Financial Highlights

ADJUSTED OPERATING PROFIT

586.8(JPY BN)-

6.4%

YEAR-ON-YEAR CHANGE

11.3%

+

YEAR-ON-YEAR CHANGE ATCONSTANT EXCHANGE RATESDIVIDEND PER SHARE

130
(JPY)

10.2%

+

YEAR-ON-YEAR CHANGE

Results of FY2016 and FY2015

In FY2015, the JT Group withdrew frombeverage business, which has been classified
as discontinued operations accordingly.
Consequently, profit (loss) and some items
from continuing operations and discontinued
operations are presented separately for the
results of FY2015.
To provide a fair business performancecomparison with the results of FY2016,
we offer the figures and analysis with a focus
on the continuing operations of FY2015.

Factsheets available at:www.jt.com/investors/results/
fact_sheet/index.html

Japan Tobacco Inc. Annual Report 2016

001

At a Glance
Our businesses
FY2016: Results for the fiscal year ended December 31, 2016

The JT Group is a leading international tobacco company
with operations in over 70 countries. Our products are soldin over 120 countries and our internationally recognizedbrands include Winston, Camel, MEVIUS and LD.
We are also active in pharmaceutical and processed foodbusinesses and we expect them to establish a foundation for
future profit contribution, as we strive for sustainable growth.

International Tobacco Business
The international tobacco businessis the JT Group’s profit growthengine, generating around 60% of theconsolidated profit1. Going forward,
we expect it will further increase its
contribution, enabling the JT Groupto continue delivering sustainableprofit growth in the mid- to long-term.
Our brand portfolio is competitive
and well-balanced, allowing us tocapture down-traders and up-traders.
We have structured our portfolio
into three broad categories including
ready-made cigarettes, fine cut
and emerging products.

Japanese Domestic Tobacco BusinessResults for FY2016:
Double-digit profit growthat constant exchange rates
while delivering on committed
investments toward seeding
initiatives and emerging products.
Key drivers:• Total and GFB volume growth• Market share gains across ourfootprint• Contribution from acquisitions• Robust pricing• Long-term commitment
to investing ina. Brand equity
b. Emerging Markets, andc. Emerging Products• Approximately 27,000 dedicatedemployees

1. Consolidated	
profit: consolidated adjusted
operating profit.

GLOBAL BRAND RANKING*We are the market leader in Japan,
which is one of the largest markets
in the world, with more than 60%
ready-made cigarette market
share mainly driven by MEVIUS.
Our Japanese domestic tobacco
business continues to be a significant
profit contributor to the JT Group,
generating about 40% of ourconsolidated profit1.
During 2016, we have further
enhanced our brand portfolio throughthe acquisition of Natural American
Spirit business outside the UnitedStates. In addition, we launched
Ploom TECH in Fukuoka and throughour on-line store for test marketingin March. Moreover, the retail priceof MEVIUS was revised in April.
Results for FY2016:
Achieved 2.4% year-on-year
profit growth.

FURTHER STRENGTHENEDBRAND PORTFOLIO

Share of Price Segment**
for JT Key brands

#2

#6

#12

#13
Prestige#1* By brand owner
Source: JT estimate (2016 data, as of July 2017);
Excluding China National Tobacco Corp

002Japan Tobacco Inc. Annual Report 2016

Premium#1

Management
Financial Highlights
At a GlanceConsolidated Five-year Financial SummaryMessage from the Chairman and CEOCEO Business Review
Management Principle, Strategic Framework
and Resource Allocation
Business Plan 2017
Role and Target of Each Business
Performance Measures

001
002
004
006
008
010
012
013
014

Revenue breakdown by business segment
Processed food

OthersPharmaceutical

International tobacco

7.7%

0.4%

4.1%

56.0%

Japanese domestic tobacco

31.9%

Composition of JT SOM2 as of 2016

MEVIUS
WinstonSeven Stars
Natural American Spirit
Pianissimo
Peace
HOPE
OthersPharmaceutical Business

Processed Food Business

JT Group’s pharmaceuticalbusiness focuses on the researchand development, production andsale of prescription pharmaceuticalproducts. Its mission is to build
world-class, unique research anddevelopment capabilities andreinforce its market presence
through innovative drugs.
JT concentrates on research anddevelopment activities mainlyon the fields of metabolic diseases;
viral infection; and autoimmune/
inflammatory diseases, while Torii
Pharmaceutical Co., Ltd. is incharge of manufacturing as well
as sales and promotion in thedomestic market.

