Japan Tobacco : 2023 First Quarter Results

Tokyo, May 2, 2023

2023 First Quarter Results

2023 First Quarter Highlights (vs. 2022)

• Revenue increased by 14.4% to JPY 665.3 billion.
• Core revenue at constant FX increased by 6.2% to JPY 594.6 billion.
• Adjusted operating profit at constant FX increased by 5.1% to JPY 204.7 billion.
• On a reported basis, adjusted operating profit increased by 14.6 % to JPY 223.4 billion.
• Operating profit increased by 15.7% to JPY 206.4 billion.
• Profit increased by 16.6% to JPY 144.7 billion.

Please refer to 'Data Sheets' on page 9 for more financial figures.

Comments from Masamichi Terabatake, President and CEO of the JT Group:

"JT Group delivered solid results in the first quarter, building on the positive momentum across its businesses. Robust pricing in the tobacco business continued to drive the strong performance of the Group.

In line with our plan to increase our presence in HTS (heated tobacco sticks) and establish the foundations for JT Group's future earnings growth, we successfully launched Ploom X in Italy and Lithuania in April, after an encouraging rollout in the U.K. We are making good progress for additional international launches, with a rollout in Portugal planned for mid May.

Guided by the Group's management principle, which is to pursue the 4S model*, and considering the recently announced JT Group Purpose**, we will continue to take all necessary decisions to address operational uncertainties, such as regulatory changes, economic instabilities and volatile foreign exchange rates.

Together as a Group, we are confident in our ability to deliver on our full year forecast."

• 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. For more details, please visithttps://www.jt.com/about/management_principles/index.html
• The JT Group Purpose "Fulfilling Moments, Enriching Life" is designed to clarify the direction to being a sustainable entity. The area of "human enrichment" undergoes changes in various ways with the times and the people, and the JT Group strives to evolve constantly so that we can continue to be entrusted within this area by society and make valuable contributions in the future.

Investors' Meeting

An investors' meeting with members of the investor community will be held on May 2, 2023 at 5:00pm Tokyo time. An on-demand audio recording of this conference will be available on our website (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 2022 and fiscal year 2023 as well as the forecasts for fiscal year 2023 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. As of Q1 2023, the impacts of the hyperinflationary accounting and hyperinflation include those in Ethiopia, Iran, Sudan and Turkey.

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Q1 2023 Financial Results

Consolidated Results

Q1 2023

• Revenue
  Revenue increased by 14.4% to JPY 665.3 billion, driven by an increase in the tobacco and pharmaceutical businesses as well as positive currency movements due to a weaker Japanese yen. At constant FX, core revenue increased by 6.2% to JPY 594.6 billion.
• Adjusted operating profit
  Adjusted operating profit increased by 14.6 % to JPY 223.4 billion, driven by increases across all businesses and positive currency movements from a weaker Japanese yen. At constant FX, adjusted operating profit increased by 5.1 % to JPY 204.7 billion.

• Operating profit
  Operating profit increased by 15.7 % to JPY 206.4 billion, driven by an increase in adjusted operating profit.
• Profit
  Profit increased by 16.6 % to JPY 144.7 billion, driven by an increase in operating profit and lower corporate tax, partially offset by increased financing costs.

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*At constant FX

Q1 2023

• Core revenue and adjusted operating profit
  Core revenue and adjusted operating profit increased, driven by continued market share gains, strong pricing contribution in combustibles, RRP-related revenue growth, and favorable currency movements due to the weak Japanese yen. Core revenue grew by 15.3%, and by 6.3% at constant FX, driven by a positive price/mix contribution of JPY 32.1 billion, mainly from Western Europe and EMA clusters, offsetting a slightly negative volume variance of JPY 0.5 billion due to the Western Europe cluster. RRP-related revenue grew by 6.4%, fueled by Ploom X in Japan. Adjusted operating profit increased by 14.1%, and by 4.6% at constant FX, driven by the core revenue growth, partially offset by higher input costs.
• Volume and market share1
  Continued market share gains and sustained RRP volume growth resulted in total volume increasing by 1.3%. RRP volume grew by 3.0%, driven by continued HTS growth in Japan, and combustibles volume was up 1.2%, driven by the Asia and EMA clusters. Global Flagship Brands (GFB) grew volume by 4.2%, fueled by Winston (+3.2%) and Camel (+15.1%), while MEVIUS was almost flat (- 0.4%).
  Total tobacco market2 share grew in many markets, including the key markets of Italy, Japan, the Philippines, Russia, and Taiwan.

