Earnings call transcript: Japan Tobacco sees growth in Q3 2025

Japan Tobacco Inc. reported significant growth in its third-quarter earnings call, highlighting a 27.2% year-on-year increase in adjusted operating profit at constant rates. The company revised its full-year forecast upward, anticipating record-high figures across key financial indicators. Despite these positive results, the stock market reaction was not available for analysis. The company’s strategic focus on Reduced-Risk Products (RRP) and market expansion in Russia and Turkey contributed to its strong performance.

Key Takeaways

• Japan Tobacco’s adjusted operating profit grew by 27.2% year-on-year.
• The company revised its full-year forecast upward, expecting record-high figures.
• RRP volume increased by 27%, with the successful launch of Ploom AURA in Japan.
• Strong market growth in Russia and Turkey supported performance.
• Japan Tobacco plans significant investments in RRP over the next three years.

Company Performance

Japan Tobacco demonstrated robust growth in its financial performance for the third quarter of 2025. The company’s focus on expanding its Reduced-Risk Products and strategic market expansion in Russia and Turkey played a crucial role in its success. The company’s HTS market share in Japan reached 15.5% in Q3, indicating strong competitive positioning.

Financial Highlights

• Revenue: Not disclosed in detail, but significant growth noted.
• Adjusted Operating Profit: Increased by 27.2% year-on-year.
• Profit from Continuing Operations: Increased by 16.6%.
• Total Tobacco Volume: Increased by 2.2% year-on-year.

Outlook & Guidance

Japan Tobacco revised its full-year forecast upward, anticipating record-high figures across all financial indicators. The company expects high single-digit growth in the coming years and plans to invest ¥650 billion in RRP from 2025 to 2027. The company aims to achieve profitability in the RRP segment by 2028, with a mid-term strategy update scheduled for February 2026.

Executive Commentary

"Our HTS segment share growth accelerated, driven by Ploom AURA and EVO Premium Sticks," said Hiromasa Furukawa, CFO. Nobuya Kato, Deputy CEO, emphasized the appeal of Ploom AURA, noting that "about 60% of the purchasers are new users or new customers."

Risks and Challenges

• Potential tax increases in Russia could impact profitability.
• The global economic environment remains uncertain, which may affect consumer spending.
• Competitive pressures in the HTS market could impact market share growth.
• The success of RRP investments depends on regulatory developments and consumer adoption.

Q&A

During the earnings call, analysts inquired about market dynamics in Russia and Turkey, the company’s RRP investment strategy, and HTS market performance in Japan. Executives addressed potential growth concerns for the next fiscal year, highlighting their focus on strategic investments and market expansion to drive future growth.

Full transcript - Japan Tobacco Inc (2914) Q3 2025:

Moderator, Japan Tobacco Inc.: Thank you very much for joining the industry meeting for Q3 2025 results of Japan Tobacco Inc. today. It’s time, so let us start. 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 Hiromasa Furukawa, CFO of Japan Tobacco Inc. Thank you for joining us today for Japan Tobacco Inc.’s third quarter 2025 earnings briefing. I will begin by explaining our nine-month consolidated result for the fiscal year 2025. Please see slide four. 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 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 a continuing operations basis. Now, I will move on to explain the consolidated results. As shown on the slide, all indicators in the nine-month consolidated results showed significant growth. AOP at constant effects, 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 costs 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. Please turn to slide five for the tobacco volume performance. Total volume, combining both combustibles and RRP, increased by 2.2% year-on-year. This solid volume performance, following a strong first half and in the context of a global declining 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.

Combustibles 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 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 UK. 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 six. 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 fueled 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 UK, outweighed the lower product mix, mainly due to downtrading 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 effects increased by 25.7% year-on-year. As I mentioned earlier, effects impact on AOP was unfavorable. Slide seven reviews the performance of the three clusters in the tobacco business.

The graphs on the slide show year-on-year variances in total volume, core revenue, and AOP at constant effects 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 combustibles industry volume in Japan and Taiwan. Regarding financial results, a strong pricing contribution, mainly in Japan and the Philippines, outweighed the negative volume impact and lower product mix, mainly due to downtrending 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 UK, total volume decreased by 4.2% year-on-year due to lower combustibles industry volume in several markets, primarily in the UK, 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 UK, and continued Ploom share gains in the HTS segment in several markets. Core revenue and AOP grew as the pricing contributions, mainly in Italy and the UK, offset the negative volume variance, mainly in the UK. 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 effects, 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 eight provides an update on the HTS share trends of Ploom in selected markets. As shown in the graphs, Ploom 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 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 AURA, now present in 28 markets as of the end of October. Slide nine explains the performance of Ploom AURA and EVO Premium Sticks in Japan. The product launched at the end of May this year has 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 purchasers, as indicated by the graphs 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 two 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 markets, we are gradually transitioning to AURA, with launches completed in eight markets as of the end of October.

