JT and Japanese municipalities jointly set up 835 smoking areas in public places. Business activities in 120 countries around the world

Transcription

1 Feature In this special feature, we introduce readers to our tobacco business. Our tobacco business is the core source of profit and the driving force of profit growth for the Group. We have been growing through our geographical expansion, enhancing and developing our brand portfolio and improving our productivity and technology. In addition to satisfying the demands of tobacco consumers around the world, we believe that we have a responsibility to the public and that our continued existence relies on initiatives that build trust in JT Group by respecting all members of society. 2

2 1 Business activities in 120 countries around the world 36,000 employees worldwide in the tobacco business 3 Community clean-up events held 1,000 times in Japan 2 JT and Japanese municipalities jointly set up 835 smoking areas in public places 5 Planting trees covering 6,100 hectares in Malawi and Tanzania JT Group and governments fighting against illicit trade 4 6 Feature & Management Business & History Responsibility Business Environment & Risk Financial Information Fact Sheets General Information 3

3 Feature JT Group Sales Volume (Billions of cigarettes) * 2010* Japanese Domestic (Years ended March 31) Overseas (Years ended December 31) * Sales volume in the international tobacco business from FY 3/2009 onward includes cigars, pipe tobacco and snus, but does not include private label and contract manufactured products JT Group Share in Global Cigarette Market (2009) 10.4% JT Group Source: Euromonitor Tobacco Business JT Group s Core Source of Profits and Driving Force for Profit Growth 1 Business activities in 120 countries around the world JT Group operates in more than 120 countries around the world, which includes manufacturing, marketing and selling tobacco brands. JT Group has expanded its tobacco business through the acquisitions of RJR Nabisco s non-us tobacco operations and Gallaher Group Plc, as well as through organic growth. 4

4 South & West Europe 64.5 (Billions of cigarettes) Rest of the World (Billions of cigarettes) North & Central Europe 47.5 (Billions of cigarettes) Number of Employees (As of March 31) (Employees) 60,000 40,000 20,000 31,476 33,428 23,738 23,935 CIS (Billions of cigarettes) 2 36,000 employees worldwide in the tobacco business People are our most valuable asset. As part of our commitment to employees, we actively improve workplace environments, provide training for personal development, and give opportunities for international assignments within the Group. 47,459 33,872 47,977 49,665 34,508 36,033 Japan (Billions of cigarettes) JT Group sold billion sticks of tobacco products in FY 3/2010 worldwide, with global tobacco market share of 10.4% in JT Group Total Tobacco Business Feature & Management Business & History Responsibility Business Environment & Risk Financial Information Fact Sheets General Information 5

5 Feature Japanese Domestic Tobacco Business Laying a Stable Business Foundation as the Core Source of Profits Maintained a market share of 64.9%, the same level as in the previous fiscal year, amid difficult business conditions Key brands* commanded a strong market share of 45.1%, thanks to effective brand measures Introduced new products and conducted sales promotion activities Renewed product designs with a view to enhancing brand value Continued efforts to build an even more cost-efficient operating structure JT share 64.9% down 0.2ppt Share of key brands* 45.1% up 0.3ppt Total sales volume billion cigarettes down 5.0% EBITDA billion down 5.4% The Japanese domestic tobacco market has continued to contract mainly because of Japan s aging population with fewer births, growing public consciousness of the health risks associated with smoking, and public debate on a future hike in the tobacco excise tax. An increasingly fierce competitive landscape, compounded by these changes in the business environment, means that the Japanese domestic tobacco business the JT Group s core source of profits is actively engaged in the development and introduction of new products centered on its key brands, and in sales promotion activities, in order to maintain and expand its market share. Furthermore, JT closed two Japanese domestic tobacco factories at the end of March 2010 as part of our efforts to build an optimum operating structure. JT Share and Total Share of Key Brands* (Years ended March 31) (%) EBITDA in the Japanese Domestic Tobacco Business (Years ended March 31) JT Share Total Share of Key Brands* * Mild Seven, Seven Stars, Pianissimo (The market share figure for key brands is inclusive and retrospective of market share figures for icene and Lucia, which were integrated into the Pianissimo family in January 2010) 3 Community clean-up events held 1,000 times in Japan JT developed the Pick Up and You will Love Your City initiative in May 2004 in an effort to eradicate public littering by raising awareness of the problem and organizing rubbish collection. This initiative is aimed at community festivals and other public events in various regions across Japan and is conducted in cooperation with many different stakeholders from local governments, companies, and volunteer organizations. Since these activities began in May 2004, community cleanup events have been held a total of 1,000 times throughout Japan as of April 17, To date, approximately 1,040,000 people, including 1,987 registered professional and nonprofessional organizations, have taken part. 6

