Thank you for accessing to the JT Group's Second Quarter Earnings Results Call. Naohiro Minami, Chief Financial Officer, will take you through the second quarter results.
Good evening, and thank you for joining today's call. I'm Naohiro Minami, Chief Financial Officer of the JT Group. I will take you through the second quarter earnings results. I will start with our consolidated financial results for the first half of 2020. Please look at slide four. Overall, the JT Group's business performance was resilient in the first half. Let me take you through the details starting with revenue. Despite the strong performance in the international tobacco business, revenue decreased by 2.7% to JPY 1,030.2 billion due to the decline in the other businesses. The international tobacco business had a strong business momentum due to significant pricing gains, which was partially offset by currency headwinds. As mentioned on the slide, COVID-19 mainly affected the tobacco and processed food business by an estimated negative impact of approximately JPY 35 billion to date.
Despite this, adjusted operating profit at constant currency increased by 7.5% year- on- year, as the pricing gains in the international tobacco business were significantly favorable in the first half. On a reported basis, adjusted operating profit was almost flat year- on- year as a result of positive performance in the international tobacco business, offsetting the negative impact of foreign currencies. On the other hand, operating profit and profit attributable to the owners of the parent company declined due to the reasons mentioned on the slide. Let me now review the performance highlights of each business. Please turn to slide five for the Japanese domestic tobacco businesses volume performance. RMC industry volume decreased 6.9% year- on- year. Significant decline was confirmed in April and May, when the Japanese government declared a state of emergency due to the pandemic.
As shown on the bottom right graph, monthly RMC volume trends in June have recovered to March levels after significantly being impacted in April and May. On the other hand, RRP industry volume increased year- on- year, and the category continued to expand. With more people staying at home, this provided a tailwind for the RRP category growth. I will further cover this topic in a later slide. As a result of these trends, total tobacco industry volume, RMC and RRP together, declined approximately 3.5% in the first half. On a separate note, as you already know, the revised Health Promotion Act, which restricts indoor smoking, went into effect in April, coinciding with the state of emergency. Therefore, it is difficult to isolate the impacts of the act from those of COVID. Now, I will cover our volume performance.
RMC shipment volume decreased due to industry contraction and lower market share year- on- year due to the competition in the value segment. Quarterly RMC segment share remained firm, recovering to 60% in the second quarter. RRP shipment volume was in line with our business plan, increasing by 400 million units year- on- year to 1.8 billion units. With more opportunities to use tobacco products at home in an environment in which people are required to avoid non-essential outings, consumers reaffirmed the benefits of low-temperature heating products, and we are pleased to inform you that Ploom TECH+ is performing well. Further, we launched Ploom S 2.0 this month as scheduled and will continue to strengthen our presence in the high-temperature heating category. Slide six shows the financial results for the Japanese domestic tobacco business. The top line was impacted by lower volume and negative price variance of RMC.
In addition, RRP-related revenue also declined year- on- year. This was mainly due to lower sales of devices and accessories, as well as the tax hike absorption in October 2019 when the tax structure for RRP was revised. COVID-19 negatively impacted the top line and is estimated to have had an impact of over JPY 10 billion. Half of this impact is attributable to the Japanese duty-free and China businesses. The other half is primarily due to the one-time impact in the Japanese domestic market, following the declaration of the state of emergency in April and May. Resulting core revenue is as shown in the slide. However, I would like to note that we have not seen acceleration of downtrading due to COVID-19. Adjusted operating profit decreased by 25.1% to JPY 81.8 billion as a result of negative top-line performance along with marketing investments strengthened as planned.
Please turn to slide number seven, where I will cover our performance in the international tobacco business. Despite increasing market shares in key markets, total shipment volume decreased 4.8% year- on- year due to COVID-19 impacts, as well as lower volume in Bangladesh, Russia, and Turkey. Further, the net impact of COVID-19 on volume was negative due to the volume impact of duty-free business and some emerging markets, which more than offset the positive impact of inventory pile-up by distributors and retailers led by the COVID-19 uncertainty. On the other hand, share was solid in markets listed on the slide. As a result, GFB shipment volume was also flat year- on- year despite a decline in total shipment volume. Here, let me briefly comment on Russia.
