Tokyo, August 2, 2017
Japan Tobacco Inc.
Japan Tobacco International (JTI)
2017 Second Quarter Results

Strong earnings growth driven by cost optimization

2017

2016

Changevs. prioryear

1

101.5

105.3

-3.6%

193.2

199.7

-3.3%

1

74.8

74.4

0.5%

140.8

140.7

0.0%

2

2,712

2,771

-2.1%

5,141

5,239

-1.9%

Core revenue at constant FX

2,755

2,771

-0.6%

5,224

5,239

-0.3%

929

866

7.2%

1,738

1,729

0.5%

1,011

866

16.7%

1,886

1,729

9.1%

(billions of units, millions of US$)

Total shipment volume
GFB shipment volumeCore revenue

Adjusted operating profit
Adjusted operating profit at constant FX

Apr-Jun2017

2016

Changevs. prioryear

Jan-JunHighlights
2017 second quarter results (April-June)•

Adjusted operating profit at constant FX grew 16.7%, driven by cost optimization.
reported basis, adjusted operating profit increased 7.2% due to currency fluctuations.

•Core revenue decreased 0.6% at constant FX due to volume decline partially offset byprice/mix gains. Reported core revenue decreased 2.1% due to currency fluctuations.

•Total shipment volume declined 3.6% primarily due to industry volume contraction in the CIS+cluster and several markets in the Rest-of-the-World cluster.

•GFB shipment volume increased 0.5% driven by the strong performance of Winston, Meviusand Camel.

•Year-on-year market share 3 increased in the key markets of France, Italy, Spain and Taiwan.
In Russia, GFB market share continued to grow driven by Winston.

On a2017 six months year-to-date results (January-June)•Adjusted operating profit grew 9.1% at constant FX led by cost optimization while maintaining
investment in emerging markets and emerging products. On a reported basis, adjusted
operating profit grew 0.5% due to currency fluctuations.

•Core revenue decreased 0.3% at constant FX due to volume decline and 1.9% on a reported
basis due to currency fluctuations.

•GFB shipment volume remained stable driven by market share gains while total shipment
volume declined 3.3% following industry volume contraction in several key markets andunfavorable inventory comparisons in the first quarter.

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Performance review
Core revenue and adjusted operating profit
2017 second quarter results (April-June)
Core revenue at constant FX decreased 0.6% or US$16 million to US$2,755 million, due to volume
decline offsetting a favorable US$35 million price/mix contribution.
Adjusted operating profit at constant FX increased 16.7% or US$144 million to US$1,011 million,
driven by cost optimization and a positive price/mix of US$26 million.
On a reported basis, core revenue and adjusted operating profit were negatively impacted bycurrency fluctuations, with core revenue declining 2.1% and adjusted operating profit growing 7.2%.

2017 six months year-to-date results (January-June)
Core revenue at constant FX decreased 0.3% or US$15 million to US$5,224 million, due to volume
decline offsetting a positive US$93 million price/mix contribution.
Adjusted operating profit at constant FX increased 9.1% or US$157 million to US$1,886 million,
driven by cost optimization and a positive price/mix of US$76 million. Investments continued inemerging markets and emerging products.
On a reported basis, core revenue and adjusted operating profit were negatively impacted bycurrency fluctuations, with core revenue declining 1.9% and adjusted operating profit increasing
0.5%.

Total shipment volume(billions of units)

Apr-JunCluster

2017

2016

Changevs. prioryear

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

17.7
13.1
35.0
35.8
101.5

17.5
13.8
39.2
34.7
105.3

0.9%
-5.0%
-10.8%
2.9%-3.6%

Jan-Jun2017

2016

Changevs. prior
year

33.6
25.6
64.0
70.1
193.2

34.5
27.0
70.3
67.9
199.7

-2.7%
-5.0%
-9.0%
3.1%
-3.3%

2017 second quarter results (April-June)
Total shipment volume decreased 3.6% to 101.5 billion cigarette equivalent units. Industry volume
contraction in the Caucasus markets, Russia, Turkey and Ukraine offset the strong shipment
volume growth in Iran, Taiwan and several emerging markets. In fine cut, shipment volume
declined 2.0% due to Germany and the UK despite growth in France, Italy and Spain.