6 The Japanese Domestic Tobacco Business Brand Portfolio Mild Seven, Seven Stars, and Pianissimo are our key brands in the Japanese market. We strive to enhance the value of each brand by actively engaging in the development and introduction of new products, and by vigorous sales promotion activities Mild Seven Family The Mild Seven family has won numerous loyal customers since its launch in June As Japan s major cigarette brand, Mild Seven has consistently commanded the No.1* share of the Japanese domestic market for more than 30 years since Today, the Mild Seven Family encompasses 24 products (as of April 30, 2010), reflecting its evolution in step with the changing times and brand expansion. * Source: TIOJ Mild Seven Brand Share (Years ended March 31) (%) Mild Seven 100 s Box and Mild Seven Light 100 s Box launched (June 2009) Mild Seven Impact One Menthol Box launched (February 2010) 15 core products forming the backbone of the Mild Seven brand redesigned (February 2010) Shibuya-Ku Hachiko-mae Smoking Space Seven Stars Family Launched in 1969, Seven Stars featured Japan s first domestically produced charcoal filter in pursuit of better taste. Since its launch, Seven Stars has consistently offered unique value in terms of taste, aroma, and product design. The Seven Stars family comprises a lineup of 12 products (as of April 30, 2010) centered on Seven Stars, which recorded the top* performance by brand in the fiscal year ended March The Seven Stars family continues to capture a growing share of the market. * Source: TIOJ Seven Star Brand Share (Years ended March 31) (%) Pianissimo Family Market share 32.1% (Change: 0.2ppt down) Market share 9.6% (Change: 0.3ppt up) Market share* 3.4% (Change: 0.1ppt up) Seven Stars Black Charcoal Menthol Box launched (August 2009) Seven Stars Black Impact Box launched (April 2010) Composition Rate of Key Brands in Sales Volume In August 1995, the Pianissimo family saw the launch of Japan s first 1 mg-tar menthol cigarette product featuring reduced odor and smoke*. Pianissimo, an FSK (Filter Super King) slim menthol product, has continued to achieve growth after undergoing the Japanese tobacco market s first integration of brands in the fiscal year ended March The Pianissimo family, a core JT tobacco franchise, features a diverse lineup of 7 products (as of April 2010), centered on Pianissimo One, the No. 1** 1mg menthol product. * Reduced smoke: Less smoke is released from the tip of the cigarette based on a visual comparison with conventional JT cigarette products. ** Source: TIOJ Pianissimo Brand Share* (Years ended March 31) (%) Pianissimo Icene Menthol One launched (December 2009) Integrated the icene and LUCIA brands into the Pianissimo family (January 2010) * The market share figure for Pianissimo brand is inclusive and retrospective of market share figures for icene and Lucia, which were integrated into the Pianissimo family in January JT and Japanese municipalities jointly set up 835 smoking areas in public places Smoking areas in public places were set up in order to respect the wishes of smokers and nonsmokers, and to reduce cigarette butt litter. The first smoking area was established in August 2003 in the Shimbashi Station Plaza (Tokyo), and as of March 2010, a total of 835 areas have been created in cooperation with 185 municipalities in Japan. 69% Feature & Management Business & History Responsibility Business Environment & Risk Financial Information Fact Sheets General Information 7

7 Feature International Tobacco Business the Driving Force for Profit Growth Achieved double-digit growth in dollar-based EBITDA at constant rates of exchange Strong brand portfolio drove market share gains in key markets Good geographic mix of mature and emerging markets Enhancement of leaf procurement Total sales volume* GFB sales volume billion cigarettes billion cigarettes down 2.5% down 0.9% EBITDA billion down 26.1% Japan Tobacco International (JTI), which carries out the international tobacco business, conducts business operations in over 120 countries. The international tobacco business remains the profit growth engine of the Group. JTI continues to focus on sustainable quality top-line growth through enhancing its brand portfolio and brand equity. EBITDA at constant rates of exchange $3,967 million up 14.9% * Total sales volume includes cigars, pipe tobacco and snus, but does not include private label and contract manufactured products Geographic Mix of Mature and Emerging Markets (2009) (%) 69 Sales Volume EBITA 64 EBITDA of International Tobacco Business (Years ended December 31) Mature Emerging 5 Planting trees covering 6,100 hectares in Malawi and Tanzania Across the world the JT Group is committed to both forest preservation and tree-planting. Four years ago JT and JTI began an ambitious reforestation and social program in Malawi and Tanzania, since which time 6,100 hectares have been planted. In addition, JT and JTI have complemented this work by improving the standard of living for local communities with programs such as installing wells for clean drinking water and irrigation systems, and training farmers in agricultural techniques. In Japan, JT is also committed to protecting and regenerating forests. Launched in 2005, the JT Forest project has expanded its activities to eight locations nationwide. 8

