Japan Tobacco Inc. (OTCPK: JAPAF) Third Quarter 2022 Results Conference Call October 31, 2022 4:00 AMm. ET
Participating companies
Nobuya Kato – Chief Financial Officer
Koji Shimayoshi – Executive Vice President and Executive Vice President and Executive Vice President
Conference Call Participants
Nobuyoshi Miura – Citigroup Global Market Japan Inc
Hiroshi Saji – Mizuho Values
Makoto Morita – Daiwa Securities
Haruka Miyake – Morgan Stanley MUFG Securities
Nobuya Kato
I’m Nobuya Kato, CFO of JT Group. Thank you for joining us today for JT Group’s third quarter 2022 earnings briefing. First, I would like to take a moment to explain my considerations on the scenario in Russia and Ukraine. I am deeply involved in the human tragedy and devastation unfolding in Ukraine. And I sincerely hope that peace will return soon. The JT Group continues to place the highest priority in the protection of our workers and their families and provides every imaginable help to those affected.
First, I’ll start by covering the highlights of our consolidated monetary effects for the nine months of 2022. The effects of nine months and the full-year forecasts that I will explain today have the effect of hyperinflationary accounting in the tobacco sector. Industry figures. Linked to Ethiopia as well as those of Iran, Sudan and Turkey, to which hyperinflationary accounting has already been applied. For more details, see our effects report.
See the fourth slide, which summarizes our functionality indicators. Uniform currency-adjusted operating income source, our main functionality indicator, up 6. 5% year-on-year, driven by the tobacco business. Based on the first part of the year, we also benefited from strong value contributions in this quarter.
We have achieved earnings growth, too, in part, due to the cost-containment effects of the measures we have implemented to date, despite the challenging business environment resulting from emerging energy prices and inflation. -year, supported by the advertising boost in the tobacco business, in addition to the sharp depreciation of the Japanese yen, as well as higher revenues from the pharmaceutical and food businesses.
The adjusted operating source of earnings creation increased 17. 5% year-on-year, taking advantage of the benefits of strong earnings functionality and the depreciation of the Japanese yen. The operating source of profit creation increased 20. 5% year-over-year due to a higher source of adjusted operating profit and a favorable comparison compared to the same time last year, due to the absence of reimbursement to leave tobacco manufacturers who made the decision to withdraw from the business and the absence of unique project-like pricing for our competitiveness in our tobacco business. In Japón. La accumulation of profits increased by 19. 2% year-over-year. However, an accumulation in financing prices partially offset the accumulation in the operating source of profits.
From this slide, I will show the actual figures for each company. First, the volume functionality of the tobacco industry, see slide five. Total volume, adding fuels and RSO, was 402 billion units, almost unchanged from last year. We continue to provide strong functionalities due to favorable volume dynamics in the EMA group, such as Iran and Poland, and the trend of continued recovery in global travel retail, driven by the relaxation of travel restrictions.
Meanwhile, industry volume has declined in several key markets, adding Japan, the Philippines and the United Kingdom. And, in particular, the decline in the UK is larger than expected.
Let’s move on to the trends in each category. Total fuel volume was 396 billion units, almost at the same point as last year, due to volume dynamics in various markets within the EMA cluster, adding to the recovery of global retail. This dynamic has almost offset the decline in industry volumes in the key markets I just mentioned.
Overall, overall volumes increased year-over-year in more than 60 markets. Percentage gains from the fuel market continued in our global footprint, adding year-over-year increases in key markets of Italy, the Philippines, Spain, Taiwan and Turkey. markets, such as Spain, the effect of the easing of travel restrictions is positive, while it is negative in other markets, such as the United Kingdom and France.
In Japan and the UK, the festival is active in the price segment. I will talk about the main points of our answers later. part resolved in the third trimester. Total RRP volume increased through approximately six hundred million games year-over-year to 6 billion games, driven by the launch and continued expansion of Ploom X’s percentage in Japan.
