Japan Tobacco : 2021 Earnings Report

Tokyo, February 14, 2022

2021 Earnings Report

FY2021 Highlights (vs. 2020)

• Revenue increased by 11.1% to JPY 2,324.8 billion.
• Adjusted operating profit at constant FX increased by 22.9% to JPY 598.4 billion.
• On a reported basis, adjusted operating profit increased by 25.4% to JPY 610.4 billion.
• Operating profit increased by 6.4% to JPY 499.0 billion.
• Profit attributable to owners of the parent company increased by 9.1% to JPY 338.5 billion.
• Free cash flow decreased by JPY 21.9 billion to JPY 482.0 billion.
• The Company plans to pay an annual dividend per share of JPY 140 (a dividend payout ratio of 73.4%).

FY2022 Forecasts (vs. 2021)

• Revenue is forecast to decrease by 0.4% to JPY 2,315.0 billion.
• Core revenue at constant FX1 is forecast to decrease by 0.1% to JPY 2,229.0 billion.
• Adjusted operating profit at constant FX is forecast to increase by 4.0% to JPY 635.0 billion.
• On a reported basis, adjusted operating profit is forecast to increase by 0.1% to JPY 611.0 billion.
• Operating profit is forecast to increase by 7.0% to JPY 534.0 billion.
• Profit attributable to owners of the parent company is forecast to increase by 5.2% to JPY 356.0 billion.
• Free cash flow is forecast to decrease by JPY 140.0 billion to JPY 342.0 billion.
• The Company plans to offer an annual dividend per share of JPY 150 (a dividend payout ratio of 74.8%).

Please refer to 'Data Sheets' on page 18 for more financial figures.

Masamichi Terabatake, President and Chief Executive Officer of the JT Group, said:

"The JT Group reported a robust performance in 2021, driven by strong momentum across the tobacco business. Our consumer-centric approach and strong brand portfolio have enabled share gains in the majority of our markets and resulted in a record sales volume in the international tobacco business. Despite a challenging operating environment, including the ongoing pandemic, the Group accomplished several important milestones in the year. We implemented measures to generate sustainable growth, notably in our priority investment category where we launched our new HTS (heated tobacco sticks) device, Ploom X, starting in Japan. We also successfully implemented various initiatives related to the new operating model for the consolidated tobacco business, which went live this January.

"Our aim to achieve mid to high single digit growth of adjusted operating profit at constant currency, in the mid to long term remains unchanged. Expansion of our presence in the RRP category is utmost priority. Even within the RRP category, we will primarily be prioritizing efforts and investments towards the HTS category. By 2027, our ambition is to reach break-even2 in the RRP category by achieving a heated tobacco segment share in the mid-teens across our key HTS markets 3 . To reach this goal, we are accelerating necessary business investments and expect an annual average growth rate of adjusted operating profit at constant currency to be mid single digit during the 2022 business plan period. Furthermore, we plan to grow profit, which in turn will increase shareholder returns, in line with our shareholder return policy.

"Today, we also announced an upward revision of our sustainability targets embedded in the 'JT Group Environment Plan 2030', as well as our determination to achieve Net-Zero Greenhouse Gas emissions across our entire value chain by 2050. We believe, under the new operating model, all these measures will further strengthen our business foundation towards sustainable growth and help us build a more agile and consumer- centric organization."

1. The sum of revenues in the pharmaceutical business, processed food business, and others, as well as the core revenue in the tobacco business, which is computed using the same foreign exchange rates between local currencies vs USD as well as the exchange rates between JPY and USD as in the equivalent period in the previous fiscal year. Results at constant FX are provided additionally and are not an alternative to financial reporting under International Financial Reporting Standards (IFRS).
2. Global basis (assumes the existing geographic footprint and the current expansion plan)
3. Japan, Russia, the UK, Italy

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Investor Meeting

An investor meeting with members of the investor community will be held on February 15, 2022 at 5:00pm Tokyo Time. The on-demand audio of this meeting will be available on our website from February 16, 2022 (https://www.jt.com/investors/results/presentation_financial). For detailed information on the consolidated financial results, please visit the Company's website (https://www.jt.com/investors/).

Note on Hyperinflationary Adjustments

The results for fiscal year 2021 and the forecasts for fiscal year 2022 on a reported basis have been adjusted to include the impact of hyperinflationary accounting, which has been applied since Q3 2020, in accordance with the requirements stipulated in IAS 29. Starting from Q1 2021, the results for fiscal year 2021 on a constant FX basis have been calculated to exclude amounts of revenue and profit that have increased due to hyperinflation in certain markets.

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Business Plan 2022

• Our Management Principle: To pursue the 4S model
  Under the 4S model, we strive to fulfill our responsibilities to our valued consumers, shareholders, employees and the wider society, carefully considering the respective interests of these four key stakeholder groups, and exceeding their expectations wherever we can. The 4S model has allowed us to achieve sustainable profit growth in the past years and this model will continue to increase our value in the mid to long term.

