Japan Tobacco Stock

Thank you for participating in the Investor Meeting for Q3 2026 results at Japan Tobacco Inc. today. It's now my pleasure to introduce our CFO, Mr. Furukawa, please.

Good afternoon. I'm Hiromasa Furukawa, CFO of the JT Group. Thank you very much for joining us today for JT Group's Third Quarter 2026 Earnings Briefing. I will begin by explaining our 9 months consolidated results for the fiscal year 2026. AOP at constant FX, our key performance indicator, increased by 16.9% year-on-year. The main driver was a strong top line growth across all business segments contributing to the growth all the way to net income.

The FX impact was favorable, driven by the appreciation of several currencies, including the Russian ruble against the Japanese yen. Operating profit increased by 24.2% year-on-year, driven by the increase in AOP as well as a reduction in amortization cost of intangible assets arising from past acquisitions included in the adjustment items. Profit increased by an impressive 21.0% year-on-year, driven by operating profit growth despite higher financial cost and corporate income tax expenses.

Next, I will detail the performance of each business segment, starting with the tobacco business and its volume performance. Please turn to Slide 5. Total volume combining both combustibles and RRP decreased by 0.3% year-on-year, in line with our forecast. In combustibles, although share gains continued, led by GFBs, volume decreased by 1.0% year-on-year, reflecting lower combustibles industry volume in markets, including Japan, Russia, and the U.K.

RRP volume increased by 31.1% year-on-year, supported by steady volume growth in heated product volume, including the continued expansion of Ploom AURA in Japan and the contribution from LYO, tobacco-free heated nicotine stick in Europe. Moving on to the financial performance of the tobacco business on Slide 6. At constant FX, core revenue increased by 8.7%. The price/mix contribution was 9.6%, with robust pricing continuing to be the primary growth driver across many markets.

Let me explain the AOP drivers by factor. Volume contribution was negative, mainly due to the lower total volume driven by a decline in combustible industry volume in higher-priced markets. The price/mix variance was driven by robust pricing, including in the key markets of Philippines, Russia, Turkey, the U.K., and the U.S.A. These top line growth factors fully offset higher investment toward Ploom as well as inflation-driven increases in raw material costs and SG&A expenses such as labor, resulting in AOP at constant FX increasing by 16.6% year-on-year. As mentioned earlier, the FX impact was favorable.

On Slide 7, I will explain the performance of the 3 clusters in the tobacco business. The graphs on this slide show year-on-year variances in total volume, RRP volume, core revenue, and AOP at constant FX for each cluster. Let me start with Asia, which includes the key markets of Japan, the Philippines, and Taiwan. Total volume and RRP volume increased by 3.4% and 32.1% year-on-year, respectively, driven by robust combustibles industry volume and market share growth mainly in Bangladesh, higher Ploom volume in Japan, Taiwan, and the temporary higher demand ahead of RRP tax increase in Japan.

Regarding financial results, revenue and profit increased, mainly driven by positive pricing in Japan and the Philippines as well as Ploom volume contributions in Japan. Next is Western Europe, which includes Italy, Spain, and the U.K. Total market share gains in several markets could not offset the lower combustibles industry volume, mainly in the U.K. As a result, total volume in this cluster declined by 3.9% year-on-year. RRP volume increased by 13.4% year-on-year, driven by Ploom share gains across markets.

Core revenue and AOP grew as pricing contributions across several markets, including the U.K., offset negative volume effects, primarily in the U.K. Moving on to EMA, which includes Romania, Russia, Turkey, and the U.S.A. Total volume in this cluster decreased by 0.6% year-on-year as share gains in several markets led by Turkey, as well as the higher Ploom volume growth were offset by lower industry volume, mainly in Romania, Russia, and the U.S.A. RRP volume increased by 43.9% year-on-year.

The cluster reported an increase in both revenue and AOP, driven by pricing contributions, mainly in Romania, Russia, Turkey, and the U.S.A. While investment in Ploom and inflation-driven increases in raw material costs and SG&A expenses continued across clusters, these were offset by top line growth. On Slide 8, we highlight our RRP performance. As shown in the chart at the top, both RRP volume and RRP-related revenue are accelerating.

I will explain Ploom's performance in Japan on the next slide. In other markets, heated product share growth continued through strategic marketing investment. As a result, Ploom's category share across our 13 initial heated products markets reached 11.6% as of August 2026. We continue to expand our portfolio and strengthen the Ploom brand equity while further growing share by consistently enhancing customer engagement across entire consumer journey from awareness and trial to purchase and retention.

On Slide 9, I will explain Ploom's performance in Japan, taking into account the 2 RRP tax-led price increases. As shown by the bars in the chart, the RRP tax-led price increases implemented in April and October this year, together with the resulting list price increases by each company, led to temporary higher demand ahead of the price increases in March and September, followed by a temporary decline in volume due to the subsequent demand normalization.

Regarding share evolution, the leading competitor benefited more largely from the temporary higher demand, briefly weighing on our share in March and September. As a result, our quarterly category share was affected by this impact. On the other hand, looking at the period following the first price increase, while volume declined in April, the month after the temporary higher demand occurred, it subsequently recovered. Share also rebounded significantly and has remained at a solid level, demonstrating a steady performance.

In addition, quarterly category share on a shipment basis, excluding the impact of temporary demand, continued to grow steadily quarter-on-quarter, and the actual consumer demand-based share in October remained solid. While short-term fluctuations have occurred due to price increases associated with the tax hikes and the timing of marketing activities by companies, we remain confident in our ability to deliver sustained growth in Ploom.

Next, I will explain the results of the Processed Food business. Revenue increased by JPY 4.1 billion year-on-year, driven by price revisions and the sales growth of new products, mainly frozen Udon. AOP increased by JPY 0.4 billion year-on-year as revenue growth offset higher raw material and logistic cost. From the next slide, I will guide you through our revised forecast for fiscal year 2026. First, I will explain the full year consolidated revised forecast.

Core revenue at constant FX has been revised upward by JPY 44 billion from the previous forecast, reflecting the strong momentum in the tobacco business. As a result, core revenue is now expected to increase by 7.3% year-on-year. AOP at constant FX has also been revised upward by JPY 40 billion from the previous forecast, reflecting the upward revision of core revenue at constant FX. Consequently, AOP is expected to increase by 16.1% year-on-year.

The FX impact on AOP is also expected to be positive. As a result, AOP on a reported basis is now expected to increase by 21.9% year-on-year. Operating profit has been revised upward by JPY 33 billion, reflecting the upward revision of AOP. Profit has been revised upward by JPY 18 billion, driven by the increase in operating profit. Profit is expected to increase by an outstanding 32.6% year-on-year. Free cash flow has been updated mainly to reflect the payment for the acquisition of the fine-cut tobacco brands, BREAK and Moro.

Compared to the previous year, we expect an increase of JPY 323.3 billion, notably driven by the absence of the upfront payment associated with the Canadian litigation settlement recognized last year. The following slides explain the revised forecast of each business. First, let's look at the tobacco business, starting with volume expectations. Total volume, including combustibles and RRP, is expected to decrease by 0.5% year-on-year, reflecting a resilient combustibles industry volume in Asia as well as favorable share momentum across markets like in Turkey.

Turning to the financials and starting with the constant FX indicators. At constant FX, core revenue and AOP were revised upward by JPY 47 billion and JPY 42 billion, respectively, from the previous forecast, reflecting top line performance driven by strong pricing. As a result, AOP at constant FX is now expected to increase by 15.7% year-on-year. The FX impact on AOP is expected to remain positive at broadly the same level as previous forecast.

Slide 14 explains the revised forecast for the processed food business. The forecast for revenue has been revised downward by JPY 3 billion from the previous forecast, incorporating the latest sales results in the frozen and ambient foods business. The forecast for AOP has been revised upward by JPY 0.5 billion from the previous forecast, driven by margin improvement from pricing initiatives and the cost reduction efforts despite a downward revision to revenue.

Finally, please see Slide 16. Following a strong first half, top line growth remained robust in the third quarter. In combustibles, performance was supported by ongoing share gains and pricing, while Ploom continued to increase both share and volume. As a result, for the first 9 months, AOP at constant FX increased by 16.9% year-on-year, delivering outstanding growth. To reflect the strong momentum in the tobacco business through the third quarter, we have revised upward all P&L indicators. As a result, we expect to achieve record high results across all indicators again this year.

As for dividends, we determine our dividend per share in line with our shareholder return policy, which targets a payout ratio of 75%, plus or minus 5%. We remain confident in achieving our latest earnings forecast and have, therefore, maintained our annual dividend forecast at JPY 272 per share, which we raised previously. Looking ahead, we will continue to steadily execute our business strategies, improving profitability through top line growth in combustibles and positioning heated products as the second growth engine alongside combustibles. This concludes my presentation. Thank you very much for your attention.

Thank you, Mr. Furukawa. Now we'd like to move to Q&A session. Let me introduce to you the speakers who will answer your questions today. Hiromasa Furukawa, CFO of the JT Group; and Nobuya Kato, JTI Deputy CEO. [Operator Instructions] The first question is from Mizuho Securities, Mr. Saji.

Now I'd like to ask about the combustibles, and it has been very solid. And I'd like to put a focus on Russian business. As for the key point, that includes Page 27, and the down trading is continuing. And then you already in the value segment continue to lose shares. So I'd like to know more about the market environment and also the share loss in the value segment.

And also from January to September, RRP's mix is over 12%, I guess. So I'd like to know more about the combustibles vis-a-vis RRP, although you are not having the RRP at this moment. So how you are going to play around going forward in terms of the strategy? That's my first question.

So the question is the market conditions, performance in Russia and also the future strategy. And JTI Deputy CEO, Kato, will answer your question.

Thank you for your question, Mr. Saji. Talking about the business environment in Russia, as you know already, that the price increased along with the tax increase and also affordability is declining when we look at the purchase capability of the consumers. And then along with that, the down trading is progressing throughout the market. And we have the strength in the mid-price and higher. So that is serving as a kind of headwind. And our performance is weakening.

So how we can counter those deterioration of the affordability. Of course, we need to continue to have a close watch of the sustainability of this move and also the level. And rather than accepting the trend as it is, we'd like to enhance the portfolio at the appropriate price range. And then we'd like to improve our performance in that trend. And to be more specific, shortly, we are going to launch the new product in value segment. And along with that, we think we'll be able to have the improvement in the share trend.

And another point, the expansion of the heated product category, as you are aware, well, it is moderately expanding. Therefore, the combustible market itself continues to shrink. And also, as you know, in the heated product category, we are not playing in that category at this moment. However, we continue to watch the market trend. And then we are going to identify what we can do and what we should do. Anyway, in Russia, our leadership position of our company remains unchanged and has been very solid. So going forward, in terms of the market development, we are going to be flexible, and we'll take the appropriate action to continue the sustainable business.

So basically, that the pricing of the combustible will continue to drive the growth in the next year onward. And for the heated product and RRP, you don't have any plan to enter into the market again. Is that right?

For the combustibles pricing, yes, your observation is correct. The drastic change of the pricing environment, we don't think that will be happening. And of course, we'll continue to watch the market environment and also we will strike the good balance between the volume and share and then determine the pricing. And next year, our tobacco tax plan is already announced just recently. So including that, we will monitor the affordability and also impact on the industry demand. And then we will consider the appropriate pricing.

And talking about the heated product, let me reiterate at this point of time, we will consider what we should do and what we can do. And then going forward, based on those considerations, we'd like to move forward.

So let's move on to the next question. Nomura Securities, Mr. Morita, over to you.

I'd like to know about your approach about the pricing overall. Well, last year or this year as well, you were talking about 8% or 9%. There's been a very strong pricing when it comes to the contribution to the revenue. Well, historically speaking, the 8% or 9% pricing as a level is quite high, though, compared to what you have done in the past.

So when we think about 2025, 2026, the strong pricing why was that possible? And currently, the inflation is still continuing. So in the high single-digit level of the pricing level, do you think is sustainable? Or is it going to be one day coming down to the level that we used to have in the past? So I just want to know the prospect of what you think about the pricing down the road.

Thank you very much for the question. So it's about the pricing. The current pricing is at a very high level. The reason for the underlying reason for that and also whether that is sustainable or not. That will be answered by Kato.

Well, Mr. Morita, thank you very much for your questions. As you just say, the positive contribution of the pricing has been quite big last year and this year. Well, the pricing per se is how the pricing is done is, of course, coming at the backside of the tax hike and the inflation and the elasticity, the price elasticity. Those factors have been considered to -- for us to work on the pricing. And of course, we have to look at the peer condition, and then we do set the brand equity as well and the loyalty, too.

When we look at the last 1 year or 2 years in the market, the market is on a down trading situation and something like a price competition is seen in some markets -- some part of the market. But in general, the price competition is not happening for the entire market overall. So the availability of doing the pricing overall is as an environment, I think that is continuing since last year into this year.

Well, talking about the sustainability of the pricing at this level. When we look at this 1 to 2 years, the pricing have been quite -- really, the pricing was in favor and the situation was quite favorable. But to what extent that can continue, we cannot be overoptimistic. We should not be. We at each region, each market, inflation level and the affordability regardless of the product that doesn't have to be limited to the tobacco products, but the pressure is mounting. So we have to monitor that situation.

And of course, that's true for the consumers, but the macro for the -- and also the budget of the government, I think there's been much more pressures currently. So the tobacco excise tax, how that is going to move going down the road and how the consumer will be able to have the affordability. Well, affordability, we mean not only for the tobacco products, but for the other commercial products as well and the price volatility. We have to look at that very closely.

Well, I said that we should not be overoptimistic, but we are not -- we don't need to be pessimistic either. Well, for next year and beyond, generally speaking, we think the fundamental would not change that much. Well, the pricing environment is probably going to be quite favorable. Still the same level of the -- whether the same level of the strong pricing can be taken as -- or not. We think we need to monitor closely and then execute as we need to.

Okay. One confirmation. You were talking about the strong momentum for the pricing, affordability and the elasticity, the competitive environment, those were some factors that you have explained for the current pricing. But when you think about this elasticity or the affordability of the consumers, do you think you're starting to see the sign of the changes of the affordability of the consumer side because the competitive environment or the tax are not probably changing that much?

When it comes to the aspect of the consumers, well, I think your understanding is correct. So rather than the competitions, I think the tax is something that we have to be pretty keen to because in some markets, the tax hike is happening more often than ever. So in that case, the total demand has -- is negatively hit in several markets. So the consumers' affordability is basically up to the macro of that particular nation or the market, but the tax itself, it's something that we have to watch carefully.

Well, in terms of the geography, last year, this year, any area that you have enjoyed a lot and this year, however, the situation is changing so that you have to be keen to the potential risk to surge or?

Okay, I understand your question. Well, when we talk about the areas, the impact on the volume, for example, the affordability of the consumers is something that -- probably that gives you some pictures, but like Asia or EMA area, well, both markets are quite solid. However, when we look at the impact coming from the tax increase, the Western Europe and among EMA, the Eastern Europe, well, that market affordability impact -- the impact on affordability or the impact coming from the tax increase is something that we have to be aware of.

Now we'd like to take the next question. Mr. Fujiwara of JPMorgan Securities.

I'm Fujiwara of JPMorgan Securities. So HTS, I'd like to ask some question about the Japanese market. And as was mentioned in the presentation, you talked about the temporary demand. And also your share has been progressing steadily. So I'd like to have a further comment. And there was the tax increase and the price increase in October, and your pricing is higher than the competitors by about JPY 10 or JPY 20. So what was the share dynamic based on that?

And also talking about Philip Morris in Kyushu, they have launched a new device like BONDS by IQOS. So is that making any impact in terms of the share dynamics? Could you give us some insight?

Based on the tax increase and the pricing in Japan and also the performance of the Ploom vis-a-vis the competitors' dynamics. So Kato will answer your question.

Mr. Fujiwara, thank you very much. Talking about the volume of the Ploom, well, the temporary demand in September -- well, actually, the price increase was higher than the April. So, and in the case of the previous case, there was the temporary demand. And this time, it was higher impact. And that was reflected in the Ploom volume. And as was presented by Furukawa, more than the temporary demand on our side, well, the volume increase of the competitor was more prominent. So that is part of the reason why our share was a bit weaker in September.

But as also mentioned in the presentation, and similar things happened at the March temporary demand and then the price increase in April. And then we continue to gain shares after that in the process of recovery. And this time -- unlike the March and April, our price increase was bigger than the competitors'. So well, we are seeing more of the normalized impact out of the temporary demand. So in order to come to the conclusion, I think we need to wait for another 1 month or 2 months.

And also another point presented in the presentation, based on the real demand basis in October -- we are seeing the recovery very close to the September level before the temporary demand. So we need to take some more time, but current recovery track has been in line. Well, I would say that this is slightly skewed more of the positive side within our expected range. So in the short term, this year, there were 2 tax increases in the pricing. So well, actually, there have been some share dynamic changes. But toward the end of the year, we think we'll continue to sustain the Ploom share.

And in 1 year, for this year, well, we think we are seeing the solid growth of the Ploom, and that growth momentum, we do have the strong confidence. And talking about the competitors' product, then the impact out of that. Well, this is the issue of another company. And our understanding -- in our understanding, our first geographic area is limited. So at this point of time, we are not very sure about the specific impact out of that.

And a follow-up question, impact of the temporary demand in March, well, I think it was 270 million. And in September, what was the level of the temporary demand?

Well, in our estimate, September was about 400 million. It is -- I'm talking about our shipment volume. So the March is 270 million and this time, 400 million. So this is the quantitative comment, though I have commented more qualitatively later.

And the next question comes from Morgan Stanley MUFG Securities, Ms. Miyake. Over to you, Ms. Miyake.

This is Miyake of Morgan Stanley. I have a question about the revised revision upward. In Q3, the progress itself is probably better than your original assumption. In Q4, have you changed your house view about the prospect of the Q4 results? And also about the logistics cost because of the Middle East impact, the cost may go up. At the end of the first half, you made that comment already. So compared to that time of the comment, have you added something on to what you have expected to happen because of the Middle East impact in terms of the logistics cost?

Thank you very much for your questions. The first one is about the upward revision in the full year forecast. Kato is going to answer the factors behind that.

Thank you very much for your question, Miyake-san. Well, regarding the year to go, for the Q4, the sales volume may slow down a little bit. Along with that, the core revenue, AOP compared to Q3, the growth is going to be slowing down in Q4. In the first half of this -- from the first half to second half of this year, the growth is estimated to slow down, and that was mentioned at the time of the first half earnings call. So that is within our anticipation.

And this time for the third quarter, the slowdown has already been obviously seen, and the same trend seems to be continuing in the Q4. So this is within our expectation. And your second question is about the logistics cost. Any other additional factors to what we have said originally was your question. So at the time of the Q2 earnings call, we have said that we have included whatever the visible cost increase would be. Are there any changes? Are there any additions that we have had since then? We think we are just following what we have made the comment at the end of the Q2, so that the expectation hasn't changed.

When you look at the actual figure of the Q3, well, the result was better than what you have said at the time of the Q2 earnings call. So the upswing was bigger. And also the pricing that you were talking about was also a big as a contributing factor? Am I correct to understand that the pricing that you have taken at each market?

Well, roughly speaking, yes, you are correct.

So in that case, Q4, well, you have, of course, the reactionary decline from the temporary demand increase and also some slowdown compared to the previous financial term. But in the first half, you had some imagination of the expectation to where to land at. Any changes to that expectation, meaning that the progress in Q3, the momentum was bigger than the original plan. So do you think that you're going to have the upswing and the positive impact kicking in, in the Q4 in addition to your original plan? Or are you just staying the same, remain unchanged?