Slide 6 explains the monetary functionality of the tobacco industry. At constant exchange rates, core cash inflows and adjusted operating profit increased to 3. 9% and 5. 5% respectively. Although our volume functionality in unit terms stands up compared to last year, the monetary contribution of this volume is negative. This is the result of further volume declines in high-margin markets such as Japan and the UK and the decline in the overall composition of our tobacco business.
Strong value contributions offset the effect of this negative volume differential, as well as the effect of higher entry prices, along with higher energy prices and inflation. The effect of those higher entry prices is expected to be most evident in the remaining era of this year. On a reported basis, core sales and adjusted operating income source increased particularly year-over-year due to the historical depreciation of the Japanese yen.
On page seven, I will provide the trends for the cluster and major markets. First, Asia. The total volume in this organization decreased year by year, basically due to the decrease in fuel volumes as a result of the decline in industry volumes in Japan and the Philippines. Initially, the volume effect offset price/mix effects and the positive monetary effect, a year-over-year decline in core income and adjusted operating income.
In Japan, the overall volume continued to decline, the reduction in fuel volume was partially offset by an accumulation in RSO volume. In the fuel categories, the downward trend continued and the festival in the price segment remained intense. However, our market increased percentage in the fuel category compared to the current quarter, driven by the successful launch of less expensive versions of various brands in the current quarter, adding Camel Craft.
We will continue to expand a varied diversity of price portfolios and logos in line with customer trends and will seek to maintain and improve our fuel percentage. Our RSO segment percentage in Japan increased to approximately 34% in the third quarter. to the increase of the transitory nature in call for advance of the revisions of October to the increase of the RSO tax.
We believe that the effect of transient demand for our products prior to the price revision was minimal due to the limited number of SKUs subject to price increases and the diversity of price increases. The progress of Ploom X will be displayed on the next slide.
The overall volume of this cluster declined year-on-year, basically due to the decline in industry volume in the UK and France, following the easing of restrictions, however, price/mix effects offset the negative volume effect and positive monetary effects also contributed to cluster growth. year after year accumulating basic earnings and adjusted operating profits.
In the UK, we are strengthening our portfolio in the cost segment for the cigarette and thin categories, and our market share increased compared to the current quarter. the volume of the industry, following the increases in value after the current part of last year.
Last but not least, the EMA. The overall volume of this group increased year-on-year due to expansion in Iran and Poland, and the upward trend in global retail trade despite a decline in industry volume in Russia and Turkey, driven by tax increases and other factors. and adjusted operating profit for this group increased year-over-year due to positive volume and price/mix contributions and favorable exchange rate impact.
Let’s move on to slide 8 to see the percentage of other main points about Ploom X’s newest functionality in Japan. The market share within the HTS segment continued to grow in the third quarter due to the arrival of new flavor refills and device promotions, reaching 7. 9% in the quarter. in the quarter. Following the tax accrual in October this year, implemented only for RSO, we have kept costs unchanged for the maximum Ploom X refill brands. Encouragingly, the existing tax-based percentage continues to show solid functionality thanks to the active industry promotions. We will continue to implement active marketing campaigns, both virtual and in-store, as well as expand and retain users.
See slide 9. Since the end of October, we started promoting Ploom X in select spaces in Greater London and are gradually expanding to major retail chains and more than 1,000 tobacco retailers. In the UK, we have built a leading presence in the fuel category, giving us a giant distribution footprint, thanks to a sales force and a wonderful relationship with the retailer.
In addition, although the duration of HTS’s market place category is limited lately, the UK market place is characterised by a low tax burden on HTS compared to other market places, which can lead to higher margins. It is very important for us to maintain and improve our share market share in the UK, not only in fuels but also in the overall percentage of tobacco, adding RSO, as well as maintaining and improving our profitability.
For those reasons, we have made the UK the launch market for Ploom X at the moment, after Japan. Leveraging our knowledge of Japan, Ploom X can expand our presence in the HTS segment and strengthen our RRP offering in this market.
