Reduced-Risk Products Strategy · Reduced-Risk Products Strategy Daniel Torras JTI Senior VP,...

Reduced-Risk ProductsStrategy

Daniel TorrasJTI Senior VP, Reduced-Risk Products

London – June 5, 2018© Copyright JT 2018 2JT Investor Conference

Forward-Looking Statements

This presentation contains forward-looking statements. These statements appear in a number of places in this document and include statements regarding the intent, belief, or current and future 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 similar terminology. 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-looking statements 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) increase in awareness of health concerns related to smoking;

(2) regulatory developments; including, without limitation, tax increases and restrictions on sales, marketing, packaging, labeling and use of tobacco products, privately imposed restrictions and governmental investigations;

(3) litigation around the world alleging adverse health and financial effects resulting from, or relating to, tobacco products;

(4) our ability to further diversify our business beyond the traditional tobacco industry;

(5) our ability to successfully expand internationally and make investments outside Japan;

(6) competition and changing consumer preferences;

(7) our ability to manage impacts derived from business diversification or business expansion;

(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.


This presentation contains images of our products in some slides. Those slides have been included exclusively to illustrate JT Group’s strategy or performance to our investors. They are not to be used for any other purpose.

London – June 5, 2018© Copyright JT 2018

Broadening spectrum of consumer needs

4JT Investor Conference

Consumers are increasingly

interested in experiences and

products that address a

broadening spectrum of

personal and social needsReduced Risk

Potential

Affordability

Social Consideration

Convenience

Satisfaction

$


RRP growth is expected to continue


55+

110+

24 29 40+

2020e 2025e2016 2017 2018e

6 10 15 20+

45+

2020e 2025e2016 2017 2018e

6 10 15 20+

45+45+RRP Global Category Value

(Net of taxes, $Bn)

55+

110+

24 29 40+

RRP Consumer Base(MM consumers)

Source: Internal estimates. Note: RRP global category value comprises T-Vapor and E-Vapor (consumables / refills + devices).

2020e 2025e2016 2017 2018e


Our consumer-centric strategy benefits key stakeholders


Committed to developing, beyond combustibles, a range of products with reduced-risk potential… … to generate sustainable benefits to key stakeholders

Consumers

Employees

RELEVANT & DIVERSE PRODUCT OFFERING

POTENTIAL FOR HARM REDUCTION

ENHANCED RETURNS IN THE LONG-TERM

NEW PROFESSIONAL HORIZONS

COMBUSTIBLES

TOBACCO INFUSED

HEATED TOBACCO

E-VAPORINFORMED

CHOICE

TED

OB

Society

Shareholders

COMBUSTIBLES


JTG’s global footprint focuses on markets that matter


85%Global RRP

value

14Markets

Present in… … accounting for

Source: Internal estimates. Note: Including World Wide Duty Free as one market.


Portfolio centered on 2 brands: Ploom and Logic


T-Vapor E-Vapor


T-Vapor │ Strong growth led by Japan


0.1

0.8

3.2

2015 2016 20172015 2016 2017

0 24

2015 2016 2017

0 24

Consumer Base(MM consumers)

0.1

0.8

3.2

2015 2016 2017

Category Value(Net of taxes, $Bn)

Geographic Mix

91%Japan

9%ROW

Source: Internal estimates. Note: T-Vapor comprises Heated Tobacco and Tobacco Infused Vapor (consumables + devices).

(% of global volume, 2017)

T-Vapor


201820172016

0.7%

T-Vapor │ Despite recent slowdown, still a sizeable category in Japan


RRP Share of Market in Japan(% of total industry volume)

7.4%

21.0% 21.2% 21.3% 21.6% 21.7%

Jan ‘18

Feb ‘18

Mar ‘18

Apr ‘18

May ‘18

2222212121111111..000000000.0. %%% 2212 .2% 21.3% 21.6%%% %%%%%%2212111111111.7777.7.777.. %%%%%%%%

JJJJJJJJJJaaaaaaan ‘‘‘‘‘11111118

Feb ‘18

Mar ‘18

Apr ‘18

ayyyyyyyy Ma888888‘18

Source: Internal estimates. Note: May 2018 share of market for the 3 weeks ending May 21.


Our 2020 ambition in Japan


40%Our ambition is to achieve

40% share of RRP in

Japan by year-end 2020


Roadmap to 40%│ Better understanding of Japanese consumers


40%

39%

13%

7%

… reduces social pressure from othersdue to smoking

… has less impact on their routinethan cigarettes

… has a reduced-risk potential compared to smoking cigarettes

… is less expensive than cigarettes

Japanese consumers are seeking an experience that …

40%

39%

1

Social Consideration

Convenience

Source: JT consumer study (Japan 2018).

2020 Ambition

40% Share of RRP


Roadmap to 40%│ Ploom TECH better addressing key consumer needs


Continuous use

Minimal maintenance

Easy to use

Leading CompetitorProduct Attribute

Convenience

No smellSocial

Consideration

2020 Ambition

40% Share of RRP

Source: JT consumer study (Japan 2018).

2


44

46

154 170 1044

48

Exclusive Ploom TECH use expanding rapidly


1,500+“Ploom TECH Only”

Restaurants in Japan


Roadmap to 40%│ Ploom TECH capacity now in place, ramping up through 2020


2020 Ambition:

40% Share of Segment

Ploom TECH Capsule Manufacturing Capacity1

(Stick equivalents2, Bn)

2017

2.4

20+

20202018

104X

2X

2020 Ambition::


2020 Ambition

40% Share of RRP

(1) As of year-end, annualized. (2) Conversion: 1 pack of Ploom TECH equals 20 RMC sticks.

