Tokyo, November 1, 2017
Japan Tobacco Inc.
Japan Tobacco International (JTI)
2017 Third Quarter Results

Earnings growth remains on track for full year

2017

2016

Changevs. prioryear

1

104.8

104.5

0.3%

298.0

304.2

-2.0%

1

76.0

75.5

0.5%

216.8

216.3

0.2%

2

2,754

2,823

-2.4%

7,895

8,062

-2.1%

Core revenue at constant FX

2,717

2,823

-3.7%

7,941

8,062

-1.5%

Adjusted operating profit

1,009

897

12.4%

2,747

2,626

4.6%

982

897

9.4%

2,868

2,626

9.2%

(billions of units, millions of US$)Total shipment volume
GFB shipment volume
Core revenue

Adjusted operating profit at constant FX

Jul-Sep

2017

2016

Changevs. prioryear

Jan-Sep

Highlights
2017 third quarter results (July-September)•

Adjusted operating profit at constant FX grew 9.4%, driven by cost optimization. On areported basis, adjusted operating profit increased 12.4% supported by positive currency
impacts.

•Core revenue decreased 3.7% at constant FX due to negative volume and price/mix variance.
Favorable currency movements resulted in reported core revenue decreasing 2.4%.

•Total shipment volume grew 0.3% driven by the acquisition in the Philippines. Excluding thisacquisition, total shipment volume declined 1.2% mainly due to industry volume contraction.

•GFB shipment volume increased 0.5% driven by strong performance of Winston and Camel.

•Investment continued in emerging products. Logic, our e-cigarette brand, was launched inRussia. Our tobacco vapor product 3 Ploom TECH was introduced in Switzerland in July andwas expanded to four US states in September under the brand name Vapeleaf by Logic 4.

2017 nine months year-to-date results (January-September)•

Adjusted operating profit increased 9.2% at constant FX led by cost optimization while
investment was maintained in emerging markets and emerging products. On a reported basis,adjusted operating profit grew 4.6%.

•

Core revenue decreased 1.5% at constant FX and 2.1% on a reported basis, due to total
shipment volume declining 2.0% reflecting industry volume contraction in several key markets.

•GFB shipment volume grew 0.2% driven by share gains in several key and emerging markets.

•Year-on-year market share 5 increased in the key markets of France, Italy, Spain and Taiwan.
In Russia, GFB market share achieved a new record level driven by Winston, reinforcing ournumber one position in the market.

•At the end of September, we operated our vapor business in 11 countries, outside of Japan.
1Performance review
Core revenue and adjusted operating profit
2017 third quarter results (July-September)Core revenue at constant FX decreased 3.7% or US$106 million to US$2,717 million, due tovolume decline and a negative price/mix variance of US$53 million.
Adjusted operating profit at constant FX increased 9.4% or US$84 million to US$982 million, driven
by cost optimization.
On a reported basis, positive currency movements resulted in a core revenue decline of only 2.4%
and adjusted operating profit growth of 12.4%.

2017 nine months year-to-date results (January-September)Core revenue at constant FX decreased 1.5% or US$120 million to US$7,941 million, due tovolume decline offsetting a positive price/mix variance of US$40 million.
Adjusted operating profit at constant FX increased 9.2% or US$241 million to US$2,868 million,
driven by cost optimization and a positive price/mix of US$48 million. Investments continued inemerging markets and emerging products.
On a reported basis, core revenue decreased 2.1% and adjusted operating profit grew 4.6% due tocurrency movements.

Total shipment volume(billions of units)

Jul-SepCluster

2017

2016

Changevs. prioryear

South & West Europe
North & Central Europe
CIS+
Rest-of-the-World
Total JTI

16.8
13.5
36.2
38.3
104.8

16.8
14.4
37.8
35.5
104.5

0.1%
-6.4%
-4.3%
8.0%
0.3%

Jan-Sep
2017

2016

Changevs. prior
year

50.4
39.1
100.1
108.4
298.0

51.3
41.4
108.1
103.4
304.2

-1.8%
-5.5%
-7.4%
4.8%
-2.0%

2017 third quarter results (July-September)
Total shipment volume grew 0.3% to 104.8 billion cigarette equivalent units with the acquisition inthe Philippines. Excluding this acquisition, total shipment volume declined 1.2% due to industry
volume contraction in Russia, the UK and Ukraine more than offsetting the strong growth in Iran,Jordan, Morocco, the Philippines, Sudan and Tunisia. In fine cut, shipment volume declined 3.9%
primarily in Belgium, Germany and the UK.