I discussed the situation of semiconductors earlier. Well, I have some positive news for the percentage as we have secured the mandatory volume of semiconductors for the devices required for the first part of 2023, if this trend continues, we plan to push the expansion of Ploom X outside of Japan from 2023. As for the medium-term goal of RSOs for 2027, we will update or not taking into account the delay in the launch of Ploom X in Russia and the delay created by the shortage of semiconductor sources. We intend to percentage our plan with you as soon as possible.
With slide 10, let me announce our strategic partnership. JT Group and Altria Group agreed to identify a joint venture through their respective subsidiaries. Market HTS products in the United States, Ploom logo for devices and Marlboro for consumables. agreed to have a long-term strategic global partnership to explore additional business opportunities in the RSO category.
Altria is at the helm of the U. S. tobacco company, the first vision is to respond to adult smokers’ transition to a smoke-free future. This initiative is a component of our RRP business strategy that focuses on the HTS segment, and we look forward to driving the advancement of RRP projects in the JT Group.
In addition, through the marketing of Ploom in the United States, we hope to deepen our understanding and research of customer desires through the benefits of Atria’s extensive experience and wisdom.
JT Group and Altria will exchange percentages of their own clinical wisdom related to regulatory data on RSO and we plan to submit a tobacco premarketing application for HTS products to the U. S. Food and Drug Administration. Following approval, JTI will obtain HTS devices for this joint venture, and the United States will produce refills for HTS. We anticipate that selling such projects to smoking-related health hazards will generate a significant additional price for both companies.
Let’s now turn to the slide 11. Me would like to talk about the pharmaceutical sector and processed foods. Starting with the pharmaceutical sector. Sales of our consolidated subsidiary, Torii Pharmaceutical, are increasing year-over-year. This expansion is basically due to the accumulation in sales of CORECTIM Ointment for atopic skin problems and CEDARCURE Sublingual Allergen Tablet and MITICURE Sublingual Allergen Tablet. Adjusted operating source of year-over-year revenue growth thanks to increased sales at Torii Pharmaceutical.
Move to the processed food sector. Sales increased compared to the same time in 2021, basically due to value revisions in the frozen and ambient temperature segment. At the same time, the adjusted operating source of revenue declined year-over-year, as value revisions may not offset continued increases in unfired curtain costs and a negative currency impact. Let me advise you through our revised forecast for the full year 2022.
Before addressing the consolidated revised direction, I would like to update a situation in the Russian market and the possible influence on our revised direction for the whole year 2022. See slide 13. Regarding Russia, that’s why we continue To manufacture and distribute our products, the operating environment is still very challenging. In these circumstances, JT Group continues to take mandatory decisions to deal with the evolution of the scenario in accordance with the Group’s control principle, which is to continue with the 4S model, as well as in compliance with applicable regulations and foreign sanctions.
Next, let me explain the points similar to Russia, which can potentially be the revised full-year forecast detailed on the next slide. We believe in the revised consolidated earnings guidance for fiscal 2022. sales and 21% of adjusted operating profit, respectively. In previous forecasts, Russia accounted for about 9% and 17%, respectively. But the proportion has increased due to revised exchange rate assumptions.
Please note that we have revised the assumption rate of the Russian ruble to reflect a depreciation of the Japanese yen and an appreciation of the Russian ruble compared to the current quarter. According to those new assumptions, when the Russian ruble moves 1% against the Japanese yen, it will have an effect of approximately 2 billion yen on our adjusted operating profit.
I would like to conclude on Russia by mentioning that we have received raw fabrics for the remaining period of this year. However, there is a threat to users that we will face supply chain constraints similar to the availability of raw fabrics, which is a fear. while we continue our business.
On slide 14, I’ll show our revised consolidated forecast. We expect core sales to increase in a constant currency at a constant currency of 2. 5% compared to the previous forecast and to increase 3. 3% year-on-year, reflecting higher volumes and more valuable profits in the tobacco sector.
