Thank you for participating in the investor meeting for 2025 full-year results at Japan Tobacco Inc. today, despite your busy schedules. Since it is a scheduled time, let us get started. Before we start the meeting, I'd like to ask you to make sure that your display name on the Zoom is accurate. Thank you for your cooperation. In today's meeting, first, our newly appointed JT Group CEO, Takehiko Tsutsui, who assumed the role in January 2026, will introduce the Business Plan 2026, and Eddy Pirard, CEO of JT International, will follow and explain the tobacco business focus on FY 2025 performance. Lastly, Hiromasa Furukawa, Chief Financial Officer of the JT Group, will explain JT Group 2025 results and 2026 forecasts. Then we move on to the Q&A session, and this meeting is scheduled to end at 8:00 P.M., Japan Standard Time.
Now, I would like to introdu ce the first presenter. Mr. Tsutsui, please begin.
I am Takehiko Tsutsui, CEO of the JT Group. Thank you very much for attending our conference call today, and I would like to express my appreciation for your continued support and understanding of our commitment to growth. Please look at today's agenda. First, I will give an overview of our performance in fiscal year 2025. Then, I will expand on the cornerstones of the JT Group before diving into the profit growth guidance and business strategies for the Business Plan 2026. Eddy Pirard, CEO of JTI, will provide details of the tobacco business performance in 2025. Later, Hiromasa Furukawa, CFO of the JT Group, will cover the fiscal year 2025 group financial results and fiscal year 2026 targets.
Before starting the presentation, allow me to share some very early thoughts in my new role as CEO of the JT Group. The JT Group has a history of continuously looking ahead to the future and moving forward, and I myself have participated in many of its revolutions and growth along the way. I believe my mission is to build on the growth strategies and strengthen foundations driven by my predecessor, Masamichi Terabatake, and to steer the company to even greater heights. We will continue to enhance our corporate value by practicing management based on the JT Group purpose, fulfilling moments, enriching life, and our management principle, the 4S Model, consistently exceeding customer expectations and achieving sustainable profit growth over the medium to long term.
To achieve this, I will take the lead in strengthening our existing capabilities, further developing RRP into future core strengths, and simultaneously envisioning our long-term future through D-LAB. Across the short, medium, and long-term time horizons, we will continue to invest for future growth without hesitation, while also firmly committed to delivering short and medium-term performance. In addition, in a rapidly changing business environment, I believe it is essential for us to proactively embrace change with a strong sense of urgency. To that end, I will devote my efforts to further strengthening the organizational foundation of the JT Group. Starting today, I would like to deepen our dialogue with capital markets and strive to meet your expectations. Now, let me begin with an overview of fiscal year 2025. Please look at slide 5.
In 2025, despite an unstable global geopolitical and economic environment, including soaring prices, we delivered outstanding growth across all indicators, from revenue to profit, each reaching record highs. I believe this achievement was supported by the outcomes of our continued strategic investments we have made to drive sustainable growth. I will also briefly review the performance of each business segment. In the tobacco business, our largest contributor, solid organic momentum continued, as Eddy will detail in his presentation. The key drivers were pricing contribution, combined with ongoing market share gains in combustibles. 2025 also marked the steady progress of the Vector Group integration, the U.S. tobacco company we acquired in 2024, and its performance boosted the organic growth I have just mentioned.
In RRP, we launched our new heated products device, Ploom Aura, across a total of 17 markets in 2025, and it has recently expanded to 19 markets. Both Ploom Aura and its consumable EVO sticks have been very well-received by customers, particularly the taste and design. These products are already contributing to share gains in multiple markets, notably in Japan, and these results further reinforce our confidence in the strategic investment we have made. Accordingly, we believe that 2025 was a year in which we made steady progress in strengthening the business foundation that will support the group's mid- to long-term growth in both combustibles and RRP. The processed food business achieved profit growth through steady price revisions and improved productivity. As to our pharmaceutical business, and in line with our May 2025 announcement, we successfully completed its transfer to Shionogi in December.
As we indicated at the third quarter earnings announcement, the annual dividend per share for 2025 is planned to be 234 JPY per share. Please look at slide 6. The graph on this slide illustrates the trends in our performance and shareholder returns over the past five years. Guided by the JT Group purpose and our management principle, the 4S Model, we have consistently prioritized business investments that contribute to profit growth over the mid to long term. We have delivered sustainable profit growth by strong top-line expansion, which in turn has enabled us to enhance shareholder returns. We believe this demonstrates the growing resilience of our business in navigating a rapidly changing operating environment.
As I take on the role of CEO, I will further strengthen and accelerate this growth cycle, and I am committed to formulating and executing our business strategies to ensure our sustainable growth in the years ahead. Allow me to briefly remind you of the philosophy behind the JT Group purpose and our 4S Model. Please turn to slide seven. The JT Group purpose plainly expresses our reason for existence and our aspiration. Importantly, in pursuing the JT Group purpose, we have defined specific purposes for each of our business segments to ensure full alignment. The 4S Model, our management principle, with the customer at its center, guides us throughout the decision-making process. As we work to realize our purpose, I am committed to making high-quality decisions grounded in the 4S Model and to continually exceed customer expectations.
I am convinced that this is the best approach for achieving sustainable medium to long-term profit growth and continuously enhance our corporate value, ultimately enabling us to share benefits with all stakeholders, identified in the 4S Model. As part of efforts to go beyond the boundaries of existing businesses for realizing our purpose, we will continue our initiatives within D-LAB of corporate R&D organization. Let me give you a brief overview of D-LAB. At D-LAB, under the concept of unknown fulfilling moments, we engage in advanced research by exploring and creating seeds for future businesses. We aim to foster the value of fulfillment moments in society over the long term, while also aiming to contribute to the JT Group's profit growth.
As part of our efforts to create new business seeds, several affiliated companies are conducting commercialization trials of products and services from scratch, and some of these initiatives have already progressed to the stage of delivering the value of fulfilling moments to consumers. In addition, in exploring business seeds, we have also invested in more than 200 companies aligned with the concept of fulfilling moments, primarily through operating funds that invest in startups. Including our research activities, we are currently running over 100 projects at any given time. Although progress will be gradual, the outcomes of these activities are beginning to materialize. Turning to slide 8 and our capital allocation and shareholder return policies. To further strengthen and accelerate the growth cycle I mentioned earlier, we will continue to prioritize business investments that will deliver sustainable profit growth over the mid to long term.