Well, until -- for the first 9 months, we have made some revisions because of the achievement. And then based upon that achievement for the first 9 months, we made the revision upward for the 12-month basis forecast. So the Q4, for the volume, I made some comments. The volume may slow down slightly, and that is included in our expectation. But the magnitude of that slowdown in terms of the percentage, that could be the same.

However, the baseline was up and then the slowdown had happened. So when we talk about the volume only in the beginning of the year, we said that the flattish or the negative 1%, the 1% decline or so. But this time, we're talking about 0.5% decline. So it's within the expectation, but it's not as big as 1% decline. Including the actual, we thought that we have been just landing at what we have said.

Now I'd like to take the next question. Mr. Miyazaki of Goldman Sachs Japan, please.

Miyazaki of Goldman Sachs. Well, I'd like to have the confirmation of the current progress, the pricing, and also looking at your analysis for the profit change, that's included in others. And the pricing, well, that is shown in the material. And toward the next year, compared with the last year, how do you see the current progress?

For example, you talked about Russia. There was an announcement of the tax increase. And would you comment on the other regions as well? Do you think you're going to have the similar opportunity for the pricing? Or is that already done? And for the next year, you're going to expect the impact out of the pricing? Do you have the big expectation or not?

And also looking at the Q3 results, well, I think the cost is up by about JPY 33 billion in others. And I think that's comparable with that of the Q2. So quarter-on-quarter, we continue to see such level of the increase. And compared with the last 2 years, I think the pace of the expenses increase is getting milder. And with that cost increase, are you able to do what you want to do?

So the question was the pricing in this year, having the eye for the next year, and also the forecast for the pricing in next year and others in the AOP's variance analysis, on the cost and also future level, Kato is going to make the comment.

Thank you for your question, Mr. Miyazaki. The pricing, well, there might be some overlap with what I have already mentioned. But this year and Q4 also, we continue to take pricing as we have been doing in the previous period. So next year, the pricing environment will continue to be robust. And in the major markets, we need to be watchful for the industry demand, and that will affect the affordability. And of course, we need to be watchful for the tax scheme. So having that in mind, we'd like to continue to take the appropriate pricing.

So next year, well, we think we're going to have the resilient base, and also based on the possible changes, we'd like to take pricing. And talking about the cost side, in Q3 and Q4, how it is going to be played out? I think that's your key question. In the Q4, compared with the Q3, the cost will be increasing. And that includes the marketing expenses in the Q4. And every year, there is a slight skew into the Q4. And also there is some phasing impact out of that expenses.

So in Q4, including the marketing cost, vis-a-vis the Q3, the cost will be higher. And next year, well, I talked about a high-level talk about the pricing for the next year. But with regard to the actual plan for the next year, we'd like to let you know in February with the presentation. So please wait for the opportunity in February.

And again, about others, I'd like to have the clarification again for the cost. In the Q4 last year, year-on-year, well, there was an increase of the expenses by about JPY 44 billion. So yes, last year, there was an increase of the expenses. But in this year, in Q4, the cost increase magnitude will be bigger than that of the Q3. Is my observation correct?

Well, I -- you were asking about the year-on-year compared with the previous year. And I talked about the Q3 and Q4 of this year. Sorry for that. And generally speaking, expenses includes the investment for the RRP or the Ploom or the sales promotion cost, and that is a big chunk of that. And throughout the year, we have been increasing the investment for that. So quarter-to-quarter, in Q4, year-on-year basis also, we're going to see the increase. In Q4, cost increase is higher year-on-year basis. And when you compare with that of the Q3, it's going to be bigger, yes.

So in Q3 -- well, cost increase in Q3 was smaller than my assumption. And you are making the investment into the Ploom. And within that, were you able to do what you wanted to do?

Yes. Basically, yes, we were able to do. And especially for the sales promotion and marketing expenses, well, of course, we do have the plan. But we need to look at the actual current condition of each market and also vis-a-vis the competitors. And then we are taking the prime timing to execute the plan. So up to Q3, well, actually, there was some phasing and pushed out to the Q4 to some extent. However, what we want to do and what we need to do, we were able to do at the proper timing.

The next questions are from SMBC Nikko Securities, Mr. Furuta.

This is Furuta of SMBC Nikko. Well, I want to know about the prospect for the next year. Well, just as always, I think you're going to be targeting at the high single-digit growth if nothing changes. Over the course of last 2 years, you're looking at the level of about 20% or so or more than that, probably coming from the resilient pricing. So not only the single digit, the high single digit, but probably the double digit is the target line, isn't it?

Thank you very much for your question. Our house view about the growth for the next fiscal year. So our CFO, Furukawa, is going to take that question.

This is Furukawa. Thank you very much for the question. Well, the following about how we are going to grow for next year, as we said, well, the profit growth for the next year and beyond is going to be explained at our earnings call in February. Well, on the constant FX basis of the expectation of the growth, the latest growth is currently estimated at 16.1%, meaning that the launch pad or the baseline for the next fiscal year is going to be much higher.

It's going to be coming from the pricing of the combustibles and also the heated products, sales volume expansion, the top line growth, continued RRP investment, and the cost inflation coming from the cost inflation. So in the plan period from 2026 to '28, there is no change for the 2026 to 2028 on a constant currency basis. So again, the details and also the prospects are going to be explained much more in detail in February meeting, but that's the direction that we are thinking about at this point.

When we think about the drivers for the business in the next year and onwards, you're talking about the pricing, combustibles, those are probably going to be the main drivers. But which cluster is going to be the driver? And any other factors that we should be paying attention to other than the pricing?

So talking about the next fiscal year's growth, profit growth, what the drivers are? Well, Kato is going to build on that idea.

Okay. Furuta, thank you for your question. Well, pricing is going to be the first driver, the single greatest driver. And probably what the level that is going to be will be the big point for us. But when it comes to pricing, that could serve as a negative side on the volume growth so that the total demand and other factors will be probably coming from the pricing. So the pricing could have an impact on the volume entirely. So the volume mix and the pricing needs to be net-net and then think about what kind of impact is going to have on our growth. We need to appropriately study.

Well, as our CFO, Furukawa said, the RRP and Ploom that growth, of course, is going to drive the business as well. So the top line, if the top line grows, then, of course, bottom line will improve, the margin will improve. That will be the contribution we see on the business of Ploom. That's what we want to structure. And also the supply chain cost. Well, at the time of Q2, we had a certain expectation as figures. And then in the Q3, there was not a big change since then, as we said, well, the inflation is one factor and other logistics and energy cost, the logistics cost, energy cost, well, the world is changing.

So along with that change in the second half, we did not make a big change for the figures. But what kind of changes we are going to see down the road needs to be reflected in the figure that we will see, and then we will incorporate those figures when it comes to the next plan to think about. So what kind of impact will be seen on our potential growth and so on will, of course, be incorporating those potential impact coming from the cost side as well.

So by cluster, if you could give some color on that.

And talking about the cluster by cluster, the momentum of this year, especially Asia, the momentum in Asia was strong. And the EMA, among EMA, Turkey was obviously going very healthy. The U.S. was also going well. So the strong momentum in some markets seems to be continuing. It's not really likely to drop sharply or anything. So that the strong momentum is likely to continue. We think we'll be able to continue.

Well, that said, to what extent we'll be able to continue that momentum, that strong momentum? Or are we able to further drive that momentum or keep the momentum? We think we need to scrutinize and then reflect that on our plan for next year.

Now we'd like to take the final question. Mr. Igarashi of Daiwa Securities, please.

I'm Igarashi of Daiwa Securities. I'd like to ask finally about the domestic RRP. And recently, you have a new device, Ploom CUBE. So what's the expectation for that new product and share up momentum, whether you can see the momentum increase or the share increase?

The question was about the Ploom CUBE. So Kato will answer your question.

Thank you very much for your question, Mr. Igarashi. As you are aware, the design or the shape of the CUBE is smaller than the previous generation Ploom X. And for the customers who love that shape, we wanted to continue to offer that shape of the product. And AURA has been very popular. And taste-wise, flavor-wise, they use the same stick and also the function-wise, the AURA and CUBE are the same. But now we offered the different new design for the consumers who love that shape. We are expanding the option with new design. So the main product is AURA and putting CUBE and AURA together for the Ploom as a whole, we'd like to continue to have the further growth.

Thank you, Mr. Igarashi. With this, I'd like to conclude the meeting. Thank you so much for your participation. Please make sure that you disconnect. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Good afternoon. I am Hiromasa Furukawa, CFO of the JT Group. Thank you very much for joining us today for JT Group's Second Quarter 2026 Earnings Briefing. Before we begin, we would like to express our deepest sympathies to all those affected by the 2026 Kumamoto earthquake in Japan. We sincerely hope that those in the affected communities remain safe and that the region recovers as quickly as possible.

I will begin by explaining our 6 months consolidated results for the fiscal year 2026. Revenue and AOP increased significantly, reflecting the strong business momentum in both the tobacco and processed food businesses. AOP at constant FX, our key performance indicator, increased by 19.4% year-on-year, contributing to growth all the way to net income. The FX impact was positive, driven by depreciation of several currencies, including the Russian ruble against the Japanese yen.

Operating profit increased by 29% year-on-year, driven by the increase in AOP as well as a reduction in amortizing cost of intangible assets arising from past acquisitions included in the adjustment items. Profit increased by 28.9% year-on-year, driven by operating profit growth and lower financial costs.

Next, I will detail the performance of each business segment, starting with the tobacco business and its volume performance. Please turn to Slide 5. Total volume, combining both combustibles and RRP, increased by 1% year-on-year. Excluding favorable inventory movements, total volume increased by 0.4% year-on-year. In combustibles, although industry volume declined across several markets, including Japan, Russia and the U.K., solid share and GFB volume momentum continued across our global footprint. As a result, our combustibles volume remained in line with the previous year. RRP volume increased by a significant 33.8% year-on-year, driven by Ploom continuing to grow volume substantially, up by 43.5% year-on-year and to gain share in heated products.

Moving on to the financial performance of the tobacco business on Slide 6. At a constant FX, core revenue increased by 10.6%. Price/mix contributed 10.2% with pricing continuing to be the primary growth driver across many markets. Let me explain the AOP drivers by factor. Volume contribution was negative as the total volume increase was offset by a deterioration in market mix from large volume declines in higher-priced markets such as the U.K. The price/mix contribution I mentioned was driven by robust pricing, including the key markets of the Philippines, Russia, Turkey and the U.S.A. These top line growth factors fully offset increased investments towards Ploom as well as inflation-driven increases in raw materials costs and SG&A expenses such as labor, resulting in AOP at constant FX increasing by 18.8% year-on-year. As mentioned earlier, the FX impact was favorable.

In summary, throughout the first half, I am happy to report that these outstanding results exceeded our initial forecast, fueled by solid pricing contributions and positive FX impacts.

On Slide 7, I will explain the performance of the 3 clusters in the tobacco business. The graphs on this slide show year-on-year variances in total volume, core revenue and AOP at constant FX for each cluster. Let me start with Asia cluster, which includes the key markets of Japan, the Philippines and Taiwan. Total volume in this cluster increased by 4.2% year-on-year, driven by resilient combustibles industry volume and market share growth, led by Bangladesh as well as higher Ploom volume, mainly in Japan and Taiwan.

Regarding financial results, revenue and profit increased, mainly driven by positive pricing in Japan and the Philippines as well as Ploom volume contributions in Japan and Taiwan. Next is Western Europe, which includes Italy, Spain and the U.K. Total market share gains in several markets, continued category share gains in heated products by Ploom and favorable inventory movements, mainly in Italy and Spain, could not offset the lower combustibles industry volume, mainly in the U.K. As a result, total volume in this cluster declined by 2.4% year-on-year.

Core revenue and AOP grew as pricing contributions across several markets, including the U.K., offset negative volume effects, primarily in the U.K. Moving on to EMA, which includes Romania, Russia, Turkey and the U.S.A. Total volume in this cluster increased by 0.7% year-on-year. The increase in market share gains in Turkey and the U.S.A., combined with higher Ploom volume across markets and increasing industry volume in Turkey, were partially offset by declining industry volume, mainly in Russia.

The cluster reported an increase in both revenue and AOP driven by pricing contributions, mainly in Russia, Turkey and the U.S.A. While investments in Ploom and inflation-driven increases in raw material costs and SG&A expenses continued across clusters, these were offset by top line growth.

On Slide 8, we highlight our RRP performance. Let me share some details. As shown in the charts at the top, growth in both RRP volume and RRP-related revenue has accelerated following the launch of Ploom AURA in 2025. This top line growth has been driven by the continued expansion of the category as well as the steady growth in Ploom's heated product share through strategic marketing investments.

In Japan, while there were some short-term fluctuations due to the timing of marketing initiatives and temporary demand increase ahead of the RRP tax-led price revisions in the first quarter, I am pleased to report that the share momentum remains solid. Monthly share for June, when the adverse impact from the temporary demand had largely subsided, reached 18.3%, indicating steady progress in line with the growth trajectory since the launch of Ploom AURA.

In other markets, heated product share also continued to grow, supported by the contribution from LYO, our tobacco-free heated nicotine stick in Europe. As a result, Ploom's category share across our 13 initial heated products markets reached 11.5% as of May 2026. In addition, Ploom's geographic footprint has expanded to 30 markets as of July with the rollout of AURA completed in 29 markets.

Next, I will explain the results of the Processed Food business. Revenue increased by JPY 2.5 billion year-on-year, mainly driven by price revisions of packed cooked rice in the frozen and ambient foods business. AOP increased by JPY 1.5 billion year-on-year as revenue growth offset higher raw material costs due to rising brown rice prices.

From the next slide, I will guide you through our revised forecast for fiscal year 2026. First, I will explain our full year consolidated revised forecast. Core revenue at constant FX has been revised upward by JPY 80 billion from the initial forecast, reflecting the strong momentum in the tobacco business. As a result, core revenue is expected to increase by 6% year-on-year.

AOP at constant FX has also been revised upward by JPY 24 billion from the initial forecast, reflecting the upward revision of core revenue at constant FX. Consequently, AOP is expected to increase by 11.6% year-on-year. The FX impact on AOP is expected to improve versus the initial forecast. As a result, AOP on a reported basis has been revised upward by JPY 80 billion from the initial forecast.

Operating profit has been revised upward by JPY 87 billion, reflecting the upward revision of AOP. Profit has been revised upward by JPY 74 billion, driven by the increase in operating profit and lower financial costs. Free cash flow has been revised upward by JPY 121 billion, mainly driven by the upward revision of AOP. Compared to the previous year, we expect an increase of JPY 378.3 billion, notably driven by the absence of the upfront payment associated with the Canadian litigation settlement recognized last year.

The following slides explain the revised forecast of each business. First, let's look at the tobacco business, starting with volume expectations. Total volume, including combustibles and RRP, is forecast to be in a range between 1% year-on-year decline and in line with the prior year. This is unchanged versus our initial forecast. Indeed, first half volume performance was broadly in line with our initial forecast. This initial forecast also incorporated lower total volume for second half, reflecting tax-driven price increases across markets and year-on-year comparison effects.

Turning to the financials and starting with the constant FX indicators. As just mentioned, in the second half, we expect total tobacco volume to decline year-on-year, accompanied by an unfavorable market mix. In addition, supply chain costs and investments in RRP are expected to increase versus first half. As a result, growth in core revenue and AOP is expected to moderate versus first half. However, acknowledging the strong pricing contributions, we have revised core revenue upward by JPY 80 billion. This will translate into 6% growth year-on-year.

The upward revision of the top line will enable us to make additional investments in RRP, resulting in AOP being revised upward by JPY 25 billion or an 11.2% increase year-on-year. The FX impact on AOP is expected to improve versus our initial forecast, reflecting a stronger Russian ruble and a weaker Japanese yen than initially assumed as well as higher hyperinflation adjustments due to pricing effects in Iran to offset inflation and local currency depreciation.

Regarding the situation in the Middle East, we have incorporated the impact into our revised full year forecast based on certain assumptions. As stated at the first quarter results announcement, the impact is currently expected to be limited.

Slide 13 explains the revised forecast for the processed food business. Revenue is expected to increase by JPY 10.5 billion year-on-year with no change from the initial forecast. AOP is expected to remain broadly in line with the prior year and unchanged from the initial forecast, reflecting solid business performance despite higher raw material costs and other cost increases associated with the situation in the Middle East.

Finally, please see Slide 15. As discussed today, the tobacco business was the primary driver of our first half performance, delivering outstanding results that exceeded our initial expectations. In combustibles, pricing continued to contribute strongly to performance while maintaining share gains across many markets. In RRP, the expanding presence of Ploom steadily contributed to top line growth. This performance is clear evidence that our strategic goals and investments to support sustainable profit growth are delivering solid results.

Building on our strong confidence in the underlying strength of the business, the significant first half results and our ability to execute, we have substantially upgraded our full year guidance. Based on the revised forecast and our shareholder return policy, we also plan to revise the annual dividend guidance upward by JPY 30 from JPY 242 to JPY 272. We expect the dividend payout ratio based on the profit after the Canada Adjustment to be 75.2%.

This concludes my presentation. Thank you very much for your attention.

Thank you, Mr. Furukawa. Now we would like to move to the Q&A session. Let me introduce the speakers who will take your questions today. Hiromasa Furukawa, CFO of the JT Group; and Nobuya Kato, JTI Deputy CEO.

Next, I will explain how to ask questions. We are afraid we don't accept questions in this English line. If you have any questions, please send an e-mail to [email protected]. We will introduce your questions accordingly. Thank you for your understanding.

We would like to introduce the first question. Mr. Saji from Mizuho Securities.

I have a question. One question. This relates to the overseas pricing situation, especially EMA cluster in the second quarter, JPY 64.9 billion of impact you had in terms of the pricing. So perhaps in the first half, combustibles, we have just short of 2% that is decline in the Russian market. But within that, Russia seems to be contributing in terms of pricing. So in light of that, how sustainable is this pricing strategy in Russia?

And also the FX impact, which has contributed to the dividend hike. So JPY 56 billion of FX impact was a positive factor that you have included. So Iran perhaps contributed. So what is the pricing situation in Iran? It appears as if it has been quite steady, if you look at the adjustment and the revised guidance. So I'd like to ask about the sustainability of the pricing strategy in Russia and Iran. So that is my question.

So this is a question related to Russia and Iran and the pricing and the strategy. So JTI Deputy CEO, Kato, would answer.

So this is Kato. Mr. Saji, thank you very much for the question. So as for Russia, how sustainable is the pricing?

So this year and also going forward, the pricing environment is not expected to dramatically change. Russia in recent months, perhaps there's a deterioration of the affordability and the economic environment is not necessarily positive and down trading is ongoing. We have been sharing those information.

On the other hand, on a relative basis, in Russia, we do have a robust leadership position. So in the mid-price and also the higher the premium segment, we do have a fairly strong market share. Now for down trading in the value segment, we have not been able to own strong products. So that may be the reason why the overall volume and the market share is somewhat declined. But in the mid-price or higher price segment, it has been relatively resilient. So we believe we can continue to execute a solid pricing strategy. But all in all, down trading is underway. And in the value segment, we intend to take initiatives wherever possible.

So pricing as a whole in Russia, it is not likely that the situation will worsen that we cannot actually continue with the pricing strategy. However, we are seeing some softness within the volume. And of course, we have the down trading. So in terms of the level of pricing, we need to strike the right balance, taking all those information into consideration. So that's the total picture.