We plan to roll out AURA 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 ¥1.8 billion year-on-year, mainly driven by the positive price revision packaged goods price 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 four-year consolidated revised forecast. Core revenue at constant effects has been revised upward by ¥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 effects. AOP at constant effects has also been revised upward by ¥71 billion from the previous forecast, reflecting the upward revision of core revenue at constant effects. Consequently, AOP at constant effects is now expected to increase by 24.3% year-on-year. We are also expecting that the negative effects 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 ¥89 billion from the previous forecast. Operating profit has been revised upward by ¥94 billion, reflecting the upward revision of AOP and expected gain on sale of real estate in the adjusted items. Profit from continuing operation has been revised upward by ¥62 billion, driven by the increase in operating profit.

Profit from discontinued operation has been revised upward by ¥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 ¥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 three-year forecast is now expected to increase by 2% year-on-year. Turning to financials, core revenue at constant effects has been revised upward by ¥112 billion from the previous forecast.

This revision effect 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 effects has also been revised upward by ¥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 effects impact on AOP is expected to remain negative, the magnitude of this impact is expected to be smaller than the previous forecast. Slide 14 explains a revised forecast for the processed food business. The forecast for revenue has been revised downward by ¥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 effects increased significantly by 27.2% year-on-year. In HTS, our investment focus, market share and volume continue to grow steadily across markets. In Japan, we are seeing strong performance from Ploom AURA and EVO Premium Sticks, launched in May, and we accelerate the transition to these products in overseas markets as well. As for the three-year forecast, we have revised all indicators upward, reflecting the continuing strong performance in the tobacco business and the easing of negative effects 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 ¥26, from ¥208 to ¥234. As previously communicated, we determine the dividend for the current period based on the payout ratio calculated on the continuing operation business. As per the revised three-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 Japan Tobacco Inc., and Nobuya Kato, Japan Tobacco Inc. Deputy CEO. Next, I’ll show you how to ask questions.

We are afraid we do not accept questions in this English line. If you have any question, please send an email to jt.il@jt.com. We’ll introduce your question accordingly. Thank you for your understanding. We will take answers to all of your questions. Thank you very much. We have received your questions. Please answer the questions from the speaker.

Nobuya Kato, Deputy CEO, Japan Tobacco Inc.: Thank you very much. The first questions come from Sajisan of Mizuho Securities. Thank you very much. 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 it so strong at both of those markets? 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 downtrending that’s accelerating in the Russian market and also the other market in Turkey. Probably thinking about the risk of war next year after the PMI supply chain trouble is finished. Regarding the result and the forecast for Russia and Turkey, Japan Tobacco Inc.

Deputy CEO Kato is going to answer those questions. Sajisan, thank you very much. This is Kato speaking. I will take up your questions. First of all, let me refer to Russia, where the business has been quite strong. 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. This year, there was a big decline as well. This is probably the restriction getting much tougher for the illicit trades or the illicit tobacco imports. I think they are starting to harvest the result of that restriction. Last year, the percentage of the illicit products has declined. We had assumed that there would be some reduction for this year as well. That result has been much bigger than what we had thought.

As a result, there’s been a push-up demand for the cigarettes. That trend is continuing. 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 Turkey. It’s not limited to this year, but the total demand has been increasing for the entire industry for the past years. I think we have communicated the same thing for the last few years, but the Turkish market is going through a hyperinflation. Against that backdrop, we are trying to work on the pricing to be aligned with the inflation speed. 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 a faster speed.

As a result, the tobacco product gives an impression that it is priced reasonably. Also, the total population is growing in Turkey. With those reasons, for recent years, including this year, the total demand is increasing. To build more on that, as you mentioned, in Turkey, we have Winston, which is growing, and then share is steadily growing. This time, the volume expectation for Q2 was quite steady, but our assumption is that the growth is going to be much bigger. More than half of that growth will be coming from the steady growth in Turkey. Our market share is also growing, and that’s the reason why the volume is increasing. We have come up with the upward revision for the volume increase. Talking about the potential risks for 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 are 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, the next fiscal year’s VAT, the value-added tax, is going to be increasing. 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. 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.