However, the adjusted operating source of consistent currency earnings declined year-over-year in the previous third class. We have revised our third class upwards by 9. 3% from the previous third class and an increase of 8. 1% year-over-year, expecting earnings expansion to outpace having an effect on higher input prices related to EM energy prices and inflation.
Income and source of adjusted operating income on a reported basis were revised upwards, in particular from the previous third class, reflecting the further depreciation of the Japanese yen. to adjusted operating income source.
In addition, profit forecasts have been revised upwards by 83 billion yen from previous forecasts. Taking into account the upward revision of the operating income source and the reduction of the effective tax rate despite the expected deterioration in financing prices due to exchange rate fluctuations. .
Free money was revised up through 77 billion yen from the previous forecast due to an upward revision of the adjusted operating source of income and declining capital investments.
Starting on slide 15, I explain the revised forecasts for each company. First, I would like to explain volume speculation in the tobacco sector. Part of the year, given the continued effect of the relaxation of travel restrictions and the situation in Russia and Ukraine, we expect a very significant decrease in volumes in the current part of the year. As a result, total sales volume for the full year would be minimized by approximately 3% year-on-year.
However, as we saw strong turnout for the summer season, strong momentum in some markets, and continued expansion in market share across multiple markets, we revised our overall volume forecast to minimize it by approximately 2% year-over-year. We offset the revision for our core income in constant currency of 2. 9% compared to the previous third generation due to higher volumes and higher value contributions.
As for the source of operating profit adjusted to consistent exchange rates, as we indicated in the last quarter, it would be minimized by 4. 5% compared to the initial forecast, given the effect of the accumulation on input costs. We have revised our guidance upwards by 8. 8% from previous guidance and 7. 9% from initial guidance, believing earnings expansion will offset the impact of higher costs.
That said, we continue to believe that recent increases in global costs will have a negative effect on tobacco industry input prices during the next fiscal year. In addition, we look to increase our investments in RSO next year as semiconductor variability improves. .
So, while it’s too early to provide figures for 2023, I’d like to point out the sensitivity of incorporating those charge increases into our business plan next year. On an informed basis, core income and adjusted operating source of income on a reported basis have been revised upwards in particular from the previous guidance, reflecting the further depreciation of the Japanese yen.
Let me turn to slide 16. Let me get our revised forecast for the processed food and pharmaceutical business. First, in pharmaceuticals, we have increased our previous cash inflow and management-adjusted operating profit of one billion yen, respectively, forecasting further expansion in overseas royalties. Cash inflows, partly because of the weakness of the Japanese yen.
Secondly, the processed food sector. We have revised down our profit forecast by 3 billion yen from the previous forecast due to the planned movement of shares in Saint-Germain Co. , Ltd. , which is to blame for the bakery business, as also announced on September 15 during the fiscal year. as a slower-than-expected recovery in premium foodservice products following the influence of COVID this summer.
For the remainder of fiscal 2022, we expect an accumulation of negative effects on the exchange rate as a risk, but with mild easing measures in the frozen segment and environmental, adjusted earnings. An operating profit is expected to be JPY 2 billion, unchanged from previous forecasts.
And finally, turn to slide 16. To conclude my presentation, let me reiterate that we have achieved a solid result in the first nine months, thanks to the contribution of costs in the tobacco sector, further supported by accelerated depreciation. of the Japanese yen. With respect to the revised guidance, based on higher volumes and pricing strategy of the tobacco business, we have revised upwards our adjusted operating profit in uniform currency, as well as our adjusted operating profit and net profit on a reported basis, reflecting the depreciation of the Japanese yen.
It is vital to note that our percentage of the HTS segment in Japan, powered through Ploom X, is working and we intend to continue to increase our percentage in the future. We also began promoting Ploom X in the London metropolitan area, making the UK our first expansion of the Ploom X market with smart progress in obtaining semiconductors with a transactive interest in Ploom X’s global geographic expansion in 2023.
