Masamichi Terabatake: I'm Masamichi Terabatake, President and CEO, of Japan Tobacco. Thank you for taking time from your busy schedules to attend today's financial results briefing. I'm grateful for your continuing support and encouragement. I'd like to begin with an overview of fiscal year 2021, followed by our business plan 2022. Then I'll explain our management policies for each of our businesses and our allocation of management resources, before discussing our initiatives for sustainability at the end.

Later Eddy Pirard, the CEO of JTI will give a presentation on our tobacco business. Following that Nobuya Kato, CFO of the JT Group will be providing details on our consolidated financial results for 2021, as well as the outlook for 2022. First, an overview of 2021. 2021 has been another year of several uncertainties under pandemic conditions, although the world economy has been on a gentle recovery trend. Even under these challenging circumstances and owing to profit growth, our adjusted operating profit at constant currency and profit for the current term were far above corresponding figures for 2020, as well as our initial projections for 2021, which we announced in February, 2021.

This was mainly due to the strong performance in our international tobacco business, which resulted in record organic volume growth within the last 10 years, as well as the performance in the Japanese domestic tobacco business, whose revenue and adjusted operating profit both increased year-on-year for the first time in five years. We plan to pay a dividend of JPY 140 per share for 2021 as announced in our last briefing on Q3 results and in line with our shareholder return policy which we also announced last February. Although, 2021 brought a variety of changes to our business environment, we gained market share globally, mainly in leading markets and won support from our consumers on the strength of our brand portfolio, built on consumer-centric actions and mindset. We focus management resources on our top priority categories, namely HTS and combustibles as we informed you in February 2021. Despite the worldwide semiconductor shortage, we succeeded in introducing Ploom X, a product born from a global development effort in Japan.

As of the end of December, the market share for Ploom X and the RRP category grew steadily to 6.1% in four-and-a-half months since its nationwide rollout on August 17, 2021, comforting us to believe that we are off to a good start, despite the semiconductor shortage and intensified competition. Even under this challenging business environment, in order to build a foundation that ensures the mid- to long-term growth, we have been making steady progress and initiatives, including the consolidation of our tobacco businesses, continued global transformation initiatives, closure of Japanese domestic production sites corresponding to the business volumes, the offer of voluntary retirement program and recruitment of leaf tobacco growers who wanted to cease tobacco cultivation. Next, I'd like to introduce Business Plan 2022, our three-year plan commencing this year. Under Business Plan 2022, which we have just drawn up, we remain committed to pursuing sustainable profit growth over the mid to long term. What matters most for our growth is to expand our presence in the RRP category.

Although, we prioritize business investments to realize this target, we still expect to grow adjusted operating profit at constant currency at mid-single-digit rate over the coming three years. We also expect to increase current profit and to enhance shareholder returns under policies created specifically for that purpose. Over the mid to long term, we will continue working to grow profits, specifically delivering average annual growth of adjusted operating profit at constant currency in the mid to high single digits, by increasing profitability and expanding RRP share of market among other initiatives. I'd like to start off the details by talking about our operating environment, the underlying assumptions for our new business plan. As shown on the slide, our outlook for the future remains uncertain.

While we do not project a significant impact from the pandemic on the tobacco business over the midterm, we think it will be necessary to closely monitor changes in the business environment, including tax increases by governments to secure financial resources and tighter or more complex regulations. We assure you that even in this kind of environment we will continue to work towards sustainable profit growth, mainly in the tobacco business. In terms of the operating environment during the period of the new business plan, we expect current trends in the RRP and combustible categories will continue. Anticipating increasing demand, we consider RRP to be a strong pillar for future growth. We will conduct our business with a focus on the impact of the global semiconductor shortage on top of rising competition in leading markets and the trend towards tighter regulations.

Although, we anticipate industry volume to decrease and continued down-trading for combustibles, I believe that this category will fulfill its designated role, as the cash generator by gaining market shares at the same time seeking for opportunities for pricing and winning consumer support. Let's move on to our policies for the tobacco business. There is no change in the role of our tobacco business as the core driver of profit growth for the JT Group. As we announced in February 2021, we will invest our management resources intensively for top line growth and increasing profitability designating HTS and combustibles as our top priority categories. While RRP is our highest priority investment target, we project that combustibles will remain the largest category across the tobacco industry over the coming decade.

In the combustible category, we will continue working to drive top line growth, while improving profitability by reducing costs and increasing efficiency. In the RRP category, we see HTS as the segment offering the largest potential for sustainable profit growth. Now let me explain our mid-term outlook and goals for HTS. In the tobacco industry, as a whole over the mid-term, we estimate the HTS segment will represent 15% to 20% of total revenues by the end of 2027. In this environment, the JT Group is working to reach breakeven in the RRP business by achieving a heated tobacco segment share in the mid-teens across our key HTS markets by the end of 2027.

To win more consumer support and achieve our mid-term ambition, we will invest in a total of approximately JPY 300 billion during Business Plan 2022 about JPY 100 billion more than the amount of investments towards the HTS segment in the last three years. Through this accelerated investment, we plan to achieve geographic expansion especially in Russia and Europe; continuously improve our products and reinforce our strategic capabilities. We will explain in detail our strategy for the tobacco business, including initiatives to achieve our mid-term targets for HTS at the Tobacco Investor Conference, we're planning on May 19. Let me brief you on Ploom X, which we introduced in Japan on August 17, 2021 ahead of the rest of the world as an important step toward the mid-term targets for RRP that I've just outlined. We have expanded the lineup of Ploom X refills by introducing several new flavors under the Mevius and Camel brands.

We have also conducted active promotions expanding device color variations and accessories and leveraging Ploom shops for complete Ploom X experiences and product purchases. In order to increase opportunities of communication with consumers and further understand their preference, we are boosting digital marketing usage mainly through the Ploom X CLUB web service building on the concept of experiencing the world of Ploom X. While it has been less than half a year, since Ploom X CLUB went live, 250,000 adult consumers have already registered off to an encouraging start. Despite the semiconductor shortage and intense competition, these initiatives have helped us speed our own projections for Ploom X device sales to top one million units. The market share for Ploom X in the RRP increased to 6.1% in the fourth quarter of 2021.

And as a component of our RRP, the share for Ploom X has grown roughly over 50%. As a result, JT's share of the total RRP market reached 11.8%. Next, let's move on to the pharmaceutical and processed food businesses. Starting with the pharmaceutical business. It's my understanding that the environment around the pharmaceutical business will remain challenging, as drug prices continue to decline in both Japanese and overseas markets, reflecting the optimization of drug costs on a global scale.

Inside JT, we are projecting a gradual decrease in royalty income related to anti-HIV drugs. At the same time, Torii Pharmaceutical has recently delivered steady growth in sales of drugs for allergies and skin disease. In 2021, we saw a consistent pipeline development, including receiving approval for an additional indication for Riona tablets, which is a drug for hyperphosphatemia and another approval related to the administration and dosage of CORECTIM Ointment for pediatric patients, which is a drug for atopic dermatitis. We will reinforce our business foundation by maximizing the value of our products both those already on the market and those still in development, while actively exploring in-licensing and out-licensing opportunities. Next is the processed food business.