With Group company TableMarkCo., Ltd. taking a central role,
the processed food business is
primarily engaged in businessconcerning frozen and ambient
processed food, mainly staple foodproducts such as frozen noodles,frozen rice, packed cooked riceand frozen baked bread, andseasonings including yeast
extracts and oyster sauce.

Results for FY2016:
Earnings increased and achieveda record high profit.

Results for FY2016:
Achieved profit growth forthe fourth consecutive year.

We have solidified its No. 3 positionin the frozen food industry withseveral top-selling products
within respective categories,
such as frozen Udon noodles
and frozen Okonomiyaki.

2. SOM: Share of market.

Sub-premium+#1

Sub-premium#2** 2016 results

Japan Tobacco Inc. Annual Report 2016003

Consolidated Five-Year Financial Summary
Japan Tobacco Inc. and Consolidated Subsidiaries
FY2016: Results for the fiscal year ended December 31, 2016

In FY2015, the JT Group withdrew from beverage business, which has been classified as discontinued operations
accordingly. Consequently, profit (loss) and some items from continuing operations and discontinued operations
are presented separately for the results of FY2015.
To provide a fair business performance comparison with the results of FY2016, we offer the figures with a focus on
the continuing operations of FY2015.
Billions of yen
FY2013(IFRS)

Revenue (Note 1)

2,120.2

2,399.8

2,259.2

2,252.9

2,143.3

International Tobacco

1,010.7

1,270.0

1,328.0

1,317.2

1,199.2

For the year:2014(Jan-Dec)

FY2015(IFRS)FY2016(IFRS)FY2012(IFRS)(Continuing operations)Japanese Domestic Tobacco

687.1

710.3

687.4

677.3

684.2

Pharmaceutical

53.2

64.4

65.8

75.6

87.2

Beverage

185.5

184.5

–

–

–

Processed Food

168.7

156.9

161.2

165.8

164.1

Others

15.0

13.6

16.9

17.0

8.6

International Tobacco

943.1

1,200.7

1,258.2

1,252.5

1,138.8

Japanese Domestic Tobacco

654.0

676.2

649.8

642.2

649.7

Operating profit (Note 3)

532.2

648.3

572.6

565.2

593.3

International Tobacco

289.4

376.4

379.5

346.9

301.8

Japanese Domestic Tobacco

241.3

258.1

181.5

249.2

244.1

PharmaceuticalCore revenue (Note 2)(16.2)

(9.0)

(7.3)

(2.3)

9.7

Beverage

2.3

(2.1)

–

–

–

Processed Food

(5.8)

(0.2)

(1.2)

3.2

5.0

Others

21.2

25.0

20.2

(31.8)

32.7

Adjusted EBITDA/Adjusted Operating Profit (Note 3)

622.0

641.8

661.0

626.7

586.8

International Tobacco

343.2

410.8

447.1

394.4

336.2

Japanese Domestic Tobacco

281.3

257.7

238.7

254.1

260.2

Pharmaceutical(12.7)

(9.0)

(7.3)

(2.3)

9.7

Beverage

12.4

(2.1)

–

–

–

Processed Food

7.4

0.6

1.4

2.7

5.0

Others(9.6)(16.2)(18.9)(22.2)(24.4)

Depreciation and amortization (Note 3)

116.5

132.9

128.6

133.1

140.8

Profit (attributable to owners of the parent company) (Note 4)

343.6

428.0

391.4

398.5

421.7

Free cash flow (FCF)* (Note 5)

316.0

212.6

455.4*

386.7*(316.2)* Results from continuing operations and discontinued operations combined for both FY2015 and Jan-Dec 2014.