Our main investment focus will remain the tobacco business, particularly towards combustibles and heated products. In strengthening our business foundation, we will also consider the acquisition of external resources, such as through M&A, as one of our options. Through these business investments, we will drive growth and adjusted operating profit at constant currency, our primary performance indicator. This, in turn, will enable medium to long-term growth and net profit, and support competitive shareholder returns in the capital markets. Regarding the shareholder returns, we remain committed to maintaining a dividend payout ratio around 75%. We'll continue to focus on delivering robust shareholders' returns, with dividends at the forefront.
On slide nine, I'll highlight the overall framework of our sustainability strategy.
We have identified the JT Group materiality, our priority material issues, based on a belief that people's lives and corporate activities can be sustainable if the natural environment and society are sustainable. Additionally, we have also established the JT Group sustainability targets as specific goals and initiatives, and we are steadily progressing toward achieving them. Detailed results are available in our integrated report and on our website. We remain strongly committed to ensuring the sustainable growth of our society and our businesses, and to driving forward our initiatives for a sustainable future. Turning to our Business Plan 2026, our profit growth outlook for the three years from fiscal year 2026 to fiscal year 2028, as well as business strategies that support it. Like all business plans shared so far, the current business plan is developed with our growth algorithm in mind.
As you know, our aim is to pursue sustainable profit growth over the medium to long term, targeting mid to high single-digit growth in consolidated AOP at constant currency.
In fiscal year 2025, while we achieved record high strong growth, the operating environment surrounding our group remains highly uncertain. We must continue to monitor the impact of geopolitical instabilities on the global economy, foreign exchange volatility, interest rate trends, hyperinflation in certain markets, and broader macroeconomic developments across countries. Within this environment, our tobacco business, our core driver of profit growth, is expected to lead our performance. We aim to grow the consolidated AOP at constant currency at a high single-digit CAGR, which is the upper end of our medium to long-term growth algorithm. Over the business plan period, we do not expect significant relief in the operating environment, nor in terms of regulations. In combustibles, industry volume contraction and down trading are expected to continue, while in RRP, we forecast intensified competition, especially in heated products. Irrespective of these conditions, our strategic direction remains unchanged.
In combustibles, we will further improve profitability, and in RRP, we will concentrate our business resources toward heated products to establish it as the second engine for profit growth alongside combustibles. As a result, we aim to grow AOP at high single-digit CAGR over the planned period. In the processed food business, we expect the operating environment to remain challenging, particularly in Japan, with continued increases in labor and logistic costs, as well as fluctuations in raw material prices. In addition, price increases driven by these factors are likely to affect demand. In this context, the processed food business will continue to play its role in complementing the JT Group's profit growth. To ensure top-line-driven profit growth, we will reliably implement price revisions, expand our business volume both domestically and internationally, and further enhance productivity.
In the next couple of slides, I'd like to detail some of the fundamental strategies in the tobacco business. Starting with combustibles, we'll continue to pursue quality top-line growth by taking advantage of pricing opportunities across our footprint and by driving further market share expansion. While industry volume is expected to continue declining, we anticipate to outperform the industry trend through further gains in market share. In addition, we aim to continue improving profitability through focused investments aligned with our market archetypes and various initiatives to reduce costs across our supply chain. Through these efforts, we will generate incremental returns, which in turn will enable higher investments in RRP. In RRP, our view remains unchanged, that the category of heated products is expected to grow the most and the fastest within RRP in the future.
We will therefore continue to prioritize investments in heated products within RRP, accelerating our growth momentum through large-scale strategic investments. In other RRP categories, such as modern oral, e-vapor, and infused, we will keep exploring business opportunities and will make selective investments based on the strategies tailored to each category. Specifically, we'll consider new market entries based on market size and growth potential, while taking into account the different regulatory environments and consumer preferences across markets. In parallel, we will continue to advance initiatives to strengthen our pipeline of next-generation propositions that may not necessarily fall within the existing RRP category definitions, with the aim of creating products that have the potential to become future growth drivers for RRP. Turning to slide 12 to explain more concretely our planned initiatives in RRP, with a particular focus on heated products.
We expect the global RRP market to continue expanding, and we will strengthen our business foundation as we work towards the milestones laid out in our 2028 RRP ambitions. As the chart indicates, during the business plan period, we aim to accelerate growth in RRP-related revenue, driven by top-line expansion in heated products. As I mentioned earlier, we're increasingly confident that our investment in RRP has been steadily delivering results. While we will flexibly adjust our plans as circumstances evolve, we currently plan to invest a total of around JPY 800 billion from 2026 to 2028, an amount exceeding past levels, with annual investments expected to gradually increase toward the latter half of the period. The primary use of this investment will be to support commercial initiatives, prioritizing heated products.
Through various promotional activities, we will further enhance the equity of Ploom and drive both new consumer acquisition and improved retention. To this effect, we will complete the transition of Ploom Aura in most key markets during 2026, as Ploom Aura is very well-received by consumers. In addition, as we prioritize the rollout of Ploom Aura and had temporarily moderate the past pace of geographic expansion, we will now gradually resume expanding our global coverage going forward. Furthermore, we will pursue innovation in both devices and sticks, aiming to continue improving our Ploom ecosystem through next-generation products with greater speed. Even as we step up investment, we expect volume growth as well as gross margin improvement in heated products, along with profit contributions from other RRP categories to drive overall profitability improvement in the RRP business.
I'll now turn it over to Eddy Pirard, the CEO of JTI, for an overview of the 2025 performance of the tobacco business. Eddy, the floor is yours.
Thank you to Tsutsui-san, and good afternoon to all participants on the call. It is my pleasure to present today the 2025 performance of JT Group's tobacco business. A performance which you will see is nothing short of remarkable, thanks to incredible contribution and dedication of our 46,000+ employees worldwide and that of our commercial partners. My presentation will focus on the main achievements of 2025, as well as the outlook for Business Plan 2026, while the key financial information will be covered by Furukawa-san in his presentation. 2025 marked another year of incredible performance for the JT Group's tobacco business. All indicators were up year on year, demonstrating once again the significant value of our strategic framework.