The processed food categories that JT Group mainly offers are anticipated to expand over the long-term. We expect that the impact of the pandemic will be felt to a certain degree through 2022. We will need to continue watching the rise in personnel and distribution costs due to the shortage of labor and effects of fluctuations in international commodity prices and exchange rates on material costs. Given all that, we will achieve sustainable profit growth with quality top line growth by following through on our initiatives to allocate more management resources to products of high added value in unit price, mainly in our core frozen and ambient food business. We will ensure that both pharmaceutical and processed food businesses will complement the profit growth for the group by following the basic strategies we've set for them.

Next let me outline our policies on resource allocation and shareholder returns. Our resource allocation policy will remain unchanged to prioritize investment in businesses that are conducive to sustainable profit growth the tobacco business in particular based on our 4S model. While maintaining our targeted payout ratio as announced in February 2021, we will work to improve shareholder returns through continuous profit growth over the mid to long-term. To that end, we are continuing our efforts to expand the adjusted operating profit at constant currency. The dividend for 2022 is proposed to be JPY 150 per share, representing a dividend payout ratio of 74.8% in line with our shareholder returns policy.

Now let me move to the topic of JT Group businesses and initiatives for sustainability. For the JT Group to maintain long-term growth, it's essential that we contribute to social progress. We have therefore established initiatives to make our businesses and society more sustainable as our foundation for management. Based on the 4S model, our management principle, the JT Group first defines the important issues for our businesses and the broad range of our stakeholders and builds sustainability strategy based on those issues. We have made it standard practice for me as the CEO and the Board of Directors to engage in setting targets, discussing specific initiatives to achieve them and monitoring the progress of the related initiatives, all with firm commitment.

In 2021, we saw progress in the areas of E S and G as shown in the slide. For governance, we undertook important reforms of our management system, such as changes in terms for directors. For the environment, we updated our existing targets for renewable energy use and the reduction of greenhouse gas emissions to fulfill our responsibilities towards constructing a decarbonized society. For society, our initiatives are multifaceted. We set group targets for the representation of women in leadership and publish the group's first human rights report on the leaf tobacco supply chain to name just a few.

With this slide, I will explain our initiatives for enhancing corporate governance. As awareness of ESG has been rising every year, I think that good governance, which is its foundation is very important. To enhance governance I value dialogue with stakeholders including capital markets and results of various kinds of monitoring. As to dialogue with capital markets and in talking with shareholders exclusively about our ESG efforts we received a broad range of feedback about our initiatives. We developed our corporate governance reflecting accurate initiatives to ensure we address societal expectations related to corporate governance and analysis of results from assessment of the effectiveness of our Board of Directors.

What we learned from these initiatives is reported to management and the Board and has led to improvements through necessary discussion. Now let me explain our key performance indicators for executive remuneration in 2022, which we recently reviewed. For the JT Group to maintain sustainable profit growth in a highly uncertain business environment, I think we need a stronger management-level commitment. I see a need to design a more multifaceted system for assessing our performance, which may add non-financial indicators to the ordinary financial indices we use to measure current performance. Based on this understanding, we have had fresh discussions on our performance indicators for corporate directors and executive officers.

As shown in this slide, we previously set adjusted operating profit at constant currency and profit as KPIs for the short-term incentive and profit as a KPI for a mid- to long-term incentive. But from now on KPIs for the short-term will consist of five indicators and those for the mid to long-term will consist of two. We introduced the KPI on a reported basis to deepen value sharing with shareholders. With this revision performance on a reported basis and profit together account for half of our KPIs for executive bonus which is the short-term incentive. The JT Group Board myself included will continue working to enhance corporate governance based on dialogue with all our stakeholders as designated in the 4S model.

Next, I will explain the JT Group's commitment to contribute to the transition to a de-carbonized society. Sustainability initiatives lay the foundation for long-term business growth. These initiatives resonate thoroughly with our management principle to pursue the 4S model, and are indispensable. Climate change in particular is an issue needing immediate attention and the JT Group intends to contribute to the de-carbonization of society. To make that happen, and enhance the initiatives we've been implementing up to now we have decided to update the JT Group Environment Plan 2030.

Specifically, we will work to make all our businesses carbon neutral by 2030 in the range of Scope 1 and 2, mainly through increasing use of renewable energy. In addition, we will further enhance and expand, our initiatives to realize net-zero greenhouse gas emissions across our entire value chain by 2050. To achieve this net-zero state, the key will be the expansion of renewable energy procurement and production. While we have been working to increase the ratio of renewable energy in our total energy consumption, we have to further strengthen this momentum now. For that, we have updated the targets for renewable energy in the JT Group environment plan 2030 to half of the group's total energy consumption by 2030 then 100% by 2050.

Looking at progress so far, we can project the ratio of renewables in our total energy portfolio will be about 26% for 2021, up from 3% for 2015. We attained this thanks to committed actions at JT Group factories worldwide to increase the use of renewable energy. By updating our environmental targets, we hope to express our commitment to help realize sustainability for all of society and will achieve these targets that we newly updated as the JT Group. In closing, let me share with you my thoughts on corporate management. In 2021, we implemented many measures, including those that require difficult management decisions in relation to our workforce optimization and preparation for the consolidation of our tobacco businesses.

I believe that, all these are necessary for the sustainable future growth of JT. Through investment in our businesses with a new operating model, we are working hard to continue delivering sustainable growth over the mid to long term. There's no doubt that our business environment is more uncertain than ever, but that is exactly why I think it's important to continue making changes on our own initiative to imagine and create the future we desire. Based on this idea in 2022, we will continue to operate with consumers at the heart of our actions make the most of our resources group-wide and value faster and more flexible decision-making, all enhanced by our new operating model. For the sustainable growth of the JT Group, we believe it's essential that we contribute to social progress through our operations based on the 4S model.

And it is through this contribution that, we will realize our sustainable growth. As I mentioned, we will host a Tobacco Investor Conference on May 19, to explain our tobacco business growth strategy, including our initiatives to achieve HTS-related targets in the midterm. We ask ourselves what value have we been delivering to society? What is our purpose in society? What has been and what will be the core of our operations? In working to answer these questions from the angle of our stakeholders' moments of pleasure, we are discussing how we can illustrate the realms of our consumer's, shareholders, and society can entrust us to manage today and into the coming two to three decades. Following through on the 4S model as our fundamental management principle, I will strive to keep the JT Group evolving so that it will continue to offer products and services that exceed consumer expectations and continue to be desired by our consumer's, shareholders, employees, and society at large. Thank you very much for your attention.

Now, I would like to invite JTI, CEO, Eddy Pirard to present an update on the tobacco business.

Eddy Pirard: Thank you, Terabatake. Good morning, ladies and gentlemen. I’m pleased to be with you today, I'll be virtually once again to represent this 2021 International Tobacco full year results. In addition to the performance review, I will also share key assumptions for our business plan 2022, for the newly combined tobacco business.

Let’s begin with the 2021 results, in 2021 the international tobacco business delivered industry leading performance across all key indicators. This amazing achievement would not have been possible without the commitment and dedication of our employees around the world, despite COVID continuing to impact the industry and consumers globally. Building on the continued strong market share momentum across our top 30 markets in previous years and supported by a more resilient industry volume in the first half, mainly due to lower illicit trade, our total volume grew to a historical record of 460 billion units. These impressive results combined with strong ongoing pricing resulted in solid top line growth and core revenue increasing to US$13 billion. Adjusted operating profit at constant currency outperformed our initial and revised guidance, setting a record growth rate and marking the 11th consecutive year of double-digit increase.

