What is the overview of consolidated financial results for FY2015 Third Quarter?

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1 Key Q&A FY2015 Third Quarter <Consolidated Group Results: Like for Like basis> What is the overview of consolidated financial results for FY2015 Third Quarter? (Jan-Sep 2015 vs Jan-Sep 2014) Each business maintained robust growth momentum during the third quarter. A: In particular, the international tobacco business achieved solid growth mainly led by pricing. Consequently, adjusted operating profit at constant FX for the JT Group, which is our KPI, increased 11.6% year on year. Despite the negative currency impact in the international tobacco business, revenue slightly increased, supported by such factors as pricing gains in the international tobacco business, the weak yen effect as well as the positive performance of pharmaceutical and processed food businesses. Operating profit declined 7.2% as the weak yen effect could not fully offset the negative currency impact of the Russian ruble and other local currencies against the dollar. In addition, year-on-year variance was affected by the loss on retirement of real estate and lower profits from the sale of real estate compared with the previous year. Despite a year-on-year decrease in corporate tax expenses, profit from continuing operations* fell 5.2% as a result of the decline in operating profit. Profit attributable to owners of the parent company increased steeply due to the gain from the sale of shares in the beverage vending machine operation business, which is a net of the expenses related to the withdrawal from the manufacture and sales of JT beverage products. * The Group classified Beverage Business as discontinued operations from the nine months ended September 30, As a result, profit (loss) from discontinued operations is presented separately from that from continuing operations on the condensed interim consolidated statement of income. This applies not only to actual results but also to the forecasts. What are the main points of the revised consolidated financial forecasts? A: Our revised forecast for adjusted operating profit at constant currency exceeds the previous forecast due to strong GFB momentum and robust pricing in the international tobacco business as well as better-thanexpected performance in the duty-free sales and efficient cost management in the Japanese domestic tobacco business. In addition, pharmaceutical business is expected to improve its profitability faster than previously assumed. The revenue forecast has been revised downward by 10 billion yen, as we expect the unfavorable FX impact to increase. We left unchanged the forecasts of operating profit and profit attributable to the owners of the parent from continuing operations. The forecast of profit attributable to the owners of the parent from discontinued operations has been up by 3 billion yen, after scrutinizing the expenses related to the withdrawal from manufacture and sale of JT beverage products. Accordingly, profit attributable to the owners of the parent from continuing and discontinued operations combined has been revised upward by 3 billion yen. 1

2 <International Tobacco Business> What is the overview of International Tobacco Business results for FY2015 Third Quarter? A: In summertime, a high season for tobacco consumption, the international tobacco business maintained solid performance in an improving operating environment, and achieved a strong growth in the period of January- September as well. GFB shipment volume recorded a solid growth of 5.7% as our share grew in various markets. Total shipment volume remained almost flat year on year, supported by GFBsʼ strong performance, even though we saw industry contraction in various markets, intensified competition in the mid-price/value segment among several markets including Russia and volatile market condition in the Middle East. Core revenue and adjusted operating profit at constant FX grew strongly, 7.3% and 13.3%, respectively, driven by the GFBsʼ strong performance and robust pricing, as we consistently seized the opportunities to realize pricing gains. Meanwhile, on a reported basis, adjusted operating profit declined steeply due to the continued negative impact of weak local currencies, such as the Russian ruble, against the dollar. However, on a yen-basis, the unfavorable local currencies movements were partially offset by the weak yen. Consequently, adjusted operating profit dropped 7.7%. 2

3 Please provide the overview of cluster for FY2015 Third Quarter? A: Our performance continued to be strong in the South & West Europe and North & Central Europe clusters. In the July-September period, driven by share growth, both total and GFB shipment volumes increased in each cluster amid industry contraction. In addition, volumes grew for both ready-made cigarettes and fine cut products. In the South & West Europe cluster, shipment volume grew in most markets. Particularly in Italy, Winston and Camel maintained strong momentum, achieving volume growth of over 10%. In France, shipment volume grew from the same period last year mainly driven by GFBs. In Spain, shipment volume declined year on year due to shipment phasing to the April-June period, while market share remained solid. In the North & Central Europe cluster, GFBs performed strongly in the Czech Republic, Germany, Hungary and Poland among others. With strong momentum of Winston, GFB shipment volume achieved a good growth of 13% year on year. In the UK, shipment volume declined due to industry contraction; however, Amber Leaf and Sterling each demonstrated resilient performance, growing share of market. In the CIS+ cluster, total shipment volume in the third quarter declined as a result of industry contraction as well as continued competition in the mid-price and value segment within Russia. However, GFB shipment volume remained almost flat year on year thanks to the strong momentum of GFBs in various markets. In particular, LD performed strongly in Ukraine, as it captured the down-trading trend. In Russia, market contraction continued for the July-September period, though relatively moderate at 4.2%. In addition, competition in the mid-price and value segment became increasingly intense. We are implementing various initiatives to prevent further share loss. Under such a difficult condition, total shipment volume decreased 6.6%, but GFB shipment volume decrease was more moderate at 3.9%. For the year to date, market contracted 5.4%. However, we need to see the impact of the price increase implemented in July onwards. Therefore, our outlook for the industry decline remains seven to nine percent range, while anticipating closer to seven. In the Rest-of-the-World cluster, shipment volume in the July-September period declined year on year. This was mainly because the benefit of Camel repositioning in Turkey had been already annualized in the previous quarter and an unstable operating environment continued in some markets. In Turkey, both total and GFB shipment volumes declined due to the unfavorable comparison with the very high level of shipment in the same period last year, subsequent to the Camel repositioning. Meanwhile, Winston continued to perform strongly and Camel maintained its share exceeding the previous yearʼs. In Taiwan, both shipment volume and market share increased year on year. 3