004

Japan Tobacco Inc. Annual Report 2016

Management

FY2016: Results for the fiscal year ended December 31, 2016

Billions of yen
Consolidated(Continuing and discontinued operations combined)

FY2012(IFRS)FY2013(IFRS)FY2014(IFRS)FY2015(IFRS)FY2016(IFRS)

3,852.6
327.2
1,960.1
1,892.4

4,616.8375.9
2,020.7
2,596.1

4,704.7
228.2
2,082.2
2,622.5

4,558.2
255.3
2,036.7
2,521.5

4,744.4
555.3
2,216.3
2,528.0

20.0%
13.5%

19.9%
15.0%

14.4%
10.8%

19.5%
14.8%

17.2%
12.4%

180.98235.35

199.56270.37235.33993.9868
37.6%

1,378.57
96
40.8%

1,395.74
100
50.1%

1,369.06
118
53.2%**

1,371.39
130
55.2%

At year-end:
AssetsInterest-bearing Debts (Note 6)
Liabilities
EquityMajor Financial Ratios
ROE (Note 7)
ROA (Note 8)
Amounts per share: (in yen)
Diluted EPS (Notes 9/10)
Book value per share (attributable to owners of the parent
company) (Note 10)
Dividend per share (Note 10)
Dividend payout ratio (Note 11)** Payout ratio for FY2015 is based on basic EPS from continuing operations.

Notes:
1.		E xcluding tobacco excise taxes and revenue from agent transactions.
2.		E xcluding revenue from distribution business of imported tobacco, among others,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.		(FY2012) Adjusted EBITDA = Operating profit + depreciation and amortization± adjusted items (income and costs)**adjusted items (income and costs) = impairment losses on goodwill ± restructuringincome and costs ± others(Since FY2013) Adjusted operating profit = Operating profit + amortization costof acquired intangibles arising from business acquisitions + adjusted items(income and costs)**adjusted items (income and costs) = impairment losses on goodwill ± restructuringincome and costs ± others
4.		Under IFRS, profit is presented before deducting non-controlling interests.
For comparison, we show the profit attributable to the owners of the parent company.

5.		FCF = (cash flows from operating activities + cash flows from investing activities)
excluding the following items:
From “cash flows from operating activities”: Interests and dividends received,
and their tax effect/interest paid and its tax effect.
From “cash flows from investing activities”: Purchase of securities/proceeds fromsale and redemption of securities/payments into time deposits/Proceeds fromwithdrawal of time deposits/others (but not business-related investment securities,
which are included in the investment securities item).
6.		Including lease obligation.
7.		 ROE = Return on equity (attributable to owners of the parent company).
8.		ROA = (Profit before income taxes)/Total assets (average of beginning and endingbalance of the period.)9.		 Based on profit (attributable to owners of the parent company).
10.	A 200-for-one share split is done, effective as of July 1, 2012.
11. Based on profit (attributable to owners of the parent company).
12. Financial data disclosed herein are basically rounded.

Japan Tobacco Inc. Annual Report 2016005

Message from the Chairman and CEO

Yasutake Tango
Chairman of the Board

Mitsuomi Koizumi
President, CEO and Representative Director

All Businesses Contributed to the Profit Growthof the JT GroupWe are very pleased to inform you that the JT Group
achieved profit growth again. 2016 was a year in which
we experienced various unforeseen developments aroundthe world, including the U.K. referendum on Brexit andthe U.S. presidential election. Looking at our industry,
our operating environment was challenged, influenced
by underlying economic stagnation and huge currency
volatility, as well as tighter regulations, repeated excise
tax hikes and intensifying competition in various countries.

006

Despite these difficulties, all businesses – the tobacco,
pharmaceutical and processed food businesses – grewprofit in 2016. In particular, the pharmaceutical andprocessed food businesses combined made meaningful
contributions to the Group’s profit growth. We have
implemented the business portfolio strategy witha long-term view, and it proves to be effective.