AOP and AOP margin at constant currency benefited from; one an improved market mix resulting from the travel restrictions; two, higher than initially planned contributions from our ongoing transformation initiative, which was launched in 2019; and three, contained product costs. Our 2021 performance reflects the benefits of our strong strategic focus and executional excellence. Throughout the course of 2021, we strengthened our business fundamentals in line with our tobacco strategy, which we presented to you in February last year. Let me provide additional details behind the two main pillars of our growth strategy starting with combustible. Last year, we accelerated our growth momentum, delivering significant market share gains by leveraging the strong equity of our brands, the high quality of our products and the execution excellence of our teams.

As a result, we grew share 1.7 percentage points to 31.9% across our top 30 markets following a 1.4 percentage points increase in 2020. Combustible pricing remained the key driver of our top line growth continuing to more than offset the impact from the industry volume decline estimated at approximately 3% across our top 30 markets. The transformation initiative within the international tobacco business is progressing well and enabled the identification of additional benefits. In 2021 alone, transformation generated over $100 million of efficiencies and we now expect the annual savings run rate versus 2019 to exceed the initially planned US$200 million by the end of 2022. In reduced-risk products, our priority has shifted to heated tobacco sticks as we strongly believe that this RRP segment has the most potential to support our sustainable mid to long-term profitable growth.

Accordingly, approximately 70% of our investments in RRP supported the HTS segment in 2021. With the introduction of Ploom in Russia, Italy and the UK, the JT Group is in markets representing almost 70% of the HTS volume globally. Outside of Japan, commercial efforts have mainly focused on Russia and we continue to refine our consumer insights across all markets. Our more focused approach supported the enhancement of capabilities in the areas of consumer centricity, RRP science, research and development and digital. We are making good progress on our journey and we will develop further and faster as we pool resources together with the advance of the one tobacco business.

More on this at the end of my presentation and during our tobacco event in May. For now, let me share additional details behind the main drivers of our 2021 performance starting with volume. Volume grew across all clusters, delivering an additional 25 billion units despite an intensified competitive environment. 12 markets delivered an annual organic volume growth of at least 0.5 billion units including the key markets of Italy, Spain, Turkey and the UK. Our 5.6% volume growth performance was mainly driven by continued combustible market share gains across the majority of our markets.

Actually, we grew share in 29 of our top 30 markets. And as you can see from the slide, every single key market in our portfolio delivered combustible share of market gains. We also outpaced competition in most of our markets driven by the strong equity of our brands notably of all GFBs. I'll come back to the GFB performance in a moment. This continued share performance is the result of a long-term focused investment strategy behind what we see as being a well-laddered portfolio that resonates with consumers and which is executed with excellence.

Through this strategic approach, we have increased our share in the mid-priced segment where Winston continued to outperform and in the value-price segment with brands like LD, Benson & Hedges and Camel continuing to make good progress. In addition, we strengthened our leading position of the fine cut category across Western Europe, notably with Winston, Camel and Sterling, the category which expanded in line with the continued evolution of down-trading. Once again GFBs were the backbone of our volume performance. GFB volume was up for the seventh consecutive year fueled by Winston, Camel and Mevius. Winston continued to resonate with consumers.

Its volume grew 16 billion units across more than 60 markets globally and most notably in Iran, Italy, Poland and in Turkey. Camel grew 14 billion units year-on-year in over 50 markets, primarily in Germany, Indonesia, Russia, Spain and Turkey. Despite the continued impact of travel restrictions across Asia Pacific, Mevius volume was also up 0.6 billion units. LD on the other hand declined slightly due to industry volume contraction in Ukraine. Benefiting from a solid volume increase in 2021, GFBs now exceed 300 billion sticks and represents almost 70% of our total volume.

This is the result of our focused portfolio approach enabling better use of our resources. Importantly, GFBs were instrumental in JTI achieving share of market growth in total tobacco despite the growing HTS segment. In JTI's top 30 markets, total tobacco share reached 30.5% increasing 1.1 percentage points fueled by Winston growing 0.4 percentage points and Camel adding one full percentage point year-on-year. Another key driver of our growth in 2021 was pricing despite the intensified competitive environment in several of our key markets. We generated $690 million in favorable price/mix variance to core revenue, an amount in line with the average of the previous five years with all clusters delivering positive contributions.

Focusing on pricing, more specifically, 2021 was another strong year. Key markets like Russia, Spain, Taiwan, Turkey and the UK, supported our top line expansion along with many other markets notably Canada, Germany, Kazakhstan, the Philippines and Ukraine. The product mix contribution was in line with 2020, as down-trading did not accelerate globally. Yet again, this demonstrates the resilience of the combustible pricing model and the importance to consistently invest and grow in the category to not only deliver value to our shareholders, but to also support the development of new product categories especially in the RRP space. Let's have a deeper dive on Europe and Russia.

Our success story in Europe continued. The first half benefited from a favorable comparison as travel restrictions extended longer than anticipated and illicit trade declined resulting in a more resilient industry volume. Nonetheless, our market share performance did not stall increasing another 1.1 percentage points across total tobacco to reach 23.6%. This speaks to the value of our laser-focused investment and execution behind Winston and Camel, the best-performing combustible brands in the region. In addition, a number of markets set record market shares, notably the Czech Republic, France, Germany, Hungary, Poland, Spain, Switzerland, and the UK.

Pricing contribution was positive across the region with notable increases in the Czech Republic, Germany, Hungary, Ireland, Spain, and the UK. Let's pause here to highlight the performance of the UK, a highly competitive and regulated market as well as a key market for us as you know. We started 2021 on a very high comparative base due to almost nine months of COVID-related disruptions in 2020. Industry volume had grown double-digit while our own volume had outperformed, driven by strong market share gains. 12 months later, our performance in the UK remain impressive.

Although industry volume continued to be favorably impacted by travel restrictions and reduced illicit trade we saw a gradual unwind of these catalysts in the second half of the year. Thanks to a well-balanced portfolio, Benson & Hedges in cigarettes and Sterling in the fine cut category strengthened their positions leading to a 0.6 percentage point market share increase across total tobacco setting record at 45.4%. Our share of retail value also grew 0.6 percentage points. For 2022 we are confident in our ability to maintain our market share advantage across total tobacco and continue to drive a positive topline performance. In line with our strategic focus we will continue to learn and to leverage our various RRP offerings to collect insights across all segments starting with Ploom in HTS, Logic in e-vapor, and Nordic Spirit in nicotine pouches.

Moving to Russia, our largest international markets where we had a very good year. Industry volume declined approximately 3% despite one of the largest excise tax increases experienced in Russia. Lower illicit trade volumes due to travel restrictions and the growing HTS segment partially offset the excise tax impact. The pricing situation was robust enabling the full pass on of the excise tax and fueling the growth of industry's net sales year-on-year. Although the value segment continued to expand, cigarettes remain affordable at an average price of $2 per pack.