Now as we have shared already after the Q1 results, Russia, the tax hike has been higher than initially anticipated. Next year and the following year, the level of tax hike has been disclosed by the government. But whether that level -- whether that would come through or not, perhaps just as we have seen, perhaps the tax hike may be higher than initially anticipated. If that is the case, that may pose an impact on the affordability of the market. So we need to take those into consideration as we execute the pricing strategy. So that's the general direction. But going forward, having more challenges in executing the pricing strategy in Russia, that is not the kind of expectations we have.

Now moving on to Iran, the pricing in Iran. As mentioned, hyperinflation has been adopted in the market. So in the inflation level is extremely high. So the way we approach the pricing, so inflation and the equivalent level of inflation, we will offset that through pricing strategy. That is our basic thought process. And that is why we have been executing the pricing strategy. So regardless of tobacco products, so in the consumables in general and Iran, it is facing a continuous inflation. So in that level, pricing has been executed in the past, and we have been able to do that, and we believe we can continue to do so in the future.

So as inflation continues, so this is not just for the tobacco products, the pricing will be impacted by the inflation. And accordingly, we will conduct the pricing.

So in terms of AOP, so I think the FX adjustment was quite large, about JPY 56 billion. So Iran, how big was the portion within this?

So this is Furukawa. So in terms of FX impact, JPY 56 billion was the FX impact. So almost entirely this amount, I already mentioned within my explanation. So Iran is a hyperinflationary market. So the price hike related to inflation, so we try to ensure that. So the AOP from the constant FX basis, those have been excluded from that number. So that particular portion, we conducted add back because we have a much more clear picture of Iran. So now we have factored those into the plan. So in the adjusted plan for the FX plan, so I cannot give you the detailed number. Quite a large portion of that has been taken into account through the Iran situation.

Next person is Morita-san from Nomura Securities.

This is Morita from Nomura Securities. Can you hear me?

Yes, we can. Please go ahead.

In the presentation, you were talking about current performance, which is a result of your investments that you've been making. So what kind of initiatives have borne fruit in what areas of your business? Can you share with us more detail? And as a result of that, regarding the growth rate of the profits over the medium to long term, I think it's high single digit at this moment that you were assuming. But when you look at the growth rates, do you think it can be revised upwards? Is there a possibility of that happening? I would appreciate your comments on this as well.

The question was about the results of past investments as well as what we view future profit levels are going to be. So Mr. Kato will take that question.

Morita-san, thank you very much for your question. So the investments that we've been making in the past as well as the results we've been seeing and what has been working well, leading to robust results and performance was the gist of your question. But from my point of view, personally speaking, combustibles and RRP or in particular, heated products as part of RRP, our company has been focused -- has been investing in both areas and have drove to improve performance. And for combustibles, we have been RRP -- for combustibles, we've been looking at better ROI and improving margins. And for the profits that are generated as a result, we have been reinvesting into RRP to ensure its further growth.

So I think the strategy of focusing on both parts of the business has turned out to be successful. So for the combustibles business, we are striving to improve profitability. And in order to do so, we are making necessary investments so that top line and earnings and the bottom line can grow. And effectively and efficiently, we are striving to improve the business' profitability. And so far, we have been able to generate good results. By using the profit pool, mainly around Ploom, we are striving to grow the RRP business.

And like I always communicate, over 3 years, well, from several years ago, JPY 500 billion or JPY 600 billion or recently JPY 800 billion over 3 years are the numbers we've been communicating. On a yen basis, the numbers have been increasing somewhat. But in this regard, we would like to ensure that we will invest into the RRP business to ensure a good return in the future.

So currently, Ploom, as we explained in the presentation, in Japan, now share of segment is 18%. And when you look at other markets, although the level is different, we are seeing steady growth. And for the 13 markets that we view as heated products markets, our share has been increasing, reaching 11.5%. So for combustibles and RRP, in particular, heated products or Ploom, the investments into these businesses have generated steady results, whether it be top line or volume and profit growth. So everything has come together. So our growth, our investments have been generating these results.

As for growth rates and the future, as you rightly said, when it comes to next fiscal year and beyond, it might be too early to speak about it at this moment. However, in February this year and the next 3 years -- for the next 2 years, when you think about profit growth, high single-digit growth is what we are striving to achieve. So that is what we've already been communicating.

And when you look at where we are right now, we have revised up our guidance for this fiscal year. And when you look at the guidance for the tobacco business, we do believe we can reach that level. And also for next fiscal year and beyond, at the beginning of the year, we have set forth a midterm plan where we would like to achieve high single-digit growth, which we would like to ensure to achieve. But regarding whether that level is going to change or not, I think it's too early to say at this moment. But in the next 3 years, high single-digit growth is something we have renewed confidence towards.

Well, changing the angle of the question, you are feeling more confidence in achieving high single-digit growth. I understand that. But what about double-digit growth? In order to achieve double-digit growth, what kind of conditions are required? Can you give me a comment on that?

Well, that's a pretty sharp question, which is also a difficult question. Well, last year and this year and beyond, when you think about the business environment and our performance, it's a matter of how far we can grow our business. And when you think about that, right now, we are currently confident about delivering high single-digit growth. However, when it comes to double-digit growth, like I've been saying earlier, improving the ROI of the combustibles business needs to go up a level. We need to be able to accelerate how much it goes up. And also for Ploom and RRP, I guess I'm talking about profits here, but when it comes to profitability, if we can grow even further and start to gain visibility around it and talking about visibility or expectations amongst ourselves, there's one part that is internal, and then there is the market environment that you need to look at, respectively, as a set.

So from that point of view, we have just ended our first half. Therefore, we'll have to see how things go in the second half of the year so that we could think about the 3 -- what we can communicate next fiscal year at the beginning with respect to our 3-year midterm plan.

Yes, I look forward to it.

So we'd like to move on to the next question. Mr. Fujiwara, JPMorgan Securities, please.

This is Fujiwara from JPMorgan Securities. So I have a question related to Slide 12 about the revised forecast. So the changes from the initial expectation, I'd like to pose a question. So again, I know you explained a little bit, but I'd like to pose additional question. So on a constant FX basis, it's increased by JPY 80 billion. However, in terms of the profit, it's JPY 25 billion in terms of constant FX. So when you look at the high level of marginal profit for the tobacco business, so I think it might have a much more -- the contribution to the profit. So do you expect to have increased investment into RRP? Has that been factored into these numbers?

So the question was related to tobacco business, the revised forecast, about the constant FX of the core revenue and AOP constant FX, the variance between those. So Kato would like to answer.

So Mr. Fujiwara, thank you very much for that question. So the Ploom's investment, whether we are increasing the investment towards Ploom more so than initially expected, yes. Partially, yes, we are conducting some additional investment. However, that in itself is whether it is posing a large impact. I think the more fair way to look at that, it's the first half and the second half, the assumption. If you look at the whole, you would come out with the full year number.

So in comparison to the core revenue growth, the AOP growth appears to be somewhat lower, especially if you were to compare the second half number. So some of the factors behind that. So of course, the Ploom-related investment, we are conducting additional investment in the second half in comparison to the initial anticipation. But of course, right from the start, the absolute amount of the investment was expected to be larger for the second half as opposed to the first half.

In addition to that, when you look at the top line, the volume in the second half is expected to be weaker in comparison to the first half. So specifically, where it has been quite solid was in Turkey or Bangladesh, which has been quite brisk in the first half. But in terms of the growth rate and also the total demand for the industry, we expect to see a slowdown in the second half. So for instance, Japan as well.

And in October, there will be the tax hike for the heated products. So the volume is expected to weaken in the second half in Japan as well. Also, Russia and also Poland and Romania. So in the first half, at the beginning of the year, there was a significant tax increase and the volume is expected to soften into the second half.

Also, the Philippines, last year, the middle of last year, that is, there was the interim election. So it was an unusual, the large volume that we have seen. So in comparison, of course, it will be weaker for this year. So that is why we expect to see a deceleration in the second half. So all in all, the volume, we expect to see softening in the second half. So if the volume softens, so the sales, the revenue would also decelerate.

And also the profit that comes out would also weaken as well in the second half. However, if you look at the cost, the second half, we -- the Ploom's investment is larger for the second half related to the cost. So Mr. Furukawa mentioned the impact is not so large, but also Middle East situation, the energy price and the crude oil price is spiking and the impact on the cost, we shall see more of that realized in the second half.

So the second half, the cost is the second half heavy, whereas the top line is weaker in the second half. So the first half, the top line was quite positive and the cost was somewhat lighter in comparison to the second half. So if you take all those into consideration, perhaps you would see that picture that you just outlined on the full year basis.

Understood. So you talked about the tax hike in Japan, I'd like to pose an additional question. So Ploom and the stick, so with the price revision, JPY 40 is the revision for Ploom. So if you look at the competitive situation in April and October, maybe the price gap was somewhat shrinking. So with the pricing strategy, what sort of impact would it show on the market share? Or -- but I think even with the increased price, the brand equity is getting stronger. So do you expect to see the positive share momentum to continue?

Thank you for that question. So the price differential in comparison to the competitors, October onwards, perhaps it would become narrower. But of course, how it would pan out, we just need to watch and monitor the situation. So back in April with the price revision and the pricing back then, so actually, the price differential had actually widened against the competitors. So 18.3%, that is the share of segment, that is a recent number. So the growth could be explained somewhat by this price differential. So it could be explained partially by that.

But as we have seen from last year, the Ploom's -- the share growth momentum continues to be very strong, and we are gaining confidence in that momentum. Therefore, in October of this year, although the price differential may shrink, but as the basis, the fundamentals, the Ploom's growth momentum, we continue to have strong confidence. Now with less of a price differential, so how the consumers will perceive and how they will react to these. We need to observe those. So this is a learning experience for us, and we need to continuously watch the market.

So the consumers, how they have behaved April onwards, we have conducted some analysis, and we continue to do so. So for the heated products by different price segment, we have been observing the segment share. When you observe those, we haven't observed a significant down trading. Also more in details. So within our own portfolio, within JT Group's portfolio, so we have the premium segment and also we have Mevius in the midrange and also the Camel as well in the value segment.

So we haven't seen any significant changes in the structure of those brands, especially the EVO, in terms of the contribution has been quite resilient. So we haven't seen any reduction in terms of the EVO. So if you look at that situation, so the price sensitivity within the heated products, if we were to analyze that, perhaps it's too early to draw a conclusion just by looking at the April experience. But as of this particular moment, maybe the impact is not so large. So once the April impact has taken its round, we believe that we can continue to exert the strong growth momentum for Ploom.

Let me introduce the next person from Morgan Stanley MUFG Securities, Miyake-san, please.

This is Miyake from Morgan Stanley. Regarding the current Ploom in Japan, I would like to know about more details about Ploom in Japan. For the 3 brands, what is the volume mix of the 3 right now? That's one question. And also WITH, for the low-temperature segment compared to the first quarter, I think volume increased in the second quarter. So what kind of demand have you captured? And I think you are going to establish a position to cut prices for this product going forward. I think your main part is going to be heated high-temperature products. But regarding that positioning as well as how the low-temperature products are going to compare, can you please walk me through the strategy?

So that was a question about brand mix in Japan as well as the strategy around infused. So JTI, Deputy CEO, Kato, will take that question.

Miyake-san, thank you for the question. Regarding Ploom, talking about internal -- the internal 3 brands, EVO, Mevius and Camel and the mix, I think that was your question. But we are -- we would like to withhold from giving you the exact numbers when it comes to breakdown. But I could round things off and give you a ballpark. And when you look at the trends, every month, there are some subtle changes in the mix. But roughly speaking, EVO is about 10% to 15%. Mevius is about 45% to 50%, and Camel is about 35% to 40%. So that's the rough breakdown.

Going forward, the 3 price segments, we would like to continue to have these 3 price segments so that we can ensure that we are able to cater to customer needs. There will be a price increase due to the tax increase, but we'd like to ensure that we are able to maintain the brand equity of each product. And in accordance with the quality of the products, we would like to ensure that the customers are satisfied in their purchase when they purchase our products.

So whether it be the product or the brand or the price point, we would like to ensure we manage a good brand portfolio for Ploom. And we do believe that we have been able to do so. So the 3 price segments and the portfolio will be leveraged so that the Ploom business overall can continue to grow.

And regarding WITH and the pricing or the prices for next year onwards. Regarding our price strategy for certain products, because of competitive reasons, I would like to refrain from directly addressing that question. But one thing I can share with you is our strategy or way of thinking. So WITH is a low-temperature product, so you could enjoy it in a different way, and we do have some core users who prefer this product, because it's different.

So for WITH, it doesn't really smell at all. And you don't have to wait for the heating time either. But when it comes to kick compared to heated products or Ploom, it is slightly weak. Therefore, it's a matter of what consumers want from WITH and the difference with Ploom. But based off that, we would like to consider how much we price the product at. But for -- we would like to ensure that the consumers who buy the product are satisfied with the product itself as well as the price we offer it at when we consider setting the prices.

So I'm not able to give you guidance on how much we're going to price it at. But basically, we want to ensure that we address the customer preferences and also look at profitability when we set the price of the product.

For Page 8, I'm on Page 8 right now. Well, before April, your share went down because of temporary demand. And there was some fluctuation. There was a pickup since June once again. So what are the factors you see? And AURA since its launch has ran its course. So what kind of potential do you see in the products going forward?

So the question was about before and after the price revisions in Japan, and Mr. Kato will take that question.

Miyake-san, thank you for your follow-up question. The graph and the way you interpreted the graph is correct. And we saw a temporary demand reactionary fall. And then after around May, June time frame, we saw the price revision temporary demand-related fluctuation settle down, and we were able to see our share grow once again, which gave us confidence. So like I've been saying from earlier, Ploom is comprised of 3 brands. And it's not only price point, but we do have a variety of flavors available. And we do boast that we have a strong brand portfolio.

And also for AURA, the device, I do believe the satisfaction level of customers also has been having an impact, supporting the growth of Ploom overall. On the other hand, the question about are there no more challenges? And how are you going to grow the business in the future even more? Through trials, awareness, recognition of the brand has went up and because more and more people are trying the product out and are making a purchase when it comes to Ploom overall or AURA as well. So we have been able to drive the business more than before.

On the other hand, when it comes to retention, we still feel that there is more opportunity to make further improvements. So in the future, retention is another area we would like to engage in so that we could enhance retention. And if we're able -- we do believe that's critical for the further growth of Ploom. So that will be our area of focus.

We'd like to move on to the next question. Mr. Miyazaki from Goldman Sachs Japan.

So this is Miyazaki from Goldman Sachs Japan. So I have a question related to cost. So in Slide 6, the others. So if you look at Q1 and Q2, the Q2 was JPY 32 billion, that was the negative impact in others. So that's how it appears. So if you look at Q4 of last year, so each quarter was JPY 38 billion or JPY 44 billion or so. So this particular quarter, it was less in terms of the cost increase. So what is the background here? Is going to be shifted just to the second half? Would that be the case? So in the second half -- so we have the Q2 of JPY 32 billion. So in the second half, do you expect to see a larger cost increase on a quarterly basis? What are your expectations?

The question was related to tobacco business, the Q2, the cost. And based on that, what are the assumptions for the second half? So Mr. Kato would answer.

Mr. Miyazaki, thank you very much for the question. So in terms of cost. So of course, the question was whether it's just been pushed out to the second half or not. Actually, yes, there has been some timing difference, and we are seeing that. Therefore, in the second half, we have seen some costs pushed out. So that is expected to happen, and that has been reflected on the full year guidance. Also as part of a separate question you posed about the second half, especially the Ploom-related investment. So the cost tends to be heavier in the second half. We have just explained to you. So within that, it shows some of the timing difference of the cost, and that has been included in the guidance.

Just related to that then, so this new plan that you have, so in comparison to the initial plan, are you seeing less profit for the second half? Because your adjustment, normally, your revision normally, you basically reflect what has been upside for the June half. And normally, you don't really change the expectations in the second half. But this time around, the second half plan it seems to be you have revised those down in comparison to the plan announced back in February. So is that the case? Or have you not really touched upon those? Have you not really changed those? So can you explain on these?

So the question was related to tobacco business as they revised the guidance, whether there has been some changes in the second half assumption. So roughly speaking, since the beginning of the year, we haven't significantly changed it, especially when it relates to cost, for instance. So just to reiterate, there is expected to be additional investment inclusive of Ploom. So that is in comparison to the initial plan. Also because of the Middle East situation, the cost increase, crude oil and so forth, that has been added as well.

But all in all, the -- in terms of the profit for the second half, we are not actually lowering that in comparison to our initial assumption. So that is not the case. So in other words, the top line, we've been able to deliver as expected.

The second half, in terms of profit, appears to be decelerating in comparison to the first half. So that made actually -- so you might actually have that impression because it seems to be some deceleration. But again, in terms of the profit assumption, we haven't significantly reduced those in the second half.

We are drawing close to the close. Therefore, the next person will be the final person to ask a question. Furuta-san from SMBC Nikko Securities, please.

This is Furuta from SMBC Nikko. I have one question related to Miyazaki-san's question. Regarding your view on the second half expectations, profits are going to be flattish according to your plan. But when you think about volume, I don't think it's going to settle down that low. So can you once again tell us your view on that? And you might be worried about how volume is going to be in the second half. But when you look at Russia and so forth, you continue to have good in Turkey, your performance continues to be robust. So can you share your views about expectations for the second half?

The question was about the tobacco business and the view on second half performance. Mr. Kato will take that question.

Furuta-san, thank you very much for your question. Well, like you rightly said, we -- I explained too much about the cost side of things earlier. But like you said, for the second half, when it comes to top line or volume, compared to the current expectations we have, we do believe there's plenty of space for this to be different in the end. So because our business is doing extremely well and resilient in markets like Turkey and Bangladesh as well as the Philippines.

And for the second half, we are assuming that it is likely to be weaker. But considering industry volume that has been robust as well as the increase in our share, there is also a chance that, that may persist in the second half of the year as well. So if that were to materialize, obviously, volume should be stronger than expected. And if that's the case, obviously, profits, it will affect profit as well and profits should turn out to be higher than our expectations.

Other than that, we are assuming weaker volume in markets like Japan and Russia, Poland and Romania. Well, this includes the first half where these markets were performing relatively weak. But for the second half expectations, the weakness we're currently assuming may not be the level that we are expecting right now. It might be positive or negative. It may go both ways. So depending on how the actual trends turn out to be will affect our results.

So for top line in the second half or volume, we will need to continue to monitor the trends. And of course, I think there is a possibility that it might be trending upwards. And if that's the case, our earnings or profits should be higher than expected. So up until the third quarter, well, every year, we say this, but during the summer period, the summer period is the volume zone season. So we need to go past this season and enter Q3, then we should start to gain more visibility into how we should end the year.

And with that, we would like to conclude the Q&A. Now we'd like to conclude the meeting. Thank you so much for your participation.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Thank you very much for participating in the Investor Meeting for Q1 2026 results at Japan Tobacco Inc. today. Before we start the meeting, I'd like to ask you to make sure that your display name is accurate. Thank you for your cooperation. It's now pleasure to introduce our CFO, Mr. Furukawa, please.

Good afternoon. I am Hiromasa Furukawa, CFO of the JT Group. Thank you very much for joining us today for JT Group's First Quarter 2026 Earnings Briefing. I will begin by explaining the consolidated results for the first quarter, marking a strong start to the year. As shown on the slide, both revenue and AOP recorded significant increases on both constant FX and reported basis, mainly driven by a robust quarter in the tobacco business. AOP at constant FX, our key profit management indicator, increased by 20.5% year-on-year, resulting in strong operating profit and profit growth.

