Japan Tobacco : 2021 Results & 2022 Forecast

JT Group

2021 Results & 2022 Forecast

Nobuya Kato

JT Group Chief Financial Officer

*Please be reminded that the figures shown on these slides may differ from those shown in the financial statements as they are intended to facilitate the reader's understanding of individual businesses.

*For details of each term, please refer to annotations on slide 14,15 and 16.

FORWARD-LOOKING STATEMENTS

This presentation contains forward-looking statements. These statements appear in a number of places in this document and include statements regarding the intent, belief, or current and future expectations of our management with respect to our business, financial condition and results of operations. In some cases, you can identify forward-looking statements by terms such as "may", "will", "should", "would", "expect", "intend", "project", "plan", "aim", "seek", "target", "anticipate", "believe", "estimate", "predict", "potential" or the negative of these terms or other similar terminology. These statements are not guarantees of future performance and are subject to various risks and uncertainties. Actual results, performance or achievements, or those of the industries in which we operate, may differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. In addition, these forward-looking statements are necessarily dependent upon assumptions, estimates and data that may be incorrect or imprecise and involve known and unknown risks and uncertainties. Forward-looking statements regarding operating results are particularly subject to a variety of assumptions, some or all of which may not be realized.

Risks, uncertainties or other factors that could cause actual results to differ materially from those expressed in any forward-looking statement include, without limitation:

1. increase in awareness of health concerns related to smoking;
2. regulatory developments; including, without limitation, tax increases and restrictions on sales, marketing, packaging, labeling and use of tobacco products, privately imposed restrictions and governmental investigations;
3. litigation around the world alleging adverse health and financial effects resulting from, or relating to, tobacco products;
4. our ability to further diversify our business beyond the traditional tobacco industry;
5. our ability to successfully expand internationally and make investments outside Japan;
6. competition, changing consumer preferences and behavior;
7. our ability to manage impacts derived from business diversification or business expansion;
8. economic, regulatory and political changes, such as nationalization, terrorism, wars and civil unrest, in countries in which we operate;
9. fluctuations in foreign exchange rates and the costs of raw materials; and
10. catastrophes, including natural disasters.

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2021 Results

2021 Financial Results

(JPY BN)	FY2021	vs. 2020
Reported
Revenue	2,324.8	+11.1%
AOP	610.4	+25.4%
Operating Profit	499.0	+6.4%
Profit	338.5	+9.1%
FCF	482.0	-21.9

Adjusted operating profit (AOP) at constant FX: +22.9% vs.2020

• Driven by the continued robust performance in the tobacco business

Revenue and AOP on a reported basis

• Increased double-digit fueled by a favorable price/mix contribution and volume growth in the international tobacco business

Operating profit

• Increased despite one-time costs related to initiatives to strengthen competitiveness in the Japanese-domestic tobacco business and one-time compensation to Japanese leaf tobacco growers who decided to quit cultivation of tobacco

Profit

• Increased despite higher corporate income tax

FCF

• Stable cash generation through business operations
• Unfavorable comparison of the income from real-estate sales that we recorded last year

Note: The results for fiscal year 2021 on a reported basis shown above 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, 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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Japanese-domestic tobacco business: Volume Performance and Financial Results

Volume

Figures in parentheses are year-on-year comparisons.

(BnU)	Industry	JT volume	SoM/SoS**
Total Tobacco*	150.4	66.8	44.4%
(-3.0%)	(-8.0%)	(-2.4ppt)
Combustibles	105.3	62.2	59.1%
(-8.4%)	(-9.5%)	(-0.7ppt)
RRP*	45.1	4.6	10.3%
(+12.3%)	(+17.2%)	(+0.4ppt)
RRP	30.0%	-	-
market size*
*JT estimate (shipment based) **Share of Market/Share of Segment
Financials

(JPY BN)	2021	vs. 2020
Core revenue	519.8	+0.8%
AOP	182.4	+8.6%

Industry Volume

• Combustibles: decreased more moderately than expected
• RRP: increased in line with our projections

JT sales volume and share performance

• Combustibles : decreased due to lower industry volume as well as share decline reflecting the shift to RRP and intensified competition in the value-segment
• RRP: exceeded sales target of over 4.5 billion sticks equivalent and Ploom X drove the category share growth after the tax hike in October 2021 although devices experienced semiconductor shortage

Core revenue and AOP

1. Favorable combustible price/mix contribution from the tax hikes

1. Increase in RRP-related revenue

(-) Decrease in combustible volume

Related topics:

• Core revenue and AOP, both, increased year-on-year for the first time in 5 years
• One-timedemand surge (equivalent to 0.4-month volume) before the tax hike in October 2021 neutralized within the year
• On-goingmonitoring the progress of downtrading although no big surprises observed
• Implemented the initiatives to strengthen competitiveness as planned

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