Industry volume continued to decline due to the impact of the tax hike in January, the increase of illicit trade, the increase in RRP, and the worsening economic situation due to COVID. Also, competitors did not follow our price increase in January in accordance with the tax hike, creating unfavorable price disparities that continued in the first half. This resulted in our shipment volume underperforming the industry, while our share performance has now stabilized. At the same time, while we managed to secure the profit levels through solid pricing, we also promptly responded to the pricing disparity by revising the prices of some of the products in May. Regarding Ploom S, launched in some areas in March, we are actively expanding distributions as explained on the slide. Moving to the next slide for financial results of the international tobacco business.
Robust growth was driven by significant pricing gains in the first half. To elaborate, 70% of the expected pricing gains were materialized in these six months. Please refer to the slide for the main markets which witnessed pricing gains. Significant pricing gains were driven by a comparatively favorable schedule as well as a favorable comparison of lower pricing in several markets year- on- year. On the other hand, these gains were partially offset by two factors, one being the negative impact of volume variance, which was caused by lower shipment volume, and the second being deteriorated mix caused by accelerated downtrading under the weaker economic conditions. Consequently, as depicted on the slide, core revenue grew both at a currency-neutral basis as well as on a reported Japanese yen basis. We estimate the COVID impact on core revenue in the first half as an unfavorable JPY 20 billion.
Regarding the adjusted operating profit, volume variance was positive, and the solid volume performance was confirmed in some European markets where the unit prices were high. In addition, driven by robust pricing gains, which contributed to the top-line growth, adjusted operating profit at a constant currency and on a reported Japanese yen basis recorded a double-digit growth rate. Despite lower costs due to COVID-19 restrictions, the net amount of cost increased due to enhanced operating expenses, including investments toward digital capability enhancements and the establishment of our Global Business Services . We have also continued to invest in RRP and other brands. Looking at the effects and impacts, weakened foreign currencies mentioned in the slide have negatively affected our performance. Moving on, I will explain our performance in the pharmaceutical business. Revenue decreased mainly due to lower overseas royalty income.
On the other hand, adjusted operating profit increased by JPY 2.2 billion year- on- year, JPY 7.9 billion. The reason for this increase came from lower R&D expenses marked by the successful completions of clinical trials, as well as profit increase in Torii Pharmaceutical. Looking at the COVID impacts, there were no material impacts to the top line. The processed food business was particularly impacted by the lower demand after the state of emergency declaration and restrictions on non-essential outings related to COVID. Significant decline was observed in the food service products and the frozen food and ambient foods, as well as the seasonings businesses. Lower demand was also seen in our own bakery business. As a result, revenue decreased by JPY 3.6 billion year- on- year, and adjusted operating profit decreased by JPY 1.3 billion year- on- year, JPY 300 million.
In the first half, COVID-19 impacted the top line negatively by an estimated amount of about JPY 4 billion. Now, I will talk about the revised forecast for 2020 from the next slide. Let me start by explaining the assumptions and outlines of the revised forecast. The forecast was revised based on the assumption that the lockdowns already in force in some places since mid-March will gradually be lifted during the second half. In other words, the impact of wave two is not included in this revised forecast. Such impacts include the reintroduction of lockdowns in our key markets in the international tobacco business, as well as another declaration of a state of emergency in Japan. We also expect a U-shaped economic recovery following the most severely affected April to June period, but we expect that they will carry on through the year-end, gradually tapering off.
In terms of the outlook of our operating environment, we expect that business momentum, mainly in the tobacco business, to remain firm in the second half of this year. On the other hand, with regard to the outlook for the next year and onward, it is necessary to assess how the economic situations, consumer behavior, as well as regulations and taxation systems in each country or region will evolve. Looking back, with similar economic crises like the COVID-19 pandemic, there may be some risks of the decline of the total tobacco consumption, occurrence and acceleration of downtrading trends, and changes in regulation and tax schemes following the changes of consumer purchasing power, all depending on the extent of damage to the economy. Such impact on the tobacco industry may surface with a lag. With these factors in mind, we will keep a close watch on potential risks.
