2

Menthol: +.3

Non Menthol: +.2

Core

SOM: 21.7

Menthol: +.5

Non Menthol: +.2

TOTAL US

SOM: 14.0

Menthol: +.4

Non Menthol: +.2

Source: MSA, Inc. shipments to retail, 1Q16 vs. 1Q15.

32

Campaign encourages ATCs to use NewportPleasure.com

to engage with the brand and each other

‒ $500 instant wins every day; $100,000 grand prize

Significant increase in website visits

Newport’s Payday Everyday

33

Newport Smooth Select marketing support

Retail POS

Direct MailPrint Media

Email

34

Source: MSA, Inc. shipments to retail, Tracker.

Share of market

Increase brand equity programming

Revamp, upgrade product families

Squarely position in largest segments

ASU30 index of 175

8.2%

7

8

9

2012 2013 2014 2015 1Q16

Camel – positioned to thrive

35

Camel’s The Hump promotion

New promotion spotlights the ‘off-center’ with

unique content reflecting Camel’s character

Camel.com redesigned

– Bold design optimized for mobile devices

– Entire brand family on a single site

36

Camel’s Since Now campaign

Captures iconic nature of Camel

Celebrates Camel as an up-to-

date brand with strong heritage

Utilized at retail and in 1:1

marketing channels

37


Increase proposition

awareness, trial

Reinforce quality / value

proposition

Balance profitability and

market share

Pall Mall – equity focus

38

50

55

60

65

70

75

80

85

90

2010 2011 2012 2013 2014 2015 1Q16

Net Sales per Unit Share of Market

Santa Fe

39

Volume

Net Pricing

Retail Market Share

Santa Fe marketplace performance

+22.1%

+4.4%

+0.3 ppt.+0.3 ppt.


FY2015 1Q16

40

Source: MSA, Inc. shipments to retail, Tracker.

Share of market

Accelerating awareness

Driving broader retail distribution

Elevating brand and values

ASU30 index of 205

Natural American Spirit – tipping point

2.0%

0

1

2

2012 2013 2014 2015 1Q16

41

Teaching The NAS Difference

Direct-mail campaign focused

on why Natural American Spirit

is, and tastes, different– Reaching 30% more ATCs of premium

competitive brands than in 1Q15

– Generating more trial, more education

about the difference of NAS

42

Earth Day celebration

1.2 million ashtrays distributed

to adult smokers on Earth Day

with purchase of any cigarette

brand

Pocket ashtrays made from

recycled materials including

cigarette waste

Supports SFNTC’s “Respect

the Earth” commitment

43

120+CLEAN UP PROJECTS

20,000+BUTTS

COLLECTED

100+ORGANIC PROJECTS

30,000+POUNDS

OF FOOD

Community outreach

Employees participated in

over 230 butt litter prevention

and organic growing projects

in 2015

Teams partner with local

organizations to identify needs

Tangible demonstration of

SFNTC’s corporate values

44

growRoom to

Source: MSA, Inc. shipments to retail, 1Q16

Below nat’l avg.SOM 2.0 - 3.0 share SOM > 3.0 share

City

NAS

SOM

Boulder, CO 14.0%

San Francisco, CA 10.4%

Portland, OR 8.9%

Asheville, NC 7.3%

Austin, TX 7.0%

New York, NY 4.8%

45

Moist snuff

46

Volume

Net Pricing

Retail Market Share

American Snuff marketplace performance

+3.3%

+4.8%

+0.2 ppt.


FY2015 1Q16

47


Share of market

Expand brand equity initiatives

Broaden product, pouch innovation

Enhance retail presence

Grizzly – continued growth

30.8%

26

28

30

32

2012 2013 2014 2015 1Q16

48

Grizzly’s popular Tellin’ It Like It Is campaign

49

Grizzly Packs A Better Pouch

Grizzly focused on strengthening

lead in growing pouch segment

Offering engaging online activities

– Pack a Better Pouch sweepstakes

doubled Grizzly.com visits

– Online Pouch Toss played millions of times

50

Powerful promotions driving digital interactions

+ 10 million annual website page views

~750,000 unique visitors per year

+ 40% mobile interactions

51

RAI Innovations Company

52

BASE: 21+ Adult tobacco or e-cigarette consumers

Source: Tracker FY 2015

Adult Smokers 21+ 2012 2013 2014 2015

Trial - Vapor 37% 49% 58% 62%

Loyal (Vapor Only) 3% 5% 6% 7%

Innovation essential for category growth

53

Deems “tobacco products” not previously regulated by FDA to be subject to FDA authority