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Tobacco Business

Performance Review by Cluster

Asia

*At constant FX

• Core revenue and adjusted operating profit
  Core revenue increased by 1.7%, driven by a positive volume variance, notably in Japan and Malaysia, and favorable currency movements, partially offset by a negative price/mix contribution, mainly in Japan. At constant FX, core revenue decreased by 1.0%.
  Adjusted operating profit grew by 0.2%, as the positive volume variance and lower costs offset the negative price/mix contribution and unfavorable currency movements. At constant FX, adjusted operating profit increased by 0.5%.
• Volume and market share1
  Total and GFB volumes increased by 2.1% and 9.1%, respectively, mainly driven by sustained market share gains across the cluster. Total tobacco market share increased in Bangladesh, Japan, Malaysia, the Philippines, South Korea, and Taiwan.
• By market1
  In Japan, total volume grew by 4.5%, driven by market share gains and a favorable industry volume2 trend fueled by RRP growth and low-single digit combustibles decline. Total market share reached 42.7% year to date (+0.6ppt).
  In combustibles, volume increased by 2.6%, driven by category share gains (+3.5ppt to 60.6%), fueled by MEVIUS E-series and Camel Craft, which more than offset an industry volume contraction estimated at 3.3%.
  In RRP, a category estimated at 37.4% (shipment basis) of the total tobacco industry size, volume increased by 22.4% with RRP share increasing by 0.7ppt to reach 12.7%. Within the HTS segment, Ploom X increased its volume by 51.8% and continued to grow share, reaching an HTS segment share of 9.3%, up by 2.1ppt year-to-date.
  Core revenue decreased, due to the negative price/mix variance, partially offset by the positive volume contribution.
  In the Philippines2, total volume was stable, as industry volume contraction was offset by market share gains. GFB volume increased by a strong 34.0%, fueled by Camel. Year-to-date total market share grew by an estimated 2.1ppt to 38.4%.
  Core revenue at constant FX increased, driven by a positive price/mix contribution.
  In Taiwan2, due to industry volume contraction following the gradual unwinding of COVID trends, total and GFB volumes decreased by 1.7% and 2.3%, respectively. Year-to-date market share increased by 1.3ppt to 50.0%, driven by gains from Winston and LD.

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Core revenue at constant FX decreased, due to the negative variance from both volume and price/mix.

Western Europe

*At constant FX

• Core revenue and adjusted operating profit
  Core revenue increased by 12.2%, and by 4.7% at constant FX, driven by a positive price/mix contribution, mainly in Germany, Spain and the U.K., and by favorable currency movements, more than offsetting a negative volume variance, mainly in Ireland, Spain and the U.K.
  Adjusted operating profit grew by 5.8%, and by 3.3% at constant FX, driven by the core revenue increase and favorable currency movements.
• Volume and market share1
  Total volume decreased by 5.2%, due to industry volume contraction across most of the cluster, notably in the U.K. GFB volumes decreased by 2.1%, despite share gains by Winston and Camel. Total tobacco market share grew in Belgium, France, Germany, Italy, Luxembourg, and the Netherlands.
• By market1
  In Italy, total volume grew by 1.3%, and by 4.8% when excluding inventory movements, supported by temporary increase in trade demand ahead of excise tax increases. GFB volume increased by 1.5%, driven by Winston. Year-to-date total tobacco market share grew by 0.3ppt to 23.1%.
  Core revenue at constant FX decreased as the negative price/mix variance more than offset the positive volume contribution.
  In Spain, total volume declined by 6.2%, and by 2.1% when excluding inventory movements, due to industry volume contraction. GFB volume decreased by 6.8%, due to Winston and Camel. Year-to- date total tobacco market share fell 28.0%, down by 0.1ppt.
  Core revenue at constant FX increased, driven by the positive price/mix contribution which exceeded the negative volume variance.
  In the U.K., total volume declined by 17.1%, in line with the industry volume contraction, resulting from the full unwinding of COVID trends and excise-tax led price increases. Year-to-date total tobacco market share declined by 0.4ppt to 44.3%, despite share gains by Benson & Hedges.
  Core revenue at constant FX increased as the positive price/mix contribution more than offset the negative volume variance.

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