The FX impact was positive, mainly driven by depreciation of several currencies, including the Russian Ruble against the Japanese Yen. Operating profit increased by 24.7% year-on-year, driven by the increase in AOP as well as a reduction in amortization cost of intangible assets arising from past acquisitions included in the adjustment items. Profit increased by 27.3% year-on-year, driven by operating profit growth. In addition, financial income and expenses improved in the first quarter. Due to the recent rapid deteriorating situation in the Middle East and Iran, we have reclassified certain balance sheet items related to Iran in our consolidated financial statements in accordance with IFRS. As a result, we expect impacts from foreign exchange gains and losses arising from Iran-related balance sheet items to be mitigated. Next, I will move on to the performance of each business segment, starting with the volume performance of the tobacco business.

Please turn to Slide 4. Total volume, combining with combustibles and RRP increased by 0.9% year-on-year, representing a solid performance considering the global industry volume contraction. In combustibles, strong share momentum continued across many markets. Although combustibles industry volume declined in several markets, including Japan, Russia and the U.K., our combustibles volume remained in line with the previous year. RRP volume increased by a significant 44.2% year-on-year, driven by accelerated growth in Ploom volume and sustained market share gains and boosted by the temporary demand ahead of the RRP tax hike in Japan.

Moving on to the financial performance of the tobacco business on Slide 5. In the first quarter, pricing contributions materialized across many markets, driving double-digit growth in both revenue and AOP together with favorable phasing impact of promotional activities. Let me explain the AOP drivers by factor. Volume contribution was negative as the total volume increase was offset by a deterioration in market mix from large volume declines in higher-priced markets such as the U.K. Price/mix contribution continued to be strong, driven by robust pricing across many markets, including the key markets of Japan, Russia, Turkey and the U.S.

These top line growth factors fully offset increased investments towards Ploom as well as inflation-driven increases in raw material costs and SG&A expenses such as labor, resulting in a 19.2% year-on-year increase in AOP at constant FX. As mentioned earlier, the FX impact was favorable.

On Slide 6, I will explain the performance of the 3 clusters in the tobacco business. The graphs on this slide show year-on-year variances in total volume, core revenue and AOP at constant FX for each cluster. Let me start with Asia, cluster, which includes the key markets of Japan, the Philippines and Taiwan. Total volume in this cluster increased by 7.3% year-on-year, driven by higher Ploom volume across markets as well as combustibles market share gains in the Philippines and Bangladesh. Regarding financial results, revenue and profit increased significantly, mainly driven by positive pricing and volume contributions in Japan and the Philippines.

Next is Western Europe, which includes Italy, Spain and the U.K. Total volume in this cluster declined by 3.2% year-on-year, while we achieved market share gains in several markets, including Italy as well as in heated products driven by Ploom. These positive factors were offset by declining combustibles industry volume, notably in the U.K. market. Core revenue and AOP grew as the pricing contribution, mainly in Spain and the U.K. offset the negative volume variance, mainly in the U.K. Moving on to EMA, which includes Romania, Russia, Turkey and the U.S. Total volume in this cluster remained in line with the previous year.

The ongoing increase in industry volume in Turkey, combined with market share gains in Turkey and the U.S. as well as higher plume volume across markets were offset by declining combustibles industry volume, including in the key markets of Russia and the U.S. The cluster reported an increase in both revenue and AOP, driven by a pricing contribution, mainly in Russia, Turkey and the U.S., partially offset by negative volume effects, mainly in Russia. While investments in Ploom and inflation-driven increases in raw material costs and SG&A expenses continued across clusters, these were offset by top line growth.

On Slide 7, I want to highlight the top line performance of RRP. As shown in the graph on slide, growth in RRP volume and RRP-related revenue have accelerated. Although the acceleration includes a temporary higher demand in Japan, we remain confident in our ability to continue capturing additional volume and category share, building on the momentum of Ploom AURA, which was launched in 2025. As of May 2026, Ploom has been launched in 29 markets and AURA has already been introduced in 25 markets. As a result, Ploom category share in our key selected heated product markets reached 10.1% as of February 2026.

Slide 8 updates the trend of Ploom in several markets. Through the strengthening of our investment in RRP, as mentioned previously, we are expanding our global coverage and enhancing our portfolio through the transition to Aura and EVO.

In addition, we are investing to increase awareness by strengthening communication with consumers across both digital and in-person touch points. Stronger engagement throughout the consumer journey is a key to enhance our retention. Following the learnings from the launched market, we are focusing not only on driving trials through collaborations with various events and promotional activities at pop-up stores, but also on strengthening post-purchase engagement to enhance retention.

These initiatives are steadily translating into tangible results. And as shown in the graphs, grow share within the heated products category continued to grow across market. In Japan, our average category share reached 15.8% in the first quarter and driven by the contribution of Ploom AURA launched in May last year, the pace of share growth is accelerating. In Taiwan, following the launch of Ploom in October last year, we have confirmed a strong initial momentum with first quarter heated product share reaching almost 25%. From this standpoint, Taiwan represents the best launch performance of Ploom so far. To strengthen our consumable offering for Ploom, we have recently launched LYO, a new brand of heated nicotine sticks that do not contain tobacco leaves in Poland and Italy. LYO offers an innovative proposition using a [ harbor substance ] and to consumers interested in flavored heated products.

Next, I will explain the results of the processed food business. Revenue increased by JPY 1.4 billion year-on-year, driven by price revisions of frozen udon noodles in the frozen and ambient food business. AOP increased by JPY 0.9 billion year-on-year and revenue growth offset higher raw material costs due to rising rice prices.

Finally, please see Slide 11. In the first quarter, consolidated AOP at constant FX increased by 20.5% year-on-year, delivering a robust performance. In the tobacco business, the favorable pricing variance and a stronger contribution from RRP was supported by continued combustible share gains. Meanwhile, amid the recent escalation of tensions in the Middle East, uncertainty remains, including potential impacts on operations in the region as well as the performance impacts from rising crude oil prices.

Continued close monitoring is required, including impacts on national economies, FX movements and our supply chain cost. At this stage, the direct impact to our business is not material and the strong momentum in the tobacco business continued. As our first quarter delivered a strong start to the year, we remain focused on delivering our full year initial forecast.

This concludes my presentation. Thank you very much for your attention.

Thank you, Mr. Furukawa. Now we'd like to move to Q&A session. Let me introduce you to the speakers who will answer your question today. Hiromasa Furukawa, CFO of the JT Group; and Nobuya Kato, JTI Deputy CEO.

Next, I will show you how to ask questions. We are afraid we don't accept questions in this English line. If you have any questions, please send an e-mail to [email protected]. We will introduce your question accordingly. Thank you for your understanding. Thank you for waiting. The first question comes from Mr. Saji, Mizuho Securities.

I have one question related to Russia. So the market industry demand for the March quarter, I believe it was positive. So looking at the materials, minus 4.3%. So it appears as if the negative amount is large in comparison to the industry volume. Of course, there was a tax hike in January. So perhaps the consumers' mindset and were negatively hit and also perhaps down trading have occurred. And it could be that the affordability has declined. So my question is, so this volume decline, how do you perceive this?

So the fact that your market share is declining, what are your thoughts? Also for the heated tobacco products, in terms of the share, so in the area that you are not involved in, so the competitors are perhaps reaching 10%, if not 20%. So I believe you are not involved in this particular category. So going forward, -- so as JT is not involved in the heated tobacco products, how do you perceive the fact that the heated tobacco products share is increasing within Russia?

So the question related to the Russian market, Kato would answer the question.

Saji-san, thank you very much for that question. As for Russia, for the first quarter, as you rightly mentioned, the volume have declined for JT and likewise, the market share had declined and some of the factors behind that. Let me explain. Well, let's just say the items you've mentioned, they are correct, as you have understood. But in addition to that, in terms of the industry volume as a whole, year-on-year, there was a positive. However, in terms of combustibles, there was a significant decline. So some of the factors behind that, as you rightly mentioned, in terms of the reasons, so the heated products growth is somewhat more strongly in comparison to the combustibles. So it is just as you have explained.

So of course, there was the tax hike. The degree of the tax hike was larger than the previous years. Hence, that led to deterioration of the affordability, especially for the combustibles. And that has led to the volume decline for both the industry volume for the combustibles. Now for combustibles industry volume decline, in addition to that, JT's market share is coming down, and that has led to our -- the sales volume decline.

So this is not just for combustibles, but for the market as a whole, we are seeing deterioration of the affordability. Therefore, there's been a downtrading in process. So as down trading progress in terms of the value price in comparison to the overall market share, our market share and the value price is somewhat weaker. We are stronger in the mid- to more of a premium price. Therefore, if the market as a whole moves towards down trading, that would pose a negative impact on our performance.

So going forward, with heated products, how should we perceive them? And especially for the second quarter onwards, what would be the possible trend? That was the nature of your question. Now for the heated products growth, so of course, because of the combustibles, there was a price hike and also the tax hike. So we continue to see price increase. Whereas for the heated products, the competitors are also offering at somewhat of a more affordable price. Heated products, of course, continues to be higher in price in comparison to combustibles. But let's just say the price gap against the combustibles is narrowing. So all in all, the affordability deterioration and also down trading progressing, that is how the consumers are behaving at this moment.

So as we see the deterioration of the affordability, what are some of the initiatives that we could conduct? Now how long this would continue and to what extent would it continue? Depending on that, we need to consider different measures. For instance, pricing, we may need to look at more of a value price. And we may need to strengthen more of our initiatives in those particular price range. So we are not just complacent with how the market is behaving. So we like to mitigate, if not try to get back to where it was before. Those are some of our thoughts.

Thank you for that. Just one point to confirm then. So in terms of heated tobaccos, so of course, you are not conducting new investment here. But the market as a whole, the competitors, I think they're growing by 15% or so.

So -- so basically, your ideas don't change then. No new investments then. As of this moment, we are monitoring the market closely as to what we can do and what we would do. So we need to make -- we are making a cautious approach.

Now I'd like to take the next question, from Nomura Securities, Mr. Morita.

I'm Morita of Nomura Securities. I'd like to ask about the impact on the Iran and also Middle East. That Iran and the Middle East-related operation, you said that the impact -- the direct impact is minor. But what is the current status? And also, would you comment on the FX impact? And also, there was some change after the IFRS. So for the full year base, what will be the level of the impact in the Middle East situation? And also what point we need to be mindful?

So the impact by the Middle East situation, Furukawa will take that question.

Thank you very much, Mr. Morita. Iranian situation and the Middle East situation. Of course, we do have the deep concern, and we hope to see the peaceful solution. And also, we do have the operation there, and we are having the business basis there. So our top priority to ensure the safety of the employees.

And also, we will continue to comply with laws, including the local regulations. And talking about the Iran itself, first, let me comment on this point. Initially, there was a temporary shutdown of the factory. However, we didn't have any damage to the facility. And currently, we do have the operation with close security control and also for the distribution and safe sales activities. So we do have some alternative route. And sometimes we are taking the remote activities.

And also the raw materials necessary for the production, we have already secured the appropriate rules. So both for the completed products and also the materials, we do have a certain level of the inventory. And another one for the financial expense. Well, on the [indiscernible] side, we had some [ reclassification ]. And the trigger was when we look at the Iranian situation and also based on the IFRS, requirement, we have revisited and had some reclassifications. And also, we had the agreement with the accountant as well. Any additional comment.

For the Middle East situation, well, let me comment on the financial impact slightly. So far, as Furukawa mentioned, operation itself -- well, suspension of the operation didn't happen. However, if there is any further deterioration and if the operation stopped, Naturally, we would have the negative impact, and we wouldn't rule out that possibility. But so far, we were able to continue our operation. So whether that the probability of the risk is high or not, actually, we are closely monitoring that, and we don't think that is high. And also other materialized one, that is related to the rising crude oil cost, the cost impact on us. And of course, along with the increase of the oil cost, the energy cost and the raw material cost and the transportation costs are up and sometimes the lead times are extending.

So the distribution and cost, yes, we are seeing some pressures out of those. And we have seen some limited cost increase so far. And majority of that exposure, we are having very close monitoring. And also, well, our cost that is directly affected by the crude oil price. But proportionately, that is very small compared with the total cost. So I would say the impact is a limited one. And also how long that forward oil price will continue, we would see what will be the ultimate negative impact on us. But given that we do have a very strong momentum of the tobacco business as presented in the presentation by Furukawa, [ that ] profit growth for the full year, at this point of time, unless there is any big surprise, we are confident we'll be able to achieve that.

And a follow-up question. So on the operational side, it is currently functioning. So it is not clear risk and also cost increase is a limited one. Is that what you mentioned?

Yes, your observation is correct.

Would you give us any quantitative comment on that? Are you talking about the cost increase? Well, FX adjustment or the cost environment, would you give us any quantitative comment?

As I commented in the presentation, on the balance sheet, we had the reclassification, but that is under the OP line. So Iranium business itself, that the adjusted OP FX will continue to be with us as usual. However, the latest Iranian rate, actually, there is no prominent gap. And of course, the basic stances we continue to have a close watch. But for the impact for the entire company, currently, that is a limited one.

so the next question comes from Fujiwara, JPMorgan Securities.

This is Fujiwara from JPMorgan. So one question. So the first quarter results has been very robust. So adjusted operating profit, so vis-a-vis the full year basis, I think it's close to 70% or so on a constant currency basis. So of course, depending on the Middle East situation, of course, we need to be mindful of that. But as of this moment, perhaps there's not much of a big risk at this moment. So perhaps Q1, was it better too good to be? Or should we perceive more risk in the second quarter onwards? So I'm pretty sure the full year guidance is well within the realm of achieving. But what are some of the potential concerns that we should have going forward? So for the first quarter results, how we evaluate those and also how we perceive the rest of the year.

Mr. Furukawa will provide you with an answer. Thank you very much for that question.

Thank you very much for that question. As you rightly mentioned, in terms of the Middle East situation, the first quarter, as of today, the impact has been limited as of today, that is. So depending on how it may change, of course, we need to closely monitor that. And of course, some of the supply chain-related costs and the crude oil, the price deriving from the Middle East situation, of course, we need to pay close attention to, and those could be considered as risks. So again, Q1 has just been completed.

And in terms of the industry demand for the major markets and the FX for the major markets, we'd like to make sure we keep a close watch on those. So as far as Q1 is concerned, as mentioned already, we are steadily progressing towards the full year guidance achievement. And accordingly, we'd like to give you an update if the situation changes.

So just to add on then. So the first quarter was a very good start. So in terms of the temporary demand in Japan, so I believe it's several hundred millions of sticks. Is it the right way to look at that? Also in terms of the other profit, the RRP-related investments, -- so I think there was a comment on some of the timing difference. If you could also give us more of a quantitative number in terms of the impact.

So the question was related to the Japanese market about the last-minute demand impact and also some of the difference in the booking of the cost.

Mr. [ Kato ] will talk about that. So in terms of the impact of the last-minute demand in Japan, it's hard to assess the exact number, but the end product is was larger than we initially anticipated in terms of those -- the pre-tax hike last-minute demand. This is our estimate. But as you mentioned, several hundred million sticks, that is also our understanding in terms of the magnitude. Also another point, the investment and also the timing difference.

And Mr. Furukawa mentioned about the full year outlook, and this is related to that. So for the heated products-related investment, there has been some timing difference and has been pushed out. And of course, sales promotion accounts for a large part of that. So depending on the competitive climate of the respective market, we would conduct those sales promotion at the most effective timing.

So as far as Q1 is concerned, there were some -- the changes in terms of the timing. But Q2 onwards, on a full year basis, we should be able to execute those. Actually, inherently, Q2 onwards, we were planning to conduct the sales promotions. So it was skewed more towards Q2 onwards. So Q1, in terms of the proportion of the investment, it was initially limited. And as our plan, it is skewed more towards the second quarter onwards.

So the business as a whole has been quite favorable for Q1. But in terms of Q2, we will see more investment. And also, as Mr. Furukawa mentioned, we shall see more of the volume impact. We need to closely watch the situation in Russia. Also, what has been positive in Q1, for instance, the Philippines, also Turkey, Bangladesh, those markets were positive in the Q1. In fact, last year in Q1, so it has been very strong on year-on-year. However, the second quarter onwards, so last year's, the volume of Q2 onwards, perhaps this positive year-on-year impact may not be continued for the second quarter.

So actually, that was already baked into our guidance. So well, we initially anticipated minus 1% to flat. That was the guidance at the beginning of the year. But as of now, after Q1, plus 0.9%. But the full year guidance hasn't changed dramatically. So all in all, Q2 onwards, we may see some deceleration in terms of the top line as well as the volume. And actually, that has already been baked into our guidance. So that is just a comparison year-on-year and also the execution timing of the cost then. But in terms of the general momentum continues to be strong then, yes. The share momentum last year was very strong, and that momentum has been able to successfully continued. And we've been able to confirm that in Q1. And Q2 onwards, we have high conviction that we can carry this.

Now I'd like to take the next question. From Goldman Sachs, Mr. Miyazaki over to you.

This is Miyazaki of Goldman Sachs. I have one question. I'd like to ask about the profit change in the first quarter. I'm looking at Page 5. And in this others cost, there might be some phasing. And in the second quarter and onward, it will be increasing. However, still in the last 1 year, the average others was around JPY 40 billion or so for push down, but this seems to be a bit smaller with JPY 12 billion. And initially, you said that others cost is going to be more than JPY 164 billion of the last year. So if that remains unchanged in the Q2 and onward, this cost increase be much larger. Is my observation correct? And also talking about the price mix, this JPY 68.2 billion, and this seems to be a bit big one. And also, you're going to have the offset by that to offset the cost increase. And then the price mix benefit should be bigger than this in the Q2 onward.

So you have the pricing in January and onward and also price mix impact will be bigger in the Q2 and onward. So would you comment on the price mix and others?

So for the tobacco business, AOPs change factor, others and the price mix and the results and also the forecast, Kato will make some comment.

Talking about the others, as explained earlier, well, you seem to have a different impression. But in the Q2 onward, especially for the Ploom AURA in each market, well, since the launch in the previous year, it has been progressing in terms of the awareness and also trial have been increasing, and that has led to the better retention.

And we are going to spend more in our investment to that regard. So that means we're going to have a certain level of the cost or the investment. And cost-wise, well, there will be some impact by the inflation, and it will be increasing with that. And talking about the pricing in Q1, well, compared with the initial forecast, that is already 80% of the pricing is already done. And going forward, we continue to have the solid pricing as scheduled. So in Q1, our level of achievement is very high. But in addition to that, we will have the add-on and which is already put into the plan, and we continue to make further progress.

The next question comes from Mr. Furuta, SMBC Nikko Securities.

This is Furuta from SMBC Nikko Securities. I also have one question. So the first quarter, as there has been discussion, it has been strong. So what has been the biggest factor that you are seeing a stronger results in comparison to the plan? So of course, you had pricing and so forth. So what do you believe that was the biggest factor that you performed better?

So the question is related to the fact that the actual was better than the plan for the first quarter. Mr. Kato will reply.

So I already mentioned the pricing in the Q1, we've been able to execute 80% -- we've been able to secure the 80% of the pricing. And as I mentioned, and that was actually better than our initial anticipation. So for instance, in the Philippines, we've been able to execute the pricing strategy, and that has been very instrumental in achieving these results.

And also for going forward then, so you've talked about the timing difference in investment. And also, there are some concerns related to the industry volume in Russia. So in terms of the increase in the EPS and then also the guidance for the full year, would you perceive that you could still achieve those?