8 The International Tobacco Business Brand Portfolio JTI possesses a portfolio of Global Flagship Brands (GFB) comprising Winston, Camel, Mild Seven, Benson & Hedges, Silk Cut, LD, Sobranie, and Glamour. JTI is leveraging its GFB brand equity in key markets around the world. Engine Winston and Camel are the Engine brands driving JTI s growth. First introduced in 1954, Winston has proven its status as JTI s key growth driver, becoming in 2007 the 2nd* largest cigarette brand in the world. After almost a decade of strong momentum, Winston further accelerated its sales volume growth in South & West Europe and North & Central Europe in Winston s performance has been strengthened by Super Slims brand extensions and ongoing product innovation. * Source: Euromonitor, combined with R.J. Reynolds s sales volume First introduced in 1913, Camel is the originator of American Blend. Sold in over 100 countries, Camel is the 6th* largest cigarette brand in the world. Sales volume growth has been achieved in South & West Europe and North & Central Europe in 2009.The launch of Camel Essential Flavor and other line extensions contributed to Camel s performance. * Source: Euromonitor, combined with R.J. Reynolds s sales volume Global Flagship Brand Portfolio Composition Rate of GFB in Sales Volume 6 JT Group and governments fighting against illicit trade 56% The JT Group is protecting both its consumers and its business interests and fighting ever harder against the growing problem of illicit trade through close cooperation with law enforcement authorities around the world. A comprehensive approach The JT Group continues to invest in its international tobacco business programs to effectively prevent illicit trade. The initiatives span from detailed screening of customers and vendors, to controls on money collections, to applying security features allowing key brands to be traced back from the first purchaser to the manufacturing site. The international tobacco business has concluded agreements with a growing number of law enforcement authorities to cooperate more closely and efficiently in disrupting the flow of counterfeit and contraband tobacco products. This is the case in particular with the European Union and its twenty-seven Member States where JT Group has agreed to contribute US$400 million over 15 years to support anti-smuggling and anti-counterfeiting initiatives in the European territory. JT Group is taking initiatives to raise awareness among the public and consumers of the risks associated with illicit trade and consumption of such products. Moreover, dedicated teams are specialized in collecting intelligence that can be used by law enforcement authorities to fight illicit trade. JT Group is constantly developing new security features to better protect its brands from illicit trade and supports investigations and seizures of counterfeit tobacco products. Note: Financial data disclosed here in Feature are rounded. Stronghold Four stronghold brands have a significant presence in their respective regions increasing the competitive power of JTI s portfolio. Originating in Japan and launched in 1977, Mild Seven is the top-selling premium charcoal brand and is the 3rd* largest cigarette brand in the world. Its key markets outside Japan are Taiwan, Korea, Russia and Malaysia. * Source: Euromonitor Originally created for the Prince of Wales in 1873, Benson & Hedges has a proud British heritage. Today, JTI owns the Benson & Hedges trademark in EU markets (excl. Baltics) where it is a leading Virginia premium brand. Benson & Hedges is continuously evolving its portfolio and brand extensions to reflect its consumers needs. Launched in 1963, Silk Cut established itself as one of the leading brands in the Virginia segment, both in the UK and Ireland. JTI owns the Silk Cut trademark throughout the EU with the core markets being the UK, Ireland and Greece, where the brand enjoys a significant market share in the premium segment. LD was launched in 1999 as a midprice proposition in the Russian market. The brand achieved immediate success and is accepted as a credible international proposition. Since 2007 LD has grown continuously, expanding its presence to more than 30 countries across all regions supported by its constant portfolio expansion in response to consumer aspirations. Future potential Sobranie and Glamour have strong future growth potential. Sobranie is one of the world s oldest tobacco brands and has been synonymous with luxury cigarettes since This heritage, exquisite style and the best selected tobaccos have made Sobranie one of the most prestigious brands in the world. In 2009 innovative propositions were launched in Russia. Glamour is JTI s leading Super Slims brand. Since its introduction in 2005, Glamour has achieved remarkable growth consolidating its No. 1 position as a Super Slims brand in several CIS+ markets. Glamour is constantly expanding its geographical presence and evolving portfolio in the growing Super Slims segment. Feature & Management Business & History Responsibility Business Environment & Risk Financial Information Fact Sheets General Information 9