As a reminder, this strategic framework is anchored on two pillars of growth: a combustibles pillar, where our focus is to improve return on investment through quality top-line growth and efficient operations, and a RRP pillar, in which we prioritize investments behind heated products and our brand, Ploom, while adopting a more selective approach in other segments, like e-vapor and modern oral. In terms of deliverables, for the third consecutive year, we have grown total volume, clearly outperforming industry volume trends. GFBs were the main drivers of our 2025 combustibles volume performance, as we will see later, further supported by the successful integration of the Vector Group, which we acquired in 2024.
In RRP, the launch of Ploom Aura has accelerated our volume and share performance in heated products, resulting in JT delivering the fastest growth in this segment, a very promising start for our newest introduction to the Ploom family. This solid volume performance, combined with exceptional pricing and combustibles, drove a double-digit increase in both core revenue, up almost 15%, and adjusted operating profit, growing over 23%. Let me elaborate on the key drivers of our 2025 performance, starting with reduced risk products. Growth in both RRP volume and revenue accelerated versus the prior year, increasing by 28% and 24%, respectively. Heated products were instrumental to the volume growth, expanding by 3.2 billion units and representing a 38.6% year-on-year increase, with gains mainly in Japan and across all clusters.
On the revenue side, heated products grew by almost 50% at constant FX. The launch of Ploom Aura in May 2025 played a significant role in this expansion, as well as the accelerated investment to establish Ploom as a global power brand. Beyond heated products, we continued to explore other RRP segments through a selective and flexible investment approach in line with our strategic framework. And in parallel, we pursued improving our knowledge on multi-category consumers and the capabilities required to win in this environment. Speaking to Modern Oral, as shown by Tsutsui-san, we have expanded Nordic Spirit's presence to 10 markets. Our approach to nicotine pouches remains cautious and targeted, as similar to e-vapor, the regulatory environment remains very fluid, and the barriers to entry are lower compared to heated products.
In e-vapor, in addition to a Logic presence, we profitably explore growth opportunities, including through strategic investments. In 2025, we took a majority stake in a leading and profitable independent UK e-vapor company, Flavour Warehouse. The intent is to strengthen our learnings in this dynamic segment. Since the beginning of my presentation, I have mentioned Ploom extensively. Let me share some more details on its performance. In 2025, supported by innovation and successful consumer acquisition, Ploom was once again the fastest-growing brand in heated products. The introduction of Ploom Aura in certain markets and the expansion of our heated tobacco sticks portfolio fueled share gains in all 28 markets were available. As of November 2025, Ploom had reached a share of segment of 9.7% across the 13 initial markets. Turning to Japan, the largest heated products market globally.
Since the introduction of Ploom X, we have increased our share of the heated product segment almost fivefold, reaching 15.7% in the fourth quarter of 2025. Aura, which we launched mid-2025, clearly contributed to the acceleration of Ploom share gains, as you can see from the slide. And in December, Ploom reached 16.5%, making it the number two heated products offering in Japan across 39 prefectures, including Tokyo. Moving on to other markets. Efforts to strengthen brand equity and drive consumer adoption through adjustments to our commercial execution delivered share gains across our footprint. As would be expected, the share of segment progression differs between markets, as it is closely related to consumer awareness of heated products, the diversity of products available, and the competitive environment.
Across the nine markets presented on the slide, Ploom share of segment grew by an average of 1.6 times year-on-year, with the most significant increases in Poland, in Serbia, and Switzerland, all more than doubling their share. Lastly, we launched Ploom in Taiwan at the end of 2025, and although it's still very early, we are encouraged by the performance so far, which has exceeded our expectations. Before moving to a combustibles performance, I'm proud to share how Ploom Aura has improved the consumer experience since its introduction. Starting in Japan, where Aura has been available since the end of May 2025. While we are still early in the journey of Aura, as you can see from the data on the slide, this next-generation device has outperformed the previous X Advanced.
It generated a higher Net Promoter Score, or NPS, compared to Ploom X Advanced, which itself outperformed Ploom X, if you remember our slide from February last year. Importantly, the number of Ploom users has increased by 34% year on year and doubled since 2023. These positive results strengthen our confidence in the quality of our Ploom device, especially as consumers speak very highly of the improved design, functionalities, and taste. Also worth mentioning that 58% of Ploom Aura users are new to the franchise. The superior taste satisfaction of Ploom is also owing to the next generation heated tobacco sticks and the launch of a premium offering in Japan under the EVO brand. An offer which was very well received by consumers, reaching a share of segment of 3% in December 2025, complementing the existing MEVIUS and Camel propositions with limited cannibalization.
We now have a very compelling and competitive portfolio to drive further growth. Leveraging the early success in Japan, we are progressively rolling out Ploom Aura across our footprint. As of today, Aura is already available in 19 markets and will be in almost all Ploom markets by the end of 2026. In addition, we are gradually migrating our sticks to EVO, our global brand for heated tobacco sticks. In summary, we are making good progress in line with our strategic drive to build heated products as a second pillar of profit growth in the future. In 2025, our performance in combustibles was unrivaled. Our volume grew by 1.7% year-on-year, far outpacing industry volume contraction in the measured footprint. Our organic volume grew in over 50 markets year-on-year, further boosted by the successful integration of the Vector Group.
While in certain markets like Russia and Turkey, the volume growth was compounded by an exceptionally resilient industry volume, our volume growth was mainly driven by continued market share gains. Our combustible share increased in approximately 60 markets, including nine of our 10 key markets. GFBs were once again instrumental to the volume performance, growing by 2.8%, their seventh consecutive year of growth. At the end of 2025, GFBs represented 74% of our combustibles volume. Winston, our largest brand and the world's second largest, grew volume by 4.9%. Its volume increased in approximately 50 markets, including our key markets of Italy, Romania, Russia, and Turkey. Winston also grew market share across many markets, including the four key just mentioned, plus Spain and Taiwan. In our measured footprint, Winston was the fastest-growing combustible brand in 2025.