2017 nine month year-to-date results (January-September)
Total shipment volume declined 2.0% or 2.6% excluding the acquisition in the Philippines. Organic
volume growth in Brazil, Egypt, Iran, Morocco, the Philippines, Taiwan and Tunisia was unable tooffset the impact from industry volume contraction in Russia, Turkey, the UK and Ukraine. In finecut, shipment volume decreased 3.7% mainly in Belgium, Germany, Greece and the UK.

2GFB shipment volume(billions of units)

Jul-SepCluster

20172016

Changevs. prioryear

South & West Europe
North & Central Europe
CIS+
Rest-of-the-World
Total JTI

15.2
8.6
28.7
23.5
76.0

15.0
9.1
29.0
22.5
75.5

0.8%
-5.6%
-1.0%
4.8%
0.5%

Jan-Sep
2017

2016

Changevs. prioryear

45.5
24.6
78.1
68.5
216.8

46.1
25.8
81.8
62.6
216.3

-1.3%
-4.5%
-4.5%
9.4%
0.2%

2017 third quarter results (July-September)
GFB shipment volume grew 0.5% to 76.0 billion cigarette equivalent units, mainly driven by Iran,Italy, Jordan, Morocco, the Philippines and Spain. GFB fine cut shipment volume decreased 3.8%
primarily in Germany.
Winston: Shipment volume grew 1.3% to 37.9 billion cigarette equivalent units, mainly driven byAzerbaijan, Czech Republic, Iran, Morocco, the Philippines, Spain and Ukraine.
Camel: Shipment volume increased 3.1% to 14.3 billion cigarette equivalent units, reflecting
growth in Italy, the Philippines, Spain and Turkey.
Mevius: Shipment volume declined 1.4% to 4.5 billion cigarette equivalent units following thesecond quarter trade inventory accumulation in Taiwan ahead of the June tax increase.
LD: Despite growth in Russia, shipment volume declined 1.2% to 12.5 billion cigarette equivalentunits, primarily due to industry volume contraction in Czech Republic and Ukraine.

2017 nine months year-to-date results (January-September)
GFB shipment volume grew 0.2% driven notably by Azerbaijan, Brazil, Egypt, Iran, Kazakhstan,Korea, Morocco, Myanmar, the Philippines, Spain, Taiwan and Tunisia. In fine cut, GFB shipment
volume decreased 2.2% mainly in Germany.
GFBs represented 72.7% of total shipment volume, up 1.6ppt from the same period last year.

3Cluster review
2017 third quarter results (July-September)South and West Europe(billions of units, millions of US$)Jul-Sep
2017
2016

Total shipment volume
GFB shipment volume
Core revenue at constant FX

16.8
15.2506

16.8
15.0521

Changevs. prior year
0.1%
0.8%
-2.9%

Core revenue at constant FX decreased 2.9%, due to an unfavorable price/mix variance of US$19
million, mainly in France and Italy.
Total and GFB shipment volumes grew 0.1% and 0.8%, respectively, primarily driven by Italy andSpain. Market share increased in France, Italy, Luxemburg, the Netherlands, Spain andSwitzerland.
In France, total, GFB and fine cut shipment volumes declined 7.8%, 7.6% and 5.3%, respectively,
due to industry volume contraction. Market share grew 0.2ppt to 22.0%, driven by Winston, Camel
and Fleur du Pays.
In Italy, total, GFB and fine cut shipment volumes grew 4.5%, 4.2% and 58.2%, respectively, driven
by favorable inventory adjustments. Market share increased 0.3ppt to 23.2%, driven by Winston,
Benson & Hedges and Natural American Spirit.
In Spain, despite industry volume contraction, total and GFB shipment volumes increased 8.7%
and 11.1%, respectively, mainly driven by favorable inventory adjustments and growth fromWinston and Camel. Fine cut shipment volume was down 0.6% due to non-GFBs. Market share
increased 1.1ppt to 23.8%, primarily led by Winston and Camel.

North and Central Europe(billions of units, millions of US$)Jul-Sep2017
2016

Total shipment volume
GFB shipment volume
Core revenue at constant FX

13.5
8.6
492

14.4
9.1
592

Changevs. prior year
-6.4%
-5.6%
-17.0%

Core revenue at constant FX decreased 17.0%, due to lower volume and an unfavorable price/mix
variance of US$54 million mainly in the UK.
Total and GFB shipment volumes decreased 6.4% and 5.6%, respectively, mainly due to industry
volume contraction in Austria, Germany, Ireland and the UK. Market share grew in Czech
Republic.
In Austria, GFB shipment volume grew 1.8% driven by Benson & Hedges and total shipment
volume declined 2.6% due to industry volume contraction and market share loss. GFB market
share was up 0.6ppt to 18.7% while total market share decreased 0.5ppt to 31.1%.
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In Germany, total and GFB shipment volumes declined 14.5% and 14.6%, respectively, due toindustry volume contraction and intense price competition in fine cut. Year-on-year market share
was stable at 7.8% driven by Natural American Spirit, but decreased 0.9ppt in the third quarter to7.4%.
In the UK, total and GFB shipment volumes declined 7.4% and 6.7%, respectively, due to industry
volume contraction and market share loss. Fine cut shipment volume decreased 5.7% due to pricecompetition impacting Amber Leaf. Despite gains by Benson & Hedges in cigarettes, market share
was down 1.5ppt to 40.5% mainly due to fine cut.