9 Financial Highlights Japan Tobacco Inc. and Consolidated Subsidiaries / FY 3/2010 Business Scale JT Group Sales Volume Japanese Domestic Tobacco Business151.9 Billions of cigarettes International Tobacco Business Billions of cigarettes JT Group Share in Global Cigarette Market (Source: Euromonitor) 10.4 % Net Sales Including Excise Taxes 6,134.7 Billions of yen Adjusted Net Sales Excluding Excise Taxes* 1 1,981.0 Billions of yen EBITDA Billions of yen Profitability EBITDA Margin* % ROE 8.6 % Per Share Data Diluted EPS 14,449 yen up 12.2% Diluted EPS (excluding the impact of goodwill amortization) 24,621 yen up 3.0% Stability Free Cash Flow Billions of yen D/E Ratio 0.53 times Return of Profits to Shareholders The Per Share Dividend 5,800 yen The Dividend Payout Ratio 40.1 % 23.6% (Excluding the Impact of Goodwill Amortization) Business Scale: The JT Group s total tobacco sales volume in Japan and abroad comes to approximately 587 billion cigarettes per year, accounting for around 10% of the global market. In addition to the domestic and international tobacco businesses, the JT Group engages in the pharmaceutical and food businesses, and its annual consolidated sales including excise taxes stand at approximately 6,130 billion, adjusted net sales excluding excise taxes at more than 1,980 billion and consolidated EBITDA at more than 520 billion. Profitability: Because of the high profitability of the tobacco business, the ratio of EBITDA to adjusted net sales excluding taxes comes to around 27% and ROE stands at between 8% and 9%. Per Share Profits: Although net sales as well as most profit figures, including EBITDA, operating income and recurring profit, declined in FY 3/2010, per-share EPS grew as a result of an increase in net income due to an improvement in extraordinary income. Stability: Free cash flow came to approximately 250 billion due to a stable cash flow generated by the tobacco business. D/E Ratio is about 0.5 times. Return of Profits to Shareholders: The pershare dividend was set at 5,800, including interim and term-end dividends as well as a commemorative dividend to mark the 25th anniversary of the incorporation of JT. The dividend payout ratio excluding the impact of goodwill amortization rose to 23.6%. * 1 Japanese domestic tobacco; excluding excise tax and revenue from the imported tobacco, domestic duty free, the China Division, and other miscellaneous. International tobacco; excluding excise tax and revenue from distribution, private label, contract manufacturing and other peripheral business. * 2 EBITDA margin on Adjusted Net Sales excluding excise tax (1,981.0 billion yen as of ) Financial data disclosed herein are rounded. 10

10 Japan Tobacco Inc. and Consolidated Subsidiaries / Years ended March 31 Net Sales Including Excise Taxes 8,000 6, ,000 6, , ,000 5,000 4, , ,000 3,000 2,000 1,000 Operating Income and Net Income Operating Income Net Income Free Cash Flow ,200 1,493.7 Net Sales Excluding Excise Taxes 2,500 2,000 1,500 1, ,500 2,000 1,500 1, , ,000 80,000 60,000 40,000 20,000 1, , Please see Note 2 on page 12. 1, , , Total Equity and ROE (Billions of yen/%) EPS (Yen) Total Equity 2, , ROE , , , , ,001 24,916 23,895 24,621 12,880 14, EPS (excluding the impact of goodwill amortization) EPS EBITDA Interest-bearing Debt and D/E Ratio (Billions of yen/times) 2, ,500 1, , Interest-bearing Debt D/E Ratio Cash Dividends Applicable to the Year (Yen) 8,000 5,800 6,000 5,400 4,800 4,000 4,000 3,200 2,000 Feature & Management Business & History Responsibility Business Environment & Risk Financial Information Fact Sheets General Information Note: A 5 for 1 stock split went into effect on April 1, 2006 Financial data disclosed herein are rounded. 11