Camel, the third-largest global brand, grew volume by 4.3%. Volume was up in almost 50 markets, including Italy, the Philippines, Russia, Taiwan, and Turkey, fueled by market share gains, including in six of our 10 key markets. Driven by these brands, our combustibles market share grew by 1.3% across our measured footprint, making us the fastest-growing company in the category. Although volume contributed to a core revenue increase of 15% in 2025, the main driver remained combustibles pricing, demonstrating, yet again, its resilience. Last year, the price mix contribution to core revenue reached an exceptional 10.8%, significantly above its past 3-year average due to several factors. The first accelerator is the positive volume performance, which enabled us to maximize pricing benefits across our footprint. The second and most important factor is the level of price increases across our footprint.
All clusters delivered price mix increases year on year. EMA was the strongest performance, with all four key markets contributing positively. Western Europe, led by Italy and the UK, also delivered strong growth, even within a downtrading environment. In the Asia cluster, the positive drive came mainly from Bangladesh, Japan, and the Philippines. The last factor was related to the impact from downtrading. Although the trend continued in 2025, its impact was more limited than we've seen in recent history. As a result of the solid pricing, the combustibles profit margin grew by an outstanding 3.4 percentage points year on year. This increase demonstrated our strategic drive to improve return on investments in combustibles. We have grown market share through equity-building initiatives towards our GFBs, combined with an optimization of pricing opportunities when they arose.
In addition, our focused approach using market archetypes, earnings only, share only, or earnings and share, continued to maximize the expected returns from investments and to ensure profitable top-line growth. These top-line drivers are enhanced through disciplined cost management initiatives without sacrificing product quality, growth opportunities, and a sustainable business base. These include, but are not limited to, the deployment of an end-to-end integrated supply chain, the simplification of our products, both SKUs and blends, and of our IT infrastructure, as well as the further leverage of our global business services. We also continued to invest effectively and efficiently across all functions, including procurement, manufacturing, and in our route to market, while embracing the concept of Kaizen, or continuous improvement, to maximize the bottom line and drive stronger cash performance and delivery.
Finally, the successful integration of the Vector Group further enhanced our efforts to improve the combustibles operating profit margin. Overall, the tobacco business delivered an incredible performance in 2025, growing all indicators year-on-year, fueled by both combustible and RRP. The goal for the Business Plan 2026 period is clear. Capitalizing on our strategy, we reconfirm our intention to grow adjusted operating profit at a high single-digit rate, despite continued downtrading, intensified competition across categories, and macroeconomic factors. In RRP, we will further accelerate consumer acquisition by strengthening our commercial engine and leveraging consumer insights from the 20th markets where Ploom is available. As highlighted by Tsutsui in his remarks, we will continue to invest towards RRP during this business plan period. These investments will focus on increasing the top-line contribution of heated products through the sales expansion of Ploom Aura and EVO Sticks.
We will also strengthen our understanding and profitable participation in other RRP categories, and we will take advantage of our innovation pipeline and improve capabilities to consistently exceed consumer expectations. In combustibles, we remain committed to improving return on investments. This encompasses continued market share expansion, notably by our GFBs, and optimized pricing opportunities to drive both revenue and margin improvements, as well as initiatives to manage ongoing inflationary pressure. Thank you very much for your attention and interest in the tobacco business. I will now hand over to Furukawa-san for the review of the JT Group financial results and forecasts.
Thank you, Eddy. I am Hiromasa Furukawa, CFO of the JT Group. I will detail the consolidated financial results for 2025 and our forecast for 2026, both at the group level and by business segment. First, let me take you through our consolidated financial results for 2025. As Tsutsui-san mentioned earlier, thanks to the strong performance of the tobacco business, revenue, AOP, operating profit, and profit for the period all reached record highs in 2025. AOP on a constant currency basis, which is our primary performance indicator, increased by 24.9% year-on-year, driven by organic growth in the tobacco business, further boosted by the contribution of the Vector Group acquisition in the USA.
Regarding foreign exchange impacts on AOP, while there was a positive impact from the appreciation of the Russian ruble, this was more than offset by the depreciation of emerging market currencies against the Japanese yen, such as the Iranian rial and the Turkish lira, resulting in an overall negative impact. Operating profit increased year-on-year, mainly driven by the absence of the provision for loss on litigation related to the settlement in Canada, which was recorded in 2024. Profit from continuing operations increased year-on-year as the increase in operating profit more than offset higher financial expenses, mainly due to foreign exchange losses arising from a rapid deterioration in the exchange rate in Iran, as well as higher corporate income tax expenses. In addition, profit from continuing operations came in below JPY 555 billion forecast, announced with third quarter results.
This was due to the impact of a rapid deterioration in the exchange rate in Iran, as just mentioned. Free cash flow increased by JPY 102.2 billion year-on-year to JPY 272.7 billion, as the non-recurrence of the Vector Group acquisition payment recorded in 2024 and the increase in AOP more than offset the upfront payment related to the settlement of the litigation in Canada, which was recorded in 2025. Moving on to the financial performance of the tobacco business. Eddy has already explained the details of the tobacco business performance, so I will only focus on the financial performance. The volume contribution was positive, mainly fueled by the inclusion of the Vector Group. Regarding the Vector Group contribution to volume, I can confirm that it has been in line with our initial expectation.
As shared by Eddy, the price mix contribution to AOP was above its historical average. Strong pricing contributions in many markets, including Japan, the Philippines, Russia, Turkey, and the UK, outweighed the lower product mix, mainly due to down trading in the Philippines and Taiwan. These positive factors far exceeded the incremental investment towards Ploom and the inflation-led cost increases, particularly across the supply chain regarding tobacco leaf and labor. As a result, AOP at constant FX increased by 23.5% year-on-year. As I mentioned earlier, the FX impact on AOP was unfavorable. Next, I will explain the results of the processed food business. Revenue increased by JPY 2.3 billion year-on-year, driven by the positive impact from price revisions of packaged cooked rice in the frozen and ambient foods business.
AOP increased by JPY 0.5 billion year-on-year, mainly driven by the revenue increase, which fully offset higher raw material costs, such as rice.
Let me move to our business forecast for fiscal year 2026. Before that, I would like to inform you that we have adjusted certain financial figures. One of these adjustments is related to Canada, which I would like to explain now. As you know, a settlement was reached in March last year regarding all the smoking and health litigations in Canada, in which our local subsidiary, JTI-Macdonald, was included as a defendant. Consequently, we will make annual payments from 2026 onward. As a result of these payments, we expect this will create a gap between JT Group's recognized profit and loss, as well as its cash flow.