In this operating environment, our total shipment volume increased 5.1% and declined only 0.2% when excluding inventory adjustments clearly outperforming the industry. This volume performance was in part driven by our strong GFB portfolio growing volume 18.2% year-on-year. As a result we strengthened our leading position in combustible, notably with Winston the number one tobacco brand in the market which despite down-trading stabilized its market share at 12.1% in the last quarter. LD maintained a strong number two tobacco brand position, fueled by the continued growth of its flavor on-demand offering notably in the compact format. Camel performed very well growing volume almost fivefold in less than two years to become the number three tobacco brand and reaching a 7.1% total tobacco market share in December.

Camel grew in the important segments of flavor on-demand, compact, as well as value. Boosted by GFBs, our total tobacco share grew 0.4 percentage points to 36.7% and importantly increased 1.5 percentage points in combustibles only. We have also made progress in the HTS segment with Ploom. In 2021, the HTS segment represented approximately 9% of Russia's total industry volume. The segment continued to grow albeit at a slightly lower pace than in 2020.

Ploom also grew reaching a 4.1% share of segment in December an increase of 1.5 percentage points compared to December 2020 and within a very dynamic competitive environment. We continued to take on learnings from consumers and the trade in order to prepare for the launch of Ploom X in the first half of 2022. We're extremely excited about the opportunity to bring our latest heated tobacco device to Russian consumers. The consumer acquisition trends highlighted in Japan by Terabatake-san are very encouraging for our prospects internationally. Building on consumer insights and learning from Japan, we accelerated the introduction of improved heated tobacco sticks.

These new Winston sticks offer greater satisfaction to consumers by bringing richer tastes and flavors characteristics that will be further enhanced when used with the Ploom X device in the near future. In addition, our Ploom distribution coverage has tripled year-on-year to reach over 105,000 outlets, representing about 60% of the total number of outlets in the country. Looking ahead to 2022, we're confident, we will continue to strengthen our combustible position, fueled by share gains and pricing. In RRP, we have set the right level of investments to support the introduction of Ploom X and are committed to growing JT's presence in the expanded -- expanding HTS segment. To summarize, 2021 was a phenomenal year for the international tobacco business.

We exited the year with a very strong momentum across all KPIs despite all the challenges and many disruptions. Japan also had a strong year, driven by combustible pricing and encouraging consumer trends with Ploom X. Starting 2022, post the combination of two strong tobacco businesses, we embarked on a journey guided by the unique strategic focus under a single management team, fully committed to deliver sustainable growth in the mid to long term. I'd like to share with you our views on the coming three years, starting with the 2022 assumptions. In terms of RRP, JT has often been called late, when in fact we view this as being reasonably prudent, as we needed to comfort ourselves that we had a winning proposition in our hands.

With Ploom X, we're now entering an investment phase to leverage our accumulated knowledge. Terabatake-san shared our five-year ambition to increase the HTS share to mid-teen level. To do so, we need to drive additional share gains, starting with Japan. This will require significant marketing support, considering the intense competitive environment in this market. We also need to expand the reach of Ploom X, prioritizing Russia, which is the second largest HTS market after Japan.

For now, we are constrained sadly by supply chain shortages, but the visibility keeps improving month by month. We will press ahead as soon as possible and are keen to do so. In combustibles, which will continue to provide the fuel for the HTS investments, our focus is on driving return on investments through continued share gains, GFB equity building and optimizing pricing opportunities across our footprint. To support the combustible efforts in funding or HTS investments, we will also drive additional benefits via our initiatives announced in Japan and internationally, as well as ongoing quest for operating efficiencies. As Kato-san will share a more detailed forecast for 2022 in his presentation, let me turn to the outlook for business plan 2022 for the tobacco business.

Over the coming three years, we expect total volume to be flat with continued market share gains in combustibles, offsetting the industry volume decline. In RRP, growth in HTS is forecast to drive a double-digit volume increase. In the same period, core revenue is expected to increase low single digits, driven by a resilient combustible pricing and an increasing RRP revenue contribution. Adjusted operating profit is forecast to grow mid-single-digit, benefiting from increased annualized savings from the various initiatives already announced internationally, as well as in Japan. All in all, we are committed to accelerate the pace in HTS and demonstrate the competitiveness of the JT Group in RRP, while maintaining a laser-focused attention to a combustible business and its large cohort of adult consumers.

This, we view as paramount in delivering a sustainable future for our company. In closing, I would like to expand on the benefits expected from the new operating structure we have implemented as of January this year. Clearly, these are early days, but let me paint a picture of the expanded tobacco business unit. Based on 2021, consolidated numbers, the JT global tobacco business represented a total volume of 529 billion units. This entity generated approximately JPY 2 trillion in core revenue and almost JPY 640 billion in adjusted operating profit.

HTS, which we naturally expect to grow significantly over time, represented last year three billion sticks or 0.5 percentage of our total volume in 2021, while reduced-risk products represented 4% of JT Group's tobacco core revenue. Importantly JT global tobacco business will bring together over 50000 employees and 5 R&D centers all committed and focused on delivering our new tobacco strategy. By combining resources, talents and expertise we are confident we will enhance our competitiveness in numerous areas most notably in RRP where clearly our colleagues in Japan have had a head start and where we can accelerate our learning curve for new markets. Under one single management, we will increase the speed of decision-making and increase our agility to allocate resources where they are most needed and rewarding. Our 2022 disclosure will reflect the combined tobacco business with a huge geographic breakdown in three clusters and 9 key markets including Japan of course.

More details at our first quarter results and the May tobacco event. Over the years we have demonstrated our ability with determination and consistency to deliver superior performance in combustible. We intend to do the same in HTS. Our challenge is to prove to you that the investments we are making will over time help us capture a meaningful share of a new developing profit pool in support of the sustainability of our business in the long term. Ladies and gentlemen thank you for your attention and interest in JTI.

I will now hand over to Kato-san for the review of the JT Group financial results. Thank you.

Nobuya Kato: I am Nobuya Kato, Chief Financial Officer, of the JT Group. I will explain our consolidated financial results for 2021 as well as the outlook for 2022. Let me start with the consolidated results for 2021.

Please look at Slide 4. Our adjusted operating profit at constant currency our primary performance indicator increased by 22.9% year-on-year driven by the tobacco business through the year despite the ongoing pandemic conditions especially the international tobacco business contributed with a strong pricing effect and volume increase. Both revenue and adjusted operating profit on a reported basis grew at double-digit rate due to robust top line performance boosted by positive exchange effects. Operating profit also grew year-on-year despite expenses related to the initiative to strengthen our competitiveness in our Japanese domestic tobacco business and compensation payments to leaf tobacco growers who decided to retire from the business. Profit was also up year-on-year despite the increase in the corporate tax.

Although our capacity to generate cash through business is solid free cash flow for 2021 was down by JPY 21.9 billion compared with the corresponding figure for 2020 due in part to an unfavorable comparison resulting from the sale of a former JT head office building accounted in 2020. Let me move to the results for each business. First, let's look at volume performance in the Japanese domestic tobacco business. Overall tobacco industry volume was down year-on-year by 3% due to natural decline. In combustibles industry volume was down by 8.4% year-on-year due to the growth of the RRP category and effects of the price revisions and its natural decline.

Both decreases however were less than the projections we gave in the previous briefing. We believe that RRP share in total industry volume on the other hand has expanded to about 30% in 2021 due to changes in consumer behavior under the pandemic conditions since 2020 as well as new product introductions and promotions by competitors. Our sales volume in the combustible category was less this year than last. This was not just due to shrinkage of total industry volume but because consumer preferences shifted from combustibles to RRP and down-trading intensified competition in the lower-priced segment. Since the price revision in October 21, Mevius and cigarillos in particular were affected by significant price increases resulting in a market share loss as not all consumers stayed within the JT franchise.