11 Financial Highlights Japan Tobacco Inc. and Consolidated Subsidiaries / Years ended March 31 Millions of U.S. dollars Millions of yen (Note 1) 2010 For the year: Net Sales Including Excise Taxes 4,637,657 4,769,387 6,409,727 6,832,307 6,134,695 $65,936 Japanese Domestic Tobacco 3,405,281 3,416,274 3,362,398 3,200,494 3,042,836 32,705 International Tobacco 881, ,658 2,639,969 3,118,319 2,633,636 28,306 Pharmaceutical 49,257 45,452 49,064 56,758 44, Food 278, , , , ,653 4,242 Others 23,553 21,449 21,876 20,770 19, Net Sales Excluding Excise Taxes (Note 2) 1,596,151 1,633,186 2,068,368 2,243,146 1,980,970 21,292 Japanese Domestic Tobacco 760, , , , ,991 6,688 International Tobacco 484, , ,989 1,080, ,756 9,845 Pharmaceutical 49,257 45,452 49,064 56,757 44, Food 278, , , , ,653 4,285 Others 23,553 21,449 21,876 20,770 19, EBITDA (Note 3) 433, , , , ,702 5,661 Japanese Domestic Tobacco 305, , , , ,646 2,769 International Tobacco 94, , , , ,869 2,686 Pharmaceutical (1,803) (8,197) (6,269) 4,890 (9,651) (104) Food 11,869 12,018 8,353 17,030 14, Others 22,140 21,586 22,055 13,150 13, Elimination/Corporate 1, , Depreciation and Amortization (Note 3) 126, , , , ,197 2,474 Operating Income 306, , , , ,505 3,187 Japanese Domestic Tobacco 220, , , , ,339 2,186 International Tobacco 71,031 81, , , ,127 1,173 Pharmaceutical (5,057) (11,207) (9,644) 1,020 (13,593) (146) Food 6,325 6, (11,451) (13,696) (147) Others 8,673 9,331 10,448 9,695 10, Elimination/Corporate 5, ,375 1, Net Income 201, , , , ,448 1,488 Free Cash Flow (FCF) (Note 4) 145, ,007 (1,493,717) 240, ,742 2,695 At year-end: Total Assets 3,037,379 3,364,663 5,087,214 3,879,803 3,872,596 41,623 Interest-bearing Debt (Note 5) 216, ,269 1,389, , ,330 9,397 Liabilities 1,217,306 1,340,047 2,932,585 2,255,515 2,149,317 23,101 Total Equity 1,762,512 2,024,616 2,154,629 1,624,288 1,723,279 18,522 Ratios: Return on Equity (ROE) 12.4% 11.3% 11.8% 6.8% 8.6% Return on Assets (ROA) 10.4% 10.7% 10.5% 8.4% 7.8% Equity Ratio 58.0% 58.3% 40.8% 40.0% 42.6% Amounts per share: (in yen) (Note 6) Net Income (Note 7) 21,017 22,001 24,916 12,880 14,449 Total Equity 183, , , , ,140 Cash Dividends Applicable to the Year 3,200 4,000 4,800 5,400 5,800 Notes: 1. Figures stated in U.S. dollars in this report are translated at the rate of per $1, as of March 31, : Excluding imported tobacco in the Japanese domestic tobacco and distribution business in the international tobacco, respectively : Excluding the imported tobacco, domestic duty free, the China Division and other miscellaneous items in the Japanese domestic tobacco business, in addition to the distribution, private label, contract manufacturing and other peripheral businesses in the international tobacco business. 3. EBITDA = operating income + depreciation and amortization Depreciation and amortization = depreciation of tangible fixed assets + amortization of intangible fixed assets + amortization of long-term prepaid expenses + amortization of goodwill 4. FCF = (cash flow from operating activities + cash flow from investing activities) excluding the following items: From cash flow from operating activities : Dividends received / interest received and its tax effect / interest paid and its tax effect From cash flow from investing activities : Cash outflow from purchase of marketable securities / proceeds from sales of marketable securities / cash outflow from purchases of investment securities / proceeds from sales of investment securities / others (but not business-related investment securities, which are included in the investment securities item) 5. Interest-bearing Debt includes lease obligation after FY On April 1, 2006, a 5 for 1 stock split went into effect. Amounts per share for the year ended March 2006 is on the assumption that this stock split took place at the beginning of fiscal year. 7. Diluted net income per share. 8. Financial data disclosed herein are basically rounded. 12

12 To Our Stakeholders As its long-term vision, the JT Group is committed to global growth by providing consumers with diversified value that is uniquely available from us. To realize this vision, we have adopted JT-11, a medium-term management plan which covers the three years ending in March In fiscal year 2009, the first year of the plan, our consolidated results exceeded the initial forecasts as we devoted efforts to appropriate management of business operations, although we suffered a decline in overall demand mainly in the Japanese domestic tobacco business, and unfavorable foreign exchange rates in the international tobacco business. As for the outlook on fiscal year 2010, while there are signs of recovery in some sectors, the global economy is still recovering and we expect a significant drop in demand at the Japanese domestic tobacco business due to a tax increase of an unprecedented scale. However, we will strive to realize our long-term vision and achieve the objectives under JT-11 by exploring opportunities for future growth and further strengthening our business foundation in this difficult business environment. June 2010 Yoji Wakui Chairman of the Board Yoji Wakui Chairman of the Board Hiroshi Kimura President and CEO and Representative Director Hiroshi Kimura President and CEO and Representative Director Feature & Management Business & History Responsibility Business Environment & Risk Financial Information Fact Sheets General Information 13