Japan Tobacco Inc. Annual Report 2016

Management

In the international tobacco business, our business basewas reinforced with shipment volume increases, notably
in Europe and seeding markets driven by share of market
increase as well as contribution from acquired thenwell-integrated businesses. Our success in startingto build or enhancing our presence in markets where
we have been seeding represents solid progress inour strategic pursuit of geographical expansion. These
new markets will complement existing markets such as
Europe and Russia where we have already established
our foundation. As our key strategy to ensure future
profit expansion, we remain committed to investingin geographical expansion, brand equity enhancement
and emerging products development.
In the Japanese domestic tobacco business, we increased
our profit mainly driven by pricing of MEVIUS, whilebuilding a complete brand portfolio through the acquisitionof Natural American Spirit business outside the UnitedStates. With regards to T-Vapor initiatives, we havelaunched Ploom TECH and have been making steadyprogress in taking advantage of this promising opportunity.
The JT Group grew adjusted operating profit at constantcurrency by 11.3%, exceeding the mid- to long-termtarget of mid to high single-digit growth rate. We areproud of this robust result, and even more so as the strong
performance was accomplished despite the challenges
and without compromising investment for the future.
Shareholder Return
In allocating resources, the JT Group seeks a balance
between investment in our business for sustainable
future profit growth and shareholder return. Under thisapproach, we will strive to improve our shareholder
return based on the mid- to long-term profit growth
outlook while maintaining a solid balance sheet that willallow us to respond to various changes in our operating
environment. Specifically, we aim to deliver a sustainable
and stable increase in dividend per share. Our dividendfor 2016 was 130 yen per share, up by two yen from theinitial forecast, and we plan to pay 140 yen for 2017,
representing a 10 yen rise. This robust dividend increasereflects our confidence in the Group profit growth
confirmed in our Business Plan 2017, a three-yearbusiness plan through 2019.

4S ModelOur management principle is based on the 4S model.
Under the 4S model, we strive to fulfill our responsibilities
to our valued consumers, shareholders, employees andthe wider society, carefully considering the respective
interests of these four key stakeholder groups, andexceeding their expectations wherever we can.
As part of our pursuit of the 4S model, we continue
to carry out a variety of sustainability initiatives. In
2016 the JT Group made notable achievements in thisarea. Reinforcing corporate governance has been andwill continue to be prioritized as an engagement by the
management. In February, we clarified our approachon this matter by setting out JT Corporate Governance
Policies. Moreover, in September, we announced the
JT Group Human Rights Policy, further promoting ourhuman rights due diligence process.
Meanwhile, the JT Group was selected as a member ofthe Dow Jones Sustainability Asia/Pacific Index, which
is a worldwide index for socially responsible investment,
for the third consecutive year. In addition, the JT Groupwas identified by the CDP, an international NGO, as a
global leader for its actions and strategies in response
to climate change and was put on the A-list of thehighest performers for the first time. We have beenencouraged by the fact that our CSR activities are
increasingly recognized, and reaffirm our futurecontribution to realize a sustainable society.
Toward Further Growth
We firmly believe that another strong profit growth in2016 was built on the business investments we havecontinuously and aggressively made. Looking forward,
we will continue to invest in our businesses with the aimof delivering profit growth over the mid- to long-term.
We will face uncertainty given the tightening regulations
in Europe, intensifying competition in CIS+ andunpredictable foreign exchange movements. However,the JT Group is well prepared and will respond tochanges in the operating environment with the aim
to further grow profit.

As for share buyback, we will decide whether toimplement it or not after reviewing the mid-term
outlook for the Group’s operating environment
and financial position.

Japan Tobacco Inc. Annual Report 2016007

CEO Business Review

Mitsuomi Koizumi
President, CEO and Representative Director

We delivered strong
business performance in2016, as all businesses
contributed to the profit
growth of the JT Group.
We will continue ourbusiness investment andachieve mid- to long-term
profit growth.