In addition, last week we announced our strategic partnership with Altria Group, whether for HTS in the U. S. or for the U. S. Globally, U. S. and PR This new partnership will help our prestige requirement to identify a global presence in RRPs with a strong focus on HTS and drive sustainability. expansion for all Model S stakeholders. Join forces with Altria Group, the leading U. S. tobacco company. U. S. to enter the fledgling SHD segment in the U. S. In the U. S. , it will create opportunities for expansion and strengthen our ties and aims to provide a wide diversity of adult harm relief products. consumers around the world.
Finally, with regard to the shareholder view, on the revised guidance and our shareholder return policy, we plan to revise upwards the annual dividend guidance from JPY 38 from JPY 150 to JPY 188. That concludes my presentation. Thank you very much for your attention.
Q&A session
Operator
Many, many gracias. Sr. Kato. I would now like to begin the question and answer session. Let me introduce you to the speakers who will answer your questions today. We have Kato, CFO of JT Group and Koji Shimayoshi, Deputy CEO of JTI. Next, I’ll show you how to make queries. We are free, we are not satisfied with consultations in this line in English. If you have any queries, please email jt. ir@jt. com. We will provide you with your inquiry accordingly. Thank you for your understanding.
The first comes from Mr. Miura of Citigroup Global Market Japan Inc. I pass to you.
Nobuyoshi Miura
Good morning, afternoon. I’m Miura from Citigroup. Can you hear my voice?
Nobuya Kato
Yes, we can hear you.
Nobuyoshi Miura
Your effects were perfect today. So, according to that, you announced a very large accumulation of dividends. That’s my question. With regard to the accumulation of dividends, which you announced. What is the meaning of this? More specifically, I must ask you, for Russia in the medium and long term, have you taken Russia into account and made the decision to accumulate dividends in anticipation of the medium to long term of your company?
And you’ve announced 188 yen consistent with participation, does that mean being able to continue to comply with regulations, but also for next year, being able to keep your business in Russia?Is that why you made the decision to build Your dividend?Or is it rather short-term that you only need to accumulate dividends?So, can you give us your point of view on it? Thank you.
Koji Shimayoshi
With regard to the accumulation of dividends in the medium and short term, Mr. Kato will answer the question.
Nobuya Kato
Speak Kato. Sr. Morita. Thank you very much for your question. Well, first of all, in terms of our thinking about dividend increase, basically, the full-year outlook was first revised upwards. And the main points are due to the weakness of the yen for one and also because the functionality of our industry is firm. And earnings are expected to particularly increase net profits.
And our net profit expectations were based on our outlook and first of all, we had a forecast of €150 consistent with a consistent percentage for the year and by calculating payout ratios, our percentage shareholder consistent return policy is 75%, plus/minus 5% for a consistent percentage. Withcentageholder go back. Therefore, the initial forecast falls below this level.
And with the updated outlook, we are confident that we will be able to achieve this forecast. And that’s why we made the decision to increase the dividend according to the consistent percentage forecast at the time. And also for the medium and long term and how this announcement leads to the future. Our consistent shareholder return policy is 75% plus or minus 5% of net profit. We believe that this is a competitive return point and that net profit is the foundation of the company, however, through profit expansion, we would also like to increase the amount of dividends we pay in the medium and long term.
So, basically, we have the shareholder return policy of 75% plus or minus 5%, which will be the basis. The revised net profit forecast updated, we have to continue the dividend accumulation this time. Thank you.
Nobuyoshi Miura
Thank you so much. If this is the case, it means that we will continue to comply with global regulations, which means that for your company in Russia, if you continue to comply with the rules, do you feel that you will be able to continue your business there?Is that what you assume?
Nobuya Kato
As for the continuity of business in Russia, up to the Ukrainian and Russian scenario, it has been spreading and confusing more and more having as a backdrop to do business in a solid and sustainable way, which is happening, the shock can pose a threat to our Company. And as the scenario gets even more confusing in those days, we’re going to look at other options, we’re going to look at other options. And for the option we pursue, we took a look at our 4S model, and we would like to deduce the maximum optimal option in the finish for duncook a smart conclusion. I talked about it in the presentation, but related to the source of raw materials, which is the maximum critical component for the control of our company. For the year, we already have the visibility to have enough source quantities in place. Thank you.