Therefore, in order to appropriately reflect the actual cash flow in our profit and loss under certain assumptions, we have made adjustments to deduct from each indicator the amounts of revenue and profit corresponding to each annual payment, as well as to exclude the impact on non-cash profit and loss. For details, please refer to the reference slide titled Canada Adjustment. This being cleared allows me to explain the consolidated financials. Core revenue at constant FX is expected to increase by 3.6% year-on-year in 2026, driven by a solid pricing contribution in the tobacco business, higher RRP-related revenue, and the top-line growth in the processed food business. AOP at constant FX, our primary performance indicator, is expected to increase by 8.9% year-on-year.
The FX impact on AOP is forecast to be negative due to the depreciation of emerging market currencies and the appreciation of cost-related currencies, such as the US dollar, both against the Japanese yen. Operating profit is expected to increase by 6.2% year-over-year, driven by the increase in AOP and lower amortization costs of trademark rights related to past acquisitions. These positive factors more than offset the absence of profit from the remeasurement related to the settlement liability for the Canada litigation recorded in 2025, as well as a decrease in profit from property sales. Profit is expected to increase by 14.2% year-over-year, driven by the increase in operating profit and lower financial costs due to the absence of the foreign exchange losses recorded in 2025.
Free cash flow is expected to increase significantly, driven by the increase in AOP and the absence of the upfront payment related to the settlement of the litigation in Canada, which we recorded in 2025. In the following section, I will explain the forecast by business segment. First, let me explain the volume assumptions for the tobacco business. The continued share growth of combustibles across several markets and an increase in RRP volumes are expected to partially offset the global decline in combustibles industry volume, notably in Japan, the Philippines, and the UK. As a result, total volume is expected to be between flat and down 1% year-on-year. Next, I will explain the financial forecast. Core revenue at constant FX is expected to increase by 3.4% year-on-year, driven by continued strong pricing contribution, mainly in key markets and higher RRP-related revenue.
AOP at constant FX is expected to increase by 8.5% year-on-year, driven by top-line growth that more than offsets continued RRP investments behind Ploom and inflation-led cost increases, including across our supply chain. As I mentioned earlier, the FX impact on AOP is expected to be unfavorable. Next, I will explain the forecast for the processed food business. Revenue is forecast to increase, mainly driven by price revisions in the frozen and ambient foods business. AOP is expected to decrease, mainly due to higher raw material costs, despite the expected increase in revenue. Finally, I would like to explain shareholder returns. As Tsutsui-san explained earlier, there is no change to our shareholder return policy. With respect to the dividend per share for fiscal year 2025, as indicated at the third quarter earnings announcement, is planned to be 234 JPY per share.
Regarding the dividend forecast for fiscal year 2026, based on the Canada adjusted profit, we project a dividend of 242 JPY per share, which corresponds to a payout ratio of 75.2%. Profit for fiscal year 2025 came in below the level presented at the third quarter announcement due to the sharp deterioration in the exchange rate in Iran. On the other hand, our business momentum remains strong and adjusted operating profit at constant currency is growing. Under the current medium-term plan as well, we expect to achieve steady profit growth. For fiscal year 2025, the payout ratio will temporarily exceed the 75% ±5% range defined in our shareholder return policy.
However, given that the full year results are now finalized and we have gained visibility into our medium-term growth outlook, we have decided not to revise the dividend per share forecast that we presented at the third quarter announcement. Please look at the graph on the slide. We consider dividends to be the core of our shareholder return policy. To date, we have achieved sustainable profit growth, and through this profit growth, we have steadily enhanced shareholder returns. Over the past five years, our TSR has outperformed the TOPIX. Going forward, we will continue to target a payout ratio of 75%, which we consider to be at a competitive level in the global capital markets, and aim to enhance shareholder returns through the realization of sustainable profit growth over the mid to the long term.
This concludes my presentation. Thank you for your attention.
Thank you very much, Furukawa-san. In closing, I'd like to reflect on the materials we have shared with you today. Throughout its history, the JT Group has consistently invested in its businesses with a long-term perspective, always looking to the future. As a result, our business foundations have strengthened steadily, and we have delivered record high results in 2025, with a further increase expected in 2026. To ensure that this growth remains sustainable, under the Business Plan 2026, which we presented today, we intend to pursue our current resource allocation and shareholder return policies based on the JT Group purpose and the 4S model. We will continue making large-scale strategic investments, particularly in heated products.
We are convinced that our strong brand equity, cultivated through consistent investment, our well-balanced portfolio supporting our pricing strategy, market share growth, as well as the profitability improvement in RRP, driven by expected top-line growth, will deliver high single-digit growth in consolidated AOP at constant currency. We will also continue to enhance shareholder returns in line with growth in net profit, underpinned by our underlying business growth. This concludes our presentation today. Thank you for your attention.
Thank you very much. Now, we'd like to start the Q&A session. Let me introduce the speakers who will answer your question as follows: Mr. Takehiko Tsutsui, CEO of the JT Group; Mr. Hiromasa Furukawa, CFO of the JT Group; Mr. Eddy Pirard, CEO of JTI; Mr. Vassilis Vovos, CFO of JTI; and Mr. Stefan Fitz, CCO of JTI. Next, I will show you how to ask questions. Please click the Raise Hand button in the Zoom window. If you are selected, please unmute your microphone and ask your question. For participants joining by phone, please dial asterisk nine to raise your hand. If selected, dial asterisk or star six to unmute and ask your question. Due to time constraints, each participant may ask only one question. Please note that we may not be able to answer all questions. Thank you for your understanding. Thank you for waiting.
The first question comes from Mizuho Securities, Mr. Saji.
Thank you very much for the opportunity. And Mr. Tsutsui, congratulations on being assigned as CEO. I would hope for more enhanced market communication going forward. My question is towards Mr. Tsutsui. I would like you to really share with us what are the strengths and also the weakness of JT Group, especially vis-a-vis the global competitors. We have the portfolio within the combustibles and, of course, within RRP, the heated products and modern oral. There are difference in the portfolio. How., w hat are your thoughts on your current portfolio? And also in terms of the R&D and the governance system.