008

Strong business performance
The JT group has set the goal of achieving a mid tohigh single-digit growth rate in adjusted operating profit
at constant currency over the mid- to long-term. So far,
we have consistently exceeded this profit growth target.
In 2016, we also achieved growth of 11.3% year-on-year
in adjusted operating profit excluding the foreignexchange impact, higher than the target of mid to highsingle-digit growth rate. As expected, all businesses —the tobacco, pharmaceutical and processed foodbusinesses — grew their profits, leading to thestrong Group performance.

Japan Tobacco Inc. Annual Report 2016

Management

Business results by segment
In the tobacco business, we continued to emphasize
three strategic pillars — quality top-line growth,competitive cost base and robust business foundation— amid drastic changes in the operating environment.
Thus, the international and Japanese domestic tobacco
businesses together drove the Group’s profit growth.
In the international tobacco business, total shipment
volume and shipment volume of Global Flagship Brands(GFBs) recorded year-on-year growth of 1.2% and 3.7%
respectively, driven by the increases in European markets,
including Italy, France and Spain, and seeding markets
where our nascent business is growing through intensive
investment as well as contribution from acquired thenwell-integrated businesses. The expanded businessscale in new and seeding markets and their incremental
contributions are evidence that our continuous efforts
toward geographical expansion are starting to pay off.
As for the performance of our brands, our global shipment
volume of Winston reached a record high last year.
Aiming to further reinforce our business, we will continue
investment in brand equity building. Pricing continued
to drive the profit growth in the international tobacco
business, supported by the shipment volume increase.
As a result, currency-neutral adjusted operating profit
grew 13.4% year-on-year. Our 2016 undertakings were
not limited to top-line performance, but we also
addressed optimization of our manufacturing footprints
in anticipation of changes in the operating environment.
We moved on the restructuring of factories in Europe andRussia as planned, and a new factory in Taiwan started
its operation. We will continuously strive to strengthen
cost competitiveness.
In the Japanese domestic tobacco business, we achieved
profit growth in line with our expectation despite a steep
decrease in ready-made cigarette demand due to theimpact of T-Vapor category as well as a general declining
trend. In January 2016, we completed the acquisitionof Natural American Spirit business outside the UnitedStates, and since then, we have been executing thestrategy based on the business plan for this brand.
During the year, Natural American Spirit grew bothvolume and market share as its momentum remained
strong. The addition of Natural American Spirit has
allowed us to offer a well-balanced and compelling brandportfolio to our consumers. In April 2016, we increased
the price of MEVIUS. After a temporary drop triggeredby the price increase, MEVIUS market share has beensteadily recovering, reaffirming the strong brand equityof the brand. Driven by these initiatives, our adjusted
operating profit of this business increased 2.4%
year-on-year, overcoming the difficult situations.
The pharmaceutical and processed food businesses
have been expected to complement the JT Group’s
profit growth, and we have been consistently investingin these businesses for them to fulfill this role. In
the pharmaceutical business, the increase in royalty
revenue related to anti-HIV drugs Stribild and Genvoya
made significant contributions to a substantial profit
improvement. As a result, the pharmaceutical business
reported a profit in 2016, and more importantly has
established a foundation which enables sustainableprofit generation. The processed food business also
made a contribution to the Group, growing its profit
for the fourth consecutive year. With the strong
performance and contribution by the pharmaceuticaland processed food businesses, we are increasingly
confident in our business portfolio strategy.
Toward mid- to long-term profit growth
In 2017, the operating environment will continue to be
uncertain and challenging. The international tobacco
business will face a full introduction of new regulations
in Europe and intensifying competition in the low pricesegment, mainly in CIS+, while the increasing presenceof the T-Vapor category and accelerated cigarette
industry contraction will affect our performance in Japan.
Nonetheless, the JT Group plans to grow its adjusted
operating profit on a currency neutral basis. Reflecting
the harsh situation of the Japanese domestic tobacco
business, the projected growth rate of 3.4% represents
a slow-down compared to the historical trajectory, butthere will be no change in our goal of achieving mid
to high single-digit profit growth rate over the mid- tolong-term. In particular, we will focus on strengthening
the business foundation of our T-Vapor operations in Japan
including the production capacity expansion for Ploom
TECH so that we can fight back in 2018 and beyond.
Over the next three years, we may enter a new era inwhich conventional business wisdom does not apply.
However, we have a history of weathering difficulties
and achieving sustainable growth, which leverages ourability to respond to change and to commit to business
investment. Our track record speaks volumes. Thus,
we will prioritize business investment for the future
and continue to strive for sustainable growth.