3


Roadmap to 40%│ Results in line with expectations


Recent Launches of Ploom TECH

JT Share of RRP Category in Japan(% of total RRP volume)

10%11% 11%

14%11% 10% 11%

Tokyo Fukuoka (city)

Sendai Nagoya Sapporo Osaka (pref.) Hiroshima

Source: Internal sell-out estimates as of May 21, 2018.

2020 Ambition:


2020 Ambition::


2020 Ambition

40% Share of RRP

4


Roadmap to 40%│ Accelerated national expansion of Ploom TECH


Jan 2018

Apr 2018

June/July 2018Tokyo(pref.)

All Prefectures

T(

Fukuoka(city)

Fukuoka (pref.)

Tokyo (pref.)Chiba (pref.)

Kanagawa (pref.)

Osaka (pref.)

ef.)

Saitama (pref.)

Sapporo

Sendai

NagoyaHiroshima (city)

2020 Ambition:


2020 Ambition::


2020 Ambition

40% Share of RRP

5


• New device, same low heating temperature

• New, rich vapor, with improved satisfaction

• Still no smoke smell, no burn, no ash

• Still easy-to-use, no maintenance

• Same Ploom TECH capsules and manufacturing

TOBACCO INFUSED

OB

Roadmap to 40%│ Complementing our RRP offering

Co-branding with Mevius, Japan’s #1 cigarette brand

Execution leveraging leading in-market salesforce capabilities

HEATED TOBACCO

TED

• Rich, RMC-like experience and tobacco flavor

• Superior taste

• Less smell, no burn, no ash

• Modern design, intuitive and convenient

• Minimum maintenance

C lik i d t b2020 Ambition:


2020 Ambition::


2020 Ambition

40% Share of RRP

6


Roadmap to 40%│ Complementing our RRP offering

2017 2018 2019-2020

6

Launch period*

Launch period*

* Ploom S and Ploom TECH+ will be launched in Japan late this year or early 2019 at earliest.


Achieving our 2020 ambition in Japan

• Better understanding of Japanese consumers

• Ploom TECH better addressing key consumers’ needs

• Ploom TECH capacity secured

• Positive results in new launch areas

• Accelerated national expansion

• Enhanced our RRP portfolio

1

2

3

4

5

6

2020 Ambition:


2020 AAmbition:m

40%% Share Sooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooffffffff Seegmennnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnntttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttg

2020 Ambition

40% Share of RRP


E-Vapor│Today the largest RRP category


4.8 5.26.3

2015 2016 2017

20 22 25

40%

33%

27%ROWUSA

W. Europe4.8 5.2

6.3

Category Value(Net of taxes, $Bn)

%40%%

33%

27%27%ROWUSA

W. Europe

Geographic Mix(% of global value, 2017)

2015 2016 2017

20 22 25

Consumer Base(MM consumers)

E-Vapor

2015 2016 2017

Source: Internal estimates. Note: Category value (consumables / refills + devices).


E-Vapor│#3 global player with strong international presence


75%Global E-Vapor

value

… accounting for

KR RU UK US

11Markets

Present in…

Source: Internal estimates. Note: WWDF stands for World Wide Duty Free.

BE FR DE GR IE IT WWDF


Logic│Our current product portfolio


Logic│Wide and compelling range of liquid options

15+E-liquid flavors

Made

in Europe


Logic│Building a global brand

London – June 5, 2018






E-Vapor│Exponential volume growth, fueling our share in Europe

JTG E-Vapor Refills Sold(Volume)

Acquisitions

91%

69%

53%

51%

Logic Pro Share of Closed Tank SegmentAs of April 2018

28JT Investor CConfference

91%

69%

53%

51%

Logic Pro Share of Closed Tank SegmentAs of April 2018

#1 E-Vapor brand overall in Ireland

#1 in closed tank systems in France, Italy, and the UK

2015 2017

x10

Source: Internal estimates.

IE

FR

IT

UK


Logic Compact│Our new premium closed tank system

3131JTJT InvInvestestoror ConConferferencencee© C© Copyopyrigrightht JTJT 20120188 LLonddon – JJun 5e 5 2, 2018018


E-Vapor│Building a competitive and sustainable position

Logic - our global brand

Diverse and compelling product portfolio

Strong international presence, with leading positions in Europe

Expanding portfolio with Logic Compact

Geographic footprint expansion to 20+ markets by 2020

1

2

3

4

5


Our enhanced RRP portfolio


E-VAPOR

HEATED TOBACCO

TED

TOBACCO INFUSED

OB

COMPACT


Our RRP journey continues…

Diagnostics & usage app functionality

Wireless connectivity Advanced e-vapor technology

New heat-not-burn developments

Novel heating system Expanded range of flavors

Wireless connectivity

Diagnostics & usage app functionality

Novel heating system

Advanced e-vapor technology

New heat-not-burn developments

Expanded range of flavors


… supported by robust investments


c.$2Bn

Research & Development

Supply Chain & Manufacturingpp yinvestment

New Consumer Touchpoints

New Channels

Note: Investments (M&A + R&D + CAPEX) for the 2015-2020 period.


Committed to RRP success


• RRP address emerging consumer needs, representing a strategic opportunity

• Consumer-centric strategy, focusing on markets and categories that matter

• T-Vapor – On track to meet our 2020 target in Japan, enhancing our Ploom offering

• E-Vapor – Launching Logic Compact, strengthening our portfolio and competitiveness

• Focused investments driving the expansion of RRP business and financial base

Reduced-Risk Products Strategy · Reduced-Risk Products Strategy Daniel Torras JTI Senior VP,...

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