2017 six month year-to-date results (January-June)
Total shipment volume declined 3.3% mainly due to industry volume contraction in the Caucasus
markets, Russia, Turkey, the UK and Ukraine, as well as unfavorable inventory comparisons in thefirst quarter. In fine cut, shipment volume decreased 3.6% due to market share loss in the UK andindustry volume contraction in the Benelux.

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GFB shipment volume(billions of units)

Apr-JunCluster

2017

2016

Changevs. prioryear

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

16.0
8.4
27.1
23.2
74.8

15.8
8.7
29.1
20.8
74.4

1.3%
-3.8%
-6.7%
11.9%
0.5%

Jan-Jun2017

2016

Changevs. prior
year

30.3
16.1
49.4
45.0
140.8

31.0
16.7
52.8
40.2
140.7

-2.2%-3.9%
-6.5%
12.0%
0.0%

2017 second quarter results (April-June)
GFB shipment volume grew 0.5% to 74.8 billion cigarette equivalent units, mainly driven by theBenelux, Egypt, France, Iran, North Africa markets, the Philippines, Romania, Spain and Taiwan.
GFB fine cut shipment volume increased 1.8% primarily driven by Winston and Camel in the South& West Europe cluster.
Winston: Shipment volume grew 3.9% to 37.2 billion cigarette equivalent units, mainly driven byBrazil, Egypt, France, Iran, North Africa markets, the Philippines, Romania, Spain, Taiwan andUkraine.
Camel: Shipment volume increased 0.2% to 13.7 billion cigarette equivalent units, reflecting
growth in Belarus, the Benelux, Iran, North Africa markets, the Philippines and Spain.
Mevius: Shipment volume grew 6.8% to 5.0 billion cigarette equivalent units driven by growth inKorea, Myanmar and Taiwan.
LD: Despite growth in Taiwan, shipment volume declined 7.3% to 12.1 billion cigarette equivalentunits, primarily due to industry volume contraction in Russia and Ukraine.

2017 six months year-to-date results (January-June)
GFB shipment volume remained stable, as growth notably in Brazil, Egypt, Iran, Kazakhstan,Korea, Myanmar, the Philippines and Taiwan offset the impact of unfavorable inventory
comparisons in the first quarter. In fine cut, GFB shipment volume decreased 1.5% primarily due toindustry volume contraction in the North & Central Europe cluster, notably the Czech Republic,Germany and Hungary.
GFBs represented 72.9% of total shipment volume, up 2.4ppt from the same period last year.

3Cluster review
2017 second quarter results (April-June)
South and West Europe(billions of units, millions of US$)

Apr-Jun2017
2016

Total shipment volume
GFB shipment volume
Core revenue at constant FX

17.7
16.054717.5
15.8543

Changevs. prior year
0.9%
1.3%
0.7%

Core revenue at constant FX increased 0.7%, driven by positive volume offsetting an unfavorable
price/mix of US$9 million mainly from France.
Total and GFB shipment volumes grew 0.9% and 1.3%, respectively, primarily driven by positive
performance in the Benelux, France, Spain and Switzerland. Market share increased in theBenelux, France, Greece, Italy, Spain and Switzerland.
In France, total and GFB shipment volumes grew 5.4% and 6.3%, respectively, driven by Winston.
Fine cut shipment volume increased 6.6% led by Winston and Camel. Market share grew 0.5ppt to22.1%, driven by Winston, Camel and Fleur du Pays.
In Italy, total and GFB shipment volumes declined 4.7% and 4.8%, respectively, mainly due toindustry volume contraction. Fine cut shipment volume grew 10.9% mainly driven by Winston andCamel. Market share increased 1.1ppt to 23.4%, driven by Winston, Camel and Benson & Hedges.
In Spain, despite industry volume contraction, total and GFB shipment volumes grew 8.3% and7.8%, respectively, mainly driven by Winston and Camel. Fine cut shipment volume was up 18.1%
driven by Winston and Camel. Market share increased 0.9ppt to 23.4%, primarily led by Winstonand Camel.

