(Reference Material) Voluntary Adoption of International Financial Reporting Standards(IFRS)from the fiscal year ended March 31,2012 Japan Tobacco Inc. Caution concerning Forward-Looking Statements Forward-Looking and Cautionary Statements This presentation contains forward-looking statements about our industry, business, plans and objectives, financial conditions and results of operations based on current expectations, assumptions, estimates and projections. These statements reflect future expectations, identify strategies, discuss market trends, contain projections of operational results and financial conditions, and state other forward-looking information. These forward-looking statements are subject to various known and unknown risks, uncertainties and other factors that could cause our actual results to differ from those suggested by any forward-looking statement. We assume no duty or obligation to update any forward-looking statement or to advise of any change in the assumptions and factors on which they are based. 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) health concerns related to the use of tobacco products; (2) legal or regulatory developments and changes; including, without limitation, tax increases and restrictions on sales, marketing and use of tobacco products, governmental investigations and privately imposed smoking restrictions; (3) litigation in Japan and elsewhere; (4) our ability to further diversify our business beyond the tobacco industry; (5) our ability to successfully expand internationally and make investments outside Japan; (6) competition and changing consumer preferences; (7) the impact of any acquisitions or similar transactions; (8) local and global economic conditions; and (9) fluctuations in foreign exchange rates and the costs of raw materials. 2 1
Caution concerning Forward-Looking Statements Purpose of This Material and Cautionary Notes This material is prepared for the purpose of understanding the consolidated financial results of JT Group under IFRS. This material includes the contents which we think are useful to understand the consolidated financial results of JT Group under IFRS, as well as the contents which are required to disclose by the relevant laws and regulations. (Regarding the opening IFRS statement of financial position and reconciliation adjustments from the Japanese GAAP to IFRS for the comparative period, which are required under the relevant laws and regulations, please refer to the Brief Statements of Consolidated Financial Results and Forecast issued.) Regarding the consolidated financial results for the fiscal year ended March 31, 2012, only the financial statements under IFRS are audited while financials under the Japanese GAAP are out of scope of audit. This material mainly treats the items that we think are major GAAP differences for JT Group. 3 Contents P5 P7 Voluntary adoption of IFRS P&L FY March 2012: Major differences P16 Opening B/S: Major differences P17 B/S FY March 2012: Major differences P9 P&L FY March 2012: Revenue P10 P&L FY March 2012: Operating income/profit P18 Unifying fiscal year P11 P&L FY March 2012: Financial income/losses P12 P&L FY March 2012: Income tax / Profit P13 P&L FY March 2012: Non-GAAP measures, Adjusted EBITDA 4 2
Voluntary adoption of IFRS from FY March 2012 JT Group has been steadily growing as a global company, with operations currently in more than 120 countries and jurisdictions 1999 acquisition of the non-us tobacco business of RJR Nabisco Inc. 2007 acquisition of Gallaher Group Plc JT Group adopted IFRS voluntarily from the fiscal year ended March 31,2012 : to improve international comparability of financial information in the capital markets; to diversify the group s sources of financing via international markets 5 Voluntary adoption of IFRS from FY March 2012 Comparative period FY ended March31,2011 First IFRS reporting period FY ended March31,2012 April 1, 2010 Transition Date Opening B/S Covered in this material March 31, 2011 B/S FY March 2011 Reconciliation adjustments disclosed in Brief Statements of Consolidated Financial Results March 31, 2012 First Reporting Date B/S FY March 2012 Covered in this material P&L FY March 2011 Reconciliation adjustments disclosed in Brief Statements of Consolidated Financial Results P&L FY March 2012 Covered in this material 6 3