Our RRP sales volume grew faster than its industry volume and we achieved our initial target of over an equivalent of 4.5 billion sticks, despite restrictions on device procurement due to short supply of semiconductors. Ploom X particularly our Camel-branded refills which we price competitively drove JT share up in the RRP category to exceed 10% for the term. Now I'll move to our financial results. Both core revenue and adjusted operating profit for the year were up year-on-year because the effect of the price/mix contributions exceeded that of volume decreases for combustibles while RRP-related revenues also grew. In the third quarter, we suspended revising core revenue outlook because of the need to examine the effects of the price revision.

Combustible sales volume was above projection and our product mix improved as fewer-than-expected customers moved away from Mevius to lower-priced products, so we were able to end the year with higher-than-projected core revenue. Adjusted operating profit for the year ran above projection due to higher revenue and the effects of reduced production costs and the like. Following the October 2021 tax hike, the markup in our price revision was less than the markup in 2020 weakening the positive effect of higher combustibles unit pricing after October. While investments in RRP-related sales promotions increased, so our revenue and profit for the second half of 2021 were down year-on-year. I'd like to mention the broader effects of that price revision.

The transitory surge in demand ahead of the revision was about the same as in 2020 equivalent to four-tenths of one month of demand in normal times. And we understand that the backlash subsided within 2021. Consumer behavior after the tax hike gave us no major surprise. That said, we will continue monitoring the down-trading trend. As we informed you before, we are implementing initiatives to strengthen our competitiveness in our tobacco business, and reduce leaf tobacco cultivation area as planned.

We accounted for the cost for these measures, as adjustment terms -- adjustment items. Now I'll move to the international tobacco business. Eddy has explained our business performance in detail, so I'll focus on yen denominated figures on a reported basis. We delivered strong growth on a reported basis as well, thanks to favorable business momentum and positive exchange effects. As a result, both our core revenue and adjusted operating profit showed double-digit year-on-year growth.

Next, with slide 7, I'll discuss our pharmaceutical business. Our consolidated subsidiary, Torii Pharmaceutical, reported major growth in sales of drugs for skin diseases and allergies more than enough to cover our overseas royalty income dip and revenues increased year-on-year. At the same time, adjusted operating profit was down due to increased expenditures for research and development as well as SG&A expenses at Torii Pharmaceutical. Next, the processed food business. Revenue decreased by 1.4% due to top line decreases in the frozen and ambient food segment.

This came about because demand diminished this year against 2020, when the pandemic led to a surge in household products, while also experiencing slow top line recovery in foodservice products. Adjusted operating profit was up this year due to lower SG&A expenses and a favorable comparison from the impairment losses allocated last year in the bakery business. With the next slide and onward, I'll be talking about our forecast for 2022. Let's look at slide 9, and I'll explain our consolidated financial forecast. Although, persistent pandemic conditions make our future outlook uncertain and difficult business environment will continue, we project continuing strong performance and our consolidated forecast for major financial indices are either on par with or above those for 2021.

We project growth of 4.0% in adjusted operating profit at constant currency, driven by the tobacco business. We project revenues at the same level as those for 2021 due to an unfavorable comparison against the first half of 2021. Although, we project revenue growth in the pharmaceutical and processed food businesses, the unfavorable comparison and revenue decrease in the tobacco business can be explained by our assumptions that the total volume for combustibles will likely shrink. The impacts of the pandemic such as travel restrictions are gradually lifted and the positive effects to the industry volume trends in some high-margin markets will taper off. We forecast adjusted operating profit for 2022 at the same level as that for 2021 as the projected growth for the tobacco business is partially offset by the profit decrease projected for the pharmaceutical and processed food business.

We predict negative exchange rate effects on adjusted operating profit. We're projecting higher operating profit and profit this year than in 2021, because of last year's non-recurring expenses related to the initiatives to strengthen competitiveness in Japan and the adjustment of leaf tobacco cultivation area. We project a year-on-year decrease in free cash flow, although, we expect our cash generation will remain stable. This is due to new expenditures related to the implementation of initiatives to strengthen our tobacco business operating -- tobacco business operating model in Japan as well as a temporary dent in our operating capital and increased CapEx. Now, I will move to our forecast for the tobacco business.

Please look at slide 10. As we informed you, we consolidated our Japanese domestic and international tobacco businesses in 2022. My forecast here and the results I'll be showing you later are therefore based on this new business structure. First, let me touch on our volume assumptions. As explained earlier, the impacts of the pandemic, such as travel restrictions are gradually lifted and the positive effects to the industry volume trends in some high-margin markets will taper off, leaving an unfavorable comparison against the first half of 2021.

We project a year-on-year volume decrease for 2022. We project only a slight year-on-year decrease in core revenue on a reported basis, as we plan to continue optimizing pricing opportunities, build market share in several markets and expand RRP sales volume. We are projecting adjusted operating profit on a reported basis at the same level as in 2021. We expect to see positive effects from our initiatives to increase competitiveness in the Japanese market and transformation in JTI, which will offset an increase in investments towards HTS and the negative exchange effects due to exchange losses for local currencies against the Japanese yen, particularly the Russian ruble and Turkish lira. Here let me speak on the disclosure of information related to the tobacco business for the first quarter of 2022 and onward.

As I mentioned, we will show you the results for our consolidated tobacco business. As to the details, however, we will show sales volume core revenue and adjusted operating profit for three newly defined geographic clusters each quarter. As you see in the slide, the three

clusters are: Asia, including Japan; Western Europe, including the U.K. and Spain; and EMA, including Eastern Europe, the Middle East, Africa, Turkey, the Americas and the global travel retail. With slide 11, I will explain our forecast for the pharmaceutical business.

Because the revenue increase at Torii Pharmaceutical and an increase in non-recurring income from out-licensing contracts will likely exceed the decrease in overseas royalty income, we are projecting revenue growth for pharmaceutical. We also project reduced adjusted operating profit for this year due to an increase in SG&A expenses at Torii Pharmaceutical. Next, let me give you the forecast for our processed food business. We project an increase in revenue, as we expect to see growth in household products, positive effects from price revision and recovery of sales for foodservice products in the frozen and ambient food business and the seasonings business, as well as a recovery of sales in the bakery business. We are projecting lower adjusted operating profit this year due to increasing costs for raw materials.

To address the negative effects of rising material costs, we will continue strategic price revisions. Lastly, please look at slide 13. We ended 2021 with results greatly surpassing our projections, driven by the strong performance of the international tobacco business despite many unpredictable factors, including those related to the pandemic. In the Japanese market, we introduced Ploom X, which contributed to steady market share growth for us and we made strategic investments for better future performance. Although, our business environment remains uncertain and we will enhance investments for future growth, we project profit growth for 2022, anticipating positive effects from our initiatives related to the strengthening of our competitiveness and transformation.

We will further enhance our investment in the HTS category, as well as to accelerate growth. Let me end my presentation with shareholder returns. Based on our shareholder return policy we plan to pay a dividend of JPY 140 per share for 2021, a dividend payout ratio of 73.4%. For 2022, as Mr. Terabatake has explained, we plan to pay JPY 150 per share, a dividend payout ratio of 74.8% in accordance to the target ratio of about 75% raised in our shareholder return policy.

