Japan domestic tobacco businessContinues to be a strong earnings baseKiyohide Hirowatari

Senior Vice President,
Head of Tobacco Business Planning

Caution on Forward-Looking Statements
Today’s presentations contain forward-looking statements. These statements appear in a number of places in these presentations and include statements regarding the intent, belief, or current andfuture expectations of our management with respect to our business, financial condition and results of operations. In some cases, you can identify forward-looking statements by terms such as“may”, “will”, “should”, “would”, “expect”, “intend”, “project”, “plan”, “aim”, “seek”, “target”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or the negative of these terms or other similarterminology. These statements are not guarantees of future performance and are subject to various risks and uncertainties. Actual results, performance or achievements, or those of the industries
in which we operate, may differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. In addition, these forward-lookingstatements are necessarily dependent upon assumptions, estimates and data that may be incorrect or imprecise and involve known and unknown risks and uncertainties. Forward-looking
statements regarding operating results are particularly subject to a variety of assumptions, some or all of which may not be realized.

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) decrease in demand for tobacco products in key markets;(2) restrictions on promoting, marketing, packaging, labeling and usage of tobacco products in markets in which we operate;(3) increases in excise, consumption or other taxes on tobacco products in markets in which we operate;(4) litigation around the world alleging adverse health and financial effects resulting from, or relating to, tobacco products ;(5) our ability to realize anticipated results of our acquisition or other similar investments;(6) competition in markets in which we operate or into which we seek to expand;(7) deterioration in economic conditions in areas that matter to us;(8) economic, regulatory and political changes, such as nationalization, terrorism, wars and civil unrest, in countries in which we operate;(9) fluctuations in foreign exchange rates and the costs of raw materials; and(10) catastrophes, including natural disasters.

© Copyright JT 2016.

London – September 23, 2016

JT Investor Meeting2This presentation contains images or packages of our brands in some slides.
Those slides have been included exclusively to illustrate JT Group’s strategy orperformance to our investors. They are not intended to be used for any otherpurpose.

© Copyright JT 2016

London – September 23, 2016

JT Investor Meeting3

Japan, utmost important market
a highly competitive platform of profitability

London – September 23, 2016

JT Investor Meeting4Japan is one of the largest markets & solid contributor to JTG’s profit#3 Industry value in the world• 32 $Bn in 2015

#5 Industry volume in the world• 182 BnU in 2015

JTG’s strong presence in Japan (2015)•Leading tobacco manufacturer with 59.9% SoM•

Selling 9 of top 10 SKUs

•4 manufacturing facilities•Approx. 9,500 employees
Japan contribution to JTG 2015 results
21.7%

Total Volume© Copyright JT 2016
Source: TIOJ and internal estimates. Financials on a reported basis

London – September 23, 2016

28.5%

Core Revenue

40.5%

Adjusted Operating Profit
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A highly competitive platform of profitability
Japan domestic tobacco business has sustained JT Group’s achievements by continuous investment for
quality top-line growth and its pursuit for cost optimization

JT Domestic Tobacco Business – Earnings evolution (Billions of Yen)
300
250
200
150
100

209.3

241.3

234.6

238.7

254.1201220132014

2015

5002011
Operating Profit(Apr-Mar)© Copyright JT 2016

Adjusted Operating Profit(Jan-Dec)
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Business environment

London – September 23, 2016

JT Investor Meeting7Moderate cigarette industry contraction•Moderate cigarette industry contraction continued (peak year 1996)••

Cigarette industry size has declined at 2.0% CAGR

Smoking prevalence has also continuously decreased to 19.3 % in 1H 2016

Cigarette industry volume evolution (BnU / CAGR%)

Smoking prevalence (% of adult population)
Total-2.0%

40200

30
160

MaleFemale

33.7
31.0

29.7

19.9

19.3

9.6

9.7

2015

2016

21.7

20198

10.6

182

120

1080

2011

2012

© Copyright JT 2016
Source: TIOJ and internal estimates

2013

2014

2015
London – September 23, 2016

2011

2012

2013

2014

JT Investor Meeting8Pricing environment is evolving
Mevius RSP evolution (JPY/pack)Mevius net price increase
Others*410
300
Mevius
RSP430•

Pricing usually taken at tax hike(1)•In April 2016, Mevius retail price was increased
without a tax hike440•major brand+110•

270
24+201
192003+30
9+20212006

2010

Confidence in the enhanced brand equity throughcontinuous investment•86

The first manufacturer price increase (MPI) of a6April 2016
Mevius MPI

Relatively affordable cigarette prices•

Necessity to deliver added value for the price

14+10
8 2(1) Retail price of tobacco product must be approved by the MOF

2014

2016

and the product must be sold at the approved retail price© Copyright JT 2016
* Others: tobacco excise tax + consumption tax (VAT) + retailer margin

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JT Investor Meeting

9Tightening regulations•Regulations focusing mainly on smoking in public places (SIPPs)•Supporting the development of spaces where smokers and non-smokers can co-exist: ‘Bun-en’•Potential for tighter SIPPs regulation ahead of 2020 Tokyo Olympic & Paralympic Games

Bun-en* smoking environment at a café

© Copyright JT 2016

Smoking Lounge in collaboration with NAS activation

London – September 23, 2016

* Bun-en a comfortable environment to accommodate both smokers and non-smokers in a smoking situation