FX assumptions have been revised, reflecting recent trends, as a result of which we now expect that negative effects will expand more than the initial outlook. We would like to inform you, though, that there are no serious concerns related to funding at this time. Regarding the shareholder return, the initially planned annual dividend per share remains unchanged. The revised forecast that I am about to explain has been prepared based on the assumptions explained in this slide and reflecting the results of the first half of this year. We aim to achieve the revised forecast based on these assumptions. Slide 12 explains the revised forecast announced today based on the assumptions I explained in the previous slide. Revenue has been revised downward in the Japanese domestic tobacco, international tobacco, and processed food businesses.
Besides the impact of the foreign currencies in the international tobacco business, the main cause of this downward revision is due to the COVID-19 impact, and we will strive to mitigate the impact on profits due to the decline in the top line. Adjusted operating profit at constant currency has been revised downward, reflecting the conditions in the Japanese domestic tobacco and processed food businesses. However, with efforts to mitigate the impact of a top-line decline in these businesses and with the upward revision in the pharmaceutical business, the forecast was revised downward by only JPY 7 billion from the initial forecast, resulting in a 1.3% year-on-year decrease in currency-neutral adjusted operating profit. On a reported basis, adjusted operating profit and operating profit has been revised downward, as shown in the slide, mainly due to the revision of foreign exchange assumptions.
The forecast for the profit attributable to the owners of the parent company has been revised downward by JPY 19 million, representing a 17.9% decline as a result of a reduction in the corporate tax burden, partially offsetting the decline in operating profit. Despite the impact of the decline in top-line sales due to COVID-19, we expect our ability to generate cash to remain stable. Next, I would like to explain the forecasts by business segment. Please see slide 13 for details on the Japanese domestic tobacco business. The recent COVID-19 situation has led to changes in consumer behavior. Examples include changes of the places and opportunities for tobacco product consumption. Especially following the state of emergency declaration, the smoking environment was further restricted, with restrictions including temporary closures of some designated smoking areas, which had negative effects to RMC demand.
On the contrary, there is a tendency for increased smoking opportunities at home due to the restrictions on non-essential outings. Against this backdrop, consumption of RRP surged in these circumstances. Although these events had negative effects on the total tobacco demand, we understand that most of these effects were temporary under the emergency declaration. We believe that they have already been resolved with this declaration lifted. However, our analysis indicates that some changes in consumption trends could imply smoking cessation and reduction and could have lasting effects to the natural decline trend. We will keep a close watch on trends. CLUB JT, a new initiative, is also listed on the lower left of the slide as a reference. In the wake of COVID-19, we confirmed the changes to the level of digital acceptability.
To capture this trend, we are now working to strengthen our digital marketing capabilities and respond to the diversifying consumer behaviors and to address the purchasing behaviors through e-commerce and other channels. Amid changes in consumption trends, we have revised our volume assumptions in light of recent situations. The decline rate of RMC industry volume is revised downward from the initial assumption, reflecting the factors I have mentioned before. The RRP category size is expected to remain in a ballpark of around 25% of the total tobacco industry, although it is expected to expand more than initially anticipated, observing the trend so far. In light of these factors, the forecast for the total tobacco industry volume is revised downward from the initial assumption.
RMC shipment volume is revised downward, reflecting the higher decline rate of the total demand compared to the initial outlook, while we maintained the initial assumption for the RRP shipment volume. Based on these assumptions, we have revised our financial forecast for the Japanese domestic tobacco business, as shown in slide 14. Our core revenue forecast is revised downward by JPY 30 billion to JPY 510 billion due to significant impact on the top line of the duty-free business, considering its scale and temporary decline of the domestic market following the declaration of the state of emergency, but let me comment about adjusted operating profit. There are two factors that influence the revised forecast for the adjusted operating profit, one being the duty-free business and the second being the Japanese domestic market.