Bans sales to persons under 18, vending machine sales, free samples, and requires health warnings on products and advertisements

No ban on flavors for vapor, recognizing the potential benefits and risks

Premarket authorization required through PMTA, SE, or SE exemption

Deeming Rule overview

54

Prepared for vapor leadership

R.J. Reynolds / BAT vapor tech-sharing and licensing

‒ Marriage of world-class vapor expertise and capability

‒ Competitive advantage in tobacco transformation

‒ Agreement signed Dec. 1, 2015

RAI Innovations Company

‒ Created Jan. 2016 to drive speed-to-market for leading-edge products

55

VUSE – expanding market leadership

VUSE blu Logic MarkTen NJOY

56

VUSE - top innovative new product

$26.5$43.3

$69.3$82.7

$221.1

RUFFLESDeep Ridged

REDD'SWicked Ales

MarkTen MonsterEnergy Ultra

Sunrise

VUSE

“In the convenience store market,

median year-one sales across the top

10 IRI New Product Pacesetters were

$18.6 million, demonstrating the

power behind consumers' ongoing

quests for uniquely indulgent

experiences,” IRI said.

Source: IRI Market Advantage™. New products that completed their first year in calendar year 2015.

2015 Retail Sales at C-Stores(in millions)

Convenience Store News

April 20, 2016

57

Jan. 15 Mar. 15 May 15 Jul. 15 Sep. 15 Nov. 15 Jan. 16 Mar. 16

VUSE Cartridges Share of Market (excluding VUSE Solo)

Flavors

Original and Menthol

58

VUSE flavors

58Source: MSA, Inc. shipments to retail. Traditional retail outlets only

Current Platform Leading-Edge Innovation

VUSE evolution and innovation

59

Leading-edge products - ZONNIC

National expansion going smoothly

Expanding product line

‒ 40-count gum package introduced in April

‒ 10-count mini-lozenges coming in July

Leveraging consumer desire for alternative products

Aligns with tobacco harm reduction

60

Leading-edge products - CORE

Utilizes R.J. Reynolds’ heat-not-burn expertise

Test marketed in Japan, evaluating path forward with

additional activities

Leveraging consumer desire for alternative products

Continue learnings from marketplace

Aligns with tobacco harm reduction

61

Integration progress

62

Trade-marketing impact

Pre-Deal 1Q16

Retail contracts 150,000 200,000

- Contracts (% of industry volume) 80% 90%

- EDLP contracts (% of industry volume) 60% 70%

Adult smoker engagements per year 2 million 4 million

- Newport consumer engagements per year 0 2 million

Newport database of adult smokers 5 million 10 million

63

West coast - strong Newport retail presence

64

East coast - strong Camel retail presence

65

Modernized brand imagery

1970s

2016

66

Enhanced in-store presence

67

Lorillard transaction objectives

Strengthened U.S. cigarette market position

Enhanced growth and margin profile

Increased scale, transition of manufacturing

Significant cost and revenue synergy opportunities

Strong financial returns

68

Source: MSA, Inc. shipments to retail.

Strengthened position in marketplace

24%

33%

2014 1Q16

Top Competitor R.J. Reynolds

Share of Market

69

Source: Company filings, shipments to retail

Enhanced growth and margin profile

-3.3%

-0.1%

-5.2%

-0.2%

Cigarette Volumes

2014 1Q16

R.J. ReynoldsIndustry

58%

71%

2014 1Q16

Premium Cigarette Mix

70

Source: Company estimates, shipments to wholesale

Increased scale, manufacturing efficiency

65%

2%

25%

3Q15 4Q15 1Q16

% of Newport

manufactured by R.J. Reynolds

13.9

18.8

1Q15 1Q16

Cigarette Volume(In billions)

71

Strongest portfolio dynamics in U.S. industry

No. 1 menthol cigarette brand; no. 2 cigarette brand

No. 3 cigarette brand; leading total-tobacco brand

No. 1 value cigarette brand

No. 1 super-premium cigarette brand; fastest growing brand

No. 1 moist-snuff brand

No. 1 vapor brand; superior technology

72

Financial update

Andrew Gilchrist

EVP & CFO, RAI

73

Financial approach

74

Focused cost management

Strong balance sheet, cash flow

Committed to investment-grade rating

Leverage value-enhancing opportunities

Return value to shareholders

Near-term priorities

Growing the business

Capturing the transaction synergies

Deleveraging

75

NPM credit expiration in 2017

Credits resulted from settlements of MSA adjustment

claims with certain states

Reduced State Settlement expenses from 2013-2016

Meaningful opportunities to address the impact in 2017

RAI is confident it can maintain its strong record of growth

76

RAI performance

77

Operating Income

Net Income

EPS

Strong 2015 performance

+42.9%

+37.0%

+15.8%

Adj.