So of course, I think the strength that we've seen in quarter 1, that may actually expect us to see an upward revision. Well, actually, Q1 has been very strong. And as mentioned already, the business fundamentals continue to be very strong, and we believe this could be carried on. So we have high confidence in doing that. However, this is again at the time of the first quarter. So the second quarter onwards, just to repeat myself, we expect to see more investment, and we need to pay a close attention to the volume outlook as well. So second quarter onwards, accordingly, we'd like to provide an update. Again, just to repeat myself, as of today, we have been able to make a very strong start. So we have confidence as of this moment that we can achieve the guidance number.

Now I'll take the next question. From Daiwa Securities, Mr. Igarashi.

I'm Igarashi of Daiwa Securities. So which is not covered in the category share of the Ploom in Japanese market. So Slide 8 shows 15.8% and up by 3.1 percentage point year-on-year basis. But looking closely in the Q4, it was 15.7%. So quarter-on-quarter, it is almost flattish. So how do you see this number? And do you see that you are gaining shares? So would you have a comment on a quarter-on-quarter basis, please?

So the Plooms category share in Japan and also the quarter-on-quarter basis, Mr. Kato will comment.

Thank you, Mr. Igarashi for your question. As you see, the Q4 in the previous year, the Plooms category share was 15.7%. And this time, this is 15.8%. It seems that the growth seems to be rather slowing down. Yes, I do agree your observation. And Ploom AURA, growth in Japanese market is not decelerating actually. And the momentum is solidly sustained. However, at the end of the day, the share gain is now slowing down and partly because there was some impact by the temporary demand prior to the tax increase in April.

And to be more specific, in March, there was a temporary demand. And for JT, yes, we did have the impact. But looking at the competitors, that the March number, the increase out of the temporary demand was larger compared with ours. And that has made some impact, and that was reflected in the share movement. And then when the temporary demand impact is normalized in a few months like in May and June, actually, we need to take a few more months to see how the situation will evolve for the normalization, and we continue to have the close monitoring. But Ploom AURA, underlying momentum itself -- rather than having the concern, we are confident and we will continue to grow.

And as mentioned earlier, that the marketing investment for the Ploom in the Q2 onward, are you going to enhance that? Is that correct?

Yes, including Japan.

And globally, are we going to have more investment in Q2 onward.

We will have the SKU.

We still have time. It appears as if there are no more questions. So now we would like to conclude the Q&A session. We will now conclude the meeting. Thank you so much for your participation today.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Thank you for participating in the investor meeting for 2025 full year results at Japan Tobacco Inc. today, despite your busy schedules. Since it is a scheduled time, let us get started. Before we start the meeting, I'd like to ask you to make sure that your display name on the Zoom is accurate. Thank you for your cooperation.

In today's meeting, First, our newly appointed JT Group CEO, Takehiko Tsutsui, who assumed the role in January 2026, will introduce the business plan 2026 and Eddy Pirard, CEO of JT International, will follow and explain the tobacco business focus on FY 2025 performance. Lastly, Hiromasa Furukawa, Chief Financial Officer of the JT Group will explain JT Group 2025 results and 2026 forecast. Then we move on to the Q&A session, and this meeting is scheduled to end at 8:00 p.m. Japan Standard Time.

Now I would like to introduce the first presenter, Mr. Tsutsui, please begin.

I am Takehiko Tsutsui, CEO of the JT Group. Thank you very much for attending our conference call today. And I would like to express my appreciation for your continued support and understanding of our commitment to growth. Please get today's agenda. First, I will give an overview of our performance in fiscal year 2025. Then I will expand on the cornerstones of the JT Group before diving into the profit growth guidance and business strategies for the business plan 2026. Eddy Pirard, CEO of JT will provide details of the Tobacco business performance in 2025. Later in Hiromasa Furukawa, CFO of the JT Group will cover the fiscal year 2025 group financial results and fiscal year 2026 targets.

Before starting the presentation, allow me to share some very early thoughts in my new role as CEO of the JT Group. The JT Group has a history of continuously looking ahead to the future and moving forward. And I myself have participated in many of these revolutions and growth along the way. I believe my mission is to build on the growth strategies and strengthened foundations, driven by my predecessor, [ Masamichi Terabatake ], and to steer the company to even greater heights. We will continue to enhance our corporate value by practicing management based on the JT Group purpose, fulfilling moments enriching life and our management principle, the 4S model, consistently exceeding customer expectations and achieving sustainable profit growth over the medium to long term.

To achieve this, I will take the lead in strengthening our existing capabilities, further developing RRP into future core strengths and simultaneously envisioning our long-term future through D-LAB. Across the short-, medium- and long-term time horizons, we will continue to invest for future growth without hesitation, while also firmly committed to delivering short- and medium-term performance.

In addition, in a rapidly changing business environment, I believe it is essential for us to proactively embrace change with a strong sense of urgency.

To that end, I will devote my efforts to further strengthening the organizational foundation of the JT Group. Starting today, I would like to deepen our dialogue with capital markets and strive to meet our expectations. Now let me begin with an overview of fiscal year 2025. Please look at Slide 5. In 2025, despite an unstable global geopolitical and economic environment, including soaring prices, we delivered outstanding growth across all indicators from revenue to profit, each reaching record highs. I believe this achievement was supported by the outcomes of our continued strategic investments we have made to drive sustainable growth.

I will also briefly review the performance of each business segment. and the tobacco business, our largest contributor. Solid organic momentum continued, as Eddy will detail in his presentation. The key drivers were pricing contribution, combined with ongoing market share gains in combustibles. 2025 also marked the steady progress of the Vector Group integration, the U.S. Tobacco Company we acquired in 2024, and its performance boosted the organic growth, I have just mentioned.

In RRP, we launched our new heated products device, Ploom AURA, across a total of 70 markets in 2025, and it has recently expanded to 19 markets. Both Ploom AURA and its consumable EVO sticks have been very well received by customers, particularly the taste and design. These products are already contributing to share gains in multiple markets, notably in Japan, and these results further reinforce our confidence in the strategic investment we have made.

Accordingly, we believe that 2025 was a year in which we made steady progress in strengthening the business foundation that will support the group's mid- to long-term growth in both Combustibles and RRP. The process field business achieved profit growth through steady price revisions and improved productivity.

As to our pharmaceutical business. And in line with our May 2025 announcement, we successfully completed its transfer to Shionogi in December. As we indicated at the third quarter earnings announcement, the annual dividend per share for 2025 is planned to be JPY 234 per share.

Please look at Slide 6. The graph on this slide illustrates the trends in our performance and shareholder returns over the past 5 years. Guided by the JT Group purpose and our management principle, the forest model, we have consistently prioritized business investments that contribute to profit growth over the mid- to long term. We have delivered sustainable profit growth by strong top line expansion, which in turn has enabled us to enhance shareholder returns. We believe this demonstrates the growing resilience of our business and navigating a rapidly changing operating environment.

As I take on the role of CEO,I will further strengthen and accelerate this growth cycle, and I am committed to formulating and executing our business strategies to ensure our sustainable growth in the years ahead. Allow me to briefly remind you of the philosophy behind the JT Group purpose and our 4S model.

Please turn to Slide 7. The JT Group purpose plainly expresses our reason for existence and our aspiration. Importantly, in pursuing The JT Group purpose, we have defined specific purposes for each of our business segments to ensure full alignment. The 4S model. Our management principle is the customer added center, guides us through what the decision-making process. As we work to realize our purpose, I am committed to making high-quality decisions grounded in the forest model and to continually exceed customer expectations.

I am convinced that this is the best approach for achieving sustainable medium- to long-term profit growth and continuously enhance our corporate value, ultimately enabling us to share benefits with all stakeholders identifying the 4S model. As part of efforts to go beyond the boundaries of existing businesses for realizing our purpose, we will continue our initiatives within D-LAB of corporate R&D organization.

Let me give you a brief overview of D-LAB. At D-LAB, under the concept of unknown fulfilling moments, we engaged in advanced research by exploring and creating seeds for future businesses. We aim to foster the value of fulfillment moments and society over the long term, while also aiming to contribute to the JT Group's profit growth.

As part of our efforts to create new businesses, several affiliated companies are conducting commercialization trials of products and services from scratch. And some of these initiatives have already progressed to the stage of delivering the value of fulfilling moments to consumers. In addition, in exploring businesses, we have also invested in more than 200 companies aligned with the concept of fulfilling moments, primarily through operating funds that invest in startups. And including our research activities, we are currently running over 100 projects at any given time. Although progress will be gradual, the outcomes of these activities are beginning to materialize.

Turning to Slide 8 and our capital allocation and shareholder return policies. To further strengthen and accelerate the growth cycle I mentioned earlier, we will continue to prioritize business investments that will deliver sustainable profit growth over the mid to long term. Our main investment focus will remain the Tobacco business, particularly towards Combustibles and Heated Products. In strengthening our business foundation, we will also consider the acquisition of external resources, such as through M&A as one of our options.

Through these business investments, we will drive growth in adjusted operating profit at constant currency, our primary performance indicator. This, in turn, will enable medium- to long-term growth and net profit and support competitive shareholder returns in the capital markets.

Regarding the shareholder returns, we remain committed to maintaining a dividend payout ratio of around 75%. We'll continue to focus on delivering robust shareholders' returns with dividends at the forefront.

On Slide 9, I'll highlight the overall framework of our sustainability strategy. We have identified the JT Group materiality. Our priority material issues based on our belief that people's lives and corporate activities can be sustainable if the natural environment and society are sustainable. Additionally, we have also established the JT Group sustainability targets as specific goals and initiatives, and we are steadily progressing toward achieving them. Detailed results are available in our integrated report and on our website.

We remain strongly committed to ensuring the sustainable growth of our society and our businesses and to driving forward our initiatives for a sustainable future.

Turning to our business plan, 2026. Our profit growth outlook for the 3 years from fiscal year 2026 to fiscal year 2028 as well as business strategies that support it. Like all business plans shared so far, the current business plan is developed with our growth algorithm in mind. As you know, our aim is to pursue sustainable profit growth over the medium to long term, targeting mid- to high single-digit growth in consolidated AOP at constant currency.

In fiscal year 2025, while we achieved record high strong growth, the operating environment surrounding our group remains highly uncertain. We must continue to monitor the impact of geopolitical instabilities on the global economy, foreign exchange volatility, interest rate trends, hyperinflation in certain markets and broader macroeconomic developments across countries. Within this environment, our Tobacco business, our core driver of profit growth is expected to lead our performance.

We aim to grow the consolidated AOP at constant currency at a high single-digit CAGR, which is the upper end of our medium- to long-term growth algorithm. Over the business plan period, we do not expect significant relief in the operating environment nor in terms of regulations. In Combustibles industry volume contraction and down-trading are expected to continue. While in RRP, we forecast intensified competition, especially in Heated Products.

Irrespective of these conditions, our strategic direction remains unchanged. In Combustibles, we will further improve profitability. And in RRP, we will concentrate our business resources toward Heated Products to establish it as the second engine for profit growth alongside Combustibles. As a result, we aim to grow AOP at high single-digit CAGR over the planned period.

In the Processed Food business, we expect the operating environment to remain challenging, particularly in Japan, with continued increases in labor and logistic costs, as well as fluctuations in raw material prices. In addition, price increases driven by these factors are likely to affect demand. In this context, the Processed Food business will continue to play its role in complementing the JT Group's profit growth. To ensure top line-driven profit growth we will reliably implement price revisions, expand our business volume both domestically and internationally and further enhance productivity.

In the next couple of slides, I'd like to detail some of the fundamental strategies in the Tobacco business. Starting with Combustibles. We'll continue to pursue quality top line growth by taking advantage of pricing opportunities across our footprint and by driving further market share expansion. While industry volume is expected to continue declining, we anticipate to outperform the industry trend through further gains in market share. In addition, we aim to continue improving profitability through focused investments aligned with our market archetypes and various initiatives to reduce costs across our supply chain. Through these efforts, we will generate incremental returns, which in turn will enable higher investments in RRP.

In RRP, our view remains unchanged that the category of heated products is expected to grow the most and the fastest within RRP in the future. We will, therefore, continue to prioritize investments in Heated Products within RRP, accelerating our growth momentum through large-scale strategic investments. In other RRP categories such as Modern Oral, E-vapor and Infused, we will keep exploring business opportunities and we'll make selective investments based on the strategies tailored to each category.

Specifically, we'll consider new market entries based on market size and growth potential while taking into account the different regulatory environments and consumer preferences across markets. In parallel, we will continue to advance initiatives to strengthen our pipeline of next-generation propositions that may not necessarily fall within the existing RRP category definitions, with the aim of creating products that have the potential to become future growth drivers for RRP.

Turning to Slide 12 to explain more concretely our planned initiatives in RRP with a particular focus on Heated Products. We expect the global RRP market to continue expanding, and we will strengthen our business foundation, as we work towards the milestones laid out in our 2028 RRP ambitions. As the chart indicates, during the business plan period, we aim to accelerate growth in RRP-related revenue driven by top line expansion in Heated Products. As I mentioned earlier, we're increasingly confident that our investment in RRP has been steadily delivering results. While we will flexibly adjust our plans as circumstances evolve, we currently plan to invest a total of around JPY 800 billion from 2026 to 2028, an amount exceeding past levels, with annual investments expected to gradually increase towards the latter half of the period.

The primary use of this investment will be to support commercial initiatives, prioritizing Heated Products. Through various promotional activities, we will further enhance the equity of Ploom and drive both new consumer acquisition and improved retention. To this effect, we will complete the transition of Ploom AURA in most key markets during 2026, as Ploom AURA is very well received by consumers.

In addition, as we prioritized the rollout of Ploom AURA and had temporarily moderated the pace of geographic expansion, we will now gradually resume expanding our global coverage going forward. Furthermore, we will pursue innovation in both devices and sticks, aiming to continue improving our Ploom ecosystem through next-generation products with greater speed.

Even as we step up investment, we expect volume growth as well as gross margin improvement in Heated Products, along with profit contribution from other RRP categories to drive overall profitability improvement in the RRP business.

I'll now turn it over to Eddy Pirard, the CEO of JTI, for an overview of the 2025 performance of the Tobacco business. Eddy, the floor is yours.

Thank you to Tsutsui-san, and good afternoon to all participants on the call. It is my pleasure to present today the 2025 performance of JT Group's Tobacco business. A performance which you will see is nothing short of remarkable, thanks to incredible contribution and dedication of our 46,000-plus employees worldwide and that of our commercial partners.

My presentation will focus on the main achievements of 2025 as well as the outlook for business plan 2026, while the key financial information will be covered by Furukawa-san in his presentation. 2025 marked another year of incredible performance for the JT Group's Tobacco business. All indicators were up year-on-year, demonstrating once again the significant value of our strategic framework. As a reminder, this strategic framework is anchored on 2 pillars of growth: a Combustibles pillar, where our focus is to improve return on investment through quality top line growth and efficient operations. And a RRP pillar in which we prioritize investments behind Heated Products and our brand Ploom, while adopting a more selective approach in other segments like E-vapor and Modern Oral.

In terms of deliverables for the third consecutive year, we have grown total volume, clearly outperforming industry volume trends. GFBs were the main drivers of our 2025 Combustibles volume performance, as we will see later, further supported by the successful integration of the Vector Group, which we acquired in 2024.

In RRP, the launch of Ploom AURA has accelerated our volume and share performance in heated products, resulting in JT delivering the fastest growth in this segment, a very promising start for our newest introduction to the Ploom family. This solid volume performance, combined with exceptional pricing in Combustibles, drove a double-digit increase in both core revenue, up almost 15% and adjusted operating profit growing over 23%.

Let me elaborate on the key drivers of our 2025 performance, starting with reduced risk products. Growth in both RRP volume and revenue accelerated versus the prior year, increasing by 28% and 24%, respectively. Heated Products were instrumental to the volume growth, expanding by 3.2 billion units and representing a 38.6% year-on-year increase, with gains mainly in Japan and across all clusters.

On the revenue side, Heated Products grew by almost 50% at constant FX. The launch of Ploom AURA in May 2025 played a significant role in this expansion as well as the accelerated investment to establish Ploom as a global power brand. Beyond Heated Products, we continued to explore other RRP segments through a selective and flexible investment approach in line with our strategic framework. And in parallel, we pursued improving our knowledge on multi-category consumers and the capabilities required to win in this environment.

Speaking to Modern Oral, as shown by Tsutsui-san, we have expanded Nordic Spirit's presence to 10 markets. Our approach to nicotine pouches remains cautious and targeted as similar to E-vapor, the regulatory environment remains very fluid and the barriers to entry are lower compared to Heated Products.

In E-vapor, in addition to a logic presence, we profitably explore growth opportunities, including through strategic investments. In 2025, we took a majority stake in a leading and profitable independent U.K. E-vapor company, Flavor Warehouse. The intent is to strengthen all learnings in this dynamic segment.

Since the beginning of my presentation, I have mentioned Ploom extensively. Let me share some more details on its performance. In 2025, supported by innovation and successful consumer acquisition, Ploom AURA was once again the fastest-growing brand in Heated Products. The introduction of Ploom AURA in certain markets and the expansion of our heated tobacco sticks portfolio, fueled share gains in all 28 markets were available. As of November 2025, Ploom had reached a share of segment of 9.7% across the 13 initial markets.

Turning to Japan, the largest Heated Products market globally. Since the introduction of Ploom X, we have increased our share of the Heated Products segment almost fivefold, reaching 15.7% in the fourth quarter of 2025. AURA, which we launched mid-2025, clearly contributed to the acceleration of Ploom share gains, as you can see from the slide. And in December, Ploom reached 16.5%, making it the #2 Heated Products offering in Japan across 39 prefectures, including Tokyo.

Moving on to other markets. Efforts to strengthen brand equity and drive consumer adoption through adjustments to our commercial execution delivered share gains across our footprint. As would be expected, the share of segment progression differs between markets as it is clearly related to consumer awareness of Heated Products, the diversity of products available and the competitive environment.

Across the 9 markets presented on the slide, Ploom share of segment grew by an average of 1.6x year-on-year with the most significant increases in Poland, in Serbia and Switzerland, all more than doubling their share. Lastly, we launched Ploom in Taiwan at the end of 2025. And although it's still very early, we are encouraged by the performance so far, which has exceeded our expectations.

Before moving to a combustible performance, I'm proud to share how Ploom AURA has improved the consumer experience since its introduction. Starting in Japan, where AURA has been available since the end of May 2025. While we are still early in the journey of AURA, as you can see from the data on the slide, this next-generation device has outperformed the previous advanced. It generated a higher Net Promoter Score or NPS compared to Ploom X Advanced, which itself outperform Ploom X, if you remember, our slide from February last year.

Importantly, the number of Ploom users has increased by 34% year-on-year and doubled since 2023. These positive results strengthen our confidence in the quality of our Ploom device, especially as consumers speak very highly of the improved design, functionalities and taste. Also worth mentioning that 58% of Ploom AURA users are new to the franchise. The superior satisfaction of Ploom is also owing to the next-generation heated tobacco sticks and the launch of a premium offering in Japan and the EVO brand, an offer, which was very well received by consumers, reaching a share of segment of 3% in December 2025, complementing the existing MEVIUS and Camel propositions with limited cannibalization.

We now have a very compelling and competitive portfolio to drive further growth. Leveraging the early success in Japan we are progressively rolling out Ploom AURA across our footprint. As of today, AURA is already available in 19 markets and will be in almost all Ploom remarkets by the end of 2026.

In addition, we are gradually migrating our sticks to EVO, our global brand for Heated Tobacco sticks. In summary, we are making good progress in line with our strategic drive to build Heated Products as a second pillar of profit growth in the future.