Japan Tobacco Inc. Annual Report 2016009

Management Principle, Strategic Framework
and Resource Allocation

Management Principle
The “4S” model, our management principle, is themost shared value among JT Group employees
across businesses and countries.

• For our consumers, we will offer superior products
which meet or even go beyond their evolving needs.
To achieve that, we will make the most of JT Group’s
diversity to enhance our capacity in innovation.

Shareholders• For our shareholders, we intend to strike an optimalbalance between profit growth and shareholder
returns. This means that we will enhance ourshareholder returns based on our profit growth
outlook in the mid- to long-term.

Consumers

Employees

The “4S” model is JT Group’s core competency.
Our decision-making has been and will continue to be
based on this management principle. To strive to fulfill
our responsibilities to our valued stakeholders andexceed their expectations;SocietyThe ‘’4S’’ model – We strive to fulfill our responsibilities
to our valued consumers, shareholders, employees andthe wider society, carefully considering the respective
interests of these four key stakeholder groups, andexceeding their expectations wherever we can.

• For our employees, we will further evolve to
become an attractive and respected company
so that employees feel proud to be a part of it.
For that, we will highly value the employees witha strong sense of commitment to deliverables andproperly reward their accomplishments.
• The growth of the JT Group is dependent onsustainability of society. We will continue tocontribute to society and in doing so enhance
our company value.

Strategic Framework
Our track record proves that our strategy is right, and we believe that it will continue to underpin thestrong performance of the JT Group.

010

Quality
top-line growth

Among the strategic pillars, the JT Group places a particular emphasis
on quality top-line growth, which is indispensable for sustainable growth.
We aim to grow top-line by consistently offering innovative products.

Competitive
cost base

We continue to strive for further cost base improvement, while investingfor future sustainable growth.

Robust businessfoundation

The business environment surrounding the JT Group has been changing
fast. In order to respond to and even take advantage of the changes,
we encourage each employee and organization to challenge the statusquo for continuous improvement.

Japan Tobacco Inc. Annual Report 2016

Management

Resource Allocation
First, we grow profit through business investment.
Then, use this profit to return cash to our shareholders.
Business investment and capital policy
The JT Group is a growth company. Investing for both
external and organic growth, we historically increased
profit, and eventually corporate value. We believethat opportunities exist to expand the earnings base,especially for tobacco business. Our investment will
mainly focus on this core business to fuel its growth.
As we expect pharmaceutical and processed foodbusinesses to further contribute to the Group profit
in the future, we will allocate our funds to best utilize
existing assets and further improve their profitability.
Shareholder Return
We believe that maintaining a solid balance sheet isessential for the JT Group as it will provide us the groundto continue aggressively pursuing business investment
opportunities and cope with any adversity arising out ofthe volatile environment. At the same time, as we alreadymentioned, we intend to strike an optimal balance between
profit growth and shareholder returns. This means that
we will enhance our shareholder returns based on our
profit growth outlook in the mid-to long-term. In particular,
we will deliver sustainable and steady increase of dividend
per share. Dividend payout ratio is not an indicator forour management target, although it will be taken into
consideration when deciding the dividend amounts. As
for share buy-back, we will consider it after scrutinizing
the mid- to long-term expectations on the Company’sbusiness environment as well as financial achievements
and position, among other factors.
We will continue to monitor the trend amongst the
global FMCG companies that have a stakeholder model
similar to our 4S model and that have achieved strong
business growth.