4 What are the main points of the revised forecasts for the International Tobacco Business? A: GFB shipment volume assumption has been revised upward mainly due to improved operating environment and stronger business momentum in Europe. On the other hand, the forecast for total shipment volume remains unchanged, reflecting weak non-gfb performance in the Middle East. We have revised upward core revenue and adjusted operating profit forecasts at constant FX based on strong GFB performance and robust pricing. As a result, the target for adjusted operating profit growth is now 10%, raised from the previous 8%. If you estimate shipment volume and profit growth in October-December, they will show a significant slowdown. In January-September, volume performance was somewhat inflated by one-time factors such as Camel repositioning in Turkey and trade inventory restocking in the European markets. In the coming October- December period, we do not foresee those favorable one-off events. Our costs in October-December are expected to increase significantly from the previous year, as we continue to aggressively make business investments. We will invest in emerging products of E-Lites and LOGIC as well as investments to further strengthen out geographic footprint and to enhance the equity of existing brands. Shipment volume may fluctuate from quarter to quarter. However, our shares of market, particularly of GFB, remain robust in many markets. More importantly, we believe that the pricing environment continues to be solid. Therefore, we do not see any change in our top-line growth momentum. With the updated currency assumptions, we expect the negative FX impact to increase, mainly due to weaker Russian ruble compared with the previous assumption. This will offset the business momentum, and we have not changed the forecasts of core revenue and adjusted operating profit on a reported basis. Regarding the yen-dollar exchange rate, we assume slightly stronger yen compared with the previous assumption, but we keep yen-based adjusted operating profit forecast unchanged. <Japanese Domestic Tobacco Business: Like for Like basis> What is the overview of financial results for FY2015 Third Quarter? A: Japan market contracted by 2.2% in January-September, more moderate than our expectation. However, JT sales volume in the same period declined 3.1%, virtually in line with our forecast, affected by intensifying competition in the sub-premium segment. Core revenue declined marginally by 1.1%. Decrease in sales volume was partially offset by price/mix effect realized mainly in January-March and strong performance in the domestic duty-free sales. We achieved a growth of 5.1% in adjusted operating profit due to the price/mix improvement and initiativeled cost decrease realized since April. How is JT's share performance in Japan? A: JT and MEVIUS shares stood firm despite an increased competitive pressure as our competitors actively introduced new products at lower price points than their base lines. Against these moves, we are actively making investments in sales promotion and equity enhancement for MEVIUS and other core brands. In July-September, we integrated Caster and Cabin into Winston and supported Seven Stars by launching new products in the growing menthol segment. We are committed to further strengthening our brand portfolio. 4

5 What are the main factors for forecast revision? A: In the Japanese market, recent industry volume has been more solid than was expected. Incorporating this trend, we now estimate the market contraction to be just over 2% in the full year of Our estimate for market contraction is now softer than previous assumption, but at the same time the competitive pressure is more severe than was expected. Therefore, sales volume forecast remains unchanged. Core revenue is projected to increase from the previous forecast, reflecting stronger performance in the duty-free sales. Adjusted operating profit target has been revised upward due to effective cost management in addition to the revised revenue. While pursuing efficiency in cost spending, we will not compromise investments intended to enhance brand equity for MEVIUS and Winston among others. <Other> How is JT's dividend policy in 2015? A: Based on the implementation status of the Companyʼs mid- to long-term growth strategy and consolidated financial performance, the Company revises forecast fiscal year-end dividend per share upwards by 10 to 64. Accordingly, a total annual dividend per share of 118 is now forecast, including the interim dividend \64. Our intention is to grow annual dividend per share stably and sustainably in the mid- to long-term. We will offer 2016 annual dividend with a medium-to long-term shareholder return policy in February next year, when we announce our full year finaicial results. 5