CIS+(billions of units, millions of US$)Jul-Sep2017
2016

Total shipment volume
GFB shipment volume
Core revenue at constant FX

36.2
28.7
668

37.8
29.0
720

Changevs. prior year
-4.3%
-1.0%
-7.3%

Core revenue at constant FX declined 7.3% due to lower volume and an unfavorable price/mix
variance of US$13 million as pricing investments in Russia offset gains in Romania and Ukraine.
Total and GFB shipment volumes declined 4.3% and 1.0%, respectively, mainly due to industry
volume contraction in Romania, Russia and Ukraine. Market share grew in Kazakhstan andRomania.
In Romania, GFB shipment volume grew 0.7% driven by Winston and Sobranie. Total shipment
volume declined 2.6% due to industry volume contraction. Market share increased 0.1ppt to26.2% driven by Winston and Sobranie.
In Russia, total and GFB shipment volumes declined 4.4% and 1.2%, respectively. This was
mainly due to quarterly industry volume contraction 6 estimated at 8.7%, partly offset by marketshare gains. Over the last three quarters, market share has increased sequentially, reaching
33.8% this quarter. In the third quarter, GFB market share grew 1.2ppt to a new record high of
26.1% with both Winston, the number one tobacco brand, and LD setting new market share
records in the quarter. On a 12-month rolling average basis, share of value and share of market
declined 0.5ppt to 34.0% and 0.5ppt to 32.7%, respectively.

Rest-of-the-World(billions of units, millions of US$)Jul-Sep2017
2016

Total shipment volume
GFB shipment volume
Core revenue at constant FX

38.3
23.5
1,051

35.5
22.5989

Changevs. prior year
8.0%
4.8%
6.4%

Core revenue at constant FX increased 6.4%, led by volume increase and a positive price/mix
variance of US$32 million, mainly from Egypt and Iran. Excluding the acquisition in the Philippines,
core revenue at constant FX grew 5.2%.

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Total shipment volume grew strongly by 8.0% bolstered by the acquisition in the Philippines, or
3.6% organically. GFB shipment volume was up 4.8%. The organic performance was mainly
driven by volume and market share gains in Egypt, Iran, Korea and the Philippines.
In Iran, total and GFB shipment volumes grew 6.1% and 14.9%, respectively, driven by the strong
performance of Winston, the fastest growing tobacco brand.
In Taiwan, total and GFB shipment volumes declined 7.3% and 9.2%, respectively, following thesecond quarter trade inventory accumulation ahead of the June tax increase. Share of market
grew 2.3ppt to 41.8% driven by Winston and LD, strengthening our number one position. Share ofvalue grew 1.9ppt to 47.7%.
In Turkey, total and GFB shipment volumes decreased 4.2% and 1.3%, respectively, due tomarket share loss. Market share declined 0.7ppt to 29.0% despite growth from Winston.

###Notes:
1

Including fine cut, cigars, pipe tobacco and snus, but excluding contract manufactured products, waterpipe tobacco andemerging products.
2
Including revenue from waterpipe tobacco and emerging products, but excluding revenue from distribution, contract
manufacturing and other peripheral businesses.
3
Tobacco vapor products contain tobacco which is heated rather than combusted during use to produce an inhalablevapor.
4In the USA, Ploom TECH is sold by Logic Technology Development LLC, a member of Japan Tobacco Group, under
the name “Logic Vapeleaf”.
5
Source: IRI, Logista, Nielsen and JTI estimates on a 12-month rolling average, unless otherwise specified, forcigarettes and fine cut at the end of September 2017. Kazakhstan are on a 12-month rolling average at the end ofAugust 2017. 12-month share of market growth for August 2017 markets is calculated against a 12-month share ofmarket at the end of September 2016.
6
Source: JTI estimates based on July-August 2017 data versus the same period last year.

Additional definitions are provided at https://www.jt.com/media/definitions/index.html.

Contacts:

Masahito Shirasu, General Manager
Tomohiro Funahashi, Associate General Manager
Media and Investor Relations Division
Japan Tobacco Inc. Tokyo: +81-3-5572-4292
E-mail: jt.media.relations@jt.com

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