Investing in brand equity for further quality
top-line growth

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Achieving quality top-line growthPowerful brand portfolio is key to increasing SoM and up-trading
Price Segment
JPY/20s

JT core brandJT total

JT core brandJT total

2014

SoS 2014

SoS 1H 2016

SoS 1H 2016

470 ~ above(Prestige)

10%450 ~ 460(Premium)43%

Seven Stars

430 ~ 440
(Sub-premium+)

99%

Mevius

410 ~ 420
(Sub-premium)33%

400 ~ below(Value)92%© Copyright JT 2016
Source: TIOJ and internal estimates

Natural American Spirit

51% #1(41%)

London – September 23, 201644% #1(24%)(99%)

Winston(29%)

99% #1

33% #285% #1JT Investor Meeting

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MEVIUS: The #1 brand in Japan since 1978
Driving volume & value growth• Continuously investing in brand equity enhancement to strengthen #1position and aim for future premiumization• Rebranded in 2013 from Mild Seven to Mevius• Manufacturer price increase (MPI) in Apr ‘16• Proactively taking initiatives for further evolution after MPI
SoM stabilization following MPI in April 2016

35.4

36

32.2
32
28

32.0

Launched 3 SKUsin May‘16(Regular Capsule)

MPI +10 JPY(%)

30.8 30.7 30.9 31.5

31.6 32.0

Initiatives after MPI

Rejuvenation 16 SKUsin Jun’16(Core family)

27.6
Jul Dec Jan Feb2015
2016© Copyright JT 2016
Source: TIOJ and internal estimates

MarAprMay JunLondon – September 23, 2016

JulAugLaunched 3 SKUsin Aug‘16(Menthol Capsule)
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Winston: The #2 global brand
Leveraging its globally recognized equity• Successful migration in August 2015
• Accelerating investment in brand equity to seize #1 position in sub-premium• 10 SKUs launched after migration, offering 3 new taste variations• Essential for future Mevius premiumization
Quarterly SoM development post migration

Equity building initiatives(Cabin & Caster integrated into Winston in Q3’15 is retrospectively reflected)

Straight Line
(%)

8.4

8.5
8.0
7.5

4 SKUs in Nov’15(Regular & Menthol)

8.0
7.5

Bitter Line

7.5

3 SKUs in Dec’15(Capsule Menthol)

Migration of Cabin& Caster (Aug’15)

7.0

Sweet Line

Q1
2015
© Copyright JT 2016
Source: TIOJ and internal estimates

Q2

Q3Q4Q1
2016

London – September 23, 2016

Q2

3 SKUs in Feb’16(Capsule Menthol)
JT Investor Meeting14Natural American Spirit: The #1 prestige brand in Japan
Exploiting opportunity to grow in the high end• Acquired in January 2016, the prestige brand complements JTG’s brand portfolio• Unique value proposition: additive-free• SoM more than doubled in the past 3 years, volume grew approx. 40% CAGR
since 2011
• Ambitious business plan finalized in April 2016, driving growth momentum
SoM growth

Shipment volume evolution(BnU)+0.4pp

(%)
2.0

3.0

+37.8%x4

1.5

2.0

1.0
1.00.0© Copyright JT 2016
Source: TIOJ and internal estimates

0.60.8

2011

2012

1.1

1.5

2.20.02013

2014

London – September 23, 2016

1.2%

0.5

2015

1.6%0.3%
2011

2015
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Seven Stars: The #1 SoM by SKU in Japan
Pursuing original value to fulfill its role as a solid profit contributor
••
•
•
•

Launched in 1969, it remains an iconic brand in Japan
Highest SoM since 2008 by SKU
Repositioned from Sub-Premium+ to Premium in October 2010
Stable SoM by offering original value, taste and design
Strengthened #1 SKU position by enhancing the legacy of its identity
Seven Stars solid SoM

(%)

8.0
7.5
7.0

7.6

7.5

7.5

2012

2013

2014

2015

7.7

6.9

2011
© Copyright JT 2016
Source: TIOJ and internal estimates

7.5

London – September 23, 20162016 Q2
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T-Vapor strategy for future top-line growth
become the market leader in this category

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Seizing the growth opportunity of T-Vapor in Japan• Expansion of T-vapor market• Opportunity to build our future growth•Our approach towards the opportunity• Fulfill consumer needs by providing T-vapor products asanother choice with different added-values from cigarettes• Foster growth of T-Vapor market through competition• Win the competition© Copyright JT 2016

London – September 23, 2016

JT Investor Meeting18Ploom TECH: Potential to fulfill diverse consumer needs• Product features• Odorless• Simple to use•

Potential for reduced-risk• Current status• Improve persistence-retention rate
• Expand supply capacity• The future• Launch in selected major cities starting from early 2017
• Provide a diverse choice by continuous improvements and portfolio expansion• Accelerate investment to achieve the leadership position© Copyright JT 2016

London – September 23, 2016

JT Investor Meeting19SummaryLondon – September 23, 2016

JT Investor Meeting20Remain the competitive platform of profitability for the JT Groupand accelerate business investments• Strong #1 manufacturer with leading position in all key price points• Superior brands driving quality top-line growth• Accelerating investment in both cigarettes and T-Vapor• Targeting to capture leading position across all segments and categories© Copyright JT 2016

London – September 23, 2016

JT Investor Meeting21