13 CEO Interview Q Points Financial Results for (fiscal year 2009) International Tobacco Business: Situation of Major Markets Planned Actions in FY3/2011 (fiscal year 2010) Human Resource Development Plan for Use of Cash Financial Results for Hiroshi Kimura President and CEO and Representative Director Q What is your assessment of the financial results for fiscal year 2009 that ended in March 2010? Each business division maintained its own momentum or made progress in strengthening its business foundation, although net sales as A well as most profit figures, including EBITDA, operating income and recurring profit declined. In the Japanese domestic tobacco business, EBITDA surpassed the initial forecast of 246 billion despite weaker industry volumes than assumed. In fiscal year 2009, we strived to further develop existing brands and introduce new products, mainly under our key brands, and continued efforts to build a cost-efficient operating structure. In the international tobacco business, we increased our market share in most key markets, and achieved an increase of approximately 15% in US dollar-based EBITDA driven by favorable pricing at constant rates of exchange. The momentum of the international tobacco business, which is the profit growth engine of the JT Group, remains steady. For the moment, the pharmaceutical and food businesses do not make significant contributions to the JT Group s overall financial results. However, in our pharmaceutical business we are steadily strengthening the development pipeline, as shown by the advance of JTK-853, an anti-hepatitis C drug, currently in the clinical development stage. In the food business, we continued to strengthen our business foundations in the three business areas of beverages, processed foods and seasonings. In April 2009 we completed the integration of JT s former food business into Katokichi Co. Ltd. The food subsidiary, following acquisition, changed its name from Katokichi to TableMark in January 2010, and aims to achieve a higher level of profitability as a result of business integration. In fiscal year 2009, the first year of the JT-11 medium-term management plan, EBITDA came to billion on a consolidated basis, exceeding the initial target of 475 billion. Adjusted Net Sales Excl. Excise Tax* in Japanese Domestic Tobacco Business EBITDA** in Japanese Domestic Tobacco Business Adjusted Net Sales Excl. Excise Tax* in the International Tobacco Business (Millions of US dollars)*** EBITDA** in the International Tobacco Business (Millions of US dollars)*** 10,445 3,452 at constant rates of exchange 11,192 at constant rates of exchange 3,967 9,682 2,965 5,500 6,500 7,500 8,500 9,500 10,500 11,500 1,500 2,000 2,500 3,000 3,500 4,000 * Japanese domestic tobacco business, excluding revenue from imported tobacco, domestic duty-free, the China Division, and others. International tobacco business, excluding revenue from distribution, private label, and contract manufacturing. ** EBITDA=operating income+depreciation and amortization *** The US dollar is the reporting currency for our international tobacco business. Financial data disclosed in CEO interview are rounded. 14

14 Q Changes in Dividend Payout Ratio Excluding the Impact of Goodwill Amortization and Dividend per Share (Yen) (%) 6,000 5,000 4,000 3,000 2,000 1,000 Could you explain how currency fluctuations significantly affected the financial results? As a result of currency fluctuations on the international tobacco business, we had declines in net sales, EBITDA and operating income. A Specifically, the results were affected by the depreciation of local currencies in our key markets against the US dollar (which is the reporting currency for our international tobacco business). This negative impact on EBITDA amounted to $1 billion. There was further erosion when converted into yen as a result of the yen s appreciation. Q How much will be paid in annual dividend for fiscal year 2009? We have announced that the year-end dividend was increased to 3,000 per share, made up of 2,800 common dividend and 200 commemorative dividend. The annual dividend, together with the half-year dividend of 2,800, was increased to 5,800 per share. A We have made consistent efforts to increase our dividend with the goal of achieving a dividend payout ratio of 30% on a consolidated basis, excluding the impact of goodwill amortization. In fiscal 2009, the dividend payout ratio came to 23.6%, surpassing the previous year s 22.6%. (Years Ended March 31) ,200 1, ,600 2, ,800 2, International Tobacco Business: Situation of Major Markets Q ,000 2, Year-end dividend per share Half-year dividend per share Dividend payout ratio How could the international tobacco business increase its market share in fiscal year 2009 in almost all key markets? In many key markets, overall demand declined and the down-trading trend accelerated because of the recession and sharp increases in A tobacco excise taxes. Despite those negative factors, the international tobacco business managed to increase its market share in almost all key markets because of its well-balanced brand portfolio, which is strong in the sub-premium and mid-price segments, and its efforts to enhance brand equity and strengthen sales promotion activities. For example, in Russia we increased both our sales volume and market share despite a decline in overall demand, because Winston continued to maintain the largest market share and also because the growth of LD, our mid-price brand, rose sharply since this product captured the down-trading trend. In the UK market, the sales volume and market share of Sterling, our value brand, expanded as the product attracted the accelerated trend of down-trading customers and acted as our growth driver. In the Italian market, Camel, in the sub-premium segment, and Winston, in the popular-price segment, drew strong demand, posting a rise in both their sales volumes and market shares. The sales volumes and market shares of our brands also grew in Turkey where Winston maintained its position as the leading brand and Monte Carlo, in the popular-price segment, and LD, in the value segment, also attracted strong demand. I also believe that our continued active investments in enhancing brand equity in each market made significant contributions to the increases in market shares. Feature & Management Business & History Responsibility Business Environment & Risk Financial Information Fact Sheets General Information 15

