Japan Tobacco

Good afternoon. I am Hiro Masafurukawa, CFO of the JT Group. Thank you very much for joining us today for JT Group's first quarter 2026 earnings briefing. I will begin by explaining the consolidated results for the first quarter, marking a strong start to the year. As shown on the slide, both revenue and AOP recorded significant increases on both constant FX and reported basis, mainly driven by a robust quarter and the tobacco business. AOB at constant FX, our key profit management indicator, increased by 20.5% year-on-year, resulting in strong operating profit and profit growth. The FX impact was positive, mainly driven by the appreciation of several currencies, including the Russian ruble, against the Japanese yen. Operating profit increased by 24.7 percent year-on-year, driven by the increase in AOP, as well as a reduction in amortization costs of intangible assets arising from past acquisitions included in the adjustment items. Profit increased by 27.3% year-on-year, driven by operating profit growth. In addition, financial income and expenses improved in the first quarter. Due to the recent rapid deteriorating situation in the Middle East and Iran, we have reclassified certain balance sheet items related to Iran in our consolidated financial statements in accordance with IFRS. As a result, we expect impacts from foreign exchange gains and losses arising from Iran-related balance sheet items to be mitigated. Next, I will move on to the performance of each business segment, starting with the volume performance of the tobacco business. Please turn to slide 4. Total volume, combining with combustibles and RRP, increased by 0.9% year-on-year, representing a solid performance, considering the global industry volume contraction. In combustibles, strong share momentum continued across many markets. Although combustibles industry volume declined in several markets, including Japan, Russia and the UK, our combustibles volume remained in line with the previous year. RRP volume increased by a significant 44.2% year-on-year, driven by accelerated growth in plume volume and sustained market share gains, and boosted by the temporary demand ahead of the RRP tax hike in Japan. Moving on to the financial performance of the tobacco business on slide 5. In the first quarter, pricing contributions materialized across many markets, driving double-digit growth in both revenue and AOP, together with favorable phasing impact of promotional activities. Let me explain the AOP drivers by factor. Volume contribution was negative as the total volume increase was offset by a deterioration in market mix from large volume declines in higher-priced markets such as the U.K. Price mix contribution continued to be strong, driven by robust pricing across many markets, including the key markets of Japan, Russia, Turkey and the U.S. The stop-line growth factors fully offset increased investments towards plume, as well as inflation-driven increases in raw material costs and SDNA expenses such as labor, resulting in a 19.2 percent year-on-year increase in AOP at constant FX. As mentioned earlier, the FX impact was favorable. On slide six, I will explain the performance of the three clusters in the tobacco business. The graphs on this slide show year-on-year variances in total volume, core revenue, and AOP at constant FX for each cluster. Let me start with Asia, cluster which includes the key markets of Japan, the Philippines, and Taiwan. Total volume in this cluster increased by 7.3% year-on-year, driven by higher plume volume across markets, as well as combustibles market share gains in the Philippines and Bangladesh. Regarding financial results, revenue and profit increased significantly, mainly driven by positive pricing and volume contributions in Japan and the Philippines. Next is Western Europe, which includes Italy, Spain and the UK. Total volume in this cluster declined by 3.2% year-on-year. While we achieved market share gains in several markets, including Italy, as well as in heated products driven by plume, these positive factors were offset by declining combustibles industry volume, notably in the UK market. Core revenue and AOP grew as the pricing contribution, mainly in Spain and the UK, offset the negative volume variance, mainly in the UK. Moving on to IMA, which includes Romania, Russia, Turkey, and the U.S. Total volume in this cluster remained in line with the previous year. The ongoing increase in industry volume in Turkey, combined with market share gains in Turkey and the U.S., as well as higher plume volume across markets, were offset by declining combustibles industry volume, including in the key markets of Russia and the U.S. The cluster reported an increase in both revenue and AOP, driven by a pricing contribution, mainly in Russia, Turkey and the U.S., partially offset by negative volume effects, mainly in Russia. While investments in plume and inflation-driven increases in raw material costs and SG&A expenses continued across clusters, these were offset by top-line growths.

On slide 7, I want to highlight the top-line performance of RRP. Showing the graphs on slide, grossing RRP volume and RRP-related revenue have accelerated. Although the acceleration includes a temporary higher demand in Japan, we remain confident in our ability to continue capturing additional volume and category share, building on the momentum of Plume Ola, which was launched in 2025. As of May 2026, PRUME has been launched in 29 markets and AURA has already been introduced in 25 markets. As a result, PRUME category share in our key selected heated products markets reached 10.1% as of February 2026. Slide 8 updates the trend of prune in several market. Through the strengthening of our investment in RRP, as mentioned previously, we are expanding our global coverage and enhancing our portfolio through the transition to Aura and Evo. In addition, we are investing to increase awareness by strengthening communication with consumers across both digital and in-person touchpoints. Stronger engagement throughout the consumer journey is a key to enhance our retention. Following the learnings from the launched market, we are focusing not only on driving trials through collaborations with various events and promotional activities at pop-up stores, but also on strengthening post-purchase engagement to enhance retention. These initiatives are steadily translating into tangible results, and as shown in the graphs, prunes share within the heated products category continue to grow across market. In Japan, our average category share reached 15.8% in the first quarter, and driven by the contribution of Plume Ola launched in May last year, the pace of share growth is accelerating. In Taiwan, following the launch of Plume in October last year, We have confirmed strong initial momentum, with first-quarter heated product share reaching almost 25 percent. From this standpoint, Taiwan represents the best launch performance of Prume so far. To strengthen our consumable offering for plume, we have recently launched Leo, a new brand of heated nicotine sticks that do not contain tobacco leaves in Poland and Italy. Leo offers an innovative proposition using a herbal substance and to consumers interested in flavored heated products. Next, I'll explain the results of the processed food business. Revenue increased by 1.4 billion yen year-on-year, driven by price revisions of frozen udon noodles in the frozen and ambient food business. AOP increased by 0.9 billion yen year-on-year, and revenue growth offset higher raw material cost due to rising rice prices. Finally, please see slide 11. In the first quarter, consolidated AOP at constant effects increased by 20.5% year-on-year, delivering a robust performance. In the tobacco business, the favorable pricing variance and a stronger contribution from RRP were supported by continued combustibles share gains. Meanwhile, amid the recent escalation of tensions in the Middle East, uncertainty remains, including potential impacts on operations in the region, as well as the performance impacts from rising crude oil prices. Continued close monitoring is required, including impacts on national economies, FX movements, and our supply chain costs. At this stage, the direct impact to our business is not material and the strong momentum in the tobacco business continued. As our first quarter delivered a strong start to the year, we remain focused on delivering our full year initial forecast. This concludes my presentation. Thank you very much for your attention.

Thank you, Mr. Furukawa. Now we'd like to move to Q&A session. Let me introduce you to the speakers who will answer your questions today. Hiromasa Furukawa, CFO of the JT Group, and Nobuya Kato, JTI Deputy CEO. Next, I will show you how to ask questions. We are afraid we don't accept questions in this English line. If you have any question, please send an email to jt.ir at jt.com. We will introduce your question accordingly.