If that will be the case, the possibility of downtrend might be likely, and the total industry volume is going to be negatively influenced if that’s the case. That’s the potential risk for the total market volume in the Russian market. In the meantime, for Turkey, the total demand in the 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. Looking at the pricing of other consumables, the tobacco seems to be priced quite reasonable. It’s not going to be showing a wide gap, I guess. The total demand, that robust demand, is going to continue, is what we are assuming. 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? So far, right now, the PMI have made improvements in the supply chain issue, and they say so. Our market share that we have grown and stolen from them has not been dropped. We are maintaining the share that we have taken from them. Is the share going to be significantly dropping once next year comes? We don’t think that is likely to happen. Of course, peers are going to do the best of sticking back their position. We need to respond to their measures, trying to maintain or further grow our market share in that market. That’s my answer. Thank you so much. 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, but okay, understood. Thank you so much. Thank you, Mr. Saji. Now, we’d like to take the next question. Mr. Morita from Nomura Securities, please. Mr. Morita, would you unmute, please? Mr. Morita, we don’t hear you. Do you hear me? Yes. Sorry. I have one question about RRP. I’d like to have a clarification. You said that the ¥650 billion investment up to 2027, and you’re going to have the profitability in 2028. Also, share growth has been very solid up to now. In the mid to long term, ¥650 billion investment, and you’re going to have the profitability in 2028. Do you have any change in mind? In the long term, your cash flow position is very good.

I think it will be possible for you to increase the investment. Do you have any thought 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. Our investment for RRP, at this point of time, there is no major change. As we have communicated, ¥650 billion is from 2025 to 2027. Next year and onward, we continue to have the update. For the usual update, we are going to have the usual investment update. In 2028, our target for the midterm, at this point of time, currently, we are in 2025, so we have three years to go. Toward that, we will make our progress to achieve that target. We will revisit our plan accordingly. Cash, yes, rich. Also, our performance in profit is very good.

I understand your decision 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. Then we’d like to revisit our investment plan and update that and execute the plan. Next year and onward, as you know, in February next year, we are going to have the three-year earnings call, and also the midterm plan will be presented in that meeting. At that point, we’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. Your midterm plan in the mid of 10% line, that is a share plan. I am not fully satisfied with that number. Don’t you have the intention to increase the target again?

You are going to have the payback of the investment in 2028. Is that possible? 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 anytime. Currently, 2025 and 2026 and up to 2028, we still have two or three years to go to achieve the target we have already presented. Whether the current pronounced target is the viable one or not, and also whether we need to make our progress to that achievement, we continue to monitor that progress. If in need we have to revisit that, we will have our communication in due course.

What is most important for us to monitor is Ploom AURA. After the launch in Japan, it has been very robust. Also, as commented in the presentation, we are going to have the replacement in the existing market of the Ploom X. The robustness of AURA in Japan, how we can sustain that very good momentum in Japan needs to be monitored. Also in other markets, how we can expand. The share has been increasing steadily so far, but how we can accelerate the growth, we need to closely monitor the situation. As you have indicated, and I understand your comment was based on the expectation, but whether we’ll 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. Thank you. Norita-san, thank you very much for your questions.

The next two questions are from JP Morgan, Fujiwara-san. Mr. Fujiwara, over to you. Hello, this is Fujiwara of JP Morgan. Thank you very much. I have one question. 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? The other companies have had the national launch of the new device that was done in September. Even after that, your share momentum, was it sustained quite strong even after the launch of the new device by the competitor in Japan? Regarding that question, Kato is going to answer. Fujiwara-san, thank you very much for your question. In Q3, when we look at that quarter alone, the share was 15.5%. On the monthly basis, the monthly report, we do not disclose the figure, but as a trend, it was July and August right after the launch.

Of course, the interest of the users or the customers was quite strong, and we conducted very intensive promotional campaigns. In the meantime, the month of September, MEVIUS has had the price up. Also, as you said, other players launched a new product or the new device into the market. For the two months, July and August, compared to those two months, we had experienced a soft market in September. However, in October, we are already reaching at the end of October. When we look at where we are now, after September, since the mid-October, we had resumed our campaigns and promotional activities. Compared to September, we saw recovery in October. 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.

The promotional campaigns for us and for other companies in the market, of course, there are some ups and downs, fluctuations, and changes month by month. 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 three months in the category of HTS, it’s the share number two, isn’t it? The HTS itself is the share of the category as number two, right? In the Q3? In the quarter three, yes, that’s the case. Incidentally, this momentum is very strong continuously, as you say. 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 two companies. Is that the case?

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 purchasers. Actually, about 60% of the purchasers are the new users or the new customers, of which about half is a switchover from the heated products of the competitors. It’s about the purchase of the device. The retention rate is about the same or not, or the other, those customers who have made a switchover, it’s 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 two peers. From the starter, at the time of the launch of AURA, I think we have communicated some messages that there was some blind testing conducted to compare our products against the competitors.

We just wanted to make sure that our products tasted better compared to the competitor’s product. We have found out that the users have found out that about more than half of the customers who have tried out said that our products taste better. We are very confident. Thank you, Mr. Fujiwara. Now, I take the next question. From Morgan Stanley MUFG Securities. Ms. Miyake, please.