(The 4S Model)

• Mid- to Long-Term Target:
• • Achieve mid to high single digit annual average growth rate of consolidated adjusted operating profit at constant FX
  • Outlook 2022-2024: Annual average growth of a mid single digit rate despite significant investments towards RRP
• Resource Allocation Policy
• • The 4S model guides our resource allocation
  • Prioritize business investments1 for sustainable profit growth in the mid to long term.
  • Strike a balance between profit growth through business investments and shareholder returns.
  • Shareholder Return Policy:
  • Aim to enhance shareholder returns by realizing the Company's mid- to long-term profit growth, while maintaining a strong financial base2.
  • Target a dividend payout ratio of about 75%3, a competitive level4 in the capital markets.
  • Consider implementing a share buy-back program, mainly taking into account the Company's financial outlook of the respective year and mid-term capital needs.

Notes:

1 Investment towards the growth of the tobacco business is of our highest priority. Pursue growth of Adjusted Operating Profit at constant FX through quality top-line growth.

2 The Company will maintain a strong financial base that secures stability in case of changes in business environment such as economic crises and flexibility enabling expeditious responses to business investment opportunities.

3 To be in the range of approximately ±5%.

4 Monitor the shareholder return trends of Fast-Moving Consumer Goods companies which have a stakeholder model similar to our 4S model and have realized strong business growth.

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FY2021 Financial Results

Consolidated Results
(billions of JPY)	2020 Q4	2021 Q4	Variance		FY2020	FY2021	Variance
Revenue	500.5	558.8	+11.6%			2,092.6	2,324.8	+11.1%
Adjusted operating profit	45.4	67.5	+48.7%				610.4	+25.4%
	487.0
Operating profit	78.9	18.3	-76.8%			499.0	+6.4%
		469.1
Profit attributable to owners
52.3	-0.3	-		310.3	338.5	+9.1%
of the parent company
Adjusted operating profit at	45.4	60.4	+32.9%			487.0	598.4	+22.9%
constant FX

2021 Q4

• Revenue
  Revenue increased by 11.6% to JPY 558.8 billion driven by increases in the international tobacco and pharmaceutical businesses, partially offset by decreases in the Japanese-domestic tobacco and processed food businesses.
• Adjusted operating profit
  At constant FX, adjusted operating profit increased by 32.9% to JPY 60.4 billion driven by increases in the international tobacco and processed food businesses, partially offset by decreases in the Japanese-domestic tobacco and pharmaceutical businesses.
  On a reported basis, adjusted operating profit increased by 48.7% to JPY 67.5 billion driven by favorable currency movements in the international tobacco business.

• Operating profit
  Operating profit decreased by 76.8% to JPY 18.3 billion mainly due to factors including one-time costs related to initiatives to strengthen competitiveness in the Japanese-domestic tobacco business in this year and an unfavorable comparison from one-time gains related to the sale of real estate, mainly the former JT head office building in the previous year, partially offset by an increase in adjusted operating profit.
• Profit attributable to owners of the parent company
  Profit attributable to owners of the parent company decreased by JPY 52.6 billion due to a decrease in operating profit, recording a loss of JPY 0.3 billion.

Full Year 2021

• Revenue
  Revenue increased by 11.1% to JPY 2,324.8 billion driven by increases in the international tobacco, Japanese-domestic tobacco and pharmaceutical businesses, partially offset by a decrease in the processed food business.
• Adjusted operating profit
  At constant FX, adjusted operating profit increased by 22.9% to JPY 598.4 billion driven by increases in the international tobacco, Japanese-domestic tobacco and processed food businesses, partially offset by a decrease in the pharmaceutical business.
  On a reported basis, adjusted operating profit increased by 25.4% to JPY 610.4 billion, driven by favorable currency movements in the international tobacco business.

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• Operating profit
  Operating profit increased by 6.4% to JPY 499.0 billion driven by an increase in adjusted operating profit, partially offset by factors including one-time costs related to initiatives to strengthen competitiveness in the Japanese-domestic tobacco business in this year and an unfavorable comparison from one-time gains related to the sale of real estate, mainly the former JT head office building in the previous year.
• Profit attributable to owners of the parent company
  Profit attributable to owners of the parent company increased by 9.1% to JPY 338.5 billion driven by increases in operating profit and improved financing costs.

The results for fiscal year 2021 on a reported basis have been adjusted to include the impact of hyperinflationary accounting, which has been applied since Q3 2020, in accordance with the requirements stipulated in IAS 29. Starting from Q1 2021, the results on a constant FX basis have been calculated to exclude amounts of revenue and profit that have increased due to hyperinflation in certain markets.

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