P&L FY March 2012: Major Differences Revenue Judging that sales of distribution activities in Domestic Tobacco business are categorized as agents, treatment of purchase prices of such agent transactions are changed to deduction from net sales and COGS Operating income/profit Ceasing periodical amortization of goodwill Changes on retirement benefit: major impact is derived from election of immediate recognition of actuarial gains/losses (through other comprehensive income) Change in the depreciation method of Japanese domestic companies from the declining balance method to the straight-line method (unification with International Tobacco business) Items in non operating income/expense and extraordinary profit/loss accounts under JGAAP are reclassified to COGS, other operating income and SG&A respectively under IFRS Profit Under IFRS, Profit is presented before deducting non-controlling interests and then breakdown is presented, while Net Income presented under JGAAP excludes minority interest 7 P&L FY March 2012: Major Differences JGAAP Reclassification Difference in recognition and measurement IFRS Net sales 2,547.1-513.0-0.2 2,033.8 Revenue Operating income 374.7-13.1 97.6 459.2 Operating profit Non-operating income/losses -11.9 11.9 - - Extraordinary income/losses -17.7 17.7 - - - 6.4-0.8 5.6 Financial income - -22.9-0.5-23.4 Financial cost Income before income taxes and minority interests 345.0-96.3 441.4 Profit before income taxes Income taxes -110.5 - -2.3-112.8 Income taxes Net income before minority interests 234.6-94.0 328.6 Profit Minority interests -7.2-0.5-7.7 Net income 227.4-93.5 320.9 Profit (attributable to owners of parent company) 7.7 (non-controling interest) EPS 23,882.77 EPS (attributable to owners of parent company) 33,700.97 ROE 15.0% ROE (attributable to owners of parent company) 20.3% Major impacts on JT Group Consolidated net income Ceasing of amortization of Goodwill Treatment of employee benefits Treatment of fixed assets *EPS under IFRS is based on Profits attributable to owners of parent company 8 4
P&L FY March 2012: Revenue JGAAP (Net sales) 2,547.1 Deduction of purchase prices of agent transactions (Tobacco & Others) -502.1 Change of treatment of some rebates (Pharma/Food business) 0.1 Change of the recognition timing of some goods sales transaction (Pharma/ Food business) -10.9 Others -0.3 IFRS (Revenue) 2,033.8 Impacts of revenue on profits is pretty immaterial Deduction of purchase prices of agent transactions (deduction of the same amounts from COGS, as well) improves understanding of correlation between Revenue and Profit in increase/decrease, and also comparability with the competitors (e.g. margin ratio) 9 P&L FY March 2012: Operating income/profit JGAAP (Operating income) 374.7 Reclassification from non-operating income/ and extra ordinary income/losses -14.7 Posting of supplies as expense (e.g. goods for advertising) 0.7 Tangible fixed assets (e.g. depreciation method) 1.9 Employment benefits 12.1 Ceasing amortization of goodwill 82.8 Others 1.6 IFRS (Operating profit) 459.2 All the gains/losses which are not applicable as financial gains/losses, including nonoperating income/ and extraordinary gains/losses under JGAAP, are presented above operating profit under IFRS Fixed assets: change to straight-line method for Japanese Domestic businesses (unification with International Tobacco business) Posting of assets for advertising/sales promotion as expense *Going forward: depreciation to be flats for Domestic businesses (straight-line method has been applied to International businesses; certain development costs to be capitalized Investment returns from pension assets are accounted for in other comprehensive income, instead of through profit 10 5
P&L FY March 2012: Financial income/losses JGAAP - Reclassification 6.4 Differences in recognition and measurement -0.8 IFRS (Financial income) 5.6 JGAAP - Reclassification -22.9 Differences in recognition and measurement -0.5 IFRS (Financial losses) -23.4 Major items in Financial income/losses Items are interest income, dividends, interest, FX gains/losses and interest expense and expected investment returns related to employment liabilities Major differences in recognition and measurement is related to change in calculation methodology of employment benefit liabilities *Treatment of equity investments held not for trading OCI approach being elected, movements of fair values during the holding periods are posted in other comprehensive income (direct booking in Equity as same as Japanese GAAP) Accumulative movements of fair values at disposal are reclassified to profit surplus within Equity (extra ordinary income/loss under Japanese GAAP) 11 P&L FY March 2012: Income tax / Profit JGAAP (Income taxes) -110.5 Differences in recognition and measurement -2.3 IFRS (Income taxes) -112.8 JGAAP (Net income) 227.4 Differences in recognition and measurement 93.5 IFRS (Profit attributable to owners of parent company) 320.9 Income Taxes has immaterial impact on profit Profit attributable to owners of parent company (equivalent to Net income under Japanese GAAP) decreased mainly due to Differences in recognition and measurement above income before income taxes 12 6