15 CEO Interview Planned Actions in Fiscal Year 2010 Q As the business environment continues to be difficult in Japan and abroad, what actions will the JT Group take? Will there be any change in the objectives under JT-11? Regarding the Japanese domestic tobacco business, we will maintain our solid position by strengthening efforts to enhance brand equity, A introducing innovative products, pursuing appropriate pricing and continuing cost reduction efforts, although the business environment is expected to become more difficult due to such factors as an unprecedented tax increase and the strengthening of restrictions on smoking spaces. For example, as a measure to enhance brand equity, we renewed the package design of Mild Seven, which is the No.1 brand in Japan, in early February In mid-may 2010, we launched Zerostyle Mint, an entirely new type of smokeless tobacco product, in Tokyo. There will be no change in our objective of keeping the profit (EBITDA) in fiscal year 2011 at the level of fiscal year In fiscal year 2010, profits from the Japanese domestic tobacco business are expected to decline compared with the previous year due to an accelerated downward trend in consumption. Increases in expenses related to strengthening of retail store sales and R&D that are intended to ensure quality and services commensurate with the retail price, and a one-time cost related to the retail price revision will also have an impact. With regard to the international tobacco business, we expect that some of our key markets will begin to show signs of a moderate recovery in the latter half of 2010, and therefore, we do not expect volume growth in full-year Meanwhile, we will aim to achieve growth in both net sales and profits by continuing investments to strengthen business operations and brand equity, and seizing the opportunity for price increases. Our objectives of the international tobacco business, the pharmaceutical business and the food business will remain the same as we committed to in JT-11. (Actual results may differ materially from those estimated in these statements as a result of a number of factors, including, but not limited to, those described in Major Risks of Businesses. ) Human Resource Development Q As you expand your business operations globally, how are you developing human resources? The continuing expansion of our global business operations makes it all the more important to develop human resources. We benefit from A the diversity of our employees regardless of nationality and social background. We promote interaction of personnel and create mechanisms to ensure the company-wide sharing of best practice. For example, the Exchange Academy, a human resource development program managed jointly by JT and JTI, brings together trainees from countries around the world, providing an opportunity to experience unfamiliar cultures while at the same time acquiring skills necessary to manage global operations. 16

16 Plan for Use of Cash Q How does the JT Group, which can expect a stable cash flow from the tobacco business, plan to use the cash? Will there be no change in the objective of JT-11 related to the return of profits to shareholders? We will use the cash mainly for business investment, return of profits to shareholders, and repayment of interest-bearing debts. A In fiscal year 2009, the JT Group s free cash flow was billion. As we believe that there is still room for the JT Group to expand business operations both at home and abroad, investment to further strengthen the business foundation is an important usage of cash. Such business investment is intended to promote innovation, improve product quality and enhance customer satisfaction. Furthermore, we will continuously look for external growth opportunities. We also place priority on the return of profits to shareholders as an important usage of cash. There will be no change in our objective under the JT-11 medium-term management plan of raising the consolidated dividend payout ratio (excluding the impact of goodwill amortization) in the medium term to 30%. We will proceed with the repayment of interest-bearing debts while taking care to ensure an appropriate debt ratio. June 2010 Feature & Management Business & History Responsibility Business Environment & Risk Financial Information Fact Sheets General Information 17