In regards to the duty-free business, the top line impact directly affects profit because while this has relatively high margins, there is little room for cost reductions, and under the COVID-19 situation, the top line of the duty-free business has been significantly impacted. Now, in the Japanese domestic market, on the other hand, it is possible to mitigate the top line impact to the bottom line to a considerable degree by not only reducing general and administrative expenses under the restrictive operations due to COVID-19, but also by revisiting the priorities of initiatives and reducing non-essential costs while making necessary investments. Considering these factors, adjusted operating profit is revised downward by JPY 10 billion to JPY 160 billion. Along with the announcement of our financial results today, we announced an application of approval of revisions of retail prices accompanying the increase in the tobacco excise tax in October 2020.
As we have communicated, the amendments of the retail price were determined taking into consideration the factors including not only tax increase but also lower demand and downtrading following the price revision. We have applied for a JPY 50 increase in the retail price per pack in principle to ensure that the quality and brand equity of each product will be maintained or improved despite volume decline driving higher costs per unit. These factors have also been incorporated into the revised forecasts. Next, I will explain the revised forecast for the international tobacco business. Please turn to slide 15. The international tobacco business is broadly divided into mature and emerging markets. In the mature markets, we can confirm higher unemployment rates and a decrease in disposable income, but because economic stimuli by governments were implemented relatively faster, the economic damage to consumer is contained to a certain extent.
On the other hand, we have confirmed the progress of downtrading. Especially in Europe, fine-cut products are functioning as a receptacle for this downtrading trend, and JTI offers the leading fine-cut product in Europe, which is expanding in their market share. Further, considering the stockpiling impacts, the decline in shipment volume up to the second quarter was limited, particularly in the European and other mature markets. However, in emerging markets, several faced severe lockdowns, which had a significant impact on the distribution of products and lower disposable income amid unstable economic conditions, which have led to volume declines and downtrading. The revised volume assumptions are shown on the slide. These downward revisions are mainly due to the effect on total demand in the duty-free market and impact by COVID-19 in some emerging markets, as well as the effect of the volume decline, mainly in Russia, Bangladesh, and Turkey.
This was partially offset by the increase in the total demand accompanying the restored domestic industry in the U.K. and France, as well as by the strong volume performance in Europe, resulting from the increase in market share. Next, I will explain the revised financial forecasts. Core revenue at constant currency has been revised downward by $500 million, reflecting the volume assumptions revised downward. On a reported basis, the forecast has been revised downward, as shown on the slide, taking into account that the negative foreign exchange impact is expanding beyond initial assumptions. On the other hand, adjusted operating profit at constant currency remained unchanged at a 10% growth rate due to the downward revision of the top line, the upside of pricing gains in the first half more than offsetting the increased downtrading under COVID, and the cost reductions due to operational restrictions under COVID.
Adjusted operating profit on a reported basis has been revised downward by JPY 38 billion due to the revision of the foreign exchange assumptions. Regarding the outlook for the second half, we expect the growth rate to decelerate due to factors as shown on the slide. In the next slide, I would like to explain the revised forecast for the pharmaceutical business. As you can see in the slide, the revenue forecast remains unchanged. However, the adjusted operating profit is revised upward by JPY 3 billion and is expected to be JPY 13 billion, down JPY 2.9 billion against the previous year, with restrictions on operations caused by COVID leading to decreases in both R&D expenses and cost of Torii Pharmaceutical. Now, let me discuss the revised forecast for the processed food business.
The revenue forecast is revised downward by JPY 7 billion to JPY 153 billion, reflecting weaker demand for food service products and softening bakery business following the declaration of the state of emergency. The adjusted operating profit forecast is revised downward by JPY 2 billion to JPY 3 billion, reflecting lower top line. However, we will mitigate the impact of the lower top line by improving our product mix and cutting costs. We expect the impact of COVID-19 was the most significant in the second quarter under the emergency declaration, with gradual improvement expected to follow. However, we will continue to monitor how the situation evolves. Finally, please refer to slides 19 and 20. In slide 19, I would like to cover the JT Group policy regarding community investment activities and our responses to the COVID-19 outbreak.