Under the Japan Tobacco Inc. law, we are subject
to the restriction in issuing new shares. Given thecircumstance, we plan to maintain a strong balance
sheet for debt financing and not to cancel treasury
stock. With sufficient debt capacity, we can consider
share repurchase when the Government, who holds
over one-third of our outstanding shares, releases
them, in whole or in part, in the future.

Dividend Per Share (JPY)

140
130
118
96

100

68

FY2012FY2013

FY2014FY2015FY2016FY2017
Forecast

Japan Tobacco Inc. Annual Report 2016011

Business Plan 2017

The JT Group’s Business Plan covers a three-year period,and is rolled over annually to reflect the changes in ourbusiness environment including economics, geopolitics
and competition. By leveraging and enhancing our ability toadapt to changes, we will achieve sustainable profit growth.
Group profit target:• Annual average growth rate of adjusted operating
profit at constant currency over mid- to long-term:–– Mid to high single-digit
Shareholder return policy:• Aim to enhance shareholder returns considering
the Company’s mid- to long-term profit growthtrend, while maintaining a solid balance sheet*–– Deliver consistent dividend per share growth–– Consider implementing share buy-back, whichtakes into account the Company’s mid-term
operating environment and financial outlook–– Continue to closely monitor shareholder returnsof global FMCG companies***	As its financial policy, the Company maintains strong financial base that securesstability in case of changes in business environment such as economic crises, andflexibility enabling expeditious responses to business investment opportunities.
**	T he Company monitors global FMCG companies which have a stakeholder model
similar to our “4S”model, and have realized strong business growth.

Forecast for FY2017• Adjusted operating profit is forecast to grow 3.4%
at constant currency. International tobacco business,the profit growth engine, is expected to grow its
currency neutral adjusted operating profit at 9.1%,
driven by initiatives for cost competitiveness resulting
mainly from the optimization of the manufacturing
footprint. Top-line will remain almost the sameas previous year, but the initiatives for costcompetitiveness will pay off and contribute to our
profit growth of 9.1%. Japanese domestic tobacco
business is projected to decrease adjusted operating
profit at 6.2% due to cigarette industry volume decline
by continuing expansion of T-Vapor category.
• On a reported basis, adjusted operating profit isforecast to be the same level as the previous year.
We expect the negative exchange impact to continue,
although it will ease compared to 2016. The stronger
Russian ruble and the depreciation of Japanese
yen will have positive impact, while weaker local
currencies such as the British pound, the Euroand the Turkish lira will have a negative impact.
• Based on the shareholder return policy, we plan
to offer annual dividend per share of 140 yen,representing 7.7% increase year-on-year.

Adjusted Operating Profit (JPY BN)+3.4%

Dividend Per Share (JPY)

+0.0%

+20.2

-24.5

+7.7%

+4.5
140

586.8

FY2016

012

607.0

Business
momentum

FY2017
Forecast
at current
currency

Local
currency
vs. USDFX effects

JPY vs. USD
FX effects

587.0

130

FY2017
Forecast

FY2016

Japan Tobacco Inc. Annual Report 2016

FY2017
Forecast

Management

Role and Target of Each BusinessIn view of Business Plan 2017, the mid-to long-term roleand target of each business are as follows.

Tobacco Business
Grow adjusted operating profit at mid to high single-digit rate per annum over themid- to long-term as the core business and profit growth engine of the JT Group.

International Tobacco Business

022

Continue to strengthen its role as the Group’s profit
growth engine.

Japanese Domestic Tobacco Business

028

Maintain its highly competitive platformof profitability.

• Prioritize quality top-line growth–– Strengthen our brand equity with focus on core brands–– Grow or maintain market share in existing key markets• Continue to improve the cost base
• Strengthen the business base–– Broaden geographical earnings base–– Develop emerging products category

Pharmaceutical Business

032

Aim to make stable profit contribution to the
JT Group through R&D promotion for the next
generation of strategic compounds and value
maximization of each product.

Processed Food Business

036

Achieve operating profit margin on par with industry
average, aiming to make further profit contribution
to the JT Group.