In 2025, our performance in Combustibles was unrivaled. Our volume grew by 1.7% year-on-year, far outpacing industry volume contraction in the measured footprint. Our organic volume grew in over 50 markets year-on-year, further boosted by the successful integration of the Vector Group. While in certain markets like Russia and Turkey, the volume growth was compounded by an exceptionally resilient industry volume. Our volume growth was mainly driven by continued market share gains. Our Combustible share increased in approximately 60 markets, including 9 of our 10 key markets.

GFBs were once again instrumental to the volume performance, growing by 2.8%, their 7th consecutive year of growth. At the end of 2025, GFB represented 74% of our Combustibles volume. Winston, our largest brand and the world's second largest grew volume by 4.9%. Its volume increased in approximately 50 markets, including our key markets of Italy, Romania, Russia and Turkey. Winston also grew market share across many markets, including the 4 key just mentioned, plus Spain and Taiwan.

In our measured footprint, Winston was the fastest-growing Combustible brand in 2025. Camel, the third largest global brand grew volume by 4.3%. Volume was up in almost 50 markets, including Italy, the Philippines, Russia, Taiwan and Turkey, fueled by market share gains including in 6 of our 10 key markets. Driven by these brands, our Combustibles market share grew by 1.3% across our measured footprint, making us the fastest-growing company in the category. Although volume contributed to a core revenue increase of 15% in 2025, the main driver remained Combustible pricing demonstrating yet again its resilience.

Last year, the price/mix contribution to coal revenue reached an exceptional 10.8%, significantly above its past 3-year average due to several factors. The first accelerator is the positive volume performance, which enabled us to maximize pricing benefits across our footprint. The second and most important factor is the level of price increases across our footprint. All clusters delivered price/mix increases year-on-year. EMA was the strongest performance with all 4 key markets contributing positively. Western Europe, led by Italy and the U.K. also delivered strong growth even within a down-trading environment.

In the Asia cluster, the positive drive came mainly from Bangladesh, Japan and the Philippines. The last factor was related to the impact from down trading. Although the trend continued in 2025, its impact was more limited than we've seen in recent history. As a result of the solid pricing, the Combustibles profit margin grew by an outstanding 3.4 percentage points year-on-year. This increase demonstrated our strategic drive to improve return on investments in Combustibles.

We have grown market share through equity-building initiatives towards our GFBs combined with an optimization of pricing opportunities when they arose. In addition, our focused approach using market archetypes, earnings only, share only or earnings and share continue to maximize the expected returns from investments and to ensure profitable top line growth. These top line drivers are enhanced through disciplined cost management initiatives with our sacrificing product quality, growth opportunities, and a sustainable business base.

These include, but are not limited to the deployment of an end-to-end integrated supply chain, the simplification of our products both SKUs and brands and of our IT infrastructure, as well as the further leverage of our global business services. We also continued to invest effectively and efficiently across all functions, including procurement, manufacturing and in our route to market, while embracing the concept of kaizen or continuous improvement to maximize the bottom line and drive stronger cash performance and delivery.

Finally, the successful integration of the Vector Group further enhance our efforts to improve the combustibles operating profit margin. Overall, the Tobacco business delivered an incredible performance in 2025, growing all indicators year-on-year, fueled by both Combustible and RRP. The goal for the business plan 2026 period is clear. Capitalizing on our strategy, we reconfirm our intention to grow adjusted operating profit at a high single-digit rate despite continued down-trading, intensified competition across categories and macroeconomic factors. In RRP, we will further accelerate consumer acquisition by strengthening our commercial engine and leveraging consumer insights from the 28 markets where Ploom is available.

As highlighted by Tsutsui-san in his remarks, we will continue to invest towards RRP during this business plan period. These investments will focus on increasing the top line contribution of Heated Products through the same expansion of Ploom AURA and EVO sticks. We will also strengthen our understanding and profitable participation in other RRP categories. And we will take advantage of our innovation pipeline and improved capabilities to consistently exceed consumer expectations.

In Combustibles, we remain committed to improving return on investments. This encompasses continued market share expansion, notably by our GFBs and optimized pricing opportunities to drive both revenue and margin improvements as well as initiatives to manage ongoing inflationary pressure. Thank you very much for your attention and interest in the tobacco business.

I will now hand over to Furukawa-san, for the review of the JT Group financial results and forecast.

Thank you, Eddy. I am Hiromasa Furukawa, CFO of the JT Group. I will detail the consolidated financial results for 2025 and our forecast for 2026, both at the group level and by business segment.

First, let me take you through our consolidated financial results for 2025. As Tsutsui-san mentioned earlier, thanks to the strong performance of the tobacco business, revenue, AOP, operating profit and profit for the period all reached record highs in 2025.

AOP on a constant currency basis, which is our primary performance indicator, increased by 24.9% year-on-year driven by organic growth in the Tobacco business, further boosted by the contribution of the Vector Group acquisition in the U.S.A. Regarding foreign exchange impacts on AOP. While there was a positive impact from depreciation of the Russian ruble, this was more than offset by the depreciation of emerging market currencies against the Japanese yen, such as the Iranian real and the Turkish lira, resulting in an overall negative impact.

Operating profit increased year-on-year, mainly driven by the absence of the provision for loss on litigation related to the settlement in Canada, which was recorded in 2024. Profit from continuing operation increased year-on-year as the increase in operating profit more than offset higher financial expenses, mainly due to foreign exchange losses arising from a rapid deterioration in the exchange rate in Iran, as well as higher corporate income tax expenses.

In addition, profit from continuing operations came in below JPY 555 billion forecast announced with third quarter results. This was due to the impact of a rapid deterioration in the exchange rate in Iran, as just mentioned. Free cash flow increased by JPY 102.2 billion year-on-year to JPY 272.7 billion, as the nonrecurrence of the Vector Group acquisition payment, recorded in 2024. And the increase in AOP more than offset the upfront payment related to the settlement of the litigation in Canada, which was recorded in 2025.

Moving on to the financial performance of the Tobacco business. Eddy has already explained the details of the Tobacco business performance. So I will only focus on the financial performance. The volume contribution was positive, mainly fueled by the inclusion of the Vector Group. Regarding the Vector Group contribution to volume, I can confirm that it has been in line with our initial expectation.

As shared by Eddy, the price mix contribution to AOP was above its historical average. Strong pricing contributions in many markets, including Japan, the Philippines, Russia, Turkey and the U.K. outweighed the lower product mix, mainly due to down trading in the Philippines in Taiwan. These positive factors far exceeded the incremental investment towards Ploom and inflation-led cost increases particularly across the supply chain regarding tobacco leaf and labor.

As a result, AOP at constant FX increased by 23.5% year-on-year. As I mentioned earlier, the FX impact on AOP was unfavorable. Next, I will explain the results of the Processed Food business. Revenue increased by JPY 2.3 billion year-on-year, driven by the positive impact from price revisions of package cooked rice in the Frozen and Ambient Foods business.

AOP increased by JPY 0.5 billion year-on-year, mainly driven by the revenue increase, which fully offset higher raw material costs such as rice. Let me move to our business forecast for fiscal year 2026. Before that, I would like to inform you that we have adjusted certain financial figures. One of these adjustments is related to Canada, which I would like to explain now. As you know, a settlement was reached in March last year regarding all the smoking and health litigations in Canada, in which our local subsidiary, JTI McDonald was included as a defendant.

Consequently, we will make annual payments from 2026 onward. As a result of these payments, we expect this will create a gap between JT Group's recognized profit and loss as well as its cash flow. Therefore, in order to appropriately reflect the actual cash flow in our profit and loss, under certain assumptions, we have made adjustments to deduct from each indicator, the amounts of revenue and profit corresponding to each annual payment as well as to exclude the impact of noncash profit and loss. For details, please refer to the reference slide titled Canada Adjustment.

This being cleared, allows me to explain the consolidated financials. Core revenue at constant FX is expected to increase by 3.6% year-on-year in 2026, driven by a solid pricing contribution in the tobacco business, higher RRP-related revenue and the top line growth in the Processed Food business. AOP at constant FX, our primary performance indicator is expected to increase by 8.9% year-on-year. The FX impact on AOP is forecast to be negative due to the depreciation of emerging market currencies and the appreciation of cost-related currencies such as the U.S. dollar, both against the Japanese yen. Operating profit is expected to increase by 6.2% year-on-year, driven by the increase in AOP and lower amortization costs of trademark rights related to past acquisitions. These positive factors more than offset the absence of profit from the remeasurement related to the settlement liability for the Canada litigation recorded in 2025, as well as a decrease in profit from property sales.

Profit is expected to increase by 14.2% year-on-year, driven by the increase in operating profit and lower financial costs due to the absence of the foreign exchange losses recorded in 2025. Free cash flow is expected to increase significantly, driven by the increase in AOP and the absence of the upfront payment related to the settlement of the litigation in Canada, which we recorded in 2025.

In the following section, I will explain the forecast by business segment. First, let me explain the volume assumptions for the Tobacco business. The continued share growth of Combustibles across several markets and an increase in RRP volumes are expected to partially offset the global decline in Combustibles industry volume, notably in Japan, the Philippines and the U.K. As a result, total volume is expected to be between flat and down 1% year-on-year.

Next, I will explain the financial forecast. Core revenue at constant FX is expected to increase by 3.4% year-on-year, driven by continued strong pricing contribution, mainly in key markets and higher RRP-related revenue. AOP at constant FX is expected to increase by 8.5% year-on-year, driven by top line growth that more than offsets continued RRP investments behind Ploom and inflation-led cost increases, including across our supply chain.

As I mentioned earlier, the FX impact on AOP is expected to be unfavorable. Next, I will explain the forecast for the Processed Food business. Revenue is forecast to increase, mainly driven by price revisions in the Frozen and Ambient Foods business. AOP is expected to decrease, mainly due to higher raw material costs despite the expected increase in revenue.

Finally, I would like to explain shareholder returns. As Tsutsui-san explained earlier, there is no change to our shareholder return policy. With respect to the dividend per share for fiscal year 2025, as indicated at the third quarter earnings announcement, is planned to be JPY 234 per share. Regarding the dividend forecast for fiscal year 2026, based on the Canada adjusted profit, we project a dividend of JPY 242 per share, which corresponds to a payout ratio of 75.2%. Profit for fiscal year 2025 came in below the level presented at the third quarter announcement due to the sharp deterioration in the exchange rate in Iran.

On the other hand, our business momentum remains strong and adjusted operating profit at constant currency is growing. Under the current medium-term plan as well, we expect to achieve steady profit growth. For fiscal year 2025, the payout ratio will temporarily exceed the 75% plus or minus 5% range, defined in our shareholder return policy. However, given that the full year results are now finalized and we have gained visibility into our medium-term growth outlook, we have decided not to revise the dividend per share forecast that we presented at the third quarter announcement.

Please look at the graph on the slide. We consider dividends to be the core of our shareholder return policy. To date, we have achieved sustainable profit growth. And through this profit growth, we have steadily enhanced shareholder returns. Over the past 5 years, our TSR has outperformed the topics. Going forward, we will continue to target a payout ratio of 75%, which we consider to be at a competitive level in the global capital markets and aim to enhance shareholder returns through the realization of sustainable profit growth over the mid to the long term.

This concludes my presentation. Thank you for your attention.

Thank you very much Furukawa-san. In closing, I'd like to reflect on the materials we have shared with you today. Throughout its history, the JT Group has consistently invested in its businesses with a long-term perspective, always looking to the future. As a result, our business foundations have strengthened steadily and we have delivered record-high results in 2025, with a further increase expected in 2026.

To ensure that this growth remains sustainable, under the Business Plan 2026, which we presented today, we intend to pursue our current resource allocation and shareholder return policies based on the JT Group purpose and the 4S model. We will continue making large-scale strategic investments, particularly in Heated Products. We are convinced that our strong brand equity cultivated through consistent investment, our well-balanced portfolio, supporting our pricing strategy, market share growth as well as the profitability improvement and RRP driven by expected top line growth will deliver high single-digit growth in consolidated AOP at constant currency.

We will also continue to enhance shareholder returns in line with growth in net profit, underpinned by our underlying business growth. This concludes our presentation today. Thank you for your attention.

[Operator Instructions]

Let me introduce the speakers who will answer your question as follows: Mr. Takehiko Tsutsui, CEO of the JT Group. Mr. Hiromasa Furukawa, CFO of the JT Group; Mr. Eddy Pirard, CEO of JTI. Mr. Vassilis Vovos, CFO of JTI and Mr. Stefan Fitz, CEO of JTI.

[Operator Instructions] The first question comes from Mizuho Securities. Mr. [indiscernible].

Mr. Tsutsui, congratulations of being assigned as CEO. So I would hope for more enhanced market communication going forward. So my question is towards Mr. Tsutsui. I would like you to really share with us what are the strengths and also the weakness of JT Group, especially vis-a-vis the global competitors. So we have the portfolio within the convertibles. And of course, within RRP, the Heated Products and Modern Oral. So there are difference in the portfolio. So how -- what are your thoughts on your current portfolio?

And also in terms of the R&D and the governance system. So what are the strengths and also the weaknesses? And where exactly do you expect to exit your leadership and make some improvements. So that is a question to you.

So related to the strengths and weaknesses of JT Group, Mr. Tsutsui would answer your question.

Thank you very much for that question. So let me first talk about the strengths of JT Group. As you have seen with the results and the actual was in Combustibles. We continue to make growth investment. And because of that, we continue to exert the growth capability, and we continue to cherish that going forward. In addition to that, strategically, we have been investing in a different strategy, and that is true for RRP as well. So steadily, we have been making progress.

So the fact that we have a clear strategy, that is another strength that we have for JT Group. Now in terms of somewhat of a weakness as you posed, if you look at the RRP, it may be easier for you to understand. So whenever we would need to launch the new businesses. Of course, prior to my current position, 6 years, I was working within JTI, and I have been in the leadership position. So given my experience, I believe we are still at the starting point in launching these new businesses.

However, as we have already shown with you with the actual results, little by little, steadily, we have been launching the business. So Ploom AURA, that we have launched back in May last year, if you look at the actual, we do have the innovation capability built in. So since I became the President, what is the kind of leadership I would like to exert. That was another question you pose. So of course, we'd like to cherish the strengths that we've always had. And we would look into RRP and lab as well. So we'd like to continue to see challenge for new businesses in the long run. And we like to make sure that, that is connected to the growth engine.

So we need to make sure that actual really reflects the growth engine that we have. So that is exactly what we'd like to focus on going forward. So there will be an upfront investment. Therefore, it is essential that we engage in close communication with you. And we would like to continuously execute the initiatives. We ask for your continued support. We do ask for your implementation and execution. So thank you.

The next person is from Nomura Securities. Mr. Morita, over to you.

This is Morita from Nomura Securities. Regarding growth investments, and some numbers around RRP, up until 2028, you are investing JPY 800 billion as advanced investments. That was the outlook you set forth. Up until now, turning the business profitable by 2028, we're in the markets you enter, raising the market share for RRP to about mid-teens is what you've been communicating. So can you take this opportunity to talk about the profitability of RRP as well as the target share you may have in mind if you have any updates associated with this.

Regarding the question about RRP and business strategies, Mr. Tsutsui will take that question.

Thank you for your question. For our ambitions, what's important here is that, this will be a passing point. Therefore, we would like to ensure we build a strong foundation. And as we communicated in today's presentation, after Combustibles, we would like to turn it into the second growth engine.

Regarding forecasting of the RRP business. There is uncertainty associated with innovation. Therefore, there may be times when the timing is different from what we expect, more or less. However, on the other hand, likely been setting forth from the past regarding our ambitions, I would say we are broadly in line.

As for investments, last year, we set forth JPY 650 billion. When you look at this annually, the latter half of the year, the pace of investments are increased. That was the case for last year. And for this fiscal year, we have set forth the number of JPY 800 billion. We would like to step up the pace of investments going forward.

On the other hand, when it comes to this fiscal year and the investments we made it wasn't really that much off of our expectations from last year. And when it comes to the investments we make.

First, for RRP. It's still a new market that was established 10 years ago. So in this type of new market, innovation is extremely effective that is focused on the customer. Therefore, as we continue to make investments, we would like to ensure that we develop good products. And effectively deliver the innovation to the customers by making investments into marketing. So that will be approximately 80% of the JPY 800 billion. So, the reason why it costs so much money for marketing investments is because Combustibles is a mature market. However, in order to effectively reach customers, the way we do things need to be different. So customer acquisition as well as retaining customers are the areas where we are making advanced investments.

For Japan, when it comes to innovation, relevant marketing are in sync with each other right now. That is leading to the good performance. So Japan is a good example. And for this momentum. We're not just talking about 2028 in our ambitions, but we would like to accelerate our efforts looking out beyond 2028. That is our intention. And once we are able to make this growth definitive, we would like to also ensure that investments become more efficient. But at this point in time, the plan is one where investments will come in advance. So as we make these advanced investments, as explained in the presentation, high single-digit AOP at constant currency is what we believe we can achieve.

May I confirm one thing? So for RRP and the midterm ambitions, you were saying you were probably in line, but it's not that off. But up until 2020, you were saying that you would like to turn the business profitable. Do you mean that, that target is still in place? Or do you think -- are you trying to say that it's going to be beyond 2028?

Regarding the communication of becoming profitable in 2028, it's marketing spend is deducted from gross margins. That's how we have been communicating. At this point in time, what I would like to stress is, directionally, we are moving towards that direction. But is that going to be 2028 or 2029 or even 2027? Due to the nature of innovation, there may be a chance that the time line may move. However, we are broadly in line towards that direction is what I -- what we have been able to confirm. So it's more of a directional comment.

I see. I guess, the goal is to turn the RRP business into your next growth driver. So you don't really have to collect on your investments that early. But I look forward to your future business.

The next question comes from JPMorgan Securities. Excuse me, Morgan Stanley MUFG Securities. Mr. Miyake, please.

So this is Miyake for Morgan Stanely MUFG. So Ploom has been launched in various markets. You have already made the presentation. So as you switch to Ploom AURA then in other markets, do you expect to see acceleration of the market share? So could we actually confirm that? So there are some markets that have good response, maybe not as much. You mentioned that it is related to the competitive climate. But if you can also highlight on some of the different features of the different markets. That is the first question.

Also, the potential for EVO. So it's grown about 20% in Japan. And in terms of overseas market, it is also a premium product. So would it potentially drive the profitability in the overseas as well. So those are the 2 questions.

So the question relates to Ploom AURA and also EVO, the Ploom performance. Mr. Tsutsui would answer.

I would like to answer your question. JTI participants may add on some information later. So first of all, about Ploom AURA. So as we launch outside of Japan, I'd like to share with you the current state. Last year, inclusive of Japan. We have launched it in 17 markets. That is last year. As of today, the number has increased to 19 markets. Now the feedback from the customers, the direction wise, it is quite similar. When you compare the feedback in Japan and also outside of Japan in terms of the taste and also for the device design, those have been highly evaluated by the customers and consumers.

Another point in the overseas market, the timing of launching the Ploom AURA. So in the past, we had Camel and Winston, the brands that were used for Combustibles. And we have been launching sticks according to these brands. But this -- we took this opportunity to switch to EVO. And this switch has been successful without reducing the number of customers and even after switching to EVO. The customers have been quite forward-looking. They have been quite positive about AURA and EVO. That was the feedback that we received.

Of course, in the respective markets, the impact of AURA and EVO, we are bound to see difference in the different markets. But the general direction is quite similar. When you compare the feedback that we've received in Japan as opposed to the international market. So any additions from the JTI participants?

[indiscernible] JTI, would like to respond to that question.

