Japan Tobacco : 2023 Third Quarter Results (CFO Presentation)

JT Group

2023 Nine-Month Results

Hiromasa Furukawa

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 18.

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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2

2023 Nine-Month Results

2023 Nine-Month Consolidated Results:

CR and AOP grew both at constant FX and reported basis

(JPY BN)

Core revenue

AOP

Revenue

AOP

Operating profit

Profit

2023

Jan-Sep

At constant FX

2,049.2

675.5

Reported

2,157.0

664.4

631.8

442.0

vs. 2022

+5.9%

+5.9%

+7.4%

+4.2%

+9.1%

+9.5%

Revenue and AOP*

• Solid pricing contribution in the tobacco business more than offset the impact of higher input costs within the supply chain and higher investments towards HTS**
• Continued AOP growth in the pharmaceutical and processed food businesses
• Unfavorable foreign exchange impact on AOP

Operating profit

• Increase driven by AOP growth as well as gains on sales of real estate and reduced amortization of trademark rights in the adjusted items

Profit

• Increase driven by operating profit growth

Note: The results for fiscal year 2022 and fiscal year 2023 on a reported basis have been adjusted to include the impact of hyperinflationary accounting in accordance with the requirements stipulated in IAS 29. The results for fiscal year 2022 and fiscal year 2023 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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*AOP=Adjusted operating profit	4
**HTS=Heated tobacco sticks

Tobacco Business Volume Performance: Strong first half momentum continued

（BnU）

Total volume

Combustibles

RRP

2023

Jan-Sep

410.6

404.2

6.5

vs. 2022	Combustibles	Solid volume growth fueled by continued
market share gains
	• Strong volume growth in the EMA cluster

+2.1%	- Higher industry volume in Turkey
	- Continued recovery in Global Travel Retail
	- Strong momentum in several emerging markets
+2.1%	• Share gains in most key markets, including in Japan within the
	growing value price segment
+8.2%	• Growth-limiting factors:
- Industry volume contraction mainly in the Philippines and
	the UK
	- On-going business disruption in Sudan
		Incremental HTS volume driven by share
	RRP
	gains in Japan & new market launches
	 Continued HTS segment share gains in Japan

• Additional volume from Ploom X launches in several European markets

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5

Tobacco Business Financial Results & Drivers:

Solid profit growth driven by strong pricing contribution

（JPY BN）

Core revenue at constant FX

AOP

at constant FX

2023

Jan-Sep

1,891.3

1,866.7

676.8

688.0

vs. 2022

+7.4%

+6.0%

+3.6%

+5.3%

Volume

• Unfavorable market mix despite total volume growth

Price/Mix

• Pricing benefits in multiple markets, including the Philippines, Russia and the UK, partially offset by lower product mix due to downtrading, mainly in Japan and the Philippines

Note: The results for fiscal year 2022 and fiscal year 2023 on a reported basis have been adjusted to include the impact of hyperinflationary accounting in accordance with the requirements stipulated in IAS 29. The results for fiscal year 2022 and fiscal year 2023 on a constant FX basis have been calculated to exclude amounts of revenue and profit that have increased due to hyperinflation in certain markets.

Roadmap of AOP variance (JPY BN)

Others

• Higher input costs within the supply chain
• Investments towards combustibles and RRP

		101.3	-47.2	688.0		676.8	FX
653.4
			-11.1
	-19.6						• Appreciation of JPY against several local currencies
2022	Volume	Price/Mix	Others	2023	FX	2023
Jan-Sep				Jan-Sep		Jan-Sep		6
				At constant			© Copyright JT 2023
				FX

Tobacco Business: Overview of the Clusters Performance

ASIA

0.2%

-1.7%

		-7.8%
Total	CR	AOP
Volume

AOP performance

Growth drivers

• Market share gains, notably in the key markets of JPN, PHI and TWN
• Robust pricing contribution in PHI

Growth-limiting factors

• Lower industry volume in PHI and TWN
• Lower product mix in PHI and JPN, investment towards HTS in JPN
• JPY depreciation impacting the procurement of raw materials