Our group has been conducting continuous community investment activities to contribute to the development of inclusive and sustainable local communities. Even in these unprecedented times, we are determined to fulfill our role as a responsible community member. Please turn to slide 20 for closing remarks. The implications of COVID-19 remain very volatile as its effects continue to expand. We will respond to evolving consumer needs and changes in behavior in this new normal with flexibility and agility. We will also continue to invest in communities where we operate, as mentioned earlier. Regarding the outlook going forward, as mentioned in the previous slides, we expect to see solid business momentum through the end of this year.
However, with regard to the outlook for the next year and onward, notably in the mid to long term, it is necessary to take into account the economic situation and its outlook, changes in consumer trends, and trends in regulation and taxation in each country. Regarding the shareholder return, as shown on the slide, the initial planned annual dividend of JPY 154 per share remains unchanged. Thank you for your attention.
Now, we'll move on to Q&A. In addition to Naohiro Minami, Chief Financial Officer, we also have with us Yuki Maeda, Chief Financial Officer of the Japanese tobacco business, and Koji Shimayoshi, JTI Executive Vice President and Deputy CEO, who will also take your questions. Due to time constraints, if you'd like to confirm detailed performance numbers, please contact our investor relations team afterwards. With regards to this conference call, the JT participants are participating from home.
Due to technological constraints for the English audio, it will not be distributed simultaneously together with the Japanese audio, but we have been recording it at a later date. We hope you understand. The first question is from Mr. Miura of Citigroup Securities. Regarding the announcement that was made today together with the results about the JPY 50 price increase for domestic tobacco, the price hike is larger compared to previous pricing. Can you share with us the background as to why you decided at this level? Also, is it the right way to think that this will have a JPY 10 billion positive impact on profits for the full year? Moreover, how much are you anticipating for elasticity? Thank you for your question. Mr. Maeda, CFO of the Japanese tobacco business, will answer your question.
We believe that the role of the Japanese tobacco business in the group is to generate steady earnings. At the results meeting in February this year, we communicated that we will capture pricing opportunities appropriately. The application we made for the price revision follows this line of thought. The current outlook has been fine-tuned from what we were accounting for at the beginning of the fiscal year, but there have been no major changes. Moreover, we scrutinize customer price tolerance, the competitive landscape, as well as our brand portfolio. With respect to our brand portfolio, the biggest difference between this year and last is that because we now have a good lineup of Camel in place and a value segment, we are preparing with confidence.
So this time around, on top of the level of tax increases, we have accounted for post-pricing demand decline and the impact from downtrading as we decided on the level of the price increase. We originally estimated a range for the price increase. For the application, we did pricing brand by brand and did some fine-tuning, but we set prices considering customer tolerance, quality, and future investment capacity. As for elasticity, we don't view that there has been a major change. It was about 0.3-0.4 before, and the same assumptions apply this time as well.
This is Miura again. EPS is declining in light of the downward revision, but you have stated that dividends will be JPY 154 a share for this fiscal year. Will you uphold JPY 154 dividends next fiscal year and beyond? If there were to be a risk that you may change it, what would it be? Can you also share with us some positive or negative factors you are anticipating in your performance for next fiscal year? Mr. Minami, CFO, will answer your question.
The downward revision was due to the impact from COVID-19, but this applies just for this year. We believe the forecast is based off the most reasonable assumptions accounting for current performance, so we will strive to achieve the forecast based off these assumptions. Under this context, we have not changed the dividend policy from the beginning of your forecast. With respect to dividends for next fiscal year and beyond, as we have communicated from the past, we will make decisions upon considering medium to long-term profit growth and net profit levels.
In addition, we acknowledge that we also need to scrutinize the balance of resource allocation and review our financial base. This means that it is too early at this stage to say anything definitive about dividends. Regarding positive and negative factors for next fiscal year, the key is how long the impact from COVID-19 is going to continue. The learnings we gained post-Lehman crisis was that the impact from this kind of event has a lagging effect on consumption trends and tax systems after a certain period of time passes. Therefore, it's difficult to explain the outlook of our businesses at this point in time. However, for the adjusted operating profit line and below, currently, we are right in the middle of selling the JT building, but the process will be completed this fiscal year. So this kind of large-sized disposable property will be gone next fiscal year.