2015 vs. 2014

$2.57

$3,253

$6,953

Operating Margin +4.9ppt.65.1%

$1.98

$2,509

$4,438

41.6%

Adjusted GAAP

Reconciliation of GAAP to Adjusted results in Appendix 1

78

Operating Income

Net Income

EPS

Momentum continuing in 1Q16

+72.4%

+57.8%

+16.3%

Adj.

1Q16 vs. 1Q15

$2.49

$3,565

$6,142

Operating Margin +8.0ppt.210.6%

$0.50

$721

$1,319

45.2%

Adjusted GAAP


79

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

GAAP Adjusted

EPS more than doubled since 2004


$0.83$0.69

$1.98

$2.57

80

Buybacks

Dividends

Returning value since 2004

More than $16 billion returned to shareholders

– $13.4 billion dividends paid

– $2.7 billion share repurchases

2004 – YTD 2016

81

Attractive dividend

2004 2006 2008 2010 2012 2014 2Q16

Annualized rate of $1.68 per share

Up 35 percent in last three years

– Up 250 percent since 2004

$1.68*

$0.48

*2Q16 annualized

82

Lorillard integration

83

Initial financial objectives

$500 million in cost synergies realized Day 1

– $300 million additional synergies to be achieved in 18 months

Opportunity for revenue synergies

Accretive Year 1

– Strong double-digit accretion Year 2 and beyond

84

Cost synergies ahead of schedule

Initial integration expectations – 18 months

Current integration expectations – 12 months

2Q15 4Q15 2Q16 4Q16

85

10%

20%

30%

40%

50%

2004 2006 2008 2010 2012 2014 1Q16

Proven record capturing cost savings

RAI Adj. Operating Margin

45.2%


Results reflected in strong adjusted

operating margin improvement

Intense focus on efficiency

Continuous productivity

improvements

86

Revenue synergies being realized

31.6%

32.1%

1Q15 1Q16

23.5%

24.3%

1Q15 1Q16

Cigarettes Premium Cigarettes

Drive brand: Cigarette includes Newport, Camel, Natural American Spirt and Pall Mall; Premium includes Newport, Camel and NAS


Drive Brand Share of Market

87

Source: Company filings. Reconciliation of GAAP to Adjusted results in Appendix 1

Enhanced margin profile

36.7%

45.2%

2014 1Q16

Adj. Operating Margin

88

* Based on mid-point of company-provided 2016 adjusted EPS guidance range


Growth reflects transaction accretion

7.2%

15.8% 16.2%

2014 2015 2016*

Annual Adj. EPS Growth

89

RAI 2016 outlook(April 26, 2016)

90

Full-year earnings guidance

Adjusted EPS of $2.25 to $2.35

Adjusted EPS growth of 13.6% to 18.7%


91

Our priorities for use of excess cash are

RAI balance sheet metricsassessment of the

dividend payout ratio

and consideration of share repurchases

92

Summary

Solid balance sheet, cash flow

Strong and growing margins

Consistent earnings growth

Strategic transaction driving

transformation

Compelling shareholder return

and value creation

93

Excellent total shareholder return

1-Year 3-Year 5-Year 10-Year

Through April 29, 2016

Source: Bloomberg

Outpacing S&P 500 over the long term

S&P 500 RAI

40%

138%

239%

527%

94

Break

95

Closing comments

Susan Cameron

96

2016

strong growthon track for …

97

Our transformation journey gathers speed

A much stronger No. 2 U.S. tobacco company

Bringing bold vision and strategy to life

Delivering sustainable growth in key categories

Driving innovation and industry change

Richly rewarding our shareholders for their support and

commitment

98

Appendix 1

Reynolds American Inc.Reconciliation of GAAP to Adjusted Results

(Dollars in Millions, Except Per Share Amounts)

(Unaudited)

RAI management uses “adjusted” (non-GAAP) measurements to set performance goals and to measure the performance of the overall company, and believes that investors’ understanding of the underlying performance of the company’s

continuing operations is enhanced through the disclosure of these metrics. “Adjusted” (non-GAAP) results are not, and should not, be viewed as, substitutes for “reported” (GAAP) results.