North and Central Europe(billions of units, millions of US$)

Apr-Jun2017
2016

Total shipment volume
GFB shipment volume
Core revenue at constant FX

13.1
8.4
516

13.8
8.7
583

Changevs. prior year
-5.0%
-3.8%
-11.4%

Core revenue at constant FX decreased 11.4%, due to lower volume and an unfavorable price/mix
contribution of US$34 million mainly from the UK.
Total and GFB shipment volumes decreased 5.0% and 3.8%, respectively, mainly due to industry
volume contraction in Austria, Germany, Ireland and the UK. Market share grew in Germany andHungary.
In Austria, total and GFB shipment volumes declined 9.7% and 7.1%, respectively, due to industry
volume contraction and market share loss. Market share decreased 0.8ppt to 31.0%, due to nonGFBs while Winston and Camel grew share.
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In Germany, total and GFB shipment volumes declined 6.4% and 7.1%, respectively, due toindustry volume contraction impacting Winston, Camel and Benson & Hedges. Market share
increased 0.8ppt to 8.3% driven by Winston, Camel and Natural American Spirit.
In the UK, total and GFB shipment volumes declined 5.4% and 0.6%, respectively, due to industry
volume contraction and market share loss. Fine cut shipment volume decreased 8.1% due tofierce price competition impacting Amber Leaf. Market share was down 1.2ppt to 40.9% despite
strong gains by Benson & Hedges.

CIS+(billions of units, millions of US$)

Apr-Jun2017
2016

Total shipment volume
GFB shipment volume
Core revenue at constant FX

35.0
27.1
607

39.2
29.1
688

Changevs. prior year
-10.8%-6.7%-11.7%

Core revenue at constant FX declined 11.7% due to lower volume and a slightly unfavorable
price/mix contribution of US$3 million as pricing initiatives in Russia offset gains from Romania andUkraine.
Total and GFB shipment volumes declined 10.8% and 6.7%, respectively, mainly due to industry
volume contraction in the Caucasus markets, Russia and Ukraine. Market share grew inKazakhstan and Romania.
In Romania, despite industry volume contraction, total and GFB shipment volumes increased 5.3%
and 8.6%, respectively, driven by Winston and Sobranie. Market share increased 0.3ppt to 26.2%.
In Russia, total and GFB shipment volumes declined 9.9% and 7.4%, respectively. This was
mainly due to quarterly industry volume contraction 4 estimated at 7.7%, as well as competitive
pressure at the low-end of the market affecting non-GFBs. Share of value and share of market
declined 0.7ppt to 33.9% and 1.1ppt to 32.4%, respectively, on a 12-month rolling average basis.
Over the last two quarters, market share has increased sequentially, reaching 33.0% driven by
Winston, LD, Peter I and Saint George. GFB market share grew 0.2ppt to a new record high of24.6%.

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

Apr-Jun2017
2016

Total shipment volume
GFB shipment volume
Core revenue at constant FX

35.8
23.2
1,085

34.7
20.8
958

Changevs. prior year
2.9%
11.9%
13.3%

Core revenue at constant FX increased 13.3%, led by positive volume and price/mix of US$81
million, mainly from Canada, Egypt, Iran, the Philippines and Turkey.
Despite industry volume contraction in the Middle East and Africa, total and GFB shipment
volumes increased 2.9% and 11.9%, respectively, mainly driven by Brazil, Egypt, Iran, Korea,Myanmar, North Africa markets, the Philippines and Taiwan. Market share grew in several
5

markets including Brazil, Canada, Egypt, Malaysia, Myanmar, the Philippines and Taiwan.
In Iran, total and GFB shipment volumes grew 20.9% and 53.2%, respectively, driven by the strong
performance of Winston.
In Taiwan, Winston drove total and GFB shipment volumes growth of 15.7% and 33.5%,
respectively, outpacing the estimated quarterly industry volume increase of 6.4%, ahead of theJune tax rise. Share of market grew 1.7ppt to 41.0% driven by Winston and LD. Share of value
grew 1.5ppt to 47.2%.
In Turkey, total and GFB shipment volumes decreased 9.8% and 7.4%, respectively, due toindustry volume contraction and market share loss. Market share declined 0.8ppt to 29.1% despite
growth from Winston and LD.

###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.
3Source: IRI, Logista, Nielsen and JTI estimates on a 12-month rolling average, unless otherwise specified, forcigarettes and fine cut at the end of June 2017. Canada, Germany, Greece, Kazakhstan and Switzerland are on a 12month rolling average at the end of May 2017. 12-month share of market growth for May 2017 markets is calculated
against a 12-month share of market at the end of June 2016.
4Source: JTI estimates based on April-May 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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