Nobuyoshi Miura
Merci. Si can I ask a supplementary question. So what would be the cause that would make him make the decision to leave Russia?Are they raw fabrics, i. e. as long as you have raw fabrics in place, will you be able to continue your business according to the rules and how you deserve it?To us the threat of not being able to obtain raw fabrics?
Nobuya Kato
Well, in order to continue our business activities, of course we have to source raw materials. And on that basis, we want to be able to manufacture and for the products we make, we want to be able to sell them. The global source The chain must therefore be able to continue for our business activities, so this is the most important thing.
And countries around the world have sanctions and regulations and, at this point, we can continue our activities at this point. So in the future, we’ll see sanctions, as well as regulations and regulations and regulations across countries, I’m sure. They will be replaced over time. But we will comply with PISO [ph] at this point, if we can continue with our activities, we will.
Nobuyoshi Miura
Mr. Kato, thank you for answering my questions. Thank you.
Operator
Thank you, Mr. Miura. Now I would like to move on to the next question. Mr. Saji from Mizuho Securities, please.
Hiroshi Saji
Thank you so much. I’m Saji from Mizuho Securities. I would also like to ask about Russia. I would like to have a confirmation, until the end of this year, that I would get. This means that if the current situation continues, then next year you will possibly not be able to have production. This year is therefore the peak in Russia. Then we said we were moving on to see profits being minimized compared to Russia. Is that imaginable and would like confirmation about it?The forecast for Russia next year and also the split point in line with earnings are the question.
Nobuya Kato
So, as far as Russia is concerned, Mr. Shimayoshi will answer your question. And as for dividends, Mr. Kato will answer your question.
Koji Shimayoshi
First of all, thank you very much for your question. Shimayoshi speaks. First of all, for the chain of origin and raw fabrics in Russia next year, what will happen, in fact, is not very transparent at the moment. And only for this year, that for fabrics and also finished products are almost certain, and especially for unfired fabrics for this year because the source of this part has an increase every day. So if this continues, then we have a rotating source. And then we would like to provide you with the update based on this deployment report. And that’s it for me.
Hiroshi Saji
Now, you said that the source is based on turnover. That means he has secured next year, he has assured for this year. That doesn’t mean having a cliff-like hotel next year. And in the current situation, you will be able to obtain or secure the safe point of the raw material. That’s right?
Koji Shimayoshi
If the current situation persists, we will continue to have another constant light on Russia. So unless we have the extreme situation and everything stops. Or even if it happens until the end of this year, we will continue with our activity. And that’s the point of the raw curtain source right now. That’s an indication that we have turnover every day. Thank you very much for your comment.
Nobuya Kato
And Kato talking. Next year for the Russian situation, if we look at the point of profits in Russia, the dividend may be affected. I think that is the key point of your question. And as I pointed out, this is in terms of business continuity in Russia. And on the basis of this continuity, if continuity proves complicated in the middle of the year, then profit in Russia will be minimized accordingly, and profit-based activity will fluctuate. And this will basically be reflected in the dividend point.
But that said, on the other hand, if business is still difficult, we would possibly have the price loss or the loss of movement rate or the one-time loss that we have suffered, so we have to take a look at the nature and duration and we would have d how we are going to deal with that. And how this will be reflected in the dividend will be d in this respect. But in the most sensitive of that, we’ll take a look at the business plan in the long run and beyond. And then, taking everything into account, we will get to the point of the dividend.
Hiroshi Saji
i thank you very much
Operator
Thank you, Mr. Saji. La next is from Daiwa Securities, Mr. Morita. Suyo.