YTD

20041,2 20052 20062 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

GAAP Operating Income: $882 $1,459 $1,930 $2,418 $567 $1,763 $2,432 $2,399 $2,214 $3,132 $2,531 $6,953 $6,142

The GAAP results include the following

expense (income):

B&W/Lane GAAP results 328

Proforma adjustments (128)

Premerger B&W integration costs 35

Goodwill and trademark impairment charges 199 200 90 65 318 567 32 48 129 32

Restructuring charge 5 2 1 90 56 149

Merger integration costs 130 107 45

RAI settlements 50

Phase II growers'trust offset (69) (27)

RAI returned goods reserve adjustment 38

Federal tobacco buyout assessment 81 (9)

Loss on sale of assets 24

Implementation costs 60 23 24 16 223 25

Scott lawsuit 139

Engle progeny lawsuits 64 37 18 100 127 13

Other tobacco-related litigation charges 5 34 2 25

Asset impairment and exit charges 38 99

Gain on divestiture (3,181) (4,861)

Benefits from NPM Settlement and 2003 claim (219) (34) (108)

Transaction-related costs 38 54

MTM pension/postretirement adjustment - - - (43) 1,527 49 110 145 329 -_ -_ _246 _ -

Total adjustments 588 387 127 22 1,935 672 240 419 649 (111) 574 (2,515) (4,823)

Adjusted operating income $1,470 $1,846 $2,057 $2,440 $2,502 $2,435 $2,672 $2,818 $2,863 $3,021 $3,105 $4,438 $1,319

Net income per diluted share:

Reported GAAP $0.69 $0.89 $1.03 $1.18 $0.38 $0.82 $0.96 $1.20 $1.12 $1.57 $1.37 $2.57 $2.49

Non-GAAP adjusted $0.83 $0.98 $1.02 $1.19 $1.20 $1.32 $1.32 $1.41 $1.49 $1.59 $1.71 $1.98 $0.50

Net Sales $8,323 $8,256 $8,510 $9,023 $8,845 $8,419 $8,551 $8,541 $8,304 $8,236 $8,471 $10,675 $2,917

Operating margins:

GAAP 10.6% 17.7% 22.7% 26.8% 6.4% 20.9% 28.4% 28.1% 26.7% 38.0% 29.9% 65.1% 210.6%

Adjusted 17.7% 22.4% 24.2% 27.0% 28.3% 28.9% 31.2% 33.0% 34.5% 36.6% 36.7% 41.6% 45.2%

(1) Includes proforma GAAP adjustments as if the merger of B&W/Lane had been completed on January 1, 2004.

(2) Not adjusted to reflect change in accounting for pension and postretirement.

100

Appendix 2

REYNOLDS AMERICAN INC.

Reconciliation of GAAP to Adjusted Operating Income by Segment

(Dollars in Millions)

(Unaudited)

The RJR Tobacco segment consists of the primary operations of R.J. Reynolds Tobacco Company, the second-largest tobacco company in the United States and which also manages a contract manufacturing business.

The Santa Fe segment consists of the primary operations of Santa Fe Natural Tobacco Company, Inc., which manufactures Natural American Spirit cigarettes and other additive-free tobacco products.

The American Snuff segment consists of the primary operations of American Snuff Company, LLC, the second-largest smokeless tobacco products manufacturer in the United States.

Management uses "adjusted" (non-GAAP) measurements to set performance goals and to measure the performance of the company, and believes that investors' understanding of the underlying performance of the company's continuing operations is enhanced through the disclosure of these metrics.

Three Months Ended March 31,

2016 2015RJR Tobacco Santa Fe American Snuff RJR Tobacco Santa Fe American Snuff

GAAP operating income $ 1,107 $ 123 $ 133 $ 588 $ 92 $ 118

The GAAP results include the following:

Implementation costs (1)

1 - - - - -2003 NPM Adjustment Claim - - - (70) - -Engle Progeny cases

13 - - 108 - -Tobacco Related and Other Litigation - - - 19 - -

Total adjustments (2)

14 - - 57 - -Adjusted operating income $ 1,121 $ 123 $ 133 $ 645 $ 92 $ 118

(1)For the three months ended Mar. 31, 2016, RAI and its operating companies recorded aggregate implementation cost adjustments of $25 million including $24 million in the corporate and all other segment.

(2)For the three months ended Mar. 31, 2015, RAI and its operating companies recorded aggregate transaction related cost adjustments of $15 million which are included in corporate costs.

101

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