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

Operator: So now, I’d like to start the Q&A session. Let me introduce the speakers who will be answering your questions. Masamichi Terabatake, CEO of the JT Group.

Junichi Fukuchi, CEO of Tobacco Business Japan; Nobuya Kato, CFO of the JT Group; Eddy Pirard, CEO of JTI; and Vassilis Vovos, CFO of JTI. Next I’ll show you how to ask questions.

Operator: [Operator Instructions] Thank you for waiting. The first question is the following. Mr.

Miura from Citigroup Global Markets Japan Inc.

Nobuyoshi Miura: Hello. Can you hear me?

Eddy Pirard: Yes, we can.

Nobuyoshi Miura: Can you hear me?

Eddy Pirard: Yes, we can.

Nobuyoshi Miura: Thank you for taking my questions.

My question is geared towards Terabatake-san as well as Eddy. So with JTI and the Japan segment, the tobacco business is going to come together. And I have high expectations towards that. I'm looking forward to it. For the new -- under the new organization, specifically what will change through the consolidation? Can you give me more flavor on what kind of changes are expected? Thank you.

Operator: Thank you. So it was a question about the changes through the consolidation of the tobacco businesses. And Mr. Terabatake as well as Eddy will answer your question.

Masamichi Terabatake: Thank you very much for your question.

This is Terabatake speaking. Last year in February, we announced the consolidation of the tobacco businesses. And in line with our plan, we have been making progress. And from January this year, JTI the tobacco business has been consolidated and the HQ is now in Geneva. With regards to what kind of changes we're expecting, it was mentioned in Eddy's presentation in detail and I'm sure that Eddy will follow up later on.

But the challenges we are feeling, which I shared with you last year as well is that for JT and JTI, we had the two businesses existing in the past. And for the combustibles business, the platform was common, but we were optimizing locally, so that we could strive for overall optimization. But for new categories, when RRP came into the picture, we have separate customers under separate management when we executed our strategies. But we thought that by globally consolidating, we could have put together a common strategy which we weren't able to do in the past. So we needed to solve this issue from an organizational standpoint.

And that's why this time around, we decided to make this change. So in other words, this in itself, it's like an M&A. It's a step that we're taking. It is a milestone that we reached. However, this is not our ultimate goal.

Consolidating into one organization means that we would like to make each other's strength even stronger and make our competitiveness enhanced. That is our prime focus. And from January this year, the consolidation that has started is something that has just started and it's not our ultimate goal. So under new JTI or under the new tobacco business, we will strive for further growth in an integrated manner. So specifically, like Eddy mentioned earlier, I think the strategy piece has greater significance.

We will be able to have unified strategies that we can execute upon and do it under single management. And also, the same thing applies for resource allocation as well. We would like to grow combustibles. And for the cash generated under this business, we would like to ensure that we efficiently make investments into HTS. And we would like to manage this in a unified global manner.

By doing so, we believe that we could achieve global growth that we weren't able to achieve in the past. And by the end of 2027 for RRP, we will have one single target on a global basis and we were able to do so. So towards fiscal, we would like to do our best. So that's it for myself. For details, I would like to have Eddy follow-up.

Thank you. Eddy?

Eddy Pirard: Thank you very much, Terabatake-san and thank you for the question. And arguably the coming together and more closely together of the JTI and the domestic business has been a topic that has been talked about for a long time. But under Terabatake's leadership, we have concluded that it was the time to formalize the closer working together. We all have to learn from another.

And we surely know in JTI that we have benefited a lot from the insights of JT and its way of approaching strategies in managing the business. But as we grew over the last 20 years of JTI's life, we have also developed skills and insights into consumers, international consumers that we felt we were not sharing to the full extent possible with our colleagues from Japan. We have embarked on a very in-depth assessment of the opportunity. And I can tell you that the level of excitement of engagement behind the coming together and a unified one team is very encouraging. People are embracing the opportunity to learn more from one another but also more importantly when it comes to business results to unify and maximize our opportunity when we look at global resources available to us as a JT group.

We have not started January this year to leverage that opportunity. We've done that already in the area of our R&D, as mentioned before in those presentations. And this has already delivered benefit and we see that the future is of bringing us together. We have established work streams in all parts of the business looking at the opportunity to improve the ways of working and one of the most evident benefit that we see already emerging is the speed of decision-making, the challenging of the approach and the status quo that we have all had in our respective businesses but also the ability to be faster, more agile and more nimble in the way we approach business opportunities and we address business challenges. So all in all, this is not about traditional concept of synergies and cost efficiencies, although there will be some over time.

But this is more about leveraging one another and making sure that we can learn from one another to build a better and stronger business over the long term. Thank you.

Operator: Miura-san, does this answer your question?

Nobuyoshi Miura: Thank you. Just one thing that I would like to learn from you is when you compare JTI with PM and with JT, when you look at the regulators that decide on taxation and so forth, it seems that the communication that you have relative to PMI is rather late in the process. So for – do you think there will be any changes in the future with regard to how you deal with regulators?

Operator: So that was a question about regulators.

So Mr. Terabatake will first answer your question.

Masamichi Terabatake: Well, I will give you an overall picture and hopefully, Eddy can follow up on this comment as well. So for regulators and being late in the dialogue flow, as you pointed out in your question in each market we are in that may be a fact. However, in each and every market we're in, we don't personally feel that we are really behind.

But I think the position that we have established relative to our competitor that you mentioned PMI is different in the market. In the case of ourselves, we are going to continue our investments into HTS but we also believe that combustibles is going to continue to be an important category. And when we look out into the next decade, combustibles will continue to be an important profit source. So for regulation, we would like a balanced regulation regime and that's the approach we'll take in each market. And for RRP-related regulation, we don't want regulations that will benefit one single company.

Rather, we would like a fair equal footing in the industry, so that we can grow RRP as a business. So that kind of discussion or dialogue is the nature of the dialogue that we're having. So I think the difference in stance translates into the difference in approach. But Eddy, can you follow up on my comment? Thank you.

Eddy Pirard: Sure.

Thank you very much, Terabatake. You said it pretty well. But in the countries and in the regions where we do operate, we cooperate in public policymaking and have done so for a very long time. We strive always for open and very much a constructive dialogue with the regulators. We've been expressing our views on regulatory issues for a number of years for issues that affect society in general or the business more specifically.

We've entered discussion on – public discussions on governance, on illegal trade, on better work practices and better regulation as a process. We like transparency issues around sustainability and we are not shy to provide our views to the regulators. Now maybe we have a different DNA than some of the other players in the industry. But rest assured that, we do engage, and we have a very much a valid interest in engaging with our stakeholders, to make sure that we are contributing to the debate. Being around the table for all of these issues that are popping up, and we know the regulation has been and will continue to be an important part of our business and how we operate this is something that we want to participate.

We are open to it, and we have opinions. Now clearly, HTS is a new developing category over the last few years, and we are formalizing our views, but it is very clear that there are some benefits to the categories. We have always pushed towards the view of consumer choice in the industry, and it's in that respect that we have also maybe sometimes a different position, when it comes to regulation. But there are good debates to keep developing ongoing.