Makoto Morita
Morita speaks of Daiwa. Thank you for answering my question. Earlier in Kato-san’s presentation, you were talking about the next fiscal year and you should have a difficult view of pricing. Business, single-digit expansion from medium to high is what you need to start. But if you have to take a hard look at the breakdown of charges next year, what did you mean by that?digit expansion rate?Is there any uncertainty about this?Or are you simply saying that prices will stop rising?In particular, regarding investments in RSO, I think he commented: for the 3 years starting in 2022, he said 300 billion yen. That is what you have communicated. before. So how much are you going through to invest this year and for next year, you said you were passing to pick up the pace?So how much do you plan to invest next year?Can you give us a bigger picture? Thank you.
Nobuya Kato
Mid to high digit growth, our opinion on this, as well as the RRP of investment stores, to which Mr. Shimayoshi will respond.
Koji Shimayoshi
Morita, thank you very much for your question. In terms of our earnings outlook for the next fiscal year, of course, we’re working on it right now. Therefore, I cannot say anything with conviction at this time. So I hope you understand. So, just to communicate things qualitatively, first of all, in relation to business investments in RRPs, starting this year, outside Japan and other overseas markets, we are applying to expand the business. That is the plan that we have, that we have guided. But because of the limited source of semiconductors, we couldn’t get enough supplies. And because of that, we aimed first at Japan, to concentrate our sales promotions.
But finally, we can now move forward in the UK, albeit on a small scale, but in short, in the overseas market we were able to enter an annual calendar. And next year, we will try to increase sales in the overseas market again. So that’s our qualitative plan for now. For this, although our factories are a year behind, we need to strengthen our investments in foreign markets for RSO. And also, as we have already communicated for the EU, inflation and the energy burden have increased.
And in this context, due to the very high prices of raw materials, with tobacco stocks, we had something left, but it will begin to recover from the fourth quarter of this year. Therefore, we expect something to have an effecton input prices for the total year, starting next year. And it’s a question about how much energy prices will rise. There’s still some uncertainty there as well. In addition, for the tobacco business in Japan, to strengthen our operations, we are working to reduce prices. We started making efforts from April and expect profits this year. in the EU, orders for single-use plastic and the prolonged obligation of products will start from 2023, and this will be a monetary burden for us. So, based on that, we would like to expand the business plan for next year. in all those factors.
Makoto Morita
So, in summary, unlike your advice, it turns out, are you saying that it’s going to be hard to follow your advice?Or are you looking to say that through pricing, you’ll be able to do a smart job?Can you give us more qualitative data about the message behind what you just said?
Koji Shimayoshi
Well, the expansion of earnings for the next fiscal year, we would like to explain in February next year, when we communicate the outlook for the full year. However, when it comes to our effects for this year, talking about our functionality for this year, we see an increase in supply chain costs. And at first glance, we were able to offset this that had an effect on earnings expansion. it will not be performed, which will be positive at level P.
So next year, if possible, we would like to absorb the inflationary effect through fuels as a company and start investing seriously in sales promotion for RRPs. That’s for next year. So I’m not in a position to give you the numbers as a guide, however, that’s where we are now.
Makoto Morita
So, for RSO investments, how much does it cost this year?And his forecast of three hundred billion yen over a three-year era remains the same?And will investments be greater next year?So I’m sorry, I’m on My nerves, but can you give us the numbers there?
Koji Shimayoshi
Well, I would like to stop talking about real figures, however, in terms of size, there were promotional investments planned for this year, but which will be postponed until next year.
Makoto Morita
They gave it to me Thank you very much.
Nobuya Kato
And Morita-san, Kato speaks. In your previous question, you communicated about the coming year and the expansion of mid-digit to high-digit earnings for single people, whether it’s feasible or not, I think you were asking that question. Our earnings expansion goal is a medium- to high-digit profit expansion in the medium term, not just a year, because in a single year depends on the type of year. And also in recent years, we have made investments in RRP, in order to expand PVP.
So, in a single year or in the short term, there are unfortunately certain stages we wouldn’t be in to achieve mid- to high-digit earnings growth. But in the medium to long term, we must achieve it. Medium to high profit growth. I just wanted to mention that.
Makoto Morita
Well, I perceive what you mean, but that means there will be a drop next year because I think that’s what you’re implying. So that’s what’s going to happen.