So what are the strengths and also the weaknesses, and where exactly do you expect to exert your leadership and make some improvem ents? So that is a question to you.
So related to the strengths and weaknesses of JT Group, Mr. Tsutsui would answer your question.
Thank you very much for that question. So let me first talk about the strengths of JT Group. As you have seen with the results and the actual, within combustibles, we continue to make growth investment, and because of that, we continue to exert, the growth capability, and, we continue to cherish that going forward. In addition to that, strategically, we have been investing in different strategy, and that is true for RRP as well. So steadily, we have been making progress. So the fact that we have clear strategy, that is another strength that we have for JT Group. Now, in terms of somewhat of a weakness, that as you posed, if you look at the RRP, it may be easier for you to understand. So whenever we would need to launch the new businesses.
Of course, prior to my current position, six years, I was working within JTI, and I have been in the leadership position. So, given my experience, I believe we're still at the starting point in launching these new businesses. However, as we have already shown with you, with the actual results, little by little, steadily, we have been launching the business. So Ploom Aura, that we have launched back in May last year, if you look at the actual, we do have the innovation capability built in. So since I became the president, what is the kind of leadership I would like to exert? That was another question you posed. So of course, we'd like to cherish the strengths that we've always had.
And we would look into RRP and D-LAB as well. So we'd like to continuously challenge for new businesses in the long run, and we'd like to make sure that that is connected to the growth engine. So what we need to make sure the actual really reflects the growth engine that we have. So that is exactly I would like to focus on going forward. So there will be an upfront investment. Therefore, it is essential that we engage in close communication with you, and we would like to continuously execute the initiatives. We ask for your continued support. We do ask for your implementation and execution. So thank you.
Thank you, Mr. Saji. Let's move on to the next person. The next person is from Nomura Securities. Mr. Morita, over to you.
Can you hear me?
Yes, we can.
This is Morita from Nomura Securities. Regarding growth investments and some numbers around RRP, up until 2028, you are investing JPY 800 billion as advanced investments. That was the outlook you set forth. Up until now, turning the business profitable by 2028, or in the markets you enter, raising the market share for RRP to about mid-teens is what you've been communicating. So can you take this opportunity to talk about the profitability of RRP as well as the target share you may have in mind, if you have any updates associated with this?
Regarding the question about RRP and business strategies, Mr. Tsutsui will take that question.
Thank you for your question. For our ambitions, what's important here is that this will be a passing point.
Therefore, we would like to ensure we build a strong foundation, and as we communicated in today's presentation, after combustibles, we would like to turn it into the second growth engine. Regarding forecasting of the RRP business, there is uncertainty associated with innovation. Therefore, there may be times when the timing is different from what we expect, more or less. However, on the other hand, like we've been setting forth from the past regarding our ambitions, I would say we are broadly in line. As for investments, last year, we set forth JPY 650 billion. When you look at this annually, the latter half of the year, the pace of investments are increased. That was the case for last year. And for this fiscal year, we have set forth the number of JPY 800 billion.
We would like to step up the pace of investments going forward. On the other hand, when it comes to this fiscal year and the investments we made, it wasn't really that much off of our expectations from last year. And when it comes to the investments we make, first, for RRP, it's still a new market that was established 10 years ago. So in this type of new market, innovation is extremely effective, that is focused on the customer. Therefore, as we continue to make investments, we would like to ensure that we develop good products and effectively deliver the innovation to the customers by making investments into marketing. So that would be approximately 80% of the JPY 800 billion. So the reason why it costs so much money for marketing investments is because combustibles is a mature market.
However, in order to effectively reach, customers, the way we do things need to be different. So customer acquisition, as well as retaining customers, are the areas where we are making advanced investments. For Japan, when it comes to innovation, RRP relevant marketing are in sync with each other right now, that is leading to the good performance. So Japan is a good example. And for this momentum, it's, w e're not just talking about 2028 in our ambitions, but we would like to accelerate our efforts looking out beyond 2028. That is our intention. And once we are able to make this growth definitive, we would like to also ensure that investments become more efficient. But at this point in time, the plan is one where investments will come in advance.
So as we make these advanced investments, as explained in the presentation, high single digit AOP at constant currency is what we believe we can achieve.
May I confirm one thing? So for RRP and the midterm ambitions, you were saying you were broadly in line, that it's not that off. But up until 2028, you were saying that you would like to turn the business profitable. Do you mean that that target is still in place, or do you think- are you trying to say that it's going to be beyond 2028?
Regarding the communication of becoming profitable in 2028, it's marketing spend is deducted from gross margins. That's how we have been communicating. At this point in time, what I would like to stress is directionally, we are moving towards that direction.
But is that going to be 2028 or 2029 or even 2027? Due to the nature of innovation, there may be a chance that the timeline may move. However, we are broadly in line towards that direction, is what I, what we have been able to confirm. So it's more of a directional comment. I see. I guess the goal is to turn the RRP business into your next growth driver, so you don't really have to collect on your investments that early. But I look forward to your future business.
Thank you for your support.
Thank you very much, Mr. Morita. The next question comes from J.P. Morgan Securities. Oh, excuse me, Morgan Stanley MUFG Securities. Mr. Miyake, please.
So this is Miyake for the Morgan Stanley MUFG. So Ploom has been launched in various markets. You have already made the presentation. So as you switch to Ploom Aura then in other markets, do you expect to see acceleration of the market share? So could we actually confirm that? So there are some markets that have good response and maybe not as much. You mentioned that it is related to the competitive climate, but if you can also highlight on some of the different features of the different markets. That is the first question. Also, the potential for EVO.
So it's grown about 20% in Japan, and in terms of overseas market, it is also a premium product. So would it potentially drive the profitability in the overseas as well? So those are the two questions.
So the question relates to Ploom Aura and also EVO, the Ploom performance. Mr. Tsutsui would answer.
I would like to answer your question. JTI participants may add on some information later. So first of all, about Ploom Aura. So as we launch outside of Japan, I'd like to share with you the current state. Last year, inclusive of Japan, we have launched it in 17 markets. That is last year. As of today, the number has increased to 19 markets.