So I can tell you that extraordinary factors like the sales of the JT building will be absent, but for other factors, we will scrutinize our performance as we build the plan for next fiscal year.
The next person is Ms. Tsunoda from JPMorgan Securities. For domestic tobacco pricing, I was quite surprised about the JPY 50 price increase. You commented about capturing the appropriate timing for pricing, but can you tell us what this means? Also, you revised down the industry volume outlook for domestic RMC, and as negative trends persist due to the expansion of RRP, can you tell us the backdrop as to why you decided to go ahead with the bold price increase? Is your view that we are at a transformation point regarding future industry trends? And do you think that Japan has now turned into an environment where aggressive pricing is possible?
In other words, is this a commitment from management that the source of dividends will be secured? In addition, you haven't changed the outlook for RRP category share, but can you tell us how the assumption for growth rates has changed? Mr. Maeda, CFO of the Japanese tobacco business, will take your question.
We have not decided to increase prices by JPY 50 because we observed a transformation point in the domestic tobacco market trends. Like we have done in past price revisions, we take a careful look at market conditions at that time. We make decisions on a case-by-case basis by looking at the cost structure, future investment, and customer trends. For now, due to the impact from COVID-19, we need to closely monitor the situation as we consider pricing because when the economy enters a downturn, downtrading risk may occur after a while.
As for the question about RRP, we originally had set a range for RRP category share. It is a fact that we saw the level go up by a certain degree in light of COVID-19. We view that it grew by a little bit over 1%, and we need to closely monitor the situation going forward. Last year, in the second half, RRP category share growth slowed down, but as we entered the new year, RRP growth became stronger. And now, under the COVID-19 environment, it is growing by more than 1%. So growth rates are not like what we saw two to three years ago, but it has increased in light of COVID-19. This is Minami speaking. Our utmost priority is to further grow cash flow and profits, and this will lead on to how we allocate capital in the future.
We have explained from the past that our utmost priority is to invest into our business. So in order to grow sustainably, annual cash flow and profits are important more than anything. For both the domestic and international businesses, pricing is not for securing short-term profit or cash. It is about maximizing the future profit pool.
This is Tsunoda again. Does this imply that this year will be the bottom for profits in the domestic tobacco business? Mr. Minami, CFO, will answer your question.
We have an effective plan for RRP, and we would like to ensure that we capture pricing opportunities for RRP in addition to RMC. The pricing we took this time around is under this way of thinking. Originally, our view was that this year will be the bottom, but the impact from COVID-19 is an uncertain element. We need to scrutinize how long and how much of an impact it will have on consumer behavior and economic trends.
This is Tsunoda again. Looking at your competitors' results, RRP demand is expanding in Russia. Your company has launched Ploom S in the market, but would there be a risk in Russia that you repeat the bitter experience you had in Japan? What kind of measures do you have to avert the situation? Yes, Shimayoshi will take this question.
In Japan, we introduced Ploom S about 15 months after the introduction of IQOS. At that time, IQOS had already finished its rapid expansion. On the other hand, IQOS's market share in Russia is around 6%. So we believe the speed of IQOS penetration in Russia is about one-fourth that of Japan.
We're not at a stage where we can give you a prediction how far the RRP will grow in Russia, but compared to Japan, we believe it is a big advantage compared to Japan that we were able to launch Ploom S while the market is still expanding. Furthermore, we learned how to promote the product in Japan, and with the introduction of Logic Compact in Russia, we have learnings on how to engage and retain customers in the RRP category. The actual Ploom S launch was March, and the timing coincided with a COVID-19 disaster. So we quickly changed the battle methodology and know-how to a digital-centric way. The IQOS expanded rapidly in Japan, so the RMC market contracted, and we were struggling to squeeze out sales promotion expenses. But in the case of Russia, the RMC growth is still solid, so we can secure RRP investments.
Going forward, we need to speed up future measures and execute sales expansion in Russia earlier than planned.
This is Tsunoda. To confirm, is IQOS's 6% market share a figure within the whole tobacco market, including T-Vapor, not of the RRP market?