Nobuyoshi Miura: Yes.

Thank you very much.

Operator: Thank you very much, Mr. Miura. We'd like to take the next question. It is from Mr.

Saji Mizuho Securities. Please un-mute and ask your question.

Hiroshi Saji: Yes. Thank you. I have one question, please.

Regarding, the tobacco business this year's profit is well not going to grow so much. I understand. But what is the background to this? If you can give me more color on this. And I understand that, Eddy mentioned in the presentation that we have the highest share ever with the adjusted operating profit margin and the share expansion in the 30 markets. 29 out of 30 markets, we see a share increase.

So, if the industry environment changes with the relaxing of the travel restrictions and the environment improves maybe not dramatically, but there will only be a slight improvement. I understand, the message, but I understand that there will be about ¥200 million increase in the profit. It may be not that much. I understand your message. But I'm wondering, what kind of risks you have acknowledged behind these figures that you have presented in the guidance? If you can give me some of the risk elements behind these figures.

Operator: So regarding the tobacco business FY 2022 forecast, we would like to have JTI, CFO Mr. Vassilis Vovos answer, please.

Vassilis Vovos: Thank you for your question. And let me try to explain a little bit of the algorithm that, we have built for the forecast that we have in 2022. As you saw in 2022, there is a difference versus the performance of 2021 that is remarkable, which is the volume performance.

Starting with the volume performance, we are anticipating a reduction of our volumes in the area of 3%. This is in contrast to the growth of 5.6% that you saw in 2021. And of course, we expect that pricing will continue to be strong, as we have seen it also in 2021 and 2020. But there is an element of down-trading in product mix that will be actually compensating and taking away from our pricing. And the bigger element of our algorithm for 2022, as mentioned also by Kato-san is the fact that, we expect that the bigger mobility of traveling will create an unwinding of some of the benefits that we witnessed in 2021 from the high-margin markets like the UK and others.

So that means that, we expect that the market mix will unwind in a way that will reduce a little bit the positive benefit of the pricing. So, the overall effect on our revenues is pretty flat and slightly negative as you saw in the presentation, because we have a minus 3% on volume, a strong pricing, but the difference is taken by the product mix. Now on this background, we are managing to increase at a stable effect our profit by about 3.5% to 4% and this is happening, because while we are not increasing our revenues. We are continuing to contain our costs in two areas one that has been very clearly mentioned during the presentation, which is the continuous efficiencies that we're generating by our transformation both in the international and in the Japan market business. And the second is our capacity to contain our product costs.

Our product costs already in 2021 have been pretty well contained, because despite the fact that we increased our volumes, we managed to have the same cost of product which means on a per-unit basis we had a reduction of product cost. This is very much linked to our capacity to manage the input costs of leaf and this continues in 2022, and it's driven by our advanced purchasing that we're doing on leaf, as you know as the cycles for this are long. That will help us maintain, our product costs under control despite any inflationary pressures that may exist because of the logistic challenges that we are facing and the material challenges that we're facing in 2022. So the combination of cost savings, which are linked to our operations, the transformations and the product cost savings allow us to create this profit growth on stable currency, which when it translates of course into Japanese yen given the FX effect is pretty much coming to the number that you mentioned in your question. Unidentified

Company Representative: Thank you very much.

Mr. Saji does this answer your question?

Hiroshi Saji: Yes. Thank you.

Operator: The next person to ask a question is from Nomura Securities, Mr. Fujiwara.

Please unmute and go ahead with your question.

Satoshi Fujiwara: This is Fujiwara from Nomura Securities. Thank you for taking my question.

Masamichi Terabatake: Thank you.

Satoshi Fujiwara: I have two questions.

My first question is about HTS. So I hope Terabatake-san and Eddy can answer my question. So the market for HTS, PMI was ahead in the market. And as a pioneer, they do have an advantage as a fact. For your company, you're trying to disrupt this.

And I was wondering if you are well capable of doing so, meaning from a product development point of view, manufacturing sales, or marketing point of view do you now have executional power that can beat competition? Secondly is about your international business. Market share gains has been quite strong and I think that's encouraging. Including HTS for the total tobacco market, you have been able to steadily increase market share. So I was wondering about the backdrop to that. What was the competitive advantage against your competition that enabled you to go through the market share gains?
Unidentified

Company Representative: Thank you for the questions.

So for the first question, it's about the RRP business and our capabilities. For that, we will have Terabatake-san and Eddy take your question.

Masamichi Terabatake: So let me take the first question about HTS and JT's capabilities and whether we can beat PMI's IQOS ILUMA whether we are capable of doing so. Well, so that we can do that, we have been making efforts and we have been continuing to work on strengthening our capabilities. And finally in August, this last year we have been able to launch Ploom X the first global model.

And in a mere 4.5 months, we were able to increase our category share from 0% to about 6% in range. So that was a bright light for us. In addition to that for marketing, we have been taking advantage of digital marketing. And for the sticks itself as well as the vaping experience, we have been changing the quality of the sticks and manufacturing equipment as well as R&D related investments and development have been ongoing as an effort. And we have started to see a certain degree of results come through.

And I think that's a positive. So based off what we've accomplished so far for this year, we'll be looking at Russia and possibly we'll be expanding the business out to Europe as well. So we have been struggling in Japan for the past several years but we have accumulated expertise know-how as well as consumer data and we do global development. But for the capabilities, we have accumulated so far we would like to apply them to the global market. And for Japan we have seen the category share go up to 30% and we do expect the share to continue to go up.

But in Russia, it's in the low-teens and in Europe it's still yet to grow. So we may be the second or third player in the market, but we believe our capabilities are now at a level where we could regain share in the market. But we'll have to prove ourselves through our results. But we will make investments accordingly so that we can make efforts to achieve results. So Eddy, can you follow-up?

Eddy Pirard: Yes.

Thank you Tera-san. When -- I think it's a very good question given the evolution of the industry and where we are in it now. When you think about the category of HTS in particular, it very much addresses the needs of consumers, which has been at the core of our capability when you think about the -- if I can call it that way, the pre-HTS era. And we have made constant progress for the last 20 years in a very competitive industry with some very serious needless to say competitors. So do we have the confidence that we have what it takes to compete? Well, until recently we had some gaps that we identified.

We didn't have maybe the extent of the resources of some competitors and maybe the foresight at some point in time as to the type of reduced-risk products that consumers wanted. But we have used the last few years, I think in a very responsible way learning -- improving our learning about what resonates with consumers, what works, what doesn't work. We have used the opportunity to develop our own internal skills to build on the other skill set that is required to make something like HTS a success commercially. I'm talking about many, many years of trade marketing, consumer marketing, trade insights, consumer insights and all of that, which are capabilities that we can also leverage for HTS and we have high confidence in that. The specific HTS-related skills that we were -- that maybe were not beefed up sufficiently in the past to quickly address the emerging opportunity were in the areas of research and development, science, digital capabilities and an organization that was maybe more nimble and able to make faster decision in an environment that was moving very fast.