Now, the feedback from the customers, direction-wise, it is quite similar when you compare the feedback in Japan and also outside of Japan, in terms of the taste and also for the device design. Those have been highly evaluated by the customers and consumers. Another point in the overseas market, the timing of launching the Ploom Aura. So in the past, we had Camel and Winston, the brands that were used for combustibles, and we have been launching sticks according to these brands. But this. We took this opportunity to switch to EVO. And the switch has been successful without reducing the number of customers. And even after switching to EVO, the customers have been quite forward-looking. They have been quite positive about Aura and EVO. That was the feedback that we received.
Of course, in the respective markets, the impact of the Aura and EVO, we were bound to see difference in the different markets, but the general direction is quite similar when you compare the feedback that we've received in Japan as opposed to the international market.
So any additions from the JTI participants? From JTI would like to respond to that question.
Yes. Ploom Aura has been launched in several markets, starting in quarter four 2025, and depending on the launch timing, we have different timelines to see the success. But as you have seen in Eddy’s presentation, we have, in some of our markets, like Poland, tripled our market share of, or share of segment versus the year before. Ploom Aura has been very well received by the consumers in the markets outside of Japan. The consumers like the functionality, the consumers like the taste. But of course, it is also important to state that we need to continuously work on our commercial engine to drive awareness, acquisition, and retention. And Ploom Aura, which is newly launched in these markets, will help us to do this in 2026.
Thank you very much. This is related to the first part of my question. So as you intend to improve the profitability of RRP, so the awareness and retention would actually drive the efficiency of the marketing, and of course, you would have more volume increase. At the same time, portfolio, the mix, within the stick, you would have more premiumization. Those are some of the impacts you expect to see. So when you look the next three to five years, what do you see as the biggest driver?
So this is a driver of RRP profitability question. Mr. Tsutsui would continue with his response.
In terms of the driver for the profitability, first thing first, we need to expand the number of consumers, customers. So basically increase the volume of the sticks, the sales of the sticks. We do believe this is the biggest driver. Also, in terms of making the operation more efficient, those consumers who'd tried the Ploom, we need to make sure we can convert them, and so increase the percentage of conversion, so they would enjoy Ploom on a regular basis. Those would be the second. That would be the second driver, and two drivers would really drive the profitability going forward.
Thank you very much for your response.
Mr. Miyake, thank you for your question. The next person is from Goldman Sachs Japan, Mr. Miyazaki.
This is Miyazaki from Goldman Sachs. Thank you for taking my question. For the tobacco business, I would like to learn about the factors that will drive profit increases in 2026. In 2025, on page 24, you show the factors of adjusted operating profit. Compared to this, for 2026, can you walk us through what you are anticipating? I am sure that you will continue to do pricing, but compared to 2025, is the potential going to go down? And for others, that includes supply chain cost, how much of a negative impact should we account for? And for volume, I think you are assuming a slight decline, but is that fair to say? Are you actually assuming a decline? So please confirm. Thank you.
Regarding fiscal 2026, factors in the tobacco business, Mr. Furukawa will explain.
This is Furukawa. I would like to take that question. As you said in your question, when you look back at 2025, it was an extraordinary year. Based off that, regarding what we are assuming for fiscal 2026, which I think you're trying to get at, well, 2025 was a good year, but we believe AOP growth should be about 8.5% on a company-wide basis. That's what we are assuming for 2026. From 2025, we saw firm momentum around the world in various markets, and we are confident about that to be ongoing. However, we also had the impact from acquiring Vector, which is going to become absent in 2026. But year-over-year investments into RRP is going to increase and expand.
Regarding our volume assumptions that you were asking about, it's true that in 2025, Turkey, Philippines, as well as in Russia, we saw some temporary factors, and therefore, industry volume was relatively strong. But we have been taking pricing strategies, and taxes have been up, so we will continue to focus on demand from customers so that we could take action appropriately. Whatever the case may be, for the driver of sustainable JT Group growth, we'll be looking at short-term delivery, but we will ensure that we grow the business over the medium to long term and expand profits. That is the basis of which we have formulated our management plan for 2026.
So, JTI will also comment.
Thank you. Let me add a few color, or a little bit of color on already the key point of the answer of Furukawa-san. You very correctly mentioned that, for next year, we expect pricing to continue to be a driver of our revenue growth. As mentioned already in the presentation, 60% of our planned pricing for 2026 is already done. We have already taken pricing in significant markets like the USA, the UK, the Philippines, Turkey, and a number of other markets. We see pricing continuing to be a big feeder of our profit revenue growth and eventually profit growth, certainly. In addition to that, we see that, by the way, as a sustainable driver of revenues, not only for 2026, but also as we move into the outer years.
We think our brands, as mentioned in the presentation of Eddy, are very strong, are the top growing brands in combustibles. They have a lot of equity, loyalty, pricing power, so we expect to be able to continue taking pricing in the outer years as well. That is one driver, of course, of our revenue growth algorithm. You correctly mentioned we have an anticipation of a slight volume decline next year, so we don't expect in our key markets to see the same behavior of the industry size. In 2025, we had very strong industry size performance in markets like Russia and Turkey and others. But of course, the decline of our volume, which overall is mentioned between 1% and flat, is much lower than the overall industry decline because we are gaining market share.
We gained market share in more than 60 markets this year. We expect this to continue as we go in 2026. So the momentum will mitigate our market volume's slight decline. And then the profit generation comes from efficiencies, continuous focus on improving the profit margin. You saw a very impressive increase of the combustible profit margin in 2025, which was up 3.4 points. We will continue in this direction as we move into the future. We are focusing around fewer brands. Our GFBs are now 75% of our volume. That means we reduce proliferation of SKUs, and we harmonize a lot of input materials. We are having focus on our end-to-end services, both in manufacturing and our third services, and we also give very clear guidance to our markets in terms of mission.
So we have market classification that is clearly allowing for markets to know what's the focus. Markets could be focused on earnings or earnings and serve market. That drives efficiencies also into the investments we are doing. All these elements will help us improve our profit margin even further as we go. And together with the increase of revenue, driven by the resilience of volumes and the quality of pricing, this is the driver of the growth. And to that, of course, the significant increase of the volumes of heated tobacco products, the significant increase of the revenues that will come in the coming years, and the reduction of costs because of scale, will further fuel the algorithms of growth in the outer years.