Yes. Ploom AURA has been launched in several markets, starting in quarter 4, 2025. And depending on the launch timing, we have different time lines to see the success. But as you have seen in Eddy's presentation, we have, in some of our markets like Poland, tripled our market share of [indiscernible] segment versus the year before. Ploom AURA has been very well received by the consumers in the markets outside of Japan. The consumers like the functionality, the consumers like the taste. But of course, it is also important to state that we need to continuously work on our commercial engine to drive awareness, acquisition and retention. And Ploom AURA, which is newly launched in these markets, will help us to do this in 2026.

This is related to the first part of the question. So as you intend to improve the profitability of RRP, so the awareness and retention would actually drive the efficiency of the marketing. And of course, you would have more volume increase. At the same time, portfolio, the mix within the stick, you would have more premiumization. Those are some of the impacts you expect to see. So when you look the next 3 to 5 years, what do you see as the biggest driver?

So this is a driver of RRP profitability question. Mr. Tsutsui would continue with this response.

In terms of the driver for the profitability, First thing first, we need to expand the number of consumers, customers, so basically increase the volume of districts, the sales of the sticks. We do believe this is the biggest driver. Also in terms of making the operation more efficient, those consumers would try the Ploom, we need to make sure we need -- we can convert them. And so the increases the percentage of conversion they would enjoy Ploom on a regular basis. Those would be the second -- that will be the second driver. And 2 drivers would really drive the profitability going forward.

The next person is from Goldman Sachs, Japan. Mr. Mayazaki.

This is Miyazaki from Goldman Sachs. For the Tobacco business, I would like to learn about the factors that will drive profit increases in 2026. In 2025, on Page 24, you show the factors of adjusted operating profit, compared to this, for 2026, can you walk us through what you are anticipating I am sure that you will continue to do pricing. But compared to 2025, is the potential going to go down. And for others, that includes supply chain cost, how much of a negative impact should we account for? And for volume, I think you're assuming a slight decline. But, is that fair to say, are you actually assuming a decline? So please confirm.

Regarding fiscal '26 factors in the Tobacco business, Mr. Furukawa will explain.

This is Furukawa. I would like to take that question. As you said in your question, when you look back at 2025, it was an extraordinary year. Based off that, regarding what we are assuming for fiscal '26, which I think you're trying to get at. Well, 2025 was a good year, but we believe AOP growth should be about 8.5% on a company-wide basis. That's what we are assuming for '26.

From 2025, we saw fair momentum around the world in various markets, and we are confident about that to be ongoing. However, we also had the impact from acquiring a Vector, which is going to become absent in 2026. But year-over-year investments in RRP is going to increase and expand. Regarding our volume assumptions that you were asking about, it's true that in 2025, Turkey, Philippines as well as in Russia, we saw some temporary factors, and therefore, industry volume was relatively strong. But we have been taking pricing strategies and taxes [indiscernible]. So, we will continue to focus on demand from customers so that we could take action appropriately. Whatever the case may be for the driver of sustainable JT Group growth will be looking at short-term delivery, but we will ensure that we grow the business over the medium to long term and expand profits. That is the basis of which we have formulated our management plan for 2026.

JTI will also comment.

Thank you. Let me add a few color a little bit of color on already the key point of the answer of Furukawa-san. And you very correctly mentioned that for next year, we expect pricing to continue to be a driver of our revenue growth. And as mentioned already in the presentation, 60% of our plant pricing for 2026 is already done. We have already taken pricing in significant markets like the U.S.A., the U.K., the Philippines, Turkey and a number of other markets. So we see pricing continuing to be a big feeder of our profit revenue growth and eventually profit growth, certainly.

In addition to that, [indiscernible] driver of revenues, not only for '26, but also as we move into the other years, we think our brands as mentioned in the presentation of Eddy are very strong, are the top-growing brands in combustibles. They have a lot of equity loyalty pricing power. So we expect to be able to continue taking pricing in the other years as well. That is one driver, of course, of our revenue growth algorithm.

You correctly mentioned, we have an anticipation of a slight volume decline next year. So we don't expect in our key markets to see the same behavior of the industry size in '25, we had very strong industry size performance in markets like Russia, Turkey and others. But of course, the decline of our volume, which overall is mentioned between 1% and flat, is much lower than the overall industry decline because we are gaining market share.

We gained market share in more than 60 markets this year. We expect this to continue as we go in '26. So the momentum will mitigate our market volumes slight decline. And then the profit generation comes from efficiencies, continuous focus on improving the profit margin. You saw a very impressive increase of the Combustible profit margin in 2025, which was up 3.4 points. We will continue in this direction as we move into the future.

We are focusing around fewer brands. Our GFBs are now 75% of our volume. That means we reduce proliferation of SKUs, and we harmonize a lot of input materials, we are having a focus on our end-to-end services, both in manufacturing and our search services. And we also give very clear guidance to our markets in terms of mission. So we have market classification that is clearly allowing for markets to know what's the focus. Markets could be focused on earnings or earnings in sale market.

That drives efficiencies also into the investments we are doing. All these elements will help us improve our profit margin even further years ago. And together with the increase of revenue driven by the resilience of volumes and the quality of pricing, this is the driver of the growth. And to that, of course, the significant increase of the volumes of Heated Tobacco Products, a significant increase of the revenues that will come in the coming years. And the reduction of costs because of scale will further fuel the algos of growth in the outer years.

Can I add something? I would like to add a little comment on Furukawa-san's and Vasilis's comment. A lot has been talked about in terms of responsiveness on things that we do control. There's also another element, which has been highlighted before, sometimes markets develop in a certain way, the unpredictable and the uncontrollable. And what I think is a feature of our organization, of our business is that we have an embedded increasingly agile organization that can respond to surprises in a very speedy and efficient manner.

And that will help in relative terms ensure that we do keep the momentum and that we position ourselves competitively in the best possible way. I think this is something that we don't often talk about, but we've been doing a lot of work over the years on trying to bring that agility by removing obstacles for speedy decision-making and agility in everything that we do. And I thought it was worthy to mention that as well.

I would like to move on to the next question. SMBC Nikko Securities. Mr. Furuta, please.

This is Furuta from SMBC Nikko Securities. So I have a question to Mr. Tsutsui, the new President. So we have been involved in large-scale M&A inclusive of Gallaher. And also, you have alluded to M&A during your presentation. So what would be your target going forward? So I'd like to hear your thoughts. Would it be similar to something like Vector or would it be any -- something that would accelerate the growth of RRP?

So here's a question related to M&A. Mr. Tsutsui would respond.

Thank you very much for that question. As I have mentioned within the presentation, M&A is a very effective initiative. So as we consider M&A, some of the important elements, M&A is definitely our means to grow. So to what direction and what we are going to grow, so depending on that, the attractiveness of the different deals may differ. So according to our objective, if there are opportunities, we would like to consider and explore the opportunity.

So what are the different types of M&A you may ask? So in terms of combustibles. As Eddy mentioned in his presentation, as we consider and focus on ROI. We would look whether it would be instrumental in improving the ROI. And back in 2024, Vector Group was exactly it and meeting that objective. It was a very high-quality deal as we recall. So if there are more opportunities, we would definitely like to explore the possibility.

Now in terms of RRP, because it is quite new in terms of characteristic, perhaps it is not so much of a large-sized M&A, but we'll be looking into more of an intellectual property or perhaps a new business model. So for instance, Flavor Warehouse in the U.K. We have forged a partnership with them or acquire them rather. So this sort of a new business model that could be another objective as well.

Also, if there are some capabilities that are not fully operational within the group, we may also opt to acquire those as well. So those are some of the directions in terms of M&A. So depending on the objective, we will look around the world. And if there are opportunities, we would definitely like to look into those and look into possibilities.

So JTI would also like to respond to that as well.

Thank you very much for the question Furuta-san. I can only support what Tsutsui-san has said. We are hungry for growth, but that comes with discipline, and a more complex environment that we have experienced maybe 10, 15 years ago because of the changing consumer desires and expectations. So it is a twin approach in a way, the combustible area where we've got a lot of confidence in the capabilities that we have to run these businesses.

We never forget that M&A is not easy. Integration is hard work. But we understand profoundly what it takes to succeed in the combustible area. And in RRP, it's relatively new, all things being considered. And so looking at innovative propositions for consumers looking at intellectual property that can give us a bit of an edge in certain parts of the business is always something that we will keenly look at with the financial discipline that, of course, you would expect from us.

Also, interest of the shareholders' return, I would like to ask about that. So as you continuously make growth investment, Also, if you can also -- the 75% of a dividend payout ratio, maybe it is somewhat lagging behind vis-a-vis the global peers. So how do you intend to strike the balance between gross investment as opposed to shareholders' return?

So this is the balance between investment and return? Mr. Tsutsui would like to respond.

Thank you very much for that question. 75% dividend payout ratio related to this point. So we are fully aware. There are various benchmarks available in the world. But as far as we're concerned, we believe this is globally competitive. That is our understanding. And as you highlighted, in terms of gross investment, we put the top priority in the gross investment. So within that balance, 75% dividend payout ratio, we believe this is the optimal in terms of the balance.

Of course, there are companies out there who are making far larger shareholders' return. And also the global peers -- they have been looking into various return level and also different masses of return as well. We are fully aware of those. So just to reiterate, what would you like to stress here, is indeed growth investment really brought our group to the current state. That was the biggest driver that brought us to this very day. So back in 1999, Reynolds acquisition in 2007, Gallaher acquisition. So these business investment have continued, and that is exactly why we have the performance as of today.

And also, we have strong brand equity. The reason it is there because we have made investment in the past. And also, we've been able to capture the pricing opportunity precisely because of the strong brand equity. So I'd like to seek your understanding this growth investment we will continue to be proactive, and that would continue to be high in our priority. And that will be continued going forward. And within that, of course, we would also intend to explore the competitive level of shareholders' return. And definitely, we'd like to keep that balance.

We are running out of time. So the next question will be the last question. From Daiwa Securities, Mr. Igarashi, over to you.

I am Igarashi from Daiwa Securities. I'd like to ask a question about innovation in the RRP business. For Ploom AURA, since the launch, the device and the new sticks, it is penetrating the market in a very good way. In the future, I'm sure that new products will appear in the market and innovative products will probably increase. So for your company, I'm sure that highly functional devices will probably be an area that you're going to invest into for more innovation. Is that the case or no?

That was a question about RRP innovation. Mr. Tsutsui will take that question.

Thank you for your question. Regarding RRP innovation, last year in May, we launched Ploom AURA. And it's been a product that was well received from the customer base. So I am very pleased to see that. When we are developing such products, from the moment we are developing the product, we already are talking about making it better. In order to respond to customer expectations, we are creating a wish list in the innovation cycle. And are generating a variety of ideas. So an even better product, we believe can be delivered to the customer in the future, Therefore, we would like to -- we do have a pipeline in place. Unfortunately, I am not able to share with you today. However, from the pipeline, we would like to ensure that highly positive, impactful products for the customer and services can be developed, and we hope you look forward to it.

This concludes the results meeting for fiscal '25. Thank you very much for participating today.

Thank you very much for joining the Investor Meeting for Q3 2025 results of Japan Tobacco Inc. today. It's time. So let us start. But before we start, please make sure that your name on the Zoom screen is correct. Thank you very much for your cooperation.

Now let me introduce our CFO, Mr. Furukawa.

Good afternoon. I am Furukawa, CFO of the JT Group. Thank you for joining us today for JT Group's Third Quarter 2025 Earnings Briefing. I will begin by explaining our 9 months consolidated results for the fiscal year 2025. Please see Slide 4.

To begin with, let me clarify how the financial figures are presented. As announced during the second quarter earnings briefing, starting from the third quarter, we will treat the pharmaceutical business as a discontinued operation in accordance with IFRS. As a result of this reclassification, results and the forecast figures for the pharmaceutical business for the current fiscal year are presented as a single line under profit from discontinued operations. In this presentation, to provide a clearer understanding of our current and future business performance, we will explain each P&L indicator on the continuing operations basis.

Now I will move on to explain the consolidated results. As shown on the slide, all indicators in the 9 months consolidated results showed significant growth. AOP at constant FX, our primary performance indicator, increased by an impressive 27.2% year-on-year, driven by a strong organic performance in the tobacco business boosted by the contribution of the Vector Group acquisition in the U.S.A. The foreign exchange impact on AOP remains negative, mainly due to the depreciation of emerging currencies against the Japanese yen. Operating profit increased by 20.8% year-on-year, driven by the increase in AOP, partially offset by adjustment items due to higher amortization cost of intangible assets related to the Vector Group acquisition. Profit from continuing operations increased by 16.6% year-on-year driven by the increase in operating profit, which offset higher corporate income tax expenses.

Moving on to the results of each business segment, starting with the tobacco business. So please turn to Slide 5 for the Tobacco volume performance. Total volume combining both combustibles and RRP increased by 2.2% year-on-year. The solid volume performance following a strong first half and in the context of a global decline in combustibles industry volume was driven by organic growth and the inclusion of the volume from the Vector Group, which we acquired last year as well as accelerated RRP volume growth, mainly in Japan.

Let me break down this performance by product category. Combustible volume increased by 1.7% year-on-year, mainly fueled by the EMA cluster. The main drivers of growth were the Vector Group inclusion and the continued market share gains across many markets, notably in Turkey. While industry volume remained robust in Russia and Turkey, showing better-than-expected trends, combustibles industry volume continued to decline in Japan and the U.K. RRP volume grew by a remarkable year-on-year increase of 27%, driven by continued growth in both volume and market share within the HTS segment in available markets as well as by the impact of new product launches of Ploom AURA and EVO premium sticks in Japan.

Moving on to the financial performance of the Tobacco business on Slide 6. In the third quarter, we achieved double-digit growth in both revenue and AOP, driven by strong pricing and volume contributions. Let me explain each factor. The volume contribution was positive, mainly filled by the inclusion of the Vector Group. Regarding the Vector Group contribution, I can confirm that it has been in line with our initial expectation. The price mix contribution to AOP was very solid. Strong pricing contributions in many markets, including the Philippines, Russia and the U.K. outweighed the lower product mix, mainly due to down trading in Japan, the Philippines and Taiwan. These positive factors far exceeded the incremental investments towards Ploom and the inflation-led cost increases within the supply chain, including tobacco leaf and SG&A expenses such as labor. As a result, AOP at constant FX increased by 25.7% year-on-year. As I mentioned earlier, FX impact on AOP was unfavorable.

Slide 7 reviews the performance of the 3 clusters in the tobacco business. The graph on this slide shows year-on-year variances in total volume, core revenue and AOP at constant FX for each cluster. Let me start with Asia cluster, which includes the key markets of Japan, the Philippines and Taiwan. Building on a first half momentum, total volume in the third quarter continued to grow, driven by market share gains in several markets, mainly in Taiwan and the higher Ploom volume in Japan. As a result, year-to-date total volume was resilient, decreasing merely by 0.2% despite lower combustible industry volume in Japan and Taiwan.

Regarding the financial results, a strong pricing contribution, mainly in Japan and the Philippines outweigh the negative volume impact and lower product mix, mainly due to down trading in Japan, the Philippines and Taiwan. These factors resulted in higher revenue and AOP at constant effects.

Turning to Western Europe, which includes the key markets of Italy, Spain and the U.K. Total volume decreased by 4.2% year-on-year due to lower combustible industry volume in several markets, primarily in the U.K. as well as unfavorable inventory movements mainly in Italy and Spain. These factors exceeded the positive share momentum in many markets, notably Italy and the U.K. and continued Ploom share gains in the HTS segment and several markets. Core revenue and AOP grew as the pricing contributions, mainly in Italy and the U.K offset the negative volume variance, mainly in the U.K.

Moving on to EMA. This cluster includes the key markets of Romania, Russia, Turkey and the U.S.A. Total volume increased by 5% year-on-year, mainly driven by the inclusion of the Vector Group in the U.S.A. and market share gains in several markets, mainly in Turkey as well as improved industry volume in Russia and Turkey. The cluster reported an increase in both revenue and AOP at constant FX, driven by the increase of total volume, mainly in Turkey and the U.S.A. Pricing contributions were also strong mainly in Russia and Turkey. The robust top line growth across the board enabled each cluster to offset the incremental investment towards Ploom and inflation-led cost increases, including in the supply chain and S&G expenses.

Slide 8 provides an update on the HTS share trends of Ploom in selected markets. As shown in the graphs, Ploom's share within the HTS segment is continuing to grow across the footprint. In Japan, the largest heated tobacco market globally, our HTS segment share growth accelerated, driven by Ploom AURA and EVO premium sticks, reaching an average share of 15.5% in the third quarter. .

Our share gains remain solid, supported by competitive product and the successful marketing initiatives despite intense activities by competitors in terms of product launches or promotional campaigns. Out of Japan, despite intensifying competition, we have been steadily increasing our share within the HTS segment through in-person and online sales promotion and marketing activities, leveraging insights gained from each market. We have further expanded our geographic footprint with Ploom, now present in 28 markets as of the end of October.

Slide 9 explains the performance of Ploom AURA and EVO premium sticks in Japan. The product launched at the end of May this year have shown strong initial momentum as mentioned in our Q2 earnings announcement, and this momentum has continued after the nationwide expansion in July. Compared to previous models, AURA has a higher proportion of new purchases. As indicated by the graph at the top left of the slide, this has contributed to an accelerated increase in the number of Ploom users, which has approximately doubled by the end of Q3 compared to 2 years ago.

Also, as of August, AURA surpassed 2 million units in cumulative device volume, marking the fastest achievement of this milestone in our RRP journey. The graph at the top right of the slide shows our HTS volume by brand. Importantly, even after the launch of new products, sales volume of existing brands such as Mevius and Camel has continued to grow. EVO positioned as a premium offering has also steadily added volume. This well-balanced refill portfolio has driven overall HTS volume growth while outperforming the growth of the HTS segment and improved the product mix.

In overseas market, we are gradually transitioning to AURA with launches completed in 8 markets as of the end of October, we plan to roll out to approximately 15 markets by the end of 2025. These developments give us confidence in our ability to continue increasing our market share, both in Japan and overseas.

Next, I will explain the results of the processed food business. Revenue increased by JPY 1.8 billion year-on-year, mainly driven by the positive price revision of packaged cooked rice in frozen and ambient food business. However, this revenue increase could not offset higher raw material costs such as rice, resulting in an AOP decrease.

From the next slide, I will guide you through our revised forecast for fiscal year 2025. First, I will explain our full year consolidated revised forecast. Core revenue at constant FX has been revised upward by JPY 109 billion from the previous forecast, reflecting the strong business momentum in the tobacco business. As a result, we now expect a 13.2% year-on-year increase in core revenue at constant FX. AOP at constant FX has also been revised upward by JPY 71 billion from the previous forecast, reflecting the upward revision of core revenue at constant FX.

Consequently, AOP at constant FX is now expected to increase by 24.3% year-on-year. We are also expecting that the negative FX impact on AOP will ease versus the previous forecast, mainly due to the major currencies expected to be stronger against the Japanese yen. As a result, AOP on a reported basis has been revised upward by JPY 89 billion from the previous forecast. Operating profit has been revised upward by JPY 94 billion, reflecting the upward revision of AOP and expected gain on real estate in the adjusted items. Profit from continuing operation has been revised upward by JPY 62 billion, driven by the increase in operating profit. Profit from discontinued operation has been revised upward by JPY 6 billion compared to the previous forecast, reflecting an increase in royalty income from the pharmaceutical business. Free cash flow has been revised upward by JPY 44 billion, driven by upward revision of AOP.