Japan Tobacco Inc. Annual Report 2016013

Performance Measures
FY2016: Results for the fiscal year ended December 31, 2016

In our Business Plan 2017, target is set for adjusted
Operating Profit growth rate at constant exchange
rates. While it is a mid- to long-term target, we also
monitor the performance measures annually.

Tobacco Sales Volume

GFB Shipment Volume

International tobacco (BnU)

Japanese domestic tobacco (BnU)

GFB Shipment Volume (BnU)

398.0

393.9

398.7

112.4

109.2

106.2

262.2

273.6

283.7

FY2014FY2015FY2016

2014
Jan-Dec

FY2015FY2016FY2014FY2015FY2016

1.2%+

to 398.7 BnU

For the international tobacco
business, total shipment volume
includes fine cut, cigars, pipe
tobacco and snus, but excludes
contract manufactured products,
waterpipe tobacco products
and emerging products.

-2.8% year-on-year

106.2BnU

For Japanese domestic tobacco,
total sales volume excludes sales
volume of Japanese domestic
duty free, the Chinese businessand emerging products.

In our strategic framework to achieve adjusted Operating
Profit growth, the JT Group places a particular emphasison “quality top-line growth”, while, at the same time,
focusing on building a “competitive cost base” and“robust business foundation”.
In line with our strategic emphasis, the measures toreview our business performance are skewed towards
top-line related indicators. As for shareholder return,
we will deliver sustainable and steady increase ofdividend per share.

3.7%

+

to 283.7 BnU

Shipment volume of GFBs,
namely Winston, Camel,
MEVIUS, LD, B&H, Silk Cut,
Glamour, Sobranie andNatural American Spirit
in the international
tobacco business.

Revenue
Revenue (JPY BN)

2,259.2

2,252.9

2,143.3

2014
Jan-Dec

FY2015FY2016-4.9% to2,143.3BN

JPY

Revenue on a consolidated
basis which, for the avoidanceof doubt, excludes excise andother similar taxes, as well as
sales from transactions in which
the JT Group acts as an agent.

Note: The figures were the results fromcontinuing operations only.

014Japan Tobacco Inc. Annual Report 2016

Management

Core Revenue
International tobacco (US$ MM)

Japanese domestic tobacco (JPY BN)

+877
-725
11,911

10,338FY2014FY2015

11,215Business

8.5%

FY2016 atconstant
currency

FX

10,490

649.8

642.2

649.7

FY2016

2014
Jan-Dec

FY2015FY2016

For the international tobacco business,
US dollar-based core revenue includes
revenue from waterpipe tobacco
products and emerging products, but
excludes revenues from distribution,
contract manufacturing and otherperipheral businesses.

+

at constant exchange
rates to US$11,215MM

Adjusted Operating Profit

2014
Jan-Dec

FY2015Business

11.3%

at constant exchange rates
to JPY 697.5 BN

JPY-110.7697.5+-6.4% including currency impact to

For the Japanese domestic tobacco
business, core revenue excludes
revenue from distribution of imported
tobacco in Japan, among others,
but includes revenue from domestic
duty free, the China business andemerging products such as Ploom
TECH device and capsules.

Dividend Per Share (JPY)

+70.8

626.7

to JPY 649.7BN

Dividend Per Share

Adjusted Operating Profit (JPY BN)

661.0

1.2%

+

586.8BNFY2016at constantcurrency

FX

586.8

100

118

130

FY2016FY2014FY2015FY2016+12 yen to

Adjusted operating profit is calculated
as follows: Adjusted operating profit =Operating profit + Amortization costof acquired intangibles arising frombusiness acquisitions + Adjustment
items (income and costs)*
	Adjustment items (income and costs) are
impairment losses on goodwill, restructuring
related income and costs and others.

*

130yenThe sum of interim andyear-end dividends per share,
the record dates of which fallin the relevant fiscal year.

Note: The figures were the results from continuing operations only.

Japan Tobacco Inc. Annual Report 2016015