You might have noticed that in the era of IP for example, we have ramped up our capabilities massively over the last few years and in fact won some awards for being one of the leading developers of new IP in the category over the last few years, which gives us a good confidence that we are getting there. Now, as I mentioned in my presentation, I'm sure you noticed, we have been quoted late and it's a fact compared to the development of the category. But I think that as a smaller player than some of our competitors, we had to have the confidence, the faith in having in our hands a product that does deliver, that will require significant investments to bring this to consumer hands, to ensure good retention and a good adoption of our product versus competition. But the early metrics that we have is giving us that confidence and it will take time to develop our presence. But as Terabatake-san just mentioned, we are confident of the recent results that we're getting of the trajectory and we will keep on doing, what we did for the combustible in this new part, this new leg of our business coming forward.

Thank you.

Operator: [Foreign Language] So the second question is about international market and favorable market share gain performance. That was the second question. JTI CFO, Vassilis Vovos will take that question.

Vassilis Vovos: Thank you.

Thank you. And you are very right to mention that the actual -- the growth of 2021 of about 26 billion units as you saw in the presentation of Eddy, is largely all driven by the share of market growth that we have made in all these markets because the market size was declining, but our market share growth is managing to compensate and overcompensate for that. And it is not of course one year, where we have share of market growth. As you follow our presentations year after year, we come with the same consistent results of significantly compensating for the market trends by a very strong share performance. So it's a number of years now that our brands are growing.

And you saw in the presentation earlier by Eddy that, our GFBs are the fastest-growing brands in the tobacco industry at this moment, and they are growing in a very wide geographical base, a big number of markets. This is linked to the fact that we have been building our portfolio over the years in a way first of all that is complementary, so that it meets different consumers and consumer choice motivations, both in terms of price, but also in terms of product mix and that we have continuously invested in the equity of our brands, both with consumer, but also with the trade for a number of years. And we continuously look at this customer centricity from an eye of efficiency return on investment. And at the same time, making the balanced decisions between a growing market share, but also maximizing the value we can take out of this growth. It is -- you can see that very well, our very strong pricing performance.

In fact, the strength of our brand equity is the one that allows us to take pricing every year and be confident on that. So, I think if we look at the track record of our brand growth, we can see that there is a competitive advantage in the way our brands are positioned in most of our markets and the fact that we have not a single brand driving the growth, but in most cases, the brand portfolio that meets different consumer needs and that we have a very strong operational excellence in terms of our relationship with retailers as we are moving year-after-year. So, I think we can count on the fact that we will be able in the years to come to continue this momentum of growth in our brands. And that, of course, is by taking market share from all our competitors.

Operator: Fujiwara-san does that answer your question? Thank you.

All right let's take the next question. The next question is from Mr. Morita Daiwa Securities. Please unmute and ask your question..

Makoto Morita: Yes, this is Morita from Daiwa Securities.

Thank you very much. I'd like to ask Mr. Terabatake about the concept of beyond nicotine the mid to long-term strategy please. So, your competitors are talking about beyond nicotine that's really the keyword for the mid to long-term. It is the way they're going to create the new innovation.

And it seems like this really is forming of a business based on the new principle I guess. But you I understand continue to find the seeds of the new businesses. But I guess there's much more distance from this seed investigation phase to actual business formation. I'm wondering when you think about your next deployment of your business, are you not concerned about the lack of velocity in which you move, or is it just that you are not disclosing it to the capital market yet but you have all these wonderful projects underway? Please let us know. And also as JT Group, when you think about the mid to long-term positioning, what really is the value and the added value you're trying to provide to the consumers? I mean if there -- if that requires a change on your part what kind of changes are you trying to implement? Because all you really talk about is chasing after the RRP market.

And I'd like to hear more about the direction that you intend to pursue proactively in the future. thank you.

Operator: Thank you. For this question from the mid- to long-term perspective and the formation of the new business and the value that the group will provide. We would like to have Mr.

Terabatake answer please.

Masamichi Terabatake: Yes, thank you for the question. Yes, let's see. Mid to long-term, what direction is JT Group going to pursue? Are you considering the steps? And are you not late compared to our peers? I understand your question and your comment. Now, however, as we have mentioned today we want to first of all make sure that we generate profit from the combustibles business and work on the HTS new business or new business in the tobacco business make sure that this is fully established.

This is what we would like to do for now. It is something that we would like to focus on and since our focus is there, we have mainly talked about that today. But when we look at the organization overall, what we don't want is to have a wavering focus because when we start talking about beyond nicotine, it kind of -- how should I say this, the direction that the employees should pursue will be -- will lack focus and it will be a wavering direction to our employees. So, that's why for the JT and JTI in the next three to five years, we're saying that the goal for HTS by 2027 should be achieved. First and foremost, that's what we need to do now is the nuance that we are speaking to our team here.

But at the same time as a corporation, how are we going to form the new business beyond -- well beyond nicotine or what is it I think are you asking for 2040, 2050 what is the road map? How are we going to provide value that will be accepted and appreciated by the society? Well that is something that we are working on since I have assumed the post of CEO. I think it was two years ago 2020 that as a corporate R&D organization we created the DLab which I talked about. And so in 2013 I think from there we have been steadily progressing with this project and it turned into an organization and now we have all these projects going on with ventures and government academia corporation partnership with an investment less -- no less than JPY 10 billion. So, we are making these efforts. But it's just that we are not ready to announce this to you.

It feels like -- how can we talk about a future when we haven't quite been able to establish the current business? Right now I mean we don't want to be we don't want to provide a misleading information as if to say why are you talking so aspirationally about the future when you haven't really solidified your current business? So that's why we are focusing on what we need to do right now and we will have a timing in the future where we will be able to announce our new business well beyond nicotine internally and externally. Are we late in this pursuit? I personally do not think we are so late because this is a long-term strategy that we're talking about. We really need to make sure that we lead this. Having said that I mean a business formation is something that needs to be accompanied by profit generation. So these are the premises that we are thinking on.

And we will be able to formulate business gradually on top of this kind of thinking. With all of these things said these are the way I see things. So in this financial earnings results that we have announced today we are not ready to talk about the future plans in high granularity, but we will be able to do so in the future.

Makoto Morita: Well, I look forward to that.

Masamichi Terabatake: Thank you, Mr.

Morita.

Operator: [Operator Instructions] Let me introduce the next person. Ms. Kawasaki from UBS please. Satsuki Kawasaki : This is Kawasaki from UBS.

I have a short-term question. I have one question. It's about Ukraine. You have about 20% share there. I don't have the latest data but on net revenue basis I think the market is about 600 million.

So for Ukraine what are demand trend risks that you are anticipating? Can you give us some implication there?

Operator: So for your question JTI CFO, Vassilis Vovos will take your question. Over to you.

Vassilis Vovos: Thank you very much. In Ukraine as you know over the last few years there have been significant tax increases which we have passed into our retail prices of course. And as a result, the market size has decreased over the past years.

Of course we have a strong market share with our GFBs. But our biggest focus at this moment when it comes to Ukraine of course is the geopolitical situation and to make sure that our operation and our people are prepared in case there's any developments that are unfavorable. So our key focus at this moment is to make sure that if there's any developments on the geopolitical front our people will be safe they will know how to handle themselves and where to go and also that we have business continuity to the extent possible. So I think this is a key point I can mention at this stage about Ukraine.

Operator: Ms.

Kawasaki, I hope that answers your question.

Satsuki Kawasaki: Yes. Thank you.

Operator: [Operator Instructions] So it seems like we have no further questions. So now we'd like to conclude the meeting.

Thank you so much for your participation.