WESTERN EUROPE

13.1%

8.7%

-4.2%

Total	CR	AOP
Volume

AOP performance

Growth drivers

• Market share gains in most markets, including ITA
• Solid pricing contribution from DEU, FRA, ESP and GBR
• JPY depreciation vs. EUR & GBP
  Growth-limiting factors
• Lower industry volume in GBR
• Higher investments for Ploom X

expansion

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				EMA
				11.7%	10.7%
5.4%
		Total	CR	AOP
	Volume

AOP performance

Growth drivers

• Market share gains in most markets and GTR volume recovery
• Pricing contribution from CAN, POL, ROU, RUS and TUR

Growth-limiting factors

• Higher input costs in the supply chain
• JPY appreciation vs. RUB

*All data on this slide refer to Jan-Sep 2023 vs. PY on a reported basis
CAN: Canada, DEU: Germany, FRA: France, ESP: Spain, GBR: Great	7
Britain, GTR: Global Travel Retail, ITA: Italy, JPN: Japan, PHI: Philippines,
POL: Poland, ROU: Romania, RUS: Russia, TUR: Turkey, TWN: Taiwan

Tobacco Business: Key Markets Takeaway

ASIA

WESTERN EUROPE

Japan

The UK

Industry size

Total volume

SoM

Industry size

Total volume

SoM

+0.7%

+2.3%

+0.6ppt

-16.4%

-19.2%

-0.9ppt

Industry dynamics YTD

Industry dynamics YTD

• Total industry volume was almost flat, as the RRP growth

•

Total industry volume decreased, due to several tax hikes

offset a decline in combustibles

since the second half of 2021, easing of travel restrictions

•

Continued downtrading in combustibles and intense

and lower purchasing power due to inflation

competition in HTS

•

Accelerated downtrading due to intense competition in the

YTD performance

value cigarette segment and fine cut category

•

Total volume outperformed the industry, driven by a higher

YTD performance

total market share (42.9%, +0.6ppt year-on-year)

•

Robust pricing contribution more than offset the volume

•

Successful investments behind Ploom X driving continued

decline

RRP share gains (13.0%, +1.0ppt year-on-year)

• Leading positions not impacted, despite lower market share

•

Market share grew in combustibles, led by Camel Craft and

*All data on this slide refer to Jan-Sep 2023 vs. PY

8

MEVIUS-E series

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Tobacco Business: Ploom X Japan Overview

• Ploom X continued to gain share of segment despite intense competition
• New "Ploom X ADVANCED" to further attract and retain users

12

10

8

6

4

2

Japan market: quarterly market share evolution

within HTS segment*

10.5%

				7.2%		9.3%	9.5%
				7.9%	8.1%
			7.2%	7.6%
		6.5%
4.0%	4.2%			* JT Group estimate (shipment based)
3.4%				HTS SoS is calculated as follows:
3.4%				HTS volume / HTS industry volume

Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3
2021				2022				2023

This slide is intended only to explain operations of the JT Group, not to promote sales of tobacco or vaping products or encourage smoking or vaping among consumers.

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9

Tobacco Business: Ploom X Global Overview

• Assuming Ploom X availability in 28 markets by the end of 2024
• • Geo-expansionplan for 2023 is on track

Ploom X geo-expansion

	HTS industry	Launch schedule
	composition*
Poland	10.3%	Warsaw / mid-September
Hungary	20.2％	Budapest / mid-September
Romania	8.9％	Bucharest / early October
Greece	19.6％	Athens / late October
Kazakhstan	13.2％	Almaty / early November

Before​	Jan-Mar​	Apr-Jun​	Jul-SepOct-Nov
2023

Japan

Italy

Czech R.

Switzerland

Romania

UK

Portugal

Poland

Greece

Lithuania

Hungary

Kazakhstan

	*All HTS industry composition data on this slide except for Romania refer to eight months of 2023. HTS
	composition data for Romania is for nine months of 2023.	10
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