Hi, Miyake.

Hi, Miyake.

Hi, Miyake.

Morgan Stanley.

I also would like to ask about the HTS share improvement in Japan. I’d like to have more color. On page nine, in Q3, EVO alone might have taken about 20% of the total in volume. There was a price hike for the MEVIUS. I’m not sure about the impact on volume by that price hike. EVO grows. How was that compared with the initial forecast? Also, MEVIUS brand, after the price increase, what was the development? In October, whether there was the recovery or not. Would you give us a color by brand? 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 consumers. I have talked about that in that meeting.

Even after that, in the last few months, the performance has been very stable. We were able to have the incremental performance. Out of the EVO’s buyers, there was a question whether we are taking shares from the other competitors. Out of the EVO’s purchasers, those who used the other peers’ HTS was about 30% or so. This was a switchover from the other peers’ product. Our products were very well received. In August, we have added the Berry Crystal or Banana Crystal. New flavors were also well accepted. We have increased the flavor type and EVO as a whole, the high-end premium price product. We were able to capture the consumers with that product. For MEVIUS, the impact by the price hike, yes, we thought that we were going to have the price hike, and we anticipated some impact. The share of 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. We continue to capture those consumers. In September and one or two previous months, MEVIUS price is ¥520 and EVO is ¥550. The price gap is just ¥30. Some consumers enjoyed to try the EVO with that price gap, and they liked it. EVO was able to capture new customers with that price gap. As a whole, our portfolio strategy was very effective. We were able to increase the share as a whole. Thank you very much. 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. In September and October results, we were able to capture certain consumers.

Whether that was much higher than our expectation, we were able to capture. 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. Very clear. Thank you very much. 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. 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. You had the significant growth this year. Are there going to be any reactionary decline, or are there going to be a slowdown for the next fiscal year? I think the previous people have questioned about the volume inside, but I think you are quite positive about the volume itself.

Any concerns for the cost side? 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. 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 2026. 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 fiscal 2026. Kato-san, over to you. Miyazaki-san, thank you very much for your questions. Direction or the tone for the next fiscal year, as you know, we will explain in the meeting in February.

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. 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. This fiscal year, the magnitude of the growth was particularly strong, I think, more than we had expected, especially in some main markets. The total industry trend, the demand itself, was quite strong, and there was a big growth in market share in Turkey too. As somebody also asked a question, 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. Russia’s total demand, because of the tax hike, there is a risk, as I mentioned earlier.

As you know, the difference between this year and the next year is the impact of the Vector Group inclusion. The impact is contributing for the nine-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. The growth rate exceeding 20%, as we have experienced this year, is not going to be happening again for the next fiscal year. As you mentioned in a question, as we have shown you the target in the rather mid to long-term basis, we are looking at the high single-digit growth. We want to deliver that target in the midterm range. With that in mind, for the next fiscal year and beyond, we’d like to continue our training effort.

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. The cost itself is, of course, getting influenced by the inflation itself. The raw material cost, the processing cost, labor, all of those items, the cost items are likely to go up. 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. For this, we are going to be continuing this transition in the remainder of the markets. After the transition, quite a 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 have started in Q3 or especially Q4, and that is going to have the impact on the full-year basis for the next fiscal year. The investment in Heated Tobacco Sticks for the next fiscal year, especially for AURA, the transition to AURA, and the post-transition, a 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. Thank you for that reply. I think the very strong pricing was good for this year, and that trend is probably continuing for the next fiscal year, I guess. 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? Thank you for that question. Including 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 big contribution coming from the pricing. The size of the contribution of the pricing was quite big. 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 downtrending sign or signal. Depending upon the market that we talk about, the downtrending signal may be stronger. Our policy of working on the pricing, that direction would not change. That will remain unchanged.

Thank you very much. Understood. 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, Russia and Turkey, the concern about the reactive trend and also the investment of the Ploom. Next year, you’re going to stick to the mid to high single digit. For the next fiscal year, Kato will take that question. Thank you very much for your question, Mr. Furuta. As of today, that mid to high single-digit growth, that policy remains unchanged. We continue to aim for that. When we talk about the next fiscal year, we’d like to give you the specific number. We’d like to give you the more deep dive information.

As of today, aiming the high single digit for the mid-term, that remains unchanged. Understood. Thank you. For this year, the growth is over 20%. Whether don’t you have any concern for the reactionary decline for the next year? That is for the clarification. Right. The reactionary 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. We don’t have such concern as of today. Thank you. Mr. Furuta, thank you very much. With this, we’d like to wrap up the final session of the Q&A. With this, we’d like to close the session of the investor meeting of Q3 2025. Thank you very much for your participation today.

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