17 Analysis of the Results of FY 3/2010* 1 * 1 International tobacco business: Year ended Dec and Year ended Dec Actual results Decrease Increase (Decrease in case of expense) Net Sales* 2 Japanese domestic tobacco International tobacco Pharmaceutical Food , Others 1.3 1, ,650 1,750 1,850 1,950 2,050 2,150 2,250 Net sales in the international tobacco business were affected by the depreciation of local currencies in our key markets against the US dollar. There was further erosion when converted into yen as a result of the yen s appreciation. Net sales declined in the food business due to the withdrawal from the chilled processed food business and the exclusion of some subsidiaries from the consolidated results due to the change of ownership. Net sales fell in the Japanese domestic tobacco business, reflecting a decline in sales volume. Net sales declined in the pharmaceutical business due to the absence of the upfront fee revenue and milestone revenue that boosted the previous year s results. * 2 Japanese domestic tobacco; excluding excise tax and revenue from the imported tobacco, domestic duty free, the China Division, and other miscellaneous. International tobacco; excluding excise tax and revenue from distribution, private label, contract manufacturing and other peripheral business. EBITDA Japanese domestic tobacco International tobacco Pharmaceutical Food Others EBITDA in the international tobacco business was affected by the depreciation of local currencies in our key markets against the US dollar. There was further erosion when converted into yen as a result of the yen s appreciation. EBITDA declined in the Japanese domestic tobacco business mainly as a result of a drop in sales volume. EBITDA dropped in the pharmaceutical business mainly due to the absence of the upfront fee revenue and milestone revenue that boosted the previous year s results. Despite marginal EBITDA growth in the key business* 3 segments due to lower raw materials prices and cost reduction, EBITDA for the overall food business decreased due to one-time losses in the fishery product business. * 3 Key business segments are: Beverages, Processed foods and Seasonings Operating Income EBITDA Depreciation and amortization Operating income fell less steeply than EBITDA because of decreases in the amortization expense in Japanese domestic tobacco business due to the completion of the amortization of the trademark rights taken over from the former RJRI, and because of decreases in the goodwill amortization expense in the international tobacco business due to the yen appreciation impact. Financial data disclosed herein are rounded. 18

18 Recurring Profit Operating income Non-operating income/loss As the non-operating balance improved because of a decrease in interest payments caused by the redemption of bonds, repayments of borrowings and lower interest rates, recurring profit fell less steeply than operating income. Recurring profit is calculated by combining operating income with profits and losses arising from financing activities and other non-operating profits and losses, except for nonrecurring profits and losses or those on prior years adjustment. Net Income Recurring profit Extraordinary income/loss, Income taxes, etc Net income increased, while profits from the sale of fixed assets decreased, and extraordinary income improved because of the absence of some expenses incurred in the previous year, including; expenses related to a change in the operating model in the Philippines; expenses associated with the demolition and removal of company housing; and the cost of introducing vending machines with the adult identification function. In addition the reversal of liability on a fine levied under UK competition law also contributed to the increase in net income. Breakdown of Net Sales Net sales including excise taxes* 1 6, ,134.7 Japanese domestic tobacco 3, ,042.8 International tobacco* 1 3, ,633.6 Adjusted net sales excl. excise taxes* 1 * 2 * 3 2, ,981.0 Japanese domestic tobacco* International tobacco* 1 * 3 1, Pharmaceutical Food Others * 1 International tobacco business: Year ended Dec and Year ended Dec * 2 Excluding revenue from the imported tobacco, domestic duty free, the China Division, and other miscellaneous. * 3 Excluding revenue from distribution, private label, contract manufacturing and other peripheral businesses. Average Exchange Rate 2008 Jan. to Dec. Average 2009 Jan. to Dec. Average YEN/USD RUB/USD GBP/USD EUR/USD EBITDA by Business Segment* 4 Consolidated EBITDA Operating income Depreciation and amortization* Japanese domestic tobacco EBITDA Operating income Depreciation and amortization* International tobacco EBITDA* Operating income Depreciation and amortization* Pharmaceutical EBITDA Operating income (loss) Depreciation and amortization* Food EBITDA Operating income (loss) Depreciation and amortization* Others EBITDA Operating income Depreciation and amortization* * 4 EBITDA = operating income + depreciation and amortization * 5 Depreciation and amortization = depreciation of tangible fixed assets + amortization of intangible fixed assets + amortization of long-term prepaid expenses + amortization of goodwill * 6 International tobacco business: Year ended Dec and Year ended Dec Feature & Management Business & History Responsibility Business Environment & Risk Financial Information Fact Sheets General Information Financial data disclosed herein are rounded. 19

19 Analysis of the Results of FY 3/2010 Consolidated Balance Sheets (Assets) Mar. 31, 2009 Cash and deposits/short-term investments Inventories Trade notes and account receivables Trademarks Goodwill 3, Other assets 39.5 Mar. 31, , ,600 3,650 3,700 3,750 3,800 3,850 3,900 3,950 4,000 On the asset side, inventories increased while the value of goodwill declined. The increase in inventories reflected a rise in raw materials costs and an increase in procurement. Consolidated Balance Sheets (Debt and Equity) Mar. 31, 2009 Bank Loans 3, Commercial paper Bonds Tobacco excise tax payable Other liabilities Retained earnings Foreign currency translation adjustments Other equity Mar. 31, , ,600 3,650 3,700 3,750 3,800 3,850 3,900 3,950 4,000 On the liability side, although CP increased, borrowings and bonds decreased. Financial data disclosed herein are rounded. 20