P&L FY March 2012: Non-GAAP measures, Adjusted EBITDA Adoption of Non-GAAP measures Adjusted EBITDA and Adjusted diluted EPS Adjusted EBITDA To present the sustainable growth of JT Group s business performance, we adopted Adjusted EBITDA as one of the key indicators Operating income under JGAAP ±Difference in recognition and measurement ±Reclassification of non-operating income/losses other than financial income/ and of extraordinary income/losses under JGAAP = Operating profit under IFRS Adjusted EBITDA =Operating profit under IFRS +depreciation of tangible fixed assets + amortization of intangible fixed assets + impairment losses on goodwill ± restructuring-related income and 13 P&L FY March 2012: Non-GAAP measures, Adjusted EBITDA Roadmap from EBITDA under JGAAP to Adjusted EBITDA under IFRS in the results of FY March 2012 for each reportable segment <Japanese Domestic Tobacco> <International Tobacco> EBITDA under JGAAP 272.5 Reclassification from non-operating income/losses and extra ordinary income/losses Difference in recognition and measurement EBITDA under IFRS (Operating profit + Depreciation + Amortization) Impairment losses on goodwill ± restructuring-related income and -29.6 5.9 248.8 13.4 EBITDA under JGAAP 312.6 Reclassification of non-operating income/losses and extra ordinary income/losses -5.0 EBITDA under IFRS (Operating profit 307.6 + Depreciation + Amortization) Impairment losses on goodwill ± restructuring-related income and 7.2 Adjusted EBITDA under IFRS 314.8 Adjusted EBITDA under IFRS 262.3 14 7
P&L FY March 2012: Non-GAAP measures, Adjusted EBITDA Roadmap from EBITDA under JGAAP to Adjusted EBITDA under IFRS in the results of FY March 2012 for each reportable segment <Pharmaceuticals> <Foods> EBITDA under JGAAP -12.3 EBITDA under JGAAP 21.5 Reclassification of non-operating income/losses and extra ordinary income/losses 0.6 Reclassification of non-operating income/losses and extra ordinary income/losses -2.1 Differences in recognition and measurement 1.6 Differences in recognition and measurement 0.2 EBITDA under IFRS (Operating profit + Depreciation + Amortization) -10.0 EBITDA under IFRS (Operating profit + Depreciation + Amortization) 19.6 Impairment losses on goodwill ± restructuring-related income and Adjusted EBITDA under IFRS -10.0 - Impairment losses on goodwill ± restructuring-related income and 0.4 Adjusted EBITDA under IFRS 20.0 15 Opening B/S: Major differences <JGAAP> <IFRS> Current assets 1,195.8 Current liabilities 1,101.5 Current assets 1,164.5 Current liabilities 1,108.3 assets 2,676.8 liabilities 1,047.8 Total liabilities 2,149.3 Net assets 1,723.3 Difference JPY 4BN assets 2,746.7 liabilities 1,075.2 Total liabilities 2,183.4 Equity 1,727.7 Total assets 3,872.6 BPS Total assets 3,911.1 BPS JPY 172,139.61 (attributable to owners of parent company) JPY 172,720.90 Straight-line method applied to depreciation of tangible fixed assets under IFRS Liabilities increased mainly due to change in recognition of employees benefit liabilities (On-balance of actuarial gains/losses) Cumulative translation adjustment balance at transition date transferred to retained earnings (reclassification among Equity) Applying exemption rule under IFRS 1, take over net book value under Japanese GAAP (i.e. remaining balance as of transition date) 16 8
B/S FY March 2012: Major differences <JGAAP> <IFRS> Current assets 1,350.8 Current liabilities 1,114.1 Current assets 1,331.1 Current liabilities 1,157.5 assets 2,121.8 liabilities 748.0 Total liabilities 1,862.1 Net assets 1,610.5 Difference JPY 104BN assets 2,336.0 liabilities 794.9 Total liabilities 1,952.4 Equity 1,714.6 Total assets 3,472.6 BPS Total assets 3,667.0 BPS JPY 160,570.98 (attributable to owners of parent company) JPY 171,617.35 Main change out of major differences after Opening B/S: Ceasing of periodical amortization of goodwill after transition date 17 Unifying the fiscal year Plan to unify the fiscal year of JT Group into January-December by changing the statutory fiscal years of JT and domestic subsidiaries to January- December Group-wide project has started, aiming to implement January-December unified fiscal year for FY2015 through 9 months transitional fiscal year (April to December) for FY2014 18 9