In the following section, we will explain the revised forecast by business segment. Let us begin with the volume assumptions for the tobacco business. Total volume, including combustibles and RRP has been revised upward to reflect the stronger than expected industry volume trends for combustibles in some key markets, such as the Philippines, Russia and Turkey, robust share momentum in many markets as well as continued HTS growth. As a result, the full year forecast is now expected to increase by 2% year-on-year.

Turning to financials. Core revenue at constant FX has been revised upward by JPY 112 billion from the previous forecast. This revision effects -- reflects the updated volume assumptions applied to the strong pricing contribution since the beginning of the year. Compared to the previous year, this represents a projected increase of 13.8%. AOP at constant FX has also been revised upward by JPY 72 billion from the previous forecast, driven by the improved top line growth as a result. It is expected to increase by 22.5% year-on-year. As I mentioned earlier, while the FX impact on AOP is expected to remain negative, the magnitude of this impact is expected to be smaller than previous forecast.

Slide 14 explains the revised forecast for the processed food business. The forecast for revenue has been revised downward by JPY 3 billion from the previous forecast, incorporating the latest sales results in the frozen and ambient food business. Forecast for AOP remains unchanged from the previous forecast as a downward revision of revenue is offset by expected lower cost.

Finally, please see Slide 16. Following the solid performance in the first half, the third quarter results came in stronger than expected. In the tobacco business, robust organic growth and the contribution from the Vector Group acquisition drove remarkable top line growth. As a result, consolidated AOP at constant FX increased significantly by 27.2% year-on-year.

In HTS, our investment focus, Ploom market share and volume continue to grow steadily across markets. In Japan, we are seeing strong performance from Ploom AURA and EVO launched in May, and will accelerate the transition to these products in overseas market as well. As for the full year forecast, we have revised all indicators upward, reflecting the continuing strong performance in the tobacco business and the easing of negative FX impact. As a result, we now anticipate record high figures across all indicators from revenue to profit.

Finally, shareholder returns. Based on the revised forecast and our shareholder return policy, we plan to revise the annual dividend guidance upward by JPY 26 from JPY 208 to JPY 234. As previously communicated, we determined that dividend for the current period based on the payout ratio calculated on the continuing operations business. As per the revised full year forecast, the dividend payout ratio is expected to be 74.9%.

This concludes my presentation. Thank you very much for your attention.

Thank you. Now I'd like to move to Q&A session. Let me introduce the speakers who will take your questions today. Hiromasa Furukawa, CFO of the JTI Group; and Nobuya Kato, JTI Deputy CEO. [Operator Instructions]

The first questions come from Saji-san of Mizuho Securities.

I have questions about overseas. The driver is Russia and Turkey. I want to know the contents of their contributions, especially when we look at the year-to-date. The market in Russia is growing at the pace of 4% and Turkey is growing nearly 9%. Why is that so strong at both of those markets? And towards the year 2026, I'm wondering about the sustainability of the growth and also the potential risks, especially on the aspect of risks. Some concerns are the down trading that's accelerating in Russia market and also the other market in Turkey, probably thinking about the risk for next year after the PMI supply chain trouble is finished.

Okay. So regarding the result and the forecast for Russia and Turkey, JTI, Deputy CEO, Kato, is going to answer those questions.

This is Kato speaking. I will take up your questions. So first of all, let me refer to Russia. Well, the business has been quite strong, and since last year, I think we've been often talking about this. The illicit trading and the flow in as a percentage to the market has been declining quite sharply since last year. And this year, there was a big decline as well.

Well, this is probably the restriction getting much tougher for the illicit trade or the illicit tobacco imports. And I think they are starting to harvest the result of that restriction. Well, last year, the percentage of the illicit products has been -- has declined. So we had assume that there will be some reduction for this year as well. But that result has been much bigger than what we have thought. And as a result, there's been a push up demand for the cigarettes. And that trend is continuing. So that's the big driver for the steady business that we are enjoying in the market of Russia.

Now turning our eyes to the total volume in the Turkey. Well, it's not limited to this year, but the total demand has been increasing for the entire industry for the past years. And I think we have communicated the same thing for the last few years, but they are going through -- the Turkish market is going through a hyperinflation. Against that backdrop, we are trying to work on the pricing to be in aligned with the inflation speed. Well, in the meantime, other consumable products, they are also going through the price hike. However, compared to the tobacco products, the pricing for the other consumables has been happening much at the faster price -- faster speed. So as a result, the tobacco product gives an impression that it is priced reasonably. And also the total population is growing in Turkey. With those reasons for recent years, including this year, the total demand is increasing.

And also to build more on that, as you mentioned, in Turkey, we have Winston, which is growing. And then share is steadily growing. And this time, the volume expectation for the Q2 was quite steady, but our assumption is that the growth is going to be much big and the half of -- more than half of those growth will be coming from the steady growth in Turkey and also our market share is also growing. And that's the reason why the volume is increasing, and that we have come up with the upward revision for the volume increase.

Talking about the risks, potential risks for the next year or the sustainability for the next fiscal year, whether the current situation is going to continue or not. First of all, talking about the overall market demand in Russia. We are wondering how much of the reduction we're going to see for the illicit products transaction in Russia. It's quite hard to foresee. Is it going to bottom out? Or is it going to be continuously reducing. We still need to see whether that will be the case or not.

Now talking about the potential risks. That next fiscal year's VAT, the value-added tax is going to be increasing and also the tobacco excise tax, was originally planned to increase, but there is a law or the bill that, that will be much higher than the original assumption. The final confirmation is going to be done at the end of November. So at this point of time, we have no idea. However, according to the current proposed bill, the tax increase is going to be quite big. So if that will be the case, the possibility of down trade might be likely. And the total industry volume is going to be negatively influenced if that's the case. So that's the potential risk for the total market volume in Russian market.

Well, in the meantime, for Turkey, the total demand in Turkish market seems to be continuing the current trend, meaning that for the next fiscal year, a reasonable growth for the total market is expected to happen because the pricing, in line with the inflation speed is going to be continuing. But looking at the pricing of other consumables well, the tobacco seems to be priced quite reasonable. So it's not going to be showing a wide gap, I guess. So that the total demand, that robust demand is going to continue is what we are assuming.

Well, the PMI, because of the supply chain issue, we had the positive impact on our share. Is it going to change, meaning that we have taken their share, but is it going to be stolen back? Well, so far, right now, the PMI have made improvement in the supply chain issue and they say so. But our market share that we have grown and restore from them have not been dropped. We are maintaining the share that we have taken from them. So is the share going to be significantly dropping once next year comes? We don't think that is likely to happen. However, of course, peers are going to do the best of sticking back their position. So we need to respond to their measures, but trying to maintain or further grow our market share in that market. That's my answer.

Okay. So Russia and Turkey, we can expect a good business?

Russia, we currently do not have a clear visibility of the tax increase that could be serving as a negative variance.

Thank you, Mr. Saji. Now we'd like to take the next question. Mr. Morita from Nomura Securities, please.

Sorry. I have one question about RRP. I'd like to have a clarification. And you said that JPY 650 billion investment up to '27 and you're going to have the profitability in '28 and also share growth has been very solid up to now. And then in the mid to long term, JPY 650 billion investment, and you're going to have the profitability in '28. Do you have any change in mind? And in the long term, your cash flow position is very good. So I think it will be possible for you to increase the investment. So do you have any thoughts about that?

This was a question about the RRP strategy and Mr. Kato will take that question.

Thank you very much for your question. Mr. Morita. Investment for RRP, at this point of time, there is no major change. And as we have communicated, the JPY 650 billion is from '25 to '27, and of course, next year and onward, we continue to have the update. So for the usual update, we are going to have the usual investment update. And in '28, our target for the midterm, at this point of time, currently, we are in '25. So we have 3 years to go. And toward that, we will make our progress to achieve the target. And we will revisit our plan accordingly. And the cash, yes, have reached and also our performance in profit is very good. So I understand your suggestion to increase that investment rather than having the leeway and we're going to see the increase.

First, we'd like to achieve the midterm target that we have pronounced before. And then we'd like to revisit our investment plan and update that and execute the plan. And next year and onwards, as you know, in February next year, we are going to have the 3-year earnings call. And also the midterm plan will be presented in that meeting. And at that point, I'd like to give you the update in terms of the direction and also our thought for the investment.

The confirmation for RRP is going to be more important. And then your midterm plan in the mid of 10% line, that is a share plan. And I am not fully satisfied with that number. So don't you have an intention to increase the target again? And then you are going to have the payback of the investment in '28. Is that possible? And then do you stick to that number? Or according to the environment, are you going to be more flexible to change the ideas? I understand nothing is yet fixed as of today. But would you comment on your commitment position, how do you see?

Yes, as you said, in the midterm or the mid- to long-term target, we can revisit those numbers any time. But currently, '25 and '26 and up to '28, we still have 2 or 3 years to go to achieve the target we have already presented. And then whether the current pronounced target is the viable or not and also whether we need to make the -- our progress to that achievement, we continue to monitor that progress. And if it needs, we have to revisit that, we will have the communication in due course.

And what is most important for us to monitor is Ploom AURA. After the launch in Japan, it has been very robust. And also as commented in the presentation, and we are going to have the replacement in the existing market of the Ploom X. So the robustness of AURA in Japan, how we can sustain that very good momentum in Japan needs to be monitored and also in the other markets, how we can expand. And the share has been increasing steadily so far, but how we can accelerate the growth, we need to closely monitor the situation and as we have indicated. And I understand your comment was based on the expectation. But whether we will be able to have the more updated target or not, we are going to have the further consideration.

Thank you very much. I do have a high expectation.

Morita-san, thank you very much for your questions. The next 2 questions are from JPMorgan, Fujiwara-san.

This is Fujiwara of JPMorgan. I have one question. Well, regarding HTS business in Japan is my question. In the third quarter, in Japan, the share is 15.5%. It was very strong, wasn't it? But the other companies have had the national launch of the new device that was done in September. But even after that, your share momentum, was it sustained quite strong even after the launch of the new device by the competitor in Japan?

Well, regarding that question, Kato is going to answer.

Fujiwara-san, thank you very much for your question. Well, in Q3, when we look at that quarter alone, the share was 15.5% SoS. On a monthly basis, the monthly report, we do not disclose the figure. But as a trend, for July and August, right after the launch, of course, the interest of the users or the customers were quite strong, and we conducted a very intensive promotional campaigns. Well, in the meantime, the month of September, Mevius have had the price up. And also, as you said, other players launched a new product or the new device into the market.

So for the 2 months, July and August, compared to those 2 months, we had experienced a softer market in September. However, in October, we are already reaching at the end of October. But when we look at where we are now, after September, well, since the mid-October, we had resumed our campaigns and promotional activities. So compared to September, we saw recovery in October. So for the entire Q3, we generated 15.5%, but we think we are going to be exceeding that result. That's what we are seeing for the month of October.

Well, the promotional campaigns for us and for other companies in the market, of course, there are some ups and downs, the fluctuations and changes month by month. But the Q3 momentum is continuing into the month of October as far as we see. We are quite confident that our momentum is being kept.

By the way, the 15.5%, the share for the 3 months in the category of HTS, is the share number 2, isn't it, the HTS itself? Is the share of the category as number 2, right, in the Q3? Well, in the quarter 3, yes, that's the case.

Well, incidentally, well, this momentum is very strong continuously, as you say.

Well, the strongest competitor in the market is, of course, competing against you, but are you stealing the share in order to increase your share? The share source is coming from other 2 companies? Is that the case?

Well, I should say the answer is, yes, we are stealing the share according to our data. As Furukawa mentioned in the presentation, the buyers of the Ploom AURA included the new purchases, actually about 60% of the purchases are the new users or the new customers, of which about half is a switch over from the heated products of the competitors. So it's about the purchase of the device. Well, the retention rate is about the same or not or the other -- those customers who have made a switch over retaining the same products and buying the same products?

Of course, that's a separate story. However, we are stealing the share from the other 2 peers. Well, from the starter, at the time of the launch of AURA, I think we have communicated some messages that there was on blind testing conducted to compare our product against the competitors. We just wanted to make sure that our products tasted better compared to the product -- the competitor's product. And then we have found out that the users have found out, about more than half of the customers who have tried out said that our products taste better. So we're very confident.

Thank you, Mr. Fujiwara. Now I'll take the next question. From Morgan Stanley MUFG Securities, Ms. Miyake, please.

I'm Miyake of Morgan Stanley. I also would like to ask about the HTS share improvement in Japan. I'd like to have more color. On Page 9, in Q3, EVO alone might have taken about 20% of the total in volume. And then there is a price hike for the Mevius. So I'm not sure about the impact on volume by that price hike. So EVO growth, how is that compared with the initial forecast? And also maybe as brand after the price increase, what was the development? And also in October, whether there was the recovery or not, would you give us a color by brand?

So it was a question about the HTS development in Japan by brand. Kato will take that question.

Thank you for your question, Ms. Miyake. In the first half, in this meeting, after the launch of EVO, we had a very high interest from the consumer. So I have talked about that in that meeting. And even after that, in the last few months, the performance has been very stable. And we were able to have the incremental performance. And out of the EVO's buyers, there was a question whether we are taking shares from the other competitors.

And out of the EVO's purchases, those who use the other peers HTS was about 30% or so. So this was a switchover from the other peers' product. So we were very -- our products were very well received. And EVO in August, we have added the Berry Crystal, Banana Crystal, new flavors were also were accepted. So we have increased our flavor type and EVO as a whole, that the high-end premium price product, we were able to capture the consumers with that product.

And for Mevius, the impact by the price hike, yes, we thought that we're going to have the price hike, and we anticipated some impact and the share at the Mevius declined a bit. On the other hand, that said, many consumers remained within our portfolio. To be specific, they have shifted slightly to Camel. So we continue to capture those consumers. And in September and 1 or 2 previous months, and Mevius price JPY 520 and EVO is JPY 550. So the price gap is just JPY 30. So some consumers are enjoyed to try the EVO with that price gap and they liked it. So EVO was able to capture new customers without the price gap. So as a whole, our portfolio strategy was very effective. And also we were able to increase the share as a whole.

Thank you very much. And this EVO's performance, was it better than your initial expectation? In summertime, you said immediately after the rollout, we are seeing the trial demand.

Yes. After that, I said that we need to monitor closely for some time. And then September and October results, we were able to capture the certain consumers. So whether that was much higher than our expectation, well, but we were able to capture. And also EVO was able to capture the consumers, and that led to the share gain of the Ploom as a whole. That has made a positive contribution.

Ms. Miyake, thank you for your questions. The next is Mr. Miyazaki of Goldman Sachs Japan.

This is Miyazaki. Thank you very much for taking up my question. Well, I'm just thinking about your direction towards the next fiscal year, basically, probably the high single-digit OP growth is your expectation, I guess. But you had the significant growth this year. Are there going to be any reactionally decline? Or are there going to be like a slowdown for the next fiscal year?

Well, I think the previous people have questioned about the volume slide. But I think you are quite positive about the volume itself. Any concerns for the cost side or -- and it's also towards the next fiscal year, the year 2026, the pricing is probably going to be made as a decision in the third quarter and the fourth quarter. Well, I think any decision that you're going to make in the second half is going to be making an impact on the pricing for the 2026. So are you thinking about the pricing for the next fiscal year? Is the decision going to be made in the second half?

Thank you very much for the question. Regarding the outlook for the fiscal 2026. Kato-san, over to you.

Miyazaki-san, thank you very much for your questions. So direction or the tone for the next fiscal year. Well, as you know, we will explain in the meeting in February. But just giving you some color of the direction of where we are heading for. Let me answer in the scope as much as I can answer. Well, for the current fiscal year, we had experienced the share growth. And also the pricing, those base momentum that we built this year is expected to carry on next fiscal year.

But well, this fiscal year, the magnitude of the growth was particularly strong, I think, more than we had expected, especially in some main markets. The industry -- total industry trend demand itself were quite strong and there was a big growth in market share in Turkey, too. So as somebody also asked a question, the Turkey's total demand will grow, but the share itself, is it going to grow at the pace like this year? No, it's unlikely.

The Russia's total demand because of the tax hike, there are a risk, as I mentioned earlier. And as you know, the difference between this year and the next year is the impact of the Vector inclusion. The impact is contributing for the 9-month period for the current fiscal year from Q1 to Q3. However, that effect, which has already been captured for the current fiscal year is no longer happening for the next fiscal year. So the growth rate exceeding the 20% as we have experienced this year is not going to be happening again for the next fiscal year.

Well, as you mentioned in the question, as we have shown you the target in the rather mid- to long-term basis, we're looking at the high single-digit growth. We wanted to deliver that target in the midterm range. And with that in mind, for the next fiscal year and beyond, we'd like to continue our strenuous effort.

And talking about the cost side because you mentioned the cost side, let me refer to that as well. The plan for the next fiscal year, we will review the cost side as well and making the plan for the next year but the cost itself is, of course, getting the influence by the inflation itself. The raw material cost, the processing cost, labor, all of those items, the cost items are likely to go up.

And one more point to mention is the second half of this year, especially Q4, Ploom AURA, the transition to Ploom AURA is making the progress. Well, for this, we are going to be continuing with this transition in the remainder of the market, and after transition, quite significant marketing investment or the promotional activities with the spending is going to be happening to some extent. For the current fiscal year, some of the promotions has started in the Q3 or especially Q4, and that is going to have the impact on the full year basis for the next fiscal year. So the investment in HTS for the next fiscal year, especially for AURA, the transition to AURA. And the post transition stronger push of the AURA products, meaning the BID, the marketing investment is probably going to be a bit bigger for the next fiscal year, more than this year.

Well, I think the very strong pricing was good for this year, and that trend is probably continuing for the next fiscal year, I guess. And I understand that you are going to be working on that but it's not going to be having the mix aggravation because of the trading down by the consumers or anything. Am I right to understand that, you don't have that kind of a concern because you're also conducting the price hike?

Well, thank you for that question. Well, including in Q4 of this year and the next fiscal year, we think we'll be able to seize the opportunities for pricing. In the meanwhile, the good performance or the strong performance of the current fiscal year included the bigger contribution coming from the pricing, the size of the contribution of the pricing was quite big. So that magnitude may not recur for the next fiscal year because that magnitude was quite big this year. We have to look at the market situation, the total demand situation and also the down trading sign -- the sign or signal depending upon the market, that we talk about, the down-trading signal may be stronger. But our policy of working on the pricing, that direction would not change. That will remain unchanged.

Thank you, Mr. Miyazaki. We are running out of time. So we'd like to take the last question. SMBC Nikko Securities, Mr. Furuta, please.

I'm Furuta of SMBC Nikko Securities. Thank you. I'd like to ask about the next year. As you have mentioned, the Russia and Turkey that are concerned about the reactive trend and also the investment of the Ploom. And next year, you're going to stick to the mid-to high single digit?

So for the next fiscal year, Kato will take that question.

Thank you very much for your question, Mr. Furuta. As of today, that midterm, high single-digit growth, that policy remains unchanged. And also, we continue to aim for that. And when we talk about the next fiscal year, we'd like to give you the specific number. And also, we'd like to give you the more deep dive information. But as of today, aiming the high single digit for the midterm, that remains unchanged.

Then for this year, the growth is over 20%, then, whether -- don't you have any concern for the reactionary decline for the next year? That is for the clarification.

Right. The reaction decline, not the high single digit, but to be lower than that for the growth or the flattish growth, I think you are referring to that kind of concern. And now we don't have such concern as of today.

Mr. Furuta, thank you very much. With this, we'd like to wrap up the final session of the Q&A. And with this, we'd like to close the session of the investor meeting of the Q3 2025. Thank you very much for your participation today.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]