Nobuya Kato
Well, it possibly would be. This could be a year in which we will keep a low profile. But we will give you a better recommendation in February next year, either for M. Shi, possibly for Oshi or me, right now, we just wanted to share with you the concept of the next workout we had in mind. And thanks to the interaction we’re having right now, I hope you can feel our thoughts.
Makoto Morita
Yes, I have a lot. Thank you
Operator
Thank you, Mr Morita. We would now like to invite the following question. Morgan Stanley MUFG Securities, Ms. Miyake, please.
Haruka Miyaké
Thank you so much. Miyake de Morgan would Stanley. Me like to ask you about Japan’s affairs. It has been said that downward trading is visual in this market. And only in compatible, but for HTS, do you also see trading down?
And also, as far as the product mix is concerned, the percentage is gradually increasing. So under which projects in the product line do you think it will be most acceptable?And you, what do you think is the key to success?And also, if you want to move up in the future, why do you think this will lead to a higher percentage gain?I would like your comment on this.
And also in the 3. er quarter or until the 3. er quarter as the heated tobacco bar. Our percentage is around 34% and there has been a temporary gain in demand. So, next year and beyond, what do you think the percentage of the category will be with this HTS?
Nobuya Kato
So I think there are 3 problems included that are down. And is this going down in HTS in the Japanese market and also the percentage of Ploom X and how will it expand?And also that the percentage of the HTS category is planned So, for that, Shimayoshi answers your question.
Koji Shimayoshi
Shimayoshi speaks. Thank you for your inquiry, Miyake. Let me start with the reduction of trading conditions. As far as fuels are concerned, last year, in October, ended. And yet, the customer’s wishes are still there. It is worth replacing in October, for the other segments fuels have continued to increase. And in this segment, those pairs have brought the fuel cost segment for the festival to intensify and continue. And based on this situation, we installed the product of craftsmanship. and the ships Mevius and Camel were there. And the – the percentage of the cost has increased particularly because of those contributions.
And at the time of the value change, I said that the elasticity of value was around 0. 3 and in fact, looking for the recent number, it is less than 0. 3. This means that, compared to overall demand, it has not been affected, that the impact has been less than expected. And there is also a deteriorated mixture, but due to the accumulation that the volume is maintained.
However, speaking of fuels, there is a shift towards the price segment. And this is not an unusual phenomenon in the fabric market and it is also visual in this market. And speaking of RRP and HTS, down-trading, we’ve started to see the downside trading signal there with market expansion, which we’re starting to see bias in the price segment.
And so far, it took credit for the tunnel and captured consumers in that lawsuit. Also for HTS sales promotion. And how, what component will be effective in stimulating the inventory market?And let me make a few comments on that.
So we have our internal analysis. First, the popularity of our product among customers, then the testing phase and after that, whether we are going to retain those customers. And then the number of fed sets is analyzed. And there has been some discrepancy between the initial forecasts and the actual numbers. And, in fact, the volume and also the number of sets fed were higher than our initial forecasts. This means that since the delivery of our product, it has been highly appreciated.
So, for example, for RMC and HTS, some consumers use them, but they resort only to HTS. So, there is such a movement. And also the movement of other competitors towards our product. Therefore, previous RMC consumers are the main drivers, and we have been able to supply the right product to capture those consumers. And this led to the accumulation of volume.
And to your last question, whether there will still be expansion in the Japanese RSO market and the revision of RSO values. We will have to see how this price revision affects, and also that we will have to investigate. At the micro point for those have an ONS effect. And also for the PRM cost category, what is the implication of this?So instead of looking for the expansion of the RRP segment, and also looking only at the Japanese market, we want to take more time to get a more complete view of the research.
Haruka Miyaké
i thank you very much
Nobuya Kato
Thank you, Ms. Miyake. Now, when the time comes, we would like to conclude the briefing on the third quarter 2022 earnings. Ladies and gentlemen, thank you for today. And make sure to log out.