This is Shimayoshi. Yes, the industry volume of E-vapor in Russia is small, so I would say it would be the same whether you include E-vapor or not.
This is Tsunoda again. What is Japan Tobacco's position in the Russia RRP total market?
This is Shimayoshi. The 6% share of IQOS is their national market share of all tobacco, including RMC. Ploom S has just been launched, and the test marketing in Moscow with 3,000 stores has just started, so it is too early to speak about the market share in all Russia. We do see a cannibalization with RMC, but we are going to maintain our RMC profit pool and increase our share to at least the same as RMC.
The next question is from Mr. Saji. This is Saji from Mizuho Securities. I wonder, regarding the domestic tobacco business, I know things are uncertain with the COVID impact, but how do you see the trend going forward? We know that for this fiscal year, the volume is down by JPY 30 billion versus last year. And when you think about the fact that we have four consecutive years of declining profit, and this year will be the bottom, the impact of this number is quite major. How do you think you can bring back the domestic tobacco business to stable growth?
This is Maeda, CFO of domestic tobacco business. So when we look at the domestic tobacco volume trend, the industry volume in April and May was weak, but when we look at June and July, the level has come back basically to the pre-COVID level. We do have a risk of reduction and cessation of smoking, but in the overall trend, we believe that there was this one-time impact, and now we're coming back to the pre-COVID levels. So there will be a slight negative impact remaining, but that will be the level that we predict. Now, this becomes the precondition as to how we look at the profit level for next fiscal year, but that is being planned going forward, and it is a little bit too early for us to speak about it now.
Now, if the amendments of the retail price that we have applied for are approved, it will be a major driver of profits for the next fiscal year, and we do want to build a turnaround plan to take advantage of this. On the other hand, however, it will be difficult to generate sustained profits unless we build a solid RRP top line. So it will be difficult to predict next fiscal year unless we take into account various factors, such as what products we focus on in the R&D pipeline and whether we will engage in competitive sales promotions for some of the key products. But in any sense, we would like to make sure we put together a strong plan so that we can aim for stable profit contributions.
This is Saji. I'd also like to ask about further cost cut plans next fiscal year. Are there any areas where you can do cost cutting due to the COVID-19 impact?
This is Maeda. I don't think there is anything we can cut back on at this point in time, but we are being restricted in our business activities this fiscal year, so we are managing costs as we see these changes with cases such as less business travel and less conferences. So as we analyze the impact of COVID-19, the cost base will change in various ways, so we need to take a close look at this. This is why we think it's too early to give you an idea of the cost image for the next fiscal year at this point.
This is Saji. I'd like to ask, for the international businesses' inventory impact, how much burden do you think it will give to the second half? And also, I've noticed that the North and Central figures were quite strong. Which markets are contributing to this other than the U.K. and Germany? Please let me know the situation.
This is Shimayoshi. In the first half, we have the inventory buildup in the channel due to lockdown in the first half. And also, we did not have the cross-border purchases of tobacco because there was the border closure. And due to this, the domestic demand within the countries of the U.K., Germany, and France has become greater. And also because the economic stimulus package was introduced relatively early on in each of these countries, though we saw some downtrading, there was not much impact to the tobacco industry volume.
In the international tobacco business total, we have the positive channel inventory adjustment of approximately 2 billion units in the first half, but this impact has basically been resolved for North and Central. So the countries that will be impacted in the second half with carryovers would be Russia and Philippines and such. And in terms of share, not only the U.K., but Germany, Poland, and France are also maintaining their momentum. The border closure has already been released. So we believe that in the second half, we will go back into pre-COVID-19 levels due to the strong domestic demand that we see. But there are certain situations where, for example, Spain has a lot of travelers from the U.K., and they bring back a lot of tobacco due to the unit price difference, but they still have that two-week quarantine period.
So it is not really that they can freely go between these countries. That is why we believe that there might be some remaining impact of what we saw in the first half going on in the second half, and the situation continues to be volatile. In terms of the macro perspective, though, we do believe that the events that happened in the first half will be released gradually in the second half. Now, with this, we would like to close the JT Group Second Quarter Earnings Results briefing. Thank you for your attendance.