Thanks. Can I add something? I would like to add a little comment on Furukawa-san's and, and Vassilis' comments. A lot has been talked about in terms of responsiveness on things that we do control. There's also another element which has been highlighted before, which sometimes markets develop in a certain way, the unpredictable and the uncontrollable. And what I think is a feature of our organization, of our business, is that we have, an embedded, increasingly agile organization that can respond to surprises in a very speedy and efficient manner. And that will help, in relative terms, ensure that we do keep the momentum and that we position ourselves competitively, in the best possible way.
I think this is something that we don't often talked about, but we've been doing a lot of work over the years on trying to bring that agility by removing obstacles for speedy decision-making and agility in everything that we do, and I thought it was worthy to mention that as well. Thank you.
Thank you.
Thank you very much, Mr. Miyazaki. We'd like to move on to the next question. SMBC Nikko Securities, Mr. Furuta, please.
Thank you very much. This is Furuta from SMBC Nikko Securities. Thank you for the opportunity. So I have a question to Mr. Tsutsui, the new president. So you have been involved in large-scale M&A, inclusive of Gallaher, and also you have alluded to M&A during your presentation. So what would be your target going forward? So I'd like to hear your thoughts. Would it be similar to something like Vector, or would it be any- something that would accelerate the growth of RRP?
There's a question related to M&A. Mr. Tsutsui, I would respond.
Thank you very much for that question. As I have mentioned within the presentation, M&A is a very effective initiative. So as we consider M&A, some of the important elements, M&A is definitely a means to grow. So to what direction and what we are going to grow, so depending on that, the attractiveness of the different deals may differ. So, according to our objective, if there are opportunities, we would like to consider and explore the opportunity.
So what are the different types of M&A, you may ask? In terms of combustibles, as Eddy mentioned in his presentation, as we consider and focus on ROI, we would look whether it would be instrumental in improving the ROI.
Back in 2024, Vector Group was exactly it in meeting that objective. It was a very high quality deal, as we recall. So if there are more opportunities, we would definitely like to explore the possibility. Now, in terms of RRP, because it is quite new in terms of the characteristic, perhaps it is not so much of a large size M&A, but we'll be looking into more of an intellectual property or perhaps a new business model. So for instance, Flavour Warehouse in the UK, we have forged a partnership with them or acquired them rather. So, this sort of a new business model, that could be another objective as well. Also, if there are some capabilities that are not fully operational within the group, we may also opt to acquire those as well.
Those are some of the directions in terms of M&A. Depending on the objective, we will look around the world, and if there are opportunities, we would definitely like to look into those and look into possibilities. JTI would also like to respond to that as well.
Thank you very much for the question, Furuta-san. I can only support what Tsutsui-san has said. We are hungry for growth, but that comes with discipline and a more complex environment that we have experienced maybe 10, 15 years ago because of the changing consumer desires and, and expectations. So it is a twin approach in a way, the combustible area, where we've got a lot of confidence in the capabilities that we have to run these businesses. We never forget that M&A is not easy. Integration is hard work, but we understand profoundly what it takes to succeed in the combustible area. And in RRP, it's still relatively new, all things being considered.
and so looking at innovative propositions for consumers, looking at intellectual property that can give us a bit of an edge in certain parts of the business, is always something that we will keenly look at with the financial discipline that, of course, you would expect from us. Thank you.
Thank you very much. Also, in terms of the shareholders' return, I would like to ask about that. As you continuously make a growth investment, also, If you can also, the 75% dividend payout ratio, maybe it is somewhat lagging behind, vis-à-vis the global peers. How do you intend to strike the balance between growth investment as opposed to shareholders' return?
This is the balance between investment and return. Mr. Tsutsui would like to respond.
Thank you very much for that question. 75% dividend payout ratio related to this point. We are fully aware, there are various benchmarks available in the world, but as far as we're concerned, we believe this is globally competitive. That is our understanding.
And as you highlighted, in terms of growth investment, we put the top priority in the growth investment. So within that balance, 75% dividend payout ratio, we believe this is the optimal in terms of the balance. Of course, there are companies out there who are making a far larger shareholders' return. And also the global peers, they have been looking into various return level and also different methods of return as well. We are fully aware of those. So just to reiterate, what we would like to stress here is, indeed, growth investment really brought our group to the current state. That was the biggest driver that brought us to this very day. So back in 1999, Reynolds' acquisition, in 2007, Gallaher's acquisition.
So these business investment had continued, and that is exactly why we have the performance as of today. And also, we have strong brand equity. The reason it is there, because we have made investment in the past, and also we've been able to capture the pricing opportunity, precisely because of the strong brand equity. So I'd like to seek your understanding. This growth investment, we will continue to be proactive, and that would continue to be high in our priority, and that will be continued going forward. And within that, of course, we would also intend to explore the competitive level of shareholders' return, and definitely, we'd like to keep that balance.
Thank you very much. That is all for me.
Furuta-sama. Mr. Furuta, thank you very much. We are running out of time, so the next question will be the last question. From Daiwa Securities, Mr. Igarashi, over to you.
Thank you for taking my question. I am Igarashi from Daiwa Securities. I'd like to ask a question about innovation in the RRP business. For Ploom Aura, since the launch, the device and the new sticks, it is penetrating the market in a very good way. In the future, I'm sure that new products will appear in the market, and innovative products will probably increase. So for your company, I'm sure that highly functional devices will probably be an area that you're going to invest into for more innovation.
Is that the case or no? That was a question about RRP innovation. Mr. Tsutsui will take that question.
Thank you for your question.
Regarding RRP innovation, last year in May, we launched Ploom Aura, and it's been a product that was well received from the customer base, so I am very pleased to see that. When we are developing such products, from the moment we are developing the product, we already are talking about making it better. In order to respond to customer expectations, we are creating a wish list in the innovation cycle and are generating a variety of ideas. So an even better product, we believe, can be delivered to the customer in the future. Therefore, we do have a pipeline in place. Unfortunately, I am not able to share it with you today. However, from the pipeline, we would like to ensure that highly positive, impactful products for the customer and services can be developed, and we hope you look forward to it. I see.
Thank you very much. I look forward to the next innovation. That's all from me.
[Foreign language]
Igarashi-san, thank you very much.
[Foreign language]
This concludes the results meeting for fiscal 25. Thank you very much for participating today.